Marine Insurance

Law and Practice

Francis Rose

• Publisher: Informa Law from Routledge
• Year: 2013
• ISBN:
  9781317984443
• Edition: 2
• Topic: Law
• Subtopic: Maritime Law
• Index: Law

Marine Insurance: Law and Practice, Second Edition, continues to provide the most comprehensive and integrated account of the English law and practice of marine insurance. It provides readers with a fresh and up-to-date review of the modern law in the light of traditional principles and rules of underlying commercial law, and the specific statutory rules of marine insurance as interpreted by case law, as moderated in practice by market practices and standard form marine insurance clauses. Francis Rose clarifies the law's underlying framework of principles and illustrates how it works in common contractual situations, explaining how the different components of the law interact.

The new edition has been updated to incorporate:

• the most recent case law: there have been some very important judgments handed down since the book first published, including: The Cendor MOP, The Silva, The Resolute and The Marina Iris
• the implications of the introduction of: Institute Cargo Clauses 2009, the effect of the Gambling Act 2005 and the Third Parties (Rights Against Insurers) Act 2010 Law Commission reform proposals

The book explores in detail the following areas:

• the nature of insurance
• insurable interest
• the insurance contract
• the premium
• insured risks
• marine risks
• exclusions
• losses
• claims
• subrogation
• double insurance

CHAPTER 1

THE NATURE OF MARINE INSURANCE ¹

I INTRODUCTION

1.1 Activity often combines opportunity of advantage with risk of loss. Thus, the financial rewards of international trade have to be offset against the numerous risks involved in transporting goods, particularly in the potentially dangerous environment of the sea. A person engaged in international commerce could bear its risks himself, with legal recourse for compensation against anyone who has caused him a loss by breach of contract or tort, but otherwise relying on his own resources. However, the adverse risks of a particular adventure or type of trade are a disincentive to participation in commerce. This is not only against the interests of individual traders but also against the public interest in promoting and benefiting from trade.

1.2 The medium for accommodating such risks has been provided mainly by private rather than public initiative. At the turn of the twelfth and thirteenth centuries in northern Italy, the practice developed whereby certain merchants agreed to insure the risks of others, undertaking in return for the payment of a premium, to pay an indemnity to those who suffered loss as a consequence of specified perils. By this system, traders were able to buy financial protection against loss. Also, the cost of such losses was reduced by redistribution from individual traders to all traders who paid premiums and whose collective premiums provided the fund from which insurers could pay indemnities. The expense was also further spread by assureds passing on the cost of premiums to their customers, for example as an element of the cost of freight or the price of goods.

1.3 The business of insurance spread across Europe and was established in England by the grant of rights in the city of London, in what became known as Lombard Street. Inevitably, domestic competitors entered the market, which moved to the Royal Exchange. Business was done in coffee houses, the most famous of which developed into Lloyd's of London, now the world's most prominent insurance corporation, with its own distinctive building. Insurance may be sought from members of Lloyd's or from insurance companies or elsewhere.

1.4 The rules governing insurance are a distinctive mixture of contract, law and practice. There are a few mandatory rules of overriding public policy, in particular to combat gaming and wagering,² unlawful adventures and fraud. However, in a given situation, the primary source of governing rules is the individual contract between the parties, especially since parties are generally free to agree terms which override otherwise applicable rules of law.³ So far as an issue is not specifically provided for by its terms, the contract is mainly subject to rules laid down by judicial decision. For current purposes, such decisions may be divided into two types.

1.5 The first and larger type is those decisions which express the general position of the common law. These were famously codified in the Marine Insurance Act 1906,⁴ which was drafted by Sir Mackenzie Chalmers. The Marine Insurance Act 1906 serves as the leading statutory statement of the principles and rules not only of marine insurance law but of insurance law in general. It has also had substantial influence internationally.⁵ It has been held that, where the common law has been codified, the words of the codifying enactment are conclusive and there should not be resort to the preceding case law.⁶ The merit of this rule of construction is underlined by the fact that, if the codifying statute is intended to be a complete statement of the law at the date at which it is passed, Parliament may have consciously omitted⁷ or overridden⁸ any prior inconsistent case law.

