[Lloyd's Shipping Law Library] Michael Davey, Oliver Caplin, James Davey - Miller's Marine War Risks (2020, Informa Law from Routledge) - libgen.li

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M I LLER’S M A R I N E WA R R ISK S
LL OY D’S SH I PPI NG L AW LI BR A RY
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M I LLER’S M A R I N E WA R R ISK S
FOU RT H EDI T ION
M IC H A EL DAV EY
Of Gray’s Inn, One of Her Majesty’s Counsel
JA M ES DAV EY
Professor, University of Southampton
OLI V ER CA PLI N
Of Middle Temple, Barrister
Fourth edition published 2020
by Informa Law from Routledge
2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
and by Informa Law from Routledge
52 Vanderbilt Avenue, New York, NY 10017
Informa Law from Routledge is an imprint of the Taylor & Francis Group,
an informa business
© 2020 Michael Davey, James Davey and Oliver Caplin
The right of Michael Davey, James Davey and Oliver Caplin to be identified as
authors of this work has been asserted by them in accordance with sections
77 and 78 of the Copyright, Designs and Patents Act 1988.
All rights reserved. No part of this book may be reprinted or reproduced
or utilised in any form or by any electronic, mechanical, or other means,
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Trademark notice: Product or corporate names may be trademarks
or registered trademarks, and are used only for identification and
explanation without intent to infringe.
First edition published by Informa Professional 1990
Third edition published by Informa Professional 2005
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging-in-Publication Data
Names: Caplin, Oliver, author. | Miller, Michael D. (Writer on marine insurance),
author. | Davey, James (Law teacher), author. | Davey, Michael (Lawyer), author.
Title: Miller’s marine war risks / by Oliver Caplin, James Davey, Michael Davey.
Other titles: Marine war risks
Description: Fourth edition. | Abingdon, Oxon ; New York, NY : Routledge, 2020. |
Series: Lloyd’s shipping law library | Includes bibliographical references and index.
Identifiers: LCCN 2019056959 (print) | LCCN 2019056960 (ebook) |
ISBN 9780415317566 (hardback) | ISBN 9781315229584 (ebook)
Subjects: LCSH: Marine insurance—Great Britain—War risks. |
Marine insurance—Law and legislation—Great Britain.
Classification: LCC KD1847 .M54 2020 (print) | LCC KD1847 (ebook) |
DDC 346.41/08622—dc23
LC record available at https://lccn.loc.gov/2019056959
LC ebook record available at https://lccn.loc.gov/2019056960
ISBN: 978-0-415-31756-6 (hbk)
ISBN: 978-1-315-22958-4 (ebk)
Typeset in Times New Roman
by Swales & Willis, Exeter, Devon, UK
CON T E N TS
Foreword by Sir Bernard Rix
Preface to the Fourth Edition
Acknowledgments
Table of cases
Table of legislation
xv
xvii
xviii
xix
xxxiv
CHAPTER 1 THE HISTORY OF THE WAR RISKS POLICY
1
CHAPTER 2 THE UNDERWRITERS
10
CHAPTER 3 THE PREMIUMS
13
CHAPTER 4 CANCELLATION AND AUTOMATIC TERMINATION OF
COVER CLAUSE
21
CHAPTER 5 THE INSURED PERILS: AN OVERVIEW
30
CHAPTER 6 WAR
34
CHAPTER 7 CIVIL WAR
45
CHAPTER 8 REVOLUTION, REBELLION, INSURRECTION …
53
CHAPTER 9 … OR CIVIL STRIFE ARISING THEREFROM …
65
CHAPTER 10 … OR ANY HOSTILE ACT BY OR AGAINST A
BELLIGERENT POWER
66
CHAPTER 11 CAPTURE
70
CHAPTER 12 SEIZURE
91
CHAPTER 13 ARREST, RESTRAINT, DETAINMENT …
105
CHAPTER 14 … AND THE CONSEQUENCES THEREOF OR ANY
ATTEMPT THEREAT
115
v
Contents
CHAPTER 15 DERELICT MINES, TORPEDOES, BOMBS AND
WEAPONS OF WAR
118
CHAPTER 16 STRIKERS, LOCKED-OUT WORKMEN OR PERSONS
TAKING PART IN LABOUR DISTURBANCES, RIOTS OR
CIVIL COMMOTIONS
123
CHAPTER 17 RIOTS, CIVIL COMMOTIONS
130
CHAPTER 18 ANY TERRORIST …
143
CHAPTER 19 … OR ANY PERSON ACTING MALICIOUSLY OR FROM
A POLITICAL MOTIVE
153
CHAPTER 20 PIRACY
164
CHAPTER 21 CONFISCATION AND EXPROPRIATION
179
CHAPTER 22 SUE AND LABOUR
180
CHAPTER 23 EXCLUSIONS
187
CHAPTER 24 WAR RISKS AND MARINE INSURANCE LEGISLATION
196
CHAPTER 25 TOTAL LOSS AND NOTICE OF ABANDONMENT
223
CHAPTER 26 HELD COVERED
232
CHAPTER 27 WILFUL MISCONDUCT AND FRAUDULENT CLAIMS
241
CHAPTER 28 THE PROXIMATE CAUSE
251
CHAPTER 29 CARGO WAR AND STRIKES CLAUSES
264
CHAPTER 30 CONTAINERS
269
CHAPTER 31 WAR RISK INSURANCE IN TIME OF WAR
270
Index
290
vi
DETA I LED CON T E N TS
Foreword by Sir Bernard Rix
Preface to the Fourth Edition
Acknowledgments
Table of cases
Table of legislation
xv
xvii
xviii
xix
xxxiv
CHAPTER 1 THE HISTORY OF THE WAR RISKS POLICY
The S.G. Form
The MAR Form
The development of war risks insurance, and the f.c. & s Clause
The work of Alan Jackson and his Committee: the end of the S.G. Form
and the advent of the MAR and revised Institute Time Clauses
1
1
2
3
8
CHAPTER 2 THE UNDERWRITERS
The London market
The Mutual Associations
10
10
11
CHAPTER 3 THE PREMIUMS
Background to premiums
Additional war risk premiums and their calculation
Who pays the AWRP?
Time-charter cases
The voyage charter cases
The BIMCO CONWARTIME and VOYWAR 2013 Clauses
13
13
14
16
16
19
19
CHAPTER 4 CANCELLATION AND AUTOMATIC TERMINATION OF
COVER CLAUSE
21
Cancellation on seven days’ notice
22
Hostile detonation of any nuclear weapon of war
23
Ships and freight
23
Containers23
Cargo stored afloat
24
Cargo—War Clauses (general cargo), War Clauses (Special Cargo) and
Additional Expenses
24
vii
DETA I LED Contents
Cargo—strikes25
Outbreak of war between the Five Permanent Members of the Security Council
26
Requisition27
The Mutual Associations
28
The Combined Group of War Risks Clubs
28
UK War Risks
29
The Hellenic War Risks Club
29
CHAPTER 5 THE INSURED PERILS: AN OVERVIEW
“Insured perils” versus “risks covered”
Approach to the interpretation of the insured perils
The role of criminal and public international law when interpreting
the insured perils
Future conflicts—cyber warfare?
30
30
31
CHAPTER 6 WAR
The definition of “war”
The Pesquerias Case
The facts
The casualties
The courts’ decisions
World War II
The Korean War
The Falklands War
The First Gulf War
Period 1: 2 August 1990 to 16 January 1991
Period 2: 16 January to end-February 1991
Period 3: March 1991 to February 2003
Conflict in Kosovo
The 9/11 attacks
Key principles derived from the case law
34
34
37
37
37
38
38
39
39
41
41
41
41
42
43
44
CHAPTER 7 CIVIL WAR
Spinney’s (1948) Ltd. and Others v. Royal Insurance
The facts
Was there a civil war within the meaning of the peril?
45
45
45
51
32
33
CHAPTER 8 REVOLUTION, REBELLION, INSURRECTION …
53
Must the proximate cause of a casualty be proven to fall within
one of these specified insured perils in order for cover to be
engaged?53
Revolution, rebellion and insurrection defined
54
“Military or usurped power”: the forerunners of “revolution, rebellion,
insurrection”55
Revolution, rebellion, insurrection in the War Risks Policy
58
Conclusions
63
viii
DETA I LED Contents
CHAPTER 9 … OR CIVIL STRIFE ARISING THEREFROM …
65
CHAPTER 10 … OR ANY HOSTILE ACT BY OR AGAINST A
BELLIGERENT POWER
66
CHAPTER 11 CAPTURE
Origin of the capture and seizure perils
Capture, etc.: Hull, Freight and Cargo Clauses
Capture, etc.: Hull Clauses
Capture, etc.: Freight Clauses
Capture, etc.: Cargo Clauses
Differences between “capture” and “seizure”
The meaning of “capture”
Illustrative cases: the insured peril
Unlikelihood of recovery
Apprehension of capture
Prize and search cases
70
70
71
71
71
71
72
72
74
80
82
87
CHAPTER 12 SEIZURE
Meaning of “seizure”
Illustrative cases describing the insured peril
The presence of force
Public or private ends
Seizure of the ship by those on board
Seizure of the cargo by those on board
91
91
93
98
100
101
103
CHAPTER 13 ARREST, RESTRAINT, DETAINMENT …
105
General105
Arrest105
Restraint
106
Detainment107
Cases illustrating the insured peril
108
Force109
The frustration Clause
111
Mutual War Risks Associations—practice
113
The Bamburi decision
113
The 12-month Clause
114
CHAPTER 14 … AND THE CONSEQUENCES THEREOF OR ANY
ATTEMPT THEREAT
115
CHAPTER 15 DERELICT MINES, TORPEDOES, BOMBS AND
WEAPONS OF WAR
118
Generally118
Ships and freight
120
Containers121
Cargo122
ix
DETA I LED Contents
CHAPTER 16 STRIKERS, LOCKED-OUT WORKMEN OR PERSONS
TAKING PART IN LABOUR DISTURBANCES, RIOTS OR
CIVIL COMMOTIONS
123
The “strikes risk” Clause
123
“Strikers”124
“Locked-out workmen”
127
“Persons taking part in labour disturbances”
128
Examples of “labour disturbances”
128
CHAPTER 17 RIOTS, CIVIL COMMOTIONS
130
“Riot”130
Riot as a public order offence
132
Riot as an insured peril
133
The Riot (Damages) Act 1886 and the Riot Compensation Act 2016
134
“Civil commotion”
136
Riot, civil commotion in other common law jurisdictions
139
Summary141
CHAPTER 18 ANY TERRORIST …
Maritime terrorism: incidences and litigation
Judicial approaches to interpreting terrorism as a contractual term
The definition of terrorism in marine insurance policies
Statutory definitions of terrorism
The judicial interpretation of “terrorism” in insurance-related litigation
The insured perils under Aii: the relationship between the 9/11 attacks
and the subsequent US government warnings
Did 9/11 amount to “acts of war” or “armed conflict” within the seventh
paragraph of perils under cover Ai?
Prior claims related to terrorism
143
143
143
144
145
146
149
150
151
CHAPTER 19 … OR ANY PERSON ACTING MALICIOUSLY OR FROM
A POLITICAL MOTIVE
153
Malice and maliciously
153
Malice as “targeted” or “wanton” vandalism
154
The “targeted malice” test
154
The “wider” test developed by Colman J.
155
The test in The B Atlantic
156
Malicious damage: specific intent and non-marine insurance
cases158
Conclusions on malicious conduct
160
Malicious acts: proof of complicity
160
Malicious damage and related perils
160
Examples from beyond the litigated cases
161
Political motive
162
x
DETA I LED Contents
CHAPTER 20 PIRACY
164
Piracy as an insured peril: Hull & Machinery cover
164
Piracy as an insured peril: cargo cover
164
Piracy: the limits of the peril
165
Piracy: incidences
165
Piracy: definitional issues
166
Piracy and location: high seas/territorial waters
168
Piracy and method: theft/attempted theft/ransom
168
Piracy and strangers: crew/passengers
171
Piracy and seizure for political motive
172
Anti-piracy measures and marine insurance
173
Piracy: nature and timing of loss by piratical seizure
173
Actual total loss in marine insurance
174
Piratical capture and loss
175
Capture and recovery
175
Examples of losses by piracy from outside the litigated cases
176
Summary177
CHAPTER 21 CONFISCATION AND EXPROPRIATION
179
CHAPTER 22 SUE AND LABOUR
180
Introduction180
Commencement and duration of sue and labour
182
Effect of failure to sue and labour
183
Extraordinary expenses
184
Salvage and general average
185
Illegality
186
CHAPTER 23 EXCLUSIONS
General approach to construction
Requisition (Clause 4.1.3)
Pre-emption (Clause 4.1.3)
Exclusion for capture, etc., by the “home” government (Clause 4.1.4)
Exclusion for quarantine regulations, customs or trading regulations
(Clause 4.1.5)
Exclusion for “the operation of ordinary judicial process” (Clause 4.1.6)
Exclusion for “failure to provide security or to pay any fine or penalty or
any financial cause” (Clause 4.1.6)
187
187
188
190
190
CHAPTER 24 WAR RISKS AND MARINE INSURANCE LEGISLATION
The Marine Insurance Act 1906: construction and effect on the
common law
Interpretation of the 1906 Act as a codifying statute
The Insurance Act 2015: construction and effect on the common law
Contracting out under the Marine Insurance Act 1906 and the Insurance
Act 2015
196
xi
190
193
194
196
197
199
199
DETA I LED Con ten ts
Utmost good faith, non-disclosure, misrepresentation and fair presentation
of the risk under the MIA 1906 and IA 2015
Misrepresentation and non-disclosure under the MIA 1906
Non-disclosure under the MIA 1906
The modern application of section 18 MIA 1906
The broker’s duty of pre-contractual disclosure under section 19 MIA 1906
Misrepresentation under section 20 MIA 1906
Misrepresentation and non-disclosure (“fair presentation of the risk”)
under the IA 2015
Warranties and risk management clauses
Navigation limits: the current contractual provisions
Navigation limits as promissory warranties
Promissory warranties and the MIA 1906
Risk management clauses under the MIA 1906
Insurance warranties and risk management clauses under the
IA 2015
200
201
201
204
205
205
208
212
212
215
216
219
220
CHAPTER 25 TOTAL LOSS AND NOTICE OF ABANDONMENT
223
Actual and constructive total losses
223
Election for a constructive total loss
225
Abandonment226
Consequences of rejection of notice of abandonment
228
Restoration229
Time for giving notice of abandonment
229
The 12-month Clause
230
Cases where notice of abandonment is not necessary
231
Missing ships
231
CHAPTER 26 HELD COVERED
The “family” of held covered clauses
“Simple” held covered clauses
Held covered clauses, notice and the doctrine of utmost good faith
Simple held covered clauses: conclusions
Complex held covered clauses
Complex clauses: prior notice
The doctrine of utmost good faith
232
232
233
235
235
236
238
239
CHAPTER 27 WILFUL MISCONDUCT AND FRAUDULENT CLAIMS
Proof of wilful misconduct and scuttling
Wilful misconduct in war risks insurance
Wilful misconduct as a contractual exclusion or public policy rule
Wilful misconduct: deliberate actions, gross negligence and recklessness
Forfeiture rule in war risks insurance
The limits of “fraudulent claims” for the purposes of forfeiture
241
241
242
243
244
246
247
xii
DETA I LED Contents
The forfeiture remedy at common law
The forfeiture remedy under the Insurance Act 2015
The continuing duty of utmost good faith in war risks insurance
Cumulative effect
249
249
250
250
CHAPTER 28 THE PROXIMATE CAUSE
Proximate cause generally
Several things happen more or less at once
Leyland Shipping Company Limited v. Norwich Union Fire
Insurance Society Ltd.
