Marine Insurance

1.  Interpreting the Marine Insurance Act 1906

Many of the principles of the law of insurance contracts were developed in the context of marine insurance, so that although the Marine Insurance Act 1906 strictly applies only to marine policies, it has been used by judges in cases on non-marine policies, as has been seen throughout this book.¹

The intention of the Act was to codify the common law and the approach taken to the interpretation of that type of legislation was established by Lord Herschell in a case on the Bills of Exchange Act 1882:

Viscount Finlay adopted this approach when it came to interpreting the 1906 Act, adding:

In a few instances it may be positively dangerous to refer to previous cases because the Act has changed the law: for instance, under the common law to determine whether there had been a constructive total loss where an owner had been deprived of possession of the subject-matter and was unlikely to recover it, the court merely looked at whether there was ‘uncertainty of recovery,’ whereas section 60(1) has made the test ‘unlikelihood of recovery,’ which is more difficult to satisfy.⁴ It is also important to note that the Act is not a complete statement of the law on marine insurance: according to section 91(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.’⁵

2.  The contract of marine insurance

A ‘marine adventure’ is one in which: any ship, goods or other moveables⁷ (the ‘insured property’) is exposed to maritime perils; ‘the earning or acquisition of any freight, passage money, commission, profit or other pecuniary benefits, or the security for any advances, loan, or disbursements is endangered by the exposure of insurable property to maritime perils’; ‘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’ (section 3(2)). A 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’ (section 30(2), schedule 1, rule 15).⁸ ‘Goods’ means ‘goods in the nature of merchandise, and does not include personal effects or provisions and stores for use on board’ (section 30(2), schedule 1, rule 17). So it does not include the food to be consumed during the voyage or the jewellery worn by the passengers, but it will include food or jewels being transported as cargo. Freight⁹ does not come within the terms ‘ship’ or ‘goods’ and must, therefore, be specifically insured. By ‘maritime perils’ is meant perils ‘consequent on, or incidental to, the navigation of the sea’ (section 3(2)). The result of these definitions is that the insurances effected by the owner of a ship, the owner of goods that are being sent by sea and the shareholder in a company that is laying an electric cable on the seabed¹⁰ are all marine insurances.

A contract of marine insurance can be extended to cover journeys on inland waters or on land ‘which may be incidental to any sea voyage,’ or to cover the construction of a ship (section 2(1), (2)). If goods are insured ‘from the loading thereof’ to the time when they are ‘safely landed,’ then the insurers will not be on risk until the goods are on board the ship (section 30(2), schedule 1, rule 4) and coverage will cease once the goods have been safely landed according to the customary manner of landing such goods and within a reasonable time of arrival (section 30(2), schedule 1, rule 5).¹¹ A transit clause may be used in a policy, for instance, to extend the cover on goods from the time they leave the warehouse in which they are stored to the time they are delivered to another warehouse,¹² or for a period of sixty days from the time the goods are discharged from the ship.¹³

3.  The form of the marine insurance policy

A marine insurance contract does not have to be in a particular form, but it will not be admitted in evidence unless it is ‘embodied in a marine policy,’ although the policy can be issued at the time of the contract or afterwards (section 22),¹⁴ even after a loss has occurred. The policy must specify the name of the assured,¹⁵ or the assured’s agent (section 23(1)); the subject-matter must be designated with reasonable certainty (section 26(1)); and it must be signed by or on behalf of the insurer, or, in the case of a corporation, it may be sealed (section 24).

