Marine Cargo Insurance - John Dunt

MARINE CARGO
INSURANCE
LLOYDS SHIPPING LAW LIBRARY

Series editors: Andrew W. Baker, QC
and Hatty Sumption
LLOYDS SHIPPING LAW LIBRARY
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MARINE CARGO
INSURANCE
BY
JOHN DUNT
Consultant
Clyde & Co LLP
Visiting Senior Research Fellow
Institute of Maritime Law, University of Southampton
First published 2009 by Informa Law
Published 2013 by Informa Law from Routledge
2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
711 Third Avenue, New York, NY, 10017, USA
Informa Law is an imprint of the Taylor & Francis Group, an informa business
Copyright © John Dunt 2009
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A catalogue record for this book is available from the British Library
ISBN: 978-1-84311-763-6 (hbk)

Text set 10/12 Bembo byInteractive Sciences Ltd, Gloucester
PREFACE
The purpose of this work reflects the aim expressed by Michael Wilford in Time
Charters, the first book in the Lloyds Shipping Law Library, which is to provide the
busy practitioner with the legal authorities relevant to the issues they may encounter in
relation to marine cargo insurance.
I am grateful to a number of people for their help with the book, and must thank first
of all Professor Charles Debattista, then director of the Institute of Maritime Law at the
University of Southampton, for inviting me to join the Institute. Emeritus Professor
Robert Grime kindly read early chapters and advised and encouraged me at the outset of
the work. Professor Yvonne Baatz read the drafts on the chapter on law and jurisdiction
clauses. Alexander Sandiforth, research assistant at the Institute, must be commended
for his unstinting research.
I must also thank Clyde & Co for providing secretarial support and library and
information research services. I am most grateful, in particular, to two colleagues, Bill
OBrien and William Melbourne, for reading draft versions of the central chapters on all
risks and the duration of transit. Any errors of course remain my own. I should also
thank Angela Gibson and Erica Bryant for typing the book.
I am indebted to Shuji Yamagushi for his assistance with the Japanese cases referred
to in the text.
I have had generous support from members of the insurance market, notably Nick
Gooding, chair of the Institute Cargo Clauses Working Party, who was available to help
with points of practice and kindly read the early chapters. Peter de Boissiere of RSA
read a draft of the chapter on the measure of indemnity and made many detailed and
helpful suggestions. Paul Codd of Willis gave the brokers view of the practice,
particularly with regard to the latest developments with the Market Reform Contract for
marine cargo business. Mike Spaull of Lloyds Agency Department was equally
generous with his knowledge of the standard forms of Lloyds Insurance Certificates.
Finally, my thanks to Steve Hulme of the Market Reform Office and Neil Smith of
Lloyds Market Association.
The book includes, as a central theme, a commentary on the revised Institute Cargo
Clauses 2009. This has meant a need for publication as soon as possible after the
introduction of the clauses on 1 January this year. In this respect, I am particularly
grateful to Laura Brown, editor at Informa, and Dawn Wilkinson, desk editor, for their
encouragement and patience throughout the work.
A book of this type could not exist without the appendices. In this respect I
acknowledge the kind permissions given by the Lloyds Market Association, the
International Underwriting Association of London and Witherbys to reproduce the
Institute Cargo Clauses; the permission from Lloyds Market Association and the Joint
Cargo Committee to reproduce various JCC Clauses; and the permission of Willis to
reproduce their template for the Market Reform Contract. I am also indebted to Lloyds
Controller of Agencies for permission to produce the standard form of Lloyds Insurance
Certificate.
The law is stated as at the early summer of 2009.
John Dunt
Guildford
May 2009
OUTLINE CONTENTS
Preface
Abbreviations
Table of Cases
Table of Legislation
1 History and Definition of Marine Cargo Insurance

2 Law and Jurisdiction Clauses
3 Open Covers, Policies and Certificates of Insurance
4 Insurable Interest and the Indemnity Principle
5 Good Faith, Non-Disclosure and Misrepresentation
6 Warranties, Conditions and Exclusions
7 Causation
8 All Risks and Exclusions
9 Named Perils and Exclusions
10 War, Strikes, Terrorism and Rejection Risks
11 Duration of the Insurance 1: The Transit Clause
12 Duration of the Insurance 2: Termination of Carriage and Change of Voyage
13 Claims and Losses
14 Recoverable Expenses and Liabilities: Sue and Labour, Salvage, General
Average and Collision Liabilities
15 Measure of Indemnity
16 Subrogation, Double Insurance and Rights of Contribution
APPENDICES
Legislation
1 Marine Insurance Act 1906
2 Third Parties (Rights against Insurers) Act 1930
3 Public Order Act 1986 (sections 1 and 10(2))
4 Reinsurance (Acts of Terrorism) Act 1993
Slips, policies and other documentation
5 Market Reform Contract for Marine Cargo Insurance (based on Willis proforma)
6 Lloyds Marine Policy: MAR91
7 Certificate of Insurance (Lloyds)
8 General Underwriters Agreement (GUA): Marine Cargo Schedule
9 Subrogation Form
Institute Clauses
10 Institute Cargo Clauses (All Risks) 1/1/63
11 Institute Cargo Clauses (A) 1/1/82
13 Institute Cargo Clauses (B) 1/1/82
15 Institute Cargo Clauses (C) 1/1/82
17 Institute War Clauses (Cargo) 1/1/82
19 Institute Strikes Clauses (Cargo) 1/1/82
21 Institute Cargo Clauses (Air) (excluding sendings by Post) 1/1/09
22 Institute War Clauses (Air Cargo) (excluding sendings by Post) 1/1/09
23 Institute Strikes Clauses (Air Cargo) 1/1/09
24 Institute War Clauses (sendings by Post) 1/3/09
25 Institute Commodity Trades Clauses (A) 5/9/83
26 Institute Malicious Damage Clause 1/1/82
27 Institute Theft, Pilferage and Non-Delivery Clause 1/12/82
28 Institute Replacement Clause 01/12/2008
29 Institute Classification Clause 01/01/2001
30 Institute Extended Radioactive Contamination Exclusion Clause 1/11/02
31 Institute Radioactive Contamination, Chemical, Biological, Bio-chemical and
Electromagnetic Weapons Exclusion Clause 10/11/03
32 Institute Cyber Attack Exclusion Clause 10/11/03
Joint Cargo Committee Clauses
33 Termination of Transit Clause (Terrorism) 2009 JC2009/056
34 Insolvency Exclusion Clause JC93
35 Contracts (Rights of Third Parties) Act 1999 Exclusion Clause (Cargo)
JC2000/002
36 Cargo Piracy Notice of Cancellation JC2008/024
Index
DETAILED CONTENTS
Preface
Abbreviations
Table of Cases
Table of Legislation
1 HISTORY AND DEFINITION OF MARINE CARGO INSURANCE
Historical background
The London market
Origins of marine cargo insurance
The development of Lloyds and insurance companies
The London market
Policy forms and Institute Clauses
The SG (ships & goods) and G (goods) Policy Forms
The MAR Policy Form and the Institute Clauses
The Market Reform Contract
The development of the Institute Cargo Clauses
The Institute Cargo Clauses
Types of cover under the Clauses
Physical loss of and damage to the cargo and specified expenses
Loss of the adventure
The structure of the Clauses
How the clauses should be construed
Marine cargo insurance defined
The circumstances in which a cargo insurance contract amounts to “marine insurance”
Marine insurance defined
Land risks incidental to sea voyages
Risks analogous to a marine adventure
Insurance subject to the Institute Cargo Clauses
Carriage of cargo by land: road and rail
Carriage of cargo by air
Cargo in store
2 LAW AND JURISDICTION CLAUSES
Choice of law
English law under the Institute Cargo Clauses and the MRC
The general rule: freedom of choice
Risks situated within the EEA States
When are transit risks situated within the EEA States?
The rules applicable to cargo risks situated within the EEA States
When are storage risks “large risks”?
Risks situated outside the EEA States: all other risks
English law clauses and foreign courts
Choice of jurisdiction
Standard London market jurisdiction clauses
Application of the EC Judgments Regulation
Is jurisdiction under the EC Judgments Regulation exclusive or permissive?
The EC Judgments Regulation and the Lugano Convention
Formalities
Goods in transit by seagoing ships and connected risks
“Large risks”
The court first seised
The common law position
Arbitration
3 OPEN COVERS, POLICIES AND CERTIFICATES OF INSURANCE
Open covers
How cargo insurance operates in practice
The structure of a cargo insurance contract
The development and structure of open covers
The origin of open covers
Open covers: types and terms
Standard open covers
Facultative/obligatory: (“fac./oblig.”) covers
Brokers facilities or lineslips
Brokers facilities considered and defined
Is a facility a contract of insurance?
The position of leaders and followers: agency?
The General Underwriters Agreement (“GUA”)
Coverholders: binding authorities
Policies and contracts of insurance
The Market Reform Contract and the SG and MAR Forms
The contract of insurance as evidence
What the policy must specify: the assured
The “Assured” under London market open covers
The “Assured” under the Institute Cargo Clauses
Knowledge of the “Assured” under the Institute Cargo Clauses
“Employees” of the “Assured” under the Institute Cargo Clauses
“Persons Interested” in storage policies on goods
Designation of the subject-matter insured
The description of the goods: deck cargo
The premium
Certificates of insurance
Certificates of insurance described
The legal status of certificates of insurance
Assignment and tender of certificates of insurance
How is assignment achieved in practice?
Is the assignee bound by the terms of the Open Cover?
4 INSURABLE INTEREST AND THE INDEMNITY PRINCIPLE
The insurable interest requirement defined
The requirement for an insurable interest
The approach of the courts to insurable interest
Insurable interest: property, risk and other economic interests
The further interest covered by a cargo policy: loss of the adventure
Extent of insurable interest: loss of profits and increased value
The special position of bailees
The timing of the insurable interest requirement
The time when insurable interest must attach
Retrospective declarations for cargo “lost or not lost”
Acquisition of a retrospective insurable interest
Sellers interest clauses
5 GOOD FAITH, NON-DISCLOSURE AND MISREPRESENTATION
The principle of good faith
Origins of the principle of good faith
Disclosure by the assured
Time of disclosure
Knowledge of the assured
“Materiality” and “inducement”
The remedy of avoidance
Avoidance and affirmation
Circumstances that may need to be disclosed
Ownership or other interest
Over-valuation
High value brand-named goods
The history of the cargo: second-hand or used goods
Packing and preparation
Previous refusals
Subrogation rights
Moral hazard
Circumstances that need not be disclosed
Circumstances that diminish the risk
Circumstances known or presumed to be known to the insurer
Circumstances as to which information is waived
Circumstances which it is superfluous to disclose by reason of any express or
implied warranty
Misrepresentation by the assured
Materiality of representations
Representations of fact and belief distinguished
Circumstances that may be material
The different approach to inducement
Representations as to existing terms of coverage
6 WARRANTIES, CONDITIONS AND EXCLUSIONS
Warranties
The nature of warranties
The effect of breach of warranty: exact compliance
When compliance is excused: waiver
Express warranties
The form of words for an express warranty
The construction of warranties
Examples of London market warranties
The implied warranty of legality
Conditions
Conditions precedent
Conditions
Innominate terms
Exclusions
Exclusions defined
The burden of proof in relation to exclusions
Exclusions under the Institute Cargo Clauses
7 CAUSATION
Principles of causation
The role of causation in insurance law
The proximate cause rule
Concurrent causes
Proximate cause and wilful misconduct
Proximate cause and delay
Proximate cause and inherent vice
Causation triggers under the Institute Cargo Clauses
“caused by”
“resulting from”
“arising from”
“attributable to”
“reasonably attributable to”
“directly or indirectly caused by”
Summary of the effect of the causation triggers
8 ALL RISKS AND EXCLUSIONS
History and nature of all risks cover: burden of proof
The history of all risks cargo cover
Origins of the all risks concept: inevitability of loss and fortuity
The burden of proof under all risks insurance
The limitations on all risks
When do the limitations apply? “Unless the policy otherwise provides”
Ordinary wear and tear, breakage, leakage and loss in weight
“Ordinary wear and tear”
Ordinary breakage
Ordinary leakage and ordinary loss in weight: “paper losses”
Inherent vice
Inherent vice defined
Inherent vice and containerisation: moisture and condensation damage
Insufficiency of packing
Insufficiency of packing: a form of inherent vice?
Insufficiency of packing under the Institute Cargo Clauses
What amounts to insufficiency of packing or preparation?
Rats and vermin
General exclusions
Wilful misconduct
Wilful misconduct defined
Wilful misconduct distinguished from lack of due diligence
The position of the innocent c.i.f. buyer
Delay
Insolvency and financial default
The revised exclusion: 2009
Historical background to the exclusion
Forwarding charges
The Institute Commodity Trades Clause exclusion of insolvency
Accidents with nuclear weapons and devices
Unseaworthiness, unfitness and classification requirements
Unseaworthiness and unfitness
The revised unseaworthiness and unfitness exclusion
The Institute Classification Clause 01/01/2001
The classification requirement
The age limitation
The held covered type provision
9 NAMED PERILS AND EXCLUSIONS
Named perils under the Institute Cargo Clauses (B) and (C)
The use and origin of the (B) and (C) Clauses
General structure of the (B) and (C) Clauses
How are named perils to be construed?
The named perils
Fire and explosion
Stranding, grounding, sinking and capsize
Overturning or derailment of land conveyance
Collision
Discharge of cargo at a port of distress
Earthquake, volcanic eruption or lightning
General average sacrifice
Jettison
Washing overboard
Entry of sea, lake or river water
“Sling losses”: packages totally lost overboard or in loading or discharging
Theft, pilferage and non-delivery
Recoverable expenses and liabilities: sue and labour, salvage, general average and
collision liabilities
Exclusions under the Institute Cargo Clauses (B) and (C)
Deliberate damage or deliberate destruction
10 WAR, STRIKES, TERRORISM AND REJECTION RISKS
The structure of war and strikes cover
History and origins of war cover
History and origins of strikes cover
War, strikes and piracy cover in a conventional policy
The main limitations on war and strikes cover
War risks
The perils insured
War, civil war, revolution, rebellion and insurrection
Capture, seizure, arrest, restraint and detainment
Derelict mines, torpedoes, bombs or other derelict weapons of war
Exclusion of loss of the adventure: the Frustration Clause
A comparison of war risks cover under the 1963 Clauses and the revised Clauses of
2009
Attachment and duration of war risks
War risks on land not covered
The Transit Clause
Termination of Contract of Carriage Clause
Extension to craft: mines and torpedoes
Deviation and variation of the adventure
Change of Voyage Clause
Strikes, riots and civil commotions
Strikes and strikers
Riots and civil commotions
Terrorism
Terrorism and cargo insurance
The cover for terrorism
The revised definition of terrorism
Terrorism defined and distinguished from war risks
“Influencing by force or violence”
“Political, ideological or religious motives”
A “terrorist” under the 1982 Clauses
Termination of Transit Clause (Terrorism): JC 56
Weapons of mass destruction
The Radioactive Contamination Exclusion Clause (RACE)
Chemical and biological weapons
Computer systems and computer programs
Rejection risks
Origins of rejection risks cover
The London Rejection Risks Clauses 1975
11 DURATION OF THE INSURANCE 1: THE TRANSIT CLAUSE
Origins and structure of the duration provisions
Duration of risk in cargo insurance
History of the Transit Clause: commencement/termination of risk
Does the “voyage” include land transit?
Open covers: special duration provisions
The structure of the standard duration provisions
The Transit Clause
Attachment of risk
“Subject to Clause 11 below”
“this insurance attaches”
“from the time the subject-matter is first moved”
“in the warehouse or place of storage”
“for the purpose of the immediate loading”
“into or onto the carrying vehicle or other conveyance”
“for the commencement of transit”
“Ordinary course of transit”
The role of the phrase “continues during the ordinary course of transit”
The meaning of “ordinary course of transit”: the “Collateral Purpose Test”
The Avoidance of Delay Clause
Termination of risk
The meaning of “unloading”
“final warehouse or place of storage”: transit sheds
“final warehouse or place of storage”: forwarding to a further destination
Storage in warehouses other than in the ordinary course of transit
Storage on vehicles or in containers other than in the ordinary course of transit
Sixty days after discharge from the oversea vessel
Forwarding to another destination
Delay, deviation and other variations of the adventure
Inter-relationship with Clause 8.1 and Clauses 9 and 10
“Delay beyond the control of the Assured”
Deviation
Forced discharge, reshipment or transhipment
Variations of the adventure
12 DURATION OF THE INSURANCE 2: TERMINATION OF CARRIAGE AND
CHANGE OF VOYAGE
Held covered and analogous provisions
General principles
Prompt notice
No absolute right to cover
Origins of the clause
Requirements of the clause
Voluntary change of voyage: the modern form of the clause (Clause 10.1)
Change of destination of the ship: the extension of the Change of Voyage Clause
(Clause 10.2)
13 CLAIMS AND LOSSES
Claims
Notification of claims
Limitation of actions (time limits)
Burden and standard of proof
Interest and costs
Good faith and fraudulent claims
Lack of good faith in the claims process
Fraudulent claims
Losses
The categorisation of losses
“Physical” loss or damage: fraudulent or erroneous documents
What constitutes “loss of” the cargo?
Loss of the goods by theft involving force
Loss by theft or fraud
The timing of the theft or taking
Theft and fraud: transfer of title
Loss by conversion or other unlawful acts by a third party: insolvency
Loss by abandonment and threat of misappropriation, lien and lawful sale
What constitutes “damage to” the cargo?
Destruction or damage: actual total loss
“Damage to” cargo: partial losses
Constructive total loss
Constructive total loss defined
Deprivation of possession
Damage to goods: cost of repair
Effect of constructive total loss: notice of abandonment
Effect of abandonment
The general principle
Historical origins: frustration of the voyage
Total loss of the adventure and sue and labour
The Forwarding Charges Clause
A risk covered by the insurance
“Termination” of the insured transit
Insolvency and loss of the adventure
Delay and loss of the adventure
14 RECOVERABLE EXPENSES AND LIABILITIES: SUE AND LABOUR,
SALVAGE, GENERAL AVERAGE AND COLLISION LIABILITIES
Sue and labour
Sue and labour and cargo insurance
Origins and structure of the sue and labour cover
What triggers the right to recover sue and labour expenses?
The requirement of reasonableness
Loss must be recoverable under the policy
Supplementary to the contract: additional to the insured value
Breach of the duty
The Waiver Clause
Contractual salvage (and salvage charges)
Contractual salvage (LOF)
The nature of “salvage charges”
Insurance cover for salvage charges
Values for the purposes of the insurance
General average
Sacrifice, expenditure and contribution
Insurance cover for general average
The values at risk
Collision liabilities
The “Both to Blame Collision Clause”
15 MEASURE OF INDEMNITY
Valued and unvalued policies
Valued policies
When is a policy a valued policy?
Loss of goods
Total loss of part of the cargo
Cargo delivered damaged at destination
Salvage losses
Under-insurance
The effect of under-insurance
Open cover limits
Subrogation
Under-insurance
Deductibles
Agreed values
Policy limits
Unvalued policies
Proprietary rights to the proceeds of a legal action
Proprietary rights: total loss and abandonment
Interest and costs
16 SUBROGATION, DOUBLE INSURANCE AND RIGHTS OF CONTRIBUTION
Subrogation
Origins and nature of the right of subrogation
Subrogation and assignment of rights: applicable law
Co-assureds and waiver of subrogation
The exercise of subrogation rights
Lloyds Standard Subrogation Form
Control of the recovery proceedings
Increased value cargo insurance
The right to salvage
The origin and nature of the right
Exercise of the right in practice
Double insurance and contribution between insurers
Double insurance
When does double insurance occur?
The requirements for double insurance
Return of premium
Contribution between insurers
The circumstances which give rise to the right
Apportionment of liability between insurers
The foreign element
APPENDICES
Legislation
9 Subrogation Form
Institute Clauses
22 Institute War Clauses (Air Cargo) (excluding sendings by Post) 1/1/09
24 Institute War Clauses (sendings by Post) 1/3/09
JC2000/002
Index
ABBREVIATIONS
Bibliographical Abbreviations
Arnould J Gilman, R Merkin, C Blanchard, J Cooke, P Hopkins, M
Templeman, Arnoulds Law of Marine Insurance and
Average, 17th edn, 2008, Sweet & Maxwell
Bennett H Bennett, The Law of Marine Insurance, 2nd edn, 2006,
Oxford University Press
Clarke M A Clarke, The Law of Insurance Contracts, 5th edn,
2006, LLP
Clerk & Lindsell A M Dugdale and M A Jones (gen. eds.), Clerk & Lindsell
on Torts, 19th edn, 2006, Sweet & Maxwell
Dicey, Morris & Collins L Collins (gen. ed.), Dicey, Morris & Collins on the
Conflict of Laws, 14th edn, 2006, Sweet & Maxwell
Goodacre J K Goodacre, Goodbye to the Memorandum, 1988,
Witherby & Co Ltd
Goodacre: Insurance J K Goodacre, Marine Insurance Claims, 3rd edn, 1996,
Claims Witherby & Co Ltd
Gough Neville Gough, Institute Cargo and Related Trade Clauses,
1988, Insurance and Reinsurance Research Group Ltd
Hodges S Hodges, Law of Marine Insurance, 1996, Cavendish
Historic Records Report Report HR3 by an Historic Records Working Party of the
HR3 Insurance Institute of London, 1963, The Insurance Institute
of London
Historic Records Report Report HR5 by an Historic Records Working Party of the
HR5 Insurance Institute of London, 2nd edn, 1964, The Insurance
Institute of London
Hudson & Madge N G Hudson and T Madge, Marine Insurance Clauses, 4th
edn, 2005, LLP
Insurance Disputes J Mance, I Goldrein and R Merkin (eds.), Insurance
Disputes, 2nd edn, 2004, LLP
Kennedy & Rose F D Rose, Kennedy & Rose: The Law of Salvage, 6th edn,
2002, Sweet & Maxwell
Lowndes & Rudolf J Cooke and R Cornah (eds.), The Law of General Average
and The York-Antwerp Rules, 13th edn, 2008, Sweet &
Maxwell
MacGillivray N Legh-Jones, J Birds and D Owen, MacGillivray on
Insurance Law, 11th edn, 2008, Thomson Reuters
Marine Insurance: The D R Thomas (ed.), Marine Insurance: The Law In
Law In Transition Transition, 2006, Informa
Marsden S Gault (gen. ed.), Marsden on Collisions at Sea, 13th edn,
Merkin: Marine R Merkin, Marine Insurance Legislation, 3rd edn,
Insurance Legislation 2005, LLP
Miller M D Miller, Marine War Risks, 3rd edn, 2005, LLP
OMay D OMay and J Hill, Marine Insurance: Law and Policy,
Scrutton S C Boyd, S Berry, A S Burrows, B Eder, D Foxton and C F
Smith, Scrutton on Charterparties and Bills of Lading,
21st edn, 2008, Sweet & Maxwell
Southampton on Y Baatz, C Debattista et al, Southampton on Shipping Law,
Shipping Law 2008, Informa
Templeman R J Lambeth, Templeman on Marine Insurance: Its
Principles and Practice, 6th edn, 1986, Pitman
The Modern Law of D R Thomas (ed.), The Modern Law of Marine Insurance,
Marine Insurance 1996, LLP
Wright & Fayle C Wright and C E Fayle, A History of Lloyds, 1928,
MacMillan
Witherbys Clauses Reference Book of Marine Insurance Clauses, 76th edn,
2006, Witherby & Co Ltd
Other Abbreviations
CA Court of Appeal
CMA Collateral Management Agreement
c.f.r. Cost and Freight
c.i.f. Cost, Insurance and Freight
CPR Civil Procedure Rules
FC&S Free of capture and seizure
f.o.b. Free on Board
FOG Full Outturn Guarantee
FPA Free of Particular Average
GA General Average
GAFTA Grain & Feed Trade Association
GIT Goods in Transit
GUA General Underwriters Agreement
HL House of Lords
IACS International Association of Classification Societies
ICC Institute Cargo Clauses
IHC International Hull Clauses
ILU Institute of London Underwriters
IUA International Underwriting Association of London
JCC Joint Cargo Committee
IMO International Maritime Organization
LIRMA London International Insurance and Reinsurance Market
Association
Lloyds Lloyds of London
LMA Lloyds Market Association
LMBC London Market Insurance Brokers Committee
LMP Slip London Market Principles 2001 Slip
LOF Lloyds Open Form
MIA 1906 Marine Insurance Act 1906
MRC Market Reform Contract
PC Privy Council
P&I Protection and Indemnity
ppi Policy Proof of Interest
RACE Radioactive Contamination Exclusion Clause
UCP Uniform Customs and Practice for Documentary Credits
WA With Average
The revised Institute Cargo Clauses 1/1/09 were introduced at the beginning of 2009 to
run in parallel with the Institute Cargo Clauses 1/1/82 for an initial period. This book
considers both sets of clauses. Where it is necessary to distinguish between the two sets
of clauses, the Institute Cargo Clauses 1/1/82 are referred to as the “1982 Clauses” and
the Institute Cargo Clauses 1/1/09 are described as the “revised Clauses”.
TABLE OF CASES
[References are to paragraph number]
Ace Insurance SA-NV (formerly Cigna Insurance Co of Europe SA NV) v. Zurich

Insurance Co [2000] 2 Lloyds Rep. 423 2.14
Adler v. Dickson (No. 1) [1955] 1 QB 158; [1954] 2 Lloyds Rep. 267 (CA) 3.36
Aegeon, The. Agapitos v. Agnew [2002] 2 Lloyds Rep. 42 5.8, 13.9, 13.10
Agapitos v. Agnew (The Aegeon) [2002] 2 Lloyds Rep. 42 5.8, 13.9, 13.10
Agapitos Laikai Bank (Hellas) SA v. Agnew (No. 2) [2003] 1 Lloyds Rep. 54 6.9
Agra Trading Ltd v. McAuslin (The Frio Chile) [1995] 1 Lloyds Rep. 182 10.63
AIG Europe SA v. QBE International Insurance Ltd [2001] 2 Lloyds Rep. 268 2.25
Aiolos, The. Central Insurance Co Ltd v. Seacalf Shipping Corp [1983] 2 Lloyds Rep.
25 (CA) 16.5
Aitchison v. Lohre; sub nom Lohre v. Aitchison (1878) LR 3 QBD 558 (CA); affd in
part (1879) LR 4 App Cas 755 (HL) 14.2, 14.10, 14.14, 14.16, 14.24, 14.25, 14.28
Akai Pty Ltd v. Peoples Insurance Co Ltd [1998] 1 Lloyds Rep. 90 2.30
Al Wahab, The. Amin Rasheed Shipping Corporation v. Kuwait Insurance Co [1983] 2
Lloyds Rep. 365 (HL) 1.30
Albacora SRL v. Westcott & Laurance Line [1966] 2 Lloyds Rep. 53 (HL) 8.24
Albion Insurance Co Ltd v. Government Insurance Office of New South Wales (1969)
121 CLR 342 16.37, 16.41
Alfred McAlpine plc v. BAI (Run-Off ) Ltd [2000] 1 Lloyds Rep. 437 (CA) 6.28
Allen v. Robles [1969] 2 Lloyds Rep. 61 (CA) 5.17
Allianz SpA (formerly Riunione Adriatica di Sicurta SpA) v. West Tankers Inc. (The
Front Comor), Case C–185/07 [2009] Lloyds Rep. Plus (ECJ) 2.31
Alluvials Mining Machinery Co v. Stowe (1922) 10 Ll. L. Rep. 96 3.42
Amalgamated General Finance Co Ltd v. CE Golding & Co Ltd [1964] 2 Lloyds Rep.
163 3.26
American Dredging Co v. Federal Insurance Co 1970 AMC 1163; (1970) 309 Supp 425
16.29, 16.36
American Surety Co of New York v. Wrightson (1910) 16 Com Cas 37 16.47
American Union Transport Inc v. United States of America 1976 AMC 1480 14.40
Amin Rasheed Shipping Corporation v. Kuwait Insurance Co (The Al Wahab) [1983] 2
Anderson v. Morice (1875) LR 10 CP 609 (Exch Ch); affd (1876) LR 1 App Cas 713
(HL) 4.3– 4.7
Anderson v. Wallis (1813) 2 M & S 247 13.53, 13.54
Andreas Lemos, The. Athens Maritime Enterprises Corporation v. Hellenic Mutual War
Risks Association (Bermuda) [1982] 2 Lloyds Rep. 483 10.38, 10.40
Anita, The. Panamanian Oriental Steamship Corporation v. Wright [1970] 2 Lloyds Rep.
365; revsd [1971] 1 Lloyds Rep. 487 (CA) 1.8, 7.41, 10.1, 10.20
Anton Durbeck GmbH v. Den Norske Bank ASA [2003] 1 CLC 697 (CA) 2.19
Apostolos Konstantine Ventouris v. Trevor Rex Mountain (The Italia Express) (No. 2)
[1992] 2 Lloyds Rep. 281 13.4, 13.8, 15.1
Asfar & Co v. Blundell [1896] 1 QB 123 (CA) 13.33
Assicurazioni Generali SpA v. Arab Insurance Group (BSC) [2003] Lloyds Rep. IR 131
(CA) 5.12, 5.14
Astrovlanis Compania Naviera SA v. Linard (The Gold Sky) [1972] 2 Lloyds Rep. 187
14.20
Athens Maritime Enterprises Corporation v. Hellenic Mutual War Risks Association
(Bermuda) (The Andreas Lemos) [1982] 2 Lloyds Rep. 483 10.38, 10.40
Atlantic Insurance Co v. Storrow NY Ch 1835 13.21
Atlantic Mutual Insurance Co v. King [1919] 1 KB 309 10.16
Australia & New Zealand Bank Ltd v. Colonial & Eagle Wharves Ltd [1960] 2 Lloyds
Rep. 241 13.22
Australian Agricultural Co v. Saunders (1874–75) LR 10 CP 668 16.26
Bacardi Martini Beverages Ltd v. Thomas Hardy Packaging Ltd [2002] 1 Lloyds Rep.
62 13.36
Bank of Nova Scotia v. Hellenic Mutual War Risk Association (Bermuda) Ltd (The
Good Luck) (No. 2) [1991] 2 Lloyds Rep. 191 (HL) 6.1, 6.4, 6.11
Banque Keyser Ullmann SA v. Skandia (UK) Insurance Co Ltd [1990] 1 QB 665; [1988]
2 Lloyds Rep 513 (CA) 5.16
Bantle & Preiss BV v. NVSchadeverzerzekering Maatschappij UAP-Nederland, 9
February 1990 (DC Rotterdam); appeal unsuccessful, Hof s-Gravenhage, 19
September 1992, S&S 1993, 17 7.29
Barker v. Blake (1809) 9 East 283 13.54
Barlee Marine Corp v. Trevor Rex Mountain (The Leegas) [1987] 1 Lloyds Rep. 471
3.15, 3.16, 3.20
Barrett Bros (Taxis) Ltd v. Davies [1966] 2 Lloyds Rep. 1 (CA) 6.25
Bayview Motors Ltd v. Mitsui Marine & Fire Insurance Co Ltd; sub nom Mitsui Marine
& Fire Insurance Co Ltd v. Bayview Motors Ltd [2002] 1 Lloyds Rep. 652; affd
[2003] 1 Lloyds Rep. 131; [2003] Lloyds Rep. IR 117 (CA) 2.16, 10.19, 11.46,
11.47, 11.61, 11.62, 13.26, 13.27, 13.42, 13.45, 13.50
Bee v. Jenson (No. 2) [2008] Lloyds Rep IR 221 16.4
Bennett v. Axa Insurance plc [2004] 1 Lloyds Rep. 615 6.6
Bensuade & Co v. Thames and Mersey Marine Insurance Co Ltd [1897] AC 609 (HL)
13.68
Berger and Light Diffusers Pty Ltd v. Pollock [1973] 2 Lloyds Rep 442 3.10, 3.14, 3.32,
5.7, 5.12, 5.21, 5.22, 5.27, 8.14, 15.3
Berk v. Style [1955] 2 Lloyds Rep. 382 14.14
Berns v. Koppstein Inc (1959) AMC 2455; aff d (1960) AMC 1379 10.62
Beursgracht, The. Glencore International AG v. Ryan [2002] 1 Lloyds Rep. 335 (CA)
3.2, 3.9, 3.12
Biddle, Sawyer & Co Ltd v. Peters (Walter) (t/a Burose & Peters) [1957] 2 Lloyds Rep.
339 8.10
Black King Shipping Corp v. Massie (The Litsion Pride) [1985] 1 Lloyds Rep. 437 5.9
Boag v. Standard Marine Insurance Co Ltd [1936] 2 KB 121; (1936) 54 Ll. L. Rep. 320;
affd [1937] 2 KB 113; (1937) 57 Ll. L. Rep. 83 (CA) 4.9, 5.33, 14.32, 16.12, 16.15,
16.19–16.22, 16.42
Bolands Ltd v. London & Lancashire Fire Insurance Co Ltd (1924) 19 Ll. L. Rep. 1
(HL) 10.38
Bonner v. Cox Dedicated Corporate Member Ltd [2005] Lloyds Rep. IR 569 5.6
Boon & Cheah Steel Pipes Sdn Bhd v. Asia Insurance Co [1975] 1 Lloyds Rep. 452
(HC (Mal)) 13.38, 13.41, 13.47
Booth v. Gair (1863) 33 LJCP 99 13.60
Boston Fruit Co v. British & Foreign Marine Insurance Co Ltd [1905] 1 KB 637 (CA);
affd [1906] AC 336 (HL) 3.27, 3.28
Bovis Construction Ltd v. Commercial Union Assurance Co plc [2001] 1 Lloyds Rep.
416; [2001] Lloyds Rep. IR 321 16.37, 16.40, 16.41
Bowring (C.T.) & Co Ltd v. Amsterdam London Insurance Co Ltd (1930) 36 Ll. L. Rep.
309 7.29, 8.26, 8.27
Boyd v. Dubois (1811) 3 Camp 133 8.11
BP Exploration Co (Libya) Ltd v. Hunt (No. 2) [1979] 1 WLR 783 13.7
Bradley (F.C.) & Sons Ltd v. Federal Steam Navigation Co Ltd (1927) 27 Ll. L. Rep.
395 (HL) 8.26
Brammer Corporation and Others v. Holland America Insurance Co 1982 AMC 1548
11.26
Britain Steamship Co Ltd v. R (The Petersham) [1921] 1 AC 99; (1920) 4 Ll. L. Rep.
245 (HL) 10.16, 10.17
British & Foreign Marine Insurance Co Ltd v. Gaunt (No. 2) (Costs) [1921] 2 AC 41;
(1921) 7 Ll. L. Rep. 62 (HL) 3.41, 3.42, 8.4, 8.7, 8.13, 8.37, 8.45, 11.6, 13.31,
14.4, 14.7
British and Foreign Marine Insurance Co Ltd v. Samuel Sanday & Co, 1 February 1915;
affd [1915] 2 KB 781 (CA); affd [1916] 1 AC 650 (HL) 1.3, 1.15, 10.1, 10.23,
10.24, 13.42, 13.50, 13.53, 13.55, 13.56
Brown Brothers v. Fleming and Others (1902) 7 Com Cas 245 8.28
Brownsville Holdings Ltd v. Adamjee Insurance Co Ltd (The Milasan) [2000] 2 Lloyds
Rep. 458 6.11, 6.15, 6.16
Bryant & May Ltd v. London Assurance Corporation (1866) 2 TLR 591 9.17
Bucks Printing Press Ltd v. Prudential Assurance Co (1988) (QBD (Comm Ct)) 8.41,
13,10
Butler v. Wildman (1820) 3 B & Ald 398 9.28
Canada Rice Mills Ltd v. Union Marine & General Insurance Co Ltd (1940) 67 Ll. L.
Rep. 549 (PC) 7.13, 7.33, 9.31–9.33
Cargo ex Argos (1873) LR 5 PC 134 14.24
Caribbean Sea, The. Prudent Tankers SA v. Dominion Insurance Co [1980] 1 Lloyds
Rep. 338 8.14
Carter v. Boehm (1766) 3 Burr 1905 5.2, 5.4, 5.12, 5.39, 5.41, 5.44, 5.47, 5.51
Cary v. King [1736] Cas Temp Hardw 304 14.28
Castellain v. Preston (1883) LR 11 QBD 380 (CA) 15.40, 16.4
Castle Insurance Co v. Hong Kong Islands Shipping Co (The Potoi Chau) [1983] 2
Lloyds Rep. 376 (PC) 14.34, 15.1
Cator v. Great Western Insurance Co of New York (1873) LR 8 CP 552 9.23, 13.38
Caudle v. Sharpe [1995] LRLR 433 (CA) 7.40
Cementation Piling and Foundations Ltd v. Aegon Insurance Ltd; Commercial Union
Insurance Co plc [1993] 1 Lloyds Rep. 526 13.36
Centennial Insurance Co v. Lithograph sales (2001) 187 Fed. Supp.2d 214 (USDC, NJ);
affd (2002) 29 Fed. Appx. 835 (USCA 3rd Cir.) 13.19
Central Insurance Co Ltd v. Seacalf Shipping Corp (The Aiolos) [1983] 2 Lloyds Rep.
25 (CA) 16.5
Chandris v. Argo Insurance Co Ltd [1963] 2 Lloyds Rep. 65 13.4, 13.8, 15.1
Charles Darwin, The. Stone Vickers Ltd v. Appledore Ferguson Shipbuilders Ltd [1992]
2 Lloyds Rep. 578 (CA) 3.28
Charman (John Robert) and Mark E Brockbank v. WOC Offshore BV [1993] 2 Lloyds
Rep. 551 (CA) 2.27
Charter Reinsurance Co Ltd (In Liquidation) v. Fagan [1996] 2 Lloyds Rep. 113 (HL)
6.16
Chemical Bank v. Affiliated FM Insurance Co 1993 AMC 1743 (SDC, SDNY) 8.41,
13.19
Cheshire v. Thompspon (1918) 29 Com Cas 114 5.42
Citadel Insurance Co v. Atlantic Union Insurance Co SA [1982] 2 Lloyds Rep. 543 (CA)
3.11
Cleveland Twist Drill Co (Great Britain) Ltd v. Union Insurance Society of Canton Ltd
(1925) 23 Ll. L. Rep. 50 (CA) 9.35
Colombiana, The. Compania Colombiana de Seguros v. Pacific Steam Navigation Co
[1963] 2 Lloyds Rep. 479 15.36, 16.5– 16.7
Columbus-America Discovery Group v. Atlantic Mutual Insurance Co 1992 AMC 2705;
1995 AMC 1985 (US CA, 4th Cir.) 16.24
Commercial Union Assurance Co v. Hayden [1977] 1 Lloyds Rep. 1 (CA) 16.45
Commercial Union Assurance Co v. Lister (1874) LR 9 Ch App 483 (CA) 16.17, 16.18
Commonwealth, The [1907] P. 216 15.31, 15.35, 15.36
Commonwealth Smelting Ltd v. Guardian Royal Exchange Assurance Ltd [1984] 2
Lloyds Rep. 608; affd [1986] 1 Lloyds Rep. 121 (CA) 9.9, 9.14
Compania Colombiana de Seguros v. Pacific Steam Navigation Co (The Colombiana)
[1963] 2 Lloyds Rep. 479 15.36, 16.5– 16.7
Compania Maritima San Basilio SA v. Oceanus Mutual Underwriting Association
(Bermuda) Ltd (The Eurysthenes) [1976] 2 Lloyds Rep. 171 (CA) 3.34, 8.69
Connor v. Nippon Fire and Marine Insurance Co Ltd, Tokyo District Court, 13 May
1998, The HANREIJIHOU No. 1675 at p. 129; Tokyo High Court, 9 February 2000,
The HANREIJIHOU No. 1749 at p. 157 2.16, 6.22 2.16, 6.22
Container Transport International Inc (CTI) v. Oceanus Mutual Underwriting
Association (Bermuda) Ltd (No. 1) [1984] 1 Lloyds Rep. 476 (CA) 5.12, 5.46–
5.48, 7.33
Continental Sea Foods Inc v. New Hampshire Fire Insurance Co 1964 AMC 196
(USDC, SDNY) 10.62
Cooper v. General Accident Fire and Life Association (1922) 13 Ll. L. Rep. 219 (HL)
10.40 10.40
Cooperative Retail Services Ltd v. Taylor Young Partnership Ltd [2001] Lloyds Rep. IR
122 (CA); affd [2002] Lloyd's Rep. IR 555 (HL) 16.8
Cory & Sons v. Burr (1883) LR 8 App Cas 393 (HL) 10.18– 10.20, 10.61
Coven SpA v. Hong Kong Chinese Insurance Co [1999] Lloyds Rep. IR 565 (CA) 8.21,
13.14
Coxe v. Employers Liability Association Corp Ltd [1916] 2 KB 629 7.1, 7.4, 7.52, 7.54
Coxwold, The. Yorkshire Dale Steamship Co Ltd v. Minister of War Transport [1942] 1
KB 35; (1941) 70 Ll. L. Rep. 236 (CA); revsd (1942) 73 Ll. L. Rep. 1 (HL) 7.13,
7.41, 10.1
Cozens v. Brutus [1973] AC 854 (HL) 9.9
Craft Enterprises International Ltd v. Axa Insurance Co [2005] 1 Lloyds Rep. 14 3.55,
3.63
Credit Suisse Financial Products v. Societe Generale dEnterprises [1997] CLC 168
(CA) 2.25
Crows Transport v. Phoenix Assurance Co [1965] 1 Lloyds Rep. 139 (CA) 8.44, 11.28,
11.29, 11.34
D & J Koskas v. Standard Marine Insurance Co Ltd (1926) 25 Ll. L. Rep. 363; affd
(1927) 27 Ll. L. Rep. 59 (CA) 3.48, 3.51, 3.56, 3.59, 13.1
Daewoo Heavy Industries Ltd v. Klipriver Shipping Ltd (The Kapitan Petko Voivoda)
[2003] 2 Lloyds Rep. 1 3.41
Danish Mercantile Co v. Beaumont [1951] Ch 680 (CA) 16.14
De Hahn v. Hartley (1786) 1 TR 343 10.6
De Monchy v. Phoenix Insurance Co of Hartford (1928) 30 Ll. L. Rep. 194 (CA); affd
(1929) 34 Ll. L. Rep. 201 (HL) 3.48, 3.58– 3.60, 8.17, 8.20, 8.21, 13.4, 13.14
Derry v. Peek (1889) LR 14 App Cas 337 (HL) 13.10
Diamond Alkali Export Co v. Fl. Bourgeois (1921) 8 Ll. L. Rep. 282 3.50, 3.51, 3.53
Dickenson v. Jardine (1868) LR 3 CP 639 1.3, 9.26, 9.28, 14.32
Direct Line Insurance plc v. Khan [2002] Lloyds Rep. IR 364 (CA) 8.48, 13.11
Dixon v. Whitworth (1878–79) LR 4 CPD 371; revsd 4 Asp MLC 327 14.16
Dobson v. General Accident Fire and Life Assurance Corp plc [1989] 2 Lloyds Rep.
549 (CA 13.22
Dodwell & Co Ltd v. British Dominions General Insurance Co Ltd [1955] 2 Lloyds
Rep. 391 8.10, 8.18
Doheny v. New India Assurance Co Ltd [2005] Lloyds Rep. IR 251 5.45
Donohue v. Armco Inc [2002] 1 Lloyds Rep. 425 (HL) 2.30
Dornoch Ltd v. Mauritius Union Insurance Co Ltd [2006] 2 Lloyds Rep 475 2.25
Drake Insurance Co plc v. Provincial Insurance plc [2004] 1 Lloyds Rep. 268 5.4
Duus Brown & Co v. Bining (1906) 11 Com Cas 190 15.41, 16.15, 16.16, 16.17
Eagle Star Insurance Co Ltd v. Game Video Co (GVC) SA (The Game Boy) [2004] 1
Lloyds Rep. 238 5.55
Economides v. Commercial Union Assurance Co plc [1998] Lloyds Rep. IR 9 (CA)
5.55
Edwards (John) v. Motor Union Insurance Co Ltd (The White Rose) [1922] 2 KB 249;
(1922) 11 Ll. L. Rep. 170 16.13
Eide UK Ltd v. Lowndes Lambert Group Ltd [1998] 1 Lloyds Rep. 389 (CA) 3.26, 3.46
Eisinger v. General Accident, Fire and Life Assurance Corporation [1955] 2 Lloyds
Rep. 95 13.22
Emperor Goldmining Co Ltd v. Switzerland General Insurance Co Ltd [1964] 1 Lloyds
Rep. 348 (Sup Ct (NSW)) 14.5
Engel v. Lancashire & General Assurance Co Ltd (1925) Com Cas 202 4.11
England & England v. Guardian Insurance Ltd [2000] Lloyds Rep. IR 404 14.42, 16.16,
16.17
ERC Frankona Reinsurance v. American National Insurance [2006] Lloyds Rep. IR 157
5.6
Ert Stefanie, The. SA des Minerais v. Grant Trading Inc [1989] 1 Lloyds Rep. 349 (CA)
3.33
Esso Bernicia, The. Esso Petroleum Co Ltd v. Hall Russell & Co Ltd [1989] AC 643;
[1989] 1 Lloyds Rep. 8 (HL) 16.18
Esso Petroleum Co Ltd v. Hall Russell & Co Ltd (The Esso Bernicia) [1989] AC 643;
[1989] 1 Lloyds Rep. 8 (HL) 16.18
Estasis Salotti di Colzani Aimo e Gianmario Colzani v. RUWA Polstereimaschinen
GmbH, C–24/76 [1976] ECR 1831 (ECJ) 2.25
Euro-Diam Ltd v. Bathurst [1990] 1 QB 1; [1988] 1 Lloyds Rep. 228 (CA) 1.24, 1.27,
1.31, 6.20, 8.42
Eurodale Manufacturing Ltd v. Ecclesiastical Insurance Office plc [2003] Lloyds Rep.
IR 444 (CA) 10.30, 11.6, 11.7, 11.29, 11.36, 11.47
Eurysthenes, The. Compania Maritima San Basilio SA v. Oceanus Mutual Underwriting
Association (Bermuda) Ltd [1976] 2 Lloyds Rep. 171 (CA) 3.34, 8.69
Everbright Commercial Pte v. AXA Insurance Singapore Pte Ltd (The Serena I) [2000]
4 SLR 226; issue not appealed [2001] 2 SLR 316 6.21, 8.73– 8.75, 8.79, 12.4, 12.8,
12.9
Evialis v. S.I.A.T. [2003] 2 Lloyds Rep. 377 2.2, 2.11, 2.21, 2.22, 2.25, 2.29, 3.59, 3.60
Excelsior Commercial & Industrial Holdings Ltd v. Salisbury Hammer Aspden &
Johnson [2002] C.P Rep. 67 13.6
F. W. Berk & Co v. Style & Co Ltd [1955] 2 Lloyds Rep. 382 8.5, 8.28, 8.29
Fanti, The. Firma C-Trade SA v. Newcastle Protection and Indemnity Association
[1990] 2 Lloyds Rep. 191 (HL) 13.4, 15.1
Farnworth v. Hyde (1866) LR 2 CP 204 13.48
Feasey v. Sun Life Assurance Co of Canada [2003] Lloyds Rep. IR 637 (CA) 4.2, 4.4,
4.5, 4.7
Federation Insurance Co of Canada v. Coret Accessories Inc & Hirsch [1968] 2 Lloyds
Rep. 109 (Sup Ct (Que)) 8.49
Fedsure General Insurance Ltd v. Carefree Investments Pty Ltd (477/99) [2001] 2 ASCA
88 (11 September 2001 (Sup Ct CA South Africa)) 11.36, 11.37, 11.54
Field v. Metropolitan Police Receiver [1907] 2 KB 853 10.38 11.54
Firma C-Trade SA v. Newcastle Protection and Indemnity Association (The Fanti)
[1990] 2 Lloyds Rep. 191 (HL) 13.4, 15.1
Forder v. Great Western Railway Co [1905] 2 KB 532 8.40, 8.41
Forestal Land Timber & Railways Co Ltd v. Rickards (The Minden); Middows Ltd v.
Robertson (The Wangoni); W W Howard Bros & Co Ltd v. Kahn (The Halle) (1940)
68 Ll. L. Rep. 45 (CA); affd (1941) 70 Ll. L. Rep. 173 (HL) 1.2, 1.3, 1.7, 1.15, 9.2,
10.19, 10.23, 13.17, 13.25, 13.42, 13.50, 13.53, 13.56– 13.58
Francis v. Boulton (1895) 1 Com Cas 217 15.20
Friends Provident Life & Pensions Ltd v. Sirius International Insurance [2005] 2 Lloyds
Rep. 517 (CA) 6.28, 6.29
Frio Chile, The. Agra Trading Ltd v. McAuslin [1995] 1 Lloyds Rep. 182 10.63
Front Comor, The. Allianz SpA (formerly Riunione Adriatica di Sicurta SpA) v. West
Tankers Inc., Case C–185/07 [2009] Lloyds Rep. Plus (ECJ) 2.31
Fuerst Day Lawson Ltd v. Orion Insurance Co Ltd [1980] 1 Lloyds Rep. 656 13.14
Galloway v. Guardian Royal Exchange (UK) Ltd [1999] Lloyds Rep. IR 209 (CA) 13.11
Game Boy, The. Eagle Star Insurance Co Ltd v. Game Video Co (GVC) SA [2004] 1
Gan Insurance Co Ltd v. Tai Ping Insurance Co Ltd [1999] 1 Lloyds Rep. 472 2.14
Garden City, The (No. 1) [1982] 2 Lloyds Rep. 382 3.33
Gasser v. Misat, Case C–116/02 [2003] ECR I–14693 (ECJ) 2.29
GE Frankona Reinsurance Ltd v. CMM Trust No. 1400 (The Newfoundland Explorer)
[2006] Lloyds Rep. IR 704 6.15, 6.16
Gee & Garnham Ltd v. Whittall [1955] 2 Lloyds Rep. 562 28, 29
Geismar v. Sun Alliance and London Insurance Ltd [1977] 2 Lloyds Rep. 62 39, 42
General Accident Fire and Life Assurance Corp Ltd v. Peter William Tanter (The
Zephyr) [1984] 1 Lloyds Rep. 58; revsd [1985] 2 Lloyds Rep. 529 (CA) 5.6
Giacinto Motta, The [1977] 2 Lloyds Rep. 221 14.39
Glasgow Assurance Corporation Ltd v. William Symondson & Co (1911) 16 Com Cas
109; 11 Asp. MLC 583 3.25, 5.30, 5.31
Glencore International AG v. Alpina Insurance Co [2004] 1 Lloyds Rep 111 3.9, 3.11,
3.12, 3.37, 5.3, 5.4, 5.33, 5.39–5.42, 5.45, 5.48, 5.56, 5.57, 13.28, 13.29
Glencore International AG v. Ryan (The Beursgracht) [2002] 1 Lloyds Rep. 335 (CA)
3.2, 3.9, 3.12
Glenie v. The London Assurance Co (1814) 2 M & S 372 13.35
Glicksman v. Lancashire & General Assurance Co Ltd (1925) 22 Ll. L. Rep. 179 (CA);
affd [1927] AC 139; (1926) 26 Ll. L. Rep. 69 (HL) 5.30
Global Process Systems Inc v. Syarikat Takaful Malasia Berhad [2009] EWHC 637
(Comm) 6.35, 7.28, 8.5, 8.23
Godins v. London Assurance Co (1758) 1 Burr 489 16.25, 16.34, 16.39
Gold Sky, The. Astrovlanis Compania Naviera SA v. Linard [1972] 2 Lloyds Rep. 187
14.20
Good Luck (No. 2), The. Bank of Nova Scotia v. Hellenic Mutual War Risk Association
(Bermuda) Ltd [1991] 2 Lloyds Rep. 191 (HL) 6.1, 6.4, 6.11
Goole and Hull Steam Towing Co Ltd v. Ocean Marine Insurance Co Ltd [1928] 1 KB
589; (1927–28) 29 Ll. L. Rep. 242 15.33
Goulandris Bros Ltd v. B Goldman & Sons Ltd [1957] 2 Lloyds Rep. 207 14.33
Government of Pakistan v. The Steamship Ionian Trader 1961 AMC 206 16.14
Graham Joint Stock Shipping Co Ltd v. Merchants Marine Insurance Co Ltd (The
Ioanna) (No. 1) [1924] AC 294; (1923–24) 17 Ll. L. Rep. 241 (HL) 3.28, 8.46
Grand Champion Tankers Ltd v. Norpipe A/S (The Marion) [1984] 2 Lloyds Rep. 1
(HL) 3.33
Great India Peninsular Railway Co v. Saunders (1861) 1 B & S 41 13.60
Grecia Express, The. Strive Shipping Corp v. Hellenic Mutual War Risks Association
(Bermuda) Ltd [2002] 2 Lloyds Rep. 88 14.19
Greenhill v. Federal Insurance Co Ltd (1926) 24 Ll. L. Rep. 383 (CA) 5.3
Greenock Steamship Co v. Maritime Insurance Co Ltd [1903] 2 KB 657 (CA) 8.79,
12.8, 12.9
Grell-Taurel Ltd v. Caribbean Home Insurance Co Ltd [2002] Lloyds Rep. IR 655 (CA
(Trin)) 10.14
Groupama Insurance Co Ltd v. Overseas Partners Re Ltd [2003] EWHC 34 (Comm) 5.9
Grundy (Teddington) Ltd v. Fulton [1981] 2 Lloyds Rep. 666; aff d [1983] 1 Lloyds
Rep. 16 (CA) 9.35
Guardian Royal Exchange v. Ormsby [1982] 29 SASR 498 13.11
H Cousins & Co v. D & C Carriers [1970] 2 Lloyds Rep. 397 (CA) 15.40
Hamilton & Co v. Eagle Star & British Dominions Insurance Co Ltd (1924) 19 Ll. L.
Rep. 242 5.58
Hamilton Fraser & Co v. Pandorf & Co (1887) LR 12 App Cas 518 (HL) 7.3, 7.7, 7.10,
8.37
Harman v. Kingston (1811) 3 Camp 150 15.4
Harris and Co v. Best-Ryley and Co (1892) TLR 149 (CA) 10.29
Harrower v. Hutchinson (1870) LR 5 QB 584 5.42
Heath Lambert Ltd v. Sociedad de Corretaje de Seguros [2004] Lloyds Rep. IR 905
(CA) 3.45
Helicopter Resources Pty Ltd v. Sun Alliance Australia Ltd (Sup Ct (Vict) [1991]
LMLN 312, 1–2 8.31, 8.35
Henderson v. Underwriting and Agency Association Ltd [1891] 1 QB 557 24
Hepburn v. A Tomlinson (Hauliers) Ltd; sub nom A Tomlinson (Hauliers) Ltd v.
Hepburn [1964] 1 Lloyds Rep. 416; affd [1965] 1 Lloyds Rep. 1 (CA); affd [1966]
AC 451; [1966] 1 Lloyds Rep. 309 (HL) 4.9, 4.10, 11.41, 11.57, 16.9, 16.36
Hewitt v. London General Insurance Co Ltd (1925) 23 Ll. L. Rep. 243 12.8
Hibernia Foods plc v. McAuslin (The Joint Frost) [1998] 1 Lloyds Rep. 310 10.63,
11.6, 11.8, 11.9
Highlands Insurance Co v. Continental Insurance Co [1987] 1 Lloyds Rep. 109 (Note)
5.53
HIH Casualty & General Insurance Ltd v. Waterwell Shipping Inc and Another (1998)
146 FLR 76 6.33
Hobbs v. Marlowe [1978] AC 16 (HL) 16.4
Home Insurance v. Davila (1954) 212 F 2d 731 11, 14
Hongkong Fir Shipping Co Ltd v. Kawasaki Kisen Kaisha Ltd (The Hongkong Fir)
[1961] 2 Lloyds Rep. 478 (CA) 6.28
Hood v. West End Motor Car Packing Co [1917] 2 KB 38 (CA) 3.40, 8.77, 12.3
Horabin v. British Overseas Airways Corp [1952] 2 Lloyds Rep. 450 8.40
Hunter v. Leathley (1830) Lloyd & Welsby; 10 B & Cr 858 3.26
Hunter v. London Docklands Development Corp [1997] AC 655; (1997) 84 BLR 1 (HL)
13.36
Hunter v. Potts (1815) 4 Camp 203 8.37
Inchmaree, The. Thames & Mersey Marine Insurance Co Ltd v. Hamilton Fraser & Co
(1887) LR 12 App Cas 484 (HL) 8.37
Inglis v. Stock (1884) LR 12 QBD 564 (CA) 4.3, 4.4
Insurance Corporation of the Channel Islands Ltd v. McHugh [1997] LRLR 94 13.7
Insurance Corporation of the Channel Islands Ltd v. Royal Hotel Ltd [1998] Lloyds Rep.
IR 151 5.18
Integrated Container Service Inc v. British Traders Insurance Co Ltd [1981] 2 Lloyds
Rep. 460; affd [1984] 1 Lloyds Rep. 154 (CA) 13.27, 13.31, 13.65, 13.66, 13.67,
14.5, 14.10, 14.12
Investors Compensation Scheme Ltd v. West Bromwich Building Society (No. 1) [1998]
1 WLR 896 (HL) 1.17
Ioanna) (No. 1), The. Graham Joint Stock Shipping Co Ltd v. Merchants Marine
Insurance Co Ltd [1924] AC 294; (1923–24) 17 Ll. L. Rep. 241 (HL) 3.28, 8.46
Ionides v. Pacific Fire & Marine Insurance Co (1871) LR 6 QB 674; affd (1872) LR 7
QB 517 (CA) 3.11, 5.7
Ionides v. Pender (1874) LR 9 QB 531 5.21, 5.35
Ionides v. Universal Marine Insurance Co (1863) 14 CB NS 259 7.4, 7.8, 10.17
Italia Express (No. 2), The. Apostolos Konstantine Ventouris v. Trevor Rex Mountain
[1992] 2 Lloyds Rep. 281 13.4, 13.8
J. Kirkaldy & Sons Ltd v. Walker [1999] Lloyds Rep. IR 410 6.6, 6.11, 6.14, 6.18, 6.19,
6.24
J. A. Chapman & Co Ltd (In Liquidation) v. Kadirga Denizcilik Ve Ticaret AS [1998]
Lloyds Rep. IR 377 3.45
J. J. Lloyd Instruments v. Northern Star Insurance Co (The Miss Jay Jay) [1987] 1
Lloyds Rep. 32 (CA) 6.33, 6.34, 7.16
Jacob v. Gaviller (1902) 7 Com Cas 116 8.4
Jason 5, The. Talbot Underwriting v. Nausch Hogan & Murray [2006] Lloyds Rep. IR
531 (CA) 3.28, 3.54
Javed v. British Airways plc, 1993 980 F2d 1407 2.15
John Cory & Sons v. Burr (1883) LR 8 App Cas 393 (HL) 7.14
John Martin of London Ltd v. Russell [1960] 1 Lloyds Rep. 554 8.4, 8.38, 11.4, 11.19,
11.37, 11.38, 11.45, 11.46, 11.55
Johnson v. Seddon (1802) 2 East 581 15.19
Johnson & Co v. Hogg (1883) LR 10 QBD 432 10.19
Joint Frost, The. Hibernia Foods plc v. McAuslin [1998] 1 Lloyds Rep. 310 10.63,
11.6, 11.8, 11.9
K/S Merc-Scandia XXXXII v. Lloyds Underwriters (The Mercandian Continent) [2000]
2 Lloyds Rep. 357; [2000] Lloyds Rep. I.R. 694; affd [2001] 2 Lloyds Rep. 563
(CA) 5.8, 5.9, 5.16, 6.28, 13.9
Kacianoff v. China Traders Insurance Co Ltd [1914] 3 KB 1121 (CA) 9.10
Kallis (George) (Manufacturers) Ltd v. Success Insurance Ltd [1985] 2 Lloyds Rep. 8
(PC) 11.70, 12.5, 12.20, 12.21, 12.25
Kamidian v. Holt and Others [2008] Lloyds Rep. IR Plus 43; [2009] Lloyds Rep. IR 242
5.55
Kanchenjunga, The. Motor Oil Hellas (Corinth) Refineries SA v. Shipping Corp of India
[1990] 1 Lloyds Rep. 391 (HL) 5.17
Kawasaki Kisen Kabushiki Kaisha of Kobe v. Bantham Steamship Co Ltd (No. 2)
(1938) 61 Ll. L. Rep. 131; affd (1939) 63 Ll. L. Rep. 155 (CA) 10.9
Kessler Export Corporation v. Reliance Insurance Company of Philadelphia and
American Insurance Co of Newark, 1962 AMC 2429; 207 F. Supp. 355 11.26
Kidston v. Empire Marine Insurance Co (1866) LR 1 CP 535; affd (1866–67) LR 2 CP
357 13.60
Kilroy Thompson Ltd v. Perkins & Homer Ltd [1956] 2 Lloyds Rep. 49 11.27, 11.34
King v. Victoria Insurance Co Ltd [1896] AC 250 (PC) 16.4
Kleinwort v. Shephard (1859) 1 EL & BL 447 10.18, 10.19
Knight v. Faith (1850) 15 QB 659 13.27
Kosmar Villa Holdings plc v. Trustees of Syndicate 1243 (2008) [2008] Lloyds Rep. IR
489 6.25
Kuwait Airways Corporation v. Kuwait Insurance Co SAK (No. 1) [1996] 1 Lloyds
Rep. 664; affd in part [1997] 2 Lloyds Rep. 687 (CA); affd in part [1999] 1 Lloyds
Rep. 803 (HL) 1.10, 1.31, 10.8, 10.18, 14.14, 14.16
Kuwait Airways Corp v. Kuwait Insurance Co SAK (No. 2) [2000] 1 Lloyds Rep. 252;
[2000] Lloyds Rep. IR 439 15.35
Kuwait Airways Corp v. Kuwait Insurance Co SAK (No. 3) [2000] Lloyds Rep. IR 698
13.7
Kyzuna Investments Ltd v. Ocean Marine Mutual Insurance Association (Europe) [2000]
1 Lloyds Rep. 505; [2000] Lloyds Rep. IR 513 15.7
Lamey v. The Queen [1996] 1 WLR 902 (PC) 10.47
Lanasa Fruit Steamship & Importing Co Inc v. Universal Innsurance Co (The Smaragd)
(1938) AMC 1 7.24
Langdale v. Mason (1780) 2 Park on Ins 965 10.40
Lawrance (Inspector of Taxes) v. Ridsdale [1976] STC 227 11.20
Lawrence v. Accidental Insurance Co Ltd (1880–1881) LR 7 QBD 216 7.5, 7.7, 7.10
Leader Shoes (Aust) Pty Ltd v. Liverpool & London & Globe Insurance Co Ltd [1968] 1
NSWR 279 (Sup Ct (NSW)) 11.51
Lee v. Southern Insurance Co (1870) LR 5 CP 397 13.69, 13.70, 14.13
Leebov v. United States Fidelity & Guarantee Co, 165 Atlantic Reporter 2d Series 82
(1960) (Sup Ct (Penn)) 14.3
Leegas, The. Barlee Marine Corp v. Trevor Rex Mountain [1987] 1 Lloyds Rep. 47
13.15, 3.16, 3.20
Legal & General Assurance Society Ltd v. Drake Insurance Co (t/a Drake Motor
Policies at Lloyds) [1992] 1 All ER 283; [1991] 2 Lloyds Rep. 36 (CA) 16.40
Lek v. Mathews (1927) 29 Ll. L. Rep. 141 (HL) 13.11
Leon v. Casey [1932] 2 KB 576; (1932) 43 Ll. L. Rep. 69 (CA) 1.24, 1.25, 1.27
Levy v. Assicurazione Generali (1940) 67 Ll. L. Rep. 174 (PC) 10.40, 10.44
Lewis v. Rucker (1761) 2 Burr 1167 15.9, 15.15– 15.17
Lexington Insurance Co v. Multinacional de Seguros SA [2009] Lloyds Rep. IR 16.25
Leyland Shipping Co Ltd v. Norwich Union Fire Insurance Society Ltd [1917] 1 KB 873
(CA); affd [1918] AC 350 (HL) 7.2, 7.3, 7.7, 7.8, 7.10– 7.14, 7.23– 7.25, 7.27,
8.37, 9.5
Liberian Insurance Agency Inc v. Mosse [1977] 2 Lloyds Rep. 560 5.8, 5.17, 5.18, 5.22,
5.26, 5.28, 8.77, 8.79, 8.80, 10.30, 10.34, 12.2– 12.4, 12.14
Lind v. Mitchell (1928) 98 LJ KB 120; (1928) 32 Ll. L. Rep. 70 (CA) 14.4
Lindsay & Pirie v. The General Accident Fire and Life Assurance Corporation (1914)
SAR (App. D.) 574 10.40
Litsion Pride, The. Black King Shipping Corp v. Massie [1985] 1 Lloyds Rep. 437 5.9
Lloyds Register of Shipping v. Societe Campenon Bernard, C–439/93 [1995] CLC 1157
(ECJ) 2.19
Lloyds TSB General Insurance Holdings Ltd v. Lloyds Bank Group Insurance Co Ltd;
Abbey National plc v. Lee [2002] Lloyds Rep. IR 113 (CA); revsd on other grounds
[2003] Lloyds Rep. IR 623 (HL) 7.5, 7.35
Lloyds TSB General Insurance Holdings Ltd v. Lloyds Bank Group Insurance Co Ltd;
Abbey National plc v. Lee [2002] Lloyds Rep. IR 113 (CA); revsd on other grounds
[2003] Lloyds Rep. IR 623 (HL) 7.5, 7.35
Loders & Nucoline Ltd v. Bank of New Zealand (1929) 33 Ll. L. Rep. 70 15.9
Lohre v. Aitchison. See Aitchison v. Lohre London and Manchester Plate Glass Co Ltd v.
Heath [1913] 3 KB 411 (CA) 10.40
London & Provincial Leather Processes Ltd v. Hudson (1939) 64 Ll. L. Rep. 352 8.53,
13.26, 13.30, 13.62, 13.64
Losinjska Plovidba v. Transco Overseas Ltd (The Orjula) [1995] 2 Lloyds Rep. 395
13.36
Lozano v. Janson (1859) 2 EL & EB 160 10.19
Lucena v. Craufurd (1806) 2 Box & Pul (NR) 269 4.1, 4.4
Lysaght (J) Ltd v. Coleman [1895] 1 QB 49 (CA) 9.23. 13.36, 13.39
MDougle v. Royal Exchange Assurance Co (1816) 4 M & S 50 9.16
Macaura v. Northern Assurance Co Ltd [1925] AC 619 (HL) 4.4, 4.5
Mackenzie v. Whitworth (1875) 3 Asp MLC 81; (1875) LR 1 Ex D 36 (CA) 4.7, 5.20
MacLeod Ross & Co v. Compagnie dAssurances Generales lHelvetia of St Gall [1952]
1 Lloyds Rep. 12 (CA) 3.54, 3.58, 3.59
Maignen & Co v. National Benefit Assurance Co (1922) 10 Ll. L. Rep. 30 8.19
Mammoth Pine, The. Netherlands Insurance Co Est 1845 Ltd v. Karl Ljungberg & Co
AB [1986] 2 Lloyds Rep. 19 (PC) 14.3, 14.5, 16.16, 16.17
Mandarin Star, The. Nishina Trading Co Ltd v. Chiyoda Fire & Marine Insurance Co Ltd
[1968] 2 Lloyds Rep. 47; affd [1969] 1 Lloyds Rep. 293 (CA) 2.14, 9.35, 9.43,
12.17, 13.23
Mander v. Commercial Union Assurance Co plc [1998] Lloyds Rep. IR 93 3.16, 3.20
Manifest Shipping Co Ltd v. Uni-Polaris Shipping Co Ltd (The Star Sea) [1995] 1
Lloyds Rep. 651; affd [1997] 1 Lloyds Rep. 360 (CA); affd [2001] 1 Lloyds Rep.
389 (HL) 3.32, 3.33, 5.4, 5.8, 5.10, 8.69, 13.9
Mann MacNeal & Steeves Ltd v. Capital & Counties Insurance Co Ltd [1921] 2 KB
300; (1920) 5 Ll. L. Rep. 424 (CA) 5.42
Mannai Investment Co Ltd v. Eagle Star Life Assurance Co Ltd [1997] AC 749 (HL)
1.18
Marion, The. Grand Champion Tankers Ltd v. Norpipe A/S [1984] 2 Lloyds Rep. 1
(HL) 3.33
Martin P, The. OKane v. Jones [2004] 1 Lloyds Rep. 309 3.47, 3.54, 4.4, 4.9, 4.22,
16.24, 16.36, 16.40, 16.43, 16.46
Mathie v. Argonaut Marine Insurance Co Ltd (1924) 18 Ll. L. Rep. 118 (KBD); affd
(1925) 21 Ll. L. Rep. 145 (HL) 5.24
Maurice v. Goldsborough Mort & Co Ltd [1939] AC 452; (1939) 64 Ll. L. Rep. 1 (PC)
4.7
Mayban General Assurance BhD v. Alstom Power Plants Ltd [2004] 2 Lloyds Rep. 609
6.34, 6.35, 7.28, 8.8, 8.14, 8.23, 8.29, 8.36, 9.32
McCormick v. National Motor & Accident Insurance Union Ltd (1934) 49 Ll. L. Rep.
361 (CA) 5.17
McLean Enterprises v. Ecclesiastical Insurance Office [1986] 2 Lloyds Rep. 416 13.7
Mentz Decker & Co v. Maritime Insurance Co [1910] 1 KB 132 12.8
Mercandian Continent, The. K/S Merc-Scandia XXXXII v. Lloyds Underwriters [2000]
2 Lloyds Rep. 357; [2000] Lloyds Rep. IR 694; affd [2001] 2 Lloyds Rep. 563
(CA) 5.8, 5.9, 5.16, 5.28, 13.9
Merchants Marine Insurance Co Ltd v. Liverpool Marine & General Insurance Co Ltd
(1928) 31 Ll. L. Rep. 45 (CA) 11.21
Meridian Global Funds Management Asia Ltd v. Securities Commission [1995] 2 AC
500 (PC) 3.31
M H Smith (Plant Hire) v. DL Mainwaring (t/a Inshore) [1986] 2 Lloyds Rep. 244 (CA)
16.5
Middows Ltd v. Robertson (The Wangoni). See Forestal Land Timber & Railways Co
Ltd v. Rickards (The Minden)
Milasan, The. Brownsville Holdings Ltd v. Adamjee Insurance Co Ltd [2000] 2 Lloyds
Rep. 458 6.11, 6.15, 6.16
Miller v. Law Accident Insurance Co [1903] 1 KB 712 (CA) 10.21, 10.24, 10.61, 10.62
Miruvor Ltd v. National Insurance Co Ltd [2003] 3 HKC 208 11.54, 14.19
Miss Jay Jay, The. J. J. Lloyd Instruments v. Northern Star Insurance Co [1987] 1 Lloyds
Rep. 32 (CA) 6.33, 6.34, 7.16
Mitsui Marine & Fire Insurance Co v. Bayview Motors Ltd [2005] 1 Lloyds Rep. 117
(CA) 1.20
Moonacre, The. Sharp v. Sphere Drake Insurance [1992] 2 Lloyds Rep. 501 4.2, 6.15
Morrison v. Universal Marine Insurance Co (1873) LR 8 Ex 197 5.17
Moss v. Smith (1850) 137 ER 827 13.47
Motor Oil Hellas (Corinth) Refineries SA v. Shipping Corp of India (The
Kanchenjunga) [1990] 1 Lloyds Rep. 391 (HL) 5.17
Nam Kwong Medicines & Health Products Co Ltd v. China Insurance Co Ltd [2002] 2
Lloyds Rep. 591 (HK (HC)) 8.79, 12.8, 12.21
Napier (Lord) and Ettrick v. Hunter [1993] 1 Lloyds Rep. 197 (HL) 15.32, 15.35,
15.38, 16.4
National Employers Mutual General Insurance Association v. Haydon [1980] 2 Lloyds
Rep. 149 (CA) 16.28
National Oil Co of Zimbabwe (Private) v. Sturge [1991] 2 Lloyds Rep. 281 10.8, 10.10,
10.11, 10.13
National Oilwell (UK) Ltd v. Davy Offshore Ltd [1993] 2 Lloyds Rep. 582 (CA) 3.28,
3.54, 4.4, 5.34, 5.36, 5.37, 8.40, 8.46, 14.9, 16.8, 16.9– 16.11
National Steamship Co Ltd v. SA Comercial de Exportacion e Importacion (Louis
Dreyfus & Co Ltd) (1932) 37 Com Cas 283; (1932) 42 Ll. L. Rep. 280 (CA) 10.29
Naviera de Canarias SA v. Nacional Hispanica Aseguradora SA (The Playa de las
Nieves) [1977] 1 Lloyds Rep. 457 (HL) 13.68
Netherlands Insurance Co Est 1845 Ltd v. Karl Ljungberg & Co AB (The Mammoth
Pine) [1986] 2 Lloyds Rep. 19 (PC) 14.3, 14.5, 16.16, 16.17
New Horizon, The. Tramp Shipping Corp v. Greenwich Marine Inc [1975] 2 Lloyds
Rep. 314 (CA) 10.37
New South Wales Leather Pty Ltd v. Vanguard Insurance Co Ltd (1991) 105 FLR 381
4.21, 11.14
Newfoundland Explorer, The. Frankona Reinsurance Ltd v. CMM Trust No. 1400
[2006] Lloyds Rep. IR 704 6.15, 6.16
Newmarket Investment Corporation v. Firemans Fund Insurance Co 774 F Supp. 909
(1991) (US DC East Dist Penn) 10.50
Nicholson v. Chapman (1793) 2 H.Bl. 254 14.24
Niger Co Ltd v. Guardian Assurance Co Ltd and Yorkshire Insurance Co (1920) 4 Ll. L.
Rep. 320; affd (1921) 6 Ll. L. Rep. 239 (CA); (1922) 13 Ll. L. Rep. 75 (HL) 1.3,
4.17, 16.27, 16.28, 16.29
Niger Co Ltd v. Yorkshire Insurance Co Ltd (No. 1) (1920) 2 Ll. L. Rep. 509 (HL)
16.27
Nima SARL v. Deves Insurance Public Co Ltd (The Prestrioka) [2003] 2 Lloyds Rep.
327 2.16, 12.21, 12.22
Nishina Trading Co Ltd v. Chiyoda Fire & Marine Insurance Co Ltd (The Mandarin
Star) [1968] 2 Lloyds Rep. 47; affd [1969] 1 Lloyds Rep. 293 (CA) 2.16, 9.35,
9.43, 12.17, 13.23
Noble Resources and Unirise Development v. George Albert Greenwood (The Vasso)
[1993] 2 Lloyds Rep. 309 6.27, 14.4, 14.5, 14.9, 14.17– 14.20
North British and Mercantile Insurance Co v. London Liverpool and Globe Insurance Co
(1877) LR 5 Ch D 569 (CA) 16.34, 16.36
North British & Mercantile Insurance Co v. Moffatt (1872) LR 7 CP 25 4.11
North of England Iron Steamship Insurance Association v. Armstrong (1870) LR 5 QB
244 15.33, 16.21
North Star Shipping Ltd v. Sphere Drake Insurance plc [2006] 2 Lloyds Rep. 183 5.23
Noten (TM) BV v. Paul Charles Harding [1989] 2 Lloyds Rep. 527; revsd [1990] 2
Lloyds Rep. 283 (CA) 7.29, 8.8, 8.23, 8.24, 8.27
Nukila, The. Promet Engineering (Singapore) Pte Ltd v. Sturge [1997] 2 Lloyds Rep.
146 (CA) 13.36
OKane v. Jones (The Martin P) [2004] 1 Lloyds Rep. 309 3.47, 3.54, 4.4, 4.9, 4.22,
16.24, 16.36, 16.40, 16.43, 16.46
Oei v. Foster (formerly Crawford) and Eagle Star Insurance Co Ltd [1982] 2 Lloyds
Rep. 170 7.53
Orakpo v. Barclays Insurance Services Ltd [1995] LRLR 443 (CA) 13.11
Orjula, The. Losinjska Plovidba v. Transco Overseas Ltd [1995] 2 Lloyds Rep. 395
13.16
Overseas Commodities Ltd v. Style [1958] 1 Lloyds Rep. 546 3.39, 5.8, 6.2, 6.5, 8.9,
11.45, 13.40
P&C Insurance Ltd (PUBL) v. Silversea Cruises Ltd [2004] Lloyds Rep. IR 696 (CA)
10.46
P Samuel & Co Ltd v. Dumas [1924] AC 431; (1924) 18 Ll. L. Rep. 211 (HL) 7.14,
7.44, 7.49, 8.41, 8.47, 8.64, 9.40, 16.8
Pan American World Airways Inc v. Aetna Casualty and Surety Co [1974] 1 Lloyds
Rep. 207; affd [1975] 1 Lloyds Rep. 77 (US (Ct App) 10.9, 10.14, 10.19, 10.39,
10.45
Pan Atlantic Insurance Co Ltd v. Pine Top Insurance Co Ltd [1993] 1 Lloyds Rep. 496
(CA); affd [1994] 2 Lloyds Rep. 427 (HL) 5.4, 5.12, 5.13, 5.15, 5.52, 5.55
Panamanian Oriental Steamship Corporation v. Wright (The Anita) [1970] 2 Lloyds
Rep. 365; revsd [1971] 1 Lloyds Rep. 487 (CA) 1.8, 7.41, 8.58, 10.1, 10.20
Papadimitriou v. Henderson (1939) 64 Ll. L. Rep. 345 8.40, 8.43, 15.9
Parkin v. Dick (1809) 11 East 502 6.20
Pearson v. Commercial Union Assurance Co (1876) LR 1 App Cas 498 (HL) 11.27,
11.34, 11.36
Pesquerias y Secaderos de Bacalao de Espana SA v. Beer [1949] 1 All ER 845 (Note);
(1948–49) 82 Ll. L. Rep. 501(HL) 10.10
Petersham, The. Britain Steamship Co Ltd v. R [1921] 1 AC 99; (1920) 4 Ll. L. Rep.
245 (HL) 10.16, 10.17
Petrofina (UK) Ltd v. Magnaload Ltd [1983] 2 Lloyds Rep. 91 16.9
Phoenix Finance Ltd v. Federation International de lAutomobile [2003] C.P Rep. 1 13.6
Phoenix General Insurance Co of Greece SA v. Halvanon Insurance Co Ltd [1985] 2
Pink v. Fleming (1890) LR 25 QBD 396 (CA) 7.4, 7.8, 7.22, 7.24, 7.25
Piper v. Royal Exchange Assurance (1932) 44 Ll. L. Rep. 103 4.4
Planché v. Fletcher (1779) 1 Doug 251 6.20
Playa de las Nieves, The. Naviera de Canarias SA v. Nacional Hispanica Aseguradora
SA [1977] 1 Lloyds Rep. 457 (HL) 13.68
Polurrian Steamship Co Ltd v. Young [1915] 1 KB 922 (CA) 13.44
Popi M, The. Rhesa Shipping Co SA v. Edmunds [1985] 2 Lloyds Rep. 1 (HL) 8.7
Potoi Chau, The. Castle Insurance Co v. Hong Kong Islands Shipping Co [1983] 2
Lloyds Rep. 376 (PC) 14.34
Powell v. Hyde (1855) 5 EL & BL 607 10.18, 10.19
Pratt v. Aigaion Insurance Co SA (The Resolute) [2008] Lloyds Rep. IR 610; revsd
2009] 1 Lloyds Rep. 225 (CA) 6.15, 6.16
Prestrioka, The. Nima SARL v. Deves Insurance Public Co Ltd [2003] 2 Lloyds Rep.
327 2.16, 12.21, 12.2
Promet Engineering (Singapore) Pte Ltd v. Sturge (The Nukila) [1997] 2 Lloyds Rep.
146 (CA) 13.36
Property Insurance Co Ltd v. National Protector Insurance Co Ltd (1913) 108 LT 104
5.42
Prudent Tankers SA v. Dominion Insurance Co (The Caribbean Sea) [1980] 1 Lloyds
Rep. 338 8.14
Pryke (John W) v. Gibbs Hartley Cooper Ltd [1991] 1 Lloyds Rep. 602 3.21
Quorum A/S v. Schramm [2002] Lloyds Rep. 292 15.8
Quorum A/S v. Schramm (No. 2) [2002] 1 Lloyds Rep. 249; [2002] Lloyds Rep. IR 315
13.6, 13.7, 13.35, 15.8
Ramco Ltd and Another v. Weller Russell and Laws Insurance Brokers Ltd [2008]
EWHC 2202 (QB); All ER (D) 173; [2009] Lloyds Rep. IR 27 4.11
Ramco (UK) Ltd v. International Insurance Co of Hanover Ltd [2004] 2 Lloyds Rep. 595
4.9, 4.11
Ranicar v. Fridge Mobile Pty Ltd [1993] Tasmanian Reports 113 13.36
Ready Mix Concrete (South East) Ltd v. Minister of Pensions and National Insurance
[1968] 2 QB 497; [1968] 2 WLR 775 3.35
Red Top Brewing v. Massotti 107 Supp 921 (1962) 10.62
Red Top Brewing v. Mazzotti 1953 AMC 311 (USCA) 10.62
Re Ballast plc St. Paul v. Daryan [2007] Lloyds Rep. IR 742 15.38
Reinhart Co v. Joshua Hoyle & Sons Ltd [1961] 1 Lloyds Rep. 346 (CA) 4.20, 4.21
Reischer v. Borwick [1894] 2 QB 548 7.10, 7.14
Republic of Bolivia v. Indemnity Mutual Marine Assurance Co Ltd [1909] 1 KB 785
(CA) 9.45, 10.8
Republic of Bolivia v. Indemnity Mutual Marine Assurance Co Ltd (Disclosure) (1908)
14 Com Cas 156 3.14
Resolute, The. Pratt v. Aigaion Insurance Co SA [2008] Lloyds Rep. IR 610; revsd
2009] 1 Lloyds Rep. 225 (CA) 6.15
Rhesa Shipping Co SA v. Edmunds (The Popi M) [1985] 2 Lloyds Rep. 1 (HL) 8.7
Rickards v. Forestal Land Timber & Railways Co Ltd (The Minden). See Forestal Land
Timber & Railways Co Ltd v. Rickards (The Minden); Middows Ltd v. Robertson
(The Wangoni); W W Howard Bros & Co Ltd v. Kahn (The Halle)
Roadworks (1952) Ltd v. Charman [1994] 2 Lloyds Rep. 99 3.16
Robertson v. Petros M. Nomikos Ltd [1939] AC 371; (1939) 64 Ll. L. Rep. 45 (HL)
13.42
Robertson v. Royal Exchange Assurance Corp (1924) 2. Ll. L. Rep. 17 14.23
Robinson Gold Mining Co v. Alliance Insurance Co [1904] AC 359 (HL) 10.19
Rodan v. Commercial Union [1999] Lloyds Rep. IR 495 13.36
Rodocanachi v. Elliott (1874) LR 9 CP 518 13.43, 13.54
Rohl v. Parr (1796) 1 Esp 445 8.37
Roux v. Salvador (1836) 3 Bing 267 13.34, 13.53
Royal Boskalis Westminster NV v. Mountain [1997] LRLR 523 6.20
Royal Norwegian Government v. Constant & Constant and Calcutta Marine Engineering
Co Ltd [1960] 2 Lloyds Rep. 431 13.4
Russian Bank for Foreign Trade v. Excess Insurance Co Ltd [1918] 2 KB 123; affd
[1919] 1 KB 39 (CA) 13.50, 13.68, 13.70
SA des Minerais v. Grant Trading Inc (The Ert Stefanie) [1989] 1 Lloyds Rep. 349 (CA)
3.33
S & W Berisford plc and NGI International Precious Metals v. New Hampshire
Insurance Co Ltd [1990] 1 Lloyds Rep. 454 2.22
Sadler Bros Co v. Meredith [1963] 2 Lloyds Rep. 293 11.25, 11.27, 11.28, 11.30, 11.34
Safadi v. Western Assurance Co (1933) 46 Ll. L. Rep. 140 1.20, 3.56, 11.36, 11.52,
11.65, 11.66
Salamey v. Aetna Casualty and Surety Co [1984] 741 Federal Reporter, 2nd series 874
15.1
Salem, The. Shell International Petroleum Co Ltd v. Gibbs [1981] 2 Lloyds Rep. 316;
revsd [1982] 1 Lloyds Rep. 369 (CA); affd [1983] 1 Lloyds Rep. 342 (HL) 1.8,
1.20, 5.36, 7.5, 7.48, 7.49, 8.5, 8.41, 8.64, 9.35, 9.43, 10.19, 10.38, 12.17, 13.23,
13.24, 13.62
Sarrio SA v. Kuwait Investment Authority [1998] 1 Lloyds Rep. 129 (HL) 2.29
SCA (Freight) Ltd v. Gibson [1974] 2 Lloyds Rep. 533 9.41, 11.28, 11.34, 11.35
Schloss Bros v. Stevens [1906] 2 KB 665; (1905) 10 Com Cas 24 1.3, 1.25, 7.25, 8.4,
8.38
Schwartz & Co v. Hepburn 302 F 2nd 576 (1962) (USCASC) 10.62
Scott v. Copenhagen Reinsurance Co (UK) Ltd [2003] EWCA Civ 688; [2003] Lloyds
Rep. IR 696 (CA) 1.31, 7.40, 13.27
Scott (Donald H) & Co Ltd v. Barclays Bank Ltd (1923) 14 Ll. L. Rep. 142 (CA) 3.48
Seashore Marine SA v. Phoenix Assurance plc (The Vergina) (No. 2) [2002] Lloyds
Rep. IR 51 14.24
Seavision Investment SA v. Evennett (Norman Thomas) and Clarkson Puckle (The
Tiburon) [1990] 2 Lloyds Rep. 418 3.15, 3.17, 3.20
Sellar v. MVicar (1804) 1 B & PNR 23 12.18
Sempra Metals Ltd v. Commissioners of Inland Revenue [2008] 1 AC 861 (HL) 13.8
Serena I, The. Everbright Commercial Pte v. AXA Insurance Singapore Pte Ltd [2000] 4
SLR 226; issue not appealed [2001] 2 SLR 316 6.21, 8.73– 8.75, 8.79, 12.4, 12.8,
12.9
Sharp v. Sphere Drake Insurance (The Moonacre) [1992] 2 Lloyds Rep. 501 4.2, 6.15
Shell International Petroleum Co Ltd v. Gibbs (The Salem) [1981] 2 Lloyds Rep. 316;
revsd [1982] 1 Lloyds Rep. 369 (CA); affd [1983] 1 Lloyds Rep. 342 (HL) 1.8,
1.81.20, 5.36, 7.5, 7.48, 7.49, 8.5, 8.41, 8.64, 9.35, 9.40, 9.43, 10.19, 10.38, 12.17,
13.23, 13.24, 13.62
Shell UK Ltd (t/a Shell (UK) Exploration & Production) v. CLM Engineering Ltd
(formerly Land & Marine Engineering Ltd) [2000] 1 Lloyds Rep. 612 13.36
Sillem v. Thornton (1854) 3 EL & BL 868 15.26
Silver Dolphin Products Ltd v. Parcels and General Assurance Association Ltd [1984] 2
Lloyds Rep. 404 3.48, 3.61
Simon Israel & Co v. Sedgwick (1892) 67 LTNS 352; affd [1893] 1 QB 303 (CA) 11.5,
12.19, 12.21, 12.25
Simpson & Co v. Thomson (1877) LR 3 App Cas 279 (HL) 16.4, 16.8
Sirius Insurance Co v. FAI Insurance [2004] 1 WLR 3251 1.19
Smaragd, The. Lanasa Fruit Steamship & Importing Co Inc v. Universal Innsurance Co
(1938) AMC 1 7.24
Snyder International Inc v. Dae Han Fire & Marine Insurance Co Ltd (USDC Mass, Civ
77–2579-S, 14 September 1981, unreported 11.63
Sofi v. Prudential Assurance Co Ltd [1993] 2 Lloyds Rep. 559 (CA) 8.44
Soya GmbH Mainz KG v. White [1980] 1 Lloyds Rep. 491; affd [1982] 1 Lloyds Rep.
136 (CA); affd [1983] 1 Lloyds Rep. 122 (HL) 7.15, 7.45, 8.5, 8.6, 8.11, 8.23, 8.24,
8.26, 8.29, 8.36, 8.38, 9.1
Spinneys (1948) Ltd v. Royal Insurance Co Ltd [1980] 1 Lloyds Rep. 406 7.53, 7.54,
11.8– 10.10, 11.12, 11.14, 11.15, 11.40, 11.44
SSC International Inc v. Cornhill Insurance Co Ltd No. 77 Civ 5490 (MP) (SDNY 5
December 1978) 11.63
Stanley v. Western Insurance Co Ltd (1868) LR 3 Ex 71 7.3, 9.9, 9.10, 9.35, 11.38
Star Sea, The. Manifest Shipping Co Ltd v. Uni-Polaris Shipping Co Ltd [1995] 1
Lloyds Rep. 651; affd [1997] 1 Lloyds Rep. 360 (CA); affd [2001] 1 Lloyds Rep.
389 (HL) 3.32, 3.33, 5.4, 5.8, 5.10, 8.69, 13.9, 13.10
State of Netherlands v. Youell [1998] 1 Lloyds Rep. 236 (CA) 14.4, 14.7, 14.8, 14.20
State Trading Corporation of India Ltd v. M. Golodetz & Co Inc Ltd [1989] 2 Lloyds
Rep. 277 (CA) 6.11
Stephens v. Australasian Insurance Co (1872) LR 8 CP 18 3.9
Stephen v. Scottish Boatowners Mutual Insurance Association (The Talisman) [1989] 1
Stone Vickers Ltd v. Appledore Ferguson Shipbuilders Ltd (The Charles Darwin)
[1992] 2 Lloyds Rep. 578 (CA) 3.28
Stringer v. English and Scottish Marine Insurance Co Ltd (1869) LR 4 QB 676 14.23
Strive Shipping Corp v. Hellenic Mutual War Risks Association (Bermuda) Ltd (The
Grecia Express) [2002] 2 Lloyds Rep. 88 14.19
Surf City, The [1995] 2 Lloyds Rep. 242 3.48, 3.54, 3.56
Sutherland v. Pratt (1843) 11 M & W 296; 152 ER 815 4.18, 4.20
Swan & Clelands Graving Dock & Slipway Co v. Maritime Insurance Co [1907] 1 KB
116 3.25
Symington & Co v. Union Insurance Society of Canton Ltd (1928) 31 Ll. L. Rep. 179;
(1928) 34 Com Cas 23 7.3, 7.50, 9.10, 9.28
T v. Secretary of State for the Home Department [1996] AC 742 (HL) 10.45
Talbot Underwriting v. Nausch Hogan & Murray (The Jason 5) [2006] Lloyds Rep. IR
531 (CA) 3.28, 3.54
Talisman, The. Stephen v. Scottish Boatowners Mutual Insurance Association [1989] 1
Tanner v. Bennett (1825) Ry & M 182 15.3
Tappoo Holdings Ltd v. Stuchbery [2008] Lloyds Rep. IR 34 (Sup Ct (Fiji)) 10.14
Tate & Sons v. Hyslop (1885) LR 15 QBD 368 (CA) 5.32
Tatham v. Hodgson (1796) 6th Term Rep. 656 7.20
Taylor v. Dunbar (1869) LR 4 CP 206 7.8, 7.21, 9.28
Tension Overhead Electric (Pty) Ltd v. National Employers General Insurance Co Ltd
[1990] 4 SA 19011.37
Thames and Mersey Marine Insurance Co Ltd v. British and Chilean Steamship Co
[1915] 2 KB 214; aff d [1916] 1 KB 30 (CA) 15.33, 15.36, 16.21
Thames and Mersey Marine Insurance Co Ltd v. H.T. Van Laun & Co [1917] 2 KB 38
(HL) 8.77, 12.3
Thames & Mersey Marine Insurance Co Ltd v. Hamilton Fraser & Co (The Inchmaree)
(1887) LR 12 App Cas 484 (HL) 8.37
Theodorou v. Chester [1951] 1 Lloyds Rep. 204 8.6
Thomas Wilson Sons & Co v. Owners of Cargo of the Xantho (The Xantho) (1887) LR
12 App Cas 503 (HL) 7.3
Thompson v. Hopper 6 E & B 937 7.17
Thomson v. Weems (1884) LR 9 App Cas 671 (HL) 6.4
Thor Navigation Inc v. Ingosstrakh Insurance [2005] 1 Lloyds Rep. 547 15.7
Tiburon, The. Seavision Investment SA v. Evennett (Norman Thomas) and Clarkson
Puckle [1990] 2 Lloyds Rep. 418 3.15, 3.17, 3.20
Tomlinson (A) (Hauliers) Ltd v. Hepburn. See Hepburn v. A Tomlinson (Hauliers) Ltd
Tonkin v. UK Insurance Ltd [2007] Lloyds Rep. 283 13.11
Traders & General Insurance Association Ltd; ex parte Continental & Overseas Trading
Co Ltd, Re [1924] 2 Ch 187; (1924) 18 Ll. L. Rep. 450 11.38
Traders & General Insurance Association v. Bankers & General Insurance Co (1921) 9
Ll. L. Rep. 223 8.10
Tradigrain SA v. S.I.A.T. SpA [2002] 2 Lloyds Rep. 553 1.32, 2.23, 2.25, 2.27, 3.3,
3.62
Trading Co L&J Hoff v. De Rougement (1929) 34 Com Cas 291 5.21
Tramp Shipping Corp v. Greenwich Marine Inc (The New Horizon) [1975] 2 Lloyds
Rep. 314 (CA) 10.37
Trinder Anderson & Co v. Thames and Mersey Marine Insurance Co [1898] 2 QB 114
(CA) 7.17, 7.43, 8.39
Turner v. Grovit, Case C–159/92 [2004] ECR I–3565 (ECJ) 2.29
United States v. Reliable Transfer Co Inc 1975 AMC 541 14.39
United States of America v. Atlantic Mutual Insurance Co 1952 AMC 659 14.40
Usher v. Noble (1810) 12 East 639 15.14
Vacuum Oil Co Ltd v. Union Insurance Society of Canton Ltd (1926) 24 Ll. L. Rep. 188
8.31, 13.50, 13.53
Vasso, The. Noble Resources and Unirise Development v. George Albert Greenwood
[1993] 2 Lloyds Rep. 309 6.27, 14.4, 14.5, 14.9, 14.17– 14.20
Velos Group Ltd v. Harbour Insurance Services Ltd [1997] 2 Lloyds Rep. 461 3.44
Vergina (No. 2), The. Seashore Marine SA v. Phoenix Assurance plc [2002] Lloyds
Rep. IR 51 14.24
Verna v. Trading Pty Ltd v. New India Assurance Co Ltd [1991] 1 VR 129 (Sup Ct Vict)
1.25, 11.5, 11.35, 11.38, 11.39, 11.54, 11.60
Wadsworth Lighterage & Coaling Co Ltd v. Sea Insurance Co Ltd (1929) 34 Ll. L. Rep.
285 (CA) 8.14
Waters v. Monarch Fire and Life Assurance Co (1856) 5 El & Bl 870 4.9, 16.9
Wayne Tank and Pump Co Ltd v. Employers Liability Assurance Corp Ltd [1973] 2
Lloyds Rep. 237 (CA) 6.34, 7.14
Webster v. General Accident, Fire and Life Assurance Corp Ltd [1953] 1 Lloyds Rep.
123 13.22
Weddell v. Road Transport & General Insurance Co Ltd [1932] 2 KB 563; (1931) 41 Ll.
L. Rep. 69 16.28
Weissberg v. Lamb (1950) 84 Ll. L. Rep. 509 14.15
Westminster Fire Office v Reliance Marine Insurance Co (1903) TLR 668 11.44, 11.46
White Rose, The. Edwards (John) v. Motor Union Insurance Co Ltd [1922] 2 KB 249;
(1922) 11 Ll. L. Rep. 170 16.13
Whiting v. New Zealand Insurance Co Ltd (1932) 44 Ll. L. Rep. 179 8.25, 15.20
Wiggins Teape Australia Pty Ltd v. Baltica Insurance Co Ltd [1977] 2 NSWR 77 11.38,
11.39, 11.53
William Soanes Ltd v. FE Walker Ltd (1946) 79 Ll. L. Rep. 646 11.27, 11.28
Williams v. Atlantic Assurance Co Ltd (1932) 42 Ll. L. Rep. 206; affd [1933] 1 KB 81;
(1932) 43 Ll. L. Rep. 177 (CA) 5.21, 15.3
Wilson v. Jones (1867) LR 2 Ex 139 4.5, 4.22
Wilson v. Nelson (1864) B & S 354 15.6
Wilson Bros Bobbin Co Ltd v. Green [1917] 1 KB 860 13.58, 13.67, 13.68, 13.70
Wilson Holgate & Co Ltd v. Lancashire & Cheshire Insurance Corp Ltd (1922) 13 Ll. L.
Rep. 486 5.28
Winkfield, The [1902] P 42 (CA) 4.9
WISE (Underwriting Agency) Ltd, Dornoch Ltd (suing on its own account and on behalf
of all remaining Lloyds Underwriters subscribing to policy number MF002660K) v.
Grupo Nacional Provincial SA [2003] EWHC 3038 (Comm); affd [2004] 2 Lloyds
Rep. 483 (CA)@5.4, 5.18, 5.25, 5.45–5.47
Wisenthal v. World Auxiliary Insurance Corp Ltd (1930) 38 Ll. L. Rep. 54 13.10
Wooldridge v. Boyell (1778) 1 Doug KB 16 12.18
Wunsche Handelsgesellschaft International mbH v. Tai Ping Insurance Co Ltd, 30 July
1996, unreported; affd on other points [1998] 2 Lloyds Rep. 8 (CA) 1.25, 4.3, 4.4,
4.16, 4.17, 4.18
Xantho, The. Thomas Wilson Sons & Co v. Owners of Cargo of the Xantho (1887) LR
12 App Cas 503 (HL) 7.3
Yorkshire Dale Steamship Co Ltd v. Minister of War Transport (The Coxwold) [1942] 1
KB 35; (1941) 70 Ll. L. Rep. 236 (CA); revsd (1942) 73 Ll. L. Rep. 1 (HL) 7.13,
10.1
Yorkshire Insurance Co Ltd v. Campbell [1917] AC 218 (PC) 3.37
Yorkshire Insurance Co Ltd v. Nisbet Shipping Co Ltd [1961] 1 Lloyds Rep. 479 15.36,
15.37, 16.4
Yorkshire Water Services Ltd v. Sun Alliance and London Insurance plc (No. 1) [1997]
2 Lloyds Rep. 21 (CA) 1.32, 7.3, 14.1, 14.3
Young v. Sun Alliance and London Insurance Ltd [1976] 2 Lloyds Rep. 189 (CA) 9.9
Zephyr, The. General Accident Fire and Life Assurance Corp Ltd v. Peter William
Tanter [1984] 1 Lloyds Rep. 58; revsd [1985] 2 Lloyds Rep. 529 (CA) 5.6
TABLE OF LEGISLATION
(References in bold indicate where material has been reproduced)
Act of 1795 (35 Geo III, c.63) 1.7, 1.1.10

Act of Elizabeth I 1601 (43 Elizabeth, c.12) 1.2
Arbitration Act 1996 s. 9(1) 2.31
49(3) 13.8
Atomic Energy Act 1954 ss. 1(1), 5(3) 10.56
Brussels Convention (International Convention for the Unification of Certain Rules of
Law with Respect to Collision between Vessels) 1910 14.9
Carriage by Air and Road 1979 11.34
Carriage of Goods by Road Act 1965 11.34
Sched. 11.34
Carriage of Goods by Road Convention 11.34
Carriage of Goods by Sea Act 1971 3.43
Civil Liability (Contribution) Act 1978 14.39, 16.40
Civil Jurisdiction and Judgments Act 1982 s. 42 2.19
Civil Jurisdiction and Judgments Act 1991 2.23
Civil Jurisdiction and Judgments Order 2001 (SI 2001/3929) 2.18
Civil Jurisdiction and Judgments Regulations 2007 (SI 2007/1655) 2.23
Civil Procedure Rules 1998 (SI 1998/3132) PD16, para. 13 13.4
r. 1.1(1) 13.6
(2)(c) 13.6
44.3(1) 13.6
(2)(a) 13.6
(4) 13.6
44.4(1)(a), (b) 13.6
(2)(a), (b) 13.6
(3) 13.6
58.14 1.25
Constitution Reform Act 2005 Pt. 3 10.38
s. 40 10.38
Contracts (Applicable Law) Act 1990 2.6, 2.14
Contracts (Rights of Third Parties) Act 1999 3.16, 3.53
Council Directive 73/239/EEC, First Non-Life Directive 2.28
Art. 5(d) 2.10
(iii) 2.12
Council Regulation 44/2001/EC of 22 September 2000 (Judgments Regulation) 2.18,
2.19, 2.20, 2.23, 2.25, 2.26, 2.28, 2.29
s. 3 2.20, 2.26, 2.27
Art. 2 2.19
9 2.19
(1)(b) 2.24, 2.26, 2.27
(c) 2.19
(2) 2.19
13(2) 2.19
(5) 2.19, 2.26
14 2.19
(1)–(4) 2.27, 2.28
(1) 2.26
(a), (b) 2.27
(4) 2.26, 2.27
(5) 2.28
23 2.20–2.22, 2.24, 2.25
(1) 2.19, 2.20, 2.25
(3) 2.21
27 2.29
28 2.29
(1), (3) 2.29
60(1), (2) 2.19
Council Regulation 593/2008/EC of 17 June 2008 (Rome I Regulation) 2.6
Defence of the Realm Act 1914 7.52
Finance Act 1959 3.27
s. 30 3.25
Finance Act 1970 s. 30 3.25
Financial Services and Markets Act 2000 1.21, 2.6, 2.8
Financial Services and Markets Act 2000 (Law Applicable to Contracts of Insurance)
Regulations 2001 (SI 2001/2635) 2.6, 2.8
reg. 2(1) 2.9, 2.10
(2)(b) 2.8
(d) 2.8, 2.10
(ii) 2.9, 2.11
(3)(b) 2.9
4(2) 2.10
(7) 2.6, 2.10
(8) 2.6
6(1) 2.10
7(3) 2.13
Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (SO
2001/544)
Sch. 1, Pt. 1 2.8
Florentine Ordinance 1523 1.1
Gambling Act 1845 4.2
Gambling Act 2005 4.2
s. 335 4.2
Hague and Hague-Visby Rules 16.11
Art. III(1) 5.51, 8.64, 14.33, 14.39
(a) 5.51, 8.64
(6) 16.5
(8) 16.11
IV(1) 5.51, 8.64, 14.39
Insurance Companies Act 1982
s. 94B(1) 2.11
96A(3)(d)(ii) 2.11
Sch. 3A, Pt. 1 2.11
International Salvage Convention 1989 14.24
Art. 6(2) 14.24
Judicature Act 1873 s. 25(6) 3.53
Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters
Convention 1968 (Brussels Convention) 2.18, 2.26
Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters
Convention 1988 (Lugano Convention) 2.18, 2.23, 2.28
s. 3 2.24
Art. 8.2 2.24, 2.26, 2.27
12 2.27
12A 2.27, 2.28
12A.4 2.26
17 2.22, 2.24, 2.25
(1) 2.25
Jurisdiction and the Recognition and Enforcement of Judgments in Civil and
Commercial Matters Convention 2007 (Lugano Convention) 2.28
Law of Property Act 1925
s. 36 3.53
136 16.6
Law Reform (Married Women and Joint Tortfeasors) Act 1935 s. 6(1)(c) 14.39
Limitation Act 1980 13.4
s. 5 13.4
Lloyds Act 1871 1.4
Marine Insurance Act 1745 4.2
Marine Insurance Act 1788 3.36, 4.2
s. 2 3.36
Marine Insurance Act 1906 1.3, 1.9, 1.21, 1.29, 2.4, 3.24, 3.25, 3.27, 3.49, 3.53, 4.16,
5.51, 6.18, 7.2, 10.20, 10.38, 10.62, 11.2, 11.14, 11.15, 13.20, 13.21, 13.46, 14.1,
15.5, pp. 365–387
s. 1 1.21, 1.2
Marine Insurance Act 1906—cont.
s. 2 11.5
(1) 1.21, 1.23, 1.24, 1.25, 1.28
(2) 1.21, 1.23, 1.25, 1.26, 1.28
3 1.21
(2) 1.22
4 4.2
(1) 4.2
5(2) 4.1, 4.4
6 4.2, 13.64
(1) 4.18, 4.19, 4.20
(2) 4.6
7(1), (2) 4.6
16(2) 15.14
(3) 4.7, 15.3, 15.13, 15.14
17 5.2, 5.16, 5.17, 8.39, 13.9
18 5.5, 5.6, 5.8, 5.10, 5.11, 5.16, 5.44
(1) 5.51
(2) 5.12
(3) 5.38
(a) 5.38
(b) 5.38, 5.39, 5.47, 5.48
(c) 5.38, 5.44, 5.47
(d) 5.38, 5.49
(5) 5.10
19 5.11
(a), (b) 5.11
20(1), (2) 5.52
(3), (4), (5) 5.55
(6), (7) 5.54
21 5.6
22 3.25, 3.49
23(1)–(5) 3.27
(1) 3.49
24(1) 3.25, 3.49
25(1) 11.5
26(1) 3.49
(2) 5.20
27(2) 15.6, 15.7
(3) 5.21, 15.2, 15.9, 15.33
29(1) 3.4
(3) 3.9, 15.4
(4) 3.9, 15.4, 15.9
30 1.27, 3.41, 12.17
31 8.79
32 16.25, 16.26, 16.43
(2)(b) 16.46
ss. 33–35 6.25
33–41 6.1
s. 33 6.27, 6.33, 8.64, 8.71
(1) 6.1
(3) 5.49, 6.4, 6.5, 6.18
34 6.8
(1) 6.9
(2) 6.10
35(1), (2) 6.13
(3) 6.11, 6.13
36 6.3
(1) 6.20
ss. 38–41 5.50
s. 38 6.3, 6.20
39(1) 5.51, 6.3, 8.64
s. 39(5) 3.32, 7.42, 7.43, 8.39, 8.69
40(2) 5.51, 6.3, 8.64
41 6.3, 6.20–6.23, 8.42
ss. 42–49 11.1, 11.5, 12.12
s. 42 11.3
44 3.43, 12.16, 12.17, 12.18, 12.21, 12.22, 12.24
45 12.12, 12.13, 12.17
(1) 12.12, 12.13
(2) 12.12
46(1) 11.68
(2)(a), (b) 11.68
48 1.25, 11.38, 11.39, 11.66
49 11.39, 11.66
(1)(e) 11.66
50 3.54, 3.55
(2) 3.54, 8.46
(3) 3.50, 3.52, 3.56
52 3.44, 3.46, 3.47
53(1) 3.45
(2) 3.25, 3.26, 3.46
54 3.46
55 6.33, 6.34, 7.5, 7.8, 7.9
(1) 7.9, 7.31, 7.45
(2) 6.33, 14.20
(a) 7.9, 7.17, 7.18, 7.43, 8.39, 14.7, 14.20
(b) 6.33, 7.20, 8.49, 13.69, 14.15, 15.21
(c) 6.33, 7.28, 8.9, 8.11, 8.12, 8.13, 8.15, 8.16, 8.22, 8.23, 8.37, 8.38, 14.14
56(1) 13.12, 13.35
(2) 13.12
57 13.20, 13.32
(1) 13.32
60 13.42, 13.53, 13.58
(1) 13.42
(2)(i) 13.20, 13.43
(iii) 13.42, 13.46, 13.48, 13.59
61 13.49, 13.51
62 13.49
(5) 14.23
(7) 13.50, 13.51
(8) 13.50
63(1) 13.52, 15.23, 15.39, 16.23, 16.24
64(2) 14.26
65(1) 14.28
(2) 14.24, 14.25, 14.26
66(2) 14.31
(4) 9.26, 14.34
(6) 9.36, 14.36
67 13.8, 15.1
(1) 15.1, 15.3
68 15.1
(1) 15.1
(2) 15.1, 15.3
69 15.26
71 15.12, 15.18, 15.21
(1) 15.18, 15.21, 15.25
(2) 15.13, 15.25
(3) 15.15, 15.16, 15.19, 15.20, 15.21, 15.25
s. 71(4) 15.19, 15.21
72 15.14
(2) 15.14
73 14.30, 14.38
75(1) 15.21
(2) 15.9
78 8.53, 14.1, 14.5, 14.18
(1) 14.4, 14.11, 14.16
(3) 14.14
(4) 7.18, 8.44, 14.4, 14.5, 14.7, 14.17, 14.20
79 16.12–16.14, 16.17, 16.20, 16.2
(1) 13.52, 16.3, 16.13
(2) 16.13
80 16.39, 16.40, 16.43
(1) 16.44–16.46
81 15.25, 15.26, 15.28–15.30, 15.32, 15.35, 15.36
84(3)(a) 5.16
(f) 16.38
90 15.21
91(2) 1.3, 5.12
Sched. 1 3.41, 10.1, 10.38, 11.3, 12.17, 14.3, 14.22
r. 1 4.16, 4.18
rr. 2–7 3.41
r. 4 10.29
5 11.41
7 9.9, 9.32
8 9.45, 10.5, 10.38
9 9.35, 13.21
10 10.21, 10.38
11 9.35
17 3.40–3.42, 9.29, 10.29, 10.38
Sched. 2 3.36
Marine Insurance (Gambling Policies) Act 1909 4.2
Maritime Conventions Act 1911 14.39
s. 1(1) 14.39
Merchant Shipping Act 1995 s. 187 14.39
Sched. II 14.24
Misrepresentation Act 1967 5.16
s. 2(2) 5.53
Nuclear Installations Act 1965 10.56
Nuclear Installations (Licensing and Insurance)
Act 1959 10.56
Offences against the Person Act 1864 s. 2(1)(f) 10.47
Prevention of terrorism (Temporary Provision) Act 1989
s. 20(1) 10.47
Public Health (Ships) (Amendment) (England) Regulations 2007 (SI 2007/1446) 8.38
Public Order Act 1986 p. 393
s. 1 10.38, 10.39
10(2) 10.38
Reinsurance (Acts of Terrorism) Act 1993 10.43, pp. 395–396
s. 2(2) 10.43
Rome Convention 1980 2.6, 2.13, 2.14
Art. 3(1) 2.2, 2.6, 2.14
4 2.6
(1) 2.2
Stamp Act 1795 3.25
Stamp Act 1981 3.25
Statute Law Revision Act 1927 3.36
Supreme Court Act 1981 s. 35A 13.7, 13.8
Theft Act 1968 s. 5 13.2
Third Parties (Rights against Insurers) Act 1930 pp. 389–391
Warsaw Convention 8.40
World Health Organisations International Health Regulations 2005 8.38
York Antwerp Rules 2004
Rule X 14.33
(b) 9.23
XII 9.23
XIV 14.33
CHAPTER 1
HISTORY AND DEFINITION OF MARINE CARGO
INSURANCE
HISTORICAL BACKGROUND
The London market
Origins of marine cargo insurance
1.1 The origins of marine insurance are obscure1 and not as ancient as, for example,
general average.2 The written evidence includes an early form of marine cargo policy
prescribed by a Florentine Ordinance of 1523 which insured goods on a named ship
against dangers of the sea, fire, jettison and like perils “even such as cannot be thought
of”.3 Many of the risks insured under that form of policy show a remarkable
resemblance to cargo insurance cover for named perils still underwritten today.4 The
first recorded policies in English followed in 1555, though these early policies were
less developed than the Italian forms.5 The sacking of Antwerp by the Spanish in 1576
led to London becoming a centre for marine insurance and benefiting from the wordings
and customs that had originated in Florence and Genoa and had spread to Northern
Europe, particularly Brussels and Antwerp.6 The development of London as a marine
insurance centre was opportune as it coincided with the expansion of markets and trade
in the reign of Elizabeth I.7
1.2 In 1601 Parliament first regulated marine insurance by an Act of Elizabeth I
entitled “An Act Concerning Matters of Assurances Used Among Merchants”,8 which
formalised a system for resolving disputes by ad hoc arbitration by a Court of Aldermen
of the City of London.9 Works on insurance law and practice were by then in existence
as there was published at Rouen about the year 1600 a little book called Le Guidon de
la Mer containing forms of marine policies then in use and a general account of marine
insurance.10 It was in the context of the history of marine cargo insurance that
MacKinnon L.J. said, “this law of marine insurance is nothing more than a collection of
rules for the construction of the ancient form of policy, and such additions as are from
time to time annexed to it”.11 By 1613 a cargo policy insured goods to be shipped on the
vessel Tiger from London to Zante on terms that reflected the main substance of the
Lloyds policy as it would become and as it existed until 1982.12
1.3 The increase in trade in the nineteenth century led, in turn, to the further
development of marine insurance law in England, which, as it exists today, was much
influenced by the use in the nineteenth century of special juries of experienced
merchants, brokers, adjusters and insurers who assisted the judges, notably Lord
Mansfield, in deciding commercial and mercantile cases.13 This created a body of 2,000
cases, some in the form of jury decisions without reasons, but others with reasoned
judgments or addresses from Lord Mansfield to the jury, which articulated the
fundamental rules and practices of marine insurance. These decisions, in turn, were
codified by Sir Mackenzie Chalmers in the Marine Insurance Act 1906.14 The cases
from which the law of marine cargo insurance has developed, both before and after the
Act, involve shipments from all parts of the world and tell stories of cargoes from
China,15 from the interior of Africa16 and journeys through South America in the face of
delays caused by revolutions.17
The development of Lloyds and insurance companies
1.4 The development of Lloyds of London (“Lloyds”) can be traced back to the coffee
house of Edward Lloyd founded in about 1689,18 but it was not until the early 1770s that
Lloyds became an organisation of underwriters under the guidance of John Julius
Angerstein (the “Father of Lloyds”).19 Lloyds went on to become regulated by various
Lloyds Acts commencing with the Lloyds Act 1871. Lloyds had long been in
competition with marine insurance companies. In the early days (from 1720 onwards)
the only two insurance companies authorised to conduct marine business were the Royal
Exchange Assurance and the London Assurance. In 1824 marine business was opened to
other companies,20 though it was not until 1884 that the Institute of London Underwriters
(“ILU”) was incorporated.21
1.5 Whilst Lloyds and the ILU were developing in London, insurance businesses
were also developing worldwide. For example, in Canton in 1835 a group of traders
engaged in exporting cargo from China formed a mutual association to pool the hazards
of marine cargo adventures.22 In Japan, in August 1879, The Tokio Marine & Fire
Insurance Co Limited23 was founded. That company, in common with other Japanese
and Korean Insurance Companies, underwrites international marine cargo business on
English policy forms subject to the Institute Cargo Clauses with claims adjusted in
accordance with English law and practice.24
The London market
1.6 Lloyds and the companies still compete for marine cargo insurance business, but the
constitution of both has changed. Lloyds is no longer a grouping of individuals
underwriting business in syndicates, which had existed from before the time of John
Julius Angerstein, but of capital providers, themselves largely corporate entities,
operating synidi-cates under the Lloyds franchise. The Institute of London Underwriters
merged in 1998 with the London International Insurance and Reinsurance Market
Association (“LIRMA”) to create the International Underwriting Association of London
(“IUA”). The London insurance market for marine cargo business therefore consists
principally of syndicates at Lloyds and IUA insurance companies. Finally, a key role in
the market is played by the brokers who produce the business, identify the specialist
leading underwriters for the class of business in question (e.g., marine cargo insurance)
and negotiate rates and terms on behalf of their principals, the assureds.25
Policy forms and Institute Clauses
The SG (ships & goods) and G (goods) Policy Forms
1.7 The marine policy form grew up on the basis of the traditional policy, the origin of
which dated back to the middle ages26 or, at least, the sixteenth century.27 In 1795
Parliament standardised this form in an Act granting stamp duties on “sea insurance”.28
That Act had scheduled to it separate policy forms for ship (the “S” Form) and for
goods (the “G” Form) as well as the combined ship and goods (or “SG” Form). The G
Form was only slightly different from the SG Form—it commenced the risk with the
words “from and immediately following the loading thereof aboard the said ship” rather
than “the loading thereof aboard the said ship” as appears in the SG Form.29 The risk
terminated under the G Form when the goods had been “safely landed”, whilst under the
SG Form the wording was “discharged and safely landed”. But, in truth, there was no
intention to create different duration provisions under what were standard forms
scheduled to the 1795 Act. The separate S and G Forms fell into disuse possibly
because it was more convenient to pay duty on the combined SG Form30 which had the
advantage that it could be used either for ship or cargo. In any event the SG Form was
agreed by Lloyds underwriters at a General Meeting at the Royal Exchange held on 12
January 177931 and was soon adopted by the two companies authorised at that time to
underwrite marine insurance.32
1.8 In the course of time the SG Policy Form, having originated in the sixteenth
century or before, came to need considerable modification and revision. This was done
by attaching numerous clauses amending the policy terms which produced an insurance
contract much criticised in the courts as “clumsy, imperfect and obscure”.33 These
complaints from the judges34 culminated in the remarks by Mocatta J. in The Anita,35
and UNCTADs recommendations,36 for the updating of the SG Policy Form. In 1982
Donald R. OMay37 was courageous enough not merely to modify, but to jettison, the SG
Policy Form altogether.38 Nevertheless, much of the wording that had been in the SG
Policy Form was included in the new Institute Clauses with updated wording where
necessary.
The MAR Policy Form and the Institute Clauses
1.9 A “new” policy form, known as the MAR Form, was adopted in 1982.39 It was a
framework policy form, little more than a “jacket”,40 as the substance of the cover had
been moved into the Institute Clauses. This sidestepped the problems that had arisen
with the SG Policy Form. At the same time this approach retained within the Clauses the
strength of the law that had been built up in the decisions preceding the Act of 1906 and
in the cases decided in the twentieth century. It was later to be said, “there cannot have
been a better insurance document in a century”.41
The Market Reform Contract
1.10 Nevertheless there remained much room for improvement in efficiency and
professionalism in the London market. Examples still occurred of the so-called kebab
principle of draughtsmanship, where clauses taken randomly from various sources were
skewered onto the policy,42 or, worse still, had not been agreed by the time a loss
occurred. In late 1999 and early 2000 the London Market Principles Slip programme
emerged. This initiative brought about necessary reforms, a key part of the programme
being the London Market Principles (“LMP”) 2001 Slip.43 The LMP Slip, unlike the Act
of 1795, which imposed a policy form, introduced a flexible but consistent insurance
contract which provided a uniform common basis for the structure of the slip to be used
in the London market whilst, at the same time, ensuring that the conditions of the contract
(i.e., the wording, clauses, conditions and amendments) were clearly identified and
defined. The LMP Slip also ensured that other matters, such as law and jurisdiction and
payment terms, were clearly defined and established at the outset. The Market Reform
Contract (“MRC”) has now replaced the LMP Slip and has been adopted for all London
market marine cargo business.44
The development of the Institute Cargo Clauses
1.11 The Institute of London Underwriters issued the first Institute Cargo Clauses in
1912. Work on standard cargo clauses had begun in 1908, but was galvanised by the
disastrous underwriting results of 1912 culminating in the loss of the Titanic. As a result
a sub-committee consisting of two company underwriters, two Lloyds underwriters and
two representatives from the brokers association was appointed by the Institute to
prepare standard clauses for cargo which were introduced with effect from 1 August
1912.45 The standard clauses, which covered named perils,46 were actively updated
throughout the early twentieth century and standard all risks clauses, the Institute Cargo
Clauses (All Risks), were introduced on 1 January 1951. The Institute Cargo Clauses
were reissued in 1963 and radically revised in 1982 when the MAR Form was
introduced as a substitute for the SG Policy Form.
1.12 The revision of the Institute Cargo Clauses is now carried out under the auspices
of the Joint Cargo Committee (“JCC”), which was established in 1942. This consists of
leading underwriters active in the London47 marine cargo market representing both
Lloyds and IUA companies, and in that sense “joint”. The JCC is supported
administratively by the Lloyds Market Association (“LMA”) which arranges for
worldwide market consultation, approval, and promulgation of the Institute Cargo
Clauses.48
1.13 In late 2005 it was decided by the JCC that a review of the Institute Cargo
Clauses should be undertaken in the light of changes in the risks facing underwriters,
particularly from terrorism, as well as developments in market conditions and cargo-
handling practices. Accordingly in February 2006 a questionnaire was issued by the
LMA to interested parties worldwide and later that year the JCC set up a working party
to analyse the feedback received and carry out the review. The working party reported
to the JCC in January 2008, and following consideration of its report, the JCC decreed
that the revised Institute Cargo Clauses be distributed to the worldwide cargo market
for an initial period of consultation ending on 31 July 2008. Modifications made as a
result of that consultation were agreed later in the year and the revised Institute Cargo
Clauses 1/1/2009 were introduced at the beginning of 2009 to run in parallel with the
1982 Clauses for an initial period.49 This book considers both sets of Clauses.50 Where
it is necessary to distinguish between the two sets of Clauses, the Institute Cargo
Clauses 1/1/82 are referred to as the “1982 Clauses” and the Institute Cargo Clauses
1/1/09 are described as the “revised Clauses”.
THE INSTITUTE CARGO CLAUSES
Types of cover under the Clauses
Physical loss of and damage to the cargo and specified expenses
1.14 A typical marine cargo policy, underwritten on the terms of the Institute Cargo
Clauses, is primarily concerned with physical loss or damage to the cargo, not financial
losses or expenses.51 However, cover extends to reimbursement of the liability for two
well-recognised categories of marine expense connected with the carriage of cargo by
sea, general average and salvage.52 Expenses reasonably incurred to avert or minimise
a loss, known as sue and labour, are also recoverable.53
1.15 Cargo insurance also extends beyond physical loss and damage to the goods in
another important respect. When underwritten on a voyage basis, which is invariably the
case, cargo insurance covers loss of the adventure. The position is that a policy on
goods covers a composite interest, the physical loss of the goods by destruction, damage
or deprivation, and also the expected benefit from their arrival, a dual interest which
has been described as “chattels-cum-adventure”.54 The adventure may be lost although
the goods are undamaged and still in the possession and control of the assured, but are
unable to reach their destination.55 The result may be loss of market or loss of another
benefit, such as use of machinery in a factory. Loss of the adventure involves loss of a
distinct and additional interest, separate from the goods themselves, and is dealt with in
Chapter 13 under the heading Claims and Losses.56
The structure of the Clauses
1.16 The Institute Cargo Clauses now provide standard terms of cover without the need
for reference to any policy form, whether the MAR Form,57 or the more recent Market
Reform Contract.58 This structure follows the recommendations in the 1978 Report by
the United Nations Conference on Trade and Development.59 This stated:
“The antiquated Lloyds SG Form should be revised and updated. Specifically, the ‘perils’ clause should be revised to
make it comprehensible in the modern context as well as to eliminate war risk terminology. Furthermore, the perils
clause should be combined with the other appropriate Institute Clauses so that the designated risks appear in one
unified risks clause. Consideration should be given to altering the method of granting insurance coverage from the
enumeration of perils method to an all risks grant of overage, minus specific exceptions. Consideration should also be
given to facilitating the method of granting war risk insurance. All these reforms are designated to make the insurance
coverage easier to understand and to interpret, particularly in view of its international use.”
When the Institute Cargo Clauses were redrafted in 1982, in accordance with these
recommendations, the risks covered were transferred from the SG Form into the 1982
Clauses themselves, with the whole document given a clear and logical structure. There
are four main parts: the risks covered; the limitations and exclusions; the duration of
cover and matters related to claims.
How the clauses should be construed
1.17 The Institute Cargo Clauses are subject to the same general principles of
construction as any other commercial contract. These principles were summarised by
Lord Hoffmann in Investors Compensation Scheme Limited v. West Bromwich Building
Society:60
“(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person
having all the background knowledge which would reasonably have been available to the parties in the situation in
which they were at the time of the contract.
(2) The background was famously referred to by Lord Wilberforce as the ‘matrix of fact’, but this phrase is, if
anything, an understated description of what the background may include. Subject to the requirement that it should
have been reasonably available to the parties and to the exception to be mentioned next [previous negotiations], it
includes absolutely anything which would have affected the way in which the language of the document would have
been understood by a reasonable man.”
The right to refer to the matrix opens the door to background evidence so the court is
aware of the business context in which the parties reached their agreement. The rule
does not permit the parties to introduce their own subjective intentions as to what the
words of the contract meant.61
1.18 Lord Hoffmann, after pointing out that the law excludes from the admissible
background the previous negotiations of the parties, continued as follows:
“(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing
as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the
document is what the parties using those words against the relevant background would reasonably have been
understood to mean. The background may not merely enable the reasonable man to choose between the possible
meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the
parties must, for whatever reason, have used the wrong words or syntax. (See Mannai Investments Co Ltd v. Eagle
Star Assurance Co Ltd.62)”
Lord Hoffmann concluded his summary of the rules by pointing out that, if something has
gone wrong with the language, in terms of a linguistic mistake, the law does not require
judges to attribute to the parties an intention which the parties plainly could not have
had.
1.19 These rules may be supplemented by the general proposition that the
interpretation of contracts has tended to move away from more literal methods of
interpretation to a more commercial approach.63
1.20 It must be stressed in this context that the Institute Cargo Clauses are a relatively
short commercial document that, in general, eschews definitions. They are not drafted as
a statute, or even a formal legal contract, which typically starts (or ends) with a number
of pages of defintions. The courts have consistently taken a commercial and purposeful
approach,64 and unduly sophisticated technical arguments of construction have not met
with favour. For example, in Shell International Petroleum Co Ltd v. Caryl Antony
Vaughan Gibbs (The Salem)65 where a technical point was raised (but not taken) on the
wording of the second paragraph of the Seaworthiness Admitted Clause in the 1963
Institute Cargo Clauses (FPA), Kerr L.J. said:66
“In my view this construction is too technical in the face of the agreed historical reason
and clear intention of this sentence.”
Kerr L.J. went on to say that one should not defeat the clear intention of the sentence in
question in the Institute Cargo Clauses by taking a pedantic view, adding that marine
policies “must be construed sensibly”.67 The very point that such a technical issue was
taken provoked Donald OMay, who was the principal draftsman of the 1982 Clauses, to
emphasise that the Clauses constitute a succinct commercial document saying, “Can it be
doubted that clauses drawn up in the Temple would inevitably be longer and more
verbose, with supplemental clauses to try to cope with every possible solution or
ambiguity?”68
MARINE CARGO INSURANCE DEFINED
The circumstances in which a cargo insurance contract amounts to
“marine insurance”
1.21 The question of whether a cargo insurance contract is a contract of “marine
insurance” with the consequences that follow, including entitlement to sue and labour
expenses,69 and the right to claim for loss of the adventure,70 depends on a three-stage
consideration of the definitions in the Marine Insurance Act 1906. The analysis begins
with the general definition of a contract of marine insurance, as defined in Section 1 and
3 of the 1906 Act, then looks at land risks incidental to sea voyages, as set out in section
2(1), and finally considers risks analogous to marine adventures, as provided for in
section 2(2). The analysis is undertaken in the light of the fact that modern contracts of
marine insurance in the London market do not use the SG Form of Policy appended to
the 1906 Act. It is necessary therefore to identify the extent to which the “form of
policy” is a requirement of marine insurance and, to the extent that it is, to explore what
a “policy” means in modern practice.
Marine insurance defined
1.22 The Marine Insurance Act 1906 Section 1 defines “marine insurance” as follows:
“A contract of marine insurance is a contract whereby the insurer undertakes to
indemnify the assured, in a manner and to the extent thereby agreed, against marine
losses, that is to say, the losses incident to marine adventure.”
There is a “marine adventure”, in particular, when “any goods or other moveables are
exposed to “maritime perils” being “the perils consequent on, or incidental to, the
navigation of the sea”.71 It is to be noted that no particular form of policy is required by
these sections of the Act so that an insurance of the carriage of cargo by sea, against the
perils of the seas, may be in any form.
Land risks incidental to sea voyages
1.23 The Marine Insurance Act 1906 goes on to consider mixed sea and land risks in
which connection it is provided in section 2(1) as follows:
“2(1) A contract of marine insurance may, by its express terms, or by usage of trade, be extended so as to protect
the assured against losses on inland waters or on any land risk which may be incidental to any sea voyage.”
This sub-section does not define a “contract of marine insurance” but states that
where such a contract is already in existence it may be “extended” so as to protect the
assured against losses on any land risk which may be incidental to any sea voyage. It
will be noted again that there is no requirement that the policy be in “the form of marine
policy” which is solely a requirement of section 2(2) discussed below.72
1.24 The provisions of section 2(1) of the Act are apt to cover a traditional marine
cargo insurance written on a warehouse to warehouse basis including land risks
incidental to sea voyages. However, many cargo insurances today involve extended land
transits by road, to which the sea carriage itself may be incidental, while others involve
postal sendings73 or carriage by air.74 There is also extensive cover for cargo in store,
frequently on Institute Cargo Clauses terms. Are these insurances “marine insurance”?
1.25 Where cargo is insured by a marine form of insurance contract for a transit
which includes a sea voyage for the greater part of the journey, that constitutes “marine
insurance”. In Leon v. Casey,75 in connection with an order for ships papers,76 it was
held that a policy on warehouse-to-warehouse terms, and Institute Clauses, for a journey
from Cairo to Alexandria and thence by sea to Jaffa was a marine risk. In such
circumstances, the “adventure” includes “both the adventure by sea and upon land” so
the provisions of the 1906 Act, including, for example, the requirement for reasonable
despatch under section 48, will apply to the land journey as well as the sea voyage.77
Modern examples include the case of Wünsche Handelsgesellschaft International
MBH v. Tai Ping Insurance Co Ltd,78 where goods began their insured transit in
factories deep in the interior of China and were then carried to Schenzen, adjacent to
Hong Kong, by river and road before being containerised for transit to Europe.
However, not all inland journeys, however long and arduous, will be covered as there
must also be significant carriage by sea. In Schloss Brothers v. Stevens79 there was an
insurance on goods, which attached when the goods were discharged in South America,
and insured the cargo for a journey to places in the interior of Colombia by railway,
mulepack and river steamer. It was held by Mathew L.J. that this was not a marine
adventure.80 It is clear that under these authorities, which concern mixed sea and land
risks, a significant part of the transit must involve a sea voyage. There appears to be
little room for arguing that an insurance contract covering cargo in transit by road, or
covering cargo in store, is marine insurance within the terms of this sub-section.81
Risks analagous to a marine adventure
1.26 The question therefore arises as to the scope of section 2(2) of the Act which
provides as follows:
“2(2) Where a ship in course of building, or the launch of a ship, or any adventure analogous to a marine adventure,
is covered by a policy in the form of a marine policy, the provisions of this Act, in so far as applicable, shall
apply thereto; …”
Can the words, “any adventure analogous to a marine adventure” extend to cargo
insurance by road or even by air? There are two issues here, firstly, the contract must be
in the form of a marine policy and, secondly, the insurance must be “analogous” to a
marine adventure.
1.27 The form of policy contemplated by the Act was originally, no doubt, the SG
Form scheduled to the Act. However, in so far as the Act recognises that the policy
“may be” in such a form, it would seem that it is open to consider other forms.82 Bearing
in mind that concepts peculiar to marine insurance, derived from the SG Form, have
been carried into the Institute Cargo Clauses,83 it is submitted that the Clauses
themselves may constitute a marine “form of policy” considering also the modern
practice where a policy form itself is no longer used but has been replaced by a Market
Reform Contract.84 The Institute Cargo Clauses provide, in particular, for sue and
labour, a purely marine concept,85 and for constructive total loss, again a concept
confined to marine insurance.86 It is the nature of the insurance provided that is of
importance, not the form of policy or “jacket”.87 Scrutton L.J. said, in an analogous
context, that there are “policies of marine insurance” and “policies insuring adventures
involving marine risks”.88 An insurance under the Institute Cargo Clauses is, in form as
well as substance, an insurance of an “adventure”, being a voyage policy, “involving
marine risks”.
1.28 The difficulty lies in what is “analogous to a marine adventure”. It is generally
recognised that the Institute Cargo Clauses (B) and (C) apply analogous land perils to
the sea perils, so that, for example, “capsize” becomes “overturning or derailment of
land conveyance”.89 No doubt the same approach, though not made explicit, is implicit
in the Institute Cargo Clauses (A) though the perils are not individually set out.
However, though the risks may be analogous, pure land transit does not expose the cargo
to maritime perils as maritime perils are limited to perils of the seas themselves.
Equally, a contract of insurance for storage risks, not being an extension to a sea voyage,
cannot be a contract of marine insurance within the terms of the 1906 Act either under
section 2(1) or section 2(2).
Insurance subject to the Institute Cargo Clauses
1.29 Although an insurance of cargo for land transit, carriage by air, or in store is not a
contract of marine insurance under the Marine Insurance Act 1906, as discussed
above,90 where the Institute Cargo Clauses are used this, of itself, indicates that it is the
intention of the parties that the contract of insurance should be treated as if it were a
contract of marine insurance and that the Clauses should therefore be interpreted and
construed in the light of the 1906 Act. In so far as that Act requires that there be “marine
insurance” before its application is triggered, the parties must be taken to intend that
their contract be deemed “marine insurance”. The reasoning behind this approach is set
out below first in relation to land transit, then carriage by air, and, finally, storage risks.
Carriage of cargo by land: road and rail
1.30 The issue here is not whether the adventure is a marine adventure within the
meaning of the Act, but what the parties intended by insuring on the terms of the Institute
Cargo Clauses. In Amin Rasheed Shipping Corporation v. Kuwait Insurance Co (The
Al Wahab),91 this question arose in the context of a dispute over jurisdiction and which
law was applicable to the contract. Lord Diplock, considering a hull policy on the SG
Form attaching the Institute War and Strikes Clauses Hull-Time, pointed out that
reference to the Schedule to the Act was necessary to resolve questions of construction;
that issues of valuation depended on the Act, as did the meaning and consequence of a
breach of “warranty”. He concluded:92
“… the whole of the provisions of the statute are directed to determining what are the mutual rights and obligations of
parties to a contract of marine insurance, whether the clauses of the contract are in the obsolete language of the
Lloyds S.G. policy (which, with the F.C. & S. clause added, is referred to in the Institute War and Strikes Clauses
Hulls-Time, as ‘the Standard Form of English Marine Policy’), or whether they are in the up-to-date language of the
Institute War and Strike Clauses that were attached to the policy. Except by reference to the English statute and to
judicial exegesis of the code that it enacts it is not possible to interpret the policy or to determine what those mutual
legal rights and obligations are.”
The same reasoning applies with equal force to a contract of insurance subject to the
Institute Cargo Clauses. These Clauses depend on the Act of 1906, not only for the
construction of the words used, but also for the determination of the legal rights and
obligations of the parties which depend on the application of important principles
applicable only to marine insurance such as sue and labour93 and loss of adventure.94 It
is submitted therefore that, whether the policy is a marine policy, within the rules
discussed above, or a policy falling outside those rules, because it is principally
concerned with road carriage, the use of the Institute Cargo Clauses shows an intention
by the parties that their contract of insurance should be construed in light of the Act and
treated as if it were a marine policy.
Carriage of cargo by air
1.31 The carriage of cargo in transit by air under the terms of the revised Institute Cargo
Clauses (Air)95 is to be distinguished from aviation insurance (i.e., the insurance of
aircraft or aviation liabilities). Aircraft and aviation liabilities are frequently insured on
terms that may reflect marine insurance wordings, but are not marine insurance and are
not subject to marine insurance concepts such as constructive total loss.96 Aviation
insurance is a specialised form of non-marine insurance.97 However, cargo in transit by
air under the Institute Clauses would, it is submitted, be subject to marine principles of
loss, valuation and the like as it is not aviation insurance, but a species of transit
insurance, with transit being by air rather than by land or sea.98 Accordingly, the revised
Institute Cargo Clauses (Air) omit the General Average and Both to Blame Collision
Clauses,99 as not applicable to transit by air, but do include a Salvage Charges Clause,
the Forwarding Charges Clause and the Duty of Assured Clause.100 The Air Clauses can
only be properly understood and applied in light of the principles applicable to loss of
adventure and sue and labour set out in the 1906 Act. Accordingly, the intention of the
parties must be to apply that Act so far as necessary, and though carriage by air cannot
be marine insurance as defined in the Act, it must be deemed as such so far as is
necessary to trigger the application of the Act.
Cargo in store
1.32 This issue also arises in relation to storage risks, the modern practice being to
extend cargo insurance to stock throughput, which may include significant elements of
storage, and to storage risks themselves. As we have seen from the above analysis, the
use of the Institute Cargo Clauses indicates an intention by the parties that their
insurance contract, even though it may be concerned largely with storage, should be
treated as if it were a marine policy and interpreted in the light of the 1906 Act. The
Institute Metals Storage Clauses101 put the issue beyond doubt by specifically applying
the Act as follows:102
“This insurance is subject to English law and practice and the Marine Insurance Act 1906 which is incorporated
herein. This insurance protects the Assured against land risks which are expressly to be considered as incidental to a
marine voyage or adventure for the purposes of that Act.”
In other cases of cargo in store, a choice of the Institute Cargo Clauses, which are
drafted with the 1906 Act plainly in mind, should be treated as of itself showing a
mutual intention to apply the Act and for the contract of insurance to be treated as if it
were one of “marine insurance”. The assured under such contracts of insurance would
be entitled to recover marine expenses such as sue and labour, which would not be
recoverable under non-marine insurance. In Tradigrain S.A. v. S.I.A.T. S.p.A.,103 various
parcels of vegetable oil held in storage in India, following a sea transit but separately
insured, were covered under the terms of the Institute Cargo Clauses (A). The oil was
misappropriated and a claim was made that included expenses incurred by way of sue
and labour to minimise the loss. Insurers, who contested English jurisdiction, did not
question the right to sue and labour for cargo in store, even though sue and labour is not
generally recoverable in non-marine insurance.104 Taking another example, sue and
labour expenses incurred to reduce loss of and damage to cargo being caused by
flooding of a warehouse would be recoverable, if falling within the rules and
requirements for a sue and labour claim, in the same way as expenses incurred to
prevent the flooding and sinking of a ship.105
1. Wright & Fayle A History of Lloyds, 1928, Macmillan at p. 135.