A casualty happens but its cause cannot be established
Conclusion on proximate cause
251
252
254
CHAPTER 29 CARGO WAR AND STRIKES CLAUSES
Introductory
Institute War Clauses (Cargo)
Institute Strikes Clauses (Cargo)
Exclusion Clauses
Duration—War Clauses
Duration—Strikes Clauses
Duration—notices
Minimising losses and waiver
Reasonable despatch
264
264
264
264
264
265
266
267
267
267
CHAPTER 30 CONTAINERS
269
255
256
262
CHAPTER 31 WAR RISK INSURANCE IN TIME OF WAR
270
The reinsurance agreement
275
The reinsurance: Clauses 1 to 3
276
The reinsured ships: Clauses 4 to 5
276
Insured values: Clauses 6 to 8
276
Conversion into sterling: Clauses 9 to 11
277
The reinsurance premiums: Clauses 12 to 14
277
General premium notices: Clause 15
277
Special premium notices: Clause 16
277
Consultation: Clause 17
277
Settlement of claims: Clauses 18 to 21
278
Disputes: Clause 31
278
Commencement and termination: Clauses 33 to 35
278
The NATO war risks insurance scheme
280
Introductory280
First stage—1970 to 1982
281
Second stage—1982 to 1992
284
The policy
284
xiii
DETA I LED Contents
Methods of underwriting
285
Structure285
The improved valuation scheme
286
The improved basic principles
286
The South Atlantic War 1982—the Gulf War 1991
287
Index
290
xiv
FOR EWOR D
Sir Bernard Rix
It is a pleasure to write a foreword for this excellent work, now in its Fourth Edition,
which has the virtues of a fascinating subject-matter concisely covered.
The original author, the late Michael Miller, has now been accorded the accolade of
having his name inserted in the title of the book, while its present editors come with the
experience of legal practice and academe. The book is therefore the product of underwriting, forensic and academic insight.
The core and particular strength of the book are the chapters in which individual perils
and concepts of the modern Institute War Clauses are separately analysed, with the benefit
of illustrative jurisprudence. More general elements of marine insurance, such as constructive total loss, proximate cause, sue and labour, and the reforms of the Insurance Act
2015, are covered in a helpful way, but always with the focus on the particular problems
of war risks.
Since the last edition in 2005 there have been a number of important new decisions,
several of them in the Supreme Court. The doctrine of fraudulent claims has been considered in Versloot Dredging BV v. HDI Gerling Industrie Versicherung AG [2016] UKSC 45.
The doctrine of proximate clause has been considered in The B Atlantic [2018] UKSC 26.
The doctrine of constructive total loss has been considered in The Renos [2019] UKSC 29.
There have also been a number of decisions on individual perils. A short stroll among
such cases, as in Pictures from an Exhibition, reminds us of how this area of the law cannot be beaten for its strange and wonderful tableaux.
In Egypt, a vessel was arrested by court proceedings in respect of a judgment debt for
unpaid port dues owed by entirely different owners with which the respondent vessel and
her owner had no connection. The question was whether the resultant losses were excluded
as arising out of “ordinary judicial process”. The English commercial court held that they
were not. It was not a case of ordinary judicial process, but of “extortion”, aided by judicial
forgery. The court “was acting piratically” (The Silva [2011] EWHC 181 (Comm)).
Off the coast of Somalia, pirates seized a vessel, and a ransom was promptly extracted,
almost as a matter of business. Was the vessel and her cargo an actual total loss immediately on her seizure, so that recovery was a matter for the underwriters rather than the
claimant, especially as the payment of ransom was so undesirable that it could not be
taken into account as a means of recovery? No, said the court of appeal: undesirable as the
payment of ransom might be (the court referred to “morally muddied waters”), there had
been no irretrievable loss at the time of piratical seizure (Masefield AG v. Amlin Corporate
Member Ltd [2011] EWCA Civ 24).
xv
Foreword
In Venezuela, divers discovered cocaine strapped to the vessel’s hull ten metres below
the waterline. Members of the crew, including the master, were convicted of smuggling.
The vessel was detained for six months and her owner abandoned her and claimed for a
constructive total loss caused by “person[s] acting maliciously”. The Supreme Court held
that drug smugglers, who hoped after all to evade detection, had not been acting maliciously towards the vessel or her owner. In any event, even if they had been, the claim
was excluded by being equally caused by the exclusion of “infringement of customs …
regulations” (The B Atlantic [2018] UKSC 26).
Off Yemen, during a voyage from Ukraine to China, pirates boarded the vessel and set
off an improvised explosive incendiary device, which started a fire leading to the loss of
the vessel. However, it was all part of a “scuttling” plot by owners, a charade of piratical
fakery. After the owners’ claim was struck out for dishonesty in connection with the disclosure of documents, the mortgagee bank pursued the claim for itself. Could it prove loss
by capture, seizure or their consequences, or persons acting maliciously, or piracy? No,
said the commercial court. There was no such peril involved as a proximate cause, only
the wilful misconduct of the assured (The Brillante Virtuoso [2019] EWHC 2599 (Comm)).
Stories such as these will continue to illuminate the jurisprudence of War Risks. And
this book will continue to assist those professionally involved in the consequences of such
stories. I wish it all good fortune.
January 2020
xvi
PR EFACE TO T H E FOU RT H EDI T ION
The Fourth Edition of this work is the first to be entitled Miller’s Marine War Risks,
in tribute to the late Michael Miller. The work was his creation from the First Edition in
1990, and he was solely responsible for the Second and Third Editions. His writing style is
distinctive, reflecting both his passion for the subject-matter and his belief that exposition
of the law is best told as an unfolding story, both in individual cases and over time. The
current authors could not hope to imitate his style with any degree of success, and we
have not sought to do so. Whilst we have endeavoured to retain, where possible, Michael’s
personal insights, our style is necessarily more analytical. It is our hope that the blend
will prove of use to practitioners whilst preserving some of the distinctive nature of the
original work.
There have been many recent developments in the law of marine war risk insurance.
Cover for malicious and political acts has received recent attention from the Supreme
Court in The B Atlantic [2018] 2 Lloyd’s Rep. 1 and in the recent trial of The Brilliante
Virtuoso [2019] EWHC 2599 (Comm). The scope of exclusions from cover, in particular
customs infringement and ordinary judicial process, continues to receive attention, in The
B Atlantic and The Silva [2011] 2 Lloyd’s Rep. 141.
This edition also includes a treatment of some entirely new, but important topics. The
Insurance Act 2015 brings significant reform of the law relating to the presentation of risks
and as to warranties. These new statutory provisions replace a number of well-established
principles in the Marine Insurance Act 1906 for contracts made after 12 August 2016.
The 2015 Act has the stated intention of rebalancing the remedies available to insurers for
breach of these key duties, and is of genuine significance for modern war risks policies.
Detailed consideration is now also given to the rules relating to deliberate and reckless
conduct by the insured, as recently developed by the Supreme Court in The DC Merwestone [2016] 2 Lloyd’s Rep. 198. and at first instance in The Brilliante Virtuoso [2019]
EWHC 2599 (Comm).
Michael Davey, James Davey, Oliver Caplin
May 2020
xvii
ACK NOW LEDGM E N TS
The authors would like to thank Lyall Hickson from The UK Club for lending his expert
experience to the updating of Chapter 2. They would also like to thank their editors at
Informa for their seemingly endless patience whilst waiting for the manuscript.
In addition,
JD would like to thank Amanda, Elizabeth and Charlotte, and his parents.
MD would like to thank Christina and Alex, and his parents.
OC would like to thank Susannah and Zachary for putting up with all the late
nights and lost Sundays, and his parents for setting him on the right track.
xviii
TA BLE OF CASES
Ace European Group Ltd and Others v. Chartis Insurance [2012] Lloyd’s
Rep. IR 603; [2013] Lloyd’s Rep. IR 485������������������������������������������������������ 28.7, 28.48
ACE European Group v. Standard Life Assurance [2013] Lloyd’s Rep. IR 415���������� 22.15
Aegeon, The; Agapitos v. Agnew [2002] 2 Lloyd’s Rep. 42���������������������������������������� 27.26
Agapitos v. Agnew (The Aegeon) [2002] 2 Lloyd’s Rep. 42���������������������������������������� 27.26
Ageas Insurance Ltd v. Stoodley [2019] Lloyd’s Rep. IR 1�������������������������������������������24.2
Aioi Nissay Dowa Insurance Co Ltd v. Heraldglen Ltd [2013] 1 C.L.C. 440; [2013]
Lloyd’s Rep. I.R. 281��������������������������������������������������������������������������������������������� 18.15
Aitchison v. Lohre (1879) 4 App Cas. 755�������������������������������������������������������������������� 22.16
Aliza Glacial, The; Handelsbanken ASA v. Dandridge [2002] 2 Lloyd’s Rep. 421����� 11.6,
22.12, 23.2, 23.17, 23.23, 23.26
American Insurance Company v. Dunham 2 Wend. N.Y. 463���������������������������12.15, 12.17
Andersen v. Marten [1907] 2 K.B. 248������������������������������������������� 11.9, 11.12, 11.36–11.37
Andreas Lemos, The; Athens Maritime Enterprises Corporation v. Hellenic Mutual War
Risks Association (Bermuda) Ltd. [1982] 2 Lloyd’s Rep. 483�������������� 6.9, 17.9, 20.10,
20.11, 20.14, 20.15, 20.16
Anita, The; Panamanian Oriental SS Corporation v. Wright [1970] 2 Lloyd’s
Rep. 365; [1970] 2 Lloyd’s Rep. 371; [1971] 2 Lloyd’s Rep. 487, 491; [1971] 1
W.L.R. 882������������������������� 1.20, 12.6, 13.8, 19.37, 20.1, 21.2, 23.2, 23.11, 23.15, 23.16,
23.19, 23.21, 25.19
Antaios, The; Marine Transport Overseas GmbH v. Unitramp and Others [1981] 2
Lloyd’s Rep. 284������������������������������������������������������������������������������������������������������3.20
Apex, The; Phoenix Shipping Company v. Apex Shipping Corporation [1982] 2 Lloyd’s
Rep. 407...3.24
Arcangelo v. Thompson (1811) 1 Camp. 620�������������������������������������������12.15, 12.18, 12.22
Arnold v. Britton [2015] AC 1619�������������������������������������������������������������������������������������5.5
Astrovlanis Compania Naviera SA v. Linard (The Gold Sky) [1972] 1 Lloyd’s Rep. 331,
333–334; 2 Lloyd’s Rep. 582��������������������������������������������������������������������������22.11, 27.5
Athel Line Limited v. Liverpool & London War Risks Insurance Association Limited
[1946] KB 117�������������������������������������������������������������������������������������������������������� 28.12
Athens Maritime Enterprises Corporation v. Hellenic Mutual War Risks Association
(Bermuda) Ltd. [1982] 2 Lloyd’s Rep. 483 (The Andreas Lemos)������� 6.9, 17.9, 20.10,
20.11, 20.14, 20.15, 20.16
xix
TA BLE OF CASES
Athos, The; Telfair Shipping Corporation v. Athos Shipping Company S.A. [1981] 2
Lloyd’s Rep. 74�������������������������������������������������������������������������������������������������������� 3.19
Atlantic Maritime Co Inc v. Gibbon [1954] 1 Q.B. 88�������������������������������������������������13.27
Atlantic Mutual Insurance v. The King [1919] 1 K.B. 309�������������������������������������������� 10.4
Atlantik Confidence, The; Kairos Shipping and another v. Enka 7 Co. LLC and others,
[2016] 2 Lloyd’s Reports 525����������������������������������������������������������������������������������� 27.4
Atlasnavios Navegacao Lda v. Navigators Insurance Co Ltd (The B Atlantic) [2012] 1
Lloyd’s Rep. 629; [2015] I Lloyd’s Rep. 117; [2016] Lloyd’s IR 565 (CA); [2016] 2
Lloyd’s Rep. 351; [2017] 1 W.L.R. 1303; [2018] 2 Lloyd’s Rep. 1; [2018] 2
WLR 1671 (SC); [2019] A.C. 136�������������������������������������������5.1, 8.4, 8.5, 19.18, 19.20,
19.24, 19.25, 19.26, 19.28, 19.34, 19.36, 19.38, 21.2, 22.9, 22.10, 22.13, 22.16,
23.2, 23.11, 23.13, 23.14, 23.15, 23.16, 23.23, 23.26, 25.10, 28.10, 28.11, 28.13
Aubert v. Gray (1862) 3 B. & S. 169������������������������������������������������������������������� 13.11–13.12
Axa Corporate Solutions SA v. National Westminster Bank [2010] 2 CLC 149��������� 18.16
AXA General Insurance Ltd v. Gottlieb [2005] Lloyd’s Rep. I.R. 369������������ 27.24, 27.32
AXA v. Arab Insurance Group [2016] Lloyd’s Rep. IR 1; [2017] Lloyd’s
Rep. IR 216�������������������������������������������������������������������������������������������������24.23, 24.26
B Atlantic, The; Atlasnavios Navegacao Lda v. Navigators Insurance Co Ltd [2012] 1
Lloyd’s Rep. 629; [2015] I Lloyd’s Rep. 117; [2016] Lloyd’s IR 565 (CA); [2016] 2
Lloyd’s Rep. 351; [2017] 1 W.L.R. 1303; [2018] 2 Lloyd’s Rep. 1; [2018] 2 WLR 1671
(SC); [2019] A.C. 136������������������������������������ 5.1, 8.4, 8.5, 11.3, 18.10, 19.4–19.6, 19.18,
19.20, 19.24, 19.25, 19.26, 19.28, 19.34, 19.36, 19.38,
21.2, 22.9, 22.10, 22.13, 22.16, 23.2, 23.11, 23.13, 23.14,
23.15, 23.16, 23.23, 23.26, 25.10, 28.10, 28.11, 28.13
Bainbridge v. Neilson (1808) 10 East 329��������������������������� 11.26, 11.30, 25.10, 25.12, 26.17
Bamburi, The; Owners of the Bamburi v. Compton [1982] 1 Lloyd’s
Rep. 312������������������������������������ 12.4, 12.27, 13.3, 13.7, 13.13–13.14, 13.29–13.30, 25.6
Bank of Nova Scotia v. Hellenic Mutual War Risks Association (Bermuda) Ltd.