The 1906 Act includes, in schedule 1, the form of policy commonly in use at the time known as the ‘SG form’. The inadequacies of this policy had, however, been clear as early as the late eighteenth century when it was criticised by Lord Mansfield CJ, although it was not until the late nineteenth century that the Institute of London Underwriters produced the Institute Clauses, which were used to supplement the SG form. These clauses differ according to the type and subject-matter of the policy: so, for example, there are Institute Voyage Clauses (Hulls) (IVCH) and Institute Time Clauses (Hulls) (ITCH) for ships, and Institute Cargo Clauses (ICC) and each comes in several versions.¹⁶ Eventually, the Companies Marine Policy and the Lloyd’s Form of Marine Policy, known as the MAR forms, replaced the SG Form in the early 1980s. These are very simple, containing only basic information. To the MAR form is attached the appropriate version of the Institute Clauses. The Institute Time Clauses were updated by the International Hulls Clauses (IHC) 2003, and, although most policies are still written on the ITCH 1983 terms, there are some that are written on IHC 2003 terms so these provisions will also be discussed below. Similarly, the Institute Cargo Clauses were updated in 2009 as a result of the work of a Joint Cargo Committee, made up of members of the International Underwriting Association and the Lloyds Market Association. Unlike IHC 2003, these clauses are now in common use.

The importance of these model policies cannot be understated for, as Lord Justice Scott put it, ‘most of the law of marine insurance is in essence pure interpretation of the contract contained in the common form of marine policy. … [T]he Act merely fixes the interpretation which it requires the Court to put on the old form of policy unless the special terms of the particular contract vary it.’¹⁷

4.  Time and voyage policies

4.1  Time policy

A time policy, which is the commonest form of insurance on a ship, covers a specified duration (section 25(1)), such as ‘from 1 January 2005 to 1 June 2005’, or ‘whilst anchored in a creek off Netley’.¹⁸ It is common to include a clause which, on notification to the insurers, extends the cover until the ship reaches its destination: ITCH(83) provide that ‘should the vessel at the expiration of this insurance be at sea or in distress’, then as long as previous notice has been given to the underwriters, the ship will be held covered at a pro rata premium. Similarly, IHC 2003 provide that if the ship is at sea and ‘in distress or missing’ or in port and ‘in distress’, then as long as the insurers are notified as soon as possible, the ship will be held covered until it arrives at the next port in good safety at a pro rata premium. Under clause 4.1 of ITCH(83) and clause 13 of IHC 2003 cover is terminated automatically after change of the Classification Society of the vessel, or an alteration of the class within that society. The standing of the particular society by which the vessel is classified and the class within which that vessel is placed are both important indicators of the seaworthiness of the vessel. Cover is also automatically terminated where there are certain changes in ownership or use of the ship, such as change of owner, flag or management (clause 4.2).

4.2  Voyage policy

A voyage policy covers a specified journey (section 25(1)), such as ‘at and from Liverpool to Calais,’ or even a journey with less precisely defined ports of departure and termination, such as ‘from any port or ports place or places on the River Plate to any port or ports place or places in France and/or the United Kingdom (final port)’.¹⁹ Where, for example, the words ‘at and from Liverpool’ are used, the risk will attach when the ship is at that place in good safety²⁰ (section 30, schedule 1, rule 3) and preparations have been made for the voyage by, for instance, beginning to load the cargo.²¹ If insured ‘from Liverpool,’ the risk will attach when—and if—the ship starts on the voyage insured (section 30, schedule 1, rule 2). Where the policy covers freight and it is insured ‘at and from’ a particular place, ‘the risk attaches pro rata as the goods or merchandise are shipped.’ In the case of unshipped cargo that is ‘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’ (section 30(2), schedule 1, rule 3(d)). A mixed policy is one in which a duration and a voyage are specified (section 25(1)), such as, ‘at and from the port of Liverpool to Calais, and for fifteen days whilst there after arrival’.²² Where a voyage policy on a ship covers a voyage from Liverpool to Calais, the risk will not attach if the voyage begins from Bristol (section 43),²³ but if the voyage begins at Liverpool and at that time the intention is that it will end at Calais, the risk attaches. There is an implied condition that the voyage will commence within a reasonable period of time, unless the circumstance that caused the delay was known to the insurer before the contract was concluded or the insurer waived the condition (section 42).²⁴ Unless there is a lawful excuse, the voyage must be prosecuted with ‘reasonable dispatch’ and the insurer is discharged from the point at which any delay becomes unreasonable (section 48).²⁵ If, after the commencement of the risk, the destination is voluntarily changed this will amount to a change of voyage (section 45(1)).²⁶ The insurers are discharged from liability from ‘when the determination to change [the destination] is manifested,’ even if the loss happens before the ship has actually changed voyage,²⁷ although the insurers remain liable for losses incurred beforehand (section 45(2)). The policy may include an express term that permits a change of voyage provided notice is given immediately after receipt of advices and any amended terms and additional premium are agreed.²⁸ A change of voyage must be distinguished from a change of destination. The latter occurs where, although a particular destination is specified in the policy, there was never any intention to undertake that voyage. In those circumstances the risk never attaches (section 44). The distinction between a change of voyage and a change of destination rests on the point in time when the decision was made: there will be a change of destination where there is no intention at the start of the voyage to go to the specified destination so the risk never attaches and a change of voyage where at some point after the risk attached it is decided to go to a different destination.²⁹

