UK: Marine Insurance 2001 - The Year in Review

Last Updated: 14 March 2002
Article by Nigel Chapman
Marine Insurance 2001 - The Year in Review

Originally published in January 2002

1. INTRODUCTION

In this review we report on legal and market developments in 2001 likely to be of interest to marine insurers. As well as developments relevant to specific sections of the market, there were also developments of general application, of which the "BEURSGRACHT", the first judgment we consider, is a prime example.

2. CONTENTS

Case Law

 

1. "BEURSGRACHT"

- late declaration under Open Cover

2. "DELPHINE"

- yacht - accident or arson?

3. "MARKOS N"

- cargo recovery - time bar

4. "MERCANDIAN CONTINENT"

- utmost good faith post contract

5. "MOANA"

- yacht - "unexplained" total loss

6. "PALAQUIN"

- "Star Sea" applied

7. Perks v HM Inspector of Taxes

- what is a ship?

8. Piper Alpha

- legal battle draws to a close - subrogation

9. "STAR SEA"

- hull - privity of the assured - utmost good faith

10. "STARSIN"

- cargo recovery - identity of carrier clauses

11. "VERGINA"

- hull - salvage - burden of proof

Legislative/market developments

  • Corporate killing
  • ISM Code - Phase 2
  • Limitation of liability changes
  • Terrorism wording - cargo

 

3. CASE LAW

3.1 "BEURSGRACHT"

Glencore International AG v Ryan & others

Court of Appeal – unreported - 21/12/01

Charterers' liability – late declaration under Open Cover

Whilst a charterers' liability dispute, this case has wider ramifications for the operation of Open Covers. Owners sued charterers for an indemnity in respect of damages that the Owners had had to pay out to the family of a stevedore killed during loading operations. Charterers paid Owners.

Charterers sought to recover those sums from their charterers' liability underwriters. Underwriters defended the claim on the basis that the assured charterers' declaration of the vessel was made more than 5 years after the charter was entered into and the casualty giving rise to liability occurred.

Having ruled that underwriters were automatically on risk when the vessel was chartered subject to declaration of the vessel, the Court of Appeal had to decide the consequences of the late declaration (found by the trial judge to be a good faith mistake). Were the consequences so serious that, as alleged by underwriters, underwriters were off risk by reason of breach? The Court of Appeal, upholding the trial judge's decision, ruled that in the absence of specific policy language making timely declarations a pre-condition of cover, the late declaration was not so serious as to entitle underwriters to treat themselves as being off risk. They were, therefore, liable to reimburse charterers for the amounts charterers had paid to owners.

3.2 "DELPHINE"

Aquarius Financial Enterprises Inc v Lloyd's underwriters

[2001] 2 Lloyd’s Rep p. 542

Fire on board yacht in harbour

Hull and machinery – accidental or deliberate loss?

The vessel, a yacht, caught fire in harbour and became a total loss. She was insured for all risks of physical loss by accidental causes. The assured claimed against his hull underwriters for a total loss. Underwriters denied liability, claiming that the assured had deliberately caused the fire.

The trial judge decided that the assured had to show, on the balance of probabilities, that the fire was accidental as far as he was concerned, although the assured did not have to show exactly what caused the fire. On the evidence the assured put forward various theories as to how the fire might have started accidentally but these were rejected by the judge, who ruled that they were not credible. The evidence of arson was sufficiently strong for the assured's explanations to be discounted. The assured's claim therefore failed.

The judge also went on to conclude that there was circumstantial evidence of motive for arson, by reference to the vessel being over-insured, difficult to sell and a source of expenditure rather than income.

3.3 "MARKOS N"

Thyssen Inc. v Calypso Shipping

[2000] 2 Lloyd’s Rep p 243

Cargo recovery – time bar

Although a decision of 2000, this judgment is not widely known but merits wider attention – it is important in demonstrating the need to protect any applicable time bar.

Cargo receivers applied to Court for a declaration that their claim against the owners of the carrying ship was not time barred, alternatively for a time extension to commence arbitration proceedings pursuant to Section 12 of the Arbitration Act 1996.