(The Good Luck) [1988] 1 Lloyd’s Rep. 514; [1989] 2 Lloyd’s Rep. 239 (C.A.);
[1991] 2 Lloyd’s Rep. 191 (H.L.); [1992] 1 AC 233�������������� 24.54, 24.55, 24.62, 24.64
Banque Monetaca and Carystuiaki and Others v. Motor Union Insurance Company
Ltd. (1923) 14 Ll.L. Rep. 48�����������������������������������������������������������������������12.23, 20.27
Bayview Motors Ltd. v. Mitsui Marine [2003] 1 Lloyd’s Rep. 131; [2003] 1 Lloyd’s
Rep. 652���������������������������������������������������������������������������������������� 12.2, 12.3, 12.5, 12.7
Bayview Motors Ltd. v. Mitsui Marine and Fire Insurance Co. Ltd [2003] 1 Lloyd’s
Rep. 131,����������������������������������������������������������������������������������������������������������������28.23
Becker Gray & Co. Ltd. v. London Assurance Corporation [1918] A.C. 101��� 11.47, 11.53,
11.57
Bedfordshire Police Authority v. Constable [2009] Lloyd’s Rep. IR 39; [2009] Lloyd’s
Rep. IR 607���������������������������������������������������������������������������������������������������17.11, 17.15
Berens v. Rucker (1761) 1 Blackstone W. 313����������������������������������������������������������������11.14
Beresford v. Royal Insurance Co Ltd [1938] AC 586, 595��������������������������������������������� 27.9
Berger v. Pollock [1973] 2 Lloyd’s Rep. 442����������������������������������������������������������������24.21
Bernisse, The [1920] 5 Ll.L. Rep. 359; [1920] P. 1; [1921] A.C. 458������������������11.64–11.65
xx
TA BLE OF CASES
Black King Shipping Corporation and Wayang (Panama) S.A. v. Mark Ranald
Massie (The Litsion Pride) [1985] 1 Lloyd’s Rep. 437���������������������� 3.15, 24.55, 26.11,
26.12–26.17, 26.20, 26.23, 27.25, 27.34, 29.22
Blane Steamships Ltd v. Minister of Transport [1951] 2 K.B. 965������������������������������ 25.16
Bloomfield v. Springfield Hosiery Finishing Co Ltd [1972] 1 WLR 386���������������������� 16.9
Board of Trade v. Hain Steamshp Company Ltd. [1929] A.C. 535��������������������������������6.20
Boggan (1923) 16 Ll.L.Rep. 64������������������������������������������������������������������������������������� 17.27
Bombay and Persia Steam Navigation Company v. The Shipping Controller (1921) 7
Ll.L.Rep. 226�����������������������������������������������������������������������������������������������������������23.6
Booth v. Gair (1863) 15 C.B. (N.S.) 291�������������������������������������������������������������������������22.7
Braconbush, The; United Scottish Insurance Company Ltd. v. British Fishing Vessels
Mutual War Risks Association Ltd. (1945) 78 Ll.L.Rep. 70���������������������� 28.41, 28.44
Bradley v. H. Newsom Sons & Co. [1919] A.C. 16������������������������������������������������������ 25.14
Bradshawe v. Burton (1597) 79 E.R. 1227�����������������������������������������������������������������������8.9
Brillante Virtuoso, The; Suez Fortune Investments Ltd v. Talbot Underwriting Ltd
[2015] 1 Lloyd’s Rep. 651; [2019] EWHC 2599 (Comm)������19.26, 20.18, 20.19, 20.31,
22.8, 22.10, 24.55, 26.18, 27.4, 27.6
Britain Steamship Co. v. The King (The Petersham) (1919) 2 K.B. 670; (1920) 3
Ll.L.Rep. 163, 205; (1920) 4 Ll.L.Rep. 245; [1921] 1 A.C. 99����������������������� 10.9, 11.12
British & Foreign Marine Insurance Co Ltd v. Gaunt [1921] 2 A.C. 41���������������������� 22.11
British and Foreign Marine Ins. Co. Ltd. v. Samuel Sanday & Co. [1916] 1
A.C. 650�����������������������������������������������������������������������������������������������11.13, 11.47, 12.3
Brotherston v. Barber (1816) 5 Mau. & Sel. 418����������������������������������������������������������� 11.29
Brotherton v. Aseguradora Colseguros SA [2003] Lloyd’s Rep. I.R. 746�������������������24.35
Brown v. Smith (1813) 1 Dow 349 (1813) 3 E.R. 725���������������������������������������������������20.24
Brownsville Holdings Ltd v. Adamjee Insurance Co (The Milasan) [2000] 2 Lloyd’s
Reports 458�������������������������������������������������������������������������������������������������������������� 27.4
Bulchow Vaughan and Co. v. Compania Minera (1916) 32 T.L.R. 404�������������13.31–13.32
Bunga Melati Dua, The, Masefield AG v. Amlin Corporate Member Ltd [2010] 1
Lloyd’s Rep. 509; [2011] 1 Lloyd’s Rep. 630; [2011] 1 W.L.R. 2���� 11.40, 20.17, 20.32,
20.38, 22.11, 22.20, 25.3, 25.5
Burma Oil Company (Burma Trading) Ltd v. Lord Advocate [1965] A.C. 75��������������23.3
Butler v. Wildman (1820) 3 B. & Ald. 398������������������������������������������������ 11.57, 11.60, 14.6
C A Blackwell (Contractors) Ltd v. Gerling Allegemeine Versicherungs AG [2008]
Lloyd’s Rep. IR 529������������������������������������������������������������������������������������������������� 27.9
Cameron v. HM Advocate [1971] JC 50; [1971] SLT 333���������������������������������� 20.14, 20.25
Capricorn, The; Cepheus Shipping Corporation v. Guardian Royal Exchange Assurance
Plc [1995] 1 Lloyd’s Rep. 622��������������������������������������������������������������������������������25.23
Captain Panagos DP, The; Continental Illinois National Bank & Trust Co. of
Chicago and Xenofon Maritime SA v. Alliance Assurance Co. Ltd. [1989] 1
Lloyd’s Rep. 33�������������������������������������������������������������������������������������������������������� 27.5
Captain Stefanos, The; Osmium Shipping Corp v. Cargill International SA
[2012] 2 Lloyd’s Rep. 46 ��������������������������������������������������������������������������������������� 20.17
Carter v. Boehm (1766) 3 Burr 1905, 978 ER 1162������������������������������������������������������ 24.18
xxi
TA BLE OF CASES
Castrique v. Imrie (1870) L.R. 4 H.L. 414�������������������������������������������������������������������� 23.11
Cendor MOPU, The [2011] 1 Lloyd’s Rep. 560 (SC)���������������������������������28.9, 28.10, 28.13
Cepheus Shipping Corporation v. Guardian Royal Exchange Assurance Plc
(The Capricorn) [1995] 1 Lloyd’s Rep. 622�����������������������������������������������������������25.23
Clothing Management Technology Ltd v Beazley Solutions [2012] Lloyd’s
Rep. IR 329�������������������������������������������������������������������������������������������������������������� 17.5
CMA CGM SA v. Beteiligung (The Northern Pioneer) [2003] 2 Lloyd’s Rep. 212������6.33
Cologan v. The Governor and Company of London Assurance (1816) 5
Mau. & S. 447�������������������������������������������������������������������������������������������������������� 11.32
Compania Maritima of Barcelona v. Wishart (1918) 14 Asp. M.L.C. 298; (1918) 23
Com. Cas. 264��������������������������������������������������������������������������������������������28.32, 28.42
Compania Maritima San Basilio SA v. The Oceanus Mutual Underwriting Association
(Bermuda) Ltd, 9The Eurysthenes) [1976] 2 Lloyd’s Rep. 171�������������������������������24.6
Compania Naviera Martiartu v. The Royal Exchange Assurance Corporation [1923] 1
K.B. 651�����������������������������������������������������������������������������������������������������������������28.34
Connex South Eastern Ltd v. National Union of Rail Maritime and Transport Workers
[1999] IRLR 249����������������������������������������������������������������������������������������������16.1, 16.8
Continental Illinois National Bank & Trust Co. of Chicago and Xenofon Maritime
SA v. Alliance Assurance Co. Ltd. (The Captain Panagos DP) [1989] 1 Lloyd’s
Rep. 33��������������������������������������������������������������������������������������������������������������������� 27.5
Conway v. Gray (1809) 10 East 536������������������������������������������������������������������������������ 13.11
Cooper v. The General Fire & Life Assurance Corporation Ltd. (1922) 12 Ll.L.
Rep. 514; (1922) 13 Ll.L.Rep. 219��������������������������������������������������������������� 17.27, 17.33
Cory & Sons v. Burr (1881) 8 Q.B.D 313 (1882) 8 App. Cas. 393; (1882) 9 Q.B.D.
463; (1883) 8 App. Cas. 393������������������������������������ 11.2, 11.10, 11.13, 11.14, 12.1, 12.2,
12.7, 12.15, 12.16, 12.17, 12.18, 12.19,
12.20, 12.21, 12.22, 13.3, 19.38, 21.2, 28.18
Cosco Bulk Carrier Co Ltd v. Team-Up Owning Co Ltd (The Saldanha) [2011] 1
Lloyd’s Rep. 187���������������������������������������������������������������������������������������������������� 20.17
Costain-Blankevoort (U.K.) Dredging Co. Ltd. v. Davenport (The Nassau Bay) [1979]
1 Lloyd’s Rep. 395����������������������������������������������������������������������������������14.2, 15.5, 15.7
Court Line Ltd. v. The King (1945) 78 Ll.L.Rep. 390������������������������������������������������� 25.15
Court Line v. Dant and Russell (1939) 44 Com. Cas. 345; (1939) 64 Ll.L.Rep. 212;
(1939) 161 L.T. 35�����������������������������������������������������������������������������������������������������12.9
Coxwold, The; Yorkshire Dale Steamship Co. Ltd. v. Minister of War Transport [1900] 2
Q.B. 339; [1942] A.C. 691; (1942) 73 Ll.L.Rep. 1; [1970] 2 Lloyd’s
Rep. 365���������������������������������������������������������������������������������������������������� 1.19, 6.1, 11.2
Crew Widgery & Co. v. Great Western Steamship Company (1887) W.N. 161���������� 23.18
Crudesky, The; Great Elephant Corporation v Trafigura Beheer BV [2012] 2 Lloyd’s
Rep. 503�������������������������������������������������������������������������������������������������������������������3.26
Crystal, The [1894] A.C. 508, 519�������������������������������������������������������������������������������� 25.16
CTI v. Oceanus [1984] 1 Lloyd’s Rep. 476�������������������������������������������������������������������24.21
Curtis & Sons v. Matthew [1919] 1 K.B. 425�������������������������������������������������� 6.17, 7.1, 8.19
Czarnikow v. Leslie & Anderson (1941) 70 LL. Rep. 319���������������������������������������������� 13.4
Dawson’s Field (1972)���������������������������������������������������������������������������������������������������20.39
xxii
TA BLE OF CASES
DC Merwestone, The; Versloot Dredging BV v. HDI Gerling Industrie Versicherung
AG [2016] 2 Lloyd’s Rep. 198; [2017] A.C. 1����������������������� 26.13, 26.21, 27.22, 27.23,
27.26, 27.27, 27.31
De Hahn v. Hartley (1786) 1 Term Rep. 343; 99 ER 1130�������������������������������������������� 24.76
Dean v. Hornby (1854) 3 E. & B. 180; 118 ER 1108������������������������ 12.2, 20.35, 20.36, 25.3
Demetra K, The; Kiriacoulis Lines SA v. Compagnie d’Assurances Maritimes
Aeriennes et Terrestres (CAMAT), [2002] 2 Lloyd’s Rep. 581����������������������������18.23
Discaria, The; Islamic Republic of Iran Shipping Lines v. P. & O. Bulk Shipping
[1985] 2 Lloyd’s Rep. 489, 493��������������������������������������������������������������������������������3.22
Dobson v General Accident Fire & Life Ass Corpn [1990] 1 QB 274��������������������������� 17.5
Doelwyk, The; Ruys v. Royal Exchange Assurance Corporation [1897]
2 Q.B. 135������������������������������������������������������������������������������� 11.34, 11.41, 25.10, 26.17
Dora, The; Inversiones Manria SA v. Sphere Drake Insurance Co Malvern
Insurance Co and Niagara Fire Insurance Co, [1989] 1 Lloyd’s Rep. 69��������������24.35
Douglas, The (1882) 7.P.D. 151������������������������������������������������������������������������������������� 25.16
Driefontein Consolidated Gold Mines Ltd. v. Janson [1900] 2 QB 339������������������ 6.5, 13.2
Drinkwter v. The Corporation of the London Assurance (1767) 2 WIls.
K.B. 363�������������������������������������������������������������������������������������������������� 8.11, 8.15, 8.19
Economides v. Commercial Union [1998] QB 587�������������������������������� 24.29, 24.30, 24.43
Eide UK Ltd v. Lowndes Lambert Group Ltd [1999] QB 199���������������������������������������24.8
El Champion, El Challenger, and El General; Pacific Navigation
Corporation of Monrovia v. Islamic Republic of Iran Shipping Lines
[1985] 2 Lloyd’s Rep. 275���������������������������������������������������������������������������������������� 3.21
Elena G, The [2001] 2 Lloyd’s Rep. 378�����������������������������������������������������������������������24.20
Eleni P, The; Eleni Shipping Ltd v. Transgrain Shipping BV, [2019] 2 Lloyd’s
Rep. 265����������������������������������������������������������������������������������������������������������������� 20.17
Eleni Shipping Ltd v. Transgrain Shipping BV (The Eleni P) [2019] 2 Lloyd’s
Rep. 265����������������������������������������������������������������������������������������������������������������� 20.17
Elfie A Issaias v. Marine Insurance Co Ltd (1923) 15 Ll L Rep. 186�������������������������� 19.35
Empresa Cubana de Fletes v. Kissavos Shipping Company S.A. (The Agathon)
(No. 2) [1984] 2 Lloyd’s Rep. 183����������������������������������������������������������������������������3.23
European Group Ltd and Others v. Chartis Insurance [2012] Lloyd’s Rep. IR 603����28.45
Eurysthenes, The; Compania Maritima San Basilio SA v. The Oceanus Mutual
Underwriting Association (Bermuda) Ltd, [1976] 2 Lloyd’s Rep. 171�������������������24.6
F.A. Tamplin Steamship Company v. Anglo-Mexican Petroleum Products
Co Ltd [1916] 2 A.C. 397����������������������������������������������������������������������������������������� 13.4
Field v. Receiver of Metropolitan Police [1907] 2 K.B. 853, 860����������������������������������� 17.2
Finlay v. The Liverpool and Great Western Steamship Company (1870) 22
L.T. 251������������������������������������������������������������������������������������������������������������������ 23.18
Flota Merchante Dominicana C. Por. A, Owner of the “Santo Domingo” v. American
Manufacturers Mutual Insurance Company [1970] A.M.C. Vol II, 1687���������������23.5
Forestal Land, Timber & Railways Company v. Rickards (The Minden) (1940) 67
L1.L.Rep. 484; (1940) 68 Ll.L.Rep. 45 (C.A.); (1941) 70 Ll.L.Rep. 173; [1942]
A.C. 50 (H.L.)������������������������������������������� 11.11, 11.46, 11.56, 12.44, 13.23, 25.6, 25.10
Forsikringsaktieselskapet Vesta v. Butcher [1989] AC 852�����������������������������������������24.53
xxiii
TA BLE OF CASES
Forster v. Christie (1809) 11 East 205�������������������������������������������������������������������� 13.4, 13.8
France Fenwick and Company Limited v. The King [1927] 1 K.B. 458������������������������23.6
Galloway v. Guardian Royal Exchange (UK) Ltd [1999] Lloyd’s Rep. IR 209����������� 27.24
Galoo Ltd v. Bright Grahame Murray [1994] 1 WLR 1360����������������������������������������� 28.12
Geipel v. Smith (1871-72) L.R. 7 Q.B. 404������������������������������������������������������������ 13.3, 13.4
Girl Pat, The; Marstrand Fishing Co Ltd v. Beer (1936) 56 Ll L Rep. 163, 170����������20.24
Gold Sky, The; Astrovlanis Compania Naviera SA v. Linard [1972] 1 Lloyd’s
Rep. 331, 333–334; 2 Lloyd’s Rep. 582����������������������������������������������������������22.11, 27.5
The Good Luck; Bank of Nova Scotia v. Hellenic Mutual War Risks Association
(Bermuda) Ltd. [1988] 1 Lloyd’s Rep. 514; [1989] 2 Lloyd’s Rep. 239 (C.A.);
[1991] 2 Lloyd’s Rep. 191 (H.L.); [1992] 1 AC 233�������������� 24.54, 24.55, 24.62, 24.64
Gordon v. Rimmington (1807) 1 Camp. 123���������������������������������������������������������������� 11.60
Goss v. Withers (1758) 2 Burr. 683; (1758) 2 Keny 325����������������������������11.14, 11.15, 11.16,
11.17, 11.19, 11.33
Great Elephant Corporation v Trafigura Beheer BV (The “Crudesky”) [2012]
2 Lloyd’s Rep. 503���������������������������������������������������������������������������������������������������3.26
Great Indian Peninsular Railway Company v. Saunders (1862) 2 B. & S. 266�������������22.7
Grecia Express, The; Strive Shipping Corp v. Hellenic Mutual War Risks Assocn
(Bermuda) Ltd [2002] 2 Lloyd’s Rep. 88; [2003] 1 CLC 40��������������19.2, 19.11, 19.14,
19.34, 19.35, 22.12, 24.36
Green v. British India Steam Navigation Co., British India Steam Navigation Co. v.