The policy may specify the route to be taken, but if it does not it is implied that the customary course between the places specified will be taken (section 46(2)(b)). This is presumed to be the direct geographical route, although that presumption can be rebutted where a less direct route is not unreasonable having regard to those interested in the voyage. Put another way, the route must be ‘usual and reasonable in a commercial sense.’ What this means may change, for example, as fuel prices in different ports vary.³⁰ A deviation from the route without lawful excuse will discharge the insurers from liability, even if the ship later returns to the original route (section 46(1)). A deviation is not a change of voyage because the destination remains the same; it is a change in the route to that destination. Unlike the situation where there is a change of voyage, there must be an actual deviation, a mere intention to deviate will not discharge the insurers (section 46(3)). Once again, the insurers will be liable for losses incurred before the deviation (section 46(1)).³¹ Some policies include a clause giving the ship liberty to ‘touch and stay’ at any port; this ‘does not authorise the ship to depart from the course of her voyage from the port of departure to the port of destination’ (section 30(2), schedule 1, rule 6). In other words, only those ports that are both properly on the route and visited for purposes connected to the adventure contemplated by the policy can be entered. If this were not the case, ‘there can be no limit, either of time or place, to the risk described in this policy’.³² The Marine Insurance Act 1906, section 49(1) lists deviations and delays which will be excused: where authorised by the policy; where caused by circumstances beyond the control of the master and the master’s employer; where reasonably necessary to comply with a warranty or for the safety of the ship or subject-matter insured; for the purpose of saving human life or aiding a ship in distress if life may be in danger; where reasonably necessary for obtaining medical aid for anyone on board; where caused by the barratrous conduct of the master or crew, if barratry is one of the insured perils.³³ Once the excuse ceases to operate, the ship must resume course (section 49(2)), which, in the case of the ship driven off its original course, will mean taking the most direct route to its destination.³⁴ The Institute clauses expressly continue coverage in case of deviation provided that notice is given to the insurer immediately after the assured is notified and any amended terms and additional premium are agreed.³⁵ The insurer will be liable if the assured has complied with the notice requirement, even though this occurs after the loss.³⁶

5.  Warranties³⁷

Before looking at express and implied warranties, it is worth recalling that, subject to contrary agreement of the parties, a breach of a warranty in marine insurance discharges the insurers from liability from the date of the breach (section 33(3)). According to Lord Goff in The Good Luck, ‘discharge of the insurer from liability is automatic and is not dependent upon any decision by the insurer to treat the contract or the insurance as at an end’.³⁸

5.1  Express warranties

An express warranty does not have to be in a particular form as long as the words used make it clear that there is an intention to warrant (section 35(1)), although it must be included in the policy or in a document that is incorporated by reference into the policy (section 35(2)). There are two types of express warranty: those that go to the scope of the cover and those that are promissory warranties, ie, involve a promise by the assured that the warranty will be fulfilled. Only promissory warranties are covered by the provisions in sections 33–41 of the Act, which are discussed below. It is important to distinguish between a promissory warranty and an exclusion clause: while in the former the assured warrants the existence of a certain state of affairs now or at some time in the future, in the latter are listed the perils (the excepted perils) which are not covered by the policy. A loss may be outside the scope of cover (for instance, the policy which covers a ship but not the cargo and the latter is lost), or it may be caused by an excepted peril (for instance, where the ship is not covered for loss by act of war and is sunk by an enemy missile). In neither case will the insurers be liable. It is common for the insurers to require the shipowner to warrant that the ship will not go to particular places at particular times of the year: ‘Warranted to St Lawrence between 1 of October and 1 of April.’ The assured may warrant the date on which the voyage will commence, such as, ‘Warranted to sail on or before 1 of January 2005.’ It is also normal for the insurers to require the assured to warrant that the vessel be ‘fully crewed at all times’.³⁹ An express warranty of neutrality—that is, a warranty that the property is not enemy property or tainted by carrying enemy property—implies that the property will be neutral at the commencement of the risk and, as far as the assured can control it, will remain neutral during the risk (section 36(1)).