2. D. R. OMay Marine Insurance, 1993, Sweet & Maxwell at p. 1.
3. Nicolas Magens An Essay on Insurance, J. Haberkon, London, 1755, Vol. II, 4–5, where the policy is printed.
4. See Institute Cargo Clauses (B) and (C) considered later in this book in Chapter 9. It is the usual practice today
to insure cargo on all risk terms (see Chapter 8) but insurances against named perils are still underwritten.
5. Marsdens Select Pleas in the Court of Admiralty Vol. II, 45–52, referred to in Wright & Fayle, where the
history of the policy is more fully set out, at p. 137 et seq.
6. H. Bennett The Law of Marine Insurance, 2nd edn, 2006, OUP at para. 1.02.
7. Hakluyts Voyages and Discoveries (1589) concentrates on the conduct of business and, for example, “the
utilising of products of new territories for the benefit of home industries”, see Black, The Reign of Elizabeth, Oxford
History of England, 2nd edn (reprint, 1963) Oxford at the Clarendon press, at pp. 318, 319.
8. 43 Elizabeth, c.12.
9. Bennett at para. 1.35. This more expeditious forum was preferred to the Admiralty Court, at least by assured
claimants.
10. See, Forestal Land, Timber & Railways Company Ltd v. Rickards; Middows Ltd v. Robertson & Other
Cases (1941) 70 Ll. L. Rep. 173 (HL) at p. 183, per Viscount Maugham who summarises the history of cargo
insurance. That book contained descriptions of total loss entitling the assured to abandon the cargo which assisted the
House of Lords to clarify the concept of loss of the adventure and the requirement for abandonment.
11. Middows Ltd v. Robertson & Other Cases (1940) 68 Ll. L. Rep. pp. 45 at 63 (reported in the HL sub nom
Forestal Land. v. Rickards, see fn. 10 supra). F.D. MacKinnon Q.C. had been employed by Lloyds in 1921 to give
an opinion on the form of policy and was later responsible for drafting significant parts of the Institute Cargo Clauses
including the Frustration Clause; see Report HR5 by an Historic Records Working Party of the Insurance Institute
of London, 1964, The Insurance Institute of London, 2nd edn at p. 11 and at p. 20 et seq.
12. Wright and Fayle at p. 140. The policy included, in particular, a “lost or not lost” clause still sometimes used
today, see Chapter 4, Insurable Interest, at paras. 4.16 to 4.21. Goodacre, Goodbye to the Memorandum, 1988,
Witherby & Co Limited at p. 28 suggests that, “there is much speculation as to whether this is the vessel referred to by
Shakespeare in both Macbeth and Twelfth Night”.
13. Middows Ltd v. Robertson & Other Cases (supra) at p. 63, per MacKinnon L.J.
14. The Act provides that, the “common law including the law merchant… shall continue to apply to contracts of
marine insurance”, see British & Foreign Marine Insurance Company Limitedv Samuel Sanday & Co [1916] AC
650 (HL). Reference to an authority on which the Act is based may only be made provided that the authority in
question is not “inconsistent with the express provisions of [the] Act”, MIA 1906 s. 91(2).
15. Dickenson v. Jardine (1868) LR 3 CP 639.
16. Niger Co Ltd v. Guardian Assurance Co and Yorkshire Insurance Co (1922) 13 Ll. L. Rep. 75.
17. Schloss Brothers v. Stevens [1906] 2 KB 665.
18. Wright & Fayle at pp. 12–13.
19. Wright & Fayle. For a more detailed history of Lloyds see also F Martin, The History of Lloyds and of
Marine Insurance, 1876, Frederick Martin; D. Gibb, Lloyds of London: A Study in Individualism, 1957, MacMillan;
G. Hodgson Lloyds of London: A Reputation at Risk, 1984, Allen Lane, and as to the ILU, C. Hewer, A Problem
Shared: A History of the Institute of London Underwriters 1884–1984, 1984. Summaries also appear in works on
marine insurance, in particular, OMay Marine Insurance, 1993, Sweet & Maxwell, Chapter 1 pp. 1–8; H. Bennett,
The Law of Marine Insurance, 2nd edn 2006, Chapter 1, paras. 1.03 to 1.22.
20. By the Marine Insurance Act 1824.
21. Bennett records, at para. 1.19, that it had been intended to include Lloyds Underwriters in the Institute, but this
was not possible because of the articles and memorandum of the Institute.
22. That association, the Union Insurance Society of Canton Limited (the “Union”), later moved to Hong Kong after
the Treaty of Nanking in 1841 merging with The Guardian Group, now Axa, in late 1959. A. Chalkley Adventures and
Perils: The First Hundred and Fifty Years of the Union Insurance Society of Canton Limited, 1985, Ogilvy and
Mather Public Relations (Asia) Limited. The Union was much involved in reported marine cargo cases that were
decided between the wars arising from marine cargo business written out of its London office.
23. Now The Tokio Marine & Nichido Fire Insurance Co, Limited.
24. The Tokio Marine Insurance Company Limited used an English form of policy, similar to the SG Form, for cargo
business at least from the 1890s, though the early form of policy did not express itself to be subject to English law and
practice.
25. The business is mainly produced by Lloyds brokers, though non-Lloyds brokers are also involved.
26. Forestal Land, Timber & Railways Company Ltd v. Rickards; Middows Ltd v. Robertson and Other Cases
(1941) 70 Ll. L. Rep. 173 (HL) at p. 187, per Lord Wright.
27. Middows Ltd v. Robertson (1940) 69 Ll. L. Rep. 45 (CA) at p. 63, per MacKinnon L.J. As to the history and
origins of marine insurance, see further para. 1.1.
28. 35 Geo III, c 63.
29. The revised ICC have reintroduced the word “immediate” in a similar context, see ICC Clause 8.1 and Chapter
12, paras. 11.20 to 11.22.
30. Wright & Fayle at p. 134.
31. Goodacre at p. 1.
32. See para. 1.4 above. The policies prescribed for the corporation of the Royal Exchange Assurance and for the
London Assurance were also scheduled to the Act of 1795.
33. Sir Frederick Pollock cited by McKinnon L.J. in Middows Ltd v. Robertson (1940) 68 Ll. L. Rep. pp. 45 to 63.
34. In Shell International Petroleum Co Ltd v. Gibbs (The Salem) [1982] 1 Lloyds Rep. 369 (CA) at p. 380, Kerr
L.J. went so far as to say, in the context of the Institute Cargo Clauses, that “marine policies are notoriously ill-drawn”.
35. Panamanian Oriental Steamship Corporation v. Wright (The Anita) [1970] 2 Lloyds Rep. p. 365, where
Mocatta J. said, “It cannot be beyond the wit of underwriters and those who advise them in this age of law reform to
devise more straightforward and easily comprehended terms of cover”, at p. 372.
36. United Nations Conference on Trade and Development TD/B/C.4/15L/27, 20 November 1978.
37. Author of OMay on Marine Insurance with J. Hill, editor and co-author.
38. See D. R. OMay “Marine Insurance Law: Can the Lawyers be Trusted?” [1987] LMCLQ at p. 29, which
contains a description of the circumstances in which the policy form, which had had such “extraordinary powers of
survival”, was abandoned.
39. The Institute Clauses are still published in the Reference Book of Marine Insurance Clauses, 76th edn, 2006,
Witherby & Co Ltd (“Witherbys Clauses”) under the heading, “For use only with the new marine policy form” to
indicate that they are to be used with the MAR Form and not with the SG Form.
40. The policy form, known in the London market as a “jacket”, is no longer generally used in cargo business where
modern comprehensive forms of Market Reform Contracts (MRCs) are used to evidence the contract of insurance so
that formal signed policies are now rarely issued, see further Chapter 3, Open Covers, Policies and Certificates of
Insurance at paras. 3.22 to 3.23.
41. R. Grime “Insuring Cargoes in the 1990s” at p. 124, published The Modern Law of Marine Insurance, ed. D.
Rhidian Thomas, 1996, LLP. Professor Grimes comments were made specifically in relation to the Institute Cargo
Clauses 1/1/82.
42. Kuwait Airways Corporation v. Kuwait Insurance Co SAK (No. 1) [1997] 2 Lloyds Rep. 687 (CA), per
Schiemann L.J. at 701 who expressed himself, like many other judges before him “astonished that those active in [the]
Market are prepared to do business with one another on the basis of documents that are so difficult to understand”.
43. For a discussion of the background and a description of the new LMP Slip see “The New London Market
Principles Slip” by P. Rogan, published as Chapter 6 in Marine Insurance: The Law in Transition, ed D. Rhidian
Thomas, 2006, Informa at p. 131 et seq.
44. See further Chapter 3, para. 3.22.
45. Historic Records Report HR5, at p. 5.
46. Institute Cargo Clauses (FPA) and the Institute Cargo Clauses. The American Institute of Marine Underwriters
adopted similar clauses in 1913.
47. A representative of the provincial marine insurance associations attends by invitation.
48. Current information regarding the work of the JCC, including clause revisions, can be found on the LMA
website at www.lmalloyds.com by going to “Market Places” and choosing “Marine”, where the JCC pages are
located.
49. The 1982 Clauses will not be withdrawn nor, indeed, is it the function of the LMA or the Institute of London
Underwriters to withdraw clauses as the parties are free to contract on whatever terms they wish.
50. These will be found at Appendices 11 to 25. The Institute Cargo Clauses (All Risks), which are still widely used
in the Japanese market, are at Appendix 10.
51. See Chapter 13, para. 13.15 which discusses the reasons why the word “physical” is not used in the Institute
Cargo Clauses.
52. ICC Clause 2, see Chapter 14, paras. 14.24 to 14.38 for a discussion of general average and salvage. The cover
further extends to reimbursement of liability incurred under the Both to Blame Collision Clause, ICC Clause 3, Chapter
14, para. 14.39.
53. As the right to reimbursement of sue and labour is triggered by a casualty, it is considered at paras. 14.1 to 14.23
in Chapter 14, which deals with expenses recoverable following a loss.
54. Forestal Land, Timber & Railways Company Ltd v. Rickards; Middows Ltd v. Robertson and Other Cases
(1941) 70 Ll. L. Rep. 173 (HL), 193, per Lord Wright.
55. British & Foreign Marine Insurance Company, Limited v. Samuel Sanday & Co [1916] 1 AC 650 (HL).
56. See paras. 13.53 to 13.70.
57. See para. 1.9 above which explains the introduction of the MAR Form.
58. See Chapter 3, para. 3.22 which discusses the Market Reform Contract.
59. Report by the United Nations Conference on Trade and Development (UNCTAD) entitled “Legal and
Documentary Aspects of the Marine Insurance Contract” (TD/B/C.4/ISL/27) para. 191(4), revised 1982.
60. [1998] 1 WLR 897 at pp. 912 H to 913 E.
61. Thus the views expressed in OMay by Mr OMay, who advised on and assisted in drafting the 1982 Clauses, as
to the intentions of underwriters, are not admissible in evidence as such. Similarly, the intentions of the Working Party
concerned with the revised Clauses are not admissible. However, evidence of the background and context in which
drafting changes were made would in principle be admissible if the background is available to both parties.
Accordingly, underwriting concerns, known only to the insurers, would not be admissible, but matters relevant to
carriage of cargo, available to both parties, would be admissible if such as to assist the court in construing the Clauses.
62. [1997] AC 749.
63. Sirius Insurance Co v. FAI Insurance [2004] 1 WLR 3251, per Lord Steyn at para. 19.
64. See, for a recent example, a case on the duration clause, Mitsui Marine & Fire Insurance Co v. Bayview
Motors Ltd [2003] 1 Lloyds Rep. 117 (CA) where a purposeful construction was adopted in relation to what is now
Clause 8.1.4 of the revised Institute Cargo Clauses in the light of Clause 8.2 of those Clauses, see Chapter 11 at para.
11.62.
65. [1982] 1 Lloyds Rep. 369 (CA).
66. At p. 380.
67. ibid at p. 380. For another example of an overly technical approach being rejected, see Safadi v. Western
Assurance Co (1933) 46 Ll. L. Rep. 140 at p. 143, where, of the argument put to him on the Institute Cargo Clauses,
Roche J. said, “I think it is rather too fine and subtle a distinction to make in this commercial document”.
68. Institute of Maritime Law 4th Annual Lecture entitled “Marine Insurance Law: Can the Lawyers be Trusted?”,
[1987] LMCLQ 29–42.
69. See Chapter 14, para. 14.1.
70. See Chapter 13, paras. 13.53 to 13.70. Additionally, the 1906 Act allows claims for constructive total loss;
regulates methods of valuation; provides for the assignment of marine policies; imposes an implied warranty of legality
and lays down numerous rules for the construction of contracts of marine insurance. For a list of further distinctions
between marine and non-marine insurance, see R. Merkin Marine Insurance Legislation, 3rd edn, 2005, Informa, at
p. 2. There are also regulatory consideration under the Financial Services and Markets Act 2000.
71. MIA 1906 s. 3(2). The Act goes to set out the traditional perils, “perils of the seas, fire, war perils, pirates,
rovers, thieves, captures, seizures, restraints, and detainments of princes and peoples, jettisons, barratry, and any other
perils, either of the like kind or which may be designated by the policy”.
72. At para. 1.26 et seq.
73. In Henderson v. Underwriting and Agency Association Ltd [1891] 1 QB 557, in which title deeds were
insured for a transit by post from Cadiz to Alexandretta, on the coast of Syria, the policy was not treated as a marine
policy, a decision later questioned in Leon v. Casey [1932] 2 KB 576 at pp. 583 at 584 on the basis that the mode of
transport by the Post Office was unclear.
74. In Euro-Diam Ltd v. Bathurst [1990] 1 QB 1, a policy on diamonds, which included a postal sending by air to
Germany, was treated as non-marine as the insurance was not on the adventure.
75. [1932] 2 KB 576.
76. An order for ships papers was an extensive order for discovery favourable to insurers only applicable to policies
of marine insurance. See now Civil Procedure Rules (“CPR”) r. 58.14 which applies to “proceedings relating to a
marine insurance policy”. It is submitted that the line of authority concerning orders for ships papers must be treated
with caution in so far as emphasis is placed on the form of policy which is not a requirement of s. 2(1) of the 1906 Act,
see, for example, the judgment of Scrutton LJ in Leon v. Casey (supra).
77. Verna Trading Pty Ltd v New India Assurance Co Ltd [1991] 1 VR 129 at p. 166, per Ormiston J. in the
appeal division of the Supreme Court of Victoria, Australia, in a persuasive judgment that reviews the English and
Australian authorities.
78. [1998] 2 Lloyds Rep. 8 (CA).
79. (1905) 10 Com. Cas. 224.
80. It was argued unsuccessfully by F. D. MacKinnon that the longest portion of the transit was by steamers up a
great river, at p. 226. Scrutton L.J. later asked how it would have been if the transit by railway, mulepack and river
steamer had involved a passage up the Amazon with “all imagineable perils of the sea”, Leon v. Casey (supra) at p.
584. As we have seen s. 2(2) of the Act refers to “inland waters” referring, it appears, to lakes rather than rivers an
approach which seemingly did not appeal to either Scrutton L.J. or his former pupil F. D. MacKinnon.
81. The words “usage of trade” refer to the manner in which the contract of marine insurance may be extended.
They do not open the door to trade usage as a basis for marine insurance.
82. MIA 1906 s. 30 which provides that “A policy may be in the form in the First Schedule to this Act”.
83. See para. 1.9 above.
85. See Clause 16.
86. See Clause 13.
87. In so far as the decision in Euro-Diam Ltd v. Bathurst [1990] 1 QB 1 (CA) at p. 12, per Staughton J. at first
instance and at p. 40, per Kerr L.J. in the Court of Appeal, turned on the form of policy, it is submitted that the decision
is distinguishable as no consideration was given to the cover under the Institute Cargo Clauses for the sendings to
Germany and the case was approached purely as if the goods were insured as property for a year.
88. Leon v. Casey [1932] 2 KB 576 at 581.
89. ICC(B) and (C) Clause 1.1.3.
90. See paras. 1.23 to 1.28.
91. [1983] 2 Lloyds Rep. 365 (HL).
92. At 370.
93. ICC, Clause 16 (Duty of Assured), see Chapter 14 para. 14.1.
94. ICC, Clause 12 (Forwarding Charges), see Chapter 13 para. 13.59.
95. See Appendix 21.
96. See Scott v. Copenhagen Reinsurance Company (UK) Limited [2003] EWCA Civ 688 at para. 38, per Rix
L.J.; Kuwait Airways Corporation v. Kuwait Insurance Co SAK (No. 1) [1999] 1 Lloyds Rep. 803 at 809, per Lord
Hobhouse.
97. Rod. D. Margo, Aviation Insurance, 3rd edn, 2000, Butterworths, at paras. 2.08 to 2.11.
98. In Euro-Diam Ltd v. Bathurst [1990] 1 QB 1, a consignment of diamonds, insured under a cargo insurance, but
on a non-marine form, was sent by registered air mail to Germany. The case was approached on the basis that the
insurance was on the goods for a year and not on the transit or adventure during which the diamonds were stolen. On
that basis the insurance was treated as non-marine.
99. ICC (A), Clauses 2 and 3.
100. ICC (Air) 1/1/09, Clauses 2, 10 and 14 respectively.
101. Institute Metals Storage Clauses (A) Cl.368 and Institute Metals Storage Clauses (B) Cl.369.
102. Clause 13.
103. [2002] 2 Lloyds Rep. 553.
104. For the non-marine position, see Yorkshire Water Services Limited v. Sun Alliance & London Insurance plc
(No. 1) [1997] 2 Lloyds Rep. 21 discussed in Chapter 14, para. 14.3 below.
105. For the circumstances in which sue and labour is recoverable where a peril is operating, see Chapter 14, paras.
14.8 to 14.10 below. Expense merely incurred to reduce the possibility of a future risk would not be recoverable.
CHAPTER 2
LAW AND JURISDICTION CLAUSES
2.1 It is convenient here to consider two inter-related issues: first, the applicable law
and, second, the applicable jurisdiction. These will be analysed in relation to the
effectiveness of the standard clauses in use for cargo insurance, in particular, the law
and jurisdiction provisions in the Institute Cargo Clauses and the Market Reform
Contract (MRC). The wider aspects of the subject, in particular the position where there
is no law or jurisdiction clause, are outside the scope of this book.1
CHOICE OF LAW
English law under the Institute Cargo Clauses and the MRC
2.2 The Institute Cargo Clauses include an express a choice of English law, in Clause
19, as follows:
“Law and Practice
This insurance is subject to English law and practice.”
The words “This insurance” refer to the cover within the Clauses, by way of contrast to
the words “contract of insurance” which are used, for example, in the Transit Clause.2
The latter phrase refers to the open cover, or certificate of insurance or to a combination
of both.3 Accordingly, the effect of the words “This insurance” in the Choice of Law
Clause is that the Clauses themselves are governed by English law and practice, even if
the contract contained in the open cover or certificate is governed by another law (e.g.,
Italian law).4
2.3 The words “subject to” are well recognised as indicating an effective choice of
English law.5 The choice is not specifically expressed as an exclusive choice of English
law, but it is submitted that this is the effect, as a choice of law, unlike a choice of
jurisdiction, is by its inherent nature an exclusive choice. A choice of one system of law,
such as English law, ousts any other law.
2.4 The Institute Metals Storage Clauses (A) and (B) have a more elaborate choice of
English law clause, in Clause 13, which takes account of the fact that storage is not, of
itself, a marine risk to which the Marine Insurance Act 1906 applies.6
2.5 A choice of law is a mandatory requirement of the Market Reform Contract
(MRC).7 A suitable form of wording to achieve this, as suggested by the Market Reform
Group, reads:
“This insurance shall be governed by and construed in accordance with the law of England and Wales.”
This wording provides for the law of England and Wales but it is increasingly the
practice in the London market today for foreign assureds to choose the law of their own
place of residence or establishment. The conflict this may create with the choice of
English law in the Institute Cargo Clauses is unfortunate but, as suggested above,8 this
may be resolved by construing the Clauses themselves in accordance with English law
and treating the overall contract as governed by its own law (e.g., Italian law).
The general rule: freedom of choice
2.6 There are currently two separate regimes which apply to the choice of law for the
purposes of cargo insurance, depending on where the risk is situated.9 If the risk is
situated in an EEA state, the issue is governed by the Financial Services and Markets
Act 2000 and the Regulations made thereunder, namely, the Financial Services and
Markets Act (Law Applicable to Contracts of Insurance) Regulations 2001 (the
“Insurance Law Regulations”). If the risk is situated outside the EEA States, the issue is
governed by the Rome Convention.10 These separate regimes will frequently lead to the
same solution in respect of cargo in transit, that is, that the parties have the freedom to
choose the law applicable.11 The law so chosen will be the governing law if expressed
and demonstrated with reasonable certainty.12 However, the origin of rules for
determining which law applies differs depending on where the risk is situated and
which regime applies.
2.7 The choice of law with regard to cargo in store, rather than in transit, is further
complicated by the potential application of mandatory rules intended to benefit
consumers. These rules provide that the law of the assureds place of residence or
establishment is to be the only applicable law which must apply. Where the assured,
who insures cargo in store, is resident or established in the UK there is freedom to
choose the applicable law. However, where the assured is not a substantial concern, a
concept discussed below,13 the legal position in other EEA States will depend upon the
law of the state of residence or establishment of the assured. That law may not permit a
choice of law, in particular, it may not permit a choice of English law under the Institute
Cargo Clauses.
Risks situated within the EEA States
When are transit risks situated within EEA States?
2.8 The question of whether a risk is situated within the territories of the EEA States14
is determined by the Insurance Law Regulations made under the Financial Services and
Markets Act 2000. These Regulations apply to a “contract of general insurance”, which
includes the insurance of goods in transit,15 and the EEA State where the risk is situated
is determined by applying the following rules which will normally result in the risk
being “situated” where the assureds establishment is itself situated.16 Accordingly, if an
assured firm established in Italy insures a cargo of steel in a warehouse in Rotterdam
the risk is situated in Italy, not the Netherlands. In terms of consumer protection this is
understandable, though tests based on where a risk is “situated” are somewhat alien to a
cargo transit risk which, by its nature, is about the movement of goods from one location
to another.
2.9 The Regulations contemplate the possibility that the assured may have offices or
branches (i.e., different “establishments” in different EC Member States). In such
circumstances the relevant establishment is the establishment to which the contract
relates.17 This contrasts with the rule as to residence in regulation 2(3)(b), which
provides that, except in the case of individuals (who reside where they have their
habitual residence) a person, whether that person is an individual or a company, resides
in “the country in which he has his central administration”. The issue is not central
administration of the company (or other legal person) but the situation of the
“establishment” to “which the contract relates”. As indicated, this takes into account that
an assured company may have offices18 or establishments in different EEA states and
that the contract may “relate” to one of these. But what does “relate” mean? If an office
of an oil trader in Italy takes out a cargo insurance with an underwriter in London for the
carriage of cargoes from the Middle East to Africa, it appears that the risk is situated in
Italy even if the central administration of the oil trader is in Switzerland. Finally, it is to
be noted that if the establishment to which the contract relates is outside the EEA, the
risk will also be outside the EEA. It will not be an EEA risk even if the company has its
central administration in an EEA country19
The rules applicable to cargo risks situated within the EEA States
2.10 The main rules applicable to cargo risks situated in an EEA State are as follows:
1. If the policyholder resides in the EEA State in which the risk is situated, then the
starting point is that the law of that state applies.20 However:
(i) if the risk covered by the insurance is a “large risk”, defined so as to include
a risk to goods in transit, the parties may choose any law as the applicable
law,21 and
(ii) if the state of residence of establishment permits a choice of law, the parties
may validly choose the law of another country.22
2. A choice made by the parties under (i) or (ii) must be expressed or demonstrated
with reasonable certainty by the terms of the contract or the circumstances of the
case.23
The definition of “large risks” includes goods “in transit” but there may be restrictions
on choice for storage risks as discussed below.24 For goods in transit there is freedom
of choice though the choice must be exercised or demonstrated with reasonable certainty
in accordance with regulation 6(1). In particular that choice must be demonstrated with
sufficient certainty to oust the default choice of the law of the assureds residence or
place of establishment.
2.11 The position is illustrated by the case of Evialis v. S.I.A.T.25 which was decided
under the previous legislation but is still in point. The policyholder, whose
establishment was in Italy, entered into an open cover with Italian insurers for the
carriage of a cargo of cotton pellets from Abidjan to Rouen where the cargo was
discharged in a damaged condition. The open cover incorporated the Institute Cargo
Clauses which provide for English law and practice.26 It was held that as the assured
had their establishment in Italy, the risk was accordingly situated in Italy.27 It followed
that Italian law was the law of the contract unless the parties had chosen the law of
another state and expressed or demonstrated that choice with reasonable certainty by the
terms of the contract or the circumstances of the case.28 It was held by Andrew Smith J.,
applying Italian law to the issue (though English law would have been the same)29 that
the contract of insurance was governed by Italian law. The default option was Italy,
being the place of the establishment of the assured, and the choice of English law in the
Institute Cargo Clauses did not demonstrate with reasonable certainty the choice of
English law for the whole contract, albeit the intention may have been to apply English
law to the construction of the Clauses themselves. A clear choice is necessary to
displace the rule that the law applicable is the law of the place where the assured
resides or is established, being the place where the risk is situated. The same approach
would be applicable under the current legislation which limits the effectiveness of the
choice of law Clause in the Institute Cargo Clauses, at least in so far as they may not
operate as a choice of the law of the contract itself though the choice may still be
effective to apply English law to the construction of the insurance cover within the
Institute Cargo Clauses.30
When are storage risks “large risks”?
2.12 Cargo may not be in transit as it is common practice to insure cargo in store within
the EEA States without any transit risk (e.g., under the Institute Metals Storage Clauses
(A)). As the goods are not in transit, the insurance would not qualify on this basis as a
“large risk”. However, if the risks insured against include certain classes of property
insurance, the most relevant of which for storage risks are, fire, explosion, storm and
theft, and the assured policy-holder is what will be described as a “substantial
concern”, then this too constitutes a “large risk”.31 A “substantial concern” for these
purposes is a concern of a certain size (e.g., one of the criteria is in excess of an
average number of 250 employees, in addition to which there are criteria determined by
reference to its balance sheet and net turnover).32 If the assured fails to meet these size
criteria, the “large risk” exception does not apply and it is necessary to consider the
Insurance Law Regulations which make the law of the place of residence or
establishment of the policyholder the applicable law33 It is then a matter for the law of
the EEA state where the risk is situated, being the place of the establishment of the
assured, to determine whether or not there is freedom under that EEA law to chose
another law, such as English law. This will require a separate investigation of the
foreign EEA law in each case even where the dispute as to the applicable law is before
the English court.
2.13 Where the assured is resident or established in the United Kingdom (UK) then
the law of that state, being the English Insurance Law Regulations, gives the parties the
freedom of choice they would have had under the Rome Convention.34 In the result, any
assured, resident or established in the UK, is free to choose the law applicable to a
contract of insurance for goods in store insured under, for example, the Institute Metals
Storage Clauses (A). This rule will apply whether the goods are stored in the UK or any
other EEA state as the risk is deemed to be located where the assured resides or where
the establishment to which the contract relates, is situated.35
Risks situated outside the EEA States: all other risks
2.14 In all other cases, where the risk is not situated in the territories of an EEA state, as
defined above,36 the issue is governed by the Rome Convention.37 This provides that the
parties are free to choose any law as the law applicable to their insurance contract.38
The contract of insurance will be governed by the law so chosen as long as it is
expressed or demonstrated with reasonable certainty by the terms of the contract or the
circumstances of the case.39 Clause 19 of the Institute Cargo Clauses, being an express
choice of English law and practice, qualifies under the first limb of this rule.40
English law clauses and foreign courts
2.15 The question of whether foreign courts will recognise the English Law and
Practice Clause in the Institute Cargo Clauses is strictly outside the scope of this book.
However, as it is common practice in the London market for US marine cargo insurance
to be subject to the jurisdiction of the US courts, the attitude of those courts is worthy of
particular note. In Javed v. British Airways plc,41 the 11th Circuit Court of Appeals in
the United States held that the choice of law clause in the Institute Cargo Clauses was
“unambiguous” and enforceable.
2.16 It is common for Japanese marine cargo policies, written on terms of the Institute
Cargo Clauses, to express themselves to be “subject to English law and usage as to
liability for the adjustment and settlement of all and any claims”.42 It is understood that
in a Japanese court such a clause incorporates English law for the construction of the
Institute Cargo Clauses in relation to claims coverage issues under the Clauses, but that
matters of wider consideration, including the validity of the policy, will continue to be
governed by Japanese law where that is the overall law of the contract of insurance.43 A
different approach was adopted in English law in Nima SARL v. The Deves Insurance
Public Co Ltd (The Prestrioka).44 In this case, Andrew Smith J. held that the word
“only” in a choice of law clause reading “this insurance is subject to English law and
practice only as to all questions of liability for and settlement of all claims arising under
the policy” did no more than modify the phrase, “subject to English law”, to stress that
only English law applied.45 Accordingly, English law governed all the obligations
under the policy. However, the commercial understanding of such clauses probably
gives a narrower role to English law which would not apply to issues, such as a
requirement as to the age or capacity of the parties, which would be a matter outside
questions of liability and settlement. It can probably be said that the intention is to
incorporate most if not all of the rules falling within the scope of the Marine Insurance
Act 1906 as these all ultimately bear upon liability for settlement of claims arising
under the insurance.46 There is some support for this view in that Clauses incorporating
the 1906 Act, rather than English law itself, are occasionally found in policies of
insurance issued by foreign insurers.
CHOICE OF JURISDICTION
Standard London market jurisdiction clauses
2.17 The Market Reform Contract contains a mandatory requirement that the parties
identify the jurisdiction for any disputes. The wording suggested by the Market Reform
Group, by way of example, reads:
“ … each party agrees to submit to the jurisdiction of the Courts of England and Wales.”
English jurisdiction may still occasionally be agreed for cargo business by reference to
the MAR 91 Form which contains an exclusive jurisdiction clause in the following
terms:
“This insurance shall be subject to the exclusive jurisdiction of the English courts, except as may be expressly provided
herein to the contrary.”47
However, English jurisdiction is less favoured today when the assured is not based in
the UK as there is an increasing perception by foreign assureds, and their brokers, of the
advantages of having any disputes resolved on their home ground. This has long been
the case in respect of US assureds so that US cargo business underwritten in the London
market is normally subject to a US Service of Suit Clause. This Clause, though not a
jurisdiction agreement as such, permits US assureds to bring claims in the United States
against London market insurers.
2.18 The section which follows considers the validity and effectiveness of such
agreements to English jurisdiction in the light of Council Regulation (EC) 44/2001 (the
“EC Judgments Regulation”48) and the common law. We first of all consider the EC
Judgments Regulation as this will apply to most jurisdiction clauses in insurances of
cargo placed in the London market. After reviewing the circumstances in which the
Regulation applies,49 we then look at, firstly, the formalities required by it for the
incorporation of a valid jurisdiction agreement into a contract of cargo insurance,50 and,
secondly, the impact of the mandatory regime in the Regulation aimed at consumer
protection.51 Finally we review the common law position for cases where the EC
Judgments Regulation does not apply.52
Application of the EC Judgments Regulation
2.19 The general approach to jurisdiction in the EC Judgments Regulation is that the
defendant may be sued in the EC Member State where he is domiciled.53 This is varied
in matters relating to insurance, under section 3 of the Regulation, so that in addition to
suing an insurer domiciled in an EC Member State where he is domiciled, the assured,
or beneficiary of the policy, may sue such an insurer in the EC Member State where he,
the assured, is domiciled, that is to say, on his home ground.54 These are mandatory
provisions, but only so far as insurers are concerned, as a jurisdiction agreement which
allows the assured to bring proceedings in other courts, whether within or outside the
EC Member States, is permitted.55 There are also important exceptions from the
mandatory regime in respect of goods in transit by seagoing ships and “large risks”.56
These exceptions take most traditional marine cargo insurance outside the mandatory
regime,57 but the application and validity of jurisdiction clauses, such as those
discussed above, will still be determined by the EC Judgments Regulation under Article
23(1). This Article applies to determine the validity of jurisdiction clauses if the
parties, one or more of whom is domiciled in an EC Member State, have agreed that the
courts of an EC Member State are to have jurisdiction.58 Accordingly, where an insurer
is domiciled59 in the UK the Regulation applies to any jurisdiction agreement whereby
the courts of an EC Member State are to have jurisdiction. Even an insurer who is not
domiciled in an EC Member State shall, in disputes arising out of the operations of a
branch agency or establishment in an EC Member State, be deemed to be domiciled in
that EC Member State.60 A London market insurer will therefore be treated as domiciled
in the UK, an EC Member State, for the purposes of a dispute as to jurisdiction arising
out of business written by a branch, agency or establishment as part of its London
market “operations” even if that company is registered outside the EC Member States.
2.20 Accordingly, the application of Article 23(1) the EC Judgments Regulation in
respect of EC jurisdiction clauses does not depend upon the defendants domicile but
simply on the domicile within the EC Member States of only one of the parties to the
insurance contract. Thus if the insurer is domiciled in the UK, or is deemed to be
domiciled there, the EC Judgments Regulation applies to any jurisdiction agreement in
favour of the courts of a Member State of the EC. This applies even if the assured is
domiciled outside those States, for example in Japan or the United States. Equally, if an
assured is domiciled within the EC Member States, such as Italy, the EC Judgments
Regulation will apply to a jurisdiction agreement for the jurisdiction of the courts of an
EC Member State agreed with the Japanese or US insurer. The twin requirements for the
application of the EC Judgments Regulation are, in relation to jurisdiction agreements,
simply that one party be domiciled in an EC Member State, and that an agreement to the
jurisdiction of the courts of an EC Member State is involved. This enables EC courts to
regulate EC jurisdiction agreements. The result is that Article 23 of the EC Judgments
Regulation will apply to most London market cargo business except US cargo business
where the US courts are nominated under a US Service of Suit Clause. In that case the
domicile requirement may be fulfilled, but not the requirement that the matter be
referred to the courts of an EC Member State. In such circumstances, the insurers being
domiciled in the UK, they are subject to the mandatory rules in section 3 of the
Judgments Regulation.61 However, Article 13(2) of the Regulation “allows the
policyholder, the insured or a beneficiary to bring proceedings in courts other than those
indicated in this section”. There is therefore freedom for the parties to agree a
jurisdiction clause, or a US Service of Suit Clause, which gives the assured the right to
bring proceedings where the assured wishes whether or not that be in the courts of an
EC Member State.
Is jurisdiction under the EC Judgments Regulation exclusive or
permissive?
2.21 Article 23 of the EC Judgments Regulation provides that where at least one of the
parties is domiciled in an EC Member State62 and the parties have agreed that the courts
of an EC Member State are to have jurisdiction:
“Such jurisdiction shall be exclusive unless the parties have agreed otherwise.”
In Evialis v. S.I.A.T.63 the certificate of insurance containeda clause which provided:
“Address for legal proceedings in UK: WK Webster & Co … London, United
Kingdom”. This provision for service was construed as a jurisdiction agreement
providing for English jurisdiction but not as conferring exclusive jurisdiction on the
English courts. In particular it was held that Article 23 did not convert this clause into
an exclusive jurisdiction clause. It was conceded that the parties could “agree
otherwise” by implication or inference.64 Wording that merely provided for service in
the UK was, by inference, not an exclusive English jurisdiction agreement.
2.22 The example wording of the Market Reform Contract considered above whereby
the parties agreed to “submit to the courts of England and Wales” would normally
operate as an exclusive English jurisdiction agreement under Article 23. The wording is
clearer than the address for service provision in Evialis v S.I.A.T.65 Although not
expressed as an exclusive jurisdiction clause, in terms of the well-known exclusive
jurisdiction wording in the MAR 91 Form,66 it will achieve the same effect with the aid
of Article 23 in cases where the EC Judgments Regulation applies.67
The EC Judgments Regulation and the Lugano Convention
2.23 The EC Judgments Regulation applies to all EC Member States.68 The parallel
Lugano Convention69 will apply if the parties, one or more of whom is domiciled in an
EC or EFTA Member State, have agreed a jurisdiction clause giving jurisdiction to the
courts of EC or EFTA Member States. The three EFTA countries outside the EC
Member States are Norway, Iceland and Switzerland. The regimes overlap in the sense
that EC Member States, including the United Kingdom, are also parties to the Lugano
Convention which governs their inter-relationship, in matters of jurisdiction, with the
EFTA countries. Thus, for example, in Tradigrain SA v. S.I.A.T. S.p.A. & Others70 an
action on a marine cargo insurance was commenced in England by Tradigrain SA, a
company whose principal place of business was in Geneva, Switzerland, against over
30 insurance companies domiciled in EC Member States, including two companies in
England. The insurance was arranged through underwriting agents in Germany on behalf
of S.I.A.T., an Italian company, as lead insurers. The policy covered storage risks of
various parcels of vegetable oil in storage in India and incorporated the Institute Cargo
Clauses (A). A dispute over the incorporation and validity of a Hamburg Jurisdiction
Clause, giving jurisdiction to the courts of an EC Member State, was subject to the
Lugano Convention by reason of one of the parties, Tradigrain SA, being domiciled in
Switzerland.71
Formalities
2.24 The EC Judgments Regulation raises two particular issues going to the validity of
any English jurisdiction agreement in a typical Market Reform Contract. The first issue
is whether the agreement complies with the formalities required by Article 2372 of the
Regulation for the incorporation of a jurisdiction agreement. The second issue is the
impact of section 3 of the Regulation73 aimed at consumer protection in matters relating
to insurance, which generally permits the assured a choice of jurisdiction including the
right to sue his insurers in his own state.74
2.25 As to the first issue, the formalities, Article 23(1) of the EC Judgments
Regulation and Article 17(1) of the Lugano Convention, provide that an agreement
conferring jurisdiction shall be either:
“(a) in writing or evidenced in writing; or
(b) in a form which accords with practices which the parties have established between themselves; or
(c) in international trade or commerce, in a form which accords with a usage of which the parties are or ought to
have been aware and which in such trade or commerce is widely known to, and regularly observed by, parties to
contracts of the type involved in the particular trade or commerce concerned.”
Clearly an agreement within the Market Reform Contract in writing complies with this
requirement as between the immediate parties to that contract. However, the position
may not be so clear where the assured is a holder of a certificate of insurance, which
refers indirectly to the Market Reform Contract, which the certificate holder may not
have seen and to which he may not be a party. For example, in Tradigrain SA v. S.I.A.T.
SpA75 certificates of insurance held by the claimants made no express reference to the
jurisdiction provisions in an open cover, the only reference to the open cover being no
more than a cross-reference to the policy number on the open cover. It was held that this
cross-reference did not incorporate the jurisdiction clause in the open cover as it did
not amount to an agreement in writing, nor was it a form adopted by trade usage.
Colman J. followed the approach adopted in previous authorities,76 as well as the
English jurisdiction decisions on incorporation of jurisdiction clauses into contracts of
reinsurance,77 and concluded that, whereas general words of incorporation might be
effective to incorporate a jurisdiction clause, they would do so only if they clearly and
precisely demonstrated the existence of a concensus to that effect in relation to
jurisdiction. The mere cross-reference on the certificate of insurance to the policy
number on the open cover did not qualify under that test. In Evialis v. S.I.A.T.,78 as we
have seen,79 a service clause in common form, providing WK Websters address in
London, as the “address for legal proceedings in London” was interpreted as a
permissive, but not exclusive, agreement to English jurisdiction. This was held to be
sufficient to comply with the Article 23 formalities.80
Goods in transit by seagoing ships and connected risks
2.26 Turning now to the consumer legislation, the starting point is that the assured has a
right to sue his insurers in his own state (i.e., the courts of the place where he is
domiciled).81 However, when the UK acceded to the EC Jurisdiction Convention82 an
exception was made in respect of certain marine and aviation risks, including cargo in
transit, in view of the London insurance markets involvement in such risks. It was
considered that such assureds were not in need of consumer protection.83 As a result, a
jurisdiction clause departing from the mandatory jurisdiction regime for insurance is
permitted where the risks include loss of or damage to goods in transit by seagoing
ships84 or any risk connected with such a risk.85
2.27 In view of the increase in the insurance of cargo in store an issue arises as to
whether the insurance of cargo in store under the Institute Cargo Clauses is sufficiently
“connected” with the insurance of goods in transit. The exception extends to risks of
loss of or damage to goods in transit where the transit consists of or includes carriage
by seagoing ships or aircraft.86 The exception also encompasses “any risk or interest
connected with” such risks.87 In Tradigrain SA v. S.I.A.T. SpA88 there was a separate
insurance under the Institute Cargo Clauses (A) for cargo in store in India following on
from transit in seagoing ships. It was held that, although the goods were not in transit,
the parties were entitled to depart from the mandatory jurisdiction regime and to agree a
Hamburg jurisdiction clause. Colman J., following the approach adopted by Staughton
L.J. in Charman v. WOC Offshore,89 held that a generous interpretation should be
adopted with regard to the words “connected with” and that the storage risk, albeit
separate, was therefore sufficiently “connected with” the prior sea transit.90 The judge
also considered it pertinent to note that the coverage in store was on the terms of the
Institute Cargo Clauses (A). However, no matter how generous an interpretation is
adopted there must be some “connection” with transit by sea. Accordingly pure storage
cover, unless it constitutes a “large risk” as discussed next, would be subject to the
mandatory provisions of section 3 of the EC Judgments Regulation relating to
jurisdiction which generally permits the assured to sue his insurers in his own
jurisdiction.91
“Large risks”
2.28 The EC Judgments Regulation, but not the Lugano Convention,92 contains a final
exception to the mandatory jurisdiction regime. This exception relates to “large risks”93
which are defined by reference to the Non-Life Directive.94 This Directive defines
“large risks” as including “damage to, or loss of goods in transit” irrespective of the
form of transport.95 Moreover, as we have seen in relation to choice of law, the
expression “large risks” extends to certain classes of property insurance, in particular
fire, explosion, storm and theft, in circumstances where the policyholder is what we
have called a “substantial concern”.96 In the context of jurisdiction the “large risks”
exception somewhat duplicates the exceptions in Articles 14(1) to 14(4) with which it
sits rather uneasily, its application being “notwithstanding” those exceptions. However,
for cargo insurance, it significantly broadens the exceptions to the mandatory regime to
cover not only goods carried by seagoing ships but also goods in transit by any method
including road and rail. The “large risks” exception will also include storage risks in so
far as these qualify as a class of property insurance against the perils of fire, explosion,
storm and theft and the policy-holder qualifies as a substantial concern.97
The court first seised
2.29 The EC Judgments Regulation provides against multiple proceedings and
conflicting judgments by Articles 27 and 28. Article 27 provides that:
“1. Where proceedings involving the same cause of action and between the same parties are brought in the courts of
different Member States, any court other than the court first seised shall of its own motion stay its proceedings
until such time as the jurisdiction of the court first seised is established.”
2. Where the jurisdiction of the court first seised is established, any court other the court first seised shall decline
jurisdiction in favour of that court.”
Article 28 deals with related proceedings and, so far as material, provides:
“1. Where related actions are pending in the courts of different Member States, any court other than the court first
seised may stay its proceedings.”
Article 28(3) goes on to define “related actions” for these purposes as follows:
“3. For the purpose of this Article, actions are deemed to be related where they are so closely connected that it is
expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from
separate proceedings.”
In Evialis v. S.I.A.T.98 these provisions were considered in the context of a cargo claim
where proceedings had been commenced by the insurers in Italy and the assured, on the
basis of an English Jurisdiction Clause, applied for an interim injunction restraining the
insurers from prosecuting the Italian proceedings. It was held that Article 27 applied to
the insurance provisions under section 3 and that the proceedings were sufficiently
related under Article 28. The case proceeded on the basis that a broad common sense
approach is to be adopted, and an over-sophisticated analysis to be discouraged.99
According to the principle of mutual trust between the courts of EC Member States, the
English courts cannot make an order restraining the parties from challenging an English
jurisdiction clause where the courts of another EC Member State are first seised of the
case.100
The common law position
2.30 The common law will uphold a choice of jurisdiction such as that represented by
the English jurisdiction clause in the Market Reform Contract unless there are strong
reasons for not doing so.101 Moreover such a clause will generally provide the basis for
an anti-suit injunction restraining the party bringing the foreign proceedings.102
Arbitration
2.31 Arbitration clauses are rarely found in marine cargo insurance contracts. However,
where they are occasionally encountered, the English court, once it is satisfied that the
clause is valid, and that a dispute has arisen, is obliged under the Arbitration Act 1996,
section 9(1) to stay any further proceedings so that the matter is effectively turned over
to the arbitrators. Where a party commences proceedings in the courts of an EC Member
State in breach of an English arbitration clause, and that EC court thus becomes first
seised of the case, the English courts cannot issue an anti-suit injunction to restrain that
party from continuing those proceedings. The English courts must, according to the
principle of mutual trust, accord the court first seised the right to uphold the English
arbitration clause.103
1. For a discussion of the wider issues in relation to insurance see R. Cox, L. Merrett, and M. Smith Private
International Law of Reinsurance and Insurance, 2006, Informa; J. Gilman, R. Merkin et al, Arnoulds Law of
Marine Insurance and Average, 17th edn 2008, Sweet and Maxwell, Chapter 5 and also M. Clarke The Law of
Insurance Contracts, 5th edn, 2006, Informa, Chapter 2, “The Conflict of Laws” by R. Purves.
2. ICC, Clause 8.1.
3. The two documents have to be read together to establish the terms of the “contract of insurance” in each case,
see Evialis v. S.I.A.T. [2003] 2 Lloyds Rep. 377 at para. 36 and see Chapter 3, paras. 3.57 to 3.63.
4. See the dicta of Andrew Smith J. in Evialis v S.I.A.T. [2003] 2 Lloyds Rep. 387 at para. 42. This approach also
accords with the Rome Convention Arts. 3(1) (which contemplates choice applicable to only part of a contract) and
4(1) (which provides that a severable part of the contract may, exceptionally, be governed by a different law).
5. See Dicey, Morris & Collins, The Conflict of Laws, 14th edn, 2006, Sweet & Maxwell, Vol. 2 at pp. 1566–1567,
para. 32–078.
6. See Chapter 1, para. 1.32 where this Clause is discussed.
7. For a discussion of the Market Reform Contract see Chapter 1, para. 1.10.
8. See para. 2.2.
9. The position is likely to be simplified in future by the acceptance of Rome I Regulation (EC) No. 593/2008 of 17
June 2008 on the law applicable to contractual obligations which comes into force on 17 December 2009, except in
Denmark.
10. This is given the force of law in the United Kingdom by the Contracts (Applicable Law) Act 1990.
11. Rome Convention Article 3(1) see para. 2.14 below. Insurance Law Regulations, reg. 4(7), and see para. 2.10
below.
12. Rome Convention, Article 3(1). In the absence of such choice the contract will be governed by the law of the
country with which it is most closely connected (Art. 4). In respect of EEC risks, Insurance Law Regulations, reg.
4(8).
13. See further para. 12.12.
14. The EEA States are the Member States of the EU Member States and the EFTA States (Iceland, Norway and
Liechtenstein but not, for these purposes, Switzerland).
15. Financial Services and Markets Act (Regulated Activities) Order 2001 (SI 2001/544) Sch. 1 Pt. 1, para. 7.
16. Insurance Law Regulations, reg. 2(2)(d). If the contract of insurance relates to vehicles of any type, the risk is
situated in the EEA State of registration (Insurance Law Regulations, reg. 2(2)(b)). It is far from clear if this provision
applies to vehicles carried as cargo, but new cars, for example, would not normally be registered. In some jurisdictions
(e.g., the Netherlands) this provision has been enacted so that “vehicles” include “craft”, but in ordinary English usage
“vehicles” is a term normally limited to wheeled vehicles.
17. Insurance Law Regulations, reg. 2(2)(d)(ii).
18. The word “establishment” is widely defined to include, inter alia, offices, agency branches, and “any permanent
presence … in an EEA State … which may consist of an office managed by [the assureds] staff … ”, Insurance Law
Regulations, reg. 2(1).
19. See, Insurance Disputes, 2nd edn, 2003, LLP, J. Mance, I. Goldrein and R. Merkin (eds.), Chapter 3, “Conflict
of Laws”, by C. Butcher and the diagram on pp. 57–58.
20. Insurance Law Regulations, reg. 2(2)(d).
21. Ibid., reg. 4(7). A “large risk” has the meaning given by Art. 5(d) of the First Non-Life Insurance Directive
(73/239/EEC), Insurance Law Regulations, reg. 2(1). This defines large risks as, inter alia, risks classified under a
class which includes “all damage to or loss of goods in transit …, irrespective of the form of transport”, Class 7 of
Annex A.
22. Insurance Law Regulations, reg. 4(2).
23. Ibid., reg. 6(1).
24. At para. 2.12.
25. [2003] 2 Lloyds Rep. 377.
26. ICC, Clause 19, see para. 2.2 above.
27. Ibid. at para. 37.
28. The matter was to be determined at that time under the provisions of s. 94B(1) and Part 1 of Sch. 3A of the
Insurance Companies Act 1982 and in particular s. 96A(3)(d)(ii) which was in similar terms to the Insurance Law
Regulations, reg. 2(2)(d)(ii) set out at para. 2.10 above.
30. See further para. 2.2 above where this conflict is discussed.
31. “Large risks” as defined in the Non-Life Directive 73/329EEC Art. 5(d)(iii) includes risks classified in the
Annex under classes 8 (fire etc) and 9 (“any event such as theft”) in so far as the assured is what we have called a
“substantial concern”.
32. Two out of three of the criteria must be met: the concern must have more than 250 employees and/or must
exceed a balance sheet total of ECU 6.2m and/or a net turnover of ECU 12.8m.
34. The Rome Convention, which permits free choice, is to be treated as applying to the contract (Insurance Law
Regulations, reg. 7(3)).
35. See para. 2.8 et seq. above.
36. See paras. 2.8 and 2.9.
37. Given the force of law in the United Kingdom by the Contracts (Applicable Law) Act 1990.
38. Rome Convention, Art. 3(1).
39. Rome Convention, Art. 3(1).
40. It is hard to visualise the use of London market cargo clauses that do not include the choice of English law. But
the use of London market wordings, even without an express choice of English law, may qualify under the second limb
of the rule, see Gan Insurance Co Ltd v. Tai Ping Insurance Co Ltd [1999] 1 Lloyds Rep. 472, where the use of
London market clauses, in the context of reinsurance business placed in the London market, qualified as such a choice;
see also Longmore J., at first instance, in Ace Insurance SA v. Zurich Insurance Co [2000] 2 Lloyds Rep. 423 at
426, to the same effect.
41. 1993, 980 F.2d 1407.
42. Notable examples of insurances under the Institute Cargo Clauses undertaken by Japanese insurers and referred
to the English courts include, Nishina Trading Company, Limited v. Chiyoda Fire & Marine Insurance Company,
Limited (The Mandarin Star) [1969] 2 Lloyds Rep. 293 (CA) and, more recently, Bayview Motors Limited v. Mitsui
Marine & Fire Insurance Co Limited [2003] 1 Lloyds Rep. 131 (CA).
43. Connor v. Nippon Fire and Marine Insurance Co Ltd Tokyo High Court Judgment of 9 February 2000. The
facts of this case are discussed in Chapter 6, para. 6.22 in the context of the warranty of illegality.
44. [2003] 2 Lloyds Rep. 327.
45. Ibid. at p. 330.
46. Andrew Smith J., op. cit., was conscious that a narrower reading of the clause referred to in the text could
produce a clash with the wording of Clause 19 in the Institute Cargo Clauses, which provides for English law and
practice without being restricted to liability and settlement issues.
47. See Appendix 6, Lloyds Marine Policy: MAR 91. The MAR 91 form is occasionally incorporated into cargo
open covers.
48. Council Regulations (EC) No. 44/2001 of 22 September 2000 on Jurisdiction and the Recognition and
Enforcement of Judgments in Civil and Commercial Matters which entered into force in the UK on 1 March 2002 (see
the Civil Jurisdiction and Judgments Order 2001), and replaced the Convention on Jurisdiction and the Enforcement of
Judgments in Civil and Commercial Matters 1968 (“the EC Jurisdiction Convention”). For the operation of the parallel
Lugano Convention see para. 2.23 below.
49. Para. 2.19 et seq.
50. Para. 2.24 et seq.
52. At para. 2.30.
53. Art. 2.
54. Art. 9. A co-insurer may also be sued in the EC Member State in which proceedings are brought against the
leading insurer, Art. 9(1)(c).
55. Art. 13(2).
56. Art. 13(5) triggering Art. 14 which defines the risks falling within the exception.
57. The extent to which these exceptions apply to goods in transit by road or rail, or in store, is examined below at
para. 2.26 et seq.
58. Art. 23(1).
59. A company is domiciled where it has its registered office or central administration or place of business, Art.
60(1) and 60(2). A company can have its seat and so its domicile in more than one Member State: s. 42 of the Civil
Jurisdiction and Judgments Act 1982.
60. Art. 9(2) see Lloyds Register of Shipping v. Societe Campenon Bernard [1995] CLC 1157 (ECJ) which
discusses the meaning of the phrase, “dispute arising out of the operations of a branch”. See also Anton Durbeck
GmbH v. Den Norske Bank ASA [2003] 1 CLC 697 (CA).
62. Where a jurisdiction agreement in favour of the courts of an EC Member State is made in circumstances where
neither party is domiciled in an EC Member State, the EC Judgments Regulation still requires that the courts of other
Member States should honour that agreement as they shall, “not have jurisdiction over [the] dispute unless the court or
courts chosen have declined jurisdiction” (Art. 23(3)).
63. [2003] 2 Lloyds Rep. 391.
65. Supra.
66. When the MAR Form was first introduced in 1982 it contained a permissive jurisdiction clause in terms that the
policy was, “subject to English jurisdiction”. However, after the decision in S&W Berisford plc and NGI
International Precious Metals Inc. v. New Hampshire Insurance Co Ltd [1990] 1 Lloyds Rep. 454, the wording
was amended to provide for the exclusive jurisdiction of the English courts.
67. Where the Lugano Convention is applicable, Art. 17 is to the same effect.
68. The EC Judgments Regulation, with effect from 1 July 2007, also applies to Denmark, Civil Jurisdiction and
Judgment Regulations 2007, SI 2007 No. 1655.
69. Convention on Jurisidiction and the Enforcement of Judgments in Civil and Commercial Matters opened for
signature at Lugano on 16 September 1988 implemented in the United Kingdom by the Civil Jurisdiction and Judgments
Act 1991. The terms are not in all respects identical to the EC Judgments Regulation but similar rules apply to most
jurisdiction issues related to cargo insurance except for the “large risks” exception, see para. 2.28 below.
70. [2002] 2 Lloyds Rep. 553.
72. Art. 17 of the Lugano Convention.
73. Also s. 3 of the Lugano Convention.
74. Art. 9(1)(b) and Lugano Convention Art. 8.2.
75. [2002] 2 Lloyds Rep. 553. A case decided under Art. 17 of Lugano Convention, the equivalent of Art. 23 of the
EC Judgments Regulation.
76. Estasis Salotti di Colzani Aimo e Gianmario Colzani v RUWA Polstereimaschinen GmbH, C-24/76 [1976]
ECR 1831: Credit Suisse Financial Products v Société Generale dEnterprises [1997] CLC 168.
77. AIG Europe SA v QBE International Insurance Ltd [2001] 2 Lloyds Rep. 268 and, more recently, Dornoch
Ltd v. Mauritius Union Assurance Co Ltd [2006] 2 Lloyds Rep. 475.
78. [2003] 2 Lloyds Rep. 377.
79. Para. 2.21 above where the facts of this case are given in more detail.
80. Ibid. at para. 71. A “good arguable case” was made out for English jurisdiction on the basis of the Clause
complying with Art. 23.
81. Section 3 of EC Judgments Regulation, Art. 9(1)(b). Lugano Convention, Art. 8.2.
82. Now the EC Judgments Regulation, see fn. 48 above.
83. See Schlosser Report Official Journal of European Communities No. C59/112.
84. EC Judgments Regulation Art. 13.5 which permits departure from the mandatory regime in case of risks set out
in Art. 14.1; Lugano Convention Art. 12A.1.
85. EC Judgments Regulation Art. 14.4; Lugano Convention Art. 12A.4.
86. Arts. 14.1 (a) and (b).
87. Art. 14.4.
88. [2002] 2 Lloyds Rep. 553. A case decided under the Lugano Convention, Arts. 12 and 12A which are the same
as Arts. 14(1) to 14(4) of the EC Judgments Regulation.
89. John Robert Charman and Mark E Brockbank v. W.O.C. Offshore BV [1993] 2 Lloyds Rep. 551 at 557.
90. At para. 43.
91. Section 3 of the EC Judgments Regulation, Art. 9(1)(b): Lugano Convention Art. 8.2.
92. The Lugano Convention has the exception in respect of goods in transit by seagoing ships and aircraft in Art.
12A but currently has no “large risks” exception; compare Art. 14.5 of the EC Judgments Regulation with Art. 12A of
the Lugano Convention. The new Lugano Convention (Convention on Jurisdiction and the Recognition and
Enforcement of Judgments in Civil and Commercial Matters) signed by the EC, Denmark and the three EFTA States
on 30 October 2007 is designed to bring the Lugano Convention into line with the EC Judgments Regulation. It will
extend to large risks, which are now included in an amended Art. 14.5. Although there is no definition of “large risks”
in the new Lugano Convention, that term will no doubt be construed like the EC Judgments Regulation in accordance
with the definition in the Non-Life Directive, see para. 2.12 above at fn. 31.
93. EC Judgments Regulation, Art. 14.5.
94. Council Directive 73/239/EEC and subsequent amendments thereto.
95. See para. 2.10, fn. 21 above, in relation to choice of law.
97. See the discussion of “large risks” in relation to choice of law at para. 2.12 above.
98. [2003] 2 Lloyds Rep. 377.
99. At para. 123 following Sarrio SA v. Kuwait Investment Authority [1998] 1 Lloyds Rep. 129 at 135.
100. Case C-116/02 Gasser v. Misat [2003] ECR I-14693 and Case C-159/92 Turner v. Grovit [2004] ECR I-
3565.
101. Donohue v. Armco Inc [2002] 1 Lloyds Rep. 425 (HL). The matter is ultimately one of discretion.
102. Akai Pty v. Peoples Insurance Co [1998] 1 Lloyds Rep. 90.
103. Case C-185/07 Allianz SpA (formerly Riunione Adriatica di Sicurta SpA) v. West Tankers Inc. (The Front
Comor) [2009] Lloyds Rep. Plus 25 (ECJ).
CHAPTER 3
OPEN COVERS, POLICIES AND CERTIFICATES OF
INSURANCE
3.1 Cargo is usually insured under an open cover. This chapter therefore considers open
covers first and then considers policies. The policy requirements of the Marine
Insurance Act 1906 are reflected in the mandatory requirements of the Market Reform
Contract and will be considered in that context as policies are no longer issued for
cargo business in the London market.1 Finally we look at certificates of insurance,
which we contrast with policies, before examining the rights of the buyer of goods under
a c.i.f. contract as assignee of an insurance certificate.
OPEN COVERS
How cargo insurance operates in practice
3.2 The merchant who wishes to insure cargo may insure a single cargo for a single
voyage, known as a “facultative” insurance, but more frequently arranges cover on a
continuous basis for all the cargoes he manufactures, buys or trades. The merchant
therefore enters into an open cover contract with his insurers under which he can
declare cargoes to named destinations, though in todays market individual declarations
have somewhat fallen out of practice and premium will more usually be based on annual
transit turnover. Voyages outside this framework can be arranged separately or may be
“held covered” on terms, conditions and rates to be agreed by underwriters.2 Cargo
insurance is generally underwritten on a voyage basis, to cover the sea voyage and
associated land transit, but there has been a significant growth in storage cover for
cargo which will also be considered.3
The structure of a cargo insurance contract
3.3 A typical cargo open cover, which in the London market is now generally evidenced
by a Market Reform Contract, will identify the assured and underwriters; the cargoes to
be insured; the period of insurance; the covered voyages and premiums, and the other
terms and conditions of the contract of insurance, as well as the governing law and
jurisdiction. The terms and conditions fall into two broad categories: firstly, standard
printed clauses, such as the Institute Cargo Clauses,4 and, secondly, ancillary conditions
prepared by the brokers or, occasionally, by market underwriting organisations, such as
the Joint Cargo Committee. The resulting contract of insurance has a potentially
complex5 structure particularly where certificates of insurance are issued under the
open cover. This section considers the development and structure of open covers and
then looks at brokers facilities, which have many of the characteristics of open covers,
before examining binding authorities which, in terms of cargo insurance, are similar in
some respects to open covers.
The development and structure of open covers
The origin of open covers
3.4 Open covers for cargo developed out of what was termed a “floating policy”.6 Such
a contract was one which described the insurance in general terms and left the names of
the ship or ships on which the goods were to be carried, and other particulars, to be
defined by subsequent declaration. In the nineteenth century the arrangement was for
there to be a contract limit, the value of which was progressively exhausted as each
shipment was declared. Any shipments declared after the exhaustion of that limit would
be uninsured. Clearly it was important to identify and declare all shipments and for them
to be declared in the correct order in which they had been despatched. A modern open
cargo cover is similar but the only limit on a modern cover is the limit for each vessel,
shipment, conveyance or location.7 Nevertheless, when an open cover is first placed,
the assured will be expected to declare the estimated premium income (“EPI”) as
underwriters need to monitor estimated premium volumes. Accordingly, while a modern
open cover has no overall contractual limit, a misrepresentation as to the premium
volume could prove material and entitle the insurers to avoid the contract.8
Open covers: types and terms
3.5 Open covers take a number of forms and it is convenient at the outset to define our
terms. First there are brokers facilities or lineslips. These are framework arrangements
enabling the brokers to access capacity across a wide range of the underwriters
specialising in the cargo market. The “lines” are subscribed to potential future risks in
fixed shares on such a lineslip. This arrangement does not become a contract of
insurance until a risk is declared and accepted by the underwriters. We shall call these
arrangements for insurance “facilities” or “lineslips”.9
3.6 As we have seen, the words “open cover” are also used to refer to an agreement
between a particular assured, typically a manufacturer or trader, and his cargo
underwriters. Under this arrangement the assured declares the shipments he wishes to
insure over a fixed period, for example, a year. We shall call this an “open cover” or a
“cargo open cover”.
3.7 Cargo open covers take different forms. The most usual is an obligatory open
cover where the assured must declare all the shipments of cargo made in, say, a year,
and the underwriters must accept all declarations of shipments falling within the cover
description. We shall call this a “standard open cover”.10
3.8 Occasionally cargo open covers are underwritten on terms that entitle the assured
to choose which shipments he will declare to the open cover, the underwriters being
obliged to accept any declarations which fall within the cover description. This
facultative/ obligatory arrangement we shall call a “fac./oblig.” cover. The contract of
insurance is not concluded in such cases until the assured declares each individual
shipment.11
Standard open covers
3.9 The usual practice in cargo insurance is that all shipments must be declared by the
assured and that the underwriters, for their part, are obliged to accept all shipments
falling within the cover terms. In accordance with this practice the Institute Standard
Conditions for Cargo Contracts provide as follows:
“2. It is a condition of this contract that the Assured are bound to declare hereunder every consignment without
exception, Underwriters being bound to accept up to but not exceeding the amount specified in Clause 3 below.
3. 3.1 This contract is for an open amount but the amount declareable may not exceed the sum of ……… in
respect of any one vessel, aircraft or conveyance.
3.2 Should this contract be expressed in a form of a floating policy the total amount declareable hereunder may
not exceed ………”
As we have seen, floating policies are no longer used today and the question arises as to
the effect of a missed declaration, or a mistaken declaration, under a modern standard
open cover. In respect of a floating policy, the Marine Insurance Act 1906 section 29(3)
provides that the declarations, “must, in the case of goods, comprise all consignments
within the terms of the policy, and the value of the goods or other property must be
honestly stated, but an omission or erroneous declaration may be rectified even after
loss or arrival, provided the omission or declaration was made in good faith”.12 This
section of the 1906 Act cannot, as such, apply to a modern open cover for it contains
provisions that are not directly applicable.13 In The Beursgracht14 there was an open
cover for declarations in respect of the assureds liability as charterer under which the
assured had to declare all vessels chartered and the underwriters had to “accept” all
declarations. It was held that this was like a floating policy15 and that the underwriters
were bound when the goods were shipped and not when the declaration was made. The
declaration was not consensual in nature but was a part of the administrative machinery
of the contract since it informed the underwriter what risks had attached to the cover and
enabled him as necessary to collect the premium due.16 It is apparent therefore that a
declaration under such an obligatory open cover has no part to play in any contractual
offer and acceptance.17 It follows that the rule for floating policies as set out in the 1906
Act, regarding the rectification of bona fide late declarations,18 is likely to be applied to
declarations under a standard open cargo cover. Indeed such cargo covers recognise the
administrative nature of declarations to the extent that the practice in the London market,
in many cases, is to do away with individual declarations and for the risk to be
underwritten on a premium based on an estimated “annual transit turnover”.19 The
underwriters normally require a deposit premium adjustable on annual transit turnover,
the brokers being responsible for preparing an internal list of declarations and
calculating and collecting, or returning, the amount due from, or to, the assured in the
event of an adjustment. The breakdown of the annual turnover still represents
“declarations” and, it is submitted therefore, that underwriters would be on risk for any
bona fide late or erroneous declarations omitted from the internal brokers transit
turnover list.20
3.10 It should be added that in Berger v . Pollock21 Kerr J. said that the existence of
an open cover, even in cases of direct contractual nexus between the assured and the
underwriters, did not automatically relieve the assured from the obligation to disclose
material circumstances. He added that even if open covers on goods can at common law
be assimilated to floating policies on goods, it does not follow from this that material
circumstances concerning the goods, as opposed to the carrying ship, need not be
disclosed.22 It must, as Kerr J. recognised, depend upon the existence and terms of the
particular open cover together with any particular course of dealing thereunder. Where
the cover is obligatory and the goods and shipments fall within the cover, and must
therefore be “accepted” by the underwriters, the declaration is no more than an
administrative arrangement for identifying risks which the underwriters have already
agreed to accept.
Facultative/obligatory: (“fac./oblig.”) covers
3.11 Occasionally, in some cargo open covers, arrangements are made whereby the
assured has a discretion whether or not to declare shipments but when shipments are
declared the underwriters are obliged to accept them. This is a so-called facultative/
obligatory or “fac./oblig.” arrangement, each declaration being facultative (one off) at
the option of the assured but the underwriters being obliged to accept all declarations.
This arrangement is more commonly encountered in reinsurance.23 Where a
facultative/obligatory arrangement is encountered in cargo open covers the object of the
declaration is to earmark the goods and identify the particular adventure to which the
assured elects to apply the open cover.24 The assent of the insurer is not required
because the insurers are obliged to accept the risk if it falls within the terms of the
cover. However, the goods must be identified with reasonable precision so that the
subject-matter can be identified. Depending on the terms of the particular open cover,
the declaration may also need to include the date from when the cover is to attach, and,
if the cover is for storage, the place of storage.25
3.12 Declarations under facultative/obligatory covers may or may not be
retrospective. The starting point is that declarations must be made before the insurers
can come on risk but declarations may be retrospective depending on the terms of the
cover and the nature of the business insured and any established course of dealing
between the parties.26 Where declarations can be made retrospectively they must be
made before the assured knew the goods had been subject to a loss.27
Brokers facilities or lineslips
Brokers facilities considered and defined
3.13 In the London market it is common for brokers to have what are known as “cargo
facilities” or lineslips. These facilities may be very broadly drawn so as to attach open
covers from traders or manufacturers worldwide. The declarations to these facilities,
which may consist of new risks, renewals or alterations to existing risks, may be
accepted by the leading underwriters, on behalf of the followers, as long as they fall
within the parameters of the facility. The ultimate decision as to whether a certain risk,
or alterations to an existing risk, comes within those parameters falls upon the so-called
leading underwriters who may be the only underwriters to see each individual risk
under the facility before it is accepted.
Is a facility a contract of insurance?
3.14 The position is that such arrangements do not constitute contracts of insurance at
the time they are entered into and before any assureds, or their cargo, are declared. In
Berger and Light Diffusers Pty Limited v . Pollock28 a cargo of second-hand
machinery was insured under a brokers facility. It was held that the existence of an
“open cover or facility” between the brokers and the underwriters could not bind the
underwriters to a contract with the assured, as the underwriters were third parties to that
agreement. This reflected a similar decision reached at first instance in Republic of
Bolivia v . Indemnity Mutual Marine Assurance Co29 where Pickford J. approached a
cover that could be used for the goods of different owners in a similar way.
The position of leaders and followers: agency?
3.15 The question arises as to the capacity in which the leading underwriters (the
“leaders”) act in “accepting” declarations which bind the following underwriters (the
“followers”) to the risk. If the leaders accept a declaration that does not conform to the
facility no contract of insurance comes into existence between the assured and the
following underwriters.30 On the other hand, where the leaders are granted a wide
authority to agree “amendments, additions and deletions”, which is commonly the case,
the court cannot interfere to attempt to draw the line between major and material
alterations and minor and immaterial ones.31
3.16 The legal position of the leaders is unclear. In The Leegas32 Hirst J. spoke of the
“manifest duty of care” of the leading underwriters to the following market and in
Roadworks v. Charman33 it was said that the leading underwriters clause evidenced the
terms of a contract of agency. However, in Mander v. Commercial Union Assurance Co
plc,34 Rix J. held that the leader was not constituted an agent of the following market by
the terms of the leading underwriters clause in that case, rather he said:35
“The following market agreed, by subscribing to the cover, that they would be bound by a declaration falling within the
scope of the cover and agreed by the leading underwriter: i.e. the agreement of the leading underwriters worked as a
‘trigger’ rather than as an act of agency.”
On this approach the assured will look to recover under his contract of insurance
against the followers for the amounts of their subscription because their involvement has
been triggered by the action of the leaders whatever the position between the leaders
and followers. Consistent with this analysis it was the practice for leaders and
followers agreements to be expressed in such a way as not to be part of the agreement
with the assured.36 In Roadworks v. Charman37 Judge Kershaw Q.C. held that such a
Leading Underwriters Agreement did not bind the assured.38 As discussed below,39 the
General Underwriters Agreement (“GUA”) by contrast,40 does not exclude the Contracts
(Rights of Third Parties) Act 1999 in respect of the “insured” suggesting that the insured
may therefore be a party to the agreement between the leaders and followers which
under the GUA, as we shall see, does constitute an agency agreement.
3.17 A claim lies against the broker if the declaration is outside the facility so that no
contract of marine insurance comes into existence. For example, in The Tiburon41 the
cover only extended to ships in “German ownership”. The declaration of a Panamanian
owned vessel fell outside that requirement and as a consequence no contract of
insurance ever came into existence with the following underwriters. The leaders were
bound for their shares only and the assured recovered from the brokers the amounts that
would have been recoverable from the following underwriters.
The General Underwriters Agreement (“GUA”)
3.18 In the London cargo market cargo facilities or lineslips are now generally subject
to the General Underwriters Agreement (GUA). The GUA42 is not a “trigger”
arrangement, as discussed above, but an agency agreement between the subscribing
underwriters on a particular contract of insurance. The GUA regulates the extent of the
authority of the leaders to agree alterations which, in some cases, may include the
acceptance of new assureds, on behalf of the followers. The Leader is defined as the
“Slip Leader”. The practice in the cargo market is for the leader alone to agree
relatively minor matters, such as typographical alterations, but for wide authority to be
given to the three leading syndicates, on a slip written in the Lloyds market alone, or to
the two leading Lloyds syndicates and the two leading companies, for mixed slips
written partly at Lloyds and partly in the Companies market. The three syndicates, or
two syndicates and two companies, are defined in the GUA as the “Agreement Parties”
but here we shall call them the “leaders”. The other subscribers to the slip, except any
syndicate or company who does not wish to be party to the GUA, are described in the
GUA as the “Other Underwriters”, but for convenience they are referred to here as the
“followers”.
3.19 The GUA is governed by English law which applies whatever the law of the
underlying slip.43 The financial consideration for the agency is obscure but, in
commercial terms, is probably the benefit derived by the leaders for being supported by
the followers without whose subscriptions the risk could not be placed. In exchange for
that benefit the leaders undertake certain duties on behalf of their principals, the
followers, in administering the underlying slip. That administration may prove onerous
as the leaders may have to accept declarations of new assureds. This is usually done on
terms that the new risks be notified by the brokers to the followers. The leaders also
evaluate significant alterations to existing risks which may impose additional liabilities
on the whole slip as, for example, where the assured wishes to extend the duration of
the underlying risk. The standard provisions for what may be accepted by the leaders
are set out in the GUA Marine Cargo Schedule, June 2003,44 but in practice the
underlying slip may give wider authority to the leaders to accept new declarations
rather than merely alterations to existing risks for assureds already declared.
3.20 The question arises as to the legal position of the assured if the leaders, in error,
exceed their authority and accept a risk falling outside the slip or agree an alteration that
is not in conformity with the slip terms. It could be, for example, that the leaders fail to
appreciate that a new risk which they accept contains unusual terms imposing additional
liability on the followers that should have been agreed by all underwriters. It would
seem that if the declaration or alteration is not in conformity with the slip then there is
no contract between the assured and the followers and the assured must recover from
the brokers.45 On the other hand, there may be cases where the position is less clear-cut
and it is not possible for the brokers to be aware that the declaration or alteration is not
in conformity with the slip because that decision has been delegated to the leaders.46 If
the leaders exercise this discretion in error by, for example, failing to appreciate some
unusual terms in the alteration, they would be in breach of their agency agreement and
responsible to the followers. The followers meanwhile have been bound to the assured
because the leaders had ostensible authority to agree the alteration. In each case there
will need to be a determination as to whether there should be recovery from the brokers,
if the declaration or alteration was not in conformity with the contract, or from the
whole slip if the leaders had apparent or ostensible authority to agree the declaration or
alteration. A preferable solution would have been that suggested by Rix J. in Mander v
Commercial Union Assurance Co plc47 where the agreement of the leading
underwriters worked as a “trigger” rather than an act of agency. That would have led
towards recovery against the brokers who have “errors and omissions” cover for such
losses while it is questionable whether the leading underwriters have cover for
liabilities to the following market for breach of the agency agreement evidenced by the
GUA, albeit that they will normally have errors and omissions cover for underwriting
errors.
Coverholders: binding authorities
3.21 It is the practice in cargo insurance to conduct business with the use of binding
authorities under which a “coverholder” is appointed as agent of the insurers for the
acceptance of risks. These arrangements have some of the attributes of brokers open
covers though they are more commonly granted to underwriting agents who themselves
accept the risks within the parameters set out in the binding authority. For marine cargo
business such a binding authority may well reflect the terms of an open cargo cover as it
will describe the cargoes and voyages to be accepted; the terms and conditions to be
applied, typically the Institute Cargo Clauses, and the premiums to be charged. In
common with an open cover, a binding authority will normally provide for the issue of
certificates of insurance which should state such matters as the specified voyage and the
limit of liability for each shipment. A binding authority is not a contract of insurance
subject to the obligation of disclosure, though it may give rise to duties analogous to
those of good faith.48 The arrangements for marine cargo binding authorities granted by
Lloyds underwriters are strictly regulated at Lloyds49 with model forms of agreement
provided by Lloyds Market Association so as to accord with regulatory requirements
and good practice.50
POLICIES AND CONTRACTS OF INSURANCE
The Market Reform Contract and the SG and MAR Forms
3.22 The current practice, following the introduction and development of the London
Market Principles, is that in most cases of cargo business the brokers prepare a Market
Reform Contract as the evidence of the insurance.51 The Market Reform Contract sets
out in full the terms of the contract of insurance and evidences the insurance either as a
Broker Issued Document (“BID”), where the brokers sign to confirm the underwriters
lines, or as an Insurer Issued Document (“IID”). The IID is more commonly used today
and consists of a copy of the Market Reform Slip with the underwriters lines attached
by way of evidence of their authorisation.
3.23 The Market Reform Contract makes provisions for jurisdiction and, in the case
of insurance subscribed by IUA companies, the several liability of the insurers.52
Accordingly the use of the MAR 91 “jacket”, which contained an exclusive English
jurisdiction provision and a severable liability notice, is no longer necessary nor is it
required.53 It may be noted, however, that the Lloyds form of MAR 91 policy contained
an immediate notice of claim requirement which applied to cargo insurance. This notice
will no longer form part of the contract unless inserted as a special clause.54
3.24 In foreign markets, particularly Japan, the SG Policy Form as scheduled to the
Marine Insurance Act 1906 is still widely used and cargo insurances are still
underwritten on the terms of the Institute Cargo Clauses (All Risks) and, to a far lesser
extent, the Institute Cargo Clauses (WA) and (FPA). The Institute Cargo Clauses of 1982
did not find favour with the Japanese market as they restricted cover, in particular by
excluding claims arising from insolvency of the carrier55 or inadequate packing.56 In the
Japanese market the practice is to set out in traditional manner the terms of the SG
Policy Form to which is attached the Institute Cargo Clauses and any additional clauses
of a special nature appropriate to the cover. This has the advantage of providing the
assured, or his assignee, with a comprehensive document showing all the terms and
conditions of the contract of insurance.
The contract of insurance as evidence
3.25 The Marine Insurance Act 1906 provides that, “a contract of marine insurance is
inadmissible in evidence unless it is embodied in a marine policy in accordance with
this Act”.57 This requirement is evidential, and derives from the former need to have a
policy stamped.58 In theory, though not in marine cargo practice, the requirement for a
policy also protects the brokers lien over the policy for premium.59 The validity of the
contract of insurance is not dependent on the existence of a policy, nor need the policy
be issued at the time when the insurance contract is made for the policy, which must be
signed by or on behalf of the insurer,60 and may be executed and issued either at the time
when the contract is concluded, or afterwards.61 By current practice policies are rarely
issued for London market cargo business. If a point were taken as to the absence of a
formal policy, it is assumed that a policy would be issued and that the Market Reform
Contract would entitle the assured to a policy just as a slip policy formerly had this as
one of its functions.62
3.26 In so far as the continued existence of the evidential requirement for a policy
protects the brokers lien for the premium,63 that lien is rarely if ever exercised in
relation to London market cargo business. The broker cannot withhold the policy as
policies are not normally issued.64 The broker has, however, other ways to achieve
payment of the premium, at least where claims arise, by reason of being the party
principally involved with collecting claims from underwriters and thus being well
placed to set-off premium due against claims.65
What the policy must specify: the assured
The “Assured” under London market open covers
3.27 The Marine Insurance Act 1906 provides that a marine policy must specify, “the
name of the assured, or of some person who effects the insurance on his behalf”.66 The
phrase “or some person who effects the insurance on his behalf” recognises the
traditional practice whereby the brokers were named on the slip on behalf of those
interested. It also reflects the time-honoured wording in the SG Form which, after
naming the assured continued, “and in the name and names of all and every other person
or persons to whom” the insurance “shall appertain”.67 The Market Reform Contract
(MRC) has a mandatory requirement that the assured be identified and, for cargo
business, the “Assured” is typically defined in London market open covers in a widely
drawn formula along the following lines:
“ASSURED: ABC Limited, and/or as agents and/or subsidiaries and/or associated companies and/or for whom they
may have instructions to insure.”
3.28 This wording not only ensures that all the companies in a group are included as
“Assured” but, more importantly, in the present context, extends the insurance to c.i.f.
buyers of a cargo so that the original insured, in this case ABC Limited, acts as “agent”
on behalf of a buyer of the cargo “for whom they may have instructions to insure”. These
arrangements are now reflected in the revised Institute Cargo Clauses in the Benefit of
Insurance Clause which provides as follows:68
“This insurance covers the Assured which includes the person claiming indemnity either as the person by or on whose
behalf the contract of insurance was effected or as an assignee …“
In the light of this provision a c.i.f. buyer from the original assured will now be an
“Assured” not only as assignee, but as an assured in his own right falling within the
principles set out by Colman J. in National Oilwell (UK) Limited v. Davy Offshore.69
These principles provide that where the person who makes the insurance has “express
or implied actual authority” to bind a potential co-assured, that will create a binding
contract. Evidence of whether the original assured intended to insure the buyer may be
provided by reference to the terms of the contract of insurance itself, or by referring to
the contract of sale or other admissible material to show what was intended.70 The
insurance wording commonly used in the London market, whereby the original assured
acts “as agent” of the c.i.f. buyer “for whom they may have instructions to insure”
constitutes such evidence.71 Moreover, a c.i.f. seller normally has actual authority from
his buyer to arrange insurance on the goods for the benefit of his buyer who is known or
ascertainable at the time the contract is made.72 The position of a sub-buyer who may
not yet exist is less certain but the intention to include such a buyer, being the eventual
assignee, is clear and he too should be treated as an “Assured”.73
The “Assured” under the Institute Cargo Clauses
3.29 The “Assured” under the Institute Cargo Clauses may be described as the
“Assured”,74 or may be extended to the “Assured or their employees”.75 In one Clause,
the Duty of Assured Clause, the assureds duty extends beyond the assured themselves
and their employees to encompass their agents.76 The significance of these distinctions
is considered first before examining separately the questions that arise where
knowledge of the assured is in issue.77
3.30 The use of the word “Assured” in the Institute Cargo Clauses needs to be
construed in three different contexts. Firstly, it may be used simply in the context of
identifying the party to whom payment will be made, as in the Both to Blame Collision
Clause, which states, “This insurance indemnifies the Assured”.78 Secondly, the word
“Assured” may be used in the context of identifying actions taken, or to be taken, by the
“Assured”, as in Clause 8.1.2, where the transit ceases if the assured or their employees
elect to use a warehouse for storage of the goods other than in the ordinary course of
transit. In this context the “Assured”, if a company, will act through its employees, and
as a matter of construction (though Clause 8.1.2 puts the matter beyond doubt) the
“Assured” includes the persons authorised by any assured individual or company to take
the actions in question on behalf of that individual or company. The assured in this sense
would include a Risk Manager of a larger company or firm who arranges insurance, and
upon whom obligations of disclosure would normally fall, though such a person may not
constitute the alter ego of the company79 The third category, to which we turn next, is
where the assured is defined in the context of knowledge or privity of the assured and
the question is whose knowledge constitutes the knowledge of the “Assured”. It may be
stressed that, in most cases, the Assured will, as a corporate body, act through its
managers and other employees. It is only rarely in the third category, where
“knowledge” or “privity” is involved, that the “Assured” will be limited to the alter
ego of the company, a concept now considered.
Knowledge of the “Assured” under the Institute Cargo Clauses
3.31 The question of whether or not the knowledge of an employee is attributable to the
assured is ultimately a matter of construction.80 As the Institute Cargo Clauses make a
clear distinction between the “Assured” and the “Assured or their employees”, it
follows that the “Assured” should be narrowly construed as being equivalent to the
guiding mind of the company in contrast to “employees”. The Institute Cargo Clauses
are concerned with knowledge of the “Assured” themselves in the alter ego sense in the
cases of insolvency, unseaworthiness and insurable interest.81 In so far as wilful
misconduct requires “knowledge”, the assured under the wilful misconduct exclusion
also means the assured themselves in the alter ego sense.82 Where “employees” are
referred to separately, the knowledge extends to their knowledge but this occurs only in
two cases, unfitness and change of voyage.83 In the first of these cases only an employee
is likely, in practice, to be aware of the unfitness of any container or conveyance at the
time of loading.84 In the second case, change of voyage, insurers have extended the
cover to a change of voyage but were concerned, no doubt, to protect themselves from
situations where either the assured or their employees were aware that the ship was due
to sail for another destination.85
3.32 The identification of the alter ego depends on the nature of the “Assured” which
may be an individual, a firm or unincorporated body, or a corporate body, large or
small. Individuals are rarely involved in cargo insurance but examples do occur. In
Berger and Light Diffusers Pty Limited v. Pollock,86 Mr Berger and his company,
Light Diffusers Pty Limited, which he controlled owning virtually all the shares, were
treated more or less as the same person for the purposes of the action. In such cases,
where the Clauses use the term “Assured”, in the context of the knowledge or “privity”
of the “Assured”, that refers to the individual assured who runs his own affairs and
would not include a senior employee whose knowledge would not be sufficient, for
example, to establish “privity” for unseaworthiness under Clause 5.1.1 of the Institute
Cargo Clauses.87
3.33 In the more usual case, where the assured is a corporate body, the “Assured”
will constitute the natural persons (for a company can only act or have knowledge
through its persons) who constitute the equivalent position to that which would prevail
where a natural person was the assured.88 Under this test the persons who constitute the
assured, for the purpose of knowledge or “privity”, will be limited to the alter ego of
the company. The identity of the alter ego will depend on an analysis in each case of
who constitutes the directing mind of the company, which in a larger company is likely
to be limited in practice to senior board directors.89
3.34 The concept of “privity”, which has been much considered in relation to hull
policies, denotes knowledge, or at least the turning of a blind eye.90 In relation to
Clause 5.1.1, and the unseaworthiness of the vessel, the knowledge is limited to that of
the assured, defined as discussed above. In Clause 5.1.2, by reason of the extension to
“employees”, the knowledge is not limited to the alter ego of the company but extends
to managers and other employees involved day-to-day in the handling of cargo.
“Employees” of the “Assured” under the Institute Cargo Clauses
3.35 The term “employees” has replaced the word “servants” which appeared in the
1982 Clauses. When the word “employees” is first used in Clause 4.3 it is stated that
“for the purpose of these Clauses … employees shall not include independent
contractors”. The assureds “employees” are those persons in their direct employment
under a contract of service and do not include independent contractors or agents. A
contract of service in this sense is a contract to work under the direction and control of
the assured,91 a concept which may extend to senior employees.92 The distinction is
particularly relevant to the packing and preparation exclusion where underwriters
accept liability if goods are insufficiently packed, during the currency of the risk, by an
independent specialist packer but not if the packing and preparation is carried out by the
assured or their employees. It is anticipated that the English courts will give a
purposeful constructon to the word “employees” so as to include persons hired in under
contract for a particular task, for example packing the goods, but strictly “employed” by
others, as long as the assured is exercising the necessary elements of supervision,
direction and control of the packing or other work undertaken.
“Persons Interested” in storage policies on goods
3.36 It has been suggested, based on the requirements of the Marine Insurance Act 1788,
that a policy for goods in store, or goods insured under a non-marine policy, must name
the person or persons interested in the insurance.93 This view is supported by Schedule
2 of the Marine Insurance Act 190694 which only repealed the Marine Insurance Act
1788 in so far as it “related to marine insurance”. But it is questionable whether the Act
of 1788 itself extended beyond marine insurance. The preamble provides that it was
concerned with “insurances on ships or vessels and on goods merchandises and affects”
in the context of trade and commerce. Further, the Act of 1788 makes reference to
consignors and consignees95 and this may also imply, as does its short title, that it was
concerned with trade, that is, with marine insurance of goods in transit and not with
goods in store or goods insured under non-marine policies. In any event the Act of 1788
permitted a wide range of persons to be named in the policy as alternatives to the
person interested in the goods, including the agents of the persons really interested; the
consignor or the consignee of the cargo, or the person or persons (in Great Britain) who
received the order for the insurance. Accordingly, the position appears to be that there
is no significant difference between the 1788 Act and the 1906 Act. It is sufficient in
either case to name the party interested or his agent. This should cover the case where
goods are traded whilst remaining in store, such as metals traded under London Metal
Exchange warrants.96 If the 1788 Act has not been repealed, and does apply to insurance
of goods in store, then a failure to name the party interested, or his agent, in accordance
with that Act, renders the insurance void.97
Designation of the subject-matter insured
3.37 The Marine Insurance Act 1906 section 26 provides that the “subject-matter
insured must be designated in a marine policy with reasonable certainty”. The position
under the Institute Cargo Clauses is that if the goods are not adequately described or do
not fall within the description in the contract of insurance then there is no insurance
cover.98
3.38 Historically, the Institute Cargo Clauses (All Risks) 1/1/63 made provision for
the risk to be, “held covered at a premium to be arranged in case of… any omission or
error in the description of the interest, vessel or voyage”.99 This “held covered”
provision was withdrawn on the introduction of the Institute Cargo Clauses 1/1/82
because insurers wished to ensure that the goods were properly described in the slip at
the outset when the risk was placed.
3.39 In so far as “held covered” provisions as to the description of the goods are still
to be found in brokers clauses, there would normally be a duty of good faith to disclose
any matters material to the risk at the time of any declaration of the true description of
the goods,100 and, in common with “held covered” provisions generally, there would
usually be a requirement for prompt notice. Additionally, the cover needs to be
available in the commercial market.101 In order that the held covered Clause can operate
in cases of misdescription it must also be possible for the assured to be able to describe
the goods. Thus in Overseas Commodities Limited v Style,102 where there was a
misdescription in relation to the date of manufacture marked on consignments of tinned
pork butts, it was decided that the held covered clause was inapplicable as the assured
was unable, even at trial, to correct the misdescription.103
The description of the goods: deck cargo
3.40 It is convenient to consider here the related issue of deck cargo which may be
analysed in terms of the description of the goods. The Marine Insurance Act 1906 takes
this approach in so far as rule 17 of the rules for the construction of the policy
provides104:
“In the absence of any usage to the contrary, deck cargo … must be insured specifically, and not under the general
denomination of goods.”
The carriage of cargo on deck, where on deck carriage has not been anticipated by the
shipper, gives rise to an issue of some difficulty. In former times this was exemplified
by the case of a car carried on deck, when under-deck carriage had been anticipated.105
Given the prevalence of containerised transport today, the problem is more likely to
occur where machinery is carried in open top containers on deck. The problem arises
where the machinery will not fit conventional closed containers and the open top
containers cannot be conveniently stowed under deck and are left to be stowed on the
deck itself or at the top of the stack. On prolonged voyages the cargo may suffer from
exposure to heavy weather. There can be no doubt that there is a usage to carry
conventional closed containers on deck but open-top containers leave the cargo no more
protected than conventional deck cargo. What is the position under the insurance
contract, particularly where an under-deck bill of lading has been issued, for cargo
actually carried on deck?
3.41 An initial question arises as to whether the rules for construction scheduled to
the 1906 Act, in particular, the requirement of rule 17 that, “deck cargo … must be
insured specifically, and not under the general denomination of goods” is a mandatory
rule of construction. The difficulty is that in terms of the current London market practice
for cargo insurance neither the SG Policy Form nor “like forms” are used yet the
opening words of Schedule 1 of the 1906 Act only applies the rules for construction to
the SG Policy “or other like form”. This suggests that the rules for construction only
apply to SG Forms or, at least, similar forms.106 Nevertheless, the task of the court is to
construe the contract of insurance in accordance with the intention of the parties and the
rules for construction in the Schedule to the 1906 Act may be said to continue to
underlie the mutual understanding between insurers and assured built up over the history
of marine cargo insurance. In terms of deck cargo there may, additionally, be said to be
a mutual understanding relating to the known and accepted dangers inherent in carriage
of cargo on deck.107Arnould takes the position that goods on deck are not covered by a
general policy108 and is strongly of the view that the rules for construction will continue
to apply even in the absence of the SG Form and despite the fact that the MAR Form (or
the Market Reform Contract) is unlikely to be held to be “a like form”.109It may also be
said that the approach adopted here, that the construction reflects a mutual understanding
of the dangers of deck cargo, is consistent with the fact that the words “in the absence of
a usage to contrary” have been held to mean a usage in the trade and not an insurance
usage.110
3.42 A further issue then arises as to whether the requirement of rule 17, that deck
cargo must be “insured specifically” and not under the “general denomination of
goods”, applies to a cargo policy which describes the cargo in some detail as, for
example, “machinery in containers” and not as “goods”, and, indeed, whether the rule
applies to all risks insurance. A number of cases have proceeded on the basis that the
rule means that the description of the “goods”, whether it be a “motor car”,111 wool
insured from the sheeps back,112 or barrels of kerosene113 must indicate that the cargo is
to be carried on deck.114 These cases also proceeded on the basis that the rule applies
both to all risks and more limited, or named perils cover, such as applied under the SG
Form.115
3.43 There is no direct modern authority supporting the approach adopted here but, in
terms of market practice, Goodacre116 puts the position as follows:117
“It sometimes happens that cargo is shipped on deck, but no indication is given on the Bill of Lading, a usual ‘under-
deck’ Bill of Lading being issued. In such cases the assured has no knowledge of the different circumstances
appertaining to his shipment, and does not learn of them until after a loss has occurred. This can frequently lead to bad
feeling between the assured and his insurers, because obviously the latter are not prepared to accept liability for a
different risk, whilst the former has acted in good faith but finds himself unable to recover under his policy. In practice
the carrier has no protection under the Carriage of Goods by Sea Act, 1971 when he issues an under-deck Bill of
Lading for goods shipped on deck. It therefore becomes incumbent upon the assured to press his claim against the
carriers. Should this become onerous, he tends to blame his insurers for not paying the loss in the first instance,
following which they could exercise their rights to reimburse themselves by action against the carriers for negligence.”
It is submitted that this is a correct statement of the legal position. The issue is whether
the action of the carrier, in placing the goods on deck, should be treated as an all risks
loss, equivalent to extremely bad stowage, or whether placing the goods on deck takes
the goods off risk being, as it were, outside the description of the goods and, indeed, the
ordinary course of transit.118 The Marine Insurance Act 1906 section 44 recognises that
where the shipowner sails for a different destination this wrongful action takes the
goods outside the insurance cover and this rule may, in some ways, be seen as
analogous to the goods being taken off risk by being placed wrongfully on deck.119
There is no easy solution to these issues where either innocent assured or innocent
insurers must suffer by reason of the wrongful action of a third party. However, the
answer may lie in identifying the cause of the loss. The placing of goods on deck does
not, of itself, cause loss, but exposes the goods to unacceptable risks not contemplated
by either assured or insurers. By way of contrast the action of a shipowner in sailing for
a different and unknown destination, which amounts to theft, does immediately cause
loss. This may explain why insurers have decided to treat such wrongful action by the
shipowners or carriers differently in the revised Institute Cargo Clauses under Clause
10.2, by which the insurance is deemed to have attached as long as the assured and their
employees have no knowledge of the shipowners intentions.120 Where the cargo is
unexpectedly carried121 in an open top container on deck, exposed to the elements, that
does not of itself cause loss, but gives rise to enhanced risks not agreed with insurers. It
follows there is no insurance cover. In terms of both the Act, and the practice, the goods
no longer fall within their description and must therefore be off risk.
The premium
3.44 The practice in the London market today is for Market Reform Contracts (MRCs)
to be used to evidence the contract of insurance,122 and it is a mandatory requirement of
such MRCs that both the premium and “premium payment terms” be agreed.123 Such
“payment terms” are commonly agreed in accordance with LSW3000, a standard form
of premium payment clause, which fixes the time for payment of the premium, for
example, as being within 60 days of inception of the insurance risk. Such agreements
oust many of the rules of the common law and of the Marine Insurance Act 1906. For
example, section 52 of the Act of 1906 makes payment of premium and issue of the
policy concurrent conditions, a rule that has little direct practical application in the
cargo market where “policies” as such are rarely if ever issued, albeit that an MRC
would no doubt qualify as a “policy” if need be.124 Further, while the common law
contemplates that premium is earned in full on inception of the risk,125 clauses such as
LSW3000 contemplate a pro rata return of premium should the risk be cancelled.
3.45 The usual position in the London market is that the insurance is effected through
a broker. This is dealt with in section 53(1) of the 1906 Act in the following terms:
“Unless otherwise agreed, where a marine policy is effected on behalf of the assured by a broker, the broker is directly
responsible to the insurer for the premium, and the insurer is directly responsible to the assured for the amount which
may be payable in respect of losses, or in respect of returnable premium.”
Where insurers set specific premium payment terms in cargo business these do not
normally oust the rule set out in the Act that the broker is liable for the premium; very
clear words being required to vary the rule.126 The reality of the situation is that, for
premium purposes, the broker is acting as principal in his own right or under some form
of dual agency, and not merely as the agent of the assured.127 Thus the insurers have no
right of action against the assured for the premium and if the brokers become insolvent
the insurers must prove in the liquidation.128 Where the assured, rather than the broker,
fails to pay the premium, the insurers could claim against the brokers under section
53(1) of the 1906 Act but, in practice, they rarely if ever do so and the reality of the
market is that the insurers run the risk of the assureds insolvency129 The risk of non-
payment of premium is managed (in practice) by the premium cancellation provisions
discussed below in the context of the brokers lien and right of set-off.
3.46 By section 53(2) of the Marine Insurance Act 1906 the broker has a lien to
protect his right to the premium:130
“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.”
As policies are rarely issued in the London market for cargo business the importance of
the lien lies not in the possession of the policy itself, but in the fact that it enables the
broker to maintain a set-off in respect of receipt of claims collected on the contract of
insurance against any premium or other indebtedness due from that assured.131 In so far
as London market cargo businss is concerned, the premium may be based on annual
transit turnover, or a similar formula that reflects the value of goods at risk in store and
in transit in any one annual period. The assured will give an estimate of the value of
such transit turnover on which a deposit premium will be paid. The premium is then
adjusted after the annual period has closed and exact figures for the annual transit
turnover are available. As we have seen, the time for the payment of premium is fixed
by the contract which typically provides for payment within 60 days of inception of the
risk.132 If premium is not received, the insurers are usually entitled to give notice of
cancellation, so that non-payment of the premium will result in early withdrawal of
cover. For example, LSW3000 provides as follows:
“If the premium due under this policy has not been paid to Underwriters by the [60th] day from the inception of this
policy (and, in respect of instalment premiums, by the date they are due) Underwriters shall have the right to cancel
this policy by notifying the Insured via the broker in writing. In the event of cancellation, premium is due to
Underwriters on a pro rata basis for the period that Underwriters are on risk but the full policy premium shall be
payable to Underwriters in the event of a loss or occurrence prior to the date of termination which gives rise to a valid
claim under this policy.
It is agreed that Underwriters shall give not less than 15 days prior notice of cancellation to the Insured via the
broker. If premium due is paid in full to Underwriters before the notice period expires, notice of cancellation shall
automatically be revoked. If not, the policy shall automatically terminate at the end of the notice period.”
This enables brokers and insurers to control premium payments. If claims do arise
before cancellation takes effect those claims will normally be paid net of the premium
by reason of the brokers exercising the right of set off, arising from the policy lien, but
activated in practice by the right of the brokers to collect the claims under the policy.133
3.47 The identity of the “Assured” for premium payment purposes has been little
explored in the cases. A typical London market open cover will define the “Assured”
as, “ABC Limited and/or affiliated and/or associated companies”. In principle the
Marine Insurance Act 1906 section 52 makes it the “duty of the assured … to pay the
premium” and it follows that where the “Assured” is widely defined then all those
parties who fall within that definition have an obligation of payment.134 In principle,
such assureds are not liable for the full premium, but only to the extent of their particular
insurable interest. For example, under a hull policy the registered owner of one vessel
under a fleet policy would only be liable for the premium on that vessel, and under a
cargo policy, insuring a group of companies, each company is only liable for premium
on the value of cargo in which it has an insurable interest.
CERTIFICATES OF INSURANCE
Certificates of insurance described
3.48 A certificate of insurance is a document certifying that a contract of insurance has
been effected and setting out the terms of that insurance contract in so far as those terms
may be relevant to a particular insured voyage.135 The use of such certificates is
generally contemplated under modern c.i.f. and c.i.p. contracts as acceptable evidence
of the insurance contract. For example Incoterms 2000 state, with regard to c.i.f.
contracts, that the seller should “provide the buyer with the insurance policy or other
evidence of insurance cover”.136 The standard Lloyds certificate, which is
representative of those in use in international trade, declares that “underwriters at
Lloyds have undertaken to issue policies” covering the risk described in the certificate.
This declaration is signed for the Council of Lloyds with the certificate normally being
countersigned by the original assured as the authorised signatory. Typically, an
insurance certificate will be issued under an open cover and will describe the vessel,
voyage and cargo with the cargo value and any shipment limits. The certificate will then
set out the terms of the insurance usually by reference to standard clauses, such as the
Institute Cargo Clauses (A). Any important modifications to the standard cover
provided by printed clauses will normally be set out on the back of the certificate or, at
the least, referred to in the certificate.137 However, the holder of a certificate of
insurance may not always be in possession of the full terms of the contract of insurance.
For example in D & J Koskas v. Standard Marine Insurance Company Limited138 the
terms of the certificate were incomplete—they failed even to identify the risks
covered.139 This raises issues now discussed in connection with the legal status of a
certificate.
The legal status of certificates of insurance
3.49 What is the legal status of a certificate of insurance, in particular, does it comply
with the formalities for a “policy” and can a certificate be assigned? As to the
formalities, there are now three requirements in the 1906 Act for a policy: first, it must
identify the assured or his agent;140 second, it must be signed by or on behalf of the
insurer;141 and, third, it must identify the subject-matter of the insurance with reasonable
certainty.142 It is further provided in the Act that a contract of marine insurance is not
admissible in evidence unless embodied in a policy in accordance with the Act.143
Although certificates do generally identify the subject-matter with reasonable clarity
they may fail to comply with the other formalities. A certificate will generally name the
original assured, whether it be issued on a facultative one-off basis, or, as is more
commonly the case, under an open cover. However, it would be rare for a certificate to
name the assignee, as certificates are not generally endorsed and even where they are
endorsed they may be endorsed “in blank” opening them to the benefit of whoever may
hold the certificate down a chain of c.i.f. buyers. Whilst, as we have seen, Lloyds
certificates are signed by the insurers, many certificates issued by brokers are not
signed by the insurers. There is a further difficulty. Whilst certificates, such as the
Lloyds certificates, could be treated as a policy (at least in those cases where
exceptionally the assignee is named) they do not declare themselves to be a policy but,
on the contrary, certify that the underwriters have undertaken to issue a policy.144 The
conclusion seems inescapable: a certificate of insurance is not a “policy” for the
purpose of the formalities contained within the Marine Insurance Act 1906, nor does it
purport to be such a policy.
3.50 This approach accords with the view expressed, albeit in the context of a
dispute under a c.i.f. contract, by McCardie J. in Diamond Alkali Export Co v. Fl.
Bourgeois.145 In that case, the objections to a certificate were that: (i) it did not contain
all the terms of the contract of insurance; (ii) its status was ambiguous and unclassified;
(iii) it was not a policy and only a “policy” was assignable under the Marine Insurance
Act 1906 section 50(3) and (iv) a certificate was not compliant with the formalities of
the Marine Insurance Act.
3.51 The consequences of a certificate of insurance lacking the formalities of a
policy, as required by the 1906 Act, may not be that significant, for it would be
inappropriate for insurers to deny coverage solely on the basis that a certificate is not a
contract of insurance. The decision in Diamond Alkali146 analysed the objections to a
certificate very much in terms of a sale contract which required a “policy”. However, in
D & J Koskas v. Standard Marine Insurance Company Limited,147 which concerned a
claim under the insurance contract, Sankey J. distinguished Diamond Alkali saying it
had no application to the discussion and did not assist where the question at issue was
the relationship vis-à-vis the insurance company and the assured, the reason being that
the certificate was “a document issued by the defendants themselves”.148 In short,
insurers cannot effectively deny the contract of insurance evidenced by the certificate
and would, if necessary, be bound to issue a policy in accordance with the undertaking
to do so provided in most certificates.
Assignment and tender of certificates of insurance
3.52 This still leaves the question of whether a certificate of insurance can be validly
assigned. The Marine Insurance Act 1906 section 50(3) provides:
“A marine policy may be assigned by indorsement thereon or in other customary manner.”
Can a certificate, which rarely complies with the formal requirements for a “policy”,
itself be said to be a “policy‘? It has been said that “to construe a certificate as a policy
may require creative interpretation”.149 Although “creative interpretation” provides an
attractive solution to the problem, whether it can be applied will depend upon the terms
of the certificate in each individual case and, in particular, whether the certificate
expresses itself as a policy and complies with the formalities for a policy which require
it to name the assured and be signed by the insurer.
3.53 Where, in the more usual case, a certificate of insurance is not capable of being
treated as a policy assignable under the Marine Insurance Act 1906, it may still be
assigned under section 136 of the Law of Property Act 1925.150 The requirements of
section 136 of the 1925 Act are, firstly, that the assignment “be in writing under the hand
of the assignor” and, secondly, that written notice be “given to the debtor”, that is the
insurer. Neither of these requirements present insuperable problems even if, as may
commonly be the case, assignment will not take place by way of written notice to the
insurers, until after loss. The notice of assignment will normally take the form in
practice of the presentation of the claim by the assignee to the insurers or their agents as,
for example, where a loss is notified to Lloyds agents.151 Alternatively there may be an
equitable assignment, though in that case the assignor will sue in his own name.152 There
may also be an assignment of the right to claim as a chose in action.153
3.54 However, it may be that the true analysis is not strictly one of assignment as
normally understood. The policy of insurance, normally constituted by the open cover
and evidenced by the Market Reform Contract, is not being assigned. There is therefore
no assignment of that “policy” as contemplated by the Marine Insurance Act 1906. This
may be why section 50 of that Act is rarely referred to in the context of the certificate
holders rights in the numerous cases discussing the terms of the contract between the
certificate holder and the underwriters154 The position, which is explored further below,
appears to be that the certificate holder becomes party to a new and separate
contract.155 It may be said, therefore, that he is not an assignee in the usual sense that A
passes all his own rights and obligations under a contract to B. What happens is that the
underwriters “open” the contract made with the original assured so as to enable the
original assured, as agent, to insure for the benefit of his c.i.f. buyers.156 This analysis
will generally accord with the rules set out by Colman J. in National Oilwell (UK)
Limited v. Davy Offshore Limited157 at least as far as the first c.i.f. buyer is concerned.
In that case Colman J. summarised the authorities as follows:158
“(1) Where at the time when the contract of insurance was made the principal assured or other contracting party has
express or implied actual authority to enter into that contract so as to bind some other party as co-assured and
intended so to bind that party, the latter may sue on the policy as the undisclosed principal and co-assured
regardless of whether the policy described a class of co-assured of which he was or became a member.
(2) Where at the time when the contract of insurance was made the principal assured or other contracting party had
no actual authority to bind the other party to the contract of insurance, but the policy is expressed to insure not
only the principal assured but also a class of others who are not identified in that policy, a party who at the time
when the policy was effected could have been ascertained to qualify as a member of that class can ratify and sue
on the policy as co-assured if at that time it was intended by the principal assured or other contracting party to
create privity of contract with the insurers on behalf of that particular party.”
The c.i.f. buyer is probably identifiable at the time when the declaration is made and the
certificate is issued by the seller with the authority of the insurers in favour of his buyer.
That would fall within the rules set out by Colman J. A more difficult position arises
where the certificate is later negotiated to a buyer down the chain who was not
identified at the time of the declaration or original issue of the certificate. It was
unnecessary for Colman J. to consider that case,159 but there would seem to be no
reason why, in principle, the insurers should object to the class of persons who are
insured under the policy (or the separate contract represented by the certificate)
including c.i.f. buyers down the chain. In particular, those buyers would certainly be
within the class of persons contemplated by the insurers.
3.55 When the certificate is physically “assigned” what happens in law is that a new
contract comes into being on different terms than the open cover made between the
original assured and his underwriters. This new contract exists only between the c.i.f.
buyer and the insurers and is not therefore an assignment of the whole of the original
contract of insurance. In particular it has been held that the original assured or
coverholder, still holding the certificate of insurance, cannot sue under the terms of the
certificate which he perceived in that case to be more beneficial than the terms of the
open cover he had agreed with his insurers.160 There can be no true assignment, even of
the new contract, if the original holder of the certificate does not have the right to
benefit from the terms of that contract. The analysis seems to be that the “assignment” of
the certificate merely operates to identify the assured entitled to the benefit of the new
contract achieved through the agency of the original assured. The passing of the rights
from the original assured to the c.i.f. buyer is nevertheless, for convenience, described
as an “assignment” but only to express the method of creation of new rights passing
through (but not from) the original assured to the certificate holder. It is not therefore the
“policy” contemplated by section 50 of the Marine Insurance Act 1906 that is assigned,
nor is it the rights of the original assured, as the assignee may have more or less rights
than the original assured. What is assigned is the right to claim for loss of or damage to
the goods under the terms of a new contract carved out of an open cover. However, the
assignee is not merely a loss payee but is a true contracting party as “Assured” and,
where the revised Institute Cargo Clauses apply, this is confirmed by Clause 15.1 which
provides:
“This insurance covers the Assured which includes the person claiming indemnity either as the person by or on whose
behalf the contract of insurance was effected or as an assignee.”
The terms of this separate contract are determined by a construction of both the open
cover and the certificate. This issue of applicable terms is analysed below after a
consideration of how assignment is achieved in practice.161
How is assignment achieved in practice?
3.56 The standard form of Lloyds Certificate of Insurance162 contemplates endorsement
as it bears the words, “This certificate requires endorsement in the event of
assignment”. However, it would appear customary for policies to be assigned without
endorsement as contemplated by section 50(3) of the 1906 Act which speaks of
assignment by “indorsement thereon or in other customary manner”. In D & J Koskas v.
Standard Marine Insurance Co Limited163 underwriters argued at first instance that
they were not liable as it was said that the certificate was not properly assigned, a
defence rejected by Sankey J. The point was not pursued by underwriters on appeal164
and it is clear that if it had been pursued it would not have succeeded.165 Similarly in
Safadi v. Western Assurance Company166 Roche J. asserted that delivery without
endorsement is a customary method for assignment of the policy under c.i.f. contracts,
saying:167
“I have no doubt myself that policies often are assigned otherwise than by indorsement. In the case of c.i.f. contracts
they are so often handed over without any indorsement being made upon them that I should be surprised if it could not
be proved that that is a customary manner of assigning policies.”
It appears therefore that certificates can and are customarily assigned without endorse-
ment168 though some certificates do expressly require endorsement.
Is the assignee bound by the terms of the Open Cover?
3.57 Modern certificates of insurance negotiated under c.i.f. contracts generally seek to
set out all the material terms of the cover relevant to the transit in question.169
Nevertheless this aim may not always be achieved and it is necessary to consider,
firstly, the nature of the contract of insurance assigned by the certificate and, secondly,
the terms of that contract. Is the assignee a party to the open cover: if not, by what terms
in the open cover is he bound?
3.58 A typical open cover gives the original assured the right to pass certificates to
his buyer for the purpose of c.i.f. sales. These certificates are pre-issued on the insurers
behalf, and then countersigned by the c.i.f. seller or his brokers. The rights assigned
cannot make the assignee a party to the open cover itself and the certificate of insurance
may best be treated as a separate new contract in respect of the goods covered by it.170
This approach accords with the analysis of Viscount Sumner in De Monchy v. Phoenix
Insurance Company of Hartford and Another171 where he said that the “certificate is
clearly contractual” and rejected the insurers’ argument that a certificate was not a
contract.172 On this analysis the assignee of the new contract, which is represented by
the certificate, is not bound by all the terms of the open cover but only by those which,
as a matter of construction, are intended by the parties to apply to the contract evidenced
by the certificate.
3.59 In determining which terms of the open cover apply to the certificate, the
certificate and the open cover are to be read together.173 There will usually be much in
the open cover that is clearly personal to the original assured such as the agreement and
payment of premiums and options to have different levels of cover. Other terms personal
to the original assured will include the right to give notice of cancellation and the right
to issue certificates, and finally, and most importantly, limitations upon the total amounts
to be insured under the open cover for any one shipment or location.174 Whilst it is the
practice for certificates to state shipment limits, certificates may not include the location
limits in an open cover. Where location limits and, similarly, deductibles, are not stated
on the certificate they are likely to be treated as personal to the original assured and not
binding on an assignee.175
3.60 As to whether other terms of the open cover, not necessarily personal to the
original assured, bind the assignee of the certificate of insurance, various tests have
been suggested. In De Monchy v. Phoenix Insurance Company of Hartford Limited176
Viscount Sumner suggested a business efficacy test so that, “only so much is
incorporated so as to give business efficacy to the transaction”. Alternatively he posed
the possibility that, “the incorporation only extends to such clauses as a reasonable c.i.f.
buyer would assent to”.177 In Evialis v. S.I.A.T.178 Andrew Smith J., after reviewing the
authorities, summed up the position saying:179
“I consider that the proper approach to identifying the contract of insurance is to consider both documents as
potentially expressing the parties intention as to the terms upon which the insurance was effected. I do not consider
that, in the absence of express words so providing, it is proper to approach the question on the basis that the certificate
is the only contractual document determining the terms of the insurance and to have regard to the terms of the open
cover only to the extent that they have been incorporated into the certificate. However, in determining the terms of
the insurance contract by interpreting the two documents, it is likely that the certificate will be given more weight,
since, being directed to the specific risk, it is likely to prevail over more general terms. As Viscount Dunedin put it in
De Monchy180 it ‘clinches the bargain as to the particular shipment’ and as such is ‘the determinative of the two
instruments’. It is true that there are references in the judgments to the terms of the cover being ‘incorporated’ into the
certificate, but this does not, in my judgment, require express reference to them in the certificate. On analysis, I do not
consider that that requires more than that the parties evinced an intention that a term in the open cover should be of
contractual effect in relation to the insurance of the particular risk, which they might do despite it not being referred to
in the document that was specifically directed to that risk.”
Although every certificate must be construed on its own words, and in its own context,
the effect of the approach adopted by the courts in the cases discussed above is that,
unless expressly referred to in the certificate, neither limitations of time, such as a one-
year time bar,181 nor a limitation on jurisdiction, such as an exclusive jurisdiction
clause,182 will bind an assignee. Nor, as we have seen183 will the assignee be bound by
other personal matters such as premiums; options as to the extent of cover; the right to
issue certificates, and overall limitations or deductibles, not referred to or incorporated
in the certificate of insurance. As to the details of cover terms and, in particular, any
limitations in cover not referred to on the certificate, the rule suggested by Andrew
Smith J. is that the certificate will tend to prevail where there is no express
incorporation. In each case it will ultimately be a question of reading both documents
together to determine the intention of the parties.
3.61 We have considered so far whether a certificate of insurance may give wider
cover than the terms of the open cover agreed with the original assured. It is also
necessary to consider whether the extent of cover under the certificate may be less than
would normally be the case under the open cover. For example, in Silver Dolphin
Product Limited v. Parcels & General Assurance Association Limited184 a
consignment of soap and scent was lost on a voyage from New York to Felixstowe when
the container in which it was being carried was washed overboard in severe weather
conditions. The certificate of insurance was not issued until after the loss which,
unknown either to insurers or assured, had already occurred.185 The transit clause in the
open cover was widely drawn so that insurers’ liability to the assured commenced from
the time the goods left the suppliers factory. However, the certificate issued
retrospectively after the loss of this particular shipment described the risk as attaching
from the date of the certificate while the goods were “at sea”. It was argued on behalf of
the assured that, reading the open cover in conjunction with the certificate, and taking
into account the ordinary practice with regard to open covers, it must have been
intended to cover the whole voyage from when the goods left the factory. However,
Neill J. held that the insurance did not attach until the date of the certificate, after the
loss, whilst the goods were “at sea”. The assured failed to recover. Once again the
terms of the certificate prevailed over the terms of the open cover.
3.62 Occasionally an open cover may give the certificate holder the option of
choosing clauses from the open cover. For example, in Tradigrain SA v. S.I.A.T.186 a
jurisdiction clause in the open cover was not binding on the assured as it was open to
the assured to choose to benefit from the clause but only if he wished to do so. The open
cover in question was subject to German law and the court accepted the evidence of the
claimants German lawyer that the open cover gave the certificate holder the option of
choosing certain terms from the open cover, such as the jurisdiction clause.
3.63 Finally, the question arises as to the position where the original assured, as a
party to the open cover, holds certificates issued under the open cover which he had not
yet assigned, and which are perceived by him as more favourable than the open cover
terms which he has agreed. Can the assured, as certificate holder, take the benefit of the
contract represented by the certificates rather than the contract represented by the open
cover? In Craft Enterprises (International) Limited v. Axa Insurance Co187 the open
cover was subject to Swiss law and practice but provided that a party who, as holder of
a certificate, had title to the goods had the right to require that claims would be settled
in accordance with English law and practice. It was accepted that if the certificate had
been passed to a third party that may have entitled the third party to require claims to be
settled in accordance with English law and practice. However, so far as the original
assured was concerned, he was bound by the terms of the open cover and obliged to
have his dispute decided according to Swiss law and practice.
1. Policies are still in use elsewhere, particularly Japan.