Liverpool & London War Risks Association (The Matiana) (1920) 3 L1.L.Rep. 205;
(1920) 4 Ll.L.Rep. 245; [1921] 1 A.C.99������������������������������������������������������������������ 10.9
Green v. Brown (1743) 2 Strange 1199���������������������������������������������1.9, 25.24, 28.27, 28.37
Green v. Elmslie (1784) QB 57���������������������������������������������������������������������������28.14, 28.17
Greene v. Pacific Murual Life Insurance Company (1864) 91 Mass. (9 Allen)
217������������������������������������������������������������������������������������������������������ 12.5, 12.39, 12.42
Greenock Steamship Co . Maritime Ins Co, Ltd [1903] 1 KB 367; [1903]
KB 657������������������������������������������������������������������������������������������������������������26.4, 26.5
Grell-Taurel Ltd v. Caribbean Home Insurance Company Ltd [2002] Lloyd’s
Rep. IR 655����������������������������������������������������������������������������������8.34, 8.37, 8.38, 17.34
Grunwick Processing Laboratories Ltd v. ACAS [1978] AC 655�������������������������������� 16.11
Gunvor SA v Crugas Yemen Ltd [2018] EWHC 2061 (Comm)�������������������������������������3.27
Hadkinson v. Robinson (1803) 3 Bos. & Pul. 388�������11.47, 11.48, 11.50, 11.55, 11.57, 13.8
Hahn v. Corbett (1824) 2 Bing. 205��������������������������������������������������������� 11.39, 28.16, 28.17
Hai Hsuan, The [1957] 1 Lloyd’s Rep. 428; [1958] 1 Lloyd’s Rep.351���������������� 12.5, 12.41
Hamilton v. Mendes (1761) 2 Burr. 683; (1761) 2 Burr. 1198; (1761) 2 Burr. 1199����������11.16,
11.21, 11.22, 11.23, 25.10, 25.11, 26.17
Handelsbanken ASA v. Dandridge (The Aliza Glacial) [2002] 2 Lloyd’s
Rep. 421����������������������������������������������������������������11.6, 22.12, 23.2, 23.17, 23.23, 23.26
Hartford (1924) 295 F. 663�������������������������������������������������������������������������������������������� 17.33
Havelock v. Hancill (1783) 3 Term Rep. 277; (1783) 3 Term
Rep. 377������������������������������������������������������������������������������������12.15, 12.16, 12.17, 13.3
Highlands Insurance Co v. Continental Insurance Co [1987] 1 Lloyd’s
Rep. 109����������������������������������������������������������������������������������������������������������������� 24.31
xxiv
TA BLE OF CASES
HIH Casualty & General Ins Ltd v. AXA Corporate Solutions [2003] Lloyd’s
Rep. I.R. 1��������������������������������������������������������������������������������������������������������������24.67
HIH Insurance & General Insurance Ltd v. Chase Manhattan Bank [2003] Lloyd’s
Rep. IR 230�������������������������������������������������������������������������������������������������24.22, 24.27
Home Insurance Company of New York v. Davila 212 F. (2d) 731
(1952)���������������������������������������������������������������������������������������������8.25, 8.27, 8.29, 8.31
Hood v. West End Motor Car Packing Company[1917] 2 K.B. 38���������������������� 26.6, 26.17
Houstman v. Thornton (1816) Holt N.P. 242�������������������������������������������������������������������25.9
Ide v. ATB Sales Ltd [2008] EWCA Civ 424������������������������������������������������������ 28.7, 28.48
IF P & C Insurance Ltd (Publ) v. Silversea Cruises Ltd, The Silver Cloud [2004]
Lloyd’s IR 696�������������������������������������������������������������������������������������� 6.41, 18.2, 18.18
Ikerigi Compania Naviera S.A. v. Palmer (The Wondrous) [1991] 1 Lloyd’s
Rep. 400; [1992] Lloyd’s Rep. 566����������������������������� 11.6, 13.1, 13.3, 13.7, 13.8–13.10,
23.12, 23.16, 23.25, 25.23
In re Etherington and the Lancashire and Yorkshire Accident Insurance Co [1909] 1
KB 591������������������������������������������������������������������������������������������������������������������ 28.10
Incorporated General Insurances Ltd v. A.R. Shooter t/a Shooter’s Fisheries (The
Morning Star) [1987] 1 Lloyd’s Rep. 401���������������������������������������������������������������� 21.2
Integrated Container Service Inc v. British Traders Insurance Co Ltd [1981] 2 Lloyd’s
Rep. 460; [1984] 1 Lloyd’s Rep. 154������������������������������������������������������22.3, 22.8, 30.2
International Dairy Engineering Company of Asia v. American Home Assurance
Company [1971] A.M.C. 1001������������������������������������������������������������������������������� 10.11
Inversiones Manria SA v. Sphere Drake Insurance Co Malvern Insurance Co and
Niagara Fire Insurance Co, The Dora [1989] 1 Lloyd’s Rep. 69���������������������������24.35
Ionides v. Pender (1873-74) LR 9 QB 531�����������������������������������������������������������������������24.7
Ionides v. The Universal Marine Insurance Co. (1863) 14 C.B. (N.S.) 259������������������ 1.10,
14.2, 14.3
Irvine v. Hine [1950] KB 55; [1950] KB 555, 568������������������������������������������������� 24.6, 25.6
Islamic Republic of Iran Shipping Lines v. P. & O. Bulk Shipping (The Discaria)
[1985] 2 Lloyd’s Rep. 489, 493��������������������������������������������������������������������������������3.22
Islamic Republic of Iran Shipping Lines v. Zannis Compania Naviera S.A.
(The Tzelepi) [1991] 2 Lloyd’s Rep. 265������������������������������������������������������������������3.25
Isothel, The; Wood v. Associated National Insurance Company Ltd.,[1985] 1
Qd R 297���������������������������������������������������������������������������������������������������������������� 27.14
J. Vermaas Scheepvaartbedrijf N.V. v. Association Technique de L’Importation
Charbonniere (The Laga) [1966] 1 Lloyd’s Rep. 582������������������������������������� 16.6, 16.7
John Cory & Sons v. Burr (1883) 8 App Cas 393�������������������������������������������������� 8.5, 28.13
Johnston & Co v. Hogg (1883) 10 Q.B.D. 432���������������������������������� 12.2, 12.13, 12.14, 13.2
Jones v. Schmoll (1785) 1 Term Rep. 130�����������������������������������������������������������������������12.9
Kacianoff v. China Traders Insurance Co. Ltd. [1914] 3 K.B. 1121������������������� 11.51, 11.55
Kairos Shipping and another v. Enka 7 Co. LLC and others, The Atlantik
Confidence [2016] 2 Lloyd’s Reports 525��������������������������������������������������������������� 27.4
Kaltenbach v. Mackenzie (1878) 3 C.P.D. 467������������������������������������������������������� 25.4, 25.8
Kausar v. Eagle Star Insurance Co Ltd [2000] Lloyd’s Rep. IR 154, 157��������������������24.26
xxv
TA BLE OF CASES
Kawasaki Kisen Kabushiki Kaisha v. Bantham Steamship Co. Ltd. (No. 2) [1939]
2 K.B. 544; [1939] 63 Ll.L.Rep. 155���������������������������������������������������� 5.8, 6.7, 8.7, 18.2
Kelly v. Norwich Union Fire Ins Society Ltd [1990] 1 W.L.R. 139�������������������������������28.8
Kidston v. The Empire Marine Insurance Company (1867) L.R. 2 C.P. 357�������� 22.5, 22.7
Kilduff v. Tower Insurance [2018] Lloyd’s Rep. IR 621; [2018] NZHC 704����������������24.51
Kiriacoulis Lines SA v. Compagnie d’Assurances Maritimes Aeriennes et Terrestres
(CAMAT), The Demetra K [2002] 2 Lloyd’s Rep. 581�����������������������������������������18.23
Kleinwort v. Shepard (1859) 1 El. & El. 447; (1859) 28 L.J.Q.B. 147�������������������12.2, 12.6,
12.37, 12.39
Sunport Shipping Ltd. v. Tryg-Baltica International UK Ltd. (The Kleovoulas of
Rhodes) [2003] 1 Lloyd’s Rep. 138�����������������������������������������������������13.35, 23.2, 23.16
Kler Knitwear Ltd v. Lombard General Insurance Co Ltd [2000] Lloyd’s
Rep. IR 47�������������������������������������������������������������������������������������������������������������� 24.75
Kulukundis v. Norwich Union Fire Insurance Society Ltd (1936) Ll.L.
Rep. 55; [1937] 1 K.B. 1����������������������������������������������������������������������������������������25.23
Kuwait Airways Corp. v. Kuwait Insurance Co. SAK [1996] 1 Lloyd’s Rep. 664, 687;
[1997] 2 Lloyd’s Rep. 687 (C.A.); [1999] 1 Lloyd’s Rep. 803�������5.3, 8.39, 11.12, 12.2,
12.24, 12.26, 20.34, 20.39, 22.1, 22.9, 23.3
Laga, The; J. Vermaas Scheepvaartbedrijf N.V. v. Association Technique de
L’Importation Charbonniere [1966] 1 Lloyd’s Rep. 582�������������������������������� 16.6, 16.7
Langdale v. Mason (1780) 1 Bennett’s Fire Insurance Cases 16��������8.14, 8.23, 8.39, 17.21,
17.23, 17.26, 17.28
Levy v. Assicurazione Generali (1940) 67 Ll.L.Rep. 174; (1940) A.C. 791����������������� 17.23
Leyland Shipping Co. v. Norwich Union Fire Insurance Society [1918]
A.C. 350�������������������������������������������������������������������������������������14.2, 28.9, 28.19–28.25
Liberian Insurance Agency Inc. v. Mosse [1977] 2 Lloyd’s Rep. 560������ 26.7, 26.11, 26.18
Lindsay Pirie v. The General Accident Fire & Life Assurance Corporation Limited
[1014] S.A.R. (App.D) 574������������������������������������������������������������������������������������� 17.30
Linelevel Ltd v. Powszechny Zaklad Ubezpieczen SA (the Nore Challenger) [2005]
2 Lloyd’s Rep. 534���������������������������������������������������������������������������������������������������22.7
Litsion Pride, The; Black King Shipping Corporation and Wayang (Panama)
S.A. v. Mark Ranald Massie [1985] 1 Lloyd’s Rep. 437�������������������� 3.15, 24.55, 26.11,
26.12–26.17, 26.20, 26.23, 27.25, 27.34, 29.22
Liverpool and London War Risks Association Limited v. Ocean Steamship Co.
Limited [1948] A.C. 243������������������������������������������������������������������������������������������14.2
Livie v. Janson (1810) 12 East 648����������������������������������������������������������� 12.15, 28.15, 28.17
Lohre v. Aitchikson (1878) 3 QBD 558��������������������������������������������������������������������������22.8
London & Lancashire Fire Insurance Co. v. Bolands [1924] AC 836���������������������������� 17.6
London and Manchester Plate Class Company Limited v. Heath [1913] 3 KB 411����� 17.24
Longchamp, The; Mitsui & Co Ltd v. Beteiligungsgesellschaft LPG Tahkerflotte
mbH & Co KG [2018] 1 Lloyd’s Rep. 1����������������������������������������������������������������� 20.17
Lozano v. Janson (1859) 2 E. & E. 160������������������������������������������������������������������������� 26.17
Lubbock v. Rowcroft (1803) 5 Esp. 50�����������������������������������������������11.50, 11.57, 13.4, 13.8
Mandarin Star, The; Nishina Trading Co. Ltd. v. Chiyoda Fire & Marine Insurance Co.
Ltd. (The Mandarin Star) [1969] 1 Lloyd’s Rep. 293; [1969] 2 Q.B. 449�����11.1, 12.46,
16.3, 19.7, 19.13, 19.39
xxvi
TA BLE OF CASES
Manifest Shipping v. Uni-Polaris, The Star Sea [2003] 1 AC 469��������� 26.20, 27.22, 27.34
Mann v Lexington Ins Co [2001] Lloyd’s Rep. IR 179������������������������������������������������ 17.36
Maria, The (1799) 1 C. Rob. 340����������������������������������������������������������������������������������12.29
Marine Transport Overseas GmbH v. Unitramp and Others (The Antaios) [1981]
2 Lloyd’s Rep. 284���������������������������������������������������������������������������������������������������3.20
Marstrand Fishing Co Ltd v. Beer (The Girl Pat) (1936) 56 Ll L Rep. 163, 170����������20.24
Martiartu case���������������������������������������������������������������������������������������������������������������28.47
Masefield AG v. Amlin Corporate Member Ltd (The Bunga Melati Dua) [2010] 1 Lloyd’s
Rep. 509; [2011] 1 Lloyd’s Rep. 630; [2011] 1 W.L.R. 2������� 11.40, 20.17, 20.32, 20.38,
22.11, 22.20, 25.3, 25.5
Matiana, The; Green v. British India Steam Navigation Co., British India Steam
Navigation Co. v. Liverpool & London War Risks Association (1920) 3 L1.L.
Rep. 205; (1920) 4 Ll.L.Rep. 245; [1921] 1 A.C.99 (H.L.)��������������������������������������� 10.9
Mauran v. Insurance Co, 6 Wall. 1 (1867) (Supreme Court of the United States)������� 11.13
McGregor v. Prudential [1998] 1 Lloyd’s Rep. 112�������������������������������������������������������� 27.4
McKeever v. Northernreef Ins Co SA [2019] 5 WLUK 444����������������������������� 19.24, 19.26
Melinda Holdings Sa v. Hellenic Mutual War Risks Association (Bermuda) Ltd (The
Silva) [2011] 2 Lloyd’s Rep. 141; [2011] 2 Lloyd’s Rep. 470��� 22.12, 23.2, 23.20, 23.26
Michael, The; Piermay Shipping Co SA v. Chester [1979] 1 Lloyd’s Rep. 55������������� 27.10
Michalos v. Prudential Insurance (The Zinovia) [1984] 2 Lloyd’s Rep. 264, 273��������� 27.4
Middows v. Robertson (The Wangoni) (1940) 67 Ll.L.Rep. 484; (1940) 68 Ll.L.
Rep. 45; (1941) 70 Ll.L.Rep. 173; [1942] A.C. 50������������������� 11.11, 11.46, 11.56, 13.23
Milasan, The; Brownsville Holdings Ltd v. Adamjee Insurance Co, [2000] 2
Lloyd’s Reports 458������������������������������������������������������������������������������������������������� 27.4
Miller v. The Law Accident Insurance Co. [1902] 2 K.B. 694 [1903] 1 K.B. 712;
[1904] A.C. 359��������...................................3.15–3.16, 11.4, 11.13, 12.2, 12.27, 13.3, 13.5,
13.6, 13.7, 13.8, 13.19, 23.18
Minden, The; Forestal Land, Timber & Railways Company v. Rickards (1940) 67
L1.L.Rep. 484; (1940) 68 Ll.L.Rep. 45 (C.A.); (1941) 70 Ll.L.Rep. 173; [1942]
A.C. 50 (H.L.)������������������������������������������� 11.11, 11.46, 11.56, 12.44, 13.23, 25.6, 25.10
Miss Jay Jay, The [1987] 1 Lloyd’s Rep. 32������������������������������������������������������������������ 28.13
Mitrovich Bros. & Co. v. Merchants Marine Insurance Company Ltd. (1922) 12
Ll.L. Rep. 451; (1923) 14 Ll.L.Rep. 25������������������������������������������������������������������28.39
Mitsui & Co Ltd v. Beteiligungsgesellschaft LPG Tankerflotte mbH & Co KG,
The Longchamp [2018] 1 Lloyd’s Rep. 1�������������������������������������������������������������� 20.17
Mitsui Sumitomo Ins Co v. The Mayor’s Office [2014] Lloyd’s Rep. 20; [2014] Lloyd’s
Rep. 612������������������������������������������������������������������������������������� 17.6, 17.16, 17.18, 17.19
Morning Star, The; Incorporated General Insurances Ltd v. A.R. Shooter t/a Shooter’s
Fisheries [1987] 1 Lloyd’s Rep. 401������������������������������������������������������������������������ 21.2
Mozambique case�����������������������������������������������������������������������������������������������������������8.39
Munro Brice & Co. v. F.W. Marten [1918] 2 K.B. 78; [1920] KB 24; (1920) 2 Ll.L.