5.2  Implied warranties

The Act implies certain warranties into marine policies. With the exception of the warranty of legality, an implied warranty can be excluded by the agreement of the parties expressed in clear language, or by an express warranty that is inconsistent with it (section 35(3)).⁴⁰ The insurers can also waive the breach of an implied warranty (section 34(3)), although this sits uncomfortably with the ruling in The Good Luck that a breach of a warranty automatically discharges the insurer from liability.

5.2.1  Warranty of seaworthiness in voyage policies

The Act implies a warranty in a voyage policy that, at the commencement of the voyage, the ship is seaworthy and reasonably fit to carry the goods to the destination specified (sections 39(1) and 40(2)), although there is no implied warranty that goods be seaworthy (section 40(1)).⁴¹ The commencement of the voyage is, normally, when the ship leaves the port and goes out to sea without any intention of returning, even if bad weather forces a return to port.⁴² It is up to the insurers to prove that the ship was unseaworthy at this point,⁴³ although where a ship sinks in calm weather shortly after commencing its voyage, then it is a reasonable assumption that it was unseaworthy at the time of sailing.⁴⁴ If the policy attaches while the ship is in port, there is an implied warranty that it ‘shall be reasonably fit to encounter the ordinary perils of the port,’ (section 39(2)) and seaworthy when it commences its sea voyage. Similarly, if the ship is undertaking a voyage in stages, such as part by river and part by sea (section 39(3)),⁴⁵ it must be seaworthy at the start of each stage. In Garnat Trading & Shipping (Singapore) Pte Ltd v Baominh Insurance Corporation,⁴⁶ Clarke J summarised the law relating to the doctrine of stages:

If seaworthy at the time of sailing, ‘then it mattered not how soon after she became otherwise’,⁴⁷ the warranty is not breached since ‘the assured makes no warranty to the underwriters that the vessel shall continue seaworthy’.⁴⁸

What amounts to seaworthiness has been the subject of much debate. According to the Act, a ship is seaworthy ‘when she is reasonably fit in all respects to encounter the ordinary perils of the seas of the adventure insured’ (section 39(4)). In general terms the ship must be ‘in a fit state as to repairs, equipment, and crew, and in all other respects, to encounter the ordinary perils of the voyage insured, at the time of sailing upon it’.⁴⁹ This means that the hull must be sound and able to carry cargo without endangering either the ship or the cargo,⁵⁰ the engine must function properly, and there must be an adequate level of competent crew and equipment to meet the ordinary perils of the insured voyage.⁵¹ The ship will be unseaworthy if, although apparently seaworthy on commencing the voyage, there is some latent defect which means that it is not fit for the voyage: so, for example, insufficient fuel for the voyage will render an otherwise sound ship unseaworthy.⁵² On the other hand, a ship is not rendered unseaworthy by a trivial defect that can ordinarily be remedied by a competent crew, even though the defect is not, in fact, remedied. This is because a ship’s seaworthiness is assessed as it was at the time of departure and not in the light of later events.⁵³ Cargo will make the ship unseaworthy only if it affects the condition of the ship itself, such as it may if poorly stowed, but not if the only impact is on other cargo. A boat constructed for river use will usually not be seaworthy without modifications. It may be seaworthy, however, if it is merely being sent across the sea to a place where it will act as a river boat and, as far as was possible with a boat of that construction, temporary modifications were made to fit it for the voyage even though they ‘might not make her as fit for the voyage as would have been usual and proper if the adventure had been that of sending out an ordinary seagoing vessel’.⁵⁴ This should cause no difficulties since the insurer will be aware of the risk involved in such a venture.