2. See, for example, Glencore International AG v. Ryan (The Beursgracht) [2002] Lloyds Rep. IR 335 at 337,
which involved an open cover under a charterers liability policy to which, in this respect, similar principles and practices
apply. The term, “held covered” is discussed in Chapter 12, paras. 12.2 to 12.9.
3. See, for example, the Institute Metals Storage Clauses (A) CL 368 and (B) CL 369, the first standard clauses
issued for cargo by the Institute of London Underwriters to cover storage.
4. The standard printed clauses, such as the Institute Cargo Clauses, as published, make it clear that they may be
varied in individual cases, see Reference Book of Marine Insurance Clauses 76th edn, 2006, Witherby & Co Ltd,
where each clause is headed: “These clauses are purely illustrative. Different policy conditions may be agreed.”
5. In Tradigrain v. S.I.A.T. [2002] 2 Lloyds Rep. 553, the interrelationship between the open cover, which was
governed by German law, and the Certificates of Insurance, incorporating the Institute Cargo Clauses, which were
governed by English law, led to a multiplicity of issues in relation to jurisdiction and law described by Colman J. as
“inordinately complex”, at p. 562.
6. MIA 1906 s. 29(1).
7. See, for example, Institute Standard Conditions for Cargo Contracts Clause 3.1. Shipment and location limits are
discussed further in Chapter 15, para. 15.27 et seq.
8. For the rules as to misrepresentation, see Chapter 5, para. 5.52 et seq.
9. See para. 3.13 below.
12. MIA 1906 s. 29(3). Reflecting the usage considered and upheld in the Court of Common Pleas in Stephens v.
Australasian Insurance Co (1872) LR 8 CP 18, per Brett L.J. at pp. 19–20.
13. In particular, the requirement in s. 29(3) that the “declarations must be made in order of dispatch or shipment”
which is related to the arrangements under a floating policy where the order of shipments would have been
determinative if the limit of the policy was exceeded.
14. Glencore International AG v. Ryan (The Beursgracht) [2002] Lloyds Rep. IR 335.
15. Ibid. p. 341.
16. Ibid. p. 340.
17. Where the making of individual declarations is purely administrative in nature no duty of disclosure would
normally arise. For a further discussion of the implications in terms of good faith, disclosure, etc, see Chapter 5, para.
5.5 et seq.
18. MIA 1906 s. 29(3). Open covers in the London market commonly include an Errors and Omissions Clause
which would also cover the case of erroneous administrative declarations under an obligatory open cover but contrast
the position, discussed below, in relation to a facultative/obligatory cover, see Glencore International AG v . Alpina
Insurance Co [2004] 1 Lloyds Rep. 111 at para. 281.
19. The practice on occasions is for 50% of the premium to be payable at inception of the risk and the balance
payable six months later, with an adjustment based on actual transit turnover declared after the risk expires.
20. In The Beursgracht (supra) the declaration was valid although made some seven years late. Shipments not
included in the list, by reason of a bona fide error, must be treated as unvalued in terms of s. 29(4) of the 1906 Act.
21. [1973] 2 Lloyds Rep. 442.
22. At p. 460.
23. See, for example, Citidel Insurance Co v. Atlantic Union Insurance Co SA [1982] 2 Lloyds Rep. 543, an
example of a fac./oblig. contract for reinsurances on vessels.
24. Ionides v. Pacific Fire & Marine Insurance Co (1871) LR 6 QB 674 at 682, per Lord Blackburn.
25. Glencore International AG v. Alpina Insurance Co [2004] 1 Lloyds Rep. 111 at para. 273.
26. Glencore v . Alpina (supra) at para. 264.
27. Ibid. at paras. 270–271. Contrast the position under obligatory covers discussed above at para. 3.9 where in
Glencore International AG v . Ryan (The Beursgracht) [2002] 1 Lloyds Rep. 335, the assureds failure to make a
declaration for some seven years was not enough to discharge the underwriters from liability.
28. [1973] 2 Lloyds Rep. 442.
29. (1908) 14 Com Cas 156 at pp. 167, 168.
30. Seavision Investment S.A. v . Evennett (The Tiburon) [1990] 2 Lloyds Rep. 418.
31. Barlee Marine Corporation v. Mountain (The Leegas) [1987] 1 Lloyds Rep. 471.
32. [1987] 1 Lloyds Rep. 471 at 475.
33. Roadworks (1952) Limited v . J.R. Charman and Others [1994] 2 Lloyds Rep. 99.
34. [1998] Lloyds Rep. IR 93.
35. At p. 143.
36. See the Leading Underwriters Agreement (General Marine Business) known as L.U.A.G.M. discussed in
Roadworks (1952) Limited v. J.R. Charman and Others [1994] 2 Lloyds Rep. 99.
37. Supra.
38. At p. 105.
39. At para. 3.18.
40. Clause 9.1 of the GUA.
41. Seavision Investments SA v . Evennett, (The Tiburon) [1990] 2 Lloyds Rep. 418.
42. Appendix 8. The GUA, dated October 2001, replaced, in respect of cargo business, the Leading Underwriters
Agreement (Marine Cargo Business) (LUAMC).
43. GUA, Clause 11.1.
44. Appendix 8 at p. 414.
45. See Seavision Investments SA v. Evennett (The Tiburon) [1990] 2 Lloyds Rep. 418.
46. See, for example, Barlee Marine Corporation v Mountain (The Leegas) [1987] 1 Lloyds Rep. 471.
47. [1998] Lloyds Rep. IR 93.
48. Pryke & Others v Gibbs Hartley Cooper [1991] 1 Lloyds Rep. 602, and see further in relation to
nondisclosure, Chapter 5, para. 5.5 et seq.
49. The conduct of Binding Authority business at Lloyds is controlled by the Delegated Underwriting Byelaw
Y3251, effective 1/3/2004. Appendix 3 of that Byelaw contains the code for managing and controlling binding authority
agreements.
50. Guidance Notes to LMA3005, Lloyds Binding Authority Agreement.
51. London market cargo business was, until recently, conducted with the use of slip policies which obviated the
need for a formal policy which was, however, issued at the request of either assured or underwriters. Thus the MAR
91 Marine Slip Policy provided, “A formal Policy in substitution for this Slip Policy or any declaration hereunder, to be
signed on the MAR 91 Form (or such other form as may be expressly provided herein to the contrary) will be issued at
any time at the request of the Assured or any Underwriter hereon.”
52. The IUA MAR Form contained a several liability provision, providing that each company was only liable for its
own proportionate subscription to the risk. This provision is now a mandatory requirement of the Market Reform
Contract.
53. The Market Reform Contract no longer requires that the policy “Form” be identified. Nevertheless some
London Market Brokers still incorporate the terms and conditions of the MAR 91 Form when using the Institute Cargo
Clauses.
54. The legal status of this Clause as a condition precedent and its practical effectiveness was, in any event
doubtful, see further Chapter 13, para. 13.1. Certificates of insurance usually contain notice of claim instructions.
55. ICC 1/1/82, Clause 4.6, see Chapter 8, para. 8.52 et seq.
56. ICC 1/1/82 Clause 4.3, see Chapter 8, para. 8.31 et seq.
57. MIA 1906 s. 22. The courts have tended to construe this section as narrowly as possible, see, for example, the
approach of Scrutton L.J. in Glasgow Assurance Corporation Limited v William Symondson & Co 11 Asp. MLC
583 at 587, and Channel J. in Swan & Clelands Graving Dock & Slipway Co v Maritime Insurance Co [1907] 1
KB 116, where a defence plea that underwriters were not liable because an assignee was unable to produce a policy
was dismissed.
58. Stamp Act 1795. The Finance Act 1959 s. 30(5) modified the requirements for stamp duty on marine policies, at
that time contained in the Stamp Act 1981. Eventually, stamp duty on policies of marine insurance was abolished by
The Finance Act 1970 s. 30. See further, as to stamp duties and the effect which this had on the requirement for a
policy, H. Bennett “The Role of the Slip” [1994] LMCLQ 94.
59. MIA 1906 s. 53(2) discussed below at para. 3.46.
60. MIA 1906 s. 24(1). Policies are signed in the London market by the Managing Director of Ins-sure Services
Limited on behalf of IUA companies and by the Manager of Lloyds Policy Signing Office on behalf of Lloyds.
61. MIA 1906 s. 22.
62. See para. 3.22, fn. 51 regarding the use of slip policies.
63. MIA 1906 s. 53(2).
64. Nevertheless were the broker to assert a lien, the court would probably assist, see Hunter v. Leathley (1830)
Lloyd & Welsby 125; 10 B & Cr 858 where Lord Tenterden made it clear that the court would not allow recovery
against the underwriters without discharge of the lien.
65. See further para. 3.46 below. The obstacles the broker can, in practice, put in the way of the assured were
recognised by Diplock J. in Amalgamated General Finance Co v Golding [1964] 2 Lloyds Rep. 162, cited by Phillips
L.J. in Eide UK Limited & Another v Lowndes Lambert Group Limited [1998] 1 Lloyds Rep. 389.
66. MIA 1906 s. 23(1). The Act originally required that the policy also specify: “the subject-matter insured and the
risk insured against; the voyage or period of time, or both, as the case may be, covered by the insurance; the sum or
sums insured; and the name or names of the insurer”, ss. 23(2)–(5). These sections were repealed by the Finance Act,
1959.
67. See, for example, the policy referred to in Boston Fruit Co v. British & Foreign Marine Insurance Co
Limited [1905] 1 KB 637 (CA); affirmed [1906] AC 336 (HL).
68. ICC, Clause 15.1.
69. [1993] 2 Lloyds Rep. 582 at 596. The principles enunciated by Colman J. were based principally on the cases of
Boston Fruit Co v . British & Foreign Marine Insurance Co [1906] AC 336 (HL); Graham Joint Stock Shipping
Co v . Merchants Marine Insurance Co [1924] AC 294 (CA) and, more recently, Stone Vickers Limited v.
Appledore Ferguson Shipbuilders Limited (The Charles Darwin) [1992] 2 Lloyds Rep. 578 (CA).
70. Ibid. at p. 597.
71. The typical wording used in London market open covers constitutes the assured as “agent” to insure for the
c.i.f. buyer, and insurers recognise that the named assured will so insure for the buyer. In these circumstances the
decision in National Oilwell remains good in relation to such cargo insurance arrangements despite the decision in
Talbot Underwriting v . Nausch Hogan & Murray (The Jason 5) [2006] Lloyds Rep. IR 531 (CA), where a widely
drawn assured clause covering associated and affiliated companies, and joint ventures, was not wide enough to cover a
shipyard on a shipowners hull policy on a ship undergoing repairs. The Jason 5 is also distinguishable because in cargo
insurance the nature of the risk remains the same whether the assured be seller or buyer, while the addition of a
shipyard to a shipowners policy gives rise to additional underwriting considerations.
72. It is submitted that this would be at the time when a declaration is made under an open cover and not when the
open cover itself is agreed.
73. This issue is explored further at para. 3.54 below in the general context of the assignability of insurance
certificates and the rights of the c.i.f. buyer as “Assured” under those certificates.
74. Clauses 3, 4.1, 4.6, 5.1.1, 9, 10.1, 11.1, 11.2, 12, 14.1, 14.2, 17 and 18.
75. In Clauses 4.3 (Insufficiency of Packing); 5.1.2 (Unseaworthiness); 8.1.2 and 8.1.3 (Transit); 10.2 (Change of
Voyage) and 12 (Forwarding Charges).
76. Clause 16. The extension to “agents” would include surveyors engaged to arrange measures to minimise loss to
the goods and lawyers taking steps to protect rights of action against carriers by, for example, the arrest of the carrying
vessel so as to obtain security from a P&I Club.
77. At para. 3.31.
78. ICC Clause 2. See also the first part of Clause 12, the Forwarding Charges Clause.
79. See, H. Bennett The Law of Marine Insurance, 2nd edn, 2006, OUP, at para. 4.114, and see Chapter 5 at para.
5.11 et seq.
80. Meridian Global Funds Management Asia Ltd v. Securities Commission [1995] 2 AC 500.
81. ICC, Clauses 4.6 (insolvency); 5.1.1 (unseaworthiness) and 11.2 (knowledge of loss in the context of insurable
interest).
82. ICC, Clause 4.1 (wilful misconduct).
83. Clauses 5.1.2 and 10.2.
84. The exclusion relating to unfitness is discussed in Chapter 8, para. 8.66 et seq. below.
85. For a discussion of the Change of Voyage Clause see Chapter 12, paras. 12.12 to 12.25.
86. [1973] 2 Lloyds Rep. 442.
87. Manifest Shipping Co Ltd v Uni-Polaris Shipping Co Ltd (The Star Sea) [1997] 1 Lloyds Rep. 360 at p. 375
(CA) in the context of “privity” under MIA 1906 s. 39(5) which is reflected in the terms of Clause 5.1.1.
88. The Star Sea (supra) op. cit. at p. 375.
89. See The Garden City (No. 1) [1982] 2 Lloyds Rep. 382, Grand Champion Tankers Ltd v Norpipe A/S (The
Marion), [1984] 2 Lloyds Rep. 1, SA des Minerais v Grant Trading Inc. (The Ert Stefanie)[1989] I Lloyds Rep.
349 and Manifest Shipping Co Ltd v Uni-Polaris Insurance Co Ltd (The Star Sea) [2001] 1 Lloyds Rep. 389.
90. Compania Maritima San Basilio SA v Oceanus Mutual Underwriting Association (Bermuda) Limited (The
Eur-ysthenes) [1976] 2 Lloyds Rep. 171. The use of “knowledge” rather than “privy” in the new Clause 10.2 (Change
of Voyage) does not indicate any different test should be applied. The word “knowledge” was no doubt used rather
than “privy” simply as a modern equivalent and should be construed accordingly
91. Ready Mix Concrete (South East) Ltd v Ministry of Pensions and National Insurance [1968] 2 QB 479.
92. See, Alder v. Dickson [1954] 1 QB 158 (fleet commodore).
93. Law Commission Issue Paper on Insurable Interest para. 5.25; H. Bennett, The Law of Marine Insurance,
2006, 2nd edn, OUP at para. 1.48 fn. 95. R. Merkin, Colinvauxs Law of Insurance, 7th edn, 1997, para. 3–04; 8th
edn, 2006 at para. 4–03 which states, “much of the 1788 Act remains in force”.
94. This Schedule is itself now repealed by the Statute Law Revision Act 1927.
95. See MacGillivray on Insurance Law, 11, 2008, para. 1–042 at fn. 131.
96. See para. 3.54 below with regard to the rules whereby the assured may include a class of persons contemplated
by the original assured who acts as agent for that class.
97. Marine Insurance Act 1788 s. 2.
98. Overseas Commodities Ltd v Style [1958] 1 Lloyds Rep. 546 at 559 and, for a more recent example, see
Glencore International AG v. Alpina Insurance Co Limited [2004] 1 Lloyds Rep. 111 at para. 273. In Yorkshire
Insurance Company, Ltd v. Campbell [1917] AC 218 (PC) it was said by Lord Sumner that, “prima facie, words
qualifying the subject-matter of the insurance will be words of warranty… “. For warranties and the manner in which
they describe and circumscribe the subject-matter insured, see Chapter 6, para. 6.1 et seq.
99. ICC (All Risks), Clause 4.
100. Overseas Commodities Limitedv . Style [1958] 1 Lloyds Rep. 546 at 559.
101. See Chapter 12 for a consideration of the term “held covered” and the limitations on the additional cover so
provided.
102. [1958] 1 Lloyds Rep. 546.
103. At p. 559.
104. MIA 1906, Sch. 2, r. 17.
105. Hood v. West End Motor Car Packing Company [1917] 2 KB 38.
106. See also MIA 1906 s. 30. Although this book takes the view that an insurance under the ICC may constitute
insurance on a marine “form of policy” (see Chapter 1 at para. 1.27) there is some difficulty in arguing that the ICC
constitute a “like form”. The ICC use few terms that appear in the rules for construction set out in the Schedule to the
Act. Examples do occur and include the term “arrest” which appears as “arrests” in the ICC(A) Clause 6.2 and is
defined in r. 7; the word “piracy” appears in the ICC(A), also at Clause 6.2, and the term “pirates” is defined in r. 8.
Otherwise the schedule defines a number of terms related to the commencement, extent and termination of the
adventure (rr. 2–6) which are no longer relevant today in the light of the Transit Clause, see Chapter 11.
107. In Daewoo Heavy Industries Ltd v Klipriver Shipping Ltd (The Kapitan Petko Voivoda) [2003] 2 Lloyds
Rep. 1 there was judicial recognition by Langley J. that the obligation to carry below deck was one of central
importance to the contract of carriage and had been treated as such by the maritime community for well over a
century for, as is obvious, on deck carriage increases the risk of loss or damage to an extent that may be very serious.
Arnould is of a similar view, para. 10–11.
108. See para. 10–11.
109. See Arnould, para. 3–21.
110. British & Foreign Marine Insurance Co, Ltd v Gaunt [1921] 2 AC 41, per Lord Birkenhead L.C. at p. 48.
111. Hood v West End Motor Car Packing Company [1917] 2 KB 38.
112. British & Foreign Marine Insurance Co Ltd v. Gaunt [1921] 2 AC 41 (HL); [1920] 1 KB 903 (CA).
113. Alluvials Mining & Machinery Co v. Stowe (1922) 10 Ll. L. Rep. 96.
114. See, for example, British & Foreign Marine Insurance Co Ltd v. Gaunt (supra) where it was customary for
the cargo to be carried on deck for the short journeys aboard local steamers feeding overseas vessels.
115. In particular see British & Foreign Marine Insurance Co Ltd v. Gaunt (supra). In Alluvials Mining &
Machinery Co v. Stowe (1922) 10 Ll. L. Rep. 96, the report of the latter case does not state that the ICC were on all
risks terms but that may reasonably be inferred particularly from the nature of the loss claimed which would not have
been recoverable under pure marine perils.
116. J Kenneth Goodacre Marine Insurance Claims, 3rd edn, 1996, Witherby & Co Limited.
117. At p. 173.
118. The concept of “ordinary course of transit” is explored in Chapter 11, para. 11.31 et seq.
119. Where the goods have commenced the contemplated transit cover will now be provided under Clause 10.2 of
the Revised Institute Cargo Clauses, see Chapter 12, paras. 12.12 to 12.25.
120. See Chapter 12, paras. 12.12 to 12.25 for a discussion of Clause 10.2.
121. If the assured was aware, when the contract of insurance was agreed, that the cargo was to be carried on
deck then issues of non-disclosure will arise. It is assumed here that the cargo is intended to be carried under deck and
that, indeed, the contract of carriage made by the assured with his carriers provides for under deck carriage.
123. See Appendix 5 MRC, based on Willis Proforma.
125. For a modern illustration in relation to a hull policy which varied the common law rule, see Velos Group Ltd v
Harbour Insurance Services Ltd [1997] 2 Lloyds Rep. 461.
126. J.A. Chapman & Co Limitedv Kadirga Denizcilik Ve Ticaret [1998] Lloyds Rep. IR 377 (CA).
127. See Heath Lambert Limited v Sociedad de Corretaje de Seguros [2004] Lloyds Rep. IR 905 (CA).
128. Ibid. at pp. 911–912.
129. As part of the process of Reconstruction & Renewal of the London market in 1996 and 1997 insurers agreed
for a period of five years not to enforce their rights under MIA 1906 s. 53(1) unless the brokers were aware of the
assureds potential default or the brokers were not taking proper steps to collect the premium. Although these
agreements have lapsed, the reality of the market is that a cargo insurer would be most unlikely to proceed against a
broker for premium where the assured is insolvent.
130. The Policy Form originally contained a receipt for the premium, MIA 1906 s. 54, giving rise to the fiction that
the underwriters had lent the premium back to the brokers who thereby could claim it from the assured whilst the
underwriters could not.
131. Eide UK Limited v. Lowndes Lambert Group Ltd & Another [1998] 1 Lloyds Rep. 389. The right of set-off
does not extend to other assureds (e.g., mortgagees under a composite policy). It is submitted that it would, however,
extend to assignees, entitled to the benefit of a cargo policy, as where a c.i.f. buyer of goods obtains a certificate of
insurance. This would apply in the usual case where the assignee is also an “Assured” under Clause 15.1 of the
revised ICC as the assured has a duty to pay premium under MIA 1906 s. 52.
132. At para. 3.44 above.
133. See further Eide UK Limited v. Lowndes Lambert Group Ltd & Another (supra).
134. See OKane v. Jones (The Martin P) [2004] 1 Lloyds Rep. 309, a double insurance case, examined in Chapter
16 at para. 16.43, which supports the view that the phrase “and/or affiliated and/or associated companies” would make
all the companies falling within that description “the Assured”.
135. An example of a Lloyds form of insurance certificate appears in Appendix 7. It should be stressed that whilst
this Lloyds certificate is representative of certificates used in trade, the form which certificates take varies
significantly. For a further example see the certificate described in The Surf City [1995] 2 Lloyds Rep. 242 by Clarke
J. at p. 245. Another form of certificate is described by Neill J. in Silver Dolphin Products Limited v. Parcels &
General Assurance Association Limited [1984] 2 Lloyds Rep. 404 at p. 405.
136. Incoterms 2000, para. A3. Clause 17(e) of Gafta No. 100 states that, “in the event of a certificate of insurance
being supplied, it is agreed that such a certificate shall be exchanged by Sellers for a policy if and when required”.
UCP 600, (Uniform Customs & Practice for Documentary Credits) refers, in Art. 28, to the requirements for, “An
insurance document, such as an insurance policy, an insurance certificate or a declaration under an open cover”, which
recognises the use of certificates, in particular, in international trade and banking practices.
137. The Lloyds Agency Department, which prepares certificates on behalf of Lloyds and the IUA Market, ensures
that so far as possible all transit risk related clauses, including any bespoke extensions or limitations in cover, appear on
the printed certificates issued and tailored for each open cover. In practice, a certificate on two sides of A4 paper can
normally include all the relevant transit terms as to both the risks insured and the duration of transit and it may be that
some terms are considered, in any event, personal to the original assured or policy-holder, as recognised by Viscount
Sumner in De Monchy v. Phoenix Insurance Company of Hartford and Another (1929) 34 Ll. L. Rep. 201 (HL) at
p. 207, discussed at para. 3.59 fn. 174 below.
138. (1927) 27 Ll. L. Rep. 59 (CA).
139. Similarly, in Scott & Co v. Barclays Bank Limited (1923) 14 Ll. L. Rep. 142 (CA), the Court of Appeal held
that an “American Certificate”, which did not set out any of the material terms of the insurance, was not good tender
under a c.i.f. contract which envisaged an “approved policy”.
140. MIA 1906 s. 23(1).
141. MIA 1906 s. 24(1).
142. MIA 1906 s. 26(1).
143. MIA 1906 s. 22 which provides, “subject to the provisions of any statute, a contract of marine insurance is
inadmissible in evidence unless it is embodied in a Marine Policy in accordance with this Act.” See para. 3.25 above.
144. The practice in the Japanese market is to issue policies rather than certificates. This obviates many of the
difficulties discussed in this section of this chapter.
145. (1921) 8 Ll. L. Rep. 282.
146. Supra.
147. (1926) 25 Ll. L. Rep. 363.
148. Ibid. in D & J Koskas v. Standard Marine at p. 366.
149. See R. Grime “Insuring Cargoes in the 1990s” at p. 133, published as chapter 3 of The Modern Law of
Marine Insurance, 1996, LLP, (ed.) by D. R. Thomas.
150. This route was recognised by McCardie J. in Diamond Alkali Export Corporation v. Fl. Bourgeois (1921) 8
Ll. L. Rep. 282 at 286 where he refers to the Judicature Act 1873 s. 25(6), the predecessor of s. 136 of the 1925 Act.
151. Certificates commonly nominate agents to whom claims should be presented.
152. See R. Merkin, Marine Insurance Legislation, 3rd edn, 2005, LLP, pp. 57–58.
153. Merkin op. cit. Potentially an issue also arises in view of the Contracts (Rights of Third Parties) Act 1999 as to
whether an assignee can acquire rights under the contract of insurance under this Act. However, the Act is unlikely to
apply as most marine cargo insurance contracts exclude the operation of the Act by the Contracts (Rights of Third
Parties) Act 1999 Exclusion Clause (Cargo), JC 2000/002 (see Appendix 35).
154. But see exceptionally The Surf City [1995] 2 Lloyds Rep. 242 at 247, where it was said, in the context of the
holder of a certificate, that “the assignee is entitled to sue the insurer in his own name under s. 50(2) of the Marine
Insurance Act 1906”.
155. MacLeod Ross & Co Limited v. Compagnie dAssurances Generales lHelvetia [1952] 1 Lloyds Rep. 12,
discussed at para. 3.58.
156. See para. 3.27 above for the wording commonly used in London market contracts.
157. [1993] 2 Lloyds Rep. 582. Applied in OKane v. Jones (The Martin P) [2004] 1 Lloyds Rep. 389, see also
Talbot Underwriting v. Nausch Hogan & Murray (The Jason 5) [2006] Lloyds Rep. IR 531, which may, however,
be of limited application to cargo insurance, see para. 3.28 fn. 71.
158. At p. 596.
159. In National Oilwell (supra) Colman J. went on to say (at p. 597) that it was unnecessary to consider the
position where, at the time when the contract of insurance was entered into, the co-assured could not be ascertained
as a member of the class referred to in the policy, but only qualified for membership at a later stage. The point remains
open but is likely to be resolved in favour of the c.i.f. buyer down the chain as suggested in the text.
160. Craft Enterprises International Limited v. Axa Insurance Co [2005] 1 Lloyds Rep. 14.
162. See Appendix 7.
163. (1926) 25 Ll. L. Rep. 363.
164. (1927) 27 Ll. L. Rep. 59.
165. See, in particular, the judgment of Scrutton L.J. at p. 61.
166. (1933) 46 Ll. L. Rep. 140.
167. At p. 144.
168. In The Surf City [1995] 2 Lloyds Rep. 242 Clarke J. treated a certificate that purported to represent and take
the place of the original stamped policy as entitling the assignee to sue the insurer in his own name under s. 50(2) of
the Act of 1906.
169. See para. 3.48.
170. See the judgment of Denning L.J. in MacLeod Ross & Co Limited v. Compagnie DAssurances Generales
LHelvetia [1952] 1 Lloyds Rep. 12 at 16.
171. (1929) 34 Ll. L. Rep. 201.
172. See pp. 206, 207.
173. D & J Koskas v. Standard Marine Insurance Company Limited (1926) 25 Ll. L. Rep. 363 (Sankey J.);
(1927) 27 Ll. L. Rep. 59 (CA); De Monchy v. Phoenix Insurance Company of Hartford & Another [1927] 29 Ll.
L. Rep. 170 (MacKinnon J.); (1928) 30 Ll. L. Rep. 194 (CA); (1929) 34 Ll. L. Rep. 201 (HL); although an American
certificate was involved, which expressed itself to take the place of the policy, this was not treated as determinative by
Somervell L.J. in MacLeod Ross & Co Limited v. Compagnie dAssurances Generales lHelvetia [1952] 1 Lloyds
Rep. 12, a view adopted by Andrew Smith J. in Evialis SA v. S.I.A.T. & Others [2003] 2 Lloyds Rep. 377, at para. 32.
174. This is a non-exhaustive list suggested by Viscount Sumner from a consideration of the policy and certificate in
De Monchy v. Phoenix Insurance Company of Hartford and Another (1929) 34 Ll. L. Rep. 201 at p. 207.
175. By analogy with the one year time limitation which insurers could not rely upon in De Monchy v. Phoenix
Insurance Company of Hartford and Another (supra).
176. (1929) 34 Ll. L. Rep. 201 at 207.
177. Ibid. at p. 207.
178. Evialis SA v. S.I.A.T. and Another [2003] 2 Lloyds Rep. 377.
179. At para. 36.
180. (1929) 34 Ll. L. Rep. 201 at 205.
181. See De Monchy v. Phoenix Insurance Company Limited of Hartford and Another (1929) Ll. L. Rep. 201.
182. Evialis S.A. v. S.I.A.T. and Others [2003] 2 Lloyds Rep. 377.
184. [1984] 2 Lloyds Rep. 404.
185. The goods were insured “lost or not lost”, see Chapter 4, para. 4.16 for a discussion of this concept.
186. [2002] 2 Lloyds Rep. 553.
187. [2005] 1 Lloyds Rep. 14.
CHAPTER 4
INSURABLE INTEREST AND THE INDEMNITY
PRINCIPLE
THE INSURABLE INTEREST REQUIREMENT DEFINED
The requirement for an insurable interest
4.1 The requirement for an insurable interest reflects the principle of indemnity that
applies to cargo insurance in common with other forms of property insurance. The
principle of indemnity requires that the assured must show that he has suffered a loss.1
The nature of the “loss” that has to be suffered under the indemnity principle to support
a claim is defined, so far as cargo insurance is concerned, in terms of the assured
standing in a legal or equitable relationship to the adventure or to any insurable property
at risk.2 The importance to cargo underwriters of insurable interest may be seen as
twofold. First, an interest in the successful outcome of the adventure is perceived as
providing an incentive to the assured to ensure that, for example, the goods are
sufficiently packed3 and that reputable carriers by sea, land or air will be employed.4
Second, the existence of an insurable interest, flowing from the principle of indemnity,
safeguards cargo underwriters from being exposed to the risk of a double payment. This
is particularly significant where goods have been traded as it is the principle of
indemnity that enables insurers to be satisfied that the assured, whether seller or buyer,
has suffered the loss.
4.2 The requirement for an insurable interest appears to have originated through
prohibitions against gambling.5 The Marine Insurance Act 1788 introduced an analogous
requirement that a policy on goods identify the person interested.6 However, the issue
today is not whether the contract is one of gaming or wagering, but whether there is an
insurable interest. Accordingly, we need not be detained by the question of whether
section 335 of the Gambling Act 2005, which allows the enforcement of gambling
contracts, has affected section 4 of the Marine Insurance Act 1906, which provides that
“every contract of marine insurance by way of gaming or wagering is void”.7 Nor need
we be unduly concerned with the Marine Insurance (Gambling Policies) Act 1909,
which imposes criminal penalties upon persons who effect contracts by way of
gambling on marine perils. The starting point in the enquiry is to consider whether there
is an insurable interest not whether the contract is one of gaming or wagering.8 In this
context the Marine Insurance Act 1906 section 6 provides as follows:
“The assured must be interested in the subject-matter insured at the time of the loss though he need not be interested
when the insurance is effected … ”
This section embodies the principle of indemnity and is not affected by the Gambling
Act 2005.9 In parallel with the 1906 Act, the revised Institute Cargo Clauses have
retained, in Clause 11, an express contractual requirement for an insurable interest, as
follows:
“11.1 In order to recover under this insurance the Assured must have an insurable interest in the subject-matter
insured at the time of the loss.”
Accordingly, where the Institute Cargo Clauses apply, there is an express contractual
requirement for an insurable interest and, where they do not, English law implies such
an interest on the basis of the indemnity principle.
The approach of the courts to insurable interest
4.3 The courts lean towards finding an insurable interest where premium has been paid
and the objection is technical and without merit. As Brett M.R. said, in Inglis v.
Stock:10
“… it is the duty of a court always to lean in favour of an insurable interest, if possible, for it seems to me that after
underwriters have received the premium, the objection that there was no insurable interest is often, as nearly as
possible, a technical objection, and one which has no real merit, certainly not as between the assured and the
underwriter.”
In cargo cases the court will find in favour of the assured even if the evidence of
insurable interest is of less weight than might normally be expected. For example, in
Wunsche v Tai Ping Insurance Co,11 goods were shipped from factories in the interior
of China to Shenzhen, adjacent to Hong Kong, for containerisation. The issue was
whether the assured had any insurable interest in the goods during the period of this
inland transit. This depended on whether the goods were at the risk of the seller for that
period. The policies had been assigned to ci.f buyers in Germany who were reliant on
the seller for evidence of insurable interest in relation to the inland transit. The buyers
claim, as assignee, was dependent on the seller having an insurable interest at the
material time, that is to say, from the time the goods left the factories in the interior of
China. The sellers evidence was that he paid a 30% deposit and that he understood that
he was committed to buying the goods from the time the order was placed and the
deposit paid. There was some weighty evidence in reply on behalf of the underwriters
that the goods were sold on delivered terms, that is to say, that the buyer only had to pay
for the goods which arrived safely in Shenzhen. Despite the rather meagre evidence on
behalf of the assured, it was held that the assured did have an insurable interest at the
relevant time. Unlike the approach of the court in Anderson v . Morice,12 the English
courts today are less likely to enquire too deeply as to whether the assured was
contractually obliged to pay for the goods where the assured has in fact paid for them,
has clearly suffered a loss, and there are no potential competing claimants for indemnity
under the policy.
Insurable interest: property, risk and other economic interests
4.4 The courts have found it difficult to define insurable interest in words which will
apply in all situations.13 The matter is further obscured by a difference of opinion or, at
the least, emphasis, between the judges. On one side there are those who take the view
that there has to be some, “legal or equitable interest between the assured and the
subject-matter insured, expectation of harm or benefit, not being enough”.14 On the other
side there is the wider view, expressed by Waller LJ in Feasey v. Sun Life Assurance
Corporation of Canada,15 where he said:
“It is not a requirement of property insurance that the assured must have a ‘legal or equitable’ interest in the property
as those terms might normally be understood … It is sufficient under Section 5 of the Marine Insurance Act for a
person interested in a marine adventure to stand in a ‘legal or equitable relation to the adventure’. That is intended to
be a broad concept.”
This brings us to the full terms of the Marine Insurance Act 1906 section 5(2) which
provide as follows:
“ …a person is interested in a marine adventure where he stands in any legal or equitable relation to the adventure or
to any insurable property at risk therein, in consequence of which he may benefit by the safety or due arrival of
insurable property, or may be prejudiced by its loss, or by damage thereto, or by the detention thereof, or may incur
liability in respect thereof.”
This section of the Act was drafted in the specific context of the SG Form of policy that
insured ship and goods for a voyage or adventure and remains particularly apt in the
context of marine cargo insurance. In particular, it recognises two different kinds of
subject-matter insured which may be the subject of an insurable interest for it refers to
both “the adventure” and “any insurable property at risk”. The loss of the adventure is
dealt with below,16 and we consider first the “insurable property at risk”. In this respect
it is clearly sufficient for the assured to show either property or risk in the subject-
matter at the date of the loss.17 Thus in the case of Inglis v. Stock18 it was held that
buyers of a cargo of sugar, to whom the risk of the loss of the sugar, but not the property
in it, had passed at the time of the loss had an insurable interest. More difficult issues
arise where the assured has neither property nor risk at the time of the loss and it is
necessary to determine whether the assured stood in such a relationship to the property
insured that he would, in terms of section 5(2), benefit from the safety of the property or
be prejudiced by its loss. The decision in OKane v . Jones (The Martin P),19 although a
hull and machinery case, is of guidance in relation to cargo insurance and provides a
summary of the circumstances where an interest less than ownership or risk may
nevertheless constitute a sufficient insurable interest. The issue in The Martin P was
whether the managers of the ship, which became a constructive total loss, had a
sufficient insurable interest. The managers had no shares or other ownership interest in
the vessel, nor were they in possession of her, actual or constructive. After reviewing
the authorities,20 Richard Siberry Q.C., sitting as a Deputy Judge of the High Court,
summarised the position, saying:21
“(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 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… ”
In the circumstances it was held that the managers stood in a sufficient legal relationship
to the vessel to fall within section 5(2) of the 1906 Act. They had a legal responsibility
for the maintenance and equipping of the vessel under their management agreement and
they stood to lose the opportunity of earning fees if she were lost.22 It is submitted that
this broad approach to insurable interest is equally applicable to marine cargo
insurance which we now examine more closely, particularly in relation to loss of the
adventure, loss of profits and the special position of bailees.
The further interest covered by a cargo policy: loss of the adventure
4.5 The issue therefore arises as to what interests are covered by a cargo policy. A
cargo policy in the usual form not only covers the goods, but also covers loss of the
adventure.23 Loss of the adventure falls into the category identified by Waller L.J. in
Feasey v. Sun Life where, properly construed, the policy extends beyond the property
and embraces such insurable interest as the insured has.24 The case cited by Waller L.J.
as exemplifying this principle was Wilson v. Jones25 which concerned a policy written
in the form of a cargo insurance on the Atlantic telegraph cable carried by the Great
Eastern. The attempt to lay the cable failed because the cable broke. The assured was
not the owner of the cable, but a shareholder in the Atlantic Telegraph Company and, in
the circumstances, the policy, which was on a marine form, was specifically extended to
cover the contingency of a failure of the cable. It was held by Wills J that the insurance
was not an insurance on the cable but on the interest which the assured had in “the
success of the adventure”.26 In so far as cargo insurance in the usual form covers loss of
the adventure, an interest in the adventure constitutes a further insurable interest in
addition to property and risk. There is a difference, however, between insurance on loss
of profits, as identified by Blackburn J. in Anderson v. Morice,27 and loss of the
adventure. Loss of profits in the wider sense means the risk of whether the market will
rise or fall, so on a rising market the assured would benefit and on a falling market the
assured would suffer.28 This is not encompassed by loss of the adventure which is
concerned with loss of the market itself, usually where the cargo is detained and never
reaches that market.29
4.6 A defeasible interest is insurable, as also is a contingent interest.30 In particular,
where the buyer of goods has insured them, he has an insurable interest, notwithstanding
that he might, at his election, have rejected the goods, or have treated them as at the
sellers risk, by reason of the latters delay in making delivery or otherwise.31
Extent of insurable interest: loss of profits and increased value
4.7 The general principle is that loss of profits, meaning the risk of a rise or fall in the
market, must be separately insured.32 The Marine Insurance Act 1906 section 16(3)
defines the measure of insurable value on goods or merchandise as the prime cost of the
property insured, plus the expenses of and incidental to shipping and the charges of
insurance upon the whole. In addition, there is a commercial practice in c.i.f. sales of
valuing cargo at its c.i.f. value plus 10% to cover notional loss of profits by the buyer.
This practice is well established and can be taken to represent a conventional estimate
of the minimum profit anticipated on the transaction which has been agreed with
insurers and from which they could not therefore resile.33 Blackburn J.s remarks in the
Exchequer Chamber in Anderson v. Morice34 suggest that under a “properly framed
policy” an assured can insure his expectancy of profit but this is not the intention of the
parties in a modern cargo policy as insurers will not accept the risk of market
movements. The agreement is simply to treat a notional profit as part of the value of the
cargo itself and not to insure “profits” in the sense of insuring against a fall in the
market. On the same basis, additional notional profit, beyond market value, may take
other forms. For example, in Hibernia Foods plc v . McAuslin (The Joint Frost)35 the
insurance on a cargo of meat was extended to cover the EC subsidy payable on proof of
export of the meat outside the European Community. This was “seen for insurance
purposes” as profit beyond market value.36
4.8 In some trades the practice is for the buyer to arrange additional insurance on his
anticipated profit which may well exceed 10%. On other occasions it may simply be
that the value of the cargo increases during the voyage and the buyer wishes to take out
additional insurance to protect that increased value. In either case the buyer may not
wish the seller to be aware of this additional profit and separately arranges increased
value insurance. The buyers anticipated profit represented by the “increased value” is a
proper insurable interest and an increased value policy “properly framed” covers such
an interest. Clause 14 of Institute Cargo Clauses makes provision for increased value
claims, and any subrogated recoveries following on from those claims, to be treated
proportionately as between the primary insurers and the increased value insurers.37
The special position of bailees
4.9 Where the assured, such as a warehousekeeper or haulier, is a bailee of cargo, he
may protect his own interest as bailee by insuring goods up to their full value under a
cargo policy on all risks terms.38 On occasion such insurances may be arranged under
the terms of the Institute Cargo Clauses, or, in the case of metals, the Institute Metals
Storage Clauses (A) and (B). Insurance cover arranged by warehousekeepers, hauliers,
or other bailees is an important category of cover which is based on the bailees right to
claim against third parties as if he were the owner of the goods.39 In the event of a
claim, the bailee holds any recovery from insurers beyond his own legal liability to the
owners of the goods as trustee for the owners to whom he must account.40 It follows that
where the bailee has no liability to the owner of the goods he cannot benefit personally
and will hold the whole recovery from his insurers on trust for the owner of the goods.
The leading case is Hepburn v . A Tomlinson (Hauliers) Ltd41 where a firm of hauliers,
Tomlinson, insured a consignment of cigarettes belonging to Imperial Tobacco for their
full value against “All risks of loss or damage howsoever arising”. The policy named
Tomlinson as the “Assured” and described the interest as “On: Tobacco & or
Manufactured Goods & or Machinery the Property of the Imperial Tobacco Company”.
The cigarettes were stolen in circumstances where Tomlinson had no liability to
Imperial Tobacco. A claim by Tomlinson under their all risks insurance policy on the
goods was pursued on the basis of their bailees interest, not as agents of Imperial
Tobacco. Tomlinson recovered the full value of the goods. Lord Reid, relying largely on
Waters v. Monarch Fire & Life Assurance Co Limited42 said:43
“A bailee can, if he chooses, merely insure to cover his own loss or personal liability to the owner of the goods either at
common law or under contract and if he does that of course he can recover no more under the policy than sufficient to
make good his own personal loss or liability. But equally he can if he chooses insure up to his full insurable interest—up
to the full value of the goods entrusted to him. And if he does that he can recover the value of the goods though he has
suffered no personal loss at all. But in that case the law will require him to account to the owner of the goods who has
suffered the loss … The fact that a bailee has an insurable interest beyond his own personal loss if the goods are
destroyed has never been regarded as in any way inconsistent with the overriding principle that insurance of goods is a
contract of indemnity.”
These principles are well established, though to say that they do not offend against the
rule that an insurance on goods is a contract of indemnity, appears to be a somewhat
technical approach as the bailee has suffered no loss either in terms of property owned
or liability to the owners of the property, nor, indeed, has he suffered any financial
benefit or prejudice by the loss of the goods, such as a loss of income to be earned from
them.44 The insurable interest thus recognised is, it is submitted, in reality an anomaly or
exception to the indemnity principle.45
4.10 It may be necessary to determine whether the bailee has insured his liability to
the owners of the goods under a liability policy or whether he has insured his bailees
interest in the full value of the goods. This is a matter of construction of the terms of
each individual policy. The nature of the conditions, such as “All Risks”, are likely to
be decisive where all other factors are neutral, as was the case in Tomlinson v.
Hepburn.46 It is submitted, therefore, that contracts of marine insurance on the terms of
the Institute Cargo Clauses, or the Institute Metals Storage Clauses, are likely to be
construed as insurances on the goods rather than as liability policies.
4.11 If the bailee has insured the goods, rather than his liability, a further analysis is
necessary to decide whether the bailee has insured the goods for their full value or
whether the contract has been framed only to cover the goods to the extent of the bailees
legal liability for the goods. This would normally depend on the construction of the
contract determined in the light of the natural meaning of the words used. However, a
line of authority holds that the words “for which [the bailee] is responsible” restricts
the indemnity to the assured bailees legal liability to the owner of the goods: if the
bailee is not liable there is no cover: if the bailees liability is limited then the cover is
limited to the extent of that liability.47 In effect these words will convert a policy on
goods, covering the bailees wider interest, to a policy on goods that provides no more
protection than a liability policy covering only the bailees liability to the owner. In the
result the broker may be liable for obtaining the wrong type of policy for his clients.48
THE TIMING OF THE INSURABLE INTEREST REQUIREMENT
The time when insurable interest must attach
4.12 Both the 1906 Act and the Institute Cargo Clauses provide that the assured must
have an insurable interest “at the time of the loss”. This is of particular importance
where, in the course of international trade, ownership passes from seller to buyer. We
first consider sales on ci.f terms and the position where loss or damage occurs before
the passing of property and risk, following which we consider insurable interest where
damage occurs after the passing of property and risk to the assignee. We then review
c.f.r. and f.o.b. contracts which are introduced here, but further analysed in the context
of the “lost or not lost” provisions in the 1906 Act.49
4.13 Where goods are sold ci.f the general rule50 is that risk passes when the goods
pass over the ships rail at the port of shipment and property passes on payment against
the documents, which represent the goods.51 The buyer under a ci.f contract will have
the benefit, as assignee, of any insurance claim for loss or damage to the goods which
occurred prior to transfer of risk on shipment. For example, if containerised goods are
damaged during inland transit and a clean bill of lading is issued, the ci.f buyer who
pays against that bill of lading can claim as assignee under the insurance for a loss
which occurred when the goods were the risk and property of the seller. This is because
he claims in the sellers shoes and the seller had an interest at the time of the loss.
4.14 Where goods are sold ci.f., and the damage occurs after the passing of risk and
property, it was suggested by Arnould52 that a ci.f buyer will usually be entitled to
claim as assignee, but may not be able to claim as an “assured” in his own
right.53Arnould pointed out that, unlike the SG Form, the MAR Form of contract, and
now the Market Reform Contract, may not describe the “Assured” in terms wide enough
to cover the ci.f buyer as “Assured” or “Co-assured”.54 In practice, the insurance
contract may be drafted in terms that are wide enough to cover the ci.f buyer as
“Assured” and, as we have seen, this is the usual case with London market open
covers.55 Moreover, the revised Institute Cargo Clauses now define the “Assured” in
Clause 15.1 so as to include an “Assignee” making the assignee an assured in his own
right.
4.15 Where goods are sold c.f.r. or f.o.b. and the loss of or damage to the cargo
occurs prior to shipment, and prior to passing of risk and property, the buyer may have
no claim as the Institute Cargo Clauses no longer provide for the acquisition of a
retrospective insurable interest as we shall shortly consider.56
Retrospective declarations for cargo “lost or not lost”
4.16 Circumstances may arise where the cargo has already been lost or damaged before
the insurance contract is arranged or renewed. On occasions declarations or
appropriations to the policy are only made after transit has commenced and losses,
unknown to either party, have already occurred. In such circumstances, where neither
party were aware of any loss, it was the practice to insure, “lost or not lost”. This
practice is recognised in rule 1 of the rules for the construction of the policy scheduled
to the Marine Insurance Act 1906, which provides:
“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.”
This aspect of “lost or not lost” cover is now reflected in Clause 11.2 of the Institute
Cargo Clauses which provides:
“… the Assured shall be entitled to recover for insured loss occurring during the period covered by this insurance,
notwithstanding that the loss occurred before the contract of insurance was concluded, unless the Assured were
aware of the loss and the Insurers were not.”
The operation of this clause is illustrated by the case of Wünsche Handelsgesellschaft
International mbH v. Tai Ping Insurance Co Ltd.57 In that case goods were insured for
carriage to Germany against all risks under policies which included the term, “Including
from ex-factory in P.R. of China”. The goods, canned mushrooms and asparagus, some
of which originated at factories deep in the interior of China, were damaged while in
transit from the interior to Shenzhen near Hong Kong, where they were containerised.
From Shenzhen the containers were taken by truck or barge to Hong Kong where they
were put on board ocean vessels. Insurance was placed the day before the containers
were loaded on board the ocean vessels. The damage had occurred inland between the
factories in China and Shenzhen (i.e., before the goods had been appropriated to any
particular contract of affreightment or insurance). It was held that the above wording58
enabled the assured to recover for damage to the goods which had already occurred
during the inland transits in China before the goods were insured. Once it was accepted
that as a matter of construction the risk attached at the internal factories, the fact that the
goods were only retrospectively allocated to the contracts of affreightment and
insurance made no difference. The insurance was intended to cover damage to the goods
that had occurred before the insurance was arranged, as long as that damage was
unknown to the parties.
4.17 A claim for loss of goods which had been pilfered was not pursued and it was
suggested, obiter, that goods that did not exist at the time of appropriation could not
have been appropriated to the contract.59 Whether or not such goods can be
appropriated will depend on the construction of the insurance contract in each case. In
Niger Co Limited v The Guardian Assurance Co Limited60 it was held that goods
destroyed by fire in their unappropriated state were nevertheless covered by the policy.
Acquisition of a retrospective insurable interest
4.18 The Marine Insurance Act 1906 section 6(1) states:61
“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.”
This proviso is generally considered to derive from the decision in Sutherland v
Pratt.62 In that case, goods in transit from Bombay to London were pledged to the
assured as security for an advance. To protect his position the assured effected a policy
for £2,000 on goods “lost or not lost” at and from Bombay to London. Unknown to
either assured or insurers, at the time of the pledge and of the effecting of the policy, the
goods had already suffered serious sea damage by wetting and had been rendered
useless. The court rejected the insurers lack of insurable interest defence saying:63
“The simple question is, whether it is any answer to an action on a policy on goods (lost or not lost), that the interest in
them was not acquired until after the loss. We are of the opinion that it is not. Such a policy is clearly a contract of
indemnity against all past, as well as future losses, sustained by the assured, in respect of the interest insured.”
It should be stressed that there were two quite distinct issues in this case giving rise to
the two meanings of the phrase “lost or not lost”. First the policy was entered into retro-
spectively after the loss had occurred without either party being aware of the loss. We
have seen a modern example of this in relation to the Wünsche case.64 We might call that
the first meaning of “lost or not lost” (the “late or retrospective declaration” meaning).
The second meaning allows the assured to acquire his interest in the goods after the
loss. We shall call this the “retrospective insurable interest” provision. This additional
aspect of the “lost or not lost” provision provided significant additional cover
particularly relevant today in relation to containerised f.o.b. shipments.
4.19 What is the position under the revised Institute Cargo Clauses? These provide,
in Clause 11, as follows:
“Insurable interest
11.1 In order to recover under this insurance the Assured must have an insurable interest in the subject-matter
insured at the time of the loss.
11.2 Subject to 11.1 above, the Assured shall be entitled to recover for insured loss occurring during the period
covered by this insurance, notwithstanding that the loss occurred before the contract of insurance was
concluded, unless the Assured were aware of the loss and the Insurers were not.”
It is clear from the above that it is only the first meaning of “lost or not lost” (the “late
or retrospective declaration” meaning) that is available to the assured. Clause 11.2 is
“subject to” the overriding requirement in Clause 11.1 that the assured must have an
insurable interest at the time of the loss. Accordingly, the Institute Cargo Clauses do not
allow for the retrospective acquisition of an insurable interest. As we have seen, this
cover was previously provided under the SG Form “lost or not lost” provision and the
proviso to section 6(1) of the Marine Insurance Act 1906. It was also provided under
the Institute Cargo Clauses (All Risks) 1/1/63, but was withdrawn in the 1/1/82 Clauses
and was not reinstated when the Clauses were revised and reissued in 2009.
4.20 This new insurable interest Clause, when first introduced on 1 January 1982,
was recognised as reversing the retrospective insurable interest effect of the decision in
Sutherland v. Pratt.65 That case, which was reported in 1843, had been highlighted in
1961 in the case of Reinhart v. Hoyle & Sons Limited,66 where cotton was damaged by
rain, and by standing in an accumulation of fresh water prior to shipment. It was
recognised, obiter, that if the buyers policy had covered “country damage” prior to
shipment, then the buyers could have recovered under the policy even though they had
no property or risk in the cotton at that time. The goods were insured on “lost or not
lost” terms and it was confirmed, following Sutherland v. Pratt 67 and in the light of the
Marine Insurance Act 1906 section 6(1) that, “the assured is entitled to recover against
his underwriters notwithstanding the fact that he may have acquired his interest only
after the loss has already occurred”.68
4.21Reinhart v Hoyle & Sons69 was an unusual case as it concerned a modified ci.f
standard form of contract that had been altered to provide that the c.f.r. buyer would
arrange insurance. The problem is more likely to arise in circumstances of modern
containerised transport where the terms of sale involve a more conventional c.f.r. or
f.o.b. contract as was the case in New South Wales Leather Pty Ltd v Vanguard
Insurance Co Ltd.70 The assured purchased quantities of leather in containers on f.o.b.
terms, cash against documents, from a number of Brazilian suppliers. After the
containers were closed and sealed they were broken into and the bulk of the leather
stolen, following which fresh seals were then fraudulently attached. The f.o.b. buyers
paid against the documents and the loss, which had occurred prior to shipment, was only
discovered at destination. The f.o.b. buyers had no title or risk in the property in the
goods prior to shipment and therefore could only succeed (which they did) on the basis
of the wider cover formerly provided under the SG Form and the Institute Cargo
Clauses 1/1/63.71
4.22 London market open covers commonly include a Sellers Interest Clause which
applies to shipments sold on f.o.b. or c.f.r. terms and protects the seller as holder of the
open cover. The contingency is the failure of the buyer to comply with his contractual
obligations, but, for a claim under the Institute Cargo Clauses, there must also be loss of
or damage to the goods. Such clauses apply where the goods have been lost or damaged
and the buyer, who would generally be responsible for arranging the marine insurance
(i.e., the insurance from the time the goods had passed the ships rail), fails to take up the
documents or to pay for the goods. On the modern approach to insurable interest, these
clauses are almost certainly valid and effective as the seller has an economic interest in
the adventure to protect and the effect of the clause is to extend the insurance to embrace
that category of insurable interest.72 It should be stressed that the insurance provides
cover where there has been loss or damage to the goods and is not triggered merely by
the buyers default. In the usual case the existence of the cover is confidential as between
the seller and his insurer who, in addition to his usual subrogation rights against the
carrier, will also be entitled to exercise subrogation rights against the buyer under the
sale contract.
1. Lucena v. Craufurd (1806) 2 Box & Pul (NR) 269. Arnoulds Law of Marine Insurance and Average, 17,
2008, Sweet & Maxwell at para. 1–06.
2. MIA 1906 s. 5(2), discussed at para. 4.4 below. The question of insurable interest is currently under review by the
Law Commission, see Law Commission Issues Paper 4 available from www.lawcom.gov.uk.
3. ICC, Cl. 4.3 does not exclude insufficiency of packing carried out by third party packers during the currency of
the risk. Insurable interest is one of the factors that cargo underwriters see as encouraging the assured to employ
proper packers. See chapter 8, at para. 8.32.
4. The exclusions of unseaworthiness and unfitness in the ICC, Cl. 5.3 are drafted on the assumption that the
assured has an interest in the successful outcome of the voyage. As to the seaworthiness requirements of the ICC
[see generally] chapter 8, at paras. 8.64. to 8.72.
5. Marine Insurance Act 1745; Gambling Act 1845; Marine Insurance Act 1906 s. 4(1). For a full consideration of
the origins and purpose of the requirement for an insurable interest see the judgment of Mr Anthony Colman Q.C. (as
he then was) sitting as a Deputy Judge of the High Court in The Moonacre [1992] 2 Lloyds Rep. 501 at pp. 509–511.
6. Marine Insurance Act 1788. Policies written contrary to the intent of the Act are void.
7. For a discussion of whether s. 4 has been deprived of effect by the Gambling Act, see R. Merkin, Marine
Insurance Legislation, 3rd edn, 2005, Informa, at p. 8.
8. Waller L.J. in Feasey v Sun Life Assurance Corporation of Canada [2003] Lloyds Rep. IR 637 at 652 (CA),
(Feasey v. Sun Life).
9. Marine Insurance Legislation at p. 10.
10. (1884) 12 QBD 564 at 571, and see the cases cited in Marine Insurance: The Law in Transition, 2006,
Informa, “Insurable Interest — Accelerating the Liberal Spirit” by D. Rhidian Thomas at p. 40 paras. 2.79. and 2.80
11. Wunsche Handelsgesellschaft International mbH v. Tai Ping Insurance Co. Ltd., unreported decision of
Moore-Bick J. dated 30 July 1996 affirmed on appeal on other points at [1998] 2 Lloyds Rep. 8.
12. (1875) LR 10 CP 609 (Exch Ch): (1876) 1 App Cas 713 (HL).
13. Feasey v . Sun Life (supra) at para. 66.
14. Ibid., at para. 195, per Ward L.J. following the approach of Lord Eldon in Lucena v. Craufurd (1803) 2 Bos
and Pul (NR) 269 at p. 321 applied in Macaura v. Northern Assurance Co Limited [1925] AC 619 (HL).
15. [2003] 1 Lloyds Rep. 637 at para. 92.
16. At para. 4.5.
17. Lucena v. Craufurd (1806) B&P (NR) 269, per Lord Eldon at p. 321. See also Anderson v. Morice (1876) 1
App. Cas. 713; Inglis v . Stock (1885) 10 AC 263; Piper v . Royal Exchange Insurance (1932) 44 Ll. L. Rep. 103;
National Oilwell (UK) v . Davy Offshore Limited [1993] 2 Lloyds Rep. 582; Wünsche Handelsgesellschaft
International mbH v. Tai Ping Insurance Co. Ltd. [1998] 2 Lloyds Rep. 8; Feasey v . Sun Life Assurance
Corporation of Canada [2003] Lloyds Rep. IR 637 (CA); OKane v. Jones (The Martin P) [2004] 1 Lloyds Rep.
389.
18. (1884) LR 12 QBD 564.
19. [2004] 1 Lloyds Rep. 389.
20. Feasey v . Sun Life, which had been decided by the CA on 26 June 2003 some weeks before The Martin P
judgment on 30 July 2003, was not cited but the judgment in The Martin P runs in parallel with Feasey and rather
sidesteps the narrower approach to insurable interest exemplified by Macaura v . Northern Assurance Co Ltd
[1925] AC 619.
21. At para. 154.
22. At paras. 156, 157.
23. See chapter 13, at paras. 13.53. to 13.70.
24. At para. 82 et seq.
25. (1867) LR 2 Ex 139.
26. At p. 145. Approval was given to Wilson v . Jones in Macaura v . Northern Assurance Co Ltd, see Waller
L.J. in Feasey v. Sun Life at para. 76, which may be considered further support for the position taken in the above
text that the narrower view of insurable interest adopted in Macaura has little or no application to marine cargo
insurance.
27. (1875) 10 CB 609 at pp. 621–622.
28. See the analysis of Blackburn J. in Anderson v . Morice (supra) at p. 621.
29. See Chapter 13, at paras. 13.53. to 13.70.
30. MIA 1906 s. 7(1).
31. MIA 1906 s. 7(2). But where the assured has no interest at the time of the loss, he cannot acquire any interest
by any act or election after he is aware of the loss, MIA 1906 s. 6(2), based on Anderson v . Morice (1876) 1 App.
Cas. 713 (HL).
32. Anderson v. Morice (1875) 10 CB 609 (CA), per Blackburn J.; Mackenzie v. Whitworth (1875) 1 Ex D 36;
Maurice v. Goldsborough Mort & Co [1939] AC 542.
33. See Marine Insurance: The Law in Transition, 2006, Informa, Chapter 2. “Insurable Interest — Accelerating
the Liberal Spirit” by D. Rhidian Thomas at p. 248 para. 29, which takes the view that the practice is so widespread
that it would not be challenged.
34. (1875) LR 10 CP 609 at 621, cited with approval in Feasey v. Sun Alliance Assurance Corporation of
Canada [2003] 1 Lloyds Rep. 637 at 674 at para. 193 et seq. by Ward L.J.
35. [1998] 1 Lloyds Rep. 310.
36. At p. 312 per Tuckey J.
37. Reversing the effect of the decision in Boag v. Standard Marine Insurance Co Limited [1937] 2 KB 113
(CA); [1936] 2 KB 121.
38. Waters v . Monarch Fire & Life Assurance Co. (1856) 5 E & B 870; Hepburn v . A Tomlinson (Hauliers)
Ltd [1966] 1 Lloyds Rep. 309.
39. Hepburn v. A Tomlinson (Hauliers) Ltd (supra) at p. 314 and see The Winkfield [1902] P 42, holding that a
bailee in possession can sue as if he were the owner of goods.
40. Waters v . Monarch Fire & Life Assurance Co (1856) 5 E & B 870; Hepburn v . A Tomlinson (Hauliers)
Ltd [1966] 1 Lloyds Rep. 309 at 314.
41. Supra.
42. (1856) 5 E&B 870.
43. At p. 314.
44. See OKane v. Jones (The Martin P) [2004] 1 Lloyds Rep. 389 discussed at para. 4.4. above.
45. The view expressed here reflects the approach adopted in Ramco (UK) Limited v International Insurance
Company of Hannover Limited [2004] 2 Lloyds Rep. 595 at p. 32 where Waller L.J. said that, “There is thus
something of an anomaly in allowing a bailee to recover for a loss he has not suffered”.
46. Supra. See the judgment of Lord Reid at pp. 314, 315.
47. Ramco (UK) Limited v International Insurance Company of Hannover Limited [2004] 2 Lloyds Rep. 596 at
601, following North British & Mercantile Insurance Co v. Moffatt (1871) LR 7 CP 25 Court of Common Pleas and
Engel v. Lancashire & General Assurance Co Ltd as reported at (1925) Com Cas 202.
48. See, for example, Ramco Limited and Another v. Weller Russell and Laws Insurance Brokers Limited [2008]
EWHC 2202 (QB); All ER (D) 173 (Jun).
49. At para. 4.18. below.
50. This may be varied, and frequently is, by the terms of any particular contract.
51. See, for example, Incoterms 2000, c.i.f, Rule B5 (p. 69).
52. Arnould 15, Vol. 3, paras. 288 to 291.
53. Where loss of or damage to cargo has occurred after transfer of risk and property, the seller will have neither
risk nor property and therefore no insurable interest to assign to the buyer. In theory it is open to the insurers to argue
that as the assignor had no interest at the time of the loss the assignee has no claim wearing the assignors hat and
therefore has no claim at all unless he is also an “Assured” in his own right.
54. This issue is dealt with in the current edition of Arnould in more general terms at para. 8–03 et seq.
55. See Chapter 3, at para. 3.27.
56. At para. 4.21.
57. [1998] 2 Lloyds Rep. 8.
58. Identical wording to Clause 11.2 in the ICC(A) also appears in Clause 2 of the Institute Marine Policy General
Provisions (Cargo) which constituted the operative clause in this case.
59. Wünsche v Tai Ping (supra) at p. 14 in the CA, per Waller L.J.
60. (1922) 12 Ll L Rep. 75.
61. Proviso to MIA 1906 s. 6(1) and see Rule 1 of the rules for construction discussed above at para. 4.16.
62. (1843) 11 M & W 296.
63. Per Parke B at p. 311.
64. At para. 4.16. above.
65. (1843) 11 M & W 296; 152 ER 815.
66. [1961] 1 Lloyds Rep. 346.
67. Supra.
68. [1961] 1 Lloyd Rep. 346 at p. 358, per Willmer L.J.
69. [1961] 1 Lloyds Rep. 346.
70. (1991) 105 FLR 381. Supreme Court of New South Wales, Court of Appeal.
71. The revised ICC 1/1/09 in general return cover to the more generous position that prevailed under the ICC
1/1/63 with the notable exception of this second aspect of the “lost or not lost” insurance cover.
72. See para. 4.4 above and the cases such as Wilson v.Jones (1867) LR 2 Ex 139; OKane v.Jones (The Martin
P) [2004] 1 Lloyds Rep. 389. Benjamin, Sale of Goods, 7th edn, 2006, Sweet & Maxwell, at p. 1688 para. 20–039, is
more cautious saying that it is “arguable” that the seller can insure this interest on a contingency basis so as to protect
himself if the goods are lost or damaged and the buyer fails to pay.
CHAPTER 5
GOOD FAITH, NON-DISCLOSURE AND
MISREPRESENTATION
5.1 This chapter considers the principle of good faith. The general principle of the good
faith doctrine is set out, then the application of the doctrine is examined in the context of
marine cargo examples, firstly in terms of non-disclosure and, secondly, in terms of
misrepresentation. The issues of good faith, non-disclosure and misrepresentation are
currently the subject of review by the Law Commissions.1
THE PRINCIPLE OF GOOD FAITH
Origins of the principle of good faith
5.2 The Marine Insurance Act 1906 section 17 provides that: “a contract of marine
insurance is a contract based upon the utmost good faith and, if the utmost good faith be
not observed by either party, the contract may be avoided by the other party”. In
essence, the principle “forbids either party by concealing what he privately knows, to
draw the other into a bargain”.2 Lord Mansfield summarised the rationale behind the
doctrine in the following well-known passage from his judgment in Carter v. Boehm:3
“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 of 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 run is really different from the risk understood and intended to be run, at the time of the agreement.”
The principle applies to an innocent error made by the cargo assured even without
negligence, as the crux of the matter is that the risk is different from that bargained for
between the parties. Lord Mansfield talks of the contract being “void”, but the modern
law holds that the contract is not automatically void but voidable at the election of the
underwriter who, once he is in full possession of the facts, must elect whether to avoid
the contract or to affirm it.4
5.3 It has been said that the application of the doctrine of good faith imposes on the
assured a positive duty of disclosure so that, “the proper line that an underwriter should
take, except in matters he is bound to know, is absolutely to abstain from asking any
questions, and leave the assured to fulfil his duty of good faith, and make full disclosure
of all material facts without being asked”.5 However, as we shall consider in the context
of waiver, this does not mean today that an underwriter can be deaf to matters that
should alert him to ask questions, nor can an underwriter rely on ignorance of common
practices in any specialist areas where he has chosen to underwrite, such as, for
example, practices in the international oil trade.6
5.4 The origins of the principle of good faith lie in Lord Mansfields judgment in Carter
v. Boehm.7 That was a case of goods in store in a warehouse and illustrates the doctrine
in terms of what today we would call a war risks policy. The governor of Fort
Malborough, on the Island of Sumatra in the East Indies, had insured his goods in 1759–
1760 whilst in store in the fort there against the risk of attack and “the taking of the fort
by a foreign enemy”. The fort was taken by the French, with the help of the Dutch, and a
claim was made under the policy. It turned out that the “fort” was really a factory or a
warehouse for goods, secure against local attack, but wholly unable to resist an attack
by European forces. Moreover, the so-called “governor” was really the owner-manager
in charge of the factory or warehouse. When arranging the insurance the governor had
written to his brother in England, who arranged the insurance, saying that he was “now
more afraid than formerly that the French should attack”. Additionally, in a letter to the
East India Company, the governor set out the weaknesses of the fort which was poorly
supplied with stores, arms and ammunition. Lord Mansfield and a special jury decided
that these matters were not material to the particular risk which was of capture by a
“foreign” enemy meaning a European enemy. The state of the fort or factory was
immaterial as the underwriters knew, or ought to have known, that a factory could never
have resisted an attack by Europeans and the risk depended upon the overall political
situation and not the inadequacies of the “fort”. Lord Mansfield said:8
“The underwriter, here, knowing the governor to be acquainted with the state of the place; knowing that he
apprehended danger, and must have some ground for his apprehension; being told nothing of either; signed this policy,
without asking a question … There was not a word said to [the underwriter], of the affairs of India, or the state of the
war there, or the condition of Fort Malborough. If [the underwriter] thought that omission an objection at the time, he
ought not to have signed the policy with a secret reserve in his own mind to make it void; if he dispensed with the
information, and did not think this silence an objection then; he cannot take it up now, after the event.”
As we shall see later in this chapter, this passage from the judgment reflects more recent
cases,9 where the emphasis is upon what the underwriter knew, or ought to have
known,10 and where waiver of information by the underwriter may prove to be the
critical issue.11 Lord Mansfields judgment on the facts illustrates the need for rigorous
examination of the alleged materiality of any fact that was not disclosed to ensure that it
was material in the light of the specific risk underwritten.12
DISCLOSURE BY THE ASSURED
5.5 The Marine Insurance Act 1906 section 18 provides as follows:
“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.”
This section of the Act gives rise to four matters for consideration: the time for
disclosure; the knowledge of the assured; the test for “materiality” and the remedy of
avoidance. We shall examine each in turn, as well as the additional requirement of
inducement, before considering affirmation by which the right to avoid is lost.
Time of disclosure
5.6 The obligation of disclosure under the Marine Insurance Act 1906 section 18 ceases
when “the contract is concluded”. In this context section 21 provides as follows:
“A contract of marine insurance is deemed to be concluded when the proposal of the assured is accepted by the
insurer, whether the policy be then issued or not; and, for the purpose of showing when the proposal was accepted,
reference may be made to the slip or covering note or other customary memorandum of the contract, …”
By the practice at Lloyds and the London market the contract is usually concluded when
each underwriter individually puts his percentage line down on the slip (e.g., 5%), adds
his reference in the stamped box used by Lloyds and the companies market, and signs
the box on behalf of his syndicate or company.13 The signature will normally conclude
the contract even though marked “TBE” (“to be agreed”)14 or written in pencil.15
5.7 Where cargo insurance is arranged under an open cover the timing of the duty of
disclosure depends on the nature of the open cover as discussed in chapter 3.16 In
general there may still be a duty to disclose in relation to individual declarations17
unless the declarations are purely administrative in nature and the underwriters are
bound to accept them in any event.18
5.8 The 1906 Act section 18 states that the duty is to disclose all material circumstances
“before the contract is concluded”. Although the duty of disclosure under section 18
ceases when the contract is concluded, it is now well recognised that the duty of good
faith under section 17 of the Act is not confined to pre-contractual dealings.19 Two
decisions relating to cargo insurance illustrate the continuing duty of good faith in this
context.20 Both of these decisions turned on the “held covered” clause in the Institute
Cargo Clauses (All Risks) 1/1/63 which provided:
“Held covered at a premium to be arranged in case of… any omission or error in the description of the interest vessel
or voyage.”
In these cases it was held that, to take advantage of this clause, the assured must act with
the utmost good faith towards the underwriters. As “held covered” clauses, and
analogous clauses, are concerned with a variation of the contract, or even with an
additional contract in its own right, these cases may be better considered as examples of
the revival of the pre-contractual duty of good faith.21 The circumstances under which
cargo may be “held covered” under the 1982 Institute Cargo Clauses and the revised
Institute Cargo Clauses, which have analogous provisions, do not now extend to
omissions or errors in the description of the interest or vessel and are limited to
termination of the contract of carriage and change of voyage.22 The continuing duty of
good faith, including the obligation to make disclosure, applies to “held covered” and
analogous provisions for an extension of cover and, if disclosure is not made, the
insurers will be entitled to avoid.
5.9 This raises the issue of whether the whole original contract, or only the “held
covered” extension or variation, is vitiated by any failure of disclosure. In The
‘Mercandian Continent23 Longmore L.J. concluded that the right of avoidance only
applies to the variation and not to the original risk. This approach has been followed in
at least one other case.24 This principle may be illustrated by reference to Clause 9 of
the Institute Cargo Clauses which enables the assured to negotiate an extension of the
duration of the insurance at an additional premium where the voyage has terminated at
an intermediate port. Any losses occurring before that termination of the transit would
still be payable, even if insurers were entitled to avoid the extension of the insurance
negotiated under Clause 9 by reason of non-disclosure during the negotiations for the
extension.
Knowledge of the assured
5.10 As we have seen, section 18 of the 1906 Act provides that: “the assured is deemed
to know every circumstance which, in the ordinary course of business, ought to be
known by him”.25 The Marine Insurance Act 1906 section 18(5) further provides that
“the term ‘circumstance’ includes any communication made to, or information received
by, the assured”.
5.11 For the purposes of section 18 the assured is not limited to those persons who
constitute the directing mind of the company,26 but includes the persons with the
responsibility for insurance of the cargo on behalf of the company, whether they be
directors or managers.27 Section 19 provides that, where an insurance is effected for the
assured by an agent, the agent must disclose every material circumstance known to him28
as well as every material circumstance which the assured is bound to disclose.29
“Materiality” and “inducement”
5.12 The Marine Insurance Act 1906 section 18(2) provides that, “every circumstance
is material which would influence the judgment of a prudent insurer in fixing the
premium, or determining whether he will take the risk”. This section makes no reference
to the actual underwriter who wrote the risk, but the law now requires a two-pronged
test. First, insurers must show that the facts not disclosed would have been “material”,
in that they would have influenced the judgment of a prudent insurer and, second, they
must show that the actual underwriter was “induced” to accept the risk by reason of the
non-disclosure.30 Inducement is a requirement of misrepresentation at common law31
and, as a matter of language, it can be slightly awkward to have to ask whether the
underwriter was “induced” by matters which, by definition, were not brought to his
knowledge.32 But the rule, however ungainly, is now well established. It is illustrated,
in terms of cargo insurance, by Berger and Light Diffusers Ltd v. Pollock,33 a case
where the actual underwriter failed to give evidence as to the materiality to him of the
alleged chequered history of the cargo and its overvaluation. It was held that the court
must be satisfied as a matter of fact that the insurer in question would have been
influenced in fixing the premium or determining whether to take the risk.34
5.13 The test for materiality, established in practice by evidence from a market
practitioner giving the views of the prudent underwriter, is a relatively light one. In
accordance with the Act, it is only necessary that the information withheld would have
“influenced” the judgment of the prudent underwriter “whether” to take the risk and it is
not necessary that the underwriter would have made a different decision, either as to
risk or premium, if full disclosure had been made.35
5.14 The leniency of this standard of “materiality” is tempered by the additional
requirement of “inducement” where the actual underwriter must show that, “but for the
relevant non-disclosure … he would not have entered into the contract on those
terms.”36 In other words the missing information must have effectively induced the
contract and prompted a different decision on the risk or the premium.
5.15 The relationship between materiality and inducement is such that a strong case on
materiality will carry a weak case on inducement. This is not a legal presumption but
reflects, for example, the remarks of Kerr J. in Berger v. Pollock,37 that a strong case on
materiality may mean that the court may need little or no evidence to decide in favour of
the insurer on inducement, whilst, in other cases the court may require evidence from the
actual insurer. The rule is one of common sense not law.38 In all but the strongest of
cases, the actual underwriter should give evidence.
The remedy of avoidance
5.16 Section 18 of the Marine Insurance Act 1906 lays down that, “if the assured fails to
make such disclosure the insurer may avoid the contract”. Similarly, section 17
provides that, in the absence of good faith, “the contract be avoided by the other party”.
The remedy of avoidance, which requires return of premium,39 is a consequence of the
fact that the effect of the non-disclosure is to destroy the very basis of the bargain
reached between the assured and insurers. Nevertheless the remedy may be
disproportionate and, as such, has attracted the description “draconian”.40 The remedy
of damages is not available.41 This is consistent with the Act and the fact that an
innocent mistake, which would not normally be actionable, entitles the underwriters to
avoid the contract.42
Avoidance and affirmation
5.17 The right to avoid will be lost if the insurers, with full knowledge of the
nondisclosure, affirm the contract.43 Donaldson J. summarised the rule in Liberian
Insurance Agency Inc v. Mosse44 when he said:45
“Full knowledge of the facts is essential before there can be any question of affirmation—being put upon inquiry is
insufficient.46 And even when the underwriter has full knowledge of the facts, he is still entitled to a reasonable time in
which to decide whether to affirm the contract.47 In a situation in which the underwriter has taken no action to affirm
or repudiate the contract and a reasonable time for making up his mind has elapsed, he will be deemed to have
affirmed the contract if either so much time has elapsed that the necessary inference is one of affirmation or the
assured has been prejudiced by the delay in making an election or rights of third parties have intervened.”48
When the insurer has full knowledge of the facts he must elect, within a reasonable time,
whether to avoid or to affirm the contract.49 In Liberian Insurance Agency v. Mosse,50
underwriters were in the process of investigating a claim for loss of and damage to a
consignment of enamelwear in Liberia. Pending conclusion of their investigations, the
insurers advised the assured not to sell the cargo until a survey had been completed.
Subsequently, the assured argued that they were prejudiced by this advice or instruction
as they were unable to sell the goods on better terms. It was also argued that by the time
the insurers advised the assured not to sell the cargo, a reasonable time for making
enquiries, and deciding whether or not to avoid the contract, had expired. Donaldson J.
showed little sympathy for these arguments saying there was no evidence of prejudice
and added:51
“Avoidance on these grounds [non-disclosure] is a very serious matter requiring careful consideration and consultation
between those who had subscribed to the risk.”
The courts therefore recognise that insurers need a reasonable time to investigate and to
consider and consult before taking the decision to avoid the contract and enforcing the
draconian remedy of avoidance. In practice insurers may seek to protect their position
by making it clear that their actions are without prejudice to their right to avoid. Whilst
this will protect insurers against express affirmation, as discussed next, it is unclear
how effective such a reservation can be if the assured is actually prejudiced. This could
occur, for example, where a risk is still live (i.e., the cargo is still in transit), and the
assured needs to know if he should arrange cover elsewhere. Even where the risk has
run, and the cargo has been delivered, insurers cannot extend time indefinitely by a
reservation but must elect to avoid or affirm once they have all the necessary
information and a reasonable time for consideration and consultation has elapsed. There
is a fine line to be drawn between acting precipitously, which could conceivably, of
itself, be a breach of the duty of good faith by insurers,52 and failing to act within a
reasonable time so that the contract will be deemed to have been affirmed.
5.18 The contract of insurance will also be affirmed if the insurer, with full knowledge
of the facts, acts in a way that is inconsistent with avoidance. This may occur, for
example, by acceptance of premium, or agreement to declarations, or by the exercise of
rights under the contract, such as a right of cancellation.53 In such cases the affirmation
must be unequivocally communicated to the assured. In WISE (Underwriting Agency)
Limited v. Grupo Nacional Provincial SA54 it was accepted that a notice of
cancellation could amount to affirmation, provided it was given at a time when the
insurers knew of their right to avoid for non-disclosure.55 There needs to be an
unequivocal communication of the notice and the insurer must make an informed choice
so as to affirm the contract.56 An informed choice can be made unintentionally. The
criterion is objective: it is not a question of whether the insurers intended to affirm, but
whether they acted in such a way as to affirm in full knowledge of their rights. The test
depends on how a reasonable person in the position of the assured would interpret the
insurers words or conduct.57 In practice, insurers can protect themselves from express
affirmation by making it clear that notice of cancellation is without prejudice to their
right to avoid. While an express reservation will protect insurers, it does no more than
negative the unequivocal nature of the affirmation. It is unclear whether action that is
wholly inconsistent with the reservation, such as acceptance of premium or of
declarations, can override the express reservation. In each case it is a question of how a
reasonable person in the position of the assured would interpret the insurers conduct.
Acceptance of premium, for example, may be considered so inconsistent with avoidance
that a reasonable assured might be taken to assume that the reservation had been
withdrawn. Moreover, a reservation cannot extend indefinitely the time for election and,
if the assured is prejudiced by the insurers failure to elect in a timely fashion, the right
to avoid will be lost despite any express reservation.58
Circumstances that may need to be disclosed
5.19 This section considers the issues of materiality and inducement, as illustrated in the
decided marine cargo cases, starting with ownership, valuation and description of the
cargo. Finally we look at the overall impact of moral hazard. Although it is convenient
to consider the practice by reference to such examples it should be emphasised that
materiality will vary with the particular circumstances of each case and inducement will
further depend on the evidence of the actual underwriter concerned.
5.20 Must the assured disclose the nature of his interest in the cargo? The starting point
is the Marine Insurance Act 1906 section 26(3) which provides:
“Where the policy designates the subject-matter insured in general terms, it shall be construed to apply to the interest
intended by the assured to be covered.”
Although this section of the Act is directed primarily to the question of insurable
interest, it appears to be a rule of construction that would assist the assured to argue
that, as long as he has an insurable interest, it is generally not necessary, of itself, for the
assured to disclose the nature of that interest. For example, in MacKenzie v.
Whitworth,59 an insurance on “cotton” did not disclose that the assureds interest was as
reinsurer, but this was not material and did not have to be disclosed. Cargo insurance
commonly extends to the interest of a bailee, such as a carrier or warehouse keeper.60 It
also includes mortgagees or pledgees of the cargo. It would not ordinarily be necessary
to disclose the nature of those interests. However, a limited interest may be disclosable
for other reasons, such as lack of subrogation rights, which may themselves be material
in so far as they enhance the risk by limiting the possibility of recovery from third
parties by insurers.61
Over-valuation
5.21 Does the assured have to disclose a significant discrepancy in the value of the
cargo by reason of over-valuation? A gross over-valuation can found the basis of a plea
of nondisclosure under either a valued or unvalued policy. It will, however, be more
easily established in a valued policy because the insurer is bound by the valuation,
whilst in the case of an unvalued policy he will, in any event, only pay a lower
indemnity value, based on the real value.62 The usual practice with cargo insurance is to
issue valued policies, which are typically based on the c.i.f. price of the goods plus
10%. Valuations will be treated as grossly excessive if they include something of a
purely speculative nature, which should not properly be regarded as coming within the
ambit of an insurance against risk of loss of or damage to cargo. The test is whether, on
this ground or generally, any reasonable person would have regarded the valuation as
excessive.63 Under a valued policy the valuation is conclusive in the absence of fraud,64
but excessive over-valuation will avoid the policy itself and thus overturn the valuation.
5.22 In practice the courts will not lightly assume that an over-valuation of a cargo is
material by reason of being grossly excessive. In Berger v. Pollock,65 a consignment of
machinery with a rather chequered history was insured for an indemnity limit of
£20,000 under a policy that was un-valued. It was held that, though the machinery only
turned out to be worth £5,000, the discrepancy, which was entirely bona fide, was not
material. In Liberian Insurance Agency Inc v. Mosse,66 it was alleged that the cargo
was an end of stock or job lot purchase and was bought at “a cheap price”. Donaldson
J. said67 that, “price of itself is not material,” adding, “it is what it may indicate as to
the quality of the goods that matters”.
5.23 In a recent war risks hull case68 the vessel North Star was covered with an insured
value of US$4m. The agreed market value was US$1.35m. The judge found that there
were good management reasons for insuring the vessel for US$3m but the extra million
was, in his view, material. This was doubted on appeal where Waller L.J. said that, “the
underwriter may prefer to take the extra premium rather than investigate whether good
management reasons establish US$4m as opposed to some lesser figure”.69 Similarly, in
cargo cases there may be reasons why insurers are content to accept a higher valuation
and a higher premium.
5.24 Nevertheless a truly excessive over-valuation may give rise to a suggestion of foul
play and moral hazard which is clearly material to the risk.70 The essential question in
such cases is whether the discrepancy between the insured value and the actual
insurable value is of such a nature to change the character of the risk from a business
risk to a speculative risk.71
High value brand-named goods
5.25 Does the assured have to disclose that the goods insured are high value brand-
name goods or is it sufficient generally to disclose the nature of the business, e.g., sales
of jewellery? In WISE (Underwriting Agency) Limited v. Grupo Nacionale Grupo
Nacional Provincial SA,72 there was a cargo reinsurance of a South American insurance
company. Perfumeria Ultra SA de C V, covering “all real and personal property of any
kind and description, for transit from Miami Florida to Cancun in Mexico”. The contract
covered perfumes and cosmetics, gifts, jewellery and “clocks”. When a loss occurred it
turned out that the “clocks” largely consisted of Rolex watches. It was held that this was
material to the risk, Simon J. saying:73
“In my view Mr Gooding [reinsurers underwriting expert] was right in saying that high value watches are regarded as
attractive targets for thieves and that Rolex watches are particularly attractive targets in view of the cachet that the
brand name carries. They are portable, high value and relatively easily disposable goods. The failure to disclose the
fact that such goods were being shipped deprived the prudent underwriter of information as to the true nature of the
risk and the opportunity to consider whether to cover the risk and, if so, on what terms.”
The twin requirement of inducement was also fulfilled in that case. The actual
underwriter, though not a particularly convincing witness, gave evidence that had he
known that the risk he was being asked to cover included the carriage of watches, and in
particular Rolex watches, he would not have written the risk. It followed that the non-
disclosure induced the contract.74
The history of the cargo: second-hand or used goods
5.26 Does the assured have to disclose the history of the goods? In Liberian Insurance
Agency Inc. v. Mosse,75 where the cargo was described as “enamelware (cups and
plates) in wooden cases”, it was held that the insurers were entitled to be told that the
goods were end of stock as there may have been a proportion of seconds or rejects. In
the circumstances there could have been “difficulty in deciding whether the damage was
original or caused in transit”.76
5.27 The general principle is that any special characteristic of the cargo is material if it
will make it more difficult to assess the extent of the loss. Such disclosure may prompt
the underwriter to restrict the offer of cover to insurance of named perils such as under
the Institute Cargo Clauses (C),77 confining the risk, in general terms, to major losses. If
the cargo is of doubtful quality the insurers may even wish to arrange a pre-risk survey.
On the other hand a chequered history, which of itself has no particular bearing on the
risk to underwriters, would not normally be disclosable.78
5.28 Is packing and preparation of the cargo disclosable? Whether packing is
disclosable may be more a matter of representation than disclosure as it is likely to turn
on the description of the goods and their packing in the insurance contract. If cargo
described as being “in wooden cases” is partly packed into cartons, these being more
susceptible to water damage, that amounts to a material non-disclosure.79 By contrast, in
Wilson Holgate & Co Ltd v. Lancashire & Cheshire Insurance Corp. Ltd80 it was held
that the underwriters were not entitled to know whether the barrels used to carry palm
oil were new or secondhand unless a specific enquiry had been made. Bailhache J.
reached this conclusion on the basis of evidence that, “it [was] not the practice to tell
underwriters what sort of casks the oil [was] contained in”.81 A difference in the
packing, so that the packing is not customary for the trade, is likely to be material if it
enhances the risk of loss of or damage to the cargo.
5.29 The sufficiency of packing and preparation of the cargo is the subject of a specific
exclusion under Clause 4.3 of the revised Institute Cargo Clauses.82 This exclusion only
applies, firstly, where the assured packed the goods, at any time, or, secondly, where the
goods are not properly prepared or packed by third-party packers prior to the
attachment of the risk. Insurers have taken upon themselves the risk of poor packing
during the currency of the risk, just as they have always accepted that poor stowage,
accompanied by bad weather, leads to a recoverable loss. However, it is submitted that
where an assured knowingly uses poor or inadequate third party packers exposing the
cargo to enhanced risk that would be material and, if not disclosed before the contract is
concluded, would normally entitle insurers to avoid. The difficulty in practice may be
the timing of the nondisclosure for under an obligatory open cover, made directly
between insurers and assured, there would not normally be an obligation to disclose in
relation to individual shipments.83 However, if there is non-disclosure of an intention to
use inadequate packing where the risk is placed on a facultative or one-off basis, the
insurers may be entitled to avoid, and, on the same basis, non-disclosure of an intention
to use inadequate packing would give insurers the right to avoid if it occurred during the
initial negotiation of, or the renewal of, an obligatory open cover.
Previous refusals
5.30 If the assured has been refused insurance by one insurer must he disclose that to
any other insurers he approaches for cover? In Glasgow Insurance Corp. Ltd v.
William Symondson and Co84 it was said by Scrutton J.85 that it was “elementary
marine insurance law that such refusals need not be disclosed”. It should be borne in
mind, however, that the underlying reason behind the refusal could be disclosable even
if the refusal, of itself, is not disclosable.
5.31 The position in certain classes of non-marine insurance including life assurance,
burglary insurance and fire insurance appears to be different and throws some light on
the basis of the rule. Insurers of such classes of business nearly always ask in their
proposal forms whether any other insurer has refused the risk.86 This sends a clear
message to the assured that the previous refusal is material and the assured is then under
an obligation to disclose any fact of that character.87 The basis for materiality may lie in
the underlying reason for the refusal, for example, the condition and position of the
premises.88 In marine insurance practice, another underwriter might refuse for reasons
unconnected with the risk (e.g., the size of the risk, whether it be too large or too small,
or its incompatibility with his own book of business). Accordingly, in London market
marine business a previous refusal is not, of itself, material. In non-marine classes of
business of life, fire and burglary insurance, a previous refusal suggests that the
underwriting risk may need to be examined with particular care and is therefore
material. The extent of the marine rule, though espoused by Scrutton L.J. as an
elementary principle89 must ultimately depend on the practice of the particular market,
as the ultimate test of materiality is still to be assessed in the light of the evidence from
the prudent underwriter in that market or class of insurance in question.
Subrogation rights
5.32 A cargo insurer anticipates the possibility, should there be a loss, of exercising
subrogation rights against any carrier or other bailee legally responsible for the loss.90
It follows that any unusual agreement reached by the assured with his carriers,
exempting them from liability, or limiting their liability, must be disclosed.91 The
arrangements must be unusual, so that where a lighterage contract for the carriage of
cargo was obtained at a reduced freight rate, in consideration of a clause which
exempted the lighterman from his usual liability as a common carrier, it was held that
this was disclosable.92 Evidence was given that insurance was charged on the cargo at a
higher premium where the lighterman was only responsible for negligence and did not
undertake his normal wider responsibility as a common carrier.
5.33 This rule must be balanced today by the stress now laid upon the insurers
knowledge of the trade which he insures.93 Where insurance is arranged on terms that
incorporate the Institute Cargo Clauses, there is express acknowledgment in Clause 14
that increased value insurance may be taken out on the cargo.94 It was held in Boag v.
Standard Marine Insurance Co Ltd95 that only primary insurers, and not increased
value insurers, were allowed to share in a recovery. This decision was reached on the
basis that the existence of the increased value policy should not prejudice the rights of
subrogation of the primary underwriters. The Court of Appeal was not prepared to
imply a term of the primary contract that increased value insurance might be taken out by
the assured or his buyer. This case was not well regarded by the London insurance
market96 and its effect is reversed by Clause 14 of the Institute Cargo Clauses. In the
result, a primary insurer expressly acknowledges in Clause 14 the right of the increased
value insurer to share in any recovery, so disclosure of the existence of increased value
insurance is not required.
5.34 Finally it should be noted that it is common practice both in the London market, and
in foreign markets, to waive subrogation rights against carriers or bailees associated
with the assured, as where a group of companies including carriers are insured under
one contract of insurance. In such cases the practice is for the “Assured”, as described
in the open cover, to be widely defined to include “associated and/or affiliated
companies” against whom it would not be open to underwriters to exercise subrogation
rights.97
Moral hazard
5.35 The question of moral hazard falls into a slightly different category from the other
examples of non-disclosure considered above. This is because moral hazard may lurk
behind the other matters considered, in particular the description of the cargo or its
characteristics. Most commonly, the problem arises in the case of a grossly excessive
over-valuation. In Ionides & Another v. Pender98 Blackburn J., delivering the judgment
of the court said:99
“It is to be observed that the excessive valuation not only may lead to suspicion of foul play, but that it has a direct
tendency to make the assured less careful in selecting the ship and captain, and to diminish the efforts which in case of
disaster he ought to make to diminish the loss as far as possible, and cannot therefore properly be called altogether
extraneous to the risks; but we would scarcely base our judgment on so special a ground.”
The Court of Appeal went on to hold that the excessive over-valuation was material
because it would have an effect on the mind of a rational underwriter. Considerations
such as those set out in the passage cited above, though not, of themselves, the basis of
the judgment undoubtedly lie behind what would “affect” a rational underwriters
view.100 In cargo practice, for example, a grossly excessive over-valuation101 might
make the assured less careful when arranging packing of the cargo or could lead him to
employ carriers at cut rates in circumstances where their financial viability may be
doubtful.
5.36 It has been held in hull insurance cases that the assureds previous convictions
should be disclosed.102 The issue arises less frequently in cargo cases, perhaps because
the assured generally has less control over the cargo once the transit has commenced
and is therefore less likely to be in a position to bring about its loss. In North Star
Shipping Ltd v. Sphere Drake Insurance plc103 the insurers underwriting expert, under
cross-examination, was pressed to concede that the moral hazard risk under a war risk
policy, compared to a hull policy, was much lower. While accepting it was lower the
underwriter said:
“I can only reiterate … that any moral hazard is moral hazard and, as such, a consideration for any prudent
underwriter, whether it be under a Hull policy, War policy, as I said earlier, Cargo policy or any other policy.”
The Court of Appeal accepted that moral hazard applied as much to war risks as to
hull risks and the same no doubt applies as a matter of law to cargo risks even though
the opportunity for the assured to engineer a loss of the cargo may be less frequent,
though by no means unknown.104
5.37 Where the assured has been convicted of dishonesty that is normally discloseable.
But what of false allegations of dishonesty? This issue has troubled the courts in a
series of cases culminating in the North Star Shipping Ltd case.105 In this case the
insurers relied upon an allegation of dishonesty which had not been disclosed at the
time the risk was agreed. The allegation turned out to be false and, indeed, at trial the
insurers did not seek to establish it was true. The law is such that any allegation, even
one that turns out to be false, may be disclosable as it will be material to a prudent
underwriter and may induce the actual underwriter not to accept the risk, or to rate it
more highly. The unsatisfactory state of the law in relation to false allegations led the
Court of Appeal to express concerns and to welcome the Law Commissions Review
into this area of the law.106
Circumstances that need not be disclosed
Circumstances that diminish the risk
5.38 The Marine Insurance Act 1906 section 18(3) provides that, in the absence of
enquiry, certain circumstances need not be disclosed. The particular circumstances
identified by the Act start with those that diminish the risk.107 This is a reflection of the
rule that, to be material, a fact must enhance the risk. The sub-section also applies to any
circumstance which it is superfluous to disclose by reason of an express or implied
warranty, a rule of some significance in cargo insurance which we shall consider
shortly.108 However, of particular importance are the two other examples referred to:
firstly, circumstances known to the insurer109 and secondly, circumstances as to which
information is waived by the insurer.110 The approach adopted in the 1906 Act is largely
derived from the second passage in the judgment of Lord Mansfield in Carter v.
Boehm,111 cited above in the introductory section to this chapter.112 That passage
emphasises that every insurer should be acquainted with the practices of the trade he
insures. This principle has taken on an increasing importance as the courts have been
more reluctant to allow insurers to exercise the draconian remedy of avoidance.
Circumstances known or presumed to be known to the insurer
5.39 The Marine Insurance Act 1906 section 18(3)(b) states that, in the absence of
enquiry, there need not be disclosed:
“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.”
In Glencore International A.G. v. Alpina Insurance Company Limited113 this sub-
section was explored in the context of a very widely-drawn open cover granted by
insurers to Glencore International A.G. (“Glencore”). Glencore was, as was known to
the insurers, one of the largest independent traders in crude oil products with interests
all over the world. As successful traders they took advantage of market opportunities
and were innovative in the way they did business. Glencore, in common with other oil
companies, entered into an agreement with MTI, part of the Metro Group, under which
Glencore delivered oil products to MTI who operated a refinery and oil storage
facilities in Fujairah. In some cases Glencore also sold oil to MTI for use in a bunker
supply business which was run by MTI in Fujairah. When the Metro Group collapsed in
February 1998, Glencore and the other depositors (Glencore was by far the largest)
discovered that the quantity of oil held in the storage facility at Fujairah was far smaller
than it ought to have been. Glencore contended that MTI and the other Metro Group
companies had together misappropriated oil with a total value in excess of US$250m.
Glencore claimed this from their insurers, Alpina, under their cargo open cover.
5.40 Alpina raised a series of defences as to disclosure, in particular that there were a
number of features in the relationship between Glencore and MTI which, taken
individually or together, enhanced the risk of loss and were so unusual that they ought to
have been disclosed; these features included:
(a) the high volume of oil traded between the parties;
(b) the fact that the oil was to be sold to MTI as end-user for its business of blending
and selling fuel oil;
(c) the absence of independent inspectors to monitor discharge of cargoes carried into
the facility;
(d) the failure of Glencore to instruct independent inspectors to measure the quantity of
oil held in storage; and
(e) the fact that MTI, rather than Glencore, chose the vessels that made up the floating
storage facility.
5.41 Moore-Bick J. examined the law on the issue, starting with Lord Mansfields
famous dictum in Carter v. Boehm114 that, “every underwriter is presumed to be
acquainted with the practices of the trade he insures; if he does not know he ought to
inform himself”. The crucial difference between the parties, in relation to open covers,
was whether the assured, under a widely drawn open cover, was under a duty to
disclose any specific plans he might have to conduct his business in one or more
hazardous ways, or, alternatively, whether the assured need not disclose the fact that he
had such plans provided that what he intends does not fall outside the range of
possibilities that the insurer ought to have in mind.
5.42 A number of authorities were reviewed including Harrower v. Hutchinson,115
where a cargo of bone and bone-ash was insured for a voyage from a port or ports in the
province of Buenos Aires to the United Kingdom. It was not disclosed that the vessel
was to load cargo at a port along the coast known as Laguna de los Padres, which was
unsafe at certain times. In a claim for loss of part of the cargo, which occurred on the
way back from Laguna de los Padres to Buenos Aires, it was held that the underwriters,
who would have charged a higher premium if they had known the vessel was to call at
Laguna de los Padres, were entitled to avoid the policy. The risk of calling at that port
was outside the range of possibilities that a prudent underwriter could be expected to
have in mind. Moore-Bick J. concluded from this, and other authorities,116 that:117
“… when an insurer is asked to write an open cover in favour of a commodity trader, he must be taken to be aware of
the whole range of circumstances that might arise in the course of carrying on a business of that kind. In the context of
worldwide trading the range of circumstances likely to be encountered is inevitably very wide. That does not mean that
the insured is under no duty of disclosure, of course, but it does mean that the range of circumstances that the prudent
underwriter can be presumed to have in mind is very broad and that the insureds duty of disclosure, which extends only
to matters which are unusual in the sense that they fall outside the contemplation of the reasonable underwriter familiar
with the business of oil trading, is correspondingly limited. It also means that the insured is not bound to disclose
matters which tend to increase the risk unless they are unusual in the sense just described.”
This finding was made in the context of the judges earlier decision that:118
“A successful commodity trader must take advantage of market opportunities as and when they arise; he must also be
prepared to be innovative in the ways he does business. An insurer who is asked by a commodity trader to provide an
open cover on goods must in my view be taken to know that.”
These findings were based on the evidence of experienced underwriters and the
Judge appears to have largely accepted the evidence of the assureds expert that these
matters would not have been material to a cargo underwriter, familiar with the business
of oil traders, where innovative systems and practices are to be anticipated.
5.43 It is convenient here to touch upon the issue of due diligence (e.g., does the assured
need to disclose that he has not arranged an inspection or survey that would be
commonly carried out as a matter of usual practice in the trade in question?). In this
connection, the suggestion was that Glencore failed to instruct independent inspectors to
measure the quantity of oil held in storage. It was accepted that, with hindsight, the
appointment of inspectors would probably have prevented the diversion of cargoes.
Moreover, it was common ground that it was standard practice for underwriters to insist
on a discharge survey, at least where insurance was provided on “guaranteed outturn”
terms.119 The judge was not persuaded that the lack of inspectors would have presented
itself to the mind of a prudent underwriter as material at the time the risk was placed.120
It may be added that, if such a matter was material to an underwriter, it would more
properly be a matter dealt with by an express warranty. The Institute Cargo Clauses121
do not impose a due diligence requirement on the assured.122 The requirement for
disclosure should not, it is submitted, be used to impose a due diligence obligation by
indirect means.
Circumstances as to which information is waived
5.44 The Marine Insurance Act 1906 section 18(3)(c) provides that:
“In the absence of inquiry the following circumstances need not be disclosed, namely: Any circumstance as to which
information is waived by the insurer.”
The doctrine of waiver derives, like much of the rest of section 18, from the judgment
of Lord Mansfield in Carter v. Boehm123 and the passage referred to earlier in this
chapter. That passage indicates that the insurer, being told of matters that suggest that the
assured has “some ground for his apprehension”, and being told nothing more, cannot
agree the risk without asking questions and then later seek to avoid the insurance.
5.45 Although cases of express waiver do occur, where the underwriter asks for limited
information,124 or tells the broker he needs no further information regarding the risk, or
a particular aspect of the risk, these instances are less likely to give rise to disputes.
The issue which is commonly encountered in practice occurs where the underwriter
fails to ask follow-up questions when he should be alerted to do so on the information
presented. When that underwriter later seeks to avoid he is met with a waiver argument.
There is a difference of opinion as to whether waiver negatives the insurers right to rely
on nondisclosure of a fact that was material, or whether, as the 1906 Act states, a
circumstance need not be disclosed by reason of a waiver, because that waiver
neutralises the original materiality.125
On any basis the word “waiver” is used in a somewhat special sense126 and has come
to be invoked in cases where it can be said that, if an insurer does not ask an obvious
question, he will have waived disclosure of any material fact that would have been
revealed by the answer.127
5.46 There is occasionally a temptation for brokers to orally present information in such
a way as to gloss over material matters whilst, at the same time, making disclosure of
those issues buried in the written “information” presented to insurers. This written
“information” may be designed to preclude a less than alert underwriter from
complaining if losses occur and the risk turns sour. The courts have to draw a fine line
between insurers and assured in such cases and this may give rise to a difference of
opinion between even the most experienced commercial judges. Such a case was WISE
(Underwriting Agency) Ltd v Groupo Nacional Provincial SA128 where the issue arose,
not from undue subtlety in the slip, but from a translators error. The assured was a
retailer of luxury goods in Cancun, Mexico, and arranged for goods to be shipped there
from Miami. These goods were insured under a policy with a local insurer who
reinsured in London. The London Slip, which was largely underwritten on the basis of a
12-year clean loss record, covered “all real and personal property of any kind and
description”, and later included the following information:
– clocks: US$ 1,000,000 US$ 200,000
– clocks less expensive piece: US$ 40. Most expensive piece US$ 18,000 and average cost US$ 1,500.
The insurance cover was granted on an all risks basis and a loss occurred when a
container was stolen from outside the assureds warehouse. The total value of the loss
was US$817,797 of which US$700,390 was the value of Rolex watches. The reinsuring
underwriter gave evidence that he never insured watches, and it was conceded in the
Court of Appeal that the intention to ship high value brand named watches was
material.129 However, it was argued that the references to “clocks” should have alerted
any reasonably prudent and careful underwriter to ask questions for, if that underwriter
never insured watches, he would surely be concerned to know if “clocks” included
watches.130 In particular, stress was laid by the re-assured on the high values and the
fact that clocks of such value would not be sold in a duty-free shop in Cancun. It was
therefore said that a reasonably careful prudent reinsuring underwriter could have been
concerned that the word “clocks” could include watches and that, not having asked any
obvious questions, that information had been waived. It was held in the Court of
Appeal, by a majority, that there was no reason for the underwriter to have his
suspicions aroused by the reference to “clocks”. The Court of Appeal endorsed the rule
as stated by Parker L.J. in CTI v Oceanus131 in the following terms:
“If the assured seeks to rely on a waiver he must in my view show a clear case. What he seeks to show is that the
insurer dispensed with information which would influence the judgment of a prudent underwriter albeit he, the insurer,
was unaware of the existence of such information … in order to establish waiver by implication from non-enquiry the
insurer must be put on enquiry by the disclosure of facts which would raise in the mind of a reasonable insurer at least
a suspicion that there were other circumstances which would or might vitiate the presentation made to him …”
It may be added that, in this test, the “reasonable insurer” means a reasonably careful
insurer.132 The majority view was that the London underwriters were entitled to accept
at face value the slip presented by the brokers which described the goods as “clocks”.
5.47 In a powerful dissenting judgment in WISE v Groupo Nacional,133 Rix L.J. took a
different approach to the law134 Starting with Lord Mansfields judgment in Carter v.
Boehm,135 which puts the emphasis on the mutuality of the duty of good faith, he treated
waiver, not as a separate issue to be considered after materiality had been established,
but as part of the enquiry into materiality itself. Rix L.J. said that, “where the section
18(3)(c) doctrine of waiver applies, there is no need for disclosure and it is impossible
to talk of nondisclosure or even of materiality”.136 The Act refers to “circumstances that
need not be disclosed”, not circumstances that need to be disclosed but later become
irrelevant by reason of waiver. Waiver is just part of the other side of the section 18
coin.137 In a telling passage Rix L.J. concluded:138
“In my judgment, the issue of fairness cannot be resolved without considering the matter in the round. Where a
proposer for insurance makes an error in the translation of his presentation, but the error, against the background of the
trade, begs a simple question (and I would say an obvious one), and does so in circumstances where the insurer knows
(but the proposer does not) that he would never be prepared to insure the goods in question (here, watches) but keeps
that information to himself, I think it is unfair of the insurer to say that he has been dealt with unfairly and is entitled to
treat his contract as something he can avoid.”
This view of the law is, firstly, consistent with the wording of the 1906 Act;
secondly, in line with the spirit of Lord Mansfields judgment in Carter v. Boehm,139
and, thirdly, and most importantly, in accordance with the spirit of the modern approach
to non-disclosure where the emphasis is now upon the mutuality of the duty of good
faith. In his dissenting judgment Rix L.J. summarised the rule as follows:140
“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
assureds 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 nor 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.”
This passage, with a stress on the mutuality of the duty of good faith, acknowledges
that non-disclosure of the unusual or special is not to be excused, but does not suggest
that waiver will only apply in exceptional cases or that it will be necessary to show “a
clear case”.141
5.48 In so far as the judgment of Rix L.J. may indicate the way in which the law will
develop, a cargo underwriter should be alert to any untoward matters suggested by the
slip, or the oral presentation made to him, and if he fails to enquire he will find himself
bound by the duty of good faith not to avoid the contract. As to what amounts to
“untoward matters” one must anticipate that the courts will expect an increasingly high
standard of expertise, consistent with the views of Moore-Bick J. in Glencore v.
Alpina.142 It would be unwise, in todays climate, for a cargo underwriter to assume that
the law is that waiver will only apply in exceptional cases where he should have been
alerted to an obvious problem, at least to the extent that what is “obvious” will be
judged by the highest standards of expertise and professionalism.
Circumstances which it is superfluous to disclose by reason of any express or implied
warranty
5.49 The Marine Insurance Act 1906 section 18(3)(d) provides that:
“In the absence of inquiry the following circumstances need not be disclosed:
Any circumstances which it is superfluous to disclose by reason of any express or implied warranty.”
Warranties may be of two types, express or implied. So far as express warranties are
concerned, cargo insurers make use of such warranties from time to time in respect of
specialist risks. A common example is towage risks where it is the worldwide practice
to impose a warranty requiring inspection of “tug, tow, stowage and towage
arrangements”.143 An express warranty of this nature imposes specific requirements on
some particular aspect of the risk. For example, under a towage warranty, insurers
require an appointed surveyor of their choice to inspect the towage arrangements and
certify that these are in order. Once the warranty has been complied with, the insurers,
who have imposed their own standard, cannot be heard to say that some aspect of the
towage covered by the towage survey, carried out by their nominated surveyor, has not
been disclosed to them. The position is analogous to waiver to the extent that insurers,
having imposed the warranty, waive in that sense their right to disclosure. A breach of
warranty discharges the insurer from the date of the breach and will thus bar any claim
but will not avoid the policy itself144 In practice the rule is occasionally important in
circumstances where a warranty surveyor misses some material aspect of the risk,
covered by his warranty survey and that results in loss of or damage to the cargo.
Insurers can neither rely on non-disclosure nor on any breach of warranty and the claim
is, in principle, payable.145
5.50 The rule, that a warranty renders disclosure superfluous, also applies to the
implied warranties under the Marine Insurance Act 1906.146 The implied warranty of
legality sometimes features in cargo cases and any material aspects of the legality of the
adventure, falling within the terms of that warranty, would therefore be a matter of
breach of warranty rather than non-disclosure or misrepresentation.
5.51 The position regarding unseaworthiness calls for special consideration. The
Marine Insurance Act 1906 imposes two implied warranties in respect of voyage
policies, firstly, a warranty that the ship shall be seaworthy147 and, secondly, a warranty
that the ship is reasonably fit to carry the goods to the destination contemplated in the
policy.148 These warranties are themselves waived unconditionally by Clause 5.3 of the
revised Institute Cargo Clauses which, by Clauses 5.1.1 and 5.1.2 respectively, exclude
losses where, in general, the assured has knowledge of the unseaworthiness of the
vessel or unfitness of the vehicle or container.149 The waiver, by removing the
warranties, opens the way for a duty of disclosure as unseaworthiness would normally
be material to the risk. However, the assured is only required to disclose what is known
or ought to be known.150 The duty of disclosure is circumscribed by the extent of the
cover for it cannot be material, so as to enhance a risk, to disclose matters that fall
outside the policy cover.151 In general, losses arising from unseaworthiness which is
outside the assureds knowledge will be a covered risk and insurers will settle the claim
and seek recovery from the carriers.152
MISREPRESENTATION BY THE ASSURED
Materiality of representations
5.52 The Marine Insurance Act 1906 section 20 states the general rule with regard to
representations in the following terms:
“(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.”
The central issues of materiality and inducement are common to both non-disclosure
and misrepresentation, with inducement being a concept derived from the general law of
misrepresentation.153 The review of misrepresentation which follows therefore
concentrates on the special rules relating to misrepresentation. In practice, issues of
misrepresentation more often turn on a factual dispute as to what was said, and the
meaning of what was written, rather than issues of materiality that tend to dominate
issues of disclosure. A shorter treatment of misrepresentation is therefore appropriate.
5.53 The primary remedy for misrepresentation is avoidance of the contract, as set out
above in the 1906 Act. However, damages may in theory be awarded by the court under
the Misrepresentation Act 1967 section 2(2). This section of the 1967 Act permits the
court in certain cases to award damages but it is unlikely to do so in marine insurance
cases where the proper remedy is considered by the courts to be avoidance.154
5.54 As with disclosure, the question “whether a particular representation be material
or not is, in each case, a question of fact”.155 Unlike non-disclosure “a representation
may be withdrawn or corrected before the contract is concluded”,156 though in marine
cargo insurance instances of this are rarely encountered.
Representations of fact and belief distinguished
“(3) A representation may be either a representation as to a matter of fact, or as to a
matter of expectation or belief.
(4) A representation as to a matter of fact is true, if it be substantially correct, that is to
say, if the difference between what is represented and what is actually correct
would not be considered material by a prudent insurer.
(5) A representation as to a matter of expectation or belief is true if it be made in good
faith.”
The distinction between a representation of fact and belief is not always easy to
determine, though an unequivocal statement is more likely to be treated as a statement of
fact.157 If the statement is one of fact, the test of materiality of any inaccuracy is, as to be
expected, judged by the prudent insurer standard. This avoids insurers seeking to rely on
trivial inaccuracies. In any event, mere administrative inaccuracies may be covered by
an Errors & Omissions Clause, though the extent to which such a clause can protect the
assured from material nondisclosure and misrepresentation is very limited.158 Where the
alleged misrepresentation consists of an expression of opinion or belief, it does not
matter whether it is true or not, as it is deemed to be true unless made in bad faith. In
Economides v. Commercial Union Assurance Co plc Peter Gibson L.J. said:159
“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 [assured] is not alleged, I can see no basis for the implication of a representation of reasonable grounds
for belief.”
In The Game Boy160 a hull insurance case, it was common ground that the value of
the vessel was a matter of opinion and that, in those circumstances, it could only amount
to a misrepresentation if it was made in bad faith. The judge concluded that the
valuation, being supported by false documents, and other like evidence, was not in good
faith and was material. A similar approach is likely in cargo cases, not only to the issue
of valuation but to any matter of opinion or belief that is material to the risk. The
approach of the court to whether a representation is one of fact, or of opinion and belief,
is further illustrated, in the context of fine art insurance, by Kamidian v. Holt and
Others.161 In this case an insurance was arranged on a jewelled egg clock believed by
the assured to be the “Doctor Metzger Egg Clock” a creation of Faberge given in 1982
by the Dowager Empress Maria Feodorovna to Doctor Metzger. The assured was
convinced that the egg clock was the authentic original and, though he bought it at
Sothebys in Geneva for far less than the original would have been worth, he attributed
that to Sothebys mistake and insured it for US$2.5m. The clock was damaged in transit
and insurers, who thought they were insuring an authentic Faberge Egg Clock, avoided
the insurance for misrepresentation. Tomlinson J. considered whether the implied
representation that the egg clock was a Faberge original was a representation of fact that
it had been made by Faberge, or of honest belief, in which context, distinguishing
Economides,162 he held that reasonable grounds for the belief were necessary in an
insurance of a work of art. Tomlinson J. concluded that the implied representation when
the risk was placed was not one of fact, that is, that the clock was actually authentic, as
that would be impossible of proof and an unlikely representation to have been made. He
decided that the representation, in the context of fine art insurance, was that there was
general acceptance in the art world that the piece was an authentic Faberge Egg Clock.
As there was no such general acceptance in the art world insurers were entitled to
avoid.163
Circumstances that may be material
5.56 It is not proposed to examine circumstances that may amount to material
misrepresentations as this will cover the same ground as that discussed earlier in this
chapter with regard to non-disclosure. The matters likely to be material, such as the
description of the cargo, its value, and its packing, are the same for misrepresentation as
for non-disclosure. Guidance will therefore be found in earlier paragraphs,164 subject
again to the caveat that materiality, and inducement in particular, will depend very much
upon the facts of each case. Before leaving misrepresentation we return, however, to the
case of Glencore International AG v. Alpina Insurance Company Limited165 to
illustrate a difference in approach to inducement that arises as between cases of non-
disclosure and misrepresentation.
The different approach to inducement
5.57 In Glencore v. Alpina166 a widely-drawn open cover included storage risks for oil
and related products. When the risk was extended to cover oil in a floating storage unit
a representation was made as follows:
“This is purely a storage risk exposure and there are no blending risks involved.”
The insurance did not cover blending risks (i.e., contamination caused by faulty
blending), but was limited to physical losses sustained during the blending process. It
turned out that blending did take place during the currency of the risk and it was held
that this misrepresentation was possibly material as the increased handling involved in
the blending process might be seen as enhancing the risk of physical loss.167 A final
decision was not necessary as it was held that, in any event, the misrepresentation did
not have any effect on the underwriters mind so there was no inducement. The actual
underwriter would have accepted the risk on the same terms even if he had been aware
of the true position. It may be said that while the rules for materiality and inducement
are legally the same, the question of inducement tends to be more critical in
misrepresentation cases as the court is concerned only, in terms of inducement, with the
effect of the false statement on the underwriters mind. Moore-Bick J. explained this in
Glencore v. Alpina saying:168
“I turn, therefore, to the question of inducement. There was a tendency … to approach the question of inducement by
considering how [the underwriter] would have responded if [told the true position]. That may be appropriate when the
issue before the court is one of non-disclosure but it is not appropriate in the case of misrepresentation because the
court is then concerned only with the effect the false statement had on the underwriters mind.”
If the false statement, as in that case, would have had no effect on the underwriters
mind there is no inducement.
Representations as to existing terms of coverage
5.58 When considering non-disclosure we examined the rule of marine that “previous
refusals” by insurers to accept the risk are not, of themselves, material and do not
therefore have to be disclosed.169 We now consider here the related question of the
terms of the existing insurance. If the assured, or his broker, presents a risk without
comment as to whether the terms form the subject-matter of a current insurance, then
consistent with the “previous refusals” rule, it is for the underwriter to decide whether
to accept the risk or whether to ask as to the current position.170 Where, however, the
assured, or his broker, represents that the terms and conditions proposed to the insurer
constitute a current insurance contract when they do not, then any material difference
from the terms currently underwritten will entitle the underwriter to avoid.171 In
Hamilton & Co v. Eagle Star & British Dominion Insurance Co Limited172
consignments of apples were insured subject to a special clause known as the
Prolongation of Voyage Clause. This clause caused difficulty with the underwriters
when a vessel, carrying the cargoes from the United States, called at Liverpool on her
way to the Port of Manchester, thus unexpectedly prolonging the voyage. The
underwriters concerned, the New Zealand Insurance Company, declined to continue
with the policy on the basis of that clause. This was not made known to the broker who
presented the policy to Eagle Star and British Dominion Insurance Co Limited on the
basis that the cargo cover, including the Prolongation of Voyage Clause, constituted the
terms of the current insurance. It was held that this misrepresentation, in the light of the
importance and difficulty which the clause had caused, was material and that, in the
circumstances, the insurers, Eagle Star, were entitled to avoid.
1. For the Law Commissions review papers go to lawcom.gov.uk/insurance-contract.htm.
2. Per Lord Mansfield in Carter v. Boehm (1766) 3 Burr 1905 at 1910.
3. Ibid. at p. 1909.
4. See para. 5.17 for a discussion of what amounts to affirmation.
5. Per Scrutton L.J. in Greenhill & Others v. Federal Insurance Company Ltd (1926) 24 Ll. L. Rep. 383 at 391.
6. See Glencore International AG v. Alpina Insurance Company Limited [2004] 1 Lloyds Rep. 111 discussed at
para. 5.39 to 5.43 below.
7. (1766) 3 Burr 1905.
8. Ibid. at pp. 1918, 1919.
9. This passage was cited with approval in Pan Atlantic Insurance Co Ltd v. Pine Top Insurance Co Ltd [1994] 2
Lloyds Rep. 427 at p. 456 by Lord Lloyd and in Manifest Shipping Co Ltd v. Uni-Polaris Insurance Co Ltd (The
Star Sea) [2001] 1 Lloyds Rep. 389 by Lord Hobhouse at para. 57. See also Drake Insurance Co plc v Provincial
Insurance plc [2004] 1 Lloyds Rep. 268 at paras. 85/89, 93, 143 and Rix L.J. in WISE (Underwriting Agency)
Limited v. Grupo Nacional Provincial SA [2004] 2 Lloyds Rep. 483 at para. 48.
10. In the cargo context see, in particular, Glencore International AG v. Alpina Insurance Company Limited
[2004] 1 Lloyds Rep. 111, discussed at para. 5.39 to para. 5.43 below.
11. WISE (Underwriting Agency) Ltd v. Grupo Nacional Provincial SA (supra) discussed at para. 5.25 below.
12. The decision on the facts has been criticised, see Rix L.J. in WISE (Underwriting Agency) Ltd v. Grupo
Nacional Provincial SA (supra) at p. 494 and Lord Mustills speech in Pan Atlantic Insurance Co Ltd v. Pine Top
Insurance Co Ltd [1994] 2 Lloyds Rep. 427 at p. 444. Nevertheless, the facts of Carterv. Boehm (1766) 3 Burr 1905
illustrate, in the cargo context, the point made in the text that the non-disclosure must bear on the exact risk undertaken
by the underwriters.
13. See General Accident Fire & Life Assurance Corp v. Tanter (The Zephyr) [1984] 1 Lloyds Rep. 58; [1985] 2
Lloyds Rep. 529 (CA).
14. ERC Frankona Reinsurance v. American National Insurance [2006] Lloyds Rep. IR 157.
15. Bonner v. Cox Dedicated Corporate Member Limited [2005] Lloyds Rep. IR 569.
16. See para. 3.9 to 3.12.
17. Berger and Light Diffusers Pty Ltd v. Pollock [1973] 2 Lloyds Rep. 442 and see the discussion in chapter 3,
para. 3.9 to para. 3.12.
18. Ionides v. The Pacific Fire & Marine Insurance Company (1871) LR 6 QB 674, Blackburn J.; affirmed
(1872) LR 7 QB 517 (CA).
19. Lord Clyde in Manifest Shipping Co. Ltd v. Uni-Polaris Insurance Co Ltd (The Star Sea) [2001] 1 Lloyds
Rep. 399 (HL) at para. 6; followed by Longmore L.J. in KS Merc-Scandia XXXXII v. Lloyds Underwriters (The
Mercandian Continent) [2001] 2 Lloyds Rep. 563 at para. 34 and by Mance L.J. in Agapitos v. Agnew (The
Aegeon) [2002] 2 Lloyds Rep. 42 at para. 13.
20. Overseas Commodities Limitedv Style [1958] 1 Lloyds Rep. 546; Liberian Insurance Agency Incv Mosse
[1977] 2 Lloyds Rep. 560.
21. This analysis is suggested by Professor D. Rhidian Thomas and proceeds on the basis that a “held covered”
clause is akin to a contractual option which, once exercised, brings a fresh contract into existence. D. Rhidian Thomas,
“Held Covered Clauses in Marine Insurance” chapter 1 in The Modern Law of Marine Insurance, Vol. 2, 2002,
Informa.
22. The “1982 Institute Cargo Clauses” refers to the ICC 1/1/82 and the “revised Institute Cargo Clauses” refers to
the ICC 1/1/2009. Clause 9, dealing with termination of the contract of carriage, is materially the same in both sets of
Clauses. Clause 10.1 in the revised Clauses, which concerns a change of voyage by the assured, is to the same effect
as Clause 10 in the 1982 Clauses, which have no Clause 10.2. These “held covered” and analogous provisions are
considered in detail in chapter 12.
23. [2001] 2 Lloyds Rep. 563 at p. 571, para. 22(2). This reflected an earlier analysis by Hirst J. in Black King
Shipping Corp. v. Massie (The Litsion Pride) [1985] 1 Lloyds Rep. 437.
24. Groupama Insurance Co. Ltd v. Overseas Partners Re Limited [2003] EWHC 34 (Comm).
26. See, for this concept of the directing mind or alter ego the discussion of the meaning of the “Assured” under the
Institute Cargo Clauses in chapter 3, para. 3.31 et seq.
27. Manifest Shipping Co. Ltd v. Uni-Polaris Insurance Co. Ltd (The Star Sea) [1997] 1 Lloyds Rep. 360 at p.
357.
28. 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, ibid. s. 19(a).
29. Unless it comes to the assureds knowledge too late to communicate it to the agent, ibid. s. 19(b).
30. Pan Atlantic Insurance Co. Ltd v. Pine To p Insurance Co. Ltd [1994] 2 Lloyds Rep. 427 (HL);
Assicurazioni Generali SpA v. Arab Insurance Group (BSC) [2003] Lloyds Rep. IR 131 (CA).
31. MIA 1906 s. 91(2) provides that the rules of the common law shall continue to apply to marine insurance save in
so far as they are inconsistent with the express provisions of the Act.
32. The concept of inducement no doubt derives from the passage in the judgment of Lord Mansfield in Carter v.
Boehm (1766) 3 Burr 1905 at 1910 cited at para. 5.2 above where he said, “ … 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”.
33. [1973] 2 Lloyds Rep. 442.
34. Per Kerr J. at p. 463. This view was disapproved by the Court of Appeal in Container Transport
International Limited v. Oceanus Mutual Underwriting Association Limited [1984] 1 Lloyds Rep. 476, but revived
in Pan Atlantic v. Pine Top (supra) where that case, CTI v. Oceanus, was overruled in part.
35. Pan Atlantic Insurance Co. Ltd v. Pine Top Insurance Co. Ltd (supra), per Lord Mustill at pp. 452–453.
36. Assicurazioni Generali SpA v. Arab Insurance Group (BSC) [2003] Lloyds Rep. IR 131. This was the view
of the majority and, it is submitted, is to be preferred.
37. [1973] 2 Lloyds Rep. 442 at 463.
38. Pine Top v. Pan Atlantic (supra) at pp. 452–453.
39. Except in cases of fraud or illegality, MIA 1906 s. 84(3)(a).
40. See, for example, the judgment of Longmore J. in KS Merc-Scandia XXXXII v. Lloyds Underwriters (The
Mercandian Continent) [2001] 2 Lloyds Rep. 563.
41. Banque Keyser Ullman SA v. Skandia (UK) Insurance Co Ltd [1990] 1 QB 665.
42. Howard Bennett, The Law of Marine Insurance, 2, 2006, OUP, makes a case for damages, at least where the
non-disclosure is negligent, at paras. paras. 4.173 to 4.181. Where there is misrepresentation that may be actionable as
a tort, damages may be recoverable by statute under the Misrepresentation Act 1967, but the appropriate remedy in
marine insurance cases remains avoidance, see para. 5.53 below.
43. Morrison v. The Universal Marine Insurance Co (1873) LR 8 Ex 197.
44. [1977] 2 Lloyds Rep. 560.
45. At p. 565.
46. See McCormick v. National Motor & Accident Insurance Union Ltd (1934) 49 Ll. L. Rep. 361 at p. 365.
47. Ibid.
48. See Allen v. Robles [1969] 2 Lloyds Rep. 61.
49. For the principles applicable to election, see the judgment of Lord Goff in Motor Oil Hellas (Corinth)
Refineries SA v. Shipping Corporation of India (The Kanchenjunga) [1990] 1 Lloyds Rep. 391 at pp. 397–399,
where election is also contrasted with equitable estoppel, which is discussed in chapter 6, para. 6.11.
50. Supra.
51. At p. 566.
52. Under s. 17 MIA 1906.
53. WISE (Underwriting Agency) Limited v. Grupo Nacional Provincial SA [2004] 2 Lloyds Rep. 483.
54. Ibid.
55. Per Rix L.J. at p. 501.
56. Per Peter Gibson L.J. at p. 510.
57. Insurance Corporation of the Channel Islands v. Royal Hotel Ltd [1998] Lloyds Rep. IR 151 at 163, per
Mance J.
58. See Liberian Insurance Agency Inc v. Mosse [1977] 2 Lloyds Rep. 560 and para. 5.17 above.
59. (1875) 3 Asp MLC 81.
60. See chapter 4, paras. 4.9 to 4.11.
61. As to non-disclosure of limitations on subrogation rights see para. 5.32 below.
62. Williams v. Atlantic Insurance Co. Ltd (1932) 42 Ll. L. Rep. 206; (1932) 43 Ll. L. Rep. 177 (CA) see Scrutton
L.J. at p. 179.
63. Berger and Light Diffusers Ltd v. Pollock [1973] 2 Lloyds Rep. 442 at p. 465, per Kerr J. summarising the
effect of the judgments in Ionides v. Pender (1874) LR 9 QB 531 and Trading Company L&J Hoffv De Rougement
(1929) 34 Com Cas 291.
64. MIA 1906 s. 27(3).
65. [1973] 2 Lloyds Rep. 442.
66. [1977] 2 Lloyds Rep. 560.
67. At p. 565.
68. North Star Shipping Limited v. Sphere Drake Insurance plc [2006] 2 Lloyds Rep. 183.
69. At para. 49.
70. As to moral hazard, see para. 5.35 below.
71. Mathie v. The Argonaut Marine Insurance Co. Ltd. (1924) 18 Ll. L. Rep. 118, per Bailhache J. On appeal,
the House of Lords approved this statement as being a principle of law “accurately and carefully enunciated” (1925)
21 Ll. L. Rep. 145, per Lord Buckmaster at p. 146.
72. At first instance, WISE Underwriting Agency Limited, Dornoch Limited (suing on its own account and on
behalf of all remaining Lloyds Underwriters subscribing to policy number MF002660K) v. Grupo Nacionale
Grupo Nacional Provincial SA [2003] EWHC 3038 (Comm), decision of Simon J. dated 1 October 2003.
73. At para. 28.
74. Judgment was reversed on other grounds (affirmation), reported at [2004] 2 Lloyds Rep. 483. The finding on
materiality was not challenged. The appeal on inducement failed, all three judges in the Court of Appeal being satisfied
that inducement had been established.
75. [1977] 2 Lloyds Rep. 560.
76. Ibid., per Donaldson J. at p. 565. Furthermore, it was conceded at trial that the failure to inform the insurers of
the fact that a large proportion of the enamelware had been touched up with over-painting was also a material non-
disclosure.
77. See chapter 9.
78. Berger and Light Diffusers Limited v. Pollock [1973] 2 Lloyds Rep. 442 at 464.
79. Liberian Insurance Agency Inc v. Mosse [1977] 2 Lloyds Rep. 560.
80. (1922) 13 Ll. L. Rep. 486.
81. Ibid. at p. 488.
82. This is discussed in chapter 8, paras. 8.1 to 8.34.
83. See chapter 3, paras. 3.9 to 3.12.
84. (1911) 16 Com Cas 109.
85. At p. 119. Contrast the position under non-marine insurance, see Glicksman v. Lancashire & General
Assurance Co [1927] AC 139.
86. Glicksman v. Lancashire & General Assurance (1925) 2 Ll. L. Rep. 179 (CA): affirmed (1926) 26 Ll. L.
Rep. 69 (HL).
87. Ibid. at p. 183, per Scrutton L.J.
88. See the judgment of Bankes L.J. op. cit. at p. 180.
89. As above in Glasgow Assurance Corporation v. Symondson (1911) 16 Com Cas 109.
90. See further chapter 16, para. 16.1 et seq.
91. Tate & Sons v. Hyslop (1885) LR 15 QBD 368.
92. Ibid.
93. Glencore International A.G. v. Alpina Insurance Company Limited [2004] 1 Lloyds Rep. 111, discussed at
para. 5.39 et seq. below.
884. This type of insurance is typically acquired where the buyer wishes to cover anticipated profits beyond the
more usual valuation of c.i.f. plus 10%. See chapter 4, para. 4.8 for a discussion of increased value insurance and the
circumstances where it is commonly taken out.
95. (1937) 57 Ll. L. Rep. 83 (CA).
96. See Templeman, Marine Insurance, 6, 1986, Pitman, by R.J. Lambeth at p. 457 and OMay at pp. 504–505.
97. National Oilwell (UK) Limited v. Davy Offshore Limited [1993] 1 Lloyds Rep. 582.
98. (1874) LR 9 QBD 531.
99. Ibid. at pp. 538, 539.
100.Arnould at para. 16–94 supports this approach saying that one aspect of moral hazard is that the assured may
take less care of the subject-matter of the insurance knowing it to be over insured.
101.See para. 5.21 et seq. above.
102.North Star Shipping Ltd v. Sphere Drake Insurance plc [2006] 2 Lloyds Rep. 183 (CA).
103.Supra.
104.Notably in the case of Shell International Petroleum Co. Ltd v. Gibbs (The Salem) [1983] 1 Lloyds Rep. 342
(HL), where the original assured, as sellers of the cargo, were also owners of the ship.
105.[2006] 2 Lloyds Rep. 183.
106.See www.lawcom.gov.uk/insurance-contract.htm where the Law Commissions Review of non-disclosure and
misrepresentation is to be found.
107.MIA 1906 s.18(3)(a).
108.MIA 1906 s.18(3)(d), see para. 5.49 et seq. below.
109.MIA 1906 s.18(3)(b), see para. 5.39 et seq. below.
110.MIA 1906 s.18(3)(c), see para. 5.44 et seq. below.
111.(1766) 3 Burr 1905.
112.At para. 5.4.
113.[2004] 1 Lloyds Rep. 111.
114.(1766) 3 Burr 1906 at p. 1911.
115.(1870) LR 5 QB 584.
116.Cheshire v. Thompson (1918) 29 Com Cas 114 (Cargo diverted by orders of Admiralty not covered as the
“underwriters will only be presumed to have in mind such matters as would be within the contemplation of one who is
familiar with the trade in question”); Property Insurance Co Ltd v. National Protector Insurance Co Ltd (1913) 108
LT 104 (liberty to navigate the Great Lakes at an additional premium so unusual that it should have been disclosed on
placing of a reinsurance) and Mann MacNeal and Steeves Limited v. Capital and Counties Insurance Co Ltd
[1921] 2 KB 300 (contract for carriage of gasoline material in relation to wooden hulled vessel).
117.[2004] 1 Lloyds Rep. 111 at para. 41.
118.Ibid. at para. 34.
120.Ibid.
121.Glencore v Alpina (supra) is a case involving the American Institute Cargo Clauses but the position is the
same under the ICC.
122.Compare, however, the Institute Metals Storage Clauses, Clause 11.
123.(1766) 3 Burr 1905, the facts of which are discussed at para. 5.4 above which sets out the passage referred to.
124.See the discussion of waiver in the context of proposal forms in Doheny v. New India Assurance Co Ltd
[2005] Lloyds Rep. IR 251.
125.WISE (Underwriting Agency) Ltd v Groupo Nacional Provincial SA [2004] 2 Lloyds Rep. 483, per Rix L.J.
at para. 45, contrast the approach of Longmore L.J. at paras. 111–113.
126.Ibid. at para. 107, per Longmore LJ.
127.Ibid. at para. 108, per Longmore LJ.
128.[2004] 2 Lloyds Rep. 483.
129.See para. 5.25 above where this case is discussed at first instance in terms of materiality.
130.The problem over “clocks” and “watches” was simply a translation error that could have easily have been
resolved with a few simple questions.
131.Container Transport International Inc. v Oceanus Mutual Underwriting Association (Bermuda) Limited
[1984] 1 Lloyds Rep. 476 (CA) at pp. 511–512.
132.MacGillivray on Insurance Law, 2008, 11, Thomson Reuters, at para. 17–083. This passage from the 10th
edition was cited with approval at para. 110, per Longmore L.J. in WISE (Underwriting Agency) Ltd v. Groupo
Nacional Provincial SA.
133.Supra.
134.Rix L.J. was of the opinion that the sale of high value “clocks” in a duty-free shop in Cancun was inherently
unlikely and called for enquiry. That view was not shared by the Judge at first instance, who had heard the evidence,
or by his fellow Lord Justices, see, in particular, the comments of Peter Gibson LJ. at para. 132 and Longmore LJ. at
para. 116.
135.(1766) 3 Burr 1905.
139.(1766) 3 Burr 1905, see, in particular, the passage cited at para. 5.4 above.
141.As suggested in the judgment of Parker L.J. in CTI v. Oceanus, espoused by the majority in WISE and
discussed at para. 5.46 above.
142.Glencore International AG v Alpina Insurance Company Limited [2004] 1 Lloyds Rep. 111, discussed at
para. 5.39 in the context of MIA 1906 s. 18(3)(b).
143.See Chapter 6, para. 6.17 where towage warranties are considered.
144.MIA 1906 s. 33(3), as discussed in Chapter 6, at para. 6.4.
145.Whether the insurers can recover from the warranty surveyor is outside the scope of this book, but see Chapter
6, para. 6.19 for a discussion of whether or not such a warranty surveyor is employed by insurers.
146.MIA 1906 ss. 38–41, discussed in Chapter 6, at paras. 6.20 to 6.23.
147.MIA 1906 s. 39(1).
148.MIA 1906 s. 40(2).
149.ICC, Clauses 5.1.1 and 5.1.2 and see Chapter 8, para. 8.63 et seq., where this exclusion is discussed in more
detail.
150.MIA 1906 s.18(1), and see para. 5.10 above.
151.See the discussion of the judgment in Carter v. Boehm (1766) 3 Burr 1905, at para. 5.4 above which illustrates
this proposition.
152.Proof of unseaworthiness may open the way to the possibility of a recovery under the Hague or Hague-Visby
Rules. See Art. III(1)(a) and Art. IV(1). See also Southampton on Shipping Law, 2008, Informa, at pp. 119–120 for
an introduction to this issue.
153.See the speech of Lord Mustill in Pan Atlantic Insurance Co Ltd v. Pine Top Insurance Co Ltd [1994] 2
Lloyds Rep. 427 (HL) on inducement at p. 447 et seq.
154.See Highlands Insurance Co v Continental Insurance Co [1987] 1 Lloyds Rep. 109 at p. 118, per Steyn J.
155.MIA 1906 s. 20(7).
156.MIA 1906 s. 20(6).
157.Merkin: Marine Insurance Legislation, 2005, LLP, at p. 31.
158.See the speech of Steyn L.J. in Pan Atlantic Insurance Co Ltd v. Pine Top Insurance Co Ltd [1993] 1
Lloyds Rep. 496 at pp. 502–503 and the comments of Lord Mustill in the same case in the House of Lords at [1994] 2
Lloyds Rep. 247 at p. 453.
159.[1998] Lloyds Rep. IR 9 (CA) at p. 21. Distinguished by Tomlinson J. in Kamidian v. Holt and Others [2008]
Lloyds Rep. IR Plus 43, as not applicable to fine art insurance.
160.Eagle Star Insurance Co Ltd v Game Video Co (GVC) SA (The Game Boy) [2004] 1 Lloyds Rep. 238.
161.[2009] Lloyds Rep. IR 242.
162.Supra.
163.Ibid. at paras. 85–94.
164.See paras. 5.19 to 5.37 for circumstances that may need to be disclosed, and see paras. 5.38 to 5.31 for
circumstances that need not be disclosed.
165.[2004] 1 Lloyds Rep. 111.
166.Glencore International A.G. v Alpina Insurance Co Ltd [2004] 1 Lloyds Rep. 111, the facts of which are set
out in more detail at para. 5.39 above.
167.Ibid. at para.179.
168.Ibid. at para.180.
169.At para. 5.30 et seq. above.
170.Hamilton & Co v Eagle Star & British Dominion Insurance Co Limited (1924) 19 Ll. L. Rep. 242.
171.Op. cit. Hamilton v. Eagle Star.
172.Supra.
CHAPTER 6
WARRANTIES, CONDITIONS AND EXCLUSIONS
WARRANTIES
The nature of warranties
6.1 A warranty, which may be expressed or implied, is defined in the Marine Insurance
Act 1906 section 33 in the following terms:
“(1) A warranty … 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.”
Warranties involve a promise by the assured that the warranty will be fulfilled. These
“promissory warranties” are to be distinguished from the traditional use of the words
“warranted” in marine insurance which introduce an exclusion or limitation on the
scope of cover. Thus the words “warranted free of capture seizure arrest restraint or
detainment” constitute an agreement that such war-related risks are excluded from the
cover and do not act as warranties within the terms set out in sections 33 to 41 of the
Marine Insurance Act 1906.1 Similarly, in the former FPA (Free of Particular Average)
Clauses the phrase “warranted free of particular average” was used to exclude claims
for partial loss in traditional language which, once again, does not constitute a warranty
but rather an exclusion or limitation on cover with different consequences.2
6.2 Cargo underwriters use express warranties to obtain promises from the assured
going to matters central to the risk. For example, in Overseas Commodities v. Style3
there was a warranty in relation to a consignment of canned pork butts imported from
France to the United Kingdom which read:
“Warranted all tins marked by manufacturers with a code for verification of date of manufacture.”
Breach of that warranty discharged the insurers from liability. For specialised risks,
such as towage risks, it is the practice to use the standard towage warranty to ensure that
proper precautions are taken at the outset of the risk and during the towage voyage.4
Warranties may be as to an existing fact such as, for example, that the vessel chartered
to carry the cargo is classed with a certain Classification Society or is of a certain age.
Occasionally, if a risk has already begun to run, the slip may be marked, “Warranted no
known or reported losses”.
6.3 There are also warranties implied by the 1906 Act, including warranties of
neutral-ity,5 good safety6 and, of more significance today, legality.7 The implied
warranties relating to the seaworthiness of the vessel8 and to the cargo-worthiness of
the vessel (i.e., that the ship is reasonably fit to carry the goods)9 are much modified by
the Institute Cargo Clauses and are therefore discussed in detail in connection with the
analysis of the Clauses.10
The effect of breach of warranty: exact compliance
6.4 The special rule in English marine insurance law is that breach of a warranty
discharges underwriters from liability from the date of the breach, even if the breach is
not causative of any loss. This somewhat criticised11 rule is enshrined in the Marine
Insurance Act 1906 section 33(3) which provides as follows:
“A warranty… 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.”
A warranty, as that term is used in marine insurance, is a condition precedent12 to the
liability of underwriters who are discharged from the date of the breach. This is to be
distinguished from the effect of misrepresentation or non-disclosure which give the
insurers the right to avoid the contract.13 In The Good Luck14 a provision in a P &I Club
cover, expressed as a “warranty”, provided that vessels should not enter the Gulf during
the Iran/Iraq war. In breach of the warranty the vessel Good Luck entered the Persian
Gulf and, while proceeding to Bandar Khomeini, was struck by a missile, badly
damaged, and ultimately was a total loss. One of the issues in a dispute between the
Club and a mortgagee bank, was whether the insurers were discharged from liability
when the vessel entered the Gulf, or whether the breach entitled the insurers to treat the
contract at an end only if they chose to do so. Lord Goff said:15
“… 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 further
liability of the insurer. This moreover reflects the fact that the rationale of warranties in insurance law is that the
insurer only accepts the risk provided that the warranty is fulfilled. This is entirely understandable; 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. In the case of conditions precedent, the word “condition” is being used in its classical sense in English law,
under which the coming into existence of (for example) an obligation, or the duty or further duty to perform an
obligation, is dependent upon the fulfilment of the specified condition. Here, where we are concerned with a
promissory warranty, i.e. a promissory condition precedent, contained in an existing contract of insurance, non-
fulfilment of the condition does not prevent the contract from coming into existence. What it does (as s. 33(3) makes
plain) is to discharge the insurer from liability as from the date of the breach. 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 premium. Even if in the result no further obligations rest on
either parties, it is not correct to speak of the contract being avoided; and it is, strictly speaking, more accurate to keep
to the carefully chosen words in s. 33(3) of the Act, rather than to speak of the contract being brought to an end,
though that may be the practical effect.”
There are two issues here, firstly, the contract itself is not avoided, as is the case with
misrepresentation or non-disclosure and, secondly, the insurers liability is automatically
discharged from the date of the breach. That discharge from liability is immediate and
takes place without any involvement or decision making by the insurers. Insurers can in
certain limited circumstances waive a breach, but that requires positive action on their
part which results in the assured acting to his detriment so that the insurers are estopped
from relying on the breach of warranty.16
6.5 The 1906 Act provides that a warranty is a condition that “must be exactly
complied with”.17 There must be “a strict and literal” performance.18 Although it has
been said that the rule is tempered “by a willingness in the courts to construe narrowly
the obligations imposed by warranties”,19 in general warranties are strictly construed
and applied in marine cargo insurance. In Overseas Commodities, Ltd v. Style20 there
was a warranty that canned goods were “marked by manufacturers with a code for
verification of date of manufacture”. The tins were all marked with such a code though
some dates were incorrect. It was argued that this marking complied with the warranty
as all the tins were, in fact, marked. Alternatively, it was said that the tins with accurate
markings complied and that the claim on those tins, at least, was payable. These
arguments were rejected by McNair J. He held that the phrase, “date of manufacture” in
its ordinary meaning meant the true date of manufacture.21 He went on to say that, as the
provision was a warranty, the effect was to discharge the insurers from all liabilities
and not merely to exclude from the policy those tins that were not properly marked.
6.6 In J. Kirkaldy & Sons Limited v. Walker22 an insurance on a dry dock included a
warranty requirement for a condition survey as to the general condition and
seaworthiness of the dock. Due to a misunderstanding, through no fault of the assured,
the survey was not carried out and the warranty not complied with. Longmore J. held
that his sympathy for the assured could not divert him from applying the correct
construction to the contract and the claim failed.23 Warranties are draconian in their
effect but will still be enforced.24
6.7 The future of warranties in marine insurance is uncertain. On the one hand the
Law Commissions have suggested that the assured should be entitled to be paid for a
claim, if, on the balance of probabilities, the event or circumstances constituting the
breach of warranty did not contribute to the loss.25 The appropriateness of these
suggestions is questionable when applied to sophisticated business insurance, including
marine insurance placed on the London market with the assistance of brokers.26 In terms
of cargo insurance it may be the case that certain specialised risks, such as towage
risks, will not be insurable at all, or at a reasonable rate of premium, unless insurers are
able to circumscribe the risk with appropriate non-causative warranties the importance
of which is understood by both parties.27
When compliance is excused: waiver
6.8 The Marine Insurance Act 1906 section 34 provides as follows: “
(1) Non-compliance with a warranty is excused when, by reason of a change of
circumstances, the warranty ceases to be applicable to the circumstances of the
contract, or when compliance with the warranty is rendered unlawful by any
subsequent law.
(2) Where a warranty is broken, the assured cannot avail himself of the defence that
the breach has been remedied, and the warranty complied with, before loss.
(3) A breach of warranty may be waived by the insurer.”
The most important of the excuses for breach of warranty is waiver, but illustrations of
the other reasons for non-compliance may be briefly touched upon.
6.9 In Agapitos v. Agnew (No. 2)28 a claim was made under a hull policy for the total
loss by fire of the vessel Aegon. The insurance cover included a warranty in the
following terms:
“Warranted London Salvage Association approval of location, fire fighting and mooring arrangements and all
recommendations complied with.”
One of the arguments put forward to excuse a breach of this warranty was that the
decision to move the vessel, during her conversion from a roll-on roll-off ferry to a
passenger ship, brought about a change of circumstances. It was said that the warranty
therefore ceased to be applicable within section 34(1) of the 1906 Act. Moore-Bick J
rejected this, holding that “the circumstances to which the warranty was directed
remained unchanged”.29 The need to check such matters as the mooring arrangements
was equally important to insurers wherever the vessel was moored. The courts will
approach a “change of circumstances” in a commercial and practical context, with the
test being such that the change must make the warranty commercially superfluous or
irrelevant.
6.10 The next rule, that where a warranty is broken the assured cannot avail himself
of the defence that the breach has been remedied,30 is illustrated by the old case of De
Hahn v. Hartley.31 In this case there was a warranty that the vessel should have 50 crew
or more. She sailed with 46 crew but shortly thereafter picked up further crew members
so that she had 52 crew on board before any loss occurred. Nevertheless, the warranty
was breached and the claim failed.
6.11 The third provision in the Act, which provides that a “breach of warranty may
be waived by the insurer”32 is the most important in practice. The decision of Lord Goff
in The Good Luck33 made it clear that waiver in this context is not a matter of election.
The position is that the insurer is discharged from liability from the date of the breach
unless he thereafter affirms the contract.34 It is now clear that a waiver by estoppel is
required. This means that there must be proof of a clear and unequivocal representation
by the insurers affirming the insurance and reliance by the assured upon that
representation.35 In J. Kirkaldy & Sons Limited v. Walker36 the insurers wrote “noted
and agreed” on a fax received from the towage warranty surveyor that suggested that the
assured may not have complied with an additional warranty requiring a condition
survey. Longmore J. held that the assured, in order to establish waiver, must rely on the
doctrine of waiver by estoppel. To achieve that estoppel they would have to show “a
representation by words or conduct that the insurers would not rely on the request for a
condition survey”.37 The endorsement “noted and agreed” on the fax could not be the
equivalent of saying, “we accept that the absence of a condition survey doesnt matter”.38
6.12 It would seem that to establish “reliance” the assured must change his position to
his detriment on the basis of the representation, for that is the essence of an estoppel. If
the risk is live, that is, the goods are still in transit, and the cargo owner assured relies
on the affirmation and does not seek cover elsewhere, or to be “held covered”, then
“reliance” may be established without undue difficulty. If the risk is run and the
difficulties with the alleged breach of warranty come to light during the investigation of
the claim, as is more commonly the case, reliance will be more difficult to establish.
However, it may be sufficient if the assured incurs expense in the belief that no point
will be taken on the breach of warranty39
Express warranties
The form of words for an express warranty
6.13 The Marine Insurance Act 1906 section 35(1) provides that an express warranty
may be in any form of words from which the intention to warrant is to be inferred. The
express warranty must be included in, or written upon, the policy, or must be contained
in some document incorporated by reference into the policy40
6.14 The usual practice in the London market is to use the word “warranted”, but a
provision will still be construed as a warranty, or a condition precedent to insurers
liability, if that is the clear intention and the contractual provision only makes sense in
that context. In J. Kirkaldy & Sons Limited v. Walker41 insurers required a Towage
Approval Survey and a Condition Survey. These two contractual requirements appeared
in the contract under the heading “Conditions” rather than the heading “Warranties”.
Nevertheless, these survey requirements were treated as warranties as they only made
sense if construed as such.42
The construction of warranties
6.15 The construction of warranties has been highlighted in a series of cases concerned
with the words “at all times”, or similar words, in warranties for small vessels, such as
trawlers or motor yachts.43 Similar warranties can arise, particularly in relation to
cargo towage risks, where the recommendations may include inspection or manning of
the tow “at all times”.
6.16 These warranties may appear harsh when a loss has occurred unconnected with
any breach of the warranty. However, the starting point is that such warranties are part
of the bargain between the parties. As Lord Mustill said in Charter Reinsurance Co Ltd
v Fagan:44
“There comes a point at which the court should remind itself that the task is to discover what the parties meant from
what they have said, and that to force upon the words a meaning which they cannot fairly bear is to substitute for the
bargain actually made one which the court believes could better have been made. This is an illegitimate role for the
court.”
The task of the courts is to find a meaning for the words at issue in the context of the
clause and the agreement as a whole set against the factual background.45 In The
Milasan46 the warranty, in relation to a motor yacht, provided “warranted professional
skippers and crew in charge at all times”. The yacht had an engineer on board and a
deckhand. This was not sufficient to comply with the warranty. As this warranty reflects
similar provisions frequently found in cargo towage recommendations47 it is worth
citing the views of Aikens J. at some length. He said:48
“I accept the submission that a practical construction must be given to the words of the warranty. I think it is clear that
the insurers were concerned to ensure that the vessel was properly looked after all the time, both winter and summer,
and wherever she was—whether cruising or in a marina for the winter months. That is the rationale for the warranty
and it must be construed against that background.”
Therefore I have concluded that a ‘skipper’ is someone who commands a vessel of
the type in question. The plural ‘skippers’ is used because the parties appreciate that
‘skippers’ may change during the policy period. The words ‘professional skipper’ refer
to a person who has some professional experience that qualifies him to be regarded as
‘skipper’. That is why the word ‘professional’ is used. This does not necessarily mean
that he has to have passed formal examinations, but overall he must pass muster as a
person qualified to be ‘skipper’. The ‘skipper’ together with the ‘crew’ has to be ‘in
charge’ of the vessel ‘at all times’. In my view the wording ‘professional skippers and
crew to be in charge’ means that the skipper and the crew together are to take care of
and manage the vessel; that is the sense in which they are to be ‘in charge’ of her. They
are also to be ‘in charge’ of the vessel together ‘all the time’. The last phrase is, in my
view, quite clear. It means that there must be a professional skipper and a crew that
looks after the vessel the whole time, as opposed to intermittently or at intervals. All
these requirements of the warranty are cumulative and must all be complied with.”
These decisions turn on the facts of each case and are not therefore authorities as to the
meaning of any particular words such as “at all times”. However, the general approach
of the English courts is to give a purposeful construction to the warranties. This will
allow some qualification of the literal meaning, such as for the crew to leave the vessel
in an emergency even where the vessel is “warranted fully crewed at all times”.49
Nevertheless, the courts ultimately require the assured to comply with the precautions
set out in the warranty as part of the bargain with insurers. This approach of strict
compliance is likely to be adopted by the English courts when dealing with cargo
towage warranties, and the recommendations commonly incorporated in such
warranties. The same principles apply to other warranties occasionally found in cargo
insurance contracts.
Examples of London market warranties
6.17 One of the most important express warranties used in practice relates to towage
risks. The towage warranty typically reads as follows:
“Tug, tow, stowage and towage arrangements surveyed by [a surveyor nominated by the underwriters and agreed with
the assured] and all recommendations complied with …”
This warranty can give rise to a number of difficulties in practice. It is widely, if not
invariably, used for cargo towage risks by London market insurers and reinsurers. It is
no doubt insurers view that the underwriting of such risks would not be viable without
the protection that insurers derive from the warranty. When a loss occurs insurers quite
properly turn first to the warranty and investigate whether there has been strict
compliance within the rules set out earlier in this chapter.50
6.18 The usual practice is for the towage warranty surveyor to issue a report prior to
the tug and tow sailing stating that he has inspected the tug, tow, towage and stowage
arrangements and that all his recommendations have been complied with.51 Difficulties
arise, however, where the recommendations, as is commonly the case, include
precautions that relate to the course of the tow, such as strict weather windows for
stages of the voyage, or daily inspections of the tow. Depending upon the construction of
the warranty, and the surveyors report and certificate, these recommendations
themselves may be part of the warranty, so that breach of the continuing
recommendations that apply during the tow will relieve insurers from liability. As we
have seen this follows from the fact that the Marine Insurance Act 1906 calls for “exact
compliance”.52
6.19 The other issue that arises is the legal position of the warranty surveyor. Is he
the agent of the insurers, by whom he is chosen or approved, or of the assured by whom
he is paid? In J. Kirkaldy & Sons Limited v. Walker53 it was argued that it was usual
and customary practice in the London market to regard a towage warranty surveyor,
nominated by insurers, as acting on behalf of and with the authority of insurers. In that
case the warranty surveyor appears to have misunderstood his instructions. He carried
out a towage survey but failed to carry out a condition survey that was also a part of the
warranty. It was argued that the warranty surveyor was acting “for” Underwriters.
Longmore J., after hearing evidence of market practice, held as follows:54
“I was not able to conclude that there was any such usual or customary practice … Of course, in one sense a
nominated surveyor, although paid by the vessels owners (as he was in this case), is looking after underwriters
interests, because the underwriters do not wish to insure a vessel which has not passed whatever type of survey it is
that the underwriters require; but it is a far cry from that to say that underwriters accept responsibility for anything and
everything done by the surveyor named in the insurance contract. [The underwriters market expert] did not suggest in
his oral evidence that underwriters would be liable if the nominated surveyor damaged the ship and he was quite clear
that, if no condition survey of the kind required by the contract was done, the terms of the insurance were not complied
with. It would be odd indeed if the surveyor were to have authority to vary the contract of insurance.”
It must be right that the surveyor cannot re-write the policy. However, where the
surveyor has carried out the essentials of the survey the insurers will be bound by it, and
the warranty will be held to be complied with, even if the surveyor has made errors in
his survey by doing it incorrectly or, indeed, negligently55
The implied warranty of legality
6.20 The Marine Insurance Act 1906 includes warranties of neutrality56 and good
safety57 which are of little importance today in practice. More relevant occasionally is
the warranty of legality contained in section 41 of the 1906 Act which provides as
follows:
“There is an implied warranty that the adventure insured is a lawful one, and that, so far as the assured can control the
matter, the adventure shall be carried out in a lawful manner.”
This section appears to be limited to illegality under English law. In Parkin v. Dick58
there was an insurance of goods to be carried from London to Brazil. A small part of the
consignment consisted of naval stores, the export of which was prohibited by English
law. It was held that as the goods were all insured under one policy the adventure was
illegal. The claim therefore failed in its entirety, but only on the basis that it was illegal
by English law59 In the more recent case of Euro Diam Ltd v. Bathurst60 diamonds sent
to Germany on consignment were insured on all risks terms. A false invoice
accompanied the consignment under-valuing the goods in order to evade or reduce
German revenue taxes. It was said obiter, as the policy was a non-marine policy, that
section 41 of the 1906 Act is a rule of construction which implies a warranty that the
adventure shall not be illegal by English law and does not extend to illegality under a
foreign law.61 It appears to be established therefore that illegality under section 41 of
the Act is limited to breaches of English law although this approach derives from a
much more insular attitude to foreign laws than is the case today.62
6.21 The issue has been raised in the Singapore High Court where a similar decision
was reached in Everbright Commercial Pte Ltd v. Axa Insurance Singapore Pte Ltd.63
In this case a shipment of logs was exported from the Soloman Islands to India and it
was alleged that this was done contrary to the Soloman Islands Customs and Excise Act
and other local regulations. The suggestion was that the price and quantity of logs was
under-declared for revenue purposes. The insurers failed to establish these allegations
but the judge, Judith Prakash J., nevertheless reviewed the legal issues and concluded
that “the weight of authority in England therefore appears to be that the implied warranty
given under s. 41 by the assured is that the adventure shall be lawful under English
law”.64 Accordingly, she held that even if the export of the logs had contravened the law
of the Soloman Islands there would still have been no breach of the warranty under
section 41 as that would have required illegality under Singapore law, the law of the
contract.65
6.22 The Japanese courts in the case of Connor v. Nippon Fire and Marine
Insurance Co66 adopted a similar approach and declined to hold that a cargo insurance
was illegal by reason of a breach of a foreign law. In this case the policy was issued in
accordance with the Institute Cargo Clauses (All Risks) 1/1/63 and was subject to
“English law and usage as to liability for and settlement of all and any claims”. The
assured, a US citizen, shipped his personal possessions from Japan to the United States
including a number of Iranian carpets. The goods were lost and when the claim was
investigated it was discovered that a number of the carpets were imported contrary to
US laws prohibiting the import of certain Iranian goods. The assured made a disclosure
statement to the US Customs Authorities which was accepted and they agreed not to take
the matter any further. The insurers relied, inter alia, on this illegality. At first instance
the Japanese court upheld this defence, it being said that the disclosure statement and
lack of measures by the US Customs Authorities did not “eliminate any illegality of the
past acts [of the assured]”. However, the Japanese Court of Appeal, whose judgment
was affirmed by the Supreme Court, took a different view. It held that if English law had
applied to the issue, which it did not67 “the transport in this case had no possibility to
infringe the laws of Japan” and there was therefore no breach of section 41 of the 1906
Act. On this, and public policy grounds, it was held that neither the adventure nor the
policy were illegal. This approach appears very much to reflect that of the English
courts.68
6.23 It should further be noted that the general rules of illegality apply to a marine
cargo insurance contract just as they apply to any other insurance contract. Public policy
may therefore prevent the enforcement of illegal contracts where the claim is tainted by
illegality, even though the illegality does not fall within the implied warranty under
section 41 of the 1906 Act.69
CONDITIONS
6.24 The word “Conditions” is used in the London market as a heading which usually
introduces the cover, typically based on the Institute Cargo Clauses. The “Conditions”
will then include more specific coverage terms tailored to the particular cover including
warranties. In J Kirkaldy & Sons Ltd v. Walker,70 the position went one step further
with the warranties appearing under the heading “Conditions” when, slightly curiously,
there was a separate heading “Warranties”. This use of the word “Conditions” as a
heading to introduce all the cover terms is to be distinguished from the subject of this
section which examines the legal effect of three particular types of conditions or terms
that appear in insurance contracts: conditions precedent, conditions and, possibly,
innominate terms.
6.25 In marine cargo insurance the usual practice is for marine insurers to impose a
warranty if they wish to protect themselves by introducing a condition precedent to their
liability. Where occasionally the expression “condition precedent” is used, the rules
would be the same as those for warranties.71 In cargo insurances and reinsurances there
are occasional instances of conditions precedent with regard to immediate notice of
claim.72 Such conditions precedent are likely to be narrowly construed by the courts,73
but if properly expressed will be effective. They can only be waived by estoppel and
not by mere election.74
6.26 The Institute Cargo Clauses contain the following provision in Clause 18:
“Avoidance of delay
It is a condition of this insurance that the Assured shall act with reasonable despatch in all circumstances within their
control.”
The effect of a breach of this provision is examined in Chapter 11.75 As discussed there,
this Clause has been approached by the South African courts as one which discharges
insurers from liability in case of breach. The goods come off risk if the assured fails to
act with reasonable despatch. In so far as the Clause delineates the risk it appears to act
as a condition precedent to insurers liability or a promissory warranty whereby the
assured promises to act with reasonable despatch. Accordingly, a failure to honour that
promise by the assured discharges the insurers from liability.
Conditions
6.27 A condition is considered here as a lesser term of the contract, breach of which
only entitles the insurers to damages in so far as they can show loss flowing from the
assureds breach of the requirement in question. The Duty of Assured Clause, Clause 16,
in the Institute Cargo Clauses is an example of a condition in this sense. Clause 16
provides that:
“Duty of Assured
16. It is the duty of the Assured and their employees and agents in respect of loss recoverable hereunder
16.1 to take such measures as may be reasonable for the purpose of averting or minimising such loss, and
16.2 to ensure that all rights against carriers, bailees or other third parties are properly preserved and
exercised and the Insurers will, in addition to any loss recoverable hereunder, reimburse the Assured
for any charges properly and reasonably incurred in pursuance of these duties.”
In Noble Resources Ltd v The Greenwood (The Vasso)76 it was alleged that the assured
cargo-owners had failed to preserve rights against the carriers. It was argued that this
barred their claim under the policy as if Clause 16 was a warranty. Hobhouse J. held in
forceful terms that Clause 16 was not a warranty under section 33 of the Act. He
described its effect as follows:77
“The duty is essentially a duty to sue and labour. 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. Where the failure of the assured is a failure to exercise or preserve some right against a third
party to which the insurer is entitled to be subrogated, the loss to the insurer will be equivalent to the value of the lost
right against the third party…. The duty is a contractual duty, breach of which gives rise to liability in damages. In
certain circumstances those damages may be equivalent to the full amount of the assureds claim. Where the
subrogated right against the third party would have provided the insurer with a full reimbursement, the damages for the
breach of the duty would, when set-off against the liability of the insurer to the assured, eliminate that liability and
provide the insurer with a defence to the claim upon the policy. More usually, though, the defence will at best be a
partial defence.”
This statement of the position, though made in the context of the Duty of the Assured
Clause, applies generally to other conditions of the contract of insurance not expressed
as warranties or conditions precedent.
Innominate terms
6.28 The general law of contract recognises a third type of term where the consequences
of any breach depend on the nature and gravity of the breach or breaches.78 It is common
for reinsurance contracts to include terms requiring the keeping of full and proper
records. These ancillary provisions have been treated as innominate terms so that the
consequences of the breach in law depend upon the seriousness of that breach and
whether reinsurers have been prejudiced, and the extent of that prejudice.79 It is
common in jewellers block policies to have similar books and records clauses
requiring the assured to keep full and accurate records of his stock so as to enable
insurers to evaluate any claim. Similar clauses, albeit not part of standard wordings,
may appear in cargo insurance open covers. If such clauses operate as innominate terms,
this would give insurers the right to reject a claim where the breach was serious and the
insurers were seriously prejudiced by that breach.80 For example, where a jeweller is
required to hold records, and he has not done so, insurers may find it difficult or
impossible to assess a claim. In turn, it may be difficult or impossible for insurers to
prove their damages flowing from such a breach as the very lack of records may make
that impossible. Simply reimbursing the insurers for the additional costs of investigation
may not suffice where the investigation is aborted by lack of records. In such
circumstances, it may be said that insurers should be entitled to reject the claim in its
entirety if there has been a serious breach of the Books and Records Clause. However,
in Friends Provident Life & Pensions Ltd v. Sirius International Insurance81 the
majority of the Court of Appeal led by Mance L.J. made it clear that such difficulties of
quantification or the like did not justify “the novel form of protection for insurers”
represented by the innominate term.82 Despite a strenuous defence of the concept by
Waller L.J.,83 it therefore appears that this remedy is no longer open to insurers as a
matter of law. However, “if insurers consider that they want or need such protection,
they can and should try to express it in their insurance contracts and see if insureds and
the broking market will accept it”.84 In practice, of course, the resort to innominate
terms generally occurs when the insurer has no remedy for breach as he cannot show
that the term is a condition precedent or, if it was a lesser term, any damages flowing
from the breach. The insurer therefore seeks to shelter behind a serious breach and
consequential prejudice. As Mance L.J.s comments imply, no assured or broker is likely
to agree to a condition that expressly provides that its effect will depend upon the
seriousness of the breach and consequent prejudice. The difficulty of objectively
measuring such seriousness and prejudice mitigates against the usefulness of such a
term.
6.29 So far as the Institute Cargo Clauses are concerned, it is suggested by Arnould 85
that the Avoidance of Delay Clause,86 formerly known as the Reasonable Despatch
Clause, may be construed as an innominate term. The decision in Friends Provident v.
Sirius 87 would seem to leave very little scope for such an approach as the Clause does
not express its effect as depending on the seriousness of the breach and the prejudicial
consequences. As indicated earlier, this book, on the basis of a line of persuasive South
African authorities, takes the view that the Avoidance of Delay Clause operates as a
condition precedent or a warranty.88
EXCLUSIONS
Exclusions defined
6.30 An exclusion presupposes an existing grant of cover which is then circumscribed
by the exclusion. A warranty, by contrast, is a limitation on the description of the cover
itself. In the Institute Cargo Clauses (A), Clauses 4, 5, 6 and 7 are headed “Exclusions”
and operate as such, albeit opening with the words “in no case shall this insurance
cover”, rather than the more usual formula “This insurance excludes …”. But it may be
said that the words “in no case” serve to emphasise the strength of the exclusion and
have at least as much force as the more common exclusionary wording.
6.31 Exclusions, unlike warranties, are bound up with the concept of causation. All
the exclusions in the Institute Cargo Clauses are described in terms of loss, damage or
expense flowing from one of the various causation triggers used in the Clauses, such as
“caused by”, “resulting from”, or “arising from”.89 Warranties by their nature, and by
the Act of 1906,90 do not require a causative trigger being descriptive of the risk and not
related to the reasons which may have caused the loss.
The burden of proof in relation to exclusions
6.32 The burden of proof is upon insurers to show the operation of an exclusion. This
will generally involve a two-part process. Firstly, the insurers will be required to
establish that the loss falls within the description of the exclusion, for example “inherent
vice”. Secondly, the insurers must show that the loss was caused by that exclusionary
factor in accordance with the various causation triggers under the Institute Cargo
Clauses as described in Chapter 7.91
Exclusions under the Institute Cargo Clauses
6.33 The Marine Insurance Act 1906 section 55 puts limitations on cover in terms of
losses not caused by perils insured against but by such matters as delay, ordinary wear
and tear, ordinary leakage and breakage and, most importantly, inherent vice.92 These
limitations on cover may be treated as descriptive of the risk, and the extent of the
cover, rather than exclusions. If that be the case two consequences follow. Firstly, the
insurers would not have the burden of establishing that the matter in question, such as
wear and tear, caused the loss. Secondly, if one of the matters in question, such as wear
and tear, operated in conjunction with a covered peril and both contributed to the loss,
then the loss is covered under the rule that where a loss results from a combination of
causes, one of which is covered, and the other not excluded, the loss is covered.93 The
issue was addressed in the Australian case, HIH Casualty & General Insurance Ltd v.
Waterwell Shipping Inc and Another.94 In this case a fishing vessel was lost due to a
combination of ordinary wear and tear which took the form of corrosion in a straining
box, and negligence, represented by failure to close the suction valves on a “dead” ship.
The negligence of masters, officers and crew was a covered peril. It was held that, in so
far as these were concurrent causes, the loss was covered as ordinary wear and tear
was a limitation on the description and extent of the cover and not an exclusion.95
Whether this approach would be adopted in England may be considered uncertain. In
any event, the position under the Institute Cargo Clauses is clearly different as the
Clauses expressly describe the matters referred to in section 55(2), being wilful
misconduct, delay, ordinary wear and tear, inherent vice and like matters as
“exclusions”.96 The result is that insurers bear the burden of proof and, in the event of
concurrent causes, the loss will be excluded,97 as is now illustrated.
6.34 In Mayban General Assurance Bhd v. Alstom Power Plants Ltd98 a large
transformer was carried on deck from Wales to Malaysia in extreme, but not unusual,
weather conditions. It was held that the proximate cause of the loss was inherent vice or
insufficiency of packing in that the transformer was unable to withstand the ordinary
incidents of the voyage. It is pointed out by Arnould99 that the modern hull cases on
causation, principally The Miss Jay Jay,100 should have led to a finding of concurrent
causes in circumstances where both heavy weather and unseaworthiness were causes of
the loss. If the Australian decision in HIH Casualty v. Waterwell101 represents English
law, then, purely on the basis that section 55 of the Marine Insurance Act limits and
describes the cover (and is not an exclusion), the loss would be covered because there
were two causes, one covered by the policy, and the other, inherent vice, not covered
and not an exclusion being merely descriptive of the extent of the cover. However, in so
far as inherent vice is expressly excluded under the Institute Cargo Clauses, an analysis
based on a finding of concurrent causes would not have made any difference to the
ultimate outcome as, in the event of concurrent causes, when one cause is excluded, the
loss is not recoverable under the policy.102
6.35 The decision in Mayban General v. Alstom Power Plants 103 is criticised by
Arnould on the ground that heavy weather under the Institute Cargo Clauses (A) would
be limited by the decision to wholly exceptional weather conditions.104 It is not in doubt
that an all risks cover must encompass what was covered by the risk of “perils of the
seas” which was not limited to circumstances of exceptional weather.105 The result on
the older authorities, in particular those on perils of the seas, is that the loss was
proximately caused by the weather conditions, a covered peril. However, for the
assured to recover now the law requires that the bad weather be identified as the cause
of the loss with inherent vice only a subsidiary cause and this, it is submitted, will
rarely be the case on the facts.
1. See The Bank of Nova Scotia v. Hellenic Mutual War Risks Association
(Bermuda) Ltd (The Good Luck) [1991] 2 Lloyds Rep. 191 at p. 201.
2. See paras. 6.30 to 6.35 below which consider exclusions.
3. [1958] 1 Lloyds Rep. 546.
4. See further para. 6.17 et seq. where towage warranties are discussed in more
detail.
5. MIA 1906 s. 36.
6. MIA 1906 s. 38.
7. MIA 1906 s. 41.
8. MIA 1906 s. 39(1).
9. MIA 1906 s. 40(2).
10. See Chapter 8, paras. 8.64 to 8.72.
11. See, for example, “Good Faith and Breach of Warranty: Are We Moving
Forwards or Backwards?”, Sir Andrew Longmore [2004] LMCLQ 158 and the report
of The Law Commission on Insurance Law (1980) Law Com No. 104: Non-Disclosure
and Breach of Warranty at para. 6.9. These concerns were reiterated more recently in
The Joint Consultation Paper of the Law Commission and the Scottish Law Commission
on Insurance Contract Law: Misrepresentation, Non-Disclosure and Breach of Warranty
by the Insured (LCCP 182/SLCDP 134), published in July 2007 (LC Consultation
Paper 2007) at paras. 2.112 and 8.22.
12. Per Lord Blackburn in Thomson v. Weems (1884) 9 App Cas 671 at p. 684 where
a warranty was treated as a condition precedent to the attachment of the risk.
13. This right of avoidance is discussed in Chapter 5, para. 5.16 et seq.
14. [1991] 2 Lloyds Rep. 191.
15. Ibid. at p. 202.
16. See paras. 6.11 and 6.12 below.
17. MIA 1906 s. 33(3).
18. Overseas Commodities, Ltd v. Style [1958] 1 Lloyds Rep. 546 at 558.
19. Merkin: Marine Insurance Legislation, 3rd edn, 2005, LLP, at p. 41.
20. [1958] 1 Lloyds Rep. 546.
21. At p. 558.
22. [1999] Lloyds Rep. IR 410.
23. At p. 423.
24. Bennett v. Axa Insurance plc [2004] 1 Lloyds Rep. 615.
25. LC Consultation Paper 2007 at para. 8.45.
26. For a detailed analysis of the LC Consultation Paper 2007 see “The Law
Commissions Proposed Reforms of the Law of ‘Warranties in Marine and Commercial
Insurance: Will the Cure be Better Than the Disease?” by Sir Richard Aikens published
in Reforming Marine Commercial Insurance Law, gen. ed., B. Soyer, 2008, Informa.
27. It may be suggested that any erosion of the freedom of the parties to reach such
agreements will merely result in the withdrawal of cover for such risks.
28. Agapitos Laikai Bank (Hellas) SA v. Agnew (No. 2) [2003] 1 Lloyds Rep. 54.
29. Ibid. at paras. 56–59.
30. MIA 1906 s. 34(2).
31. (1786) 1 TR 343.
32. MIA 1906 s. 35(3).
33. [1991] 2 Lloyds Rep. 191 at 202.
34. State Trading Corporation of India Ltd. v M. Golodetz Ltd [1989] 2 Lloyds
Rep. 277 at p. 287, per Kerr L.J. approved by Lord Goff in The Good Luck (supra) at
p. 202.
35. J. Kirkaldy & Sons Limited v Walker [1999] Lloyds Rep. IR 410 per Longmore
J. at p. 422, followed by Aitkens J. in Brownsville Holdings Ltd & Another v Adamjee
Insurance Co Ltd (The Milasan) [2000] 2 Lloyds Rep. 458 at 467.
36. [1999] Lloyds Rep. IR 410.
37. Ibid. at p. 422.
38. Ibid. at p. 423.
39. MacGillivray on Insurance Law, 2008, 11th edn, Thomson Reuters at para. 19–
045.
40. MIA 1906 s. 35(2). An express warranty does not include an implied warranty,
unless it be inconsistent therewith, MIA 1906 s. 35(3).
41. [1999] 1 Lloyds Rep. 410.
42. Ibid. at p. 421.
43. Pratt v Aigaion Insurance Co SA (The Resolute) [2009] 1 Lloyds Rep. 225 (CA)
reversing [2008] Lloyds Rep. IR 610; Sharp v. Sphere Drake Insurance (The
Moonacre) [1992] 2 Lloyds Rep. 50; GE Frankona Reinsurance Ltd v CMM Trust No.
1400 (The Newfoundland Explorer) [2006] Lloyds Rep. IR 704 and Brownsville
Holdings Ltd & Another v Adamjee Insurance Co Ltd (The Milasan) [2000] 2 Lloyds
Rep. 458.
44. [1996] 2 Lloyds Rep. 113 at 119.
45. Per HHJ Mackie Q.C. in Pratt v Aigaion Insurance Co SA (supra) at para. 23.
46. Brownsville Holdings Ltd & Another v. Adamjee Insurance Co Ltd (The
Milasan) [2002] 2 Lloyds Rep. 458.
47. See para. 6.17 et seq. below where towage warranties are discussed.
48. The Milasan (supra) at para. 24.
49. GE Frankona Reinsurance Ltd v. CMM Trust No. 1400 (The Newfoundland
Explorer) [2006] Lloyds Rep. IR 704 at para. 18.
50. See para. 6.4 et seq.
51. See, for example, J. Kirkaldy & Sons Limited v. Walker [1999] Lloyds Rep. IR
410.
52. MIA 1906 s. 33(3) and see para. 6.5 above.
53. [1999] Lloyds Rep. IR 410.
54. Ibid. at p. 421.
55. J. Kirkaldy & Sons Limited v Walker [1999] Lloyds Rep. IR 410 at 421 supports
the proposition in the text.
56. MIA 1906 s. 36(1).
57. MIA 1906 s. 38.
58. (1809) 11 East 502.
59. See the judgment of Lord Ellenborough at p. 503 as explained by Staughton J. in
Euro Diam Ltd v Bathurst [1990] 1 QB 1 at pp. 13–14.
60. [1990] 1 QB 1.
61. Ibid. at p. 13. See also the judgment of Rix J. to the same effect in Royal Boskalis
Westminster NV v. Mountain [1997] LRLR 523 at p. 590. This decision was reversed
on other grounds but Phillips L.J. in the Court of Appeal also expressed the view that
the warranty under s. 41 only refers to illegality under English law, see pp. 654–646
(the first instance and Court of Appeal judgments are both reported at [1997] LRLR
523).
62. See Lord Mansfields judgment in Planché v. Fletcher (1779) 1 Doug 251 where
he said at p. 253 that there was “no fraud in this country [as] one nation does not take
notice of the revenue laws of another”.
63. [2000] 4 SLR 226: the issue was not appealed; [2001] 2 SLR 316.
64. Ibid. at p. 252, para. 93.
66. Tokyo District Court Judgment held on 13 May 1998 reported in The
HANREIJIHOU No. 1675 at p. 129; Tokyo High Court Judgment held on 9 February
2000 reported in The HANREIJIHOU No. 1749 at p. 157.
67. The matter of illegality was not governed by MIA 1906 s. 41 as illegality was
outside the English law clause, which governed the construction of coverage issues but
not matters going as to the validity of the contract.
68. English authorities were before the Japanese courts on the basis, which was not
accepted, that English law applied.
69. This matter is examined in some detail, in the context of a non-marine policy on
goods, in Euro Diam Ltd v. Bathurst (supra).
70. [1999] Lloyds Rep. IR 410.
71. See para. 6.4 et seq. above and the discussion of MIA 1906 ss. 33–35.
72. See Chapter 13 at para. 13.1 for the standard notice provisions under the Lloyds
MAR Form and typical Lloyds Certificates. Such provisions are not normally made
conditions precedent to liability.
73. See, for example, the approach of Lord Denning in Barrett Brothers (Taxis) Ltd
v. Davies [1966] 2 Lloyds Rep. 1.
74. Kosmar Villa Holdings plc v. Trustees of Syndicate 1243 (2008) [2008] Lloyds
Rep. IR 489; Lexington Insurance Co v Multinacional de Seguros SA [2009] Lloyds
Rep. IR 1. See further para. 6.8 above in relation to waiver of warranties.
75. At para. 11.39.
76. Noble Resources Ltd and Unirise Developments Ltd v George Albert
Greenwood (The Vasso) [1993] 2 Lloyds Rep. 309.
77. Ibid. at p. 314.
78. Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1961] 2 Lloyds
Rep. 478.
79. Phoenix General Insurance Co of Greece SA v. Halvanon Insurance Co Ltd
[1985] 2 Lloyds Rep. 559 at p. 614, per Hobhouse J.
80. Alfred McAlpine plc v. BAI (Run-Off) Ltd [2000] 1 Lloyds Rep. 437 at p. 414.
See also K/S Merc-Scandia XXXXII v. Certain Lloyds Underwriters (The Mercandian
Continent) [2000] Lloyds Rep. IR 694; [2001] 2 Lloyds Rep. 563 (CA).
81. [2005] 2 Lloyds Rep. 517.
82. At para. 33.
83. Who had been responsible for applying the principle to insurance law in Alfred
McAlpine (supra).
84. Per Mance L.J. in Friends Provident (supra) at para. 33.
85. At para. 19–35.
86. ICC, Clause 18.
87. Supra.
88. See para. 6.26 above and, for a consideration of the South African authorities,
Chapter 11, para. 11.39.
89. See Chapter 7, para. 7.32 et seq. for a discussion of the difference in meaning that
may be attributable to these causation triggers.
90. MIA 1906 s. 33 and see above para. 6.4.
91. See, in particular, Chapter 7, para. 7.32 et seq.
92. MIA 1906 s. 55(2)(b) and (c).
93. The Miss Jay Jay [1987] 1 Lloyds Rep. 32. And see Chapter 7, paras. 7.14 to
7.16.
94. (1998) 146 FLR 76.
95. HIH Casualty & General Insurance Ltd v. Waterwall Shipping Inc (1998) 146
FLR 76 at p. 87. And see H. Bennett, The Law of Marine Insurance, 2nd edn, 2006 at
para. 9.30 who supports the decision which was obiter on this point as it was held that,
on the facts, negligence was the proximate cause of the loss.
96. See Chapter 8, para. 8.1, fn. 1.
97. H. Bennett, op. cit. at para. 9.31 expresses views which accord with those
adopted in the text.
98. [2004] 2 Lloyds Rep. 609.
99. At paras. 22–26 p. 945, fn. 253.
100. [1987] 1 Lloyds Rep. 32.
101. Supra.
102. Wayne Tank & Pump Co Ltd v. Employers Liability Assurance Corp Ltd [1973]
2 Lloyds Rep. 237. And see Chapter 7, para. 7.14.
103. Supra.
104. Op. cit. at paras. 22–26, fn. 253. However, in Mayban Moore-Bick J. expressly
contemplated that ordinary weather conditions could qualify as a peril of the seas and
nevertheless found as a matter of fact that inherent vice was the proximate cause of the
loss, see Global Process Systems Inc v.Syarikat Takaful Malaysia Berhad [2009]
EWHC 637 (Comm) at para. 101.
105. See, for example, H. Bennett, The Law of Marine Insurance, 2nd edn, 2006, at
para. 15.54.
CHAPTER 7
CAUSATION
PRINCIPLES OF CAUSATION
The role of causation in insurance law
7.1 It was said in one insurance case that a mans death was indirectly caused by his
birth.1 Although this remark was mainly concerned with the word “indirectly” it
illustrates the importance of establishing a direct causal connection between the insured
peril, or exclusion, and the loss suffered by the assured. This remains a central issue of
insurance law. The question of how close or “proximate” that connection must be, and
whether the link is determined by considering closeness in time, or by looking for the
effective cause, has varied with the climate of judicial opinion. Tests proposed by the
judges, such as “proximate in efficiency”,2 give some guidance on the general approach
to the problem but tend to disguise the fact that causation is ultimately a matter of first
impression, with that impression informed by a reading of the case law. The facts of
recent cases may be more indicative, than the words used to define cause, of how
causation will be approached by the judges in any individual case.
7.2 There are a number of complicating factors with regard to causation. Firstly, a
significant change in approach since the ninteenth century, where closeness in time was
the watchword of proximity. This theory of closeness in time was rejected by the House
of Lords in Leyland Shipping v. Norwich Union3 where Lord Shaw said “to treat
proximate cause as if it was the cause which is proximate in time is, as I have said, out
of the question”.4 This gives rise to problems of construction and application of the
Marine Insurance Act 1906 which, as a consolidating statute, was based on cases where
proximity in time had been the overriding consideration.
7.3 Secondly, certain perils, in particular fire, are treated in a special way for the
purposes of causation. Thus expenses incurred in stopping the spread of fire5 or putting
out a fire,6 are traditionally treated as caused by fire, yet expenses incurred to stem a
flood are not so treated.7 Perils of the seas also had a special position in the approach
of the courts in the nineteenth century to causation, with a rigorous application of the
closeness approach in the older cases preceding the decision in Leyland Shipping v.
Norwich Union.8
7.4 Third, the insurance policy may contain a whole variety of causation triggers. In
particular, the revised Institute Cargo Clauses include the following different
requirements for causation:
“Attributable to” wilful misconduct, Clause 4.1: ICC(A)
“Caused by” insufficiency of packing, Clause 4.3: ICC(A)
“Arising from” unseaworthiness, Clause 5.1: ICC(A)
“Resulting from” strikes, Clause 7.2: ICC(A)
“Reasonably attributable to” fire or explosion etc, Clause 1.1: ICC(B)/(C)
The starting point, when considering the various phrases used, is that the ordinary
proximate cause rule normally applies. This was stressed by Scrutton J. in Coxe v.
Employers Liability Assurance Corporation Limited9 when he said:10
“… I start with the consideration that to all policies of insurance, whether marine or accident, the maxim causa
proxima non remota spectatur is to be applied if possible. The immediate cause must be looked at, and not one or
more of the variety of causes which if traced without limit might be said to go back to the birth of the assured. For that
reason, when there are words which at first sight go a little further they are still construed in accordance with that
universal maxim. Thus it has been held upon the words ‘from all consequences of hostilities’ that the proximate and
direct consequences of hostilities are alone to be looked at: Ionides v. Universal Marine Insurance Co.11 Where the
words were ‘damage consequent on collision’ it was decided that only the immediate and necessary consequences of
the collision were to be looked at, and not what happened at the port of refuge in consequence of the collision: Pink v.
Fleming.”12
7.5 More recently, it was said by Potter L.J. in Lloyds TSB v. Lloyds Bank Group
Insurance13 that the proximate cause rule “does not depend on nice distinctions between
the particular varieties of phrase used in particular policies to express the causation of
the loss”.14 This approach is also said to be15 supported by a passage in the judgment of
Kerr L.J. in the Court of Appeal in The Salem16 where he held that the words
“attributable to” were “neutral words” which did not alter the well-established
principles of causation. Finally, the presumption in favour of the proximate cause rule is
itself enacted in section 55 of the Marine Insurance Act 1906 which states that the rule
applies “unless the policy otherwise provides”.
7.6 The issue is to determine in each case whether the wording is such that the policy
“otherwise provides”. Where the word “indirectly” is used in the context of causation
that clearly ousts the proximate cause rule.17 Other causation triggers in the Institute
Cargo Clauses, except for “caused by”, may also be intended to broaden the causation
rule, either in terms of remoteness, or by permitting two or more concurrent causes to be
taken into account. Accordingly, after considering the traditional proximate cause rule,
this chapter analyses the different phrases used in the revised Institute Cargo Clauses
where, by and large, different causation triggers have been deliberately chosen or, at the
least, deliberately retained. As this difference between the causation triggers is, with
some exceptions, not intended to extend the policy or its exclusions to remote causes,
but to permit multiple concurrent causes, we consider the phrases used in the revised
Institute Cargo Clauses after looking at the rules relating to multiple concurrent causes
and the operation of exceptions. But first we consider the proximate cause rule itself.
The proximate cause rule
7.7 The modern proximate cause rule, like most rules of marine insurance, is an aid to
the construction of the insurance contract and is therefore a way of ascertaining the
intention of the parties to that contract. However, the application of the strict rule in
older cases became a judge-made rule for solving causation problems. As Scrutton J.
said in Leyland Shipping:18
“I doubt whether anyone unfamiliar with the rule of causa proxima and reading the words of a Lloyds policy or bill of
lading would discover it was ‘the intention of the parties’ to apply it. It is in my view a judge-made rule of construction,
which came into existence because it was found that among the infinite variety of causes which contribute to produce
any given result not even ‘good sense’ could select with any certainty the real cause of the loss. The underwriters,
familiar with the law of their business, know of it; to most assured it comes as a surprise when they inquire as to the
legal effect of their policy.”
The cases which Scrutton J. had in mind were, in particular, Hamilton, Fraser & Co v.
Pandorf & Co19 and Lawrences case.20 In the first of these, a case under a bill of
lading, the House of Lords held (contrary to the view of the Court of Appeal) that where
a rat gnawed a hole in a bath pipe that let seawater into the ship, damaging the cargo, the
loss was not proximately caused by the rat, but by the entry of seawater. It was the entry
of seawater which was closest in time which was the determining factor under the strict
rule. In Lawrences case the policy was against personal injury caused by accidental
violence and did not insure against death arising from fits. The assured fell on a railway
line in a fit and a train then ran over him. It was held that the loss was covered by the
policy as the insurers had failed to show the operation of the exclusion so that the fit
was “the proximate and immediate cause of death”. That was because the closest cause
in time, the “proximate cause”, was the train running over the assured.
7.8 A number of other marine cargo insurance cases further illustrate the strict
proximate cause rule and deserve mention as they, and the sections of the Marine
Insurance Act 1906 based upon them, are now problematical in the light of the change of
direction taken by the House of Lords in Leyland Shipping v. Norwich Union.21 The
provisions of section 55 of the 1906 Act were based on a series of cases including Pink
v. Fleming22 where a cargo of fruit was insured against loss by collision. The fruit,
oranges and lemons, was insured under the usual form of Lloyds Policy subject to an
FPA warranty23 by which the cargo was “warranted free of particular average, unless
the ship be stranded, sunk, or burnt, or unless damage be consequent on collision with
any other ship”. The words “consequent on” were read narrowly and taken to be
equivalent to “proximately caused by”. A collision occurred in which the ship carrying
the fruit was not sunk nor was the fruit damaged by ingress of water. However, the
collision necessitated that the vessel carry out repairs and, for those repairs to be
carried out, the perishable cargo had to be discharged and was damaged partly by
handling and partly by delay. It was held that the collision was too remote and that delay
was the closest or “proximate” cause of the loss on the basis that the delay was
occasioned by the repairs and the cause of the repairs was the collision. The Court of
Appeal followed the decision in Taylor v Dunbar,24 where storms delayed a ship so
that her cargo of meat went bad and was jettisoned. It was held that this was not a loss
by perils of the seas but by delay. These cases exemplify the traditional view of
proximate cause, turning on closeness in time, which was summarised by Willes J. in
Ionides v. Universal Marine Insurance Co25 when he said:26
“The ordinary rule of insurance law [is] that … you are not to trouble yourself with distant causes, or to go into a
metaphysical distinction between causes efficient and material and causes final; but you are to look exclusively to the
proximate and immediate cause of the loss ….”
7.9 The general rule as to proximate cause is set out in section 55(1) of the 1906 Act
in the following terms:
“Subject to the provisions of this Act, and unless the policy otherwise provides, the insurer is liable for any loss
proximately caused by a peril insured against, but, subject as aforesaid, he is not liable for any loss which is not
proximately caused by a peril insured against.”
It is to be noted that the section has two provisos. Firstly, its operation is “subject to the
provisions of [the] Act”, which may well include part of section 55 itself, in particular,
section 55(2)(a) which deals with wilful misconduct. That sub-section widens the rule
in that case to losses “attributable to” wilful misconduct, it being the common law that
losses do not have to be proximately caused by wilful misconduct in order to vitiate a
claim under the policy27 Secondly, the rule is subject to any provision that “otherwise
provides” in the policy. As we have seen, many policies, such as those incorporating the
Institute Cargo Clauses, have a variety of provisions which “otherwise provide” in
respect of causation.
7.10 It seems that a weakening of the strict proximate cause rule may be detected in
Reischer v. Borwick28 a case decided before the Act was passed, which concerned a
hull and machinery policy. The insured vessel had a collision which broke a hole in a
condenser and the captain anchored and plugged the hole. When the vessel was being
towed to dock for repairs the plug came out, the vessel filled with water, and she was
run ashore to prevent sinking. This was held to be “damage received in collision”,
words which were treated as equivalent to damage proximately caused by collision. In
giving judgment, Lindley J. said:29
“It appears to me, however, that an injury to a ship may fairly be said to cause its loss if, before that injury is or can be
repaired, the ship is lost by reason of the existence of that injury—i.e. under circumstances which, but for that injury,
would not have affected her safety…
This decision was essentially contrary to the strict rule of proximate cause30 and
inconsistent with cases such as Hamilton, Fraser & Co v. Pandorf & Co31 and
Lawrence v. Accidental Insurance Co.32 However, Reischerv Borwick was upheld by
the Court of Appeal and Scrutton L.J. felt himself bound by it in Leyland Shipping v.
Norwich Union.33
7.11 We come then to the facts of Leyland Shipping v. Norwich Union.34 A ship was
insured against perils of the seas by a policy containing an exclusion against “all
consequences of hostilities”. It was accepted that this exclusion triggered the proximate
cause rule so that where hostilities were the proximate cause of the loss there would be
no recovery under the policy. The ship was torpedoed by a German submarine 25 miles
from Le Havre during the First World War whilst on a voyage from South America to
that port. The torpedo struck well forward and the ship, though she began to settle by the
head, reached Le Havre on the evening of the day she was torpedoed. She was taken
alongside a quay in the outer harbour where a gale sprang up causing her to bump
against the quay. The Harbour Authorities, fearing that she would sink and block the
quay, and in order to use the quay for priority for the Red Cross, ordered the ship to a
less suitable berth inside the outer breakwater where she would take the ground with the
fall of the tide. The ship remained inside the outer breakwater for two days taking the
ground at each ebb tide but floating again with the flood. Finally, during a deterioration
in the weather, her bulkheads gave way; she broke her back, sank and became a total
loss. The assured shipowners brought an action on the policy claiming to recover for a
loss by perils of the sea on the basis that entry of seawater was the proximate or closest
cause in time to the loss. The insurers answered that the torpedoing was the predominant
cause of the loss and that consequently they were protected by the exclusion against “all
consequences of hostilities”. It is important to stress that the ship was not bound to be
lost because she had been torpedoed. As Scrutton L.J. said in the Court of Appeal35 “the
sinking did not necessarily follow from the explosion; that is to say, that with fine
weather, and a stay in the first berth, the ship would have been saved; with the weather
she in fact met, and in the berth to which in consequence of that weather she was
ordered, she was lost”.
7.12 The judges in the House of Lords, whilst at times expressing themselves as
making a decision purely on the facts,36 in truth adopted a wholly different approach to
proximate cause. Lord Shaw demoted the word “proximate” saying:37
“I will venture to remark that one must be careful not to lay the accent upon the word ‘proximate’ in such a sense as
to lose sight of or destroy altogether the idea of cause itself. The true and the overruling principle is to look at a
contract as a whole and to ascertain what the parties to it really meant. What was it which brought about the loss, the
event, the calamity, the accident?”
Lord Shaw then goes on to hold that you look for the efficient cause not the closest
cause, saying:38
“To treat proxima causa as the cause which is nearest in time is out of the question. Causes are spoken of 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, precedent and simultaneous, meet; and the radiation
from each point extends indefinitely. 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 joined at the point of effect was the proximate and which was the
remote cause.
What does ‘proximate’ here mean? 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 yet not
destroyed it, or truly impaired it, and it may culminate in a result of which it still remains the real efficient cause to
which the event can be ascribed.”
7.13 We have moved from a chain to a net. As Scrutton L.J. said in Leyland Shipping
v. Norwich Union,39 the proximate cause rule was devised by the judges because it was
found that among the infinite variety of causes which contribute to produce any given
result not even “good sense” could select with any certainty the real cause of the loss.
The nineteenth century judges saw proximate cause not so much as a chain or net but a
tangled web. However, the judges of the twentieth century have adopted a more
confident approach culminating in Lord Wrights judgments in Canada Rice Mills,40
where he expressed the test as being based on a “broad common sense view of the
whole position”, and in The Coxwold,41 where he said:42
“Causation is to be understood as the man in the street, and not as either the scientist or the metaphysician, would
understand it. Cause here means what a business or seafaring man would take to be the cause without too microscopic
analysis but on a broad view.”
As Scrutton L.J. would have agreed, this advances the position in the sense of seeking to
construe the contract in the light of the intention of the parties. However, broader
common sense principles, which litigants on both sides commonly pray in aid, have
added an element of uncertainty, not least because they allow for the possibility of more
than one proximate cause.
Concurrent causes
7.14 The strict rule of proximate cause probably did not allow for the application of
more than one cause.43 The overriding logic behind the judge-made rule was to use the
closest cause in time to eliminate the need for a consideration of multiple causes. It is
said by some commentators44 that Reischer v. Borwick45 was an example of a case
where there were two proximate causes but Scrutton L.J. in Leyland Shipping v.
Norwich Union46 preferred to see that case as one where the vessel was in a grip of a
peril and there was a weakening of the true doctrine of closeness in time required by the
strict proximate cause rule. The possibility of two causes was envisaged in Leyland
Shipping v. Norwich Union in the argument by Mr R. A. Wright K.C., as he then was,
who advanced the proposition that:47
“ … where there are two perils both of which are proximate causes of the loss and in an open policy the shipowner
could have recovered on either, then, if one of those perils is excepted by the warranty the underwriters are not liable.”
This approach, that there may be two perils both of which are proximate causes, was
later adopted by the Court of Appeal in Wayne Tank & Pump Co Ltd v. Employers
Liability Assurance Corporation Ltd.48 This was supposedly on the basis of the
authority of the difficult case of John Cory & Sons v. Burr,49 but more particularly in
the light of Lord Sumners dissenting speech in P Samuel & Co Limited v. Dumas,50
where he said:51
“Where a loss is caused by two perils operating simultaneously at the time of loss and one is wholly excluded because
the policy is warranted free of it, the question is whether it can be denied that the loss was so caused, for if not the
warranty operates.”
In Wayne Tank & Pump Co Ltd52 a fire was caused by wholly inadequate equipment
installed in a factory, the fire being initiated by the turning on of this equipment
overnight without supervision. Liability for the fire was covered by the policy unless
excepted by an exclusion related to the provision of inadequate equipment. The Court of
Appeal took the view, by a majority, that the predominant cause was the inadequate
equipment. However, they were also prepared to consider the case on the basis that
there were two causes of equal, or roughly equal, efficiency. It was held that if there
were two causes, one covered, and one excluded, the exclusion prevailed.
7.15 Accordingly, where under a marine cargo policy there is a loss by two causes,
each equal or roughly equal in efficiency, one of which is covered under the policy, and
one of which is excluded, the exclusion will prevail. The revised Institute Cargo
Clauses (A) provide cover against all risks subject to specific exclusions.53 Some of
these “exclusions”, such as inherent vice, may be more properly described as
limitations on the cover, whilst other matters, such as wilful misconduct, are true
exclusions. However, all these risks are “excluded” under Clause 1.1 and fall under the
broad heading “Exclusions”.54 They should therefore be treated as exclusions for the
purposes of the rule set out in this paragraph, whether they are analysed as limitations
on all risks or exclusions properly so called.55
7.16 The other complication introduced into causation by the efficiency test, and the
resulting possibility of multiple proximate causes, arises in cases where there are two
causes of the loss, one covered by a peril in the policy, and the other neither covered by
a peril in the policy nor expressly excluded. In The Miss Jay Jay56 the assured claimed
for damage to his motor yacht which occurred on a sea trip to Deauville from Hamble.
During the voyage the sea conditions were not exceptional being about force 4 on the
Beaufort Scale with waves three metres in height. These proved difficult conditions for
a boat of this type which was designed to plane at speed across the waves and the boat
suffered damage to her hull which was ill-designed and ill-made. Although Miss Jay
Jay was unseaworthy there was no reason to suppose that the boat would have sunk at
her moorings or while under way in a mill-pond sea. The insurance cover included
losses caused by external accidental means and excluded any loss or expenditure
incurred solely in remedying a fault in design. It was held that the combination of (1)
unseaworthiness due to design defects and (2) an adverse sea were both proximate
causes without which the loss would not have occurred. The loss was covered as the
sea conditions, though not unusual, caused accidental damage to the boat. The exclusion
did not bite as it was drafted in such a way that it only could apply where there was one
cause of loss, that is to say, a design defect. As the loss was not “solely” as a result of a
design defect the exclusion could not prevail. The question became whether the loss
was covered when there were two causes, one covered and the other not excluded, and
in this context the Court of Appeal57 approved a passage from Halsburys Laws of
England which stated as follows:58
“It seems that there may be more than one proximate (in the sense of effective or direct) cause of a loss. If one of
these causes is insured against under the policy and none of the others is expressly excluded from the policy; the
assured will be entitled to recover.”
Accordingly, in marine cargo insurance if loss of or damage to cargo occurs as a result
of one cause which may be an all risks loss,59 or a loss as a result of a named peril,60
and there is also another concurrent proximate cause of the loss, which is not covered
by the insurance, the second cause will not vitiate the cover provided under the policy.
But if the second cause is expressly excluded the exclusion must prevail, otherwise it
would be denied any effect. Moreover, if the cause which is not covered under the
policy is the only or the predominant cause there will be no cover.
Proximate cause and wilful misconduct
7.17 The Marine Insurance Act 1906 section 55(2)(a) provides:
“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; … ”
The words “attributable to”, which are repeated in the equivalent exclusion in the
Institute Cargo Clauses,61 are an example of the provisions of the Act itself making an
exception to the proximate cause rule. It was the case at common law that wilful
misconduct would vitiate the cover under a policy of insurance even if it was not the
proximate cause, but only one of the causes, that is to say, a cause of the loss. This is
illustrated by the decision in Trinder Anderson v. Thames & Mersey Marine Insurance
Co Ltd62 where the master, who was one of the assureds and a part-owner of the vessel,
was accused of negligence which resulted in the vessel stranding. A claim for lost
freight was defended by underwriters on grounds that a cause of the loss was the
masters negligence. This defence failed as it was held that a remote or concurrent cause
(negligence) was not to be taken into account in view of the proximate cause rule which
attributed the cause to that closest in time, perils of the seas. However, if the allegation
had been that the vessel was stranded by reason of the wilful misconduct of the master
that would have been different. In this context AL Smith L.J. said:63
“The risk undertaken by an underwriter upon a policy covering perils of the sea is that, if the subject-matter insured is
lost or damaged immediately by a peril of the sea, he will be responsible, and, in my judgment, it matters not if the loss
or damage is remotely caused by the negligent navigation of the captain or crew, or of the assured himself, always
assuming that the loss is not occasioned by the wilful act of the assured. In this last case the maxim above referred to,
‘causa proxima non remota spectatur’, does not apply … ”
Accordingly, where wilful misconduct is a cause of the loss it will defeat a claim on the
insurance.
7.18 Section 55(2)(a) of the Marine Insurance Act 1906 then continues by providing
that the insurer, though not liable for any loss attributable to wilful misconduct “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”. This
troublesome provision64 is probably not of immediate concern with regard to cargo
insurance as it is designed to deal with the loss of a vessel which would not have
occurred but for the misconduct or negligence of the master or crew. Moreover, in the
light of the way the Institute Cargo Clauses are framed, misconduct or negligence of the
master or crew is likely to be an all risks peril65 or to result in a named peril, such as
collision, under named perils cargo policies.66
Proximate cause and delay
7.19 Delay is an awkward concept in the context of cargo insurance as the cover is
primarily against loss of or damage to the cargo and delay does not, of itself, cause
physical loss of or damage to cargo. Delay may make cargo vulnerable to damage from
other causes which, in turn, depend upon the nature of the cargo. For example,
perishable cargoes, typically meat, fruit and vegetables, naturally deteriorate over the
course of time. The immediate cause of physical damage in such cases is the nature of
the subject-matter insured. On the other hand, manufactured goods, typically textiles or
commodities, iron or steel, are not affected by delay though they become more
vulnerable during delay to other perils, in particular, to damp. Some cargoes, for
example tobacco, lie somewhere between the two in that they are perishable and may
also suffer from damp during periods of delay. Delay also needs to be considered in the
context of loss of adventure where it is important to distinguish between a delay in the
adventure and one that has, in fact, been lost.67
7.20 The delay exclusion in the Institute Cargo Clauses derives from the Marine
Insurance Act 1906 section 55(2)(b) which provides:
“Unless the policy otherwise provides, the insurer on ship or goods is not liable for any loss proximately caused by
delay, although the delay be caused by a peril insured against;”
The Institute Cargo Clauses 1/1/82 have a similar68 exclusion which reads as follows:
“4 In no case shall this insurance cover
4.5 loss damage or expense proximately caused by delay, even though the delay be caused by a risk insured
against … ”
The revised Institute Cargo Clauses omit the word “proximately” but are otherwise the
same as the 1982 Clauses. The effectiveness of the delay exclusion in the Institute Cargo
Clauses, in so far as it goes beyond simple loss of market,69 is a matter of some
uncertainty and is inextricably bound up with the question of causation. In particular,
delay by its nature will be a secondary or concurrent cause of a loss and will be the last
cause in time. Although the Marine Insurance Act 1906 generally approaches causation
on the basis that there is only one cause of any loss, being the cause closest in time, so
far as delay is concerned the Act exceptionally recognises that delay may be caused by
another earlier peril. Thus the 1906 Act speaks of “ … delay caused by a peril insured
against” and the Clauses similarly talk of “ … delay caused by a risk insured against”.
Both the 1906 Act and the 1982 Clauses proceed on the basis that proximate cause
means the last cause in time. This approach is best illustrated by the series of cases on
which the 1906 Act was based, starting most probably with Tatham v. Hodgson.70 In
that case a cargo of slaves, who were insured as cargo, died as a result of insufficient
provisions during an extraordinary delay in the voyage because of bad weather. The
court identified mortality by natural death as the proximate cause of the loss, rather than
the bad weather.71
7.21 In Taylorv. Dunbar72 bad weather led to a prolonged voyage and a cargo of
meat, which was rendered putrid during the extended voyage, was jettisoned. Again, it
was held that this was not a loss occasioned by perils of the sea on grounds that the
immediate cause of the loss was delay.
7.22 In Pink v. Fleming73 there was insurance of fruit, oranges and lemons, against
collision. During a delay occasioned by collision repairs, the cargo of fruit
deteriorated. It was held that loss was caused by delay and, as such, was not
recoverable, even though the delay was caused by a peril insured against, i.e., the
collision.
7.23 In Leyland Shipping v. Norwich Union74 the House of Lords introduced a new
approach to proximate cause and, as discussed above,75 we now look to the effective or
predominant cause on a commercial commonsense basis rather than to the closest cause
in time. On this basis it is hard to see that delay could ever be found to be the proximate
cause of the loss, for delay is not a risk or peril but is the result of a peril.76 Sometimes
the peril is known, as where heavy weather delays an ocean voyage, or a revolution
interrupts communications and delays an inland transit. Delay may be caused by an error
of navigation leading to a prolonged voyage, or to a collision or grounding.
Nevertheless the delay is always caused by a peril whether insured or uninsured. Even
where the cause of the delay is unknown there will still have been a cause even if that
cause is unexplained. It follows that where delay is in issue it will only be one of the
causes of any loss, with delay by its nature being the less predominant cause, and the
peril causing the loss will be seen as the effective or common sense cause.
7.24 This is illustrated by Lanasa Fruit Steamship & Importing Co. Inc. v.
Universal Insurance Company (The Smaragd)77 where a cargo of bananas deteriorated
during a period of delay following on from a stranding. The Supreme Court of the
United States held that the stranding was the proximate cause of the loss following
Leyland Shipping v. Norwich Union78 and rejected the approach of the English courts
adopted most notably in Pink v. Fleming.79
7.25 This was not the first time that Pink v. Fleming80 had not been followed. In
Schloss Brothers v. Stevens81 there was an insurance on all risks terms covering goods
in transit from the coast to the interior of Colombia. Twelve bales of the goods were
damaged by an abnormal delay in the transit which necessarily involved exposure of the
goods to damp. The abnormal delay was probably in consequence of the strain put upon
the transport arrangements by a revolution. Pink v. Fleming82 was distinguished by
Walton J. who said:83
“Here if all accidental causes of damage were included—as I have held that they were—all that has to be considered
is whether the damage that happened was the direct result of some such accidental cause, and I consider that it was
the direct result of an accidental cause.”
Although this case may be explained on the basis that abnormal delay falls into a
category of its own, and constitutes an all risks loss, this seems doubtful as delay is by
its nature unusual. The Chambers Dictionary,84 for example, defines “delay” as “the
(amount of) time during which something is put off”. Delay is therefore by its nature
abnormal and it is submitted, that the robust approach of Walton J. in Schloss Bros v.
Stevens85 simply anticipates the approach to proximate cause that was to become the
law following Leyland Shipping v Norwich Union.86 Clearly that approach to causation
undermines the effectiveness of the delay exclusion in the 1906 Act and the Institute
Cargo Clauses for on this approach delay will never be the proximate cause, as it
always results from another peril, and will never be effectively excluded.
7.26 This problem has been recognised for some time by textbook and academic
writers. In particular, Howard Bennett in The Law of Marine Insurance87 states as
follows:
“To the extent that the proximate cause status of delay in such circumstances is doubtful in the modern law, the
solution for underwriters wishing to avoid such liability is to dilute the required causal link between the delay and the
loss.”
7.27 The revised Institute Cargo Clauses do not directly deal with this issue and
simply omit the word “proximate”. The word “proximate”, and the juxtaposition of that
word with the phrase “even though the delay be caused by a risk insured against”, was
felt to reflect an outdated approach of the law. In particular, the continued use of the
word “proximate” was felt to be unhelpful where the rule is now based on the efficient
cause or causes and not the closest cause in time. It may be said that this approach is
consistent with the remarks of Lord Shaw in Leyland Shipping Company, Limited v.
Norwich Union Fire Insurance Society, Limited88 where he said, “one must be careful
not to lay the accent upon the word ‘proximate’”.89 The purists will object that “caused
by” means “proximately caused by”90 but the use of the simpler term “caused by” is felt
to open the way more easily, in practice, for the operation of concurrent causes where
delay is the less immediate cause but is still intended to be excluded. The difficulty is
that delay must still be a concurrent cause of the loss at least equal in efficiency to the
competing peril, such as collision. It must be possible to say that, as a matter of
commonsense, delay was an equal cause of the loss. It should be particularly noted that
the exclusion does not apply if delay is merely “a” cause of the loss.91
Proximate cause and inherent vice
7.28 The Marine Insurance Act 1906 section 55(2)(c) provides:
“Unless the policy otherwise provides, the insurer is not liable for … inherent vice or nature of the subject-matter
insured, … ”
The Institute Cargo Clauses, in common with the Act, exclude “loss damage or expense
caused by inherent vice or nature of the subject-matter insured”.92 The immediate cause
of loss of or damage to the cargo may be the violent movement of the vessel due to the
action of the wind and waves, i.e., perils of the seas. However, the predominant cause
of the loss may nevertheless be held to be the inability of the goods to withstand the
ordinary incidents of the voyage, that is, inherent vice. For example, in Mayban
General Assurance BHD v. Alstom Power Plants Ltd,93 a large transformer was
carried on deck from Wales to Malaysia, and suffered damage, the immediate cause of
which was adverse weather. It was nevertheless held that the loss was excluded as it
was caused by the inability of the transformer to withstand the ordinary conditions of the
voyage rather than by the occurrence of conditions it could not reasonably have been
expected to encounter.94
7.29 Similarly, in Noten BVv Harding,95 where the immediate cause of wet damage
to a consignment of gloves was container sweat, it was held that the predominant cause
was inherent vice as the gloves were shipped wet (i.e., with excessive moisture given
the conditions in which they were expected to be carried). The result of the gloves being
shipped wet was that the water from the gloves migrated to the roof of the container and
formed condensation so that when colder weather was encountered, moisture then fell
back on to the gloves. At first instance it had been held that the damage was from an
external source, analogous to sweat damage from a ships hold.96 This followed the
decision in Bowring v. Amsterdam London Insurance Co,97 where water which came
from the cargo was treated as an external source once it had left the cargo as it had “set
up a life of its own”. However, the Court of Appeal in Noten v. Harding held that, if the
source of the water was within the subject-matter insured, then a broad view of
causation should be taken. On that view the cause of the loss was that the gloves had
been shipped wet.98 The loss was therefore caused by inherent vice.99
CAUSATION TRIGGERS UNDER THE INSTITUTE CARGO CLAUSES
7.30 The revised Institute Cargo Clauses have retained a number of different phrases for
expressing the causal connection between the risk and the loss. These causation triggers
include “caused by”, “arising from”, “resulting from”, “attributable to” and “reasonably
attributable to”. In addition, the exclusion of loss damage or expense resulting from
nuclear incidents in Clause 4.7100 of the (A) Clauses uses two causation triggers:
“directly or indirectly caused by” and “arising from”. These variations are now
examined starting with “caused by” as representing the traditional proximate cause rule,
and then looking at the other phrases used to determine the extent to which that rule may
be varied in each case. The phrase “proximately caused by” which was used in the
1982 Clauses in exclusion 4.5 in relation to delay is no longer used in the revised
Institute Cargo Clauses.101
7.31 Different provisions as to causation may apply to the risks insured or the
exclusions, or to both. In the Institute Cargo Clauses (A) the causation triggers are only
used in relation to the exclusions—the positive cover for all risks is simply expressed
in Clause 1.1 with the phrase: “This insurance covers all risks of loss of or damage to
the subject-matter insured”. In the absence of any particular causation provision, section
55(1) of the Marine Insurance Act 1906 provides that, “the insurer is liable for any loss
proximately caused by a peril insured against” and the ordinary proximate cause rule
applies.102 By contrast, the Institute Cargo Clauses (B) and (C) use the phrase
“reasonably attributable to” in relation to the first group of perils insured, fire or
explosion etc, and the words “caused by” in respect of the balance of the perils, general
average, jettison etc. This introduces different causation rules in relation to the perils
themselves while, in relation to the (A) Clauses, the causal variations are confined to
the exclusions.
“caused by”
7.32 The term “caused by” is used to introduce the second group of perils in the (B) and
(C) Clauses and in relation to the exclusions of insufficiency of packing (Clause 4.3);
inherent vice (Clause 4.4); delay (Clause 4.5); insolvency and financial default (Clause
4.6); as well as in the war and related exclusions (Clause 6) and the exclusions relating
to strikers and terrorism (Clause 7.1). As we shall examine next, the notable exception
being in relation to “strikes” where the trigger is loss damage or expense “resulting
from” strikes.
7.33 The term “caused by” has frequently been held to trigger the ordinary proximate
cause rule. For example, Scrutton J. in Coxe v. Employers Liability Assurance
Corporation Ltd,103 said that the words “caused by” did not give rise to any difficulty
as “They are words which always have been construed as relating to the proximate
cause”.104 That rule looks to identify the predominant cause or causes on a broad
common sense view of the whole position.105
“resulting from”
7.34 The term “resulting from” is used in exclusion 7.2, which needs to be considered
in contrast with the words “caused by” used in Clause 7.1:
“In no case shall this insurance cover loss damage or expense
7.1 caused by strikers, locked-out workmen, or persons taking part in labour disturbances, riots or civil
commotions
7.2 resulting from strikes, lock-outs, labour disturbances, riots or civil commotions … ”
The usual practice is to take out separate insurance against strikers under the Institute
Strikes Clauses (Cargo) which provide as follows:
“This insurance covers …
1.1 strikers, locked-out workmen, or persons taking part in labour disturbances, riots or civil commotions … ”
The Strikes Clauses further provide:
“In no case shall this insurance cover
3.7 loss damage or expense arising from the absence shortage or withholding of labour of any description
whatsoever resulting from any strike, lockout, labour disturbance, riot or civil commotion.”
It will be seen that there is positive cover under Clause 1.1 of the Strikes Clauses for
loss of or damage to the cargo done by strikers but not for losses or, more particularly,
expenses resulting from a strike. Thus the intention is that there is cover for damage
done by strikers, as where they burn down a warehouse and destroy the cargo stored
there, but there is no cover under the Strikes Clauses for losses or expense “resulting
from” strikes where a strike leads to deterioration in the cargo by reason of a failure in
support services (e.g., electricity to service refrigeration machinery storing chilled or
frozen cargo). Delays resulting from strikes would also be excluded under this Clause
7.2 in parallel with the delay exclusion under Clause 4.5. In practice, Clause 7.2 has
been used to exclude forwarding charges from European to UK ports where the original
UK ports of destination have been closed by a strike.
7.35 It is assumed that the words “resulting from” are intended to widen the
proximate cause rule to encompass more remote causes. However, the effectiveness of
the words “resulting from” to achieve this is doubtful as these words have been treated
by the courts as triggering the ordinary proximate cause rule. In particular, in Lloyds
TSB General Insurance Holdings v. Lloyds Bank Group Insurance Company106 it was
held by Potter L.J. that “result from” implied proximate cause. He said:107
“In my view the expression “result from” undoubtedly imparts the notion of causation which, in turn, in all branches of
insurance law, involves application of the notion of proximate cause, applied with good sense, so as to give effect to
and not to defeat the intention of the parties.”
7.36 Similarly, Arnould states that, in general, words such as “resulting from” in an
exception clause are to be treated as excluding only those losses proximately caused by
the events mentioned.108 However, in relation to the strikes exclusion clause, Arnould
recognised that, by reason of the contrast between the words “resulting from” in Clause
7.2 and the words “caused by” in Clause 7.1, it is arguable that “a broader test than
proximate cause is to be applied under Clause 7.2”.109 Moreover, the words “resulting
from” may be perceived by the insurance market as excluding more remote causes.
7.37 The market perception and the suggestion by Arnould that “a broader test than
proximate cause is to be applied” raise the difficulty of what test that would be. The
intention may be to exclude deterioration and delay following from a strike due to
withdrawal of labour. This risk operates rather indirectly in the same way as delay110
The loss to the cargo, or the expense incurred to avoid loss, is a consequence of some
other more immediate risk, for example bacteriological deterioration, as where
electricity supplies have been interrupted by a strike. It may be tentatively suggested that
“resulting from” may be treated as opening the door to the operation of two concurrent
risks, typically delay caused by a strike or withholding of labour, and some form of
deterioration to the cargo. If this is right, the words “resulting from” serve to make it
clearer that the exclusion applies even if the immediate cause of the loss is deterioration
and the somewhat less immediate but nevertheless concurrent cause is a strike.
“arising from”
7.38 The words “arising from” appear first111 in the revised Institute Cargo Clauses in
the Nuclear Accidents Exclusion (Clause 4.7 of the (A) Clauses and Clause 4.8 of the
(B) and (C) Clauses) in the phrase “directly or indirectly caused by or arising from”. As
the words “directly or indirectly caused by”112 encompass more remote causes they go
well beyond the term “arising from” in widening the chain of causation and this renders
the words “arising from” redundant in this Clause. The words “arising from” may be
superfluous but were retained in the Nuclear Accidents Exclusion as a matter of caution
and to be consistent with Clause CL 370113 which is a generally used exclusion of
nuclear accidents and a wider group of risks with the capacity to cause catastrophic
losses.
7.39 The second place the phrase “arising from” is used is in the unseaworthiness
exclusion (Clause 5.1) which opens with the words:
“In no case shall this insurance cover loss damage or expense arising from
5.1.1 unseaworthiness of vessel or craft …
5.1.2 unfitness of container or conveyance … ”
There is a difference of views as to whether the words “arising from” trigger the
ordinary proximate cause rule or encompass more remote causes. The debate
historically centred on these words as they appear in the controversial insolvency
exclusion in the 1982 Clauses. The 16th edition of Arnoulds Law of Marine Insurance
and Average114 stated as follows:
“Although this exception [insolvency of shipowners etc in Clause 4.6], in contrast to earlier exceptions in Clause 4,
uses the expression “arising from” we doubt that any different test for causation was intended to be applicable.”
The current edition of Arnould restates the same view in wider terms as follows:115
“Words such as ‘due to’, ‘resulting from’, or ‘arising from’ in an exceptions clause in a policy have been construed as
excluding only those losses proximately caused by the events mentioned.”
OMay on Marine Insurance, in the context of the insolvency exclusion, is also of the
view that “arising from” is no different from “caused by” as both require proximate
cause, saying:116
“It is necessary for underwriters (on whom the onus lies) to show that the loss damage or expense was proximately
caused by (‘arising from’) the insolvency or financial default. In many instances, the chain of causation would be
difficult to establish.”
7.40 When the Institute Commodity Trades Clauses (A) were introduced in 1983 the
insolvency exclusion, which was drafted so as to be more favourable to the assured,
substituted the words “caused by” for the words “arising from”. In respect of this use of
“caused by” in the insolvency exclusion in Commodity Trades Clauses, OMay states:117
“The words ‘arising from’ have been replaced by “caused by” to confirm clearly the applicability of the doctrine of
proximate cause.”
However, Goodacres Marine Insurance Claims reads as follows:118
“The substitution of the words ‘caused by’ in place of ‘arising from’ suggests that underwriters have conceded a
drafting error in the original text.”
Goodacres comment most probably reflects the market perception that the words
“arising from” are intended to broaden the concept of causation. It is unclear whether
this is the legal position. The words “arising out of”, as used in the phrase “arising out
of one event”, were held to imply a wider test of causation by Evans L.J. in Caudle v.
Sharpe.119 In Scott v. Copenhagen Re120 where the words were “series of losses
arising from one event” Rix L.J. took a similar view that these words implied a wider
test of causation. However, these cases concerned an analysis of “arising out of” or
“arising from” in the context of an aggregating event in a reinsurance context and not the
words “arising from” a particular risk or peril. They are therefore potentially
distinguishable.
7.41 Arnoulds authority that “arising from” a particular peril is the same as
“proximately caused by” that peril is Panamanian Oriental Steamship Corporation v.
Wright121 a decision of the Court of Appeal. However, that case does not discuss the
issue but merely proceeded on the basis that an exclusion of loss “arising from”
infringement of Customs regulations meant caused by such an infringement.122 This is
consistent with the approach of Scrutton J. in Coxe v. Employers Liability Assurance
Corporation Ltd123 where he said that the words “caused by” and “arising from” had
always been construed as relating to the proximate cause. It seems, therefore, that the
market perception that “arising from” implies a wider test of causation is probably not
in accord with the legal position that treats “arising from” as triggering the ordinary
proximate cause rule.
7.42 Nevertheless, assuming the market perception to be correct, how does this bear
on the revised Institute Cargo Clauses, and the continuing use of the words “arising
from” in the unseaworthiness exclusion? Does the loss of cargo or, more commonly in
practice, the cost of forwarding, have to be proximately caused by the unseaworthiness
or may unseaworthiness be a more remote cause?124 If “arising from” encompasses a
more remote cause, what is the test? It is difficult, if not impossible, to assess degrees
of remoteness, except where the test is “directly or indirectly caused by”,125 and the
solution may lie in construing the words “arising from” to allow the operation of one of
two concurrent causes. It is to be noted that, in the same context of unseaworthiness,
section 39(5) of the 1906 Act uses the phrase any loss “attributable to”
unseaworthiness. Arnould takes the view126 that this would apply where
unseaworthiness was “a” cause of the loss. A similar approach should, perhaps, be
adopted to the words “arising from” in the unseaworthiness exclusion in Clause 5 of the
Institute Cargo Clauses. In practice, little difference may result as the exclusion will, in
any event, prevail where there are two concurrent causes of the loss, one covered and
one expressly excluded.127 If “arising from” means proximately “caused by”, which is
more in accord with the legal authorities, the result is more doubtful, but may be the
same as the modern approach to proximate cause allows for a finding of two causes
both of which are “proximate”.
“attributable to”
7.43 The words “attributable to” are used in Exclusion 4.1 of the Revised Institute
Cargo Clauses which reads:
“In no case shall this insurance cover loss damage or expense attributable to wilful misconduct of the Assured.”
This reflects the words of the Marine Insurance Act 1906 section 55 which, so far as
material, is as follows:
“55(1)(a) The insurer is not liable for any loss attributable to the wilful misconduct of the assured … ”
The effect of the words “attributable to” is discussed by Arnould where it is stated as
follows:128
“It seems, however, to be clear in principle that wilful misconduct of the assured is a defence not only when it is the
proximate cause of loss but also when it is only one of the effective causes of, or factors contributing to a loss. A
similar rule appears also to obtain in cases, of the type provided for in section 39(5) of the Marine Insurance Act 1906,
where the ship is sent to sea in an unseaworthy state, with the privity of the assured.”
On this basis the words “attributable to” are significantly wider than “caused by”. They
are more appropriate because any wilful misconduct of the assured that bears on the
loss should invalidate the claim.
7.44 The importance of the principle that the proximate cause rule does not apply to
wilful misconduct would not seem to lie only in the degree of remoteness but also in the
fact that the words “attributable to” open up the possibility of the loss being excluded
even where wilful misconduct is only a cause of the loss. This was more important
where only the closest cause was considered so that a loss by scuttling was a loss by
perils of the sea and the more remote cause, dishonesty, was disregarded.129 However,
the rule serves a useful purpose today in highlighting the fact that a loss caused to any
appreciable extent by the assureds dishonesty is tainted and will not be recoverable
under a cargo insurance cover even if the dishonesty is only a subsidiary concurrent
cause of the loss.
“reasonably attributable to”
7.45 The words “reasonably attributable to” introduce the first set of risks (Clause 1.1)
in the Institute Cargo Clauses (B) and (C). Do these words “otherwise provide” so as to
displace the proximate cause rule in section 55(1) of the Marine Insurance Act 1906?
Whether the policy “otherwise provides” is simply a matter of construction.130 On that
basis the words “reasonably attributable to” in Clause 1.1 are to be contrasted to the
words “caused by” in Clause 1.2, and it seems to follow that the formula “reasonably
attributable to” is intended by the draftsmen to be different and that, accordingly, this is
a case where the policy does otherwise provide so that the proximate cause rule is not
applicable.131 However, different views have been expressed on this issue.
7.46 By way of background the words “reasonably attributable to” derive from the
FPA and WA Clauses132 and it was felt inappropriate to use other wording in the (B)
and (C) Clauses when they were introduced in case this was looked upon as a
narrowing of cover.133 This suggests a market perception that the words “reasonably
attributable to” are and were intended to be wider than “caused by”.134
7.47 Arnould135 states the rule as follows:
“The test for causation under [the words ‘reasonably attributable to’] may be less stringent than the proximate cause
test. In principle, it appears that reasonable evidence of a causal link between the specified peril and the loss claimed is
sufficient under this part of the clause.”
This very much reflects the opinion of Hudson & Madge136 who take the view that the
words “reasonably attributable to” visualise a wider test of causation and should be
“afforded a reasonably wide construction” reflecting the test that was used in the FPA
and WA Clauses.137
7.48 On the other hand, OMay on Marine Insurance,138 on the authority of a well-
known passage in The Salem,139 questions whether the words “reasonably attributable
to” change the proximate cause rule. In The Salem Kerr L.J.140 said:
“But I think that these [words ‘may have been attributable to’] are neutral words which cannot be read as intended to
alter the well-established principles of causation in this field.”
The point being addressed was whether the phrase “may have been attributable to”
encompassed a remote cause, a conspiracy formulated prior to the voyage to scuttle the
ship with her cargo. Kerr L.J. was not concerned with the question of whether the words
“reasonably attributable to” were wide enough to encompass one of the causes where
two or more causes were immediately operating and each contributed to, or brought
about, the loss.
7.49 The causation issue in The Salem may be used to illustrate the operation of the
rule about two concurrent causes. The point arose out of the Seaworthiness Admitted
Clause in the FPA Clauses (Clause 8) which was intended to reverse the decision in P
Samuel & Co Ltd v Dumas.141 That held that where a ship was scuttled that was not a
peril of the seas, thus leaving the innocent mortgagee or cargo owner with no claim
under the FPA Clauses. The second sentence of the Seaworthiness Admitted Clause
read, “… the Assureds right of recovery hereunder shall not be prejudiced by the fact
that the loss may have been attributable to the wrongful act or misconduct of the
shipowners … ”. This introduced the concept of losses being “attributable to” the
wrongful act or misconduct of the shipowner in order to protect the cargo owner in
those circumstances. Arguably, this recognised twin causes, (1) scuttling (wrongful act
or misconduct) and (2) perils of the sea, the intention being that where the ship and
cargo sank the cargo owner (who was innocent) could recover even though the sinking
was “attributable” to the wilful misconduct of the shipowner. The remarks by Kerr L.J.
to the effect that a conspiracy, conceived prior to the sailing of the vessel, was too
remote to fall within the phrase “attributable to” are, it is submitted, obiter and go
beyond what was necessary for the decision in that case. In particular Kerr L.J. had
already held as a matter of fact that the cargo owners were not irretrievably deprived of
the cargo by the criminal plan itself142 Moreover, his finding that the second sentence of
the Seaworthiness Admitted Clause converted the scuttling into a recoverable loss is
consistent with the view that the phrase “reasonably attributable to” covers the case
where there are two concurrent causes of the loss, in that case, perils of the sea and
scuttling.
7.50 The word “reasonably” in the phrase “reasonably attributable to” probably adds
little. OMay suggests that it is no more than an “mellifluous epithet”,143 and on a literal
approach the word is hard to construe—where a loss was not reasonably attributable to
the risk, clearly there would be no cover on any basis. The word “reasonably” may,
however, be intended to infer that a lesser standard of proof should be applied or that
certain perils should be widely interpreted so that, for example, “fire” would include
steps taken to put out a fire.144
7.51 If “reasonably” adds little then we are again concerned with the phrase
“attributable to”. As discussed,145 these words cover a situation where “a” cause is
sufficient even though it may operate in conjunction with other causes and not be the
only effective cause of the loss.146 This would seem to be the intention in relation to the
first group of risks (Clause 1.1) enumerated in the (B) and (C) Clauses.
“directly or indirectly caused by”
7.52 The nuclear accidents exclusion in the Institute Cargo Clauses (Clause 4.7)
“In no case shall this insurance cover
4.7 loss damage or expense directly or indirectly caused by or arising from the use of any weapon or device
employing atomic or nuclear fission and/or fusion or other like reaction or radioactive force or matter.”
The words “directly or indirectly caused by” are the widest causation trigger used in the
Institute Cargo Clauses. The word “indirectly” has been criticised by OMay147 who
suggests that it is best avoided “in view of the difficulty in setting any reasonable limits
to indirect causation”. This chapter began with a reference to a judgment of Scrutton J.,
as he then was, where he said in the context of the word “indirectly” that a mans death
could be said to have been caused “indirectly” by his birth.148 In that case an army
officer was killed by a train whilst inspecting his troops who were guarding the old
South East Railway near Folkestone at the beginning of the 1914–18 War. He was struck
by the train while walking the line at night at a place where the general public were
prohibited in circumstances where the lights from a nearby signal box had been dimmed
in accordance with the Defence of the Realm Act 1914. An arbitrator found his death
“traceable” to war, a finding with which Scrutton J. felt he could not interfere by reason
of the word “indirectly” in the exclusion in the policy. The insurance wording read
“This policy does not insure against death … directly or indirectly caused by, arising
from, or traceable to … war … ”. Scrutton J. said:149
“… the words which I find it impossible to escape from are “directly or indirectly.” There does not appear to be any
authority in which those words have been considered, and I find it impossible to reconcile them with the maxim causa
proxima non remota spectatur. If it were contended that the result of the words is that the proximate cause, whether
direct or indirect, is to be looked at, I should reply that that result does not appear to me to be consistent or intelligible. I
am unable to understand what is an indirect proximate cause, and in my judgment the only possible effect which can be
given to those words is that the maxim causa proxima non remota spectatur is excluded and that a more remote link
in the chain of causation is contemplated than the proximate and immediate cause.”
7.53 In Spinneys (1948) Ltd v. Royal Assurance150 Mustill J. had to decide whether
certain losses that occurred in the Spinneys shopping centre in Beirut in January 1976,
during the troubles in the Lebanon, were “occasioned by or through or in consequence,
directly or indirectly, of… civil war … civil commotion”. He said:151
“ … it is quite clear that the draftsman has gone to great lengths to ensure that the doctrine of proximate clause does
not apply. Plainly, there must be some limit on the application of the clause, for the chain of causation recedes infinitely
into the past. The draftsman must have intended to stop somewhere: and that place must be the point at which an
event ceases to be a cause of the loss and becomes merely an item of history. The draftsman has not explained how
that point is to be identified, nor indeed do I believe that words can be found to do so. It is, eventually a matter of
instinct—but an instinct guided by the fact that this is a policy which (unlike others in which similar clauses can be
found) expressly insures against violent acts. In essence, the task is to assess whether the particular act of violence
simply takes place against the background of a ‘warlike’ state of affairs, or whether it has itself (even if in a rather
remote way) a warlike aspect of its own.”
This dicta was applied to the words “arising directly or indirectly from” in Oei v
Foster152 where it was held that fire damage to a house which came about where a
cooker was left on, and the fat in it ignited, was proximately caused by that alleged
action and arose “indirectly” from the occupation of the house where the incident
occurred.
7.54 The words “directly or indirectly” are used sparingly in the Institute Cargo
Clauses as there is force in the criticism that it is extremely difficult to determine how
remote the cause must be. However, there is some guidance in the cases. It seems that “a
more remote link in the chain of causation is contemplated”,153 but there must be a
connection and that the connecting point lies where “an event ceases to be a cause of the
loss, and becomes merely an item of history”.154 The reasonable concerns of insurers
regarding nuclear accidents and other catastrophic events155 certainly explain and may
also justify the use of the exceptional causation trigger “indirectly” in relation to what
are seen as risks that may exceed the capacity of the insurance markets.
Summary of the effect of the causation triggers
7.55 The effect of the various causation provisions used in the Institute Cargo Clauses
may be summarised as follows, starting with “caused by” which triggers the ordinary
proximate cause rule, and finishing with “indirectly caused by”, which is the widest
term used and encompasses more remote causes.
1. “Caused by” means proximately caused by. This is the normal rule in insurance law. This looks to identify the
predominant cause or causes on a broad common sense view of the whole position.156
2. “Resulting from” generally means the same as “caused by”. However, in Clause 7.2 of the Institute Cargo
Clauses, the words “resulting from strikes”, used in juxtaposition to “caused by strikers” in Clause 7.1, may be
intended to broaden the strikes exclusion.157
3. “Arising from” is generally taken by the courts to mean the same as “caused by”. market perception, however, is
probably that the term encompasses a more remote cause or causes. The effect on the unseaworthiness
exclusion in Clause 5 of the Institute Cargo Clauses may not be significantly different as on either view if a cause
of the loss is unseaworthiness then that loss is excluded by reason of the rule that where two causes are
concurrent, the express exclusion prevails over the cover.158
4. “Attributable to” is wider than proximately caused by and covers the case where the risk is “a” cause of the loss
even where it is only one of the effective causes or factors contributing to the loss.159
5. “Reasonably attributable to” means the same as attributable to as the word “reasonably” appears to add little or
nothing to this phrase.160
6. “Indirectly caused by” extends well beyond proximately caused by but there must still be a connection between
the loss and the risks involved which must not be a mere matter of background or history, albeit a more remote
link in the chain of causation is contemplated.161
1. Per Scrutton J. in Coxe v. Employers Liability Assurance Corp. [1916] 2 KB 629 at 634.
2. Lord Shaw in Leyland Shipping Co Ltd v. Norwich Union Fire Insurance Society Ltd [1918] AC 350 (HL).
3. Supra, see note 2.
4. Ibid. at p. 369.
5. Symington v. Union Insurance Society of Canton Limited (1928) 31 Ll. L. Rep. 179.
6. Stanley v. Western Assurance Co Limited (1868) LR 3 Ex 71.
7. Yorkshire Water Services Limited v. Sun Alliance & London Ins. plc [1997] 2 Lloyds Rep. 21 (CA).
8. See, for example, Hamilton, Fraser & Co v. Pandorf & Co (1887) LR 12 App Cas 518 (HL) and Thomas
Wilson, Sons & Co v. The Owners of the Cargo per the Xantho (The Xantho) (1887) LR 12 App Cas 503 (HL).
9. [1916] 2 KB 629.
10. Ibid. at p. 633.
11. 14 CB (NS) 259.
12. (1890) 25 QBD 396.
13. Lloyds TSB General Insurance Holdings Limited & Others v. Lloyds Bank Group Insurance Company
Limited: Abbey National plc v. Lee & Others [2002] Lloyds Rep. IR 113 (CA), reversed on other grounds [2003]
Lloyds Rep. IR 623 (HL).
14. Ibid. at para. 42 citing in support Lawrence v. Accidental Insurance Co Limited (1881) 7 QBD 216 at 220.
15. D. OMay and J. Hill Marine Insurance, 1993, Sweet & Maxwell at p. 316, but see the discussion below at
para. 7.6.
16. Shell International Petroleum Co Ltd v. Gibbs (The Salem) [1982] 1 Lloyds Rep. 369 (CA); affirmed [1983]
1 Lloyds Rep. 342 (HL).
18. Leyland Shipping Company Limited v. Norwich Union Fire Insurance Society Limited [1917] AC 873 (CA)
at p. 892. Affirmed [1918] AC 350 (HL).
19. (1887) LR 12 App Cas 518 (HL).
20. Lawrence v. The Accidental Insurance Company (Ltd) (1880–81) LR 7 QBD 216.
21. Supra.
22. (1890) LR 25 QBD 396.
23. See Chapter 9, at para. 9.2 for an explanation of the FPA warranty.
24. (1869) LR 4 CP 206.
25. (1863) 14 CB NS 259.
26. At p. 289.
27. See further para. 7.17 below and for a discussion of the exclusion of wilful misconduct in the Institute Cargo
Clauses, exclusion 4.1, see Chapter 8, para. 8.39 et seq.
28. [1894] 2 QB 548.
29. At pp. 551–552.
30. See the judgment of Scutton L.J. in Leyland Shipping Co Ltd v Norwich Union Fire Insurance Society
Limited [1918] AC 350 (HL); [1917] 1 KB 873 (CA) at pp. 899, 890.
31. (1887) LR 12 App Cas, discussed at para. 7.7 above.
32. (1880–81) LR 7 QBD 216, discussed at para. 7.7 above.
33. Leyland Shipping (CA) (supra) at p. 902.
34. Ibid.
35. At p. 891.
36. [1918] AC 350 at p. 358, per Lord Finlay L.C., “the question here is really one of fact”; Viscount Haldane at p.
359, “The real question turns out to be one of fact”.
37. At p. 369.
38. Ibid. at Leyland Shipping at p. 369.
39. Ibid. at p. 892.
40. Canada Rice Mills, Ltd v. Union Marine & General Marine Insurance Company Ltd (1940) 67 Ll. L. Rep.
549 at 557.
41. Yorkshire Dale S.S. v. Ministry of War Transport (The Coxwold) (1942) 73 Ll. L. Rep. 1.
42. Ibid. at p. 10.
43. See the judgment of Scrutton L.J. in Leyland Shipping Co Ltd v. Norwich Union Fire Insurance Society Ltd
[1917] 1 KB 873 (CA) at pp. 899 and 901.
44. OMay at p. 320.
45. [1894] 2 QB 548.
46. [1917] 1 KB 873 (CA) at p. 901.
47. Leyland Shipping Co Ltd v. Norwich Union Fire Insurance Society [1918] AC 350 at p. 353 (HL).
48. [1973] 2 Lloyds Rep. 237 by Lord Denning M.R. at p. 240 and by Roskill L.J. at p. 245.
49. (1883) 8 App. Cas. 393.
50. (1924) 18 Ll. L. Rep. 211.
51. Ibid. at p. 222.
52. [1973] 2 Lloyds Rep. 237 (CA).
53. See Chapter 8.
54. The words introducing the “exclusions” are, “In no case shall this insurance cover … ”, but the heading
“Exclusions” makes the position clear as does revised Clause 1.1 which provides cover “except as excluded by the
provisions of Clauses 4, 5, 6 and 7 below”.
55. This, it is submitted, would also be consistent with the approach adopted by Lord Diplock in Soya v. White
[1980] 1 Lloyds Rep. 491 discussed at para. 7.45 below.
56. J. J. Lloyds Instruments Limited v. Northern Star Insurance Co Limited (The Miss Jay Jay) [1987] 1 Lloyds
Rep. 32.
57. At p. 36, per Lawton L.J. and at p. 40, per Slade L.J.
58. 4th edn, Vol. 25, para. 181.
59. As under the ICC (A).
60. As in the ICC (B) or (C).
61. ICC Clause 4.1 and see para. 7.43 below.
62. [1898] 2 QB 114.
63. At p. 124, following the reasons pointed out by Lord Campbell in Thompson v. Hopper 6 E&B 937 at p. 948.
64. The relationship between this provision and s. 78(4) of the MIA 1906 is discussed further in Chapter 14, at para.
14.20.
65. Under the ICC(A).
66. Under the ICC(B) or (C).
68. The wording is not identical. Clause 4.5 uses the words “even though” rather than “although” and substitutes the
word “risk” for the word “peril” which appears in the MIA 1906. But these alterations appear to have been adopted to
modernise and clarify the wording without changing the meaning, see OMay at pp. 197–198. However, as indicated in
the text, the revised ICC omit the word “proximately”.
69. Delay in terms of loss of market is discussed in Chapter 8, at para. 8.49 et seq.
70. (1796) 6th Term Rep. 656.
71. There may have been public policy considerations for this approach, see S. Hodges, Law of Marine Insurance,
1996, Cavendish, at p. 230.
72. (1869) LR 4 CP 206; Professor Grime distinguishes this case on the basis that the loss was by inherent vice, see
“Insuring Cargoes in the 1990s” at p. 107 fn. 40, Chapter 3 in D. R. Thomas (ed), The Modern Law of Marine
Insurance, 1996, LLP.
73. (1890) 25 QBD 396.The facts of this case are set out at para. 7.8 above.
74. Leyland Shipping Co Ltd v Norwich Union Insurance Society Ltd [1918] AC 350.
75. See paras. 7.11 to 7.13.
76. See, K. S. Selmer, “Delay in cargo insurance”, Cargo Insurance and Modern Transport K. Gro¨nfors (ed.),
1970, who points out at p. 13 that, “delay itself is not a peril” and stresses that this is “of fundamental importance for
an understanding of the problems connected with cargo insurance against delay”. Cited UNCTAD Report TD/B/
C.4/ISL/27/Rev. 1, 1982 at p. 34.
77. (1938) AMC 1.
78. Supra. The reaction of American underwriters was to re-draft their standard clauses, the American Institute
Cargo Clauses 1/9/65 to insert a paramount exclusion of delay, “whether caused by a peril insured against or
otherwise”, Clause 13C.
79. (1890) 25 QBD 396.
80. Supra.
81. [1906] 2 KB 665.
82. Supra.
83. At p. 674.
84. 11th edn, 2008.
85. Supra.
86. Supra.
87. The Law of Marine Insurance, 2nd edn, 2006, OUP, at para. 15.37 (Bennett). Bennett expressed similar views
in The Modern Law of Marine Insurance, 1996, LLP, ed. R. H. Thomas at pp. 187–190. S. Hodges, Law of Marine
Insurance, 1996, Cavendish, at p. 229, makes a similar point.
88. [1918] AC 350 (HL).
89. Ibid. at p. 369.
91. An attempt to widen the causal link as suggested by Bennett, see para. 7.26 above, was not acceptable to the
London insurance market as a whole.
92. ICC, Clause 4.4. This term is discussed and defined in Chapter 8, at para. 8.22 et seq.
93. [2004] 2 Lloyds Rep. 609.
94. Mayban General (supra) per Moore-Bick J. at p. 617 para. 33. A similar factual conclusion was reached in
Global Process Systems Inc v. Syarikat Takaful Malasia Berhad [2009] EWHC 637 (Comm), where the legs of an
oil rig, insured for carriage as cargo on a barge, fell off into the sea in rough weather conditions off the South African
coast.
95. [1990] 2 Lloyds Rep. 283 (CA).
96. [1989] 2 Lloyds Rep. 527.
97. (1930) 36 Ll. L. Rep. 309.
98. The case proceeded on the basis that the gloves were wet prior to the attachment of the risk and though some
attempt was made to argue that the gloves absorbed moisture in Calcutta, after the risk had attached, the evidential
foundation for that argument was never laid, see Bingham L.J. at p. 289, and for a full review of the authorities and of
this case see the speech by Mr R. W. Hipkin, Chairman of the Association of Average Adjusters, 9 May 1991,
Association of Average Adjusters.
99. Noten BV v. Harding (supra). The CA (at p. 288) considered it reassuring that the District Court of Rotterdam,
on analogous facts, had found the cause of the damage to fall within the exclusion of inherent vice: Bantle & Preiss
BV v. NVSchadeverzekering Maatschappij UAP-Nederland (9 February 1990). An appeal in that case was
unsuccessful, Hofs-Gravenhage 19 September 1992, S&S 1993, 17.
100. Clause 4.7 of the ICC (A): Clause 4.8 of the ICC (B) and (C).
101. The reasons for which are discussed at para. 7.27 above in relation to delay and causation.
102. See para. 7.7 et seq. above where this section of the MIA 1906 is discussed.
103. [1916] 2 KB 629.
104. Ibid. at p. 634.
105. Canada Rice Mills Ltd v. Union Marine & General Insurance Co Ltd (1940) Ll. L. Rep. 549 (PC), and see
para. 7.13 above.
106. Lloyds TSB General Insurance Holdings Ltd & Ors v Lloyds Bank Group Insurance Company Ltd:
Abbey National plc v Lee & Ors [2002] Lloyds Rep. IR 113, and see the discussion at paras. 7.4 and 7.5 above.
107. Ibid. at para. 142. This was in the context of an aggregation clause which provided that where “a series of
third party claims shall result from any single act or omission … all such third party claims shall be considered to be a
single third party claim”.
108. At para. 22–20, p. 938.
109. Arnoulds Law of Marine Insurance and Average, 16th edn, 1981, Sweet & Maxwell Ltd (Arnould 16th
edn), Vol. 3 at para. 249 p. 154. The current edition does not appear to directly address this point in the context of
Clause 7.2.
111. Apart from Clause 5.1, as discussed in para. 7.39, these words also appear in the insolvency exclusion in the
ICC (A) 1/1/82 (Clause 4.6) and in Clause 3.7 of the Institute Strikes Clauses (Cargo), see Chapter 10, para. 10.36.
112. Discussed at para. 7.52 below.
113. Discussed in Chapter 10, at para. 10.59.
114. Vol. 3, para. 227 at p. 143 (fn. 19).
115. At para. 22–20, p. 938.
116. At p. 201.
117. At p. 202.
118. J. Kenneth Goodacre, Marine Insurance Claims, 3rd edn, 1996, Witherby & Co Ltd, at p. 294.
119. [1995] LRLR 433 at 439
120. [2003] Lloyds Rep. IR 696 at p. 713, para. 63.
121. [1970] 2 Lloyds Rep. 365: reversed on appeal at [1971] 1 Lloyds Rep. 487 (CA).
122. See Lord Denning MR at p. 493.
123. [1916] 2 KB 629.
124. It is fair to say that the circumstances in which cargo underwriters rely on unseaworthiness are narrowly
confined, see Chapter 8, at paras. 8.64 to 8.72 where the unseaworthiness exclusion is discussed.
125. Discussed below at para. 7.52.
126. At para. 22–07.
127. See para. 7.14 et seq. above where this rule is discussed.
128. At para. 22–07, pp. 908–909 based principally on Trinder, Anderson & Co v. Thames & Mersey Marine
Insurance Co [1898] 2 QB 114. The issue of proximate cause and wilful misconduct in terms of MIA 1906 s. 55(1)(a)
is discussed at paras. 7.17 and 7.18 above.
129. P. Samuel & Co Ltd v. Dumas (1924) 18 Ll. L. Rep. 211.
130. See Soya GmbH Mainz KG v White [1983] 1 Lloyds Rep. 122, per Lord Diplock at p. 126.
131. Robert Grime “Insuring Cargoes in the 1980s” published in The Modern Law of Marine Insurance, D R
Thomas (ed.) 1996, LLP, points out that the contrasting phrases may “betoken a difference in the standard of proof of
causation required” at pp. 124, 125.
132. Institute Cargo Clauses (WA) 1/1/63 and Institute Cargo Clauses (FPA) 1/1/63, see Chapter 9, at para. 9.2.
133. See OMay at p. 174.
134. See, for example, Historic Records Report HR5 at p. 87 suggesting that the words “reasonably attributable
to” may extend to loss of or damage to the interest insured which “might not necessarily have been directly caused by”
the peril in question.
135. At para. 23–70, p. 1064. This contrasts with the view taken in the 16th edn which stated positively that these
words were “intended” to be less stringent than the proximate cause test, Arnould, 16th edn, Vol. 3, para. 192 at p.
122; Vol. 2 para. 854 at p. 724.
136. Marine Insurance Clauses, 4th edn, 2005, Informa, at p. 38.
137. George “The New Institute Cargo Clauses” [1986] LMCLQ 438, in a close examination of the Cargo Clauses,
proceeds on the basis that “the test is of reasonable attribution rather than proximate cause”, p. 442.
138. At p. 174.
139. Shell International Petroleum Co Limitedv Gibbs (The Salem) [1982] 1 Lloyds Rep. 369 (CA).
140. At p. 381.
141. [1924] AC 431.
142. [1982] 1 Lloyds Rep. 369 at 380.
143. Ibid. at p.174.
144. See Hudson & Madge Marine Insurance Clauses, 4th edn, 2005, Informa, at p. 37 citing Symington v. Union
Insurance Society of Canton (1928) 34 Com. Cas. 23 where, Scrutton L.J., for one, approaches the matter in terms
of a traditional proximate cause test and a special rule applying to the risk of “fire”.
146. Arnould paras. 22–35, p. 958.
147. At p. 319.
148. At para. 7.1 above, Coxe v. Employers Liability Assurance Corp Ltd [1916] 2 KB 629 at 634.
149. Ibid. at p. 634.
150. Spinneys (1948) Ltd, Spinneys Centres SAL and Michael Doumet, Joseph Doumet and Distributors and
Agencies SAL v. Royal Insurance Co Ltd [1980] 1 Lloyds Rep. 406.
151. Ibid. at p. 441.
152. Oei v. Foster (formerly Crawford) and Eagle Star Insurance Co Ltd [1982] 2 Lloyds Rep. 170.
153. Coxe v. Employers Liability Assurance Corp, Ltd [1916] 2 KB 629, per Scrutton J. at p. 634.
154. Spinneys v. Royal Insurance [1980] 1 Lloyds Rep. 406 at pp. 441, 442 per Mustill J.
155. As illustrated by Clause 370, see Chapter 10, at para. 10.59.
159. See paras. 7.43, 7.44 above.
160. See paras. 7.50, 7.51 above.
CHAPTER 8
ALL RISKS AND EXCLUSIONS
HISTORY AND NATURE OF ALL RISKS COVER: BURDEN OF PROOF
8.1 All risks cargo insurance does not cover every untoward eventuality that may befall
the cargo during its journey. “All risks” is a term of art subject to implied limitations
that restrict the cover to losses resulting from a fortuity or accident. Moreover, it is the
practice to exclude certain risks from all risks cover. Accordingly, this chapter
discusses the limitations on all risks,1 which derive from the fortuitous nature of the
cover, and then considers the general exclusions, that is, wilful misconduct, delay,
insolvency, and accidents with nuclear weapons and devices. Although these exclusions
are common to all risks and most types of cargo insurance, it is convenient to consider
them in the context of all risks as this is the most widely used form of cover. There are
also exclusions of war, strikes and terrorism, but as the practice is to provide limited
cover for these exclusions they are considered separately in Chapter 10. At the end of
this chapter there follows a consideration of the seaworthiness and fitness requirements
of the carrying vessel, container or conveyance, requirements which are also common to
cargo insurance generally. Before examining these matters we consider a number of
preliminary issues specific to all risks. Firstly, the history of all risks cover, secondly,
the origins of the all risks concept in the context of the inter-relationship between
inevitability of loss and fortuity and, thirdly, the burden of proof where cargo is insured
on all risks terms.
The history of all risks cargo cover
8.2 All risks is a relatively modern concept as marine cargo insurance was for many
centuries underwritten on the basis of specific or named perils such as perils of the
seas, fire, thieves, jettison and barratry.2 In 1908 deliberations began in order to
introduce a standard form of cargo insurance, but when the Institute Cargo Clauses were
first adopted in 1912 the insurance was still against named perils.3 Although insurances
against “all risks” were being effected before the 1914–18 War, it was only in the years
immediately following that war that “all risks” cover became increasingly popular with
merchants and bankers. Traditional insurers were reluctant to extend cover to all risks
but by the 1950s this cover had become a normal everyday feature of cargo insurance,
with widespread use of brokers clauses giving all risks cover, and it was considered
desirable that there should be standardised clauses.4 As a result the Institute Cargo
Clauses (All Risks) were introduced on 1 January 1951. These Clauses were amended
in 1958, and again in 1963, the primary object of the 1963 amendments being to remove
the uncertainty which had arisen as a result of the judgment in John Martin of London
Ltd v. Russell.5 The result of that amendment was the introduction of the well-known
Institute Cargo Clauses (All Risks) 1/1/63. These Clauses remained in use until 1982 in
the London market and are still used by the Japanese marine cargo insurance market.
The 1963 All Risks Clauses were used with two forms of named perils cover, the
Institute Cargo Clauses (WA) 1/1/63 and the Institute Cargo Clauses (FPA) 1/1/63.6
8.3 In 1982 the Institute Cargo Clauses (A) were introduced in conjunction with two
new sets of clauses for named perils, the Institute Cargo Clauses (B) and (C). The SG
Form of policy, as described earlier in this book, was abolished.7 The new all risks
clauses were designated the “(A)” clauses in view of the limitations and exclusions on
“all risks”.8 In 2009 the revised Institute Cargo Clauses extended the duration of the
insurance and modified the exclusions in the cover for insufficiency of packing,
insolvency and unseaworthiness and unfitness. The main effect of the revised Clauses of
2009 is to moderate the exclusions that had been introduced in the 1982 Clauses, thus
returning the all risks cover broadly to that which had been provided by the 1963
Clauses.
Origins of the all risks concept: inevitability of loss and fortuity
8.4 The earliest reported case in which there was judicial comment on the phrase “all
risks” long preceded the standard all risks clauses and appears to be Jacob v.
Gaviller.9 In that case a policy underwritten in 1900 insured a fox terrier on a voyage to
India on a standard marine policy form with the following additional clause:
This insurance is against all risks, including mortality from any cause, jettison, and washing overboard….
It was held that the words “all risks”, unlike the time-honoured phrase “all other perils,
losses and misfortunes” added to the other risks mentioned earlier in the policy. It was
not necessary to describe the extent of the additional cover. This was first addressed in
Schloss Bros v. Stevens10 where Walton J. held that the words “all risks” were intended
to cover “all losses by any accidental cause of any kind occurring during the transit”.11
He added: “There must be a casualty”. This approach was approved and developed by
the House of Lords in British & Foreign Marine Insurance Company Limited v.
Gaunt12 where Lord Sumner said:13
“There are, of course, limits to “all risks”. They are risks and risks insured against. Accordingly the expression does
not cover inherent vice or mere wear and tear… it covers a risk, not a certainty; it is something which happens to the
subject-matter from without, not the natural behaviour of that subject-matter, being what it is, in the circumstances
under which it is carried. Nor is it a loss which the assured brings about by his own act, for then he has not merely
exposed the goods to the chance of injury, he has injured them himself.”
The limits on all risks identified by Lord Sumner may be analysed on a scale starting
with inevitability of loss, which is not a risk, and ending with inherent vice, which is a
risk as its incidence may be fortuitous. Inevitability of loss, which is considered
below14 is not in the nature of a risk, as the loss is certain and must occur. Next there is
ordinary wear and tear which also happens without any fortuity, such a loss being
“ordinary” and not accidental. However, inherent vice, which comes next and last on the
scale, is a risk in the sense that it may or may not occur. This causes particular problems
with the concept of inherent vice which are discussed later in this chapter.15 Finally,
Lord Sumner mentions losses brought about by the assureds own act. Such losses fall
into a category of their own, and only share the characteristic of not being fortuitous
because the assured brings about the loss himself, and it is therefore not accidental so
far as he is concerned.16
8.5 Inevitability of loss, also described as “known certainty of loss”,17 falls outside
the concept of risk. For example, in F W. Berk v. Style & Co Ltd18 it was held that the
poor condition of the bags in which the cargo was packed was such that “it could be
said to be certain that they would not hold their contents”.19 However, known certainty
of loss is a troublesome concept to be treated with caution as the circumstances of each
voyage will vary, most obviously with different weather conditions, but also with
different stowage aboard different vessels quite apart from other unanticipated
variables. It must be rare indeed that the loss is a known certainty.20 Moreover, the
proximate cause rule mitigates against pre-shipment circumstances being identified as
the cause of the loss. The rule is generally applied so as to identify the loss as occurring
at the time when the goods are physically damaged or lost to the assured during the
voyage or transit. Thus, where it was argued that the adventure was doomed from the
start, as a result of a fraud preconceived before the voyage had begun, that was not
treated as known certainty of loss.21
8.6 It has been held that inherent vice may be as capricious in its incidence as any
other risk.22 Thus inherent vice is not inevitable, and is insurable, but rarely so in
practice. On those rare occasions where there is express insurance cover for inherent
vice it is unclear whether this covers loss that is inevitable or only extends to the risk of
losses from inherent vice which, due to a combination of weather and other
circumstances, may, or may not, arise during the voyage.23 Where the assured knows a
loss is inevitable that would clearly be a matter material to the risk that would need to
be disclosed, but there may be circumstances where a loss is, in fact, inevitable but this
is unknown to the assured. This type of loss may be covered by an insurance covering
inherent vice but the point has been left open.24
The burden of proof under all risks insurance
8.7 Under an all risks policy it is not necessary to show which particular peril operated,
as would be the case in a policy against specific named perils, such as fire.25 It is
sufficient if the assured presents evidence reasonably showing that the loss was due to a
casualty.26 In Theodorou v. Chester27 it was held that the assured under an all risks
cargo policy was required to disprove any reasonably possible counter-theory put
forward by the insurer designed to show that the loss was not fortuitous. The assured
will succeed if the only possible conclusion the court can arrive at is that for some
unexplained reason, in some unexplained way, which it is not for the assured to prove,
there was a casualty.28
8.8 In practice it is difficult to show a fortuitous cargo loss by inference from a
trading pattern, that is by showing that a number of consignments were made in closely
comparable conditions and the goods suffered damage on only one or a few occasions.
For example, in Noten BV v. Harding,29 where a consignment of gloves suffered wet
damage, it was argued by the assured that the damage had occurred in only a small
minority of similar voyages and that this demonstrated that the loss was not caused by
the natural behaviour of the leather but by a fortuity. At first instance, Phillips J.
indicated that where a combination of circumstances only rarely combine with the
inherent characteristics of the goods carried, so as to result in damage, it may be
possible to identify a fortuity.30 However, the Court of Appeal stressed that it can only
be right to infer a fortuity if the conditions affecting each consignment are established to
be comparable.31
THE LIMITATIONS ON ALL RISKS
When do the limitations apply? “Unless the policy otherwise provides”
8.9 Before discussing losses due to wear and tear, ordinary leakage and breakage,
inherent vice and like matters, this section considers how the policy should be
construed, in any particular case, to determine whether or not such losses are covered.
The starting point is the Marine Insurance Act 1906 section 55(2)(c) which provides:
“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 and
vermin…”
On occasions cargo insurers expressly agree to undertake liability for these losses. For
example, the Institute Coal Clauses cover “fire, explosion or heating, even when caused
by spontaneous combustion, inherent vice, or nature of the subject-matter insured”.32 In
Overseas Commodities v Style33 there was express cover for inherent vice provided by
the following words:
“… against all risks of whatsoever nature and/or kind. Average irrespective of percentage. Including blowing of tins.
Including inherent vice and hidden defect.”
Such express cover for inherent vice leads to few problems. More difficult issues arise
where the insurance contract does not provide cover for inherent advice in express
terms but such cover arises by implication on the construction of the contract. In this
context the issue is to determine whether, in terms of the statute, the contract “otherwise
provides”.
8.10 It has been held that the insurance contract “otherwise provides” where the
phrase “any cause whatsoever”, or similar wording using the word “whatsoever”, is
used and the insurance will therefore extend to inherent vice. For example, in Biddle
Sawyer & Co v. Walter Peters34 the Insurance Certificate stated that the insurance was:
“… against all risks of whatsoever nature from whatsoever cause arising, including condemnation and blowing of tins
or condemnation of meat.”
Ashworth J. held that35 underwriters would have been liable for blowing of tins even if
caused by inherent vice. Similarly, in Dodwell & Co Limited v. British Dominions
General Insurance Co Limited36 the words “including risk of leakage from any cause
whatever” were held to include the risk of leakage due to inherent vice.37
8.11 The courts have not limited the phrase “unless the policy otherwise provides” to
express provisions so providing, nor, it seems, to necessary implication. A very broad
view has been taken and the insurance will “otherwise provide”, in terms of the 1906
Act, if looking at the contract as a whole the intention is to cover inherent vice or one of
the other limitations on all risks. In Soya GmbH Mainz KG v White38 shipments of soya
beans were insured against the risks of heating, sweating and spontaneous combustion
under the standard London market HSSC (Heating Sweating and Spontaneous
Combustion) Clause, which provided:
“This insurance is to cover against the risks of Heat, Sweat, and Spontaneous Combustion only.”
The facts, as summarised by Lord Diplock,39 were that the soya beans, which arrived in
a heated and deteriorated condition, had a moisture content which—though this was not
known to the assured and the insurers—made them subject to the risk that deterioration
might take place in the course of a voyage. The deterioration was in consequence of
heating and sweating, the occurrence of which was unpredictable and the exact nature of
which was unknown. This amounted to “inherent vice” and the issue in the House of
Lords was whether the HSSC Clause covered that risk. Lord Diplock held that
“spontaneous combustion” can only refer to a chemical reaction which takes place
inside the goods themselves40 and that “sweat”41 meant the exudation of moisture from
within the goods. Accordingly “heat”, in this context, was apt to include heating of the
cargo as a result of some internal action taking place inside the cargo itself. He
accordingly held that the standard HSSC policy did “otherwise provide” so as to
displace the rule of construction laid down in section 55(2)(c). He disapproved the
passage in Arnould,42 to the effect that the defence of inherent vice can only be excluded
by express words or by necessary inference, saying that:43
“The question whether particular kinds of inherent vice are covered is simply one of construction of the policy
concerned.”
Accordingly, the test is simply whether the policy “otherwise provides”—that does not
have to be a “necessary” inference but merely the natural construction looking at the
policy as a whole. If cover is granted for spontaneous combustion and heating (in the
context of inherent vice) then the intention is to cover inherent vice.
8.12 The position appears to be that, if cover is provided that is inconsistent with an
exclusion of inherent vice, because the loss could only arise from inherent vice, then the
policy “otherwise provides” in terms of section 55(2)(c) of the 1906 Act. This may give
rise to difficulty as some losses, such as spontaneous combustion, only arise from
inherent vice, while other losses, such as certain types of internal heating in other
commodities, frequently, but not always, are attributable to inherent vice. Other cargo
problems, for example, mould or mildew, may result from inherent vice or from bad
ventilation or even ingress of water affecting the cargo. It is submitted that the insurance
is only intended to “otherwise provide” in relation to the first category, where the losses
are inconsistent with the cover, as in the case of spontaneous combustion. The court
should be slow to assume that the policy “otherwise provides” in cases where inherent
vice is frequently but not always the cause of the loss.
Ordinary wear and tear, breakage, leakage and loss in weight
8.13 The Institute Cargo Clauses, Clause 4.2, provide that, in no case shall this
insurance cover:
“ordinary leakage, ordinary loss in weight or volume, or ordinary wear and tear of the subject-matter insured.”
The Marine Insurance Act 1906 section 55(2)(c) says nothing of loss in weight or
volume but limits losses from both “leakage” and “breakage” in the following terms:
“Unless the policy otherwise provides, the insurer is not liable for ordinary wear and tear, ordinary leakage and
breakage…”
This section of the book considers “ordinary wear and tear” following which there is a
brief examination of why “ordinary breakage” is not excluded by the Institute Cargo
Clauses. “Ordinary leakage” and “ordinary loss in weight or volume” are then
considered.
8.14 The exclusion of wear and tear is identified by Lord Sumner in British &
Foreign Marine Insurance Company, Limited v. Gaunt44 as one of the limitations upon
all risks. This limitation is rarely applicable to cargo insurance written on a voyage
basis because it normally implies deterioration over a significant period of time, for
example, a barge which sinks because she is getting too old to float any longer and has
got tired.45 Thus the exclusion is limited to debility occurring over a passage of time,
such as plating simply wasting away through rust, and does not encompass design
defects that lead, for example, to cracking.46 In so far as cargo is insured on a voyage
basis, and the time for the voyage is relatively limited, it is hard to see how wear and
tear could occur during the voyage. Where second-hand machinery, which has already
sustained wear and tear, is insured it may be necessary for the assured to disclose the
fact that the machinery is second-hand so that, if damage occurs, the pre-existing damage
from wear and tear can be distinguished from any fortuitous damage occurring during
the voyage.47 In Mayban General Assurance BHD v. Alston Power Plants Ltd48 a large
transformer was carried on deck from Wales to Malaysia in circumstances where it was
held to be unable to withstand the ordinary incidents of the voyage. The continual
working of the transformer in heavy seas led to cracking of the internal structure. That
was held to be inherent vice and seems the nearest analogy to wear and tear in the cargo
context.
Ordinary breakage
8.15 It is to be noted that the Marine Insurance Act 1906 section 55(2)(c), but not
Clause 4.2 of the Institute Cargo Clauses, excludes “ordinary… breakage”. This is
understood to be because insurers do not wish to rely on “ordinary breakage” as a self-
standing exclusion and will only seek to decline claims for “breakage” where there is
evidence of insufficiency of packing on which they could separately rely49 Arguably,
insurers could nevertheless rely on the statutory limitation in section 55(2)(c) in relation
to “breakage” but it is submitted that the obvious omission of “breakage” from the
Institute Cargo Clauses, as compared to the exclusion of “ordinary leakage”, is a
sufficient indication of an intention to “otherwise provide” and not to rely on the Act.50
Ordinary leakage and ordinary loss in weight: “paper losses”
8.16 The exclusions of “ordinary leakage” and “ordinary loss in weight or volume” are
imposed by Clause 4.2 of the Institute Cargo Clauses. The limitation imposed by the
Marine Insurance Act 1906 section 55(2)(c) is simply “ordinary leakage”, but it may be
that “ordinary loss in weight or volume” is an analogous limitation. Bulk cargoes, such
as oil cargoes, can be the subject of substantial shortage claims, as a relatively small
percentage shortage of oil carried by a super-tanker can result in a significant claim.
These limitations may therefore have an important impact in practice, particularly in
relation to oil shortage claims.
8.17 In general, the courts have approached ordinary leakage and ordinary loss in
weight or volume on the basis that, firstly, insurers do not intend to cover that
percentage of loss which normally occurs in certain types of trades and, secondly, that
very clear words are needed to make cargo underwriters liable for paper losses without
any physical loss of the cargo itself. As Lord Atkin put it, underwriters “were insuring
against casualties but not of arithmetic”.51
8.18 Although the courts are also reluctant to hold that normal leakage is covered,
they will do so where express wording (e.g., “from any cause whatsoever”) is used and
the insurance contract thus “otherwise provides”. In Dodwell & Co Limited v. British
Dominions General Insurance Company Limited,52 the risk covered was leakage in
barrels of oil carried from China to the United Kingdom. There were two shipments
insured on different terms on different vessels. The first consignment was insured
against the risk of “leakage” and it was held that this made the insurers liable only for
the extra leakage due to the sea transit. Based on the evidence given by average
adjusters this was fixed at 5%, so the insurers were only responsible for the difference
between that 5% and the 12% leakage actually sustained on the first consignment. By
contrast, the second consignment was insured by policies which provided:
“Including risk of leakage from any cause whatever.”
Bailhache J. held that, having expressed themselves in this way, the insurers must be
bound by their own chosen expression which he said “clearly includes all leakage to
which these barrels of oil were subjected”. Accordingly, the insurers had to pay for the
whole of the leakage proved, including the 5% normal leakage. It is to be noted,
however, that this was still actual leakage of the oil even though it was normal for the
trade in question.
8.19 In Maignen & Co v National Benefit Assurance Company53 the insurance was
on hogsheads of burgundy being carried from Beaune to Boulogne and thence to London.
The policy included “leakage and breakage however caused irrespective of
percentage”. It was argued that the leakage was inevitable; that the casks were
inadequate, and that the loss was due to either inevitability or insufficiency of packing.
Grear J. found on the facts that the wine was put into oak barrels of the usual strength
and that the loss arose from something which happened during the transit. However, he
disallowed some loss due to the inherent character of the article, saying that this loss,
which was the normal loss, was not payable by underwriters.
8.20 In De Monchy v. Phoenix Insurance Company of Hartford & Another54 the
insurance was on turpentine carried from Florida to Rotterdam insured against “leakage
from any cause in excess of 1%”. The terms of the insurance included the following:
“Where barrels with contents are weighed at a port of shipment and destination, loss, if any, due to leakage shall be
ascertained by a comparison of the gross shipped and gross landed weights.”
There then followed a formula to be applied where the barrels with contents were
weighed at the port of shipment, and the contents only at destination, so as to make a fair
allowance for the tare for each barrel. The evidence was that turpentine is very volatile,
and substantial leakage could take place without any external sign. It was argued on
behalf of the assured that the shortage in weight, achieved by comparing the weights at
loading and at discharge, was an agreed formula that meant that they were covered
against “leakage from any cause, in excess of 1%”. Insurers objected that this was not
“leakage” and argued that there had been an artificial leakage, due merely to
calculations, and that no real leakage had taken place. The House of Lords held that, as
a matter of fact, leakage had taken place and held in favour of the assured for the
amounts in excess of 1% holding that, “when a percentage of normal waste is agreed to,
it binds”.55 Viscount Sumner said:56
“The loss insured and proved I take to be an actual escape of turpentine, not a mere change in bulk owing to reduction
of temperature.”
A similar approach was adopted by Lord Atkin who said:57
“… it appears to me that such physical loss is on a proper construction of the policy to be taken to be the result of
leakage; and for any amount over 1% the assured will recover…
There was therefore proved an actual physical loss, and the plaintiffs in the action are entitled to recover the excess
over 1% of that actual physical loss.”
8.21 The courts continue to look to determine whether there was an actual physical
loss. In Coven SpA v. Hong Kong Chinese Insurance Co58 shipments of broad beans
were insured for a voyage from China to Italy on the following terms:
“Covering All Risks, War Risks including shortage in weight but subject to an excess of one per cent of the whole
shipment.”
The assured argued that “shortage of weight” was itself a peril insured against and
recovery was not limited to circumstances where there was physical loss of or damage
to the goods. Clarke L.J. held that this was a typical marine cargo policy concerned with
insuring physical loss and that it would be surprising if it insured a measurement error.59
Adopting this approach, he concluded that the words “shortage in weight” did not
provide cover for a paper loss but merely limited the cover for shortage in weight to
losses in excess of 1%, that being the normal loss. He concluded that the parties cannot
have intended to insure goods which never existed, at least in the absence of clear
terms, saying:60
“I accept that it would be possible to insure against a measurement error, and that there may indeed be commercial
reasons why a receiver might want such cover, but it would be a most unusual type of marine cargo cover and clear
terms would be required to effect it. This was essentially a marine cargo policy against loss of and damage to cargo.
Moreover it provided cover in respect of beans which existed and not in respect of beans which did not exist. The
insured would have no insurable interest in such goods as required by clause 11.1 of the Institute Clauses and the
insurance attached from the time the goods left the warehouse or place of storage as provided by clause 8.1 of those
clauses.”
Inherent vice
Inherent vice defined
8.22 The Institute Cargo Clauses provide that, in no case, shall the insurance cover:61
“loss damage or expense caused by inherent vice or nature of the subject-matter insured.”
This exclusion reflects the wording of the Marine Insurance Act 1906 section 55(2)(c)
which states that, “unless the policy otherwise provides, the insured is not liable for…
inherent vice or nature of the subject-matter insured”.
8.23 What is inherent vice? In Soya GmbH v. White62Donaldson L.J., in the Court of
Appeal, adapted the “definition” enunciated by Lord Sumner in Gaunts Case63 so that it
read:64
“A loss by inherent vice is one which is proximately caused by the natural behaviour of the subject-matter insured,
being what it is, in the circumstances in which it was expected to be carried.”
Donaldson L.J. went on to say that this was in line with the common understanding of
the exception of inherent vice in contracts of affreightment and that it seemed to be both
right and natural that the concept should be treated similarly in the context of both
carriage by sea and marine insurance.65 In the House of Lords, in the same case, Lord
Diplock said:66
“This phrase (generally shortened to “inherent vice”) where it is used in s. 55(2)(c) refers to a peril by which a loss is
proximately caused; it is not descriptive of the loss itself. It means the risk of deterioration of the goods shipped as a
result of their natural behaviour in the ordinary course of the contemplated voyage without the intervention of any
fortuitous external accident or casualty.”
These definitions are seen as being somewhat broader than the traditional view of
Arnould which limited inherent vice to cases where the loss was “solely due to the
nature or condition of the insured property”.67 By extending inherent vice to cover the
contain-erisation of the goods,68 and their packing or preparation,69 a new and wider
role may have been created for this exclusion than that contemplated by the 1906 Act.70
8.24 Examples of inherent vice, as set out in the second edition of Arnould on
Marine Insurance71 included fruit becoming rotten, or flour heating, or wine turning
sour, not from external damage but entirely from internal decomposition. Spontaneous
combustion of certain types of coal is a recognised problem as is the heating of soya
beans. Discoloration in a cargo of fish72 perhaps less so. But moisture damage to
cargoes carried by container73 is of general concern and deserves closer consideration.
Inherent vice and containerisation: moisture and condensation damage
8.25 The issue of moisture has been the subject of consideration in a number of cases
that preceded containerisation. In Whiting v. New Zealand Insurance Company Ltd74 a
number of consignments of paper hats were imported to London from Japan in late
1929. The insurance covered perils of the seas and damage by fresh water. Most of the
hats arrived sound both that year, and during the previous 20 years, but claims arose on
a number of cases of hats which were found to be mouldy on arrival in London. It was
held, on the evidence of the wooden packing cases which were produced in court, that
the moisture damage was due to wet damage to the goods on the quay in Japan and, as
such, was recoverable under the policy whether the wet damage was caused by
seawater or by freshwater. Commenting on the legal effect of moisture, Roche J. said:75
“Whatever the cause for the mould I am satisfied that it was an external cause.
It is suggested that it might have been moist atmosphere. If it was that I think it would not be a matter which would
render the [insurers] liable. Moist atmosphere is not an accident or peril that is covered. It is more or less a natural test
or incident which the goods have to suffer and which the underwriter has not insured against.”
A little later Roche J. acknowledged that the moisture caused the mould but explained
that, as it came from an outside source, namely wet damage on the quay, it was covered,
saying:76
“I think there was wet on the quay which affected these cases and from the cases went into the goods themselves in
the form of moisture. I do not mean in the form of running water. The wet which affected the cases would set up that
moist atmosphere which is shown to encourage the growth of this fungus, mould. Moisture of that sort originated in
most of the cases through fresh water. Standing in pools on the quay is a peril which is insured against. Accordingly, I
hold that the [insurers] are liable for damage occasioned by that cause.”
8.26 The same distinction had been made by Wright J. in C T. Bowring & Co Ltd v
Amsterdam London Insurance Co Ltd77 which concerned consignments of ground nuts
imported from China to Rotterdam and Hamburg. There was damage by heating and
sweat on discharge. It was maintained by the insurers that the heating was due to
inherent vice “namely the fact that the ground nuts, when shipped, were not sufficiently
dry and were so moist that they were unable to endure, without damage, the ordinary
incidents of an ordinary voyage, of this type”.78 The policies covered against, “sweating
and/or heating when resulting from external cause”. This put the onus on the assured to
show the loss was from an external cause.79 Wright J. cited the judgment of Lord
Sumner in Bradley v. Federal Steam Navigation Co,80 in a dispute under a contract of
carriage by sea where he said that the shipowners were not called upon to bear damage
to a cargo of apples that went rotten when, “they were not fit to make the voyage in the
ordinary way”. He accordingly concluded that the damage to the ground nuts was caused
by inherent vice as it originated from within the ground nuts which were shipped in an
exceedingly moist condition and were unable to make the voyage in the ordinary way81
However, the position with regard to the “sweat” damage was in a different category.
The damage here was again from moisture, but from the ships hold. Wright J. said:82
“The external cause, to my mind, is the moisture which condenses on the ships side or on the ships beams. Where that
moisture comes from it is impossible to say. It may come from the moist air which comes down the ventilators in the
tropics; it may come from ordinary condensation, precipitation of the moisture in the air, when there are alternations of
heat and cold, but wherever it comes from it is moisture; it is water—sweat water it is called sometimes. It is
impossible to trace the origin of that sweat water to the goods in question here. In any case, the sweat water has gone,
as it were, into the universe on its own, even if it has come from those particular goods that are insured. It has set up a
life of its own and has achieved an identity of its own; and I think it has merited the appellation of an external cause
whether the sweat water, which I take it is forming inevitably in every ship on all these voyages, happens to drop on
any particular bag or on any of the [assureds] bags. To what extent it happens to drip on those bags is, I think,
fortuitous, and a matter of chance (using that word broadly) and a casualty.”
8.27 This passage acknowledges that the moisture may even have “come from those
particular goods that are insured”, but explains that the loss comes nevertheless from an
external source. As such, the water has “set up a life of its own” or gone, as it were,
“into the universe of its own”. This view was treated as rather too subtle by the Court of
Appeal in the more recent decision of TM Noten BV v. Harding83 a case of carriage of
goods in a container. In this case a cargo of gloves was shipped in containers from
Calcutta during the monsoon period and outturned in Rotterdam in a severely damaged
and mouldy condition. At first instance it was held84 that as the damage was caused as a
consequence of the moisture in the gloves condensing on the inside of the top of the
container and falling on to the gloves, the damage was from an external cause. However,
in the Court of Appeal it was held that the proximate cause of the damage was the water
within the gloves themselves and that this was therefore a loss by reason of inherent
vice. This approach suggests that containers are to be treated as part of the packing of
the goods rather than being part of the transportation system in which the goods are
carried.85 By contrast, as we have seen, where goods were damaged by water
originating from within the goods, which had condensed on to the side of the hold in a
ship, that is, by sweat damage, it was held that this loss was from an external cause.86 In
TM Noten BV v Harding87 Bingham L.J. said:88
“[Counsel] who appeared for the [assured] in this appeal accepted that if the damage complained of had been caused
by excessive moisture in the gloves, but without the intervening process of condensation on the roof of the containers,
the position would have been different. But he said it was a crucial fact that the moisture condensed on the container
roofs before dropping down on the gloves.
I do not for my part think that this answer given by the [assured] would appeal to the common sense of the business or
seafaring man. He would not understand how the water which had caused the damage could be regarded as coming
from a source external to the goods, but would on the uncontradicted findings regard the gloves as the obvious and sole
source of the water. He would, I think, regard the suggested distinction based on the intermediate migration of moisture
to and condensation of moisture on the roofs of the containers as owing more to the subtlety of the legal mind than to
the common sense of the mercantile.”
This approach to condensation damage in containers can leave an assured, who has had
many successful shipments, without insurance coverage when a combination of unknown
fortuitous circumstances, going beyond moist conditions at shipment and cool conditions
at discharge, combine to produce damage originating within the goods themselves.
Insufficiency of packing: a form of inherent vice?
8.28 The material in which goods are customarily carried, for example the bags89 or
wooden packing cases,90 normally forms part of the subject-matter insured. In Brown
Brothers v. Fleming and Others91 where “228 cases [of] whisky” were insured for
carriage from Glasgow to Singapore it was held that, “the straw in which the bottles
were packed and the labels upon the bottles [were] part of the subject-matter insured
just as [were] the bottles and corks”.92 In these circumstances the question arises
whether a failure of the packing material to withstand the ordinary incidents of the
voyage amounts to inherent vice of the subject-matter insured.
8.29 The decisions of Sellers J. in 1955 in Gee & Garnham v. Whittall93 and F. W.
Berk v. Style94 proceeded, at least in part, on the basis that bad packing constituted
inherent vice. The fifteenth edition of Arnould95 considered unfitness of packing as an
unjustifiable extension of the concept of inherent vice, but was disapproved by
Donaldson L.J. in Soya v. White,96 and, accordingly, this view is no longer espoused by
Arnould.97 Ye t it had much to commend it. In particular, insufficiency of packing is a
separate problem, distinct from natural deterioration from within the goods, and is
treated separately in the Institute Cargo Clauses. That said, the courts treat bad packing,
even under the Institute Cargo Clauses, as inherent vice, most recently in the troubling
decision in Mayban General Assurance BHD v. Alstom Power Plants98 where Moore-
Bick J. said that bad packing, “can properly be regarded as an aspect of inherent vice”.
8.30 The suggestion that bad packing can be regarded as inherent vice means that, in
theory, insurers could, as a fall-back position, seek to rely on inherent vice to decline a
claim arising from insufficiency of packing that was not excepted from the cover by the
packing and preparation exclusions in Clause 4.3. The answer to that may be that, as
Clause 4.3 covers packing, the policy “otherwise provides” in terms of the 1906 Act.99
In support of this view, it is submitted that though insufficient or inadequate packing has
been held to be an aspect of inherent vice, so far as the Institute Cargo Clauses are
concerned the intention is that packing and containerisation should be regulated by the
provisions of Clause 4.3 (insufficiency of packing and preparation) and not by the
inherent vice exclusion in Clause 4.4.
Insufficiency of packing under the Institute Cargo Clauses
8.31 There may be cases where the packing is not part of the subject-matter insured,100
and, in any event, an assured may not associate bad packing or preparation with inherent
vice. Accordingly, in January 1982, the Institute Cargo Clauses introduced, for the first
time, an express exclusion of insufficient packing or preparation in the following terms:
“4. In no case shall this insurance cover:
4.3 Loss damage or expense caused by insufficiency or unsuitability of packing or preparation of the subject-
matter insured (for the purpose of this Clause 4.3 ‘packing’ shall be deemed to include stowage in a
container or liftvan but only when such stowage is carried out prior to attachment of this insurance or by the
Assured or their servants).”
This clarified the need for sufficient packing but extended the exclusion to cases where
the poor packing took place during the currency of the insurance risk in circumstances
analogous to bad stowage. It also made clear that it was not only packing but also
insufficiency or unsuitability of preparation of the subject-matter insured (e.g. lack of
inhibitors to prevent corrosion) that was excluded.101 The result, in practice, was the
use in the London market of brokers clauses making insurers liable for loss arising from
bad packing or preparation of the cargo, at least where the assured was not responsible
for the packing or preparation.102 The revised Institute Cargo Clauses103 make
significant changes and read as follows:
“4. In no case shall this insurance cover
4.3 Loss damage or expense caused by insufficiency or unsuitability of packing or preparation of the subject-
matter insured to withstand the ordinary incidents of the insured transit where such packing or preparation is
carried out by the Assured or their employees or prior to the attachment of this insurance (for the purpose of
these Clauses ‘packing’ shall be deemed to include stowage in a container and ‘employees’ shall not include
independent contractors).”
The revised insurance now covers bad packing or preparation following the attachment
of the insurance unless it is carried out by the assured or their employees. Where the
bad packing or preparation takes place in the warehouse or factory before the
attachment of the insurance there is no cover regardless of whether the packing is
carried out by the assured or by third parties. The insurers approach in such
circumstances is that the loss, though not necessarily inevitable, is analogous to a loss
by inherent vice. An issue arises in practice as to what amounts to the use of third party
packers and what constitutes packing or preparation “carried out” by the assured or
their employees. How are the words “carried out” to be understood? If the assured or
their employees give detailed instructions to third party packers it may be that in
extreme cases such packing is “carried out” by the assured if, looking at the facts, the
assured have control of the packing methods and supply the materials. Alternatively, It
could also be argued for insurers, though this was not the intention, that giving detailed
instructions on the packing is itself “preparation” carried out by the assured.
8.32 The proposals for the more limited packing and preparation exclusion in the
revised Institute Cargo Clauses gave rise, at the time, to concerns amongst traditional
underwriters that this would open the door to the use of cheap and inadequate packers
and to a consequent increase in cargo claims. However, if the assured knowingly
exposes the goods to an enhanced risk that would be a matter for disclosure as material
to the risk.104 Although there may be difficulties under an open cover of showing a duty
to disclose prior to any individual declaration, if it is the assureds habit to use
inadequate packers that would, at least, be disclosable on renewal of the insurance
contract. Finally, it may be noted that the revised Institute Clauses retain the insurable
interest requirement so that the assured will generally benefit from a successful transit
where the goods arrive sound at their destination.
8.33 An issue arises in relation to the extended duration of the insurance and how this
interacts with the new packing arrangements. The duration of the insurance cover has
now been extended by the revised Institute Cargo Clauses to attach the insurance when
the subject-matter insured is “first moved” for the purposes of leaving the warehouse on
the insured transit.105 If the goods are removed from their place of storage in a
warehouse to be prepared for carriage, any defective preparation carried out by third
party packers which caused loss would not be a covered risk because the goods have
been first moved for “packing” and not for loading. The terms of the revised Clause 8.1
of the Institute Cargo Clauses emphasise that the movement of the goods only attaches
the insurance when the movement is “for the purpose of the immediate loading into or
onto the carrying vehicle or other conveyance for the commencement of transit”.
8.34 Where, as is commonly the case, goods are stowed in containers, the position
under the revised Institute Cargo Clauses is the same as for cargo packed more
conventionally. The term “packing” is deemed to include stowage in a container.
Accordingly, any loss of or damage to the cargo is excluded if it is caused by
insufficiency or unsuitability of the container where the stowage is carried out prior to
the attachment of the risk. Similarly, if the packing is carried out by the assured,
insufficiency or unsuitability of the container will be a defence if the assured or their
employees stow the container, whether this is done before or after the attachment of the
insurance. The revised Clauses do not change the exclusion with regard to containers
which remains the same as it was in the 1982 Clauses with some revisions of the
drafting intended to allay the criticisms of the previous Clause 4.3.106 In effect the
exclusion in the revised Clauses has been amended to bring the position with regard to
the packing and preparation of cargo into line with the exclusion that prevailed with
regard to containerisation.
What amounts to insufficiency of packing or preparation?
8.35 The material words of exclusion 4.3 are, “insufficiency or unsuitability of packing
or preparation of the subject-matter insured to withstand the ordinary incidents of the
insured transit”. In the Australian case of Helicopter Resources Pty Ltd v Sun Alliance
Australia Ltd107 the meaning of the words “packing” and “preparation” was explored in
some detail in the illuminating judgment of Ormiston J. in the Commercial List of the
Supreme Court of Victoria. In this case, the claim was for storm damage inflicted on
four helicopters stowed in the ship Icebird. The damage occurred during a Force 12
gale on a voyage from Hobart to the Antarctic base at Casey. The insurers alleged
insufficient packing and preparation in that the helicopters were not properly lashed and
secured by the assureds employees to the pontoons in the hold upon which they were to
be carried.108 Ormiston J., in relation to “packing”, said:
“Without wishing to preclude the possibility that packing or preparation may in exceptional cases occur on board a
vessel, the clause is directed to those steps which are necessary to prepare the cargo for the loading process, not the
very acts which result in the cargo being stowed on board.”
After discussing the position regarding containers, Ormiston J. continued:
“The word ‘packing’ should otherwise be confined to the placing of an outer covering over the cargo or the placing of
the cargo in a box or a similar container specifically designed for the transportation of that cargo.”
Ormiston J. then turned his attention to “preparation” saying:
“The word ‘preparation’ in sub-clause 4.3 is clearly wider in its connotation but it is also directed to those steps taken
to making an item ready for transportation before it is taken and placed on board the vessel, in the course of the
process of loading and stowing the cargo. Whereas the word ‘packing’ may be confined to the placing of goods in
some form of outer covering, whether peculiar to the item shipped or of a more general kind, the word ‘preparation’
contemplates that there may be other acts which may be necessary to prepare cargo for loading and stowing on board
a vessel…. The removal, adjustment and securing of some mechanical part may be required for an item to be shipped
‘in bulk’ and there are many and various other ways in which cargo is prepared for transportation without it being
packed. But in each case the sub-clause is directed to those acts done before the cargo is loaded and stowed on
board.”
This passage stresses that “preparation” like “packing” will normally precede loading.
It also highlights that there may be many different methods of “preparation” applicable
in different trades. It is submitted that, for example, the use of moisture inhibitors would
be included within the “preparation” of the cargo and that failure to use such inhibitors
would amount to lack of preparation and that moisture losses thus caused would be
excluded from cover.
8.36 The words “to withstand the ordinary incidents of the insured transit” were
added to the revised clauses in 2009. This phrase originated in the cases concerned
with inherent vice which speak of loss caused by “the natural behaviour of the subject-
matter insured, being what it is in the circumstances in which it is expected to be
carried”.109 The principle was applied by Moore-Bick J. in Mayban General
Insurance BHD v. Alstom Power Plants Ltd110 where it was held that a large
transformer carried on deck was unable to withstand the ordinary incidents of the
carriage due to the failure to protect it by adequate packing.111 The revised Clauses
incorporate this standard “to withstand the ordinary incidents of the insured transit”, on
the face of the insurance so that the assured is aware of the limitations on insurers
liability.
Rats and vermin
8.37 The Marine Insurance Act 1906 section 55(2)(c) states:112
“Unless the policy otherwise provides, the insurer is not liable … for any loss proximately caused by rats or vermin.”
There is no equivalent exclusion in the Institute Cargo Clauses, nor are rats and vermin
mentioned by Lord Sumner in his judgment in British & Foreign Marine Insurance Co
v. Gaunt,113 which examined the limitations on all risks cover.114 However, the 1906
Act reflects the fact that losses due to the action of rats and vermin were not
traditionally treated as perils of the seas, for example a ships bottom destroyed by rats
was held not to have been destroyed by perils of the seas,115 and similarly a ships
bottom damaged by vermin.116 The exclusion in the Act uses the words “loss
proximately caused by rats or vermin” which gives more emphasis to the word
“proximately” than in the exclusions of wear and tear, ordinary leakage and breakage,
and inherent vice. This emphasis may be explained by the case of Hamilton, Frazer &
Co v. Pandorf & Co117 where the question before the court was whether, in a seaworthy
ship, the gnawing by rats of some part of the ship, so as to cause seawater to come in
and cause damage to the cargo, was a danger and accident of the seas. It was held that
the loss was not proximately caused by the rat but was caused by a peril of the seas, that
being the immediate cause of the loss.118 There may be a distinction between the action
of rats and vermin that occurs over the course of time, and is equivalent to wear and
tear, also excluded in the same section of the Act, and a sudden ingress of water into a
ship caused by rats attacking a particular pipe or other vital part of a seaworthy ship.
8.38 Although rats are still a potential problem at sea,119 cargo is more particularly
exposed to infestation damage by insects which, it is submitted, are “vermin” within the
terms of the exclusion.120 It seems clear that under the old form of policy,121 or a policy
against specific perils, such as policies underwritten on terms of the Institute Cargo
Clauses (B) and (C), there is no cover for such infestation unless, exceptionally, it leads
to ingress of water.122 However, where the Institute Cargo Clauses (A) are used, which
is usually the case, the position regarding cover for infestation is not entirely clear. The
policy covers “all risks” but customarily123 does not expressly “otherwise provide”, in
terms of section 55(2)(c) of the Marine Insurance Act 1906, so far as rats and vermin
are concerned. Although the position is uncertain, the better view is that “all risks”
covers the risks of rats and vermin and, therefore, infestation where there is loss of or
damage to the cargo from an external cause.124 Ultimately it is a question of construction
of the policy as a whole.125 Losses caused by rats and vermin are fortuitous and
accidental losses falling within the term “all risks”. The limitation imposed by the Act
on such losses is notably absent from the Institute Cargo Clauses where there are
exclusions of the other relevant matters referred to in section 55(2) (c). This omission
from the scheme of the exclusions in Clause 4 of the Institute Cargo Clauses is a strong
indication that the policy “otherwise provides”. In short, the absence of the exclusion is
indicative of an intention to cover this type of loss under an all risks policy written on
the terms of the Institute Cargo Clauses.
GENERAL EXCLUSIONS
Wilful misconduct
Wilful misconduct defined
8.39 The Institute Cargo Clauses exclude “loss damage or expense attributable to the
wilful misconduct of the Assured”.126 This reflects the Marine Insurance Act 1906
section 55(2)(a), which provides as follows:
“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;”
A loss directly caused by misconduct of the assured could never be an insured loss, not
only because it would not be fortuitous, but more fundamentally, because it would be a
fraud on the insurers. Accordingly, an assured cannot recover on his insurance where he
has deliberately caused a loss as it would be against public policy to allow recovery.127
Moreover, it would appear to be a breach of the duty of good faith.128 This exclusion
may be seen therefore as declaratory, and, in particular, as codifying the special rule of
causation which applies in cases of wilful misconduct. In this context, it is not merely
losses proximately caused by the wilful misconduct of the assured that are excluded but
also those more widely “attributable” to such misconduct.129
8.40 The essential elements of wilful misconduct are, firstly, that the assured intended
to achieve loss of or damage to the subject-matter insured (or that he was recklessly
indifferent to whether such loss or damage was caused) and, secondly, that his
immediate purpose was to claim on his insurers.130 The defence is open to insurers
where the assured has deliberately exposed the subject-matter insured to an insured
peril for the purpose of accomplishing a loss.131 For example, it would amount to wilful
misconduct if an assured cargo owner deliberately exposes cargo to inevitable damage
on the voyage in an endeavour to claim on the policy for such loss or damage rather than
to complete the voyage.132
8.41 The defence of wilful misconduct is commonly relied on in hull cases, where
scuttling is alleged. There are examples in cargo cases, most notably in The Salem,
where a “gigantic ship was used for a gigantic fraud” which consisted of scuttling the
ship with part of the cargo still on board.133 However, scuttling by the shipowners will
not discharge the insurers of the cargo unless the scuttling is preceded by a change of
voyage taking the cargo off risk.134 The examples of wilful misconduct and fraud in
cargo cases more often take the form of attempting to insure cargo which does not exist
at all.135 This difference in the nature of wilful misconduct may arise because the
assured cargo owner generally has little control over his cargo once the voyage has
commenced and any misconduct prior to attachment of the risk will usually give rise to
other defences, such as inherent vice. In Forder v. Great Western Railway Company136
it was suggested that it would be wilful misconduct, in the context of a carriage contract,
if the person in charge of loading knew that the mode of packing would be injurious and
nevertheless allowed it to be adopted. Accordingly, it may be suggested that if a cargo
owner knowingly, or recklessly, adopts a method of packing that is injurious to the
goods, intending to create an insurance claim, then wilful misconduct will be an
additional defence to any insufficiency of packing or inherent vice defence already
available.137
8.42 It has been suggested138 that it would be wilful misconduct if the assured
shipped goods to a country where their importation was prohibited by law with the
result that the goods were destroyed or confiscated by the customs authorities.139
Wilful misconduct distinguished from lack of due diligence
8.43 In some cases there may be a fine line between negligence of the assured, which is
covered, and wilful misconduct which is not.140 For example, in Papadimitriou v.
Henderson141 a vessel insured against war risks was captured by insurgents during the
Spanish Civil War when she failed to put back into port despite warnings of the danger.
Wilful misconduct was alleged but rejected by the court as the assured had not
deliberately exposed the vessel to capture.
8.44 It may be stressed at this point that mere negligence, not amounting to wilful
misconduct, is generally covered under the insurance though there may be
circumstances, in particular, after a loss, where the assured has a duty to avert or
minimise that loss.142 When the policy provides that the assured must take all
reasonable steps to avoid the occurrence of a loss, a provision sometimes inserted in
cargo policies, 143 such clauses have been construed as requiring the assured only to
avoid recklessness.144 In Crows Transport Ltd v. Phoenix Assurance Co, Ltd, 145 a case
of a hauliers policy covering their liability for goods in transit, there was a requirement
that the insured “shall take all reasonable steps to safeguard the property insured from
loss and damage”. The hauliers manager received gramophone records from the Decca
Record Company at his London office and left them unlocked in a basement from where
they were stolen whilst he was out for a short lunch break. It was held that the manager
acted “reasonably” albeit that there had been two other thefts at the premises, one of
Decca records, though not from the basement. The judge pointed out that the condition in
the policy only required “reasonable” steps to be taken not “all possible or all practical
steps”.146
8.45 A loss which the assured “brings about by his own act” is the last of the limits
on all risks enumerated by Lord Sumner in Gaunts Case.147 As dishonesty of the
assured can never be a covered risk it may be the case that Lord Sumner had in mind
action by the assured that deliberately exposed the goods to harm but was not dishonest,
for example, neglect to pay warehouse dues exposing the goods to risk of sale under a
court order. If the assured deliberately exposes his goods to obvious risk, for example,
by leaving them uncovered and exposed to the elements so that they suffer wet damage,
this might also fall within Lord Sumners words. It may be that such action would qualify
as “recklessness” and would therefore amount to wilful misconduct as defined under
English law.148 An alternative defence would be that such a loss, which the assured
brings about by his own act, is not an all risks loss. It is submitted, however, that this
should not be allowed to encroach on the principle that, in the absence of express terms,
negligence is no defence for insurers.
The position of the innocent c.i.f. buyer
8.46 As cargo policies are commonly assigned under c.i.f. contracts the question arises
whether an innocent assignee of a cargo policy who, as buyer of the cargo and
insurance, takes the policy unaware of wilful misconduct by the seller, nevertheless
takes the assignment of the policy subject to any wilful misconduct defence by the
insurers. Where the insurance is assigned, the Marine Insurance Act 1906 section 50(2)
provides that the insurers are entitled to make any defence arising out of the contract
which they would have been entitled to make if the action had been brought in the name
of the person by, or on whose behalf, the policy was effected. However, this is not
necessarily the end of the analysis as the claimant may not be merely an assignee but
also an assured in his own right. As discussed earlier in this book, London market cargo
open covers are often widely drawn with a view to giving the original assured named in
the policy the right, as agent, to insure his customer, typically a c.i.f. buyer, as an
assured in his own right.149 Moreover, the revised Institute Cargo Clauses define the
“Assured” to include the “person claiming indemnity either as the person by or on
whose behalf the contract of insurance was effected or as an assignee”.150 This
constitutes the c.i.f buyer not merely an assignee but also an additional assured in his
own right within the rules set out by Colman J. in National Oilwell v. Davy Offshore.151
8.47 The question whether the innocent c.i.f. buyer can recover as an assured in his
own right, and not as an assignee, depends on whether the cargo policy is joint or
composite. Where mortgagor and mortgagee of a ship were insured it was held that the
mortgagees interest was separate, Viscount Cave saying:152
“But in this case there is no difficulty in separating the interest of the mortgagee from that of the owner; and if the
mortgagee should recover on the policy, the owner will not be advantaged, as the insurers will be subrogated as against
him to the rights of the mortgagee.”
8.48 As different interests (mortgagor or mortgagee) were involved that was a
composite policy. Where the assured has the same interest, the policy is said to be joint.
Under a cargo policy, both seller and buyer have the same interest, ownership of the
goods. Their interest is in that sense joint and, on this basis, the c.i.f. buyers claim as
assured under a cargo policy would seem to be tainted with the fraud of the seller.
However, the seller and the buyer are not owners of the cargo at the same time.
Accordingly, there is much to be said for the view that the innocent buyer should not be
prejudiced by the wilful misconduct of the seller. The c.i.f. buyer as assured in his own
right has the benefit of a separate contract carved out of the open cover in his favour.153
The special position of the interest of the c.i.f. buyer may give scope for developing the
law in such a way that the position of the non-fraudulent buyer is not affected. There is
some support for this approach in the non-marine case of Direct Line Insurance plc v.
Khan.154 In this case Mance L.J. allowed leave to appeal, inter alia on the basis that the
law might be developed in such a way in relation to joint ownership of a house.
Although the conventional view of cargo insurance is that the buyer takes subject to the
sellers fraud, or wilful misconduct, it is submitted that as the buyer is an assured in his
own right there is scope for the development of the law in favour of the innocent c.i.f.
buyer either on the basis of a separate contract or a separate interest. If the claim is
payable, in theory the insurers could exercise rights of subrogation in the buyers name
against the seller, though in practice this is unlikely to avail them if the seller is a rogue
who, as likely as not, has disappeared.
Delay
8.49 The Delay Exclusion in the revised Institute Cargo Clauses now reads as follows:
“4. In no case shall this insurance cover
4.5 loss damage or expense caused by delay, even though the delay be caused by a risk insured against…”
This wording reflects, in some respects, 155 the Marine Insurance Act 1906 section
55(2)(b) which is as follows:
“Unless the policy otherwise provides, the insurer on ship or goods is not liable for any
loss proximately caused by delay, although the delay be caused by a peril insured
against;”
What are cargo insurers seeking to achieve by this exclusion? There is no doubt that
cargo underwriters do not wish to be responsible for losses on goods by reason of their
having passed their sell-by date. The example usually given to illustrate this rule is
delay in delivery of a consignment of diaries or calendars which are rendered useless.
Thus seasonal goods that arrive intact, but are worthless, due to the delay, cannot be the
subject of a valid cargo insurance claim.156 The same reasoning applies to other less
dramatic forms of loss of market so that a collision may delay a voyage and the price of
a bulk cargo may have fallen by the time of its arrival. Losses in market, where the
cargo arrives sound and undamaged are not recoverable even though the delay is caused
by insured perils either under all risks clauses, such as the Institute Cargo Clauses (A),
or by named perils under the (B) and (C) Clauses. These are clear cases. Beyond them
the exclusion of delay is so linked with causation that it is dealt with in Chapter 7 where
the revision to the current Institute Cargo Clauses, by reason of the omission of the word
“proximately”, is explained and examined in some detail.157
Insolvency and financial default
The revised exclusion: 2009
8.50 The revised Institute Cargo Clauses exclude insolvency and financial default as
follows:158
4.6 Loss damage or expense caused by insolvency or financial default of the owners managers charterers or
operators of the vessel where, at the time of loading of the subject-matter insured on board the vessel, the
Assured are aware, or in the ordinary course of business should be aware, that such insolvency or financial
default could prevent the normal prosecution of the voyage.
This exclusion shall not apply where the contract of insurance has been assigned to the party claiming
hereunder who has bought or agreed to buy the subject-matter insured in good faith under a binding
contract.”
This exclusion is limited to insolvency or financial default of the sea carriers, defined
as the “owners managers charterers or operators of the vessel”. The historical reasons
for this are discussed below but in these days of extensive storage risks and cover for
land transits, it may be noted that neither losses from failure of warehousekeepers, or
other bailees, or of land carriers, are excluded.
8.51 The exclusion only applies where, at the time of loading, the assured are aware,
or ought in the ordinary course of business to have been aware, that the insolvency or
financial default could prevent the normal prosecution of the voyage. The insurers
would therefore have to prove, firstly, that the insolvency caused the loss and, secondly,
knowledge by the assured, meaning the alter ego or governing mind of the assured if a
company.159 These may prove to be formidable obstacles for insurers. Additionally,
where the claimant is an assignee, as will commonly be the case, who has bought in
good faith under a binding contract, the exclusion does not apply. The operation of the
exclusion has been narrowed in the revised Institute Cargo Clauses to only the most
clear cases where the assured themselves have knowingly employed a sea carrier of
doubtful financial standing or viability. The exclusion does not apply at all to an
assignee who has bought in good faith under a binding contract.160
8.52 The exclusion of insolvency and financial default was introduced for the first time
in 1982 in response to a number of losses sustained by the London insurance market.
Those losses had occurred where owners of sub-standard tonnage became insolvent and
abandoned the voyage, frequently without any marine casualty, and, as often as not, as a
result of engine breakdowns where the vessels machinery was inadequately maintained.
8.53 There was some doubt in the market as to whether an all risks cargo policy
covered losses arising from insolvency. However, the decision of Goddard L.J. in
London & Provincial Leather Processors v. Hudson161 held that where the assured was
wrongfully deprived of his goods as a result of a conversion there was an all risks loss
even if the conversion resulted from the insolvency of the third party to whom the
assured had entrusted the goods.162 It therefore appeared that where insolvency led not
merely to delay in the voyage, which would be excluded, 163 but to a loss of the goods
or the adventure, 164 that loss would be covered under an all risks policy. Moreover, the
expense of forwarding the goods to destination, to avoid a loss of the adventure, was
arguably covered under a cargo insurance as sue and labour.165
8.54 The London market were not comfortable with this as they felt that losses arising
from insolvency were in the nature of a commercial risk which should not be the
business of cargo insurers concerned with loss of or damage to the cargo from major
sea perils, or, at least, theft, malicious damage or the like. There was even a suggestion
that an all risks cargo insurance covering insolvency contravened the Lloyds
Regulations prohibiting, at that time, the writing of financial risks. The result was that
the Institute Cargo Clauses (1/1/82) introduced an insolvency exclusion which
excluded, “loss damage or expense arising from insolvency or financial default of the
owners managers charterers or operators of the vessel”.166
Forwarding charges
8.55 A major concern was, and continues to be, forwarding charges. In practice, it often
happens that a poorly maintained vessel suffers an engine breakdown or fire, puts into
port, and is unable, due to the financial circumstances of the owner or charterer, to
continue the voyage. In the circumstances cargo interests incur expense, in terms of sue
and labour, by forwarding their goods to their intended destination. Where this arises
from insolvency it is dealt with specifically in the Forwarding Charges Clause, Clause
12, which was also introduced in 1982, in parallel with the insolvency exclusion, and
which now reads as follows:167
“Forwarding Charges
Where, as a result of the operation of a risk covered by this insurance, the insured transit is terminated at a port or
place other than that to which the subject-matter is covered under this insurance, the Insurers will reimburse the
Assured for any extra charges properly and reasonably incurred in unloading storing and forwarding the subject-matter
insured to the destination to which it is insured.”
This positive confirmation of sue and labour cover is, however, subject to the following
exclusion:
“This Clause 12, … shall be subject to the exclusions contained in Clauses 4, 5, 6 and 7 above, and shall not include
charges arising from the fault negligence insolvency or financial default of the Assured or their employees.”
The first part of the Forwarding Charges Clause really does no more than clarify the
position that such charges are recoverable as sue and labour in order to avert a loss of
the adventure. The real purpose of the Forwarding Charges Clause was to trigger the
insolvency exclusion under Clause 4.6 which, as we have seen, excluded “loss damage
or expense arising from insolvency or financial default of the owners managers
charterers or operators of the vessel”. For good measure, and in an abundance of
caution, the Forwarding Charges Clause also excludes charges arising from the
insolvency of the assured themselves.
The Institute Commodity Trades Clause exclusion of insolvency
8.56 The insolvency exclusion in the 1982 Clauses immediately met with resistance
from brokers and assureds in the London insurance market.168 As a result of difficulties
involving the Trade Associations, the Joint Cargo Committee introduced Clause JC93 in
November 1982169 amending the exclusion in Clause 4.6 in favour of the assured. The
amending clause read as follows:
“In no case shall this insurance cover loss damage or expense arising from insolvency or financial default of the
owners managers charterers or operators of the vessel where the Assured are unable to show that, prior to the loading
of the subject-matter insured on board the vessel, all reasonable practicable and prudent measures were taken by the
Assured, their servants and agents, to establish the financial reliability of the party in default.”
8.57 When soundings were taken with the commodity trades, despite the softening of
the clause in favour of the assured, the Trade Associations continued to argue that
special conditions prevailed in some trades and that further protection for the assignee
of the insurance was necessary. In particular, the point was made that an assignee could
be, and in many trades would be, innocent of any knowledge of the solvency of the
owners, managers, charterers or operators of the vessel.
8.58 It was also argued that the words “arising from” (in the phrase “arising from
insolvency or financial default of the owners, managers” etc) were intended by insurers
to exclude not only losses directly caused by insolvency but also losses indirectly
arising from insolvency. OMay on Marine Insurance170 takes the view that “arising
from” and “caused by” both mean “proximately caused” by as does Arnould.171
Goodacre in Marine Insurance Claims172 takes the view that “arising from” is wider
than “caused by” and it is submitted that Goodacres views, though not supported by
authority, probably reflect the market understanding.173 Accordingly, the Trades Clauses
version of the insolvency exclusion substituted the words “caused by” for the words
“arising from” to clarify the position that the proximate cause rule was to apply, that is
to say, that only losses proximately caused by insolvency would be excluded.
8.59 The brokers on the London insurance market continued to resist the insolvency
exclusion in its unamended form or as amended by JC 93. In recognition of this, and the
reasonable expectations of the ordinary assured, the revised Institute Cargo Clauses
have now adopted in its entirety the version of the insolvency clause from the Institute
Commodity Trades Clauses, more favourable to the assured, which makes it clear that it
is only losses proximately caused by insolvency that are excluded. Moreover, in a line
with the Commodity Trades Clauses, the revised Clauses do not exclude claims made
by an innocent assignee who has bought or agreed to buy the subject-matter insured in
good faith under a binding contract.174
Accidents with nuclear weapons and devices
8.60 The revised Institute Cargo Clauses exclude accidents with nuclear weapons and
devices by Clause 4.7, which provides as follows:
4.7 loss damage or expense directly or indirectly caused by or arising from the use of any weapon or device
employing atomic or nuclear fission and/or fusion or other like reaction or radioactive force or matter.”
This exclusion has been described as “rather curious”, 175 as it is limited to accidents
with nuclear weapons and devices and makes no attempt to exclude other nuclear
accidents, for example, at a nuclear power station.176 The Clause was first introduced in
1982 with a view to excluding any “use” of nuclear weapons—as the use of nuclear
weapons in the context of war risks was, and is, excluded under Clause 6.1 which
excludes war. The new exclusion in 1982 was presumably intended to cover other
“uses” of nuclear weapons with the words “arising from the use” to be read widely in
terms of causation to include accidents with nuclear weapons when being tested.177
8.61 In the revised Institute Cargo Clauses two alterations were introduced. Firstly,
the causative link between the peril and the loss was widened by use of the words
“directly or indirectly”. Secondly, the words “any weapon of war” were amended to
read “any weapon or device” so as to exclude a dirty bomb or other device not strictly
used in war, but, for example, by terrorists. This was to take account of hazards not
contemplated in 1982. In practice, these revisions are unlikely to be of significance as,
in most cases, there are paramount exclusions imposed on cargo insurers worldwide at
the insistence of the reinsurance markets. These exclusions are now briefly considered
and explained.
8.62 In 1990 the London marine insurance market introduced a paramount exclusion
for nuclear accidents known as the Radioactive Contamination Exclusion Clause
(1/10/90). This exclusion was modified and extended in the Extended Radioactive
Contamination Exclusion Clause (1/11/02). More commonly today it is overtaken by the
even more widely drawn Radioactive Contamination, Chemical, Biological, Bio-
Chemical and Electromagnet Weapons Exclusion Clause (10/11/03), commonly known
as “CL370”.178 This Clause is now in general use worldwide by cargo underwriters as
a result of pressure from reinsurers concerned about aggregation of cargo risks in the
context of a terrorist attack. As the purpose of these Clauses is to exclude terrorism,
these exclusions are dealt with in more detail in the context of war and terrorism risks
in Chapter 10.179
UNSEAWORTHINESS, UNFITNESS AND CLASSIFICATION
REQUIREMENTS
8.63 The condition of the ship in which the cargo is to be carried is controlled by cargo
insurers in two ways. In the first place, it is common for insurers to incorporate the
Institute Classification Clause which seeks to ensure that cargoes are carried in suitable
vessels by imposing dual requirements: first, that the vessels used by the assured for
carriage of the cargo are classed by a recognised Classification Society and, second,
that the vessels do not exceed certain age limits. Secondly, within the Institute Cargo
Clauses themselves, insurers impose exclusions in relation to losses arising from
unseaworthiness or unfitness where that unseaworthiness or unfitness is known to the
assured. It is recognised that the assured can determine whether a vessel is classed, and
her age, as a matter of public record, but it has long been understood by cargo
underwriters that in many, though not all cases, the assured may not be aware of, or have
any control over, the particular state and condition of the vessel which carries his cargo,
albeit the vessel may be classed with a recognised Classification Society. To a large
extent, insurers recognise that in cases of unseaworthiness the insurance claim should be
paid and a subrogated recovery action taken against the carriers180 However, an
exception applies where the assured is (or ought to be) aware of the poor condition of
the ship. Where the assured is aware, or, in terms of the clause “privy” to such poor
condition, the exclusion comes into play. This section of the book now considers the
unseaworthiness and unfitness exclusion in the Institute Cargo Clauses and then turns to
the classification requirements commonly imposed under the Institute Classification
Clause.181
Unseaworthiness and unfitness
8.64 The unseaworthiness and unfitness exclusions in the Institute Cargo Clauses are
drafted in the light of the implied warranties182 in the Marine Insurance Act 1906. These
warranties, in respect of cargo, are twofold. The Marine Insurance Act 1906 section
39(1) provides:
“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.”
With regard to cargo insurance there is a further warranty in section 40(2) of the 1906
Act which provides:
“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.”
These warranties were recognised by cargo insurers as too strict bearing in mind that a
cargo owner in modern times would generally not have detailed knowledge of the
condition of any particular vessel, whether classed or not. Accordingly, it was the
custom to waive the strict warranty of seaworthiness with the succinct phrase:183
“The seaworthiness of the vessel as between the Assured and Underwriters is hereby admitted.”
The meaning of this provision, albeit succinct, was not entirely satisfactory.184
However, the more fundamental difficulty with the Clause, in the eyes of insurers, was
the unconditional nature of the waiver of the unseaworthiness warranty. In the 1980s,
during the review of the Institute Cargo Clauses, concern was expressed that the
Seaworthiness Admitted Clause enabled assureds to knowingly charter sub-standard
tonnage to gain the benefit of lower freight rates. Insurers were at that time facing a
significant increase in cargo claims resulting from poor and unseaworthy vessels. These
concerns by insurers resulted in a new clause introduced in the 1982 Clauses which
excluded losses arising from unseaworthiness and unfitness where the assured or their
servants185 were aware of the unseaworthiness or unfitness at the time of loading. The
warranties of unseaworthiness and unfitness were waived but only conditional upon the
assured not being aware of the unseaworthiness or unfitness.
8.65 This new Unseaworthiness and Unfitness Clause met with little favour when
negotiations were entered into with the Commodity Trades Associations in the early
1980s.186 As a result a much “softer” version of the Clause, which was more lenient to
the assured, was adopted. This Clause made the waiver of the warranties unconditional.
It also made it clear that the innocent assignee of the policy, who knew nothing of the
unseaworthiness, was entitled to claim. Bearing in mind the importance of c.i.fi
contracts, this was a significant concession. As the revised Institute Cargo Clauses are
based on that Clause, with some modifications in favour of the assured, the current
Clause may now be considered.
The revised unseaworthiness and unfitness exclusion
8.66 The revised Institute Cargo Clauses, Clause 5, provide as follows:
“5.1 In no case shall this insurance cover loss damage or expense arising from
5.1.1. unseaworthiness of vessel or craft or unfitness of vessel or craft for the safe carriage of the subject-matter
insured, where the Assured are privy to such unseaworthiness or unfitness, at the time the subject-matter
insured is loaded therein
5.1.2. unfitness of container or conveyance for the safe carriage of the subject-matter insured, where loading
therein or thereon is carried out prior to the attachment of this insurance or by the Assured or their
employees and they are privy to such unfitness at the time of loading.
5.2 Exclusion 5.1.1 above shall not apply where the contract of insurance has been assigned to the party claiming
hereunder who has bought or agreed to buy the subject-matter insured in good faith under a binding contract.
5.3 The Insurers waive any breach of the implied warranties of seaworthiness of the ship and fitness of the ship to
carry the subject-matter insured to destination.”
This complex Clause calls for some detailed analysis. It opens with the words “arising
from” to describe the causative link between the unseaworthiness, or unfitness, and the
loss. This probably means “caused by” triggering the normal rules of causation but the
position is not entirely clear.187 The first part of the Clause (Clause 5.1.1) reflects the
twin warranties of seaworthiness in the 1906 Act, first that the vessel should be
seaworthy, and second that it should be fit for the safe carriage of the cargo. The
exclusion, unlike the warranties, is then limited to cases where the assured are “privy”,
188 to the unsweaworthiness or unfitness at the time of loading.
8.67 The second part of the Clause (Clause 5.1.2) deals with unfitness of containers
or conveyances for the carriage of the goods and runs in parallel with the insufficiency
of packing exclusion in Clause 4.3. The exclusion in Clause 5.1.2 applies where loading
is carried out (1) prior to attachment of the insurance or (2) by the assured or their
employees and they are privy to the unfitness at the time of loading. This provision
originated in the Institute Commodity Trades Clauses 5/9/83 (ICTC). Somewhat
surprisingly, the equivalent exclusion in Clause 5.1.2 of the ICTC is wider than the
exclusion in the Institute Cargo Clauses (A) 1/1/82 in that the ICTC excludes loss or
damage due to unfitness where loading is carried out by the assured or their servants
and there is no obligation upon the insurers to show privity. The insurers are therefore
able under the ICTC, but not the ICC (A), (B) or (C) 1/1/82, to decline claims if the
assureds employees load the goods into a defective lorry or container but are unaware
of any defects. This anomaly has been resolved in the revised Clauses which provide
wider cover and insurers must now show that the assured or their employees were
aware of the defects or they cannot decline the claim.
8.68 The revised Institute Cargo Clauses also introduce the provision, originating
from the ICTC, that insurers are relieved from liability if the loading into an unfit
container or vehicle is carried out prior to attachment of the insurance—an exclusion
not present in the 1982 version of the (A), (B) and (C) Clauses. In so far as stowage into
a container constitutes “packing” under the insufficiency of packing exclusion (Clause
4.3) there is probably little or no significance in this difference between the revised and
the 1982 Clauses as loading in a defective container will, in any event, be excluded as it
is deemed to be insufficiency of packing. In theory there could be a difference where a
“conveyance” is loaded, typically a lorry, as this is not deemed “packing” for the
purposes of Clause 4.3. However, loading upon a lorry will rarely if ever be carried out
prior to attachment of the insurance. This is particularly the case with the new
attachment of insurance provisions which normally attach the risk effectively from the
shelf, well before the loading on the vehicle.189
8.69 The exclusion of losses caused by unseaworthiness or unfitness is qualified by a
“privity” obligation. This reflects the obligation in section 39(5) of the Marine
Insurance Act 1906 where “privity” requires subjective knowledge or, at least,
choosing to ignore the obvious facts, sometimes called “casting a blind eye”.190 Gross
negligence is not enough.191 The term “Assured” is limited to the assured as an
individual (not his employees) or to the alter ego of the company where the cargo
owner is a corporate body.192 This limits the knowledge to those people constituting the
directing mind of the company.193 In respect of unfitness under Clause 5.1.2 (but not
unseaworthiness under Clause 5.1.1) insurers wished to widen the net so the
disqualifying knowledge was extended beyond the directing mind of the “Assured” to
other employees. Accordingly, insurers extended the exclusion to cases where
“employees” were privy to the unfitness of the container or conveyance. The distinction
was made because the classification of a vessel is a matter of public knowledge, as is
her age, and could be known by the senior management of the assured, but the condition
of a container or vehicle would only be known by more junior management at the
warehouse, factory or other place where the goods were loaded on the lorry or into the
container. An “employee” would include an employee of the assured but not a chartering
agent or freight-forwarder not in the assureds employment.194
8.70 The revised Institute Cargo Clauses provide that the exclusion relating to
unseaworthiness and unfitness of vessel or craft does not apply at all to an assignee of
the insurance who has bought or agreed to buy the subject-matter insured in good faith
under a binding contract.195 This provision originates from the ICTC, as the Trades
Associations were insistent that an innocent c.i.fi buyer should not be prejudiced by
unseaworthiness or unfitness of which he was not aware. The revised Clauses have
retained the words “binding contract” as used in the ICTC which are intended to prevent
a seller overcoming the exclusion by assigning the insurance to a third party after the
loss.196 These words may also apply to a buyer who is able to avoid the purchase
contract, which is not “binding” because the seller was in breach of that contract by
providing an unseaworthy vessel. If this is right the buyer as assignee under a non-
binding contract would be obliged to seek recovery from the seller and be unable to
recover from cargo insurers.
8.71 Finally, Clause 5.3 waives the implied warranties of unseaworthiness and
unfitness.197 This is clearly necessary as the existence of the implied warranties would
preclude any claim where the vessel was unseaworthy which would defeat the purpose
of the more limited restrictions on cover represented by the exclusions in Clauses 5.1.1
and 5.1.2. The waiver is no longer conditional on absence of privity as the case in the
1982 Clause. The reason for this is as follows. The implied warranties of
seaworthiness and fitness, which must be exactly complied with, discharge underwriters
from liability from the date of the breach, whether or not the warranty is “material to the
risk”.198 Under the 1982 Clauses this draconian rule applies if the assured or their
servants are aware that the vessel is unseaworthy or unfit, or that the vessel, before or
after loading, had become unseaworthy or unfit. Under the 1982 Clauses insurers are
discharged from any loss of or damage to cargo whether or not the loss arises from that
unseaworthiness and the breach of warranty discharges insurers whether or not the
warranty is material to the risk, that is, whether or not the breach of warranty is in any
way causative of the loss. It was considered that this went beyond what is needed to
protect insurers and an unconditional waiver of the warranties has therefore been
adopted. For example, a ship may technically be unseaworthy due to an insufficient
number of crew and the assured, if charterer, might be aware of that at the time of
loading. It was no longer considered reasonable to exclude loss or damage wholly
unconnected with that unseaworthiness as where the cargo is damaged on discharged by
shore labour. A loss caused by the unseaworthiness, for example a collision due to lack
of watchkeepers, would, however, be excluded if the assured were aware of that
unseaworthiness.
8.72 The Clause has been improved as insurers are not able to shelter behind
technical unseaworthiness not causative of any loss, and “privity” only applies to the
assured who had knowledge of the unseaworthiness or unfitness that caused loss of or
damage to cargo.
The Institute Classification Clause 01/01/2001
8.73 It is convenient at this point to deal with the Institute Classification Clause
01/01/2001199 which also relates to the seaworthiness of the vessel in which the insured
cargo is carried. Where cargo is insured for a particular voyage on a known vessel on a
facultative, or one-off basis, the insurers can satisfy themselves as to the ownership,
classification and age of the ship. However, cargo insurance is commonly underwritten
on the basis of open covers under which the assured is entitled to declare cargoes for
shipment on various vessels.200 In order to monitor the condition of the vessels declared
by the assured, and to vary the premium and other terms in the light of the age and
condition of any ships that fall below acceptable standards, classification and age
requirements are almost invariably imposed by cargo insurers in most forms of open
cargo covers.201 In common with similar clauses, the Institute Classification Clause
imposes two requirements: first, a class requirement, 202 and second, an age limit. This
section of the book considers each requirement in turn, and then the situation where a
vessel falls outside the parameters but may still be covered under the insurance at an
additional premium or on varied terms, the “held covered” type provision.
The classification requirement
8.74 The first part of the Institute Classification Clause deals with the classification
requirement and reads as follows:
INSTITUTE CLASSIFICATION CLAUSE 01/01/2001
“QUALIFYING VESSELS
1 This insurance and the marine transit rates as agreed in the policy or open cover apply only to cargoes and/or
interests carried by mechanically self-propelled vessels of steel construction classed with a Classification Society
which is:
1.1 a Member or Associate Member of the International Association of Classification Societies (IACS), or
1.2 a National Flag Society as defined in Clause 4 below, but only where the vessel is engaged exclusively in the
coastal trading of that nation (including trading on an inter-island route within an archipelago of which that
nation forms part).
Cargoes and/or interests carried by vessels not classed as above must be notified promptly to underwriters for
rates and conditions to be agreed. Should a loss occur prior to such agreement being obtained cover may
be provided but only if cover would have been available at a reasonable commercial market rate on
reasonable commercial market terms.”
What is the result if a vessel fails to qualify under the classification requirement? The
previous version of the Clause203 opened with the words “The marine transit rates
agreed for this insurance apply only to cargoes and/or interests… “. This wording had
led to misunderstandings as to whether a failure of the vessel to comply with the
Classification Clause meant that the cargo was off risk or merely that the premium rate
was no longer agreed. In so far as there had been these doubts as to the position, the
opening words of the Classification Clause issued on 01/01/2001 were modified to
read:
“This insurance and the marine transit rates as agreed in the policy or open cover apply only to cargoes and/or
interests…”
The addition of the word “insurance” makes it clear that the insurance itself, and not
merely the rate of premium, is subject to compliance with the requirements of the
Clause. Legally, this was the effect of the previous Clause. In the Singapore Court of
Appeal it was held that there was no contract of insurance if the vessel did not qualify
and was outside the held covered provisions that appeared in the previous Clause.204
The result would be the same under the current Classification Clause and English law,
in which connection it may be noted that English law is now specifically provided for in
the Clause.205
8.75 It had been the practice to list the classification societies acceptable to insurers,
but in 2001 this was revised in favour of accepting all the major societies, whether full
members or associate members of IACS, the International Association of Classification
Societies.206 Where a vessel is engaged exclusively in coastal trading there are special
provisions that, in addition, allow classification with National Flag Societies.207 The
Classification Clause then has a held covered type provision which provides for the
situation where a vessel does not fall within the class requirements. This provision is
discussed below.208
The age limitation
8.76 The second part of the Clause deals with the age limitation in the following terms:
“AGE LIMITATION
2 Cargoes and/or interests carried by Qualifying Vessels (as defined above) which exceed the following age limits
will be insured on the policy or open cover conditions subject to an additional premium to be agreed.
Bulk or combination carriers over 10 years of age or other vessels over 15 years of age unless they:
2.1 have been used for the carriage of general cargo on an established and regular pattern of trading between a
range of specified ports, and do not exceed 25 years of age, or
2.2 were constructed as containerships, vehicle carriers or double-skin open-hatch gantry crane vessels
(OHGCs) and have been continuously used as such on an established and regular pattern of trading between
a range of specified ports, and do not exceed 30 years of age.”
The default limit is 10 years for bulk or combination carriers, or 15 years for other
vessels. However, if the “other vessels” are on a regular liner route, as defined in
paragraph 2.1, the limit is extended to 25 years. A further extension to 30 years is
allowed in the special cases of containerships, ferries, and OHGCs (double-skin open
hatch gantry crane vessels) as long as they also are operated on a regular liner route.209
The held covered type provision
8.77 The most important of the changes introduced by the Institute Classification Clause
2001, 210 from a legal point of view, is the new formula for “held covered”.211 It was
provided in the earlier Institute Classification Clause 1/8/97 that cargoes carried on
vessels that did not fall within the scope of that Clause were “held covered subject to a
premium and on conditions to be agreed”. This provision catered for situations where
an assured discovered that the vessel in which his cargo was being carried fell outside
the normal requirements of the Clause either as to the Classification Society, or age, or
both. The Working Party reviewing the Institute Classification Clause 1/8/97 were
concerned that the words “held covered” could imply to some assureds a guarantee that
cover would be available in all cases. That, however, was not the meaning of “held
covered” in English law which requires two pre-conditions, first prompt notice, 212 and
second, the availability of cover at a reasonable commercial market rate213 and
reasonable commercial market terms.
8.78 The prompt notice requirement is expressly set out in the Classification Clause
in relation to the classification requirements and, as a matter of law, also applies as a
requirement in respect of the age limitation.214 The effect of failure to give prompt
notice is spelt out in Clause 5 of the Classification Clause as follows:
“PROMPT NOTICE
5 Where this insurance requires the assured to give prompt notice to the Underwriters, the right to cover is
dependent upon compliance with that obligation.”
A failure to give prompt notice therefore bars the right to an extension of cover.
8.79 The second pre-condition is that cover must be available at a reasonable
commercial market rate and on reasonable commercial market terms. If these are not
available the held covered type clause cannot operate.215 If, for example, the vessel is
such that there is no possibility that a prudent underwriter would be prepared to
underwrite the risk at any reasonable premium then the assured is not entitled, as of
right, to insurance cover. In Nam Kwong Medicines & Health Products Co Ltd v.
China Insurance Co Ltd216 the vessel concerned, Pacifica, was not classed with an
approved Classification Society and it was held that the risk to cargo carried on the
vessel was not insurable at a reasonable premium. A similar decision was reached in
the Court of Appeal in Singapore in Everbright Commercial Enterprises Pte Ltd v.
AXA Insurance Singapore Pte Ltd (The Serena I).217 In this case the vessel was not
classed; was registered under a Belize flag of convenience; not listed in Lloyds
Register, and insured for P&I risks with a non-existent P&I Club.218 A similar decision
was reached that, in the circumstances, a reasonable commercial rate of premium would
not have been available for insuring the cargo for the voyage in question.219 The rule of
English law is now reflected in the Classification Clause by the words:
“Should a loss occur prior to such agreement being obtained cover may be provided but only if cover would have been
available at a reasonable commercial market rate on reasonable commercial market terms.”
The “Drafting Notes” prepared by the Joint Cargo Committee220 at the time the 2001
Clause was issued include the following guidance:
“It was felt that there had been misunderstandings in some quarters as to what was meant by ‘held covered’ and that
some elaboration would be helpful. Evidence of ‘market terms’ would require an exercise to establish what terms
might be obtainable in the market place i.e. from a representative sample of underwriters active in the class of
underwriting cargo business. The fact that one underwriter might quote for a risk generally regarded as unacceptable
by such a representative sample of underwriters, would not be evidence that the risk could be insured at a ‘reasonable
commercial market’ rate/terms. The collective view of such a sample would represent the market position.”
It is submitted that this represents English law on held covered and the legal position
under the equivalent provision in the Institute Classification Clause 2001.
8.80 Where the vessel is classed with a qualifying society but exceeds the age limits,
only an additional premium, and not additional terms, need be agreed. This requirement
is introduced by the words “at an additional premium to be agreed” which apply where
the vessel carrying the cargo exceeds the age limits. This also requires that a reasonable
premium be available at market rates221though this requirement is not spelt out in the
Clause.
8.81 The effect of these provisions is to provide a safety net to assureds for their
cargoes in the event that the carrying vessel declared by them does not satisfy the
requirements as to class and age specified in the first two sections of the Institute
Classification Clause 2001. The safety net enables the assured to obtain cover subject to
prompt notice and the availability of cover at reasonable commercial market rates and
terms.
1. Both the limitations on all risks and the general exclusions, as discussed in paras. 8.39 to 8.60 of this chapter, are
described in the Institute Cargo Clauses as “exclusions”, see ICC Clause 1 which uses the words “as excluded by”
referring to Clauses 4, 5, 6 and 7 which are headed “Exclusions”. The limitations considered in paras. 8.9 to 8.39 are
therefore “exclusions” in terms of the rules applicable to such, see Chapter 6, para. 8.30, and for the principles of
causation relating to exclusions, see Chapter 7, paras. 7.14 to 7.15. It is nevertheless appropriate to consider the
limitations in a separate section of this chapter as they are bound together by the concept of lack of fortuity.
2. The Institute Cargo Clauses (B) and (C) are still derived from certain aspects of this cover, see Chapter 9.
3. A poor year for underwriters, culminating in the loss of the Titanic in April 1912, added urgency to the discussions
which had been going on since 1908, see Institute Cargo Clauses: Report HR5 by an Historic Records Working
Party of the Insurance Institute of London, 2nd edn, 1964, The Insurance Institute of London, at p. 5.
4. Op. cit. Historic Records Report HR5 at pp. 91–93.
5. [1960] 1 Lloyds Rep. 554, op. cit. Historic Records Report HR5 at p. 101.
6. See Chapter 9 at para. 9.2.
8. An expression which, it was thought, could give rise to a misleading impression that every risk whatsoever was
covered. OMay on Marine Insurance, 1993, Sweet & Maxwell, at p. 64.
9. (1902) 7 Com Cas 116.
10. [1908] 2 KB 665.
11. Ibid. at p. 673.
12. [1921] 2 AC 41.
13. Ibid. at p. 57, see also Lord Birkenhead L.C. at pp. 46, 47.
14. At para. 8.5.
16. The exclusion of wilful misconduct, being in a category of its own, is dealt with in the general exclusions at para.
8.39 et seq. below.
17. In Soya GmbHv White [1982] 1 Lloyds Rep. 136 (CA) at p. 149 Donaldson L.J. preferred the term “known
certainty of loss”. Even if the possibility of loss is unknown to the assured, there is probably no cover on the basis that
all risks cover is about risks not certainties, see Arnould para. 22–44 and Blair J. in Global Process Systems Inc v.
Syarikat Takaful Malasia Berhad [2009] EWHC 637 (Comm) at para. 89.
18. [1955] 2 Lloyds Rep. 382.
19. Ibid. at p. 390. The claim therefore failed. But this was not the only reason for the decision which was based
largely on insufficiency of packing which constituted inherent vice, discussed at para. 8.29 below.
20. Arnould points out that no case has been decided solely on this ground, at para. 22–24.
21. Shell International Petroleum Co Ltd v Gibbs (The Salem) [1982] 1 Lloyds Rep. 369, CA Kerr L.J. at p. 381;
May LJ. at p. 384 and [1983] 1 Lloyds Rep. 342, HL at p. 350, per Lord Roskill.
22. T.M. Noten B.V. v. PC Harding [1990] 2 Lloyds Rep. 283 at 287, per Bingham L.J.
23. Soya v. White [1983] 1 Lloyds Rep. 122, per Lord Diplock at p. 126.
24. Ibid at p. 126.
25. British & Foreign Marine Insurance Company, Limited v. Gaunt (supra) at p. 58.
26. Ibid. at p. 58 and see also Lord Birkenhead L.C. at p. 47.
27. [1951] 1 Lloyds Rep. 204; 238. Clarke in The Law of Insurance Contracts, 5th edn, 2005, at 17–3B suggests
that this went further, perhaps, than the law permits.
28. Theodorou v. Chester (supra) at p. 261: contrast the position with cover against named perils, see Rhesa
Shipping Co SA v. Fenton Insurance Co. Ltd. (The Popi M) [1985] 2 Lloyds Rep. 1. The Popi M became a total
loss following the mysterious appearance of a hole in her side. The explanation put forward by the shipowners for the
loss, that the hole had been caused by a collision with a submarine, was found to be highly improbable by the trial
judge. The House of Lords held that the shipowners had not proved that the sinking of the ship was caused by “a peril
of the seas” as, on the facts of the case, the sinking could have been due to other causes some of which were not “a
peril of the seas”. The loss was unexplained and as the insurance was against named perils the burden had not been
discharged and the claim failed.
29. [1990] 2 Lloyds Rep. 283.
30. Noten BV v. Harding (supra) at p. 530.
31. Noten BV v. Harding [1989] 2 Lloyds Rep. 527, CA, at p. 289. See also Mayban General Insurance BHD v.
Alstom Power Plants Ltd [2004] 2 Lloyds Rep. 609 where Moore-Bick J. took a similar view of the limitations of this
type of evidence in view of the difficulty in showing that similar conditions were encountered on different voyages, at
pp. 614 at 615 para. 23.
32. Institute Coal Clauses 1/10/82, Clause 1.1.
33. [1958] 1 Lloyds Rep. 546.
34. [1957] 2 Lloyds Rep. 339.
35. Ibid. at p. 348.
36. [1955] 2 Lloyds Rep. 391.
37. See also Traders and General Insurance Association v. Bankers & General Insurance Co (1921) 9 Ll. L.
Rep. 223.
38. [1983] 1 Lloyds Rep. 122 (HL).
39. Ibid. at p. 125.
40. Spontaneous combustion is generally considered as inherent vice see Boyd v. Dubois (1811) 3 Camp 133.
41. This appears to be a rather narrow view as ships sweat can have an origin outside the cargo, or could be caused
or contributed to by poor cargo ventilation. It may be that Lord Diplocks view was that, in the context of the whole
clause, “sweat” was to be given that narrow construction.
42. Arnould, 16th edn at para. 836, now Arnould, 17th edn at paras. 22–28 at p. 947 which has been revised
accordingly
43. [1983] 1 Lloyds Rep. 122 at 126.
44. [1921] 2 AC 41, see para. 8.4 above.
45. Wadsworth Lighterage & Coaling Company Limited v. Sea Insurance Company Limited (1929) 34 Ll. L.
Rep. 285 (CA) at p. 286 where Scutton L.J. upheld the judges conclusion which had been reached “after listening to a
number of experts who contradicted each other in the usual way” at p. 3.
46. Prudent Tankers Limited SA v The Dominion Insurance Co Limited (The Caribbean Sea) [1980] 1 Lloyds
Rep. 338 at 347.
47. Berger and Light Diffusers Pty Limited v. Pollock [1973] 2 Lloyds Rep. 442. See Chapter 5, at paras. 5.26 to
5.27 for a discussion of non-disclosure of the history of the cargo in the context of second-hand or used goods.
48. [2004] 2 Lloyds Rep. 609.
49. Insufficiency of packing is a separate exclusion under the ICC, Clause 4.3, see para. 8.28 et seq. below.
50. See further, para. 8.9 to para. 8.12 above where the words “unless the policy otherwise provides” are discussed.
51. De Monchy v Phoenix Insurance Company of Hartford & Another (1929) 34 Ll. L. Rep. 201 at 210 (HL).
52. Reported at [1955] 2 Lloyds Rep. 391, but handed down on Tuesday 9 April 1918.
53. (1922) 10 Ll. L. Rep. 30.
54. (1929) 34 Ll. L. Rep. 201 (HL).
55. Per Viscount Sumner at p. 206.
56. Ibid. at p. 206.
57. Ibid. at p. 210.
58. [1999] Lloyds Rep. IR 565 (CA).
59. Echoing the words of Lord Atkin, that underwriters do not insure errors of arithmetic, De Monchy v Phoenix
Insurance Co of Hartford & Another (1929) 34 Ll. L. Rep. 201 at 210, see para. 8.17 above.
60. Coven SpA v. Hong Kong Chinese Insurance Co [1991] 1 Lloyds Rep. IR 565 at 570.
62. [1982] 1 Lloyds Rep. 136 (CA).
64. Soya v. White [1982] 1 Lloyds Rep. 136 (CA) at p. 149.
65. At p. 149 disapproving the views of Arnould, 16th edn, at para. 726, fn. 22, see now Arnould, 22–25 at p. 944,
fn. 249.
66. Soya v. White [1983] 1 Lloyds Rep. 122 at 126 (HL).
67. See the comments of Arnould at paras. 22–25, 22–26 at pp. 944 at 945. The law recognises that whereas the
“vice” must be internal, “the damage, being the consequence of that vice, can and often will develop with the
assistance of an external circumstance, typically the weather”. See Blair J. at para. 102 in Global Process Systems
Inc v. Syarikat Takaful Malaysia Berhad [2009] EWHC 637 (Comm).
68. See, for example, TM Noten BVv. Harding [1990] 2 Lloyds Rep. 283 (CA).
69. See Mayban General BHD v Alstom Power Plants Ltd [2004] 2 Lloyds Rep. 609, discussed in Chapter 7, at
para. 7.28.
70. See the discussion of moisture damage to cargo carried in containers at para. 8.27 below and see generally
Chapter 7.
71. Published 1857, cited by Donaldson L.J. in Soya v White [1982] 1 Lloyds Rep. 136 (CA) at pp. 145, 146.
72. Albacora SRL v Westcott & Lawrence Line Limited [1966] 2 Lloyds Rep. 53.
73. TM Noten BVv. Harding [1990] 2 Lloyds Rep. 283 and see “The Risk of Inherent Vice” the address of Mr.
R.W Hipkin, Chairman of the Association of Average Adjusters, 9 May 1991, Association of Average Adjusters.
74. (1932) 44 Ll. L. Rep. 179.
75. Ibid. at p. 180.
76. Ibid. at p. 180.
77. (1930) 36 Ll. L. Rep. 309.
78. Ibid. at p. 320, per Wright J.
79. As to the burden of proof in relation to inherent vice see Soya v White [1982] 1 Lloyds Rep. 136 (CA) at p. 144
where the insurers conceded that the burden of proving inherent vice lay on the defendant underwriter.
80. (1927) 27 Ll. L. Rep. 395 at 400.
81. It was argued that no one knew, in the trade, quite precisely what was the safe standard of moisture, and that
this risk was a hazard of the adventure which the insurers accepted, but this view was rejected by Wright J., at p. 325.
82. Ibid. at p. 327.
83. [1990] 2 Lloyds Rep. 283 (CA).
84. [1989] 2 Lloyds Rep. 527.
85. This approach is consistent with ICC Clause 4.3, the insufficiency of packing exclusion, by which stowage in a
container is deemed to be “packing”, and see paras. 8.28 to 8.36 below which discuss insufficiency of packing.
86. CT Bowring & Co Ltd & Another v. Amsterdam London Assurance Co Ltd (1930) 36 Ll. L. Rep. 309.
87. [1990] 2 Lloyds Rep. 283 (CA).
88. Ibid. at p. 287.
89. F. W. Berk & Co Ltd v Style [1955] 2 Lloyds Rep. 382.
90. Gee & Garnham Ltd v Whittall [1955] 2 Lloyds Rep. 562.
91. (1902) 7 Com Cas 245.
92. Per Bingham J. at p. 246.
93. Supra.
94. Supra.
95. At para. 762.
96. [1982] 1 Lloyds Rep. 136 at 149 (CA).
97. 17th edn at paras. 22–28, fn. 268.
98. [2004] 2 Lloyds Rep. 609 at para. 19, p. 614.
99. See para. 8.9 et seq. above where this phrase is discussed.
100. In Vacuum Oil Co Ltd v. Union Insurance Society of Canton (1926) 24 Ll. L. Rep. 188 it was held that “oil
in drums” did not include the drums.
101. For a discussion and examples of what may amount to insufficient “packing” and “preparation” see para. 8.35
et seq. below and Helicopter Resources Pty Limited v. Sun Alliance Australia Limited (1991) Supreme Court of
Victoria, Commercial List, summarised at [1991] LMLN 312, 1–2.
102. The Japanese market declined to take up the 1982 Clauses by reason of this exclusion and the insolvency
exclusion discussed at para. 8.50.
103. The “revised Institute Cargo Clauses” are those issued 1/1/2009, “the 1982 Clauses” being those issued 1/1/82.
104. See Chapter 5.
105. ICC, Clause 8.1, see Chapter 11.
106. See A. George “The new Institute Cargo Clauses” [1986] LMCLQ 438.
107. (1991) Supreme Court of Victoria, Commercial List, Ormiston J.
108. The decision was made under the 1982 Clauses but the differences are not material to the issues discussed at
this point in the text.
109. See Soya G.m.b.H. Kommanditgellschaft v White [1982] 1 Lloyds Rep. 136 (CA), per Donaldson L.J. at p.
149.
110. [2004] 2 Lloyds Rep. 609.
111. Ibid. at paras. 19 and 21.
112. The MIA 1906 also states that, “unless the policy otherwise provides… the insurer… is not liable for “any
injury to machinery not proximately caused by maritime perils”. This provision was inserted as a result of the decision
in Thames & Mersey Marine Insurance Co Ltd v Hamilton, Fraser & Co (The Inchmaree) (1887) 12 App Cas
484 (HL) which raises an issue in relation to perils of the seas confined to hull insurance which is not therefore
considered in this book.
113. [1921] 2 AC 41.
114. See para. 8.4 above for a discussion of Lord Sumners judgment.
115. Hunter v Potts (1815) 4 Camp 203.
116. Rohl v. Parr (1796) 1 Esp 445.
117. (1887) 12 App Cas 518.
118. This decision may now be open to doubt in the light of Leyland Shipping Co Limited v. Norwich Union Fire
Insurance Society Limited [1918] AC 350 (HL), see further Chapter 7.
119. The Public Health (Ships) (Amendment) (England) Regulations 2007, which came into force on 15 June 2007,
implement in England the provisions of the WHOs International Health Regulations 2005 which introduced a Ship
Sanitation Control Exemption Certificate or Ship Sanitation Control Certificate which replaced the former Deratting
Certificate and Deratting Exemption Certificate. Rat guards, or other similar devices that do the same thing, are still
widely used since if the vessel is not protected from rats it may not qualify for the above Certificates.
120. Chambers Dictionary, 11th edn, 2008, defines vermin as “a collective name for small animals, insects or birds
that are troublesome or destructive to crops…”. Arnould at para. 22–01 takes the view that “vermin” may extend to
insects saying, “The Editors are not aware of any case in which any creatures other than rats have actually been held
to be vermin. The question has been raised (in policies on textiles) whether moths are vermin; there appears to be no
reason why they should not be so classified”.
121. See Schloss Brothers v. Stevens [1906] 2 KB 665, at p. 670, per Walton J. The policy in that case was
expressly extended to cover “insects”, and the goods suffered losses from various causes including “wetting and
worms”.
122. K. Goodacre, Goodbye to the Memorandum, 1988, Witherby & Co Ltd, at p. 95 points out that a fortuitous
ingress of water caused by rats would be covered under the (B) Clauses which cover the specific peril of “ingress of
water”.
123. Some London market open covers drafted by brokers covering “all risks” expressly provide for cover for “rats
and vermin” to make it clear that the policy “otherwise provides” in terms of the Marine Insurance Act 1906 s. 55(2)
(c).
124. H. Bennett, Law of Marine Insurance, 2nd edn, 2006, OUP, at p. 476 para. 15.63 and see also K. Goodacre,
Goodbye to the Memorandum at p. 95 (in relation to rats). OMay takes a similar view, at p. 190 citing John Martin
of London Limited v. Russell [1960] 1 Lloyds Rep. 554, a case of infestation from another cargo, where, however,
the point was not taken by insurers who relied on an issue of the duration of the transit. This may reflect the fact that
this point is generally not taken today by cargo insurers.
125. Per Lord Diplock in Soya v. White (supra) and see para. 8.9 above where the approach of the courts to the
limitations on all risks is discussed in further detail.
126. ICC Clause 4.1.
127. Geismar v. Sun Alliance & London Insurance Limited [1977] 2 Lloyds Rep. 62.
128. MIA 1906 s. 17, and see Chapter 5.
129. Trinder, Anderson & Co v. Thames & Mersey Marine Insurance Co [1898] 2 QB 114 at 124, per AL Smith
L.J., to the effect that, where the loss is caused by the wilful act of the assured the proximate cause doctrine does not
apply and see Arnould 22–35. The words “attributable to” are also used in MIA 1906 s. 39(5) in relation to hull
insurance where similar views as to causation are expressed by Arnould 22–07.
130. See National Oilwell (UK) Limited v. Davy Offshore Limited [1993] 2 Lloyds Rep. 582, per Colman J. at p.
622 and the cases there cited including Forder v. Great Western Railway Co. [1905] 2 KB 532 at 535, and other
railways cases, as well as, under the Warsaw Convention, Horabin v. BOAC [1952] 2 Lloyds Rep. 450 at 459.
131. Ibid. National Oilwell v. Davy (supra) at p. 621.
132. See the example given by Goddard C.J. in Papadimitriou v. Henderson (1939) 64 Ll. L. Rep. 345 at p. 349.
133. Shell International Petroleum Co Ltd v. Gibbs (The Salem) [1982] 1 Lloyds Rep. 369 (CA) at p. 371, per
Lord Denning M.R.: [1983] 1 Lloyds Rep. 342 (HL). See also Samuel (P) v. Dumas [1924] AC 431 (HL).
134. For a consideration of this issue see Chapter 12, at paras. 12.12 to 12.25.
135. See, for example, the New York case of Chemical Bank v. Affiliated FM Insurance Company 1993 AMC
1743 (United States District Court, Southern District of New York), where innocent mortgagee banks claimed in
respect of non-existent shipments of coffee under a special clause extending the cover to such losses, see Chapter 13,
at para. 13.19.
136. [1905] 2 KB 532.
137. For defences based on insufficiency of packing see paras. 8.28 to 8.36 above, and for inherent vice see paras.
8.22 to 8.27. In Bucks Printing Press v. Prudential Assurance, the assured misled the insurers solicitor about the
packing of a consignment in a container and this constituted a fraudulent claim, see Chapter 13, at para. 13.10.
138. Hudson & Madge, Marine Insurance Clauses, 2005, 4th edn (Hudson & Madge) at p. 19.
139. This would also appear to give rise to a defence based on a breach of the implied warranty of legality, see MIA
1906 s. 41, and for goods imported illegally contrary to English Customs regulations, see Geismar v. Sun Alliance &
London Insurance Limited [1977] 2 Lloyds Rep. 62, a non-marine case, distinguished in Euro-Diam Limited v.
Bathurst [1988] 1 Lloyds Rep. 228.
140. Papadimitriou v. Henderson (1939) 64 Ll. L. Rep. 345.
141. Supra.
142. MIA s. 78(4); ICC Clause 16 (Duty of Assured Clause).
143. See, for example, the Institute Metals Storage Clauses (A) Clause 11.
144. See Sofi v. Prudential Assurance Co [1933] 2 Lloyds Rep. 559 and, more recently, Stephen v. Scottish
Boatowners Mutual Insurance Association (The Talisman) [1989] 1 Lloyds Rep. 535.
145. [1965] 1 Lloyds Rep. 139.
146. Ibid, at p. 142.
149. See Chapter 3, at paras. 3.27 to 3.28.
151. [1993] 2 Lloyds Rep. 582 (Coleman J.) at p. 596, 597. The wording commonly used in cargo open covers and
the revised Institute Cargo Clauses is to be contrasted to the wording used in Graham Joint Stock Shipping
Company Limited v. Merchants Marine Insurance Company Limited (The Ioanna) (No. 1) (1923–4) 17 Ll. L.
Rep. 241, where the wider definition of the assured in the SG Form (which is reflected in modern cargo wordings) was
not used.
152. Samual (P) & Co Ltd v. Dumas [1924] AC 431 at 445–446.
154. [2002] Lloyds Rep. IR 364 (CA).
155. The wording is not identical. Clause 4.5 uses the words “even though” rather than “although” and substitutes
the word “risk” for the word “peril” which appears in the MIA 1906. These alterations appear to have been adopted to
modernise and clarify the wording without changing the meaning, see OMay at pp. 197–198. However, the word
“proximately” has been omitted in the revised Clauses in which respect see Chapter 7, at paras. 7.19 to 7.27.
156. Federation Insurance Company of Canada v. Corel Accessories Inc. & Hirsch [1968] 2 Lloyds Rep. 109.
158. ICC Clause 4.6, based, with minor revisions, on the Institute Commodity Trades Clauses (A) 5/9/83, Clause
4.6.
159. See Chapter 3 at para. 3.33.
160. The words “binding contract” are intended to prevent a seller assigning the insurance after loss and may also
apply to a contract of sale that cannot be repudiated by reason of the seller having provided an unsuitable vessel, see
OMay at p. 203 and the discussion at para. 8.70 below where the same words “binding contract” are used in the
unseaworthiness exclusion.
161. (1939) 64 Ll. L. Rep. 352.
162. See further Chapter 13, para. 13.30 for a more detailed discussion of this case in the context of what
constitutes a “loss” under an all risks policy.
163. See ICC exclusion 4.5. and para. 8.49 above.
164. See further Chapter 13, para. 13.53 et seq. for a discussion of the nature and extent of “loss of the adventure”.
165. Under the Duty of Assured Clause, Clause 16, and the MIA 1906 s. 78, and generally with regard to sue and
labour see Chapter 14, paras. 14.1 to 14.23. The position remained unclear under Clause 16, see Arnould para. 25–23.
166. ICC, 1/1/82, Clause 4.6.
167. Materially in the same terms in the 1982 version with some minor revisions (e.g., “Insurers for Underwriters”).
168. The existence and width of the exclusion is also believed to be one of the prime reasons why the ICC 1/1/82
were not, for many years, adopted by the Japanese insurance market. In Japan international cargo insurance was
underwritten on the basis of the Institute Cargo Clauses 1/1/63.
169. JCC circular dated 23 November 1982. See Appendix 34.
170. At p. 201.
171. Para. 22–20, citing Panamanian Oriental Steamship v. Wright (The “Anita”) [1970] 2 Lloyds Rep. 365:
reversed on other grounds [1971] 1 Lloyds Rep. 487 (CA).
172. Third edn at pp. 293–294.
173. The legal meaning of the words “arising from” is considered in Chapter 7, at para. 7.38 et seq.
174. Para. 8.51 above.
175. See A. George “The New Insurance Cargo Clauses” [1968] LMCLQ 438 at p. 447.
176. See Hudson & Madge, Marine Insurance Clauses, 4th edn, 2005, at p. 21 and at p. 205. Accidents from
nuclear power stations in the United Kingdom are the responsibility of the Atomic Energy Authority, see Nuclear
Installations Act 1965.
177. In January 1966 four unarmed thermonuclear bombs were accidentally dropped on south-eastern Spain, one
falling into the sea off the coast, when being carried by an American B-52 bomber which crashed following a collision
with a supply plane. This would seem to fall outside the exclusion unless carriage amounts to a form of “use”.
178. Appendix 30.
180. In very broad terms unseaworthiness of the vessel at the commencement of the voyage opens the way to the
possibility of recovery action against the carriers, see Art. III rule 1(a) and Art. IV rule 1 of the Hague Visby Rules
and Southampton on Shipping Law at pp. 119–120 for an introduction to this issue.
181. At para. 8.73 below.
182. A warranty is a term of the contract that must be exactly complied with, whether it be material to the risk or
not, otherwise the insurers are discharged from the date of the breach, see MIA 1906 s. 33 and see Chapter 6, at para.
6.4 et seq.
183. ICC (All Risks) 1/1/63, Clause 8. Robert Grime has described the Seaworthiness Admitted Clause as “What
may have been the most elegant marine insurance clause ever devised”, see “Insuring Cargoes in the 1990s”, The
Modern Law of Marine Insurance (ed.) D. Rhidian Thomas, 1996, LLP, at p. 122. The second paragraph of the
Clause, intended to reverse the effect of the decision in Samuel v. Dumas (1924) 18 Ll. L. Rep. 211 was not so
successful, see Kerr L.J. in Shell International Petroleum Co Ltd v. Gibbs (The Salem) [1982] 1 Lloyds Rep. 369 at
380.
184. In particular, it was unclear whether a loss by a covered risk, which also involved unseaworthiness, was
insured. The waiver of the warranty did not, of itself, amount to the provision of positive cover for losses caused by
unseaworthiness, see further, Robert Grime “Insuring Cargoes in the 1990s” see fn. 183 supra at p. 122 and Arnould
at para. 20–38.
185. It was suggested, during the drafting of the 1982 Clauses that “employees” would be more appropriate but this
term was not adopted. The somewhat antiquated term “servants” was retained rather than the more modern word
“employees” presumably as it was felt that this triggered a well settled body of English law on master and servant.
186. A. George “The New Institute Cargo Clauses” [1986] LMCLQ 438 at p. 447.
187. See further Chapter 7, at para. 7.39 et seq. where the words “arising from” in the unseaworthiness clause are
considered and analysed.
188. The term “privity” is explained at para. 8.69.
190. See MIA 1906 s. 39(5) and Compania Maritima San Basilio SA v. Oceanus Mutual Underwriting
Association (Bermuda) Limited (The Eurysthenes) [1976] 2 Lloyds Rep. 171 (CA).
191. Manifest Shipping & Co. Limited v. Uni-Polaris Shipping Co. Limited (The Star Sea) [2001] Lloyds Rep.
389 (HL).
192. “Privity” must be of the alter ego, see The Star Sea, supra.
193. See Chapter 3, paras. 3.31–3.34.
195. There has been some slight change in the order of the wording to make it more consistent with the similar
provision in the insolvency exclusion, Clause 4.6. Exclusion 5.1.2, unfitness of container or conveyance, applies even
where the contract has been assigned.
196. See OMay at p. 203.
197. See para. 8.64 above which sets outs these warranties.
198. MIA 1906 s. 33.
199. Appendix 29 this Clause was issued by the Joint Cargo Committee (“JCC”) on 17 November 2000 for
immediate effect after a wide process of industry consultation, both with insurers and shipping interests. At the same
time the JCC issued “Drafting Notes” explaining the revisions, including the modifications to the held covered provision
discussed in this book at para. 8.77 et seq. below. The Drafting Notes are available on the JCC website which can be
accessed via the Lloyds Market Association website at www.lmalloyds.com by going to “Market Places”, clicking
“Marine” on the drop-down menu, and then choosing “Joint Cargo” from the side menu.
200. See Chapter 3.
201. For a further discussion of the practice see Everbright Commercial Enterprises Pte Ltd v. AXA Insurance
Singapore Pte Ltd [2001] 2 SLR 316 at p. 328 et seq. based on R. Brown Marine Insurance—Cargo Practice,
1998, 5th edn, Witherby & Co Ltd, at pp. 109–110.
202. A vessel is said to be “classed” when it has been surveyed and found to be sound and, among other matters,
seaworthy, by a Classification Society. See generally J. Lux, Classification Societies, 1993, Lloyds of London Press
Ltd at p. 29.
203. Dated 1/8/97.
204. See Everbright Commercial Enterprises Pte Ltd v. AXA Insurance Singapore Pte Ltd [2001] 2 SLR 316.
205. By Clause 6 which provides “This insurance is subject to English law and practice”.
206. A current list of members appears on the IACS website, www.icas.org.uk.
207. Defined in Clause 4, as a “Classification Society which is domiciled in the same country as the owner of the
vessel in question which must also operate under the flag of that country”.
208. At para. 8.77 et seq. The provision dealing separately with “chartered vessels” in the earlier versions of the
Institute Classification Clause was dropped in 2001 as “confusing and probably superfluous”, see paper entitled
“Institute Classification Clause Revision” referred to in Everbright v. AXA (supra) at p. 334 para. 44 and fn. 210
below.
209. Neither the classification requirements nor the age requirements apply to any craft used to load or unload the
vessel within the port area. The age limits were reached in the light of industry discussion and technical advice on the
ageing of the various types of vessels.
210. The changes were summarised by Mr Nicholas Gooding, Chairman of the Technical and Clauses Committee,
and of the Classification Clause Working Party, at the conference held by the International Union of Marine Insurance
in London on 11 September 2000, see www.iumi.com for the slides summarising Mr Goodings paper.
211. For a discussion of “held covered” see Chapter 12, paras. 12.2 to 12.9.
212. See Thames & Mersey Marine Insurance Co Ltd v. H. T. Van Laun & Co [1917] 2 KB 38 at p. 48 (HL)
reported as a footnote to Hood v. West End Motor Car Packing Company [1917] 2 KB 38; Liberian Insurance
Agency Inc v. Mosse [1977] 2 Lloyds Rep. 560 (CA), and Chapter 12.
213. Insurance at a premium to be arranged is contemplated by MIA 1906 s. 31 which provides that in such
circumstances “a reasonable premium is payable”.
214. The prompt notice requirement is discussed in the context of the held covered type provisions in the Change of
Voyage Clause in Chapter 12, paras. 12.3 to 12.6.
215. Greenock Steamship Co Ltd v. Maritime Insurance Co Ltd [1902] 2 KB 657; Liberian Insurance Agency
Inc v. Mosse, supra.
216. [2002] 2 Lloyds Rep. 591, Hong Kong High Court, Stone J., 28 June 2002.
217. [2001] 2 SLR 316.
218. Ibid, at pp. 337, 338, para. 53.
219. Ibid. para. 54.
220. See fn. 199 above for the LMA website where these notes appear.
221. Liberian Insurance Agency Inc v. Mosse [1977] 2 Lloyds Rep. 560.
CHAPTER 9
NAMED PERILS AND EXCLUSIONS
NAMED PERILS UNDER THE INSTITUTE CARGO CLAUSES (B) AND
(C)
The use and origin of the (B) and (C) Clauses
9.1 The Institute Cargo Clauses (B) and (C)1 provide cover against named perils, rather
than against all risks.2 Although an insurance on the Institute Cargo Clauses (C), which
provide the narrower form of cover, complies with the sellers obligations under a c.i.f.
contract governed by Incoterms,3 insurance against named perils is less commonly
encountered in practice today as cargo policies are generally written on all risks terms.
The named perils cover is, however, used occasionally for specially vulnerable
cargoes.4 It is also the practice for cargo insurers to reinsure themselves against larger
losses caused by major casualties by reinsuring on the terms of the Institute Cargo
Clauses (B) or (C). For the purposes of this chapter, the 1982 Clauses and the revised
Institute Cargo Clauses are in all material respects the same and they are both referred
to as the “Institute Cargo Clauses (B) and (C)”, without distinguishing between the 1982
and 2009 versions.
9.2 There are a number of provisions in the Institute Cargo Clauses (B) and (C)
which continue to reflect the terms of the With Average (WA) and Free of Particular
Average (FPA) Clauses and the SG Form of Policy which was used in conjunction with
these Clauses. That said, the intention of the draftsman was clearly to leave behind, so
far as possible, the wording which had been so much criticised by the courts and by
UNCTAD.5 Moreover, the two tiers of cover now provided in the (B) and (C) Clauses
do not equate to the variations in cover between the FPA and WA Clauses. The (B) and
(C) Clauses are distinguished by a more generous provision of perils under the (B)
Clauses for which, no doubt, a higher premium is payable. The WA and FPA Clauses
were distinguished on a different basis. The WA Clauses provided cover for losses,
whether total or partial, subject to claims reaching a certain size by percentage under
the Memorandum in the SG Form so, for example, sugar tobacco and hemp were not
covered unless the loss exceeded 5% and other goods were not covered unless the loss
exceeded 3%. This limitation was known as a franchise and when the franchise
percentage was reached the claim was payable in full. The FPA Clauses provided cover
that was limited initially to cases of total loss. These limitations on cover were lifted
under both sets of Clauses where the vessel was “stranded, sunk, or burnt” and both
paid the value of any packages “totally lost in loading, transhipment or discharge”.
There was also full cover for loss or damage “reasonably attributable to” fire,
explosion and collision.6 The limitations on cover were achieved in time-honoured
language, by “warranting” the insurance “free from average under the percentage
specified” (WA) and “warranting” the insurance “free from Particular Average” (FPA)
and then lifting these restriction by the proviso “unless the vessel be stranded, sunk or
burnt” or there was total loss of packages, fire or collision etc, as just described. These
older forms of cover occasionally have relevance to the current Clauses in relation to
particular issues where they will be referred to from time to time.7
General structure of the (B) and (C) Clauses
9.3 The risks covered under the (B) Clauses are broken down into two groups and a
different causative formula is used for each of those groups. The first group of risks is
as follows:
“1.1.1 fire or explosion
1.1.2 vessel or craft being stranded grounded sunk or capsized
1.1.3 overturning or derailment of land conveyance
1.1.4 collision or contact of vessel craft or conveyance with any external object
other than water
1.1.5 discharge of cargo at a port of distress
1.1.6 earthquake volcanic eruption or lightning,”
The words “reasonably attributable to”, which introduce these risks, widen the
proximate cause rule and cover the case where the risk is only one of the effective
causes or factors contributing to the loss.8
9.4 The second group of risks is as follows:
“1.2.1 general average sacrifice
1.2.2 jettison or washing overboard
1.2.3 entry of sea lake or river water into vessel craft hold conveyance container or
place of storage,…“
9.5 This group of risks is introduced by the words “caused by” which require the
assured to show the normal operation of the proximate cause rule.9
9.6 The Institute Cargo Clauses (C) do not cover earthquake volcanic eruption or
lightning (ICC (B), Clause 1.1.6); “washing overboard” (ICC (B), Clause 1.2.2) or
“entry of sea lake or river water into vessel craft” etc (ICC (B), Clause 1.2.3) nor do
they extend to “total loss of any package lost overboard or dropped whilst unloading on
to, or unloading from, vessel or craft” (ICC (B), Clause 1.3) now considered.
9.7 The Institute Cargo Clauses (B) also cover:
“1.3 Total loss of any package lost overboard or dropped whilst loading on to, or unloading from, vessel or craft.”
The cover provided by this clause is described in terms of the loss, rather than the
risk, so no causation requirement is necessary.
9.8 The exclusions in the (B) and (C) Clauses largely reflect the exclusions in the all
risks clauses10 but the (B) and (C) Clauses also exclude:
“4.7 Deliberate damage to or deliberate destruction of the subject-matter insured or any part thereof by the wrongful
act of any person or persons.”
This cover can be bought back by purchasing cover under the Institute Malicious
Damage Clause.11
How are named perils to be construed?
9.9 The words describing the named perils, for example, “fire” or “explosion” are to be
construed in their ordinary or proper sense and not according to their strictly
philosophical or scientific meaning.12 The meaning of an ordinary word in the English
language is not a question of law, but whether, as a matter of fact, the word applies to
the facts proved simply as a matter of ordinary English usage.13 Lord Justice Cairns in
Young v. Sun Alliance & London Insurance Ltd suggests the following test:14
“What is the meaning that an ordinary Englishman reading this word in the context in which it appears would give to it?
I think in such circumstances ones first impression may be the best guide to the real meaning.”
The ordinary Englishman must be aware of the full facts, so that what may seem initially
to be an “explosion” to a nearby witness may not prove to be so on further investigation.
In Commonwealth Smelting Ltd v Guardian Royal Exchange Assurance Ltd15 two
witnesses heard what they thought was an “explosion”, and described it as such, but
further investigation of the full facts proved otherwise. In addition it may assist to
construe the word in conjunction with other words immediately adjacent so that, for
example, the word “flood” has been construed in a policy in the light of its association
with “storm” and “tempest”.16 Where a word or phrase, such as “perils of the seas”,
constitutes a term of art then it has a special meaning given by statute or developed by
case law.17 But in general the draftsmen of the (B) and (C) Clauses have avoided terms
of art, in particular, the term “perils of the seas”, so that the ordinary and natural
meaning applies to the named perils in the (B) and (C) Clauses.
The named perils
Fire and explosion
9.10 The Institute Cargo Clauses (B) and (C) cover “loss of or damage to the subject-
matter insured reasonably attributable to fire or explosion”.18 The history and meaning
of these perils is now considered in turn. The risk of “fire” is of long-standing origin as
it was one of the perils in the ancient SG Form of cover. It has been approached broadly
by the courts to include action taken to extinguish a fire as long as the fire has already
started, and the damage to the cargo is so imminent that it is immediately necessary to
avert that damage by action.19 There must be an actually existing peril of fire and not
merely a fear that it might break out.20 In Stanley v. Western Insurance Co Limited,21 a
non-marine case, Kelly C.B. said:
“I agree that any loss resulting from an apparently necessary and bona fide effort to put out a fire, whether it be by
spoiling the goods by water, or throwing the articles of furniture out of a window, or even the destroying of a
neighbouring house by an explosion for the purposes of checking the progress of the flames, in a word, every loss that
clearly and proximately results, whether directly or indirectly, from the fire, is within the policy.”
It is submitted that this perhaps goes too far where proximate cause is required as that
rule normally demands that the peril be the direct, rather than the indirect, cause of the
loss. However, as we have seen,22 the words “reasonably attributable to” introduce a
causation test for “fire” that goes beyond proximate cause and, bearing that in mind, the
above passage probably reflects the wide cover for “fire” provided by the (B) and (C)
Clauses.
9.11 Certain types of cargo, for example coal,23 are liable to spontaneous combustion
resulting in fire. Spontaneous combustion being an example of inherent vice is
excluded.24 Where a fire occurs the onus is upon underwriters to establish the exception
of inherent vice.25
9.12 Where a fire is started deliberately and wrongfully, this is excluded under the
(B) and (C) Clauses by Clause 4.7 which provides “In no case shall this insurance
cover deliberate damage to or deliberate destruction of the subject-matter insured or
any part thereof by the wrongful act of any person or persons”.26 As arson is not an
infrequent source of fire this constitutes a significant restriction on cover.27
9.13 The risk of “explosion” was added to the Institute Cargo Clauses on 1
September 1944 after the explosion in the Mumbai Docks on 14 April 1944 when the
vessel Fort Stikine, with a mixed cargo of cotton bales and ammunition, caught fire and
exploded with tragic loss of life and reportedly 10 or more vessels lost or damaged.28
9.14 The meaning of “explosion” was examined in the case of Commonwealth
Smelting Ltd v. Guardian Royal Exchange Assurance Ltd.29 In this case the assured
operated a smelting complex which was insured against “fire, lightning or explosion”.
The plant included a blower which disintegrated when a fatigue crack in the impeller
assembly of the blower, rotating at great speed, caused a massive centrifugal
disintegration of the blower as well as the building in which it was situated. Witnesses
talked of an “explosion” but the court said that “something may appear to be an
explosion which is not an explosion at all, when one knows the full facts”.30 The cause
of the loss was held to be the failure of the impeller and not an explosion. It was said at
first instance that an explosion entailed “a very rapid chemical or nuclear reaction, or
the bursting out of gas or vapour under pressure”.31 In the Court of Appeal, Parker L.J.
recognised that an “explosion of air” could conceivably be said to be an “explosion”
but held that, on the facts of the case, all the damage was proximately caused by the
failure of the impeller.32
Stranding, grounding, sinking and capsize
9.15 The Institute Cargo Clauses (B) and (C) cover “loss of or damage to the subject-
matter insured reasonably attributable to vessel or craft being stranded grounded sunk or
capsized”.33 The causation trigger for these perils is the widely drawn phrase
“reasonably attributable to” which goes beyond proximate cause.34 The risks envisaged
occur at sea and include both the main carrying vessel and any lightening craft. Before
considering the next clause, which deals with analogous perils on land,35 the meaning of
“stranding, grounding, sinking and capsize” are considered in turn.
9.16 The difference in meaning between “stranding” and “grounding” gave rise to
important distinctions in cover under the former FPA Clauses36 which, fortunately, need
no longer detain us as both risks are now covered under the 1982 Clauses, and the
revised Institute Cargo Clauses (B) and (C). All that is required for a claim on cargo is
that the vessel take the ground in an accidental manner. It has been suggested that where
a vessel deliberately takes the ground as, for example, on a berth where the vessel lies
in the river mud at low tide, then any accidental loss of or damage to the cargo
attributable to that grounding would be covered.37
9.17 The “sinking” of a vessel requires that she can sink no more.38 As the (B)
Clauses also cover entry of lake or river water,39 the issue of whether or not a vessel
has sunk is likely only to be of importance in relation to the (C) Clauses, at least where
the claim lies for water damage to the cargo.
9.18 The term “capsized” was new in the 1982 Clauses. According to OMay, it
appears to contemplate the vessel or craft having turned over or, at least, “wholly
heeled over”, and not merely that the ship has suffered the effects of a list, albeit a
serious list, whereby the cargo shifts in the hold and is damaged or, if carried on deck,
is lost overboard.40 Hudson & Madge Marine Insurance Claims41 take a different view,
saying:
“The addition of the word ‘capsize’ is new. It is submitted that the effect of the inclusion in the list of risks covered will
mean that such a loss as took place in the case of The Stranna,42 when goods fell into the sea as a result of the
carrying ship taking a totally unexplained list whilst in port, will be settled by the underwriters.”
It is submitted that the risk is “capsize”, not, “listing” or “heeled over”, so that the
views of OMay are to be preferred, and the vessel must be “wholly heeled over”.
However, the “capsize” does not have to be so extreme as to cause the vessel to sink as
“sinking” is a separate peril.
9.19 Insofar as deck cargo is concerned, the distinction, once again, may only be
important in terms of the (C) Clauses as the (B) Clauses cover “washing overboard”.43
Overturning or derailment of land conveyance
9.20 The Institute Cargo Clauses (B) and (C) cover loss of or damage to the subject-
matter insured reasonably attributable to “overturning or derailment of land
conveyance”.44 These risks appear to be the land equivalents, where lorries or trains
are involved, of the marine risk of “capsize”.45 A broad approach to causation has been
adopted in relation to these perils.46 No doubt a trailer would constitute a “land
conveyance” but the position is less clear where goods are carried by forklift truck
though it might be thought that such a vehicle is equivalent to “craft” and should be
covered. It is to be noted that the land conveyance must overturn and that, analogous
with the sea peril of capsize, a mere shifting of the cargo, so that it falls off the lorry or
trailer, will not be covered under these particular perils. Derailment could, however,
provide wider cover as it would seem that a train could be derailed, resulting in the
shifting of cargo, without the complete overturning of the train itself or the wagons in
which the cargo is being carried.
Collision
matter insured reasonably attributable to “collision or contact of vessel craft or
conveyance with any external object other than water”.47 The causative trigger is not
limited to proximate cause.48 The risk of collision is to be widely approached to cover
both collisions between vessels and allisions where the vessel carrying the cargo
strikes a pier or any other external object. The FPA and WA Clauses both made it clear
that a collision with ice was covered and this remains the position.
9.22 The risks of collision, and contact with any external substance, are applied to
the vessel, lightening craft and to land conveyances. Loss of or damage to the cargo in a
lorry is therefore covered where it is damaged in a collision between two vehicles, or
when the lorry in which it is carried hits any other external object and damage to the
cargo is reasonably attributable to that collision. However, if the lorry merely runs off
the road and meets rough ground damaging the cargo without overturning,49 or colliding,
this is not covered under the (B) and (C) Clauses.50
Discharge of cargo at a port of distress
matter insured reasonably attributable to “discharge of cargo at a port of distress”.51 A
wide test of causation applies to this head of cover.52 The cover derives from the WA
and FPA Clauses.53 The cost of discharge at a port of distress so that repairs may be
carried out to the vessel in order to complete the voyage, is admissible in general
average.54 In these circumstances any loss of or damage to the cargo caused in the
process of that discharge is also admissible in general average.55 As general average, it
is recoverable from insurers as such under Clause 2 of the Institute Cargo Clauses (B)
and (C).56 This additional head of cover under Clause 1.1.5 gives an immediate right to
cover without awaiting a declaration or adjustment of general average. Additionally,
where the voyage is abandoned, or for some other reason no general average occurs,
cover equivalent to the cover for general average is provided by this Clause.
Accordingly, loss of or damage to cargo during discharge at a port of distress will still
be covered even if it does not strictly qualify as general average. The Clause is widely
drawn in terms of proximate cause, but there must still be loss of or damage to the cargo
and not merely suspicion of damage.57
Earthquake, volcanic eruption or lightning
9.24 The Institute Cargo Clauses (B) cover loss of or damage to the subject-matter
insured reasonably attributable to “earthquake volcanic eruption or lightning”.58 These
perils, which are not covered by the (C) Clauses, were introduced in 1982 and possibly
derive from hull perils. Although they do not constitute perils of the seas, unless
associated with heavy weather, they represent natural phenomena beyond the control of
the assured which from time to time do affect cargo.
9.25 Although earthquake claims are rare, a number of claims on cargo arose from the
Kobe earthquake in 1995. Claims resulting from a sub-sea earthquake causing a tsunami
would, it is submitted, be covered by the peril of “earthquake” being “reasonably
attributable to” such.59
matter insured caused by “general average sacrifice”.60 The reason for the inclusion of
this peril may owe more to history than to logic. The Clauses cover general average
under Clause 2.61 In any event, as the insurance is governed by English law,62 section
66(4) of the Marine Insurance Act 1906 entitles the assured in the case of a general
average sacrifice to recover “from the insurer in respect of the whole loss without
having enforced his right of contribution from the other parties liable to contribute”.
Thus the full amount of the loss, ignoring any contributions due to the assured from other
parties, is payable by insurers who are then subrogated against the persons liable to
make contribution.63 This Clause, albeit merely declaratory, is helpful in setting out the
assureds entitlement to recover for general average sacrifice and has been retained in
the revised Institute Cargo Clauses for this reason. The normal proximate cause rule
applies.64
Jettison
matter insured caused by jettison.65 “Jettison” is a peril of ancient origin which was
included in the SG Form, being a risk which the insurers were “contented to bear”.
Although jettison will commonly amount to a general average sacrifice, this will not
always be the case, particularly where there is only one interest at risk.
9.28 A jettison occurs where cargo is thrown overboard in order to lighten the vessel,
typically when she is on a reef.66 It has been suggested that jettison may also occur if the
cargo is thrown overboard because it has been lawfully condemned,67 but the peril of
“jettisons” was not relied upon in Taylor v. Dunbar,68 where meat was thrown
overboard when it became putrid. The term may be better confined to cases where the
goods are thrown overboard with a view to saving the ship, and possibly other cargo.69
Jettison has been held to include a case where the Master of a ship, which was about to
be captured, threw the insured dollars overboard in order to prevent their falling into
enemy hands.70 However, it is to be noted that in this example the safety of the ship,
which was in peril of capture, was at stake. It is doubtful whether the throwing of cargo
off a quay amounts to jettison as jettison is concerned with the throwing of the cargo into
the sea “from the ship”.71 It is submitted that the wrongful throwing overboard of the
goods would not amount to jettison as that would not be done to save the ship and, even
if it did amount to jettison, it would be excluded by virtue of the deliberate damage
exclusion.72
Washing overboard
insured caused by “washing overboard”.73 This is the first of the sea perils, derived
from the SG term “perils of the seas”, for which cover is provided in the (B) Clauses
but not in the (C) Clauses. Deck cargo is exposed to a risk of washing overboard in
heavy weather particularly if not properly lashed or secured, and containers, in
particular, are known to break free, sometimes in groups or sections. It is doubtful
whether loss solely due to insufficient lashing amounts to “washing” overboard.74 In the
absence of any usage to the contrary, deck cargo must be insured specifically,75 though
todays usage is for conventional closed containers to be carried on deck as well as
traditional deck cargoes, such as timber.
Entry of sea, lake or river water
insured caused by “entry of sea lake or river water into vessel craft hold conveyance
container or place of storage”.76 This is the second of the Clauses covering sea perils
derived from the SG term “perils of the seas”. However, the phrase “perils of the seas”
has been eschewed by the draftsmen of the 1982 Clauses with good reason, as it had
become encrusted with authority.77 The new and clearer concept has concentrated on
accidental, that is to say, fortuitous entry of water, which was at the heart of the concept
of “perils of the seas”.78 The new risk applies to the ocean-going aspects of the voyage,
in vessel or craft. It is also applied to the equivalent landward risks of river and lake
water, to which a conveyance, container, or even place of storage may be exposed. It is
to be noted that rainwater is not covered unless it results in flooding from a river or lake
resulting in “entry” into a warehouse.79
9.31 Although the new concept of “entry of water” is not restricted by the limitations
on the term “perils of the sea” the words of Lord Wright in Canada Rice Mills Ltd v.
Union Marine & General Insurance Co Ltd80 still provide a useful guide enumerating
the risks covered here. He said:81
“Where there is an accidental incursion of sea water into a vessel at a part of the vessel and in a manner where sea
water is not expected to enter in the ordinary course of things and there is consequent damage to the thing insured,
there is prima facie a loss by perils of the seas. The accident may consist in some negligent act, such as improper
opening of a valve, or a hole made in a pipe by mischance, or it may be that sea water is admitted by stress of weather
or some like cause bringing the sea over openings ordinarily not exposed to the sea, or, even without stress of weather,
by the vessel heeling over owing to some accident or by the breaking of hatches or other coverings. These are merely
a few among many possible incidences in which there may be a fortuitous incursion of sea water. It is the fortuitous
entry of the sea water which is the peril of the sea in such cases.”
These would be covered losses as constituting fortuitous “entry of water” and, equally,
analogous losses on land resulting from entry of lake or river water would be covered.
9.32 The term “perils of the seas” referred only to fortuitous accidents or casualties
of the seas and did not include the ordinary action of the winds and waves.82 It is clear,
however, that the weather only need be adverse and that, even though its incidence or
force is not exceptional, a finding of loss by perils of the sea may or may not be justified
depending on whether there is sufficient fortuity.83 It is submitted that the same
principles would apply to “entry of water”, that is to say, the weather needs to be
adverse, but may not be exceptional or abnormal as long as the loss can be considered
fortuitous.
9.33 It is to be noted that the proximate cause rule applies to this risk which raises, in
particular, the question of whether condensation or sweat damage is covered. The
decision in Canada Rice Mills Ltd v. Union Marine & General Insurance Co Ltd84
was that sweat damage, as a result of closing the ventilators in adverse weather
conditions, was caused by a “peril of the seas”.85 A broad view of causation was taken
and analogies drawn between the routine necessity to close the ventilators and
precautions taken to put out a fire.86 The issue is a factual one in each case, but it
appears that if steps taken to prevent entry of water damage the cargo, and those steps
are unavoidable, or, at the least, routine necessary and reasonable, this could possibly
amount to a covered risk. Accordingly, the loss may be considered to be caused by a
peril of the seas if the precautions taken to avoid entry of seawater damage the cargo,
just as the precautions taken to avoid the spread of fire may involve loss of or damage
to the cargo. In particular, the precautions taken to avoid the entry of seawater may,
through lack of ventilation, lead to condensation damage. The more conventional view,
however, is that condensation damage, like shifting of cargo, is no longer covered.87
This view is more consistent with the proximate cause rule required for this peril which
is to be contrasted with the wider causation trigger, expressed in the words “reasonably
attributable to” which applies to the peril of “fire”. It is submitted that the better view is
that the (B) and (C) Clauses visualise immediate contact between the cargo and water
which causes damage and not condensation damage.
“Sling losses”: packages totally lost overboard or in loading or discharging
9.34 The Institute Cargo Clauses (B) cover “total loss of any package lost overboard or
dropped whilst unloading on to, or unloading from, vessel or craft”.88 The equivalent
cover, though possibly slightly narrower, for so-called “sling losses”, was provided in
both the WA and FPA Clauses.89 The decision to provide this cover in the (B) Clauses
alone was deliberately made in order to distinguish them from the (C) Clauses.90 The
huge increase in containerisation has probably reduced the importance of this risk
though, no doubt, in some trades the use of slings is still prevalent. It is to be noted that,
whilst most of the perils first introduced in the 1982 Clauses were applied to the ocean
voyage and, by analogy, to the landward part of the transit, this risk is limited very
specifically to total loss of packages lost overboard or dropped whilst unloading from
vessel or craft. There is no equivalent provision for packages lost whilst being
unloaded from vehicles on land whether lorries or railway wagons. It is said that this
distinction was made because of the uncertainties of proof of such losses.91
Theft, pilferage and non-delivery
9.35 One of the most striking differences between Form WA and FPA Clauses and the
Institute Cargo Clauses (B) and (C) is the lack of cover for forcible theft which was
provided in the earlier Clauses by way of the peril “thieves”,92 and the ancillary perils
of barratry93 and “takings at sea”.94 It is clear that a decision was taken to exclude from
the (B) and (C) Clauses cover in respect of any form of theft.95 Cargo owners may
therefore take out additional theft and pilferage cover under the Institute Theft Pilferage
and Non-Delivery Clause 1/12/82 which reads as follows:
“In consideration of an additional premium, it is hereby agreed that this insurance covers loss of or damage to the
subject-matter insured caused by theft or pilferage, or by non-delivery of an entire package, subject always to the
exclusions contained in this insurance.”
It seems that the term “theft” should now be treated as defined by the criminal law rather
than what an ordinary commercial man would consider theft.96 In Cleveland Twist Drill
Company (Great Britain) Limited v. Union Insurance Society of Canton Ltd97 Scrutton
L.J. took the view that “pilferage” is intended to cover secret theft, saying “it is one of
the peculiarities of secret theft that you do not see it happen”.98 Scrutton L.J. went on to
consider the difficulties of distinguishing on the evidence between pilferage, in the
sense of secret theft, and wrong delivery where the goods-owner has simply not
received his cargo and must base his case on the fact that it was shipped and not
delivered. No doubt this reasoning lies behind the combination of perils “theft, pilferage
and non-delivery” in the Institute Clause.
Recoverable expenses and liabilities: sue and labour, salvage, general
average and collision liabilities
9.36 The Institute Cargo Clauses (B) and (C) cover general average and salvage,99 as
well as certain collision liabilities,100 and reimbursement of expenditure incurred to
minimise a loss, known as sue and labour.101 The extent of this supplementary cover
under the Institute Cargo Clauses is dealt with in Chapter 14. It is to be noted here,
however, that recovery in respect of sue and labour is limited to expenditure incurred to
minimise “loss recoverable hereunder”.102 This limits the reimbursement for sue and
labour expenses to expenditure incurred to minimise losses attributable to or caused by
the named perils under Clause 1. However, the cover under Clause 2, for general
average and salvage charges, extends to expenditure incurred to avoid loss from “any
cause” except those expressly excluded. The words “any cause” reverse the effect of the
Marine Insurance Act 1906 section 66(6) which provides:
“In the absence of express stipulation, the insurer is not liable for any general average loss or contribution where the
loss was not incurred for the purpose of avoiding, or in connexion with the avoidance of, a peril insured against.”
This express stipulation allowing for the recovery of general average “from any cause”
is no doubt designed to avoid unnecessary disputes between insurers and assured over
the cause of a general average event. This is a practical solution as complications could
arise when average bonds and guarantees are demanded by shipowners at the end of the
voyage, for release of the cargo, in circumstances where it might not be clear at that
stage whether the cause of the general average was covered or not.
9.37 The risk of “piracy” is not one of the perils covered under the (B) and (C)
Clauses, but the extension of the cover for general average to avoidance of loss from
“any cause” potentially extends the right to recover general average to some piracy
situations.103 It is understood that the recent spate of hijackings in Somalia have given
rise to ransom demands generally paid by hull underwriters or P&I Clubs who then
declare general average and seek reimbursement from cargo underwriters who are
called upon to contribute in proportion to the value of the cargo which, in many
instances, may exceed the value of the ship. However, it is to be remembered that the
exclusions still apply so that, for example, a “seizure” by pirates would still be an
excluded risk.104
EXCLUSIONS UNDER THE INSTITUTE CARGO CLAUSES (B) AND
(C)
Deliberate damage or deliberate destruction
9.38 Both the Institute Cargo Clauses (B) and (C) provide that “in no case shall this
insurance cover deliberate damage to or deliberate destruction of the subject-matter
insured or any part thereof by the wrongful act of any person or persons”.105 This
exclusion is in addition to the general exclusions which are discussed in relation to the
Institute Cargo Clauses (A).106
9.39 The deliberate damage exclusion has particular impact on certain named perils.
Firstly, it restricts the peril of “fire” by eliminating arson, which is an important aspect
of fire cover.107
9.40 Secondly, the (B) and (C) Clauses cover cargo where the vessel is “sunk”.108
Where a vessel was deliberately “sunk” by scuttling leading to a loss of the cargo that
was a peril of the seas under the SG Form.109 Such a loss was recoverable under the
Institute Cargo Clauses (WA) and (FPA) 1/1/63.110 Those Clauses permitted claims
even though “the loss may have been attributable to the wrongful act or misconduct of
the shipowners or their servants, committed without the privity of the Assured”.111
Under the (B) and (C) Clauses introduced in 1982, a loss of the cargo due to the ship
being “sunk” by scuttling would be excluded by the terms of the deliberate damage
clause. The same applies to the revised Institute Cargo Clauses.
9.41 Thirdly, as to the other named perils, it seems that the deliberate overturning of a
lorry by the driver112 or the deliberate throwing overboard of a package whilst loading
onto or unloaded from the vessel or craft,113 would be excluded.
9.42 In the circumstances, cargo owners do frequently require cover for malicious
damage which is available in the Institute Malicious Damage Clause 1/8/82 which
reads:
“In consideration of an additional premium, it is hereby agreed that the exclusion ‘deliberate damage to or deliberate
destruction of the subject-matter insured or any part thereof by the wrongful act of any person or persons’ is deemed
to be deleted and further that this insurance covers loss of or damage to the subject-matter insured caused by
malicious acts vandalism or sabotage, subject always to the other exclusions contained in this insurance.”
It will be seen that this Clause not only deletes the exclusion but, additionally, provides
cover for “malicious acts vandalism or sabotage”. The additional cover for “malicious
damage” originates from the Institute Strikes Riots and Civil Commotions Clauses114 in
use before 1982 which were in practice used in conjunction with the (B) or (C)
Clauses. It was further the practice for many cargo covers, which included these old
Strikes Clauses, to have added to them the words, “including vandalism and
sabotage”.115 This vandalism and sabotage cover was withdrawn in these 1982 Strikes
Clauses116 and transferred to the Malicious Damage Clause.117
9.43 As to the meaning of these terms, a “malicious” act is one motivated by spite or
ill-will.118 This would normally include “vandalism” and “sabotage”, though these may
merely be examples of “malicious acts”.119 The word “sabotage” contains a hint of a
politically motivated act, but is nevertheless apt to include “the malicious damaging of
an employers property by workmen during a strike or the like”.120
9.44 The cover under the Malicious Damage Clause is subject to the exclusions in the
(B) and (C) Clauses by virtue of the words “subject always to the other exclusions
contained in this insurance”. These exclusions extend to strikes or strikers,121 and
terrorism.122 In practice, cover for these particular excluded risks is generally
purchased under the terms of the Institute Strikes Clauses (Cargo). However, if such
strikes cover is not purchased, it appears that the exclusions of strikes and terrorism in
the (B) and (C) Clauses, particularly in their revised form, which extend to any person
acting from a “political, ideological or religious motive”, could render the additional
cover provided under the Malicious Damage Clause as being limited merely to persons
acting for a financial motive, such as scuttling the vessel for personal gain with the
consequent loss of the cargo.
9.45 The position with regard to piracy is that this is no longer a covered peril under
the (B) and (C) Clauses.123 The deletion of the exclusion of deliberate damage does not
have the effect of providing cover for piracy. It is a question of fact in each case
whether the pirates acts amount to “malicious acts vandalism or sabotage” or, as may
more frequently be the case today, simply amount to seizure of the ship and cargo for
ransom without any physical damage to the cargo.124 If the cargo is lost or damaged by
politically, ideologically or religiously motivated acts it will be covered under the
Institute Strikes Clauses (Cargo) which cover loss of or damage to the subject-matter
insured caused by “any person acting from a political, ideological or religious
motive”.125
1. For the revised Institute Cargo Clauses (B) and (C) 1/1/2009 see Appendices 14
and 16. The earlier Institute Cargo Clauses (B) and (C) 1/1/82 are at Appendices 13
and 15.
2. For a discussion of all risks cover provided under the Institute Cargo Clauses (A),
see Chapter 8 above.
3. Incoterms 2000 para. A3.
4. See, for example, Soya GmbH Kommanditgelellschaft v. White [1980] 1 Lloyds
Rep. 491 (Lloyd J. at first instance), where limited perils cover was used in conjunction
with the standard market HSSC (Heating Sweating and Spontaneous Combustion)
Clause for the insurance of a cargo of soya beans.
5. Middows v. Robertson (1940) 68 Ll. L. Rep. 45, per MacKinnon L.J. at p. 63. See
also the 1978 report by the United Nations Conference on Trade and Development
(UNCTAD) Report, “Legal and Documentary Aspects of the Marine Insurance Contract”
(TD/B/C.4/ISL/27) para. 191(4), revised 1982, discussed in Chapter 1, at para. 1.16.
6. Additionally contact of the vessel with any substance was included as was loss of
or damage caused by discharge at a port of distress.
7. The history of the clauses is documented in Historic Records Report HR5, and see
chapters 1–3 of Goodbye to the Memorandum, 1988, Witherby & Co Ltd, by J. Kenneth
Goodacre an in-depth study of the standard cargo, war and strikes clauses.
8. See Chapter 7, para. 7.43 et seq.
9. 9. See Leyland Shipping Company Limited v. Norwich Union Fire Insurance
Society Limited [1918] AC 350, and Chapter 7, para. 7.11 et seq.
10. These are dealt with in Chapter 8.
11. See para. 9.38 et seq below.
12. Stanley v Western Assurance Co (1868) LR 3 Exch 71, per Chief Baron Kelly at
p. 73. See also Chapter 1 at paras. 1.17–1.20 for the general rules of interpretation in
relation to commercial contracts, including the Institute Cargo Clauses.
13. Cozens v. Brutus [1973] AC 855 at p. 861, per Lord Reid.
14. [1976] 2 Lloyds Rep. 189 at p. 192; applied in Commonwealth Smelting Ltd v
Guardian Royal Exchange Assurance Ltd [1986] 1 Lloyds Rep. 121 at 126.
15. [1986] 1 Lloyds Rep. 121.
16. Young v Sun Alliance and London Assurance Limited [1976] 2 Lloyds Rep. 189
(CA).
17. See, for example, r. 7 of the Rules for Construction of Policy Sch. 1, MIA 1906,
which gives a statutory meaning to the term “perils of the seas”.
18. Clause 1.1.1.
19. Symington v. Union Insurance Society of Canton Limited (1928) 31 Ll. L. Rep.
179 at 182.
20. Kacianoff v. China Traders Insurance Co Limited [1914] 3 KB 1121 at 1128.
21. (1868) LR 3 Ex 71 at 74
22. para. 9.3 and see Chapter 7, para. 7.45 et seq.
23. The Institute Coal Clauses 1/10/82 cover spontaneous combustion and other
forms of inherent vice.
24. Clause 4.4 of the (B) and (C) Clauses excludes “inherent vice or nature of the
subject-matter insured”. For a discussion of inherent vice see Chapter 8, para. 8.22 et
seq.
25. Clarke The Law of Insurance Contracts, 5th edn, 2000, Informa at para. 16–3C1.
Inherent vice is defined and discussed in Chapter 8, para. 8.22 et seq.
26. See para. 9.38 et seq. where the deliberate damage exclusion is considered.
27. Contrast the cover in the WA and FPA Clauses which was capable of covering a
fire that was deliberately started, see Arnould at para. 23–70 at p. 1063.
28. Historic Records Report HR5 at pp. 84–87, and Goodbye to the Memorandum at
p. 8. For a description of this incident and the Halifax Harbour explosion see Chapter
10, para. 10.25.
29. [1986] 1 Lloyds Rep. 121.
30. Per Parker L.J. at p. 123.
31. [1984] 2 Lloyds Rep. 610, per Staughton J. at p. 11.
32. At p. 126.
33. Clause 1.1.2.
35. Clause 1.1.3, discussed at para. 9.20 below.
36. Stranding required the taking of the ground for a significant period on dry land,
MDougle v. Royal Exchange Assurance Company (1816) 4 M & S 503 and, in
particular, had a special position in that the insurer was liable for excepted losses under
the Memorandum in the SG Policy and the FPA Clauses if the vessel was “stranded”,
whether or not the cargo was damaged by the stranding, as long as it was on board at the
time, see MIA 1906, First Schedule, r. 14 of Rules for Construction of Policy
37. D.R.OMay and J. Hill OMay on Marine Insurance, 1993, Sweet & Maxwell
(OMay) at p. 177. Movement of the vessel as she settles on the mud could lead to
damage to the cargo—an ingress of water would be covered in any event under the (B)
Clauses but not under the (C) Clauses.
38. Bryant & May v. London Assurance Corporation (1866) 2 TLR 591.
39. Clause 1.2.3.
40. OMay at p. 177.
41. 4th edn, 2005, LLP (Hudson & Madge) at p. 38.
42. [1938] P 69.
43. Clause 1.2.2 and see para. 9.29 below.
44. Clause 1.1.3.
45. Clause 1.1.2, see para. 9.18 above.
47. Clause 1.1.4.
48. Chapter 7, para. 7.45 et seq.
49. Overturning would be covered under Clause 1.1.3, see para. 9.20 above.
50. The cover, in the tradition of the FPA Clauses, remains concerned with major
casualties, though shifting of cargo, not necessarily as a result of a major casualty, may
in certain circumstances have amounted to a “peril of the seas”.
51. Clause 1.1.5.
52. Wider than proximate cause, see Chapter 7, para. 7.45 et seq. above.
53. ICC (WA)1/1/63, ICC (FPA) 1/1/631, see para. 9.2 above.
54. Rule X(b) of the York Antwerp Rules.
55. Rule XII, see Hudson & Madge at p. 39.
56. For a discussion of the general average cover, see Chapter 14, para. 14.36.
57. Cator v. Great Western Insurance Company of New York (1873) LR 8 CP 552;
Lysaght v. Coleman [1895] 1 QB 49.
58. Clause 1.1.6.
59. See Goodbye to the Memorandum at p. 24.
60. Clause 1.2.1.
62. ICC, Clause 19.
63. Dickenson v. Jardine (1868) LR 3 CP 639, where the assured recovered in
respect of tea thrown overboard from a vessel which had got on a reef on a voyage from
Foochow to London in 1864.
65. Clause 1.2.2.
66. As, for example, in Dickenson v. Jardine, supra.
67. Hudson & Madge at p. 40: OMay at p. 181.
68. (1869) LR 4 CP 206.
69. OMay at p. 180 quotes the Rhodian law definition of jettison as a “heaving
overboard of the goods in order to lighten the ship”, Justians Digest Lib 14, Tit. 2.
70. Butler v Wildman (1820) 3 B & Ald 398.
71. See Symington & Co v. Union Insurance Society of Canton Ltd (1928) 31 Ll. L.
Rep. 179, per Scrutton L.J. at p. 182.
72. See Clause 4.7 and the discussion at para. 9.38 below.
73. Clause 1.2.2.
74. A. George The New Institute Cargo Clauses [1986] LMCLQ 438 at p. 443.
75. MIA 1906, First Schedule, r. 17, and see the discussion in Chapter 3, para. 3.40
et seq.
76. Clause 1.2.3.
77. It has been said that it is “perhaps easier to arrive at a true understanding of the
term [perils of the seas] by suggesting rather what it does not embrace than what it
does”. Arnould para. 23–11.
78. There had to be entry of water caused by a fortuitous incident such as adverse,
though not necessarily abnormal, weather conditions, see Merkin, Marine Insurance
Legislation, at p. 114 and the numerous cases cited there.
79. The word “entry” may suggest that goods stored in the open are not covered for
these risks though it could be argued that floodwater still “enters” a storage compound.
80. (1940) 67 Ll. L. Rep. 549.
81. At p. 557.
82. MIA 1906, First Schedule, r. 7.
83. Canada Rice Mills, supra, at p. 558 and contrast Mayban General Assurance
BHD v. Alstom Power Plants Ltd [2004] 2 Lloyds Rep. 609 where, in the context of an
all risks cover, adverse weather was found to be properly regarded as an ordinary
incident of the voyage in question, and thus not fortuitous, the loss being held to be
caused by the inability of the cargo to withstand the ordinary conditions of the voyage,
see further Chapter 7, para. 7.28.
84. (1940) 67 Ll. L. Rep. 549.
85. Or, alternatively, under the general words of the policy.
86. See Stanley v. Western Insurance Company (1868) LR Ex 71 at p. 74 cited by
Lord Wright and discussed at para. 9.10 above in the context of the named peril of
“fire”.
87. See OMay at p. 182 which, in relation to damage to cargo by sweat in the ships
hold due to poor ventilation during heavy weather, says that “No such cover is provided
under the (B) and (C) Clauses”.
88. Clause 1.3.
89. See para. 9.2 above, insurers paid for packages “totally lost in loading,
transhipment or discharge”.
90. OMay at p. 183.
91. Ibid.
92. The term “thieves” did not cover “clandestine theft or a theft committed by any
one of the ships company, whether crew or passengers”, see MIA 1906, First Schedule,
r. 9.
93. “Barratry” includes “every wrongful act wilfully committed by the master or
crew to the prejudice of the owner, or, as the case may be, the charterer”, MIA 1906,
First Schedule, r. 11.
94. “Takings at Sea” includes deprivation of possession, whether the seizure or taking
was lawful or unlawful, and whether by enemies or pirates, per Lord Roskill in Shell
International Petroleum Co Ltd v. Gibbs (The Salem) [1983] 1 Lloyds Rep. 342 at p.
347 (HL).
95. OMay at p. 183.
96. Grundy (Teddington) Ltd v. Fulton [1981] 2 Lloyds Rep. 666 at 670, affirmed on
appeal [1983] 1 Lloyds Rep. 16 (CA). Contrast the view apparently taken in Nishina
Trading Co Limited v Chiyoda Fire & Marine Insurance Co Limited (The Mandarin
Star) [1968] 2 Lloyds Rep. 47; [1969] 1 Lloyds Rep. 293 (CA) where the view was
expressed that theft should be interpreted as meaning what an ordinary commercial man
would consider to be theft, see Arnould, para. 23–30.
97. (1925) 23 Ll. L. Rep. 50 (CA).
98. At p. 53.
99. Clause 2.
100. Clause 3.
101. Duty of Assured Clause, Clause 16.
102. Clause 16.
103. See, for example, the situation envisaged in Hudson & Madge at p. 40 where a
package is thrown overboard, by way of general average sacrifice, to lighten a schooner
to enable her to escape from a pirate crew.
104. For the meaning of “seizure” see Chapter 10, para. 10.19.
105. Clause 4.7. For a discussion of the meaning of seizure, see Chapter 10, para.
10.19 et seq.
106. See Chapter 8.
107. See para. 9.12 above for a discussion of the peril of fire in this context.
108. Clause 1.1.2.
109. P. Samuel & Co Ltd v Dumas (1924) 18 Ll. L. Rep. 211.
111. ICC (WA) and ICC (FPA) Clause 8 (second para.) see Shell International
Petroleum Co Ltd v Caryl Antony Vaughan Gibbs (The Salem) [1983] 1 Lloyds Rep.
342 (HL); [1982] 1 Lloyds Rep. 369 (CA)
112. In S. C.A. (Freight) Ltd v. Gibson [1974] 2 Lloyds Rep. 533, a lorry overturned
when the drivers took it into the centre of Rome on a joyride though that incident
probably did not have the required element of “deliberate” damage or “deliberate”
destruction needed to trigger the exclusion.
113. Under Clause 1.3 of the (B) Clauses.
114. Institute Strikes Riots and Civil Commotions Clauses 1/1/63, Clause 1(b) which
covered loss of or damage to the property insured caused by “persons acting
maliciously”.
115. Neville Gough, Institute Cargo and Related Trade Clauses, 1988, Insurance
and Reinsurance Research Group Ltd, London (Gough) at p. 32.
116. Noted by Hudson & Madge at p. 75.
117. It is understood that when the new clauses were introduced in 1982 the intention
was that an additional premium would be payable for the malicious damage cover.
However, brokers would not agree an additional premium for the Malicious Damage
Clause cover as insurers had been providing this cover previously without additional
charge. That appears to be the current position, which is that the Malicious Damage
Clause cover is commonly added to the (B) and (C) Clauses cover for no additional
premium.
118. Nishina Trading Company Ltd v Chiyoda Fire and Marine Insurance
Company Ltd [1969] 1 Lloyds Rep. 293 at p. 298, per Lord Denning MR. See also the
remarks of Mustill J. in Shell International Petroleum Co Ltd v. Gibbs (The Salem)
[1981] 2 Lloyds Rep. 316 at p. 328.
119. The Clause as published by Witherbys uses the phrase “malicious acts
vandalism or sabotage” though it is printed in some versions, for example, see OMay at
p. 206 as “malicious acts of vandalism or sabotage”.
120. Shorter Oxford English Dictionary, 6th edn, 2007.
121. See Clause 7.1 (strikers) and 7.2 (strikes). Discussed in Chapter 10, paras.
10.36 to 10.37.
122. See Clauses 7.3 and 7.4 (terrorism and “persons acting from a political
ideological or religious motive”), discussed in Chapter 10, paras. 10.41 to 10.54.
123. But see the position with regard to general average demands for reimbursement
of ransom payments paid to pirates, discussed at para. 9.37 above. “Pirates” is an SG
peril. The term “pirates” includes passengers who mutiny and rioters who attack the
ship from the shore, MIA 1906, First Schedule, r. 8.
124. Gough, op. cit. fn. 115 above suggests that where there is damage this would be
covered under the Malicious Damage Clause. That proposition, it is submitted, is
correct, but leaves open the position where there is no damage but only a ransom
demand.
125. Institute Strikes Clauses (Cargo), Clause 1.3. It would not be correct to describe
this as action taken by “pirates” as a key attribute of pirates is that they act for personal
gain, Republic of Bolivia v. Indemnity Mutual Marine Assurance Co Ltd [1909] 1 KB
785.
CHAPTER 10
WAR, STRIKES, TERRORISM AND REJECTION RISKS
THE STRUCTURE OF WAR AND STRIKES COVER
History and origins of war cover
10.1 The traditional SG Form of Policy scheduled to the Marine Insurance Act 1906
covered not only specific marine risks, including perils of the seas, but also numerous
war-related perils including “men of war”, “enemies”, “letters of mart and
countermart”, “takings at sea” and “arrests, restraints, and detainments of all kings,
princes, and people”.1 During the Napoleonic Wars the practice of excluding these war
risks became common2 and this practice continued into the twentieth century so that the
first standard Institute Cargo Clauses, introduced on 1 August 1912, excluded war and
similar perils with the following Clause:3
“Free of Capture, Seizure etc. Clause
Warranted free of capture seizure and detention, and the consequences thereof or any attempt thereat, piracy
excepted, and also from all consequences of hostilities or warlike operations, whether before or after declaration of
war.”
This Clause was known as the FC&S Clause and the practice was to provide the
positive cover for war risks by agreeing to insure the risks excluded by this Clause. The
first Institute War Clause issued in 1916 accordingly covered the risks excluded by the
form of FC&S Clause in use at that time.4 The difficulty was that the FC&S Clause did
not exclude losses by direct reference to the perils in the SG Form which did not, for
example, use the terms “capture” or “seizure”. War risks cover depended on showing a
risk covered by the SG perils as a loss could not be excluded unless it were first
covered. The result was that the assured had to establish SG cover, and the exclusion
from that cover, in order to obtain positive cover under the war risks insurance. As the
wording of the SG perils and the FC&S Clause were not back-to-back this led to undue
complications, and criticisms by the courts,5 which culminated in Mocatta J.s plea for
reform of the system in Panamanian Oriental Steamship Corporation v. Wright (The
Anita)6 when he said:7
“It is probably too late to make an effective plea that the traditional methods of insuring against ordinary marine risks
and what are usually called war risks should be radically overhauled. The present method, certainly as regards war
risks insurance, is tortuous and complex in the extreme. It cannot be beyond the wit of underwriters and those who
advise them in this age of law reform to devise more straightforward and easily comprehended terms of cover.”
10.2 However, it was not “too late”. In 1982 the SG Form became defunct and the
positive insurance cover for war risks was rationalised in the new Institute Clauses.8
The Institute War Clauses (Cargo) introduced in 1982 remain unchanged in the revised
Clauses of 2009.9 In this section of this chapter, therefore, no distinction is made
between the Institute Cargo Clauses 1/1/82, the “1982 Clauses” and the Institute Cargo
Clauses 1/1/2009, the “revised Clauses” as the issues discussed here are equally
applicable to both. The position is different with regard to the later section of this
chapter which discusses terrorism, as the revised Clauses have introduced a new
definition of terrorism as compared to the 1982 Clauses.
History and origins of strikes cover
10.3 Strikes, and the risks created by persons taking part in riots and civil commotions,
are like war risks, seen by insurers as falling into a class of their own. Accordingly,
these risks were excluded in the first standard Institute Cargo Clauses of 1912 by a
Clause which read as follows:
“Strikes, Riots and Civil Commotions Clause
Warranted free of loss or damage caused by strikers locked-out workmen or persons taking part in labour disturbances
or riots or civil commotions.”
This Clause, known as the SR&CC Clause, excluded “damage” by strikers and persons
taking part in riots and civil commotions, but the position as to “consequential” loss, by
way of contrast to physical damage, led to a revision of the SR&CC Clause in 1958
when it was extended to exclude loss damage or expense:
“…resulting from strikes, lock-outs, labour disturbances, riots or civil commotions.”
As will be discussed later in this chapter,10 the positive cover under the Institute
SR&CC Clause was limited to physical damage by strikers and did not extend to cover
this exclusion which was aimed at the effect of the strike, particularly where a strike
caused delay.11
War, strikes and piracy cover in a conventional policy
10.4 War and strikes risks are traditionally excluded from the main body of the
insurance and then cover is bought back for an additional premium. A typical cargo
policy covers the cargo under the Institute Cargo Clauses (A)12 and the exclusions of
war and strikes risks in those Clauses are then covered by the Institute War Clauses
(Cargo) and the Institute Strikes Clauses (Cargo). The cover for war risks is separated
from cover for strikes risks as the war cover is limited essentially to risks when the
cargo is waterborne,13 whilst cover for land transits is provided by the Strikes Clauses.
It may be noted that cover for terrorism is included in the Strikes Clauses and not the
War Clauses. The main reason for this appears to be historical in that the American
Institute covers terrorism in their Strikes Clauses and the London market, wishing to be
competitive in that respect, have followed that lead. Special provisions relating to
cancellation apply to war and strikes risks.14
10.5 It is convenient at this point to outline the history of the risk of piracy. The SG
perils included “pirates”15 and “rovers” and these perils were treated as marine or,
subsequently, all risks perils. This prevailed until 1937 when, as a result of the review
of the Institute Clauses in light of the Spanish Civil War “piracy” was excluded from the
marine risks and became a war risk. “Piracy” returned to become an all risks peril in
the 1982 Clauses when this was thought more appropriate16 but was not a named peril
under the (B) and (C) Clauses.17 Insofar as a spate of piracy incidents off the coast of
Somalia have led to an increase in piracy claims, London insurers have introduced a
Cargo Piracy Notice of Cancellation, for use with the Institute Cargo Clauses, which
“Cargo Piracy Notice of Cancellation
Where this insurance covers piracy and/or general average, salvage and sue and labour charges arising from piracy,
such cover may be cancelled by insurers giving 7 days notice in writing, cancellation to take effect on the expiry of 7
days (10 days in respect of reinsurance) from midnight of the day on which the notice is issued by insurers.
Insurers agree to reinstate this coverage subject to agreement between insurers and the insured prior to the
cancellation taking effect as to any new rate of premium and/or conditions and/or warranties. Such cancellation shall
not affect any insurance which has attached before the cancellation takes effect.
If the cancellation is in relation to specific geographical areas, such areas will be clearly defined by insurers in the
notice of cancellation.”
The primary purpose of this Clause, which is available to be agreed on renewal or on
attachment of a new risk, is to enable the insurers during the currency of the policy to
give notice of cancellation in respect of the enhanced piracy risk in order to renegotiate
a premium commensurate with that increased risk. The necessity for the new
Cancellation Clause appears to arise from the fact that as piracy cover lies within the
marine, or all risks, cover there is no scope for cancellation of the policy, as there
generally is in the war risks cover.18
The main limitations on war and strikes cover
10.6 The traditional method of covering war and strikes by way of buy-back has been
rationalised by the abandonment of the SG Form but does not provide seamless cover in
a number of important respects. Firstly, the duration of cover in the case of war risks is
limited to the time the cargo is at sea, or, at least, on board ocean-going vessels.19
Secondly, terrorism cover is generally limited to cargo in the ordinary course of transit
by a Joint Cargo Committee Clause called JC56.20 Thirdly, neither war cover nor
strikes cover extends to loss of the adventure.21 Strikes cover, moreover, does not
extend to expense caused by closure of a port of destination resulting from strikes.22
Finally, there is a significant gap in cover because the war clauses only provide cover
for capture, seizure, arrest, restraint, or detainment where these risks are consequent on
war or like perils including hostilities.23 Thus losses by seizure or restraint by
government authorities under customs regulations, or for breach of embargoes or similar
regulations, are outside the standard insurance provided by the Institute Cargo Clauses.
Cover for this type of “rejection risk” may be provided at significant additional
premium as discussed in the last section of this chapter.24
WAR RISKS
The perils insured
War, civil war, revolution, rebellion and insurrection
10.7 Clause 1.1 of the Institute War Clauses (Cargo) covers loss of or damage to the
subject-matter insured caused by:25
“War civil war revolution rebellion insurrection, or civil strife arising therefrom, or any hostile act by or against a
belligerent power.”
10.8 It has been said that the terms “war”, “civil war”, “revolution”, “rebellion” and
“insurrection” reflect the stages through which civil strife may pass with civil war at
one extreme and insurrection, or even riot, at the other.26 This suggestion should,
however, be treated with caution as it has not found favour in later decisions. Mustill J.
in Spinneys (1948) Ltd v. Royal Insurance Co Ltd27 stated28 that he had “not found this
approach very productive”, in particular, he remarked that some of the perils appear to
stand side-by-side rather than in a strict order of precedence. Furthermore, Rix J. in
Kuwait Airways Corp. v. Kuwait Insurance Co29 stated that he was “distrustful of the
usefulness of such general maxims”.30 While a strict “ladder” approach may not
therefore be appropriate for the full range of terms employed, there may be a more
limited role for this construction method at the bottom of the scale. In particular, where
a situation had reached the point of “insurrection”, it was held that this rendered it
unnecessary to decide “whether the situation had developed into a ‘rebellion’ or ‘civil
war’ by the time of the relevant attacks”.31 This section of the book now considers the
terms, war etc, in the order they appear in the Clause, without necessarily adopting the
“ladder” approach.
10.9 The word “war” was first introduced into cargo insurance in 1982 and there is
surprisingly little direct authority on it. The word is to be given its ordinary and popular
meaning as a commercial man would use it. The court is searching for the meaning
intended by the parties and not a technical legal meaning derived from the niceties of
international law.32 Nor is the issue whether the events in question would be recognised
by the Government of the UK as amounting to war.33 There may be said to be a state of
war where two or more governments whether or not legally recognised are involved in,
or have recently been involved in military, including naval, operations involving the use
of force with each other.34
10.10 “Civil war” was defined by Saville J. in National Oil Co of Zimbabwe
(Private) Ltd v. Sturge35 as meaning: “a war with the special characteristic of being
civil—i.e., being internal rather than external”.36 In Spinneys (1948) and Others v.
Royal Insurance Co Ltd,37 which concerned civil unrest in the Lebanon, Mustill J.
suggested that whether a civil war exists will generally involve a consideration of three
questions:38
(1) Can it be said that the conflict was between opposing “sides”?
(2) What were the objectives of the “sides”, and how did they set about pursuing
them?
(3) What was the scale of the conflict, and of its effect on public order and on the
life of the inhabitants?
This case concerned the internal political strife, accompanied by violence and
destruction on a large scale, suffered by the Lebanon and the City of Beirut for several
months leading up to January 1976. On 18 January 1976 groups of people broke into and
looted the assureds shop in the Spinneys Centre in the middle of the city. Mustill J. held
that at that time there were no “sides” which could be identified as being engaged in a
civil war in the more usual sense of the term (i.e., in a struggle by one side to wrest
power from the other).39 Although the fighting in the Lebanon was serious, the violence
was sporadic and there was nothing to suggest that by January 1976 matters had
advanced beyond massive civil strife and virtual anarchy to a stage of a civil war.40 In
National Oil Co of Zimbabwe (Private) Ltd v. Sturge,41 the facts of which are given
below,42 the incidents amounted to “insurrection” which was excluded under the policy,
making it unnecessary to decide if the circumstances also amounted to civil war.
However, Saville J. indicated that the question of whether there was a civil war was
“perhaps… debateable”43 and, in context, that may again have been because the conflict
in Mozambique lacked the necessary scale.
10.11 The terms “revolution” and “rebellion” were considered by Saville J. in
National Oil Co of Zimbabwe v. Sturge44 where he said:45
“‘Rebellion’ and ‘insurrection’ have somewhat similar meanings to each other. To my mind, each means an organised
and violent internal uprising in a country with, as a main purpose, the object of trying to overthrow or supplant the
government of that country, though ‘insurrection’ denotes a lesser degree of organisation and size than ‘rebellion’…
Underwriters accept that if they cannot establish insurrection then they must necessarily fail on rebellion.”
The key to the difference may be that a “revolution” denotes a successful rebellion, so
for example, we speak of the “French Revolution”, or the “American Revolution”. This
approach is consistent with Chambers Dictionary46 which defined “revolution” in
terms of “a radical change in government”. A “rebellion” may, if successful, lead to
revolution and a change in government, and, if unsuccessful, will remain a mere
“rebellion”.
10.12 “Insurrection”, as the lowest on the scale of violence, is the critical exclusion,
as when this scale of violence is reached that triggers war and strikes cover which will
not normally extend to losses on land. This is because Clause 1.1. of the Institute Strikes
Clauses (Cargo) covers loss of or damage to the subject-matter insured caused by
persons taking part in “riots or civil commotions” but, Clause 3.10 of the Strikes
Clauses excludes “insurrection or civil strife arising therefrom”. It therefore becomes
important to establish whether a state of disorder results, on the one hand, from riots,
civil commotions or terrorism, which are covered risks, or whether, on the other hand,
the point of insurrection has been reached with the result that there is no cover on land
under a conventional cargo policy. This is a question of fact and, by the nature of things,
the facts are often obscure where losses have occurred during a state of unrest.47
10.13 The term “insurrection” was defined by Saville J. in National Oil Co of
Zimbabwe48 as an uprising with “a lesser degree of organisation and size than
rebellion”. In that case, losses resulted from damage caused by explosions on five
occasions on the Beira to Feruka pipeline in Mozambique and from an explosion, and
the resulting fire, at an oil tank farm. All the damage was deliberately caused by
supporters of the Mozambique National Resistance Movement (Renamo). It was held
that these incidents amounted to “insurrection”.
10.14 There have been two recent cases examining insurrection which review the
English authorities and are of some guidance. They also provide examples of where the
borderline between insurrection and civil commotions may be drawn. In Grell-Taurel
Ltd v. Caribbean Home Insurance Co Ltd49 members of an organisation called
Muslimeen bombed the Trinidad and Tobago Police Headquarters in Port of Spain, and,
at the same time, stormed the Parliament Chamber. They killed six people and took 16
hostage, including the Prime Minister. Later the Muslimeen took over the television and
broadcasting facilities and their leader announced, somewhat precipitously, that the
Government had been overthrown. The Trinidad and Tobago Court of Appeal accepted
that a state of insurrection had existed during these events. This approach was following
in Tappoo Holdings Ltd v. Stuchbery50 where the circumstances were somewhat closer
to the margin between “insurrection” —which would be excluded—and civil
commotions or riots, which would normally be covered. On 19 May 2000 Mr George
Speight, and several armed confederates, seized the Fijian Parliament and took the
Prime Minister and other members of the Government hostage. A breakdown of law and
order followed and a riot began at the assureds shop in the central business district
which a mob looted and damaged. It was argued, in particular, that the scale of the
events did not warrant a finding of insurrection. However, the Supreme Court of the Fiji
Islands, having considered the authorities discussed above,51 decided that there was an
insurrection on the basis that:52
“The cases established that (i) an ‘insurrection’ was an attempt by force to overthrow the established government,
which depended on the objective of those involved, particularly the leaders, but not on their prospects of success; and
(ii) the numbers taking part did not need to be large, and there did not need to be a high level of planning, so that an
‘insurrection’ could be a loose affair.”
It was held on the facts that:53
“The numbers initially involved in the coup and Parliament House were not too small for the enterprise to be
characterised as an ‘insurrection’. The statements of Mr George Speight and his confederates at Parliament House…
on 19 May 2000 made their intention to overthrow the established Government (‘this is a civil coup’) very plain and
their actions spoke as loudly as their words.”
The intention to overthrow the established Government accompanied by violence
directed at the Parliament and the members of the Government was indicative of an
insurrection and put the matter beyond mere riots or civil commotions and thus beyond
the insurance cover.
10.15 The next phrase “or civil strife arising therefrom” applies to all the war perils,
but is probably most apt in relation to revolution, rebellion, and, in particular,
insurrection. Mustill J. in the Spinneys v. Royal Insurance,54 appears to approach the
words “civil strife” as encompassing the various levels or types of disorder that can
take place, stretching from riot to civil war, so the purpose of the words “arising
therefrom” appears to be to widen the causation trigger and, perhaps, to embrace
incidents occurring in a different location or time. In particular, OMay states that “the
phrase may be significant enough, in practice, to embrace an event which arises from the
war, civil war, revolution, rebellion or insurrection, though it is geographically
separated from the main action”.55
10.16 The closing phrase “any hostile act by or against a belligerent power”
originated in the FC&S Clause with the words “unless caused directly by… a hostile
act by or against a belligerent power”.56 The intention is for the words a “hostile act” to
be treated in the same way as “hostilities” in the older cases on the FC&S Clause,
which excluded the “consequences of hostilities”.57 The meaning of hostilities is limited
to the context of persons acting on behalf of sovereign powers, or at least rebels or
revolutionaries rather than rioters, and certainly does not encompass individuals acting
on their own initiative, however hostile they may be.58 In The Petersham59 Lord
Wrenbury said that “the word ‘hostilities’ does not means the existence of a state of war
but means acts of hostility”.60 It seems, therefore, that the phrase “any hostile act by or
against a belligerent power” encompasses the type of hostile action belligerent nations,
or embryo nations, take against each other in anticipation of war.
Capture, seizure, arrest, restraint and detainment
10.17 Clause 1.2 of the Institute War Clauses (Cargo) covers61 loss of or damage to
the subject-matter insured caused by:
“Capture seizure arrest restraint or detainment, arising from risks covered under 1.1 above, and the consequences
thereof or any attempt thereat.”
The insurance cover for this group of risks is restricted to the context of war or like
perils amounting, at least, to insurrection or associated civil strife.62 The words “arising
from” which trigger the causative link between the risk in Clause 1.2 and the war and
like perils provision in Clause 1.1 are considered legally to mean the same as
“proximately caused by”, though market understanding is that they probably widen the
causation rule. The view taken here is that the words “arising from” should be construed
as allowing for multiple causes in situations which involve more than one cause as, for
example, cases of detainment under Clause 1.2 that arise out of “insurrection” under
Clause 1.1.63 The words “the consequences thereof or any attempt thereat” also appear,
at first sight, to somewhat widen the causation link. However, these words are to be
considered in their historical context. This is an occasion where the context or matrix of
the wording may properly be considered by way of background.64 OMay65 explains that
historical background as follows:
“These words are taken from the FC&S wording and are retained in the present Institute Clauses. ‘Consequences’
does not mean each and every happening which may follow upon capture, seizure, arrest, restraint or detainment. The
word ‘consequences’, as was made clear by Lord Sumner in The Petersham66 is to save a long enumerative
description of incidents of ‘capture, seizure, arrest, restraint or detainment’ and includes only such consequences as are
proximately, not remotely, caused by the named perils. In view of the old authorities the phrase, ‘and the consequences
thereof, might safely have been treated as tautologous and omitted from the current Institute Clauses. The words are
retained to avoid a supposition that, by their omission, any diminution of cover between the old regime and the new was
intended by underwriters. The words ‘consequences thereof also provide a convenient peg on which to hang the words
‘or any attempt thereat’, which also appear in the FC&S Clause and might, if deleted, have diminished the cover. The
sort of case put by Erle C.J. in Ionides v. Universal Loan Insurance Co 67 was that of a ship which is trapped by the
enemy in a harbour, and strands while trying to make its escape. This would be a consequence of an ‘attempted’
restraint which might not be covered if the words ‘or any attempt thereat’ were discarded. It was for this reason that
the whole phrase has been retained.”
This explanation puts a limitation on the difficult words “consequences of” which
otherwise might unduly widen the causation trigger and the cover under Clause 1.2.
10.18 We now analyse the terms capture, seizure, arrest, restraint and detainment
always bearing in mind that these risks must be linked to the war and related perils in
Clause 1.1 in the manner described above. The word “capture” has been considered in
a number of cases and means “every act of seizing or taking by an enemy belligerent”.68
A modern example of “capture” arose in Kuwait Airways Corp v. Kuwait Insurance Co
SAK69 where the insurers themselves recognised, in the context of the invasion of
Kuwait by Iraq in August 1990, that the actions taken by the Iraqi forces in relation to
certain aircraft in Kuwait amounted to their capture. The word “capture” is, in practice,
less likely to be of importance in marine cargo insurance because the word “seizure”,
which we consider next, is “a broader expression which includes capture”.70
10.19 The word “seizure” has troubled the courts on a number of occasions not least
because, like “capture”, it was excluded by the FC&S Clause from the SG Form, but
was not an SG peril although it could result from the operation of such perils. In the
leading case of Cory v. Burr71 Lord FitzGerald said:72
“‘Seizure’ seems to be a larger term than ‘capture’ and goes beyond it, and may reasonably be interpreted to embrace
every act of taking forcible possession either by a lawful authority or by overpowering force.”
Accordingly, the term “seizure”, as applied under English law,73 is wide enough to
encompass any act of overpowering force, whether or not carried out by government
agencies. The limits to the term “seizure” were recently examined in the context of
cargo insurance in Bayview Motors Ltd v. Mitsui Marine and Fire Insurance Co Ltd74
where a consignment of six Toyota cars were insured under the Institute Cargo Clauses
(All Risks) 1/1/63 for a voyage from Yokohama to Santo Dominico in the Dominican
Republic. It was alleged by the insurers that, while the cars were still at risk under the
policy in a customs compound,75 they were confiscated by the customs officers as they
had not been declared for transhipment to the trucks at Caicos Islands to where they
were consigned. It was argued that this amounted to “seizure” an excluded peril under
the FC&S Clause.76 The evidence at trial showed that the individual customs officers,
acting illegally, had simply made off with the cars. The insurers nevertheless persisted
with the “seizure” defence on the basis that any unlawful misappropriation by a person
spuriously invoking the authority of the state, and thereby effecting a theft, constituted a
seizure. David Steele J. rejected this contention, firstly, on the basis of the classic
definition of seizure from Cory v. Burr77 cited above.78 He went on to identify the
essential aspects of seizure, as illustrated by the authorities, as follows:79
(1) When the customs officers converted the cars by refusing to release them, the
cars had already been voluntarily placed in their custody and control in the
bonded car park. Misappropriation in this manner does not constitute the
taking of forcible possession The Salem.80
(2) Further, there was no taking by lawful authority. The customs officers were
not acting as organs of the state, lawfully or otherwise. They were acting
solely in their own interests: Robinson Gold Mining Ltd v. Alliance
Insurance Ltd,81 Lozano v. Janson,82 Powell v. Hyde.83 The [insurers] rightly
categorised them simply as thieves.
(3) Nor, in that independent capacity, was the taking implemented by any display,
or threat, of overpowering force. Kleinwort v. Shephard,84 Johnson v.
Hogg.85
This view was upheld by the Court of Appeal, the main attack on the judgment being that
the customs officers took the cars in their capacity as customs officers thus purporting to
exercise the authority of the state and that this carried with it a sufficient threat or
indicia of force so as to amount to “seizure”. This view was rejected by Tuckey L.J.
who held that, as a matter of fact, the theft was not accompanied by any threat or display
of force.86 He was also of the view that there was insufficient change in the nature of
possession as the customs officers were already in possession of the cars and the
character of their possession did not materially alter.87
10.20 The question arises whether the taking of goods under a court order, obtained
by ordinary judicial process, falls within the term “seizure”. As examined below, the
terms arrest, restraint and detainment, which fall within rule 10 of the rules for
construction in the Schedule to the 1906 Act, do not extend to “ordinary judicial
process” meaning civil proceedings.88 Does the same rule apply to “seizure” and does it
apply whether the order is obtained lawfully or unlawfully, in criminal or civil
proceedings? Although the issue of whether “seizure” covers ordinary judicial process
has never been directly addressed, in Cory v. Burr89 Lord Selborne clearly thought that
taking forcible possession “as incident to a civil remedy or the enforcement of a civil
right” would not be seizure.90 The history of the Clause, developing as it does out of the
war and related risks exclusion in the FC&S Clause, suggests that the concept involves
the authority, or the abuse of the authority, of the executive rather than the ordinary
exercise of judicial powers. Seizure can also involve wrongful taking by overpowering
force as, for example, in the case of pirates. However, where the issue is the exercise of
formal authority, the term “seizure” seems to be associated with the exercise of authority
by the executive not the judiciary. It is submitted that, consistent with the similar
limitations upon “arrest, restraint and detainment”,91 the term “seizure” in a marine
policy does not include the implementation of a court order made in a civil action. The
position regarding criminal proceedings is different. For example, in Panamanian
Oriental Steamship v. Wright (The Anita)92 a vessel was seized for breach of customs
regulations. Although the loss was excepted under Clause 4 of the Institute War and
Strikes Clauses (Hulls–Time) which excluded “arrest restraint or detainment… by
reason of infringement of any customs regulations”, the judgment of Lord Denning M.R.
is to the effect that “arrest, restraint or detainment” includes “seizure” of the vessel by
court order for breach of customs regulations.93
10.21 The terms “arrest, restraint or detainment” may conveniently be construed
together as they fall to be considered in the light of rule 10 of the rules for construction
scheduled to the Marine Insurance Act 1906 which provides:94
“The term ‘arrests, etc., of kings, princes, and people’ refers to political or executive acts, and does not include a loss
caused by riot or by ordinary judicial process.”
In terms of cargo insurance, the seminal case of Miller v. The Law Accident Insurance
Company95 establishes that executive action by government authorities, so as to prohibit
the entry of cargo into a country for breach of health regulations, falls within this group
of perils. The result is that there is no cover because the arrest, restraint or detainment
does not take place in the context of war or similar risks. However, the risk that a
government will reject or embargo cargoes, for example for breach of customs or health
regulations, can be insured under rejection risks insurance as discussed in the final
section of this chapter.96
Derelict mines, torpedoes, bombs or other derelict weapons of war
10.22 Clause 1.3 of the Institute War Clauses (Cargo) covers loss of or damage to the
subject-matter insured caused by “derelict mines torpedoes bombs or other derelict
weapons of war”.97 Where mines, torpedoes, bombs or other weapons of war are used
during a war, or civil war, this will normally fall within Clause 1.1 as “war” or “civil
war”. Clause 1.3 is concerned therefore with “derelict” mines or other weapons and
addresses a problem that was particularly prevalent following the Second World War.
Goodacre98 relates that in a report issued by the American Cargo War Risk Reinsurance
Exchange in 1958 it was recorded that 446 vessels had been damaged or sunk as a
result of mine explosions since the end of the War and that, in the previous two years,
almost 250 floating mines had been specifically reported by ships at sea or by shore
stations.99 The specific cover for mines etc is thus recognised as a war risk and also
avoids any difficulties or disputes as to causation, as where a derelict mine or torpedo
damages a ship and her cargo many years after the war has been concluded, which
would open the way to arguments that such a loss was not a war risk.
10.23 The Institute War Clauses (Cargo) adopt the exclusions dealt with earlier in this
book100 and also exclude by Clause 3.7 “any claim based upon loss of or frustration of
the voyage or adventure”, known as the “Frustration Clause”. The words “any claim” go
beyond the usual wording adopted by the Institute Clauses, which is “loss damage or
expense”, as the Frustration Clause excludes claims for loss of the adventure itself. The
Frustration Clause was first introduced in a slightly different form in 1919 as a result of
the decision in British & Foreign Marine Insurance Co v. Samuel Sandy & Co.101 In
that case two British vessels, en route from Argentina to Hamburg, were diverted as a
result of the First World War and their cargoes were discharged at Liverpool and
Glasgow respectively. The vessels were directed to proceed to these British ports as
the further prosecution of the voyage had become illegal. It was held that there was a
constructive total loss of the adventure arising from a restraint of princes.102 The
insurers wished to limit losses under war risks to physical loss of or damage to cargo,
and associated expenses, and therefore introduced the Frustration Clause. Where the
adventure is lost and the goods are also physically lost, as where during the Second
World War certain German vessels carrying English cargoes were scuttled on the orders
of the German government, it was held that the exclusion did not apply103 The Institute
Additional Expenses Clauses (Cargo–War Risks) 1/7/85 is available to buy back cover
for forwarding expenses incurred in consequence of frustration of the voyage due to war
and related risks. However, this Clause is subject to strict conditions which include, for
example, approval of the insurers to the additional expense.104 The more fundamental
problem with this Clause, which is rarely used, is that it does not provide for the case
where, by reason of the restraint “the assured has lost possession of his goods and is
unlikely to recover them within a reasonable time.”105
A comparison of war risks cover under the 1963 Clauses and the
revised Clauses of 2009
10.24 It may be noted that there is a potential difference between the extent of war cover
under the Institute Cargo Clauses 1/1/63, known here as the 1963 Clauses, and the cover
now provided by Clause 1.2 in the revised Institute Cargo Clauses of 2009.106 This
arises because the earlier versions of the Institute War Clauses (Cargo)107 provided
positive cover by insuring the risks excluded by the phrase “capture, seizure, arrest,
restraint or detainment” in the FC&S Clause.108 Accordingly, cover for these excluded
risks was granted whether or not the arrest etc arose out of war or, at the least,
insurrection, under Clause 1.1 of the War Clauses. The extent of the former cover is
illustrated, as we have seen, by Miller v. The Law Accident Insurance Company109
where cattle were insured for a voyage from Liverpool to Buenos Aires but on arrival
were found to be diseased and were detained aboard the vessel by the municipal law of
the Argentine Government. The adventure was frustrated and the cattle had to be
transhipped outside the port and sold at a lower price in Montevideo. The policy
covered the SG perils of “arrest, restraints and detainments” which were excluded, in
the usual way, by the FC&S Clause. If war cover had been taken out by the deletion of
the FC&S Clause, the loss of the adventure would have been insured and the insurers
would have been responsible for the loss in question.110 The loss would not now be
covered under the 2009 Clauses insofar as the perils of capture, seizure, arrest, restraint
or detainment must arise out of, at least, “insurrection” under Clause 1.1 of the War
Clauses. Thus cover for prohibitions and embargoes, or other breach of customs or
import regulations, is not now provided under the Institute Cargo Clauses, even where
war cover is taken out under the War Clauses.111 However, the suggestion that there is a
significant difference between the cover provided by the 1963 Clauses and the revised
Clauses of 2009 is largely an illusion for a different reason. Miller v. Law Accident112
was a case of breach of a prohibition against import of diseased cattle and involved the
frustration of the insured voyage or adventure. This will normally be the case in all
“rejection” risks cases as the frustration of the adventure, rather than loss of or damage
to the goods, is the usual result of an embargo or prohibition. As discussed in Chapter
13,113 and examined briefly above,114 loss of the adventure has been excluded from the
War Clauses since about 1918 shortly after the decision of the House of Lords in British
and Foreign Marine Insurance Company, Limited v. Sanday.115 In the result, Clause
1.2 of the War Clauses only provides cover for physical loss of or damage to the goods
resulting from capture, seizure, arrest, restraint or detainment and does not extend to
cover loss of the adventure by reason of breach of health regulations or embargoes.
There is, therefore, no significant difference, it is submitted, in practice between the
cover for arrests etc provided by the 1963 clauses and the similar cover provided by
the revised Institute Cargo Clauses.116
Attachment and duration of war risks
War risks on land not covered
10.25 The duration of transit under the Institute War Clauses (Cargo) is limited, in broad
terms, to carriage aboard sea-going vessels, with cover continuing while the cargo
remains aboard the vessel for up to 15 days at the port of discharge. This contrasts with
the extended warehouse-to-warehouse cover provided under the revised Institute Cargo
Clauses (A), (B) and (C) which cover the goods from when the goods are “first moved”
in the warehouse to completion of unloading.117 The much more limited duration of war
risks cover arises from the danger of exposure to an accumulation of risks on land or in
ports should a war situation occur and a port or place be attacked. In terms of cargo
insurance, the risk of accumulation of cargo at a port with multiple losses arising out of
one incident is illustrated by the explosion which occurred in the Mumbai Docks in
1944 when 10 or more vessels and their cargoes were destroyed when an ammunition
vessel exploded during the Second World War. The dangers of aggregation of risk in
ports or on land are also illustrated by the explosion that occurred in Halifax harbour on
6 December 1917 during the First World War when the SS Mont-Blanc, a French cargo
ship loaded with wartime explosives, detonated following a collision. The explosion,
possibly the worlds largest man-made accidental explosion, devastated buildings and
structures covering nearly two square kilometres, killed 2,000 people and injured
9,000. It is not practical for cargo insurers to assess accurately where cargoes may
accumulate worldwide as this cannot be tracked when underwriting a book of
worldwide cargo insurance. While cargo losses arising out of one event, such as the
1944 Mumbai explosion, or an attack on a port, are commonly shared with reinsurers,
they in turn will not reinsure original cargo insurers against an accumulation of war
risks in port or on land. The result is that the standard terms of the Institute Clauses do
not extend to war risks on land, which are only insurable on a one-off or, in market
terms, facultative basis. By the former practice, insurers agreed not to insure war risks
on land at all by the terms of the Waterborne Agreement.118 Although this Agreement has
long since fallen into disuse the wording of the Duration Clause in the Institute War
Clauses (Cargo) still owes its origins to that Agreement.119
10.26 The concern about aggregation of risk in ports or on land is reflected in the fact
that the Transit Clause in the Institute War Clauses (Cargo) is subject to a paramount
provision which reads as follows:120
“Anything contained in this contract which is inconsistent with [… the Transit Clause] shall, to the extent of such
inconsistency, be null and void.”
This Clause is no longer obligatory for reasons of competition law and can be varied or
deleted by free negotiation. However, in the usual case it will remain a part of the
insurance contract and will limit the duration of war risks to the terms of the standard
Transit Clause in the Institute War Clauses (Cargo) and will override the much wider
Voyage Clauses commonly found in London market brokers’ open covers.121
10.27 The lengthy Transit Clause in the Institute War Clauses (Cargo) is structured
differently from the equivalent provisions in the Institute Cargo Clauses (A) and is more
detailed. This results, no doubt, from the insurers’ concern to limit their exposure to
aggregation of risks in ports or on land. This part of the book considers in some detail
the Transit Clause in the War Clauses which is also quite different from that in the
Institute Cargo Clauses in terms of the extent of the cover provided. These differences
flow over into the provisions dealing with termination of transit which also call for
special consideration. We then look briefly at the provisions for craft applicable only to
the War Clauses and the cover for variation of the adventure which, to some extent, is
governed by its own rules different from the Institute Cargo Clauses. Finally, it is noted
that the Change of Voyage Clause is the same as in the Institute Cargo Clauses and does
not call for special consideration here.
The Transit Clause
10.28 The Transit Clause provides for attachment of the insurance as follows:
“This insurance
5.1.1. attaches only as the subject-matter insured and as to any part as that part is loaded on an oversea
vessel… “
10.29 This provision, which regulates the attachment of the insurance, is relatively
straightforward but three issues may be briefly considered. Firstly, if the subject-matter
insured is separable into different parts the risk attaches to each part separately. For
example, if the insurance covers a shipment described as “10 packages of tea” or “10
containers of machinery”, then the insurance attaches “as to any part as that part is
loaded” so the insurance will attach to each package or container separately as it is
loaded. Secondly, the words “loaded on” an oversea vessel suggest that the goods must
be aboard the ship in contrast to the operation of “loading” in charterparty cases which
covers the whole process from the time when the goods are attached to a winch, or, by
analogy, are lifted by a container-loading crane from the quay122 Further, it is submitted
that the rules for construction of the policy scheduled to the Marine Insurance Act 1906
are probably indicative of the construction, in which connection rule 4 provides:123
“Where goods or other moveables are insured ‘from the loading thereof, the risk does not attach until such goods or
moveables are actually on board, and the insurer is not liable for them while in transit from the shore to the ship.”
Although the words “from the loading thereof” are not used in Clause 5.1.1 it may
reasonably be said that rule 4 represents the intention of the parties. Thirdly, it is to be
noticed that an “oversea vessel” is defined for the purposes of the Clause to mean “a
vessel carrying the subject-matter from one port or place to another where such voyage
involves a sea passage by that vessel”. Although this would not cover lake or river
steamers it would cover sea passage within one country from, for example, Felixstowe
to Liverpool.
10.30 The provisions for the termination of the insurance are set out in Clause 5.1.2
of the Transit Clause which provides as follows:
“This insurance…
5.1.2 terminates, subject to 5.2 and 5.3 below, either as the subject-matter insured and as to any part as that part
is discharged from an oversea vessel at the final port or place of discharge,
or place of discharge
on expiry of 15 days counting from midnight of the day of arrival of the vessel at the final port or place of
discharge
whichever shall first occur;
nevertheless,
subject to prompt notice to the Insurers and to an additional premium, such insurance
5.1.3 reattaches when, without having discharged the subject-matter insured at the final port or place of
discharge, the vessel sails therefrom,
and
5.1.4 terminates, subject to 5.2 and 5.3 below, either as the subject-matter insured and as to any part as that part
is thereafter discharged from the vessel at the final (or substituted) port or place of discharge,
or
on expiry of 15 days counting from midnight of the day of re-arrival of the vessel at the final port or place
of discharge or arrival of the vessel at a substituted port or place of discharge, whichever shall first
occur.”
This is not as complex as it seems though there is a twist in the drafting as the later
Clause 5.3 makes an intermediate port of discharge a “final port of discharge”. The
result is that the second part of this Clause, in particular Clauses 5.1.3 and 5.1.4, are
applicable where the contract of carriage is terminated at an intermediate port,
confusingly described as the “final port of discharge”. What the Clause does is to
terminate the insurance cover on discharge whether it be at the intended final port of
discharge or at an intermediate port. An intermediate port would include, in particular, a
port of refuge where the contract of carriage is terminated. If the carrying vessel arrives
at such a port or place and the goods are not discharged, cover ceases after 15 days. In
such circumstances there is an opportunity to renegotiate the insurance contract subject
to prompt notice to the insurers and an additional premium. If an extension is agreed, the
insurance reattaches when the vessel sails, so damage to the cargo whilst the vessel is
in port is not covered. In general, the courts have been reluctant to interpret the period
of cover under marine cargo policies to include periods off-cover,124 but this clause
acknowledges that such cover may be provided, the overriding consideration being to
avoid extended cover for cargoes in vessels in port subject to the danger of aggregation
of risk. Although the words “held covered” are not used in Clause 5.1.2 it would appear
that the assured is entitled, as of right, to additional cover if such cover would be
available at a reasonable commercial market rate.125
10.31 Clause 5.2 deals with the position that arises where the vessel arrives at an
intermediate port to discharge the subject-matter insured for on-carriage by an oversea
vessel or an aircraft. This clause also applies if the goods are discharged from the
vessel at a port or place of refuge. Subject to the contract of carriage not being
terminated under Clause 5.3, and to an additional premium if required by the insurers,
the insurance continues for 15 days at such port whether or not the goods are discharged
as long as the cargo remains within the port. This appears to be the only occasion where
the cargo is covered after being discharged from the vessel. Additional premium may be
required under this clause but there is no express provision for prompt notice.
Nevertheless, in so far as what is envisaged is held covered type situation, which
appears to be the case, prompt notice would be required under the Note at the
conclusion of the Clauses. Cover reattaches as the goods are loaded126 on the on-
carrying vessel or aircraft.127 Termination of this additional cover occurs in the usual
way, that is, at discharge at the port of destination or on expiry of the 15-day period.
10.32 Clause 5.3 provides that if the voyage in the contract of carriage is terminated at a
port or place other than the destination agreed, then that port or place becomes the final
port of discharge and the insurance terminates in the ways described above (i.e., either
on discharge from the vessel or after 15 days). There is then provision for reattachment
of the insurance cover provided notice is given to the insurers and subject to an
additional premium. The requirement is not for “prompt” notice, but that notice is given
to insurers before the commencement of the further transit. The insurance reattaches
where the cargo has been discharged, and it is loaded on the on-carrying vessel or, if the
cargo has not been discharged, when the vessel sails from what had been the final port
of discharge. The insurance cover then terminates in the usual way (i.e., discharge after
arrival at the final port of discharge or after 15 days). This appears to be a provision of
a held covered nature and, it is submitted, would therefore be subject to the requirement
that cover could be obtained in the insurance market at a reasonable commercial
premium.128 Insurers would not, therefore, be bound to provide cover if no reasonable
premium would cover the enhanced risk of the continued voyage, for example because
of war or revolution in the port in which the vessel and cargo were currently situated, or
enhanced war hazards on the route to or at the final proposed destination. This
provision again incorporates the rather unusual arrangement whereby the insurance
reattaches after a gap in cover.
Extension to craft: mines and torpedoes
10.33 Clause 5.4 of the Institute War Clauses (Cargo) extends the insurance cover
against the risks of mines and derelict torpedoes, floating or submerged, where the
cargo is on craft whilst in transit to or from the oversea vessel. As the cover only
attaches when the goods are loaded aboard the oversea vessel, an extension to cover
time when the cargo is “on craft” prior to loading and after discharge is clearly
necessary as some ports still use craft for loading and unloading.129 The extension of the
cover to craft is limited to 60 days after discharge from the oversea vessel unless
otherwise specially agreed by the insurers. This provision envisages the possibility of
an unusually long storage period of 60 days for craft, following discharge from the
oversea vessel.130 Although the Craft Clause only applies to the risks of mines and
derelict torpedoes, floating or submerged, these are no doubt a particular hazard for
craft.
Deviation and variation of the adventure
10.34 Clause 5.5. of the Institute War Clauses (Cargo) envisages an extension of cover
being available where there is a deviation or a variation of the adventure arising from
the exercise of a liberty granted to shipowners or charterers under the contract of
affreightment. Although this reflects some of the provisions in the Institute Cargo
Clauses131 there are important differences. First of all, the extension of cover under the
War Clauses is subject to prompt notice to insurers and to an additional premium if
required. Under the Institute Cargo Clauses the cover for deviation, discharge,
reshipment or transshipment, and any variation of the adventure arising from a liberty, is
generally automatic.132 It is also to be noted that, as compared to the Institute Cargo
Clauses, neither delay beyond the control of the assured, nor transhipment or
reshipment, are expressly covered under the War Clauses though forced discharge from
the vessel at a port or place of refuge is covered under Clause 5.2.133 Clause 5.5 of the
War Clauses is subject to the requirement of prompt notice and an additional premium if
required and therefore appears to be a held covered type provision so that insurers
would not be obliged to provide cover unless it could be obtained on the insurance
market for a reasonable commercial premium.134 Apart from the important differences
highlighted here, this Clause is similar to Clause 8.3 of the Institute Cargo Clauses
discussed in Chapter 11.135
10.35 Clause 6 of the Institute War Clauses (Cargo), the Change of Voyage Clause, is in
the same terms as it is in the Institute Cargo Clauses and is discussed in Chapter 12.136
STRIKES, RIOTS AND CIVIL COMMOTIONS
Strikes and strikers
10.36 The Institute Strikes Clauses (Cargo), known here as the “Strikes Clauses”, cover
damage caused by strikers but not loss damage or expense resulting from strikes. As this
important distinction is achieved by only extending cover to some of the matters
excluded, it is appropriate first to consider the extent of the exclusions in Clause 7 of
the Institute Cargo Clauses (A), (B) and (C). This provides that in no case shall the
insurance cover loss damage or expense:“
“7.1. caused by strikers, locked-out workmen, or persons taking part in labour
disturbances, riots or civil commotions
7.2. resulting from strikes, lock-outs, labour disturbances, riots or civil commotions.”
The positive cover provided in the Strikes Clauses137 is limited to the exclusion in
Clause 7.1, that is, loss of or damage to the subject-matter insured caused by:
“Strikers, locked-out workmen, or persons taking part in labour disturbances, riots or civil commotions.”
Furthermore, the Strikes Clauses, by Clause 3.7, exclude:
“loss damage or expense arising from the absence shortage or withholding of labour of any description whatsoever
resulting from any strike, lockout, labour disturbance, riot or civil commotion.”
It could be objected that this exclusion is superfluous as there is no cover for strikes,
and delay is already excluded under the standard delay exclusion common to all Institute
Cargo Clauses which appears as Clause 3.5 of the Strikes Clauses.138 However, the
exclusion of “withholding of labour” serves to make it clear that insurers do not wish to
indemnify the assured for cost or expense arising as a result of a strike. Cargo
underwriters are content to pay claims for physical loss of or damage to the cargo
caused by strikers, but no more. So, for example, if strikers set fire to a warehouse and
the cargo is damaged as a result of that fire this is covered being damage to the cargo
caused by strikers. However, if strikers withhold labour and the cargo is exposed to the
elements because of their failure to care for it, that is not covered. This exclusion further
appears to be aimed at reinforcing the exclusion of losses from delay which are already
excluded under the general exclusions clause relating to delay139 but in terms that have
been questioned by academic commentators.140 Consistent with this, even where the
loss is caused by strikers, there is no cover for loss of the adventure.141
10.37 The decisions on charterparties are of assistance in relation to the terms
“strikers, locked-out workmen, or persons taking part in labour disturbances” in so far
as similar terms are to be found there which will invariably contain a “General Strike
Clause” or a like provision. In this context, the expression “strike” was considered by
Lord Denning M.R. in The New Horizon142 where he said:143
“I think a strike is a concerted stoppage of work by men done with a view to improving their wages or conditions, or
giving vent to a grievance or making a protest about something or other, or supporting or sympathising with other
workmen in such endeavour. It is distinct from a stoppage which is brought about by an external event such as a bomb
scare or by apprehension of danger.”
Workmen would be “locked out” in a situation where an employer refuses employment
as a means of coercing potential or current employees. A “labour disturbance” will
involve something similar to a “riot”144 or a “civil commotion”145 albeit of a less
serious nature.
Riots and civil commotions
10.38 Clause 1.1. of the Institute Strikes Clauses (Cargo) covers loss of or damage to
the subject matter insured caused by “riots or civil commotions”. The word “riot” has a
statutory meaning under section 1 of the Public Order Act 1986 which is as follows:
“Riot
(1) Where 12 or more persons who are present together use or threaten unlawful violence for a common
purpose and the conduct of them (taken together) is such as would cause a person of reasonable firmness
present at the scene to fear for his personal safety, each of the persons using unlawful violence for the
common purpose is guilty of riot.”
(2) It is immaterial whether or not the 12 or more use or threaten unlawful violence simultaneously.
(3) The common purpose may be inferred from conduct.
(4) No person of reasonable firmness need actually be, or be likely to be, present at the scene.
(5) Riot may be committed in private as well as in public places.”
This very technical definition146 of “riot” is applied to marine insurance by section
10(2) of the Public Order Act which provides:
“Construction of other instruments
(2) In Schedule 1 to the Marine Insurance Act 1906 (form and rules for the construction of certain insurance
policies) “rioters” in rule 8 and “riot” in rule 10 shall, in the application of the rules to any policy taking
effect on or after [1 April 1987], be construed in accordance with section 1 above unless a different
intention appears.”
A number of issues arise as to the application of this artificial definition of riot in the
Strikes Clauses. First of all, the rules for construction of the policy as scheduled to the
Marine Insurance Act 1906 are not mandatory except as to the SG Form of policy or a
“like form”.147 This book takes the view that many of the rules would be applied on the
grounds that those rules probably express the intention of the parties.148 That approach
clearly does not apply here as the parties have in mind an ordinary business meaning
and not a technical meaning. Secondly, neither rule 8,149 which is mainly concerned with
the definition of “pirates”, nor rule 10,150 which is concerned with limitations on the
terms “arrests etc”, are directly concerned with the phrase “riots and civil commotions”
in the context of the Strikes Clauses. Thirdly, the usual rule of construction is that words
are to be used in their ordinary or popular sense and not according to a technical or
scientific meaning.151 There were archaic terms in the old SG Form which had no
ordinary meaning and had to be construed as terms of art,152 but this does not mean that
a word like “riot”, which has a perfectly well understood modern meaning, should be
construed in an artificial manner in a contract of marine cargo insurance used by
international businessmen.153 It is true that the parties agree that English law applies,154
but a Japanese businessman would not expect that such an agreement to English law
would bring a quirky definition of riot derived from considerations of English public
order and criminal law into his insurance policy. Although the statutory definition may
be side-stepped, as suggested above, the difficulty is that the House of Lords adopted
the technical approach in Bolands Ltd v. London & Lancashire Fire Insurance
Company Ltd.155 In this case there was a robbery in a factory, which no ordinary person
would have considered a riot, albeit that there was a certain amount of shouting
involved. The theft cover provided under the insurance was negated by the riot
exclusion because a technical meaning was given to riot. Lord Sumner said:156
“It is true that the uninstructed layman probably does not think of the word ‘riot’ in such a sense as described in the
case stated. How he would describe it I know not: but he probably thinks of something, if not more picturesque, at any
rate more noisy. But there is no warrant here for saying that when the proviso uses a word which is emphatically a
term of art it is to be confined in the interpretation of the policy to circumstances which are within popular notions of
the subject and are not within the technical meaning of the word. That clearly must be so with regard to martial law.
That clearly must be so with regard to the acts of a foreign enemy; and I see no reason at all why the word ‘riot’
should not include its technical meaning as clearly as burglary or housebreaking do.”
This passage places the word “riot”, which has an ordinary meaning, in the same
category as “acts of foreign enemies” a phrase with no ordinary meaning which can only
be construed as a term of art to be given a technical meaning. However, subject to
review by the Supreme Court157 it is in English law that “riot” must be given a technical
meaning so that the application of the cover may depend on whether, for example, what
occurs is theft, because 11 people are involved, or riot, because there are 12 or more.158
10.39 The case of The Andreas Lemos159 illustrates the meaning of “riot” in a
modern context and shows how, because of its technical meaning, it overlaps with the
peril of “piracy”. In this case a gang of men armed with knives boarded a vessel
anchored in the Chittagong Roads at night and stole materials and equipment from the
vessel. On being discovered they used force, or threats of force, to make their escape.
Staughton J. applied the technical definition of riot160 and held that, at the time of the
loss, no riot had occurred as the theft was clandestine, with no threat of force, but that a
riot did occur later. As the riot only happened when threats of force were used during
the escape the riot did not cause the loss.161 It will be apparent that an ordinary
businessman would be much surprised to be told that any loss of or damage to cargo that
might have been carried out by the escaping thieves would have constituted a riot in
English law.162
10.40 The words “civil commotions” were considered by Mustill J. in Spinneys v.
Royal Insurance163 where three shops were damaged and looted in Beirut in January
1976 following several months of internal political strife combined with large-scale
destruction and violence in Lebanon, particularly in Beirut. Mustill J. said:
“If there were no authority on the matter and ‘civil commotion’ were to be construed according to its natural meaning,
the application of the words to the present case could scarcely be a question for serious argument. If the violence,
death and destruction prevailing in Lebanon did not amount to a civil commotion, the words would be meaningless.
Whatever their precise connotation, they must be wide enough to cover the event which I have described. The only
issue is whether the context in which they are used, or the decisions of the courts, require them to be given some
narrower technical meaning.”
The problem was a line of authorities, starting with the judgment of Lord Mansfield in
Langdale v. Mason164 that suggested that “civil commotions” were associated with and
took place as part of an insurrection. As civil commotions is a covered risk on land and
insurrection, which is considered above,165 is not, the critical issue where losses occur
on land, which is the usual issue in practice, is the difference between those two terms.
“Insurrection” normally results in the loss being excluded: “civil commotions” is
covered. Accordingly, to define “civil commotions” in terms of “insurrection” cannot be
the correct approach and, after considering the authorities, Mustill J. concluded:166
“In these circumstances I find nothing in the authorities compelling the Court to hold that a civil commotion must
involve a revolt against the government, although the disturbances must have sufficient cohesion to prevent them from
being the work of a mindless mob. Confused and fragmentary as the violence in the Lebanon may appear, this
requirement was satisfied, and I hold that there was in January, 1976, and for months before, a state of civil commotion
prevalent in Lebanon.”
“Civil commotions” seems to fill the gap left by the technical meaning given to riot.167
What an ordinary business person might well consider a riot,168 could well be civil
commotions. It is further submitted that in Clause 1.1 of the Strikes Clauses the phrase
“strikers, locked-out workmen, or persons taking part in labour disturbances”, should be
read together with the words “riots or civil commotions” and contrasted to the excepted
perils under Clause 3.10 beginning with “insurrection, or civil strife arising therefrom”.
The key to the covered perils is a state of unrest, starting with a strike, and rising to a
civil commotion, but not directed at overthrowing the government which, by way of
contrast, is the determining characteristic of insurrection.169
TERRORISM
Terrorism and cargo insurance
10.41 The risk of terrorism in insurance terms has historically been associated with
hijacking of aircraft170 and instances where ships have been hijacked have been rare.171
Although attacks on vessels by pirates is a relatively frequent occurrence,172 there
appear to have been few, if any, cases of the hijacking of cargo vessels for political
reasons. Nevertheless the concern of cargo insurers is that there could be an attack on a
port, or town, equivalent to the attack on the World Trade Center on 11 September 2001,
damaging many ships and cargoes. The devastating explosion which occurred in
Mumbai Docks in 1944, where a cargo ship carrying ammunition exploded with
extensive loss of life and damage to over 10 vessels, shows how an explosion in a busy
port could lead to an accumulation of damage to many different cargoes aboard vessels
and in warehouses.173 This is not to underestimate the danger to individual vessels and
their cargoes highlighted by the Al-Qaeda attack on the French supertanker Limberg on
6 October 2002 when terrorists using a small boat filled with explosives severely
damaged both the vessel and her cargo. Cargo insurers are, in general, prepared to
provide insurance cover for terrorism risks for cargo in transit whether by land or by
sea, which would cover incidents such as the attack on the Limberg, but insurers are
concerned to exclude cover for unmanageable accumulations of cargo in port
warehouses or towns. The standard provisions of the Institute Cargo Clauses
accordingly exclude terrorism risks and only limited cover is then provided in the
Institute Strikes Clauses (Cargo). The cover is further restricted in practice by a Joint
Cargo Committee Clause known as JC 56174 which limits the duration of the insurance
to the period when the cargo is in transit as defined by the standard Transit Clause in the
Institute Cargo Clauses.175 The terrorism provisions in the Institute Cargo Clauses, as
well as JC 56, are dealt with in this section of the book. Cargo insurers also deal with
the terrorism threat by excluding losses caused by means of weapons of mass
destruction which are dealt with below.176
The cover for terrorism
The revised definition of terrorism
10.42 The revised Institute Cargo Clauses exclude terrorism losses by Clauses 7.3 and
7.4 which provide:
“7. In no case shall this insurance cover loss damage or expense:
7.3 caused by any act of terrorism being an act of any person acting on behalf of, or in connection with, any
organisation which carries out activities directed towards the overthrowing or influencing, by force or
violence, of any government whether or not legally constituted
7.4 caused by any person acting from a political, ideological, or religious motive.”
There are two parts to this provision, firstly, the exclusion of terrorism as defined and,
secondly, the exclusion of persons acting from political, ideological or religious
motives. This section of the book considers each in turn concentrating first on the
difficult issue of what amounts to “terrorism”.
10.43 This revised definition of terrorism is taken from the Reinsurance (Acts of
Terrorism) Act 1993 which was introduced following the IRA bomb attack in 1992 in St
Mary Axe in the City of London which destroyed the Baltic Exchange and damaged the
fabric of the Lloyds Building itself.177 This terrorist incident had a severe impact upon
the insurance industry178 which led to the introduction of the 1993 Act in which the
definition of “terrorism” in section 2(2) is as follows:
“In this section ‘acts of terrorism’ means acts of persons acting on behalf of, or in connection with, any organisation
which carries out activities directed towards the overthrowing or influencing, by force or violence, of Her Majestys
Government in the United Kingdom or any other Government de jure or de facto.”
This statutory definition of terrorism for insurance purposes pre-supposes the use of
force or violence which results in damage to property by fire or explosion which
becomes the basis of an insurance claim. In common with the acting alone definition this
definition requires that those activities be directed at “influencing a government”, but it
omits the alternative of “intimidating the public”. There is no restriction on the purpose
of the terrorist or terrorist groups (i.e., any purpose will do, it need not be a political,
religious, or ideological cause). Finally, it is doubtful whether an individual acting
alone can be a “terrorist” for the purposes of this definition as it seems that the person
must act “on behalf of or in connection with” a terrorist organisation.
10.44 It is to be noted that the revised Clauses do not include a reverse burden of
proof clause, putting the burden on the assured to prove that the loss did not arise from
terrorism. Such clauses have been held valid in English law,179 and are quite widely
used in the London reinsurance market. However, it was not felt that such a clause
would be acceptable to original assureds in the international marine cargo market.
There are difficulties, in particular, for an assured to establish the motives behind a
terrorism incident which characterise it as “terrorism”, and this may be an additional
reason why a reverse burden of proof clause was thought inappropriate.
Terrorism defined and distinguished from war risks
10.45 “Terrorism” has been with the world for many years as has the difficulty of
defining “terrorism”. In 1937 the promoters of the League of Nations Convention for the
Prevention and Punishment of Terrorism advocated the following definition:180
“Acts of terrorism mean criminal acts directed against the state and intended or calculated to create a state of terror in
the minds of particular persons, or a group of persons or the general public.”
In the American decision in Pan American v. Aetna Casualty181 the District Court in
New York distinguished terrorism from “war” and “warlike operations”. In that case
four aircraft were hijacked on or about 6 September 1970 whilst on international flights.
The hijacking was carried out by members of the Popular Front for the Liberation of
Palestine (PFLP). One of the aircraft was a Pan American 747 on a flight from
Amsterdam to New York which was flown to Beirut, and thence to Cairo where it was
blown up and destroyed soon after landing. District Judge Frankel made reference to the
views of the US Secretary of State in a speech to the United Nations saying that the
distinction between “war”, and “terrorism”, as made in that speech, was relevant to the
meaning these words should have in insurance policies. The material parts of what the
Secretary of State said are as follows:
“The issue is not war—war between states, civil war, or revolutionary war. The issue is not the strivings of people to
achieve self-determination and independence. Rather, it is whether millions of air travellers can continue to fly in safety
each year. It is whether a person who receives a letter can open it without the fear of being blown-up. It is whether
diplomats can safely carry out their duties. It is whether international meetings—like the Olympic games, like this
Assembly—can proceed without the ever-present threat of violence.”
And later he said:
“Certainly the terrorist acts I have cited are totally unacceptable attacks against the very fabric of international order.
They must be universally condemned, whether we consider the cause the terrorists invoke noble or ignoble, legitimate
or illegitimate. We must take effective steps to prevent the hijacking of international civil aircraft.”
We can draw from this speech some of the essential characteristics of “terrorism”.
Terrorism consists of the infliction of intentional violence by political groups (neither
employed by, nor representing, governments) upon civilian citizens of non-belligerent
powers and their property at places which may be far removed from the locale or the
subject of any warfare and includes the striking of spectacular blows for propaganda
effects. Examples of terrorism include airline hijackings, sending bombs in the post,
assassinating diplomats, and the holding to ransom of a team of athletes at the Olympic
Games.
10.46 In the case of P&C Insurance Limited (PUBL) v. Silversea Cruises Ltd182 the
Court of Appeal, in considering whether the attacks on the World Trade Center on 11
September 2001 fell to be characterised as “acts of war” or “armed conflict”, said that
“action by terrorists or terrorist activities seemed more appropriate to encapsulate what
had occurred”. Ward L.J. expressed the following views:183
“Men of business, the underwriters and the insured, would not have said that 11 September was an ‘act of war’ but
rather that it was terrorist action from extremist groups. To have declared ‘war on terror’ was a rhetorical response
serving only to emphasise that there was no identifiable ‘side’ against whom the war could be waged. Further, an
‘armed conflict’ had an air of continuity about it, and what were essentially random attacks did not carry for ordinary
businessmen, the sense of present and persisting fighting between military groups which was the hallmark of armed
conflict.”
Rix L.J. was rather more cautious, saying that, “the fact that everyone could agree that
9/11 was an example of a terrorist attack does not to my mind itself answer the question
of whether it amounted to something more”.184
10.47 The words “influencing by force or violence” may owe something to the criminal
definitions of “terrorism” which may therefore give some guidance on how these words
should be approached. The Offences against the Person Act 1864, section 2(1)(f), as
amended, provided a special category of capital murder which was defined as follows:
“Any murder committed by a person in the course or furtherance of an act of terrorism, that is to say, an act involving
the use of violence by that person which, by reason of its nature and extent, is calculated to create a state of fear in
the public or any section of the public.”
This was considered in Lamey v. The Queen185 and it is possibly from this source that
the concept of “putting the public in fear”, which appears in many insurance definitions,
is derived. In giving the judgment of the Privy Council Lord Jauncey said:186
“The intent to create a state of fear may be demonstrated by the mere circumstances in which the murder has been
committed or it may manifest itself in some other conduct of which the murder forms part such as the blowing-up of
the building or a hijacked aeroplane.”
Thus we see the courts again recognising hijacking as a classic example of
“terrorism”.187
10.48 The revised Clauses have adopted a definition of terrorism that requires the
person to be acting “on behalf of, or in connection with, any organisation”.188
Accordingly, the lone extremist acting for political reasons on his own behalf is not a
“terrorist” within the terms of this definition. However, such an extremist could well be
a person “acting from a political, ideological or religious motive” under Clause 1.3 of
the revised Clauses which is now considered.
10.49 Clause 1.3 of the revised Institute Strikes Clauses (Cargo) covers loss of or
damage to the subject matter insured “caused by any person acting from a political,
ideological, or religious motive”. The words “ideological” and “religious” have been
added to what was the phrase “political motive” in the 1982 Clauses. In this context the
following remarks of OMay reflect the thinking behind the 1982 clauses:189
“The additional phrase, ‘or any person acting from a political motive’ is disjunctive, and does not qualify ‘terrorist’.
‘Political motive’ is a deliberately wide term. It would embrace the demonstrator who, intentionally or otherwise,
causes physical loss or damage to the subject-matter insured in order to call attention to his political objectives.”
OMay goes on to state that the word “ideological” was considered for inclusion in the
Institute Strikes Clauses but was “rejected as being too wide and indeterminate”.190 The
American Institute Cargo Clauses use the phrase “for political, terroristic or ideological
purposes” and it seems that, in the light of modern developments, the Joint Cargo
Committee decided to widen the phraseology of the revised clauses despite the potential
difficulties of defining “ideological”. The revised Clauses have also been widened to
include a “religious” motive possibly reflecting the apparent, if misguided, religious
motives allegedly behind some modern terrorist incidents.
10.50 The type of terrorist incident contemplated by the word “ideological” may be
illustrated by the American case of Newmarket Investment Corporation v. Firemans
Fund Insurance Company.191 In this case the US Embassy in Chile received an
anonymous telephone call in which the caller threatened that fruit bound for the USA
from Chile had been injected with cyanide. The threat was purportedly made in order to
highlight the plight of the Chilean poor and to bring economic injustice in Chile to the
attention of the US and the world. The US authorities temporarily halted the importation
of Chilean fruit to the United States, and the assured suffered loss. Only two grapes
were actually found to have been contaminated. The cargo insurance was subject to a
“Strikes, Riots and Civil Commotions Endorsement”, which provided cover in respect
of:
“Destruction of or damage to the property insured directly caused by vandalism, sabotage or malicious act, which was
deemed to encompass the act or acts of one or more persons, whether or not agents of a sovereign power, carried out
for terroristic or ideological purposes.”
10.51 It was a question for the jury whether the proximate cause of the loss was an
act of terrorism, and the jury found that it was. The Appellate Court did not offer a
definition of “terrorism” but ruled that the jury had determined that the acts of terrorism
were the proximate cause of the loss and that the verdict was fully supported by the
evidence.
A “terrorist” under the 1982 Clauses
10.52 The word “terrorist”, as used in Clause 1.2 of the 1982 Clauses, defines the risk
by reference to the characteristics of the person carrying out the damage, a somewhat
unusual approach.192 Possibly too much should not be made of this, as the intention is
clear—the risk is an act of terrorism and if the person concerned is a member of a well-
recognised terrorist group, but carries out an act of theft or malicious damage for his
own purposes, that does not fall within this section of the cover. It is suggested that the
definition of “terrorism” in the revised Clauses considered earlier in this chapter193 is,
in part, relevant to the 1982 Clauses, though clearly a “terrorist” is not expressly
restricted in the earlier Clauses to persons acting on behalf of terrorist organisations as
it is in the revised Clauses of 2009.
Exclusion of loss of the adventure: the Frustation Clause
10.53 The revised Institute Strikes Clauses (Cargo) adopt the general exclusions dealt
with earlier in this book194 and also exclude “any claim based upon loss of or
frustration of the voyage or adventure”.195 Morover, the positive cover for terrorism in
Clauses 1.2 and 1.3 of the Strikes Clauses is limited to “loss of or damage to” the
subject matter insured and does not extend to “expense” because the cover, unlike the
exclusion, does not extend to loss of the adventure.196 Accordingly, the expense of
forwarding the cargo to destination to prevent loss of the adventure is not covered. For
example, if terrorists set fire to a cargo in one hold of a ship such “loss of or damage to
the cargo” caused by the terrorists will be covered.
However, if a cargo in a neighbouring hold in the ship is undamaged, but the voyage is
abandoned as a result of the terrorist incident, expense incurred to forward that cargo to
destination will not be covered.
Termination of Transit Clause (Terrorism): JC56
10.54 The attack on the World Trade Center in New York highlighted for underwriters
the perceived scale of the terrorism risk.197 Cargo underwriters were concerned about
an aggregation of risk, in particular in warehouses, factories or other locations. This
aggregation of risk reflected the same problems that arise in relation to war risks
discussed earlier in this chapter.198 Insurers concerns centred on cover for goods stored
outside the ordinary course of transit or even for significant periods prior to or after
transit. Such cover is commonly provided by brokers open covers in the London market
and, no doubt, similar storage and extended duration of insurance coverage is provided
in other cargo insurance markets worldwide.199 As a result of these concerns, which
were shared by cargo reinsurers worldwide, on 20 November 2001 the Joint Cargo
Committee introduced a clause known as JC56.200 This Clause, which is paramount,201
strictly limits the duration of the insurance against the risk of terrorism to the duration of
the insurance as defined and limited by the standard Transit Clause in the Institute Cargo
Clauses.202 The effect of JC56 was to reduce the possibility of accumulations to
proportions considered manageable by the insurance and reinsurance markets concerned
with marine cargo business.
WEAPONS OF MASS DESTRUCTION
The Radioactive Contamination Exclusion Clause (RACE)
10.55 The international cargo markets concern at the threat of terrorism, which is shared
by their reinsurers, has led since 11 September 2001 to the imposition of further
paramount exclusions in most cargo policies worldwide of what, for want of a better
term, may be called weapons of mass destruction. This process began with a widening
of the already existing Radioactive Contamination Exclusion Clause, sometimes known
as “RACE” in the London market, which was extended to cover a dirty bomb.203
10.56 The origin of the RACE Clause lies in the non-marine insurance market which
was concerned initially with the possibility of escape of radiation from nuclear power
stations. In December 1959 the British Insurance (Atomic Energy) Committee issued a
Radioactive Contamination Exclusion Clause which excluded losses “directly or
indirectly caused by or contributed to by or arising from ionising radiations or
contamination by radioactivity from any nuclear fuel”.204 The Nuclear Installations
(Licensing and Insurance) Act 1959 came into force on 1 April 1960 and, in general
terms, made the Atomic Energy Authority responsible for nuclear accidents associated
with the power stations which it controlled.205
10.57 In January 1996 it was realised that the existing exclusion clause did not extend
to accidents with nuclear weapons themselves when four unarmed thermonuclear
weapons were accidentally dropped on south-eastern Spain, one falling into the sea off
the coast. As a result of this incident nuclear weapons were added to the exclusion in
the Clause which was also introduced into the marine market at that time. By 1 October
1990 the Clause read as follows:
“In no case shall this insurance cover loss damage liability or expense directly or indirectly caused by or contributed to
by or arising from
1.1 ionising radiations from or contamination by radioactivity from any nuclear fuel or from any nuclear waste
or from the combustion of nuclear fuel
1.2 the radioactive, toxic, explosive or other hazardous or contaminating properties of any nuclear installation,
reactor or other nuclear assembly or a nuclear component thereof
1.3 any weapon of war employing atomic or nuclear fission and/or fusion or other like reaction or radioactive
force or matter.”
10.58 Following the attack on the World Trade Center on 11 September 2001 there
were concerns that a terrorist attack could involve the use of a so-called dirty bomb
(i.e., a conventional explosive with the addition of radioactive matter).206 Accordingly,
on 1 November 2002 the Extended RACE Clause was introduced to the market which
expanded the word “weapon” to the phrase “weapon or device” having in mind a dirty
bomb and the possibility that terrorists could fabricate an instrument of destruction that
did not have the characteristics of a conventional “weapon of war”. More
fundamentally, the Clause was widened to exclude loss damage or liability resulting
from “the radioactive, toxic, explosive or other hazardous or contaminating properties
of any radioactive matter”. This catch-all phrase greatly broadened the exclusion which
necessitated an exception to the exclusion which applies to radioactive isotopes
“prepared, carried, stored, or used for commercial, agricultural, medical, scientific or
other similar peaceful purposes”. The concern here was that radioactive isotopes are in
widespread use for peaceful purposes, which include not only medical uses207 but also
use of isotopes in measuring equipment.208 On many occasions radioactive isotopes
therefore constitute the subject matter insured for carriage under the Institute Cargo
Clauses. As there was no wish to exclude accidents to medical or measuring devices, it
was necessary to include this specific exception to the wider exclusion relating to
radioactive matter that had been introduced with a dirty bomb mainly in mind.
Chemical and biological weapons
10.59 The possibility of a terrorist attack by way of some other sinister form of weapon,
even a so-called electro-magnetic pulse,209 continued to trouble the insurance markets
with the result that on 1 November 2002 the market introduced a version of the
Extended RACE Clause, known as CL370,210 that further extended the RACE exclusions
to except “any chemical, biological, bio-chemical or electromagnetic weapon”.
Computer systems and computer programs
10.60 In addition to the threat from chemical or biological weapons there was also a
perceived threat from the use of computers or computer systems or programs causing
havoc with cargo operations on a wide scale with loss of many thousands of containers
whose location aboard vessels is determined by computer systems. This led to the
introduction of the Institute Chemical, Biological, Bio-Chemical, Electromagnetic
Weapons and Cyber Attack Exclusion Clause, the material parts of which for present
purposes read as follows:
“In no case shall this insurance cover loss damage liability or expense directly or indirectly caused by or contributed to
by or arising from…
1.2 The use or operation, as a means for inflicting harm, of any computer, computer system, computer software
programme, computer virus or process or any other electronic system.”
In some quarters of the London insurance market there was concern that the war risks
cover for vessels and cargoes at sea could potentially be prejudiced by the wide terms
of Clause 1.2 of this Clause excluding the operation of “any computer system” etc
because computer systems are used for the guidance of missiles and like weapons,
losses from which would be covered under the War Clauses. With this in mind the
market issued the Institute Cyber Attack Exclusion Clause on 10 November 2003 in
which Clause 1.2 restores the cover under war risks insurances in circumstances where
there are losses from weapons or missiles guided by a computer system. This Clause is
not paramount and is intended to be used instead of the Institute Chemical, Biological,
Bio-Chemical, Electromagnetic Weapons and Cyber Attack Exclusion Clause.
REJECTION RISKS
Origins of rejection risks cover
10.61 The Institute Cargo Clauses exclude “capture seizure arrest restraint or detain-
ment”211 and the cover under Institute War Clauses (Cargo) only extends to these risks
where they are related to war or similar perils.212 There is, accordingly, no cover under
a standard cargo policy for capture, seizure, arrest, restraint, or detainment where these
risks operate outside the context of war or like perils. This is a notable gap in cover
bearing in mind that these risks include the risk of detainment of the cargo in breach of
customs regulations, embargoes, health regulations and similar legislation.213 This
position is illustrated by the leading case of Miller v The Law Accident Insurance
Co214 where a consignment of cattle exported from Liverpool to Buenos Aires in 1900
was insured under the SG Form against the usual risks including “arrests, restraint and
detainment” but excluding “capture, seizure and detention”. When the insured cattle
arrived at Buenos Aires they were inspected aboard the vessel and found to be diseased
and refused entry in accordance with local law. The vessel was ordered to leave the
port of Buenos Aires and the following day the Ministry of Agriculture issued a general
embargo forbidding the discharge of any cattle arriving from the United Kingdom until
further notice. In the meantime, the Captain was allowed to tranship the cattle outside
the port limits, which he duly did, the cattle later being carried to Montevideo where
they were sold at a considerable loss. It was held that the enforcement of sanitary laws
was covered under the policy under the words “arrest, restraint and detainment”. The
more difficult issue of whether the loss was excluded by the words “capture, seizure
and detention” was resolved in favour of the insurers on the basis that “capture” and
“seizure” are stronger expressions than “arrest” and “restraint” and that “detention” in
the exclusion was indistinguishable from “detainment” in the positive cover. The
argument that “capture” and “seizure” were restricted to acts of warfare was
rejected.215 The revised Institute Cargo Clauses exclude “capture seizure arrest [and]
detainment”.216 Accordingly, where goods are rejected by government authorities by
reason of sanitary regulations or embargoes that loss is excluded by the phrase “seizure
arrest [and] detainment” and falls outside the Institute Cargo Clauses. The risk is not
transferred to the Institute War Clauses (Cargo) as the insurance under Clause 1.2 of
these Clauses for “capture seizure arrest restraint or detainment” is only provided when
these risks arise from war or similar perils.
The London Rejection Risks Clauses 1975
10.62 The enforcement of sanitary laws remains a significant hazard for those engaged
in the import and export of foodstuffs in an increasingly regulated society217 In view of
this significant gap in cover, by 1955 the London insurance market had introduced a
special rider for rejection insurance covering loss from detention and/or rejection in
customs for any reason whatsoever, the so-called Full Rejection Clause. This wording
was tested in the United States in the case of Berns v. Koppstein Inc218 which
concerned consignments of Indian peanuts sent to New York when the US domestic
peanut crop had failed. It was discovered by the United States Food and Drug
Administration that the cargoes were infested by beetles and moths. The “Full Rejection
Clause” was subject to warranties219 by which the assured promised that the goods
would be surveyed “immediately” prior to shipment and a certificate of sound condition
obtained; that the goods would be in compliance with the regulations of the country of
shipment, for example, duly fumigated, and that the goods would be packed and labelled
to conform with the regulations in the country to which the goods were destined. The
insurers argued that there had been a breach of the warranty that the goods would be
surveyed “immediately” prior to shipment but it was held that, though the warranty had
to be strictly complied with, it had to be given a reasonable commercial interpretation.
The New York Court examined the nature and rationale of rejection risk insurance.
William B. Herlands D.J., whose opinion was affirmed on appeal, said:220
“The risk insured by the full rejection insurance was not a deterioration of the quality or loss in quantity (as is the case
in the ‘all-risk’ clause), but an act of the ‘United States Government or Departments thereof, including’ but not limited
to the United States Pure Food & Drug Administration, ‘for any reason whatsoever’. The peril insured against by the
rejection insurance was not the presence of a putrid substance but the act of the Government. Arbitrary rejection or
detention, miscarriage of administrative determination in rejecting or detaining was just as fully covered as justified
rejection and detention because [the Clause] refers to ‘any reason whatsoever’. The act of the Government was the
‘peril’, not the condition of the goods. One bug in any bag would have justified rejection under the language of the
Food, Drug & Cosmetic Act.”
This passage makes it clear that the risk of rejection includes the arbitrary act of the
government in rejecting goods, whether or not related to any deterioration of the goods
during the insured transit. Although stress is laid on the phrase “for any reason
whatsoever”, it is submitted that these words are not determinative as the principle in
rejection cases is that the government action is the peril or risk insured. There are,
however, US decisions which, at first sight, appear to take a different approach. In
Continental Sea Foods Inc v. New Hampshire Fire Insurance Company221there was
rejection risk insurance of a cargo of frozen shrimp, imported to the US from Pakistan,
subject to a warranty that the shipment be inspected by “proper Government
Authorities”. The frozen shrimp arrived in a deteriorated condition and was rejected.
New York law only permitts non-causative warranties in the case of marine insurance
and it was necessary to decide if insurance cover against rejection risks was marine
insurance or non-marine. In this particular context, it was held, following Red Top
Brewing Co v. Mazzotti222 that the “ heart of the risk was deterioration during the sea
voyage”.223 However, this finding was necessary to determine whether the risk was a
marine risk and was not addressing the issue of whether or not loss damage or
deterioration during the voyage is a necessary prerequisite to a claim under a rejection
risks insurance. It has also been held in the United States that the rejection risk
insurance is an undertaking by the insurer, separate from the ordinary marine insurance
contract, and not subject to the general marine policy, so that, in case of inconsistency,
the rejection cover prevails.224 Accordingly, it is submitted that the rejection insurance
is additional and separate from the marine cover and does not require loss, damage or
deterioration of the goods during the duration of the insurance. Rejection risk insurance
therefore includes arbitrary rejection that may occur where the government of the
country of import applies regulations to protect domestic markets and condemns
foodstuffs that are entirely sound. Insurance against arbitrary government action is a
significant extension of cover but is consistent with the origins of rejection insurance. In
Miller v. Law Accident225 the action of the Argentine Government was found by the trial
judge to have been properly exercised as the cattle were diseased within the terms of
the Argentine decree.226 It was argued in the Court of Appeal that the acts of the
administration were illegal but Mathew L.J. took the view that, even if those acts had
been illegal, that would not have helped the insurers. It is the government action that is
the insured peril in each case whether or not the terms of the sanitary or other laws
justify the action in question and whether or not there is loss damage or deterioration of
the cargo during the transit.
10.63 In May 1975 the London insurance market introduced a widely used Rejection
Insurance. This insurance was derived from the earlier Full Rejection Clause and
provides insurance against “rejection or condemnation” subject to strict conditions as to
a survey of the goods as well as a requirement that everything necessary has been done
to comply with the regulations in the ports of shipment and delivery. The material terms
of the cover are as follows:
“Subject always to the following conditions and exclusions this policy is extended to cover the risk of rejection or
condemnation by the government of the country of import or their agencies or departments during the period of this
insurance.”
The conditions include the following key requirement:
“It is a condition of this insurance that the interest insured is produced, prepared and packed in accordance with the
regulations of the Government or Country of Origin and it is fit for export to the importing country.”
Two US authorities227 illustrate the operation of these conditions. In SSC International
Inc v. Cornhill Insurance Company Limited228 the assured satisfied the burden of
showing, in relation to a cargo of frozen shrimp and snapper fillets, that the fish were fit
for export by providing government and insurance surveyors reports based on
inspections conducted at the time and place of export. On the other hand, in Snyder
International Inc v. Dae Han Fire & Marine Insurance Company, Limited229 the
assured was unable to show that a cargo of raisins, which had excessive caps and
stems, complied with the regulations made by the country of destination, the United
States, and the rejection claim failed. In addition to the strict conditions regarding the
regulations of the countries of origin and destination, the standard Rejection Risks
insurance does not, in any event, cover claims arising from non-compliance with any
regulations of countries of origin and destination, respectively, as to fumigation or
labelling.
1. MIA 1906 First Schedule, the Form of Policy, letters of mart and countermart were
letters issued to privateers which were abolished by the Treaty of Paris in 1856: the
schedule to the Act also provided rules for the construction of many of these terms.
2. For the history of war risks insurance in the London market, see Report HR3 of
The Historic Records Committee by a Working Party of the Institute Time Clauses—
Hulls, 1963, Insurance Institute of London at p. 121 et seq.
3. Historic Records Report HR5 by an Historic Records Working Party of the
Insurance Institute of London, 2nd edn, 1964, The Insurance Institute of London
(Historic Records Report HR5) at p. 6.
4. Historic Records Report HR5 at p. 11. As compared with the 1912 exclusion
quoted in the above text, the words “arrest and restraint”, which appear in the SG Form,
had by 1916 been added to the exclusion as a result of the decision in British & Foreign
Marine Insurance Company Limited v Samuel Sanday & Co [1916] AC 650 (HL), and
see further Chapter 13, paras. 13.55 to 13.56.
5. See MacKinnon L.J. in Yorkshire Dale Steamship Co v. Minister of War
Transport (The Coxwold) [1942] 1 KB 35 at p. 43 to take but one example. These
criticisms were taken up by UNCTAD, see D. R. OMay and J. Hill OMay on Marine
Insurance, 1993, Sweet & Maxwell at p. 258, and at pp. 250–258 for a historical
perspective on the development of war risks insurance.
6. [1970] 2 Lloyds Rep. 355.
7. At p. 372.
8. See Chapter 1 at paras. 1.7 to 1.9 for the circumstances in which the SG Form was
replaced by the MAR Form and the subsequent history of policy forms in the London
market.
9. Except for some modernisation and clarification of the language, such as the use of
the word “insurers” for “underwriters”, to be consistent with the revised Institute Cargo
Clauses (A).
11. Historic Records Report HR5 at p. 98.
12. Considered in Chapter 8. Sometimes, though rarely, the primary cover may be
under the Institute Cargo Clauses (B) or (C), see Chapter 9.
13. See paras. 10.25 to 10.26.
14. Typically war and strikes risks may be cancelled at seven days notice and strikes
risks in respect of shipments to and from the United States of America at 48 hours’
notice; in respect of strikes see the Institute Standard Conditions for Cargo Contracts,
Clause 9.
15. Defined in MIA 1906, First Schedule, r. 8, to include “passengers who mutiny and
rioters who attack the ship from the shore”. The IMO report “Piracy and Armed
Robbery at Sea” of June 2000 states that “between 1984 and the end of November 1999
there [were] 1,587 attacks by pirates on ships around the world”. The recent spate of
pirate attacks off the coast of Somalia, mentioned in the text, serves to emphasise the
continued importance in modern times of this risk.
16. OMay at p. 124.
18. See para. 10.4, fn. 14 above with regard to the special cancellation provisions in
the war and strikes cover.
19. The time aboard such vessels is limited to 15 days, Institute War Clauses (Cargo)
clause 5.1.2 and see paras. 10.25 to paras. 10.35 below for a discussion of the duration
of war risks cover.
20. See para. 10.54.
21. For a discussion of loss of the adventure Chapter 13, paras. 13.53 to 13.70.
22. The exclusion in Clause 7.2 of the Institute Cargo Clauses which excludes loss
damage or expense resulting from strikes, lockouts, labour disturbances, riots or civil
commotions is not carried over into the Institute Strikes Clauses (Cargo) which only
provides positive cover for “strikers, locked-out workmen, or persons taking part in
labour disturbances, riots or civil commotions”, as excluded by Clause 7.1 of the ICC.
23. Institute War Clauses (Cargo), Clause 1.2.
24. Rejection risks cover is currently difficult to obtain in the London marine
insurance market but may be available worldwide. The cover for rejection risks is
discussed in this chapter at para. 10.61 et seq.
25. Cover is subject to exclusions, see Chapter 8, paras. 8.9 to 8.62 for a discussion
of the exclusions and see para. 10.23 below for the special exclusion relating to war
risks (i.e., frustration of the voyage or the loss of the adventure).
26. See, for example, the comments of Farwell L.J. in Republic of Bolivia v.
Indemnity Mutual Assurance Co Ltd [1909] 1 KB 785 at p. 801.
27. [1980] 1 Lloyds Rep. 406.
28. At p. 428.
29. [1996] 1 Lloyds Rep. 664 at p. 690.
30. This was expressly approved by Otton L.J. in the Court of Appeal [1997] 2
Lloyds Rep. 687 at p. 699. In the House of Lords [1999] 1 Lloyds Rep. 803, Lord
Hobhouse remarked that Rix J. was “inclined to treat the various paragraphs as
exclusive of each other” (at p. 813).
31. National Oil Company of Zimbabwe (Private) Ltd and Others v. Nicholas
Collwyn Sturge [1991] 2 Lloyds Rep. 281 at p. 287 per Saville J.
32. Kawasaki Kisen Kabushiki v. Bantham Steamship Company Ltd (No. 2) (1939)
63 Ll. L. Rep. 155, per Sir Wilfrid Greene M.R. at p. 164 agreeing in toto with the
reasoning and conclusions of Goddard J. reported at (1938) 61 Ll. L. Rep. 131.
33. Spinneys (1948) Ltd and Others v. Royal Insurance Co Ltd [1980] 1 Lloyds
Rep. 406, per Mustill J. at p. 426.
34. See the cases cited in fns. 32 and 33 above and Pan American World Airways
Inc. v. The Aetna Casualty & Surety Co & Others [1975] 1 Lloyds Rep. 77, United
States Court of Appeals, which examines the United States authorities.
35. [1991] 2 Lloyds Rep. 281. See also Pesquereas y Secaderos Bacalao de Espana
SA v. Beer [1949] 1 All ER 845.
36. Ibid. p. 282.
37. [1980] 1 Lloyds Rep. 406.
38. Ibid. pp. 429–430.
39. At p. 431.
40. At p. 432.
41. [1991] 2 Lloyds Rep. 281.
42. At para. 10.13.
43. At p. 287.
44. [1991] 2 Lloyds Rep. 281, citing the American case of Home Insurance v.
Davila (1954) 212 F 2d 731.
45. At p. 282.
46. 11th edn, 2008.
47. See, for example, Spinneys (1948) Ltd v. Royal Insurance Co Limited [1980] 1
Lloyds Rep. 406.
48. Supra.
49. [2002] Lloyds Rep. IR 655, Court of Appeal of Trinidad and Tobago.
50. [2008] Lloyds Rep. IR 34, Supreme Court of the Fiji Islands.
51. Spinneys (1948) Ltd v. Royal Insurance Co Ltd [1980] 1 Lloyds Rep. 406,
National Oil Co of Zimbabwe (Private) Ltd v. Sturge [1991] 2 Lloyds Rep. 281; Grell-
Taurel Ltd v. Caribbean Home Insurance Co Ltd [2002] Lloyds Rep. IR 655, Home
Insurance Co of New York v. Davilla (1954) 212 F 2d 731, and Pan American World
Airways Inc. v. Aetna Casualty and Surety Co [1975] 1 Lloyds Rep. 77.
52. See para. 28.
53. See paras. 29 and 35.
54. [1980] 1 Lloyds Rep. 406.
55. At p. 262.
56. At p. 263.
57. OMay at p. 263. For the principles of causation, see Chapter 7.
58. Atlantic Mutual v. King [1919] 1 KB 309 at p. 310, per Bailhache J.
59. Britain Steamship Co v. R (The Petersham) [1921] 1 AC 99.
60. At p. 133.
61. Cover is subject to exclusions. See Chapter 8, paras. 8.9 to 8.63 for a discussion
of the exclusions and see para. 10.23 below for the special exclusion of any claim
based upon loss of or frustration of the voyage or loss of adventure.
62. The scope and meaning of the risks in Clause 1.1 is discussed at paras. 10.7 to
10.16 above.
63. For a discussion of the term “arising from” and multiple causes see Chapter 7,
paras. 7.38 to 7.42.
64. See Chapter 1 at paras. 1.17 to 1.18 for a consideration of the circumstances in
which such evidence is admissible.
65. At p. 269. OMay was written by Donald R. OMay, author, and Julian Hill, co-
author and editor, who were both involved in advising on and drafting the 1982 Clauses.
66. [1921] AC 99 at 131–132.
67. (1863) 14 CB NS 259 at 286.
68. Cory v. Burr (1883) 8 App. Cas. 393, per Lord FitzGerald at p. 405 citing
Powell v. Hyde (1855) 5 EL&BL 607 and Kleinwort v. Shephard (1859) 1 EL&BL 447.
69. [1996] 1 Lloyds Rep. 664.
70. Ibid. Kuwait Airways (supra) at 689, per Rix J. citing Cory v. Burr (supra).
71. (1883) 8 App. Cas. 393.
72. At p. 405
73. Contrast the position in the United States, where by New York law, “seizure” is
limited to executive acts, see Pan American World Airways Inc v. The Aetna Casualty
and Surety Co [1974] 1 Lloyds Rep. 207.
74. [2002] 1 Lloyds Rep. 652 (David Steele J., Comm. Court); affirmed [2003] 1
Lloyds Rep. 131 (CA).
75. See Chapter 11, para. 11.46 for a fuller description of the facts which also
explains why the vehicles were still at risk under a transit policy whilst in the customs
compound.
76. ICC (All Risks) 1/1/63, Clause 12. The seizure being on land and not “arising out
of” war and related risks, was not covered under the war clauses, see Tuckey L.J. in the
CA at [2003] 1 Lloyds Rep. 131 at 136 to the effect that the war cover came to an end
when the cars were discharged at Santo Domingo.
77. (1883) 8 App Cas 393 at p. 405.
78. I.e., in the judgment of Lord Fitzgerald.
79. At p. 658.
80. Shell International Petroleum Co Ltd v. Gibbs (The Salem) [1983] 1 Lloyds
Rep. 342 (HL).
81. [1904] AC 359.
82. (1859) 2 EL&BL 160.
83. (1855) 5 EL&BL 607.
84. (1859) 1 EL&BL 447.
85. (1883) 10 QBD 432.
86. [2003] 1 Lloyds Rep. 131 at p. 137.
87. Relying on The Salem (supra) and distinguishing Rickards v. Forestal Land
Timber and Railways Co Limited; Middows Ltd v. Robertson and Other Cases (1941)
70 Ll. L. Rep. 173 (HL) on the basis that the belligerent act of the German Government,
in that case, was behind the restraint or seizure, while no similar change in possession
occurred in the customs compound. See Chapter 13, para. 13.56 where the facts of
Rickards v. Forestal Land are set out.
89. (1883) 9 App Cas 393.
90. Ibid. at p. 396.
91. See para. 10.21 below where “restraint” is considered. It is appreciated that this
view comes near to limiting “seizure”, when it involves the exercise of authority, in a
manner similar to that adopted by New York law which seems to have much to
commend it. See fn. 73 above.
92. [1971] 1 Lloyds Rep. 487 (CA).
93. Ibid. at p. 492.
94. The issue of whether the rules for construction of the SG policy, or “like forms”,
as scheduled to the MIA 1906, apply to modern forms of insurance written on the ICC
attached to the Market Reform Contract, are discussed in Chapter 3, paras. 3.40 to 3.43
in connection with the carriage of cargo on deck. See also OMay at pp. 266–267 which
takes a view that there is little doubt that r. 10 is applicable in the context here
considered in the text.
95. [1903] 1 KB 712.
97. Cover is subject to exclusions, see Chapter 8, paras. 8.9 to 8.62 and for the
specific exclusion of any claim based upon loss of or frustration of the voyage or
adventure, which relates to war risks, see para. 10.23 below.
98. J. Kenneth Goodacre, Goodbye to the Memorandum, 1988, Witherby & Co Ltd.
99. Ibid. at p. 197.
101. [1916] 1 AC 650. For a more detailed discussion of the background and the
facts of this case, see Chapter 13, paras. 13.55 to 13.56.
102. See Chapter 13 for an in-depth consideration of the concept of loss of the
adventure.
103. Forestal Land, Timber & Railways Co Limited v. Rickards: Middows Ltd v.
Robertson & Other Cases (1941) 70 Ll. L. Rep. 173. See Chapter 13, paras. 13.56 to
13.57.
104. Institute Additional Expenses Clauses (Cargo–War Risks) 1/7/85.
105. See Hudson and Madge Marine Insurance Clauses, 4th edn, 2005, LLP at pp.
331–332 for an analysis and criticism of this Clause.
106. The 2009 Clauses and the 1982 Clauses are in all material respects the same in
relation to the point discussed in the text in this paragraph but the issue is important for
those who have never adopted the 1982 Clauses, in particular, the Japanese insurance
market.
107. The final edition before 1982 appears to have been the Institute War Clauses
(Cargo) 11/3/80.
108. For the practice whereby cover was provided by insuring the exclusions, see
para. 10.1.
109. [1903] 1 KB 712.
110. Ibid., Miller v. The Law Accident Insurance Company, per Matthew L.J. at p.
722.
111. As discussed at para. 10.21 above rejection risks cover may be available, see
para. 10.61 et seq.
112. Supra.
113. At para. 13.56.
114. At para. 10.23
115. [1916] AC 650 (HL).
116. The position is consistent with the intention under the 2009 Clauses which was
to restore cover, by and large, to the 1963 position. It may be noted that piratical
“seizure” may lead to the actual loss of the goods, but piratical seizure is not excluded
from the Institute Cargo Clauses (A) where the exclusion reads “capture seizure arrest
restraint or detainment (piracy excepted)”, ICC(A), Clause 6.2. The exception to the
exclusion does not apply to the ICC(B) and (C) which do not therefore cover piratical
seizure, though recovery in general average for piratical seizure may be possible, see
Chapter 14, Recoverable Expenses at para. 14.37.
118. The Waterborne Agreement 1982 is set out in OMay at pp. 297–298. Earlier
agreements were in similar terms.
119. War risk rating for cargo business was historically the function of the War Risks
Rating Committee (WRRC), which became a sub-division of the Joint Cargo Committee
in the 1990s. The WRRC ceased to function some time prior to 1 May 2004 and no
longer exists. The Joint Cargo Committee now provides underwriters internationally
with information highlighting areas of enhanced risk with the assistance of an
independent firm of consultants who compile the Global Cargo Watch List (GCWL). For
further information on the GCWL go to www.lmalloyds.com and choose “Marine” from
“Market Places” to access the JCC web pages which provide a link to the current
GCWL.
120.Institute War Clauses (Cargo), Clause 7.
121.See Chapter 11, paras. 11.6 to 11.9 which discuss special provisions in open
covers.
122.See the judgment of Lord Esher M.R. in Harris and Co v. Best-Ryley and Co
(1892) TLR 149 (CA) at p. 150 in which loading is described as “the joint action of the
shipowner and the shipper”. In National Steamship Co Ltd v. Sociedad Anonima
Comercial de Exportacion y Importacion (1932) 37 Com Cas 283 (CA), Greer L.J. at
p. 290. citing the judgment of Lord Esher M.R. in Harris, stated that “the use of the
winch or any other method of loading adopted by the ship after the goods are brought
alongside by the shipper, is part of the loading”.
123.For the issues relating to the applicability of the rules scheduled to the 1906 Act
to modern cargo insurance see Chapter 3 at paras. 3.40 to 3.43 dealing with r. 17 and
the carriage of cargo on deck.
124.See, for example, Eurodale Manufacturing Ltd v. Ecclesiastical Insurance
Office plc [2003] Lloyds Rep. IR 444 (CA).
125.See Chapter 12 at paras. 12.2 to 12.9, and Liberian Insurance Agency Inc. v.
Mosse [1977] 2 Lloyds Rep. 560 for a discussion of the concept of held covered and
the limits on such cover.
126.Contrast Clause 5.1.3 which reattaches cover as the vessel “sails”.
127.Under the terms of the Institute War Clauses (Air Cargo).
128.See Chapter 12, para. 12.2 et seq. where held covered and the restrictions and
limitations on that term are discussed in more detail.
129.Widespread advent of containerisation and modern port facilities has not, it is
suggested, entirely eliminated the use of craft.
130.It is submitted, in view of the long period for cargo in “craft”, up to 60 days, that
the term “craft” would also include lighters.
131.ICC (A), (B), and (C), as well as the Institute Strikes Clauses (Cargo).
132.See Chapter 11 at paras. 11.63 to 11.70 for a discussion of the equivalent
provision under the ICC.
133.See para. 10.31 above.
134.Liberian Insurance Agency v. Mosse [1977] 2 Lloyds Rep. 560, and see Chapter
12 at paras. 12.2 to 12.9 above where the principles and limitations on held covered are
discussed.
135.See Chapter 11, paras. 11.68 and 11.70.
136.At paras. 12.12 to 12.25.
137.The Strikes Clauses are also subject to the standard exclusions, for details of
which see Chapter 8, paras. 8.9 to 8.62.
138.The standard delay exclusion is discussed in Chapter 8, para. 8.48 et seq.
139.Institute Strikes Clauses (Cargo), Clause 3.5 and see Chapter 8, para. 5.17 et
seq.
140.See Chapter 7, paras. 7.19 to 7.27 for the academic criticisms of the standard
delay clause in the 1982 Clauses and for the amendments developed in the revised
Institute Cargo Clauses.
141.Institute Strikes Clauses (Cargo), Clause 3.8. See para. 10.23 et seq. above
where this Clause is considered in relation to war risks and frustration of the adventure.
The subject of loss of the adventure is dealt with in more detail in Chapter 13, paras.
13.53 to 13.70.
142.Tramp Shipping Corp. v. Greenwich Marine Inc. (The New Horizon) [1975] 2
Lloyds Rep. 314.
143.Ibid. at p. 317.
144.See para. 10.38 for what constitutes a riot.
145.See para. 10.40 for what constitutes a civil commotion.
146.This definition derives from the judgment of Phillimore J. in Field v. The
Receiver of Metropolitan Police [1907] 2 KB 853, except that the number of persons
was then “not less than 3” which was increased by the 1968 Act to “12 or more”. There
are special considerations behind the legislation defining “riot”, including financial
obligations falling upon the local police authorities. These considerations have nothing
whatsoever to do with marine cargo insurance.
147.MIA 1906, opening words of Schedule 1.
148.See, in particular, the discussion of this issue in Chapter 3, para. 3.41 in
connection with the carriage of cargo on deck and the application of r. 17.
149.Rule 8 provides that “The term ‘pirates’ includes passengers who mutiny and
rioters who attack from the shore”.
150.Rule 10 provides that “The term ‘arrests etc of kings, princes and people’ refers
to political or executive acts, and does not include a loss caused by riot or ordinary
judicial process”.
151.Stanley v. Western Assurance Co (1868) LR 3 Exch 71, see Chapter 9, para.
3.41 where this approach is discussed in the context of the construction of the named
perils.
152.Shell International Petroleum Co Ltd v. Gibbs (The Salem) [1982] 1 Lloyds
Rep. 369 (CA), per Kerr L.J. at p. 317.
153.In Athens Maritime Enterprises Corporation v. Hellenic Mutual War Risks
Association (Bermuda) Ltd (The Andreas Lemos) [1982] 2 Lloyds Rep. 483, Staughton
J. treated “riot” as a technical term but was, by that stage, bound to do so.
154.Clause 14 of the Institute Strikes Clauses (Cargo).
155.(1924) 19 Ll. L. Rep. 1.
156.Ibid. at p. 4.
157.Under the Constitution Reform Act 2005 Pt. 3, s. 40.
158.Arnould paras. 24–28 shares the view expressed in the text that it would be
preferable if the courts were able to give the term “riot” its ordinary business meaning.
During the revision of the Institute Clauses in 2008 it seems that this issue was not
addressed. It may be hoped that during any further revisions the opportunity may be
taken to indicate that the word “riot” is not to be construed in the technical sense
provided for by the Public Order Act 1968 s. 10(2) and, at the same time, to make it
clear that, as a matter of construction, an ordinary business meaning is intended.
159.[1982] 2 Lloyds Rep. 483.
160.Now incorporated in s. 1 of the 1968 Act, as set out in para. 10.38 above, except
that at the time of the judgment the number of persons was “not less than three”.
161.Ibid. at p. 492.
162.The US courts have firmly rejected this approach—see Pan American World
Airways Inc. v. The Aetna Casualty and Surety Co [1974] 1 Lloyds Rep. 207; affirmed
by the Court of Appeal of New York, where the same approach was adopted [1975] 1
Lloyds Rep. 77 at 99.
163.Spinneys (1948) Ltd v. Royal Insurance Co Ltd [1980] 1 Lloyds Rep. 406 at
437.
164.(1780) 2 Park on Ins. 965, see also London and Manchester Plate Glass Co v.
Heath [1913] 3 KB 411; Cooper v. General Accident Fire & Life Association (1922)
13 Ll. L. Rep. 219; Lindsay & Pirie v. The General Accident Fire and Life Assurance
Corporation Ltd (1914) SAR (App. D.) 574 and Levy v. Assicurazione Generali
(1940) 67 Ll. L. Rep. 174.
165.At para. 10.13 et seq.
166.Ibid. at p. 438.
167.See para. 10.38 to 10.39.
168.In The Andreas Lemos (supra) Staughton J. said at p. 491 that the word “riot”
meant, in ordinary language the sort of civil disturbance that had recently occurred
(judgment was in July 1982) in Brixton, Bristol and Wormwood Scrubs prison.
169.See further the recent cases on “insurrection” cited at paras. 10.12 to 10.14
above.
170.Between 1960 and 1970 over 200 commercial aircraft were hijacked, eight of
which belonged to Pan American.
171.According to a list compiled by Reuters newsagency there have been just a
handful of ship hijackings since 1961, see the article entitled “Mossad ‘knew of raid
plan’. High Seas are Neglected by Experts on Terrorism”, in the Globe & Mail
(Canada) 9 October 1985. One example of such a hijacking is the 1985 incident
involving the Achille Lauro, where four Palestinian terrorists boarded and took control
of the liner as she was sailing from Alexandria to Port Said, Egypt.
172.For a discussion of piracy see para. 10.5 above.
173.See para. 10.25 for further details of the Mumbai incident as well as a summary
of the Halifax harbour explosion.
174.See Appendix 33 for the current version of JC 56 which is discussed at para.
10.54 below.
175.The standard Transit Clause is the subject of Chapter 11.
177.It also reflects the UK Terrorism Exclusion: NMA 2751 used by the non-marine
market in conjunction with the 1993 Act.
178.Terrorist cover had become unavailable by the end of 1992 when the providers
of reinsurance to insurers writing commercial property cover in Great Britain (e.g.,
buildings in the City of London) declined to renew their reinsurance treaties. This
stemmed from a general shortage of reinsurance capacity in the worldwide market, and
in particular, the claims experience arising from the St Mary Axe bomb itself. The UK
Government stepped in to save the situation and British insurers created Pool Re, a
reinsurance company supported by the major British insurers and reinsurers, which in
turn was backed by the UK Government to whom the ultimate terrorism risk was
retroceded.
179.Levy v. Assicurazioni Generali (1940) 67 Ll. L. Rep. 174 (PC); Spinneys (1948)
Ltd v. Royal Insurance Co Ltd [1980] 1 Lloyds Rep. 406.
180.This definition was adopted by Lord Mustill in T v. The Secretary of State for
the Home Department [1966] AC 742 at 762.
181.[1974] 1 Lloyds Rep. 207, at 230, 231 (Frankel D.J.); [1975] 1 Lloyds Rep. 77
(United States Court of Appeals).
182.[2004] Lloyds Rep. IR 696 (CA).
183.At paras. 147 and 148, as summarised in the headnote at p. 701.
184.At para. 143.
185.[1996] 1 WLR 902.
186.At p. 905.
187.In connection with the troubles in Northern Ireland the Prevention of Terrorism
(Temporary Provisions) Act, 1989 s. 20(1) defined terrorism as follows: “Terrorism
means the use of violence for political ends, and includes any use of violence for the
purpose of putting the public or any section of the public in fear”.
189.At p. 312.
190.Ibid., fn. 33.
191.774 F. Supp. 909 (1991), US District Court Eastern District of Pennsylvania.
192.The Clauses also use the word “strikers” (Clause 7.1) though this seems a more
identifiable class of persons.
193.Para. 10.42 et seq.
194.See Chapter 8.
195.Institute Strikes Clauses (Cargo), Clause 3.8. These words reflect the identical
exclusion in the Institute War Clauses (Cargo) which is discussed at para. 10.23 above.
196.See Chapter 13, paras. 13.53 to 13.70 where loss of the adventure is discussed.
197.In April 2002 Werner Schaad Chief Risk and Reinsurance Officer, Swiss Re
(US) said “We were thinking of terrorism as a small insignificant island• We have
discovered it is a whole continent, a large, dangerous, unknown continent”.
199.See Chapter 11, paras. 11.6 to 11.9 which discuss open covers with special
duration provisions which include significant elements of cover for cargo in store.
200.See Appendix 33 for JC2009/056. JC56 was amended in late 2008 for
consistency with the revised Institute Clauses and was reissued as JC2009/056 for use
from 1 January 2009.
201.The Clause begins with the words: “This Clause shall be paramount and shall
override anything contained in this insurance inconsistent therewith”.
202.See Chapter 11.
203.See para. 10.28 below.
204.Lloyds Non-Marine Association Circular dated 28 December 1959.
205.The Atomic Energy Authority (“the Authority”) was set up by s. 1(1) of the
Atomic Energy Act 1954. Section 5(3) of that Act placed a duty on the Authority to
“secure that no ionising radiations from anything on any premises occupied by them, or
from any waste discharged (in whatever form) on or from any premises occupied by
them, cause any hurt to any person or any damage to any property, whether he or it is on
any such premises or elsewhere”. Similar provisions now appear in the Nuclear
206.Insurers concern was the aggregation of risk if such a device was used in a
dockland or warehouse area causing widespread nuclear contamination of cargoes held
in many ships and warehouses. The tremendous devastation caused by conventional
explosives in the Mumbai Docks in 1944 and in Halifax harbour in 1917 illustrates the
danger, see para. 10.25 above.
207.Known generally as nuclear medicine of which some “16 million procedures are
estimated to be carried out annually in the United States”, Las Alamos National
Laboratory Newsletter, 10 September 2007, Vol. 8, No. 19 p. 1.
208.To take but one example, household smoke alarms contain americium-241 which
is a radioactive isotope.
209.An electromagnetic pulse is created by atomic explosion and has the effect of
disabling all electrical equipment including computers in a radius around the seat of the
explosion. It is possibly the case that an electromagnetic pulse can be created
artificially in other circumstances.
210.See Appendix 31.
211.ICC, Clause 6.2.
212.Institute War Clauses (Cargo), Clause 1.2, and see the discussion at para. 10.17
above.
213.Miller v The Law Accident Insurance Co [1903] 1 KB 712.
214.Supra.
215.At p. 722, per Mathew L.J. following Cory v. Burr 8 (1883) 8 App Cas 393.
217.In practice, rejection cases have involved, in particular, meat (BSE, CJE, Foot
and Mouth Disease), poultry (Avian Influenza), nuts (moths and beetles) and raisin
(excessive stalks and stems).
218.(1959) AMC 2455; confirmed on appeal (1960) AMC 1379.
219.The United States courts have treated the conditions in the rejection risk clauses
as promissory warranties which must be strictly complied with, see Red Top Brewing v.
Massotti 107 F Supp 921 (1962), where a deterioration cover was warranted that a
certificate be issued immediately prior to shipment specifying the cargo free from
foreign matter and it was held that the warranty had to be strictly complied with, and see
also the cases referred to in the text of this para. and para. 10.63. For the requirements
of the MIA 1906 that warranties must be strictly complied with, see Chapter 6, para. 6.5
220.At p. 2472.
221.1964 AMC 196.United States District Court, Southern District of New York
222.1953 AMC 311. United States Court of Appeals.
223.At p. 200, and the warranty was strictly applied.
224.Schwartz & Co v. Hepburn 302 F 2d 576 (1962) United States Court of Appeals
Seventh Circuit.
225.Supra.
226.Miller v. The Law Accident Insurance Company [1903] 1 KB 712 at 713.
227.There are two English decisions where the cargo policies included rejection
risks cover, Agra Trading Limited v. Ian David McAuslin & Others (The Frio Chile)
[1995] 1 Lloyds Rep. 182 and Hibernia Foods plc v. McAuslin (The Joint Frost)
[1998] 1 Lloyds Rep. 310. These cases did not directly address any issues relating to
the extent of rejection risks cover.
228.No. 77 Civ 5490 (MP) (SDNY 5 December 1978).
229.Unreported decision of the United States District Court of Massachusetts, Civ
77–2579-S of 14 September 1981.
124.See, for example, Eurodale Manufacturing Ltd v. Ecclesiastical Insurance
Office plc [2003] Lloyds Rep. IR 444 (CA).
125.See Chapter 12 at paras. 12.2 to 12.9, and Liberian Insurance Agency Inc. v.
Mosse [1977] 2 Lloyds Rep. 560 for a discussion of the concept of held covered and
the limits on such cover.
126.Contrast Clause 5.1.3 which reattaches cover as the vessel “sails”.
127.Under the terms of the Institute War Clauses (Air Cargo).
128.See Chapter 12, para. 12.2 et seq. where held covered and the restrictions and
limitations on that term are discussed in more detail.
129.Widespread advent of containerisation and modern port facilities has not, it is
suggested, entirely eliminated the use of craft.
130.It is submitted, in view of the long period for cargo in “craft”, up to 60 days, that
the term “craft” would also include lighters.
131.ICC (A), (B), and (C), as well as the Institute Strikes Clauses (Cargo).
132.See Chapter 11 at paras. 11.63 to 11.70 for a discussion of the equivalent
provision under the ICC.
133.See para. 10.31 above.
134.Liberian Insurance Agency v. Mosse [1977] 2 Lloyds Rep. 560, and see Chapter
12 at paras. 12.2 to 12.9 above where the principles and limitations on held covered are
discussed.
135.See Chapter 11, paras. 11.68 and 11.70.
136.At paras. 12.12 to 12.25.
137.The Strikes Clauses are also subject to the standard exclusions, for details of
which see Chapter 8, paras. 8.9 to 8.62.
138.The standard delay exclusion is discussed in Chapter 8, para. 8.48 et seq.
139.Institute Strikes Clauses (Cargo), Clause 3.5 and see Chapter 8, para. 5.17 et
seq.
140.See Chapter 7, paras. 7.19 to 7.27 for the academic criticisms of the standard
delay clause in the 1982 Clauses and for the amendments developed in the revised
141.Institute Strikes Clauses (Cargo), Clause 3.8. See para. 10.23 et seq. above
where this Clause is considered in relation to war risks and frustration of the adventure.
The subject of loss of the adventure is dealt with in more detail in Chapter 13, paras.
13.53 to 13.70.
142.Tramp Shipping Corp. v. Greenwich Marine Inc. (The New Horizon) [1975] 2
Lloyds Rep. 314.
143.Ibid. at p. 317.
144.See para. 10.38 for what constitutes a riot.
145.See para. 10.40 for what constitutes a civil commotion.
146.This definition derives from the judgment of Phillimore J. in Field v. The
Receiver of Metropolitan Police [1907] 2 KB 853, except that the number of persons
was then “not less than 3” which was increased by the 1968 Act to “12 or more”. There
are special considerations behind the legislation defining “riot”, including financial
obligations falling upon the local police authorities. These considerations have nothing
whatsoever to do with marine cargo insurance.
147.MIA 1906, opening words of Schedule 1.
148.See, in particular, the discussion of this issue in Chapter 3, para. 3.41 in
connection with the carriage of cargo on deck and the application of r. 17.
149.Rule 8 provides that “The term ‘pirates’ includes passengers who mutiny and
rioters who attack from the shore”.
150.Rule 10 provides that “The term ‘arrests etc of kings, princes and people’ refers
to political or executive acts, and does not include a loss caused by riot or ordinary
judicial process”.
151.Stanley v. Western Assurance Co (1868) LR 3 Exch 71, see Chapter 9, para.
3.41 where this approach is discussed in the context of the construction of the named
perils.
152.Shell International Petroleum Co Ltd v. Gibbs (The Salem) [1982] 1 Lloyds
Rep. 369 (CA), per Kerr L.J. at p. 317.
153.In Athens Maritime Enterprises Corporation v. Hellenic Mutual War Risks
Association (Bermuda) Ltd (The Andreas Lemos) [1982] 2 Lloyds Rep. 483, Staughton
J. treated “riot” as a technical term but was, by that stage, bound to do so.
154.Clause 14 of the Institute Strikes Clauses (Cargo).
155.(1924) 19 Ll. L. Rep. 1.
156.Ibid. at p. 4.
157.Under the Constitution Reform Act 2005 Pt. 3, s. 40.
158.Arnould paras. 24–28 shares the view expressed in the text that it would be
preferable if the courts were able to give the term “riot” its ordinary business meaning.
During the revision of the Institute Clauses in 2008 it seems that this issue was not
addressed. It may be hoped that during any further revisions the opportunity may be
taken to indicate that the word “riot” is not to be construed in the technical sense
provided for by the Public Order Act 1968 s. 10(2) and, at the same time, to make it
clear that, as a matter of construction, an ordinary business meaning is intended.
159.[1982] 2 Lloyds Rep. 483.
160.Now incorporated in s. 1 of the 1968 Act, as set out in para. 10.38 above, except
that at the time of the judgment the number of persons was “not less than three”.
161.Ibid. at p. 492.
162.The US courts have firmly rejected this approach—see Pan American World
Airways Inc. v. The Aetna Casualty and Surety Co [1974] 1 Lloyds Rep. 207; affirmed
by the Court of Appeal of New York, where the same approach was adopted [1975] 1
Lloyds Rep. 77 at 99.
163.Spinneys (1948) Ltd v. Royal Insurance Co Ltd [1980] 1 Lloyds Rep. 406 at
437.
164.(1780) 2 Park on Ins. 965, see also London and Manchester Plate Glass Co v.
Heath [1913] 3 KB 411; Cooper v. General Accident Fire & Life Association (1922)
13 Ll. L. Rep. 219; Lindsay & Pirie v. The General Accident Fire and Life Assurance
Corporation Ltd (1914) SAR (App. D.) 574 and Levy v. Assicurazione Generali
(1940) 67 Ll. L. Rep. 174.
166.Ibid. at p. 438.
167.See para. 10.38 to 10.39.
168.In The Andreas Lemos (supra) Staughton J. said at p. 491 that the word “riot”
meant, in ordinary language the sort of civil disturbance that had recently occurred
(judgment was in July 1982) in Brixton, Bristol and Wormwood Scrubs prison.
169.See further the recent cases on “insurrection” cited at paras. 10.12 to 10.14
above.
170.Between 1960 and 1970 over 200 commercial aircraft were hijacked, eight of
which belonged to Pan American.
171.According to a list compiled by Reuters newsagency there have been just a
handful of ship hijackings since 1961, see the article entitled “Mossad ‘knew of raid
plan’. High Seas are Neglected by Experts on Terrorism”, in the Globe & Mail
(Canada) 9 October 1985. One example of such a hijacking is the 1985 incident
involving the Achille Lauro, where four Palestinian terrorists boarded and took control
of the liner as she was sailing from Alexandria to Port Said, Egypt.
172.For a discussion of piracy see para. 10.5 above.
173.See para. 10.25 for further details of the Mumbai incident as well as a summary
of the Halifax harbour explosion.
174.See Appendix 33 for the current version of JC 56 which is discussed at para.
10.54 below.
175.The standard Transit Clause is the subject of Chapter 11.
177.It also reflects the UK Terrorism Exclusion: NMA 2751 used by the non-marine
market in conjunction with the 1993 Act.
178.Terrorist cover had become unavailable by the end of 1992 when the providers
of reinsurance to insurers writing commercial property cover in Great Britain (e.g.,
buildings in the City of London) declined to renew their reinsurance treaties. This
stemmed from a general shortage of reinsurance capacity in the worldwide market, and
in particular, the claims experience arising from the St Mary Axe bomb itself. The UK
Government stepped in to save the situation and British insurers created Pool Re, a
reinsurance company supported by the major British insurers and reinsurers, which in
turn was backed by the UK Government to whom the ultimate terrorism risk was
retroceded.
179.Levy v. Assicurazioni Generali (1940) 67 Ll. L. Rep. 174 (PC); Spinneys (1948)
Ltd v. Royal Insurance Co Ltd [1980] 1 Lloyds Rep. 406.
180.This definition was adopted by Lord Mustill in T v. The Secretary of State for
the Home Department [1966] AC 742 at 762.
181.[1974] 1 Lloyds Rep. 207, at 230, 231 (Frankel D.J.); [1975] 1 Lloyds Rep. 77
(United States Court of Appeals).
182.[2004] Lloyds Rep. IR 696 (CA).
183.At paras. 147 and 148, as summarised in the headnote at p. 701.
184.At para. 143.
185.[1996] 1 WLR 902.
186.At p. 905.
187.In connection with the troubles in Northern Ireland the Prevention of Terrorism
(Temporary Provisions) Act, 1989 s. 20(1) defined terrorism as follows: “Terrorism
means the use of violence for political ends, and includes any use of violence for the
purpose of putting the public or any section of the public in fear”.
189.At p. 312.
190.Ibid., fn. 33.
191.774 F. Supp. 909 (1991), US District Court Eastern District of Pennsylvania.
192.The Clauses also use the word “strikers” (Clause 7.1) though this seems a more
identifiable class of persons.
193.Para. 10.42 et seq.
194.See Chapter 8.
195.Institute Strikes Clauses (Cargo), Clause 3.8. These words reflect the identical
exclusion in the Institute War Clauses (Cargo) which is discussed at para. 10.23 above.
196.See Chapter 13, paras. 13.53 to 13.70 where loss of the adventure is discussed.
197.In April 2002 Werner Schaad Chief Risk and Reinsurance Officer, Swiss Re
(US) said “We were thinking of terrorism as a small insignificant island• We have
discovered it is a whole continent, a large, dangerous, unknown continent”.
199.See Chapter 11, paras. 11.6 to 11.9 which discuss open covers with special
duration provisions which include significant elements of cover for cargo in store.
200.See Appendix 33 for JC2009/056. JC56 was amended in late 2008 for
consistency with the revised Institute Clauses and was reissued as JC2009/056 for use
from 1 January 2009.
201.The Clause begins with the words: “This Clause shall be paramount and shall
override anything contained in this insurance inconsistent therewith”.
202.See Chapter 11.
203.See para. 10.28 below.
204.Lloyds Non-Marine Association Circular dated 28 December 1959.
205.The Atomic Energy Authority (“the Authority”) was set up by s. 1(1) of the
Atomic Energy Act 1954. Section 5(3) of that Act placed a duty on the Authority to
“secure that no ionising radiations from anything on any premises occupied by them, or
from any waste discharged (in whatever form) on or from any premises occupied by
them, cause any hurt to any person or any damage to any property, whether he or it is on
any such premises or elsewhere”. Similar provisions now appear in the Nuclear
206.Insurers concern was the aggregation of risk if such a device was used in a
dockland or warehouse area causing widespread nuclear contamination of cargoes held
in many ships and warehouses. The tremendous devastation caused by conventional
explosives in the Mumbai Docks in 1944 and in Halifax harbour in 1917 illustrates the
danger, see para. 10.25 above.
207.Known generally as nuclear medicine of which some “16 million procedures are
estimated to be carried out annually in the United States”, Las Alamos National
Laboratory Newsletter, 10 September 2007, Vol. 8, No. 19 p. 1.
208.To take but one example, household smoke alarms contain americium-241 which
is a radioactive isotope.
209.An electromagnetic pulse is created by atomic explosion and has the effect of
disabling all electrical equipment including computers in a radius around the seat of the
explosion. It is possibly the case that an electromagnetic pulse can be created
artificially in other circumstances.
210.See Appendix 31.
212.Institute War Clauses (Cargo), Clause 1.2, and see the discussion at para. 10.17
above.
213.Miller v The Law Accident Insurance Co [1903] 1 KB 712.
214.Supra.
215.At p. 722, per Mathew L.J. following Cory v. Burr 8 (1883) 8 App Cas 393.
217.In practice, rejection cases have involved, in particular, meat (BSE, CJE, Foot
and Mouth Disease), poultry (Avian Influenza), nuts (moths and beetles) and raisin
(excessive stalks and stems).
218.(1959) AMC 2455; confirmed on appeal (1960) AMC 1379.
219.The United States courts have treated the conditions in the rejection risk clauses
as promissory warranties which must be strictly complied with, see Red Top Brewing v.
Massotti 107 F Supp 921 (1962), where a deterioration cover was warranted that a
certificate be issued immediately prior to shipment specifying the cargo free from
foreign matter and it was held that the warranty had to be strictly complied with, and see
also the cases referred to in the text of this para. and para. 10.63. For the requirements
of the MIA 1906 that warranties must be strictly complied with, see Chapter 6, para. 6.5
220.At p. 2472.
221.1964 AMC 196.United States District Court, Southern District of New York
222.1953 AMC 311. United States Court of Appeals.
223.At p. 200, and the warranty was strictly applied.
224.Schwartz & Co v. Hepburn 302 F 2d 576 (1962) United States Court of Appeals
Seventh Circuit.
225.Supra.
226.Miller v. The Law Accident Insurance Company [1903] 1 KB 712 at 713.
227.There are two English decisions where the cargo policies included rejection
risks cover, Agra Trading Limited v. Ian David McAuslin & Others (The Frio Chile)
[1995] 1 Lloyds Rep. 182 and Hibernia Foods plc v. McAuslin (The Joint Frost)
[1998] 1 Lloyds Rep. 310. These cases did not directly address any issues relating to
the extent of rejection risks cover.
228.No. 77 Civ 5490 (MP) (SDNY 5 December 1978).
229.Unreported decision of the United States District Court of Massachusetts, Civ
77–2579-S of 14 September 1981.
CHAPTER 11
DURATION OF THE INSURANCE 1: THE TRANSIT
CLAUSE
ORIGINS AND STRUCTURE OF THE DURATION PROVISIONS
Duration of risk in cargo insurance
11.1 The practice is to insure cargo on a voyage1 basis whilst hull and machinery are
generally insured on a time basis.2 Where the insurance is a one-off arrangement, known
as a facultative placement, the voyage is described in the insurance as, for example
“Hong Kong to Hamburg”. More commonly cargo voyages are declared3 under an
annual or continuous4 open cover where the voyages are identified. The individual
voyages or journeys, as declared individually, or as part of the annual transit turnover,
identify the ports or places where the journey begins and ends, but the attachment and
termination of the risk at those ports or places calls for closer examination. This is the
purpose of the duration provisions in the Institute Cargo Clauses as examined in this
chapter.
11.2 The initial section of this chapter begins by looking briefly at the history and
structure of the duration provisions in the Institute Cargo Clauses5 and whether the land
transits undertaken under extended warehouse-to-warehouse cover falls within the
“voyage” as defined in the Marine Insurance Act 1906.6 There follows a consideration
of the special duration provisions common in London market open covers and their
interrelationship with standard Institute wordings.7 This introductory section concludes
with an analysis of the structure of the standard duration provisions in the Institute
Cargo Clauses8 supported by a diagram which appears at the end of Chapter 12. This
chapter then considers in detail the Transit Clause in the Institute Cargo Clauses.9
Chapter 12 considers held covered and analogous provisions before examining the
Termination of Contract of Carriage Clause and the Change of Voyage Clause where
such provisions are applied.
History of the Transit Clause: commencement/termination of risk
11.3 Historically, the SG Form envisaged insurance commencing “at and from” or
“from” a particular place10 and continuing until the ship arrived at the port of
destination, with insurance of the goods and merchandise continuing until “discharged
and safely landed”.11 However, the first standard Institute Cargo Clauses of 1912
extended the duration of the transit cover by a warehouse-to-warehouse Clause which
read as follows:12
“Warehouse-to-warehouse Clause
Including (subject to the terms of the Policy) all risks covered by this Policy from shippers or manufacturers
warehouse until on board the vessel, during transhipment if any, and from the vessel whilst on quays wharves or in
sheds during the ordinary course of transit until safely deposited in consignees or other warehouse at destination named
in the policy.”
This clause was extensively remodelled in the 1920s.13 In particular, so far as the
duration of the risk is concerned, the words “from shippers or manufacturers
warehouse” were changed to read “from the time of leaving the shippers or
manufacturers warehouse…”. Thus the insurance, which had attached “from” the
warehouse, now attached “from the time of leaving” the warehouse, arguably narrowing
the cover. When a further revised clause was introduced on 1 January 1933, the transit
only continued “until delivered to final warehouse”. The cover was more clearly
defined but arguably had again somewhat shrunk from “deposited in” to “delivery to”
the warehouse. The revised Institute Cargo Clauses have reversed that process and
extended the insurance cover from the first movement of the goods for the immediate
commencement of their journey (e.g., the shelf, at which point the risk attaches) to
completion of unloading in the warehouse, or other place of storage at destination,
where the risk terminates.14
11.4 On 1 January 1963 the phrase “or place of storage” was added after the word
“warehouse” wherever that word appeared in the Clause. This was to meet the
difficulty in legally defining the meaning of “warehouse” brought to light by the decision
in John Martin of London, Limited v Russell where there was some doubt whether a
transit shed was a warehouse and it was thought right to widen the phrase to include a
“place of storage”.15 But the words “place of storage” were themselves not entirely free
from difficulty16 Again, the position has now been resolved in the revised Institute
Cargo Clauses which, as indicated above, define cover in terms of the movement of the
goods and provide that cover commences with the movement of the goods within the
warehouse17 and terminates on completion of unloading.
Does the “voyage” include land transit?
11.5 The Marine Insurance Act 1906 section 2 defines marine insurance to include
land transits incidental to sea voyages which means that a traditional cargo insurance on
warehouse-to-warehouse terms is a contract of marine insurance.18 Such warehouse-to-
warehouse insurances are “voyage” policies within the terms of section 25(1) of the
1906 Act which provides that “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”.19 A
separate legal issue arises as to whether the land transits from warehouses to the docks
at shipment, and from the docks to the warehouses at destination after discharge,
constitute part of that “voyage” and are therefore subject to the provisions of the 1906
Act which apply specifically to voyage policies.20 The issue has not been directly
considered in an English case but in the South African case of Verna Trading Pty Ltd v
New India Assurance Co Ltd21 it was held that an insurance including land transit from
one place to another under a warehouse-to-warehouse insurance is a “voyage” policy
and, in particular, that the “voyage” includes the land transits for the purposes of the
1906 Act.22
Open covers: special duration provisions
11.6 It should be stressed that the duration of risk provisions in the standard Institute
Cargo Clauses used in the London market have traditionally been modified to suit
particular trades so, for example, the import of wool in the case of British & Foreign
Marine Insurance Co Ltd v. Gaunt23 was insured from “the sheeps back”. Insurance
cover may extend today from when the rubber is grown on the tree to when the
manufactured product, whether it be tyres or training shoes, is sold in a retail outlet.
Accordingly, the standard provisions for duration of risk in the Institute Cargo Clauses
are frequently modified in London market covers by special “Voyage Clauses” tailored
to the particular risk. Such special clauses have precedence over the printed Institute
Cargo Clauses24 except where the Institute Clauses themselves have been modified in
respect of the risk in question and will prevail over the special clauses.25
11.7 In Eurodale Manufacturing Ltd v. Ecclesiastical Insurance Office plc26 the
typed clauses of the open cover stated:
“Voyage
Cover attaches from the time the Assured accept delivery of the insured goods and continues during the ordinary
course of transit and terminates upon transfer of title as per invoice or instructions. Including loading/unloading
risks…”
The open cover also incorporated the Institute Cargo Clauses (A) 1/1/82, the transit
clause of which is as follows:
“8.1 This insurance attaches from the time the goods leave the warehouse or place of storage at the place named
herein for the commencement of the transit, continues during the ordinary course of transit…”
A consignment of mobile telephones was delivered by the assureds agents to a
warehouse over a bank holiday weekend. The telephones were stolen before the
insurance attached under the 1982 Clauses as the goods had not “left” the warehouse for
the purposes of those Clauses.27 It was held that the goods were not “in transit” when
lost but were nevertheless covered under the Voyage Clause because the assured had
“accepted delivery” of the goods within the terms of the Voyage Clause. The typewritten
Voyage Clause could not be reconciled with the printed conditions of the Institute Cargo
Clauses and, in those circumstances, “the former overrides the latter, inasmuch as the
written words are the immediate language and terms selected by the parties themselves
for the expression of their meaning with relation to the particular risk and the printed
words are a general formula applied to all insurances in the same class of risk”.28 The
risk therefore attached under the Voyage Clause when the assured “accepted delivery”
even though the goods had not “left” the warehouse which would have attached the risk
under the standard Institute Cargo Clauses 1/1/82 in use at that time.
11.8 The Joint Frost29 illustrates the inter-relationship between the wide terms of a
typical London market Voyage Clause and the terms of the standard duration provisions
in the Institute Cargo Clauses in circumstances where those standard provisions had
themselves been amended by the underwriters. The Voyage Clause in this case read:
“World—World—
Including all loading and unloading. Risk to attach from the time the Assured has responsibility for the interest insured
anywhere in the World in any form, and continues whilst in transit and/or in store and/or during processing, remaining in
full force until Assureds responsibility finally ceases.
Including transhipments as and when incurred.”
Before considering the issue of construction which arose in this case it may be noted
that this type of Voyage Clause, which provides for “risk to attach from the time the
Assured has responsibility for the interest insured”, and continues the insurance cover
“in full force until Assureds responsibility finally ceases”, is associated in some
sections of the London market with stock throughput cover. The intention is to protect
the assured whilst the goods are in his factory, or place of manufacture or production,
until the goods are sold or otherwise cease to be the assureds “responsibility”. Where
the assured is an international producer, who manufactures in one country and sells
direct to the public in another, the process of manufacture and transit will be covered by
the insurance even until the goods arrive at a retail store. However, retail stock
throughput, which covers the product in retail shops, is rarely available in the London
market today and the cover will normally cease upon arrival at the retail outlet. The
phrase “responsibility for the interest insured” is likely to be seen by the courts as
equivalent to a requirement for an insurable interest. Where the assured has risk or
property in the goods that clearly amounts to an insurable interest but, in other cases, it
may be that the word “responsibility” also extends the insurance during the time the
assured has any financial interest arising from the loss of the goods.30
11.9 In The Joint Frost the issue was how to construe the widely drawn
“responsibility” clause in the context of printed duration of insurance clauses that had
themselves been altered by the insurers. In this case a cargo of frozen meat, insured
against all risks under the Institute Frozen Meat Clauses, and the IMTA Frozen Meat
Extension Clause, was exported from Ireland to Egypt aboard the vessel Joint Frost.
Some 20 days after discharge at Port Said, Egypt, the consignment was rejected by the
Egyptian Authorities and spent some months in cold store before being returned to
Ireland where part of the consignment was found to be unfit for human consumption and
was condemned and used as pet food. The assured claimed that the deterioration had
occurred whilst the cargo was in store in Egypt or during the return voyage to Ireland.
The critical issue therefore became whether the cover terminated 30 days after
discharge from the Joint Frost, in accordance with the Institute Frozen Meat Clauses, or
whether the wide terms of the Voyage Clause extended cover during the assureds
“responsibility” for the cargo. The problem for the assured was that Clause 8.3.2 of the
Institute Frozen Meat Clauses had been amended by the insurers so that the insurance
continued after discharge but only “as stipulated in the contract of sale and/or letter of
credit”. The assured had sold on terms which made payment under the letter of credit
conditional on release of the meat by the Egyptian Authorities. It was argued that, as the
letter of credit only permitted payment on release of the meat, and that the meat was
rejected by the authorities, the above words, read in the context of the “responsibility”
provision in the Voyage Clause, continued the cover during the period of storage and
return to Ireland when the deterioration under the IMTA Clause occurred. Tuckey J.
rejected this argument saying:31
“The words in clause 8.3.2 provide for an extension of the cover ‘as stipulated in the contract for sale and/or letter of
credit’. I think this means that, if the contract or letter of credit require the insurance for a period beyond 30 days after
discharge, the cover will be so extended. But here neither the contract of sale nor the letter of credit contained any
such requirement express or implied. I cannot equate the fact that the condemned meat remained the [assureds] after
rejection with a requirement of the contract of sale or the letter of credit that the cover for the marine risks should
continue.”
The difficulty for the assured in this case was that the insurers had themselves altered
Clause 8.3.2 specifically to cover shipments to Egypt and the circumstances which
arose did not fall within that specifically tailored cover. More usually, the Voyage
Clause, being a typewritten clause, will take precedence over the printed wording of the
Institute Clauses. However, there will still be limits on the cover, not only because the
term “responsibility”, commonly used, is likely to be construed so as to require an
insurable interest, but also because such an interest remains a requirement under both
section 6 of the Marine Insurance Act 1906 and the Institute Cargo Clauses.32
The structure of the standard duration provisions
11.10 The duration provisions in the Institute Cargo Clauses33 form a complex and
comprehensive scheme which defines the duration of the insurance and regulates the
continuation of that insurance even if events delay, interrupt or terminate the transit or
there is a change of voyage. Three main clauses put this scheme into effect as outlined in
the diagram appended to the end of Chapter 12.34 The first clause is Clause 8, the
Transit Clause itself. This defines the attachment and termination of the insured risk and
then provides for the situation where the goods are to be forwarded to another
destination.35 The Transit Clause then provides that the insurance shall remain in force
during delay beyond the control of the assured, deviation, forced discharge and
variations of the adventure arising from liberties in the contract of carriage.36 There are
then two further clauses, the first, Clause 9, dealing with termination of the contract of
carriage, in circumstances beyond the control of the assured, and the second, Clause 10,
dealing with a change in voyage, where the destination is changed either by the assured
or by the carriers.37
THE TRANSIT CLAUSE
11.11 The insurance under the revised Institute Cargo Clauses covers the goods from the
time they leave the shelf until completion of unloading. This period may be described,
so far as necessary, as the insured “movement”, which is to be distinguished from the
insured “transit”. The view taken in this book, on the basis of the authorities discussed
in this chapter,38 is that transit describes the period from when the goods are loaded on
vehicles, or conveyances, for their immediate movement, until the vehicles have
reached their destination.39 This is the approach adopted under Clause 8.1 of the
revised Institute Cargo Clauses because “transit” will normally begin after the insured
journey has earlier commenced, typically at a shelf within a warehouse. The transit may
also end before the insured journey terminates, particularly in those cases where
vehicles are not immediately unloaded after arrival. In such circumstances, the vehicles
may no longer be in transit but the goods are still insured until completion of the
unloading.
11.12 The Transit Clause has retained its title although it provides insurance that
extends beyond “transit” to cover the insured movement. It should also be noted that the
Transit Clause deals not only with the insured journey in terms of the attachment and
termination of risk (Clause 8.1) but also with two related matters, firstly, the position
where goods are insured to an intermediate destination and then forwarded under
another policy (Clause 8.2) and, secondly, the automatic continuation of the cover in the
event of delay, deviation and like matters beyond the control of the assured (Clause
8.3). These matters will be considered in turn starting with a detailed analysis of Clause
8.1, which is concerned with a central issue in cargo insurance, the attachment and
termination of the risk.
Attachment of risk
11.13 The revised Institute Cargo Clauses begin by defining the point at which the
insurance attaches, as follows:
“Transit clause
8.1 Subject to Clause 11 below, this insurance attaches from the time the subject-matter insured is first moved in the
warehouse or at the place of storage (at the place named in the contract of insurance) for the purpose of the
immediate loading into or onto the carrying vehicle or other conveyance for the commencement of transit.”
This section of the book now considers, phrase by phrase, the new wording of the above
Clause which is the most significant innovation in the revised Institute Cargo Clauses.
“Subject to Clause 11 below”
11.14 The words “Subject to Clause 11 below” make it clear that the extended
warehouse-to-warehouse cover is subject to the need for an insurable interest as
required by the Marine Insurance Act 1906 and Clause 11 of the revised Institute Cargo
Clauses.40 The purpose of repeating the insurable interest requirement in the opening
words of the Transit Clause is to deal with a misconception that had arisen in the
market, and on insurances worldwide, that the granting of warehouse-to-warehouse
cover implied that underwriters were waiving a need for an insurable interest. This
misconception appears to have caused confusion despite the Australian case of New
South Wales Leather Pty Ltd v. Vanguard Insurance Co Ltd41 where it was held that,
as a matter of construction, the warehouse-to-warehouse extension did not mean that the
assured was relieved from the obligation to establish that he had an insurable interest at
the time of the loss.42
“this insurance attaches”
11.15 The words “this insurance attaches” are not new and reflect the words
“commencement of the risk” used in the Marine Insurance Act 1906, for example, in
section 45 in relation to change of voyage. The revised Institute Cargo Clauses now
make a distinction between “this insurance”, meaning the insurance cover set out within
the Clauses, and the “contract of insurance” which refers to the open cover or, in the
case of a c.i.f. buyer, the contract of insurance carved out of the open cover as
evidenced by the certificate of insurance.43 The words in the 1982 Clauses were “place
named herein”, the wording in the Institute Cargo Clauses (All Risks) 1/1/63 being “in
the policy”. As policies are rarely issued for cargo business in the London market,44 it
was considered that the references to the “policy” as appeared in the 1963 Clauses, or
to the insurance “herein” as appeared in 1982 Clauses, were unnecessarily obscure. In
particular, there is no reference to any geographical place for commencement or
termination of the risk in the printed Clauses. The distinction now made is between the
cover within the Clauses, described as “this insurance”,45 and the insurance contract
evidenced by the open cover or certificate (which identifies the geographical locations
for the commencement and termination of the transit) which is now described in the
Clauses as the “contract of insurance”.
“from the time the subject-matter insured is first moved”
11.16 The revised Institute Cargo Clauses introduce, for the first time, cover “from the
time the subject-matter insured is first moved”, which contrasts with the 1982 Clauses
where cover was defined as attaching at the point where the goods left the warehouse.46
In 2008 the view was taken that cover from the time the goods were first moved for
immediate loading was broadly more in line with what an ordinary assured would
expect and was consistent with the cover, for loading and unloading, normally available
in the London insurance market at no additional premium. The first movement of the
goods must be linked to the immediate loading onto the carrying vehicle which must be
for the commencement of transit, as discussed below.47
11.17 One of the reasons why such cover was not previously provided within the
warehouse under the Institute Cargo Clauses may have been a concern about double
insurance.48 However, in the usual case, where a third party warehouse is involved, a
double insurance situation will not arise. Moreover, the assured may have very
restricted rights of recovery against warehouse keepers49 and will be left with no
recovery under his cargo insurance, and little or no recovery against third parties, in
circumstances where his goods have commenced movement for their journey. Where the
warehouse or other place of storage, such as a factory, is owned by the assured there
may be a possibility of double insurance, though warehouse cover for goods in store
may not always necessarily be on “all risks” terms. In addition, where goods are
insured by a manufacturer it is common for there to be pre-transit storage cover but this
has not given rise generally to issues of double insurance.
11.18 Although defining the moment at which the goods are “first moved” will be
within the knowledge of the assured, or his warehouse-keeper, it was not felt that this
was likely to give rise to a serious issue of moral hazard. Nor was it thought that
determining the point of first movement would give rise to more practical difficulties
than had been experienced in the past in determining whether the goods had left the
warehouse or place of storage.
“in the warehouse or place of storage”
11.19 The revised wording now identifies the place where the risk attaches with the
words “in the warehouse or… place of storage (at the place named in the contract of
insurance)”. This new attachment point eliminates the need for the theory, which had
existed in certain sections of the London market, that the words “place of storage” used
in the 1982 Clauses were wide enough to include a “place” of storage within a
warehouse, such as a shelf. This construction was not intended as the words “or place
of storage” were added as a result of the decision in John Martin of London Limited v.
Russell50 due to the difficulties of defining a “warehouse”. There was also a concern
that the final destination of the cargo would not always be a “warehouse” but would
frequently consist of other places of storage, for example a factory or a yard adjacent to
a factory.51
“for the purpose of the immediate loading”
11.20 The words “for the purpose of the immediate loading” in the revised Transit
Clause introduce a new concept, as compared to the 1982 Clauses, although it is of
interest to note that the G Form scheduled to the 1795 Act imposing stamp duties on
“sea insurance” attached the risk with the words “from and immediately following the
loading thereof aboard the said ship”. Accordingly, it may be said that the word
“immediate”, which is the key to this Clause, has a good pedigree. The intention of
insurers is that goods are only covered if they are being moved, within a warehouse or
place of storage, in immediate anticipation of the insured journey. The word
“immediate”, in its strict sense, excludes any intervening time, but from earliest judicial
decisions it has almost invariably been held to mean the same as “forthwith”, namely
with speedy and prompt action and as quickly as is reasonably possible.52 The Shorter
Oxford English Dictionary53 gives, as one of the definitions of “immediate”, the phrase,
“having no person, thing or place intervening in place, order or succession”.54
11.21 In the insurance related context, in Merchants Marine Insurance Co Ltd v.
Liverpool Marine & General Insurance Co Ltd55 the Court of Appeal considered the
words “immediate consequences” in a hull policy that provided that “if the insured
object is in a damaged condition at the time when the insurance expires… the risk shall
continue for the immediate consequences of such damage until the object, without
unnecessary delay, has been repaired or sold”. In that case the vessel grounded, suffered
damage, and was temporarily repaired. She resumed her voyage, began to leak again,
was beached and became a wreck. It was held that the cause of the leaking and
beaching, and the resulting loss, was the inability of the vessel to withstand the strain of
completing the voyage, owing to her having been weakened by the damage caused by the
grounding. The loss was therefore held to be an “immediate consequence” of the
grounding and was accordingly covered.
11.22 The case illustrates the intention behind the revised Institute Cargo Clauses.
This is that the first movement of the goods, typically when the goods are taken from the
shelf, should be immediately connected by a closely related chain of circumstances with
the insured “transit”, meaning carriage by vehicles. If goods are taken from the shelf to
be placed in a waiting area, however secure that waiting area may be, then that
movement is not for the purpose of “immediate” loading for the commencement of
transit. Accordingly, it is submitted that the goods will not be covered during that pre-
transit movement nor for the time they are held in the pre-transit waiting area. The
question arises as to whether goods loaded on a vehicle late on a Friday afternoon for
despatch on a Monday morning fall within the words “for the purpose of the immediate
loading”. The revised Clause uses the word “immediate” adjacent to the word
“loading” but there can be little doubt that the word “immediate” is intended to connect
the movement of the goods from the shelf to the “immediate” movement of the vehicle on
which the goods are to be carried.56 If that is correct then the loading of the goods on a
vehicle which is not to leave until some later time would not qualify the goods as having
moved “for the purpose of the immediate loading” within the terms of the revised
Clause 8.1. This may prove hard on the assured where the goods have to leave early on
a Monday morning and must be loaded on a Friday. Be that as it may, the movement will
not fall within the standard provisions of the revised Institute Clause and if such
movements are frequent the assured needs cover tailored to that situation. It should
further be noted that if goods have been loaded aboard vehicles or conveyances, with
the intention that the goods will leave immediately, and circumstances beyond the
control of the assured, such as a traffic accident on a motorway, prevent the despatch of
the vehicle, then that may be delay beyond the control of the assured. In those
circumstances the risk will have attached and will continue as long as it falls within the
variations permitted by Clauses 8.3, 9 and 10.57
“into or onto the carrying vehicle or other conveyance”
11.23 The words “into or onto the carrying vehicle or other conveyance” were
introduced to ensure that the pre-transit movement be connected as closely as possible
with the insured journey. The words “carrying vehicle or other conveyance” must be
read so that the words “other conveyance” are read with the words “carrying vehicle”.
A typical example of a “carrying vehicle” would be a truck or a truck and trailer
designed to carry a container. But there may be other means of “conveyance”, as where
the goods are in a dockside warehouse, and are first moved for the purposes of being
loaded into a ship which is then the “conveyance”. A “conveyance” would also include
a rail freight car. But the “carrying vehicle or other conveyance” in this phrase is to be
distinguished from the forklift or other handling equipment that may be used for the pre-
transit movement from the shelf to the ultimate carrying vehicle involved in the main
part of the insured journey. The intention is to identify the vehicle, or conveyance, used
for the insured journey as distinguished from handling equipment, such as forklifts, used
for internal movements within the warehouse or place of storage. It is only movement
for the purpose of loading of the carrying vehicles, such as a truck involved in the
insured journey, that triggers the attachment of the risk. Accordingly, movement by a
forklift will be insured where the forklift is taking the goods from the shelf to the
carrying vehicle for the insured transit but otherwise internal movements by forklift will
not be covered.
“for the commencement of transit”
11.24 The words “for the commencement of transit” are not new. These words appeared
in the 1982 Clauses and in the Institute Cargo Clauses 1/1/63. The concept of “transit”
is first introduced into the Institute Cargo Clauses at this point but it is also relevant in
terms of the phrase “ordinary course of transit”, which is considered in the next section.
The earlier Clauses spoke of transit in terms of the goods leaving the warehouse or
place of storage at the place named “for the commencement of the transit”.58 It was
normally the movement of the goods through the warehouse door, rather than the loading
of the goods aboard the carrying vehicle, which was the attachment point. That said, the
loading of goods on a vehicle often takes place simultaneously, or virtually
simultaneously, with the time when the vehicle leaves the warehouse or place of
storage. The risk now attaches within the warehouse or at the place of storage at a time
which will be prior to the beginning of transit. But the concept of “transit” remains
equally important under the revised Institute Cargo Clauses as the cover from the
“shelf” is only triggered where the immediate loading into or onto the carrying vehicle
is for the purposes of the “commencement of transit”.
11.25 The meaning of transit59 is one of the most frequently canvassed issues in
practice under the Institute Cargo Clauses. It was said in one case that “an exhaustive
definition of transit is impossible”.60 However, there are both American and English
cases which give guidance on the phrase “commencement of transit”. The American
cases are considered before an analysis of the English cases, the latter being Goods in
Transit (GIT) hauliers liability insurance cases.61 These cases discuss the meaning of
“transit” and the concept, much used in the Institute Cargo Clauses, of the “ordinary
course of transit” and, it is submitted, give some guidance to the similar concepts used
in the Institute Cargo Clauses.
11.26 The American decisions are concerned with goods leaving the warehouse in
terms similar to the 1982 Clauses which provided as follows:
“8.1 This insurance attaches from the time the goods leave the warehouse or place of storage named herein for the
commencement of the transit…”
In Brammer Corporation and Others v. Holland America Insurance Co,62 the goods in
question were removed from the manufacturing area of the warehouse and placed in the
shipping area and turned over to the control of the carrier who, for his own
convenience, left the goods in that area for a period of time when damage occurred. It
was held that the loading of trucks within the building did not constitute “transit” which
did not commence until there was a movement out of the building. The intermediate
period, where the goods were in the control of a carrier within the warehouse, was not
within the risk covered. In Kessler Export Corporation v Reliance Insurance
Company of Philadelphia and American Insurance Company of Newark63 the goods
were part loaded onto the lorry which was initially backed into the warehouse and was
then driven forward onto the pavement so that the loading could be completed. The lorry
was then reversed into the warehouse from where the goods were stolen overnight. The
main argument was that the goods were in the custody of the carriers and that this
constituted a constructive transit. That argument failed. It was also held that the goods
had not left the premises nor were they in transit, actual or constructive.64 It may be said
that these cases indicate that mere receipt by the carrier of the goods for future carriage
does not amount to “transit” which requires loading for the purposes of early movement.
This reflects the English Goods in Transit hauliers liability policy cases which are now
considered.
11.27 In Sadler Brothers Company v Meredith65 a small firm of ships cleaners
insured their cleaning equipment whilst “in transit by commercial vehicles” operated by
them.66 The cleaning equipment was stolen whilst in one of the hauliers lorries when it
was parked 70 yards from their premises, on the orders of the police—as it was causing
an obstruction —and whilst the cleaners went back to their office to collect their job
sheets and, possibly, to have a cup of tea. Insurers argued that the lorry was not in
“transit” as “parking in what would otherwise be in the course of transit would take the
goods off risk”.67 The assured argued that the goods were “in transit” as soon as they
moved across the warehouse floor even before they reached the commercial vehicle in
which they were to be loaded and carried. Roskill J. rejected both these extreme
views.68 After considering two cases concerning the London Lighterage Clause,69 which
uses the phrase “course of transit”,70 Roskill J. said:71
“… when one is dealing with the transit of goods, anyhow for the purposes of the London Lighterage Clause, and I
should have thought the point equally valid when you are dealing with an insurance policy on transit of goods, what one
is considering is the goods themselves being in course of transit and not the question of the means of conveyance in
which that transit is taking place, be it ship transit, railway transit, bullock, or whatever it may be; it is being in motion.
And I think that there one wants to bear in mind that transit has in its nature the element of carriage about it and the
carriage starts not when the movement of the vehicle in which the carriage is taking place starts, but when the goods
are placed on the vehicle, and that is what I think Lord Goddard, CJ, had in mind in relation to his barge case when he
said it starts from the time when the goods were received on the lighter and thereafter continues, subject only to the
question of a case where you get a really true break or interruption in the carriage, until such time as the goods arrive
at the terminus ad quem,… I think here ‘transit’ means the passage or carriage of goods from one place to another,
and I think the goods were still being carried, and therefore were still in transit from the one place to the other even
though the lorry in which they were being carried was temporarily parked. Obviously an exhaustive definition of transit
is impossible, and equally obviously it is undesirable, and certainly I do not propose to attempt one. I am merely
concerned with applying the facts of this case as I find them to be to this particular policy.”
The revised Institute Cargo Clauses now attach the insurance from the “time the subject-
matter insured is first moved” within the warehouse but the essential concept of
“passage or carriage of the goods from one place to another” still lies at the heart of the
insurance cover and, indeed, the revised Institute Cargo Clauses may be said to
emphasise the movement of the goods rather than of the carrying conveyance, whether it
be a vehicle or vessel.
11.28 It is submitted that the key to “transit” in these cases is receipt of the goods on
to the lorry or lighter, in the sense of them being loaded on board the vehicle or vessel,
rather than mere receipt by the carrier. However, a case where the goods were held to
be in transit when they were received by the carrier, rather than loaded on the vehicle,
is Crows Transport Limited v. Phoenix Assurance Company Limited.72 In that case
goods were insured under a hauliers goods in transit policy covering the hauliers
liability for goods “in transit per [the] Insureds vehicles”. The insurance cover extended
to the goods “whilst temporarily housed during the course of transit whether on or off
vehicles”. A consignment of 17 cartons of Decca gramophone records was delivered to
the hauliers office in London for carriage by lorry to the north of England later that day.
It was placed by the hauliers manager in an unlocked cellar next to his office and was
stolen while he was out of the office on a short lunch break. His Honour Judge Sharp, in
a detailed and closely reasoned judgment, citing Sadler Brothers v. Meredith,73 held
that the transit had not “started” when the goods were stolen. Although they were
“temporarily housed” they had yet to be loaded onto any of the insureds vehicles and,
indeed, were in the cellar away from the loading area.74 The Court of Appeal, led by
Lord Denning M.R., with Salmon L.J. doubtful, took a different view. Lord Denning
M.R. said:75
“The County Court Judge held that these goods were not in the course of transit. He said:
… the course of transit does not begin until some step has been taken by the hauliers towards loading the goods on
to one of their own, or sub-contractors, or other hauliers, vehicle…
I think that this is too narrow a construction. It seems to me that goods are ‘temporarily housed during the course of
transit’ if they are housed as an incident of the transit, such as when they are temporarily housed for a few hours
awaiting loading. [Insurers counsel] stressed that it has got to be transit ‘per INSUREDs VEHICLES’. I agree. But
they are in transit per the insureds vehicles when they are awaiting loading in those vehicles. Instances were put in the
course of the argument. When you take a parcel to the post office or to a railway station and you hand it over and get
a receipt, the goods are in transit from the moment the post office or the railway take them. They are in transit by the
post office or the railways vehicles, as the case may be, because from that moment onwards everything that is done is
incidental to that transit. So here it seems to me that from the moment that the plaintiffs accepted these goods from
Decca Record Company, Ltd., and took them down the steps, they were there temporarily housed awaiting loading on
the plaintiffs own vehicles. It was an incident of the transit by those vehicles. That seems to me to be ‘in transit per
[the plaintiffs] VEHICLES’.”
Danckwerts L.J.76 decided the case on the grounds that the goods had earlier been “in
transit” on Deccas own vehicles and held that this triggered the clause that extended
cover to goods “temporarily housed during the course of transit”, a point dismissed by
Salmon L.J. who pointed out that the transit by Deccas vehicles was irrelevant as the
only relevant transit for the purposes of the policy was “transit per Insureds vehicles”.
The Decca vehicles were not the insureds vehicles. Salmon L.J. went on to express his
“considerable doubts” but was not prepared to take these doubts to the point of
dissent.77 With respect, Lord Dennings approach, which does not cite the earlier
authorities, takes the concept of “transit” too far in that it associates “transit” with the
receipt of the goods by the carrier which he described as an “incident of the transit”.
Lord Goddard C.J. in William Soanes Limited v FE Walker Limited78 held that “transit”
commences from when the goods were “received on the lighter”. This, it is submitted,
means that transit commences when the goods are “loaded on to the lorry” for early
carriage not when the goods are merely received by the haulier for future loading and
carriage. The reason why receipt of goods may not be an “incident of transit” is that it
may take place long before loading and transit which could, in practice, be much
delayed. A haulier or carrier may, for example, store goods temporarily for days, or
even weeks, whilst accumulating a suitable groupage load for a container or trailer
destined for a European destination and the goods temporarily stored in those
circumstances are not in any true sense in “transit”. It is submitted that the doubts of
Salmon L.J. were well founded and the judgment of the County Court Judge more
consistent with authority and to be preferred.79
11.29 In Eurodale Manufacturing Ltd v. Ecclesiastical Insurance Office plc80
goods were stored in a warehouse over a bank holiday weekend for the purpose of their
onward transportation. It was held that cover attached, not under the Institute Cargo
Clauses 1/1/82, which were incorporated by reference, but under a typewritten “Voyage
Clause” which took precedence and read “Cover attaches from the time the Assured
accept delivery of the insured goods…”. The assured had accepted delivery through
their warehousekeepers and it was held that, though the goods were in store and not in
transit, the insurance had attached and the goods were covered during the period when
they were stolen over the bank holiday weekend. Lord Dennings judgment in Crows
Transport was cited both at first instance,81 and in the Court of Appeal.82 At first
instance, the judge, Andrew Smith J., nevertheless accepted that “in the absence of
express wording in the insurance contract the goods would not in these circumstances
properly be regarded as being in transit”. He added, “But the effect of the voyage
provision, in my judgment, is that the parties agreed that the goods should fall within the
transit cover”.83 This approach acknowledges that storage may, in certain
circumstances, constitute an “incident” of transit but that goods in pre-carriage storage
are not properly to be regarded as being “in transit”, and in so far as Crows Transport
goes beyond that, it should, it is submitted, be doubted.
11.30 Accordingly, the phrase “for the commencement of transit” in Clause 8.1 of the
revised Institute Cargo Clauses should be treated as the time when the goods are
received on the carrying vehicle or conveyance for the commencement of the insured
journey and not when they are received by the carriers or warehousekeepers for the
purposes of future movement. It is submitted that there must also be an intention that the
vehicles, or conveyances, will commence their journey within a reasonable time. This
is because “transit” contemplates movement of the goods from place to place84 and
because the Clause makes it an express requirement that loading is for the
“commencement” of transit. Loading of goods for future transit is not loading for the
“commencement” of transit and does not attach the risk. Thus if goods are loaded on
vehicles on a Friday afternoon for transit on Monday morning, that is not loading for the
“commencement” of transit and the goods will not be insured over the weekend.85
“Ordinary course of transit”
The role of the phrase “continues during the ordinary course of transit”
11.31 The revised Institute Cargo Clauses provide that cover “continues during the
ordinary course of transit”. There is little or no direct English authority on this phrase86
which plays a remarkably complex role in the context of the Clauses. First of all, the
words “continues during the ordinary course of transit” impose an over-arching
termination provision in addition to those set out in Clauses 8.1.1 to Clauses 8.1.4,
which are only examples of when the risk will terminate, albeit common examples. In
the 1982 Clauses, the words “continues during the ordinary course of transit” appeared
within the first paragraph of Clause 8.1. In the revised Clauses, these words have now
been moved to a separate paragraph. While this additional emphasis does not imply a
change of meaning it serves to highlight that the Transit Clause falls into three parts:
attachment of risk; continuation of risk as long as the subject-matter insured “continues
during the ordinary course of transit”; and termination of risk.
11.32 The requirement in Clause 8.1 for continuation of the risk “during the ordinary
course of transit” has been made more consistent with the provisions of the revised
Clause 8.3 of the Transit Clause which continue insurance cover during events falling
outside the “ordinary course of transit” (i.e., delay beyond the control of the assured,
deviation, forced discharge, reshipment and transhipment etc.). It is to be noted that the
revised Clause 8.3 is no longer “subject to termination as provided for above” but only
“Clauses 8.1.1 to Clauses 8.1.4 above”. This recognises that matters, such as delay
beyond the control of the assured, fall outside the ordinary course of transit.87 In these
circumstances insurance cover is automatically continued.88 It is also the case that
termination of the contract of carriage, or of the transit, under Clause 9, the Termination
of the Contract of Carriage Clause, will take the goods outside the “ordinary course of
transit”. Where that occurs, additional cover may be provided, subject to prompt notice
and an additional premium if required by underwriters.89
11.33 Two issues arise on the relationship between the “ordinary course of transit”
and Clause 10, the Change of Voyage Clause, which deals with change of destination
either at the instance of the assured90 or of the carrier.91 Firstly, a voluntary change in
destination by the assured, after attachment of the insurance will take the goods out of
the ordinary course of transit, at least from when they are diverted from the planned or
intended route towards the new destination, giving rise to a held covered type situation.
Secondly, a change of destination by a carrier before the vessel sails, made with a view
to theft of the goods, leads on to the more fundamental issue of whether there has been
the operation of a peril within the insurance, such as theft of the cargo, or whether the
goods have been taken out of the “ordinary course of transit”, and have come off risk.
These issues are discussed in Chapter 12 in the context of the Change of Voyage
Clause.92
The meaning of “ordinary course of transit”: the “Collateral Purpose Test”
11.34 The meaning of the phrase “ordinary course of transit”, and extent to which an
interruption in the transit may bring the “ordinary course of transit” to an end, is
explored in the case of SCA (Freight) Limited v. Gibson93 a case of a policy protecting
a haulier against legal liability under the CMR Convention.94 The policy covered goods
“whilst in transit per insureds vehicles” and extended to goods “whilst in the normal
course of transit”. The hauliers sent two lorries to collect a consignment of books in
Rome. After one lorry was loaded, and the other half-loaded, the drivers used the
loaded vehicle to take an evening trip into the centre of Rome. During that joyride the
lorry overturned and the consignment of books was damaged. In a claim under the
policy by the hauliers, it was held that the “transit” had begun at least when the goods
had been loaded onto the lorry95 and the central issue was whether the goods were still
“in transit” when the accident occurred. The assured argued that once “transit” had
begun all journeys within the scope of the cover, which extended to all UK/European
journeys, were covered by the policy. Ackner J., following the well-known dictum of
Lord Penzance in Pearson v. The Commercial Union Assurance Co Limited96 held
that:97
“It is well understood that the desire and object of an assured is that the policy shall extend to all such risks as may
arise by the venture or operation being carried out in the usual or ordinary manner, and the general words of the policy
are intended to be construed so as to conform to the usual and ordinary method of pursuing the venture.”
Ackner J. then went on to define the moment when goods cease to be in transit for these
purposes, saying:98
“Goods cease to be in transit when they are on a journey which is not in reasonable furtherance of their carriage to
their ultimate destination. Obviously a detour which is reasonably necessary to enable a driver to obtain food or rest
would be in furtherance of the safe and expeditious carriage of the goods to their ultimate destination. It would be an
ordinary incident in the transit of goods by the plaintiffs vehicles. It is a question of degree, as to what is or is not in
reasonable furtherance of the carriage of the goods. A deviation which is wholly unrelated to the usual and ordinary
method of pursuing the adventure would prevent the goods being ‘in transit’ within the meaning of the policy.”
For these reasons it was held that the goods were not “in the normal course of transit”
during the joyride to Rome.
11.35 In an Australian case Verna Trading Pty Ltd v. New India Assurance Co Ltd99
a cargo insurance case under the 1982 Clauses, the court made a detailed examination of
the English and Australian authorities in relation to “ordinary course of transit”. After
citing SCA (Freight) Ltd v. Gibson, Ormiston J. concluded as follows:
“… the cargo may no longer be in the “ordinary course” of transit if it is dealt with in a manner inconsistent with the
prosecution of the adventure, that is, in a way, or for a purpose which is unrelated to bringing the transit to its expected
conclusion by delivery to the defined warehouse or store.”
The goods must be on a journey which is in reasonable furtherance of their transit to
their ultimate destination. “Transit” will cease if the goods are dealt with for a purpose
which is unrelated to bringing the transit to its expected conclusion. At the end of the
day it is a question of degree in each case.
11.36 A similar approach was adopted in the South African case of Fedsure General
Insurance Ltd v. Carefree Investments Pty Ltd100 where a containerised consignment of
fabric imported to Durban from Korea was left stored in a port warehouse prior to
customs clearance. The fabric was stolen from this warehouse before being forwarded
on to the assureds warehouse in the city. The goods were insured under the Institute
Cargo Clauses 1/1/82 which provided that the cover continued “during the ordinary
course of transit”. The assured left the goods in the port warehouse for his own
commercial convenience as he did not then have to pay duty and tax it being “his wont
to wait for a favourable cash flow position before proceeding to clear imported
goods”.101 It was held that the goods were not in the ordinary course of transit at the
time of the loss, Howie J.A. saying:102
“… a delay or interruption which, objectively viewed, is not part of the usual and ordinary means of effecting transit,
and which is occasioned by some collateral purpose, will disturb the ordinary course of transit. Accordingly, loss
occurring within the period of such delay or interruption will not be covered by the policy… The reason is not that the
insurance has come to an end (for it remains in existence), nor that the transit has come to an end (for the journey is
not yet finally over) but simply that the insurance pertains to the ordinary course of transit and what is outside the
ambit of that course cannot, logically, be within the cover.”
These cases all adopt a similar approach which we may call the “collateral purpose
test”. Such a test was applied in England more recently in Eurodale Manufacturing Ltd
v. Ecclesiastical Insurance Office plc103 where goods were delivered to a warehouse
for their onward transportation and it was held that their storage could not properly be
said to be for “some collateral object or purpose”.104 In the circumstances the storage
fell within the specially agreed coverage of the transit insurance applicable in that case.
11.37 A difficult question arises as to whether the assureds subjective intention can
be taken into account in determining whether there was a collateral purpose for leaving
the goods at an intermediate point. The case of John Martin of London Ltd v. Russell105
is authority for the proposition that the assureds subjective intention is to be disregarded
as that could lead to a “shifting cover”.106 In Fedsure General107 it was argued, on this
basis, that the assureds practice of leaving the goods in the port warehouse should not
be taken into account as it was no more than his subjective intention. Howie J.A.
rejected this saying:108
“And as to the metaphor of a ‘shifting cover’ dependent solely on intention, there, too, one has no such problem when
the question is whether something occurred within the ordinary course of transit. Plainly, subjectivity will be involved in
the formation and implementation of a collateral purpose but the impression of a changing cover must disappear on
application of the objective test as to whether a delay or interruption is or is not part of the usual and ordinary means of
effecting transit.
The evidence in this matter shows that the theft occurred during a period beyond that which was necessary or even
reasonable for customs clearance in the ordinary course of transit. In addition, the fact that the goods were in storage
at the Container Depot was because [the assured] had a collateral commercial purpose for leaving them there. It
follows that the goods were not stolen ‘during the ordinary course of transit’ within the meaning of paragraph 8.1 of
the transit clause.”
The collateral purpose test is to be applied by considering first whether a delay or
interruption is or is not part of the usual and ordinary means of effective transit. This is
determined objectively by considering whether the delay was “necessary or
reasonable” in the context of that particular transit and how it would ordinarily be
performed. If the delay falls outside these parameters this suggests that the assured had a
collateral purpose of his own for leaving the goods at an intermediate point so taking
them out of the ordinary course of transit.
The Avoidance of Delay Clause
11.38 The phrase “ordinary course of transit” is intended to be construed in conjunction
with Clause 18 of the revised Institute Cargo Clauses which, under the heading
“Avoidance of Delay”, provides as follows:
“18. It is a condition of this insurance that the Assured shall act with reasonable despatch in all circumstances within
their control.”
This reflects, in some respects, the requirements of the Marine Insurance Act 1906
section 48:
“Delay in voyage
48. In the case of a voyage policy, the adventure insured must be prosecuted throughout its course with reasonable
dispatch, and, if without lawful excuse it is not so prosecuted, the insurer is discharged from liability as from the time
when the delay became unreasonable.”
The Avoidance of Delay Clause was introduced in the Institute Cargo Clauses (Wartime
Extension) in 1942 to cover cargoes during wartime delays, particularly where vessels
were held up awaiting convoys.109 Subsequently, in March 1952, the Avoidance of
Delay Clause, with the other wartime extension clauses, was included in the Institute
Cargo Clauses (Extended Cover) 15/3/52 which became the standard form of cover.110
This meant that the reasonable despatch wording was in the insurance cover considered
by the court in John Martin of London Ltd v. Russell111 where it was held that goods
left in a transit shed for collection in due course by the buyers had not reached the “final
warehouse” and were therefore still covered. This decision “came as something of a
shock” to the market.112 The main problem with the wording arose because there was
nothing on which the “reasonable despatch” wording could bite as the words “ordinary
course of transit” had dropped out of the Clauses. Insurers were concerned that goods
would remain insured even if left indefinitely for eventual collection either at
intermediate points or at their destination. In order to neutralise the decision in John
Martin of London Ltd v Russell,113 new transit wording was drafted, in the Institute
Cargo Clauses 1/1/63, which re-introduced the phrase “during the ordinary course of
transit”,114 the intention being to “overcome the lack of any indication of transit in the
Institute Cargo Clauses” and to “strengthen” the Avoidance of Delay Clause.115
Accordingly, the phrase “during the ordinary course of transit” is intended to be
construed in conjunction with Clause 18, the Avoidance of Delay Clause. In the
circumstances it is convenient to deal at this point with two issues that arise on Clause
18. The issues are: (1) whether Clause 18 only operates after a casualty, as a back-up
clause to Clause 16, the Duty of Assured Clause, and (2) the effect of a breach of Clause
18.
11.39 The concerns over the first issue originated in a passage in the sixteenth edition
of Arnould116 which stated as follows:
“It is submitted … that the operation of the clause is confined to the actions to be taken to avert or minimise loss which
would be covered by the policy after the occurrence of a casualty.”
This statement is no longer Arnoulds position which now acknowledges that the words
“in all circumstances” in Clause 18 suggest that the Clause is not limited to sue and
labour situations.117 The point much concerned Ormiston J. in the Australian case of
Verna Trading Pty Ltd v New India Assurance Co Ltd118 who, in a detailed
examination of the interrelationship between the Marine Insurance Act 1906 section 48
and Clause 18, was troubled by the different wording of the 1906 Act and the Clauses
because that difference suggested that Clause 18 must have a special role limited to the
context of sue and labour. These persuasively argued and fully researched119 concerns
survive Arnoulds change of position.120 However, despite the doubts of Ormiston J., the
law in Australia seems reasonably clear. In Wiggins Teape Australia Pty Ltd v. Baltica
Ins Co Ltd121 it was held that the effect of the Avoidance of Delay Clause is that “the
warehouse-to-warehouse clause only covers the goods during transit with reasonable
despatch”. That decision was reached under the 1958 Clauses, before the advent of the
words “ordinary course of transit”, but in the light of the Avoidance of Delay Clause it
was held that “the policy extends only during transit prosecuted with reasonable
despatch”.122 In Verna Trading Pty Ltd v. The New India Assurance Co Ltd123 it was
held at first instance, by Beach J., following Wiggins Teape that where the assured did
not act with reasonable despatch, so far as delivery of the cargo to its destination was
concerned, the assureds failure to do so was a breach of the policy. On appeal, in a
lengthy and persuasive judgment, Kaye J. upheld that decision, saying:124
“The construction to be given to cl. 18 [the Avoidance of Delay Clause], in my opinion, depends upon its terms when
read in conjunction with all the provisions of the Institute Clauses. Thus cl. 18 is directed at the conduct of the assured
in all the circumstances within its control. By its terms the provision is directed to all acts to be performed by the
assured to bring it within the cover. It is not expressly or by implication limited to the conduct of the assured after the
happening of the peril insured against, such as the fulfilment of the requirements of cll. 14 [the Increased Value
Clause] and 16 [the Duty of Assured Clause ] …
The movement of the goods after having been discharged from the ship was a matter essentially within and subject
to the control of the assured. It was the assureds responsibility to transport the goods or to arrange for their
transportation and delivery to the final destination. Until the goods reached the final destination, the underwriters
remained liable to indemnify the assured in the event of loss. The risk of loss of, or damage to the goods might have
been expected to increase as the period increased between the unloading of the goods from the ship and the time of
their delivery to the final destination. Consequently, it was in the interests of both parties, and particularly the
underwriters, that the period of risk should not be longer than reasonably necessary for the delivery of the goods. It
followed that by requiring the assured to deliver the goods to the final destination with reasonable despatch the purpose
of the policy would be achieved.”
It is submitted that this also represents English law, subject to the following caveats and
considerations. The Avoidance of Delay Clause is concerned with avoidance to the
delay in the transit and is not a general provision of due diligence “in all
circumstances”.125 Although the Clause refers to “all” circumstances, the subject-matter
of the Clause is “despatch”, and the Clause is not therefore a general due diligence
provision but a due diligence type requirement obliging the assured to ensure that the
transit itself is carried out without undue delay. As to the second issue, the effect of a
breach of the Clause is that the goods come off risk because transit terminates.126 This is
clearer now that the Clause operates in conjunction with the phrase “ordinary course of
transit”. The Clause is a condition precedent or warranty as the assured must show that
his goods are insured at the time of the loss so he has the initial burden of proving that
he has exercised reasonable despatch127 and that the goods remain in the “ordinary
course of transit”.128 If an issue arises as to whether the assured has complied with the
Avoidance of Delay Clause in circumstances where the goods remain in the ordinary
course of transit, which is difficult to envisage, the assured would have to prove
compliance with Clause 18. In practice, as the revised Institute Cargo Clauses now
include the requirement that the goods remain “in the ordinary course of transit”, there
are unlikely to be any cases that turn solely on the Avoidance of Delay Clause. Its effect,
as intended, will be to operate in conjunction with the “ordinary course of transit”
requirement. A failure to comply with the Clause will run in parallel with the goods
coming off risk because the insurance terminates as the goods are no longer in the
ordinary course of transit.
Termination of risk
11.40 The revised Institute Cargo Clauses, Clause 8, provide that the insurance
terminates either:
“8.1.1 on completion of unloading from the carrying vehicle or other conveyance in or at the final warehouse or place
of storage at the destination named in the contract of insurance,
8.1.2 on completion of unloading from the carrying vehicle or other conveyance in or at any other warehouse or place
of storage, whether prior to or at the destination named in the contract of insurance, which the Assured or their
employees elect to use either for storage other than in the ordinary course of transit or for allocation or
distribution, or
8.1.3 when the Assured or their employees elect to use any carrying vehicle or other conveyance or any container for
storage other than in the ordinary course of transit or
8.1.4 on the expiry of 60 days after completion of discharge overside of the subject-matter insured from the oversea
vessel at the final port of discharge,
whichever shall first occur.”
This section of the book considers the term “unloading” and then analyses in turn the
four specific termination provisions under Clause 8. These are:
1. unloading at the named destination;
2. the election to use a warehouse for allocation or distribution, or for storage
outside the ordinary course of transit;
3. the election to use a carrying vehicle, or container, for storage outside the
ordinary course of transit, and
4. the provision that terminates the cover, in any event, 60 days after discharge
from an oversea vessel.
The meaning of “unloading”
11.41 The transit terminates “on completion of unloading from the carrying vehicle or
other conveyance in or at the final warehouse or place of storage at the destination
named in the contract of insurance”.129 The phrase “on completion of unloading”130
reflects the Warehouse-to-warehouse Clause in the first standard Institute Cargo Clauses
of August 1912,131 which continued the cover “during the ordinary course of transit until
safely deposited in consignees’ or other warehouse at destination named in the
policy”.132 The concept of “safely deposited” may, in turn, have owed something to the
concept of cover continuing until the goods are “safely landed” as contemplated by the
Marine Insurance Act 1906 Schedule 1, rule 5.133 In the context of this background, the
term “unloading” may reasonably be taken to mean that the goods have come to rest
safely on the ground. This is how the House of Lords approached the issue in Tomlinson
(Hauliers) Ltd v. Hepburn.134 In this case cigarettes were stolen whilst still loaded
aboard vans overnight. The goods were covered by the insurance whilst “in transit
including loading and unloading”. Lord Pearce said:135
“The cigarettes started their journey when they left the ground to be loaded on to the van. They would have completed
it when they reached the ground again on being unloaded. As they were still on the van when the loss occurred, they
were still on risk.”
In the same case, it was argued that “transit” and “unloading” were separate risks.
However, this view was dismissed by Lord Reid in the House of Lords:136
“Counsel attempted to argue that there were two separate periods of risk, the period of transit and the period of
loading or unloading and that in this case the period of transit had come to an end and the period of unloading had not
commenced when the theft took place. But in my opinion that is quite inconsistent with the wording of the policy which
must mean that the period of transit during which the goods are on risk is extended so as to include unloading and only
comes to an end when the unloading is completed. I am therefore clearly of the opinion that the goods were still on risk
when stolen.”
The same approach would be applicable to the revised Institute Cargo Clauses.
11.42 It may further be noted that under the revised Institute Cargo Clauses the cover
continues during the unloading process until unloading has been completed. The
addition of the words “completion of”, in the phrase “completion of unloading”,
indicates this. Where unloading commences, for example, with a forklift taking the
goods from the carrying vehicle, and the goods are then carried into a warehouse, the
“completion” of unloading in such a case only takes place when the goods are placed on
the ground within the warehouse by the forklift. The insurance covers accidents which
occur during the forklift journey between the carrying vehicle and the goods being
placed on the ground within the warehouse or other place of rest. However, the cover
terminates with “unloading” and if the goods, after they have been placed on the ground,
are then moved again (e.g., to a shelf) that second movement is not covered. This
contrasts with attachment of the insurance under Clause 8.1 which takes place on first
movement of the goods (e.g., when they are taken from the shelf for the commencement
of the transit as defined in that Clause).
“final warehouse or place of storage”: transit sheds
11.43 The words “final warehouse or place of storage at the destination named in the
contract of insurance” in Clause 8.1.1 have given rise to a number of cases which will
now be considered. The particular issues that arise are: what amounts to a “final”
warehouse or place of storage and in particular, whether a transit shed or area can be a
“final warehouse”.
11.44 In Westminster Fire Office v. Reliance Marine Insurance Co137 the cover did
not include the words “final warehouse” but the decision nevertheless illustrates the
purposeful approach to the transit cover adopted by the courts, and, in particular, their
approach to goods temporarily stored in “transit” sheds. The cover wording, so far as
material, read as follows:
“…in the event of the goods being temporarily placed upon the quay, it is agreed to hold the same covered while there
and until delivered to the export vessel or at any wharf or warehouse within the limits of the port.”
A consignment of jute imported from Calcutta to Dundee was placed in a transit shed on
14 April to be weighed and sorted whilst the consignee assured tried to find a buyer.
Three days later, on 17 April, the jute was damaged by fire whilst remaining unsold in
the transit shed. It was argued that the cover for goods “temporarily placed upon the
quay” only applied where the assured had consigned the goods to an export vessel (if
the goods were to be exported) or to a warehouse within the port (if they were being
imported) and that as the assured had not elected to do either, the cover ceased on
landing of the jute. However, it was held that the goods were still in transit and still
covered until they left the transit shed. It was decided that the intention was to cover the
goods while at a warehouse within the limits of the port and, if no warehouse had been
chosen by the assured, who intended to sell them direct for delivery outside the port,
then the transit shed operated as a warehouse within the port and the goods remained
covered. This seems a somewhat generous view. The assured was still looking for
buyers at the time of the loss so the cargo was not destined to move forward and
seemingly could have remained for some time in the transit shed albeit that eventually it
would have been sold and removed by the buyers.
11.45 In John Martin of London Ltd v. Russell138 a consignment of lard, imported
from Chicago to Liverpool, was insured on all risks terms under the Institute Cargo
Clauses (Extended Cover) which provided, inter alia, that:
“This insurance… continues until the goods are delivered to the Consignees’ or other final warehouse at the destination
named in the policy…”
The lard was discharged from a vessel into a transit shed in the Liverpool Docks and
found, two days later, to be infested by copra beetle from another part of the transit
shed. The insurers denied liability contending that the transit shed was the final
“warehouse”. Alternatively, the insurers argued that the insurance ceased on discharge
if the assured did not intend to send the goods on to a final warehouse. The arrangement
made by the assured was that his customers would collect the lard, which had been sold
ex-works in the transit shed, so the assured was not intending himself to send it on to a
further warehouse. The assured argued that the transit shed was not physically a
“warehouse” so transit could not end at this location. The judge rejected this on grounds
that the transit shed in question looked much like a warehouse. This followed Overseas
Commodities Ltd v. Style139 where a similar view appears to have been taken.140 In this
respect, the Clauses were amended by introducing the words “or place of storage” to
meet the difficulties encountered in legally defining the meaning of “warehouse”, and to
ensure that the transit would terminate whether or not the final destination actually
constituted a “warehouse” as such.141
11.46 The second argument in John Martin of London Ltd v. Russell142 was that the
transit shed was not the “final” warehouse. As we have seen, the position of transit
sheds had already been considered in the earlier case of Westminster Fire Office v .
Reliance Marine Insurance Co,143 where it was held that the goods were still covered
when damaged by fire in a transit shed. After citing this case at length, Pearson J.
reached a similar decision, concluding that the goods in a transit shed were still
covered, saying:144
“…in my view, ultimately, as a matter of impression, it is really clear that a transit shed is not a final warehouse. A
transit shed, at any rate according to the practice of this port, is the place at which the goods are placed as soon as
they are discharged from the ship, and they are then waiting patently to go somewhere else. It is not the final
warehouse.”
This decision was applied recently to the 1982 Clauses in Bayview Motors Ltd v.
Mitsui Fire & Marine Ins Co Ltd.145 A consignment of Toyota vehicles was insured for
a voyage from Yokohama to Santo Dominico in the Dominican Republic on warehouse-
to-warehouse terms including Clause 8.1.1 in the 1982 Clauses. This provides that the
cover terminates on delivery “to the Consignees’ or other final warehouse or place of
storage at the destination named” in the policy. The vehicles were discharged into a
fenced-off parking lot within the port which was, to all intents and purposes, a bonded
store run by customs who controlled access. The vehicles were stolen from this area by
customs officers. It was decided at first instance that the area where the vehicles were
held could not be categorised as a final place of storage.146 On appeal this view was
upheld, Tuckey L.J. saying:147
“I think a customs compound is similar to a transit shed: both are “holding” areas. Neither can properly be described as
a final place of storage. Goods are not held in a customs compound for storage but for customs purposes.”
“final warehouse or place of storage”: forwarding to a further destination
11.47 An additional consideration in Mitsui Marine v. Bayview Motors148 was that the
vehicles were to be forwarded to another destination, an eventuality anticipated by
Clause 8.2 of the Institute Cargo Clauses which provides that cover terminates when
such further transit begins.149 For the purpose of Clause 8.1.1 the subject-matter insured,
when it is to be forwarded to a further destination, will not have reached its “final”
destination under the insurance, taking into account the overall journey. In the Court of
Appeal, Tuckey L.J. reasoned as follows:150
“Where the final destination of the goods is the destination named in the policy, clause [8.1.1] will operate according to
its terms. Cover ceases when the consignee takes delivery or the goods reach their final resting place (warehouse or
place of storage) at the destination. But where goods are intended to go to the destination named in the policy and then
on to some other destination I do not think that the clause contemplates that there will be a final warehouse or place of
storage at the destination named in the policy. In such a case the warehouse or place of storage is not final and cover
will only cease if the assured elects to use it either for storage other than in the course of transit or for allocation or
distribution (clause [8.1.2], which it is common ground does not apply in our case). Otherwise cover is extended for up
to 60 days by clause [8.1.3, now 8.1.4 in the revised Clauses]. What has been called ‘the postscript’ to clause 8 has
the effect that in such a case coverage is extended for 60 days or ‘the commencement of transit to such other
destination’ whichever is the sooner.
This construction makes good commercial sense. In a case like the present the consignee will insure the
transhipment. That insurance is likely to attach when the goods leave the warehouse or place of storage at the place
named in the policy for the commencement of the transit (see the opening words of clause 8.1). It would be
commercially inconvenient for the consignee to have to arrange separate cover for the period before transhipment and
after discharge to the warehouse or storage area in the destination port. It makes sense for the insurers of cargo in its
transit to that port to continue cover for a limited time (up to 60 days) until the next stage of the transit starts.”
This purposeful construction, which is also supported by Arnould,151 is to be welcomed
though it sits uneasily with the words “destination named herein”. These words, in
Clause 8.1.1, would seem to terminate the insurance at the named destination in the
contract of insurance and not at the destination of the journey. A more natural, though
less purposeful, meaning to “final” would construe “final” as relating to the destination
named in the policy and not the final destination of a journey, the existence and length of
which may not be known to insurers. Furthermore, this construction results in cover
continuing even where the goods have safely arrived and been unloaded in the final
warehouse named in the contract of insurance and not merely in a transit shed or area.
Unless forwarded in the meantime, the goods will remain covered there for 60 days
under Clause 8.1.3, even where the insurers are not aware that the goods are to be
forwarded as insurers “must take the facts as they find them”.152 It would have been
possible to construe Clause 8.2, which terminates cover under the policy when the
forwarding commences, to apply only to cases where the cover under Clause 8.1.1 was
still continuing and not to construe Clause 8.2 as providing a positive extension of
cover. However, in line with cases examined earlier in this chapter,153 the courts have
leaned in favour of a commercial approach to the Institute Clauses, and, in particular,
the Transit Clause, on the basis that the intention is to provide seamless cover so far as
that is possible.154
11.48 It will be noted that Clause 8.1.1 in the revised Institute Cargo Clauses omits
the words “consignees’ or other” in the phrase “Consignees’ or other final warehouse or
place of storage”. The revised wording now merely refers to the “final warehouse or
place of storage”. The reference to “Consignees” was superfluous bearing in the mind
the words “or other” and no change in the meaning of the Clause results from the
streamlining achieved by the omission of the words “Consignees or other”.
Storage in warehouses other than in the ordinary course of transit
11.49 The insurance cover terminates under Clause 8.1.2 of the revised Institute Cargo
Clauses:
“On completion of unloading from the carrying vehicle or other conveyance in or at any other warehouse or place of
storage, whether prior to or at the destination named in the contract of insurance, which the Assured or their
employees elect to use either for storage other than in the ordinary course of transit or for allocation or distribution,…”
The terms used in this Clause, such as “unloading”155 the “carrying vehicle or other
conveyance”,156 and “ordinary course of transit”157 have already been considered. This
section of the book therefore concentrates on the assureds “election” to use warehouses,
or other places of storage, for storage other than in the ordinary course of transit, or for
allocation or distribution. As the election involves taking the goods out of the “ordinary
course of transit”, the cases examining that concept are relevant here,158 as is the need
for the avoidance of delay159
11.50 There is one case on “allocation or distribution” which will, of itself, terminate
the risk and this is therefore considered first. There are then two decided cases, which
preceded the introduction of Clauses 8.1.2 and 8.1.3, but anticipate their operation in
practice. Finally, one case is reviewed where Clause 8.1.2 was included in the policy
terms. These cases, which are mainly from Australia and South Africa, are now
considered in turn.
11.51 In Leaders Shoes (Aust) Pty Ltd v. Liverpool & London & Globe Insurance
Co Ltd160 the issue was whether the assured had elected to use a warehouse for
“allocation and distribution”. A consignment of shoes was imported to Sydney from
Italy. The cartons of shoes were loaded on a lorry in the Sydney Docks and then taken to
the hauliers warehouse where the lorry was parked overnight. Some of the cartons were
stolen during the night before they could be allocated to specific customers and
delivered the next day. This was an exceptionally large consignment and it had been
impossible to segregate the cartons of shoes for the assureds customers on the wharf, as
was the usual practice. In the circumstances, the assured agreed to segregation at the
hauliers warehouse. It was held that this amounted to an election by the assured to use
the warehouse for allocation and distribution in terms of Clause 8.1.2. Macfarlane J.
said:161
“In my opinion there is not any technical or trade meaning of the word ‘distribution’ and therefore the meaning which is
applicable is that derived from the usage of the common man. The Shorter Oxford Dictionary in the relevant sense
describes ‘distribution’ as ‘dispersal’ and I cannot think that what was elected by the [assured] was other than an
election that the goods should be dispersed and thereby distributed from the warehouse to the [assureds] customers.
“I must reject the argument …that ‘distribution’ in the present case meant ‘breaking up of the cartons and
distributing the contents’. This argument, in my opinion, is unreal in relation to the present transaction. The consignment
consisted of cartons of shoes and various of the cartons were intended for different customers. The basis of the
distribution among the [assureds] customers was on the basis of cartons and not on the basis of the contents of
cartons.”
The loss occurred before the allocation or distribution that would have taken place the
next day. As to the issue of timing, Macfarlane J. added:162
“I am further of the opinion that it is not important that the distribution had not begun or been completed at the time of
the theft. The material elements, in my opinion, on the proper construction of this clause are that the insured shall have
elected an intention that the goods should be taken to this warehouse and that they should have been delivered thither
in pursuance of the intention which had been previously formed that the warehouse should be the place of distribution.”
The intention manifested by the delivery of the goods to the warehouse for the purpose
of allocation and distribution took the goods off-risk from the moment when they entered
that warehouse. A similar provision applies under Clause 8.1.2 of the revised Institute
Cargo Clauses where the assured elected to use a warehouse for allocation or
distribution but the cover now terminates when unloading is completed rather than when
the goods are delivered to the warehouse. It seems that the election to use a warehouse,
or other place of storage, for allocation and distribution may take the goods off-risk
even if they are otherwise still in the ordinary course of transit. In the 1963 and the 1982
Institute Cargo Clauses, allocation and distribution appeared in a separate sub-sub-
clause. Although “allocation or distribution” now appears as part of Clause 8.1.2 itself,
the words “ordinary course of transit” only apply to the use of a warehouse for storage.
Accordingly, the use of a warehouse for allocation or distribution will still, of itself,
trigger termination of the risk whether or not the goods are still in the ordinary course of
transit. For example, the shoes may still have been in the ordinary course of transit in
the Leaders Shoes case as the assured had no choice, due to the size of the consignment,
but to use the warehouse (which was not the final warehouse) for distribution. In the
circumstances, that warehouse may well have been an intermediate warehouse within
the ordinary course of transit. Nevertheless, the transit terminated as the warehouse was
not merely used for storage but for allocation and distribution.
11.52 In Safadi v. Western Assurance Co163 policies insured cotton and yarn from
Manchester to Damascus. The goods were destroyed by fire in a customs house in
Beirut where they had been for more than 30 days after discharge from the overseas
vessel. It was argued by the assured that cover still continued as a result of delay
beyond their control resulting from the troubles and risings in the nature of a rebellion in
Syria and the consequent danger to transit of goods on the railway between Beirut and
Damascus. It was held that, in fact, the disturbances had abated and the security on the
railway was not such as to prevent the transit of goods from Beirut to Damascus by rail.
The real reason the goods were left in the warehouse at Beirut was that the receivers
did not want to pay for them and wished to take advantage of the credit that was
extended by having them in the warehouse.164 The goods were not covered and, it is
submitted, it is this type of voluntary election to leave the goods in store that is the key
to the operation of Clauses 8.1.2 and 8.1.3.
11.53 In Wiggins Teape Australia Pty Ltd v. Baltica Insurance Co Ltd,165 a cargo of
wood pulp was left in a port warehouse, for the convenience of the assured, and it was
held that the wood was no longer in the “ordinary course of transit”. That was a case
where the Avoidance of Delay Clause operated so that where the assured failed to bring
the goods forward he was in breach of that Clause and the goods were not covered.166 It
was also held that the insurance terminated where “as a matter of voluntary decision”
the assured left the goods in the intermediate warehouse, thus again anticipating the
effect of Clauses 8.1.2 and 8.1.3.167
11.54 In Fedsure General Insurance Ltd v . Carefree Investments (Pty) Ltd,168 a
South African case, a clothing manufacturer in Ladysmith insured a containerised
consignment of fabric whilst in transit from Korea to Durban. The goods were insured
under the 1982 Clauses which included the election under Clause 8.1.2 which
terminates the insurance on delivery to any warehouse “which the Assured elect to use
…for storage other than in the ordinary course of transit”. The goods were stolen from a
bonded warehouse at the docks at Durban where the assured chose to leave the goods
rather than clearing them to his own warehouse in the city. It was, as the judge said “his
wont to wait for a favourable cashflow position before proceeding to clear imported
goods”. This was because clearance required payment of Customs duty and VAT. At first
instance it was held that the assured did not have the necessary control over the goods to
make a free election under Clause 8.1.2. On appeal this was doubted. Howie J.A., with
whom the other members of the South African Court of Appeal concurred, indicated that
the election could be made before the assured had full control over the goods, saying:169
“…it seems very much open to question whether, before the election referred to in [paragraph 8.1.2 of the Transit
Clause] can be made, the insured must, as the learned Judge held, have paid the clearance dues and so have obtained
control of the goods. There would appear to be no logical reason, when all one is doing in order to store goods is to
leave them where they are, for the law to require that one first has to have control before one can use such venue for
storage. There would also seem to be scant reason why the necessary election cannot precede the end of such storage
and indeed precede the delivery into such storage. On the facts of this case there may well have been termination of
the insurance under paragraph 8.1.2 but I express no final opinion on that issue.”
This analysis, though obiter, as the decision in the case turned on “ordinary course of
transit” under Clause 8.1, is illuminating and helpful: it is not necessary, on this view,
for the assured to have control170 of the goods, as the essence of the election is the
decision to leave the goods in store rather than to take control and bring them forward in
the ordinary course of transit. The election can take place at any time but, if the election
precedes the storage, it will only terminate the insurance under Clause 8.1.2 of the
revised Institute Cargo Clauses when unloading is completed.
11.55 The question remains whether the subjective intention of the assured that lies
behind the election is enough, of itself, to terminate the transit or whether, as suggested
in John Martin of London Ltd v . Russell,171 this would lead to a “shifting cover” as
intentions may fluctuate. In this context, as we have seen in relation to the collateral
purpose test, the position is that the subjective intention of the assured will manifest
itself by the action taken which can be objectively assessed to determine whether the
goods remain in the ordinary course of transit.172
11.56 The timing of the assureds election decision is separate from the termination of
the insurance which only occurs on completion of unloading. Thus an election to store
the goods outside the “ordinary course of transit” terminates the insurance when that
place of storage is reached and unloading is completed. If the assured changes his mind,
and the election to use a warehouse for storage outside the ordinary course of transit is
reversed before the goods are unloaded, it is submitted that this would be treated as if
that election had never been made. In so far as an irrevocable election could be made
before the unloading, for example, by cancelling arrangements for further transit, Clause
8.1.2 makes it clear that cover continues until the unloading. Accordingly, the goods
will be covered for an accident that occurs during the insured transit before the goods
arrive at the non-transit warehouse, albeit that the assured have already elected to use
that warehouse for storage other than in the ordinary course of transit.
Storage on vehicles or in containers other than in the ordinary course of transit
11.57 Cover terminates under Clause 8.1.3 of the revised Institute Cargo Clauses:
“when the Assured or their employees elect to use any carrying vehicle or other conveyance or any container for
storage other than in the ordinary course of transit…”
The terms “carrying vehicle or other conveyance” have already been considered in
connection with Clause 8.1.173 The election by the assured to use vehicles or containers
for storage, outside the ordinary course of transit, would be approached in the same way
as the use of warehouses, or other places of storage, as discussed in connection with
Clause 8.1.2 above.174 The different form of the drafting of Clause 8.1.3, which appears
to trigger the termination of the insurance cover when the “Assured or their employees”
make the election, may be explained by the origin of this Clause. The intention was to
ensure that the extension of cover to “unloading” was not used by assureds as a method
of prolonging cover by leaving goods loaded aboard vehicles in circumstances that
exposed them to enhanced risk. The type of situation insurers had in mind is, no doubt,
illustrated by Hepburn v. Tomlinson.175 In that case a quantity of cigarettes was left on
lorries which had arrived after working hours at the receivers warehouse and could not
be unloaded. The cigarettes, still aboard the lorries, were stolen overnight as the gates
of the warehouse were not properly secured. The insurance defined “transit” as
including “unloading”. In the circumstances it was held that the cigarettes were still
covered by the insurance at the time of their loss.176 In this case the vehicles could not
be unloaded because the staff had gone home and, in the normal course of events, the
vehicles would have been unloaded the next morning. In such a case no election was
made to use the vehicles for storage as there was no “voluntary” decision of the assured
to do so for their own convenience.177 However, the case illustrates that insurers
involved with drafting the revised Clauses were not prepared to accept the enhanced
risk where the assured elects, for their own commercial convenience, to use vehicles or
containers for storage out of the ordinary course of transit.
11.58 The timing of the election calls for special consideration under this Clause. The
cover is not terminated on “unloading”, as it is in Clause 8.1.2 (the election to store in
warehouses), as the concern is that the goods would not be unloaded but left on the
vehicles, or other conveyances, or in a container. This led to the trigger point for
termination being the election itself and not the use of vehicles or containers for storage.
However, in most cases the two events will be simultaneous. It may be suggested that, in
any event, the court is likely to give a purposeful construction to the sub-clause so that it
will be the manifestation of the election, most usually by the use of vehicles or
containers for storage, that will trigger termination. If this is right, a prior decision to
use vehicles for storage, that never manifests itself, would not terminate cover. The
goods would remain covered while still moving aboard vehicles that have yet to arrive
at the place where their use, once stationary, would be for storage rather than for transit.
It is the use of the vehicles for storage, once stationary, that will terminate the risk.
11.59 It is possible that an assured could elect to use a vehicle or conveyance for
storage, outside the ordinary course of transit, at the beginning of the insured journey as,
for example, at the compound adjacent to the warehouse of departure where the
insurance has attached. In this situation the goods will have been “first moved” and have
been loaded on vehicles with a view to the immediate commencement of transit but that
transit will then have been delayed. If the assured elect, for their own convenience, to
store the goods on vehicles, for example, to await payment from the buyer, the insurance
will terminate under Clause 8.1.3. There is no provision for automatic re-attachment178
and any re-attachment of the insurance cover is a matter to be negotiated with insurers.
On the other hand, if the delay is beyond the assureds control, as, for example, in the
case of an accident on the motorway, that is delay beyond the assureds control and
cover continues under Clause 8.3.179
Sixty days after discharge from the oversea vessel
11.60 The insurance cover terminates, in any event, under Clause 8.1.4 of the revised
Institute Cargo Clauses:
“on the expiry of 60 days after completion of discharge overside of the subject-matter insured from the oversea vessel
at the final port of discharge,…”
This “long-stop” provision brings the insurance to an end even if the goods are still in
the ordinary course of transit and have not reached the warehouse or place of storage at
the destination named in the contract of insurance.180 In the Australian case of Verna
Trading Pty Ltd v New India Assurance Co Ltd181 Ormiston J. said:
“As has been pointed out on a number of occasions, the 60-day period is not to be treated as a generally applicable
period of insurance, available to meet the exigencies of the insured. It is merely a maximum period, not even capable
of extension pursuant to sub-clause 8.3,…”
11.61 It is to be noted that the 60 day provision will apply where the goods are to be
forwarded to another destination under the policy. In Mitsui Marine & Fire Insurance
Co v. Bayview Motors Ltd,182 the goods were discharged into a Customs compound at
Santo Domingo, to where they were insured under the policy issued by Mitsui.
However, it was intended that the goods be forwarded to the assured in the Turks &
Caicos Islands. The goods remained insured for the full period of 60 days under this
long-stop provision because, where goods are to be forwarded, none of the other
termination provisions “bite”. The place where the goods are stored is not the final
destination under Clause 8.1.1 nor has there been any election under Clauses 8.1.2 or
8.1.3. The cover will therefore continue for 60 days unless the goods are forwarded
within that period. If the goods are forwarded, the insurance cover will terminate under
Clause 8.2 when the goods are “first moved” for the purpose of the further transit.183
11.62 Clause 8.2 of the revised Institute Cargo Clauses makes provision for termination
of the transit if the goods are forwarded to another destination. This provision reads as
follows:
“If, after discharge overside from the oversea vessel at the final port of discharge, but prior to termination of this
insurance, the subject-matter insured is to be forwarded to a destination other than that to which it is insured, this
insurance, whilst remaining subject to termination as provided in Clauses 8.1.1 to 8.1.4, shall not extend beyond the
time the subject-matter insured is first moved for the purpose of the commencement of transit to such other
destination.”
The operation of this Clause is illustrated by Bayview Motors Ltd v. Mitsui Marine &
Fire Insurance Co Ltd184 where vehicles were insured under a policy with Mitsui for
transit from Yokohama to Santo Domingo in the Dominican Republic. The ultimate
destination of the goods was the Turks and Caicos Islands to which they were to be
forwarded after the Mitsui cover had terminated. Transit in such circumstances
terminates either 60 days after discharge from the oversea vessel or when the goods are
first moved for the purposes of transit to the further destination, whether or not that
transit is separately insured, whichever shall first occur. The commercial purpose of
this provision is to make the cover continuous so far as possible, subject to the 60-day
provision. This is because it would be “commercially inconvenient for the consignee to
have to arrange separate cover for the period before transhipment and after discharge to
the warehouse or storage area”.185
Delay, deviation and other variations of the adventure
Inter-relationship with Clause 8.1 and Clauses 9 and 10
11.63 The revised Institute Cargo Clauses, Clause 8.3, provide that:
“This insurance shall remain in force (subject to termination as provided for in Clauses 8.1.1 to 8.1.4 above and to the
provisions of Clause 9 below) during delay beyond the control of the Assured, any deviation, forced discharge,
reshipment or transhipment and during any variation of the adventure arising from the exercise of a liberty granted to
carriers under the contract of carriage.”
It is to be noted that the continuation of cover is automatic insofar as there is no held
covered type requirement as there is in Clauses 9 and 10.1, considered in Chapter 12.
However, the insurance only continues in force under this Clause 8.3 subject to the
termination provisions in Clauses 8.1.1 to 8.1.4 of the Transit Clause itself and the
provisions in the subsequent Termination of Contract of Carriage Clause.186 The revised
version of Clause 8.3 recognises that the goods will not be in the “ordinary course of
transit” if, for example, they are delayed in circumstances that are beyond the control of
the assured, and avoids the potential conflict between the two Clauses.187
“Delay beyond the control of the Assured”
11.64 The insurance remains in force under Clause 8.3 during “delay beyond the control
of the Assured”. This extends the period of the cover and does not provide insurance for
loss damage or expense attributable to delay which remains excluded.188 Assume that,
for example, a ship is delayed by a hurricane, because it is necessary to heave to, and
the cargo hatches are nevertheless broken open and the cargo is wet damaged. In these
circumstances there is cover for loss of and damage to the cargo caused by the storm
which occurs during the extended period of the cover caused by the delay to the ship.
However, if a ship is delayed in similar circumstances by a storm and a perishable
cargo deteriorates, or there is a loss of market, because of the passage of time and not
because of any physical damage directly caused by the storm, then there will be no
cover for that loss which will be caused by delay.
11.65 The extension of the duration of the insurance to cover delay beyond the
assureds control, in its present form,189 originated in the Institute Cargo Clauses
(Wartime Extension) 1/5/42. An extension of cover was introduced for cargoes that
were delayed by congestion in ports awaiting convoys and other disruptions caused by
the Second World War.190 An earlier form of the clause was considered in Safadi v.
Western Assurance Co191 where a consignment of yarn was insured from Manchester to
Beirut, and for 30 days in the Customs House, and then on to Damascus. The yarn was
destroyed in a fire at the Customs House at Beirut after it had been there more than 30
days. The assured argued that the troubles and risings made it unsafe to forward the
goods by rail to Damascus, and that this amounted to “delay arising from circumstances
beyond the control of the assured”. It was found, as a matter of fact, that the
circumstances did not prevent the forwarding of the goods, as the troubles and dangers
on the railway were much reduced.192
11.66 The extension of the duration of the insurance cover under Clause 8.3 may
need, depending on the circumstances of each case, to be considered in the light of
Clause 18 of the revised Institute Cargo Clauses, the Avoidance of Delay Clause. This
requires the assured to “act with reasonable despatch”.193 The Marine Insurance Act
1906 section 48 also provides that “the adventure insured must be prosecuted
throughout its course with reasonable dispatch”.194 This section is, in turn, to be
construed in the light of the “excuses” for delay to the voyage in section 49 of the 1906
Act, such as delay for the purpose of saving human life, or aiding a ship in distress
where human life may be in danger.195 It is submitted that these “excuses” for delay are
only relevant to Clause 8.3 insofar as they may illustrate the type of circumstance that
would be “beyond the control of the Assured”.196
11.67 In summary, where delay occurs in the voyage which is beyond the control of
the assured, losses caused by that delay or attributable to it, are not covered. However,
the insurance cover itself continues during the period of the delay (without restriction)
as long as the voyage is not terminated in accordance with the first part of Clause 8, that
is by the arrival of the goods at their destination, or like matters, and the contract of
carriage is not terminated under Clause 9.197 The assured must act with reasonable
dispatch throughout but, subject to that, the extension of the duration of the insurance
during delay before discharge could theoretically be of indefinite duration without
additional premium. Where the goods have been or are discharged from an oversea
vessel, this triggers the 60-day cut-off period. Even where the goods have not been
discharged, a point may be reached where the character of the delay changes and an
issue arises as to whether or not the adventure has been lost.198
Deviation
11.68 Deviation is defined in section 46(1) of the Marine Insurance Act 1906 which
provides that where a ship “without lawful excuse, deviates from the voyage
contemplated by the policy, the insurer is discharged from liability as from the time of
deviation, and it is immaterial that the ship may have regained her route before any loss
occurs”. Deviation, unlike change of voyage,199 contemplates that the final destination
will be achieved but by a different route outside that contemplated by the policy. There
is a deviation from the voyage contemplated by the policy where the course of the
voyage is specifically designated by the policy and that course is departed from,200 or
where the course of the voyage is not specifically designated by the policy, but the usual
and customary course is departed from.201 The revised Institute Cargo Clauses do not
expressly require that deviation be “beyond the control of the assured” but that is
probably because deviation is normally outside the control of the assured. In cases
where the assured is owner or perhaps more commonly, charterer, of the vessel, and has
some control over the route, a deviation could well prove to be in breach of the
Avoidance of Delay Clause.202
11.69 The insurance remains in force under Clause 8.3 during “forced discharge,
reship-ment or transhipment” which again extends the period of the insurance but does
not, of itself, mean that damage caused during these operations is necessarily covered
under the insurance. Normally, under all risks insurance, fortuitous loss of or damage to
the cargo during such operations would be covered but where the insurance is on more
limited terms covering against named perils this will not always be the case.203
Variations of the adventure
11.70 The insurance remains in force under Clause 8.3 during “any variation of the
adventure arising from the exercise of a liberty granted to carriers under the contract of
carriage”. In Kallis (Manufacturers) Ltd v. Success Insurance Ltd 204 a consignment of
denim was insured from Hong Kong to Cyprus under the Institute Cargo Clauses
1/1/63.205 The denim was lost as a result of a fire aboard the vessel Intellect to which it
had been transhipped at Keelung, having been carried there aboard a vessel called Ta
Hung. The insurance covered a contract of carriage evidenced by a fraudulent “on
board” bill of lading for another vessel named Ta Shun on which the cargo was never
loaded. The assured argued that the forwarding and transhipment clauses under this bill
of lading permitted the carriers the liberty to forward the goods on Ta Hung and also the
liberty to tranship the goods to Intellect. However, it was held that there “cannot be
forwarding from or transhipment from a named ship going to a named destination when
the goods in question had never been on board that ship bound for that destination”.206
Accordingly, as the insured voyage never commenced, there was never any exercise of a
liberty granted to the shipowners under the contract of carriage, and the assured could
not avail themselves of the automatic extension of the insurance cover under what is
now Clause 8.3 of the revised Institute Cargo Clauses. However, if the variation of the
adventure does fall within the liberties in the contract of carriage, then the insurance
automatically continues in force without the need for prompt notice to underwriters or
an additional premium.
1. See, MIA 1906 ss. 42–49 entitled “The Voyage”.