The bills of lading referred to a charterparty on their face and the reverse of the bills contained a clause incorporating the charterparty (including the Charterparty Arbitration Clause). Cargo interests issued proceedings on March 1997 in Texas. The action was transferred by consent to the Southern District Court of New York in August. In March 1998 owners filed an answer acknowledging that the New York Court had jurisdiction.

There was a head time charterparty. This did not come to light until after the 12 month arbitration time limit had expired. It had been issued for a different vessel called the "BELNOR" and had at Clause 36 an English law and Arbitration clause. Owners applied for a stay of the New York proceedings on the grounds that the bills of lading incorporated a London Arbitration clause. The New York Court granted the stay on the basis the bills incorporated the clause and owners had not waived their rights to London arbitration. A few days later cargo interests appointed an arbitrator in London with owners appointing their arbitrator without prejudice to time bar.

The Judge held that the claim was time barred. The Judge considered S.12 (3) of the Arbitration Act 1996 and whether it would be just to extend time (as cargo interests had failed to protect time within the 12 month Hague Rules period), since it was not within their contemplation that a London Arbitration Clause was incorporated into the contract. In particular at S. 12(3)(b), the Court had to be satisfied that "the conduct of one party makes it unjust to hold the other party to the terms of the provision in question." The Judge found that he could detect no such unjust conduct by the owners in this case and it was not appropriate to grant the requested extension of time. Cargo interests’ claim was therefore time barred and they were left without a remedy.

3.4 " MERCANDIAN CONTINENT"

K/S Merc-Scandia XXXII v Certain Lloyd’s Underwriters

[2001] 2 Lloyd’s Rep 563

Utmost good faith post-contract formation

This case considered the post-contractual duty of utmost good faith and the extent of that duty (also considered by the House of Lords in the "STAR SEA" – see below). We reported in our 2000 Review on the decision of the trial judge. The Court of Appeal has since heard the appeal.

The Court of Appeal agreed that the duty of utmost good faith continues throughout the post-contract period. However the Court restricted the circumstances, in which a breach of that duty will occur to a situation where:

  1. there is fraud by the assured; and
  2. that fraud affects underwriters’ ultimate liability under the policy; and
  3. the fraud itself or the consequences of the fraud are so grave as would, in any event, enable underwriters to terminate for breach of contract.

Apart from the case of a fraudulent claim, it is now clear that there is only limited scope for the operation of an independent duty of utmost good faith after the insurance contract has been concluded.

3.5 "MOANA"

Glowrange Limited v CGU Insurance Plc

Unreported – 26/06/01

(Unexplained) total loss of yacht?

The "POPI M" revisited

Owners' yacht sank. Owners claimed on their yacht underwriters for a total loss and applied for summary judgment.

In order to decide the summary judgment application, the Court reviewed existing case law authority, notably the "POPI M". It held that where evidence established that the vessel was in a seaworthy condition before the insured voyage and she sank in an unknown fashion, it might be possible to infer that the vessel had been lost by perils of the sea - the assured's claim would therefore be recoverable since the assured would have satisfied the burden of proof upon the assured. This is in line with the "POPI M".

However, this set of circumstances is likely to be rare. There will normally be some evidence of how the vessel sank. Thus, the Court continued, where, as in this case, there was evidence showing where water had entered the vessel (even though the evidence did not show why the water ingress occurred) the burden of proof was on the assured to put forward a credible explanation for that water ingress in order to rule out other possible, but uninsured, causes of loss. Underwriters did not advance any positive case as to what caused the loss but alleged that the assured had failed to satisfy that burden of proof. At the summary judgment stage, where evidence before the court is in the form of witness statements, it will rarely be appropriate to rule on the application without disclosure of documents and the hearing of factual and expert witness evidence in person at trial. The summary judgment application was therefore rejected, but the assured’s case allowed to proceed to trial.

3.6 "PALAQUIN"

Canadian Federal Court – unreported

Privity of the assured

In the "STAR SEA" – see below - underwriters failed to make good before the House of Lords their defence to the assured owners' constructive total loss claim based on Section 39(5) of the Marine Insurance Act 1906 – underwriters not to be liable for loss attributable to a vessel being sent to sea in an unseaworthy state with privity of the assured. Underwriters failed to show privity of the assured.