It does not matter who or what caused the ship to be unseaworthy or even that the assured had no way of knowing its condition.⁵⁵ In a case on the implied warranty of seaworthiness in a bill of lading, it was said that ‘the shipowner contracts, not merely that he will do his best to make the ship reasonably fit, but that she shall really be reasonably fit for the voyage’.⁵⁶ In C Hoffman & Co v British General Insurance Co,⁵⁷ even though neither the owner, who acted honestly and reasonably, nor a professional surveyor could detect the problem, the ship’s unseaworthy condition meant the insurers were relieved of liability. The insurers will also be discharged from liability even though the ship is subsequently rendered seaworthy: where a ship commenced a voyage from Cuba to Liverpool without the proper number of seamen, the fact that additional sailors were picked up shortly afterwards did not remedy the breach of the implied warranty.⁵⁸ Lord Redesdale, speaking in 1816, was clear about the reasons for the strict application of this implied warranty:

5.2.2  Seaworthiness in time policies

There is no implied warranty as to seaworthiness in a time policy. Nevertheless, the insurers will not be liable under a time policy if the assured was aware that the ship was unseaworthy at the start of the voyage and this caused the loss.⁶⁰ The owner must have had actual knowledge, or had reason to believe the ship was unseaworthy and deliberately failed to undertake an examination of the ship. Simple negligence in not taking precautions against the possibility that the ship is unseaworthy is not sufficient.⁶¹ There must be a ‘conscious realisation of the implication of the facts making the ship unseaworthy’.⁶² If the ship owner honestly believes as a prudent owner that a crew of ten is sufficient then the fact that a court might regard the ship unseaworthy because it required twelve sailors does not mean the assured is in breach of the implied warranty. Where there are two defects which make the ship unseaworthy and the owner is only aware of one of these, the insurers is liable if the loss is caused by the condition of which the assured is not aware.⁶³

5.2.3  Warranty of legality⁶⁴

There is an implied warranty in all marine policies, first, that the adventure insured is lawful and, secondly, that ‘so far as the assured can control the matter, the adventure shall be carried out in a lawful manner’ (section 41; also section 3(1)).⁶⁵ The impact of a breach of this warranty is amply demonstrated by the decision in Cunard v Hyde.⁶⁶ The insured ship was allowed to sail without a certificate relating to the safe stowage of the cargo having first been obtained. The insurers were not liable when the cargo was lost even though the illegal act did not cause the loss. The reasoning behind this was explained by Tindal CJ:

Where the adventure is illegal before its commencement then the risk never attaches. If it becomes illegal after commencement, the insurers will not be liable where it can be shown that the assured could have prevented the illegality. For instance, in one case the owner ignored the smuggling activities of the crew in spite of the ship having been seized on three previous voyages, and he was not allowed to recover on a policy because his failure to take action amounted to consent.⁶⁸ If the adventure becomes illegal as a result of the outbreak of war, the voyage should be abandoned. Lord Davey laid down three rules on the effect which trading with an enemy has on an insurance policy. First, ‘the King’s subjects cannot trade with an alien enemy, ie, a person owing allegiance to a Government at war with the King, without the King’s licence. Every contract made in violation of this principle is void.’ Secondly, ‘no action can be maintained against an insurer of an enemy’s goods or ships against capture by the British Government’. This is so even where the insurance is taken out before the war and also where the person claiming on the policy is a neutral or British subject, if the insurance is effected for an alien enemy. Thirdly, if a loss occurs before the war, the claim is suspended until the restoration of peace.⁶⁹

Not all illegal acts connected with a marine adventure will amount to a breach of the implied warranty. In Redmond v Smith,⁷⁰ a statute prohibiting the use of seamen who were not under articles was breached, but since this legislation aimed only to provide them with a better method of enforcing their contracts, it was held that the illegality did not affect the contract of insurance.