2. Hull risks may occasionally be insured on a voyage basis, typically delivery
voyages or towage voyages, but the usual practice is to insure hull and machinery under
time policies.
3. Declarations of individual voyages are less common today as the premium may be
calculated on annual transit turnover but this still reflects the value of goods exported or
imported on voyages or on inland transits.
4. A continuous cover is one that continues until cancelled, typically by three months
notice prior to the anniversary date.
7. At paras. 11.6 to 11.9 below.
10. MIA 1906 s. 42.
11. MIA 1906 First Schedule, Form of Policy.
12. Institute Cargo Clauses, Report HR5 by an Historic Records Working Party of
the Insurance Institute of London,1964, 2nd edn, at p. 6.
14. Clause 8, see para. 11.19 below.
15. [1960] 1 Lloyds Rep. 554. See, Historic Records Report HR5 at p. 103.
16. Some sections of the London insurance market had a theory that a “place of
storage” could be within a warehouse and thus cover would commence when the goods
were first moved from, for example, a shelf. That was not the intended construction, see
para. 11.19 below.
17. Clause 8.1, see further para. 11.13 below.
18. See Chapter 1 at para. 1.23 et seq.
19. See, for example, Simon, Israel and Co v. Sedgwick[1893] 1 QB 303 (CA)
discussed in Chapter 12, para. 12.9.
20. MIA 1906 ss. 42–49.
21. [1991] 1 VR 129.
22. At p. 165 et seq., per Ormiston J. in a persuasive judgment that, it is submitted,
represents the position under the English law. But note the views of Kaye J. mentioned
at para. 11.39, fn. 124 below.
23. [1921] 2 AC 41./
24. Eurodale Manufacturing Ltd v. Ecclesiastical Insurance Offce plc[2003]
Lloyds Rep. IR 444 (CA).
25. Hibernia Foods plc v McAuslin (The Joint Frost)[1998] 1 Lloyds Rep. 310, as
discussed in para. 11.9 below.
26. [2003] Lloyds Rep. IR 444 (CA).
27. See Clause 8 of the Institute Cargo Clauses 1/1/82 at Appendix 11.
28. [2003] Lloyds Rep. IR 444 per Andrew Smith J. at para. 19 adopting a passage
from MacGillivray on Insurance Law,9th edn, 1997, Sweet & Maxwell at para.11–30.
29. Supra.
30. See Chapter 4, para. 4.4 for the very broad approach now adopted to insurable
interest.
31. At p. 313.
32. ICC Clause 11.
33. The Institute War Clauses (Cargo) have different provisions regarding the
duration of the cover which are discussed in Chapter 10, paras. 10.25 to 10.36.
34. At p. 2.66.
35. ICC Clause 8.2. This might occur, for example, where the goods have been bought
in transit by a c.i.f. buyer who has an ultimate purchaser in a new destination. In those
circumstances cover does not extend beyond attachment of risk for the commencement of
transit to such other destination, see Clause 8.2 and para. 11.62 below.
36. Clause 8.3, see para. 11.63 et seq.
37. See Chapter 12, where Clauses 9 and 10 are considered.
38. Particularly at para. 11.24 et seq.
40. See Chapter 4, paras. 4.1 and 4.2.
41. [1991] 105 FLR 381.
42. The facts of this case are discussed in Chapter 4, para. 4.21.
45. By the opening words of Clause 1 which are “This insurance covers…”.
46. ICC, 1/1/82, Clause 8.1.
47. At para. 11.24.
48. For the principles applicable to double insurance see Chapter 16, paras 16.25 to
16.38.
49. A goods owner would have limited prospects of recovery from a third-party
warehouse under typical warehouse-keepers conditions. Even where the assured owns
the warehouse or factory he may insure against limited perils such as fire, flood etc.
rather than “all risks” as is commonly the case with cargo insurance.
50. [1960] 1 Lloyds Rep. 554, see Historic Records Report, HR5 at p. 101.
51. It is conceivable, but unlikely, that the place of storage could itself be a vehicle,
but if that were the case, this could be a matter that it would be material to disclose as
prolonged storage on vehicles is likely to enhance the risk. See Chapter 5, paras. 5.12 to
5.15 where the requirements of materiality and inducement are set out.
52. Strouds Judicial Dictionary,7th edn, 2008.
53. Sixth edn, 2007, OUP.
54. This definition was applied by Walton J. in a tax case, Lawrance v
Ridsdale[1976] STC 227.
55. (1928) 31 Ll. L. Rep. 45.
56. See also paras. 11.23 and 11.24 which explain how the first movement is
connected with the loading onto the “carrying vehicle” and the “commencement of
transit” respectively.
57. Clause 8.3 as discussed at para. 11.63 et seq. below. Clauses 9 and 10 are
discussed in Chapter 12.
58. ICC 1/1/82 Clause 8.1; ICC 1/1/63 Clause 1. The risk attached under the 1963
and 1982 Clauses when the goods left the warehouse or place of storage.
59. The Shorter Oxford Dictionary defines “transit” as “The passage or carriage of
persons or goods from one place to another”.
60. Per Roskill J. in Sadler Brothers Company v. Meredith[1963] 2 Lloyds Rep. 293
at 307.
61. GIT or Goods in Transit hauliers liability insurance covers hauliers for their
liability to the owners of the goods carried by them.
62. 1982 AMC 1548.
63. 1962 AMC 2429; 207 F. Supp. 355.
64. At p. 2437.
65. [1963] 2 Lloyds Rep. 293.
66. The policy covered the goods in question “whilst being loaded or unloaded, or
whilst in garage, warehouse or depot, anywhere in the United Kingdom”, at p. 297.
67. At p. 306.
68. Underwriters based their case on the decision of the House of Lords in Pearson v
Commercial Union Assurance Company(1876) 1 App. Cas. 498, arguing that this
supported their position that the lorry was left for a purpose extraneous or collateral to
the transit so that the goods were not on risk. In the Pearson Case a ship was insured
whilst “lying in the Victoria Docks in London with liberty to go into the drydock” and
suffered a loss whilst lying in the river. It was held that the vessel was outside the
policy a decision on the facts in question, which Roskill J. felt gave little guidance to
the meaning of “transit” though, as we shall see, it was later found to assist with the rule
that applies where the normal course of transit has been interrupted.
69. William Soanes Limited v. FE Walker, Limited(1946) 79 Ll. L. Rep. 646 (where
Lord Goddard C.J. at p. 647 said “‘Whilst in course of transit’ means from the time
when the goods were received on the lighter until the lighter arrived at the plaintiffs
wharf”) and Kilroy Thompson, Limited v. Perkins & Homer, Limited[1956] 2 Lloyds
Rep. 49.
70. The revised ICC use the phrase “ordinary course of transit” but it may be that the
words “course of transit”, in context, imply “ordinary” course of transit.
71. Sadler Bros Co v Meredith[1963] 2 Lloyds Rep. 293 at 307.
72. [1965] 1 Lloyds Rep. 139 (CA).
73. Supra.
74. At p. 142. The County Court judgment is set out, more or less in full, in the Court
of Appeal report.
75. At p. 143.
76. At p. 144.
77. At p. 144.
78. (1946) 79 Ll. L. Rep. 646 at 647.
79. In SCA (Freight) Limited v. Gibson[1974] 2 Lloydss Rep. 533 at 534 Mr
Nicholas A Phillips (as he then was) conceded, on behalf of underwriters, and on the
authorities discussed above, that “transit had begun at least when the goods had been
loaded onto the lorry”, leaving it open as to whether goods received for transit and still
awaiting loading are to be treated as “in transit” despite this approach being open to
insurers in the light of Lord Dennings judgment in the Crows Transport Case.
80. [2003] 1 Lloyds Rep. 444.
81. At para. 23.
82. At para. 5.
83. At para. 24, with which Longmore L.J. agreed, at para. 6 in the Court of Appeal.
84. Per Roskill J. in Sadler Brothers Company v. Meredith[1963] 2 Lloyds Rep. 293
at p. 307, “It is being in motion” and see the passage cited in full at para. 11.27 above.
85. See also the discussion of the word “immediate” at para. 11.20 above.
86. Arnould 13–40 at p. 460.
87. Clause 8.3 in the 1982 Clauses was “subject to termination as provided for
above” which would potentially have neutralised the effect of Clause 8.3 in so far as the
events in Clause 8.3 took the goods out of the “ordinary course of transit”, see Arnould
13–40 at p. 460. This is now resolved as Clause 8.3 is now only subject to Clauses
8.1.1 to 8.1.4 and not to the “ordinary course of transit” requirement.
88. See Clause 8.3 discussed at para. 11.70 et seq.
89. See Chapter 12.
92. At para. 12.12–12.25.
93. [1974] 2 Lloyds Rep. 533.
94. Convention for the International Carriage of Goods by Road (CMR: Convention
relative au Contrat de Transport International de Marchandises par Route) as set out in
the Schedule to the Carriage of Goods by Road Act 1965 as amended by the Carriage by
Air and Road Act 1979.
95. At p. 534 following Kilroy Thompson Limited v Perkins and Homer Limited
[1956] 2 Lloyds Rep. 49; Sadler Brothers & Co v Meredith [1963] 2 Lloyds Rep. 293
and Crows Transport v Phoenix Assurance Co Limited [1965] 1 Lloyds Rep. 139, as
discussed above at paras. 11.27–11.28.
96. (1876) LR 1 App Cas 498 at pp. 507/508.
97. At p. 535.
98. Op. cit. at p. 535.
99. [1991] 1 VR 129 at 168. Supreme Court of Victoria: Appeal Division.
100. (477/99) [2001] ZASCA 88 (11 September 2001: South Africa: Supreme Court
of Appeal).
101. At para. 7.
102. At para. 12.
103. [2003] Lloyds Rep. IR 444. The facts of Safadi v. Western Assurance Co (1933)
46 Ll. L. Rep. 140, considered at para. 11.52 below, also illustrate the circumstances in
which it has been held by an English court that the transit has terminated because the
assured has delayed the onward carriage of the goods for his own commercial purposes.
104. [2003] Lloyds Rep. IR 444 per Andrew Smith J. at first instance, at para. 27,
citing Pearson v Commercial Union Assurance Co Ltd (1876) LR 1 App Cas 498 at
pp. 507–508.
105. [1960] 1 Lloyds Rep. 554.
106. At p. 565, per Pearson J.
107. Supra.
108. At para. 14, 15. Similarly, it has been held in South Africa that the intention of
the party at whose instance the interruption occurs cannot have the effect of altering the
objective meaning of the phrase “in transit”, see Tension Overhead Electric (Pty) Ltd v.
National Employers General Insurance Co Ltd [1990] 4 SA 190, South Africa,
Witwatersrand Local Division.
109. Historic Records Report HR5 at pp. 70–71
110. Ibid. at p. 74.
111. Ibid. at p. 74.
113. Supra.
114. See para. 11.3 above for the original 1912 wording where the warehouse-to-
warehouse clause included the phrase “ordinary course of transit”. The phrase
“ordinary course of transit” was not in the 1958 edition of the Clauses. See the
observations of Ormiston J. in Verna Trading Pty Ltd v New India Assurance Co Ltd
[1991] 1 VR 129 at p. 157 citing Wiggins Teape Australia Pty Ltd v Baltica Insurance
Co Ltd [1970] 2 NSWR 77 and Re Traders and General Insurance Association Ltd:
Ex parte Continental and Overseas Trading Co Ltd [1924] 2 Ch 187 at pp. 188–189.
115. Ibid., HR5, at p.103.
116. Arnoulds Law of Marine Insurance and Average, Vol II, 16th edn, 1981, Sweet
& Maxwell, para. 704, pp. 545–6.
117. Arnould at para. 19–35.
118. [1991] 1 VR 129 at pp. 171–174 where the clause, then entitled “Reasonable
Despatch Clause” is analysed in detail.
119. The main concerns were the difficulties arising if MIA 1906 section 48
amounted to an implied warranty (not the English view) and Clause 18 a condition,
coupled with how Clause 18 operated in practice in the absence of the statutory
“excuses” for delay applicable to s. 48 by reason of MIA 1906 s. 49.
120. Arnould states that the Clause “has yet to be judicially construed” and comments
that the possible meaning and effect is best left until it receives due judicial
consideration, at para. 19–35.
121. [1970] 2 NSWR 77. The facts of this case are summarised at para. 11.53 below.
122. At p. 81.
123. [1991] 1 VR 129.
124. At pp. 145, 146. Kaye J. avoided the problem of conflict with MIA 1906 s. 48
by finding that this section only applied to a sea “voyage”, so that Clause 18 was
needed to apply a similar rule of reasonable despatch to the avoidance of delay during
the land transit applicable to a warehouse-to-warehouse cover. This book takes a
different view, and prefers the judgment of Ormiston J. on this point, see para. 11.5
above.
125. The history of the Clause supports this view as it originally formed part of the
transit clause itself in the wartime extension of that clause, see para. 11.38 above.
126. This is not inconsistent with MIA 1906 s. 48, which provides that the insurer “is
discharged from liability as from the time when the delay became unreasonable”, and
the effect is that the insurer is off risk.
127. See Ormiston J. in Verna Trading v. New India Assurance (supra) at p. 173
where he states that as Clause 18 “is expressed clearly in terms of a condition of
liability under the policy,… the onus rests on the assured”.
128. Verna Trading Pty Ltd v. New India Assurance Co Ltd [1991] 1 VR 129, per
Kaye J. at p. 148 and per Ormiston J. at pp. 160 and 170.
129. The “contract of insurance” referred to in this clause is the open cover or
certificate of insurance typically held by a c.i.f. buyer which will name the place of
destination whether it be a port, or more commonly today, an inland destination, see
130. The word “loading” has long been used in the Transit Clause of the Institute War
Clauses (Cargo) in Clause 5.1.1 “This insurance attaches only as the subject-matter
insured… is loaded on an oversea vessel…”, see Chapter 10, para. 10.29 for a
discussion of what amounts to “loading” for the purposes of that clause.
131. See above para. 11.3 for the history of the Warehouse-to-warehouse Clause.
133. That principle was applied in the context of traditional marine policies that
covered sea voyages and was superseded by the Warehouse-to-warehouse Clause, see
Merkin, Insurance Legislation at p. 113.
134. [1966] 1 Lloyds Rep. 309.
135. At p. 322.
136. At p. 313.
137. (1903) TLR 668.
138. [1960] 1 Lloyds Rep. 554.
139. [1958] 1 Lloyds Rep. 546.
140. Ibid. at p. 561, per McNair J.
141. Historic Records Report HR 5 at p. 103.
142. Supra.
143. (1903) TLR 668, discussed at para. 11.44 above.
144. At p. 565.
145. [2002] 1 Lloyds Rep. 652, Steel J.; affirmed [2003] 1 Lloyds Rep. 131 (CA).
146. Per David Steel J. at para. 26.
148. Supra.
149. Clause 8.2 is discussed at para. 11.62 below.
150. At paras. 12–13.
151. At para. 13–40 at p. 461.
152. Ibid., per Tuckey L.J. at para. 16.
154. See, for example, Eurodale Manufacturing Ltd v. Ecclesiastical Insurance
Office Plc [2003] Lloyds Rep. IR 444 (CA).
157. See para. 11.31 et seq. above.
158. See para. 11.31 et seq. for a discussion of the concept of the “ordinary course of
transit”.
159. For a discussion of the Avoidance of Delay Clause see para. 11.38 et seq.
above.
160. [1968] 1 NSWR 279. Supreme Court of New South Wales.
161. At p. 284.
162. At p. 285.
163. (1933) 46 Ll. L. Rep. 140.
164. At p. 142.
165. [1970] 2 NSWR 77.
167. Ibid. at p. 80.
168. (477/99) [2001] 2 ASA 88 (11 September 2001).
169. At para. 11.
170. In so far as Ormiston J. suggests in Verna Trading Pty Ltd v. New India
Assurance Co Ltd [1991] 1 VR 129 at p. 162 that “control” is necessary that
proposition may be doubted. As the judgments make clear, it was not alleged, nor did it
otherwise appear that, in Verna Trading, the assured had made any election pursuant to
Clause 8.1.2, see p. 162. A similar view that the ordinary course of transit was not
terminated unless it had been brought about by a voluntary decision or act, that could be
shown to be within the assureds control, was reached in the Hong Kong Court of Appeal
in Miruvor Ltd v . National Insurance Co Ltd [2003] 3 HKC 208, following First Art
Investments v . Guardian Insurance Co Ltd (Central London County Court, Judge
Halgarten Q.C., 14 February 2002, unreported).
171. [1960] 1 Lloyds Rep. 554 at p. 565.
172. See para. 11.37 above for the test and a further discussion of this issue.
173. At para. 11.23.
174. See para. 11.49.
175. Hepburn v. A Tomlinson (Hauliers) Ltd [1966] 1 Lloyds Rep. 309 (HL).
176. See para. 11.41 above where this case is discussed in terms of “unloading”.
177. As discussed above para. 11.49 et seq.
178. The position is similar with regard to the parallel provisions relating to
warehouses: Clause 8.1.2.1 of the 1982 Clauses and Clause 8.1.2 in the revised
Clauses.
179. See para. 11.63 et seq. below where Clause 8.3 is discussed.
180. Even if caused by “delay beyond the control of the assured” because Clause 8.3,
which provides for such delay is “subject to” Clauses 8.1.1 to 8.1.4, see the discussion
of Clause 8.3 at para. 11.67 below.
181. [1991] 1 VR 129 at 161.
182. [2003] 1 Lloyds Rep. 131 (CA).
183. See para. 11.62 below where Clause 8.2 is discussed further.
184. [2002] 1 Lloyds Rep. 652, David Steele J.; affirmed [2003] 1 Lloyds Rep. 131
(CA).
185. Ibid. at para. 13, per Tuckey L.J. and see para. 11.47 above where this issue is
discussed in terms of termination at the named destination under Clause 8.1.1.
186. Clause 9.
187. In the 1982 Clauses the wording was “subject to termination as provided for
above” which created a potential conflict between Clause 8.3 and the former Clause
8.1. See para. 11.32 fn. 87 above.
188. ICC, Clause 4.5, see Chapter 8, para. 8.49 et seq.
189. The Delay Extension appeared earlier as a “held covered” provision, see
Safardi v Western Assurance Co (1933) 46 Ll. L. Rep. 140 discussed in the text.
191. (1933) 46 Ll. L. Rep. 140.
192. The judge indicated that he was of the view that the cover, in any event, ceased
30 days after discharge, which would be the situation under the revised Clauses, albeit
that the period is now 60 days. Too much should not, perhaps, be drawn from this in
view of the different terms of the delay extension which at that time was a “held
covered” provision, see the terms of the cover reported at p. 141 and see the judgment
at p. 143.
193. This Clause is discussed at para. 11.38 above in the context of the “ordinary
course of transit”.
194. The operation of MIA 1906 s. 48, and its application to the land transit in
warehouse-to-warehouse policies, is considered above at para. 11.5.
195. MIA 1906 s. 49(1)(e).
196. The excuses were raised on the assureds behalf in Safadi v. Western Assurance
Company (1933) 46 Ll. L. Rep. 140 at p. 143, but the legal position was not explored in
view of the factual finding against the assured, as discussed in the text.
197. In such circumstances prompt notice is required plus a request for additional
cover at what may prove to be an additional premium, see Chapter 12, para. 12.10 et
seq.
198. See below, Chapter 13, para. 13.53 to para. 13.7013.70.
199. For change of voyage see Chapter 12, para. 12.12 et seq.
200. MIA 1906 s. 46(2)(a).
201. MIA 1906 s. 46(2)(b).
202. ICC, Clause 18 discussed at para. 11.38 above.
203. See Chapter 9, and in particular para. 9.34 dealing with “sling losses” during
loading and unloading which are covered under the ICC (B) but not the ICC (C).
204. [1985] 2 Lloyds Rep. 8 (PC).
205. The Institute Cargo Clauses 1/1/63 contained equivalent wording, in this
respect, to the revised Institute Cargo Clauses.
206. At p. 11.
CHAPTER 12
DURATION OF THE INSURANCE 2: TERMINATION OF
CARRIAGE AND CHANGE OF VOYAGE
12.1 This chapter analyses the position under the revised Institute Cargo Clauses
where the contract of carriage is terminated1 or there is a change of voyage.2 The
insurance is only extended under these provisions, as contrasted with delay beyond the
control of the assured, and the other matters dealt with in Clause 8.3,3 if prompt notice
is given to insurers. Under Clause 9, Termination of Contract of Carriage, prompt notice
to insurers enables an additional premium to be agreed if required: under Clause 10.1,
Change of Voyage, notice allows both rates and terms to be agreed if available on
market terms. Both Clauses contain held covered, or analogous provisions, the general
principles of which are considered before the two Clauses are analysed in more detail.
HELD COVERED AND ANALOGOUS PROVISIONS
General principles
12.2 The general principles of held covered, so far as cargo is concerned, were
summarised in Liberian Insurance Agency Inc. v. Mosse.4 In this case, a consignment
of enamelware was sold c.i.f Monrovia where it was found to be damaged on arrival.
The question before the court concerned the applicability of the held covered5 clause
when the goods clearly did not match their description. The goods were described as
“Enamelware (cups and plates) in wooden cases”. However, a large portion of the
goods was neither plates nor cups. Some of the goods were packed in cartons and not
wooden cases. Furthermore, some items of enamelware were touched up by
overpainting. Donaldson J., in rejecting the assureds argument that they were entitled to
rely on the held covered clause, summarised the application of the clause as follows:6
“(i) The assured seeking the benefit of the clause must give prompt notice to
underwriters of his claim to be held covered as soon as he learns of the facts
which render it necessary for him to rely upon the clause.
(ii) It is no obstacle to the operation of the clause that it will defeat underwriters right
to avoid the contract for non-disclosure or misdescription.
(iii) The assured cannot take advantage of the clause if he has not acted in the utmost
good faith.
(iv) The clause does not contemplate any alteration in the terms of the insurance other
than in respect of premium.7
(v) The clause only applies if the premium to be arranged would be such as could
properly be described as a reasonable commercial rate.”
Donaldson J. found on the facts that no underwriter would have quoted for the risk
unless protected by an FPA (Free of Particular Average) warranty.8 The assured cannot
take advantage of Clauses 9 and 10 if he has not acted with the utmost good faith which
gives rise to an obligation of disclosure and not to misrepresent any facts material to the
additional risk. This aspect of the good faith duty is discussed further in relation to non-
disclosure and misrepresentation.9 This section therefore considers the prompt notice
requirement and the principle that there is no absolute right to cover unless cover could
be obtained at a reasonable commercial market rate on reasonable market terms.
Prompt notice
12.3 The 1982 Clauses, and the Institute Cargo Clauses 1/1/63, conclude with a Note
which provides as follows:
“NOTE: It is necessary for the Assured when they become aware of an event which is “held covered” under this
insurance to give prompt notice to the Underwriters and the right to such cover is dependent upon compliance with this
obligation.”
The contractual status of this Note was considered in Liberian Insurance Agency Inc. v.
Mosse10 where Donaldson J. entertained some doubts as to whether the “Note”, which,
as he said, is not a numbered clause, is to be construed as having contractual effect.
However, he decided, in the light of the decisions discussed below, that the Note
accurately states the law, whether or not it is contractual.11 The first of the decisions
was Thames & Mersey Marine Insurance Co Limited v. H.T. Van Laun & Co12 where
a consignment of cattle from Australia to China could not be landed at the port of
destination as it was ice-bound. The policy provided that “in the event of any deviation
from the terms and conditions of this policy … it is understood and agreed … that the
interest hereby insured shall be held covered at a premium to be arranged”. The
blockage of the port was reported to London but not advised to underwriters until some
10 days later. It was held that “it is an implied term of the provision that reasonable
notice should be given”.13 Although the test is expressed in terms of “reasonableness”,4
the implication was that the notice should be prompt if not “immediate”.15 In Hood v.
West End Motor Car Packing Co,16 where a car was shipped on deck, and notice of the
on-deck shipment was not given to the insurers until after the loss, the Court of Appeal
followed Mersey Marine Insurance Co v. Van Laun.17 Scrutton L.J. said:18
“… the assured could not avail himself of the clause unless within a reasonable time after he knew of the omission or
error he gave notice thereof to the underwriters. It is an implied term of the contract that the assured shall give notice
to the underwriters within a reasonable time after he knows of the omission or error… the natural tendency of an
assured is to wait and see if the matter goes through all right, and only in the case of a loss happening to give notice to
the underwriters. In order to meet that tendency the stipulation as to notice is implied. In the present case when the
[assureds agents] knew that the car was being shipped on deck no notice thereof was given to the underwriters until
after the loss. That is not within a reasonable time …“
12.4 The test is still described as “reasonable” notice, yet the Note in the Institute
Cargo Clauses speaks of “prompt” notice. These different expressions may be
reconciled on the basis that, in the context of the held covered provision, notice will
usually need to be “prompt” if it is to meet the requirement of “reasonableness”.19 Thus
when Donaldson J. in Liberian Insurance Agency Inc v. Mosse20 held that the Note
represented the law he presumably had in mind that the “reasonable” notice referred to
in the legal authorities would, in practice, amount to “prompt” notice as required by the
express terms of the Note in the Clauses.21
12.5 In principle, as long as notice is given promptly, it may be given after loss.22
This is made clear in the revised Institute Cargo Clauses in Clause 10.1,23 and, no
doubt, the same rule applies, though not made express, to the extension of cover under
Clause 9.
12.6 The revised Institute Cargo Clauses no longer use the words “held covered”
but the same principles still apply to Clause 9 and are now expressly set out in Clause
10.1. Accordingly, the prompt notice requirement still applies, as does the principle that
there is no absolute right to insurance cover which must be available at a reasonable
commercial market rate on reasonable market terms.
No absolute right to cover
12.7 It is one of the central principles of a held covered clause, and of the analogous
provisions in the revised Institute Cargo Clauses, that there is no absolute right to cover.
Indeed, this is the main reason why the revised Clauses do not use the term “held
covered”. It was felt, following the same approach as was previously adopted with
regard to the Institute Classification Clause,24 that it would be clearer (particularly to
those not familiar with English law) to incorporate in the wording of Clause 10.1 the
legal rule that limits the right to additional cover. The requirement is that cover must be
available at a reasonable commercial market rate on reasonable market terms.
12.8 The cases which have explored this concept start with Greenock Steamship Co
Ltd v. Maritime Insurance Co Ltd,25 where a vessel sailed without sufficient fuel to
complete the voyage. It was held that there was no room for the operation of the held
covered clause as the additional premium would have been the same as the amount
claimed in respect of the loss. The clause is only effective to protect the assured where
cover is available at an additional premium which is reasonable and commercially
available.26 This is illustrated by two recent cases from Hong Kong and Singapore
which are relevant here though concerned with the operation of the held covered clause
that was in the Institute Classification Clause.27 In Everbright Commercial Enterprise
Pte Ltd v. AXA Insurance Singapore Pte Ltd (The Sirena I)28 the vessel was not
classed by any recognised classification society and could not be found in Lloyds
Register. It was held by the Singapore Court of Appeal that a reasonable rate of
premium would not have been available for carriage of a cargo aboard her for the
voyage in question. A similar decision was reached in Hong Kong in Nam Kwong
Medicines & Health Products Co Ltd v. China Insurance Co Ltd29 by Stone J. where,
again, the vessel was unclassed and the evidence was that “no prudent underwriter
would be prepared to write the risk at on any reasonable premium on the basis of the
facts capable of being known at the material time”.30 A similar prudent insurer test
would, no doubt, apply to any re-negotiation of terms rather than premium.
12.9 The “material time” to assess the reasonable rate of premium, or other terms, is
the time the notice of the variation is given by the assured. No account is to be taken of
the later casualty. However, the facts are not limited to what the parties actually knew as
all the facts that were available at that time should be taken into account.31
TERMINATION OF CONTRACT OF CARRIAGE CLAUSE
12.10 Clause 9 of the revised Institute Cargo Clauses provides as follows:
“Termination of Contract of Carriage Clause
9. If owing to circumstances beyond the control of the Assured either the contract of carriage is terminated at a port
or place other than the destination named therein or the transit is otherwise terminated before unloading of the
subject-matter insured as provided for in Clause 8 above, then this insurance shall also terminate unless prompt
notice is given to the Insurers and continuation of cover is requested when this insurance shall remain in
force, subject to an additional premium if required by the Insurers, either:
9.1 until the subject-matter is sold and delivered at such port or place, or, unless otherwise specially agreed, until
the expiry of 60 days after arrival of the subject-matter insured at such port or place, whichever shall first
occur, or
9.2 if the subject-matter insured is forwarded within the said period of 60 days (or any agreed extension thereof)
to the destination named in the contract of insurance or to any other destination, until terminated in
accordance with the provisions of Clause 8 above.”
This Clause developed out of the Institute Cargo Clauses (Wartime Extension) 1/5/42
which were adopted during the Second World War to deal with termination of the
contract of carriage by the shipowner otherwise than by the exercise of a liberty as, for
instance, by reason of compliance with a government order.32 The Clause introduced in
1942 gave wider, and more appropriate cover, where the voyage was terminated for any
reason beyond the control of the assured. However, in exchange for this additional
cover, the assured is required to give prompt notice to the insurers and to request a
continuation of cover which is subject to an additional premium if required by the
insurers. The insurance then remains in force until the goods are sold and delivered at
the place where the contract of carriage was terminated, or until the expiry of 60 days
after arrival of the goods at that place, whichever occurs first. Alternatively, the cover
ceases if the goods are forwarded within the period of 60 days (or any agreed extension
thereof) to the insured destination originally intended, or any other destination.
Requirements of the clause
12.11 This Clause gives the assured a right to a continuation of cover subject to (1)
prompt notice to the underwriters;33 (2) a request for a continuation of cover;34 and (3)
an additional premium if required by the underwriters. There is no absolute right to a
continuation of cover which is conditional upon cover being available at a reasonable
market premium.35 It is to be noted that there is no right to impose additional terms or
conditions upon the assured but only to request additional premium and that may make it
more difficult to obtain a continuation of cover for a distressed cargo in extreme
conditions. Re-negotiation of the additional premium gives rise to a continuing duty of
good faith and, in particular, the obligations of disclosure and fair presentation of the
risk that the good faith obligation implies.36 It is submitted that there is a duty of
disclosure but only in relation to the additional or extended part of the risk and that,
equally, the insurers right to avoid would be limited to that extension and in relation
only to those matters.37
CHANGE OF VOYAGE CLAUSE
12.12 The starting point for the discussion is the Marine Insurance Act 1906 section 45
which makes specific provision for change of voyage in the following terms:
“Change of Voyage
45. (1) Where, after the commencement of the risk, the destination of the ship is voluntarily changed from the
destination contemplated by the policy, there is said to be a change of voyage.
(2) Unless the policy otherwise provides, where there is a change of voyage, the insurer is discharged from
liability as from the time of change, that is to say, as from the time when the determination to change it is
manifested; and it is immaterial that the ship may not in fact have left the course of voyage contemplated by
the policy when the loss occurs.”
It will be seen that a “change of voyage” as defined in the Act is a “voluntary” change
which, so far as cargo is concerned, must contemplate instructions voluntarily given by
the assured to the carrier to vary the destination. It appears that section 45 of the 1906
Act only applies to the destination of the “ship” and does not therefore apply to a change
in destination of any vehicle involved in land transit, albeit the land transit may
constitute part of the “voyage”.38 It is to be noted that section 45(2) of the Act precludes
claims where the destination has been changed even though the ship may not have left
the “course of voyage” or, in modern terms, the original route.39 This section of the Act
is, in practice, subject to variation under the held covered type provisions in Clause
10.1 of the revised Institute Cargo Clauses discussed below.40
12.13 The operation of section 45 of the 1906 Act was modified by the Deviation
Clause, which appeared in the first standard Institute Cargo Clauses in 1912, and
provided as follows:41
“Deviation Clause
Held covered, at a premium to be arranged, in case of deviation or change of voyage or of any omission or error in the
description of the interest, vessel, or voyage.”
The Change of Voyage Clause was altered in 194242 to put deviation in a separate
subclause, where it continues to appear in Clause 8.3 of the revised Institute Cargo
Clauses in conjunction with delay beyond the control of the assured and such matters as
forced discharge and variation of the adventure.43 The Change of Voyage Clause
otherwise remained in similar terms44 until 1982, when the scope for variation was
much narrowed by a revised Clause 10 which read as follows:405
“Where, after attachment of this insurance, the destination is changed by the Assured, held covered at a premium
and on conditions to be arranged subject to prompt notice being given to the Underwriters.”
This far-reaching restriction on the Change of Voyage Clause was introduced to ensure
that slips properly described the interest, vessel and voyage. Errors in these respects
are no longer held covered. The 1982 Clauses also omitted the words “change of
voyage” and substituted the phrase “the destination is changed by the Assured”
reflecting more closely section 45(1) of the 1906 Act.
Voluntary change of voyage: the modern form of the clause (Clause
10.1)
12.14 The revised Institute Cargo Clauses have maintained the position that the first
part of the Clause (Clause 10.1) only applies to a voluntary change of destination by the
assured and not to errors in the description of the interest, vessel or voyage. However,
the wording has been modernised and now reads as follows:
”10.1 Where, after attachment of this insurance, the destination is changed by the Assured, this must be notified
promptly to Insurers for rates and terms to be agreed. Should a loss occur prior to such agreement
being obtained cover may be provided but only if cover would have been available at a reasonable
commercial market rate on reasonable market terms.”
The revised Clause omits the term of art “held covered”, and states the requirement for
a continuation of cover in terms of insurance being available “at a reasonable
commercial market rate on reasonable market terms”. This wording follows the
decision in Liberian Insurance Agency Inc v. Mosse46 discussed above47 and is
consistent with the alteration that had already been introduced into the Institute
Classification Clause.48
12.15 The need for prompt notice, which was one of the essential characteristics of
the entitlement to be held covered, is still a requirement of the continuation of the cover
now provided for in Clause 10.1 in respect of any change of destination by the Assured.
This requirement is further stressed by the italicised wording in Clause 10 and the Note
at the conclusion of the Institute Cargo Clauses. As discussed above,49 this Note,
whether contractual or not, is declaratory of the legal position with regard to held
covered and, in the revised Institute Cargo Clauses, serves to confirm that although the
words “held covered” are no longer used, the requirement for prompt notice is still an
essential pre-condition to the right to obtain a variation or continuation of the insurance
cover.
Change of destination of the ship: the extension of the change of
voyage clause (Clause 10.2)
“Sailing for different destination
Where the destination is specified in the policy, and the ship, instead of sailing for that destination, sails for any other
destination, the risk does not attach.”
In practice, this rule is now modified by Clause 10.2 of the revised Institute Cargo
Clauses which provides:
“Where the subject-matter insured commences the transit contemplated by this insurance (in accordance with Clause
8.1), but, without the knowledge of the Assured or their employees the ship sails for another destination, this insurance
will nevertheless be deemed to have attached at commencement of such transit.”
The effect of this provision is best illustrated by considering the origins and
development of section 44 of the 1906 Act and then reviewing the so-called phantom
ship cases.
12.17 At the outset it may be noted that section 44 of the 1906 Act deals with the
situation that arises where the “ship sails for any other destination”. This requires that
the destination is changed at or before the voyage is commenced. This contrasts with
section 45 of the Act, and the first part of Clause 10 of the revised Institute Cargo
Clauses, considered above,50 which deal with a voluntary change in destination by the
assured after the voyage has commenced. If a shipowner, or other carrier by sea, steals
the cargo by diverting the ship and cargo to an unknown destination after the voyage has
commenced that would be an all risks loss by theft. The Marine Insurance Act 1906 did
not expressly contemplate all risks cover which includes, as an important part of the
protection, cover against losses where the carrier takes the cargo.51 The SG Form
marine perils, as contemplated by the 1906 Act, include “takings at sea”, but that
concept is limited to taking by those other than the shipowner or carrier, as a change in
character of the possession of the cargo is required.52 Where the carriers intention to
take the cargo, by sailing for a different destination, is formed before the vessel sails,
the risk does not attach under section 44 of the 1906 Act. This approach was
appropriate for SG perils cover but deprives the assured of one of the most important
aspects of all risks cover, that is, theft by the carrier.
12.18 The origins of the rule, now incorporated in section 44 of the Act, can be
traced at least as far back as 1778 and to Wooldrige v. Boyell.53 This was a decision of
Lord Mansfield where the policy insured a voyage from Maryland to Cadiz but the
vessel apparently sailed elsewhere, purportedly to Falmouth but possibly for Boston.
She was taken to Chesapeake Bay whilst still on the common part of the voyage to
Europe (i.e., before the dividing point). It was held that, as she never embarked upon a
voyage to Cadiz, the voyage on which she did embark was never the voyage intended.
The risk never attached because the voyage on which she embarked was not what the
underwriters meant to insure.
12.19 The same conclusion was reached in Simon, Israel and Co v. Sedgwick54
where the goods were insured on all risks terms for a voyage from the “Mersey and/or
London, both or either to any port or ports in Portugal and/or Spain, this side of
Gibraltar”. The policy continued with a clause providing warehouse-to-warehouse
cover which began “and/or at or from thence by any inland conveyance, to any place or
places in the interior”. There was a marginal note in held covered terms which
provided:
“Deviation and/or change of voyage and/or transhipment, not included in this policy, to be held covered at a premium to
be arranged.”
The goods were going from Bradford to Madrid and were customarily sent via Seville
and ports on the west coast of Spain. However, by a blunder, unknown to the assured
until after the loss, this particular consignment was despatched on a vessel that was
going via Gibraltar to Cartagena in the Mediterranean. The vessel was lost in the Bay of
Biscay on a part of the voyage common to vessels going to ports in Spain either on the
west coast or in the Mediterranean.55 The assured discovered the blunder after the loss
and promptly tendered the additional premium for a voyage to Cartagena. The insurers
rejected this on grounds that the risk never attached so the held covered clause could
never be triggered. Wright J. accepted this argument saying:56
“The contention for the assured is that, when the goods left the warehouse, they being then intended by the consignors
to proceed by a route covered by the policy, the declaration was rightly made, and the policy attached, and the clause
applied, and the assured were entitled to change the voyage on the terms of paying the extra premium to Cartagena,
the amount of which is not in dispute. The point is a nice one, but I think that the contention of the underwriters must
prevail. If the substance of the policy is the maritime risk, I think that the character of the preliminary conveyance
before the ship is reached must be determined by that of the voyage on which the goods were actually shipped, and
that the goods must, until shipment, be taken to have started for the voyage for which they were afterwards in fact
shipped; and if so, the voyage for which these goods were started was not a voyage for which they could be declared,
and the policy and deviation clause never attached.”
In the Court of Appeal it was argued that the transit was from Bradford to Madrid,
which indeed it was, but again the court rejected this approach on the basis that the
warehouse-to-warehouse cover was supplemental to the voyage and that it was the
voyage which characterised the risk and not the “superadded”57 land transit. Lindley
L.J. said:58
“We must ask ourselves what is the voyage that includes the risks to which I have alluded—the risks printed in type? It
is an insurance from the Mersey to some port in Spain this side of Gibraltar; and unless these goods were insured for
that voyage, there is nothing which brings in this extra risk from deviation. The starting point is that the goods were
insured from Liverpool to some place this side of Gibraltar. They never were on that voyage; and, that being the case,
you cannot extend the policy to cover the risks not included in the voyage for which these goods were insured. That
appears to me to be the short answer, and the conclusive answer, to the [assureds] argument. In other words, this
policy is not a policy from Bradford to Madrid; and the [assured] are unable, by reason of the blunder which has been
committed, to bring themselves within the risks which are included in a voyage for which these goods were insured. I
think the view taken by the learned judge is right, and that this policy never attached, and, that being so, the
memorandum about deviation, or change of voyage, does not affect the question.”
An alternative argument was that, in view of the warehouse-to-warehouse clause, which
included land transit in England, the goods had begun their insured journey to Madrid
when they left Bradford and that they were already on the insured voyage. In that respect
Bowen L.J. said:59
“In the present case the goods started from Bradford, and it has been contended that the moment they started from
Bradford they were upon the insured voyage. If the goods had started for the insured voyage, it seems to me the risk
during the time they were between Bradford and Liverpool would have been covered as incidental and supplementary
to the insured voyage. But we have here a conclusive fact that the goods never started upon the insured voyage.
Accordingly, the risk between Bradford and Liverpool never could be incidental or supplementary to it. It is not
necessary to decide what would have been the case supposing that goods, after having been specifically appropriated
by a contract of carriage to the insured voyage, had been injured or lost during the transit between Bradford and
Liverpool. It is not necessary to decide that case. In this case the facts here shew conclusively that the goods were
never specifically appropriated to the insured voyage, because the person who had the control of the goods—the
person who had the power of fixing the voyage on which the goods were ultimately to go—fixed the voyage outside
the policy; and if that is so, the policy never attached, and it follows that the deviation and change of voyage cannot
affect it.”
12.20 In George Kallis (Manufacturers) Ltd v. Success Insurance Ltd60 a
consignment of denim was bought by consignees in Cyprus on c.i.f. Limassol terms. The
goods were insured for a voyage from Hong Kong to Cyprus on board a vessel called
Ta Shun. However, the denim was in fact never loaded on that vessel but was shipped
aboard another vessel, Ta Hung, and transhipped for Cyprus in Keelung to the vessel
Intellect which caught fire off Singapore. The denim was destroyed in efforts to put out
the fire. The assured argued that the risk attached under an all risks warehouse-to-
warehouse policy when the goods left the warehouse at the port of shipment. This
argument succeeded at first instance in Hong Kong. However, on appeal to the Privy
Council it was held, following Simon Israel & Co v. Sedgwick,61 that the risk never
attached. Although the goods were on a journey to Limassol, to where they were
insured, they were not on risk as they were never loaded aboard Ta Shun for the voyage
on that vessel for which they were insured; nor could the liberties in the bill of lading
assist the assured as the insured contractual transit never commenced and the insurance
therefore never attached.
12.21 In both Kallis v. Success62 and Simon Israel63 it was argued unsuccessfully
that commencement of transit under a warehouse-to-warehouse policy attached the risk
and, in each case, that argument failed.64 However, in Nima SARL v. Deves Insurance
Public Co Ltd (The Prestrioka)65 there was an acknowledgment of the possibility that
the initial transit may be covered up to the time that the vessel sails. Potter L.J. said:66
“The question posed … as to the position in respect of goods lost or stolen en route between the warehouse and the
ships rail, raises an interesting problem mentioned by Lord Justice Bowen but left unresolved in the Simon Israel case.
It may be that the short answer in such a case is that, since the vessel has not in fact sailed for another destination at
the time of the loss or theft, s. 44 has no application and the risk which prima facie attaches to the goods on leaving
the warehouse should not be subject to ex post facto invalidation as a result of an event (i.e. the commencement of
the voyage) which has not occurred at the time of the loss. However, it is not necessary to answer the problem posed
for the purposes of a decision in this case and I say no more upon that topic.”
This passage has been much criticised.67 Arnould points out that section 44 would only
be inapplicable if the vessel never sailed at all.68 However, there is a sense in which, if
the cargo is stolen or otherwise totally lost after it leaves the warehouse but before
shipment, the sailing of the vessel becomes irrelevant, because the ship will never sail
with the insured cargo. That may be what Potter L.J. had in mind. Furthermore, Simon
Israel was recognised as a “hard” case and Potter L.J.s judgment is, with respect, more
in accord with the purposeful approach to the construction of the Institute Cargo Clauses
and with modern practice.
12.22 It may well be that in many contemporary insurances the approach adopted in
Simon Israel69 will no longer be appropriate as the core of the policy will no longer be
construed as the sea voyage. This would be most obvious in continental transits from
England to Europe, where any sea voyage across the Channel is incidental, but also
applies, though in a different sense, to worldwide transits. For example, in a transit
from Tokyo to Manchester under a through bill of lading envisaging carriage by a
container line the identity of the vessel, or details of her route, or intermediate
destinations, will not affect the core obligation of the carrier to deliver the cargo to
Manchester. The obligations of the insurers should be seen in the same context.
However, there will still be the cases where the destination for which the vessels sails
is material and core to the insurance. If what Potter L.J. has suggested in The
Prestrioka70 is correct, then it seems that even in those cases the cargo may be covered
against loss and damage during the initial road or rail transit to the moment the ship
sails for another destination when cover retrospectively ceases under section 44. It is
this problem which is addressed in the revised Clause 10.2 which, as we have seen,
provides:
“Where the subject-matter insured commences the transit contemplated by this insurance (in accordance with Clause
8.1), but without the knowledge of the Assured or their employees the ship sails for another destination, this insurance
will nevertheless be deemed to have attached at commencement of such transit.”
The new Clause 10.2 does more than neutralise section 44 of the 1906 Act because it
positively deems the insurance to have attached. However, it is to be noted that the
positive insurance cover provided by the new Clause is subject to two important
provisos. Firstly, the subject-insured must have commenced the transit contemplated by
the insurance in terms of Clause 8.1 of the revised Clauses which attaches the insurance
when the goods are first moved.71 Secondly, neither the assured nor their employees
must know that the vessel is to sail for another destination.72 So far as the first proviso
is concerned, the insurance is deemed to attach if the goods are first moved (e.g., by
being taken from the shelf, in terms of Clause 8.1), and start on the journey contemplated
on the insurance, most usually on a land transit to the docks where the sea voyage will
begin. The Clause provides that where the vessel sails for a different destination in such
circumstances the insurance is “nevertheless” deemed to have attached at the
commencement of the transit. It is important to note that the Clause approaches the
question of attachment in terms of Clause 8.1 and identifies the time at which the
contemplated transit is to be tested as that attachment point (i.e., at the time of the first
movement of the goods). If the goods are on their contemplated journey at that point in
time and the vessel has not yet sailed for another destination, and the goods are lost or
damaged during inland transit, then it seems from the judgment of Potter L.J. in The
“Prestrioka”73 that they are covered. The new Clause adopts that approach and, by use
of the word “nevertheless”, then carries that concept forward into the sea carriage
making clear the intention to disapply section 44 of the 1906 Act even if the vessel sails
for a different destination.
12.23 The second proviso for the operation of Clause 10.2 is that neither the assured
nor their employees must have knowledge of the fact that the ship is to sail for another
destination. It is submitted that the word “knowledge” involves the suggestion of
complicity that may be implied by the word “privity”.74 The word “knowledge”, was
presumably chosen as a more modern word than “privity”, which would be quaint and
unclear to many foreign users of the Institute Clauses.
12.24 It may be objected that section 44 of the 1906 Act does not include the words
“unless otherwise agreed” and cannot therefore be altered by an agreement between
assured and insurers. However it would appear that the only mandatory provisions of
the 1906 Act are those relating to insurable interest, the policy formalities and illegality.
Apart from these provisions, the Act is essentially a code for interpreting standard
contracts of marine insurance and, it is submitted, there is no reason why section 44
cannot be altered by agreement of the parties75.
12.25 It is clear that the new Clause 10.2 is intended to apply to the phantom ship
situation where neither the assured nor their servants have knowledge that the ship is to
sail for a different destination. It will cover both loss of the cargo during that voyage,
the most usual situation, and a situation where the cargo is lost or damaged on that
voyage. The question of whether the revised Clause applies more widely to the
circumstances of the Simon Israel situation, or even to the Kallis case, will depend on
whether the goods begin their contemplated transit in accordance with Clause 8.1. It
may be suggested that a purposeful interpretation should be given to the words “transit
contemplated” and that this will be more appropriate in modern cargo insurances where
less prominence is given to the sea voyage itself than was the case in the nineteenth
century when Simon Israel was decided. However, it must be doubted whether any
clause could cover the situation in the Kallis case.76 That was a policy for a voyage on
a named vessel covering the insurance of the transit of the cargo in that vessel and the
fraudulent substitution of a wholly different ship puts such a risk beyond what the
insurers would, in any event, wish to accept under an ordinary cargo policy.
Diagram of Duration of Risk
Institute Cargo Clauses: Transit Clause: Clause 8
Clause Para
8.1 Attachment of insurance
from the time the subject-matter insured is first moved … 11.13
for the purpose of the immediate loading …
Continuation of Insurance – during the ordinary course of 11.31
transit
Termination of Insurance
8.1.1 unloading at final warehouse or place of storage named in 11.43
the insurance etc.
8.1.2 unloading at any other warehouse etc. which the assured 11.49
elect to use for storage, or
8.1.3 use of any vehicle or container for storage, or 11.57
8.1.4 on the expiry of 60 days after discharge from the oversea 11.60
vessel, whichever of 1 to 4 shall first occur.
Para
8.2 Termination by reason of forwarding (which may or may not 11.62
be insured under another policy)
8.3 Continuation of risk by reason of delay (beyond control of 11.63
the assured), deviation, forced discharge, reshipment,
transhipment and a variation of the adventure under the
contract of carriage – automatic continuation: without notice
or additional premium.
Institute Cargo Clauses: Termination of Contract of Carriage Clause: Clause 9
Clause Para
9. If the contract of carriage or the transit is terminated in 12.10
circumstances beyond the control of the assured the risk
terminates unless
prompt notice is given to Insurers
and, if required, an additional premium is agreed.
additional cover thus granted remains in force until 12.10
9.1 • the goods are sold and delivered at a port of distress, or
unless otherwise agreed,
• after 60 days after arrival at such port, whichever shall
first occur
9.2 if the goods are forwarded within the 60 days to the named
destination, or another destination, Clause 8 (above) applies
and termination is in accordance with that Clause.
Institute Cargo Clauses: Change of Voyage Clause: Clause 10
Clause Para
10.1 Continuation of risk where destination changed by the 12.14
assured subject to
prompt notice to insurers
and (1) rates and (2) terms to be agreed
Retrospective insurance is subject to the availability of
cover at reasonable commercial market rates on reasonable
market terms.
Para
10.2 Insurance deemed to attach despite ship sailing for a 12.16
different destination as long as (1) the goods have
commenced the “contemplated“ transit, and (2) sailing
occurs without the knowledge of the assured or their
employees.
In all cases the Clauses themselves and the text at the paragraphs indicated should
be referred to as this table only summarises the position.
1. ICC Clause 9, see paras. 12.10 to 12.11.
2. ICC Clause 10, see paras. 12.14 to 12.25.
3. ICC Clause 8.3 as discussed in Chapter 11 at para. 11.63 et seq.
4. [1977] 2 Lloyds Rep. 560.
5. The policy incorporated the Institute Cargo Clauses (All Risks) 1/1/63, which
provided “held covered at a premium to be arranged in case of change of voyage or of
any omission or error in the description of the interest vessel or voyage”.
6. Ibid. at p. 568.
7. ICC, Clause 9, Termination of Contract of Carriage is similarly concerned with
additional premium but Clause 10.1 permits insurers to re-negotiate both premium and
the other terms of the insurance, see paras. 12.10 to 12.11 for Clause 9 and paras. 12.14
to 12.25 for Clause 10.1.
8. An f.p.a. warranty would have limited the risk to major perils analogous, in some
respects, to the perils covered under the current Institute Cargo Clauses (C), see
10. [1977] 2 Lloyds Rep. 560.
11. At p. 566.
12. [1917] 2 KB 38 (reported as a note at p. 48 after the decision in Hood v. West
End Motor Car Packing Company).
13. Per Lord Halsbury L.C. at p. 51.
14. See also the judgment of Kennedy J. at first instance cited with approval by Lord
Halsbury L.C. at pp. 51–52.
15. Other policies on the cargo, issued in Liverpool, had a held covered provision
for deviation and change of voyage which was subject to a proviso that “notice be given
and any additional premium required be agreed immediately after receipt of advices”.
16. [1917] 2 KB 38.
17. Supra.
18. At pp. 47, 48.
19. In Everbright Commercial Pte Ltd v. AXA Insurance Singapore Pte Ltd [2000] 4
SLR 226, Judith Prakash J., after reviewing the authorities, said that “In this context,
promptly means within a reasonable time”, at p. 243, para. 58.
20. Supra.
21. For a further consideration of these issues see Marine Insurance: The Law in
Transition, (ed.) R Thomas, 2006, Informa at p.77.
22. See, for example, the circumstances of Kallis Ltd v. Success Insurance Ltd
[1985] 2 Lloyds Rep. 8 where the assured were not aware of the change of voyage until
advised of the loss of their goods.
23. This provides that “should a loss occur prior to such agreement being obtained
cover may be provided … “, see para. 12.14 below.
24. See Chapter 8, para. 8.74 et seq. This Clause also had a held covered
requirement.
25. [1902] 2 KB 657, followed in Mentz, Decker & Co v. Maritime Insurance Co
[1910] 1 KB 132 and Hewitt v. London General Insurance Co Ltd (1925) 23 Ll. L.
Rep. 243.
26. See Chapter 8 at para. 8.79 which considers the availability of commercial
market rates and terms in the context of the Institute Classification Clause, where the
same principles apply.
27. The Institute Classification Clause is considered in Chapter 8, All Risks and
Exclusions at para. 8.74 et seq.
28. [2001] 2 SLR 316, Singapore Court of Appeal.
29. [2002] 2 Lloyds Rep. 591.
31. Greenock Steamship Co Ltd v. Maritime Insurance Co Ltd [1902] 2 KB 657,
and the cases which followed it cited at fn. 25 above. See also Everbright Commercial
Enterprise Pte Ltd v. AXA, supra at p. 337, para. 53.
34. If termination is merely notified to underwriters and “Noted” by them this may
not, it is submitted, amount to a request for a continuation of cover.
35. See the held covered cases at para. 12.7 et seq. above.
36. See Chapter 5.
38. See Chapter 11, para. 11.5 for the legal authorities supporting the view that land
transits constitute part of the “voyage” for the purposes of MIA 1906 ss. 42–49.
39. MIA 1906 s. 45(2).
40. At paras. 12.14 and 12.15.
42. Historic Records Report HR5 at p. 71 et seq.
44. The Institute Cargo Clauses (All Risks), (WA) and (FPA) 1/1/63, Clause 4, all
provided as follows “Held covered at a premium to be arranged in case of change of
voyage or of any omission or error in the description of the interest vessel or voyage”.
45. Clause 10.1.
46. [1977] 2 Lloyds Rep. 560 (CA).
50. At paras. 12.14 to 12.15.
51. The SG Form of policy was no more than a permitted form of policy, MIA s. 30
and Sch. 1, but it is submitted that all risks introduces a significantly different form of
cover which sits uneasily with some sections of the Act, particularly s. 44.
52. See Shell International Petroleum Co Ltd v. Carl Anthony Vaughan Gibbs (The
Salem) [1982] 1 Lloyds Rep. 369 at p. 374, per Lord Denning M.R.; Nishina Trading
Co Ltd v. Chiyoda Fire and Marine Insurance Co Ltd (The Mandarin Star) (CA)
[1969] 1 Lloyds Rep. 213 (CA), to the contrary effect, not followed by the Court of
Appeal, and subsequently overruled by the House of Lords, [1983] 1 Lloyds Rep. 342
(HL).
53. (1778) 1 Doug KB 16 and see Sellar v. MVicar (1804) 1 B & PNR 23 to similar
effect (vessel discharged a cargo of slaves in the West Indies and then sailed for another
destination rather than on the voyage insured).
54. (1892) 67 LTNS 352, Wright J.; affirmed [1893] 1 QB 303 (CA).
55. The vessel was in fact intending to discharge goods at west coast ports of Spain
but not suitable ports for on-forwarding to Madrid and thus the bill of lading destination
was Cartagena on the Mediterranean coast.
56. At p. 353.
57. Per Bowen L.J. at [1892] 1 QB 303 at 307.
58. Ibid. at pp. 306, 307.
59. At p. 308.
60. [1985] 2 Lloyds Rep. 8 (PC).
61. Supra.
62. Supra.
63. Supra.
64. See also Nam Kwong Medicines & Health Products Co Ltd v. China Insurance
Co Ltd [2002] 2 Lloyds Rep. 591 (Hong Kong High Court, Stone J.).
65. [2003] 2 Lloyds Rep. 327 (CA).
67. Arnould at para. 13–22, Bennett at para. 18.16, Rose, Marine Insurance: Law
and Practice, 2004, LLP, at para. 10.49 et seq.
68. Arnould 13–22.
69. Considered at para. 12.19 et seq. above.
70. See para. 12.21.
72. As discussed in para. 12.23.
73. Supra.
74. See Chapter 3, para. 3.34 where the word “privity” is considered.
75. See the remarks of MacKinnon L.J. cited in Chapter 1, para. 1.2 to the effect that
the law of marine insurance is nothing more than a collection of rules for the
construction of the policy.
76. Supra.
CHAPTER 13
CLAIMS AND LOSSES
CLAIMS
Notification of claims
13.1 The Institute Cargo Clauses do not contain a requirement that claims be notified
promptly.1. However, the Lloyds Marine Policy Form (MAR 91)2 contains “for cargo
insurances only” a notice requirement, which is repeated on the standard Lloyds forms
of insurance certificates,3 and provides:
“In the event of loss or damage which may result in a claim under this Insurance, immediate notice must be given to
the Lloyds Agent at the port or place where the loss or damage is discovered in order that he may examine the goods
and issue a survey report.”
The legal status of this admonition is somewhat unclear. In D&J Koskas v. The
Standard Insurance Company Ltd4 it was argued that a similar provision in a
certificate of insurance amounted to a condition precedent to liability,5 but the Court of
Appeal, in the absence of clear evidence of the terms of the contract of insurance, was
not satisfied about the effect of the clause.6
13.2 The cases appear to hold that “immediate” notice means notice “forthwith”,7 but
failure to give notice, which has no adverse consequences for insurers, is unlikely to
have any legal significance. The notice requirement is a mere condition of the contract,
breach of which only entitles the insurers to damages in so far as they can show loss
flowing from the assureds breach.8 The assured invites delay in the processing of his
own claim if he fails to arrange a prompt survey by Lloyds agents and also the
possibility that proof of his claim, the onus being on the assured,9 will be made more
difficult.
13.3 In more extreme cases a failure to involve Lloyds agents may be part of a picture
where the assured fails to sue and labour in order to preserve the property insured.10
However, whilst a failure to sue and labour may provide a defence to insurers, insofar
as that failure may aggravate the loss,11 the clause under consideration requiring
“immediate” notice does not appear to impose any additional legal sanction. It should
be added that, in practice, clauses of this type appear in cargo open covers and also in
Japanese marine cargo policies and may refer the assured to Lloyds agents; to named
surveyors, or to international recovery agents. Each clause will depend upon its
individual terms, but generally these clauses reflect the clause in the Lloyds insurance
certificates and would, therefore, be approached by the English courts as conditions and
not as conditions precedent.
Limitation of actions (time limits)
13.4 An action on a contract of marine insurance is an action on a “simple contract”.12
The Limitation Act 1980 provides that an action “founded on simple contract shall not
be brought after the expiration of six years from the date on which the cause of action
accrued”.13 Time will run from the date the contract was breached, which, in the context
of marine cargo insurance, means the date on which the loss occurred.14 It is not
generally the practice in England to include a shorter contractual time limit but United
States policies with a one-year time limit are not uncommon.15
Burden and standard of proof
13.5 Under English law the burden of proof lies upon the assured to establish his claim
under the policy on the balance of probabilities. Where the cargo is insured under the
Institute Cargo Clauses (A) on all risks terms the assured need do no more than show a
fortuity during the currency of the policy, as is further discussed in the context of all
risks cover.16 On the other hand, where goods are insured subject to specific perils the
onus is on the assured to establish that the loss was caused, on balance of probabilities,
by the named peril upon which he relies.17
Interest and costs
13.6 It is the practice in the English courts for the successful party to recover a
proportion of his legal fees and expenses, known as “costs”. The general rule is that the
unsuccessful party will be ordered to pay the costs of the successful party,18 although the
award is at the discretion of the court. There is flexibility to take account of separate
issues lost or won and to fine-tune the award in the light of the conduct of the
proceedings by the parties.19 For example, in Quorum A/S v. Schramm (No. 2),20 the
court reduced the award of costs to the assured for two reasons: firstly, the insurers
were successful on a discrete issue as to whether or not the policy was a valued policy,
and, secondly, because of the assureds conduct of the proceedings. In the circumstances
the assured, though successful, recovered only 80% of their costs. The manner in which
proceedings are conducted can, of itself, also lead to an enhanced award of costs. Thus,
while the court will normally assess costs on a “standard” basis,21 an award of costs on
a higher “indemnity” basis is available where “there is some conduct or some
circumstances which takes the case out of the norm”.22
13.7 In addition to costs, interest is recoverable once legal proceedings have been
commenced,23 and it is the well-established practice of the Commercial Court to award
interest at 1% above base rate.24 The basic principle is that interest runs from the time
of the loss, as that is when the cause of action accrues,25 but in practice the insurers are
allowed a reasonable time to consider the claim which can vary from five weeks after
the loss26 to a significantly greater period if the claim has unusual characteristics.27
Interest is awarded on the basis that the insurer has had the benefit of the money rather
than as a penalty for late payment. The assured is not treated as having been deprived of
the use of his money if he has chosen, for his own reasons, not to pursue a claim
immediately.28 In practice, interest is payable on marine cargo insurance claims from
the time when a reasonably detailed claim has been presented and the insurers have had
a reasonable time to question and investigate that claim. That investigation period
would normally be no longer than six weeks, even for a complex claim, as the
overriding consideration is that the assured has been out of his money which has,
instead, benefited insurers. Where a claim is clearly payable, but has yet to be finally
quantified, it is common practice in the London market for a payment on account to be
made of amounts that are undisputed, even if final quantification of the balance of the
claim takes some time because it has to be agreed between surveyors or valuation
experts.
13.8 The Supreme Court Act 1981 section 35A only allows the court to award simple
interest,29 but the decision of the House of Lords in Sempra Metals Ltd v.
Commissioners of Inland Revenue30 suggests the possibility that compound interest may
now be awarded in insurance claims. In this case the House of Lords held31 that the
court has “a common law jurisdiction to award interest, simple and compound, as
damages on claims for non-payment of debts as well as on other claims for breach of
contract and tort”.32 A claim under a marine cargo policy is a claim for a breach of
contract33 and where a merchant or trader has had his cargo lost or damaged it could be
said that the insurers would contemplate that his loss will be the value of the cargo lost
and damaged plus interest, at a compound rate, until the merchant or trader has been
compensated. However, the Marine Insurance Act 1906 section 67 deals with the extent
of the insurers liability for a loss in terms which are “conclusively definitive of the
liability”.34 This seems to preclude the possibility of a award of compound interest in
the form of damages so far as marine cargo insurance is concerned as the sum
recoverable as the measure of indemnity as strictly laid down by the 1906 Act does not
include compound interest.
Good faith and fraudulent claims
Lack of good faith in the claims process
13.9 It is convenient at this point to consider the extent to which lack of good faith or
fraud will vitiate an otherwise valid cargo insurance claim. The starting point is section
17 of the Marine Insurance Act 1906 which provides as follows:
“Insurance is uberrimae fidei
A contract of marine insurance is a contract based upon the utmost good faith, and, if the utmost good faith be not
observed by either party, the contract may be avoided by the other party.”
There is no doubt that in principle this section applies to the claims process and not
merely to pre-contractual negotiations.35 However, as the only remedy is avoidance of
the whole insurance, which is seen by the courts as disproportionate and “draconian”,
the section has been deprived of any effective separate standing. Thus in The
Mercandian Continent36 it was held that an insurer can only invoke the remedy of
avoidance where there is fraud that is: (a) material, in the sense that it would have an
effect on the insurers ultimate liability, and (b) the gravity of the fraud or its
consequences are such as would enable the insurers, if they wished to do so, to
terminate the contract for breach, leaving aside the duty of good faith.37 It was
subsequently recognised in Agapitos v. Agnew38 by Mance L.J. that these preconditions
for the operation of section 17 were such that in practice it would be a “rare case
indeed when it will ever be relevant”.39 The real question in practice, therefore, is
whether there has been fraud in the presentation of the claim.
Fraudulent claims
13.10 Fraud is not merely lying, it is seeking to obtain a pecuniary advantage, generally
monetary, or to put someone else at a disadvantage, by lies and deceit.40 A fraudulent
claim requires dishonesty by the assured. This, in accordance with the classic definition
in Derry v. Peek,41 includes an assured who advances a claim without an honest belief
in its truth as well as an assured who advances a claim recklessly without caring
whether or not the claim is false. The dishonesty must lie in the mind of the individual
making the claim, or in the mind of those persons for whom the company is vicariously
liable.42 The general principle is that the assured must not dishonestly mislead the
insurers or their surveyors or legal advisers. For example, in Bucks Printing Press v.
Prudential Assurance43 the assured gave the insurers solicitor a first-hand account of
how the goods were properly packed and secured in a container when, in fact, he was
unable to give a first-hand account and his description of the packing was materially and
demonstrably innaccurate. Where goods are insufficiently packed, which includes
stowed in a container, any damage caused by that insufficiency is excluded under Clause
4.3 of the Institute Cargo Clauses.44 It was held that the misrepresentations as to the
sufficiency of the packing were made recklessly, showing a complete disregard for the
truth, simply to advance the insurance claim. In the circumstances the claim failed.
13.11 Where the assured exaggerates the amount of an otherwise valid claim, or uses
fraudulent devices to further a claim, the position is similar and the claim is forfeit so as
to introduce an incentive not to lie.45 However, the rule is that “the fraud must be
substantial”, that is to say, that slightly exaggerating a claim does not make it fraudulent
within the fraudulent claims doctrine.46
LOSSES
The categorisation of losses
13.12 The Institute Cargo Clauses, in common with cargo insurance generally, cover
“loss of or damage to” the subject-matter insured.47 This chapter now considers such
losses which, in marine insurance, may be total or partial.48 A total loss itself can be
either an actual total loss or a constructive total loss.49 Additionally, under marine cargo
insurance there may be a loss of the adventure.50
13.13 The word “loss” is used to describe circumstances where there is a loss of
possession of the goods as, for example, by theft. The word “loss” is also used where
the goods have been damaged, but remain in the assureds possession or control. This
chapter looks first at the circumstances in which a “loss” in the first sense occurs, with
particular reference to all risks policies. There is then a consideration of what amounts
to “damage” in terms of the physical integrity of the goods. We subsequently look at the
difference between an actual total loss and a constructive total loss before considering
the concept of loss of the adventure. The expenses recoverable under a traditional
marine cargo policy, such as general average, salvage and sue and labour are
considered in Chapter 14.51
13.14 Before considering the above issues it is convenient first to deal with the
“physical” nature of losses as this concept is fundamental to marine cargo insurance,
particularly where this insurance is underwritten on the terms of the Institute Cargo
Clauses (A).
“Physical” loss or damage: fraudulent or erroneous documents
13.15 The Institute Cargo Clauses 1/1/82 do not use the word “physical” with reference
to loss or damage, nor does Clause 1 of the revised Institute Cargo Clauses.
Nevertheless, in some areas of cargo insurance52 a practice has developed of using the
words “physical loss or damage”, rather than the traditional formula “loss of or damage
to“ the subject-matter insured.53 This addition of the word “physical” is unnecessary
and is, in principle, unwarranted. The English courts have consistently held that marine
cargo insurance under the Institute Cargo Clauses is concerned with “loss of or damage
to” the subject-matter insured, namely the goods, and that “all risks cover applies only
to physical loss and damage”.54 The Institute Clauses proceed on the basis that the law
recognises that all risks marine cargo insurance is limited to physical loss of or damage
to the cargo as well as loss of the adventure, and that there are express extensions to
cover liability for traditional marine expenditures such as salvage and general
average.55
13.16 The policy will only extend to other financial losses if clear words are used.
The three exceptions to the physical loss rule, now briefly considered in turn, are loss
of the adventure, traditional expenses, and clear and explicit wording covering financial
loss.
13.17 Loss of the adventure, the first exception, is unique to cargo insurance and is
considered in more detail later in this chapter.56 The authorities which analyse loss of
the adventure recognise that this extension to the insurance cover is an exception to the
usual rule that the main and primary subject of the insurance on goods under a marine
policy are the goods as tangible objects.57 There is no requirement for physical loss of
the goods as the phrase “loss of adventure” covers losses that the assured may suffer by
reason of the goods not arriving safely at their destination, though the goods themselves
are safe and undamaged.58
13.18 Traditional expenses, such as general average and salvage charges, which
constitute the second exception, are covered by the Institute Cargo Clauses.59 Liability
for this expenditure may arise where there has been a casualty to the carrying vessel but
no physical loss of or damage to the particular cargo insured, as where there is a fire in
certain containers located on the stern of a container vessel and the insured cargo,
located in the bow section, is undamaged, but incurs a liability for salvage charges and
contributes in general average.
13.19 The third exception, which arises where the insurance is extended by clear and
explicit words to cover financial loss not related to loss of cargo, is important in
practice in view of the potentially serious consequences for cargo insurers. This is
illustrated by the US case of Chemical Bank v. Affiliated FM Insurance Company60
where a group of assured banks succeeded in recovering for financial losses in respect
of cargoes that had never been shipped. In this case fraudulent Bills of Lading were
issued purportedly to evidence shipments of coffee worth over US$100 million which
did not, in fact, exist. The banks who had advanced the money, with the coffee as
security for the loans, protected themselves by an endorsement on the cargo insurance
policy on the coffee. That policy included a special Fraudulent Bills of Lading Clause
which covered “loss or damage occasioned through the acceptance by the Assured of
fraudulent Bills of Lading”. This phrase extended the policy to “loss” flowing from the
negotiation of fraudulent documents unrelated to loss of cargo. Vincent L. Broderick US
D.J. said:61
“[The insurers] primary argument is that the core purpose of the policies involved was to cover physical goods and
merchandise (consisting principally of coffee), against losses on the high seas and related hazards to which shipments
of merchandise may be exposed … Certainly the Affiliated policy was basically intended to provide coverage against
injuries caused by loss of goods. This does not mean that other clauses included in the policy which by their terms
extended beyond this central objective were rendered void.”
The New York judge therefore approached the matter, it is submitted, as would an
English court, on the basis that the core purpose of the policy was to cover physical loss
of merchandise. Nevertheless he held that clear wording can extend the nature of the
insurance beyond the risks covered by marine cargo insurers so as to cover financial
loss as a result of fraud. In a subsequent US case,62 where the Fraudulent Bill of Lading
Clause covered “loss of or damage to the property insured”, it was held that losses
sustained must be to the actual subject-matter of the policy and that the policy did not
extend, therefore, to financial losses.
What constitutes “loss of” the cargo?
13.20 Clause 1 of the Institute Cargo Clauses insures against “loss of or damage to” the
subject-matter insured. We consider here what amounts to “loss” of the cargo in terms of
loss of possession of the goods rather than loss by damage or destruction.63 The Marine
Insurance Act 1906 provides that there is an actual total loss where the assured “is
irretrievably deprived” of the subject-matter insured64 and that there is a constructive
total loss if the assured is deprived of possession of the goods and it is “unlikely” that
he can recover them.65 The question of whether there has been this type of loss of the
cargo has become more difficult to determine since the introduction of all risks
insurance,66 which provides cover extending not only to theft but also to unlawful acts
of third parties, particularly conversion of the insured goods. Moreover, if goods are
abandoned by a third party, for example where a bailee becomes insolvent, it seems that
there may be a “loss of” the goods. The following paragraphs discuss these various
aspects of “loss”, starting with forcible theft67 and fraud,68 before considering the cases
where the action by the third party is unlawful but not dishonest.69 We then look at the
case where the goods are abandoned by third parties to whom they have been
entrusted.70 The concept of loss of the adventure is of sufficient importance to be dealt
with in a separate section.71
Loss of the goods by theft involving force
13.21 In the most extreme case goods may be taken forcibly by a thief as, for example,
by breaking and entering into a warehouse or the hold of a ship. This type of forcible
theft is the most long-standing cover for “theft” because the peril of “thieves”, as
defined under the Marine Insurance Act 1906, did not cover clandestine theft or a theft
committed by one of the ships company, whether crew or passengers.72 A similar
approach has been adopted in the United States where “theft” cover is traditionally
limited to losses from “assailing thieves”.73 These traditional limitations on the
insurance cover no longer apply where insurance is provided on an all risks basis, such
as the Institute Cargo Clauses (A). This significant widening of cover for theft, which is
particularly relevant in terms of the extensive storage cover now provided under cargo
policies, raises fine distinctions between cases where the assured has lost his goods,
and has a valid claim, and cases where the assured has simply been tricked out of his
money.
Loss by theft or fraud
13.22 Where the assured is tricked into parting with the goods and voluntarily passes
good title it is often difficult to determine whether this amounts to a loss of the goods or
merely a financial loss.74 The better view would seem to be that there is still a loss of
the goods, at least where the assured only releases the goods in exchange for forged
documents showing that payment has already been made, rather than a false promise of
future payment. If, for example, a buyer takes possession of goods intending to pay for
them and afterwards forms an intent not to pay, and disposes of the goods, giving good
title to a third party, there is no “loss of” the goods.75 In cargo insurance this situation
may occur where there is a series of transactions and the buyer takes possession of
goods from a warehouse over a period of time making it difficult to determine when the
buyer formulated the intent, whether dishonest or unlawful, not to pay. The key is that at
the moment when the possession of the goods is lost to the assured there is already an
unlawful intent by the third party to deprive the assured of the goods. There is a then
wrongful abstraction of the goods at that time, not merely a later failure to pay for them.
In short, the assured must be tricked out of his goods and not out of his money. In
Australia & New Zealand Bank v. Colonial and Eagle Wharves Limited76 a warehouse
keeper held goods to the order of a bank, who had loaned money on the goods, and was
tricked into releasing the goods by a rogue who then sold the goods and subsequently
became insolvent. The policy insured against “all and every risk whatsoever” and was
held to cover the obtaining of the goods by false pretences, that is by fraud.77 The fact
that the release was voluntary does not bar the assureds right to claim for loss of the
goods where possession has been obtained dishonestly78
The timing of the theft or taking
13.23 Two decisions on the perils of “theft” and “takings at sea” illustrate the areas for
disagreement, even between experienced commercial judges, as to the point in time
when cargo may be taken for the purposes of theft or “takings at sea”. As both “theft”
and “takings” are encompassed by all risks, these decisions are of guidance in relation
to all risks cover. The difficulty centres on what amounts to a “change of possession”
for these purposes and thus constitutes a “loss”. In Nishina Trading Co Limited v.
Chiyoda Fire & Marine Insurance Co Limited (The Mandarin Star)79 a cargo was
insured for carriage from Bangkok to Kobe against “takings at sea” and “theft”. The
owners of the vessel, who had not received charter hire from the time-charterers,
directed the vessel not to discharge at Kobe, but to sail for Hong Kong. The cargo was
there discharged and wrongfully pledged by the shipowners to pay off the charter hire. It
was held at first instance that there was a “theft” of the cargo when a change of
possession took place when the goods were discharged into warehouses in Hong Kong
with a view to their sale or pledge and that process took place contrary to the wishes of
the cargo-owners.80 The majority in the Court of Appeal was not satisfied that the
shipowners had any dishonest intent, but, in a dissenting judgment, Edmund Davies L.J.
took the view that there was a theft if, at the time the goods were pledged, there was no
intention to redeem the goods, whether reasonably or unreasonably entertained.81 This
analysis provides helpful guidance as to the timing of the loss albeit in a dissenting
judgment.82
13.24 In Shell International Petroleum Co v. Gibbs (The Salem)83 a cargo of oil was
insured for carriage aboard the supertanker Salem for a voyage from Kuwait to Italy on
limited perils including “takings at sea”. As a result of a conspiracy by the owners of
the ship most of the cargo was discharged at Durban, the remaining cargo going down
with the vessel when she was later scuttled on the owners instructions so as to conceal
the fraud. Mustill J. identified the moment of “taking” by a bailee as the time when the
bailee changes the character of possession so that he ceases to hold the goods rightfully
for the account of the owner and begins to hold them wrongfully for himself.84 He
indicated that this change in the character of possession must also be manifested to the
outside world.85 In the Court of Appeal May L.J. held that there was a taking when there
was a wrongful appropriation by the shipowners, judged objectively overall, and
evidenced by an overt act. This expression of the legal principle seems to accord with
Mustill J.s views, though on the facts of the case a different view was taken. It was held
that the “taking” only occurred when the oil was discharged in Durban, which was
clearly a conversion being an assumption of dominion inconsistent with the rights of the
cargo-owners.86
13.25 In summary, it seems that there is a loss under an all risks policy, in
circumstances where goods are held by a bailee, when there is an assumption of
possession by the bailee, inconsistent with the rights of the assured cargo-owners. It
may be sufficient if the character of the possession changes, as where a bailee decides
on his own behalf to hold the goods as his own. If the bailee holds the goods as agent of
a third party, whose instructions to the bailee have wrongfully deprived the true owner
of possession, then that actual change in possession constitutes a loss as long as the
assumption of possession is evidenced by an overt act showing that the bailee has
exerted dominion over the insured goods.87 This could, for example, consist in an
acknowledgement in the bailees records that the goods are held as his own, or to the
order of a wrongful third party, contrary to the right to possession of the true owner.
13.26 An associated issue as to timing arises where it is necessary to ascertain
whether the goods were in the “grip of the peril” at the time they were “taken”. For
example, if a warehouse-keeper holds goods stored with him to the order of a dishonest
receiver who pretends to have paid for them, are the goods, at the time the possession
changes, a total loss, actual or constructive? This will be important if the goods are only
physically released to the dishonest consignee after the policy has expired. In Mitsui
Marine & Fire Insurance Co & Ors v. Bayview Motors Limited88 a consignment of
Toyota cars, insured under all risks terms, was discharged to a customs compound in
Santo Domingo. The cars were converted by the customs authorities when they
wrongfully refused to release them during the currency of the policy period.
Subsequently, after the policy period had expired, the cars were dishonestly
“distributed” to certain customs officers and their families. At first instance,89 David
Steele J. decided that the conversion of the cars, in the form of the improper refusal of
the customs to release the cars, was an all risks peril, and that this was a partial loss
within the period of cover that led to an actual total loss outside the period of cover. He
held that the fact that the actual total loss was outside the period of cover did not matter
because the loss related back to the conversion.90
13.27 This judgment was upheld on appeal on the alternative ground that there was a
constructive total loss,91 which was also the main ground for the judgment at first
instance.92 However, further support for the approach adopted at first instance may be
found in Integrated Container Service Inc v. British Traders Insurance Co Ltd93
where Eveleigh L.J. said:94
“Moreover, it did not matter if further loss might occur after the expiration of the policy, for the containers had already
been the victims of an insured peril within the policy period. They had received a potential death blow.”
The “deaths blow” doctrine arises where a vessel or cargo has suffered some grievous
damage which cannot be said to amount all at once to a total loss, or even a constructive
total loss, and which only develops into a total loss after the risk expires.95 It seems that
a parallel principle applies to cases where the goods have not been fatally damaged, but
instead, the assured has lost possession of them in circumstances where it may be said
that they are in the “grip of the peril”.96 If this is right, a conversion which does not
immediately result in an actual total loss within the policy period can be relied upon to
found a good claim under the insurance as long as the goods are truly in the grip of the
peril.
Theft and fraud: transfer of title
13.28 Where goods are insured in store and the buyer gains possession of the goods
without intending to pay for them, either by reason of dishonesty or because he is
insolvent, there will be a loss under all risks insurance if the goods are “taken” at a time
when the buyer did not intend to pay or had no reasonable prospect of doing so. In such
circumstances there has been a theft or conversion and not merely a credit loss. This is
illustrated by Glencore International AG v. Alpina Insurance Company Limited.97 In
this case consignments of oil belonging to the assured, Glencore, were insured on all
risks terms while stored in the Middle East with Metro, the operators of a floating oil
storage facility. Metro were both bailees of the oil and also, in some cases, buyers.
Metro were fraudulently removing the oil, including some of the oil which they had
bought, though title had not yet passed, nor had they paid for it. Insurers initially argued
that any losses suffered by Glencore were caused by Metros failure to pay for the oil in
store. It was said that Glencore had suffered the consequences of an uninsured credit
risk. However, this argument was not pursued when it became clear that at the time of
the misappropriation the title to the oil remained with Glencore under the sale contracts.
Where an assured still has title to the goods at the time they are misappropriated, it will
normally be held that he has suffered a loss of the goods and not an uninsured credit
risk.
13.29 There may also be an insured loss in circumstances where goods insured in
store have been taken by a potential buyer before the sale takes place and the sale
contract is subsequently adopted, passing title to the buyer extinguishing the conversion.
However, as the wrongful misappropriation has already taken place, only payment of
the price, or return of the goods can extinguish the insurance claim. This slightly unusual
situation also arose in Glencore International A.G. v. Alpina Insurance Company
Limited98 in relation to other consignments where Glencore subsequently sold the oil to
Metro on credit as the end user. This was done in ignorance of the fact that the
consignments of oil in question had already been misappropriated by Metro. In those
cases the sale to Metro voluntarily passed property in the goods. When the loss was
discovered Glencore did not sue for the original misappropriation, alleging conversion,
but adopted the sale and recovered judgment for the price against Metro. That judgment
was not satisfied as Metro had, by then, become insolvent. Insurers argued that there
was a voluntary passing of property to the buyer, Metro, by the sale and that as that sale
was later adopted when Glencore sued on the sale contract, all that had happened was
that Metro had not paid. It was said that this was a credit or financial risk, and not a
“loss of” the goods. It was accepted that by adopting the sale Glencore could not then
have sued Metro, as floating oil storage facility operator, for damages for conversion.
However, Moore-Bick J. held that once the misappropriation had occurred there was a
loss under the policy and that the only way that loss could be satisfied, so that insurers
would not have to pay, would be if that loss was made good, whether by the buyer
paying for the goods, or by paying damages for conversion. As the loss by
misappropriation was never made good there was still a valid claim under an all risks
storage policy.99 The same principle applies here, that if the title remains with the
assured at the time the goods are misappropriated, there will be a loss of the goods
covered by the insurance. That loss is not cured even if title to the goods is subsequently
passed to the person who took the goods in circumstances where he still does not pay
for them.
Loss by conversion or other unlawful acts by a third party: insolvency
13.30 The cover for “loss of “ the subject-matter insured is not limited to dishonest
misappropriation of the insured goods but extends to wrongful detention of the goods
amounting to a civil wrong (i.e., by the tort of conversion in English law or by
analogous unlawful acts under a foreign law).100 There is still a loss of the goods even
where the conversion is the result of the insolvency of a bailee to whom the assured has
entrusted the goods, as where the trustee in bankruptcy wrongfully withholds goods held
by the bailee for processing.101 Cargo insurers recognised that wrongful
misappropriation, even without dishonesty, was an all risks loss, but were alarmed by
the case of London & Provincial Leather Processes, Limited v. Hudson102 which held
that they were liable to pay for loss of cargo flowing from insolvency. In that case a firm
of leather merchants imported skins from North Africa and sent them for dressing in
Germany, the skins being insured against “all and every risk whatsoever, however
arising”. The firm to whom the goods were sent for dressing, Alfred Popper, carried out
part of the work themselves and sub-contracted part of the work to another company in
Germany, Moebis & Dieter. Alfred Popper became insolvent and Moebis & Dieter
wrongfully claimed a general lien on the assureds goods. Goddard L.J. said:103
“For my part I am unable to see why, if goods which are insured against all risks are converted so that the true owner,
the assured, is deprived of the possession of the goods, he is any less entitled to recover under the policy than he would
be if the goods were stolen. He is deprived of the possession in one case by theft; he is deprived under circumstances
which would render the spoliator liable to the criminal law. It is a matter of the state of mind whether there was a
felonious mind. In the case of conversion he is equally deprived of his goods and equally wrongfully deprived, but
wrongfully only in the sense that a civil tort is committed and not a criminal wrong.”
In terms of first principles, Goddard L.J. explained that the loss was fortuitous, when he
said:104
“Undoubtedly, the goods were lost to the [assured] by a happening not analogous to theft but just as much unexpected,
if that be a test to apply, as a theft. I think the circumstances show that the loss fairly falls within the expressions ‘a
fortuitous occurrence’, ‘accidental loss’ or ‘casualty’ in the sense … that they have been used in so many insurance
cases.”
The wrongful action of the administrator was the proximate cause of the loss but, in so
far as this was prompted by the insolvency, that was of concern to cargo insurers. The
question was left open whether it is necessary for there to be a wrongful loss of
possession of the goods or whether losses can also occur under a cargo policy where
the insolvent bailee, whether warehouseman or shipowner, simply walks away and
abandons the goods exposing them to risk of loss. This is now considered.
Loss by abandonment and threat of misappropriation, lien and lawful sale
13.31 It was held in Integrated Container Service Inc v. British Traders Insurance Co
Ltd105 that the risk of a lawful sale by a third party of abandoned goods is an all risks
loss. The case involved a container contingency policy which was treated as a policy on
goods.106 In this case the lessees of containers, which were insured on all risks terms,
became insolvent and the containers which they had hired were abandoned in
warehouses and on quaysides. The assured, who was the owner of the containers, took
steps to recover them paying customs and storage charges to secure their release. The
assured also paid the costs of transhipment to the insolvent lessees depots and thereafter
the costs of further transhipment back to the safety of the assureds own depots. The
claim also included associated travelling expenses and legal fees. None of the
containers was in immediate danger of being disposed of or physically damaged.107
Eveleigh L.J. said:108
“The [assured] had let on hire their containers to a company that was trading effectively and was in a position to
maintain the necessary organisation to look after the containers and to perform the duties imposed upon them in their
capacity as bailees. When, as a result of their insolvency, they ceased to operate they were no longer bailees capable
of taking care of the goods. The containers were effectively abandoned by their custodians. They were consequently
exposed to the risk of theft, misuse, enforcement of a lien—in other words to the risk of loss or damage from some
cause or another. We are concerned with a policy which covers all risks. Therefore if the [assured] have established
the existence of a threat of loss or damage, no matter if that threat resulted from the insolvency of the lessee, they are
entitled to recover moneys laid out to avert a loss which might result from a variety of reasons.”
This passage appears to extend the concept of all risks to “threat of loss” where the
goods are not exposed to any immediate danger.109 Moreover, it was clearly held that, in
the circumstances of this particular case, a lawful sale was an all risks loss, Dillon L.J.
saying:110
“The policy is against all risks, and I can see no reason why the risk of a lawful sale by a third party should be
excluded. The [assured] effectively lose their containers whether the sale is lawful under a lien—port regulations or a
process of judicial execution—or unlawful.”
It is submitted that where the assureds actions have led to the sale under a conventional
marine cargo policy, rather than a container contingency policy, a lawful sale would not
be an all risks loss as, for example, where the assured has failed to pay warehousing
charges.111 The further difficulty arising from the decision in Integrated Container
Service v. British Traders is how it impacts on the question of whether or not there has
been a loss of the adventure. If a shipowner becomes insolvent and abandons the
voyage, is that to be considered an all risks loss giving rise to claims for reimbursement
of forwarding charges incurred to get the goods to their contractual destination? This
issue is considered later in this chapter in the context of loss of the adventure.112
What constitutes “damage to” the cargo?
13.32 The Marine Insurance Act 1906 section 57(1) provides as follows:
“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.”
This section of the book considers damage or destruction of the cargo rather than what
amounts to loss of possession which is considered earlier in this chapter.113 Clause 1 of
the Institute Cargo Clauses reflects the wording of section 57 of the 1906 Act as it
covers loss of or “damage to” the subject-matter insured. The cases considered here in
relation to “destruction or damage” under the Act are therefore equally applicable to
“damage” under the Institute Cargo Clauses.
Destruction or damage: actual total loss
13.33 Where the cargo is damaged so as to cease to be, in commercial terms, a thing of
the kind insured, there is an actual total loss. The older cases illustrate this rule. For
example, cargo may be a total loss by reason of ceasing to meet its description. In Asfar
& Co v. Blundell114 a vessel carrying dates sank and was subsequently raised. The
dates, although retaining the appearance of dates, were found to be fermenting and
impregnated with sewage. They were subsequently condemned as unfit for human
consumption and landing at London was refused. The insurers contended that this was
not a case of total loss as the dates were of considerable value for the purpose of
distillation into spirit. The Court of Appeal unanimously rejected this argument.115 The
test to be applied was “whether, as a matter of business, the nature of the thing had been
altered”.
13.34 In Roux v. Salvador116 hides were insured for a voyage from Valparaiso to
Bordeaux. During that voyage the vessel sprang a leak and put into Rio de Janeiro
where it was found that the hides were in a state of incipient putridity caused by the
leak. It was held that as the hides would have lost their character as hides before arrival
in Bordeaux the assured was entitled to recover for a total loss.
13.35 On the other hand, there will not be a total loss if the cargo retains its essential
character. In Glennie v. The London Assurance Co117 a cargo of rice was insured free
from particular average from Charleston to Liverpool. The ship was damaged as a
result of bad weather and, approximately five miles from Liverpool, she grounded and
filled with water. The cargo was taken to Liverpool and sold. Some of the barrels
containing rice had become swollen and burst. Nevertheless, Lord Ellenborough C.J.
held that it was quite clear that this was “a case of particular average and not of total
loss”.118 The distinction between total loss and partial loss119 is rarely if ever of
significance120 today but the above cases still provide guidance as to what constitutes
“damage”.
“Damage to” cargo: partial losses
13.36 In modern cargo insurance the issue is less likely to be whether or not there has
been an actual total loss, but whether there has been “damage” to the cargo. The rule is
that there is “damage” to the subject-matter insured where the operation of a peril has
brought about a physical change. For example, where heat affected a Degas pastel
painting, so that there was sub-molecular damage to the pastel, that was damage to the
picture even though the change was not visible and was only established on the basis of
expert evidence.121 Where there is merely loss in value without any direct physical
change there is no damage to the goods.122 Examples of damage in the insurance context
include a vessel damaged by hydrochloric acid123 and dust causing damage to
property124 In general, in insurance cases the court will be reluctant to find in favour of
the assured in the absence of physical change or deterioration to the property insured.125
13.37 Oil cargoes, or other bulk cargoes, may be subject to various types of
contamination. For example, oil may be contaminated from cargoes in adjacent tanks, on
shore or on land, or from pipelines. Foodstuffs may sustain insect contamination. Does
this type of problem amount to “damage to” the cargo or is contamination a separate
type of loss? Where cargo is insured on all risks terms, it is submitted that any form of
contamination that changes the physical status of the cargo is “damage to” the cargo.126
13.38 On the other hand, economic loss sustained because cargo has been exposed to
contaminants, but not directly damaged by them, is not covered. Nor is suspicion of
damage. This is illustrated by three cases.127 In Cator & Others v. The Great Western
Insurance Co of New York128 the insurance was on 1,711 packages of tea of which 449
packages were damaged by contact with seawater, while the remaining, 1,262 packages
arrived in a sound condition. The damaged packages were sold at a price substantially
below their market value owing to the suspicion attaching to them from the fact that 449
packages in the same shipment were damaged. Bovill C.J., delivering the judgment of
the court, rejected the claim for loss on sale of the undamaged packages, saying:129
“The insurance is against damage to the goods, and not against loss to the assured otherwise than by reason of damage
to the goods themselves… The underwriters insure against damage to the goods by the perils insured against; but they
do not, in our opinion, insure against damage by prejudice or suspicion, though such prejudice or suspicion be
reasonable and be general in fact in business, when there is no damage in fact to the goods themselves; and, if this
policy were to be so construed, it would make them insurers, not only against direct damage to the goods insured, but
against damage to other goods in the same ship affecting the credit and thereby the value of the goods insured, and
would create indirect and collateral and consequential liabilities from suspicion and prejudice, which it would be almost
impossible for the underwriters to estimate in fixing a premium proportionate to the risk.”
13.39 In Lysaght Ltd v. Coleman130 a cargo of 497 cases of galvanised iron was
insured from Bristol to London. On arrival the whole cargo was landed, unpacked and
examined. It was found that 106 cases had been damaged. The assured was indemnified
in respect of the damaged cargo (i.e., the difference between the invoice price and sale
price, as well as the costs incurred on examining that damaged cargo). However, the
assured further claimed the costs of inspection incurred in respect of the sound cargo.
Rigby L.J. said:131
“It cannot be said that a suspicion of damage entitled [the assured] to incur costs, at the expense of the underwriters, if
no damage had actually taken place; and if that may be said with truth as to the whole cargo, I think it follows that [the
assured] could not in this case be entitled to make good this claim against the underwriters in respect of the goods to
which there had been no damage.”
13.40 Finally, there is Overseas Commodities Ltd v. Style132 where there was an
insurance on two shipments of tinned pork. Some of the tins were condemned while
others were not. The uncondemned tins were sold at prices below the current price for
sound goods owing to the fact that the two shipments had become suspect to the trade.
McNair J. was of the view that the insurance being an insurance against physical loss or
damage to the goods, financial loss resulting from sound goods being suspect was not
recoverable as a particular average loss.133
13.41 In Boon & Cheah Steel Pipes Sdn. Bhd. v. The Asia Insurance Co Ltd134 it
was argued by Mr Michael Mustill Q.C., as he then was, that the costs of repair or
inspection of suspect goods is not an element to be taken into account when deciding
whether there is a constructive total loss. The court accepted that this seemed to be the
position in the light of the English legal authorities discussed above.135
Constructive total loss defined
13.42 The Marine Insurance Act 1906 section 60(1) defines constructive total loss as
follows:
“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.”
Clause 13 of the revised Institute Cargo Clauses provides as follows:136
“No claim for Constructive Total Loss shall be recoverable hereunder unless the subject-matter insured is reasonably
abandoned either on account of its actual total loss appearing to be unavoidable or because the cost of recovering,
reconditioning and forwarding the subject-matter insured to the destination to which it is insured would exceed its value
on arrival.”
Although this clause generally follows the wording of section 60(1) of the 1906 Act, the
additional words, “cost of recovering, reconditioning and forwarding the subject-matter
to the destination to which it is insured” follow the wording of sub-section 60(2)(iii).
This provides that there is a constructive total loss “where the cost of repairing the
damage and forwarding the goods to their destination would exceed their value on
arrival”.137 The opening words of Clause 13 “No claim for Constructive Total Loss
shall be recoverable hereunder unless …” have led to some misunderstanding, as it has
suggested that the clause excludes losses by deprivation of possession138 or by loss of
the adventure.139 This was not the intention of insurers who were concerned to clarify
how a constructive total loss should be calculated in terms of the 1906 Act and not to
limit the manner in which a constructive total loss could be claimed either under the
common law or the Act.140 It is convenient therefore to deal with constructive total loss
in terms of the sub-sections to section 60, which are cumulative, not merely
illustrative.141 These are now considered, starting with deprivation of possession and
then turning to cases that involve damage to the goods.
13.43 The Marine Insurance Act 1906 section 60(2)(i) provides that there is a
constructive total loss, in particular:
“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;…”
In order to establish a constructive total loss on this basis the assured must therefore
show deprivation of possession and must establish either (a) unlikelihood of recovery,
or (b) that the cost of recovery would exceed the value of the goods when recovered.
There are few reported cases in marine cargo insurance where recovery of the goods
has been achieved by a payment to those holding the goods,142 but there are examples of
cases where the issue considered is “unlikelihood” of recovery which are now
considered.
13.44 The leading case on unlikelihood of recovery is Polurrian Steamship
Company Limited v Young143 which decided that by using the word “unlikely” the 1906
Act had imposed a stricter test than the common law test of “uncertainty” of recovery. It
was held that for the assured to succeed they must establish (1) that at the date of the
commencement of the action they were deprived of the possession of their goods; and
(2) that it was not merely quite uncertain whether they would recover them within a
reasonable time, but it was “unlikely” in the sense that, on the balance of probability,
they would be unable to do so.144
13.45 A contemporary case which illustrates the circumstances which amount to this
type of constructive total loss is Bayview Motors Ltd v Mitsui Marine & Fire
Insurance Co Ltd.145 In this case a consignment of Toyota cars was discharged into a
customs compound in Santo Domingo. There was a conversion of the cars by the
customs authorities when they refused to release them to the assured. Subsequently, after
the policy had expired, the cars were dishonestly “distributed” to certain customs
officers and their families. It was held that during the currency of the policy it was
“unlikely” that the cars could have been recovered. Although the customs officers
pretended that the cars might be returned, the truth was that they simply strung the
assured along whilst dissipation and distribution of the cars was organised. Tuckey L.J.
held that “the likelihood of recovery at any particular time has to be determined
objectively on the true facts”.146
Damage to goods: cost of repair
13.46 The Marine Insurance Act 1906 provides that there is a constructive total loss:147
“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.”
13.47 Boon & Cheah Steel Pipes Sdn. Bhd. v. Asia Insurance Co Ltd,148 a decision
of the High Court of Malaysia, illustrates this rule. In this case a cargo of pipes was
insured free from particular average under the Institute Cargo Clauses (FPA)149 for a
voyage by barge from Prai to Brunai. During the voyage most of the pipes were lost
overboard as a result of perils of the seas but 12 pipes survived. The issue was the
extent of the damage to these pipes and the cost of repair and forwarding them to their
destination. The assured argued that a prudent uninsured would not have incurred the
risk and expense of repair and forwarding the pipes to their destination but would
simply have abandoned them. After a careful review of the English authorities,150 and in
the light of the Constructive Total Loss Clause in the policy151 Raja Azlan Shah J.
rejected this, saying:152
“The ‘prudent uninsured owner’ test must be discarded. Nothing under the present policy would make the defendants
liable for a constructive total loss except the impossibility of recovering, reconditioning and forwarding the cargo [of
pipes] to their destination at a cost greater than their value on arrival.”
On the authority of Moss v. Smith153 he went on to hold that the test of “impossibility” is
one of practicality—in matters of business a thing is commonly treated as “impossible”
when it is impractical in the sense that it cannot be done without laying out more money
than the thing is worth. Finally, the argument by the assured that the cost of repairing and
forwarding the goods would exceed their value when recovered was rejected by the
court. The assured had failed to prove “on the balance of probabilities, as distinct from
a mere speculative possibility, that there [was] damage”.154
13.48 In cases of damage to goods, the rule in Clause 13 of the Institute Cargo
Clauses, and section 60(2)(iii) of the Act, is that there is a constructive total loss where
the cost of repair155 and “forwarding the goods to their destination would exceed their
value on arrival”. Where freight is payable on shipment, which is now almost
invariably the case, this comparison causes no difficulty in principle, for if the repairs
cost £1,000 and the freight is £1,500 and the value on arrival is less than £2,500 there is
a constructive total loss. However, where freight was only payable on arrival it was
held in Farnworth v Hyde156 that this should be taken into account and the calculation
made net of that original freight. A controversy still rages as to whether this rule has
been reversed by the wording on the Act, which also appears in the Clauses.157
Effect of constructive total loss: notice of abandonment
13.49 The Marine Insurance Act 1906 section 61 provides that where there is a
constructive total loss the assured may either treat the loss as a partial loss, or abandon
the subject-matter insured to the insurer and treat the loss as if it were an actual total
loss. As the assured will, in practice, wish to protect his right to claim for a total loss
he should give a Notice of Abandonment. The requirements for such notice are set out in
some detail in section 62 of the 1906 Act, as follows:
“(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 terms which indicate the intention 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
inquiry.
(4) Where notice of abandonment is properly given, the rights of the assured are not prejudiced by the fact that the
insurer refuses to accept the abandonment.
(5) The acceptance of an abandonment may be either express or implied from the conduct of the insurer. The mere
silence of the insurer after notice is not an acceptance.
(6) Where notice of abandonment is accepted the abandonment is irrevocable. The acceptance of the notice
conclusively admits liability for the loss and the sufficiency of the notice.
(7) Notice of abandonment is unnecessary where, at the time when the assured receives information of the loss,
there would be no possibility of benefit to the insurer if notice were given to him.”
(8) Notice of abandonment may be waived by the insurer.
(9) Where an insurer has re-insured his risk, no notice of abandonment need be given by him.”
13.50 In cargo cases there may be very little that cargo interests can do to recover
their cargo and there are, therefore, relatively few marine cargo cases that turn on a
failure to give Notice of Abandonment. A notable exception is Russian Bank for
Foreign Trade v. Excess Insurance Company Limited158 where a parcel of barley
shipped on a British ship for carriage from Novorossik to Falmouth was held up by the
closure of the Dardanelles. The Court of Appeal decided the case on the basis that the
assureds offer to the insurers to accept the difference between the value of the cargo as
it then was, and the insured value of the cargo, was a negotiation and not a Notice of
Abandonment. In the circumstances, the claim failed on the sole ground that Notice of
Abandonment had not been given. However, in the leading case of Rickards v. Forestal
Land, Timber & Railways Co Ltd159 no point was taken regarding the absence of any
Notice of Abandonment and, in many cargo cases, it may be that notice is not necessary
by reason of the rule under section 62(7) that, 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. The rule is illustrated, in a more modern context, by Bayview
Motors Ltd v. Mitsui Marine & Fire Insurance Co Ltd160 where a consignment of
Toyota cars were dishonestly “distributed” by certain customs officials in Santo
Domingo to their relatives and friends. The insurers argued that no Notice of
Abandonment had been given but the judge accepted that this was unnecessary as at the
time in question the vehicles had been distributed and used. He said that the insurers
argument that they “could have investigated whether or not to take proceedings” was
quite unreal.161 It seems, therefore, that the courts will put the onus upon insurers to
show a clear loss of benefit if they are to succeed with an argument that the claim fails
solely by reason of a lack of Notice of Abandonment. Nevertheless, if in doubt the
assured should give such notice albeit that it is likely, in any event, to be met in the
London market with the admonition that they should “act as a prudent uninsured”.
13.51 The abandonment of the goods to the insurers, the effect of which is considered
next, is to be distinguished from the procedural Notice of Abandonment. Where, for
example, goods are severely damaged, the assured has a choice under section 61 of the
Act as to whether to accept the damaged goods and claim for a partial loss or to
abandon the goods. If the assured elects to abandon the goods the procedural
requirement for a Notice of Abandonment comes into play unless, as is often the case
with cargo claims, the Notice could be of no possible benefit to the insurers.162
Effect of abandonment
13.52 The Marine Insurance Act 1906 section 63(1) deals with the effect of
abandonment in the following terms:
“(1) Where there is a valid abandonment the insurer is entitled to take over the interest of the assured in whatever may
remain of the subject-matter insured, and all proprietary rights incidental thereto.”
The same rule is reflected in section 79(1) of the 1906 Act which, so far as material,
reads as follows:
“Right of Subrogation
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, …”
It seems from both of these sections that, if the insurers accept the abandonment, they are
“entitled to take over the interest of the assured”. This suggests that the insurer is not
obliged to take over the ownership of the goods which may involve the insurer in
potential liabilities. This issue, which is not free from difficulty, is discussed further in
Chapter 16 in connection with insurers rights of subrogation.163
The general principle
13.53 There is a long-established principle that in the case of cargo insurance the thing
which is insured is not merely the cargo but also the arrival of the goods at the
destination specified in the contract of insurance. This is sometimes expressed by saying
that the “voyage” of the cargo is insured164 or that the “adventure” is insured.165 The
concept of loss of the adventure entitles the assured to claim a constructive total loss
where the cargo is undamaged and in the assureds possession but the voyage has been
frustrated and the cargo has not reached its insured destination.166 Loss of the adventure
is a common law concept.167 It may result in an actual total loss, where it is
“impossible” for the goods to reach their destination,168 or a constructive total loss
where it is “unlikely” that the goods will reach their destination,169 the latter to be tested
as if the claim were for a statutory constructive total loss under section 60 of the Marine
Insurance Act 1906.170 Where there is a potential loss of the adventure, there is a duty to
sue and labour and this constitutes a partial loss under the policy.171 Although claims for
a total loss of the adventure are possible, more commonly claims are advanced in
practice for the expenses of forwarding the goods to their intended destination because
the insured transit has terminated. This particular form of sue and labour expense is
recoverable under Clause 12 of the Institute Cargo Clauses, the Forwarding Charges
Clause. This section of the book considers first the origins and nature of the right to
claim for loss of the adventure leading up to the development of the Frustration Clause,
which eliminated cover for such losses from war risks cargo policies. We then consider
loss of the adventure in the context of the Forwarding Charges Clause. The issues that
arise are, firstly, the operation of an insured peril, secondly, the circumstances in which
the voyage is considered “terminated” within the clause, and, thirdly, the operation of
the exclusions of insolvency and delay. These matters are considered in turn.
Historical origins: frustration of the voyage
13.54 The first modern case to explore the ancient concept of loss of the adventure may
be considered to be Rodocanachi v. Elliott172 where a cargo of silk was insured on free
of particular average (FPA) terms against various risks, including restraint of princes,
for a journey from Japan to London. The silk was forwarded overland from Marseille to
London during the Franco-Prussian War in 1870 and arrived in Paris at a time when the
German armies had occupied a large part of France and besieged Paris. The silk could
not be removed and, it appeared, would remain in Paris indefinitely. In a passage that
examines the relationship between delay and loss of adventure, Bovill C.J. said:173
“No doubt the goods existed in specie and uninjured. It is equally clear that, in our law, a mere delay or interruption of
the voyage will not give the assured a claim against the underwriters, unless such delay is caused by a peril insured
against, and the voyage or adventure is thereby altogether frustrated. The question therefore is, whether there has
been such a loss in this case.”
Bovill C.J. concluded that there was a loss of the adventure as the goods were held
indefinitely in Paris by the besieging army and not merely delayed. Loss of the
adventure can be equated with the frustration of the contract of carriage by which the
goods are to be carried to their insured destination.
13.55 An even more striking example of the principle is the decision of the House of
Lords in British & Foreign Marine Insurance Company Ltd v. Samuel Sanday &
Co.174 In this case cargoes of linseed and wheat were insured against various risks,
including restraint of princes, for a voyage from the River Plate to Hamburg. The goods
were shipped on two British ships in July 1914, just before the outbreak of the First
World War, which prevented the cargoes from being delivered in Germany. The goods
were discharged at Liverpool and Glasgow where the assured took delivery and stored
them “safe and sound”, and claimed a total loss of the adventure. This claim, which was
effectively for loss of market, succeeded. Lord Wrenbury said:175
“… where goods are insured at or from one port to another port the insurance is not confined to an indemnity to be
paid in case the goods are injured or destroyed, but extends to an indemnity to be paid in case the goods do not reach
their destination. This may be variously described as an insurance of the venture, or an insurance of the voyage, or an
insurance of the market, as distinguished from an insurance of the goods simply and solely. Goods delivered at the port
of destination may be of value very different from their value at the port of loading. The underwriters obligation is to
pay money in the event of the goods failing to arrive at their destination uninjured by any of the perils insured against.”
13.56 The London cargo market had for some time been concerned about the decision
in British & Foreign Marine v Samuel Sanday & Co176 as it progressed through the
courts and sought legal advice. In April 1919 F. D. MacKinnon Q.C. advised that if
insurers wished to exclude loss of adventure from the war risks cover this should be
done by a new clause, known as the Frustration Clause, which became effective on 1
May 1919. This provided as follows:177
“Warranted free of any claim based upon loss of, or frustration of, the insured voyage, or adventure, caused by arrests,
restraints or detainments of kings, princes or peoples.”
This provoked a second round of litigation during the Second World War in a series of
test cases under the name Rickards v. Forestal Land, Timber and Railways Co Ltd;
Middows v. Robertson Ltd and Other Cases.178 In these cases British assureds had
insured their cargoes, which were being carried by German vessels, against war risks.
The policies were subject to the Frustration Clause drafted more than 20 years earlier
by F. D. MacKinnon Q.C. When war broke out the Masters of the German vessels were
ordered by the German Government to take their ships and their cargoes to Germany.
Two of the ships were scuttled when they met with British warships and the cargoes
lost. The other cargo was successfully delivered in Germany unharmed but beyond the
reach of the assured. Thus the three cargoes were all physically lost, two at the bottom
of the sea, and the other in Germany for the duration of the war. However, insurers
sought to rely on the Frustration Clause arguing that the orders of the German
Government had frustrated the voyage triggering the Frustration Clause exclusion. At
first instance Hilbury J. accepted this and held that the loss was excluded. MacKinnon
L.J., by now in the Court of Appeal, in a judgment that was more critical of the trial
judge than is traditional, pointed out that the policy cover for loss of the adventure is
separate from the insurance on the goods, saying:179
“The subject-matter of the contract is, of course, the goods, and they are insured against loss or damage by insured
perils. But even if the goods are not so lost or damaged, there is an additional insurance against the loss of their
voyage. The learned Judge considers this to be not an additional risk, but an essential part of it in every case ….
I think it is unnecessary to discuss further this elementary misconception as to the nature of a policy upon goods. I
would only add that, if the view of the learned Judge were correct, the assured under this policy must have accepted
the most fatuous and worthless contract ever made by a sane man. The policy solemnly insures his goods against loss
by war perils, and his being thereby deprived of them. But the frustration clause, upon the Judges reasoning, would in
every case of such deprivation that I can imagine make that promise absolutely nugatory.”
13.57 The case nevertheless proceeded to the House of Lords giving rise to a further
examination of the concept of loss of the adventure. In particular, Lord Wright explained
that it is not only loss of market that is insured, saying:180
ȌThe primary subject of the insurance is the goods as physical things, but there is superimposed an interest in the safe
arrival of the goods … Thus it is sometimes said that the policy on goods covers also loss of market, because the
owner is generally shipping them for sale at a profit; but the advantage contemplated may be some other purpose of
the assured, as for instance, as raw material or machinery for his factory for use at the destination. I prefer the phrase
‘loss of the adventure’.
It follows that a policy on goods is in truth one covering a composite interest, the physical things or chattels, against
their destruction, damage or deprivation, and also the expected benefit from arrival. The subject-matter may be
described as chattels-cum-adventure. It seems to follow inevitably that if the goods are lost the adventure is lost also.
If they are damaged and suffer a partial loss the adventure may or may not be lost. But the adventure may be lost
even though the goods are neither damaged nor lost nor taken from the assureds possession or control.”
Total loss of the adventure and sue and labour
13.58 Before considering the Forwarding Charges Clauses, on which contemporary
claims for loss of the adventure are generally based, it is convenient to look at the
interrelationship between a claim for a total loss, based on loss of the adventure, and a
claim for a partial loss, based on sue and labour expenses incurred to prevent a total
loss of the adventure. The issue was considered in Rickards v. Forestal Land181 in the
context of the third vessel, involved in that case, the Wangoni, which arrived in
Germany with the cargo unharmed, but beyond the reach of the assured. There were
offers by the German Government which might have enabled the assured to recover
possession of the goods at a port other than the proper port of destination in Germany.
These offers were subject to heavy penalties and onerous price and other conditions.
Nevertheless, it was argued that the opportunity presented by these proposals meant that
it was not “unlikely” that the goods could be recovered, in terms of the Marine
Insurance Act 1906 section 60.182 It was said this precluded any claim for constructive
total loss based on loss of the adventure. Lord Wright found, as a matter of fact, that the
terms proposed by the German Government were not reasonable and practical, but
nevertheless recognised that, if the offer had been reasonable, there would have been a
partial loss for expenses, saying:183
“In a question of this sort it is necessary to examine all the circumstances. It is clear that ‘goods’ here meant the goods
embarked on an adventure for carriage to Cape Town. Recovery of the goods included recovery both of the goods and
of the adventure. It is true that the disability of the carrying vessel to complete the voyage would not necessarily
involve a loss (except a partial loss for expenses), so long as transhipment into another vessel was reasonably
practicable. But I am not prepared to find that it was reasonably practicable in the present case.”
Where “transhipment into another vessel is reasonably practicable” there will be a
“partial loss for expenses a principle illustrated by the earlier case of Wilson Bros
Bobbin Co Ltd v. Green,184 which also shows how a claim for a total loss may fail, but
a claim for expenses to prevent a total loss of the adventure can still succeed.185 In this
case, the insurance was on a cargo of wood laden on a Norwegian ship to be carried
from a Baltic port to an English port. The policy contained the usual suing and labouring
clause and was against war risks only. Shortly after sailing in 1914 the ship was
stopped by German war vessels and not allowed to pass out of Norwegian waters until
the wood had been discharged at a Norwegian port. Subsequently the wood, which had
been safely stored by the assured in Norway, was forwarded to England. The action
came on originally as one for a constructive total loss but Bray J. held that in December
1914, when Notice of Abandonment was given (on discharge of the cargo in Norway),
that it could not be said that the total loss of the cargo was unavoidable, or that it was
unlikely that the goods could reach their destination in England. The total loss claim thus
failed. The question then to be subsequently decided was whether the assured could sue
and labour to save the adventure when the goods were safe. It was held by Bray J.,
anticipating the words of Lord Wright, that the concept of loss of adventure included
partial loss of expenses. He said:186
“If the loss was incurred by the perils insured against, namely, war risk, it covered particular average loss as well as
total loss, and it seems to me that there was at all events a danger of a partial loss here. The goods were at Grimstadt,
the port of destination was Garston, and the goods could not safely be got to Garston without incurring the expense of
storage at Grimstadt and the cost of forwarding, and therefore, in my opinion, these were expenses … incurred in
endeavouring to avert that loss.”
The Judge went on to hold that if the assured had arranged the forwarding more
promptly he could have achieved a better freight rate and, no doubt, reduced the expense
of storage. The figure payable by insurers was adjusted accordingly187
13.59 In recognition of the liability discussed in the preceding paragraphs, the revised
Institute Cargo Clauses provide as follows:
“Forwarding Charges
12. Where, as a result of the operation of a risk covered by this insurance, the insured transit is terminated at a port or
place other than that to which the subject-matter insured is covered under this insurance, the Insurers will reimburse
the Assured for any extra charges properly and reasonably incurred in unloading storing and forwarding the subject-
matter insured to the destination to which it is insured.
This Clause 12, which does not apply to general average or salvage charges, shall be subject to the exclusions
contained in Clauses 4, 5, 6 and 7 above, and shall not include charges arising from the fault negligence insolvency or
financial default of the Assured or their employees.”
The Forwarding Charges Clause covers claims for loss of the adventure where the
goods are undamaged188 as well as other forms of constructive total loss as, for
example, where goods have been damaged, the voyage is terminated, and it is necessary
to forward the goods to their destination in order to avoid a constructive total loss under
section 60(2)(iii) of the 1906 Act.189 It has been said that the clause is “largely
declaratory” as it reflects the right to claim for loss of the adventure and the right to sue
and labour to prevent a constructive total loss.190 However, it is submitted that the
Forwarding Charges Clause may provide additional cover by triggering the right to
recover expenses simply on the basis that the insured transit has been “terminated” and
by broadening the expense recoverable to any “extra charges. In any event, the clause
clarifies the rights of an assured who may be entirely unfamiliar with the concept of loss
of the adventure.
13.60 Historically, the roots of the Forwarding Charges Clause lie in the provision in
the FPA Clauses which reads:191
“… also to pay special charges for landing warehousing and forwarding if incurred at an intermediate port of call or
refuge, for which the Underwriters would be liable under the standard form of English Marine Policy with the Institute
Cargo Clauses (W.A.) attached.”
The cover for sue and labour to prevent a loss of the adventure was long recognised but
the problem that arose was that, commonly, cargo was only insured against total loss
under free of particular average (FPA) terms.192 Expenses incurred in forwarding the
goods were not recoverable under the FPA Policy unless they were incurred to prevent
a total loss, partial losses not being recoverable under FPA insurance. Thus, in Great
India Peninsular Railway Co v. Saunders193 the insurance was on a consignment of
rails from London to Bombay on FPA terms (i.e., warranted free of partial loss unless
the ship was stranded sunk or burnt). The ship put back into Plymouth due to bad
weather, so the exceptions opening the warranty did not apply, and a claim for extra
freight for forwarding the rails to India failed. There was no potential “total” loss of the
goods. Insurers introduced the Clause set out above194 to encourage assureds to sue and
labour under FPA policies to minimise loss in all cases and to avoid disputes as to
whether or not the action taken was to prevent a partial or total loss.195
13.61 The Forwarding Charges Clause has three main requirements:
(1) The “operation of a risk” covered by the insurance.
(2) Termination of the transit at a port or place other than that to which the subject-matter insured is covered
under the insurance.
(3) That no relevant exclusions apply: the most relevant exclusions for present purposes being insolvency
(Clause 4.6) and delay (Clause 4.5).
These issues are now considered in turn.
A risk covered by the insurance
13.62 The question of whether a risk covered by the insurance has operated generally
speaks for itself where there has been a traditional casualty at sea, or a fire on board a
vessel or vehicle which renders the ship or lorry unable to complete the insured transit.
The cover for all risks, however, greatly broadens the insurance cover because it
extends, in particular, to loss of the cargo by the taking of unlawful possession by a
bailee. For example, in London & Provincial Leather Processors v. Hudson196 there
was held to be an all risks loss where the bailees liquidator wrongfully converted the
goods. Similarly, wrongful misappropriation of a cargo by a shipowner or carrier is
covered under an all risks policy.197 Accordingly, there can be little doubt today that any
wrongful act by the bailee or carrier by the way of exercise of a wrongful purported
lien, legal proceedings to attach the cargo, or similar inference with the assureds rights
of ownership or possession of the cargo amount to an all risks loss. The threat of
physical damage or dispossession of the cargo is sufficient. A more difficult issue arises
where the carrier does not attach or interfere with the possession or ownership of the
cargo, but is in breach of the contract of carriage and fails to complete the voyage, not
because of any loss of or damage to the ship or carrying vehicle, but merely because he
has run out of funds. Difficult cases also occur in practice where there is a casualty,
such as an engine room fire, but for want of funds the shipowner is unable or unwilling
to complete the voyage. Nice questions of causation may arise on whether the loss of the
adventure arises from the marine casualty or the carriers lack of funds or both. It is
convenient to discuss the principles that apply to these issues in the context of the
insolvency exclusion which is considered below198 after we have looked at what
constitutes “termination” of the insured transit.
“Termination” of the insured transit
13.63 The question of whether the transit has “terminated” at a port or place other than
that to which the subject-matter insured is covered under the insurance depends on a
consideration of Clause 8 of the Institute Cargo Clauses. Clause 8 sets out the usual
termination provisions, for example the insurance terminates on completion of unloading
at the destination named in the contract of insurance.199 Clause 12 is triggered where
termination falls outside those normal provisions and takes place in circumstances that
are beyond the control of the assured. This would include circumstances where the
vessel has been physically disabled or circumstances where the contract of carriage has
otherwise been frustrated.200 As we have seen,201 there must also be the operation of an
insured peril, but subject to that requirement, the Forwarding Charges Clause comes
into play and the assured is entitled to be reimbursed for any extra charges properly and
reasonably incurred in unloading storing and forwarding the goods to their insured
destination. The charges must be “extra” (i.e., over and above what would have been
paid so that, for example, if freight were only payable at destination, freight paid to
complete the insured journey would not in principle be recoverable).202 Where the
termination results from a peril insured, Clause 12 will operate in parallel with Clause
9.203 Clause 9 provides that the insurance shall remain in force, subject to prompt notice
to the insurers, and an additional premium if required, if owing to circumstances beyond
the control of the assured the contract of carriage is terminated at a port or place other
than the destination named in the contract of insurance. The words “unloading storing
and forwarding” in Clause 12 are no doubt intended to cover all reasonable expenses
and would include, for example, insurance premiums. Accordingly, if the assured has
paid an additional premium under Clause 9 to extend the duration of the insurance
cover, that premium will be recoverable under Clause 12 as part of the forwarding
expenses.
Insolvency and loss of the adventure
13.64 The insolvency exclusion in Clause 4.6 of the revised Institute Cargo Clauses
excludes loss damage or expense “caused by insolvency or financial default of the
owners managers charterers or operators of the vessel”.204 It is trite law that the
existence of an exclusion does not, of itself, give cover, so that, for example, deletion of
the insolvency exclusion would not be the same as providing cover for insolvency or
financial default. However, it is reasonable to assume that those drafting the Clauses in
1982 had in mind that there was cover for at least some insolvency situations.205 At one
end of the scale, cover for insolvency could take the form of a direct financial
guarantee,206 but clearly there is no question of financial guarantee under marine cargo
insurance which, inter alia, requires an insurable interest in cargo, both by virtue of the
1906 Act207 and the express provisions of Clause 11, the Insurable Interest Clause.208 At
the other end of the scale, we have clear authority for the proposition that wrongful
misappropriation of the cargo by a carrier or bailee is an all risks loss even if such
misappropriation is caused by the insolvency of the carrier or bailee.209 The difficult
cases lie between these two extremes when the goods are left at an intermediate port,
exposed to the elements, or, if warehoused, exposed to warehouse dues and liens for
non-payment, because the carrier or bailee has become insolvent. In such a case no
wrongful possession may be asserted by the carrier or third party and the exercise, in
due course, of a lien, for example, by a warehouse-keeper for unpaid dues, may be
perfectly legal and proper. That lien will lead eventually to the sale of the goods, and
the loss of the goods to the assured, if steps are not taken to pay the warehouse dues.
The situation is further complicated by the assureds interest, not only in the goods but
also the adventure. The adventure will certainly fail if the insolvent carrier has
abandoned the voyage so that the goods will be left indefinitely at some intermediate
port or place if they are not forwarded to their insured destination.
13.65 The troubling case that tackled at least some of these issues is Integrated
Container Service Inc v. British Traders Insurance Co Ltd210 which was a case of a
contingency policy on containers, not a conventional cargo policy involving cover for a
loss of the adventure. However, this case may nevertheless indicate the approach of the
courts to the problem of insolvency in the context of the loss of adventure as
reimbursement of sue and labour expenses was awarded even in the absence of voyage
cover. The insurance was based on the SG Form, including the usual sue and labour
clause, and extended to all risks of loss of or damage to the subject-matter insured. The
policy attached the Institute Container Clauses (All Risks) which cover all risks of loss
or damage to the subject-matter insured for a set period of time, typically a year, but are
otherwise in materially the same terms as the revised Institute Cargo Clauses (A). In
addition to the traditional sue and labour clause in the SG Form the Container Clauses
also included a Duty of Assured Clause in the form then current requiring the assured to
take all such measures as may be reasonable for the purpose of averting or minimising a
loss.211 The judge at first instance, Neill J., held that the policy, albeit a container
contingency policy, constituted “an insurance on goods. To that extent it is difficult to
avoid the conclusion that his views are relevant and may even be binding in relation to
marine cargo insurance. The containers owned by the assured were abandoned and left
throughout the Far East as a result of the insolvency of the lessee. As Everleigh L.J.
explained:212
“At the beginning of the rescue operation some of the containers were in active use. Some lay on the quayside. Some
were in warehouses. Port dues had been incurred in relation to some and warehouse charges were mounting in
relation to others which thus became the subject of a lien for those dues and charges. The [assured] had submitted
details of their expenses to the [insurers] together with supporting invoices and other documents. Those details are set
out in a schedule to the points of claim. They consist of payments made in respect of customs and storage charges in
order to secure the release of containers; the cost of transhipment to [the lessees] depot; the cost of removal from the
[lessees] depots to the [assureds] depots; the travelling expenses of those engaged in the rescue work and legal fees
for advice obtained from Japanese lawyers. The [insurers] admitted that the expenses were paid for the purpose of
recovery of containers from the various locations referred to in the documents set out in the schedule.
The learned Official Referee accepted the [assureds] contention that the expenditure was necessarily incurred in
order to prevent loss or damage to the containers in a situation to which the sue and labour clause of the policy
applied.”
A very broad view was taken of what constituted an all risks loss in such circumstances
so as to justify sue and labour. For present purposes it is of interest to note that an
argument was raised on appeal that, once the containers were free of liens in the depots
of the agents of the insolvent lessee, the containers were in the possession of the
“assured owners who were free to do what they liked with them. The cost of returning
the containers to the owners own depots was challenged on this basis. Dillon L.J. was
uneasy on the point but said:213
“This policy, however, is not an insurance on a voyage, where it may be justifiable … to claim under a sue and labour
clause the expense of forwarding cargo to its contractual destination, even though the voyage had been abandoned at
an interim port by the carrier.”
Later he added:214
“ … and there is no evidence to establish that the containers were safe in the hands and premises of the [lessees]
agents.
Therefore, and especially as this is an appeal from a decision of an Official Referee, from whom no appeal can lie,
on a question of fact, I would not think it safe or appropriate to interfere with the clear findings of the Official Referee
that the expenses claimed, … , were all part of what it was reasonably necessary for the [assured] to expend if they
were to avoid … the real risk of the [assured] losing their containers.”
Although the issue was therefore a factual one, determined by the Official Referee, and
dealt with on a broad basis (without looking at the facts relevant to each and every
individual container) some inferences can be drawn from these remarks. First of all, it
may be reasonable to infer that if the policy had been a voyage policy covering the
adventure then the court would quite easily have come to the conclusion that the cost of
forwarding the goods to a place of safety (or their contractual destination) would have
been covered as a sue and labour charge to prevent loss of the adventure. Secondly, it
seems that the Official Referee decided, as a matter of fact, that the containers were not
safe until in the actual possession of their owners, which comes close to saying that
even under a time policy there is an obligation on insurers to pay for the goods to be
forwarded to a destination where they are safe in the assureds own possession. The
Court of Appeal was reluctant to disturb the finding of the Official Referee and held that
such action by the assured was “wholly reasonable”.215
13.66 The insurers conceded liability for lost or damaged containers but challenged
all else. The case is distinguishable, in the context of the Institute Cargo Clauses, on the
basis that it involved the Container Clauses and a time policy. More important, perhaps,
is the fact that one of the contingencies contemplated by this type of specialised
insurance is the insolvency of the lessee. The case is also distinguishable on the basis
that there was no exclusion of insolvency in the Institute Container Clauses (All Risks)
in use at that time.
Nevertheless, it may be noted that the Court of Appeal were fully aware that insolvency,
of itself, was not a risk insured, Dillon L.J. saying:216
“The insolvency of [the lessee] is not a risk insured against under the policy, since it does not in itself involve any loss
or misfortune to, or indeed have any effect on, the containers or other chattels, the subject-matter of the insurance. It
did however have the result that the [assured] became entitled, as against [the lessee] to resume possession of all the
containers under the terms of the lease … ”
In all the circumstances Integrated Container Service v. British Traders217 may be said
to provide some guidance suggesting that where there is abandonment of the goods by
the carrier in circumstances where the transit is terminated, or the voyage is frustrated
or repudiated, this entitles the assured to sue and labour by incurring warehousing and
forwarding charges. These expenses will be recoverable under the Forwarding Charges
Clause even if the carriers have not wrongfully taken possession of the goods and the
abandonment of the voyage results from the carriers insolvency and subsequent inaction.
Where there is cover for all risks, this apparently extends to the threat of loss or damage
to the goods by reason of the fact that the carriers, or other bailees, have left them
exposed to the elements, or that the goods are under the threat of lien and sale.218 Insofar
as these perils “operate” that constitutes an all risks loss and the insolvency exclusion
will only prevail if insolvency is an equally effective or proximate cause of the loss.219
Moreover, under the revised Institute Cargo Clauses, even if insolvency is an equally
effective concurrent cause of the loss, the insolvency exclusion under Clause 4.6 only
comes into play where the assured is aware, or ought to be aware, of the potential
insolvency.220
Delay and loss of the adventure
13.67 A claim for loss of the adventure hinges on termination of the insured transit, in
terms of the Forwarding Charges Clause, or frustration of the voyage in terms of the
origins of the concept, as discussed earlier in this chapter.221 It may therefore be said
that the delay exclusion has no place in the discussion here because, if the voyage is
merely delayed, and neither terminated nor frustrated, there can be no loss of the
adventure. Accordingly, it may be the case that the exclusion of delay in Clause 4.5 of
the Institute Cargo Clauses simply has no relevance to claims for sue and labour to
prevent loss of the adventure. In Wilson Bros Bobbin Company, Ltd v. Green222 there
was a successful claim for sue and labour charges to prevent loss of the adventure when
a cargo of wood, laden on a Norwegian vessel, was prevented by German war vessels
from completing the voyage.223 The cargo, having been discharged in Norway, was
warehoused and later forwarded to England. The policy excluded all claims arising
from delay and it was argued that the claim to recover the storage charges and
forwarding expenses was expressly excluded by the terms of the policy as the claim
arose from delay.224 Bray J., after stating the facts said:225
“The claim for the expense of storage and reshipment may be dealt with together, and as to this [Counsels] first point
was that as the claim arose from delay it was excluded by the express terms of the policy. In my opinion that point
fails. I do not think the clause excluding all claims arising from delay affected in any way the suing and labouring
clause.”
Bray J. then on went on to consider the allegation that the goods were “safe” at the
Norwegian port and concluded, echoing the ICS v British Traders Case,226 that, as the
policy covered the adventure, forwarding expenses to get the goods to the insured
destination were covered so as to prevent a loss of that adventure. Bray J.s reasoning
for his decision regarding the delay exclusion gives us little guidance, but we may infer
that what he meant was that the parties cannot have intended that the cover granted for
sue and labour to preserve the adventure was negated by the delay exclusion because
this would almost always bar sue and labour claims where the voyage was frustrated,
repudiated or abandoned. In any event the case is clear authority for the proposition that
the delay exclusion does not apply to claims under the sue and labour clause in such
circumstances.
13.68 A different approach was taken shortly afterwards by Bailhache J. in Russian
Bank for Foreign Trade v. Excess Insurance Co Ltd.227 In this case a parcel of barley
shipped by the assured on board a British ship for carriage from Novorossisk to
Falmouth was insured against traditional marine risks, including restraint of princes, but
excluding “all claims due to delay”. Owing to the closing of the Dardanelles and the
declaration of war against Turkey, the voyage was frustrated and the cargo was landed
and remained at Novorossisk where the ship was requisitioned by the Admiralty for use
against the Russian Government. It was held that the claim was based on delay within
the exception in the policy. Bailhache J. felt himself bound by the decision of the House
of Lords in Bensuade v. Thames & Mersey Marine Insurance Co,228 a case on freight
insurance which excluded all claims “consequent on loss of time”. He came to the
conclusion, at which he owned himself “surprised”, that the delay exclusion applied.229
Although Bailhache J. felt, at that time, unable to distinguish the wording of the freight
insurance exclusion,230 it may be suggested today that in terms of modern views on
causation the words “any claim consequent on loss of time”231 would be seen as
distinctly wider and to be contrasted with “any claim due to delay”. The wider formula
does not encompass the proximate cause test in Clause 4.5 of the Institute Cargo
Clauses.232 In the circumstances it is submitted that the approach adopted by Bray J. in
Wilson Bros Bobbin Co Ltd v Green233 is to be preferred. It represents the law as
Bailhache J. would have himself expected it to be in Russian Bank v. Excess,234 had he
not felt himself bound by a House of Lords decision in Bensuade v. Thames & Mersey
Marine,235 which can now be seen as distinguishable.
13.69 It is convenient at this point to touch on the position in relation to perishable
cargoes where the situation is more complex as there will inevitably be a combination
of causes, delay and the peril or risk causing that delay. Clause 4.5 of the revised
Institute Cargo Clauses, and the Marine Insurance Act 1906 section 55(2)(b), both
recognise that, in delay cases, there will be concurrent causes of loss, one delay and the
other a peril insured. When there are concurrent causes of a loss, one covered and one
excluded, the exclusion will prevail.236 Where a cargo will deteriorate over time,
which applies, more or less, to almost all cargoes, it can always be said that one of the
reasons for forwarding the goods is to prevent delay. In those circumstances it may be
argued that the delay exclusion will apply to almost all cases of loss of the adventure.
The law, however, is that it is not sufficient for delay to be one of the causes as the
requirement is that delay must be a dominant cause at least equal in efficiency to any
other competing cause.237 It may be submitted, therefore, that apart from the cases where
goods are time sensitive, or are forwarded for commercial reasons,238 delay will today
rarely be identified as the proximate cause or even a concurrent predominant cause.
13.70 In conclusion, the delay exclusion under the Institute Cargo Clauses has a
limited role in relation to sue and labour incurred to prevent a loss of the adventure
under Clause 12, the Forwarding Charges Clause. The primary reason for this is that
there can be no claim for loss of the adventure if the voyage is merely delayed and not
frustrated. In terms of Clause 12, the insured transit must have “terminated”. The
authorities suggest that in those circumstances the delay exclusion is not intended to
impact on the claim for sue and labour under Clause 12.239 Where there are current
competing causes, it is not sufficient if delay merely be one of the causes, as the
exclusion will only come into play if delay is an equally effective cause of the loss as
the peril that lies behind the delay.240 In practice, the exclusion will only apply when the
assured incurs expense merely to shorten the period of delay, where the market for the
goods is time-sensitive,241 or it suits the assured for his own commercial reasons to
forward the goods more promptly.242 The exclusion will not apply if the insured transit
has terminated as a result of the operation of an insured risk and the action taken by the
assured is taken to prevent loss of the adventure by forwarding the goods in ordinary
course and in reasonable circumstances in order to prevent a loss of that adventure.
1. The Avoidance of Delay Clause, Clause 18, which provides that it is a condition of the insurance that the assured
shall act with reasonable despatch “in all circumstances” is, it is submitted, intended to relate to all circumstances
concerning the transit, see Chapter 11, para. 11.38 where this Clause is considered.
2. See Appendix 6.
3. See Appendix 7.
4. (1927) 27 Ll. L. Rep. 59 (CA).
5. See Chapter 6, para. 6.25 where “conditions precedent” are considered.
6. See Scrutton L.J. at p. 62.
7. See the discussion of the meaning of the word “immediate” which appears in Clause 8.1 of the ICC and is
examined in Chapter 11, para. 11.20.
10. See further Chapter 14 for a discussion of sue and labour.
12. Chandris v. Argo Insurance Co Ltd [1963] 2 Lloyds Rep. 65 at p. 73.
13. Limitation Act 1980 s. 5. It is for the defendant to raise the point of limitation in his defence (Civil Procedure
Rules, hereafter “CPR” at PD16, para. 13.1). Doing so will provide him with a complete, albeit technical defence to
the action, for the “expiry of the limitation period bars the remedy by action and does not extinguish the right”, per
Diplock J., in Royal Norwegian Government v. Constant & Constant and Calcutta Marine Engineering Co Ltd
[1960] 2 Lloyds Rep. 431 at p. 442. The parties may agree to lengthen or shorten the limitation period.
14. Chrandris v. Argo Insurance Co Ltd [1963] 2 Lloyds Rep. 65. See also the comments of Lord Goff at p. 202
in Firma C-Trade S.A. v. Newcastle Protection and Indemnity Association (The “Fanti”) [1990] 2 Lloyds Rep.
191, and Apostolos Konstantine Ventouris v. Trevor Rex Mountain (The “Italia Express” (No. 2)) [1992] 2 Lloyds
Rep. 281.
15. See, for example, De Monchy v. Phoenix Insurance Company Hartford and Another (1929) 34 Ll. L. Rep.
201 (HL).
17. Ibid., fn. 28.
18. CPR r. 44.3(2)(a). “Costs follow the event” in the old terminology.
19. CPR r. 44.3(1); CPR r. 44.3(2)(b). CPR r. 44.3(4) requires the court to have regard to all circumstances and
provides a non-exhaustive list of particular factors which the court must take into account. The discretion is to further
the overriding objective of the CPR which is to enable “the court to deal with cases justly” (CPR r. 1.1(1)).
20. [2002] Lloyds Rep. IR 315.
21. CPR r. 44.4(1)(a) and (b). The difference between the two bases of assessment is as follows. Under the
standard basis, the court can only allow costs “which are proportionate to the matters in issue” (CPR r. 44.4(2)(a)) and
any doubts about whether costs “were reasonably incurred or reasonable and proportionate in amount go in favour of
the paying party” (CPR r. 44.4(2)(b)). Under the indemnity basis of assessment, any doubt will go against the paying
party (CPR r. 44.4(3)). Although, proportionately is not expressly mentioned here, the court still has to have regard to
the overriding objective which requires, inter alia, that the court deal “with the case in ways which are proportionate”
(CPR r. 1.1(2)(c)).
22. Excelsior Commercial & Industrial Holdings Ltd v. Salisbury Hammer Aspden & Johnson [2002] C.P Rep.
67 Lord Woolf C.J. at para. 32. The court declined to lay down guidelines as there could be an “infinite variety” of
situations which will justify the making of such an order (para. 32). Conduct can be unreasonable even if it does not
increase costs (Phoenix Finance Ltd v. Federation Internationa de lAutomobile [2003] C.P. Rep. 1).
23. Supreme Court Act 1981 s. 35A. An award of interest is discretionary.
24. Kuwait Airways Corp v. Kuwait Insurance Co SAK (No. 3) [2000] Lloyds Rep. IR 698.
25. Quorum A/S v. Schramm (No. 2) [2002] Lloyds Rep. IR 315; BP Exploration Co (Libya) Limited v. Hunt
(No. 2) [1979] 1 WLR 783, and Insurance Corporation of the Channel Islands v. McHugh [1997] LRLR 94 at p.
137.
26. McLean Enterprises v. Ecclesiastical Insurance Office [1986] 2 Lloyds Rep. 416.
27. Quorum A/S v. Schramm (No. 2) (supra).
28. Kuwait Airways (No. 3) (supra).
29. This contrasts with the power given to arbitrators by s. 49(3) of the Arbitration Act 1996. In Sempra Metals Ltd
v. Commissioners of Inland Revenue [2008] 1 AC 861, Lord Nicholls stated at paras. 98 to 99 that s. 35A is “not
intended to be an exhaustive code” and is “concerned with interest on debts and damages”.
30. [2008] 1 AC 861.
31. Lords Scott and Mance dissented on this point.
32. Per Lord Nicholls at para. 100.
33. Chandris v. Argo Insurance Co Ltd [1963] 2 Lloyds Rep. 65.
34. Ventouris v. Mountain (The Italia Express) (No. 2) [1992] 2 Lloyds Rep. 281 at 291, and see further Chapter
15, para. 15.1.
35. Lord Clyde in Manifest Shipping Co Ltd v. Uni-Polaris Insurance Co Ltd (The Star Sea) [2001] I Lloyds
Rep. 389 (HL) at para. 6; followed by Longmore L.J. in KS Merc-Scandia XXXXII v. Lloyds Underwriters (The
Mercandian Continent) [2002] 2 Lloyds Rep. 563 at para. 34 and by Mance L.J. in Agapitos v. Agnew (The
Aegeon) [2002] 2 Lloyds Rep. 42 at para. 13.
36. KS Merc-Scandia XXXXII v. Lloyds Underwriters (The Mercandian Continent) [2001] 2 Lloyds Rep. 563.
37. At para. 35, per Longmore L.J.
38. [2002] 2 Lloyds Rep. 42.
39. At para. 44.
40. Wisenthal v. World Auxiliary Insurance Corporation Limited (1930) 38 Ll. L. Rep. 38.
41. (1889) 14 App Cas 337.
42. The Star Sea, in the Court of Appeal [1997] 1 Lloyds Rep. 360 at pp. 366–367. See Chapter 3, para. 3.31 et
seq. for a consideration of what constitutes “knowledge of the assured” under the Institute Cargo Clauses.
43. Unreported: Commercial Court, 26 February 1991, Saville J.
45. Agapitos v. Agnew (The Aegeon) [2002] 2 Lloyds Rep. 42.
46. Lek v. Mathews (1927) 29 Ll. L. Rep. 141 (HL); Guardian Royal Exchange v. Ormsby [1982] 29 SASR 498;
Orakpo v. Barclays Insurance Services [1995] LRLR 443 (CA); Galloway v. Guardian Royal Exchange (UK)
Limited [1999] Lloyds Rep. IR 209; Direct Line Insurance v. Khan [2002] Lloyds Rep. IR 364 and Tonkin v. UK
Insurance Limited [2007] Lloyds Rep. IR 283.
47. ICC, Clause 1.
48. MIA 1906 s. 56(1) which further provides that any loss other than a total loss, as defined in s. 57, is a partial
loss.
49. MIA 1906 s. 56(2), see para. 13.42 below for a discussion of constructive total loss.
50. See para. 13.53 et seq. below.
51. Recoverable Expenses and Liabilities, Sue and Labour, Salvage, General Average and Collision Liabilities.
52. For example, brokers ancillary wordings used with the ICC in the London market sometimes start the description
of the cover with the phrase “all risks of physical loss or damage”.
53. See ICC, Clause 1 which uses the traditional formula.
54. Coven SPA v. Hong Kong Chinese Insurance Co [1999] Lloyds Rep. IR 565, per Clarke L.J. at p. 568 relying
on Fuerst Day Lawson Limited v. Orion Insurance Co Ltd [1980] 1 Lloyds Rep. 656. See also the decision of the
House of Lords in De Monchy v. Phoenix Insurance Company of Hartford (1929) 34 Ll. L. Rep. 201, where
insurance against “leakage” was held to be limited to “actual physical loss”, per Lord Atkin at p. 210. Further
confirmation of this approach is to be found in the cases dealing with the nature of “damage”, discussed at para. 13.32
below.
55. The Institute Cargo Clauses, Clause 3, also cover liability under the “Both to Blame Collision Clause”, see
57. Forestal Land, Timber & Railways Company, Ltd v. Rickards; Middows Ltd v. Robertson; and Other
Cases (1941) 70 Ll. L. Rep. 173 at 184, per Viscount Maugham.
58. Ibid., Middows Ltd. v. Robertson (supra) at p. 184.
59. ICC(A), (B), and (C) Clause 2. See Chapter 14.
60. 1993 AMC 1743 (United States District Court, Southern District of New York).
61. At p. 9.
62. Centennial Insurance Company v. Lithograph Sales (2001) 187 Fed. Supp.2d 214, US District Court for the
district of New Jersey, affirmed US Court of Appeals for the Third Circuit, (2002) 29 Fed. Appx. 835.
63. Cases where goods are so damaged as to cease to exist, as in a fire, or so damaged as to cease to exist in
specie, are treated as cases of damage, see para. 13.32 et seq. below.
64. MIA 1906 s. 57.
65. MIA 1906 s. 60(2)(i).
66. The history of all risks cargo cover under what now constitutes the Institute Cargo Clauses(A), is considered in
Chapter 8, para. 8.2 et seq.
67. See para. 13.21.
68. See para. 13.22.
69. See para. 13.30.
70. See para. 13.31.
71. See paras. 13.53 to 13.70 below.
72. Marine Insurance Act 1906 Sched. 1 r. 9.
73. These word are used in American cargo insurances to reverse the decision in Atlantic Insurance Co v.
Storrow NY Ch 1835, where clandestine theft was held by the New York court to be covered by the ordinary wording
of the policy, see OMay on Marine Insurance, 1993, Sweet & Maxwell, at p. 121.
74. For a non-marine case where an assured accepted a worthless cheque and this was held to be a loss of money,
see the brief decision of Goddard C.J. in Eisinger v. General Accident Fire & Life Insurance Corporation Ltd
[1955] 2 Lloyds Rep. 95, which should be treated with caution as it appears to turn on the point that property has
passed before the goods were taken, which may no longer apply today, see Theft Act 1968 s. 5.
75. See the example given by Parker J. in Webster v. General Accident Fire & Life Assurance Corporation
Limited [1953] 1 Lloyds Rep. 123 at p. 128.
76. [1960] 2 Lloyds Rep. 241.
77. Per McNair J. at p. 251.
78. Australia & New Zealand Bank v. Colonial and Eagle Wharves (supra) and a non-marine case on “theft”,
which must be encompassed by the term “ all risks”, Dobson v. General Accident Fire & Life Assurance
Corporation plc [1989] 2 Lloyds Rep. 549.
79. [1968] 2 Lloyds Rep. 47, Donaldson J.; [1969] 1 Lloyds Rep. 293 (CA).
80. Per Donaldson J. at p. 55.
81. At p. 300.
82. This decision itself was overruled in Shell International Petroleum Co Ltd v. Gibbs (The Salem) [1983]1
Lloyds Rep. 382 (HL), because a “taking at sea” involves more than a mere change in the character of the possession
of the bailee, and requires that the possession itself is changed, per Lord Denning M.R. in the Court of Appeal [1982]
1 Lloyds Rep. 369 at p. 374. However, The Mandarin Star also involved cover for theft and it is submitted that the
analysis regarding the change in the character of the possession may remain valid in that context and therefore in
relation to all risks cover.
83. [1981] 2 Lloyds Rep. 316, Mustill J., reversed by CA at [1982] 1 Lloyds Rep. 369; affirmed HL at [1983] 1
Lloyds Rep. 342.
84. At p. 329.
85. On Mustill J.s view of the facts, which was not followed, he held that this change of possession occurred when
the ship turned aside from the direct course to Europe and made for Durban (at p. 374). The Court of Appeal
disagreed. Lord Denning M.R. held that there was larceny by a trick at Kuwait, the port of loading, and that there was,
at any rate a “taking” at Durban (at p. 374 CA). Kerr L.J. held that the only point to which there was something in the
nature of a “taking” was when the cargo was pumped ashore at Durban (at p. 378).
86. At p. 382. The decision of the HL that “takings at sea” included deprivation of possession by “seizure” or
“capture” and not the taking by a bailee/shipowner made it unnecessary to consider this point further at that level.
87. See the authorities in paras. 13.23 and 13.24. This would also constitute a “taking” in terms of the possession
requirement in the peril of “takings at sea”, see Rickards v. Forestal Land, Timber and Railways Co Ltd (1941) 70
Ll. L. Rep. 173 at p. 188, per Viscount Simon L.C. at p. 180 and must therefore fall with the much wider concept of
an all risks loss.
88. [2003] 1 Lloyds Rep. 131 (CA).
89. [2002] 1 Lloyds Rep. 652.
90. On the authority of London & Provincial Leather Processes v. Hudson (1939) 64 Ll. L. Rep. 352, discussed
in more detail below at para. 13.30, a case is which the point was not fully argued or considered.
91. See para. 13.45 below, where this case is considered in the context of constructive total loss.
92. [2002] 1 Lloyds Rep. 652.
93. [1984] 1 Lloyds Rep. 154 (CA), the facts of which are given at para. 13.65 below.
94. At p. 160.
95. Scott v. The Copenhagen Reinsurance Company (UK) Ltd [2003] Lloyds Rep. IR 696 (CA) at para. 47, per
Rix L.J.
96. Ibid. Rix L.J. based on Arnould, 16th edn, at para. 1138, see now Arnould, 17th edn, at para. 28–05, citing
Knight v. Faith (1850) 15 QB 659.
97. [2004] 1 Lloyds Rep. 111.
98. Supra.
99. At para. 224.
100. London & Provincial Leather Processes v. Hudson (1939) 64 Ll. L. Rep. 352, per Goddard L.J. at p. 357.
101. London & Provincial Leather Processes v. Hudson (supra) at p. 357.
102. (1939) 64 Ll. L. Rep. 352.
103. At p. 357.
104. At pp. 357–358.
105. [1984] 1 Lloyds Rep. 154.
106. See para. 13.65, where the facts of this case are set out in more detail. A container contingency policy is an all
risks policy on containers issued to the owner of the containers as a back-up in case the lessee of the containers has
failed to take out insurance or the lessees insurers fail to respond to claims for loss of or damage to the containers. It is
unclear how far the principles applied to such a policy would apply to an ordinary cargo policy; see Arnould para. 23–
68 at p. 1060.
107. Per Dillon L.J. at p.161.
108. At p. 157.
109. Arnould para. 23–68 at p. 1060 points out that this significantly extends the concept of all risks as understood
in previous cases.
110. At p. 162.
111. Where the assured is deprived of possession of the goods by a lawful court order which results from some
failure by the assured, this will not normally be “loss of” the goods. This would amount to a loss which the assured
“brings about by his own act”, to use the words of Lord Sumner in British & Foreign Marine Insurance Company,
Limited v. Gaunt [1921] 2 AC 41 which is discussed in Chapter 8, at para. 8.4. An unlawful court order obtained, for
example, on the basis of false affidavits by a third party intent to obtain possession of the goods is analogous to theft
and is clearly an all risks loss of the goods under the policy. Whether ordinary judicial process may amount to the
excluded peril of “seizure” is discussed in Chapter 10, para. 10.20.
112. See further para. 13.65 below which considers this case in the context of insolvency and loss of the adventure.
114. [1896] 1 QB 123.
115. Lord Esher M.R. stated, at p. 127, that “the ingenuity of the argument might commend itself to a body of
chemists, but not to businessmen”.
116. (1836) 3 Bing 267.
117. (1814) 2 M&S 372.
118. Ibid at p. 421.
119. MIA 1906 s. 56(1) defines a partial loss as any loss that is not a total loss.
120. The distinction was important because it was the practice to insure cargo on partial loss only terms, known as
“free of particular average” (FPA), for a description of which, see Chapter 9, para. 9.2.
121. Quorum v. Schramm [2002] 1 Lloyds Rep. 249 at 264 which relied on the Tasmanian decision in Ranicarv
Fridge Mobile Pty Limited [1993] Tasmanian Reports 113. That case, however, goes further insofar as it implied that
loss in value, without a physical change, is “damage” as where shellfish could not be exported as they had been held in
temperatures that transgressed the regulations. It is submitted that this would not be “damage” under English law and
would only be covered if the cargo were insured against the risks of “rejection” by Government Authorities, see
Chapter 10, para. 10.61 et seq. for a discussion of rejection risks.
122. Quorum v. Schramm (supra); Lysaght v. Coleman [1895] 1 QB 49, expenses incurred in examining sound
cargo, where damage was suspected but not proved, was not recoverable as damage to cargo.
123. The Orjula [1995] 2 Lloyds Rep. 395.
124. Hunter v. London Docklands Development Corporation [1997] AC 655 (HL). The product liability cases,
Bacardi v. THP and Ors [2002] 1 Lloyds Rep. 62 and Rodan v. Commercial Union [1999] Lloyds Rep. IR 495, take
a narrow view of damage as do the builders risk insurance cases, Cementation Piling and Foundations v. Aegon
Insurance Co Limited [1993] 1 Lloyds Rep. 526; The Nukila [1997] 2 Lloyds Rep. 146 and Shell v. CLM
Engineering [2002] 1 Lloyds Rep. 612.
125. See the cases cited in the previous footnote and, in particular, Shell v. CLM Engineering (supra).
126. This view is supported by the cases cited in the previous paragraph.
127. The summary in the text reflects the judgment of Raja Azlan Shah J. in Boon Cheah Steel Pipes Snd Bhd v.
The Asia Insurance Co Ltd [1975] 1 Lloyds Rep. 452.
128. (1873) LR 8 CP 552.
129. At p. 559.
130. [1895] 1 QB 49.
131. At p. 54.
132. [1958] 1 Lloyds Rep. 546.
133. At pp. 561, 562.
134. [1975] 1 Lloyds Rep. 452. A decision of the High Court of Malaysia.
135. At p. 455.
136. The Constructive Total Loss Clause was first introduced into the Institute Cargo Clauses on 1 January 1958 for
consistency of practice as various forms were in use worldwide, see Historic Records Report HR5 at p. 97. The
Clause was modified in the 1963 Clauses to clarify that the two different ways of establishing a constructive total loss
were alternatives and that the assured could rely on either method of establishing a constructive total loss, Historic
Records Report HR5 at p. 104. The current Clause derives from the Clause in the Institute Cargo clauses 1/1/63 with
minor amendments, see OMay at p. 435.
137. The words “recovering” and “reconditioning” appear to clarify and extend the word “repairing” in the Act, see
H. Bennett The Law of Marine Insurance, 2nd edn, 2006, para. 21.76 and OMay at p. 435.
138. Bennett at para. 21.76, compare Arnould at 29–43, fn. 290 to the opposite effect.
139. This heresy reflects the argument in British and Foreign Marine Insurance Company, Limited v. Samuel
Sanday & Co [1916] AC 650 that loss of the adventure had been abolished by the 1906 Act, a proposition that was
firmly rejected by the House of Lords. It is submitted that any suggestion that Clause 13 ousts the rules about loss of
the adventure should likewise be firmly rejected.
140. The suggestion that deprivation of possession was not a basis for a claim for a constructive total loss under the
Institute Cargo Clauses, in view of Clause 13, does not appear even to have been argued in Bayview Motors Ltd v.
Mitsui Marine & Fire Insurance Co [2003] 1 Lloyds Rep. 131. Rightly so, bearing in mind the historical background
leading to the clause as it appeared in 1963, for which see fn. 136 above. The purpose was to clarify the method of
calculation. There were no significant amendments in 1982, see OMay at p. 435, nor during the revisions leading up to
the revised Clauses of 2009.
141. Middows Limited v. Robertson; and Other Cases (1941) 70 Ll. L. Rep. 173 (HL) at p. 190, per Lord Wright
citing Robertson v. Petros M. Nomikos Limited [1939] AC 371.
142. Rodocanachi v. Elliott (1874) LR 9 CP 518, is an example of a case where the assured were deprived of their
goods, but the goods were eventually forwarded without further expense to the assured, see para. 13.54 below where
the facts of this case are given.
143. [1914] 1 KB 922 (CA).
144. Ibid. at p. 937 in the judgment written by Kennedy L.J. before his death and adopted by the other members of
the Court of Appeal.
145. [2003] 1 Lloyds Rep. 131 (CA).
146. At para. 25. This was common ground.
147. MIA 1906 s. 60(2)(iii).
148. [1975] 1 Lloyds Rep. 452.
149. See Chapter 9, para. 9.2 for an explanation of this type of cargo insurance cover.
150. The insurers were represented by Mr Michael Mustill Q.C., as he then was, whose argument was described as
“careful and painstaking” (at p. 454).
151. This was substantially in the same terms as that set out at para. 13.42 above.
152. At p. 453.
153. (1850) 137 ER 827.
154. Ibid. at p. 454.
155. “Recovering” and “reconditioning” in terms of Clause 13, see fn. 137 above.
156. (1866) LR 2 CP 204 (Ex Ch).
157. See Arnould, para. 29–53 at p. 1406 to para. 29–59 at p. 1412 where the matter is fully examined.
158. [1919] 1 KB 39 (CA) discussed in more detail at para. 13.68 below. In Vacuum Oil Company v. Union
Insurance Society of Canton Ltd (1926) 24 Ll. L. Rep 188, the court held that, on the facts, there was no
constructive total loss, so it was unnecessary to decide whether Notice of Abandonment was required, but the court
appeared to uphold earlier cases which, in line with the MIA 1906 s. 62(7), confirm the position that Notice is not
required if it could not benefit the insurers.
159. (1941) 70 Ll. L. Rep. 173 (HL). The judgment of MacKinnon L.J. in the CA at (1940) 68 Ll. L. Rep. 63 points
out, at p. 65, that in the case of the Minden, where the assured knew nothing of the fate of their goods until after the
ship was scuttled, the lack of Notice would be excused by s. 62(7) of the Act even if it had not been waived under s.
62(8). In the earlier important test case, British and Foreign Marine Insurance Company, Limited v. Samuel
Sanday & Co [1916] AC 650, Notice of Abandonment was given, but no objection was taken that the Notice was
given out of time.
160. [2003] 1 Lloyds Rep. 131 (CA) affirming [2002] 1 Lloyds Rep. 652.
161. At p. 657.
162. MIA 1906 s. 62(7) as discussed in para. 13.50.
163. At para. 16.24.
164. Roux v Salvador (1836) 3 Bing (NC) 266; as explained by Roche J. in Vacuum Oil Company v Union
Insurance Society of Canton, Ltd (1926) 24 Ll. L. Rep. 188 at 190.
165. British & Foreign Marine Insurance Co v Sanday [1916] AC 650, per Lord Loreburn.
166. Ibid., British & Foreign Marine Insurance Co v. Sanday (supra).
167. Ibid., see, for example, Lord Wrenbury at pp. 672, 673.
168. Anderson v Wallis (1813) 2 M&S 247 and see Arnould at para. 29.45 and the cases there cited.
169. See the discussion regarding the loss of the cargo aboard the Wagoni in Rickards v Forestal Land (supra)
and the judgment of Lord Wright at p. 195.
170. Vacuum Oil Company v. Union Insurance Society of Canton, Ltd (1926) 24 Ll. L. Rep. 188, per Roche J.
at p. 190.
171. See, for example, the judgment of Lord Wright in Rickards v Forestall Land (supra) at p. 195, where he
speaks of a “partial loss for expenses” where transhipment is reasonably practical in order to complete the voyage.
This is considered further at para. 13.58 below.
172. (1873) LR 9 CP 649 following Barkerv. Blake (1809) 9 East 283 (“The prolonged detention of ship and cargo
may properly be considered a loss of the voyage and such a loss is … a total loss of the goods”, Lord Ellenborough at
pp. 293–294); Anderson v Wallis (1813) 2 M & S 247. (A total loss of cargo may be effected not merely by the
destruction of that cargo, but by a total permanent incapacity of the ship to perform the voyage. That is a destruction
of the contemplated adventure, see Lord Ellenborough at pp. 247, 248.)
173. Ibid. at p. 664.
174. [1916] AC 650. This case led to the introduction of the Frustration Clause effectively excluding cover for loss
of the adventure from war risks insurance, see para. 13.56 below.
175. At pp. 672, 673.
176. [1915] 2 KB 781 (Bailhache J., 1 February 1915, and CA, 23 April 1915); [1916] AC 650 (HL), the CA and
the HL both affirmed the decision of Bailhache J.
177. Historic Records Report HR5 at p. 12. A limited form of standard cover is available under war risks policies
to buy-back insurance for loss of the adventure excluded by the Frustration Clause, see the Institute Additional
Expenses Clauses (Cargo, War Risks) 1/7/85 considered in Chapter 10, 10.23.
178. (1941) 70 Ll. L. Rep. 173 (HL).
179. (1940) 68 Ll. L. Rep. 45 at pp. 64–65.
180. (1941) 70 Ll. L. Rep. 173 at pp. 192, 193.
181. (1941) 70 Ll. L. Rep. 173, see para. 13.56 above where the facts are given and this case is discussed.
182. See para. 13.43 above where this section is discussed.
183. At p. 195.
184. [1917] 1 KB 860.
185. An assured who claims for a constructive total loss must give timely Notice of Abandonment unless such a
notice would serve no purpose, see para. 13.49 et seq. above. Such a notice is not necessary under ICC Clause 12 as
such a claim is a claim for a partial loss.
186. At p. 864.
187. Ibid. at p. 865. It seems that insurers had paid into court a larger sum than that recovered by the assured and
thus the insurers recovered their costs.
188. See OMay at p. 344 fn. 47. The clause is not to be construed as limited to physical loss of or damage to the
goods as a result of an insured peril.
190. Hudson & Madge, Marine Insurance Clauses, 4th edn, 2005, LLP at p. 30.
191. Institute Cargo Clauses (FPA) 1/1/63. For the background, see Hudson & Madge at p. 31.
192. See Chapter 9, para. 9.2 for an explanation of what was covered under an FPA policy.
193. (1861) 1 B&S 41: also Booth v. Gair (1863) 33 LJCP 99 and Kidston v. Empire Marine Insurance Co
(1866) LR 1 CP 533.
194. Historic Records Report HR5 at p. 96 in substitution for an earlier form of wording which also recognised the
right to such warehousing and forwarding charges but was subject to the normal rules that such sue and labour could
only be incurred to prevent a loss recoverable under the policy, that is, a total loss.
195. As Hudson & Madge point out at p. 44, the same more generous approach is not reflected in the terms of
Clause 12 of the ICC (B) and (C). Hudson & Madge indicate that representatives of London Market underwriters
have gone on record as saying that the former practice will prevail. Compare OMay at p. 345.
196. (1939) 64 Ll. L. Rep. 352. The facts of this case are set out at para. 13.30 above where the principles of what
constitutes a “loss under an all risks insurance are considered.
197. Shell International Petroleum Co Ltd v. Gibbs (The Salem) [1983] 1 Lloyds Rep. 342 at p. 349, per Lord
Roskill.
198. At para. 13.64.
199. These provisions are examined in Chapter 11.
200. In appropriate cases this will require a consideration of the contract of carriage is so far as frustration of the
insured adventure may be equated with frustration of that contract.
202. Unless it exceeded the unpaid freight in amount.
203. Clause 9 is not subject to the operation of an insured peril, and gives the assured an opportunity to arrange an
extension of the duration of the insurance, subject to prompt notice and an additional premium if required, in
circumstances beyond their control, whether or not caused by a peril insured.
204. See Chapter 8, para. 8.50 et seq. for a consideration of the meaning of “insolvency” and “financial default”.
205. See the discussion in O”May at pp. 200–203, which reflects the views expressed here, and op. cit. at pp. 345–
346 in connection with the Forwarding Charges Clause.
206. A form of insurance not underwritten at Lloyds, or in the London market, since the 1920s and the time of the
Harrisson affair, see D. E. W. Gibb, Lloyds of London, 1957. McMillan & Co Ltd, Chapter 15. Some specific limited
types of financial guarantee insurance may now be underwritten subject to strict regulation.
207. MIA 1906 at s. 6. See Chapter 4, para. 4.1 et seq.
208. See Chapter 4, Insurable Interest, at para. 4.19.
209. See London & Provincial Leather Processes v. Hudson (supra) and the discussion at para. 13.30 above.
210. [1984] 1 Lloyds Rep. 154 (CA), affirming the judgment of Neill J. reported at [1981] 2 Lloyds Rep. 460.
211. For a consideration of sue and labour and this clause, see Chapter 14, para. 14.5.
212. [1984] 1 Lloyds Rep. 154 at 156.
213. At p.163.
214. Ibid. at p.163.
215. Ibid., per Everleigh L.J. at p. 161.
216. At p. 161.
217. Supra.
218. The extent to which this constitutes an all risks loss, and the reservations expressed on this issue, canvassed at
para. 13.31 above apply equally in the context of the Forwarding Charges Clause.
219. See the discussion in Chapter 7, para. 7.15.
220. As discussed in Chapter 8, paras. 8.50 to 8.51.
222. [1917] 1 KB 860.
223. The facts of this case are discussed at para 13.58 above.
224. Ibid. at p. 861 by Leck K.C. and RA Wright K.C.
225. Ibid. at pp. 862, 863.
227. [1918] 2 KB 123.
228. [1897] AC 609 (HL).
229. At p. 127. The Court of Appeal disposed of the case on grounds that no timely notice of abandonment had
been given, reported at [1919] 1 KB 39.
230. At p. 129.
231. The cases on this exclusion culminating in Naviera de Canarias SA v. Nacional Hispanica Aseguradora SA
(The Playa de Las Nieves) [1977] 1 Lloyds Rep. 457 are discussed in Arnould at para. 23–64 et seq. In the light of
the approach adopted in the text they are not considered here in any detail on the basis that they are not relevant to the
very different delay exclusion in the ICC.
232. ICC 4.5 excludes “loss damage or expense caused by delay, even though the delay be caused by a risk insured
against”, and see the views of H. Bennett in the first edition of The Law of Marine Insurance, 1996, OUP, at p. 226,
where it was suggested that the exclusion in the Institute Cargo Clauses be widened to reflect that in the Institute
Freight Clauses—Time, Clause 15 (which excludes “any claims consequent on loss of time”) if insurers wished to
make it more effective. The current edition of Bennett para. 15.37, quoted in Chapter 7 at para 7.26, is to the same
effect, but less specific in looking to the Institute Freight Clauses for the solution.
233. [1917] 1 KB 860.
234. Supra.
235. Supra.
236. See Chapter 7, paras. 7.19 to 7.27, particularly 7.27.
237. Op cit. Chapter 7, para. 7.27.
238. Lee v. Southern Insurance (1870) LR 5 CP 397.
239. Wilson Bros Bobbin Company, Limited v. Green [1917] I KB 860, which is to be preferred to Russian Bank
for Foreign Trade v. Excess Insurance Co Ltd [1918] 2 KB 13, for the reasons given in paras. 13.67 and 13.68
above.
241. For example calendars or summer clothing.
242. Lee v. Southern (supra).
CHAPTER 14
RECOVERABLE EXPENSES AND LIABILITIES: SUE
AND LABOUR, SALVAGE, GENERAL AVERAGE AND
COLLISION LIABILITIES
SUE AND LABOUR
Sue and labour and cargo insurance
14.1 Where there is a casualty the assured under a marine cargo policy has a duty to
minimise any loss that would fall upon cargo insurers. This obligation, which is to be
distinguished from any general duty of due diligence throughout the currency of the
policy, is triggered by the casualty. This obligation is spelt out in the Marine Insurance
Act 19061 and may reflect a similar though lesser obligation to mitigate at common law
in non-marine insurance.2 The distinguishing factor in marine cargo insurance is the
right of the assured to recover from the insurers the expenses reasonably incurred in
mitigation of the insurers loss.3
14.2 The duty to mitigate has a twofold purpose in marine cargo insurance. Firstly,
there is the duty to ensure that action is taken to preserve cargo exposed to danger as a
result of a casualty. Secondly, and of key importance in practice, there is a duty to
protect rights against bailees, in particular shipowners, road hauliers or others
concerned in the carriage or storage of the cargo. The right to reimbursement, which is
called the right to “sue and labour”, is so important that it is supplemental (i.e.,
additional) to the policy4 This means that an assured can recover for a total loss of his
cargo and, in addition, for expenditure reasonably incurred unsuccessfully in seeking to
prevent that loss. The object of the sue and labour clause is to “encourage exertion on
the part of the assured”5 so it only applies where the assured has himself voluntarily
contracted with others to mitigate the loss: it does not apply where services, such as
salvage, are rendered under maritime law.6
Origins and structure of the sue and labour cover
14.3 The SG Form of Policy scheduled to the Marine Insurance Act 1906 provides
that:7
“And in case of any loss or misfortune it shall be lawful to the assured, their factors, servants and assigns, to sue,
labour, and travel for, in and about the defence, safeguards, and recovery of the said goods and merchandises, and ship,
etc, or any part thereof, without prejudice to this insurance; to the charges whereof we, the assurers, will contribute
each one according to the rate and quantity of his sum herein assured.”
The phrase “sue and labour” encapsulates the obligation to minimise loss under a
marine policy, and the right to recover for expenditure reasonably incurred in seeking to
do so. The right to reimbursement from insurers of sue and labour expenditure is a
special feature of marine insurance. The common law does not imply a contractual
obligation on insurers to reimburse expenditure incurred by the assured in order to
minimise a loss for which insurers would otherwise have been liable. In Yorkshire
Water Services Limited v. Sun Alliance and London Assurance8 it was held, in relation
to a non-marine liability policy, that there was no basis for implying a term by operation
of law that the insurers would reimburse the assured for expenses incurred to minimise
loss that might fall upon the insurers.9 The courts, in terms of general contractual
obligations, proceed on the basis that the mere fact that an obligation is imposed upon
one party to the contract for the benefit of the other does not carry with it an implied
term that the latter shall reimburse the former for his costs incurred in performance of
the obligation.10
14.4 In marine insurance, the Marine Insurance Act 1906 section 78(4) expressly
provides that “it is the duty of the assured and his agents, in all cases, to take such
measures as may be reasonable for the purpose of averting or minimising a loss”. This
is a rule of general application whether or not the policy contains a sue and labour
clause. It does not impose a general duty of due diligence throughout the currency of the
insurance and is a duty that only arises after an insured peril has begun to take effect.11
In contrast to the non-marine position, section 78(1) of the 1906 Act provides that
where the policy “contains a suing and labouring clause, … the assured may recover
from the insurer any expenses properly incurred pursuant to the clause”. Under the
general heading “Minimising Losses”, Clause 16 of the Institute Cargo Clauses provides
for sue and labour in the following terms:
“Duty of Assured
16. It is the duty of the Assured and their employees and agents in respect of loss recoverable hereunder
16.1 to take such measures as may be reasonable for the purpose of averting or minimising such loss,
and
16.2 to ensure that all rights against carriers, bailees or other third parties are properly preserved and exercised
and the Insurers will, in addition to any loss recoverable hereunder, reimburse the Assured for any charges
properly and reasonably incurred in pursuance of these duties.”
This clause sets out in express terms the obligations and rights discussed above, firstly,
to avert or minimise a loss by preserving and recovering the cargo in the face of a loss
and, secondly, to ensure that rights against bailees and carriers, such as shipowners, are
properly preserved and exercised.
14.5 The status of this clause, as imposing a true sue and labour obligation, was
examined under the Institute Cargo Clauses 1/1/6312 which require the assured by
Clause 9 (the “Bailee Clause”) to “ensure that all rights against carriers, bailees or
other third parties are properly preserved and exercised”. Although there was no
express right to reimbursement, as there is in the 1982 Clauses and the revised Clauses,
it was held that such a term should be implied for business efficacy13 In the
circumstances, there is no doubt that the obligations under the current Clause 16, the
Duty of Assured Clause, should be seen in the context of the entitlement to
reimbursement that accrues when sue and labour expenses are incurred, as tested in
accordance with the traditional sue and labour cases and section 78 of the 1906 Act. In
confirmation of this, in Noble Resources Limited v. Greenwood (The Vasso)14
Hobhouse J. held that Clause 16 corresponded to section 78(4) in the 1906 Act and that
“the duty is essentially a duty to sue and labour”.15
14.6 The standard form of Lloyds Subrogation Form reflects Clause 16.2 of the
Institute Cargo Clauses and, as we shall see,16 requires the assured to lend his name to
proceedings against carriers, bailees or other third parties in exchange for which the
insurers indemnify the assured for both the costs incurred in those proceedings and any
costs awarded against the assured if the proceedings prove unsuccessful.17
What triggers the right to recover sue and labour expenses?
14.7 The duty to sue and labour arises on, or more commonly, after the occurrence of a
risk.18 There is no general duty of due diligence in marine cargo insurance, that is, to be
reasonably careful throughout the transit.19 The position is different if the lack of due
care is reckless, not caring whether or not the cargo is lost or damaged, as this amounts
to wilful misconduct and the insurer is not liable for losses attributable to wilful
misconduct of the assured.20 If, as a matter of causation, the assured is so reckless as to
bring about the loss, that may amount to wilful misconduct or may be viewed as not
being an all risks loss.21 In practice, this type of neglect is less likely to occur in cargo
insurance, than in hull insurance. However, it may be arguable, for example, that failure
to pack a fragile cargo in circumstances where it is bound to be broken could be viewed
as an example of an assured causing a loss. As a matter of causation, a breach of the
duty to sue and labour represented by section 78(4) of the Marine Insurance Act 1906
may, on rare occasions, be so significant as to be held to displace the prior insured peril
as the proximate cause of the loss.22
14.8 As the entitlement to sue and labour is limited to the circumstances of a loss, it
is essential to determine how close the danger to the cargo must be in order to constitute
a “loss” for this purpose. There are two issues to be examined here. The first is whether
it is sufficient if the casualty is merely imminent, rather than actually occurring.
Secondly, must the damage be probable or is it sufficient if the damage is merely
possible?
14.9 As to the first of these issues, in State of Netherlands v. Youell23 Phillips L.J.
said of section 78(4) that “it is beyond doubt that the duty in question is one which
arises after an insured peril has struck”.24 In the same case Buxton L.J. said the assured
must be “faced by the incidence of a peril”.25 In National Oilwell (UK) Limited v. Davy
Offshore Limited26 Colman J. used the phrase “after the advent of an insured peril or
when the advent of an insured peril was obviously imminent”.27 It is submitted that, in
principle, the assured must be more than merely faced with the possibility of a peril and
that what all these phrases mean is best summed up by Hobhouse J. in Noble Resources
Limited v. Greenwood (The Vasso)28 when he said that the duty “arises once an insured
peril has begun to take effect”.29 This was a marine cargo case, and is probably the most
apt. The possibility, however imminent, of a peril that has not struck may give rise to
sensible precautions being taken by the assured, but that is not enough. The peril must
have struck, or at the very least, must have begun to take effect.
14.10 As to the second requirement, and the question of whether the damage must be
probable or possible, the orthodox view is that sue and labour is not recoverable unless
the loss is probable.30 However the judgment of Everleigh L.J. in Integrated Container
Service v. British Traders Insurance Co Limited31 suggests a wider test, whereby it is
sufficient if a possibility of loss is reasonably anticipated by the assured. There will
still have been a “loss”, on this view, even if with hindsight the assureds anticipation of
“loss” proves to have been in error and no loss occurs. However, the decision in
Integrated Container Service v. British Traders32 should be treated with caution as far
as marine cargo insurance is concerned. That was a case of contingency insurance on
containers and not a conventional cargo insurance case. Containers were insured under
the Institute Container Clauses33 by the owner against the contingency that the lessee,
who was contractually obliged to insure them, failed to insure, or insured with insurers
who failed to respond to claims for reasons of insolvency or otherwise. The container
lessee became insolvent leaving the owners containers distributed in various ports. The
costs of reasonable and prudent steps taken by the owners of the containers to retrieve
them were recoverable under sue and labour provisions in the Institute Container
Clauses, equivalent to those discussed here, though the containers generally appear to
have been in no immediate danger.34
The requirement of reasonableness
14.11 The Marine Insurance Act 1906 section 78(1) limits sue and labour to “expenses
properly incurred” and Clause 16 of the Institute Cargo Clauses similarly provides a
two-pronged test: first, a requirement that the measures taken be “reasonable”35 and
second, that the charges be “properly and reasonably incurred”.36 Thus expenditure that
was reasonably undertaken in principle, but excessive in amount, would be reduced.
14.12 In Integrated Container Service Inc v. British Traders Insurance Co Ltd,37
the expense of recovering containers from foreign depots and bringing them back to the
assureds own depots, to protect them from the possibility of seizure by third party
warehouse-owners, was held to be reasonable where the containers had been
abandoned due to the insolvency of the lessee.38
14.13 A case on the other side of the line is Lee v. Southern Insurance Co39 where
a vessel carrying a cargo of oil was stranded on the Welsh coast and the cargo was
unloaded and forwarded by rail without waiting for the ship to be repaired though she
soon completed the voyage. The court awarded the assured only part of their expenses
on the basis that the circumstances did not justify the additional expense of rail carriage
to Liverpool.
Loss must be recoverable under the policy
14.14 The Marine Insurance Act 1906 section 78(3) provides that “expenses incurred
for the purpose of averting or diminishing any loss not covered by the policy are not
recoverable under the suing and labouring clause”.40 Similarly, Clause 16 of the
Institute Clauses defines both the duty and the entitlement to reimbursement in terms of
“loss recoverable hereunder”. This reflects the well-established principle that sue and
labour is only recoverable to prevent a loss for which the insurers would be
answerable.41 In Berk v. Style42 a cargo of kieselghur43 was packed in paper bags and
shipped to London. The assured incurred expenses in re-bagging the goods which were
insured on all risks terms under the Institute Cargo Clauses (Wartime Extension). These
clauses were attached to the SG Policy including the traditional sue and labour clause.44
The insurers argued that the expense of re-bagging was incurred due to the insufficiency
of the bags themselves which constituted inherent vice and was not covered by reason
of section 55(2)(c) of the Marine Insurance Act 1906 and the inherent vice exclusion in
Clause 4.4 of the Institute Clauses.45 Sellers J. held that the kieselghur “was packed in
faulty and inadequate bags which leaked because they were insufficient to endure the
ordinary contemplated handling and carriage”.46 As the loss was not recoverable under
the insurance the re-bagging expenses were not recoverable under the sue and labour
clause.
14.15 In Weissberg v. Lamb,47 a case in the Mayors and City of London Court,
furniture was stowed in a liftvan which was dropped by a crane as it was being loaded
on board the vessel. The assured subsequently paid, under protest, further charges to the
removal company arising out of the accident. They were obliged to do this in order to
safeguard their goods and obtain their prompt return. Since the charges paid were
incurred to avoid delay, which is not covered under the Marine Insurance Act 1906
section 55(2)(b), and is excluded by Clause 4.5 of the Institute Cargo Clauses,48 the
charges could not be recovered under the sue and labour clause.
Supplementary to the contract: additional to the insured value
14.16 The Marine Insurance Act 1906 section 78(1) provides that the sue and labour
clause is “deemed to be supplementary to the contract of insurance”. In Dixon v.
Whitworth49 the obelisk Cleopatras Needle was insured for a voyage from Alexandria
to London aboard the specially designed barge Cleopatra, described by the judge as no
more than an iron case. As a result of a severe storm in the Bay of Biscay, salvage
services were rendered to the barge and the assured paid £2,000 to the salvors, by way
of maritime salvage, in respect of those services. In considering whether this sum
should be apportioned in the claim against insurers, or whether it was recoverable in
full, Lindley J. held that it was clearly established that the sue and labour clause was a
distinct and independent agreement although occurring in and forming part of the
policy.50 It follows that, as the Marine Insurance Act 1906 section 78(1) confirms, the
assured may recover for expenses properly incurred “notwithstanding that the insurer
may have paid for a total loss”.51 Accordingly, if the expenditure is reasonable the
assured can recover for the insured value of the cargo and, in addition, any reasonable
expense incurred in unsuccessfully trying to prevent a total loss or in seeking to obtain a
recovery from carriers or bailees. The rationale behind this rule is the need to stress the
importance of seeking to preserve the subject-matter insured in the face of a loss. The
rule, therefore, only covers expenditure voluntarily incurred under contract by the
assured, or his employees or agents,52 and does not extend to maritime salvage outside
contract (i.e. “salvage charges”) as defined by the Act.53
Breach of the duty
14.17 The Marine Insurance Act 1906 section 78(4) provides that it is the duty of the
assured “to take such measures as may be reasonable for the purpose of averting or
minimising a loss”. A breach of this duty, which we may call the duty to sue and labour,
does not operate like a breach of warranty and only gives insurers a right to claim
damages by way of set-off and counterclaim.54 The extent of the damages suffered by
insurers, which it will be for insurers to prove, will therefore be the loss suffered by
them as a result of the assureds breach. In Noble Resources Limited v. Greenwood (The
Vasso),55 Hobhouse J. applied these rules to the Institute Cargo Clauses 1/1/82,56
holding that breach of the duty under Clause 16, “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 in so far as the insurer has been caused loss”.57 Where the failure of the assured
is a failure to exercise or preserve some right against a third party to which the insurer
is entitled to be subrogated, the loss to the insurer will be equivalent to the value of the
lost right against the third party. Thus, for example, if the assured fails to protect the
time limit for an action under a bill of lading against shipowners, the insurers may rely
on the breach of duty but only to the extent of their loss which may be restricted to the
amount of a package or other limit that would have been recoverable from the
shipowners.
14.18 The assured is only required to take such steps as are reasonable and proper.
For example, in The Vasso58 a cargo of iron ore was insured for a voyage from South
Africa to China. Shortly after leaving South Africa the ship began to leak and soon sank
with her cargo. Both were totally lost. The insurers argued, in defence to a claim for the
loss of the cargo, that the assured should have protected that claim by obtaining a
freezing injunction over the hull policy proceeds, the shipowners being a one-ship
company with no other assets. However, there was insufficient evidence that the vessel
was insured in London and that assets were available in England in the form of the hull
policy proceeds. Hobhouse J. held that, neither under section 78 of the 1906 Act, nor
under Clause 16 of the Institute Clauses “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”.59 He added that “the word ‘reasonable’ is included
in 16.1 and the word ‘properly’ is included in 16.2”.60 He considered that, in the
circumstances of the case, the assured had acted reasonably and properly as the
evidence did not justify making an application for a freezing injunction.
Although there was a positive duty to minimise losses, the assured was not required to
seek an injunction with only an outside chance of success.
14.19 The insurers must also show that failure of the assured to take reasonable
steps to avert or minimise the loss is causative. This is apparent from the approach of
Hobhouse J. in The Vasso61 and is illustrated by the decision of the Court of Appeal of
Hong Kong in Miruvor Ltd v. National Insurance Co Ltd.62 In this case the insurers
argued that the assured, who had exported eight shipments of goods to Paraguay, could
have prevented theft of the seventh shipment if he had alerted his agents to the danger of
loss, apparent from earlier shipments, and ordered them not to release the goods. In
reliance on the English authorities63 it was held that “it was not sufficient for the
insurers merely to show the failure of the assured to take reasonable steps to avert or
minimise the loss: they have to go further and show that the measures that had not been
taken, would have been the dominant cause for the loss”.64 Given the uncertainty as to
the effect of a warning telex instructing the assureds agents not to release the cargo, the
insurers were unable to establish their case on causation and the claim on the seventh
consignment succeeded.
14.20 Finally, in terms of causation, there is a distinction that turns on whether the
sue and labour takes place in the face of the casualty or sometime after the loss. The
approach to the law adopted by Hobhouse J. in The Vasso placed some reliance upon
the decision of Mocatta J. in The Gold Sky.65 When citing The Gold Sky66 in support of
his position Hobhouse J. pointed out that Mocatta J. was concerned, in the main, with
the relationship between sections 78(4) and 55(2) of the 1906 Act. Hobhouse J. went on
to say:67
“This is a question ‘with ‘which I am not concerned and nothing there said alters the conclusions that a failure to
minimise a loss or protect the value to the insurer of his rights of subrogation gives rise to more than a cross-liability of
the assured to the insurer in damages and a potential for setting off that liability against the liability of the insurer under
the policy, either in whole or in part. On this the law is clear.”
In this passage Hobhouse J. tried to distance himself from those parts of the judgment of
MocattaJ. which more recent cases have doubted.68 The difficulty is that section 55(2)
(a) of the 1906 Act provides that the insurer is “liable for any loss proximately caused
by a peril insured against, even though the loss would not have happened but for the …
negligence of the master or crew”. This is mainly a problem in hull insurance, but in so
far as the rule applies to the agents of the assured, and applies after the loss,69 there is a
potential conflict with section 78(4) which imposes a duty on the assured and his agents
to take such measures as may be reasonable to minimise the loss. It is suggested that this
conflict may be resolved as follows. In the ordinary case, where sue and labour follows
a casualty, any causative failure by the assured to preserve the goods (e.g. by failing to
cover the goods and leaving them exposed to weather damage, thus exacerbating the
loss) is a breach of the duty under section 78(4) of the Act and Clause 16 of the Institute
Cargo Clauses. The additional damage is therefore not covered. The difficulty arises, in
practice, where sue and labour takes place in the face of a casualty.70 It has been held
that the duty under section 78(4) of the 1906 Act in such circumstances “will only have
significance in the rare case where breach of that duty is so significant as to be held to
displace the prior insured peril as the proximate cause of the loss”.71 The position is
that a failure to sue and labour in the face of a casualty will rarely provide insurers with
a complete defence because, in terms of causation, the loss will be attributed to the peril
causing the loss and not to the actions of the assured or his agents. A breach of the duty
to sue and labour is more likely to go to reducing a claim where the assured has failed,
after a casualty, in his duty to contain the loss of or damage to the goods or the parallel
duty to preserve recovery rights that would have mitigated the loss.
14.21 The Institute Cargo Clauses make special provision for sue and labour in the
context of a potential loss of the adventure by Clause 12, known as the Forwarding
Charges Clause. This provides as follows:
“Where, as a result of the operation of a risk covered by this insurance, the insured transit is terminated at a port or
place other than that to which the subject-matter insured is covered under this insurance, the Insurers will reimburse
the Assured for any extra charges properly and reasonably incurred in unloading storing and forwarding the subject-
matter insured to the destination to which it is insured.”
This was a new clause introduced in 1982 and is retained materially unaltered in the
revised Institute Cargo Clauses. The background was the need to regulate the extent of
sue and labour recoverable in circumstances where the voyage could not be completed,
leading to a potential loss of the adventure. This happened all too often in the 1980s due
to the impecunious state of shipowners and the consequent poor condition of their
vessels. As the issue here is sue and labour to prevent a loss of the adventure this clause
is considered in Chapter 13, where loss of the adventure is examined.72
The Waiver Clause
14.22 The Institute Cargo Clauses, Clause 17, provide as follows:
“Measures taken by the Assured or the Insurers with the object of saving, protecting or recovering the subject-matter
insured shall not be considered as a waiver or acceptance of abandonment or otherwise prejudice the rights of either
party.”
The principal purpose of this clause is to make it clear that measures taken by way of
sue and labour, whether by the assured or by insurers, shall not prejudice the rights of
either party. This reflects the original sue and labour provision in the SG Form which,
however, only provided that sue and labour undertaken by the assured was “without
prejudice to this insurance”.73 The new clause, introduced in 1982 in the light of
UNCTADs recommendations for reform,74 extends the protection to the insurers
allowing them to assist the assured without prejudicing their policy defences. In
practice, insurers usually require the assured to comply with their duties under the Duty
of Assured Clause marking the initial claim presentation to the effect that the assured is
to “act as a prudent uninsured”. Although insurers are generally reluctant to undertake
action themselves to preserve the property insured, occasions do arise where they may
feel better placed to preserve rights against shipowners by arresting for security.
Insurers may, on occasions, be in a position to assist the assured, for example, with their
knowledge of international contacts, such as buyers specialising in purchasing
distressed cargoes on an “as is” basis. The Waiver Clause makes it clear that where the
insurers assist the assured with such information, or otherwise take a pro-active role in
relation to a distressed cargo, that does not prejudice any policy defences. Finally, it
may be noted that the Waiver Clause also applies to action taken by the assured though,
in practice, it is difficult to visualise cases where action taken by the assured to
preserve the insured property would prejudice their position in making a claim under
the policy.
14.23 The secondary purpose of the Waiver Clause, probably less important in
terms of cargo insurance,75 is that the measures taken by insurers will not be considered
as a waiver or acceptance of abandonment.76 The concern here was section 62(5) of the
Marine Insurance Act 1906 which provides that the acceptance of an abandonment may
be either express “or implied from the conduct of the insurer”. For example, in the
Scottish case of Robertson v. Royal Exchange Assurance Corporation,77 where
insurers involved themselves in salvage of a vessel beached by the Master, it was said
that “the underwriter, even if he declines the notice, may, if he attempts to salve and his
actings be equivocal, be held to have acted not as mere salvor but in his own interest as
insurer so as to infer acceptance of the notice”.78 The extent to which such a waiver
clause is effective to protect insurers was doubted by Blackburn J. in Stringer v.
English & Scottish Marine Insurance Co79 and logically there must be a point at which
the action taken by insurers will amount to an acceptance of abandonment.80 The effect
of Clause 17, it may be suggested, is to protect insurers where their action is
“equivocal”, but not where their action clearly and unequivocally amounts to an
acceptance of abandonment.
CONTRACTUAL SALVAGE (AND SALVAGE CHARGES)
Contractual salvage (LOF)
14.24 Salvage, as discussed in this section, is the reward paid to those providing
assistance to property in danger at sea, as distinguished from the right of the insurer,
who has paid for a total loss, to assert proprietary rights over what remains of the
subject-matter insured.81 The right to salvage as a reward arises by maritime law82 or
by contract and, in either case, the liability to pay the reward is incurred by the owners
of the salved property, whether ship or cargo, in proportion to the relative values of the
property at risk. Today, cargo interests most commonly incur a liability for salvage
under Lloyds Open Form (LOF)83 which constitutes sue and labour as discussed in the
first section of this chapter. Cargo interests may occasionally sign the LOF contract, but
usually the Master of the ship acts as agent of necessity for cargo in concluding the LOF
contract on cargos behalf, there being a duty on the Master to act for the safety of the
cargo.84 Salvage services rendered by maritime law outside contract, discussed in the
next paragraph, do not constitute sue and labour and are known as “salvage charges”.85
The significance of this distinction is that, as we have seen,86 sue and labour is
supplementary to the insurance and entitles the assured to claim over and above the
insured value. On the other hand, salvage charges (i.e. salvage services performed
outside contract) are only claimable under the policy and within the policy values. In
this respect cargo insurance is different from hull insurance where the practice is to
include claims for contractual salvage within the policy, rather than supplementary to it
as a sue and labour claim.87
The nature of “salvage charges”
14.25 The Marine Insurance Act 1906 section 65(2) defines “salvage charges” as
follows:
“‘Salvage Charges’ means the charges recoverable under maritime law by a salvor independently of contract. They do
not include the expenses of services in the nature of salvage rendered by the assured or his agents, or any person
employed for hire by them, for the purpose of averting a peril insured against. Such expenses, where properly incurred,
may be recovered as particular charges or as a general average loss, according to the circumstances under which they
were incurred.”
It was held by the House of Lords in Aitchison v. Lohre88 that the sue and labour clause
in the SG Form of policy did not extend to maritime salvage payable outside contract
because that clause contemplated contractual obligations freely entered into by the
assured with third parties to avert or diminish any loss. The purpose of the sue and
labour clause is to encourage the assured to exert themselves to take positive action for
the safety and preservation of the cargo.89
14.26 The Marine Insurance Act 1906 section 65(2) accordingly provides that
“salvage charges” do not include the expense of contractual salvage, involving the
employment or hire of salvors. In the terminology of the 1906 Act such expenses are
recoverable as “particular charges” (i.e., sue and labour “expenses incurred by or on
behalf of the assured for the safety or preservation of the subject-matter insured”).90 In
terms of the Act, therefore, contractual salvage under LOF is termed “particular
charges” and maritime salvage “salvage charges”. Consistent with the Act, Clause 2 of
the Institute Cargo Clauses provides cover for maritime salvage by using the expression
“salvage charges”.
14.27 It is convenient to mention here a third type of charge known as “special
charges”. There may still be occasions, even in a world of much improved
communications, where the Master, as agent of necessity because he receives no
instructions from cargo interests, may incur expenditure on behalf of cargo alone, as
where he arranges for a cargo to be re-bagged, or for a container to be repaired. These
may be considered “special charges” and though not recoverable as “salvage” may be
recoverable under a cargo insurance policy as sue and labour (“particular charges”) on
the basis that the Master acts as “agent” of necessity of cargo in the same way that he
does when signing an LOF salvage contract on behalf of cargo interests.91
Insurance cover for salvage charges
14.28 Maritime salvage, resulting from a peril covered by the traditional SG Form of
policy, was recovered from insurers “under an averment that there was a loss by that
peril”.92 In terms of modern cargo insurance, Clause 2 of the Institute Cargo Clauses
provides the cover for salvage as follows:
“This insurance covers … salvage charges … incurred to avoid or in connection with the avoidance of loss from any
cause except those excluded in Clauses 4, 5, 6 and 7 below.”
This cover is broader, in terms of insured perils, than that envisaged by section 65(1) of
the Marine Insurance Act 1906 which limits cover to “salvage charges incurred in
preventing a loss by perils insured against”. The Institute Cargo Clauses do not limit the
causation requirement to perils insured and cover salvage charges incurred for the
avoidance of loss from “any cause”, except those specifically excluded in the Institute
Clauses. The 1982 Clauses used the words “except those excluded by Clauses 4, 5, 6
and 7 or elsewhere in this insurance”. The phrase “or elsewhere in this insurance” was
omitted during the revisions in 2008 as being ambiguous insofar as “this insurance”
might be intended to refer either to the exclusions within the printed Institute Clauses or
to the exclusions in any applicable open cover or insurance certificate, or both. The
words “this insurance”, used in Clause 1 of the revised Institute Cargo Clauses, and
elsewhere in those Clauses, are intended to refer only to the insurance cover provided
within the Clauses themselves. This has been clarified by introducing the new phrase
“contract of insurance” used, in particular, in the revised Clause 8.1, which contrasts
with “this insurance”.93 Accordingly, the exclusions referred to in Clause 2 are now
limited to the exclusions within the printed Institute Cargo Clauses themselves.
14.29 The extension of the insurance cover to salvage charges incurred for the
avoidance of loss from “any cause” is potentially important in relation to more limited
specific perils cover, such as that granted under the Institute Cargo Clauses (B) and
(C).94 It also means that a claim for salvage charges will occasionally be recoverable in
circumstances where a claim for contractual salvage under LOF will not, as the latter
must be incurred as sue and labour to minimise a loss covered under the policy.95
Values for the purposes of the insurance
14.30 The Marine Insurance Act 1906 section 73 applies apportionment to insurers
liability for general average and salvage where there is under-insurance. The section,
which deals with general average first, provides as follows:
“(1) Subject to any express provision in the policy, where the assured has paid, or is liable for, any general average
contribution, the measure of indemnity is the full amount of such contribution, if the subject-matter liable to
contribution is insured for its full contributory value; but, if such subject-matter be not insured for its full
contributory value, or if only part of it be insured, the indemnity payable by the insurer must be reduced in
proportion to the under insurance …
(2) Where the insurer is liable for salvage charges the extent of his liability must be determined on the like principle.”
This provision is frequently varied by express provisions in the policy. In particular, in
the London market, by brokers clauses which provide as follows:
“For the purposes of claims for General Average Contributions and Salvage Charges recoverable hereunder the
subject-matter insured shall be deemed to be insured for its full contributory value, General Average deposits shall be
payable on production of General Average deposit receipts.”
The purpose of this type of clause is to avoid the need to apportion salvage payments
(or general average contributions) between assured and insurers with the manifest
inconvenience that would cause. As considered earlier, payments under Lloyds Open
Form (LOF) are recoverable as sue and labour and as such payable in full, if
reasonable, without reference to the policy values, because sue and labour is
supplemental to the policy.96
GENERAL AVERAGE
Sacrifice, expenditure and contribution
14.31 General average is an ancient concept, far older than marine insurance itself.97
The Marine Insurance Act 1906 section 66(2) provides that “there is a general average
act where any extraordinary sacrifice or expenditure is voluntarily and reasonably made
or incurred in time of peril for the purpose of preserving the property imperilled in the
common adventure”. General average includes sacrifice made, or expenditure incurred,
for the purposes of completing the adventure evidenced by the contract of
affreightment.98 We consider first sacrifice and then expenditure, the latter being far
more common today.
14.32 A classic example of sacrifice occurred in Dickenson v. Jardine”99 where
part of a cargo of tea was thrown overboard on a voyage from Foochow to London. The
ship was stranded on a reef and, in order to lighten the vessel, and bring the whole
adventure to a successful conclusion, it was necessary to sacrifice most of the tea
owned by the assured. Such a sacrifice is of benefit to cargo interests as a whole, who
share in the loss suffered by the owners of the sacrificed cargo and their insurers so that
the loss be borne rateably by all the cargo interests and by the vessel. For example, in
Boag v. Standard Marine Insurance Company Ltd100 a vessel went aground off Cape
Huertas and the assureds cargo was jettisoned to enable the vessel to be refloated. After
contributing for its share of the loss, the net credit due in respect of the lost cargo was
£532, about 50% of its sound value. This significant recovery reflected the fact that, as
a result of sacrificing the assureds cargo, the ship and a good proportion of the other
cargoes were saved and delivered safely at the end of the intended voyage. The effect of
the general average adjustment was that all the interests involved suffered equally a loss
of about 50%.
14.33 Contemporary examples of general average more frequently involve
expenditure incurred by the shipowner or carrier rather than sacrifice. Such expenditure
results, for example, from engine breakdowns and is incurred to enable the vessel to be
repaired to complete the voyage and bring the adventure to a successful conclusion.
Cargo interests, whose values commonly exceed the value of the vessel, are liable to
contribute in general average to the costs of towing the vessel to a port of refuge as well
as any expenses incurred as a result of that visit.101 Whilst cargo interests are not
responsible for permanent repairs, liability may be incurred in certain circumstances to
contribute to temporary repairs to the vessel carried out in order to complete the
voyage.102 This may make cargo interests uneasy if the ship is old and poorly
maintained, but if the general average act is brought about by the shipowners failure to
exercise due diligence to make the vessel seaworthy, before and at the commencement
of the voyage, cargo normally has the opportunity to challenge the shipowners right to a
general average contribution.103
14.34 The Marine Insurance Act 1906 section 66(4) treats the assureds right to
recovery under the policy in respect of expenditure and sacrifice as follows:
“Subject to any express provision in the policy, where the assured has incurred a general average expenditure, he may
recover from the insurer in respect of the proportion of the loss which falls upon him; and, in the case of a general
average sacrifice, he may recover from the insurer in respect of the whole loss without having enforced his right of
contribution from the other parties liable to contribute.”
Thus the assured is entitled to general average expenditure from his insurers when he is
called upon to pay his contribution under the adjustment. In practice there attaches to all
cargo that has been preserved in consequence of a general average sacrifice, or
expenditure, a lien in favour of those concerned in ship or cargo who have sustained a
general average loss.104 This lien is possessory and it is the duty of the Master to
exercise it at the time of discharge.105 Accordingly, cargo will normally only be
released by the shipowners or carriers in exchange for general average bonds, from the
cargo interests, backed by general average guarantees, from their insurers. The result is
that the insurers, and their lawyers or other representatives, will normally handle the
claim for general average contribution which will be paid by the insurers following the
adjustment in exchange for release of the guarantees.106
14.35 In respect of sacrifice the position is different insofar as the assured has an
immediate right to claim upon insurers without recovering first from the other
contributing interests. Accordingly, in Dickenson v. Jardine,107 where various chests of
tea were sacrificed on a voyage from China, the cargo assured could claim upon his
insurers for the total loss of that tea without first having enforced his right of
contribution against the other cargo interests and the shipowner. In practice, that right of
contribution is later exercised by the insurers by way of subrogation rights in the name
of the assured.108
Insurance cover for general average
14.36 The Institute Cargo Clauses, Clause 2, provide as follows:
“This insurance covers general average … , adjusted or determined according to the contract of carriage and/or the
governing law and practice, incurred to avoid or in connection with the avoidance of loss from any cause except those
excluded in Clauses 4, 5, 6 and 7 below.”
This is “an express stipulation” in the policy which varies the Marine Insurance Act
1906 section 66(6) which otherwise provides that “the insurer is not liable for any
general average loss or contribution where the loss was not incurred for the purpose of
avoiding, or in connexion with the avoidance of, a peril insured against”. The Institute
Cargo Clauses extend cover to general average incurred to avoid, or in connection with
the avoidance of, loss from “any cause” except those specifically excluded in Clauses 4,
5, 6 and 7 in the printed Institute Cargo Clauses themselves.109
14.37 The widening of cover to “any cause” is potentially important with regard to
cover for limited perils under the Institute Cargo Clauses (B) and (C).110 In particular, it
has been suggested that general average sacrifice incurred to avoid a loss due to pirates
may, in certain circumstances, be recoverable under the Institute Cargo Clauses (B) and
(C) even though “pirates” is not one of the named perils under these Clauses. As the
cover for general average extends to a loss from “any cause” a general average
sacrifice or expenditure caused by “pirates” is potentially insured, whilst loss of or
damage to the cargo caused by pirates is not covered.111
The values at risk
14.38 The Marine Insurance Act 1906 section 73 makes provision for the indemnity
payable by the insurer in respect of the assureds general average contribution to be
reduced pro rata if the cargo is not insured for its full contributory value. However, this
provision is generally reversed in the London market by brokers clauses which
“otherwise provide” in terms of the 1906 Act. The effect is that the cargo is deemed to
be insured for its full contributory value so no apportionment of the contribution as
between assured and insurers is necessary.112
COLLISION LIABILITIES
The “Both to Blame Collision Clause”
14.39 The Institute Cargo Clauses,113 Clause 2, contain the following confirmation of
cover:
“This insurance indemnifies the Assured, in respect of any risk insured herein, against liability incurred under any Both
to Blame Collision Clause in the contract of carriage. In the event of any claim by carriers under the said Clause, the
Assured agree to notify the Insurers who shall have the right, at their own cost and expense, to defend the Assured
against such claim.”
The cover confirmed by this Clause, which is probably no more than declaratory in
nature, calls for some explanation. In English law an innocent party damaged by the
combined negligence of two other parties, who together caused that same damage, can
recover in full from either of them.114 In maritime matters the Brussels Convention of
1910,115 which was given the force of law in England by the Maritime Conventions Act
1911,116 restricted the recovery by innocent cargo “in proportion to the degree in which
each vessel117 was in fault”.118 The rights of cargo interests are further restricted
because the contract of carriage with the vessel upon which the cargo is carried (the
“Carrying Vessel”) invariably excludes liability for negligent navigation causing a
collision unless, in broad terms, the vessel is unseaworthy at the commencement of the
voyage as a result of a failure of due diligence by the carriers.119 However, not all
countries and, in particular, the United States, were parties to the Convention. In Federal
Admiralty Law the rule prevails that innocent cargo can recover 100% of their loss in
full from the other vessel involved in the collision (the noncarrying or “Colliding
Ship”). The Colliding Ship would, in turn, recover proportionately against the Carrying
Ship depending, in modern times,120 on the degree of fault of each vessel. The Carrying
Ship then, in its turn, seeks to recover in respect of this liability by inserting a Both to
Blame Collision Clause in the bill of lading or charterparty. This enables the Carrying
Ship to recover from the cargo-owners that proportion of liability which they, the
Carrying Ship, have paid to the Colliding Ship.
14.40 This arrangement is seen by cargo interests as designed to circumvent the
right of innocent cargo to recover 100%, and has been held by the United States
Supreme Court to be contrary to public policy in contracts evidenced by Bills of
Lading.121 The shipowners or carriers take the view that the Both to Blame Collision
Clause does no more than preserve the compromise reached in the International
Conventions which established the Hague and Hague-Visby Rules, that is, that the
carrier should not be liable to cargo carried on board unless the vessel was
unseaworthy and there was a lack of due diligence. Accordingly, the Both to Blame
Collision Clause is seen by the carriers as doing no more than restoring this position
and frustrating the efforts of cargo-owners who, by forum shopping, particularly in the
United States, have attempted to circumvent the contract of carriage. In any event, the
Both to Blame Collision Clause has been upheld in the United States in relation to
Charterparties on the basis that these are more freely negotiated and entered into by
cargo interests than contracts evidenced by Bills of Lading.122 The result is that where
the assured is charterer a full subrogated recovery by cargo underwriters against the
Colliding Ship in, most usually, a United States jurisdiction, will trigger the Both to
Blame Collision Clause and produce a claim against the assured for the proportion of
the cargo loss or damage that the Carrying Ship has had to pay the Colliding Ship. The
Both to Blame Collision Clause in the insurance provides an indemnity against this
liability.
14.41 The extent of the indemnity provided by the Both to Blame Collision Clause
in the insurance is limited to risks insured under the policy. However, as the Institute
Cargo Clauses123 cover collision it is difficult to envisage circumstances in which this
limitation is likely to operate unless the loss falls within one of the express exclusions
in the Institute Clauses or, possibly, exclusions within an open cover or insurance
certificate. There is also a requirement to notify insurers of the claim by the Carrying
Ship and insurers then have the right to defend that claim at their own expense.
14.42 In practice the Both to Blame Collision Clause is rarely encountered in view
of the prohibition in the United States against the Clause in Bills of Lading. Furthermore
the practice is for insurers themselves to exercise subrogation rights124 and to instruct
lawyers to handle the collision claim against the Colliding Ship. If this triggers a claim
under the contractual Both to Blame Collision Clause, to close the circle of liability, the
insurers lawyers will normally handle that claim on behalf of insurers. By general
principles of subrogation,125 it seems that the insurers would be obliged to indemnify
the assured for any claim by the Carrying Ship that arises directly out of the insurers
recovery from the Colliding Ship. Although it could be argued that such liability arises
by virtue of the assured having agreed the Both to Blame Collision Clause in the
charterparty, breaking the chain of causation, it is submitted that such an argument would
have little prospect of success. The claim against the assured is directly triggered by
insurers claim against the Colliding Vessel for loss of or damage to the insured cargo
and insurers could hardly retain that 100% recovery leaving their assured liable to pay
a proportion of the value of the goods to the Carrying Ship. Nevertheless, the virtue of
the Both to Blame Collision Clause in the Institute Cargo Clauses is that it puts the
matter beyond doubt. The Clause was therefore retained in 2009 in the revised Institute
Cargo Clauses with some modernisation of the wording.126
1. MIA 1906 s. 78.