Rep. 2����������������������������������������������������������������������������������������������� 25.24, 28.30, 28.33
Munro Brice & Co. v. The Crown (1920) 2 Ll.L.Rep. 2������������������������ 28.30, 28.33, 28.42
Munro Brice & Co. v. War Risks Association Limited and Others [1918] 2
K.B. 78����������������������������������������������������������������������������������������������������������1.30, 28.28
xxvii
TA BLE OF CASES
Nassau Bay, The; Costain-Blankevoort (U.K.) Dredging Co. Ltd. v. Davenport
[1979] 1 Lloyd’s Rep. 395�����������������������������������������������������������������������14.2, 15.5, 15.7
National Oil Company of Zimbabwe (Private) Ltd. and Others v. Sturge [1991]
2 Lloyd’s Rep. 28; [1991] 2 Lloyd’s Rep. 281������������������������������������6.9, 7.3, 7.12, 8.29
National Oilwell (UK) Ltd v. Davy Offshore Ltd [1993] 2 Lloyd’s Rep. 582�������������� 22.11
Navigators Insurance Co Ltd v. Atlasnavios-Navegacao Lda (formerly BnaviosNavegacao Lda) (The B Atlantic) [2012] 1 Lloyd’s Rep. 629; [2015] I Lloyd’s
Rep. 117; [2016] Lloyd’s IR 565 (CA); [2016] 2 Lloyd’s Rep. 351; [2017] 1 W.L.R.
1303; [2018] 2 Lloyd’s Rep. 1; [2018] 2 WLR 1671 (SC); [2019] A.C. 136������� 5.1, 8.4,
8.5, 11.3, 18.10, 19.4–19.6, 19.18, 19.20, 19.24, 19.25, 19.26,
19.28, 19.34, 19.36, 19.38, 21.2, 22.9, 22.10, 22.13, 22.16, 23.2, 23.11,
23.13, 23.14, 23.15, 23.16, 23.23, 23.26, 25.10, 28.10, 28.11, 28.13
Naylor v. Palmer (1853) 8 Ex. 739 (1854) 10 Ex. 382������������������������������������������12.6, 12.36
Naylor v. Taylor (1829) 9 B. & C. 718��������������������������������������������������������������������������� 11.30
Nederlands American Steamship Co. v. H.M. Procurator-General (The
Sommelsdijk) [1925] 22 Ll.L.Rep. 358; [1925] 23 Ll.L.Rep. 119; [1926] 1
K.B. 84; (1925) 22 Ll.L.Rep. 358; (1925) 23 Ll.L.Rep. 119��������������11.63, 11.66, 11.70
Nesbitt v Lushington (1792) 4 Term Rep. 783��������������������������������������������������� 12.33, 12.35
Netherlands Insurance Co. Est. 1845 Ltd v. Ljungberg & Co A.B. [1986] 2 Lloyd’s
Rep. 19, Privy Council��������������������������������������������������������������������������������������������22.3
New Horizon, The; Tramp Shipping Corporation v. Greenwich Marine Inc. [1975]
2 Lloyd’s Rep. 314����������������������������������������������������������������������������������������������������16.8
NGN Ltd v. SOGAT’82 [1987] I.C.R. 181�������������������������������������������������������������������� 16.12
Nishina Trading Co. Ltd. v. Chiyoda Fire & Marine Insurance Co. Ltd. (The
Mandarin Star) [1969] 1 Lloyd’s Rep. 293; [1969] 2 Q.B. 449���11.1, 12.46, 16.3, 19.7,
19.13, 19.39
Noble Resources Ltd v. Greenwood (The Vasso) [1993] 2 Lloyd’s
Rep. 309��������������������������������������������������������������������������������������������� 22.2, 22.11, 29.20
Norris v. London Fire & Emergency Planning Authority [2013] ICR 819������������16.1, 16.8
North Star Shipping Ltd v. Sphere Drake Ins Plc (The North Star) [2006] 2 Lloyd’s
Rep. 183; [2006] 1 CLC 606 ������������������������������ 19.2, 19.16, 24.15, 24.16, 24.32, 24.37
Northern Pioneer, The; CMA CGM SA v. Beteiligung [2003] 2 Lloyd’s Rep. 212�������6.33
Oceanic SN Co v. Evans (1934) 40 Com. Cas. 108�������������������������������������������������������� 5.16
Oinoussian Virtue, The; Schiffahrtsagentur Hamburg Middle East Line GmbH v.
Virtue Shipping Corporation (No. 2) [1981] 2 Lloyd’s Rep. 300����������������������������3.20
Olivera v. Union Insurance Company (1818) 16 U.S. (Wheat.) 183, US Supreme Court
���������������������������������������������������������������������������������������������������������������������������������13.5
Orakpo v. Barclays Insurance Services Co Ltd [1995] LRLR 443, 451���������������������� 27.24
Orient Insurance Company v. Adams 123 U.S. 67 (1887)������������������������������������������� 27.13
Osmium Shipping Corp v. Cargill International SA (The Captain Stefanos) [2012] 2
Lloyd’s Rep. 46 ����������������������������������������������������������������������������������������������������� 20.17
Overseas Commodities Limited v. Style [1958] 1 Lloyd’s Rep. 546���������������������������� 26.10
Owners of the Bamburi v. Compton (The Bamburi) [1982] 1 Lloyd’s
Rep. 312������������������������������������ 12.4, 12.27, 13.3, 13.7, 13.13–13.14, 13.29–13.30, 25.6
P Samuel & Co Ltd v. Dumas [1924] AC 431, 467������������������������������������������������������� 19.38
xxviii
TA BLE OF CASES
Pacific Basin IHX Ltd v. Bulkhandling Handymax AS (The Triton Lar) [2012]
1 Lloyd’s Rep. 151������������������������������������������������������������������������������������������������� 20.17
Pacific Navigation Corporation of Monrovia v. Islamic Republic of Iran Shipping
Lines (The “EL CHAMPION,” “EL CHALLENGER” and “EL GENERAL”)
[1985] 2 Lloyd’s Rep. 275���������������������������������������������������������������������������������������� 3.21
Pan American World Airways Inc v. The Aetna Casualty & Surety Co. [1974] 1 Lloyd’s
Rep. 207; [1975] 2 Lloyd’s Rep. 77������������������������1.20, 1.29, 8.2, 8.3, 8.16, 8.27–8.28,
10.13, 16.2, 17.9, 17.31, 17.32, 17.33
Pan Atlantic Ins Co Ltd v. Pine Top Ins Co Ltd [1995] 1
AC 501������������������������������������������������������������������������������������� 24.7, 24.10, 24.21, 24.23
Panamanian Oriental SS Corporation v. Wright (The Anita) [1970] 2 Lloyd’s
Rep. 365; [1970] 2 Lloyd’s Rep. 371; [1971] 2 Lloyd’s Rep. 487, 491; [1971] 1 W.L.R.
882�������1.20, 12.6, 13.8, 19.37, 20.1, 21.2, 23.2, 23.11, 23.15, 23.16, 23.19, 23.21, 25.19
Papadimitriou v. Henderson (1939) 64 LlLL Rep. 345������������������������������������������������ 27.19
Patterson v. Ritchie (1815) 4 Mau. & Sel. 393�������������������������������������������������������������� 11.28
PCW Syndicates v. PCW Reinsurers [1996] 1 Lloyd’s Rep. 241, 253������������������������� 24.19
Peracomo Inc v. Telus Communications Co. (The Realice) [2014] 2 Lloyd’s
Rep. 315������������������������������������������������������������������������������������������������������� 27.16, 27.35
Pesquerias y Secaderos de Bacalao de Espana S.A. v. Beer [1949] 1 All E.R. 845;
(1945–1946) 79 Ll.L. Rep. 417; (1946–1947) 80 Ll.L.Rep. 318; (1948–1949) 82
Ll.L.Rep. 501���������������������������������������������������������������5.5, 6.4, 6.12, 7.1–7.2, 8.5, 25.19
Petersham, The; Britain S.S. Co. v. Rex (1920) 3 Ll.L.Rep. 163, 205; (1920) 4 Ll.L.Rep.
245; [1921] 1 A.C. 99����������������������������������������������������������������������������������������������� 10.9
Petros M. Nomikos Ltd. v. Robertson (1939) 64 Ll.L.Rep. 45���������������������������������������25.6
Phoenix Shipping Company v. Apex Shipping Corporation (The Apex) [1982] 2
Lloyd’s Rep. 407������������������������������������������������������������������������������������������������������3.24
Piermay Shipping Co SA v. Chester (The Michael) [1979] 1 Lloyd’s Rep. 55������������ 27.10
Pink v. Fleming (1890) 25 QBD 396������������������������������������������������������������������������������28.9
Polurrian Steamship Co. Ltd. v. Young [1915] 1 K.B. 922����������������12.6, 22.9, 25.6, 25.10
Polzeath, The [1916] P. 117��������������������������������������������������������������������������������������������31.10
Popi M, The; Rhesa Shipping Co. S.A. v. Herbert David Edmunds and Others
[1985] 1 W.L.R. 948; [1985] 2 All E.R. 712 (H.L.); [1985] 2 Lloyd’s
Rep. 1���������������������������������������������������������������������������������������28.7, 28.38, 28.45, 28.46
Porter v. Zurich Insurance [2010] Lloyd’s Rep. IR 373������������������������������������������������ 19.28
Powell v. Hyde (1855) 5 E. & B. 607��������������������������������������������������������11.14, 12.10, 12.11
Qdime Ltd v. Bath Building (Swindon) Management Company Ltd [2014] 3
EGLR 18; [2014] UIUT 0261 (LC)������������������������������������������������������������������������ 18.14
R v. Dawson (1696) St Tr 5������������������������������������������������������������������������������������������� 20.14
R. v. Gordon (1781) 21 St. Tr. 485�������������������������������������������������������������������������������������8.9
R v. Gul [2013] UKSC 64����������������������������������������������������������������������������������������������� 18.9
R v. Lewis [2014] 2 Cr App R (S) 27������������������������������������������������������������������������������ 17.8
R. v. Messenger (1668) 84 E.R. 1087��������������������������������������������������������������������������������8.9
R. v. W (N) [2010] 1 WLR 1426��������������������������������������������������������������������������17.13, 17.15
Rainy Sky SA v. Kookmin Bank [2011] 1 WLR 2900�����������������������������������������������������5.5
Rankin v. Potter (1873) 2 Asp. 65; (1873) L.R. 6 H.L. 83��������������������������������������������25.23
xxix
TA BLE OF CASES
Re George v. The Goldsmiths and General Burglary Insurance Association Ltd.