6.  Construing the policy

Marine policies are construed in accordance with those principles that apply to contracts generally and that are discussed elsewhere.⁷¹ Most of the provisions in the Act can be modified or excluded by the express agreement of the parties, so the court will start by looking at and construing the terms as they are used in the policy. As in other policies, the parties may agree a definition of a word that is not its ordinary meaning. For instance, in one early case Lord Ellenborough admitted witnesses to show that business people considered the Gulf of Finland to be within the Baltic, even though the two seas are regarded as separate by geographers. On that basis the court held that an insurance for a voyage to any port in the Baltic covered a voyage to Reval in the Gulf of Finland.⁷²

6.1  Perils of the seas

Marine policies commonly provide cover against ‘perils of the seas’,⁷³ by which is meant ‘fortuitous accidents or casualties of the seas’. According to Lord Herschell:

The need for this element of unpredictability or fortuity means that perils of the sea do not include ‘the ordinary action of the winds and waves’ (section 30(2), schedule 1, rule 7), but here the adjective ‘ordinary’ qualifies the noun ‘action’ and not ‘the winds and waves’: the ordinary action of the weather is not a peril of the sea, but ordinary weather, which has an extraordinary effect on the vessel, may be. This was confirmed by the Supreme Court in Global Process Systems⁷⁵ where Lord Mance stated that the phrase ‘ordinary action of the wind and waves’ draws attention to the question whether the winds and waves have had some extraordinary effect, rather than whether they were extraordinary in themselves. The fact that adverse weather was forecast does not mean that the loss is not by peril of the sea, although it is important to distinguish between normal and unusual weather: if a port is normally blocked at a particular time of year by ice, loss caused by this event is not caused by a peril of the sea, but where the ice occurs outside that time, it may be.⁷⁶ The insurers were not liable for damage to a cargo of opium when water entered the hold of a ship as a result of ordinary wear and tear (see (section 55(2)(b)) decaying the fabric of the hull: ‘There was no weather, nor any other fortuitous circumstance, contributing to the incursion of the water; the water merely gravitated by its own weight through the opening in the decayed wood and so damaged the [cargo].’⁷⁷ Where cargo, which at the commencement of the voyage was in good condition and properly stowed, was found on arrival to have been water damaged by rough weather, the insurers were liable, even though that weather was expected on the particular voyage, because such damage to a large part of the cargo went beyond what would be expected: ‘It is not the weather by itself that is fortuitous; it is the stoving in due to the weather, which is something beyond the ordinary wear and tear, of the voyage.’⁷⁸ A collision with another vessel, whether or not that other vessel was at fault, is a loss by perils of the seas.⁷⁹

The loss must be of the sea, ie, as the result of being at sea, or as one judge put it, when cargo being loaded fell into the harbour as a result of the ship suddenly listing, ‘it was … a peril of the sea and not merely a peril on the sea. It could not have happened on land; it was a happening which is characteristic of the sea, and of the behaviour of ships.’⁸⁰ In the Inchmaree case,⁸¹ an engine used for pumping water into the main boilers of a ship was damaged because a valve, which should have been left open, was closed, either by accident or by the negligence of the engineer. The insurers were held not to be liable since the loss was of a type which could have happened on land as easily as at sea. On the other hand, where rats gnaw through a pipe and by this means seawater enters the vessel, the loss will probably be caused by a peril of the sea since damage by seawater could not have happened on land.⁸²

If the loss is due to action taken to prevent a loss by a peril of the seas, then the insurers will be liable, as for instance where ventilators were closed to prevent the incursion of the sea during rough weather and this caused the cargo of rice to overheat.⁸³ Negligence will not preclude liability for a loss by perils of the seas since it ‘provides the fortuitous circumstances which entitles the [assured] to recover under the terms of the policy’.⁸⁴ However, an act done with the intention of letting in the sea water is not fortuitous and is not, therefore, a peril of the sea,⁸⁵ but it may amount to barratry, which is typically covered.⁸⁶

As an all risks policy, ICC (A) covers losses from all causes, including perils of the seas, with the exception of those listed in the exclusion clauses (clauses 4–7). In ICC (B) and (C) the term ‘perils of the seas’ does not appear and instead there are listed certain events in which the loss results from the vessel carrying the cargo being ‘stranded grounded sunk or capsized’ (ICC(B), clause 1.1.2), or in collision (ICC (C), clause 1.1.4), or the cargo is lost through ‘jettison or washing overboard’ (ICC(B), clause 1.2.2),⁸⁷ or ‘jettison’ (ICC(C), clause 1.2.2), or during loading or unloading (ICC(B), clause 1.3).⁸⁸ These provisions all remain the same under the 2009 clauses.