2. See “Wisdom after the Event: The Duty to Mitigate Insured Loss” Malcolm Clarke
[2003] LMCLQ 525; see also Yorkshire Water Services Limited v. Sun Alliance &
London Ins. plc [1997] 2 Lloyds Rep. 21 (CA), where such a duty was recognised in
non-marine insurance though the policy in that case also included an express condition
requiring the assured to mitigate any potential loss to insurers.
5. Aitchison v. Lohre (1879) 4 App Cas 755; 4 App MC 168, per Lord Blackburn at
p. 765.
6. See paras. 14.25 et seq. below.
7. Marine Insurance Act 1906, Sched. 1, Form of Policy.
8. [1997] 2 Lloyds Rep. 21 (CA).
9. Contrast the position in the United States which appears, possibly, to be different,
see Leebov v. United States Fidelity & Guaranty Co, 165 Atlantic Reporter 2d series
82 (1960) Supreme Court of Pennsylvania.
10. The Netherlands Insurance Co Est. 1845 Limited v. Karl Ljungberg & Co AB
[1986] 2 Lloyds Rep. 19 (PC) at p. 23, per Lord Goff.
11. British & Foreign Marine Ins. v. Gaunt [1921] 2 AC 41 at 65; Lind v. Mitchell
(1928) 98 LJ KB 120 (CA); State of Netherlands v. Youell [1998] 1 Lloyds Rep. 236
(CA) per Phillips L.J. at p. 241, Noble Resources Limited v. Greenwood (The Vasso)
[1993] 2 Lloyds Rep. 309, and see further para. 14.7 et seq. below.
12. The 1963 Clauses, Appendix 10, were used in conjunction with the sue and
labour clause in the SG Form, the material parts of which appear in para. 14.3 above.
13. The Netherlands Insurance Co Est 1845 Limited v. Karl Ljungberg & Co AB
[1986] 2 Lloyds Rep. 19 (PC), at p. 23. Contrast the view earlier expressed obiter by
Neill J., at first instance, in Integrated Container Service Inc v. British Traders
Insurance Co Ltd [1981] 2 Lloyds Rep. 460 at p. 465, where he declined to follow the
decision of the Supreme Court of New South Wales in Emperor Gold Mining Co v. The
Switzerland General Insurance Co [1964] 1 Lloyds Rep. 348.
14. [1993] 2 Lloyds Rep. 309.
15. At p. 314.
16. See further Chapter 16, para. 16.12 et seq.
17. For the position as to an award of costs against the unsuccessful party in English
proceedings, see Chapter 13, para. 13.6.
19. See Lord Sumner in British & Foreign Marine Insurance Co Ltd v. Gaunt
[1912] 2 AC 41 at p. 65.
20. MIA 1906 s. 55(2)(a), ICC Clause 4.1 and see Chapter 8, paras. 8.39 to 8.48.
21. See Lord Sumners definition of all risks in British & Foreign Marine Insurance
Co v. Gaunt [1912] AC 41 at p. 57 discussed in Chapter 8, para. 8.4 where he excludes
from the concept of “all risks” those losses “which the assured brings about by his own
act”.
22. State of Netherlands v. Youell [1998] 1 Lloyds Rep. 236 at 245, and see para.
14.20 below.
23. [1998] 1 Lloyds Rep. 236.
24. Ibid. at p. 241.
25. Ibid. at p. 249
26. [1993] 2 Lloyds Rep. 582.
27. At p. 618.
28. [1993] 2 Lloyds Rep. 309.
29. Ibid. at p. 313.
30. Per Brett L.J. in Lohre v. Aitcheson (1878) LR 3 QBD 558 at 566.
31. [1984] 1 Lloyds Rep. 154.
32. Supra.
33. Institute Container Clauses—Time (All Risks).
34. The difficulties with this case are considered further in the context of what
constitutes a “loss” in Chapter 13, para. 13.31.
35. Clause 16.1.
36. Clause 16.
37. [1984] 1 Lloyds Rep. 154.
38. The issue of “reasonableness” is illustrated by this factual situation and remains
sound as an example despite the doubts expressed in this book as to the question of
whether a peril was operating for the purposes of marine cargo insurance, rather than
container contingency insurance.
39. (1869–70) LR 5 CP 397.
40. For a consideration of this rule in a recent case, see the judgment of Staughton
L.J. in Kuwait Airways Corporation v. Kuwait Insurance Co SAK [1997] 2 Lloyds
Rep. 687(CA) at p. 696.
41. Kidston v. Empire Marine Insurance Co (1866–67) LR 2 CP 357; Aitchison v.
Lohre (1878) LR 3 QBD 558.
42. [1955] 2 Lloyds Rep. 382.
43. A naturally occurring soft, chalk-like rock used for filtration, as a mild abrasive,
and for other industrial and medical purposes.
44. This is set out at para. 14.3 above.
45. See Chapter 8, para. 8.22 et seq. for a consideration of the position regarding
inherent vice under the MIA 1906 and the Institute Clauses.
46. At p. 387.
47. (1950) 84 L1. L. Rep. 509.
48. See Chapter 8, para. 8.49 et seq. for a consideration of the delay exclusion.
49. (1878–79) LR 4 CPD 371.
50. At p. 378, following Aitchison v. Lohte in the Court of Appeal, reported at
(1878) LR 3 QBD 558. The principle that sue and labour is supplementary to the
contract remains good law although the decision in Dixon v. Whitworth was reversed,
reported at 4 Asp MLC 327, when it was subsequently held by the House of Lords in
Aitchison v. Lohre (1879) LR 4 App Cas 755, reversing the Court of Appeal on this
point, that maritime salvage, as against contractual salvage, was not recoverable under
the sue and labour clause. This rule concerning maritime salvage is discussed at para.
14.25 below.
51. For a contemporary restatement of the rule, see the speech of Lord Hobhouse in
Kuwait Airways Corporation v. Kuwait Airways Co SAK [1999] 1 Lloyds Rep. 803
(HL) at p. 816. MIA 1906 s. 78(1) also provides that sue and labour may be recovered
notwithstanding that the subject-matter may have been insured on FPA (Free of
Particular Average) or WA (With Average) terms, types of insurance no longer
commonly in use worldwide. See Chapter 9, para. 9.2 where the terms FPA and WA are
considered.
52. The expenditure must be undertaken under contract by the assured—in terms of
the SG Form, sue and labour was undertaken by the “assured, their factors, servants,
[or] assigns” and the same rule prevails today.
53. See further para. 14.25 below.
54. See OMay at p. 329 which indicates that this would be pleaded in the alternative.
55. [1993] 2 Lloyds Rep. 309.
56. The decision related to Clause 16 of the 1982 Clauses which is in all material
respects identical to Clause 16 of the revised Institute Cargo Clauses.
57. At p. 314.
58. Supra.
59. At p. 313.
60. Ibid.
61. Supra.
62. [2003] 3 HKC 208.
63. The Vasso (supra) and see Strive Shipping Corp v. Hellenic Mutual War Risks
Association (The Grecia Express) [2002] 2 Lloyds Rep. 88 at p. 162.
64. At p. 220.
65. Astrovlinas Compagnia Naviera SA v. Linard (The Gold Sky) [1972] 2 Lloyds
Rep. 187.
66. Supra.
67. The Vasso at pp. 314, 315.
68. See the cases cited in the judgment of Phillips L.J. in State of Netherlands v.
Youell [1998] 1 Lloyds Rep. 236 at p. 244 et seq.
69. See the judgment of Phillips L.J. in State of the Netherlands v. Youell (supra).
70. As discussed at para. 14.9 above.
71. State of Netherlands v. Youell (supra) at p. 245, per Phillips L.J.
72. See paras. 13.59 to 13.70.
73. MIA 1906, First Schedule, Form of Policy.
74. See Chapter 1, paras. 1.9 and 1.16, for the background to UNCTADs
recommendations.
75. A similar waiver clause appears as Clause 11.3 of the Institute Time clauses—
Hulls, where it forms part of the Duty of Assured Clause.
76. This is a requirement for a claim for constructive total loss, see Chapter 13,
paras. 13.49 to 13.52.
77. (1924) 20 L1. L. Rep. 17.
78. Ibid. at p. 22.
79. (1869) LR 4 QB 676 at 686.
80. See the discussion in Amould at para. 30–24.
81. This type of salvage is considered in Chapter 16, paras. 16.23 to 16.24.
82. Salvage is not so ancient as general average, for which see para. 14.31 below,
but nevertheless salvage was recognised by maritime law “long before any policies in
the present [SG Form] were thought of”, per Lord Blackburn in Aitchison v. Lohre
(1879) LR 4 App Cas 755 at 760 and see Nicholson v. Chapman (1793) 2 H.B1. 254 at
p. 257 where Eyre C.J. recognises that the laws of all civilised nations have provided
recompense and a lien for salvage. Salvage is now regulated by the International
Salvage Convention 1989 which is consolidated into English law by Schedule II of the
Merchant Shipping Act 1995.
83. Lloyds Open Form (LOF) is examined in Kennedy and Rose The Law of Salvage,
6th edn, 2002, Sweet & Maxwell, Chapter 9.
84. Cargo ex Argos (1873) LR 5 PC 134 and see Hudson “Special Charges on
Cargo” [1981] LMCL QL 315 at p. 317 for an analysis of the Masters agency. The
International Salvage Convention 1989, Art. 6(2) now gives the Master or owner of the
vessel the authority to conclude salvage contracts on behalf of the owners of property on
board the vessel.
85. Aitchison v. Lohre (1879) LR 4 App Cas 755 at 764. MIA 1906 s. 65(2).
87. See Seashore Marine SA v. Phoenix Assurance plc & Ors. [2002] Lloyds Rep.
IR 51 at 57. The Institute Time Clauses—Hulls cover the vessels proportion of
“salvage, salvage charges and/or general average” and it was agreed in that case that
the word “salvage” included contractual remuneration (i.e., remuneration recoverable
by a salvor under an LOF salvage agreement).
88. (1879) LR 4 App Cas 755 (HL).
89. Aitchison v. Lohre (1879) LR 4 App Cas 755 (HL), per Lord Blackburn at p.
765.
90. MIA 1906 s. 64(2).
91. See G. Hudson “Special Charges on Cargo” (Part 2) [1981] LMCLQ 471 at 475.
92. Aitchison v. Lohre (1879) LR 4 App Cas 755 (HL), per Lord Blackburn citing
Cary v. King [1736] Cas Temp Hardw 304.
93. See Chapter 11, para. 11.15 where this distinction is explained.
94. See Chapter 9.
97. See s. 1 of Lowndes & Rudolf: The Law of General Average and the York-
Antwerp Rules, J. Cooke and R. Cornah, 13th edn, 2008, Sweet & Maxwell (Lowndes
& Rudolf).
98. See further in respect of the meaning of general average, Lowndes & Rudolf
section 4, paras. A.01 et seq. This book concentrates on cargo insurers liability for
general average and does not therefore attempt to do more than outline the nature of
general average and the circumstances in which it arises.
99. (1867–68) LR 3 CP 639.
100. (1937) 57 L1. L. Rep. 83
101. York-Antwerp Rules 2004 Rule X.
102. York-Antwerp Rules 2004 Rule XIV.
103. Depending on the terms of the contract of carriage but generally this will be the
position under the Hague Rules, Hague-Visby Rules Article III rule 1. See also
Goulandris v. Goldman [1957] 2 Lloyds Rep. 207 and see generally Lowndes &
Rudolf section 4, para. D.02 et seq.
104. Castle Insurance Co Ltd v. Hong Kong Islands Shipping Co Ltd (The Potoi
Chan) [1983] 2 Lloyds Rep. 376, per Lord Diplock at p. 378.
105. Ibid., per Lord Diplock.
106. For a further discussion of the practice see Lowndes & Rudolf, s. 5, para. 30.50.
107. Supra.
108. For subrogation see further Chapter 16, paras. 16.1 to 16.22.
109. The change in the wording introduced under the revised Institute Cargo Clauses
is discussed above at para. 14.28 in relation to salvage.
110. See Chapter 9, for a consideration of these perils.
111. See, Hudson & Madge Marine Insurance Clauses, 2005, 4th edn, LLP, at pp.
40–41. An attack by pirates may amount to a piratical “seizure” which may itself be
excluded under Clause 6.2 of the (B) and (C) Clauses. The meaning of “seizure” is
discussed in Chapter 10, para. 10.19 et seq.
112. MIA s. 73 is set out in para. 14.30 above which discusses the same rule in
connection with salvage.
113. The Both to Blame Collision Clause appears in those Clauses which provide
cover against collision damage to the cargo, for example, the ICC (A), (B) and (C), but
not the Institute War Clauses (Cargo) or the Institute Strikes Clauses (Cargo).
114. Clerk & Lindsell on Torts 19th edn, 2005, Sweet & Maxwell Ltd, ed. Dugdale
& Jones, para. 4–02 p. 235, citing Clark v. Newsam (1847) 1 Ex 131 at 140, per Rolfe
B.: “Where two persons have so conducted themselves as to be liable to be jointly sued,
each is responsible for the injury sustained by their common act”.
115. International Convention for the Unification of Certain Rules of Law with
Respect to Collision between Vessels, 1910.
116. This Act is repealed. The relevant provision is now found in the Merchant
Shipping Act 1995 s. 187.
117. The Merchant Shipping Act 1995 s. 187 has replaced the word “vessel” with
“ship”.
118. Section 1(1). The Act also introduced in Admiralty Law principles of
apportioning liability well in advance of English domestic law, in respect of which see
the Civil Liability (Contribution) Act 1978 which repealed s. 6(1)(c) of the Law
Reform (Married Women and Joint Tortfeasors) Act 1935. The Convention also adopted
the much criticised rule of English Admiralty Law which identifies cargo with the
Carrying Ship so cargo on a ship only 50% to blame would, under English law, only
recover 50% from the Colliding Ship, see The Giarinto Motta [1977] 2 Lloyds Rep.
221 at 224.
119. Hague, Hague-Visby Rules Article III r. 1 and Article IV r. 1.
120. Blame was apportioned 50/50 in the United States until 1975, United States v.
Reliable Transfer Co Inc 1975 AMC 541.
121. United States of America v. Atlantic Mutual Insurance Co 1952 AMC 659.
122. American Union Transport Inc. v. United States of America 1976 AMC 1480.
The Both to Blame Collision Clause is common in certain standard forms of
Charterparty, see Southampton on Shipping Law, 2008, Informa, Chapter 6 at p. 160.
123. ICC(A), Clause 1 covers collision as an “all risks” peril, whilst collision is a
named peril under both the ICC (B) and (C).
124. For subrogation more generally see Chapter 16, paras. 16.1 to 16.22.
125. The underwriter must not, by the manner in which he exercises his rights of
subrogation, act in such a way as to prejudice the assured. See Insurance Disputes,
2002, 2nd edn, Mance, Goldrein and Merkin, LLP at p. 183 para. 8.43 and
MacGillivray on Insurance Law, 11th edn, 2008, Sweet & Maxwell, at p. 634 para.
22–059 fn. 182 citing England v. Guardian Insurance Limited [2000] Lloyds Rep. IR
404 at 418.
126. The phrase “extension of the insurance”, which appeared in earlier versions of
the clause, has been omitted on the basis discussed above that, under English law,
general principles of subrogation require insurers to provide the indemnity in question.
CHAPTER 15
MEASURE OF INDEMNITY
VALUED AND UNVALUED POLICIES
Unvalued Policies
15.1 The Marine Insurance Act 1906 section 67(1) calls the sum which the assured can
recover in respect of a loss the “measure of indemnity”. In the case of a valued policy
the measure of indemnity is the value fixed by the policy, which, in broad terms, is the
amount agreed with the insurers,1 whilst in the case of an unvalued policy, the measure
of indemnity is the insurable value (e.g., the c.i.f. invoice value).2 It has been held that
section 67 of the Act is, “conclusively definitive of the extent of the liability of the
insurer for loss”3 and the assured cannot therefore recover sums beyond the statutory
amounts by way of damages from the insurers. The claim under the insurance is
analysed legally as a claim for unliquidated (unascertained) damages arising
immediately on the occurrence of the loss or damage to the cargo.4 It follows that under
English law, by contrast to the position in the United States,5 there is no secondary
obligation of performance arising from failure to pay on demand which entitles the
assured to damages at large for delayed payment or unfair claims handling.6 In the
circumstances, where, for example, the assured has a valid claim under a cargo
insurance in respect of the loss of a valuable piece of income-earning machinery, and
the insurers delay payment alleging wilful misconduct, the assured has no claim for
damages for loss of the income that would have been earned by the lost or damaged
machine, nor for any loss in capital value, or for any hardship or distress caused by the
insurers allegations.7 In addition to the indemnity under the insurance contract, the
assured can recover interest and costs,8 but these are matters of procedural law and fall
outside the contractual indemnity itself.
15.2 Cargo may be insured on a valued or unvalued basis, though the usual practice in
marine cargo insurance is to insure on a valued policy basis, typically with the agreed
value being the c.i.f. value of the cargo plus 10% for notional profit.9 Where the policy
is a valued policy the assured recovers, as the measure of indemnity, the value fixed by
the policy. In the absence of fraud,10 this agreed value is conclusive between assured
and insurer whatever the true value of the cargo. The question of what amounts to a
valued policy is considered in the next section.11
15.3 In the case of an unvalued policy the assured recovers to the full extent of the
insurable value,12 which is defined by section 16(3) of the 1906 Act as “the prime cost
of the property insured, plus the expenses of and incidental to shipping and the charges
of insurance upon the whole”. The words “prime cost” mean what it costs to produce
the goods but, in practice, these words may need some qualification as the assured may
not be the manufacturer, and it may be some time since the goods were manufactured.13
In such circumstances the invoice value or market value at or near the time of shipment
may be the best guide to the prime cost.14 In any event, although the cost of the goods is
no doubt a matter to be borne in mind, the function of the court is to assess the value of
the goods at the commencement of the insurance.15 If there is no evidence on which the
court can form any view then the assured will recover nothing or only nominal
damages16 as the onus of proof is on the assured to prove their claim.17 Kerr J.
summarised the aim of the enquiry in Berger and Light Diffusers Pty Ltd v. Pollock18
where he said:19
“The onus of establishing the insurable value and the other ingredients necessary to establish his claim always rests on
the [assured]. The court must look at the whole of the evidence and then arrive at a conclusion if it can. It is natural
that the insurable value is often referred to as the market value, but it is not necessary that there should be shown to be
a market in the goods in the ordinary sense. The value to the [assured] may be sufficient provided that it is not a purely
subjective or sentimental value. Perhaps ‘commercial value’ is the best description of what the court must seek to
determine.”
15.4 Cases of unvalued insurance for cargo are extremely rare,20 but do occur
occasionally. Sometimes this arises as a result of late declarations under open covers21
and the application of rules which reflect section 29(4) of the Marine Insurance Act
1906, which provides as follows:
“Unless the policy otherwise provides, where a declaration of value is not made until after notice of loss or arrival, the
policy must be treated as an unvalued policy as regards the subject-matter of that declaration.”
The Act thus permits22 the rectification of declarations which have been omitted, or
made erroneously, even after loss or arrival, provided the omission or declaration was
made in good faith.23 However, when a late declaration occurs in such circumstances
the insurance must be treated as unvalued as regards the subject-matter of that
declaration.24 For example, in Harman v. Kingston25 the assureds clerk had made a
written declaration which was not shown to the insurers until after news of the loss.
Lord Ellenborough said “where there is an insurance on goods, as may be thereafter
declared and valued, this gives the assured a power, by duly declaring and valuing
before the loss, to make it a valued policy; but that if the assured do not so declare and
value, it is then an open policy, and the interest is a matter of evidence at the trial”.26
When is a policy a valued policy?
15.5 Marine cargo is generally insured on an agreed value basis, that is to say, in the
event of loss the insurers will be liable to indemnify the assured for a fixed sum, usually
the c.i.f. value of the cargo plus 10%. Such a policy is called a “valued policy” by way
of contrast to an “unvalued” policy where the assured must establish his loss, most
commonly by reference to the value of the goods plus freight and insurance. The agreed
value is referred to in the Marine Insurance Act 1906 as the “sum fixed by the policy”
and, in practice, is sometimes called the “insured value”. This is to be distinguished
from the “sum insured” under an unvalued policy which fixes the upper limit of insurers
liability; the amount of the premium and the amount by which any average would be
adjusted.27
15.6 The Marine Insurance Act section 27(2) defines a valued policy as follows:
“A valued policy is a policy which specifies the agreed value of the subject-matter insured.”
In marine cargo insurance the specification of the agreed value of the subject-matter
insured is usually done by way of a Basis of Valuation Clause which provides a formula
for calculating the agreed value, most commonly “Cost, insurance and freight plus
10%”.28 By ancient practice, the SG Form of Policy referred to the agreement between
the assured and the insurers under which the ship or goods were “valued at” an agreed
amount.29 More recently, the Lloyds Marine Policy: MAR 91 form, which is still
frequently incorporated in modern cargo covers, has a schedule which uses the words
“Agreed Value (if any)” which is no doubt based on section 27(2) of the 1906 Act. The
MAR Form is designed to be used with both valued and unvalued policies leaving it to
the parties to indicate in the full wording of the cover whether the insurance is valued or
unvalued.30
15.7 In practice, how may the full wording of the insurance indicate an intention that
the policy is valued? As we have seen, the words “valued at” or “agreed value” are a
clear indication of an agreed value insurance as envisaged by section 27(2) of the 1906
Act.31 On the other hand, the words “sum insured” are a strong indication that the parties
intended the policy to be unvalued.32 The policy must show that the intention of the
parties is that there is a specified agreed value, proposed by the assured and agreed by
the insurers.33 For example, the standard form of Lloyds certificate of insurance34 uses
the words “insured value” and lower down, the certificate includes the phrase “interest
as specified above so valued”. This indicates an agreed value. Although some market
open covers still use the words “valued at”, in practice most open covers simply have a
Basis of Valuation clause that includes the formula mentioned above of “Cost, insurance
and freight plus 10%”. Some open covers include similar provisions relating to
purchases, for example “amount of purchase invoice and all charges plus 10%” and, in
some cases, elaborate formulae are used to value stock in store. Although section 27(2)
of the 1906 Act requires the parties to make their intention clear that a valuation has
been agreed, it is submitted that this is a hurdle easily surmounted in marine cargo
insurance cases.35
15.8 The position with regard to fine art is illustrated by Quorum v. Schramm.36 In
this case the policy was by endorsement “extended to include US$3,500,000 on Painting
by Edward Degas ‘La Danse Grecque’ in addition to the policy Limits hereon …”. It
was held, looking at the policy as a whole, that the insurance did not provide that this
was to be an agreed value.
15.9 The Marine Insurance Act 1906 section 27(3) provides that “in the absence of
fraud, the value fixed by the policy is, as between the insurer and assured, conclusive of
the insurable value of the subject intended to be insured, whether the loss be total or
partial”. This rule is subject to the other provisions of the Act. This has been taken as a
reference to section 29(4), which provides that the insurance be treated as unvalued
where a declaration is not made until after notice of loss or arrival,37 and section 75(2),
which preserves insurers right to disprove insurable interest.38 The phrase “in the
absence of fraud” may derive from the judgment of Lord Mansfield in Lewis v. Rucker39
where he stresses that the agreed value must be taken as fixed “in every argument, and
for every other purpose” unless there is no insurable interest or the valuation be done
“with a bad view” or “with some view to a fraudulent loss”.40 A fraudulent valuation is
one dishonestly presented and not a mere overvaluation,41 the purpose of the section
being to emphasise the conclusiveness of the agreed valuation in all but the most
exceptional circumstances.
15.10 Nevertheless, where the assured has failed to disclose or has materially
misrepresented an over-valuation in a manner that would have affected the insurers
assessment of the risk, such as to fall within the rules for avoidance for
misrepresentation or non-disclosure, that will entitle the insurers to avoid the policy
itself and with it the claim on the over-valued cargo.42
LOSS OF GOODS
15.11 This section of the book considers the measure of indemnity where goods are lost
or damaged. We concentrate first on partial losses, looking at total loss of part of the
cargo,43 and then consider cargo delivered damaged at destination.44 A further section
compares and contrasts the adjustment on goods damaged at destination with the
situation where cargo is sold short of destination on a salvage loss basis.45 This book
does not consider certain special types of losses sustained by particular types of cargo,
for example pickings and skimmings of cotton, garbling of tobacco, and like matters
which are less common today in view of the widespread use of containerisation.46
Total loss of part of the cargo
15.12 The Marine Insurance Act section 71 provides as follows:
“Partial loss of goods, merchandise, etc.
Where there is a partial loss of goods, merchandise, or other moveables, the measure of indemnity, subject to any
express provision in the policy, is as follows:
(1) Where part of the goods, merchandise or other moveables insured by a valued policy is totally lost, the measure
of indemnity is such proportion of the sum fixed by the policy as the insurable value of the part lost bears to the
insurable value of the whole, ascertained as in the case of an unvalued policy: …”
This section of the Act deals first with a total loss of part of a consignment under a
valued policy. For example, let us take a consignment of 90 computers with a c.i.f. value
of £100 each packed in polythene wrapping on pallets in three containers, each
container holding 30 computers. The computers are insured for a voyage from
Yokohama to Rotterdam and described in the insurance simply as “90 computers in 3
containers”. The agreed insured value is £9,900 based on the c.i.f. value of £9,000 plus
10%. The Act envisages a total loss of part so we will assume that one container is lost
overboard on the voyage with the loss of all 30 computers. An apportionment is
obviously necessary based on the value of the parts lost as compared to the whole, but
the position is that there is no agreed value sum fixed by the policy for the parts lost.
The 1906 Act therefore provides that the apportionment is to be calculated as if the
policy were unvalued, by taking the agreed value sum fixed by the policy, which is
£9,900, and comparing the insurable value of the parts lost, with the insurable value of
the whole. The “insurable value” is defined in section 16(3) of the 1906 Act as, “the
prime cost of the property insured, plus the expenses of and incidental to shipping and
the charges of insurance upon the whole”.47 In broad terms, for the purposes of our
example, we will take the insured value as the c.i.f. value. Accordingly, as each of the
computers has a c.i.f. value of £100, we compare the value of 30 lost computers,
£3,000, with the value of the whole 90 computers, £9,000, and then apply this
proportion, that is one-third, to the insured value of £9,900 to produce a claim of
£3,300.
15.13 It is of interest to compare the rule that applies where there is a total loss of
part of a consignment of unvalued goods. This is dealt with by section 71(2) of the 1906
Act which provides:
“Where part of the goods, merchandise or other moveables insured by an unvalued policy is totally lost, the measure of
indemnity is the insurable value of the part lost, ascertained as in case of total loss.”
The measure of indemnity in the case of total loss is the insurable value of the subject-
matter insured.48 Again, we shall take this, for purposes of illustration, to be the c.i.f.
value.49 In the example given above, but with the difference that no insured value for the
computers was agreed, the measure of indemnity would therefore be the c.i.f. value,
being £100 each, for each of the 30 lost computers, that is, a total of £3,000.
15.14 These examples are quite straightforward but a potentially more complicated
situation arises if there are different species or qualities of property insured under a
single value (e.g., a consignment of 9,000 bags of coffee of different grades shipped in
three containers and valued overall at £90,000). Let us assume that one container,
containing 300 bags of the most valuable coffee, is lost. In such circumstances section
72 of the 1906 Act provides as follows:
“Apportionment of valuation
(1) Where different species of property are insured under a single valuation, the valuation must be apportioned over the
different species in proportion to their respective insurable values, as in the case of an unvalued policy. The insured
value of any part of a species is such proportion of the total insured value of the same as the insurable value of the part
bears to the insurable value of the whole, ascertained in both cases as provided by this Act.”
Assume there were three grades of coffee shipped, and that the c.i.f. values (which
again we will take as representing the insurable values) are as follows: grade A: £110;
grade B: £100, and grade C: £90. There were 300 bags of each grade and 300 bags of
grade A were lost. The valuation of £90,000 is apportioned as follows.
A: 300 × 110 = 33,000/90,000 × £90,000 £33,000
B: 300 × 100 = 30,000/90,000 × £90,000 £30,000
C: 300 × 90 = 27,000/90,000 × £90,000 £27,000
Total £90,000
The amount recoverable on the 300 bags of A grade coffee is therefore £33,000. The
same apportionment applies to valued and unvalued policies50 and to different types of
goods. In making the calculation it may not always, in practice, be easy to ascertain the
prime cost, as required strictly by section 16(3) of the Act.51 In the circumstances the
Rules of Practice of the Association of Average Adjusters provide that where different
qualities or descriptions of cargo are valued in the policy at a lump sum the sum is
apportioned on invoice values. This allows the use of invoice values when, as will
most usually be the case, the invoices give different prices for the different qualities or
descriptions of the goods.52 The 1906 Act itself has a slightly different solution and
provides that if the prime cost of each quality or species cannot be ascertained, the
apportionment may be made over the net arrived sound values of the different qualities
or species.53 Rule E of the rules of the Association of Average Adjusters also
recognises that prime cost may be used, but only where the more convenient method
based on invoices is not available.
15.15 The Marine Insurance Act section 71 further provides as follows:
“(3) Where the whole or any part of the goods or merchandise insured has been delivered damaged at its destination,
the measure of indemnity is such proportion of the sum fixed by the policy in the case of a valued policy, or of the
insurable value in the case of an unvalued policy, as the difference between the gross sound and damaged values at the
place of arrival bears to the gross sound value.”
Section 71(3) is of particular importance to the adjustment of claims for cargo delivered
damaged at destination as the rule in this section often leads to misunderstandings
between the assured and the insurers.54 The assured tend initially to see their loss as the
insured value less the amount realised by the sale of damaged goods. For example, let
us take a bulk cargo of 10,000 tonnes of grain which is seawater damaged during the
voyage. The c.i.f value is $100 per tonne or $1,000,000 for the whole cargo and the
agreed insured value is c.i.f. plus 10%, that is £1,100,000. The cargo is sold at
destination in a damaged state for $50 per tonne which realises $500,000. The assured
may look to recover from their insurers the insured value of £1,100,000 less $500,000,
that is $600,000. However, this would involve the insurers in the rise and fall of the
market: it would mean that the insurers in some cases would pay vastly more than the
loss; in other cases it would deprive the assured of any recovery even though there was
a loss.55 Accordingly, the 1906 Act requires that the calculation be based on a
comparison of the “difference between the gross sound and damaged values at the place
of arrival” as compared to the gross sound value. In our example we need therefore to
establish the sound value at arrival. If the sound market value is the same as the c.i.f.
value of $100 per tonne then the sale value of $50 per tonne represents a 50%
depreciation in the value of the cargo caused by the damage during the voyage caused by
seawater. The insurers should therefore be paying half of the insured value which, in our
example, is $550,000, not the $600,000 the assured was expecting. The extent of
depreciation is the key as it is that percentage which is to be applied to the insured
value. Let us assume that the market has risen so that the gross sound value is $120 per
tonne. As the damage to the cargo is the same, the percentage depreciation remains at
50%, but the cargo will sell for $60 per tonne as a result of the rise in the market. The
same percentage depreciation of 50% is then applied to the insured value of $1,100,000
to produce a claim of $550,000. In this case the salvage value of $600,000 taken from
the insured value of $1,100,000 would produce a claim of only $500,000, so the
assured who receives $550,000 on a particular average proportional basis is “better
off” by $50,000 on a rising market. Indeed, as Lord Mansfield pointed out in Lewis v.
Rucker,56 the assured may obtain “ no satisfaction” on a rising market by using the
method of deducting the net proceeds of sale from the insured value. For example, if the
market value had risen to $220 per tonne, the 50% depreciation would result in a sale
value of the damaged cargo of $110 per tonne or $1,100,000 and deducting this from the
insured value of the same amount will result in a nil claim when in fact half of the
insured value is due to the assured. On the other hand if the market price has fallen to
$80 per tonne and the extent of damage remains the same, the sale price of the damaged
cargo will then be $40 per tonne on the gross arrived value of $80 per tonne, and the
assured still receives $550,000. In this case on a salvage basis the assured would
expect $700,000 ($1,100,000, insured value, less sale proceeds of $400,000) so the
potential for disagreement is more pronounced.
15.16 These provisions in section 71(3) of the 1906 Act are based on the case of
Lewis v. Rucker57 which raised an additional point of some importance. In this case a
cargo of sugar, coffee and indigo was wet damaged by seawater during a voyage from
St Thomas to Hamburg. The sugar was insured for £30 per hogshead and had to be sold
immediately in its damaged state before it deteriorated further. The price of sugar had
fallen significantly to about £23 due to the possibility of a peace treaty easing trade, and
the damaged sugar fetched just over £20. It will be seen that the fall in the market
caused most of the loss, the damage being only relatively moderate in extent, about £3
on £20, or 15%. The insurers paid into court the proportion of the insured value of £30
represented by the difference between the gross sound market value of £23 and the gross
damaged market value of £20. This calculation was upheld at a trial in the Guildhall by
a special jury of “knowing and considerable merchants” who, according to Lord
Mansfield “understood the question very well and knew more of the subject of it than
anybody else present”.58
15.17 The assured argued for a salvage sale valuation, that is, insured value less
proceeds of sale, on the grounds that if the sugar had been undamaged he would have
given instructions to await a rise in the market. The assureds case was that he had given
such instructions in relation to other cargoes destined for Amsterdam and that those
Amsterdam cargoes had sold for £30 or more when the market rose. It was said that the
forced sale in Hamburg was therefore a direct result of the seawater damage sustained
during the voyage, which prevented the possibility of postponing the sale, and that the
loss was therefore caused by an insured peril. Initially attracted by this argument, Lord
Mansfield left the point to the special jury who found in favour of the insurers. On an
application for a new trial, Lord Mansfield upheld the jurys verdict on the basis that the
duty on the insurers to pay the indemnity arises on the arrival and landing of the
damaged cargo, or, in modern terms the termination of the duration of the insurance
under Clause 8 of the Institute Cargo Clauses.59 The assured has then the right to
“demand satisfaction” and the adjustment cannot depend on future speculation as to
whether the market will rise or fall.60 Lord Mansfield also pointed out that it was not
the possibility of peace or war that was insured but the cargo.61
15.18 The assured in Lewis v. Rucker62 also argued that as the policy was an agreed
value policy, the value was conclusive, and a salvage sale approach was appropriate as
by agreeing a value the insurers had effectively agreed to pay any loss on the insured
value. It was said that as the insurers would have been obliged to pay the agreed insured
value on a total loss they should not be relieved of that obligation in the case of a partial
loss. The assured were effectively forced to say a partial loss adjustment was not
appropriate on a valued policy, and this was rejected by Lord Mansfield.63 It may be
noted, in this context, that section 71 recognises, particularly in sub-section 71(1), that
the apportionment is carried out “as in the case of an unvalued policy”.
15.19 The other point of note arising from section 71(3) of the Act set out above is
the need to make the calculation in terms of gross values. This approach is based on
Johnson v. Seddon64 where the court held that the insurers are not responsible for
variations in port duties or charges and that the gross sound values should be compared
with the gross proceeds of sale to determine the percentage depreciation. The Marine
Insurance Act 1906 section 71(4) sets out what “gross values” are as follows:
“(4) ‘Gross value’ means the wholesale price, or, if there be no such price, the estimated value, with, in either case,
freight, landing charges, and duty paid beforehand; provided that, in the case of goods or merchandise customarily sold
in bond, the bonded price is deemed to be the gross value. ‘Gross proceeds’ means the actual price obtained at a sale
where all charges on sale are paid by the sellers.”
This provision largely speaks for itself though it should be particularly noted that for
goods customarily sold in bond, the bonded price is deemed to be the gross value.
15.20 In practice sound and damaged market values may not easily be obtained as
there are many occasions when no market is readily available. The provisions of
section 71(3) of the 1906 Act are not however limited to cases where there is a
“market”, as such, for the goods or merchandise and, indeed, the word “market” is not
used in the sub-section which speaks merely of “gross sound and damaged values”. This
means the “market or other value” of the goods at the place and time of arrival.65 For
example, in Whiting v. New Zealand Insurance Company,66 the assured imported a
type of Panama hat shipped from Kobe to London and one of the consignments suffered
wet damage on the quay while awaiting shipment in Japan. There was no market as such
for this rather special article, but the court accepted the evidence of the assured that he
had re-sold the hats in the United Kingdom for just over a £1 per dozen, which fixed the
sound arrived value. It may further be noted that where the damaged value is established
by sale, the sound market value should be taken on the day of that sale so as to compare
like with like.67
15.21 In practice, there are many occasions when a ready market is not available for
the goods or merchandise and a percentage depreciation is agreed between the assured
and the insurers surveyors or the insurers themselves.68 Although sections 71(3) and (4)
of the Act refer only to “goods or merchandise”, unlike the preamble to section 71, and
sub-section 71(1) which also refers to “moveables”,69 there can be little doubt that
section 71(3) is of general application even when there is no market or other readily
available means of establishing the value of the goods merchandise or “moveables” in
question. In any event, section 75(1) of the 1906 Act states that where a loss has not
been expressly provided for in the provisions of the Act “the measure of indemnity shall
be ascertained, as nearly as may be, in accordance with those provisions, in so far as
applicable to the particular case”. The arrived value approach must therefore be
adopted, so far as possible, in relation to any claim, whatever the nature of the subject-
matter insured. This creates a potential problem, particularly in relation to consignments
of machinery, where the fact that a machine is damaged may reduce its value at arrival
out of all proportion to the cost of repairing and replacing the particular part or parts
that are damaged. Accordingly, it is the practice to insure all consignments of machinery
subject to the Institute Replacement Clause which provides that, in broad terms, the
amount recoverable under the insurance shall not exceed the cost of replacing the lost or
damaged part.70 Machinery is not the only type of manufactured product that may
decrease in market value significantly beyond what it would cost to repair the item in
question. The potential problem arises with regard to almost any manufactured article
that is damaged. This consideration led to the issue of an amended Institute Replacement
Clause on 1 December 2008. The revision was also prompted by the advent of
computers, solid state electronics and other sophisticated technical items, not
necessarily falling within the term “machinery”. The revised clause now provides:
“Institute replacement clause
In the event of loss of or damage to any part(s) of an insured machine or other manufactured item consisting of more
than one part caused by a peril covered by this insurance, the sum recoverable shall not exceed the cost of
replacement or repair of such part(s) plus labour for (re)fitting and carriage costs. Duty incurred in the provision of
replacement or repaired part(s) shall also be recoverable provided that the full duty payable on the insured machine or
manufactured item is included in the amount insured.
The total liability of Insurers shall in no event exceed the amount insured of the machine or manufactured item.”
The effect of this clause is to protect insurers of machinery and also any “other
manufactured item” from the statutory rule that the loss should be adjusted under section
71(3) on the basis of sound and damaged gross market values. At the same time the
clause provides a method for adjusting the claim on the basis of repair costs. The
additional cost of airfreighting replacement parts, to enable repairs to be carried out
more speedily, is not usually considered recoverable71 under this clause because this
additional expense is viewed as being incurred to avoid delay, which is excluded under
Clause 4.5 of the Institute Cargo Clauses.72
15.22 When the revised Institute Replacement Clause was introduced on 1 December
2008, a new clause, known as the Institute Replacement Clause-Proportional Valuation,
was also published by the Institute for use by the insurance markets. This Clause is the
same as the revised Clause with the additional words “… the sum recoverable shall not
exceed such proportion of the cost of replacement or repair of such part(s) as the
amount insured bears to the new cost of the machine or manufactured item”. For
example, the assured may dispose of used machinery, or production line equipment, at a
relatively low value compared to the sum of the replacement cost of individual parts.
The new parts may cost much more than the old, but the insured value, based on the used
sales value of the machine or equipment, will be likely to be relatively low. In order to
avoid a position where the premium will not be commensurate with the new
replacement cost of damaged parts, it may be appropriate to use the proportional
valuation version of the Institute Replacement Clause.73 A further endorsement wording,
for use with either of the Institute Replacement Clauses was introduced at the same time
to deal with the case of obsolete machinery (i.e., machinery that was no longer
manufactured). This endorsement74 limits the amount recoverable to the “manufacturers
list price for the last year of manufacture of the lost or damaged part(s)”, such price
being uplifted for inflation by reference to the retail price index. This protects insurers
from paying a disproportionate repair cost when it is necessary to manufacture a part for
an obsolete machine.
Salvage losses
15.23 It is convenient here, by way of contrast, to deal with the position where the
subject-matter insured is sold short of its destination because it has been damaged and,
in terms of clause 13 of the Institute Cargo Clauses, the cost of “recovering,
reconditioning and forwarding the subject-matter insured to the destination to which it is
insured would exceed its value on arrival”.75 In such circumstances the assured is
entitled to abandon the cargo to insurers, if necessary giving notice of abandonment,76
and to claim for a constructive total loss. If the insurers accept the abandonment they are
entitled to take over the interest of the assured in whatever may remain of the subject-
matter insured, and all proprietary rights incidental thereto.77 On the sale of the goods at
the port of distress the insurers, having already paid for a constructive total loss in the
amount of the full insured value of the cargo, would then receive the net proceeds of
sale, termed “salvage”. More often, the insurers decline the claim, advising the assured
“to act as a prudent uninsured”, and also decline any notice of abandonment, putting the
assured in the same position as if legal proceedings had been issued. The sale of the
distressed cargo takes place in the name of the assured, as owner of the cargo, and if
there is a valid claim under the insurance the insurer pays the difference between the
total insured value and the net proceeds of sale, such being called a “salvage loss”.78
15.24 A comparison between a salvage loss, as just described, and a claim for partial
loss in respect of damage to the goods delivered at destination, highlights certain
anomalies that occur when the market has risen. In the case of a total loss short of
destination, the assured cannot recover for more than the agreed insured value. In the
example considered earlier, we assumed damage to a cargo of grain by seawater with a
c.i.f. value of $1 million insured for c.i.f. invoice value plus 10%, that is, $1.1 million.
We shall assume damage of 25% or a quarter of the value and that the market has risen
by, say, 30%. In this example, there would be a claim at destination for 25% of the
insured value ($275,000). The assured also receives the net proceeds of sale of
$975,000 calculated as follows:
1 tonne = $100 plus 30% rise in market = $130
10,000 tonnes times $130 = $1,300,000
Less 25% depreciation $ 325,000
Net proceeds of sale $ 975,000
The assured will receive, therefore, $275,000 plus the net proceeds of sale of
$975,000, a total of $1.25 million. However, at a sale short of destination the assured
can make a claim for no more than the insured value of $1.1 million and on a salvage
loss basis will receive $975,000 for the net proceeds of sale and the balance of
$125,000 from the insurers. Moreover, insurers will be entitled to subrogation rights
against the carrier79 and, in the usual case, that will entitle the insurers to proceed
against the carrier for the difference between the sound market value at the place of
destination, that is $1.3 million and the amount realised on the sale in the port of
distress, that is $975,000, a difference of $325,000. It will be seen that this difference
compares favourably from insurers point of view with the amount paid by them on a
salvage loss basis, which was only $125,000, and, indeed, is more than insurers would
pay if the goods were sold at destination which was $275,000. The extent to which any
recovery of the whole or part of the amount of $325,000 should be apportioned between
assured and insurers is explained in the section of this chapter which considers
apportionment of subrogated recoveries from third parties.80
UNDER-INSURANCE
The effect of under-insurance
15.25 The Marine Insurance Act 1906 section 81 provides:
“Where the assured is insured for an amount less than the insurable value or, in the case of a valued policy, for an
amount less than the policy valuation, he is deemed to be his own insurer in respect of the uninsured balance.”
This section of the Act covers a number of different situations. Firstly, there are cases
where an assured may decide to deliberately bear part of the risk himself and to self-
insure for the balance. Secondly, there are cases where the insurance market available
to the assured has insufficient capacity to cover the whole of the risk so a slip may, for
example, only be subscribed for 80% leaving the assured with no choice but to self-
insure for the balance. Thirdly, there are cases where the assured, whether by accident
or by design, declares a value that is less than the full value of the cargo. The effect of
section 81 of the 1906 Act in cases of under-insurance is to apportion partial losses
between assured and insurers rateably in accordance with the amount of the risk they
have each undertaken.81 In the case of a total loss, the assured simply recovers the
agreed insured value, where the policy is valued, or the limit of the indemnity,
sometimes called the “sum insured”, where the policy is unvalued.
15.26 It is generally said that section 81 of the 1906 Act applies the principle of
“average” to marine insurance. In non-marine insurance, in the absence of an average
clause, an assured can recover in full for a partial loss (up to the limit of indemnity)
even though he is under-insured. For example, in Sillem v. Thornton82 Lord Campbell
C.J. held that “upon an insurance of a house against fire the insurer must make good the
whole of any partial loss, the owner not being considered to stand his own insurer for
the excess of the value of the house beyond the sum for which the insurance is
effected”.83 Thus non-marine property policies, in particular, normally contain an
average clause. The rule in section 81 bears similarities to the rules regarding average
but, in general, marine insurance has its own rules regarding the measure of indemnity,
as set out in the 1906 Act. Not all of these rules apply average. For example, where a
ship has been repaired, the assured is entitled to the reasonable cost of repairs, less any
customary deductions. The full amount of the repairs is recoverable as long as it does
not exceed the sum insured. There is no deduction by way of average even if the vessel
is under-insured.84
Open cover limits
15.27 A cargo insurer who issues an open cover to his assured will normally ask the
assured for an estimated value of the cargo to be declared for any one period, typically
a year, when the policy is first placed. That figure is taken into account in assessing the
premium and as part of the insurers assessment in whether he will take the risk.
However, the insurer under an open cover also requires protection against aggregation
of risk at particular locations as, for example, where cargoes from different shipments
may be accumulating in a single warehouse at a port of destination regularly used by the
assured for storage. The insurer therefore imposes on the open cover a limit of liability
which typically would read:
“US$1,000,000 any one sending, shipment and/or location.”
It is sometimes the practice to allow doubling of the location limit subject to conditions
of prompt notice to the insurers and additional premium.
15.28 It is the practice of many cargo insurers to protect their account by reinsurance
on an excess of loss basis.85 In the example given in the previous paragraph, the open
cover limit was US$1 million, so the original cargo insurer had limited his risk to his
assured to that sum. Typically, the original insurer would then use excess of loss
reinsurance to limit his ultimate exposure to a lesser sum. For example, he may retain
the risk up to US$250,000 any one loss passing the balance of US$750,000 to his
reinsurers. It will be seen, therefore, that these shipment and location limits are often
central to cargo insurance. With this background in mind, the question arises whether
shipment and location limits in an original policy with the assured have the effect of
creating under-insurance in terms of section 81 of the 1906 Act ?
15.29 Let us take, for example, two shipments of cargo each insured for an agreed
value US$750,000 on which premium is paid in full based on a percentage rate on the
value of the cargo—the “rate on line”. The two cargoes, with a total agreed insured
value of US$1.5 million, both reach the same warehouse at destination at different times
and thereafter are partially damaged in the same fire. The same location limit of US$1
million discussed in the previous paragraphs applies. Clearly if the loss exceeds US$1
million then the limit is US$1 million any one location and that limit applies and the
assured recovers no more than that sum. However, if the partial damage to both cargoes
is only to the extent of US$800,000, can it be said that the assured is insured for an
amount less than the policy valuation? It is true that at that particular location the
insurance was only for US$1 million, and not US$1.5 million which was the total
agreed insured value of the two cargoes. However, full premium at the agreed rate on
line had been paid on the sum of US$1.5 million. The insurers have had their full share
of premium on the two cargoes enabling them to pay the partial loss claim of
US$800,000 within the limit of US$1 million in full just as if the cargoes had been in
separate warehouses at separate locations. As we have seen, the purpose of the location
limit is to protect insurers from large losses, and to enable the insurer to structure his
book of business by passing a part of large losses to his reinsurers on an excess of loss
basis. Accordingly, to apply principles akin to average in the circumstances described
above to a partial loss through a location limit is, it is submitted, not in accordance with
section 81 of the Act. Where the claim limit is not reached and full premium has been
paid on the insured values there is no true under insurance.86
Subrogation
15.30 It is convenient here to consider how subrogated recoveries are apportioned
between insurers and assured as this depends to a large extent on the rules relating to the
measure of indemnity as discussed earlier in this chapter. The following issues will be
considered in turn: under-insurance;87 deductibles;88 agreed values;89 limits on values;90
unvalued policies;91 proprietary rights to the proceeds of a legal action;92 proprietary
rights in the goods;93 and interest and costs.94 So far as applicable in each case we will
take as our example a cargo of coffee with a c.i.f. value of £10,000 insured for that c.i.f.
value plus 10% (i.e., £11,000).
Under-insurance
15.31 The rule where there is under-insurance is that the assured is “deemed to be his
own insurer in respect of the uninsured balance” of the loss in accordance with section
81 of the Marine Insurance Act 1906.95 This section of the Act was applied to a
subrogated recovery in The Commonwealth.96 In this case a policy was taken out for
£1,000 on a vessel valued at £1,350. The vessel sank due to a collision and insurers
paid a total loss of £1,000 under the policy. Subsequently, £1,000 was paid into court
by the owners of the vessel at fault and the question arose as to how this sum of £1,000
should be apportioned between the assured, who had lost £1,350, and his insurers who
had paid £1,000. It was held that there should be a pro rata apportionment on the basis
that the assureds name is used in a subrogated action for the benefit of the insurer to the
extent to which the assured had insured, and for the assured himself, to the extent to
which the assured had left himself uninsured.97 It followed that the money recovered
should be divided in proportion to the insurers and the assureds respective interests.98
The insurer was therefore entitled to 1,000/1,350ths of the £1,000 recovered (i.e.,
£740.74), and the assured to £259.26. Assuming, in our example above, that the cargo is
valued at £10,000 and insured for £8,000 and there is a recovery of £6,000, the
calculation would be 8/10ths of £6,000. The insurers recover £4,800 and the assured
£1,200. It should be noted that this rule rarely applies, as such, to marine cargo
insurance because such policies are almost always valued and a different rule applies in
such circumstances, as discussed below.99
Deductibles
15.32 It is not uncommon for marine cargo open covers to have a deductible clause
particularly for certain types of cargoes. Such a clause may typically read: “Deductible:
£250 each and every loss”. An agreement to a deductible operates so as to layer the
insurance vertically as it is construed as an agreement by the assured to bear the first
£250 of each and every loss. It follows that if the assured were to recover the
deductible pro rata from the third party, who caused the loss, that would be inconsistent
with the assureds agreement to bear the first £250 of the loss.100 In our example we have
assumed a c.i.f. value of £10,000 for the cargo and that it is insured for £11,000 with a
deductible of £250. Let us further assume that the cargo has been damaged by a third-
party bailee, such as a shipowner, and rendered a total loss. In the circumstances, the
assured has been paid £10,750 by the insurers being the agreed value of £11,000 less
the deductible of £250. If the insurers make a recovery from the party at fault of 50% of
the loss based on the sound market of £10,000 (i.e., a recovery of £5,000), all of this
goes to the insurers. Indeed a recovery of any amount up to £10,750 goes in full to the
insurers. The assured will only be entitled to any recovery if the insurers have been
satisfied in full, following which the balance will go to the assured. This rule follows
from the decision in Napier and Ettrick v. Hunter101 which involved layered insurance
where the assured had agreed to bear the first £25,000 of any loss himself, only insuring
above that amount. It may be objected that a deductible is only another way of sharing
the insurance between the insurers and the assured and that section 81 of the 1906 Act
should come into play because the deductible makes the assured “his own insurer” in
respect of the first slice of the risk. On that approach the correct apportionment would
be pro rata as in the case of under-insurance discussed above.102 However, this would
be unduly favourable to the assured because it would fail to recognise that the insurers
have no involvement at all in the primary layer represented by the deductible. Another
way of looking at the situation is to say that the assured and insurers share pro rata
under the rule in section 81 of the Act where they share the risk on the same layer, but
they do not share pro rata where each takes a separate risk, one (the assured) for the
first layer, represented by the deductible, and the other (the insurers) for the layer or
layers above the deductible.
Agreed values
15.33 Marine cargo is almost always insured on an agreed value basis, typically with a
Basis of Valuation Clause that provides that the agreed value will be the c.i.f. invoice
value plus 10%. In accordance with this practice, let us assume that the c.i.f. value of
the cargo is £10,000 and the agreed insured value is £11,000.103 How are recoveries
apportioned where the insurers are entitled to recover an additional amount by reason,
for example, of an increase in the market value of the goods that were lost? This
situation is most marked in circumstances where the depreciation is relatively less than
the increase in market value. For example, as discussed earlier in this chapter,104 cargo
may be sold short of destination depreciated by 25% in circumstances where the market
has risen by almost that amount or, on occasion, more than that amount, say 30%. In our
example, if the cargo is sold short of destination the assured is paid a total loss of
£11,000, being the agreed insured value. Alternatively, the cargo may reach its
destination and be sold damaged. The assured is then paid a depreciation, say 25%,
which applied to the insured value of £11,000 is, £2,750. The assured also receives the
net proceeds of sale of the damaged cargo. If the cargo has increased in value by 30%,
it sells for £13,000, less 25% depreciation (i.e., a net sale price of £9,750). The
assured will therefore recover, if the cargo is delivered damaged at destination, a
payment of £2,750 from the insurers plus the proceeds of sale of £9,750, a total of
£12,500. The insurers will proceed against the carrier for the sound market value at
destination of £13,000 and we shall assume a recovery to the extent of 60% (i.e.,
£7,800). This relatively high figure results very largely from the higher sound market
value figure. Where the values are agreed the assured are not entitled, however, to
recover pro rata in the enhanced recovery that is achieved by reason of the fact that the
sound market value of the cargo exceeded the agreed value because, for all purposes,
the agreed value is “as between the insurer and the assured, conclusive of the insurable
value”.105
15.34 Where the insurers recover more than their loss they are not, however, entitled
to keep the excess even where the policy is a valued policy. So if the insurers pursue a
subrogated claim to trial then, taking the example of a total loss set out in the previous
paragraph, they would recover the full amount of £13,000. The insurers must account to
the assured for the surplus. Where the recovery is £13,000 the surplus will be £2,000 as
compared to £11,000 paid to the assured. This rule follows from the general principle
that the purpose of subrogation is to entitle the insurers to stand in the shoes of the
assured to recover their expenditure and to prevent unjust enrichment. The principle
does not allow the insurers to recover more than what they have paid the assured except
only in the case discussed below where there has been an abandonment.106 In all other
cases of subrogation the insurer is entitled to use the assureds name and has a
proprietary interest in the proceeds of the right of action,107 but the right of action itself
remains that of the assured. In some continental jurisdictions it is the practice for
insurers to take an assignment of the assureds rights of action against the third party. An
assignment of the right of action is also recognised under English law, albeit that it is
not usual practice in marine cargo insurance. However, if such an assignment is taken
the insurers could then, in principle, recover more than their payment to the assured.108
Policy limits
15.35 It is usual in marine cargo insurance for there to be a limit under the open cover,
such as “$1,000,000 any one sending, shipment and/or location”.109 If there is a loss in
excess of the limit and a recovery is made from a third party responsible for that loss,
who is entitled to that recovery, insurer or assured? For example, cargoes worth $2
million are involved in a fire at a port warehouse under an open cover that has a limit of
$1 million. The insurer pays the limit of $1 million and a recovery is subsequently made
of $1.5 million from the warehouse-keeper. Who is entitled to the sum of $1.5 million or
does it have to be apportioned? It seems that the effect of a limit is to layer the insurance
vertically like a deductible. The result is that the risks are separated into layers and, as
with a deductible, the insurers and the assured are treated as being separately involved
in separate risks. In the circumstances the assured takes $1 million of the recovery,
returning $500,000 to the insurers who will be out of pocket by $500,000. This so-
called “top-down” approach was applied by Rix J. at first instance in Kuwait Airways
Corporation v. Kuwait Insurance Co (No. 2).110 In this case it was held that the top-
down approach was appropriate to a non-marine policy where there was a limit of $300
million, a loss of $692 million and a recovery of $375 million. The whole of the $375
million recovery went to the assured. Rix J. purported to follow Napier and Ettrick v.
Hunter111 which was a case of layered risk which is clearly analogous to the position
with a deductible. However, it is less clear whether a limit has the effect of layering the
risk or creates under-insurance. If a limit creates under-insurance then section 81 of the
1906 Act ought to apply and the recovery would be apportioned pro rata in accordance
with the rule in The Commonwealth.112 This book takes the view that a limit does not
create under-insurance as the assured has paid the full premium, or rate on line,113 and
that section 81 should not therefore apply to a partial loss occasioned by the application
of a policy limit. It follows that limits operate more like layered insurance and that the
decision in Kuwait Airways (No. 2)114 albeit a non-marine insurance case, is applicable
to marine cargo insurance. Accordingly, a limit creates a layer and the top-down
principle applies with the assured recovering first and any balance being applied to the
lower slice of the risk undertaken by the insurers only if the assured has first been fully
compensated.115
Unvalued policies
15.36 It is rare that unvalued policies are encountered in marine cargo insurance but on
occasions, such as where a bona fide declaration is made late,116 the insurance may be
treated as unvalued. Where the policy is unvalued the assured and the insurers share
recoveries in accordance with section 81 of the Act. Accordingly, if the cargo is under-
insured by reason, for example, of a sum insured117 lower than the market value at
destination they will share pro rata as if the assured was his own insurer for his share of
the risk. It is submitted that this apportionment should be taken into account in relation to
any recovery. For example, if the cargo is under-insured, because the sound market
value has risen, the insurers and the assured should share proportionately in any
recovery on the principles of The Commonwealth118 and section 81 of the 1906 Act. As
the claim against third parties at fault is based on enhanced values, that should be taken
into account in the apportionment of the amount recovered as between assured and
insurers. In the absence of agreed values, it cannot be right that the insurers alone should
take that full benefit of the enhanced recovery brought about by the rise in the sound
market value of the cargo.119
15.37 If the recovery exceeds the amount paid to the assured by insurers then the
assured is clearly entitled to the balance of the recovery that exceeds the amount paid to
him.120
Proprietary rights to the proceeds of a legal action
15.38 The insurers right to any recovery is an equitable right which entitles the insurers
to a equitable proprietary lien over the proceeds of the recovery whilst it is in the hands
of the assured or their agents, for example, the assureds solicitors.121 The effect of the
lien is that a third party with notice of the insurers rights must obtain the consent of both
insurers and assured before paying out the recovery to one or other or either of them.122
The lien can be enforced as long as there is an identifiable separate fund which can be
traced and the money has not fallen into the hands of a bona fide purchaser without
notice.123
Proprietary rights: total loss and abandonment
15.39 Where insurers accept an abandonment of the goods they are entitled to take over
the “interest of the assured in whatever may remain of the subject-matter insured, and all
proprietary rights incidental thereto”, in accordance with section 63(1) of the Marine
Insurance Act 1906. The insurer may therefore become the owner of the cargo with all
the rights and responsibilities that may entail. Let us take, for example, a cargo of
copper valued at US$10 million which was a total loss when the vessel carrying it sank
in shallow water in the St Lawrence River. If the insurers accept the abandonment they
will be entitled to the goods abandoned to them. Consequently, if they pay a total loss
claim of US$10 million and, subsequently, the cargo of copper is raised and sold for
US$12 million net of salvage and recovery charges, the insurers will be entitled to the
“profit” of US$2 million on the sale of their cargo of copper.124 In practice insurers
rarely accept an abandonment because it is unclear whether they may be liable for
pollution and other expenses.125
Interest and costs
15.40 The insurer who proceeds by way of a subrogated claim in the name of the
assured may recover interest on the claim against the party responsible for the loss of or
damage to the goods insured under a marine cargo policy. How is this interest to be
apportioned where it may have taken some time to settle the insurance claim itself and
even longer to resolve any claim against a third party carrier or warehouse-keeper? In
H Cousins & Co Ltd v. D & C Carriers Ltd,126 there was a claim for the total loss of a
consignment of clothing and shoes, insured for carriage from Hong Kong to Scotland,
which was lost during the inland carriage in the United Kingdom. The insurers settled
the policy claim some eight months after the loss and started legal proceedings against
the carriers in the name of their assured. The carriers made a payment into court almost
four years after the loss. This payment represented the carriers limit of liability under
the carriage contract and did not include any amount for interest. At the initial hearing
the court awarded interest for the period from the date when the assured could have
expected payment from their customers for the clothing and shoes—shortly after the loss
—until the time when the assured received the money from their insurers, some eight
months after the loss. This was on the basis that the assured, as nominal claimant, had
suffered no loss of interest after that time as they had been reimbursed by their insurers.
The Court of Appeal took a different view and held that interest should be awarded for
the full period up until the payment into court. The insurers were entitled to take over all
the rights of the assured in respect of the loss of the goods and those rights included the
right to claim interest which could not be separated from the right to claim for the loss
of the goods.127 For present purposes, it may be particularly noted that an apportionment
of the interest between assured and insurers was considered appropriate. It was held
that it was an implied term of the contract of insurance that “the assured may retain
interest accruing prior to the date of settlement by the insurers but thereafter such
interest must go to the insurers”.128 On the facts of the case, and rounding off the figures,
the claim for the lost clothing was for £3,000; the interest awarded for the eight months
until the insurers paid the policy claim was £120 and the further interest awarded for the
fours years until the payment into court was £750. The assured was entitled to retain the
£120 and the interest thereafter of £750 went to the insurers.
15.41 The apportionment of costs depends on the extent of the interest each party,
assured and insurer, has in the claim. Accordingly, if a cargo is underinsured the assured
and insurers will share rateably in any costs due if an action fails. For example, in Duus
Brown & Co v. Binning,129 assured and insurers jointly took an action which failed
against a lighterman for loss and damage to a cargo and sue and labour. The cargo was
under-insured by about 25% so the assured had to pay 25% of the costs in relation to the
damage claim and the insurers the balance. The sue and labour, being supplementary to
the policy,130 the insurers had to pay all of the costs in respect of that part of the claim.
No doubt in a successful action the irrecoverable costs—that is to say the costs not
recovered from the unsuccessful party, would be apportioned on the same principles.131
1. MIA 1906 s. 68(1). See para. 15.5 et seq. below which considers the question of what amounts to a valued
policy.
2. MIA 1906 s. 68(2). See para. 15.3 below where the method of establishing the “insurable value” is considered.
3. Ventouris v. Mountain (The Italia Express) [1992] 2 Lloyds Rep. 281 at 291. This case concerned a claim for
an agreed value under a hull policy but there is no doubt that the same principles apply to cargo policies, whether
valued or unvalued.
4. See Firma C-Trade SA v. The Newcastle P & I Association (The Fanti) [1990] 2 Lloyds Rep. 191, per Lord
Goff at p. 202; Chandris v. Argo Insurance Co [1963] 2 Lloyds Rep. 65, approved Castle Insurance Co Ltd v.
Hong Kong Islands Shipping Co Ltd [1983] 2 Lloyds Rep. 376 (PC).
5. See, for example, the United States cases cited in The Italia Express (supra) including, Salamey v. Aetna
Casualty and Surety Company [1984] 741 Federal Reporter 2nd series 874.
6. The Italia Express (supra) at pp. 285 to 291.
7. Ibid., The Italia Express (supra).
8. See Chapter 13, para. 13.6 in respect of costs and para. 13.7 in respect of interest. The extent to which a claim
for compound interest is circumscribed by MIA 1906 ss. 67 and 68 has yet to be considered by the courts.
9. The uplift may also take into account additional costs that may be necessary in the event of replacement. The
10% uplift is consistent with trade practice, see, for example, Incoterms 2000 CIF A3 which provides that the
minimum amount of the insurance cover is the c.i.f. contract price plus 10%.
10. MIA 1906 s. 27(3), and see further para. 15.9 below. Where the policy itself is avoided for non-disclosure of an
excessive valuation there will be no recovery, See para. 15.10 below.
12. MIA 1906 s. 67(1).
13. Berger and Light Diffusers Pty Ltd v. Pollock [1973] 2 Lloyds Rep. 442 at 455.
14. Williams v. Atlantic Assurance Company Limited [1933] 1 KB 81.
15. Berger v. Pollock (supra) at p. 455
16. Tanner v. Bennett (1825) Ry & M 182; Williams v. Atlantic Assurance Company Limited (Supra) see, in
particular, the judgment of Scrutton L.J. at pp. 90 to 93.
17. Berger v. Pollock (supra) at p. 455.
18. [1973] 2 Lloyds Rep. 442.
19. Ibid. at pp. 455, 456.
20. See para. 15.6 et seq. below which explains how in the London market it is the invariable practice to have a
Basis of Valuation Clause setting out a formula, such as c.i.f. plus 10%, whereby the value is agreed.
21. See Chapter 3, para. 3.9 where the application of s. 29(3) of the Act is considered in terms of open covers and
“floating policies” to which it is strictly applied, the position being that rules analogous to s. 29(3) apply to open covers.
London market open covers generally contain an Errors & Omissions Clause one effect of which is to allow late
declarations to be valued.
22. MIA 1906 s. 29(3).
23. See Chapter 3, para. 3.9 where the question of late declarations is considered.
24. MIA 1906 s. 29(4).
25. (1811) 3 Camp 150.
26. At p. 152.
27. See para. 15.26 below for a consideration of the “average” in relation to marine cargo insurance.
28. See, for example, the Market Reform Contract, Appendix 5, Basis of Valuation Clause, which appears adjacent
to the side-heading “Limit”.
29. MIA 1906, First Schedule: Form of Policy. It appears that it was the invariable practice in the past to use the
words “valued at” or “ valued at the same” to indicate an intention that the policy should be valued, see Wilson v.
Nelson (1864) B & S 354, per Blackburn J. at p. 357.
30. The Lloyds marine policy: MAR 91 Form, Appendix 6, also uses the words “Amount Insured Hereunder” which
refers to the order placed with Lloyds so that, for example, in an order for a marine cargo insurance for $1 million,
placed 60% with Lloyds and 40% with Institute companies, the “Amount Insured Hereunder” would be $600,000.
32. Kyzuna Investments Ltd v. Ocean Marine Mutual Insurance Association (Europe) [2000] 1 Lloyds Rep.
505, per Thomas J. at p. 508 following Thor Navigation Inc v. Ingosstrakh Insurance [2005] 1 Lloyds Rep. 547.
33. Ibid.
34. See Appendix 7.
35. Kyzuna Investments Ltd v. Ocean Marine Mutual Insurance Association (Europe) (supra) and Thor
Navigation Inc v. Ingosstrakh Insurance (supra) support the proposition in the text that agreed value is the normal,
and most convenient, practice under marine insurance. However, if words to the contrary effect, such as “sum
insured”, are used in a marine policy the court may nevertheless conclude that the policy is unvalued.
36. [2002] Lloyds Rep. IR 292.
37. See Chapter 3, para. 3.9 where the position regarding an omission of a declaration is considered.
38. Loders & Nucoline Ltd v. Bank of New Zealand (1929) 33 Ll. L. Rep. 70 at 76.
39. (1761) 2 Burr 1167.
40. At p. 1171.
41. See, for example, Loders v. Nucoline (supra) and Papadimitriou v. Henderson (1939) 64 Ll. L. Rep. 345
(where there was an over-valuation of freight, but the additional amount was explicable in terms of the additional
freight anticipated for the return voyage).
42. For a consideration of over-valuation and non-disclosure see Chapter 5, para. 5.21 et seq.
43. At para. 15.12.
44. At para. 15.15.
45. This, although a form of constructive total loss, is conveniently dealt with here in terms of the measure of
indemnity. Constructive total loss generally is dealt with in Chapter 13, para. 13.42 et seq.
46. For a consideration of these issues see R.J. Lambeth Templeman on Marine Insurance, 6th edn, 1986
(Templeman) at p. 281 et seq.
47. See para. 15.3 above where this section is examined.
48. MIA 1906 s. 68(2).
49. The “insurable value” is defined by MIA 1906 s. 16(3), See para. 15.3.
50. See, for an example of an unvalued policy, Usher v. Noble (1810) 12 East 639.
51. See para. 15.3 above where MIA 1906 s. 16(3) is considered.
52. Rules of Practice of the Association of Average Adjusters, Rule E3, Apportionment of Insured Value of Goods.
This is not strictly in accordance with MIA s. 16(2) and s. 72(2) but “has much to commend it”, for convenience, see
Templeman at p. 274.
53. MIA 1906 s. 72(2).
54. Templeman at p. 275. This is a long-standing problem—see, to similar effect, F.WS. Poole The Marine
Insurance of Goods, 1928, Pitman at p. 223. It is increasingly the practice for brokers wordings in the UK to
incorporate a clause allowing the assured at their option to elect for an adjustment on a salvage loss basis. Indeed,
some clauses go further and allow the assured to have the claim adjusted on a particular average or a salvage loss
basis at the assureds option. The example given in the text illustrates the advantages to the assured of such clauses.
55. See Lewis v. Rucker (1761) 2 Burr 1167, per Lord Mansfield at p. 1172.
56. Supra.
57. (1761) 2 Burr 1167.
58. Ibid. at p. 1168.
60. Lewis v. Rucker (supra) at p. 1173
61. Ibid.
62. Supra.
63. Ibid. at p. 1171.
64. (1802) 2 East 581.
65. Whiting v. New Zealand Insurance Company Limited (1932) 44 Ll. L. Rep. 179, per Roche J. at p. 180.
66. Supra.
67. Francis v. Boulton (1895) 1 Com Cas 217.
68. Even where a ready market exists, it is not unusual for a percentage of depreciation to be agreed between
insurers and their assured to avoid advertising and sale costs to the benefit of both parties.
69. MIA 1906 s. 90 provides that “moveables” means any moveable tangible property, other than the ship, and
includes money, valuable securities, and other documents.
70. Appendix 28.
71. It is not unusual for brokers wordings to allow the additional cost of airfreight, but limited to a percentage of the
insured value, so the airfreight charges are not allowed to become wholly disproportionate to the value of the damaged
item.
72. See also MIA 1906 s. 55(2)(b) and see Chapter 8, para. 8.49 where the delay exclusion is considered.
73. For the disclosure issues surrounding the insurance of second-hand or used machinery, see Chapter 5, para. 5.26
et seq.
74. Institute replacement Clause-Obsolete Parts Endorsement 01/12/2008.
75. This Clause is considered in Chapter 13, para. 13.42 et seq.
76. See Chapter 13, para 13.49. Notice of Abandonment is often not necessary in cargo insurance, because it would
be of no possible benefit to insurers—see further para. 13.50.
77. MIA 1906 s. 63(1), Effect of abandonment, See para. 15.39
78. Templeman at p. 237.
79. See generally, Chapter 16.
80. At para. 15.30 et seq. below.
81. The same principle of apportionment, as set out in MIA 1906 s. 81, applies to total loss of part of a cargo, MIA
1906 s. 71(1) and 71(2), paras. 15.12 to 15.13 above and the rule relating to cargo delivered damaged at destination, s.
71(3), para. 15.15 above.
82. (1854) 3 EL & BL 868.
83. Ibid. at p. 888.
84. MIA 1906 s. 69.
85. A cargo insurer may retain the whole risk, or may share the risk with reinsurers on a proportional basis,
reinsuring a percentage, but excess of loss protection, with or without proportional reinsurance, is common in the
London market.
86. Occasionally brokers use a Full Value Reporting Clause which provides that if the value at risk exceeds the
applicable shipment or location limit then, as long as the full value has been declared to insurers, and the full premium
paid, insurers will pay claims in full without average up to the limit.
87. See para. 15.31.
88. See para. 15.32.
89. See para. 15.33.
90. See para. 15.35.
91. See para. 15.36.
92. See para. 15.38.
93. See para. 15.39.
94. See para. 15.40.
96. [1907] P. 216.
97. Ibid. at p. 233.
98. Ibid.
100. Brokers wordings occasionally include a clause that provides that any recovery shall be shared pro-rata and
that the deductible should be treated as if it were a form of under-insurance.
101. [1993] 1 Lloyds Rep. 197 (HL).
102. See para. 15.31 above for the MIA 1906 s. 81.
103. For the purposes of this example, we shall assume that there is no deductible.
104. At paras. 15.23 to 15.24 above.
105. MIA s. 27(3), See para. 15.9 above. Applied to subrogated recoveries in North of England Iron Steamship
Insurance Association v. Armstrong (1870) LR 5 QB 244 (total loss of ship that was under-valued); Thames &
Mersey Marine Insurance Co v. British & Chilean Steamship Co [1915] 2 KB 214 (claim made in enhanced
amount due to greater value of ship was not relevant or applicable as agreed value conclusive) and Goole & Hull
Steam Towing Co Ltd v. Ocean Marine Insurance Co Ltd [1928] 1 KB 589 (same rule applied to partial loss).
106. Yorkshire Insurance Co v. Nisbet Shipping Co Ltd [1961] 1 Lloyds Rep. 479, and see generally Chapter 16,
paras. 16.23 to 16.24.
108. Compania Columbia de Seguros v. Pacific Navigation Co (The Columbiana) [1963] 2 Lloyds Rep. 479.
109. See para. 15.27 above which discusses open cover limits and under-insurance.
110. [2000] Lloyds Rep. IR 239.
111. [1993] 1 Lloyds Rep. 197 (HL).
112. [1907] P. 216, discussed at para 15.31 above.
114. Supra.
115. There seems little doubt that in some respects the reliance of Rix J. on Napier v. Hunter [1993] 1 Lloyds Rep.
197 (HL) is misplaced, see the criticisms by Bennett at para. 25.65 and Arnould at para. 31–59. Whilst this
undermines the HL authority for the approach of Rix J. it is submitted that the case is nevertheless good authority for
the propositions set out in the above text.
116. See para 15.4 above and Chapter 3, para. 3.9.
117. For the difference between a “sum insured” and the usual position in marine cargo insurance, where there is an
agreed “insured value”, See para. 15.7 above.
118. Supra.
119. It is submitted that this follows from the decision in Thames & Mersey Marine Insurance Co v. British &
Chilean Steamship Co [1915] 2 KB 214 where this approach was only rejected because the value was an agreed
value which was conclusive.
120. Yorkshire Insurance Co v. Nisbet Shipping Co Ltd [1961] 1 Lloyds Rep. 479. Where interests and costs are
recovered these may need to be apportioned, see paras. 15.40 and 15.41 below with regard to interest and costs
respectively.
121. Napier & Ettrick v. Hunter [1993] 1 Lloyds Rep. 197 (HL). The nature of the purely equitable right to a lien,
discussed here, is to be distinguished from the origins of subrogation itself which lie in both the common law and equity,
see Chapter 16, para. 16.4.
122. Re Ballast plc St. Paul v. Daryan [2007] Lloyds Rep. IR 742.
123. Napier and Ettrick v. Hunter [1993] 1 Lloyds Rep. 197 (HL).
124. The legal consequences of abandonment are considered further in Chapter 16, para. 16.24.
125. See further Chapter 16, para. 16.25.
126. [1970] 2 Lloyds Rep. 397 (CA).
127. On the basis of Castellain v. Preston & Others (1883) LR 11 QBD 380, per Brett L.J. at p. 388.
128. At p. 401, per Widgery L.J.
129. (1906) 11 Com Cas 190.
131. See Chapter 13, para. 13.6 for a consideration of costs.
CHAPTER 16
SUBROGATION, DOUBLE INSURANCE AND RIGHTS OF
CONTRIBUTION
SUBROGATION
Origins and nature of the right of subrogation
16.1 The insurers right to take legal proceedings in the name of the assured against a
third party who has caused loss of or damage to the goods is of particular importance in
marine cargo insurance. The amounts recovered in subrogation actions, known in
practice simply as “recoveries”, form a significant element in the balancing of the cargo
insurers underwriting account by improving the loss record. These recoveries apply to
all types of transit risks, whether by land, sea or air, as well as to storage risks.
16.2 The first part of this chapter looks at the origins and nature of subrogation which
is then contrasted to assignment. After looking at the position of co-assureds, and the
circumstances in which the right to subrogation is waived,1 we consider the issues that
arise in practice where subrogation rights are exercised.2 The next section considers the
special rules that apply to increased value insurance3 and we conclude by contrasting
subrogation with salvage, where insurers are entitled, in principle, to take over
ownership of the goods.4 The apportionment of sums recovered between insurers and
assured (e.g., in the case of under-insurance) is dealt with in Chapter 15 as an aspect of
the measure of indemnity with which this issue is closely related.5
16.3 The insurer is subrogated to the assureds rights whether the loss be a total loss
or merely a partial loss, though in the case of a total loss the insurers are also entitled to
take over the property in the goods, known as “salvage”.6 The Marine Insurance Act
1906 section 79(1) deals with subrogation and salvage in the following terms:
“Where the insurer pays for a total loss, either of the whole, or in the case of goods of any apportionable part, of the
subject-matter insured, he thereupon becomes entitled to take over the interest of the assured in whatever may remain
of the subject-matter so paid for, and he is thereby subrogated to all the rights and remedies of the assured in and in
respect of that subject-matter as from the time of the casualty causing the loss.”
Insurers rights to subrogate on payment of a partial loss are dealt with in section 79(2)
of the 1906 Act which provides as follows:
“Subject to the foregoing provisions, where the insurer pays for a partial loss, he acquires no title to the subject-matter
insured, or such part of it as may remain, but he is thereupon subrogated to all rights and remedies of the assured in
and in respect of the subject-matter insured as from the time of the casualty causing the loss, in so far as the assured
has been indemnified, according to this Act, by such payment for the loss.”
The effect of these provisions is to apply similar rights of subrogation whether the claim
be for a total, or a partial loss.
16.4 This right of insurers to be subrogated, as consolidated in the 1906 Act, has
been recognised for more than 200 years.7 In Castellain v. Preston8 Brett L.J. gave the
classic definition of subrogation:9
“… As between the underwriter and the assured the underwriter is entitled to the advantage of every right of the
assured, whether such right consists in contract, fulfilled or unfulfilled, or in remedy for tort capable of being insisted on
or already insisted on, or in any other right, whether by way of condition or otherwise, legal or equitable, which can be,
or has been exercised or has accrued, and whether such right could or could not be enforced by the insurer in the
name of the assured by the exercise or acquiring of which right or condition the loss against which the assured is
insured can be, or has been diminished.”
In Simpson v. Thomson10 Lord Cairns L.C. described the basis for subrogation as
follows:11
“I know of no foundation for the right of underwriters, except the well-known principle of law that where one person
has agreed to indemnify another, he will, on making good the indemnity, be entitled to succeed to all the ways and
means by which the person indemnified might have protected himself against or reimbursed himself for a loss.”
The nature of the right of subrogation is still being explored by the courts. It has two
roots—one in the common law, where it is seen as a matter of the implied terms of the
contract,12 and the other in equity, in the principle of unjust enrichment. A recent case
has emphasised the contractual basis of the right as an implied term of the contract,13
rather than the principles of unjust enrichment, though the equitable lien over the
proceeds of any recovery relies upon the equitable origins of the right.14 The nature of
the right is such that where the insurance claim has been paid, the insurers are
subrogated to the assureds rights, whether or not the claim is actually payable under the
policy.15
Subrogation and assignment of rights: applicable law
16.5 As an alternative to subrogation, the insurers can take an assignment of the
assureds right of action16 and, if they do so they can recover more than the amount of the
claim paid by them, as insurers, to their assured.17 The differences between subrogation
and assignment, in the context of cargo insurance, are illustrated by The Aiolos.18 This
case highlights the main disadvantage of the assignment procedure, which is the need for
notice, or, in the absence of notice, the presence of the assignor before the court. A
cargo of soya bean meal, insured for carriage aboard Aiolos, was delivered short at
destination. The insurers paid the shortage claim and took a so-called “Subrogation
Receipt”19 governed by Taiwanese law which, arguably, amounted to an assignment of
the assureds rights to the insurers. A legal action was commenced in the name of the
insurers against the vessel Aiolos and her owners claiming the amount due from the
shipowners “in respect of rights of subrogation under contracts of insurance”. Initially,
the shipowners had the claim struck out on the basis that the proper claimants should
have been the assured,20 but on appeal, the court allowed the insurers to amend to plead
that the action has been assigned to them and that they, as insurers, were the proper
claimants. However, the amendment was only allowed on condition that the insurers
joined the cargo-owners as defendants because they as assignors should be before the
court.
16.6 The requirement that the assignors, the cargo-owners, be “before the court” can
only be avoided by way of a legal assignment which, as explained below, requires
notice. In the circumstances, although an assignment has the potential advantage of
enabling the insurers to recover more than their loss, it may be that the need for notice,
or, in the absence of notice, for the assured to be before the court, is the reason why
assignment is little used in practice.21 As to notice, under English law an assignment
may be legal or equitable. An equitable assignment requires the assignor to be a party to
the action (i.e., to be before the court). This can only be avoided by creating a legal
assignment under section 136 of the Law of Property Act 1925 which requires that
express notice in writing be given to the debtor. In the context of a subrogated cargo
recovery action, the “debtor” for these purposes means the bailee, whether shipowner
or warehouse-keeper. Moreover, this notice must be given by the assured as assignor to
the shipowner or other bailee before the recovery proceedings are commenced.22 In
practice this disadvantage has outweighed any advantage to be gained in those rare
cases where insurers stand to recover more than they have paid.
16.7 There is an additional complication with regard to assignment. The question
arises as to what law applies to the assignment. Should it be the law of the insurance
contract, as it would be with subrogation, or should it be the law of the “debt”—for our
purposes, the contract of carriage or storage? In Compania Colombiana de Segurosv.
Pacific Steam Navigation Company23 it was held that the proper law of the chose in
action the right to claim under the bill of lading contract—was governed by English law,
but that the assignment was governed by the law of Colombia—the law of the contract
of insurance. Nevertheless, in the absence of evidence that Colombian law was different
from English law, it was decided that notice was required before the action was brought
and, such notice not having been given, the action failed and the claim was time-barred.
Co-assureds and waiver of subrogation
16.8 The general principle is that insurers cannot exercise subrogation rights against
their assured24 or a co-assured.25 The basis of this principle, in relation to co-assureds,
was explained by Colman J. in National Oilwell (UK) Ltd v. Davy Offshore Ltd26 as
follows:27
“The explanation for the insurers inability to cause one co-assured to sue another co-assured is that in as much as the
policy on goods covers all the assureds on an all risks basis for loss and damage, even if caused by their own
negligence, any attempt by an insurer after paying the claim of one assured to exercise rights of subrogation against
another would in effect involve the insurer seeking to reimburse a loss caused by a peril (loss or damage even if
caused by the assureds negligence) against which he had insured for the benefit of the very party against whom he
now sought to exercise rights of subrogation. That party could stand in the same position as the principal assured as
regards a loss caused by his own breach of contract or negligence. For the insurers who had paid the principal assured
to assert that they were now free to exercise rights of subrogation and thereby sue the party at fault would be to
subject the co-assured to a liability for loss and damage caused by a peril insured for his benefit… it is necessary to
imply a term into the policy of insurance to avoid this unsatisfactory possibility… the purported exercise by insurers of
rights of subrogation against the co-assured would be in breach of such a term and would accordingly provide the co-
assured with a defence to the subrogated claim.”
This implied term approach depends on the construction of each individual contract,28
but in cargo insurance it is generally the case that no subrogated action will lie against a
co-assured.29
16.9 In practice, the usual target of a recovery action will be the bailee of the cargo,
whether shipowner, haulier or warehouse-keeper. Such a bailee may be the assured who
has taken out the policy or may be named as a co-assured. In the first case, where the
bailee is the assured, it has been held that he has a sufficient interest to insure the cargo
on all risks terms even where he has no liability to the owner of the goods.30 If we
assume that a haulier takes out insurance on the goods under the Institute Cargo Clauses
(A), and that he negligently damages the goods, he will have a claim under the insurance
for that damage and will hold the proceeds of that claim in trust for the owners of the
goods. One of the effects of the decision in National Oilwell v. Davy Offshore31 is that
the insurers cannot exercise subrogation rights against such an assured haulier as there
is an implied term of the contract of insurance which prevents the exercise of
subrogation rights in such circumstances.32
16.10 As to the second case, express co-assurance clauses, the usual practice in
London market open covers is to define the assured in wide terms, such as “ABC
Limited, and/or as agents and/or subsidiaries and/or associated companies and/or for
whom they may have instructions to insure”.33 This allows for the case where large
assureds may have their own subsidiary carriers, particularly carriers by road but also
occasionally carriers by sea, or warehouse-keepers, as part of a group of companies
involved in the carriage and storage of cargo. Alternatively, there may be an express
Waiver of Subrogation Clause in the policy as follows:
“Insurers waive all rights of subrogation and/or recourse against the Assured and/or subsidiary companies of the
Assured engaged in the carriage of and/or storage of the subject-matter insured.”
The effect of this clause is probably the same as naming each carrier or warehouse-
keeper as a co-assured as this equally will prevent the exercise of subrogation rights, as
we have seen above. It may be noted that in National Oilwell v. Davy Offshore,34 there
was an express waiver clause reading as follows:
“Underwriters agree to waive rights of subrogation against any Assured and against person, company or corporation
whose interests are covered by this policy….”
The principal assureds, who were the main contractors on a North Sea oil project,
arranged insurance for their sub-contractors, including a manufacturer of certain sub-sea
equipment. The insurance sub-contract required the principal assured to insure the
equipment during the period of manufacture, but not the period after delivery of the
equipment to the head contractor. The equipment, certain sub-sea bladders, let in water
when installed sub-sea. This took place during the initial operation of the oil field, after
the manufacturing period had been completed. The insurers, having paid a claim for that
loss, were held entitled to pursue a subrogated recovery against the co-assured sub-
contractor because the sub-contractor was not insured at the time in question.
Furthermore, the express waiver clause did not assist the sub-contractors as they were
not “covered by [the] policy” at the time of the loss within the meaning of the waiver
clause.35 It is submitted that a typical waiver clause in a cargo insurance contract, such
as the clause quoted above, would be approached in a similar manner. Such a clause
appears to add little in law to the protection of a named co-assured, though it may
provide some comfort to them.
16.11 In the above paragraphs we have examined the circumstances where a carrier
or other bailee may be an assured or a co-assured. It is appropriate here to mention the
converse situation where a bailee, who is not an assured or a co-assured, nevertheless
seeks to put himself in that beneficial position by imposing contractual terms on the
cargo-owner by which he, the carrier or other bailee, takes advantage of the cargo-
owners insurance.36 Before the introduction of the Hague Rules, which prohibited the
practice,37 it was common for shipowners to insert in their bills of lading a provision
entitling them to take advantage of the cargo-owners insurance policy38 In order to
frustrate this practice the Institute Cargo Clauses (All Risks) 1/1/63 introduced the “Not
to inure Clause”39 which provided that the “insurance shall not inure to the benefit of the
carrier or other bailee”. The revised Institute Cargo Clauses now ensure that third
parties, such as carriers, cannot take the benefit of the insurance by the more up-to-date
wording40 in Clause 15.2, which now provides as follows:
“15. This insurance…
15.2 shall not extend to or otherwise benefit the carrier or other bailee.”
When the words “not to inure” were replaced during the revisions leading up to the
introduction of the 2009 Clauses no change of meaning was intended.
The exercise of subrogation rights
16.12 Clause 16 of the revised Institute Cargo Clauses requires the assured “to ensure
that all rights against carriers, bailees or other third parties are properly preserved and
exer-cised”.41 On payment of a claim it is the usual practice in the London market, and
worldwide, for the assured to sign a subrogation form, sometimes called a subrogation
receipt or a letter of subrogation.42 The standard Lloyds market subrogation form (the
“Subrogation Form”)43 includes the following two paragraphs:
“I/We acknowledge that by virtue of such payment you are subrogated to all my/our rights and remedies in and in
respect of the goods as provided by the law governing the Contract of Insurance and in the case of total loss you are
entitled at your option to take over my/our interest in whatever may remain of the goods it being understood that
my/our delivery to you of the documents of title relating to the goods shall not be construed as an exercise of such
option.
I/We also record that you have authority to use my/our name to the extent necessary effectively to exercise all or
any of such rights and remedies; that I/we will furnish you with any assistance you may reasonably require of me/us
when exercising such rights and remedies on the understanding that you will indemnify me/us against any liability for
costs charges and expenses arising in connection with any proceedings which you may take in my/our name in the
exercise of such rights and remedies.”
The first paragraph of this standard Subrogation Form reflects the Marine Insurance Act
1906 section 79 which is set out above,44 whilst the second paragraph introduces a new
agreement between the parties not expressly provided for by English law. We shall
consider each paragraph of the Subrogation Form in turn.
16.13 The Marine Insurance Act 1906 section 79 provides that where the insurer
pays for a loss whether total or partial, he is subrogated to “all the rights and remedies
of the assured”. This right only takes effect on payment, not agreement, of the claim but
is retrospective so that when an insurer pays he acquires all the rights that were vested
in the assured at the time of the loss.45 The first paragraph of the Subrogation Form then
goes on to provide, in line with section 79(1) of the 1906 Act, that, in case of total loss,
the insurers are entitled to take over the assureds interest in whatever may remain of the
goods. There is then added a caveat that the delivery to the insurers of “documents of
title relating to the goods shall not be construed as the exercise of such option”. This
reflects the insurers concern that taking over the goods may involve insurers in
responsibility and liability (e.g., for cleaning-up or pollution costs).46
16.14 The second paragraph of the Subrogation Form gives the insurers the authority
to use the assureds name to exercise the “rights and remedies” referred to in the first
paragraph, in particular, by the commencement of legal proceedings. In practice the
Subrogation Form is not always signed immediately on payment of the claim, but is
dealt with in due course at the same time as additional documents are provided to assist
insurers in their recovery proceedings. The Marine Insurance Act 1906 section 79 Act
gives retrospective rights to insurers who are entitled, on payment of the insurance
claim, to all the rights and remedies of the assured from the time of the casualty.47
However, the authority in the second paragraph of the Subrogation Form is not
expressed as being retrospective. Where legal or arbitration proceedings have been
commenced urgently before the claim is paid (whether or not this may be before it has
been agreed) in order to protect a time limit, or to arrest a vessel to obtain security, it
will be necessary for solicitors, or others involved, to obtain direct authority from the
assured to commence proceedings or take whatever action is necessary.48
16.15 The second paragraph of the Subrogation Form also imposes on the assured the
obligation to provide insurers with any assistance they may reasonably require. Such
assistance would most obviously be provision of the documents relating to the claim
though, particularly in larger claims, it may involve the assureds assistance on other
matters, such as their knowledge and expertise in relation to a specialised cargo; the
circumstances of the loss; and the negotiations for the contract of carriage or storage.
These obligations can potentially be quite onerous, particularly in circumstances where
the assured has no continuing interest in the claim. However, there can be no real doubt
that the Subrogation Form constitutes a binding contract in its own right by which the
insurers and assured can vary or enhance insurers rights of subrogation.49 In Duus
Brown v. Binning50 Walton J. said,51 “the rights of the parties depend on what the
agreement was”. He was speaking there in the context of a specific legal action against
a particular carrier to which the insurers had agreed, but his words are equally
applicable to a case where the claim has simply been settled without any specific
agreement as to how subrogation should be pursued. In other words, these issues are a
matter for agreement between the insurers and the assured at the time the claim is settled
and the courts will look upon any commercial agreement made at that time as binding.52
16.16 Finally, there is the question of legal costs. The Subrogation Form constitutes
an agreement by the insurers to indemnify the assured against liability for “costs charges
and expenses arising in connection with the proceedings” taken in the assureds name by
the insurers.53 This wide indemnity covers any legal costs54 awarded against the
assured as the nominal claimant in any legal proceedings as well as associated expenses
incurred (e.g., in assisting the insurers with their case by the provision of documentary
or oral evidence). The legal costs and expenses that may be incurred by the assured
before settlement of the insurance claim (e.g., in commencing proceedings to protect the
time limit against a carrier) are recoverable under Clause 16 of the Institute Cargo
Clauses—now55 known as the Duty of Assured Clause. Clause 16 provides that insurers
will reimburse the assured for “any charges properly and reasonably incurred in
pursuance” of the duty, inter alia, to ensure that rights against carriers and bailees are
properly preserved and exercised.56 The agreement by insurers in the Subrogation Form
makes it clear that where insurers take over such proceedings commenced by the
assured they will be responsible for all the costs including costs against the assured.
Where the assured and insurers have a joint interest in the recovery, in the absence of
any agreement to the contrary,57 costs will be apportioned in accordance with their
respective interests in the recovery58
Control of the recovery proceedings
16.17 Where assureds have no financial interest in the outcome of the legal proceedings
taken in their name they are generally content to let the matter proceed without their
active involvement. However, it may take time to settle the insurance claim and the
assured may wish to protect their position in case the insurance claim fails, or there may
be a need for the position against third parties to be protected, most obviously where a
time limit is due to expire. If the claim has yet to be paid under the insurance contract,
the insurers have no subrogation rights under the Marine Insurance Act section 79 for, as
we have seen above,59 those rights only accrue on “payment” of the claim. However, if
the assured commences legal proceedings whilst the claim under the policy is pending,
to recover his uninsured loss, or simply to protect the position generally, he must
conduct the legal action consistent with this duty to preserve the rights of the insurers.60
In particular, the assured must not make a settlement that simply recovers his uninsured
loss to the prejudice of the insurers loss.61 In cargo insurance the matter is taken one
step further by Clause 16 of the Institute Cargo Clauses, the Duty of Assured Clause,
under which the assured has a positive duty to take recovery proceedings even where
insurers have declined the claim under the insurance.62 For example, in The
Netherlands Insurance Co Est 1845 Ltd v. Karl Ljungberg & Co AB63 a cargo of
plywood, insured under the Institute Cargo Clauses (All Risks) 1/1/6364 for carriage
from Singapore to Esbjerg in Denmark was delivered in a damaged state. The insurers
denied liability for this claim and, without prejudice to that denial of liability, asserted
that the assured were under an obligation under the Bailee Clause,65 the predecessor to
the Duty of Assured Clause, to protect the time limit and preserve their rights against the
carriers. The Privy Council held that the insurers were justified in so doing66 and that it
was an implied term of the contract (now made express in Clause 16 of the revised
Institute Cargo Clauses) that the costs of such proceedings were recoverable under the
insurance contract.67 In this context it may be noted that the assured who takes
unsuccessful proceedings against a third party will be entitled to recover the costs of
such proceedings as long as they are proper and reasonable under Clause 16 of the
Institute Cargo Clauses.68 Such costs have, under general principles of subrogation,
been held to include costs of pre-trial investigations and other related costs reasonably
directed at attempting to reduce the loss.69
16.18 The question arises whether insurers have ultimate control of the recovery
proceedings conducted in the assureds name. In Commercial Union v. Lister70 a mill
insured for £33, 000 was destroyed by a gas explosion which was alleged to be the fault
of the gas supplier, the local authority, against whom the assured commenced legal
proceedings for his full loss. The assured put this loss at £56, 000 and, on this basis, he
was considerably under-insured in respect of the factory. He also claimed an additional
sum of £6, 000 for loss of profits which were not insured. The insurers were “willing to
pay” the £33, 000 but were anxious that if they did so the assured would accept the
balance from the local authority in compromise of the whole claim. The insurers
therefore applied to the court for an injunction and declaration that:
(1) they were entitled to the benefit of the assureds right of action;
(2) that the assured be restrained from prosecuting the action for anything less
than the whole amount of the claim; and
(3) that the assured be restrained from refusing to allow the insurers to use his
name.
The Court of Appeal held that the assured was entitled to be in control of the
proceedings (i.e., dominus litis). The assured was required to give an undertaking that
he would proceed for the full amount of the claim but no further obligations were
imposed upon him. The application of this case to circumstances where insurers have
paid seems doubtful bearing in mind that the insurers were no more than “willing to
pay” and if they had paid they would have been entitled to subrogation rights. Lister v.
Commercial Union,71 was no more than an application on an interim injunction and
appears to be little more than authority for the proposition that the assured owes a duty
to his insurers not to prejudice their subrogation rights.72 The question of whether, after
payment, the insurers or assured have control of the proceedings seems to be open. As
there is no authority directly in point, the issue can only be approached as one of
principle. The right of action itself remains the right of the assured in all cases. Where
there is under-insurance, or layered insurance, including cases where there is an excess
or a limit, the assured should, in principle, be entitled to control the proceedings. Even
if the assured has been compensated in full in respect of his claim he is still at risk as to
costs and the promise of an indemnity, in the subrogation form, does not protect the
assured from incurring the primary liability for those costs. It may be said that the
assured always has an interest in the proceedings which are, if they come to trial, a
matter of public record. Whether the assured be an individual or a company, the public
nature of the proceedings may be important to the reputation of the assured. It is
submitted, therefore, that in principle the assured is entitled in all cases to be dominus
litis, as it is their legal action. If the assured will not co-operate, and is in breach of his
subrogation obligations, the remedy for the insurers is to join the assured in the
proceedings against the third party order to enforce their rights of subrogation.73
Increased value cargo insurance
16.19 In some trades it is the custom for the buyer to purchase goods on ci.f terms and
then to take out, in addition to the insurance purchased with the goods (which we shall
call the “primary” insurance) further cargo insurance on a so-called “increased value”
basis. In such circumstances difficulties have arisen as to how the two sets of insurers,
who we shall call the “primary” insurers and the “increased value” insurers, should
share the fruits of any recovery. The seminal case on this issue is Boag v. Standard
Marine Insurance Company Ltd.74 A cargo of wheaten sharps purchased by the assured
on ci.f terms was insured for carriage from an Italian port to Bristol at an agreed insured
value of £635. This insurance was arranged by the ci.f seller with the Standard Marine
Insurance Co Ltd, who were the primary insurers. The carrying vessel went aground off
Cape Huertas on 27 September 1934 and the cargo was jettisoned and became a total
loss. In the meantime the market price of the goods had risen to £1, 043 and, on 28
September the buyer, unaware of the loss,75 declared the cargo at an increased value of
£215 under a floating policy which he had taken out earlier in September at Lloyds. The
assured buyer claimed a total loss under both policies. So far as the primary policy is
concerned, a subrogation letter was signed by the assured, in the usual form, on 3
November 1934 acknowledging receipt of £685 from Standard Marine, the primary
insurers. Standard Marine paid the claim without knowledge of the existence of the
increased value policy with Lloyds. Later, on 14 December 1934, the assured signed a
similar subrogation letter acknowledging receipt of £215 from the increased value
insurers at Lloyds. The amount due to be recovered by the assured in respect of the
jettison of the cargo, which constituted a general average sacrifice of his cargo for the
common good, was adjusted at £532.76 The primary insurers claimed to be entitled to
the whole of this sum, but the increased value insurer maintained that both insurers
should share pro rata in this recovery according to the policy values. On this basis, the
Lloyds increased value insurer claimed 215/900 of £532 (i.e., £127).
16.20 Romer L.J. decided the case on the basis that, on 28 September 1934, when the
increased value policy was effected, the primary insurers had already become
contingently entitled to the £532. Under section 79 of the Marine Insurance Act 1906,
where insurers pay a claim they become subrogated “from the time of the casualty
causing the loss”. That casualty occurred on 27 September, the day before the increased
value policy declaration was made, and the primary insurers rights had therefore
crystallised even before the increased value policy was taken out. This seems no
answer to this point which, it is submitted, may apply even if both insurances contain a
provision, such as Clause 14 of the Institute Cargo Clauses, that results in the pro rata
apportionment of recoveries, as discussed below.77 It may be said that the pro rata
provision cannot bite where the second policy is taken out after the loss as the vesting of
the rights of subrogation are, by section 79 of the 1906 Act, retrospective to the
casualty.
16.21 The judgment of Lord Wright M.R. in Boag v. Standard Marine78 was much
more broadly based on the principle that the primary insurer was entitled to his full
subrogation rights up to the limit of the agreed value of the cargo which he insured.
Accordingly, he was entitled to 100% of all recoveries up to that amount which were
not to be shared with the assured, or the increased value insurers subrogated to the
assured, as the agreed value was conclusive.79 The increased value policy contained a
pro rata Institute Clause, not unlike the clause we shall consider shortly, but the primary
policy had no such clause. In the circumstances, the court was not prepared to hold that
it was an implied term of the primary policy that recoveries should be apportioned.
However, the Master of the Rolls recognised that the presence of such a clause in both
policies would have enabled the matter to have been worked out on “businesslike
lines”.80
16.22 The decision in Boag v. Standard Marine81 was considered to be
unsatisfactory in market terms82 and, as a result, the Institute Cargo Clauses 1982
introduced a clause designed to allocate recoveries on a pro rata basis. This provision
is materially unchanged and now appears as Clause 14 of the revised Institute Cargo
Clauses in the following terms:
“Increased Value
14.14.1 If any Increased Value insurance is effected by the Assured on the subject-
matter insured under this insurance the agreed value of the subject-matter
insured shall be deemed to be increased to the total amount insured under this
insurance and all Increased Value insurances covering the loss, and liability
under this insurance shall be in such proportion as the sum insured under this
insurance bears to such total amount insured.
In the event of claim the Assured shall provide the Insurers with evidence of
the amounts insured under all other insurances.
14.2 Where this insurance is on Increased Value the following clause shall apply:
The agreed value of the subject-matter insured shall be deemed to be equal to
the total amount insured under the primary insurance and all Increased Value
insurances covering the loss and effected on the subject-matter insured by the
Assured, and liability under this insurance shall be in such proportion as the
sum insured under this insurance bears to such total amount insured.
In the event of claim the Assured shall provide the Insurers with evidence of
the amounts insured under all other insurances.”
The effect of this clause, which is based on the Clause that appeared in certain
specialised Institute Trade Clauses,83 is to oblige the assured to provide the full values
to his insurers where he has taken out increased value insurance. The insurers will then
share any claims pro rata if the increased value clause appears in both policies. This is
far more likely now that the increased value clause appears in the standard Institute
Clauses rather than merely in certain Institute Trade Clauses. This serves to resolve the
issue on “businesslike lines”.84 So far as recoveries are concerned, where there are
increased value insurers, and both insurers have this clause in their policies, it will
entitle the increased value insurers to share rateably in any subrogated cargo claims
against third parties and oblige the primary insurers to do so. Where the clause only
appears in the increased value policy, as was the case in Boag v. Standard Marine,85
the increased value clause will still be of no effect and the primary insurers under a
valued policy will be entitled to the recovery up to the amount of the agreed value of the
goods. Where the clause appears only in the primary insurance, but not in the increased
value insurance, which is less likely, it would seem that the increased value insurers can
share pro rata as the primary insurers have agreed to give up their sole rights to the
recovery allowing the increased value insurers to be subrogated to the assureds rights.86
In those relatively rare cases where the second policy is taken out after the casualty,
whether that policy be a primary policy or, more likely, the increased value policy, it
would appear that the primary insurers are entitled to the recovery up to the agreed
amount of the goods even if the increased value clause is in both policies.87
The right to salvage
16.23 The right to salvage, which we have seen recognised in relation to subrogation,88
is also expressly recognised in connection with abandonment by section 63(1) of the
Marine Insurance Act 1906 which provides:
“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.”
Exercise of the right in practice
16.24 In practice insurers will normally mark any claim “noted, assured to act as a
prudent uninsured”. Insurers have concerns as to whether, if they take over the property,
they may also incur liability in circumstances where, for example, a dangerous cargo
may be polluting a harbour or a wharf. If the insurers accept the abandonment, section
63(1) of the Marine Insurance Act 1906 provides that they are “entitled”, but not
obliged, to take over the property in the goods and the responsibilities of ownership.89
In practice, what usually happens is that insurers surveyors, in conjunction with the
assured and their own surveyors, will discuss the sale of a cargo for best possible price
and then the value realised will be deducted from the insured value when it comes to
settle the claim.90 However, occasionally, claims are settled and cargo subsequently
recovered from the sea, or there may even be recoveries many years later. For example,
in Columbus-America Discovery Group v. Atlantic Mutual Insurance Company91
British and American insurers claimed ownership rights to the Californian gold lost on
the SS Central America which sank 160 miles east of Charleston, South Carolina, on 12
September 1857. The cargo insurers, having paid claims on loss of the gold of over a
million dollars following the loss, claimed over 130 years later to be entitled to the
gold now worth up to a billion dollars.92 The insurers were held by the United States
courts to be entitled to the property salved subject to each insurer proving by admissible
evidence the validity of its claim to a proportion of the gold.93 The insurers claims were
subject to an award to the salvors of 90% of the value of the cargo reflecting their
extraordinary initiative, ingenuity and determination in locating and raising the cargo.94
DOUBLE INSURANCE AND CONTRIBUTION BETWEEN INSURERS
Double insurance
When does double insurance occur?
16.25 Double insurance occurs where two or more policies are effected by the same
assured on the same subject-matter and interest against the same risks.95 Where the sums
insured exceed the value of the subject-matter insured, the assured is said to be over-
insured by double insurance.96 As Lord Mansfield concisely put it:97
“A double insurance is where the same man is to receive two sums instead of one, or the same sum twice over, for the
same loss, by reason of his having made two insurances upon the same goods or the same ship.”
16.26 The Marine Insurance Act 1906 section 32 defines double insuance, and sets
out the consequences, in the following terms:
“Double insurance
32.(1) Where two or more policies are effected by or on behalf of the assured on the same adventure and interest or
any part thereof, and the sums insured exceed the indemnity allowed by this Act, the assured is said to be over-insured
by double insurance.
(2) Where the assured is over-insured by double insurance—
(a) The assured, unless the policy otherwise provides, may claim payment from the insurers in such order as
he may think fit, provided that he is not entitled to receive any sum in excess of the indemnity allowed by
this Act….”
Double insurance may arise by accident; by operation of law; by precaution, as where
the assured wishes to protect himself from the possible insolvency of insurers, or even
by reason of the assureds fraud. In practice, double insurance is comparatively rare in
marine cargo insurance, but it can arise where cargo is insured for storage in
warehouses, against risks such as fire, and is also covered for storage under an
extension to a marine policy. Two cases provide particular illustrations of how this can
occur. In Australian Agricultural Company v. Saunders98 there was a fire insurance on
wool “on station, or in transit to Sydney by land only, or in any shed or store, or any
wharf in Sydney, until placed on ship”. The wool was destroyed by fire in a stevedores
warehouse in circumstances where the stevedores acted as agent of the shipowners. The
fire insurers argued that the goods were “in transit” under the marine policy as at the
time of the loss they had been accepted by the shipowners for carriage to England. This
view was rejected by Blackburn J. who held that the marine policy did not cover the
wool on land in a warehouse.
16.27 However, in the litigation arising out of the disastrous fire at the Niger
Companys warehouse in Burutu in January 1918, the fire insurers were more successful.
The Niger Company had a huge operation at that time in the Niger Delta bringing goods
down to Burutu where they were collected into what today would be called “groupage”
loads for shipments to England. Due to the First World War there was an unusual
accumulation of goods at Burutu at the time of the fire and losses in excess of £750, 000
were suffered by the Niger Company. The Niger Company initially sued their fire
insurers,99 and only later joined their marine insurers who were held, on a very widely
drawn policy, to be giving warehouse cover at Burutu. The fire insurers policy was in
force at the time of the loss, but included the Marine Insurance Clause, a non-
contribution clause standard to fire policies, at least those giving warehouse cover,
under which payment on the fire policy is restricted to any excess amount not
recoverable under the marine policy. It provides:100
“This insurance does not cover any loss or damage to property which at the time of the happening of such loss or
damage is insured by or would but for the existence of this policy be insured by any Marine Policy or Policies except in
respect of any excess beyond the amount which would have been payable under the Marine Policy or Policies had this
insurance not been effective.”
This clause was effective in the Niger Case101 to transfer virtually the whole of the huge
loss in the disastrous fire to marine insurers.
16.28 The Institute Cargo Clauses do not include any equivalent clause that would
cancel out the Marine Insurance Clause. The position is that where two concurrent
policies each cover the same risk for the same assured and each contains a non-
contribution clause the two non-contribution clauses have been construed as cancelling
each other out.102 Japanese marine cargo insurers (whose policies are governed by
English law) have sought traditionally to protect themselves by including in their
policies a non-contribution clause aimed at neutralising the Marine Insurance Clause
used by fire insurers.103 The effect of such a clause is that fire and marine insurers
should share proportionately in the loss.104
16.29 United States cargo insurers generally protect themselves from double
insurance with a clause that makes the first policy taken out the primary policy and the
second policy the excess policy, that clause reading as follows:105
“If an interest insured hereunder is covered by other insurance which attached prior to the coverage provided by this
Policy, then this Company shall be liable only for the amount in excess of such prior insurance, the Company to return
to the Assured premium equivalent to the cost of the prior insurance at this Companys rates.”
It may be noted that in Niger Company Ltd v. The Guardian Insurance Company
Limited106 Counsel for the fire insurers said that the effect of the Marine Insurance
Clause was to “turn the fire companys insurance into a sort of excess insurance” and, if
this right, it appears to reflect a common intention with the US clause.
16.30 The extension of the duration of the insurance under Clause 8 of the revised
Institute Cargo Clauses which now covers the goods from the time they are first moved
for the purpose of immediate loading107 will probably not give rise to any significant
additional double insurance problems. It will be appreciated from the cases discussed
above that double insurance only arises where the goods are in an assured-owned
warehouse or factory and not in a factory belonging to third parties. Moreover, extended
storage cover has been available in the marine cargo market for a number of years, yet
few if any double insurance disputes seem to have arisen from the potential over-
lapping of cover.108
16.31 Apart from the situation where goods are insured in store and in transit by
separate insurers, there is also the possibility of double insurance arising due to
misunderstandings as to the terms of trade as where buyer and seller both insure.109
16.32 Double insurance is to be contrasted with increased value insurance, discussed
earlier in this chapter110 where the assured, usually a buyer, takes out an additional
policy on the separate interest represented by the increased value of the cargo.
The requirements for double insurance
16.33 It is convenient here to consider further the four requirements for double
insurance which are (1) the same assured; (2) the same subject-matter; (3) the same
interest insured; and (4) the same peril or risk. We shall consider these in turn beginning
with the same assured.
16.34 In Godin v. London Assurance Co111 the assured, as buyer of certain goods,
had no rights over the other policy on the same goods taken out by a factor for his own
benefit to protect a lien which he had on the goods. Double insurance will not occur if
one man insures his goods, and another, for example, a bailee, insures his own bailees
liability for those goods.112 However, double insurance can arise even where the
policies have not been effected by the same assured (e.g., where a policy has been
effected by another person on the assureds behalf).113
16.35 The second requirement is that the same property or subject-matter must be
insured. Where one policy covers wider subject-matter than the other policy, the subject
matter of the claim must be common to each policy. Thus, for example, a lorry load of
tobacco insured under an all risks transit policy did not come within the definition of the
assureds “stock-in-trade” under a policy which covered the assureds premises and its
stock in trade at those premises. It was not, therefore, covered by the fire policy and the
marine transit insurers were responsible for the full amount of the loss.
16.36 It is not merely the subject-matter that must be the same—crucially the interest
insured must be the same. Accordingly, there is no double insurance if different interests
in the same property or subject-matter are insured, as where separate policies are
effected by bailor and bailee. For example, the bailee may insure his full insurable
interest up to the value of the goods themselves114 or, alternatively, his personal liability
to the owner of the goods either at common law or under contract. In the first case,
where the bailee insures the goods, and likewise the owner also insures the goods, there
is double insurance: in the second case, where the bailee insures his liability (e.g.,
where a shipowner insures his liability with a P & I Club) there is no double
insurance115 and subrogation arises.116
16.37 Finally, the policies must cover the same perils or risks, or, in marine
insurance terms, the same adventure. The policies do not have to be co-extensive as the
right to contribution exists where more than one policy covers the risk that has given
right to the claim.117
Return of premium
16.38 The Marine Insurance Act 1906 section 84(3)(f) provides that where the assured
has over-insured by double insurance a proportionate part of the several premiums is
returnable. This provision is subject to a number of provisos. Firstly, no premium is
returnable if the policies are effected at different times and any earlier policy has at any
time borne the entire risk. Secondly, if a claim has been paid on the policy in respect of
the full sum insured, no premium is returnable in respect of that policy. The Act also
provides that when the double insurance is effected knowingly by the assured (e.g.,
where he fears as to the solvency of an insurer, and takes the precaution of taking out an
extra policy) no premium is returnable.
16.39 Where there is double insurance, each insurer is bound as between himself and
the other insurers to contribute rateably to the loss in proportion to the amount for which
he is liable under his contract. If any insurer pays more than his proportion of the loss,
he is entitled to maintain an action for contribution against the other insurers, and is
entitled to a remedy similar to a surety who has paid more than his proportion of the
debt.118 As Lord Mansfield said:119
“If the assured is to receive one satisfaction, natural justice says that the several insurers shall all of them contribute
pro rata, to satisfy that loss against which they have all insured.”
16.40 The Marine Insurance Act 1906 section 80 has consolidated the principles of
contribution between insurers in the following terms:
“Right of contribution
(1) Where the assured is over-insured by double insurance, each insurer is bound, as between himself and the other
insurers, to contribute rateably to the loss in proportion to the amount for which he is liable under his contract.
(2) If any insurer pays more than his proportion of the loss, he is entitled to maintain an action for contribution
against the other insurers, and is entitled to the like remedies as a surety who has paid more than his proportion of the
debt.”
The principle of contribution is one of equity not contract and, as this section indicates,
has developed out of cases of co-sureties in which all are liable to the creditor and,
after one has paid the creditor, the other has a right to contribution from the co-
sureties.120
The circumstances which give rise to the right
16.41 The right of contribution between insurers is triggered by the fact that each
contract is a contract of indemnity and covers the identical loss that the identical
assured has sustained.121 The right of contribution arises where the assured,122 subject-
matter,123 interest,124 and risk125 are the same.
16.42 These requirements are illustrated by the case of Boag v. Economic Insurance
Company Ltd.126 Lloyds underwriters, represented by Mr Boag, insured a consignment
of tobacco manufactured by the Amalgamated Tobacco Corporation (ATC) while in
transit from ATCs Melson Street factory for a voyage to Australia. The consignment was
loaded aboard a lorry at the Melson Street factory and, it being too late to reach the
docks in London, was driven to the yard of the Hitchin Road factory also owned by the
ATC. The cigarettes, whilst aboard the lorry, were destroyed by a fire. The Lloyds
underwriters paid the claim and made a double insurance contribution claim against
Economic Insurance Company who were the insurers of the factory premises, and stock
in trade of ACT. The assured were the same under both policies and they both covered
various risks including the same risk of fire. The policies also covered the same interest
in the goods. The issue arose as to whether the subject-matter insured was covered by
the policy issued by the Economic Insurance Company whilst on the lorry in the yard at
the Hitchin Road factory. Although the Economic policy covered “stock in trade” it was
held only to cover stock in trade at the premises where the goods in question had been
manufactured. The cigarettes that were lost were never part of the “stock in trade” at the
Hitchin Road factory, as they were manufactured at Melson Street, so there was no
double insurance.
16.43 A more recent illustration of the position, albeit in a hull and machinery case,
is OKane v. Jones (The Martin P).127 In this case the vessel Martin P was insured for
US$5m by the owners, Nanice, with Lloyds underwriters. That slip was led by the
Wellington Syndicate represented by Mr OKane, the active underwriter (the
“Wellington” policy). The managers of the vessel, ABC Limited, became concerned that
Nanice had failed to pay the premium under this policy and, anticipating cancellation of
the policy,128 took out another hull and machinery policy for US$2.5m. The insurers of
this second policy, again at Lloyds, were led by the Jones Syndicate (the “Jones
Policy”). The Jones Policy valuation of $2.5m was based on amounts owed by Nanice
to the mortgagees and to ABC Limited themselves as managers. At a time when both
policies were valid and effective the Martin P was wrecked in a hurricane and became
a constructive total loss.129 The outstanding premium was paid forthwith to Willis on the
original Wellington Policy and accepted by those insurers. The owners, Nanice, then
instructed the managers, ABC, to cancel the Jones Policy ab initio in order to avoid
having to pay two premiums. The syndicates led by Wellington, represented by OKane,
on the Wellington Policy paid the constructive total loss and brought legal proceedings
against the insurers of the policy led by the Jones Syndicate for a contribution. It was
not in dispute that both insurances covered the vessel Martin P and that they covered
the total loss of the vessel as the risks insured were the same. The real issue was
whether the managers, in taking out the Jones Policy, insured for themselves and the
mortgagees, or for the owners, Nanice. In this context it was held that the managers had
an insurable interest in their own right in view of the economic loss they would sustain
by reason of the loss of the vessel,130 and the critical factual issue was whether ABC
insured for themselves or for the owners. It was held by Richard Siberry Q.C., sitting as
a Deputy High Court Judge, that there would not be double insurance for the purposes of
section 32 of the 1906 Act if different assureds with different insurable interests in the
same property took out concurrent insurances on that property, even if one was required
to hold all or part of the proceeds on trust for the other.131 Accordingly, if ABC as
managers had simply insured their interest in the loss of the vessel to them as a source
of income, there would not have been double insurance, albeit they would have held the
proceeds of the policy for the benefit of Nanice as owners. However, on the facts of the
case, it was held that ABC as managers had insured “as agents” of Nanice, the owners,
under the Jones Policy. Accordingly, there was double insurance. The case illustrates
again the importance of establishing that the same assured is insured for the same
interest under both policies as otherwise the right to contribution will not arise and
there may, instead, be a situation where subrogation arises. It was further held that it did
not matter that the Jones Policy had been cancelled ab initio as the right to contribution
under section 80 of the 1906 Act arose at the time of the loss.132
Apportionment of liability between insurers
16.44 The Marine Insurance Act 1906 section 80(1) requires an insurer, in cases of
double insurance, “to contribute rateably to the loss in proportion to the amount for
which he is liable under the contract”. The meaning of these words has given rise to
some difficulty with no less than three methods of apportioning the liability being
canvassed and little or no clear legal authority to resolve the issue in terms of marine
cargo insurance. The first approach is to say that these words contemplate the maximum
sum for which the insurer could be liable under his policy (i.e., according to the insured
value of the property insured or, in liability insurance, the limit of the policy coverage).
This is known as the “maximum liability approach”. The next approach is that these
words contemplate the insurers liability in respect of the actual loss or losses sustained
(i.e., the question is, for what amount “is” the insurer liable for this particular loss).
This is known as the “independent liability” approach. The third possibility is the
“common liability” approach which is set out below.133
16.45 Where double insurance arises due to storage risks being insured in a
warehouse by both property insurers and by cargo insurers a situation may arise where
there is a sum insured134 under a non-marine property policy and a marine policy with
an agreed insured value.135 It is submitted that the most appropriate way of approaching
this type of situation is on the “independent liability” approach and that this best reflects
the admittedly ambiguous word “liability” in section 80(1) of the Act. It was also the
approach adopted by the Court of Appeal in Commercial Union Assurance Co Limited
v. Hayden,136 although that was a liability insurance case that left open the position
regarding property insurance.
16.46 Where double insurance arises because there has been a misunderstanding as to
the terms of trade, and both buyer and seller insure the cargo, the likelihood is that both
insurers will insure the cargo for the ci.f invoice value plus 10%. Clearly, if both
insurers have insured the cargo for exactly the same amount they must share equally in
any loss. However, where the two insurers have insured for different agreed values, it is
submitted that the most sensible way to proceed is on the “common liability” basis. This
requires that the two insurers share the risk up to the agreed value common to each
policy and that the insurer for the higher value bears the whole of the balance of the
loss. For example, let us assume the seller insures the cargo for a c.i.f. value of £10,
000 plus 10%, an insured value of £11, 000, and the buyer mistakenly also insures, but
for £15, 000. In the case of a total loss the sellers insurance would pay 50% of the
common amount of £11, 000 (i.e., £5, 500) and the buyers insurers would equally pay
£5, 500, for this is double insurance for that common “layer” making up the £11, 000.
The buyers insurers having insured a further layer of £4, 000 up to £15, 000 must pay
the £4, 000 excess over the sellers policy137 OMay138 records that this method is often
adopted in practice in marine cargo insurance in the context of two cargo insurances,
both being valued policies. This is the most appropriate method in such a case because
of the rule that the agreed value is “conclusive” under section 27(3) of the Marine
Insurance Act 1906. In cases of apportionment in relation to subrogated recoveries
under valued policies the courts have applied that rule rigorously139 It is submitted that
the same rule should apply to cases of apportionment between insurers where both
policies are valued policies.140 However, the decision in The Martin P,141 a hull and
machinery case, rejects the common liability method in relation to valued property
insurance policies as being inconsistent with the words of section 80(1) of the 1906
Act. This, as we have seen, requires the insurer to contribute “rateably to the loss in
proportion to the amount for which he is liable under his contract”.142 However, the
“loss” for the insurer of a valued marine cargo insurance contract can never be more
than the “conclusive” agreed value of the goods under section 27(3) of the Act. The only
“loss” therefore which constitutes double insurance where there are two agreed value
policies is where the values are common.143 The over-lapping of the policies is limited
by the conclusive agreed amount of the lower-valued policy and the logic of this
approach is that the calculation should therefore be made as in the example set out
above. However, the law in The Martin P144 is that either the maximum or the
independent liability method should apply145 In practice cargo insurers will presumably
continue to apportion contribution on the common liability basis where the double
insurance arises in relation to two policies with agreed cargo values.
The foreign element
16.47 Where there are two policies of marine cargo insurance both covering the same
cargo and a double insurance situation arises, the policies are quite likely to be
governed by different systems of law, at least in circumstances where the double
insurance has arisen between buyer and seller in an international context. The question
then arises as to what law should govern the rights of contribution between insurers. In
American Surety Company of New York v. Wrightson146 Hamilton J. put the rule as
follows:147
“As contribution between co-insurers depends not upon contract, but upon equity, the law governing the matter must be
the law of the tribunal to which the party who is required to do equity is subject, and not the law of the country in
which the party seeking to have equity done to him is domiciled, or the law of the country which governs the contract
under which the suppliant seeking equity from the other party becomes in his turn liable to the assured.”
In that case the court held that, in an English court, English law and not American law
applied to the obligation of American insurers to contribute. Under English law the
obligation to contribute has its origins in the equitable doctrine of contribution between
co-sureties, and it follows that in an English court the defendant insurer, who is called
upon to contribute, is obliged to do so by virtue of English law rules. The forum for the
dispute may therefore be crucially important, particularly as continental European
systems of law tend to favour the broad proposition that the policy which comes first in
time should first of all meet liability in full,148 and as we have seen, sometimes clauses
in United States policies have a similar effect.149
1. See para. 16.8.