[1899] 1 QB 595��������������������������������������������������������������������������������������������������������� 5.7
Re Piracy Jure Gentium [1934] AC 586������������������������������������������������������������ 20.16, 20.20
Realice, The; Peracomo Inc v. Telus Communications Co. [2014] 2 Lloyd’s
Rep. 315������������������������������������������������������������������������������������������������������� 27.16, 27.35
Rendall v. Combined Ins Co of America [2006] Lloyd’s Rep. IR 732�������������������������24.30
Renos, The; Sveriges Angfartygs Assurans Forening (The Swedish Club) v. Connect
Shipping Inc (2019) UKSC 29������������������������������������������ 22.18, 25.5, 25.6, 25.8, 25.10
Republic of Bolivia v. Indemnity Mutual Marine Insurance Co. Ltd. [1909] 1 K.B. 785
��������������������������������������������������5.8, 6.9, 12.23, 20.10, 20.13, 20.15, 20.19, 20.30, 20.43
Reynolds v. Phoenix Assurance Co Ltd [1978] 2 Lloyd’s Rep. 440, 460��������������������24.34
Rhesa Shipping Co. S.A. v. Fenton Insurance Co. Ltd [1985] 1 W.L.R. 948; [1985] 2 All
E.R. 712 (H.L.); [1985] 2 Lloyd’s Rep. 1���������������������������������������������������������������28.38
Rhesa Shipping Co. S.A. v. Herbert David Edmunds and Others (The Popi M) [1985] 1
W.L.R. 948; [1985] 2 All E.R. 712; [1985] 2 Lloyd’s Rep. 1���28.7, 28.38, 28.45, 28.46
Rickards v. Forestal Land Co Ltd [1942] A.C. 50���������������������������� 22.9, 25.6, 25.10, 26.17
Robertson v. Petros M. Nomikos Ltd [1939] A.C. 371���������������������������������������������������25.8
Robinson Gold Mining Company & Others v. Alliance Insurance Company [1901] 2
K.B. 919; [1902] 2 K.B. 489; [1904] A.C. 359������ 11.13, 12.2, 12.27, 12.28, 13.15, 31.3
Rodocanachi v. Elliott (1872-73) L.R. 8 C.P. 649; (1873-74) L.R. 9
C.P. 518������������������������������������������������� 11.13, 11.31, 11.34, 11.41, 13.2, 13.3, 13.4, 13.5
Rogers v. Whitaker [1917] KB 942; [1917] 1 K.B. 942����������������������������������������� 8.18, 8.24
Rohl v. Parr (1796) 1 Esp. 445; (1796) The Times, 10 March����������������������������������������12.9
Rotch v. Edie (1795) 6 T.R. 413����������������������������������������������������������������������������13.8, 13.13
Roura & Forgas v. Townend [1919] 1 K.B. 189������������������������������������������������������������ 25.13
Roux v. Salvador (1836) 3 Bing NC 266��������������������������������������������������������������� 25.3, 25.9
Royal Boskalis Westminster NV v. Mountain [1997] LRLR 523; [1999]
QB 674���������������������������������������� 22.1, 22.5, 22.7, 22.8, 22.14, 22.15, 22.17, 22.19, 25.6
Russian Bank for Foreign Trade v. Excess Insurance Co Ltd [1918] 2 KB 123;
[1919] 1 KB 39���������������������������������������������������������������������������������������������������������23.3
Ruys v. Royal Exchange Assurance Corporation (The Doelwyk) [1897] 2
Q.B. 135���������������������������������������������������������������������������������� 11.34, 11.41, 25.10, 26.17
Saldanha, The; Cosco Bulk Carrier Co Ltd v. Team-Up Owning Co Ltd [2011]
1 Lloyd’s Rep. 187������������������������������������������������������������������������������������������������� 20.17
Salem, The; Shell International Petroleum Co. Ltd. v. Caryl Antony Vaughan Gibbs
[1981] 2 Lloyd’s Rep. 316, 328; [1982] 1 Lloyd’s Rep. 369; [1982] QB 946, 986;
[1983] 1 Lloyd’s Rep. 342; [1983] 2 A.C. 375������������������11.1, 11.11, 12.5, 12.43–12.45,
17.9, 19.7, 19.9, 19.13, 19.25, 20.15
Samuel v. Dumas [1924] AC 431, 445–446�������������������������������������������������������������������� 27.8
Sanday v. British & Foreign Marine Insurance Co. [1915] 2 K.B. 781; [1916] 1
A.C. 650����������������������������������������������������������������1.17, 11.53, 11.55, 12.8, 13.20, 13.22,
13.23, 23.19
Schiffahrtsagentur Hamburg Middle East Line GmbH v. Virtue Shipping Corporation
(The Oinoussian Virtue) (No. 2) [1981] 2 Lloyd’s Rep. 300�����������������������������������3.20
Scott v. Copenhagen Reinsurance Co UK Ltd [2003] Lloyd’s Rep. 696���������������������20.39
xxx
TA BLE OF CASES
Seavision Investments S.A. v. Norman Thomas Evenett and Others (The Tiburon)
[1990] 2 Lloyd’s Rep. 418����������������������������������������������������������������������������������������3.25
Seeberg v. Russian Wood Agency Ltd (1934) 40 Ll.L. Rep. 146, 16.7
Shell International Petroleum Co. Ltd. v. Caryl Antony Vaughan Gibbs
(The Salem) [1981] 2 Lloyd’s Rep. 316, 328; [1982] 1 Lloyd’s Rep. 369;
[1982] QB 946, 986; [1983] 1 Lloyd’s Rep. 342; [1983] 2 A.C. 375�����11.1, 11.11, 12.5,
12.43–12.45, 17.9, 19.7, 19.9, 19.13, 19.25, 20.15
Shepherd v. Henderson (1881) 7 App. Ca. 49��������������������������������������������������������������� 26.17
Silva, The, Melinda Holdings Sa v. Hellenic Mutual War Risks Association (Bermuda)
Ltd [2011] 2 Lloyd’s Rep. 141; [2011] 2 Lloyd’s Rep. 470������� 22.12, 23.2, 23.20, 23.26
Silver Cloud, The; IF P & C Insurance Ltd (Publ) v. Silversea Cruises Ltd,[2004]
Lloyd’s IR 696�������������������������������������������������������������������������������������� 6.41, 18.2, 18.18
Smith v. Land & House Property Corporation (1884) 28 ChD 7���������������������������������24.29
Smith v. MV “Ross Revenge” [2017] 2 Lloyd’s Rep. 288�������������������������������������������� 25.16
Societe Belge des Betons S.A. v. London and Lancashire Insurance Co. Ltd. [1938]
2 All E.R. 305; [1938] 60 Ll.L. Rep. 225; [1938] 158 L.T. 352��������������������� 12.34, 25.6
Sommelsdijk, The; Nederlands American Steamship Co. v. H.M. Procurator-General,
[1925] 22 Ll.L.Rep. 358; [1925] 23 Ll.L.Rep. 119; [1926] 1 K.B. 84; (1925) 22
Ll.L.Rep. 358; (1925) 23 Ll.L.Rep. 119���������������������������������������������11.63, 11.66, 11.70
Southern Rock Insurance Co Ltd v. Hafeez [2017] CSOH 127; [2018] Lloyd’s
Rep. IR 207��������������������������������������������������������������������������������������������������������������24.2
Spinney’s (1948) Ltd. and Others v. Royal Insurance [1980] 1 Lloyd’s
Rep. 406�����������������������������1.29, 5.5, 6.4, 7.4–7.12, 7.13, 7.15, 8.2, 8.8, 8.18, 8.20, 8.21,
8.22, 8.31, 8.33, 8.36, 9.1, 9.3, 17.23, 17.28, 17.36, 18.2, 18.26
St. Paul’s Fire & Marine Insurance Co. v. Morice (1906) 11 Com Cas. 153���������������� 13.19
Star Sea, The; Manifest Shipping v. Uni-Polaris, [2003] 1 AC 469������� 26.20, 27.22, 27.34
State of the Netherlands v. Youell [1998] 1 Lloyd’s Rep. 236�������������������������������������� 22.11
State Trading Corporation of India v. M. Golodetz Ltd [1989] 2 Lloyd’s
Rep. 277, 287��������������������������������������������������������������������������������������������������������� 24.61
Stringer v. English & Scottish Marine Insurance Co Ltd (1869) LR 4 QB 676�����������20.38
Strive Shipping Corp v. Hellenic Mutual War Risks Assocn (Bermuda) Ltd
(The Grecia Express) [2002] 2 Lloyd’s Rep. 88; [2003] 1 CLC 40����19.2, 19.11, 19.14,
19.34, 19.35, 22.12, 24.36
Suart v. Merchants’ Mar Ins Co Ltd (1898) 3 Com Cas. 312��������������������������������������� 25.16
Suez Fortune Investments Ltd v. Talbot Underwriting Ltd (The Brillante Virtusos)
[2015] 1 Lloyd’s Rep. 651; [2019] EWHC 2599 (Comm)������19.26, 20.18, 20.19, 20.31,
22.8, 22.10, 24.55, 26.18, 27.4, 27.6
Sunport Shipping Ltd. v. Tryg-Baltica International UK Ltd. (The Kleovoulas of
Rhodes) [2003] 1 Lloyd’s Rep. 138�����������������������������������������������������13.35, 23.2, 23.16
Sveriges Angfartygs Assurans Forening (The Swedish Club) v. Connect Shipping Inc
(The Renos) (2019) UKSC 29������������������������������������������� 22.18, 25.5, 25.6, 25.8, 25.10
T M Noten BV v. Harding [1990] 2 Lloyd’s Rep. 283�������������������������������������������������� 28.12
Tappoo Holdings Ltd v. Stuchbery [2006] FJSC 1; [2008] Lloyd’s Rep. IR 34,��8.37, 17.35
Tektrol Ltd v. International Insurance Co of Hannover Ltd [2005] 2
CLC 339������������������������������������������������������������������������� 19.2, 19.30, 19.32, 19.34, 19.41
xxxi
TA BLE OF CASES
Telfair Shipping Corporation v. Athos Shipping Company S.A. (The Athos) [1981]
2 Lloyd’s Rep. 74����������������������������������������������������������������������������������������������������� 3.19
Thames & Mersey Marine Ins Co Ltd v. HT Van Laun & Co [1917] K.B. 48, 51��������26.6
Thomas Cook Group Ltd v Air Malta Co Ltd [1997] 2 Lloyd’s Rep. 399, 408����������� 27.18
Thompson v. Hopper (1856) 6 El & Bl 937, 119 ER 1113����������������������������������������������� 27.8
Tiburon, The; Seavision Investments S.A. v. Norman Thomas Evenett and Others
[1990] 2 Lloyd’s Rep. 418����������������������������������������������������������������������������������������3.25
Touteng v. Hubbard (1802) 3 Bos. & Pul. 291����������������������������������������������������������������12.8
Tramp Shipping Corporation v. Greenwich Marine Inc. (The New Horizon) [1975]
2 Lloyd’s Rep. 314����������������������������������������������������������������������������������������������������16.8
Trinder, Anderson & Co v. Thames & Mersey Mar Ins Co [1898] 2 QBD 114������������� 27.8
Triton Lark, The; Pacific Basin IHX Ltd v. Bulkhandling Handymax AS [2012] 1
Lloyd’s Rep. 151���������������������������������������������������������������������������������������������������� 20.17
Tzelepi, The, Islamic Republic of Iran Shipping Lines v. Zannis Compania
Naviera S.A. [1991] 2 Lloyd’s Rep. 265������������������������������������������������������������������3.25
United Scottish Insurance Company Ltd. v. British Fishing Vessels Mutual War Risks
Association Ltd. (The Braconbush) (1945) 78 Ll.L.Rep. 70���������������������� 28.41, 28.44
Utopia, The [1893] A.C. 492, 498��������������������������������������������������������������������������������� 25.16
Vandervell v. IRC [1966] Ch. 261��������������������������������������������������������������������������������� 25.16
Vasso, The, Noble Resources Ltd v. Greenwood [1993] 2 Lloyd’s Rep. 309����� 22.2, 22.11,
29.20
Versloot Dredging BV v. HDI Gerling Industrie Versicherung AG (The DC
Merwestone) [2016] 2 Lloyd’s Rep. 198; [2017] A.C. 1�������� 26.13, 26.21, 27.22, 27.23,
27.26, 27.27, 27.31
Wangoni, The, Middows v. Robertson (1940) 67 Ll.L.Rep. 484; (1940) 68 Ll.L.Rep. 45
(C.A.); (1941) 70 Ll.L.Rep. 173; [1942] A.C. 50 (H.L.)����������� 11.11, 11.46, 11.56, 13.23
Wayne Tank and Pump Co Ltd v. Employers Liability Assurance Corpn Ltd [1974]
QB 57���������������������������������������������������������������������������������������������������������� 19.38, 28.13
WD Fairway, The (no. 3) [2009] 2 Lloyd’s Rep. 420; [2009] 2 Lloyd’s Rep. 191����������25.4
Wilcocks and Others v. Union Insurance (1810) 2 Binn. 574��������������������������������������� 11.72
Williams Bros. Hull Ltd. v. Naamlooze Vernootschap W.H. Berghuys Kolen-handel
(1915) 21 Com. Cas. 253������������������������������������������������������������������������������������������ 16.6
Wondrous, The; Ikerigi Compania Naviera S.A. v. Palmer [1991] 1 Lloyd’s Rep. 400;
[1992] Lloyd’s Rep. 566���� 11.6, 13.1, 13.3, 13.7, 13.8–13.10, 23.12, 23.16, 23.25, 25.23
Wood v. Associated National Insurance Company Ltd. (The Isothel) [1985] 1
Qd R 297���������������������������������������������������������������������������������������������������������������� 27.14
Wood v. Capita Insurance Services Ltd [2017] AC 1173�������������������������������������������������5.5
World Magnate Shipping Ltd. v. Rederi A/B Soya [1975] 2 Lloyd’s Rep. 498������������� 3.18
W.W. Howard, Bros. & Co. v. Kann (1940) 67 Ll.L. Rep. 484; (1940) 68 Ll.L.Rep. 45
(C.A.); (1941) 70 Ll.L.Rep. 173; [1942] A.C. 50 (H.L.)����������� 11.11, 11.46, 11.56, 13.23
Yarls’ Wood Immigration Ltd v. Bedfordshire Police Authority [2009] 1 All ER 886
(QBD); [2010] QB 698��������������������������������������������������������������������������������������������17.15
Yero Carras (Owners) v. London and Scottish Assurance Corporation Ltd. (The Yero
Carras) (1935) 53 Ll.L.Rep. 131����������������������������������������������������������������������������25.23
xxxii
TA BLE OF CASES
Yorkshire Dale Steamship Co. Ltd. v. Minister of War Transport (The Coxwold)
[1900] 2 Q.B. 339; [1942] A.C. 691; (1942) 73 Ll.L.Rep. 1; [1970] 2 Lloyd’s
Rep. 365���������������������������������������������������������������������������������������������������� 1.19, 6.1, 11.2
Young v. Royal & Sun Alliance [2019] CSOH 32����������������������������������������������������������24.2
Young v. Tower Insurance [2016] NZHC 2956; [2017] Lloyd’s Rep. IR 605���������������24.51
Zamora, The, [1916] 2 A.C. 77���������������������������������������������������������������������������������������23.9
Zinovia, The, Michalos v. Prudential Insurance, [1984] 2 Lloyd’s Rep. 264, 273��������� 27.4
xxxiii
TA BLE OF LEGISLAT ION
UNITED KINGDOM
Arbitration Act 1996, s. 69������������������ 6.33
Civil Contingencies Act 2004, Part 2
s. 20 and 22(3)(b)���������������������������� 23.5
Consumer Insurance (Disclosure
& Representations) Act 2012
(CIDRA)������������������������������� 24.2, 24.39
s. 1, 24.12
Counter-Terrorism & Border Security Act
2019
s. 21, 18.11
Indemnity Act 1920��������� 11.66, 11.67, 31.7
Insurance Act (IA) 2015��������������������� 24.2,
24.12, 24.14, 24.15–24.16, 24.17, 24.18,
24.19, 24.21, 24.24, 24.39, 24.40, 24.55,
24.69, 24.73–24.83, 27.21
s. 3������������������������������������������������� 24.40
(1), 24.41
(3), 24.41
(b), 24.42
(4), 24.44, 24.45
(a), 24.46
(5), 24.44, 24.45
(b),(c),(d), 24.48
(e), 24.45
s. 4
(2), 24.46
(3), 24.46
(6), 24.47
(7), 24.47
ss. 4–6������������������������������������������� 24.40
s. 5������������������������������������������������� 24.48
(3) 24.48
s. 7������������������������������������������������� 24.40
(3), 24.10
s. 8�������������������������������������� 24.40, 24.50
(1), 24.10, 24.49
ss. 9–11�������������������������������������������24.73
s. 10�������������������������� 24.22, 24.77, 24.79
(1), 24.74
(2), 24.74, 24.75
(3), 24.75
(5), 24.76, 24.77
(6), 24.76
(7), 24.74
s, 11���� 24.76, 24.78, 24.79, 24.80, 24.81,
24.82, 24.83
(3), 24.79, 24.82
s. 12����������������������������������������������� 27.33
(1)
(a), 27.33
(b), 27.33
(c), 27.33
(2),(3),(4), 27.33
s. 13������������������������������������������������27.34
s. 14����������������������������������������������� 24.51
(1), 26.22
ss. 16–17������������������� 24.12, 24.52, 24.77
s. 17(2)��������������������������������������������24.13
s. 33������������������������������������������������24.71
(1), 24.70
Malicious Damage Act 1861,
s. 58������������������������������������������������ 19.15
Marine and Aviation Insurance (War
Risks) Act 1952��������������������������������31.8
s. (1)����������������������������������������31.9, 31.21
s. 10������������������������������������������������ 31.10
xxxiv
TA BLE OF LEGISLAT ION
(1), 31.12, 31.18
(2), 31.10
Marine Insurance Act (MIA) 1906�������1.7,
22.8, 24.2–24.3, 24.4–24.5, 24.9–24.11,
24.15–24.16, 24.18, 24.19–24.22, 24.38,
24.40, 24.45, 24.47, 24.52, 24.53, 24.54,
24.58–24.72, 26.4
schedule 1 Rule 8����������������������������������17.4
Rule 10������������������������������������ 13.1, 17.4
s. 17���� 24.40, 24.51, 26.11, 26.19, 26.22,
27.34
ss. 18–20���������������������������������������� 24.40
s. 18�������������� 24.17, 24.23–24.26, 24.36,
24.42, 24.45, 26.23
(1), 24.19, 24.21, 24.24
(2), 24.7, 24.10, 24.21, 24.44, 24.49
(3), 24.22, 24.44
(a), 24.22
(b), 24.22
(c), 24.22, 24.24
(d), 24.22
(4), 24.20
s. 19����������������������������������������������� 24.27
s. 20��������������� 24.17, 24.28–24.54, 24.43
(5), 24.28, 24.29, 24.30
s. 33
(1), 24.58
(2), 24.58
(3), 24.58, 24.59, 24.74
s. 34
(2), 24.59
(3), 24.59, 24.67
s. 39(5)��������������������������������������������� 24.6
s. 53������������������������������������������������� 24.8
(2), 24.8
ss. 55–78�������������������������������������������25.1
s. 55
(1), 28.6
(2)(a), 27.5, 27.7, 27.8, 27.12, 27.13,
27.15
s. 56(1)��������������������������������������������� 25.2
s. 57
(1), 25.3
(i),(ii),(iii), 25.3
(2), 25.4
s. 58����������������������������������������������� 25.24
s. 60�����������������������������������������24.6, 25.7
(1), 25.5, 25.10
(2), 25.6
(i), 11.42, 11.44, 26.19
s. 62(7)������������������������������������������� 25.23
s. 63(1)��������������������������������������������� 25.4
s. 64(2)��������������������������������������������� 22.2
s. 65(2)��������������������������������������������22.17
s. 66������������������������������������������������� 22.4
s. 78
(1), 22.5
(4), 22.5, 22.6, 22.11, 22.20
s. 79(1)��������������������������������������������� 25.9
s. 87������������������������������������������������� 24.8
(2), 22.6
s. 91(2)�������������������������������������24.6, 24.7
Marine Insurance Bill 1894����������������� 24.3
Merchant Shipping Act 1995
s. 1��������������������������������������������������� 23.3
s. 224����������������������������������������������22.18
schedule 11�������������������������������������22.18
Misrepresentation Act 1967
s. 2(2)�����������������������������������24.28, 24.31
Public Order Act 1986�������5.6, 17.13, 17.19,
17.20, 17.37
s. 1��������������������������������� 17.3, 17.8, 17.36
s. 2����������������������������������������������������17.3
s. 10��������������������������������������������������17.3
(2), 17.4
Reinsurance (Acts of Terrorism) Act
1993��������������������������������������������������18.7
s. 2�������������������������������������������������� 18.11
(2), 18.14
Riot Act 1714�����������������������������������������8.12
Riot (Damages) Act 1886������������17.7, 17.11,
17.12, 17.13, 17.14, 17.15, 17.16, 17.18
Riot Compensation Act 2016���� 17.11, 17.19
Terrorism Act 2000����������������������������� 18.17
s. 1����������������������������������������������������18.7
(1)(b), 18.8
(2), 18.8
(3), 18.8
(4), 18.9
(5), 18.7
xxxv
TA BLE OF LEGISLAT ION
Theft Act 1968
s. 8��������������������������������������������������20.15
Treason Act 1351����������������������������������� 8.9
AUSTRALIA
Insurance Contracts
Act 1984��������������������������������������24.37
Marine Insurance Act 1909
(Commonwealth)\
s. 61(2)(a)����������������������������������������27.15
CONVENTIONS
Convention on Limitation of Liability for
Maritime Claims 1976, Article 4��� 27.16
Salvage Convention 1989�������������������22.18
Article 13����������������������������������������22.18
Article 14����������������������������������������22.18
United Nations Convention on the Law of
the Sea (UNCLOS)
Article 101��������������������������������������20.14
Articles 100–107����������������������������� 20.5
xxxvi
CH A PT ER 1
The history of the war risks policy
1.1 Whilst this new Fourth Edition of the book has been heavily updated in many
places, we (the authors) could not better the masterly recapitulation of the history of the
War Risk Policy penned by Michael Miller, and nor would we wish to. What follows
below, therefore, subject to only the smallest of amendments, is the text from the Third
Edition.