6.2  Inchmaree clause

This clause is commonly found in marine policies and is an attempt to avoid the consequences of the House of Lords’ decision mentioned above.⁸⁹ For instance, ITCH(83) seeks to limit that decision by covering ‘loss or damage to the subject-matter insured caused by bursting of boilers breakage of shafts or any latent defect in the machinery or hull’ (clause 6.2.2). This does not make the insurers liable for the latent defect, but only for any damage it causes. If a shaft breaks as a result of a latent defect, the insurers will not be liable for its loss, but they will be liable where a piece of it holes the hull.⁹⁰ This is made clear in IHC 2003 which provides that the insurance covers loss of or damage to the subject-matter insured caused by ‘bursting of boilers or breakage of shafts but does not cover any of the costs of repairing or replacing the boiler which bursts or the shaft which breaks’ (clause 2.2.1) and ‘any latent defect in the machinery or hull, but does not cover any of the costs of correcting the latent defect’ (clause 2.2.2). There are some difficulties in determining what amounts to a latent defect, but it would seem to be something that cannot be discovered by ‘such examination as a reasonably careful skilled man would make’ and is assessed by looking at the actual state of the subject-matter, not at matters such as the role that the design work may have had in producing the defect.⁹¹

6.3  Sue and labour or duty of assured clause

The SG Form in schedule 1 of the Marine Insurance Act 1906 includes a term authorising the assured ‘to sue, labour, and travel for, in and about the defence, safeguards, and recovery of the said goods and merchandises, and ship, &c., or any part thereof, without prejudice to this insurance; to the charges whereof we, the assurers, will contribute’.⁹² It is clearly in the interest of the insurers that the assured be encouraged to avert or reduce the loss from insured perils. Indeed, under section 78(4), it is the duty of the assured and their agents ‘to take such measures as may be reasonable for the purpose of averting or minimising a loss’.⁹³ There is a similar obligation in the Institute clauses: under ITCH(83), clause 13.1and IHC 2003, clause 9.1, it is the duty of the assured or their servants/employees and agents ‘to take such measures as may be reasonable for the purpose of averting or minimising a loss which would be recoverable under this insurance.’ At the same time, the insurers agree to contribute to expenses reasonably incurred, with certain exceptions such as general average and salvage charges (ITCH(83) clause 11.2, IHC 2003, clause 9.2; also section 78(2)).⁹⁴ A sue and labour clause covers the situation where the expenditure has been incurred to avert, as well as to minimise, loss: the cost of feeding a cargo of cattle to prevent them from dying can, therefore, be recovered.⁹⁵ In Masefield AG v Amlin Corporate Member Ltd, The Bunga Melati Dua⁹⁶ it was confirmed that, in the case of the seizure and ransom of a vessel and its cargo by pirates, the payment of a ransom in order to procure the release of the vessel amounted to a sue and labour expense. Measures taken to minimise a loss or to protect the subject-matter will not prejudice the rights of the assured or the insurers, which means that, for instance, they will not be considered to amount to a waiver (ITCH(83) clause 11.3, IHC 2003 clause 9.3). Such clauses are distinct from the rest of the policy, so that the assured can recover both for a total loss and for expenses incurred in the circumstances covered by the clause (section 78(1)). The reason for this is ‘to encourage exertion on the part of the assured’.⁹⁷ Of course, expenses incurred in respect of a loss not caused by an insured peril will not be recoverable (section 78(3)). The assured must also show that the efforts made or expenses incurred went beyond what is normal:

The term ‘charges’ in such a clause includes not just payments made, but valuable rights that have been waived in order to protect the insured subject-matter.⁹⁹ A clause in a policy which excludes liability for particular average,¹⁰⁰ and therefore covers only total loss of the subject-matter insured (section 76(1)), will not exclude liability for these expenses where there is a suing and labouring clause and they were incurred to avert the danger of a total loss caused by an insured peril. This means that the insurers will be liable for such expenses (and also for salvage charges and particular charges) even though they are not liable on the rest of the policy because a total loss was averted (section 76(2)). Once again, this is because the nature of the liability under a sue and labour clause is supplemental to the main liability under the policy.¹⁰¹

As to the situation where it is alleged by the insurers that there has been a beach of the sue and labour clause, the precise standard to be expected, as set out by Lord Keith in The Talisman,¹⁰² is whether ‘any ordinary competent skipper would have acted differently from the pursuer’. In Melinda Holdings SA v Hellenic Mutual War Risks Association (Bermuda) Ltd,¹⁰³ which concerned a vessel insured by the defendants in respect of war risks that was arrested by Egyptian authorities to secure ‘court dues’ payable in addition to a judgment against the owners of another vessel which had been involved in a pollution incident, Burton J held that in order to find a breach, it would need to be shown that any ordinarily competent Egyptian lawyer would have acted differently.¹⁰⁴ In this case Burton J concluded that the course taken by the Egyptian lawyers was entirely competent, and satisfied The Talisman test, and that, in any event, any alternative course would have made no difference whatsoever to the outcome.¹⁰⁵

6.4  Excepted perils

The insurer is not liable for loss attributable to the wilful misconduct of the assured (section 55(2)(a)) and this cannot be excluded by agreement of the parties.¹⁰⁶ The policy will also typically exclude the insurers from liability in certain specified situations. Under the Marine Insurance Act 1906, section 55(2)(b), (c), unless the policy provides otherwise, the insurers are not liable for loss caused by delay, even if the delay has been caused by an insured peril, or 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.’

The ‘inherent vice’ exclusion, the application of which has been subject to criticism,¹⁰⁷ has recently been reduced in scope in the Supreme Court decision, Global Process Systems.¹⁰⁸ The term ‘inherent vice’ was defined by Lord Diplock in Soya v White¹⁰⁹ as meaning ‘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’. Thus in Mayban,¹¹⁰ the exclusion was successfully applied when a transformer was damaged on a journey from England to Malaysia as a result of the vessel’s pitching and rolling in the bad weather. Moore-Bick J found in favour of the insurers on the basis that there was no evidence of exceptionally bad weather and instead the proximate cause of the damage to the transformer was its inability to withstand the usual incidents of the marine voyage. However, the Supreme Court in Global Process Systems considered that the test applied in Mayban was too wide in scope and needed reconsideration. In this case an oil rig was being carried by a barge with its legs elevated above the deck. Fatigue cracking, caused by the repeated bending of the legs under the motion of the barge as it was towed, caused the starboard leg, and the other two legs to break off and be lost. The policy in question covered all risks of loss or damage to the subject-matter insured, subject to the exclusion that ‘in no case shall this insurance cover loss or damage or expense caused by inherent vice or nature of the subject-matter’. The question to the court, in light of the fact that the action of the waves was no greater than would be reasonably expected at that time, was whether the proximate cause of the loss was due to the perils of the sea or rather inherent vice and therefore excluded from the policy.

At first instance,¹¹¹ Blair J began by highlighting that this case is concerned with causation. He argued that under section 55 of the Marine Insurance Act 1906, the question should be framed in terms of the ‘proximate cause’ of the loss of the legs of the oil rig, based on the common sense of the ordinary businessman or seafarer.¹¹² He concluded that, based on the evidence presented, the proximate cause of the loss was the fact that the legs were not capable of withstanding the normal incidents of the insured voyage, including the weather reasonably to be expected. The proximate cause of the loss was therefore not due to the perils of the sea, but to inherent vice and thus excluded from the policy.¹¹³ This decision was overturned in the Court of Appeal,¹¹⁴