By contrast, in this case, decided by the Canadian Federal Court after the English Court of Appeal judgment had been given but before the House of Lords’ decision in the "STAR SEA", the Canadian Court ruled that on the evidence the assured was privy to the vessel's unseaworthiness and could not therefore recover in respect of the loss of an excavator. This was in relation to the Canadian equivalent to Section 39(5).

The distinguishing feature of this case was that the assured was a small time owner operator, heavily involved in the day-to-day running and operation of the vessel concerned and without the benefit of professional managers. It will generally be easier for underwriters in these circumstances to be able to point to knowledge by the assured sufficient to demonstrate privity.

3.7 James Edward Perks v H.M. Inspector of Taxes ("Perks")

[2001] 2 Lloyd’s Rep 431

Court of Appeal

What is a ship? Limitation of liability – liability insurance

Increasingly offshore oil and gas activities depend on mobile floating production facilities. Questions often arise as to the precise legal status of such facilities. The Court of Appeal has recently given guidance on this issue in a tax case but which has ramifications for the insurance industry.

Employees working on a jack-up drilling rig outside the United Kingdom were seeking to take advantage of special rules for seafarers, which allow the deduction of foreign earnings for income tax purposes. However, to claim this deduction, the employees must perform their duties on a ship. Therefore, the Court had to consider the statutory definition of "ship" in Section 313 of the Merchant Shipping Act 1995.

Section 313 includes "every description of vessel used in navigation". The rig at the centre of the case was the Santa Fe Magellan, and its virtually identical sister rig, the Santa Fe Monarch. On an evaluation of each rig against the statutory definition, the Court held that each rig was indeed a ship.

The Court of Appeal ruled that the fact that navigation of the rig was ancillary to the real function of drilling for oil does not

mean that it would not constitute a ship. Navigation did not necessarily connote anything more than "movement across water". The function of "conveying persons and cargo from place to place" was not an essential characteristic. In this case the rigs were capable of, and used for, navigation.

In reaching its decision the Court referred to an Irish case: "Von Rocks" ([1998] 2 Lloyd’s Rep.), which concerned a dredger, and also to a Scottish Employment Appeal Tribunal decision, Addison v. Denholm Ship Management (UK) Ltd. ([1997] ICR 770.) which concerned "flotels" (workers’ accommodation at sea). In these cases the dredger and accommodation were held to be used in navigation although their "real work" was something other than this.

The implications of this decision for insurers particularly concern, first, potential liability for oil pollution: the law on criminal and civil liability for oil pollution may be applicable in the case of a rig to be classified as a ship; and, secondly, the concept of sistership arrest may now apply, so that in a case where a claim is made against a rig, which is also a ship, a sistership may be subject to arrest in respect of that liability.

3.8 "PIPER ALPHA"

Caledonia North Sea v London Bridge Engineering

Scotland – insurance contract – personal injury claims settled by operator’s insurers – rights of subrogation/contribution

This case involved claims for death and personal injury following the explosion on the Piper Alpha platform in 1988. It went before the Outer House of the Court of Session in Scotland in 1993 and was appealed to the Inner House in 1999. The House of Lords heard a part appeal from that judgment in November last year. The House of Lords’ judgment was published on 7 February 2002, upholding the Inner House’s decision. This will be the subject of a separate update.

3.9 "STAR SEA"

Manifest Shipping v Uni-Polaris Insurance

[2000] 1 Lloyd’s Rep p. 389

Hull – privity of the Assured – utmost good faith

This landmark decision of the House of Lords was the subject of a separate update in 2001. If you would like a further copy, please let us know.

3.10 "STARSIN"

Hamburg Houtimport BV v Agrosin Private Limited

[2001] 1 Lloyd’s Rep p. 437

Cargo recovery – owners' or charterers' bills of lading

In one of the most important cargo cases of recent years, the English Courts have once more been called upon to consider the question of whether a bill of lading is an owners' or charterers' bill.

We reported on the trial judgment in this case in our review of 2000. We now report on the Court of Appeal’s decision, although the House of Lords has granted leave to appeal and the appeal is due to be heard in 2002.

Owners maintained that the bills of lading in dispute, which contained an identity of carrier and a demise clause, nonetheless evidenced contracts of carriage between charterers (not owners) and cargo interests. The Commercial Court agreed but decided that owners had obligations towards cargo interests in negligence/bailment anyway, independent of any contractual relationship. For that reason, owners were liable to cargo for contamination damage.