The S.G. Form
1.2 The picturesque and archaically worded S.G. Form1 which was used by the London
market up to 1983, had its origins in the bond or document by which seventeenth-century
merchants and shipowners (in those days there was rarely the distinction that now exists between them), meeting together in Lloyd’s Coffee House, bound themselves one to
­another to make good any loss which any of them might suffer. This, in the course of time,
emerged as a policy whereby one or several of them took all the risks in consideration of
a premium. The S.G. Form was not a planned document and never during the whole of
its long life did it acquire this characteristic. Risks and exceptions were added on an ad
hoc basis as the demands of the insured shipowners, the practices of the market, and the
decisions of the courts indicated were necessary. It was issued with the relevant clauses
attached, usually by no more than a paperclip. For instance, an agreement to insure hulls
or freight against marine risks would have required the attachment to the S.G. Form of
the Institute Time Clauses, Hulls or Freight and an agreement to insure a ship against war
risks, the attachment of the Institute War and Strikes Clauses.
1.3 Insured risks, exceptions and limitations were dotted about in the S.G. Form itself and in the attachments and often required experience and persistence to find them.
Agreements varying the terms of the policy, whether made at the time that the Agreement
to insure was made or subsequently, were evidenced by endorsement slips which were
stuck on with paste. Sometimes clauses bore the puzzling words stamped on them with a
rubber stamp “deleted”. The policy itself, particularly when compared with a conveyance
of real property or a mortgage of a ship, had an untidy and unworkmanlike appearance.
It was drawn up by the brokers who placed the risk, and was then checked and signed by
the Lloyd’s Policy Signing Office from the broker’s slip, hardly a paragon of neatness and
­order in itself. This recorded each underwriter’s agreement to provide the insurance and his
1 Ships/Goods Form.
1
T he history of the war risks policy
agreed proportion or percentage. The slip, being the only document that the u­ nderwriter
ever signed to bind himself to the risk, is the evidence of the actual agreement to give insurance and the policy, when it came to be prepared, reflected its terms. When an underwriter
has signed a slip, the brokers use the expression that he has “scratched” it, an expression
which is more descriptive of the slip’s appearance than many would care to agree.
1.4 That said, it must be appreciated that the pre-eminence of the London market in
marine insurance is founded on the S.G. Form. If an individual insured shipowner did not
understand what insurance it provided, there were plenty of average adjusters, brokers,
solicitors and counsel to help him. If he had to go to law, he found judges on the benches
of the High Court and the Appellate courts who were well acquainted with its terms, and
who could give judgment based on their own profound knowledge obtained from their
own experience whilst practising at the Bar and from case law, going back to the start of
the eighteenth century. It did not require the wisdom of some secret, closed and remote
society to unlock its secrets. Untidy and unworkmanlike in appearance the policy may
have been, but it proved on many occasions how flexible it could be, and by its changes,
even though on an ad hoc and unplanned basis, how well it could respond and adapt to
changing requirements.
The MAR Form
1.5 Much to the disgust of those who had grown accustomed to its ways and to the
despair of the nostalgic, the S.G. Form was swept away in 1983 to be replaced by the new
form of Lloyd’s Marine Policy (in the case of the Institute of London Underwriters, the
Companies Marine Policy) known as the MAR Form. It is the first policy for marine risks
ever issued by the London market as a comprehensively planned document. No doubt over
the years changes will be made to it, but there is a great difference to changing a document
which has been planned as a whole from changing one which grew on an ad hoc basis.
No doubt some measure of untidiness will remain because endorsements will still have to
be added and the relevant clauses attached so that the paperclip and the paste will retain
their essential use.
1.6 An examination of the MAR Form will, however, reveal how systematic it is. It
begins with a declaration that in consideration of the payment of the agreed premium,
insurance is provided against “loss, damage, liability or expense”—surely a most comprehensive definition—and makes it clear that each underwriter’s liability is confined to
his agreed proportion. There follows a page devoted to the individual description of the
subject matter insured and the agreed (insured) value with a space for the endorsements
and another page to identify the underwriters who have accepted the risk and the proportions of the risk they have agreed to accept. Most importantly of all, and essential if the
MAR Form is to be used for all marine insurances, be they hull and machinery, freight,
cargo or war risks, or whatever variation the insurance is to assume, attached clauses, in
our case the Institute War and Strikes Clauses, contain the insured risks, or perils, set
out in a comprehensive list with the exclusions and other conditions also printed in their
respective places in an easy-to-read format. No doubt questions will arise on some of the
terms which are used and litigation will ensue, but it would be wrong not to pay tribute to
Mr. Alan Jackson and to his Committee whose members laboured long and hard to produce some readable and comprehensive documents in which clarity is the main objective
2
T he history of the war risks policy
and which, in themselves, do much to assist the London market to retain the pre-eminence
that it has already won for itself. Some criticisms of the drafting will follow, but they will
be made with the recognition of the sound nature of the Committee’s work.
1.7 We cannot, however, dismiss the S.G. Form from our consideration. Much of the
London market’s practice grew up on its basis and the huge body of existing case law judicially defined its terms. The Marine Insurance Act 1906, which codified the law existing
at that date with only minor alterations, was founded on the S.G. Form which is set out in
a schedule to the Act itself. During its life of some 80 years, the Act has given rise to many
legal decisions. Moreover the MAR Form, whilst it does introduce some welcomed clarifications, does not set out to make substantial alterations to the marine insurance hitherto
provided by the London market.
The development of war risks insurance, and the f.c. & s. Clause
1.8 It is difficult for anyone now living to remember that the very firm and concise
distinction between marine and war risks which is so well known to us today has existed
only since 1898. Before that date the distinction, whilst it had existed to a greater or lesser
degree for many years, was nothing like so clear and the degree to which it did exist at
any particular moment is best appreciated from the history of the f.c. & s. Clause which
follows.2 The reader will find it helpful to compare the date of the case they are studying
with this history.
1.9 From the start of the use of the S.G. Form in the seventeenth century, marine and
war risks were insured by the same policy. No fewer than 12 (some would say more) of
the perils we would today describe as war risks were insured by the same policy which
also insured such marine risks as “perils of the seas”. Underwriters sometimes wished to
exclude war risks and an early example of this is The Charming Peggy.3 In 1739 there was
even greater tension than usual in the relations between the United Kingdom and France,
so “capture and seizure” were excluded from the perils insured by the policy. Wars in
the eighteenth and nineteenth centuries were fought on the seas as much as they were on
the land and made the enemy’s seaborne trade an especial target. Even though Britannia
ruled the waves, the powerful and omnipresent Royal Navy was never able to obviate
­entirely the depredations of skilled, determined and resourceful enemy seafarers. The
Seven Years’ War, the American War of Independence, the 1812 War and the Napoleonic
Wars emphasised that there was a real distinction to be made between marine and war
risks, and a variety of exclusions were then added to the policies by endorsement as the
chapters on war, capture and seizure will show.
1.10 A particularly favoured exclusion, which seems to have been directed at excepting
risks to ships in European ports which may have been affected by Napoleon’s ­Continental
system read: “Free of capture and seizure in the ship’s port of discharge.” This has a
­familiar ring and can be said to have been the beginnings of the f.c. & s. Clause as it later
appeared. The perils thus excepted could be insured by underwriters willing to write war
risks. They seem to have found the business very profitable, although several were ruined
by the disaster in 1780, when only eight British ships out of a convoy of 63 escaped capture.
2 Free of Capture and Seizure Clause.
3 Green v. Brown (1743) 2 Strange 1199. See paragraph 30.68.
3
T he history of the war risks policy
By the time of the Ionides case4 the f.c. & s. Clause in common use read: ­“Warranted
free from capture, seizure and detention, and all the consequences thereof, or any attempt
thereat, and free from all consequences of hostilities, riots, or commotions.”
1.11 In 1883, the underwriting community of the United Kingdom assembled at
Lloyd’s wanted “warlike operations” added to this list. The Royal Navy had the year
­before bombarded Alexandria; apparently there was no state of war, and it was merely
aiding a friendly State to put down a rebellion. In 1889 the Clause is recorded as reading:
“Warranted free from capture, seizure and detention, the consequences thereof, or of any
attempt thereat, unless arising from piracy or barratry, and from all consequences of hostilities or warlike operations, whether before or after declaration of war.” In 1893 there
was a further amendment to add the “consequences of riots and civil commotions”, which
had appeared in a slightly different form in the 1863 version, to “hostilities and warlike
operations”. This gave rise to much opposition, so that the 1898 version omitted them.
1.12 During the 1890s, war risks came to be viewed with some disfavour by the ­London
market, and this led to pressure for changes for an organised and uniform method to be
used by the entire market.
1.13 The ancients who lived at the time told us this was a golden age of peace and
plenty. The history books tell us a very different story. This was a time of great tension
between the United States of America and the United Kingdom which could have led to
a war, and of a crisis between the United Kingdom and France over the Fashoda incident
which very nearly did. Both the United States and France possessed powerful navies,
which, even if numerically inferior to the Royal Navy of the time, could have caused
enormous damage to the United Kingdom’s maritime commerce.
1.14 The Imperial German Navy was, at the time, of little consequence, but, as Robert
K. Massie’s interesting book Dreadnought shows, the Kaiser had ambitions to build a
large and powerful fleet, and it could be anticipated that he would succeed in doing so. The
memory of the 1812 war in particular, when the infant United States Navy had wreaked
havoc in spite of all that the mighty Royal Navy could do to prevent it, was still green.
In 1895 the London Assurance Company wrote to the Committee of Lloyd’s suggesting
that there should be separation of marine and war risks perils, and that the latter should
be i­ nsured by a separate policy. This should have its own rating which would be separate
from the rating of the Marine Policy. It is not known why the Committee returned a chilling answer that it was not in a position to dictate to the Lloyd’s underwriters how they
should conduct their business, but the companies were not then looked upon with much
favour by the Lloyd’s underwriters. A suggestion of this nature from such a source may
not have been welcome.
1.15 There was soon to be a change of heart. In addition to Dreadnought, there is
Thomas Pakenham’s equally interesting The Scramble for Africa which also describes
in vivid detail the tense relations that existed between Great Britain, France, Germany,
­Russia, and to a lesser extent only, the United States of America. On 15 June 1898, a
­General Meeting of Lloyd’s decided that marine risks and war risks would be insured by
separate policies. In 1899, spurred on no doubt by the tense situation caused by the Fashoda
­incident in the previous September, it was further resolved that all marine policies should
4 Ionides v. The Universal Marine Insurance Co. (1863) 14 C.B. (N.S.) 259.
4
T he history of the war risks policy
include an f.c. & s. Clause excluding war risk perils unless otherwise specifically agreed.
The companies followed suit. From this date onwards, it has been the practice of the
­London market (an expression which in this book will include both the Lloyd’s underwriters and the companies) to insure marine risks and war risks under separate policies. This
is still the practice today, even though the f.c. & s. Clause is no longer used. The important
point is that in 1898, the totally different nature of marine and war risks was recognised to
the extent that, from thenceforth, they had to be separately insured.
1.16 It is easy to be critical of the method chosen in 1898 to effect this division ­between
marine and war risks. It must be borne in mind that the draftsmen, whose job it was to
give effect to the decision, did not have the experience that we have today with two World
Wars, the Spanish Civil War, the Sino-Japanese War, the Iran/Iraq War and numerous
small but dangerous wars since the Second World War, all of which have had a considerable impact upon merchant shipping. To a great extent, they were bound by precedent
to the forms of exclusion which were used in the eighteenth and nineteenth centuries.
They were particularly concerned not to exclude unwittingly existing cover which an
error in drafting might have done and thus, unintentionally, have deprived the Assured
of cover which he previously enjoyed. The 1898 f.c. & s. Clause which was to be so used
read as follows: “Warranted nevertheless free of capture, seizure and detention, and of
the consequences thereof, or any attempt thereat, piracy excepted, and also from all consequence of hostilities or warlike operations, whether before or after the declaration of
war.” (“Nevertheless” is recorded by some writers but not by others. Its effect in any case
appears negligible.)
1.17 In 1901 a further attempt was made to exclude from the Marine Policy “riots and
civil commotions”. Although on this occasion the opposition was not quite so forceful as it
had been in 1893, it was still powerful enough to compel abandonment of the attempt. The
clause was still in the same form on the outbreak of war in 1914 with only minor changes;
there was now a comma after “seizure” and the attempt provision now read: “or of any
attempt thereat”. The Sanday case,5 however, drew attention to the proper character of
“restraint” as a war risk. In 1916 the f.c. & s. Clause was again altered to: “Warranted free
of capture, seizure, arrest, restraint, or detainment, and the consequences thereof or of any
attempt thereat, piracy excepted, and also from all consequences of hostilities or warlike
operations whether before or after the declaration of war.”
1.18 In a 1921 case, this clause is quoted with some differences; there were commas
after “thereof” and “warlike operations”, and “piracy excepted” was in brackets (in some
versions it already was). These differences could have had an important consequence in
the interpretation of the clause. It appears, however, that there was no case where these
differences became important so there is no point in discussing them here. The troubles of
the world between the wars led to further redefinitions of marine and war risks so that in
1937 the 1916 version was changed to:
Warranted free of capture, seizure, arrest, restraint or detainment, and the consequences
thereof or of any attempt thereat; also from the consequences of hostilities or warlike operations, whether there be a declaration of war or not, civil war, revolution, rebellion, insurrection or civil strike arising therefrom, or piracy.