1.6 However, in the case of the Marine Insurance Act 1906, there is good reason to continue to refer to prior case law. It is noticeable that the Act is drafted with a particular view to codifying rules of law which had been judicially articulated at the time at which it was passed but with less sensitivity to the general principles underlying those rules or to further possible illustrations of general principle. Moreover, the Act is not a complete code of the law of general or marine insurance. Prior case law is therefore part of the bigger picture. Moreover, uncodified elements of the preceding common law have been recognised as surviving the enactment of the main body of the case law on marine insurance.⁹ Accordingly, the legitimacy of reference to preceding judicial decisions is preserved by the Act. Section 91(2) provides that the rules of the common law including the law merchant, save insofar as they are inconsistent with the express provisions of the Act, shall continue to apply to contracts of marine insurance. In any event, it is of course patently legitimate to refer to cases highlighting developments since the Act was passed; and, since the Act was ostensibly a codification of the common law, then, subject to due deference being accorded to Parliament, it makes sense to construe the Act together with the evolving pre-Act and post-Act common law of which it effectively forms a part.

1.7 The second type of judicial decision affecting marine insurance contracts is of cases interpreting particular contract terms. This type is important since, in practice, most insurance contract terms are based upon standard forms. For over two centuries marine policies were based on a document formalised by the mid-eighteenth century, although by that time already antiquated, known as the Lloyd's SG policy.¹⁰ This was scheduled to the Marine Insurance Act 1906 as a permissible policy form.¹¹

1.8 The terms of Lloyd's SG policy came to be amended or amplified by a range of standard form policy terms developed by the Institute of London Underwriters and known as the Institute clauses.¹² The Institute has recently evolved into the International Underwriting Association (“IUA”). The original practice was to add relevant Institute clauses to the Lloyd's SG policy. Then, in the 1960s and 1970s, UNCTAD¹³ carried out work to address criticisms of the prevailing rules and practices of marine insurance, with a view to formulating an international Convention governing marine insurance. The London market responded by producing a new short form of policy document and, in particular, by redrafting the Institute clauses so as to embrace, within individual sets of clauses, relevant provisions from both the Lloyd's SG form and the existing Institute clauses. This effectively made UNCTAD's work redundant.¹⁴

1.9 So far as standard cover against marine risks is concerned, modernised sets of basic Institute cargo clauses were published in 1982¹⁵ and modernised sets of basic clauses for hulls and freight in 1983.¹⁶ Modernised war and strikes clauses for cargo, hulls and freight were also issued at the same time. In addition, a range of additional and specialist clauses have been issued. Revised time and voyage clauses, both for marine and for war and strikes cover, were issued in 1995. However, these did not prove to be sufficiently popular to prevail over the corresponding 1983 clauses.¹⁷ More recently, there has been consideration within the CMI¹⁸ of the reform of marine insurance law and practice. Like the work of UNCTAD in the 1970s, this stimulated action by the London market which initially pre-empted serious external movement for reform.

1.10 London market action was most obviously demonstrated by the International Hull Clauses. These were issued as a modernised form of the Institute hulls time clauses, initially in 2002, with the two-edged undertaking to keep the content of the clauses under revision. This is a sensible means of maintaining the contemporaneity of the clauses but proved to be an initial disincentive to adopt the 2002 clauses, given that there was a possibility of their imminent supersession. The clauses were reissued, amended in the light of market reaction, in 2003 in a form which is expected to endure for some time, and the 2003 clauses¹⁹ have consequently established themselves more firmly as a successor to the Institute Time Clauses Hulls 1983. They were followed, in 2009, with revisions of the basic Institute cargo clauses.²⁰

1.11 The supersession of the Institute of London Underwriters by the International Underwriting Association and the dropping of the word “Institute” from the description of the new hull clauses means that, strictly speaking, the tradition of referring to all the basic sets of clauses for hull, cargo and freight as “the Institute clauses” is no longer appropriate. Moreover (and despite the global predominance of the London market and the use of the adjective “International” within the new hulls clauses), it should not be forgotten that there are other standard forms of clauses available. However, when the Institute cargo clauses were revised in 2009, their description as Institute Clauses was retained. Therefore, it will be convenient occasionally in this book to refer generally to the main sets of clauses used in the London market as Institute clauses or as “standard clauses”.

1.12 It is common for parties involved in particular industries or trades to develop and use standard form contracts or clauses. However, marine insurance is an indus...