2. See para. 16.12.
3. See para. 16.19.
4. See para. 16.23.
6. The goods in their damaged state are described as “salvage”, see para. 16.23 below, which is to be distinguished
from the right to claim a reward under maritime law, or by contract, especially Lloyds Open Form, which is dealt with
in Chapter 14, para. 14.24 et seq.
7. Mason v. Sainsburys (1782) 3 Doug 61.
8. (1883) LR 11 QBD 380.
9. At p. 388.
10. (1877) LR 3 App Cas 279.
11. At p. 284.
12. The high point of this approach was reached in the judgments of Lord Diplock, first as Diplock J. in the
Commercial Court in Yorkshire Insurance Co Ltd v. Nisbet shipping Co Ltd [1961] 1 Lloyds Rep. 479 and later in
the House of Lords in Hobbs v. Marlowe [1978] AC 16 at p. 39 (HL).
13. Bee v. Jenson (No. 2) [2008] Lloyds Rep. IR 221.
14. Napier and Ettrick v. Hunter [1993] 1 Lloyds Rep. 197 (HL).
15. King v. Victoria Assurance Company Limited [1896] AC 250 (PC), assuming a bona fide payment under the
policy, not merely a voluntary gift.
16. Compania Columbiana de Seguros v. Pacific Steam Navigation Company [1963] 2 Lloyds Rep. 479. In
those cases where an assured company may cease to exist, for financial or re-structuring reasons, the insurers may be
wise to take an assignment. If the assured ceases to exist as a legal entity, and cannot be revived, there will be no
claimant and no subrogation rights, see M H Smith Ltd (Plant Hire) v. Mainwaring [1986] 2 Lloyds Rep. 244 (CA).
17. Ibid. at p. 493.
18. Central Insurance Co Ltd v. Seacalf Shipping Corporation (The Aiolos) [1983] 2 Lloyds Rep. 25.
19. Subrogation forms and receipts are considered at para. 16.12 below.
20. It was too late to substitute the assured as claimants in the action which was time-barred so far as they were
concerned under the one-year time limit under Article III, r. 6 of the Hague Rules.
21. It was suggested by counsel, Mr Michael Kerr, as he then was, in Compania Columbiana v. Pacific Steam
Navigation [1963] 2 Lloyds Rep. 479 that recognition that insurers could proceed by way of assignment would “open
the floodgates” to actions in the name of insurers (at p. 493). This has not occurred.
22. Ibid., Compania Columbiana v. Pacific Steam Navigation (supra) at p. 497 et seq.
23. Supra.
24. Simpson v. Thomson (1877) LR 3 App Cas 279.
25. National Oilwell (UK) Ltd v. Davy Offshore Ltd [1993] 2 Lloyds Rep. 582.
26. Supra.
27. At pp. 613 and 614.
28. See Co-Operative Retail Services Ltd v. Taylor Young Partnership Ltd [2001] Lloyds Rep. IR 122 (CA);
affirmed [2002] Lloyds Rep. IR 555 (HL) and see H. Bennett, The Law of Marine Insurance, 2nd edn, 2006, OUP
at para. 25.33.
29. If there is wilful misconduct by a co-assured which causes loss that puts the co-assured outside the insurance
and opens the way to a subrogated claim as the co-assured is no longer protected by the implied term that the insurer
will not seek a recovery from him, see National Oilwell v. Davy Offshore (Supra) at p. 616, per Colman J.; Samuel
& Co Ltd v. Dumas (1924) 18 Ll. L. Rep. 211.
30. Waters v. Monarch Fire & Life Assurance Co (1856) 5 E & B 870; Hepburn v. A.Tomlinson (Hauliers) Ltd
[1966] 1 Lloyds Rep. 309 (HL), and see Chapter 4, para. 4.9.
31. Supra.
32. The position of the bailee is central to the development of the law in this area, see Mance, Goldrein and Mertin,
Insurance Disputes, 2nd edn, 2003, LLP at para. 8.81 citing Petrofina (UK) Ltd v. Magnaload Ltd [1983] 2 Lloyds
Rep. 91 at 136.
33. See Appendix 5, Market Reform Contract.
34. Supra.
35. National Oilwell v. Davy Offshore (supra) at pp. 603, 604.
36. It may not be impossible for a carrier or other bailee to become an assured under a policy particularly where, as
is the practice in the London market, the policy may be extended to the assured and those on behalf of whom they
have instructions to insure, see National Oilwell v. Davy Offshore (supra) and see the wording quoted in para. 16.10
above which appears in Appendix 5.
37. Article III, r. 8.
38. See Chapter 3, para. 3.27 et seq for a consideration of the “assured” under London market open covers and the
39. Historic Records Report HR5 at p. 105. See also J. Kenneth Goodacre Goodbye to the Memorandum, 1988,
Witherby & Co Ltd, at pp. 88, 89.
40. The word “inure” caused particular difficulties with international markets.
41. ICC, Clause 16.2. See Chapter 14, para. 14.4 et seq. where ICC, Clause 16, the Duty of Assured Clause, is
considered.
42. Boag v. Standard Marine Insurance Company Limited (1937) 57 Ll. L. Rep. 83.
43. See Appendix 9, where the form is set out in full.
44. At para. 16.3.
45. Edward s v. Motor Union Insurance Co Ltd (The White Rose) [1922] 2 KB 249 at pp. 254, 255, per
McCardie J.
46. See para. 16.24 below which considers the position whereby insurers may agree a total loss without being
obliged to take over the property in the goods.
47. MIA 1906 s. 79 is set out at para. 16.3 above.
48. Arguably, the assured could ratify such proceedings retrospectively, see Danish Mercantile Co Ltd v.
Beaumont [1951] 1 Ch 680. But the assured and their lawyers act at their peril, see the United States case of
Government of Pakistan v. The Steamship Ionian Trader 1961 AMC 206, where proceedings were commenced
without authority to protect the time limit and the assured, on settlement of the claim, deleted the authority from the
subrogation form. Accordingly the recovery claim failed. Whether in accepting such an amended subrogation form the
insurers waived any right to pursue the assured for breach of the Duty of Assured Clause is not entirely clear from the
report, though it suggests that the insurers were prepared to accept the position as they later paid the insurance claim
without having the necessary authority to pursue their subrogation rights. For breach of the Duty of Assured Clause,
see Chapter 14, para. 14.17.
49.Duus Brown v. Binning (1906) 11 Com Cas 190. 50. Supra. 51. Ibid. at p. 194.
50.Supra.
51.Ibid. at p. 194.
52.The point was left open by Scott L.J. in Boag v. Standard Marine Insurance Company Ltd (1937) 57 Ll. L.
Rep. 83 at p. 89, where he said “whether [letters of subrogation] constitute contracts for good consideration upon
which an action could be brought does not arise”. It may be faintly suggested that there is no consideration because
the insurers are already obliged to pay the assureds claim, but the reality in practice is that settlement of every marine
cargo claim involves some element of compromise and the bargain thus struck will be honoured by the Commercial
Court and treated as a legally binding contract.
53. The assured, it is submitted, would be entitled to security for costs in an appropriate case, for example, where
the insurer was beyond the jurisdiction of the English courts and the potential liability for irrecoverable costs was
significant.
54. For the position as to an award of costs against an unsuccessful claimant, see Chapter 13, para. 13.6.
55. A right to reimbursement was also to be implied under the ICC1/1/63 under the former Bailee Clause, see
Netherlands Insurance Co Est 1945 Ltd v. Karl Ljungberg & Co AB (The Mammoth Pine) [1986] 2 Lloyds Rep.
19.
56. The Duty of Assured Clause is considered in Chapter 14, para. 14.4 et seq.
57. The standard Subrogation Form does not address the apportionment of costs and should not therefore be
considered an agreement to the contrary
58. Duus Brown v. Binning (1906)11 Com Cas 190. England & England v. Guardian Insurance Ltd [2000]
Lloyds Rep. IR 404. See further para 15_41, para. 15.41.
59. At para. 16.3.
60. Commercial Union Assurance Company v. Lister (1874) LR 9 Ch App 483.
61. Ibid.
62. The Netherlands Insurance Co Est 1845 Ltd v. Karl Ljungberg & Co AB [1986] 2 Lloyds Rep. 19.
63. Supra.
64. The ICC (All Risks) 1/1/63 are in Appendix 10.
65. Appendix 10, ICC (All Risks) 1/1/63, Clause 9.
66. At p. 22.
67. At p. 23.
69. England and England v. Guardian Insurance Ltd [2000] Lloyds Rep. IR 404. See Duus Brown & Co
70. (1874) LR 9 Ch App 483.
71. Supra.
73. For the procedure of joining the assured in the action against the third party, see Esso Petroleum Co Ltd v. Hall
Russell & Co Ltd (The Esso Bernicia) [1989] AC 643.
74. (1937) 57 Ll. L. Rep. 83.
75. This is not stated in the report but must be the case. The insurance would have been on “lost or not lost terms”
under the traditional SG Form cover that would have applied. As to “lost and not lost”, see Chapter 4, para. 4.16.
76. For the position with regard to general average coverage see Chapter 14, para. 14.31 et seq. The amount due to
cargo interests in a case such as this would fall short of the whole loss as each interest has to bear its proportionate
share of the loss. The substantial recovery suggests that after the vessel was re-floated she completed the voyage with
a significant proportion of the cargo intact.
77. At para. 16.22.
78. Supra.
79. North of England Iron Steamship Corporation v. Armstrong (1870) LR 5 QB 244, approved by the CA in
Thames and Mersey Marine Insurance Company Ltd v. British and Chilean Steamship Co [1916] 1 KB 30. See
further Chapter 15, para. 15.33 for the rule as to apportionment of recoveries where there are agreed insured values.
80. At p. 87.
81. Supra.
82. See D R OMay Marine Insurance: Law and Policy, 1993, Sweet & Maxwell at pp. 504, 505. OMay, fn. 16,
takes the view that the decision appears to have been decided on the basis that “the increased value policy was second
in time”, and that increased value insurances should be within the contemplation of primary insurers. This, however,
very much depends on whether increased value insurances are common for the trade in question. The starting point is
that any insurer is entitled to expect full subrogation rights and, if that is not the case, this is a material fact that should
be disclosed, see Chapter 5, para. 5.32. As McNair J. pointed out at first instance in Boag v. Standard Marine (1936)
54 Ll. L. Rep. 320 at p. 323, there was no evidence in that case that it was so usual to take out increased value
policies that insurers must be taken to subscribe to the original policies under an implied condition that the assured
might take out an increased value policy
83. OMay at p. 504 and see, for example, the clause in in the Lloyds Policy in Boag v. Standard Marine (supra)
at p. 85.
84. To borrow the words of Lord Wright M.R. in Boag v. Standard Marine (supra) at p. 87.
85. Supra.
86. The question of whether the assured was in breach of any contract represented by the letters of subrogation for
failing to provide full subrogation rights to the increased value insurers was left open in Boag v. Standard Marine, see
the judgment of Scott L.J. at p. 89.
87. MIA 1906 s. 79 and Boag v. Standard Marine (supra) per Romer L.J. as considered at para. 16.20 above.
89. Even when insurers accept a claim for a constructive total loss, they will do so on the basis that the ship or cargo
remains the property of the assured, see, for example, OKane v. Jones (The Martin P) [2004] 1 Lloyds Rep. 389 at
para. 71 where the claim for the constructive total loss of the Martin P was settled on the basis that the insurers “did
not accept the abandonment of the vessel to them”.
90. See Chapter 15, para. 15.23 for a consideration of such “salvage losses”.
91. 1992 AMC 2705, United States Court of Appeals, Fourth Circuit.
92. At p. 2706.
93. Columbus-America Discovery Group v. Atlantic Mutual Insurance Company 1995 AMC 1985, United
States Court of Appeals, Fourth Circuit.
94. Ibid. Upholding the decision of the District Court.
95. These requirements are considered further at para. 16.33 et seq. below.
96. MIA 1906 s. 32(1).
97. Godin v. London Assurance Company (1758) 1 Burr 489 at 495.
98. (1874–5) LR 10 CP 668.
99. This matter went to the House of Lords on the issue of whether average applied, see The Niger Company Ltd
v. The Yorkshire Insurance Company Ltd (1920) 2 Ll. L. Rep. 509 (HL).
100. See Goodacre Marine Insurance Claims, 3rd edn, 1996, Witherby & Co Ltd at pp. 1007, 2008.
101. Niger Company Ltd v. The Guardian Assurance Company Ltd (1920) 4 Ll. L. Rep. 320; affirmed (1921) 6
Ll. L. Rep. 239 (CA); (1922) 13 Ll. L. Rep. 75 (HL).
102. See Weddell v. Road Transport and General Insurance Co Ltd [1932] 2 KB 563; National Employers
Mutual General Insurance Association Ltd v. Haydon [1980] 2 Lloyds Rep. 149 (CA).
103. See, Insurance Disputes, Mance, Goldrein and Merkin (eds), 2nd edn, 2003, at para. 9.13 fn. 1.
104. It is submitted that this must be the position following the decision in Weddell v. Road Transport and General
Insurance Co Ltd (supra), though it may be noted that in Niger Company Limited v. The Guardian Assurance
Company Ltd (1920) 4 Ll. L. Rep. 320, at first instance, Rowlatt at p. 339 seems to have rejected a similar argument
by the South British Insurance Company for fear that such a clause in their policy, and in the fire insurers policy, would
have resulted in the Niger Company having “cut themselves out of protection altogether”, the literal result of the two
non-contribution clauses regarded as absurd, and rejected in Weddells Case.
105. See OMay at p. 497 citing American Dredging Co v. Federal Insurance Co 1970 AMC 1163.
106. (1920) 4 Ll. L. Rep. 320 at 337.
108. See further Chapter 11, .17">para. 11.17.
109. See, OMay at p. 496 who gives the example of a seller who takes out insurance as agent for the buyer in
circumstances where the buyer also insures.
111. (1758) 1 Burr 489 at 493.
112. North British and Mercantile Insurance Company v. London, Liverpool and Globe Insurance Company
(1877) 5 Ch D 569.
113. Godin v. London Assurance Co (supra).
114. See Hepburn v. Tomlinson [1966] AC 451, and see Chapter 4, para. 4.9 which considers the special position
of bailees.
115. See North British & Mercantile Insurance Company v. London, Liverpool and Globe Insurance
Company (1877) 5 Ch D 569. See also OKane v. Jones (The Martin P) [2004] 1 Lloyds Rep. 389, which is
considered, in respect of the interest insured, at para. 16.43 below.
116. For subrogation see paras. 16.1 to 16.8 above. The exercise of subrogation rights has the potential to lead to a
full recovery while a claim for contribution can only lead, at best, to a proportionate recovery. Accordingly, in the
United States, it is not unknown for one insurer, in a double insurance situation, to settle with the assured on a loan
receipt basis with a view to achieving a full recovery, see, however, American Dredging Co v. Federal Insurance
Co (1970) 309 Supp. 425 where the court held that a loan receipt should not be used as a device to obtain a separate
substantive right to which the insurer is not entitled.
117. Bovis Construction Ltd and Anor v. Commercial Union Assurance Co plc [2001] 1 Lloyds Rep. 416, and
see the Australian decision in Albion Insurance Co Ltd v. Government Insurance Office of New South Wales
(1969) 121 CLR 342.
118. MIA 1906 s. 80, Godin v. London Assurance Co (1758) 1 Burr 489.
119. Godin v. London Assurance Co (supra) at p. 491.
120. See Legal & General v. Drake Insurance [1992] 1 All ER 283, per Ralph Gibson L.J. at p. 293 et seq.
Although the issue is not beyond doubt, the better view is that the Civil Liability (Contribution) Act 1978 is not
applicable to double insurance where s. 80 of the 1906 Act applies, see Bovis Construction Limited v. Commercial
Union Assurance Co plc [2001] 1 Lloyds Rep. 416; OKane v. Jones (The Martin P) [2004] 1 Lloyds Rep. 389 at
para. 188, and Arnould at para. 32–20.
121. Albion Insurance Co Ltd v. Government Insurance Office of New South Wales (1969) 121 CLR 342, per
Katto J. at p. 353 and see Bovis Construction Ltd and Another v. Commercial Union Insurance Co plc [2001] 1
Lloyds Rep. 416.
126. [1954] 2 Lloyds Rep. 581.
127. [2004] 1 Lloyds Rep. 389.
128. For cancellation for non-payment of premium, see Chapter 3, para. 3.46.
129. Constructive total loss is considered in Chapter 13, para. 13.42 et seq.
130. The issues as to the insurable interest of the managers are considered in Chapter 4, para. 4.4.
132. Ibid. at paras. 198, 199.
134. See Chapter 15, para. 15.5 for the term “sum insured”.
135. Ibid., for the term “insured value”.
136. [1977] 1 Lloyds Rep. 1.
137. Arnould suggests this approach at para. 32–31 where further calculations are set out to deal with the situation
where there is a partial loss.
138. At p. 502.
139. See Chapter 15, para. 15.33 fn. 105.
140. The rules concerning the conclusiveness of agreed values are also applied to double insurance by MIA 1906 s.
32(2)((b). Where the assured is under-insured and claims on both policies his claim is limited to the agreed value
without regard to the actual value of the subject-matter insured.
141. [2005] 1 Lloyds Rep. 389.
142. At para. 263.
143. Arnould at para. 32–38 considers the decision in The Martin P “regrettable” on this point and “arguably
wrong” and adopts a position similar to that set out in the above text. But for the opposite point of view see Bennett at
para. 26.65.
144. Supra.
145. The vessel was insured in that case for US$5m under the Wellington Policy which paid first, and for US$2.5m
under the Jones Policy. As the ship was a constructive total loss both methods resulted in the same apportionment with
the result that the Wellington insurers recovered US$1, 666, 666.67. Jones argued for a payment of US$1.25m on the
common liability method.
146. (1910) 16 Com Cas 37.
147. At p. 49.
148. See Halsburys Laws of England, 2003 re-issue, Lexis Nexis Butterworths, Volume 25, Insurance, at para.
495, p. 388 fn. 4.
APPENDICES
Legislation
9 Subrogation Form
Institute Clauses
17 Institute Wa r Clauses (Cargo) 1/1/82
18 Institute Wa r Clauses (Cargo) 1/1/09
22 Institute Wa r Clauses (Air Cargo) (excluding sendings by Post) 1/1/09
24 Institute Wa r Clauses (sendings by Post) 1/3/09
JC2000/002
APPENDIX 1
MARINE INSURANCE ACT 1906
(6 Edw. 7 C. 41)
ARRANGEMENT OF SECTIONS
Marine Insurance
Section
1. Marine insurance defined.
2. Mixed sea and land risks.
3. Marine adventure and maritime perils defined.
Insurable Interest
4. Avoidance of wagering or gaming contracts.