The Court of Appeal overturned the trial judge's decision and held that the bills evidenced contracts with the owners but that no obligations continued in negligence/bailment.

3.11 "VERGINA"

Seashore Marine SA v Phoenix Assurance & Others

[2001] 2 Lloyd’s Rep p. 698

Institute Time Clauses Hulls 1.10.83

Recoverability of salvage – burden of proof

The vessel suffered a casualty. Owners were liable to pay salvors for salving the vessel. Owners sought to recover those sums from their underwriters. The Court was required to determine what the assured owners had to establish in order to recover from underwriters.

The Court ruled that the assured had to do more than simply prove that salvage had been incurred – rather, under the 1.10.83 Institute Clauses the assured was required to demonstrate that the salvage was incurred in relation to the avoidance of loss by an insured peril. Having established that a salvage liability had been incurred, the assured could not simply argue that it was for underwriters to prove that those liabilities were not incurred in relation to the avoidance of loss by an insured peril.

On the facts the key issue was whether the vessel would have been lost by an insured peril. The assured asserted that there were two insured perils in operation, perils of the sea (Clause 6.1.1) and/or crew negligence (Clause 6.2.3). The Court agreed, enabling the assured to recover its salvage liabilities from underwriters.

4. LEGISLATIVE AND MARKET DEVELOPMENTS

4.1 Corporate killing – update

Following a number of high profile disasters, including the "HERALD OF FREE ENTERPRISE" and the Southall rail crash, the UK Government has intended to introduce new legislation on corporate manslaughter. Whilst a draft Bill was published, a new Act remains a long way off.

4.2 International Safety Management Code - Phase 2 - remainder

Phase 1 of the International Safety Management Code came into force on 1 July 1998. Phase 2 comes into force on 1 July 2002. No extensions of time will be granted. From that date cargo ships not caught by Phase 1 (e.g. reefers, container and dry cargo vessels) and mobile offshore drilling units over 500 GRT will need to be compliant. The impact goes beyond mainstream commercial shipping since commercial yachts over 500 GRT must also be compliant.

4.3 Limitation of liability changes

There have been recent changes to the 1976 London Convention on Limitation of Liability for Maritime Claims (the "Convention"). The Convention provides for limitation of liability for a shipowner in respect of certain types of claim for damage caused by a ship, limitation being calculated by reference to the ship’s tonnage. Article 15(5) of the Convention expressly excludes "floating platforms constructed for the purpose of exploring or exploiting the natural resources of the sea-bed or the subsoil thereof".

However, as a result of a recent amendment to the Convention by a 1996 Protocol to be brought into effect in the United Kingdom by Statutory Instrument, the exclusion relating to floating platforms will become obsolete. The right to limit liability shall apply in relation "to any ship whether seagoing or not". A ship shall include "references to any structure (whether completed or in course of completion) launched and intended for use in navigation as a ship…". Confusingly, the Statutory Instrument in question is not yet effective as the Protocol has only been signed by 4 of the required minimum number of 10 countries. When the time comes and the amendments have been incorporated into English law, in the light of the Court of Appeal’s decision in Perks, the Convention will apply to rigs and similar structures.

4.4 Termination of Transit Clause (Terrorism)

In the cargo insurance market, as a result of the tragic events of 11 September 2001, a new Clause has been introduced to clarify the extent of terrorism cover provided within the marine cargo account. Cargo underwriters will continue to cover terrorism risks whilst cargo is in the ordinary course of transit but will not cover goods in storage as, for example, under stock-throughput policies. The intention is to avoid a build-up of various cargoes at one storage location with a consequent excessive aggregation of risk if terrorists should attack a particular port or location.

5. CONCLUSION

The above review provides an overview of the issues raised by the various cases and other developments. We should be pleased to supply further information upon request.

STOP PRESS

In the "PRIDE OF DONEGAL", judgment published 24 January 2002, following a trial late last year underwriters successfully defended the assured’s claim under a freight policy on grounds of breach of the implied warranty of seaworthiness applicable to the policy as a voyage policy. A separate update is to follow on this judgment.

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.