In our Trade & Transport Bulletin of 7 May 2009 we discussed the judgment of Justice Blair of the English Commercial Court in Global Process Systems Inc & Anor v Syarikat Takaful Malaysia Berhad which reconsidered the law of inherent vice and the concept of inevitable loss in marine insurance. That decision has now been overturned by the English Court of Appeal in a judgment handed down on 17 December 2009 ([2009] EWHC 367 (Comm)).
Background
The case concerned the loss at sea off South Africa of three of four legs of a jack-up oil rig which was being towed from Texas to Malaysia.
It was agreed that the loss occurred because of fatigue cracking caused by repeated bending of the legs whilst being towed on a barge through the sea. The barge's owners claimed under the policy of insurance, maintaining that the loss of the rig was accidental and within the terms of the 'all risks' cover. The insurer maintained that the cause was 'inherent vice' in the legs of the rigs. The insurer also maintained that the loss was an inevitable consequence of the voyage and that accordingly it was not liable for the loss.
The insurance policy incorporated the Institute of Cargo Clauses (A) 1/1/82 under which there is no cover for 'loss, damage or expense caused by inherent vice or nature of the subject matter insured'.
First Instance Decision
Justice Blair concluded that the failure of the legs was very probable but not inevitable, and that the proximate cause of the loss was not inadequate repairs during the course of the voyage but rather the inherent inability of the legs to withstand the normal incidents of the voyage, including the weather reasonably expected.
Accordingly he found that the cause of the loss was inherent vice and the claimants failed against the insurer.
Court of Appeal Decision
Lord Justice Waller delivered the leading judgment in which he provided a very detailed and thorough review of the law of inherent vice.
He noted that both parties accepted Lord Diplock's classic definition of inherent vice in Soya v White [1982] 1 Lloyd's Rep 136 that 'it means the risk of deterioration of the goods shipped as result of their natural behaviour in the ordinary course of the contemplated voyage without the intervention of any fortuitous, external accident or casualty'.
Lord Justice Waller also confirmed the rule that if there are two proximate causes, one of which is covered by a policy and one of which is not covered but is not excluded, the policy must respond. However if there are two proximate causes one of which is covered and one of which is expressly excluded, the policy does not respond. See Miss Jay Jay [1987] 1 Lloyd's Rep 32.
He stated:
He further noted that 'inherent vice may not be a proximate cause if there is an eventuality or accident from without that causes the loss...It is only if a peril insured against is not a proximate cause that inherent vice can be the sole and proximate cause'.
He noted that the burden is on the underwriter to establish inherent vice as the proximate cause and that will involve consideration of whether there was some other external and unexpected event which caused the loss.
He summarised the position by saying that when considering whether the damage to cargo has been caused by inherent vice, it must be considered whether the winds or waves experienced were such that it would be a common understanding that they would be bound to occur as the ordinary incidents on any normal voyage of the kind being undertaken.
He found that on the facts in this case, metal fatigue in the legs of the rig was not the sole cause of the loss of the legs. A leg-breaking wave which was not bound to occur on any normal voyage around the Cape of Good Hope caused the starboard leg to break off and that led to others being at greater risk and then breaking off.
In these circumstances it could not be said that the loss was caused by inherent vice.
Lord Justice Carnwath agreed with Lord Justice Waller and preferred the narrower test than that proposed by Justice Moore-Bick in Mayban General Insurance Bhd v Alstom Power Plants Limited [2004] 2 Lloyd's Rep 609.
Like Lord Justice Waller, Lord Justice Carnwath paid particular tribute to the analysis of Professor Howard Bennett in an article dealing with the Mayban decision in (2007) Lloyd's Maritime and Commercial Law Quarterly 315. Lord Justice Patten agreed with both judgments.
Conclusion and Implications
The decision supports a narrowing of the availability of the inherent vice defence for underwriters. In addition, it would seem that if underwriters are to rely on an inherent vice defence in the future they will have to produce expert evidence on actual and usual weather conditions encountered on a particular voyage.
However in this difficult area of law the decision is still one that is not easily analysed or applied to other fact situations.
We will keep you informed of further developments.
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