5. Insurable interest defined.
6. When interest must attach.
7. Defeasible or contingent interest.
8. Partial interest.
9. Re-insurance.
10. Bottomry.
11. Masters and seamens wages.
12. Advance freight.
13. Charges of insurance.
14. Quantum of interest.
15. Assignment of interest.
Insurable Value
16. Measure of insurable value.
Disclosure and Representations
17. Insurance is uberrimae fidei.

18. Disclosure by assured.
19. Disclosure by agent effecting insurance.
20. Representations pending negotiation of contract.
21. When contract is deemed to be concluded.
The Policy
22. Contract must be embodied in policy.

23. What policy must specify.
24. Signature of insurer.
25. Voyage and time policies.
26. Designation of subject-matter.
27. Valued policy.
28. Unvalued policy.
29. Floating policy by ship or ships.
30. Construction of terms in policy.
31. Premium to be arranged.
Double Insurance
32. Double insurance.
Warranties, etc.
33. Nature of warranty.

34. When breach of warranty excused.
35. Express warranties.
36. Warranty of neutrality.
37. No implied warranty of nationality.
38. Warranty of good safety.
39. Warranty of seaworthiness of ship.
40. No implied warranty that goods are seaworthy.
41. Warranty of legality.
The Voyage
42. Implied condition as to commencement of risk.

43. Alteration of port of departure.
44. Sailing for different destination.
45. Change of voyage.
46. Deviation.
47. Several ports of discharge.
48. Delay in voyage.
49. Excuses for deviation or delay.
Assignment of Policy
50. When and how policy is assignable.

51. Assured who has no interest cannot assign.
The Premium
52. When premium payable.

53. Policy effected through broker.
54. Effect of receipt on policy.
Loss and Abandonment
55. Included and excluded losses.

56. Partial and total loss.
57. Actual total loss.
58. Missing ship.
59. Effect of transhipment, etc.
60. Constructive total loss defined.
61. Effect of constructive total loss.
62. Notice of abandonment.
63. Effect of abandonment.
Partial Losses (Including Salvage and General Average and Particular Charges)
64. Particular average loss.

65. Salvage charges.
66. General average loss.
Measure of Indemnity
67. Extent of liability of insurer for loss.

68. Total loss.
69. Partial loss of ship.
70. Partial loss of freight.
71. Partial loss of goods, merchandise, etc.
72. Apportionment of valuation.
73. General average contributions and salvage charges.
74. Liabilities to third parties.
75. General provisions as to measure of indemnity.
76. Particular average warranties.
77. Successive losses.
78. Suing and labouring clause.
Rights of Insurer on Payment
79. Right of subrogation.

80. Right of contribution.
81. Effect of under insurance.
Return of Premium
82. Enforcement of return.

83. Return by agreement.
84. Return for failure of consideration.
Mutual Insurance
85. Modification of Act in case of mutual insurance.
Supplemental
86. Ratification by assured.

87. Implied obligations varied by agreement or usage.
88. Reasonable time, etc., a question of fact.
89. Slip as evidence.
90. Interpretation of terms.
91. Savings.
92. Repeals.
93. Commencement.
94. Short title.
SCHEDULES
An Act to codify the Law relating to Marine Insurance.
[21st December 1906]
BE IT ENACTED by the Kings most Excellent Majesty, by and with the advice and
consent of the Lords Spiritual and Temporal, and Commons, in this present Parliament
assembled, and by the authority of the same, as follows:—
Marine Insurance
1. Marine insurance defined.

A contract of marine insurance is a contract whereby the insurer undertakes to indemnify
the assured, in manner and to the extent thereby agreed, against marine losses, that is to
say, the losses incident to marine adventure.
2. Mixed sea and land risks.
(1) A contract of marine insurance may, by its express terms, or by usage of trade, be
extended so as to protect the assured against losses on inland waters or on any land risk
which may be incidental to any sea voyage.
(2) Where a ship in course of building, or the launch of a ship, or any adventure
analogous to a marine adventure, is covered by a policy in the form of a marine policy,
the provisions of this Act, in so far as applicable, shall apply thereto; but, except as by
this section provided, nothing in this Act shall alter or affect any rule of law applicable
to any contract of insurance other than a contract of marine insurance as by this Act
defined.
3. Marine adventure and maritime perils defined.
(1) Subject to the provisions of this Act, every lawful marine adventure may be the
subject of a contract of marine insurance.
(2) In particular there is a marine adventure where—
(a) Any ship goods or other moveables are exposed to maritime perils. Such
property is in this Act referred to as “insurable property”
(b) The earning or acquisition of any freight, passage money, commission, profit,
or other pecuniary benefit, or the security for any advances, loan, or
disbursements, is endangered by the exposure of insurable property to
maritime perils;
(c) Any liability to a third party may be incurred by the owner of, or other person
interested in or responsible for, insurable property, by reason of maritime
perils.
“Maritime perils” means the perils consequent on, or incidental to, the navigation of the
sea, that is to say, perils of the seas, fire, war perils, pirates, rovers, thieves, captures,
seisures, restraints, and detainments of princes and peoples, jettisons, barratry, and any
other perils, either of the like kind or which may be designated by the policy.
Insurable Interest
4. Avoidance of wagering or gaming contracts.

(1) Every contract of marine insurance by way of gaming or wagering is void.
(2) contract of marine insurance is deemed to be a gaming or wagering contract—
(a) Where the assured has not an insurable interest as defined by this Act, and the
contract is entered into with no expectation of acquiring such an interest; or
(b) Where the policy is made “interest or no interest,” or “without further proof
of interest than the policy itself,” or “without benefit of salvage to the
insurer,” or subject to any other like term:
Provided that, where there is no possibility of salvage, a policy may be effected without benefit of salvage to
the insurer.
5. Insurable interest defined.
(1) Subject to the provisions of this Act, every person has an insurable interest who
is interested in a marine adventure.
(2) In particular a person is interested in a marine adventure where he stands in any
legal or equitable relation to the adventure or to any insurable property at risk therein,
in consequence of which he may benefit by the safety or due arrival of insurable
property, or may be prejudiced by its loss, or by damage thereto, or by the detention
thereof, or may incur liability in respect thereof.
6. When interest must attach.
(1) The assured must be interested in the subject-matter insured at the time of the loss
though he need not be interested when the insurance is effected:
Provided that where the subject-matter is insured “lost or not lost,” the assured may recover although he
may not have acquired his interest until after the loss, unless at the time of effecting the contract of
insurance the assured was aware of the loss, and the insurer was not.
(2) Where the assured has no interest at the time of the loss, he cannot acquire interest
by any act or election after he is aware of the loss.
7. Defeasible or contingent interest.
(1) A defeasible interest is insurable, as also is a contingent interest.
(2) In particular, where the buyer of goods has insured them, he has an insurable
interest, notwithstanding that he might, at his election, have rejected the goods, or have
treated them as at the sellers risk, by reason of the latters delay in making delivery or
otherwise.
8. Partial interest.
A partial interest of any nature is insurable.
9. Re-insurance.
(1) The insurer under a contract of marine insurance has an insurable interest in his
risk, and may re-insure in respect of it.
(2) Unless the policy otherwise provides, the original assured has no right or interest
in respect of such re-insurance.
10. Bottomry.
The lender of money on bottomry or respondentia has an insurable interest in respect of
the loan.
11. Masters and seamens wages.
The master or any member of the crew of a ship has an insurable interest in respect of
his wages.
12. Advance freight.
In the case of advance freight, the person advancing the freight has an insurable interest,
in so far as such freight is not repayable in case of loss.
13. Charges of insurance.
The assured has an insurable interest in the charges of any insurance which he may
effect.
14. Quantum of interest.
(1) Where the subject-matter insured is mortgaged, the mortgagor has an insurable
interest in the full value thereof, and the mortgagee has an insurable interest in respect of
any sum due or to become due under the mortgage.
(2) A mortgagee, consignee, or other person having an interest in the subject-matter
insured may insure on behalf and for the benefit of other persons interested as well as
for his own benefit.
(3) The owner of insurable property has an insurable interest in respect of the full
value thereof, notwithstanding that some third person may have agreed, or be liable, to
indemnify him in case of loss.
15. Assignment of interest.
Where the assured assigns or otherwise parts with his interest in the subject-matter
insured, he does not thereby transfer to the assignee his rights under the contract of
insurance, unless there be an express or implied agreement with the assignee to that
effect.
But the provisions of this section do not affect a transmission of interest by operation
of law.
Insurable Value
16. Measure of insurable value.
Subject to any express provision or valuation in the policy, the insurable value of the
subject-matter insured must be ascertained as follows:—
(1) In insurance on ship, the insurable value is the value, at the commencement of the
risk, of the ship, including her outfit, provisions and stores for the officers and crew,
money advanced for seamens wages, and other disbursements (if any) incurred to make
the ship fit for the voyage or adventure contemplated by the policy, plus the charges of
insurance upon the whole:
The insurable value, in the case of a steamship, includes also the machinery, boilers, and coals and engine stores
if owned by the assured, and, in the case of a ship engaged in a special trade, the ordinary fittings requisite for
that trade:
(2) In insurance on freight, whether paid in advance or other-wise, the insurable
value is the gross amount of the freight at the risk of the assured, plus the charges of
insurance:
(3) In insurance on goods or merchandise, the insurable value is the prime cost of the
property insured, plus the expenses of and incidental to shipping and the charges of
insurance upon the whole:
(4) In insurance on any other subject-matter, the insurable value is the amount at the
risk of the assured when the policy attaches, plus the charges of insurance.
Disclosure and Representations
17. Insurance is uberrimae fidei.

A contract of marine insurance is a contract based upon the utmost good faith, and, if the
utmost good faith be not observed by either party, the contract may be avoided by the
other party.
18. Disclosure by assured.
(1) Subject to the provisions of this section, the assured must disclose to the insurer,
before the contract is concluded, every material circumstance which is known to the
assured, and the assured is deemed to know every circumstance which, in the ordinary
course of business, ought to be known by him. If the assured fails to make such
disclosure, the insurer may avoid the contract.
(2) Every circumstance is material which would influence the judgment of a prudent
insurer in fixing the premium, or determining whether he will take the risk.
(3) In the absence of inquiry the following circumstances need not be disclosed,
namely:—
(a) Any circumstance which diminishes the risk;
(b) Any circumstance which is known or presumed to be known to the insurer.
The insurer is presumed to know matters of common notoriety or knowledge,
and matters which an insurer in the ordinary course of his business, as such,
ought to know;
(c) Any circumstance as to which information is waived by the insurer;
(d) Any circumstance which it is superfluous to disclose by reason of any express
or implied warranty.
(4) Whether any particular circumstance, which is not disclosed, be material or not
is, in each case, a question of fact.
(5) The term “circumstance” includes any communication made to, or information
received by, the assured.
19. Disclosure by agent effecting insurance.
Subject to the provisions of the preceding section as to circumstances which need not be
disclosed, where an insurance is effected for the assured by an agent, the agent must
disclose to the insurer—
(a) Every material circumstance which is known to himself, and an agent to
insure is deemed to know every circumstance which in the ordinary course of
business ought to be known by, or to have been communicated to, him; and
(b) Every material circumstance which the assured is bound to disclose, unless it
come to his knowledge too late to communicate it to the agent.
20. Representations pending negotiation of contract.
(1) Every material representation made by the assured or his agent to the insurer
during the negotiations for the contract, and before the contract is concluded, must be
true. If it be untrue the insurer may avoid the contract.
(2) A representation is material which would influence the judgment of a prudent
insurer in fixing the premium, or determining whether he will take the risk.
(3) A representation may be either a representation as to a matter of fact, or as to a
matter of expectation or belief.
(4) A representation as to a matter of fact is true, if it be substantially correct, that is
to say, if the difference between what is represented and what is actually correct would
not be considered material by a prudent insurer.
(5) A representation as to a matter of expectation or belief is true if it be made in
good faith.
(6) A representation may be withdrawn or corrected before the contract is concluded.
(7) Whether a particular representation be material or not is, in each case, a question
of fact.
21. When contract is deemed to be concluded.
A contract of marine insurance is deemed to be concluded when the proposal of the
assured is accepted by the insurer, whether the policy be then issued or not; and, for the
purpose of showing when the proposal was accepted, reference may be made to the slip
or covering note or other customary memorandum of the contract [although it be
unstamped].
NOTE: Words in square brackets repealed by the Finance Act 1959 (c. 58), s. 37(5),
Sch. 8 Pt. II.
The Policy
22. Contract must be embodied in policy.

Subject to the provisions of any statute, a contract of marine insurance is inadmissible in
evidence unless it is embodied in a marine policy in accordance with this Act. The
policy may be executed and issued either at the time when the contract is concluded, or
afterwards.
23. What policy must specify.
A marine policy must specify—
(1) The name of the assured, or of some person who effects the insurance on his
behalf:
[(2) The subject-matter insured and the risk insured against:
(3) The voyage, or period of time, or both, as the case may be, covered by the
insurance:
(4) The sum or sums insured:
(5) The name or names of the insurers.]
NOTE: Subs 2–5 repealed by the Finance Act 1959 (c. 58), ss. 30(5), (7), 37(5), Sch. 8
Pt. II.
24. Signature of insurer.
(1) A marine policy must be signed by or on behalf of the insurer, provided that in the
case of a corporation the corporate seal may be sufficient, but nothing in this section
shall be construed as requiring the subscription of a corporation to be under seal.
(2) Where a policy is subscribed by or on behalf of two or more insurers, each
subscription, unless the contrary be expressed, constitutes a distinct contract with the
assured.
25. Voyage and time policies.
(1) Where the contract is to insure the subject-matter “at and from,” or from one place
to another or others, the policy is called a “voyage policy,” and where the contract is to
insure the subject-matter for a definite period of time the policy is called a “time
policy.” A contract for both voyage and time may be included in the same policy.
(2) [(2) Subject to the provisions of section eleven of the Finance Act, 1901, a time
policy which is made for any time exceeding twelve months is invalid.]
NOTE: Subs (2) Repealed by the Finance Act 1959 (c. 58), ss. 30(5), (7), 37(5), Sch. 8
Pt. II.
26. Designation of subject-matter.
(1) The subject-matter insured must be designated in a marine policy with reasonable
certainty.
(2) The nature and extent of the interest of the assured in the subject-matter insured
need not be specified in the policy.
(3) Where the policy designates the subject-matter insured in general terms, it shall
be construed to apply to the interest intended by the assured to be covered.
(4) In the application of this section regard shall be had to any usage regulating the
designation of the subject-matter insured.
27. Valued policy.
(1) A policy may be either valued or unvalued.
(2) A valued policy is a policy which specifies the agreed value of the subject-matter
insured.
(3) Subject to the provisions of this Act, and in the absence of fraud, the value fixed
by the policy is, as between the insurer and assured, conclusive of the insurable value of
the subject intended to be insured, whether the loss be total or partial.
(4) Unless the policy otherwise provides, the value fixed by the policy is not
conclusive for the purpose of determining whether there has been a constructive total
loss.
28. Unvalued policy.
An unvalued policy is a policy which does not specify the value of the subject-matter
insured, but, subject to the limit of the sum insured, leaves the insurable value to be
subsequently ascertained, in the manner herein-before specified.
29. Floating policy by ship or ships.
(1) A floating policy is a policy which describes the insurance in general terms, and
leaves the name of the ship or ships and other particulars to be defined by subsequent
declaration.
(2) The subsequent declaration or declarations may be made by indorsement on the
policy, or in other customary manner.
(3) Unless the policy otherwise provides, the declarations must be made in the order
of dispatch or shipment. They must, in the case of goods, comprise all consignments
within the terms of the policy, and the value of the goods or other property must be
honestly stated, but an omission or erroneous declaration may be rectified even after
loss or arrival, provided the omission or declaration was made in good faith.
(4) Unless the policy otherwise provides, where a declaration of value is not made
until after notice of loss or arrival, the policy must be treated as an unvalued policy as
regards the subject-matter of that declaration.
30. Construction of terms in policy.
(1) A policy may be in the form in the First Schedule to this Act.
(2) Subject to the provisions of this Act, and unless the context of the policy
otherwise requires, the terms and expressions mentioned in the First Schedule to this
Act shall be construed as having the scope and meaning in that schedule assigned to
them.
31. Premium to be arranged.
(1) Where an insurance is effected at a premium to be arranged, and no arrangement
is made, a reasonable premium is payable.
(2) Where an insurance is effected on the terms that an additional premium is to be
arranged in a given event, and that event happens but no arrangement is made, then a
reasonable additional premium is payable.
Double Insurance
32. Double insurance.

(1) Where two or more policies are effected by or on behalf of the assured on the
same adventure and interest or any part thereof, and the sums insured exceed the
indemnity allowed by this Act, the assured is said to be over-insured by double
insurance.
(2) Where the assured is over-insured by double insurance—
(a) The assured, unless the policy otherwise provides, may claim payment from
the insurers in such order as he may think fit, provided that he is not entitled to
receive any sum in excess of the indemnity allowed by this Act;
(b) Where the policy under which the assured claims is a valued policy, the
assured must give credit as against the valuation for any sum received by him
under any other policy without regard to the actual value of the subject-matter
insured;
(c) Where the policy under which the assured claims is an unvalued policy he
must give credit, as against the full insurable value, for any sum received by
him under any other policy:
(d) Where the assured receives any sum in excess of the indemnity allowed by
this Act, he is deemed to hold such sum in trust for the insurers, according to
their right of contribution among themselves.
Warranties, etc.
33. Nature of warranty.

(1) A warranty, in the following sections relating to warranties, means a promissory
warranty, that is to say, a warranty by which the assured undertakes that some particular
thing shall or shall not be done, or that some condition shall be fulfilled, or whereby he
affirms or negatives the existence of a particular state of facts.
(2) A warranty may be express or implied.
(3) A warranty, as above defined, is a condition which must be exactly complied
with, whether it be material to the risk or not. If it be not so complied with, then, subject
to any express provision in the policy, the insurer is discharged from liability as from
the date of the breach of warranty, but without prejudice to any liability incurred by him
before that date.
34. When breach of warranty excused.
(1) Non-compliance with a warranty is excused when, by reason of a change of
circumstances, the warranty ceases to be applicable to the circumstances of the contract,
or when compliance with the warranty is rendered unlawful by any subsequent law.
(2) Where a warranty is broken, the assured cannot avail himself of the defence that
the breach has been remedied, and the warranty complied with, before loss.
(3) A breach of warranty may be waived by the insurer.
35. Express warranties.
(1) An express warranty may be in any form of words from which the intention to
warrant is to be inferred.
(2) An express warranty must be included in, or written upon, the policy, or must be
contained in some document incorporated by reference into the policy.
(3) An express warranty does not exclude an implied warranty, unless it be
inconsistent therewith.
36. Warranty of neutrality.
(1) Where insurable property, whether ship or goods, is expressly warranted neutral,
there is an implied condition that the property shall have a neutral character at the
commencement of the risk, and that, so far as the assured can control the matter, its
neutral character shall be preserved during the risk.
(2) Where a ship is expressly warranted “neutral” there is also an implied condition
that, so far as the assured can control the matter, she shall be properly documented, that
is to say, that she shall carry the necessary papers to establish her neutrality, and that she
shall not falsify or suppress her papers, or use simulated papers. If any loss occurs
through breach of this condition, the insurer may avoid the contract.
37. No implied warranty of nationality.
There is no implied warranty as to the nationality of a ship, or that her nationality shall
not be changed during the risk.
38. Warranty of good safety.
Where the subject-matter insured is warranted “well” or “in good safety” on a
particular day, it is sufficient if it be safe at any time during that day.
39. Warranty of seaworthiness of ship.
(1) In a voyage policy there is an implied warranty that at the commencement of the
voyage the ship shall be seaworthy for the purpose of the particular adventure insured.
(2) Where the policy attaches while the ship is in port, there is also an implied
warranty that she shall, at the commencement of the risk, be reasonably fit to encounter
the ordinary perils of the port.
(3) Where the policy relates to a voyage which is performed in different stages,
during which the ship requires different kinds of or further preparation or equipment,
there is an implied warranty that at the commencement of each stage the ship is
seaworthy in respect of such preparation or equipment for the purposes of that stage.
(4) A ship is deemed to be seaworthy when she is reasonably fit in all respects to
encounter the ordinary perils of the seas of the adventure insured.
(5) In a time policy there is no implied warranty that the ship shall be seaworthy at
any stage of the adventure, but where, with the privity of the assured, the ship is sent to
sea in an unseaworthy state, the insurer is not liable for any loss attributable to
unseaworthiness.
40. No implied warranty that goods are seaworthy.
(1) In a policy on goods or other moveables there is no implied warranty that the
goods or moveables are seaworthy.
(2) In a voyage policy on goods or other moveables there is an implied warranty that
at the commencement of the voyage the ship is not only seaworthy as a ship, but also that
she is reasonably fit to carry the goods or other moveables to the destination
contemplated by the policy.
41. Warranty of legality.
There is an implied warranty that the adventure insured is a lawful one, and that, so far
as the assured can control the matter, the adventure shall be carried out in a lawful
manner.
The Voyage
42. Implied condition as to commencement of risk.

(1) Where the subject-matter is insured by a voyage policy “at and from” or “from” a
particular place, it is not necessary that the ship should be at that place when the
contract is concluded, but there is an implied condition that the adventure shall be
commenced within a reasonable time, and that if the adventure be not so commenced the
insurer may avoid the contract.
(2) The implied condition may be negatived by showing that the delay was caused by
circumstances known to the insurer before the contract was concluded, or by showing
that he waived the condition.
43. Alteration of port of departure.
Where the place of departure is specified by the policy, and the ship instead of sailing
from that place sails from any other place, the risk does not attach.
44. Sailing for different destination.
Where the destination is specified in the policy, and the ship, instead of sailing for that
destination, sails for any other destination, the risk does not attach.
45. Change of voyage.
(1) Where, after the commencement of the risk, the destination of the ship is
voluntarily changed from the destination contemplated by the policy, there is said to be a
change of voyage.
(2) Unless the policy otherwise provides, where there is a change of voyage, the
insurer is discharged from liability as from the time of change, that is to say, as from the
time when the determination to change it is manifested; and it is immaterial that the ship
may not in fact have left the course of voyage contemplated by the policy when the loss
occurs.
46. Deviation.
(1) Where a ship, without lawful excuse, deviates from the voyage contemplated by
the policy, the insurer is discharged from liability as from the time of deviation, and it is
immaterial that the ship may have regained her route before any loss occurs.
(2) There is a deviation from the voyage contemplated by the policy—
(a) Where the course of the voyage is specifically designated by the policy, and
that course is departed from; or
(b) Where the course of the voyage is not specifically designated by the policy,
but the usual and customary course is departed from.
(3) The intention to deviate is immaterial; there must be a deviation in fact to
discharge the insurer from his liability under the contract.
47. Several ports of discharge.
(1) Where several ports of discharge are specified by the policy, the ship may
proceed to all or any of them, but, in the absence of any usage or sufficient cause to the
contrary, she must proceed to them, or such of them as she goes to, in the order
designated by the policy. If she does not there is a deviation.
(2) Where the policy is to “ports of discharge,” within a given area, which are not
named, the ship must, in the absence of any usage or sufficient cause to the contrary,
proceed to them, or such of them as she goes to, in their geographical order. If she does
not there is a deviation.
48. Delay in voyage.
In the case of a voyage policy, the adventure insured must be prosecuted throughout its
course with reasonable dispatch, and, if without lawful excuse it is not so prosecuted,
the insurer is discharged from liability as from the time when the delay became
unreasonable.
49. Excuses for deviation or delay.
(1) Deviation or delay in prosecuting the voyage contemplated by the policy is
excused—
(a) Where authorised by any special term in the policy; or
(b) Where caused by circumstances beyond the control of the master and his
employer; or
(c) Where reasonably necessary in order to comply with an express or implied
warranty; or
(d) Where reasonably necessary for the safety of the ship or subject-matter
insured; or
(e) For the purpose of saving human life, or aiding a ship in distress where human
life may be in danger; or
(f) Where reasonably necessary for the purpose of obtaining medical or surgical
aid for any person on board the ship; or
(g) Where caused by the barratrous conduct of the master or crew, if barratry be
one of the perils insured against.
(2) When the cause excusing the deviation or delay ceases to operate, the ship must
resume her course, and prosecute her voyage, with reasonable dispatch.
Assignment of Policy
50. When and how policy is assignable.

(1) A marine policy is assignable unless it contains terms expressly prohibiting
assignment. It may be assigned either before or after loss.
(2) Where a marine policy has been assigned so as to pass the beneficial interest in
such policy, the assignee of the policy is entitled to sue thereon in his own name; and the
defendant is entitled to make any defence arising out of the contract which he would
have been entitled to make if the action had been brought in the name of the person by or
on behalf of whom the policy was effected.
(3) A marine policy may be assigned by indorsement thereon or in other customary
manner.
51. Assured who has no interest cannot assign.
Where the assured has parted with or lost his interest in the subject-matter insured, and
has not, before or at the time of so doing, expressly or impliedly agreed to assign the
policy, any subsequent assignment of the policy is inoperative:
Provided that nothing in this section affects the assignment of a policy after loss.
The Premium
52. When premium payable.

Unless otherwise agreed, the duty of the assured or his agent to pay the premium, and the
duty of the insurer to issue the policy to the assured or his agent, are concurrent
conditions, and the insurer is not bound to issue the policy until payment or tender of the
premium.
53. Policy effected through broker.
(1) Unless otherwise agreed, where a marine policy is effected on behalf of the
assured by a broker, the broker is directly responsible to the insurer for the premium,
and the insurer is directly responsible to the assured for the amount which may be
payable in respect of losses, or in respect of returnable premium.
(2) Unless otherwise agreed, the broker has, as against the assured, a lien upon the
policy for the amount of the premium and his charges in respect of effecting the policy;
and, where he has dealt with the person who employs him as a principal, he has also a
lien on the policy in respect of any balance on any insurance account which may be due
to him from such person, unless when the debt was incurred he had reason to believe
that such person was only an agent.
54. Effect of receipt on policy.
Where a marine policy effected on behalf of the assured by a broker acknowledges the
receipt of the premium, such acknowledgement is, in the absence of fraud, conclusive as
between the insurer and the assured, but not as between the insurer and broker.
Loss and Abandonment
55. Included and excluded losses.

(1) Subject to the provisions of this Act, and unless the policy otherwise provides,
the insurer is liable for any loss proximately caused by a peril insured against, but,
subject as aforesaid, he is not liable for any loss which is not proximately caused by a
peril insured against.
(2) In particular—
(a) The insurer is not liable for any loss attributable to the wilful misconduct of
the assured, but, unless the policy otherwise provides, he is liable for any
loss proximately caused by a peril insured against, even though the loss
would not have happened but for the misconduct or negligence of the master
or crew;
(b) Unless the policy otherwise provides, the insurer on ship or goods is not
liable for any loss proximately caused by delay, although the delay be caused
by a peril insured against;
(c) Unless the policy otherwise provides, the insurer is not liable for ordinary
wear and tear, ordinary leakage and breakage, inherent vice or nature of the
subject-matter insured, or for any loss proximately caused by rats or vermin,
or for any injury to machinery not proximately caused by maritime perils.
56. Partial and total loss.
(1) A loss may be either total or partial. Any loss other than a total loss, as
hereinafter defined, is a partial loss.
(2) A total loss may be either an actual total loss, or a constructive total loss.
(3) Unless a different intention appears from the terms of the policy, an insurance
against total loss includes a constructive, as well as an actual, total loss.
(4) Where the assured brings an action for a total loss and the evidence proves only a
partial loss, he may, unless the policy otherwise provides, recover for a partial loss.
(5) Where goods reach their destination in specie, but by reason of obliteration of
marks, or otherwise, they are incapable of identification, the loss, if any, is partial, and
not total.
57. Actual total loss.
(1) Where the subject-matter insured is destroyed, or so damaged as to cease to be a
thing of the kind insured, or where the assured is irretrievably deprived thereof, there is
an actual total loss.
(2) In the case of an actual total loss no notice of abandonment need be given.
58. Missing ship.
Where the ship concerned in the adventure is missing, and after the lapse of a
reasonable time no news of her has been received, an actual total loss may be
presumed.
59. Effect of transhipment, etc.
Where, by a peril insured against, the voyage is interrupted at an intermediate port or
place, under such circumstances as, apart from any special stipulation in the contract of
affreightment, to justify the master in landing and reshipping the goods or other
moveables, or in transhipping them, and sending them on to their destination, the
liability of the insurer continues, notwithstanding the landing or transhipment.
60. Constructive total loss defined.
(1) Subject to any express provision in the policy, there is a constructive total loss
where the subject-matter insured is reasonably abandoned on account of its actual total
loss appearing to be unavoidable, or because it could not be preserved from actual total
loss without an expenditure which would exceed its value when the expenditure had
been incurred.
(2) In particular, there is a constructive total loss—
(i) Where the assured is deprived of the possession of his ship or goods by a
peril insured against, and (a) it is unlikely that he can recover the ship or
goods, as the case may be, or (b) the cost of recovering the ship or goods, as
the case may be, would exceed their value when recovered; or
(ii) In the case of damage to a ship, where she is so damaged by a peril insured
against that the cost of repairing the damage would exceed the value of the
ship when repaired, In estimating the cost of repairs, no deduction is to be
made in respect of general average contributions to those repairs payable by
other interests, but account is to be taken of the expense of future salvage
operations and of any future general average contributions to which the ship
would be liable if repaired; or
(iii) In the case of damage to goods, where the cost of repairing the damage and
forwarding the goods to their destination would exceed their value on arrival.
61. Effect of constructive total loss.
Where there is a constructive total loss the assured may either treat the loss as a partial
loss, or abandon the subject-matter insured to the insurer and treat the loss as if it were
an actual total loss.
62. Notice of abandonment.
(1) Subject to the provisions of this section, where the assured elects to abandon the
subject-matter insured to the insurer, he must give notice of abandonment. If he fails to
do so the loss can only be treated as a partial loss.
(2) Notice of abandonment may be given in writing, or by word of mouth, or partly in
writing and partly by word of mouth, and may be given in any terms which indicate the
intention of the assured to abandon his insured interest in the subject-matter insured
unconditionally to the insurer.
(3) Notice of abandonment must be given with reasonable diligence after the receipt
of reliable information of the loss, but where the information is of a doubtful character
the assured is entitled to a reasonable time to make inquiry.
(4) Where notice of abandonment is properly given, the rights of the assured are not
prejudiced by the fact that the insurer refuses to accept the abandonment.
(5) The acceptance of an abandonment may be either express or implied from the
conduct of the insurer. The mere silence of the insurer after notice is not an acceptance.
(6) Where notice of abandonment is accepted the abandonment is irrevocable. The
acceptance of the notice conclusively admits liability for the loss and the sufficiency of
the notice.
(7) Notice of abandonment is unnecessary where, at the time when the assured
receives information of the loss, there would be no possibility of benefit to the insurer if
notice were given to him.
(8) Notice of abandonment may be waived by the insurer.
(9) Where an insurer has re-insured his risk, no notice of abandonment need be given
by him.
63. Effect of abandonment.
(1) Where there is a valid abandonment the insurer is entitled to take over the interest
of the assured in whatever may remain of the subject-matter insured, and all proprietary
rights incidental thereto.
(2) Upon the abandonment of a ship, the insurer thereof is entitled to any freight in
course of being earned, and which is earned by her subsequent to the casualty causing
the loss, less the expenses of earning it incurred after the casualty; and, where the ship is
carrying the owners goods, the insurer is entitled to a reasonable remuneration for the
carriage of them subsequent to the casualty causing the loss.
Partial Losses (Including Salvage and General Average and Particular Charges)
64. Particular average loss.
(1) A particular average loss is a partial loss of the subject-matter insured, caused by
a peril insured against, and which is not a general average loss.
(2) Expenses incurred by or on behalf of the assured for the safety or preservation of
the subject-matter insured, other than general average and salvage charges, are called
particular charges. Particular charges are not included in particular average.
65. Salvage charges.
(1) Subject to any express provision in the policy, salvage charges incurred in
preventing a loss by perils insured against may be recovered as a loss by those perils.
(2) “Salvage charges” means the charges recoverable under maritime law by a salvor
independently of contract. They do not include the expenses of services in the nature of
salvage rendered by the assured or his agents, or any person employed for hire by them,
for the purpose of averting a peril insured against. Such expenses, where properly
incurred, may be recovered as particular charges or as a general average loss,
according to the circumstances under which they were incurred.
66. General average loss.
(1) A general average loss is a loss caused by or directly consequential on a general
average act. It includes a general average expenditure as well as a general average
sacrifice.
(2) There is a general average act where any extraordinary sacrifice or expenditure is
voluntarily and reasonably made or incurred in time of peril for the purpose of
preserving the property imperilled in the common adventure.
(3) Where there is a general average loss, the party on whom it falls is entitled,
subject to the conditions imposed by maritime law, to a rateable contribution from the
other parties interested, and such contribution is called a general average contribution.
(4) Subject to any express provision in the policy, where the assured has incurred a
general average expenditure, he may recover from the insurer in respect of the
proportion of the loss which falls upon him; and, in the case of a general average
sacrifice, he may recover from the insurer in respect of the whole loss without having
enforced his right of contribution from the other parties liable to contribute.
(5) Subject to any express provision in the policy, where the assured has paid, or is
liable to pay, a general average contribution in respect of the subject insured, he may
recover therefore from the insurer.
(6) In the absence of express stipulation, the insurer is not liable for any general
average loss or contribution where the loss was not incurred for the purpose of
avoiding, or in connexion with the avoidance of, a peril insured against.
(7) Where ship, freight, and cargo, or any two of those interests, are owned by the
same assured, the liability of the insurer in respect of general average losses or
contributions is to be determined as if those subjects were owned by different persons.
Measure of Indemnity
67. Extent of liability of insurer for loss.

(1) The sum which the assured can recover in respect of a loss on a policy by which
he is insured, in the case of an unvalued policy to the full extent of the insurable value,
or, in the case of a valued policy to the full extent of the value fixed by the policy is
called the measure of indemnity.
(2) Where there is a loss recoverable under the policy, the insurer, or each insurer if
there be more than one, is liable for such proportion of the measure of indemnity as the
amount of his subscription bears to the value fixed by the policy in the case of a valued
policy, or to the insurable value in the case of an unvalued policy.
68. Total loss.
Subject to the provisions of this Act and to any express provision in the policy, where
there is a total loss of the subject-matter insured,—
(1) If the policy be a valued policy, the measure of indemnity is the sum fixed by the
policy:
(2) If the policy be an unvalued policy, the measure of indemnity is the insurable
value of the subject-matter insured.
69. Partial loss of ship.
Where a ship is damaged, but is not totally lost, the measure of indemnity, subject to any
express provision in the policy, is as follows:—
(1) Where the ship has been repaired, the assured is entitled to the reasonable cost of
the repairs, less the customary deductions, but not exceeding the sum insured in respect
of any one casualty:
(2) Where the ship has been only partially repaired, the assured is entitled to the
reasonable cost of such repairs, computed as above, and also to be indemnified for the
reasonable depreciation, if any, arising from the unrepaired damage, provided that the
aggregate amount shall not exceed the cost of repairing the whole damage, computed as
above:
(3) Where the ship has not been repaired, and has not been sold in her damaged state
during the risk, the assured is entitled to be indemnified for the reasonable depreciation
arising from the unrepaired damage, but not exceeding the reasonable cost of repairing
such damage, computed as above.
70. Partial loss of freight.
Subject to any express provision in the policy, where there is a partial loss of freight,
the measure of indemnity is such proportion of the sum fixed by the policy in the case of
a valued policy, or of the insurable value in the case of an unvalued policy, as the
proportion of freight lost by the assured bears to the whole freight at the risk of the
assured under the policy.
71. Partial loss of goods, merchandise, etc.
Where there is a partial loss of goods, merchandise, or other moveables, the measure of
indemnity, subject to any express provision in the policy, is as follows:—
(1) Where part of the goods, merchandise or other moveables insured by a valued
policy is totally lost, the measure of indemnity is such proportion of the sum fixed by the
policy as the insurable value of the part lost bears to the insurable value of the whole,
ascertained as in the case of an unvalued policy:
(2) Where part of the goods, merchandise, or other moveables insured by an unvalued
policy is totally lost, the measure of indemnity is the insurable value of the part lost,
ascertained as in case of total loss:
(3) Where the whole or any part of the goods or merchandise insured has been
delivered damaged at its destination, the measure of indemnity is such proportion of the
sum fixed by the policy in the case of a valued policy, or of the insurable value in the
case of an unvalued policy, as the difference between the gross sound and damaged
values at the place of arrival bears to the gross sound value:
(4) “Gross value” means the wholesale price, or, if there be no such price, the
estimated value, with, in either case, freight, landing charges, and duty paid beforehand;
provided that, in the case of goods or merchandise customarily sold in bond, the bonded
price is deemed to be the gross value. “Gross proceeds” means the actual price
obtained at a sale where all charges on sale are paid by the sellers.
72. Apportionment of valuation.
(1) Where different species of property are insured under a single valuation, the
valuation must be apportioned over the different species in proportion to their
respective insurable values, as in the case of an unvalued policy. The insured value of
any part of a species is such proportion of the total insured value of the same as the
insurable value of the part bears to the insurable value of the whole, ascertained in both
cases as provided by this Act.
(2) Where a valuation has to be apportioned, and particulars of the prime cost of each
separate species, quality, or description of goods cannot be ascertained, the division of
the valuation may be made over the net arrived sound values of the different species,
qualities, or descriptions of goods.
73. General average contributions and salvage charges.
(1) Subject to any express provision in the policy, where the assured has paid, or is
liable for, any general average contribution, the measure of indemnity is the full amount
of such contribution, if the subject-matter liable to contribution is insured for its full
contributory value; but, if such subject-matter be not insured for its full contributory
value, or if only part of it be insured, the indemnity payable by the insurer must be
reduced in proportion to the under insurance, and where there has been a particular
average loss which constitutes a deduction from the contributory value, and for which
the insurer is liable, that amount must be deducted from the insured value in order to
ascertain what the insurer is liable to contribute.
(2) Where the insurer is liable for salvage charges the extent of his liability must be
determined on the like principle.
74. Liabilities to third parties.
Where the assured has effected an insurance in express terms against any liability to a
third party, the measure of indemnity, subject to any express provision in the policy, is
the amount paid or payable by him to such third party in respect of such liability.
75. General provisions as to measure of indemnity.
(1) Where there has been a loss in respect of any subject-matter not expressly
provided for in the foregoing provisions of this Act, the measure of indemnity shall be
ascertained, as nearly as may be, in accordance with those provisions, in so far as
applicable to the particular case.
(2) Nothing in the provisions of this Act relating to the measure of indemnity shall
affect the rules relating to double insurance, or prohibit the insurer from disproving
interest wholly or in part, or from showing that at the time of the loss the whole or any
part of the subject-matter insured was not at risk under the policy.
76. Particular average warranties.
(1) Where the subject-matter insured is warranted free from particular average, the
assured cannot recover for a loss of part, other than a loss incurred by a general average
sacrifice, unless the contract contained in the policy be apportionable; but, if the
contract be apportionable, the assured may recover for a total loss of any apportionable
part.
(2) Where the subject-matter insured is warranted free from particular average, either
wholly or under a certain percentage, the insurer is nevertheless liable for salvage
charges, and for particular charges and other expenses properly incurred pursuant to the
provisions of the suing and labouring clause in order to avert a loss insured against.
(3) Unless the policy otherwise provides, where the subject-matter insured is
warranted free from particular average under a specified percentage, a general average
loss cannot be added to a particular average loss to make up the specified percentage.
(4) For the purpose of ascertaining whether the specified percentage has been
reached, regard shall be had only to the actual loss suffered by the subject-matter
insured. Particular charges and the expenses of and incidental to ascertaining and
proving the loss must be excluded.
77. Successive losses.
(1) Unless the policy otherwise provides, and subject to the provisions of this Act,
the insurer is liable for successive losses, even thought the total amount of such losses
may exceed the sum insured.
(2) Where, under the same policy, a partial loss, which has not been repaired or
otherwise made good, is followed by a total loss, the assured can only recover in
respect of the total loss:
Provided that nothing in this section shall affect the liability of the insurer under the suing and labouring
clause.
78. Suing and labouring clause.
(1) Where the policy contains a suing and labouring clause, the engagement thereby
entered into is deemed to be supplementary to the contract of insurance, and the assured
may recover from the insurer any expenses properly incurred pursuant to the clause,
notwithstanding that the insurer may have paid for a total loss, or that the subject-matter
may have been warranted free from particular average, either wholly or under a certain
percentage.
(2) General average losses and contributions and salvage charges, as defined by this
Act, are not recoverable under the suing and labouring clause.
(3) Expenses incurred for the purpose of averting or diminishing any loss not covered
by the policy are not recoverable under the suing and labouring clause.
(4) It is the duty of the assured and his agents, in all cases, to take such measures as
may be reasonable for the purpose of averting or minimising a loss.
Rights of Insurer on Payment
79. Right of subrogation.

(1) Where the insurer pays for a total loss, either of the whole, or in the case of goods
of any apportionable part, of the subject-matter insured, he thereupon becomes entitled
to take over the interest of the assured in whatever may remain of the subject-matter so
paid for, and he is thereby subrogated to all the rights and remedies of the assured in and
in respect of that subject-matter as from the time of the casualty causing the loss.
(2) Subject to the foregoing provisions, where the insurer pays for a partial loss, he
acquires no title to the subject-matter insured, or such part of it as may remain, but he is
thereupon subrogated to all rights and remedies of the assured in and in respect of the
subject-matter insured as from the time of the casualty causing the loss, in so far as the
assured has been indemnified, according to this Act, by such payment for the loss.
80. Right of contribution.
(1) Where the assured is over-insured by double insurance, each insurer is bound, as
between himself and the other insurers, to contribute rateably to the loss in proportion to
the amount for which he is liable under his contract.
(2) If any insurer pays more than his proportion of the loss, he is entitled to maintain
an action for contribution against the other insurers, and is entitled to the like remedies
as a surety who has paid more than his proportion of the debt.
81. Effect of under insurance.
Where the assured is insured for an amount less than the insurable value or, in the case
of a valued policy, for an amount less than the policy valuation, he is deemed to be his
own insurer in respect of the uninsured balance.
Return of Premium
82. Enforcement of return.

Where the premium or a proportionate part thereof is, by this Act, declared to be
returnable,—
(a) If already paid, it may be recovered by the assured from the insurer; and
(b) If unpaid, it may be retained by the assured or his agent.
83. Return by agreement.
Where the policy contains a stipulation for the return of the premium, or a proportionate
part thereof, on the happening of a certain event, and that event happens, the premium,
or, as the case may be, the proportionate part thereof, is thereupon returnable to the
assured.
84. Return for failure of consideration.
(1) Where the consideration for the payment of the premium totally fails, and there
has been no fraud or illegality on the part of the assured or his agents, the premium is
thereupon returnable to the assured.
(2) Where the consideration for the payment of the premium is apportionable and
there is a total failure of any apportionable part of the consideration, a proportionate
part of the premium is, under the like conditions, thereupon returnable to the assured.
(3) In particular—
(a) Where the policy is void, or is avoided by the insurer as from the
commencement of the risk, the premium is returnable, provided that there has
been no fraud or illegality on the part of the assured; but if the risk is not
apportionable, and has once attached, the premium is not returnable:
(b) Where the subject-matter insured, or part thereof, has never been imperilled,
the premium, or, as the case may be, a proportionate part thereof, is
returnable:
Provided that where the subject-matter has been insured “lost or not lost” and has arrived in
safety at the time when the contract is concluded, the premium is not returnable unless, at such
time, the insurer knew of the safe arrival.
(c) Where the assured has no insurable interest throughout the currency of the
risk, the premium is returnable, provided that this rule does not apply to a
policy effected by way of gaming or wagering;
(d) Where the assured has a defeasible interest which is terminated during the
currency of the risk, the premium is not returnable;
(e) Where the assured has over-insured under an unvalued policy, a proportionate
part of the premium is returnable;
(f) Subject to the foregoing provisions, where the assured has over-insured by
double insurance, a proportionate part of the several premiums is returnable:
Provided that, if the policies are effected at different times, and any earlier policy has at any time
borne the entire risk, or if a claim has been paid on the policy in respect of the full sum insured
thereby, no premium is returnable in respect of that policy, and when the double insurance is
effected knowingly by the assured no premium is returnable.
Mutual Insurance
85. Modification of Act in case of mutual insurance.

(1) Where two or more persons mutually agree to insure each other against marine
losses there is said to be a mutual insurance.
(2) The provisions of this Act relating to the premium do not apply to mutual
insurance, but a guarantee, or such other arrangement as may be agreed upon, may be
substituted for the premium.
(3) The provisions of this Act, in so far as they may be modified by the agreement of
the parties, may in the case of mutual insurance be modified by the terms of the policies
issued by the association, or by the rules and regulations of the association.
(4) Subject to the exceptions mentioned in this section, the provisions of this Act
apply to a mutual insurance.
Supplemental
86. Ratification by assured.
Where a contract of marine insurance is in good faith effected by one person on behalf
of another, the person on whose behalf it is effected may ratify the contract even after he
is aware of a loss.
87. Implied obligations varied by agreement or usage.
(1) Where any right, duty, or liability would arise under a contract of marine
insurance by implication of law, it may be negatived or varied by express agreement, or
by usage, if the usage be such as to bind both parties to the contract.
(2) The provisions of this section extend to any right, duty, or liability declared by
this Act which may be lawfully modified by agreement.
88. Reasonable time, etc. a question of fact.
Where by this Act any reference is made to reasonable time, reasonable premium, or
reasonable diligence, the question what is reasonable is a question of fact.
89. Slip as evidence.
Where there is a duly stamped policy, reference may be made, as heretofore, to the slip
or covering note, in any legal proceeding.
90. Interpretation of terms.
In this Act, unless the context or subject-matter otherwise requires,—
“Action” includes counter-claim and set off:
“Freight” includes the profit derivable by a shipowner from the employment of his ship to carry his own goods
or moveables, as well as freight payable by a third party, but does not include passage money:
“Moveables” means any moveable tangible property, other than the ship, and includes money, valuable
securities, and other documents:
“Policy” means a marine policy.
91. Savings.
(1) Nothing in this Act, or in any repeal effected thereby, shall affect—
(a) The provisions of the Stamp Act 1891, or any enactment for the time being in
force relating to the revenue;
(b) The provisions of the Companies Act 1862, or any enactment amending or
substituted for the same;
(c) The provisions of any statute not expressly repealed by this Act.
(2) The rules of the common law including the law merchant, save in so far as they
are inconsistent with the express provisions of this Act, shall continue to apply to
contracts of marine insurance.
92. [The enactments mentioned in the Second Schedule to this Act are hereby
repealed to the extent specified in that schedule.]
NOTE: Repealed by Statute Law Revision Act 1927 (c. 42).
93. [This Act shall come into operation on the first day of January one thousand
nine hundred and seven.]
94. Short title.
This Act may be cited as the Marine Insurance Act 1906.
SCHEDULES
FIRST SCHEDULE
Section 30.
Form of Policy
Lloyds S.G. Policy.

BE IT KNOWN THAT .. .. .. .. as well in .. .. .. .. own name as for and in the name and
names of all and every other person or persons to whom the same doth, may, or shall
appertain, in part or in all doth make assurance and cause .. .. .. ..
and them, and every of them, to be insured lost or not lost, at and from .. .. .. ..
Upon any kind of goods and merchandise, and also upon the body, tackle, apparel,
ordnance, munition, artillery, boat, and other furniture, of and in the good ship or vessel
called the .. .. .. .. whereof is master under God, for this present voyage, .. .. .. ..
or whosoever else shall go for master in the said ship, or by whatsoever other name or
names the said ship, or the master thereof, is or shall be named or called; beginning the
adventure upon the said goods and merchandises from the loading thereof aboard the
said ship.
upon the said ship, etc
and so shall continue and endure, during her abode there, upon the said ship, etc. And
further, until the said ship, with all her ordnance, tackle, apparel, etc, and goods and
merchandises whatsoever shall be arrived at.. .. .. ..
upon the said ship, etc, until she hath moored at anchor twenty-four hours in good safety;
and upon the goods and merchandises, until the same be there discharged and safely
landed. And it shall be lawful for the said ship, etc, in this voyage to proceed and sail to
and touch and stay at any ports or places whatsoever.
without prejudice to this insurance. The said ship, etc, goods and merchandises, etc, for
so much as concerns the assured by agreement between the assured and assurers in this
policy, are and shall be valued at .. .. .. ..
Touching the adventures and perils which we the assurers are contented to bear and do
take upon us in this voyage: they are of the seas, men of war, fire, enemies, pirates,
rovers, thieves, jettisons, letters of mart and countermart, surprisals, takings at sea,
arrests, restraints, and detainments of all kings, princes, and people, of what nation,
condition, or quality soever, barratry of the master and mariners, and of all other perils,
losses, and misfortunes, that have or shall come to the hurt, detriment, or damage of the
said goods and merchandises, and ship, etc, or any part thereof. And in case of any loss
or misfortune it shall be lawful to the assured, their factors, servants and assigns, to sue,
labour, and travel for, in and about the defence, safeguards, and recovery of the said
goods and merchandises, and ship, etc, or any part thereof, without prejudice to this
insurance; to the charges whereof we, the assurers, will contribute each one according
to the rate and quantity of his sum herein assured. And it is especially declared and
agreed that no acts of the insurer or insured in recovering, saving, or preserving the
property insured shall be considered as a waiver, or acceptance of abandonment. And it
is agreed by us, the insurers, that this writing or policy of assurance shall be of as much
force and effect as the surest writing or policy of assurance heretofore made in Lombard
Street, or in the Royal Exchange, or elsewhere in London. And so we, the assurers, are
contented, and do hereby promise and bind ourselves, each one for his own part, our
heirs, executors, and goods to the assured, their executors, administrators, and assigns,
for the true performance of the premises, confessing ourselves paid the consideration
due unto us for this assurance by the assured, at and after the rate of .. .. .. ..
IN WITNESS whereof we, the assurers, have subscribed our names and sums assured
in London.
N. B.—Corn, fish, salt, fruit, flour, and seed are warranted free from average, unless
general, or the ship be stranded—sugar, tobacco, hemp, flax, hides and skins are
warranted free from average, under five pounds per cent., and all other goods, also the
ship and freight, are warranted free from average, under three pounds per cent. unless
general, or the ship be stranded.
Rules for Construction of Policy
The following are the rules referred to by this Act for the construction of a policy in
the above or other like form, where the context does not otherwise require:—
1. Lost or not lost.
Where the subject-matter is insured “lost or not lost,” and the loss has occurred before
the contract is concluded, the risk attaches unless, at such time the assured was aware of
the loss, and the insurer was not.
2. From.
Where the subject-matter is insured “from” a particular place, the risk does not attach
until the ship starts on the voyage insured.
3. At and from. [Ship.]
(a) Where a ship is insured “at and from” a particular place, and she is at that
place in good safety when the contract is concluded, the risk attaches
immediately.
(b) If she be not at that place when the contract is concluded, the risk attaches as
soon as she arrives there in good safety, and, unless the policy otherwise
provides, it is immaterial that she is covered by another policy for a specified
time after arrival.
(c) Where chartered freight is insured “at and from” a particular place, and the
ship is at that place in good safety when the contract is concluded the risk
attaches immediately. If she be not there when the contract is concluded, the
risk attaches as soon as she arrives there in good safety.
(d) Where freight, other than chartered freight, is payable without special
conditions and is insured “at and from” a particular place, the risk attaches
pro rata as the goods or merchandise are shipped; provided that if there be
cargo in readiness which belongs to the shipowner, or which some other
person has contracted with him to ship, the risk attaches as soon as the ship is
ready to receive such cargo.
4. From the loading thereof.
Where goods or other moveables are insured “from the loading thereof,” the risk does
not attach until such goods or moveables are actually on board, and the insurer is not
liable for them while in transit from the shore to the ship.
5. Safely landed.
Where the risk on goods or other moveables continues until they are “safely landed,”
they must be landed in the customary manner and within a reasonable time after arrival
at the port of discharge, and if they are not so landed the risk ceases.
6. Touch and stay.
In the absence of any further licence or usage, the liberty to touch and stay “at any port
or place whatsoever” does not authorise the ship to depart from the course of her
voyage from the port of departure to the port of destination.
7. Perils of the seas.
The term “perils of the seas” refers only to fortuitous accidents or casualties of the seas.
It does not include the ordinary action of the winds and waves.
8. Pirates.
The term “pirates” includes passengers who mutiny and rioters who attack the ship from
the shore.
9. Thieves.
The term “thieves” does not cover clandestine theft or a theft committed by any one of
the ships company, whether crew or passengers.
10. Restraint of princes.
The term “arrests, etc., of kings, princes, and people” refers to political or executive
acts, and does not include a loss caused by riot or by ordinary judicial process.
11. Barratry.
The term “barratry” includes every wrongful act wilfully committed by the master or
crew to the prejudice of the owner, or, as the case may be, the charterer.
12. All other perils.
The term “all other perils” includes only perils similar in kind to the perils specifically
mentioned in the policy.
13. Average unless general.
The term “average unless general” means a partial loss of the subject-matter insured
other than a general average loss, and does not include “particular charges.”
14. Stranded.
Where the ship has stranded, the insurer is liable for the excepted losses, although the
loss is not attributable to the stranding, provided that when the stranding takes place the
risk has attached and, if the policy be on goods, that the damaged goods are on board.
15. Ship.
The term “ship” includes the hull, materials and outfit, stores and provisions for the
officers and crew, and, in the case of vessels engaged in a special trade, the ordinary
fittings requisite for the trade, and also, in the case of a steamship, the machinery,
boilers, and coals and engine stores, if owned by the assured.
16. Freight.
The term “freight” includes the profit derivable by a shipowner from the employment of
his ship to carry his own goods or moveables, as well as freight payable by a third
party, but does not include passage money.
17 Goods.
The term “goods” means goods in the nature of merchandise, and does not include
personal effects or provisions and stores for use on board.
In the absence of any usage to the contrary, deck cargo and living animals must be
insured specifically, and not under the general denomination of goods.
SECOND SCHEDULE
Enactments Repealed.
Session and Chapter. Title or Short Title. Extent of Repeal.

19 Geo.2.c.37. An Act to regulate insurance on The whole Act.
ships belonging to the subjects of
Great Britain, and on
merchandizes or effects laden
thereon.
28 Geo.3.c.56. An Act to repeal an Act made in The whole Act so far as
the twenty-fifth year of the reign it relates to marine
of his present Majesty, entitled insurance.
“An Act for regulating Insurances
on Ships, and on goods,
merchandizes, or effects,” and for
substituting other provisions for
the like purpose in lieu thereof.
31 & 32 Vict.c.86. The Policies of Marine The whole Act.
Assurance Act, 1868.
APPENDIX 2
THIRD PARTIES (RIGHTS AGAINST INSURERS) ACT
1930
1930 (20 and 21 Geo.5 C.25)
An Act to confer on third parties rights against insurers of third-party risks in the event
of the insured becoming insolvent, and in certain other events.
[10th July 1930]
1. Rights of third parties against insurers on bankruptcy &c. of the insured.
(1) Where under any contract of insurance a person (hereinafter referred to as the
insured) is insured against liabilities to third parties which he may incur, then—
(a) in the event of the insured becoming bankrupt or making a composition or
arrangement with his creditors; or
(b) in the case of the insured being a company, in the event of a winding-up order
being made, or a resolution for a voluntary winding-up being passed, with
respect to the company, [or of the company entering administration,] or of a
receiver or manager of the companys business or undertaking being duly
appointed, or of possession being taken, by or on behalf of the holders of any
debentures secured by a floating charge, of any property comprised in or
subject to the charge or of a voluntary arrangement proposed for the purposes
of Part I of the Insolvency Act 1986 being approved under that Part;
if, either before or after that event, any such liability as aforesaid is incurred by the
insured, his rights against the insurer under the contract in respect of the liability shall,
notwithstanding anything in any Act or rule of law to the contrary, be transferred to and
vest in the third party to whom the liability was so incurred.
(2) Where the estate of any person falls to be administered in accordance with an
order under section 421 of the Insolvency Act 1986, then, if any debt provable in
bankruptcy (in Scotland, any claim accepted in the sequestration) is owing by the
deceased in respect of a liability against which he was insured under a contract of
insurance as being a liability to a third party, the deceased debtors rights against the
insurer under the contract in respect of that liability shall, notwithstanding anything in
any such order, be transferred to and vest in the person to whom the debt is owing.
(3) In so far as any contract of insurance made after the commencement of this Act in
respect of any liability of the insured to third parties purports, whether directly or
indirectly, to avoid the contract or to alter the rights of the parties thereunder upon the
happening to the insured of any of the events specified in paragraph (a) or paragraph (b)
of subsection (1) of this section or upon the estate of any person falling to be
administered in accordance with an order under section 421 of the Insolvency Act 1986
making of an order under section one hundred and thirty of the Bankruptcy Act 1914, in
respect of his estate, the contract shall be of no effect.
(4) Upon a transfer under subsection (1) or subsection (2) of this section, the insurer
shall, subject to the provisions of section three of this Act, be under the same liability to
the third party as he would have been under to the insured, but—
(a) if the liability of the insurer to the insured exceeds the liability of the insured
to the third party, nothing in this Act shall affect the rights of the insured
against the insurer in respect of the excess; and
(b) if the liability of the insurer to the insured is less than the liability of the
insured to the third party, nothing in this Act shall affect the rights of the third
party against the insured in respect of the balance.
(5) For the purposes of this Act, the expression “liabilities to third parties,”in
relation to a person insured under any contract of insurance, shall not include any
liability of that person in the capacity of insurer under some other contract of insurance.
(6) This Act shall not apply—
(a) where a company is wound up voluntarily merely for the purposes of
reconstruction or of amalgamation with another company; or
(b) to any case to which subsections (1) and (2) of section seven of the Workmens
Compensation Act 1925, applies.
NOTE: Subs 1(b), words inserted by Enterprise Ad 2002 (Insolvency) Order
2003/2096 Sch. 1(1) para. 2(b).
2. Duty to give necessary information to third parties.
(1) In the event of any person becoming bankrupt or making a composition or
arrangement with his creditors, or in the event of the estate of any person falling to be
administered in accordance with an order under section 421 of the Insolvency Act 1986,
or in the event of a winding-up order being made, or a resolution for a voluntary
winding-up being passed, with respect to any company [or of the company entering
administration] or of a receiver or manager of the companys business or undertaking
being duly appointed or of possession being taken by or on behalf of the holders of any
debentures secured by a floating charge of any property comprised in or subject to the
charge it shall be the duty of the bankrupt, debtor, personal representative of the
deceased debtor or company, and, as the case may be, of the trustee in bankruptcy,
trustee, liquidator, administrator, receiver, or manager, or person in possession of the
property to give at the request of any person claiming that the bankrupt, debtor, deceased
debtor, or company is under a liability to him such information as may reasonably be
required by him for the purpose of ascertaining whether any rights have been transferred
to and vested in him by this Act and for the purpose of enforcing such rights, if any, and
any contract of insurance, in so far as it purports, whether directly or indirectly, to avoid
the contract or to alter the rights of the parties thereunder upon the giving of any such
information in the events aforesaid or otherwise to prohibit or prevent the giving thereof
in the said events shall be of no effect.
(1A) The reference in subsection (1) of this section to a trustee includes a reference
to the supervisor of a voluntary arrangement proposed for the purposes of, and
approved under, Part I or Part VIII of the Insolvency Act 1986.
(2) If the information given to any person in pursuance of subsection (1) of this
section discloses reasonable ground for supposing that there have or may have been
transferred to him under this Act rights against any particular insurer, that insurer shall
be subject to the same duty as is imposed by the said subsection on the persons therein
mentioned.
(3) The duty to give information imposed by this section shall include a duty to allow
all contracts of insurance, receipts for premiums, and other relevant documents in the
possession or power of the person on whom the duty is so imposed to be inspected and
copies thereof to be taken.
NOTE: Subs (1), words inserted by Enterprise Act 2002 (Insolvency) Order
2003/2096 Sch. 1(1) para. 3(b).
3. Settlement between insurers and insured persons.
Where the insured has become bankrupt or where in the case of the insured being a
company, a winding-up order [or an administration order] has been made or a resolution
for a voluntary winding-up has been passed, with respect to the company, no agreement
made between the insurer and the insured after liability has been incurred to a third
party and after the commencement of the bankruptcy or winding-up [or the day of the
making of the administration order], as the case may be, nor any waiver, assignment, or
other disposition made by, or payment made to the insured after the commencement [or
day] aforesaid shall be effective to defeat or affect the rights transferred to the third
party under this Act, but those rights shall be the same as if no such agreement, waiver,
assignment, disposition or payment had been made.
NOTE: Words added by Insolvency Act 1985, s.235(l), Sch.8 para.7(4).
[3A. Application to limited liability partnerships.
(1) This Act applies to limited liability partnerships as it applies to companies.
(2) In its application to limited liability partnerships, references to a resolution for a
voluntary winding-up being passed are references to a determination for a voluntary
winding-up being made.]
NOTE: Added by Limited Liability Partnerships Regulations 2001/1090 Sch. 5 para.
2.
4. Application to Scotland.
In the application of this Act to Scotland—
(a) […]
(b) any reference to [an estate falling to be administered in accordance with an
order under]1 [section 421 of the Insolvency Act 1986]2, shall be deemed to
include a reference to an award of sequestration of the estate of a deceased
debtor, and a reference to an appointment of a judicial factor, under [section
11A of the Judicial Factors (Scotland) Act 1889]3, on the insolvent estate of a
deceased person.
NOTES:
Subs (a) Repealed (S.) by Bankruptcy (Scotland) Act 1985, s.75(1)(2), Sch.7 para.
6(2)(a), Sch.8.
Subs (b) 1Words added by Insolvency Act 1985, s.235(1), Sch.8 para.7(5), 2words
added by Insolvency Act 1986, s.439(2), Sch.14, 3words substituted (S.) by Bankruptcy
(Scotland) Act 1985, s.75(1), Sch.7 para.6(2)(b).
5. Short title.
This Act may be cited as the Third Parties (Rights against Insurers) Act 1930.
APPENDIX 3
PUBLIC ORDER ACT 1986
(1986 Chapter 64)
An Act to abolish the common law offences of riot, rout, unlawful assembly and affray
and certain statutory offences relating to public order; to create new offences relating to
public order; to control public processions and assemblies; to control the stirring up of
racial hatred; to provide for the exclusion of certain offenders from sporting events; to
create a new offence relating to the contamination of or interference with goods; to
confer power to direct certain trespassers to leave land; to amend section 7 of the
Conspiracy and Protection of Property Act 1875, section 1 of the Prevention of Crime
Act 1953, Part V of the Criminal Justice (Scotland) Act 1980 and the Sporting Events
(Control of Alcohol etc.) Act 1985; to repeal certain obsolete or unnecessary
enactments; and for connected purposes.
[7th November 1986]
BE IT ENACTED by the Queens most Excellent Majesty, by and with the advice and
PART I
NEW OFFENCES
1. Riot
(1) Where 12 or more persons who are present together use or threaten unlawful
violence for a common purpose and the conduct of them (taken together) is such as
would cause a person of reasonable firmness present at the scene to fear for his
personal safety, each of the persons using unlawful violence for the common purpose is
guilty of riot.
(2) It is immaterial whether or not the 12 or more use or threaten unlawful violence
simultaneously.
(3) The common purpose may be inferred from conduct.
(4) No person of reasonable firmness need actually be, or be likely to be, present at
the scene.
(5) Riot may be committed in private as well as in public places.
(6) A person guilty of riot is liable on conviction on indictment to imprisonment for a
term not exceeding ten years or a fine or both.
10. Construction of other instruments
(2) In Schedule 1 to the Marine Insurance Act 1906 (form and rules for the
construction of certain insurance policies) “rioters” in rule 8 and “riot” in rule 10 shall,
in the application of the rules to any policy taking effect on or after the coming into force
of this section, be construed in accordance with section 1 above unless a different
intention appears.
APPENDIX 4
REINSURANCE (ACTS OF TERRORISM) ACT 1993
1993 CHAPTER 18
An Act to provide for the payment out of money provided by Parliament or into the
Consolidated Fund of sums referable to reinsurance liabilities entered into by the
[Treasury] in respect of loss or damage to property resulting from or consequential upon
acts of terrorism and losses consequential on such loss or damage.
NOTE: Word substituted by Transfer of Functions (Insurance) Order 1997/2781 Sch.
1 (II) para. 121.
[27th May 1993]
BE IT ENACTED by the Queen’s most Excellent Majesty, by and with the advice and
1. Financing of reinsurance obligations of the Secretary of State.
(1) There shall be paid out of money provided by Parliament such sums as may be
necessary to enable the Treasury to meet their obligations under—
(a) any agreement of reinsurance which is entered into (whether before or after
the passing of this Act) pursuant to arrangements to which this Act applies, or
(b) any guarantee which is entered into (whether before or after that passing)
pursuant to any such agreement.
(2) As soon as practicable after the passing of this Act or, if it is later, after they enter
into the agreement or guarantee, the Secretary of State shall lay before each House of
Parliament a copy of any agreement or guarantee falling within subsection (1) above.
(3) There shall be paid into the Consolidated Fund any sums received by the
[Treasury] pursuant to any arrangements to which this Act applies.
NOTE: Word substituted by Transfer of Functions (Insurance) Order 1997/2781 Sch.
1(II) para. 121.
2. Reinsurance arrangements to which this Act applies.
(1) This Act applies to arrangements under which the Treasury […] undertake to any
extent the liability of reinsuring risks against—
(a) loss of or damage to property in Great Britain resulting from or consequential
upon acts of terrorism; and
(b) any loss which is consequential on loss or damage falling within paragraph
(a) above; and to the extent that the arrangements relate to events occurring
before as well as after an agreement of reinsurance comes into being, the
reference in section 1(1) above to the obligations of the Treasury shall be
construed accordingly.
(2) In this section “acts of terrorism” means acts of persons acting on behalf of, or in
connection with, any organisation which carries out activities directed towards the
overthrowing or influencing, by force or violence, of Her Majesty’s government in the
United Kingdom or any other government de jure or de facto.
(3) In subsection (2) above “organisation” includes any association or combination of
persons.
NOTE: Words repealed by Transfer of Functions (Insurance) Order 1997/2781 Sch.
1(II) para. 123(a).
3. Citation and extent.
(1) This Act may be cited as the Reinsurance (Acts of Terrorism) Act 1993.
(2) This Act does not extend to Northern Ireland.
APPENDIX 5
CONTRACT OF INSURANCE
Unique Market Reference (UMR): ____________
Assured: [For example: ABC Limited]
Principal Address:
Type: Marine Cargo Insurance
Period: (This mirrors the headings within the Risk Details section on the
next page.)
This document is based on the Willis Limited template for the Market Reform
Contract for marine cargo insurance and is re-produced by their kind permission.
The example wordings inserted into the template are the authors.
RISK DETAILS
UNIQUE MARKET ____________

REFERENCE:
TYPE: Marine Cargo Insurance
ASSURED: [For example: ABC Limited, and/or as agents and/or

subsidiaries and/or associated companies and/or for whom
they may have instructions to insure]
PRINCIPAL
ADDRESS:
PERIOD: Risk attaching from to both days inclusive, local standard

time.
Or
Risks attaching from to both days athours, local standard
time.
Facultative — anticipated date of sending on or about,
local standard time.
Or
Facultative — anticipated date of sending(s) betweenand
local standard time.
Cancellation Clause: [For example: This insurance may
be cancelled either by the Assured or by the Underwriters
by one party giving the other 7 days notice in respect of
War and Strikes Risks except in respect of sendings to or
from the United States when Strikes Risks will be subject
to 48 hours notice of cancellation.]
CONVEYANCE: [For example: Any land water or air conveyance,… Ocean

going vessels in accordance with the Institute
Classification Clause 01/01/2001 (CL.354)…]
INTEREST: [For example: Goods and/or merchandise of every

description consisting principally of…]
VOYAGE: [For example: At and from ports or places anywhere in the

world…]
LIMIT: [For example: US$ 1,000,000 any one sending and/or

shipment and/or location…]
Contract Leader
Initial
Basis of Valuation Clause: [For example: Cost insurance

and freight plus 10%…]
CONDITIONS: All terms and conditions as LPO62A Lloyds Marine Policy
(MAR 91)
[Institute Cargo Clauses, JCC Clauses and other Market Clauses are listed here:
some of the clauses most commonly included appear below]
Institute Cargo Clauses (A) 01/01/2009 (CL.382)
Institute War Clauses (Cargo) 01/01/2009 (CL.385)
Institute Strikes Clauses (Cargo) 01/01/2009 (CL.386)
Institute War Clauses (Air Cargo) (excluding sendings by post) (CL.388)
Institute Strikes Clauses (Air Cargo) (CL.389)
Institute War Clauses (Sendings by Post) (CL.390)
LOSS PAYEE(S): Loss, if any, payable to Assured and/or order. [This
heading is deleted if there are no loss payee instructions
agreed.]
EXPRESS [If none, this is stated]
WARRANTIES:
CONDITIONS [If none, this is stated]
PRECEDENT:
SUBJECTIVITIES: [Any subjectivities are stated in full, with the timeframe
for compliance and consequence of non-compliance: if
none, this is stated]
CHOICE OF LAW [For example: This insurance shall be governed by and
AND JURISDICTION: construed in accordance with the law of England and
Wales and each party agrees to submit to the exclusive
jurisdiction of the Courts of England and Wales, except as
may be expressly provided herein to the contrary.]
PREMIUM: [For example: Minimum and deposit premium of…
payable in equal quarterly/half-yearly instalments on the
following dates… adjustable at expiry…]
PREMIUM PAYMENT [For example: If the premium due under this policy has not
TERMS: been paid to Underwriters by the 60th day from the
inception of this policy… Underwriters shall have the right
to cancel this policy by notification to the Insured…]
TAXES PAYABLE BY [This specifies country and tax applicable, e.g. x% UK
INSURED AND Insurance Premium Tax]
ADMINISTERED BY
INSURERS:
Contract Leader
Initial
RECORDING Where [the broker] maintains risk and claim data /

TRANSMITTING information / documents [the broker] may hold data /
AND STORING information / documents electronically.
INFORMATION:
INSURER This contract document details the contract terms entered
CONTRACT into by the Insurer(s) and constitutes the contract document.
DOCUMENTATION:
[Brokers Wording and Clause appear here as well as any amendments to standard
Market Referenced/Registered Wording and Clauses.]
INFORMATION
INFORMATION:
Underwriting Information:
[This includes source and date of any information provided]
Loss Experience:
[This includes source and date of the loss experience]
SECURITY DETAILS
INSURERS Insurers liability several not joint

LIABILITY:
[This section provides that the liability of insurers is
several not joint and is not re-produced]
Proportion of liability
[This section deals with insurers proportion of liability in
case of adjustment to the “signed” lines and is not re-
produced]
ORDER HEREON: 100% of 100% [This identifies the percentage amount of
the order placed with the broker concerned. This may be
less than 100% where the assured bears part of the risk
himself or where, for example, part of the risk is placed in
overseas markets.]
Contract Leader
Initial
BASIS OF WRITTEN [This will specify one of the following]

LINES:
Percentage of Order
Percentage of Whole
Part of Whole
SIGNING [This section deals with adjustment of lines, particularly
PROVISIONS: by signing down and is not re-produced]
Written Lines
This section of the contract is for insurers to evidence their agreement to enter into
their stated participation to the contract.
Written % Signed and Dated Stamp Incorporating Underwriting

Reference
[The insurers lines, e.g. 10%, appear here adjacent to their “box” stamps which, as
indicated, give their market reference and are then signed and dated by the insurers
to indicate acceptance of the insurance contract for their own percentage of the
risk]
CONTRACT ADMINISTRATION AND ADVISORY SECTIONS

[The Market Reform Contract also includes Contract Administration and Advisory
Sections which are not re-produced here]
APPENDIX 6
APPENDIX 7
APPENDIX 8
GENERAL UNDERWRITERS AGREEMENT
October 2001
CONDITION PARAMOUNT: Nothing in this General Underwriters Agreement
(“GUA”) nor in the Class of Business Schedules (“Schedule/s”) referred to shall
alter or detract from the several liability of the subscribing Underwriters. Each
subscribing Underwriters obligations under the contract of insurance/reinsurance
shall remain several and not joint and shall at all times be limited to the extent of his
or its individual signed subscription (hereafter its own proportion).
This GUA determines the basis upon which the specified slip leader and agreement
parties for insurance and reinsurance risks to which this GUA is applied may act as
agents of the other Underwriters subscribing to those risks, each for its own proportion
severally and not jointly, in dealing with certain alteration(s), amendment(s) and
additions (‘Alterations”) to the contract of insurance or reinsurance evidenced by a slip,
policy, certificate or otherwise.
1. Application
1.1 This GUA may be applied to:
1.1.1 risks whether renewals or otherwise originally first subscribed on or after
1st October 2001 and
1.1.2 risks originally first subscribed prior to that date to the extent that each
subscribing Underwriter thereon hereafter individually so agrees for its
individual signed proportion,
and in each case shall apply only when the slip evidencing the contract of
insurance or reinsurance (or in the case of Clause 1.1.2, the written endorsement
to such a slip) (“the slip”) has both expressly incorporated this GUA and
identified the applicable Class of Business Schedules.
1.2 In the event that the risk is written as a declaration to a lineslip marine open cargo
cover or other contract for insurance or reinsurance, the GUA shall apply to the
risk concerned only if expressly incorporated in both that lineslip, cover or other
contract and in the resulting declaration, certificate or other form of contract of
insurance or reinsurance.
1.3 In the event of a slip being subscribed by an Underwriter who is not amenable to
the GUA applying to its individual signed proportion, and that Underwriter so
indicates on the slip, this GUA shall not apply to effect any Alteration so far as that
Underwriter and its proportion are concerned.
2. Definitions
2.1 The “Slip Leader” is the Underwriter identified as such on the slip.
2.2 The “Agreement Parties” are those Underwriters identified as such on the slip.
Where no such Underwriters are so identified, the Agreement Parties will be all
Underwriters.
2.3 The “Other Underwriters” are all Underwriters not identified as the Slip Leader or
as an Agreement Party, other than those to whom Clause 1.3 applies.
2.4 “Notification” or “listing” shall mean notification in writing and shall include
notification given by electronic means (including facsimile transmission and e
mail), provided always that, save in the case of Clause 8.2, notification identifies
each risk concerned. “Notified” and “listed” shall be construed accordingly.
2.5 “To initial” shall mean to signify agreement either in ink on the face of a document
or by confirmatory electronic means (including facsimile transmission or e mail),
coming from the Underwriter required. “Initials” and “initialling” shall be
construed accordingly.
3. Alterations
3.1 Only Alterations set out in the applicable Schedule Part 1 may be agreed by the
Slip Leader alone on behalf of the Agreement Parties and Other Underwriters, each
for its own individual signed proportion severally and not jointly.
3.2 Only Alterations set out in the applicable Schedule Part 2 may be agreed by the
Slip Leader and Agreement Parties acting together on behalf of Other
Underwriters, each for its own individual signed proportion severally and not
jointly.
3.3 Such Alterations shall only be agreed by Slip Leader/Agreement Party itself or by
members of its staff who have been specifically designated to assume such
responsibility.
3.4 The Alterations set out in the applicable Schedule Part 3, and any Alteration that
the Slip Leader and any Agreement Party so require, may be agreed only by all
Underwriters, each for its own individual signed proportion severally and not
jointly.
4. Evidence of Agreement
4.1 The Slip Leader shall incorporate the GUA Stamp (in either form A or B) in the
endorsement, should it not be incorporated in or appear on the form of
endorsement.
4.2 The Slip Leader (and Agreement Parties if appropriate) shall then initial in the
appropriate Box the level of authorisation required.
4.2.1 If any of the Slip Leader or Agreement Parties initials Box 3, the Alteration
shall be referred to all Underwriters, each for its own individual signed
proportion severally and not jointly.
4.2.2 If the Slip Leader initials Box 2, the Alteration shall be referred to all
Agreement Parties.
4.2.3 If the Slip Leader initials Box 1 and initials and dates the endorsement in
the customary place, no further agreement shall be required.
4.2.4 Agreement to Clause 4.2.1 or Clause 4.2.2 Alterations shall be effected by
each Underwriter required initialling and dating the endorsement in the
customary place.
5. Effective date of agreement
5.1 Unless otherwise specified on the endorsement, the agreement evidenced by the
Alteration shall take effect:
5.1.1 for Clause 3.1 Alterations, on the date inserted by the Slip Leader, for the
individual signed proportion of each Underwriter severally and not jointly;
5.1.2 for Clause 3.2 Alterations, on the date when the last of the required
agreements from the Slip Leader and Agreement Parties has been obtained,
as inserted by that last Party, each for its own individual signed proportion
severally and not jointly;
5.1.3 for Clause 3.4 Alterations, on the date inserted by each Underwriter, so far
as its proportion is concerned.
6. Administration
6.1 Where an Alteration has been agreed by the Slip Leader (or by the Slip Leader and
the Agreement Parties as applicable) and the Slip Leader or any Agreement Party
requests that the agreed Alteration be notified or listed to other Underwriters, other
Underwriters shall be so notified within such period, following the effective date
of the Alteration, as may be agreed by the Underwriter so requesting.
6.2 Where an Alteration is shown on the applicable Schedule Part 1 or 2 as requiring
notification or listing, the Alteration once agreed by the Slip Leader (or by the Slip
Leader and the Agreement Parties as applicable) shall be notified to other
Underwriters within 5 working days following the date specified in Clause 5.1.1
or 5.1.2 (as applicable), or as specified in the applicable Schedule.
6.3 Where any event as provided for in Clause 7.1 occurs, notification of that event
and of the name of the replacement Underwriter shall be given to all Underwriters
within 5 working days of the broker concluding that the event could but for Clause
7.2 affect the making of an Alteration he proposes to seek.
7. Slip Leader / Agreement Party replacement.
7.1 In the event that a Slip Leader or an Agreement Party (whether identified as such in
the slip or acting as a result of prior operation of this clause):
7.1.1 becomes the subject of voluntary or involuntary rehabilitation or
liquidation, action in bankruptcy or similar or in any way otherwise
acknowledges its insolvency or is unable to pay its debts or losses; or
7.1.2 has its right to transact the main class of business covered by the slip
withdrawn, suspended, removed or made conditional or impaired in any
way by any regulatory authority; or
7.1.3 ceases to underwrite the main class of business covered by the slip or goes
into run-off,
the authority of that Slip Leader or Agreement Party (“the affected Underwriter”)
shall automatically terminate from the date of that event.
7.2 The Underwriter identified in 7.2.1 – 7.2.3 below shall thereupon be forthwith
authorised to act as the replacement Underwriter and exercise the powers and
duties of the affected Underwriter:
7.2.1 if the affected Underwriter is the Slip Leader, the Agreement Party first
appearing on the slip shall act as Slip Leader and the next Underwriter on
the slip who has been neither the Slip Leader nor an Agreement Party shall
act as the replacement Agreement Party;
7.2.2 if the affected Underwriter is an Agreement Party, the next Underwriter on
the slip who has been neither the Slip Leader nor an Agreement Party shall
act as the replacement Agreement Party;
7.2.3 if the affected Underwriter is the Slip Leader and sole Agreement Party,
then the next Underwriter on the slip shall act as the Slip Leader and sole
Agreement Party.
In the event that further Alterations are required, the broker shall give the
notification specified in Clause 6.3 above. Without prejudice to Clause 8, the
authority of those replacement parties shall be terminated to the extent that, and
from the date that, the broker may receive notification from any other Underwriter
that the replacement is not acceptable. After receipt of such notification, such an
Underwriter shall, unless otherwise agreed, be consulted about the future
Alterations which the replacement would otherwise be asked to consider, without
prejudice to either the rights or obligations of that Underwriter or of the
insured/reinsured named on the slip so far as Alterations agreed prior to that date
are concerned.
8. Withdrawal or Termination of Delegated Authority
8.1 Any Other Underwriter or Agreement Party may, each for its own individual signed
proportion severally and not jointly, withdraw the authority of one, more, or all of
the Slip Leader and the Agreement Parties by notification to that effect to the
broker identifying the risk/s concerned. That notification shall take effect on the
date of its receipt by the broker but shall not prejudice either the rights or
obligations of that Underwriter or of the insured/reinsured named on the slip so far
as Alterations agreed prior to that date are concerned.
8.2 In the event that any individual Other Underwriter or Agreement Party:
8.2.1 becomes the subject of voluntary or involuntary rehabilitation or
liquidation, action in bankruptcy or similar or in any way otherwise
acknowledges its insolvency or is unable to pay its debts or losses; or
8.2.2 has its right to transact the main class of business covered by the slip
withdrawn, suspended, removed or made conditional or impaired in any
way by any regulatory authority;
that Underwriter shall forthwith notify the broker of that event. The authority of
the Slip Leader and of any Agreement Party shall, to the extent of that
Underwriters proportion, automatically terminate from the date of that event,
whether or not the broker or the insured/reinsured is aware of that event.
Notwithstanding that automatic termination, that authority may be subsequently
reinstated, but only upon agreement between the insured/reinsured, that
Underwriter, the Slip Leader and any Agreement Party.
9. Rights of Third Parties
9.1 Nothing in this GUA grants any additional rights or benefits to any third party other
than the insured/reinsured. No term of this GUA shall be enforceable pursuant to
the Contracts (Rights of Third Parties) Act 1999 by any third party other than the
insured/reinsured named on the slip.
10. Terms of the Slip
10.1 Save as provided for in the Condition Paramount and in Clause 11
10.1.1 where the slip or any endorsement thereto conflict with the terms of this
GUA, the terms of the slip/endorsement shall prevail, provided that for the
purpose of this clause, the terms of the slip/endorsement are those shown to
and subscribed by each subscribing Underwriter for its own proportion.
10.1.2 where the risk has been written as provided for in Clause 1.2, and its terms
or those of any endorsement to it conflict with the terms of this GUA, the
terms of the declaration, certificate or other form of contract of insurance
or reinsurance or endorsement thereto shall prevail, provided that for the
purpose of this clause, the terms thereof are those authorised by each
subscribing Underwriter for its own proportion in the original lineslip,
marine cargo cover or other contract for insurance or reinsurance.
11. Choice of Law
11.1 Notwithstanding any other choice of law, express or implied, in the contract of
insurance or reinsurance, this GUA shall in all respects always be governed by and
construed in accordance with English Law.
GUA Marine Cargo Schedule—June 2003
This Schedule applies to insurance and facultative reinsurance and the terms insurance
and insured shall include facultative reinsurance and reinsured.
PART 1
Alterations the Slip Leader may agree on behalf of all Underwriters each for its
own proportion severally and not jointly.
1.1. All Alterations that the slip specifies are to be agreed by the Slip Leader only.
1.2. Errors that are clearly typographical errors.
1.3. Any Alteration which decreases the monetary exposure of the Underwriters (or of
any of them).
1.4. Restrictions in coverage.
1.5. Changes to the name of the insured that are not deemed material by the Slip Leader.
1.6. Amendments to declarations under lineslips, marine cargo open covers or other
contracts for insurance within predetermined rates, conditions and limits
incorporated into such contracts for insurance, subject to compliance with any
terms with regard to advice of declarations to all Underwriters.
1.7 *** Attachment dates of slips and/or open covers provided:
—the attachment date is not backdated or
—the attachment date is not more than 60 days after the date the Slip Leader
originally wrote the cover and/or subscribed to the slip.
1.8. Over age Additional Premiums.
1.9. Reduction of slip deductions that results in Underwriters receiving at least net
equivalent premiums.
1.10.Return Premiums where catered for in the slip.
1.11. Premium Adjustments at slip rates.
1.12.Increases in premium where no further changes have been effected.
1.13.An Extension, up to a maximum of 5 working days in total, to each of the effective
payment date(s) contained in any Premium Payment Condition provided for in the
slip.
1.14.An extension, up to a maximum of 5 working days in total, to the effective
cancellation date, whenever notice of cancellation is given by Underwriters under
any Premium Payment Clause provided for in the slip. All subsequent requests for
extensions are to be referred to all Underwriters.
1.15.*** Cancellation of coverage (all or part) by insured within slip terms.
1.16.Copies of extracts of the slip to support bureau(x) procedures including signing of
premium, bulk signing of premium, production of policies, agreement and
settlement of claims.
1.17.The agreement of policy wording(s) in accordance with express provisions in the
slip.
1.18.The signing of certificates or other evidence of insurance in the form agreed in the
slip.
1.19.*** The take up of pre-agreed slip options.
*** All alterations so marked, and any other alterations so required by the slip
or by the Slip Leader, are to be listed to all other Underwriters.
PART 2
Alterations the Slip Leader and Agreement Parties may, if unanimous, agree on
behalf of all Underwriters each for its own proportion severally and not jointly.
2.1. All Alterations that the slip specifies may be agreed by the Slip Leader and
Agreement Parties.
2.2. All Alterations which do not fall within either Part 1 or Part 3.
PART 3
Alterations which may be agreed only by all Underwriters each for its own
proportion severally and not jointly.
3.1. All Alterations that the slip specifies may be agreed only by all Underwriters.
3.2. All Alterations which are judged by either the Slip Leader or by any Agreement
Party to be ones which ought to be agreed by all Underwriters.
3.3. All Alterations which fall within the following list, unless the slip specifies such
an Alteration may be otherwise agreed:
3.3.1. Any Alteration which increases the monetary exposure of the Underwriters
(or of any of them), whether that exposure arises in relation to the slip as a
whole, or in relation to a section thereof.
3.3.2. Any waiver of or amendment to any express or implied warranty or any
condition precedent to the attachment of the risk except as provided for in
Part 1.
3.3.3. Extensions to the policy period.
3.3.4. Any Alteration, other than provided for in Part 1, which has the effect of
extending those terms agreed in the Premium Payment Clause in the slip or
any endorsement thereto.
3.3.5. Any increase in premium limits contained in the slip.
3.3.6. Changes that amend or extend the jurisdictions relevant to the insurance
coverage and/or which require Underwriters to submit to regulatory
regimes not agreed at the time when the slip was placed.
3.3.7. Cancellation of the policy by Underwriters in accordance with slip terms.
3.3.8. Delegation of authority to sign certificates or other evidence of cover.
3.3.9. Any backdating of the policy period.
APPENDIX 9
SUBROGATION FORM
APPENDIX 10
APPENDIX 11
INSTITUTE CARGO CLAUSES (A)
APPENDIX 12
INSTITUTE CARGO CLAUSES (A)
APPENDIX 13
INSTITUTE CARGO CLAUSES (B)
APPENDIX 14
INSTITUTE CARGO CLAUSES (B)
APPENDIX 15
INSTITUTE CARGO CLAUSES (C)
APPENDIX 16
INSTITUTE CARGO CLAUSES (C)
APPENDIX 17
RISKS INSTITUTE WAR CLAUSES (CARGO)
APPENDIX 18
INSTITUTE WAR CLAUSES (CARGO)
APPENDIX 19
INSTITUTE STRIKES CLAUSES (CARGO)
APPENDIX 20
INSTITUTE STRIKES CLAUSES (CARGO)
APPENDIX 21
INSTITUTE CARGO CLAUSES (AIR)
APPENDIX 22
INSTITUTE WAR CLAUSES (AIR CARGO)
APPENDIX 23
INSTITUTE STRIKES CLAUSES (AIR CARGO)
APPENDIX 24
INSTITUTE WAR CLAUSES (SENDINGS BY POST)
APPENDIX 25
INSTITUTE COMMODITY TRADES CLAUSES (A)
APPENDIX 26
INSTITUTE MALICIOUS DAMAGE CLAUSE
APPENDIX 27
APPENDIX 28
INSTITUTE REPLACEMENT CLAUSE
APPENDIX 29
INSTITUTE CLASSIFICATION CLAUSE
APPENDIX 30
INSTITUTE EXTENDED RADIOACTIVE
CONTAMINATION EXCLUSION CLAUSE
APPENDIX 31
APPENDIX 32
APPENDIX 33
APPENDIX 34
INSOLVENCY EXCLUSION CLAUSE (JC93)
APPENDIX 35
CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999
EXCLUSION CLAUSE (CARGO)
APPENDIX 36
CARGO PIRACY NOTICE OF CANCELLATION
INDEX
[References are to paragraph number]
Abandonment
effect, 13.52
generally, 13.31
notice, 13.49–13.51
subrogation, and, 15.39
Actual total loss
generally, 13.33–13.35
Affirmation
avoidance of contracts, and, 5.17–5.18
Aggregation of risk
war risks, and, 10.25–10.27
All risks cover
breakage, 8.15
burden of proof, 8.7–8.8
classification requirement
age limitation, 8.76
held covered type provision, 8.77–8.81
introduction, 8.73
condensation damage, 8.25–8.27
delay, and, 8.49
exclusions
delay, 8.49
financial default, 8.50–8.59
insolvency, 8.50–8.59
nuclear weapons and devices accidents, 8.60–8.62
wilful misconduct, 8.39–8.48
financial default, and, 8.50–8.59
historical background, 8.2–8.3
inevitability of loss and fortuity, 8.4–8.6
inherent vice
containerisation, 8.25–8.27
definition, 8.22–8.24
insolvency, and background to exclusion, 8.52–8.54
forwarding charges, 8.55
ICTC exclusion, 8.56–8.59
Institute Cargo Clauses (All Risks)
generally, 8.2
text, App 10
Institute Cargo Clauses (A)
generally, 8.3
text (1.1.82), App 11
text (1.1/09), App 12
Institute Classification Clause
All risks cover—cont.
Institute Classification Clause—cont.
introduction, 8.73
insufficiency of packing
Institute Cargo Clauses, under, 8.31–8.34
meaning, 8.35–8.36
introduction, 8.1
leakage, 8.16–8.21
limitations
inherent vice, 8.22–8.27
insufficiency of packing, 8.28–8.36
“ordinary breakage”, 8.15
“ordinary leakage”, 8.16–8.21
“ordinary loss in weight”, 8.16–8.21
“ordinary wear and tear”, 8.13–8.14
“paper losses”, 8.16–8.21
rats and vermin, 8.37–8.38
“unless the policy otherwise provides”, 8.9–8.12
loss in weight, 8.16–8.21
moisture damage, 8.25–8.27
nuclear weapons and devices accidents, and, 8.60–8.62
“ordinary breakage”, 8.15
“ordinary leakage”, 8.16–8.21
“ordinary loss in weight”, 8.16–8.21
“ordinary wear and tear”, 8.13–8.14
origins of concept, 8.4–8.6
“paper losses”, 8.16–8.21
rats and vermin, 8.37–8.38
unfitness
background to exclusion, 8.64–8.65
introduction, 8.63
revised clause, 8.66–8.72
“unless the policy otherwise provides”, 8.9–8.12
unseaworthiness
introduction, 8.63
wear and tear, 8.13–8.14
wilful misconduct, and
distinction from lack of due diligence, 8.43–8.45
innocent c.i.f. buyer, 8.46–8.48
Apportionment of liability
contribution between insurers, and, 16.44–16.46
Arbitration
jurisdiction clauses, and, 2.31
“Arising from”
causation, and, 7.38–7.42
Arrest
war risks, and, 10.21
Assignment
certificates of insurance, and
practice, 3.56
subrogation, and, 16.5–16.7
Assured
Institute Cargo Clauses, under
employees of assured, 3.35
knowledge of assured, 3.31–3.34
open covers, under, 3.27–3.28
Attachment of risk
“for the commencement of transit”, 11.24–11.30
“for the purpose of the immediate loading”, 11.20–11.22
“from the time the subject-matter insured is first moved”, 11.16–11.18
generally, 11.13
“in the warehouse or place of storage”, 11.19
“into or onto the carrying vehicle or other conveyance”, 11.23
“subject to Clause 11 below”, 11.14
“this insurance attaches”, 11.15
“Attributable to”
Average
And see General average
measure of indemnity, and, 15.26
Avoidance of contracts
affirmation, 5.17–5.18
generally, 5.16
Avoidance of Delay Clause
conditions precedent, and, 6.26
innominate terms, and, 6.28–6.29
ordinary course of transit, and, 11.38–11.39
Bailees
insurable interest, and, 4.9–4.11
sue and labour, and, 14.5
Belief and expectation
representations, and, 5.55
Biological weapons
generally, 10.59
Bombs
Both to Blame Collision Clause
Breakage
all risks cover, and, 8.15
Broker Issued Document
generally, 3.22
Brokers facilities
definition, 3.13
following underwriters, 3.15–3.17
General Underwriters Agreement generally, 3.18–3.20
text, App 8
Brokers facilities—cont.
insurance contracts, as, 3.14
leading underwriters, 3.15–3.17
Burden of proof
all risks cover, and, 8.7–8.8
claims, and, 13.5
exclusions, and, 6.32
Capsize
named perils, and, 9.18
Capture
measure of indemnity, and, 15.15–15.22
Cargo facilities
definition, 3.13
General Underwriters Agreement
text, App 8
Cargo history
disclosure by assured, and, 5.26–5.27
Cargo Piracy Notice of Cancellation JC2008/024
generally, 10.5
text, App 36
Carriage by air
generally, 1.31
Carriage by road and rail
generally, 1.30
Causation
concurrent causes, 7.14–7.16
delay, 7.19–7.27
fire, and, 7.3
general principles, 7.1–7.29
inherent vice, 7.28–7.29
introduction, 7.1–7.6
perils of the seas, and, 7.3
proximate cause rule
concurrent causes, and, 7.14–7.16
delay, and, 7.19–7.27
inherent vice, and, 7.28–7.29
wilful misconduct, and, 7.17–7.18
role in insurance law, 7.1–7.6
triggers under Institute Cargo Clauses
“arising from”, 7.38–7.42
“attributable to”, 7.43–7.51
“caused by”, 7.32–7.33
“directly or indirectly caused by”, 7.52–7.54
introduction, 7.4
“reasonably attributable to”, 7.45–7.51
“resulting from”, 7.34–7.37
summary, 7.55
“Caused by”
Certificates of insurance
assignment generally, 3.52–3.55
liability of assignee under terms of the open cover, 3.57–3.63
practice, in, 3.56
generally, 3.48
legal status, 3.49–3.51
precedent, App 7
tender, 3.52–3.55
valued policies, and, 15.7
destination, 12.16–12.25
diagrammatic summary, 12.25
extension, 12.16–12.25
held covered provisions, 12.2–12.9
origins, 12.12–12.13
overview, 12.1
voluntary change, 12.14–12.15
Chemical, Biological, Bio-Chemical, and Electromagnetic Weapons Clause (CL370)
generally, 10.59
text, App 31
Chemical weapons
generally, 10.59
Choice of law
foreign courts, and, 2.15–2.16
general rule, 2.6–2.7
Market Reform Contract, under, 2.5
risks situated outside EEA States, 2.14
risks situated within EEA States, 2.8–2.13
Civil commotions
conventional policies, and, 10.4–10.5
generally, 10.40
historical background, 10.3
Institute Strikes Clauses (Cargo)
generally, 10.36
text (1.1.82), App 19
text (1.1/09), App 20
limitations, 10.6
origins, 10.3
“Civil strife arising therefrom”
Civil war
CL370
generally, 10.59
text, App 31
Claims
burden of proof, 13.5
costs, 13.6–13.8
fraud, and, 13.10–13.11
good faith, 13.9
interest, 13.6–13.8
limitation periods, 13.4
notification, 13.1–13.3
standard of proof, 13.5
time limits, 13.4
Classification requirement
introduction, 8.73
Co-assureds
Collateral purpose test
Transit Clause, and, 11.34–11.37
Collision
named perils, and, 9.21–9.22
Collision liabilities
Both to Blame Collision Clause, 14.39–14.42
Commencement of risk
duration provisions, and, 11.3–11.4
Commodity Trades Clause
generally, 7.40
insolvency, and, 8.56–8.59
text, App 25
Computer systems
generally, 10.60
Concurrent causes
Condensation damage
Conditions
introduction, 6.24
meaning, 6.27
abandonment
effect, 13.52
notice, 13.49–13.51
carriage of cargo by air, 1.31
definition, 13.42
deprivation of possession, 13.43–13.45
effect, 13.49–13.51
Frustration Clause, 10.23
insurable interest, 4.4
introduction, 13.12
loss of cargo, 13.20
loss of the adventure, 13.53
repair costs, 13.46–13.48
risks analogous to marine adventure, 1.26–1.28
Containerisation
Contracts of insurance
brokers facilities, and, 3.13
evidence, as, 3.25–3.26
MAR 91, 3.23
Market Reform Contract, 3.22–3.23
requirements
assured, 3.27–3.35
description of goods, 3.40–3.43
designation of subject-matter insured, 3.37
persons interested, 3.36
premium, 3.44–3.47
SG Policy Form, 3.23
types, 3.22–3.24
Contractual salvage
generally, 14.24
insurance for salvage charges, 14.28–14.29
nature of salvage charges, 14.25–14.27
values for insurance purposes, 14.30
Contribution
general average, 14.35
apportionment of liability, 16.44–16.46
nature of right, 16.39–16.40
origin of right, 16.39–16.40
statutory provision, 16.40
triggering events, 16.41–16.43
Control of proceedings
Conversion
losses, and, 13.30
Costs
claims, and, 13.6–13.8
Craft extension
Cyber Attack Exclusion Clause
generally, 10.60
text, App 32
Damage
actual total loss, 13.33–13.35
constructive total loss
abandonment, 13.49–13.51
definition, 13.42
effect, 13.49–13.51
introduction, 13.32
partial losses, 13.36–13.41
Deck cargo
description of goods, and, 3.40–3.43
Delay
loss of the adventure, and, 13.67–13.70
proximate cause, and, 7.19–7.27
Deliberate damage
Deliberate destruction
constructive total loss, and, 13.43–13.45
Derailment of land conveyance
Derelict weapons of war
Destruction
definition, 13.42
effect, 13.49–13.51
Destruction—cont.
constructive total loss—cont.
introduction, 13.32
Detainment
Deviation of the adventure
Change of Voyage Clause, and, 12.13
Transit Clause, and, 11.68
Diminishing the risk
disclosure by assured, and, 5.38
“Directly or indirectly caused by”
“Dirty bombs”
generally, 10.58
Discharge of cargo at port of distress
Disclosure by assured
disclosable circumstances
cargo history, 5.26–5.27
high-value branded goods, 5.25
introduction, 5.19
moral hazard, 5.35–5.37
over-valuation, 5.21–5.24
ownership or other interest, 5.20
packing and preparation, 5.28–5.29
previous refusals, 5.30–5.31
second-hand goods, 5.26–5.27
subrogation rights, 5.32–5.34
used goods, 5.26–5.27
“inducement”, 5.12–5.15
introduction, 5.5
“materiality”, 5.12–5.15
non-disclosable circumstances
diminish the risk, 5.38
information waived, 5.44–5.48
known or presumed to be known to insurer, 5.39–5.43
superfluous to disclose due to express or implied warranty, 5.49–5.51
timing, 5.6–5.9
Double insurance
contribution between insurers
apportionment of liability, 16.44–16.46
origin of right, 16.39–16.40
triggering events, 16.41–16.43
definition, 16.26
foreign element, 16.47
Institute Cargo Clauses, and, 16.28
requirements, 16.33–16.37
return of premium, 16.38
Due diligence
Duration provisions
change of voyage clause
destination, 12.16–12.25
extension, 12.16–12.25
origins, 12.12–12.13
overview, 12.1
voluntary change, 12.16–12.25
commencement of risk, 11.3–11.4
facultative placements, and, 11.1
held covered, and
extent of right to cover, 12.7–12.9
general principles, 12.2
prompt notice, 12.3–12.6
Institute Cargo Clauses
structure, 11.10
open covers, 11.6–11.9
termination of carriage clause
general requirements, 12.11
origins, 12.10
overview, 12.1
termination of risk, 11.3–11.4
Transit Clause, and And see Transit Clause
attachment of risk, 11.13–11.30
delay, 11.63–11.67
deviation, 11.68
forced discharge, reshipment or transhipment, 11.69
forwarding to another destination, 11.62
“ordinary course of transit”, 11.31–11.39
termination of risk, 11.40–11.61
variations of the adventure, 11.70
“voyage”, 11.5
warehouse-to-warehouse clause, 11.5
Duty of Assured Clause
carriage of cargo by air, and, 1.31
Earthquake
EC Judgments Regulation court first seised, 2.29
exclusivity of jurisdiction, 2.21–2.22
formalities, 2.24–2.25
goods in transit, 2.26–2.27
“large risks”, 2.28
relationship with Lugano Convention, 2.23
Economic interests
insurable interest, and, 4.4
Entry of water
Erroneous documents
losses, and, 13.15–13.19
Escape of radiation
generally, 10.56
Exclusions
all risks cover, and
delay, 8.49
insolvency, 8.50–8.59
burden of proof, 6.32
causation, and, 6.31
delay, 8.49
insolvency
ICTC exclusion, 8.56–8.59
named perils, and
deliberate damage, 9.38–9.45
deliberate destruction, 9.38–9.45
wilful misconduct
innocent c.i.f. buyer, 8.46–8.48
Explosion
Express warranties
And see Warranties
construction, 6.15–6.16
examples in London market, 6.17–6.19
form of words, 6.13–6.14
Extended Radioactive Contamination Exclusion Clause (RACE)
chemical and biological weapons, 10.59
text, App 30
Facilities
definition, 3.13
text, App 8
Facts
Facultative insurance
generally, 11.1
Facultative/obligatory covers
open covers, and, 3.11–3.12
Facultative placements
duration provisions, and, 11.1
FC&S Clause
Final warehouse or place of storage
forwarding to further destination, 11.47–11.48
transit sheds, 11.43–11.46
Financial default
Fire
causation, and, 7.3
Floating policies
open covers, and, 3.4
Following underwriters
brokers facilities, and, 3.15–3.17
Forwarding Charges Clause
insolvency exclusion, and, 8.55
losses, and, 13.59–13.61
Forwarding to further destination
Fraud
claims, and, 13.10–13.11
losses, and, 13.22
Fraudulent documents
losses, and, 13.15–13.19
Free of Particular Average (FPA) Clauses
deliberate damage, and, 9.40
forwarding charges clause, and, 13.60
held covered, and, 12.2
introduction, 3.24
loss of the adventure, and, 13.54
proximate cause rule, and, 7.8
warranties, and, 6.1
Frustration Clause
terrorism, and, 10.53
Frustration of voyage
delay, 13.67
General average
contribution, 14.35
expenditure, 14.33–14.35
insurance cover, 14.36–14.37
introduction, 14.31
sacrifice, 14.32
General average—cont.
values at risk, 14.38
generally, 14.32
introduction, 34
text, App 8
Good faith
generally, 5.16
background to principle, 5.2–5.4
claims, and, 13.9
disclosable circumstances
introduction, 5.19
disclosure by assured
“inducement”, 5.12–5.15
introduction, 5.5
timing, 5.6–5.9
non-disclosable circumstances
origins, 5.2–5.4
overview, 5.1
Goods in transit
EC Judgments Regulation, and, 2.26–2.27
Grounding
Held covered
classification requirement, and, 8.77–8.81
extent of right to cover, 12.7–12.9
general principles, 12.2
prompt notice, 12.3–12.6
subject-matter insured, and, 3.38–3.39
High-value branded goods
Hijacking
Historical background
Institute Clauses, 1.7–1.13
Historical background—cont.
London market, 1.1–1.6
policy forms, 1.7–1.13
Hostile act by or against a belligerent power
Implied warranties
And see Warranties
Increased value insurance
Inducement
Inducements
Inevitablity of loss
Inherent vice
containerisation, 8.25–8.27
insufficiency of packing, and, 8.28–8.30
Innominate terms
Insolvency
ICTC exclusion
Exclusion Clause, App 34
loss of the adventure, and, 13.64–13.66
assured, and
employees of assured, 3.35
background, 3–6
causation triggers
“arising from”, 7.38–7.42
“attributable to”, 7.43–7.51
“caused by”, 7.32–7.33
“directly or indirectly caused by”, 7.52–7.54
introduction, 7.4
“reasonably attributable to”, 7.45–7.51
“resulting from”, 7.34–7.37
summary, 7.55
choice of law, and, 2.2–2.4
conditions, and, 6.27
conditions precedent, and, 6.25–6.26
coverage, 1.14–1.15
definition of “marine insurance”, and, 1.29–1.32
development, 1.11–1.13
double insurance, and, 16.28
duration provisions, and
Institute Cargo Clauses—cont.
duration provisions, and—cont.
structure, 11.10
exclusions, and, 6.33–6.35
insufficiency of packing, and, 8.31–8.34
interpretation, 1.17–1.20
structure, 1.16
subject-matter insured, and, 3.38
Institute Cargo Clauses (Air)
text, App 21
Institute Cargo Clauses (All Risks)
And see All risks cover
generally, 8.2
introduction, 3.24
subject-matter insured, and, 3.38
text, App 10
Institute Cargo Clauses (A)
And see All risks cover
generally, 8.3
text (1.1.82), App 11
text (1.1/09), App 12
Institute Cargo Clauses (B)
And see Named perils
exclusions, 9.38–9.45
named perils, 9.10–9.34
origin, 9.1–9.2
structure, 9.3–9.8
text (1.1.82), App 13
text (1.1/09), App 14
use, 9.1–9.2
Institute Cargo Clauses (C)
And see Named perils
origin, 9.1–9.2
text (1.1.82), App 15
text (1.1/09), App 16
use, 9.1–9.2
Institute Chemical, Biological, Bio-Chemical, and Electromagnetic Weapons Clause
(CL370)
generally, 10.59
text, App 31
Institute Classification Clause
introduction, 8.73
text, App 29
Institute Commodity Trades Clause
generally, 7.40
insolvency, and
Exclusion Clause, App 34
text, App 25
Institute Cyber Attack Exclusion Clause
generally, 10.60
Institute Cyber Attack Exclusion Clause—cont.
text, App 32
Institute Malicious Damage Clause
introduction, 9.8
text, App 26
Institute Radioactive Contamination Exclusion Clause (RACE)
text, App 30
Institute Replacement Clause
generally,15.21–15.22
text, App 28
Institute Strikes Clauses (Air Cargo)
text, App 23
And see Strikes
generally, 10.36
text (1.1.82), App 19
text (1.1/09), App 20
Institute Theft, Pilferage and Non-Delivery Clause
generally, 9.35
text, App 27
Institute War Clauses (Air Cargo)
text, App 22
Institute War Clauses (Cargo)
And see War risks
generally, 10.3
text (1.1.82), App 17>
text (1.1/09), App 18
Institute War Clauses (sendings by post)
text, App 3.15–3.17
meaning, 8.35–8.36
Insurable interest
bailees position, 4.9–4.11
courts approach, 4.3
economic interests, and, 4.4
extent, 4.7–4.8
general requirement
timing, 4.12–4.22
increased value, 4.7–4.8
loss of profits, 4.7–4.8
loss of the adventure, 4.5–4.6
“lost or not lost” clauses, 4.16–4.17
retrospective declarations, 4.16–4.21
risk, and, 4.4
sellers interest clauses, 4.22
timing of general requirement, 4.12–4.22
Insurance
contractual salvage, 14.28–14.29
general average, 14.36–14.37
Insured value
Insurer Issued Document
generally, 3.22
Insurrection
Interest
claims, and, 13.6–13.8
Jettison
Jurisdiction clauses
arbitration, and, 2.31
common law, 2.30
EC Judgments Regulation
court first seised, 2.29
exclusivity of jurisdiction, 2.21–2.22
formalities, 2.24–2.25
goods in transit, 2.26–2.27
“large risks”, 2.28
relationship with Lugano Convention, 2.23
Lugano Convention, 2.23–2.29
Market Reform Contract, under, 2.17–2.18
Knowledge of assured
Knowledge of insurer
“Known certainty of loss”
Land risks
definition of marine insurance, and, 1.23–1.25
Large risks
EC Judgments Regulation, and, 2.28
storage, and, 2.12–2.13
Leading underwriters
brokers facilities, and, 3.15–3.17
Leakage
Legality
implied warranties, and, 6.20–6.23
Lien
losses, and, 13.31
Lightning
Limitation periods
claims, and, 13.4
Lineslips
open covers, and, 3.13–3.20
Lloyds Marine Policy Form (MAR 91)
description of goods, 3.43
development, 1.11
generally, 3.23
introduction, 1.9
jurisdiction clauses, 2.17
notification of claims, and, 13.1
structure of clauses, 1.16
text, App 6
valued policy, 15.6
Lloyds of London
Lloyds Open Form
contractual salvage, and, 14.24
precedent, App 9
London Rejection Risks Clauses 1975
Loss in weight
Loss in weight
Loss of goods
measure of indemnity, and cargo delivered damaged at destination, 15.15–15.22
introduction, 15.11
salvage losses, 15.23–15.24
total loss of part of cargo, 15.12–15.14
Loss of profits
delay, and, 13.67–13.70
forwarding charges, and, 13.59–13.61
frustration of voyage, 13.54–13.57
general principle, 13.53
origins, 13.54–13.57
risk covered by insurance, 13.62
sue and labour clause, 13.58
termination of insured transit, 13.63
total loss, 13.58
Losses
abandonment, by
effect, 13.52
generally, 13.31
notice, 13.49–13.51
adventure, of
delay, and, 13.67–13.70
forwarding charges, and, 13.59–13.61
frustration of voyage, 13.54–13.57
general principle, 13.53
origins, 13.54–13.57
risk covered by insurance, 13.62
sue and labour clause, 13.58
termination of insured transit, 13.63
total loss, 13.58
categorisation, 13.12–13.14
definition, 13.42
effect, 13.49–13.51
conversion, by, 13.30
damage or destruction, by
constructive total loss, 13.42–13.51
Losses—cont.
damage or destruction, by—cont.
introduction, 13.32
erroneous documents, 13.15–13.19
Forwarding Charges Clause, 13.59–13.61
fraud, by, 13.22
fraudulent documents, 13.15–13.19
frustration of the voyage, 13.54–13.57
goods by theft involving force, of, 13.21
insolvency, and, 13.30
lien, 13.31
measure of indemnity
loss of goods, 15.11–15.24
under-insurance, 15.25–15.41
valued policies, 15.1–15.10
misappropriation, 13.31
physical loss or damage, 13.15–13.19
possession, of
abandonment, by, 13.31
conversion, by, 13.30
fraud, by, 13.22
goods by theft involving force, of, 13.21
insolvency, and, 13.30
introduction, 13.20
theft, by, 13.21–13.22
threat, by, 13.31
timing of theft, 13.23–13.27
transfer of title, 13.28–13.29
unlawful acts of third party, by, 13.30
recoverable sum
loss of goods, 15.11–15.24
under-insurance, 15.25–15.41
valued policies, 15.1–15.10
theft, by goods involving force, of, 13.21
generally, 13.22
timing, 13.23–13.27
threat of misappropriation, lien and sale, 13.31
transfer of title, 13.28–13.29
unlawful acts of third party, by, 13.30
“Lost or not lost” clauses
Lugano Convention
jurisdiction, and, 2.23–2.29
Malicious Damage Clause
introduction, 9.8
text, App 26
MAR 91 Policy Form
development, 1.11
generally, 3.23
introduction, 1.9
jurisdiction clauses, 2.17
notification of claims, and, 13.1
structure of clauses, 1.16
text, App 6
valued policy, 15.6
Marine cargo insurance
definition
Institute Cargo Clauses, 1.29–1.32
introduction, 1.21
historical background
Institute Clauses, 1.7–1.13
London market, 1.1–1.6
policy forms, 1.7–1.13
coverage, 1.14–1.15
interpretation, 1.17–1.20
structure, 1.16
Marine Insurance Act 1906
text, App 1
Market Reform Contract
Market Reform Contract
choice of jurisdiction, and, 2.17
choice of law, and, 2.5
jurisdiction, and, 2.17–2.18
premiums, and, 3.44
text, App 5
Material circumstances
Materiality
representations, and, 5.52–5.54
Measure of indemnity
average, and, 15.26
cargo delivered damaged at destination, 15.15–15.22
insured value, 15.5
loss of goods
cargo delivered damaged at destination, 15.15–15.22
introduction, 15.11
open cover limits, 15.27–15.29
subrogation
abandonment, and, 15.39
agreed values, 15.33–15.35
costs, 15.40–15.41
deductibles, 15.32
interest, 15.40–15.41
introduction, 15.30
policy limits, 15.35
proprietary rights to proceeds of legal action, 15.38
total loss, and, 15.39
under-insurance, 15.31
unvalued policies, 15.36–15.37
sum insured, 15.5
under-insurance
average, and, 15.26
effect, 15.25–15.26
subrogation, 15.30–15.41
unvalued policies, 15.1
Measure of indemnity—cont.
valued policies
meaning, 15.5–15.10
Mines
Misappropriation
losses, and, 13.31
Misrepresentation by assured
belief and expectation, 5.55
existing terms of coverage, 5.58
inducement, 5.57
material circumstances, 5.56
materiality of representations, 5.52–5.54
representations of fact, 5.55
Mitigation
Moisture damage
Moral hazard
Named perils
capsize, 9.18
collision, 9.21–9.22
collision liabilities, 9.36
construction, 9.9
derailment of land conveyance, 9.20
discharge of cargo at port of distress, 9.23
earthquake, 9.24–9.25
entry of water, 9.30–9.33
exclusions
explosion, 9.10–9.14
fire, 9.10–9.14
general average liabilities, 9.36
general average sacrifice, 9.26
grounding, 9.15–9.16
Institute Cargo Clauses (B)
origin, 9.1–9.2
text (1.1.82), App 13
text (1.1/09), App 14
use, 9.1–9.2
Institute Cargo Clauses (C)
origin, 9.1–9.2
text (1.1.82), App 15
text (1.1/09), App 16
use, 9.1–9.2
jettison, 9.27–9.28
lightning, 9.24–9.25
non-delivery, 9.35
origin of clauses, 9.1–9.2
overturning, 9.20
Named perils—cont.
packages lost overboard, 9.34
pilferage, 9.35
piracy, 9.37
recoverable expenses and liabilities, 9.36–9.37
salvage liabilities, 9.36
sea water entry, 9.30–9.33
sinking, 9.17
“sling losses”, 9.34
stranding, 9.15–9.16
structure of clauses, 9.3–9.8
sue and labour liabilities, 9.36
theft, 9.35
use of clauses, 9.1–9.2
volcanic eruption, 9.24–9.25
washing overboard, 9.29
water entry, 9.30–9.33
Non-delivery
Non-disclosure
avoidance of contract, and
generally, 5.16
circumstances which may not require disclosure
circumstances which require disclosure
introduction, 5.19
disclosure by assured, and “inducement”, 5.12–5.15
introduction, 5.5
timing, 5.6–5.9
good faith, and
background to principle, 5.2–5.4
disclosure by assured, 5.5–5.15
overview, 5.1
Nuclear fuel
Nuclear weapons and devices accidents
Open covers
assignee, and, 3.57–3.63
assured, and, 3.27–3.28
background, 3.4
binding authorities, 3.21
Open covers—cont.
brokers facilities
definition, 3.13
General Underwriters Agreement, 3.18–3.20
coverholders, 3.21
duration provisions, and, 11.6–11.9
facultative/obligatory covers, 3.11–3.12
introduction, 3.2
lineslips
definition, 3.13
General Underwriters Agreement, 3.18–3.20
origins, 3.4
overview, 3.1
standard covers, 3.9–3.10
structure, 3.3
types, 3.5–3.8
under-insurance, and, 15.27–15.29
“Ordinary breakage”
Ordinary course of transit
avoidance of delay, 11.38–11.39
collateral purpose test, 11.34–11.37
“continues during the ordinary course of transit”, 11.31–11.33
meaning, 11.34–11.37
“Ordinary leakage”
“Ordinary loss in weight”
Overturning
Over-valuation
Packages lost overboard
“Paper losses”
Partial losses
And see Losses
damage or destruction, and, 13.36–13.41
Perils of the seas
causation, and, 7.3
“Persons interested”
storage policies on goods, and, 3.36
Physical loss or damage
losses, and, 13.15–13.19
Pilferage
Piracy
generally, 10.5
Notice of Cancellation, App 36
Policies of insurance
brokers facilities, and, 3.14
evidence, as, 3.25–3.26
MAR 91, 3.23
Market Reform Contract, 3.22–3.23
requirements
assured, 3.27–3.35
description of goods, 3.40–3.43
designation of subject-matter insured, 3.37
persons interested, 3.36
premium, 3.44–3.47
types, 3.22–3.23
terrorism, and, 10.48–10.51
Premiums
Previous refusals
Proximate cause rule
concurrent causes, and, 7.14–7.16
delay, and, 7.19–7.27
Public Order Act 1986
text, App 3
Radioactive Contamination Exclusion Clause (RACE)
text, App 30
Rats and vermin
Reasonableness
sue and labour, and, 14.11–14.13
Reasonable Despatch Clause
innominate terms, and, 6.28–6.29
“Reasonably attributable to”
Rebellion
Recoverable expenses
collision liabilities
Both to Blame Collision Clause, 14.39–14.42
contractual salvage (LOF)
generally, 14.24
general average
introduction, 14.31
Recoverable expenses—cont.
general average—cont.
sacrifice, 14.32
sue and labour
addition to insured value, as, 14.16
breach of duty, 14.17–14.20
Forwarding Charges Clause, 14.21
loss recoverable under the policy, 14.14–14.15
mitigation, and, 14.1–14.2
origins of cover, 14.3–14.6
reasonableness requirement, 14.11–14.13
structure of cover, 14.3–14.6
triggers for recovery, 14.7–14.10
Waiver Clause, 14.22–14.23
Reinsurance (Acts of Terrorism) Act 1993
text, App 4
Rejection risks cover
generally, 10.61
London Rejection Risks Clauses 1975, 10.62–10.63
origins, 10.61
Repair costs
constructive total loss, and, 13.46–13.48
Representations
belief and expectation, of, 5.55
existing terms of coverage, as to, 5.58
fact, of, 5.55
inducement, 5.57
material circumstances, 5.56
materiality, 5.52–5.54
Restraint
“Resulting from”
Retrospective declarations
Return of premium
Revolution
Riots
generally, 10.36
text (1.1.82), App 19
text (1.1/09), App 20
limitations, 10.6
origins, 10.3
Risk
Sacrifice
general average, 14.32
Salvage
contractual salvage (LOF)
generally, 14.24
Salvage—cont.
contractual salvage (LOF)—cont.
exercise of right, 16.24
general average
contribution, 14.35
introduction, 14.31
sacrifice, 14.32
introduction, 16.3
nature of right, 16.23
origins of right, 16.23
Salvage charges
generally, 14.24
insurance, 14.28–14.29
losses, and, 13.18
nature, 14.25–14.27
recoverable expenses and liabilities, and, 9.36–9.37
Sea water entry
Seaworthiness
introduction, 8.63
Second-hand goods
Seizure
SG Policy Form
abolition, 8.3
all risks cover, 8.3
assured, 3.27
change of voyage, 12.17
generally, 3.24
insolvency, 13.65
insurable interest
generally, 4.4
timing, 4.14
marine insurance, and
carriage of cargo by land, 1.31
definition, 1.22
risks analogous to marine adventure, 1.26–1.28
named perils
deliberate damage, 9.40
entry of water, 9.30
fire and explosion, 9.10
generally, 9.2
jettison, 9.27
washing overboard, 9.29
piracy, 10.5
rejection risks, 10.61
SG Policy Form—cont.
riots, 10.38
salvage charges, 14.24
structure clauses, 7
Transit Clause, 11.3
valued policies, 15.6
war risks
seizure, 10.19
Sinking
“Sling losses”
SR&CC Clause
Standard of proof
claims, and, 13.5
Storage
containers, in, 11.57–11.59
generally, 1.32
“persons interested”, and, 3.36
vehicles, on, 11.57–11.59
warehouses, in, 11.49–11.56
Stranding
Strikes
generally, 10.36
text (1.1.82), App 19
text (1.1/09), App 20
limitations, 10.6
origins, 10.3
Subject-matter insured
Subrogation
assignment of right of action, and, 16.5–16.7
co-assureds, and, 16.8–16.11
control of recovery proceedings, 16.17–16.18
exercise
control of proceedings, 16.17–16.18
Standard Subrogation Form, 16.12–16.16
increased value insurance, 16.19–16.22
precedent, App 9
measure of indemnity, and
agreed values, 15.33–15.35
costs, 15.40–15.41
deductibles, 15.32
interest, 15.40–15.41
introduction, 15.30
policy limits, 15.35
proprietary rights to proceeds of legal action, 15.38
under-insurance, 15.31
Subrogation—cont.
measure of indemnity, and—cont.
unvalued policies, 15.36–15.37
origins of right, 16.1–16.4
“recoveries”, 16.1
salvage, and
exercise of right, 16.24
introduction, 16.3
nature of right, 16.23
origins of right, 16.23
total losses, 16.3
under-insurance, and, 15.30–15.41
waiver, 16.8–16.11
Sue and labour
addition to insured value, as, 14.16
breach of duty, 14.17–14.20
Forwarding Charges Clause, 14.21
loss recoverable under the policy, 14.14–14.15
mitigation, and, 14.1–14.2
origins of cover, 14.3–14.6
reasonableness requirement, 14.11–14.13
structure of cover, 14.3–14.6
triggers for recovery, 14.7–14.10
Waiver Clause, 14.22–14.23
Sum insured
Superfluous to disclose
general requirements, 12.11
origins, 12.10
overview, 12.1
requirements, 12.11
Termination of insured transit
Termination of Transit Clause (Terrorism)
generally, 10.54
text, App 33
Terrorism
coverage, 10.42–10.53
definition
ICC (1.1.82), and, 10.52
“influencing by force or violence”, 10.47
miscellaneous sources, 10.45–10.46
“political, ideological or religious motives”, 10.48–10.51
generally, 10.41
hijacking, and, 10.41
Terrorism—cont.
loss of the adventure, 10.53
Reinsurance (Acts of Terrorism) Act 1993, App 4
Termination of Transit Clause, 10.54
Theft
loss of the adventure, and
goods involving force, of, 13.21
generally, 13.22
timing, 13.23–13.27
Theft, Pilferage and Non-Delivery Clause
generally, 9.35
text, App 27
Third Parties (Rights against Insurers) 1930
text, App 2
Threat of misappropriation, lien and sale
losses, and, 13.31
Torpedoes
Total losses
And see Losses
breach of warranty, and
generally, 6.4
waiver, 6.8
definition, 13.42
effect, 13.49–13.51
Forward Charges Clause, and, 13.59–13.61
introduction, 13.12
loss of cargo, 13.20
subrogation, and, 16.3
Transfer of title
losses, and, 13.28–13.29
Transit Clause
attachment of risk
“for the commencement of transit”, 11.24–11.30
“for the purpose of the immediate loading”, 11.20–11.22
“from the time the subject-matter insured is first moved”, 11.16–11.18
generally, 11.13
“in the warehouse or place of storage”, 11.19
“into or onto the carrying vehicle or other conveyance”, 11.23
“subject to Clause 11 below”, 11.14
“this insurance attaches”, 11.15
Avoidance of Delay Clause, 11.38–11.39
delay, 11.63–11.67
deviation, 11.68
final warehouse or place of storage
Transit Clause—cont.
final warehouse or place of storage—cont.
forced discharge, reshipment or transhipment, 11.69
forwarding to another destination, 11.62
meaning, 11.11–11.12
ordinary course of transit
avoidance of delay, 11.38–11.39
“continues during the ordinary course of transit”, 11.31–11.33
meaning, 11.34–11.37
storage other than in ordinary course of transit
containers, in, 11.57–11.59
vehicles, on, 11.57–11.59
warehouses, in, 11.49–11.56
termination of risk
“final warehouse or place of storage”, 11.43–11.48
generally, 11.40
sixty days after discharge from the oversea vessel, 11.60–11.61
storage other than in ordinary course of transit, 11.49–11.56
“unloading”, 11.41–11.42
unloading, 11.41–11.42
variations of the adventure, 11.70
Transit sheds
Under-insurance
average, and, 15.26
effect, 15.25–15.26
subrogation, 15.30–15.41
Unfitness
introduction, 8.63
Unlawful acts of third party
losses, and, 13.30
“Unless the policy otherwise provides”
Unloading
Unseaworthiness
introduction, 8.63
Unvalued policies
Used goods
Valued policies
Valued policies—cont.
meaning, 15.5–15.10
Variation of the adventure
Vermin
Volcanic eruption
Voyage
Waiver
Waiver Clause
sue and labour, and, 14.22–14.23
War risks
aggregation of risk, 10.25–10.27
attachment, 10.25–10.35
Change of Voyage Clause, 10.35
craft extension, 10.33
deviation of the adventure, 10.34
duration, 10.25–10.27
exclusions, 10.23
FC&S Clause, and, 10.1
generally, 10.4
Institute Cargo Clauses (1.1.63), and, 10.24
Institute War Clauses (Cargo)
generally, 10.3
text (1.1.82), App 17>
text (1.1/09), App 18
limitations, 10.6
loss of adventure, 10.23
origins, 10.1–10.2
perils insured
arrest, 10.21
bombs, 10.22
capture, 10.17–10.18
civil strife arising therefrom, 10.15
civil war, 10.10
derelict weapons of war, 10.22
detainment, 10.21
hostile act by or against a belligerent power, 10.16
insurrection, 10.13–10.14
mines, 10.22
rebellion, 10.11
restraint, 10.21
revolution, 10.11
seizure, 10.19–10.20
torpedoes, 10.22
war, 10.7–10.8
SR&CC Clause, and, 10.3
Termination of Contract of Carriage Clause, 10.32
terrorism, and, 10.45–10.46
Transit Clause, 10.28–10.31
variation of the adventure, 10.34
Warehouse-to-warehouse clause
Warranties
definition, 6.1
effect of breach
waiver, 6.8–6.12
express warranties
construction, 6.15–6.16
examples in London market, 6.17–6.19
form of words, 6.13–6.14
implied warranties, 6.20–6.23
nature, 6.1–6.3
types, 6.1
Washing overboard
Water entry
Weapons of mass destruction
biological weapons, 10.59
Weapons of mass destruction—cont.
chemical weapons, 10.59
computer systems, 10.60
“dirty bombs”, 10.58
escape of radiation, 10.56
nuclear fuel escapes, 10.55–10.57
Wear and tear
Wilful misconduct
innocent c-i-f buyer, 8.46–8.48
proximate cause, and, 7.17–7.18
With Average (WA) Clauses
deliberate damage, and, 9.40
introduction, 3.24

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MARINE CARGO

LLOYDS SHIPPING LAW LIBRARY

Copyright © John Dunt 2009

British Library Cataloguing in Publication Data

ISBN: 978-1-84311-763-6 (hbk)

1 History and Definition of Marine Cargo Insurance

Ace Insurance SA-NV (formerly Cigna Insurance Co of Europe SA NV) v. Zurich

Act of 1795 (35 Geo III, c.63) 1.7, 1.1.10

1. Wright & Fayle A History of Lloyds, 1928, Macmillan at p. 135.

1. Policies are still in use elsewhere, particularly Japan.

1. See, MIA 1906 ss. 42–49 entitled “The Voyage”.

Institute Cargo Clauses: Transit Clause: Clause 8

Institute Cargo Clauses: Termination of Contract of Carriage Clause: Clause 9

1. MIA 1906 s. 78.

1. See para. 16.8.

4. Avoidance of wagering or gaming contracts.

16. Measure of insurable value.

Disclosure and Representations

17. Insurance is uberrimae fidei.

22. Contract must be embodied in policy.

32. Double insurance.

33. Nature of warranty.

42. Implied condition as to commencement of risk.

50. When and how policy is assignable.

52. When premium payable.

Loss and Abandonment

55. Included and excluded losses.

64. Particular average loss.

67. Extent of liability of insurer for loss.

Rights of Insurer on Payment

79. Right of subrogation.

82. Enforcement of return.

85. Modification of Act in case of mutual insurance.

86. Ratification by assured.

1. Marine insurance defined.

4. Avoidance of wagering or gaming contracts.

Disclosure and Representations

17. Insurance is uberrimae fidei.

22. Contract must be embodied in policy.

32. Double insurance.

33. Nature of warranty.

42. Implied condition as to commencement of risk.

50. When and how policy is assignable.

52. When premium payable.

Loss and Abandonment

55. Included and excluded losses.

67. Extent of liability of insurer for loss.

Rights of Insurer on Payment

79. Right of subrogation.

82. Enforcement of return.

85. Modification of Act in case of mutual insurance.

Lloyds S.G. Policy.

Rules for Construction of Policy

Session and Chapter. Title or Short Title. Extent of Repeal.

Assured: [For example: ABC Limited]

Type: Marine Cargo Insurance

UNIQUE MARKET ____________

TYPE: Marine Cargo Insurance

ASSURED: [For example: ABC Limited, and/or as agents and/or

PERIOD: Risk attaching from to both days inclusive, local standard

CONVEYANCE: [For example: Any land water or air conveyance,… Ocean

INTEREST: [For example: Goods and/or merchandise of every

VOYAGE: [For example: At and from ports or places anywhere in the

LIMIT: [For example: US$ 1,000,000 any one sending and/or