5 Sanday v. British & Foreign Marine Insurance Co. [1915] 2 K.B. 781.
5
T he history of the war risks policy
1.19 The Coxwold decision of the House of Lords was not received with any enthusiasm by the London market. The underwriters saw it as obfuscating the clear distinction
between marine and war risks for which they had striven. Mr. William NcNair K.C. (later
McNair J.) was instructed to draft the 1943 version. It read:
Warranted free of capture, seizure, arrest, restraint or detainment, and the consequences
thereof or of any attempt thereat; also from the consequences of hostilities or warlike
­operations, whether there be a declaration of war or not; but this warranty shall not exclude
collision, contact with any fixed or floating object (other than a mine or torpedo), stranding,
heavy weather or fire unless caused directly (and independently of the nature of the voyage
or service which the vessel concerned or, in the case of a collision, any other vessel involved
therein, is performing) by a hostile act by or against a belligerent power; and for the purpose
of this warranty “power” includes any authority maintaining naval, military or air forces in
association with a power. Further warranted free from the consequences of civil war, revolution, rebellion, insurrection, or civil strife arising therefrom, or piracy.
1.20 This is a very tangled clause, but again precedent prevented any thought of
the “clean sweep” which would have made more easily comprehensible the London
market’s wish that marine and war risks perils should be separate from each other.
Even so, the draftsmen of all these clauses did achieve their object, to insure war risks
under insurance which was separate from that which covered the marine risks and did
so in such a way that no insurance cover which had previously been given was inadvertently excluded. The two policies complemented one another by a process which has
been referred to as “dovetailing”. On the other hand, a slightly ludicrous situation arose
because the Marine Policy stated in its main body that it insured a risk, for instance
pirates, and then excluded that risk by the f.c. & s. Clause so that it was insured by
another policy, the War Risk Policy. This method of doing things drew some adverse
comments from the judges whose views were expressed with some asperity in 1970 by
Mr. Justice Mocatta. In Panamanian Oriental SS Corporation v. Wright (The Anita)6
his Lordship said:
It is probably too late to make any effective plea that the traditional method of insuring against
ordinary marine risks and what are usually called war risks should be radically overhauled.
The present method, certainly as regards war risk 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. However,
the form taken by the war risk cover here, since Clause 1 of the Institute Clauses only covers
the risks excluded from the S.G. Form by the f.c. & s. Clause, requires one to see what cover
is given by the S.G. Form on the facts, which would then be excluded from it by the f.c. &
s. Clause, for it is only in respect of such exclusions that the plaintiffs can recover under the
present [War Risks] Policy.
1.21 His Lordship was protesting at the mental gyrations which this process involved.
When dealing with a claim under a risk which was imported into the War Risk Policy
by the f.c. & s. Clause, the court was first of all obliged to consider whether the risk was
­insured by the Marine Policy and, if it was, whether it was then excluded from that policy
by the f.c. & s. Clause. Only if both questions could be answered in the affirmative was the
6 [1970] 2 Lloyd’s Rep. 365 at p. 371.
6
T he history of the war risks policy
court able to move to the primary duty which an action on the War Risk Policy imposed
upon it, namely that of deciding whether the loss arose from a risk insured by that policy.
Surely the wit of the underwriters and their legal advisers was equal to the task of finding
a less labyrinthine way of providing insurance?
1.22 If that was not enough, criticism appeared from another source, the United Nations
Conference on Trade and Development (UNCTAD) which reported very comprehensively
on the world’s marine insurance methods for both ships and cargo on 20 November 1978.
Much of this report was, and still is, regarded as very controversial, suggesting as it does
some very simplistic solutions to very complex situations which, if adopted, would themselves introduce further complications and do little or nothing to resolve the problems
which it identifies. There can, however, be no disagreement with what it has to say about
the method of insuring war risks in its paragraph 123:
The very concept of granting an insurance cover and excluding it in the same document (the
S.G. Form), and then excluding it again in attached clauses, which override the first document in any case, and then granting it again (either in another document or as an additional
attachment) by reinstating the original exclusion, is so complicated and contorted that the
uninitiated is confused by the very procedure of insurance without even considering the complicated draftsmanship. The very complexity of the subject matter calls for the most simple
and straightforward procedures.
1.23 This method simply confused those who had no expert knowledge or advice available to them; where there should be complete clarity, there was organised chaos and confusion. A suggested improvement is set out in paragraph 191(4). Whilst the suggestion that
there should be all risks coverage with specific exceptions is probably impracticable, the
general tenor of the “suggested improvement” can only be regarded as sound:
The antiquated Lloyd’s S.G. Form should be revised and updated. Specifically, the perils
clause should be revised to be comprehensible in modern day context as well as to eliminate war risks terminology. Furthermore, the perils clause should be combined with 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 coverage minus specific exceptions.
Consideration should also be given to facilitate the method of granting war risks insurance.
All these reforms are designated to make the insurance coverage easier to understand and to
interpret, particularly in view of its international use.
1.24 This was not the end of the problems of the War Risk Policy written on the S.G.
Form, and there were others which Mocatta J. had no reason to touch upon, although
UNCTAD, being under no similar restraints, did. It did for instance make a particularly
scathing attack upon “warlike operations” as being imprecise. In addition to the insured
perils imported from the Marine Policy into the War Risk Policy by the f.c. & s. Clause
were a number of insured perils which were specifically insured as follows:
Loss or damage to the property hereby insured caused by:
(a) Hostilities, warlike operations, civil war, revolution, rebellion, insurrection, or
civil strife arising therefrom;
(b) Mines, torpedoes, bombs or other engines of war; loss of or damage to the property hereby insured caused by strikers, locked out workmen, or persons taking
7
T he history of the war risks policy
part in labour disturbances, riots or civil commotions; destruction of or damage
to the property hereby insured caused by persons acting maliciously.
1.25 This caused some duplication, never a desirable feature of any insurance policy,
with the insured perils imported into the War Risk Policy by the f.c. & s. Clause even if
it enlarged upon some of them. There was also the puzzling result of the wholesale incorporation of the Institute Time Clauses from the Marine Policy. Most of these dealt with
the methods of claims adjustment, and the situations which could arise from total losses
and with sister ships, but one, Clause 7, was the “Inchmaree” Clause which could properly
be described as an insured perils clause, or a clause which provided insurance cover. The
exact result of its inclusion in this way appears not to have been subject to judicial review.
Finally, there was the clause which resulted from the attachment of a limpet mine to the
Granwood in 1964 whilst the ship was in Miami. It was possibly attached by Cuban ­exiles,
although this was never certain. Because of this uncertainty, the marine underwriters
were persuaded by the ship’s Mutual War Risks Association that they should accept the
claim for the damage which the vessel suffered. Determined that no further claim should
arise from such a source, the marine underwriters inserted into the Institute Time Clauses
a new clause, Number 24, in the following words:
“Warranted free from loss, damage, liability or expense arising from:
(a) The detonation of an explosive.
(b) Any weapon of war.
and caused by any person acting maliciously or from a political motive.”
1.26 This clause, sometimes known as the Malicious Damage Clause, was imported
into the War Risk Policy by slightly different wording from that used in the case of the
f.c. & s. Clause in a way which raised anxious doubts in the minds of the learned editors
of Arnould’s Law of Marine Insurance and Average (16th edn), paragraph 880.
The work of Alan Jackson and his Committee: the end of the S.G. Form
and the advent of the MAR and revised Institute Time Clauses
1.27 Such vigorous criticism from the High Court and from UNCTAD, that the S.G.
Form and method of insurance defied easy comprehension, required action to give both
the radical overhaul they so clearly needed. It was a most welcome development that Mr.
Alan Jackson and his Committee, assisted by the late Mr. Donald O’May, the solicitor
who advised them, addressed themselves to this task. A new form of policy document
appeared in the shape of the MAR Form. New Institute Time Clauses were also produced,
both for Marine Risks and for War Risks, those for cargo taking effect on 1st January
1982, and those for ships and freight on 1 October 1983. Whilst containers had to wait
until 1987, they too were similarly treated. Special cargo insurances also received attention. If the Marine and War Risks insurances were still to complement one another,
then the Committee had to start with the marine policy and decide which war risks were
to be excluded from it. If we take the ships as an example, they are excluded from the
marine insurance by Clauses 24 to 27 which are headed, and will no doubt become generally known as, the War Exclusion (24), the Strikes Exclusion (25), the Malicious Acts
Exclusion (26) and the Nuclear Exclusion (27). They are set out in the Institute Clauses
8
T he history of the war risks policy
with the somewhat commanding heading: “The following clauses shall be paramount and
shall override anything contained in this insurance inconsistent therewith.” The War and
Strikes insurance gives insurance for these risks, except for the nuclear exclusion, in almost identical terms. There are differences, and the following chapters will attempt to
explore them. The ­nuclear risks are not, in general, insured by either policy, but, as will be
seen, in some cases, this is not an absolute concept.
1.28 By setting out the marine insured perils and the war insured perils in separate policies, it can be said that Mr. Alan Jackson and his Committee achieved with the MAR Form
a solution which met the complaint made by Mr. Justice Mocatta and that it is no longer
necessary to refer to another document, the Marine Policy, before deciding whether the
peril is insured by the War Risks Policy. But it would not be correct to say that in all cases
no further reference need be made to the Marine Policy, particularly where, as in the days
of the S.G. Form, the aim is that both policies should complement one another and provide
an insured shipowner with the full range of cover that he requires without gaps between the
two policies which could, in some cases, leave him without any insurance at all.
1.29 For instance, a fire on board a ship often raises very difficult questions of how it
was caused and these difficulties are increased immeasurably when the fire causes the
loss of the ship in deep water where it becomes impossible, or prohibitively expensive, to
examine the evidence. Was the fire caused accidentally or was it caused by a weapon of
war set off by a terrorist or by a person acting maliciously or from a political motive? Was
that person a member of the crew so that questions of barratry arise? In Pan American
Airways Inc. v. The Aetna Casualty and Surety Co.7 and Spinney’s (1948) Ltd. and Others
v. Royal Insurance8 the courts found immense difficulty in defining the motives of the
people who caused the loss, even where, in the Pan American case, the names of those
people were known.
1.30 The plaintiff claimant might find that he had no other course, as in Munro Brice
v. War Risk Insurance Ltd.,9 but to sue both marine and war risk underwriters at the same
time and arrange to have the actions heard together. This would allow the same court to decide whether “on the balance of probabilities” one or the other of the underwriters should
meet his claim and avoid the situation, which could otherwise easily arise, that separate
courts should hear separate actions and reach opposing conclusions on the same evidence,
that both, or neither, underwriters should pay. Suing both sets of underwriters at the same
time can involve the plaintiff claimant in the penalty of paying the costs of the successful
underwriter and it can only be hoped that an insured shipowner would have the financial
support of his Freight, Demurrage and Defence Association in the proceedings. This type
of difficulty is not one that can be answered by draftsmen, however skilled, depending as
it does on minute details of the facts of any particular case, and Mr. Jackson’s Committee
wisely refrained from any such attempt.
7 [1974] 1 Lloyd’s Rep. 207; [1975] 1 Lloyd’s Rep. 77.
8 [1980] 1 Lloyd’s Rep. 406.
9 [1918] 2 K.B. 78.
9
CH A PT ER 2
The underwriters
The London market
2.1 War risk insurance is highly specialist and the dangers of insuring the consequences of what other people do to ships contain so many imponderable factors, which
are less easy to quantify than insurance against marine risks, that the number of underwriters who are willing to undertake such insurance is limited. Moreover the number
of underwriters who are willing to “lead” a risk which others will follow is very small
indeed. The well-recognised “leaders” are to be found in the London insurance market
among the syndicates at Lloyd’s, and the insurance companies who are members of the
Institute of London Underwriters who are willing to give war risk insurance to merchant
ships. In case it should be thought from this bare description that the capacity of the
London market to give war risk insurance is limited, or that there is a monopoly among
a small number of underwriters in the London market to provide it, two points should
be made.
2.2 The capacity of the London market is so huge, particularly when the reinsurance
treaties are added to the primary war risk insurance given by the underwriters, that the
London market could give war risk insurance to all the ships in the world if required to
do so. Any increase in the rates will induce other underwriters to overcome their caution
and themselves enter the war risks field. This was particularly evident during the first
half of the 1980s. In 1984 an attempt was made by the Committee of London War Risk
Underwriters, consisting of the known leaders, to raise the annual rates of premium. This
very rapidly foundered, because others saw their opportunity to enter the field by reducing rates below those agreed by the Committee, thereby attracting much business in their
direction. This, incidentally, was one of the causes which led to the disbandment of the
Committee in October of that year.
2.3 In this we can see an example of the efficiency of the London market, particularly where the assured is concerned. The war risk underwriters of the London market
may be small in number, but their capacity to provide war risk insurance is colossal,
and the forces of competition which exist in any market which is free of artificial
restrictions and restrictive practices will ensure that they are never in a position to
enforce a monopoly, either in the provision of the insurance or the premiums which
are paid for it. A broker, attempting to place war risk insurance on behalf of a shipowner, will find no difficulty in completing his “slip” for the full amount of the insurance which he requires as soon as a leader has “scratched” the “slip” (or, since 2007,
10
T he underwriters
concluded the Market Reform Contract1) and indicated the rate of premium which he
agrees with the broker.
2.4 The London market as above described, a term which we shall use throughout this
work, underwrites on the MAR Form with the respective Institute War and Strikes Clauses
attached. It is important to appreciate that there is no requirement that the risks must be
written on this form. The individual underwriters are free to make their own bargain with
the insured shipowner, and frequently they do so when reinsuring risks from other underwriters or from foreign markets. In practice there is a measure of restraint upon them.
2.5 An exception to this general rule is where a large reinsurance treaty is being underwritten from a foreign market or a mutual association, both of which will require reinsurance for their original risks. Other insurers abroad also afford war risk insurance to ships,
particularly in the United States, France, Germany, Italy, Norway and Japan, in the latter
case by means of a consortium of underwriters. These issue their own policies. Their capacity is so limited that they find it necessary to reinsure their risks in the London market, or in
some cases to give insurance for only a minimal proportion of the amount required by the
shipowner. Whilst there is not total uniformity between their policies and those issued by
the London market, the willingness of the London market to give war risk cover outside the
Institute War and Strikes Clauses is itself very limited, and the wish of a foreign underwriter
to give cover for a risk for which he does not have reinsurance is correspondingly inhibited.
The Mutual Associations
2.6 Some nationalities of shipowners have followed the practice of the Protection and
Indemnity Associations, and have formed Mutual Associations to give war risk cover to
the members who enter their ships for insurance with these Associations. The essential
difference between a market underwriter and a Mutual Association is that in the latter
case, it is the individual shipowners, who are the members of the Association, who actually provide the cover on a mutual basis to any one of their number who, during the policy
year, is unfortunate enough to suffer a casualty. If this should happen, then all the members of the Association will bear a share of the loss. The directing body of the Association
is the Board of Directors, who are elected by the members from among their own number.
2.7 The managers of the Association, who manage the day-to-day affairs, are paid a fee
for their services, and are responsible to the Board of Directors and through them to the
membership as a whole. Associations are underwriters who consist of the insured shipowners, a characteristic which enables them, provided that they can retain the confidence
of the market underwriters who reinsure them, to control the costs of the insurance and the
claims which are paid. In other words, they provide insurance to the shipowners in accordance with the shipowners’ requirements, and also manage the Association on their behalf.
A shipowner who insures his war risks with an Association is given a certificate of entry
which incorporates the Rule Book of the Association. These two documents together form
1 See the description of how insurance is now placed at Lloyd’s in Chapter 11 of Julian Burling, Lloyd’s
Law & Practice, 1st Ed (2013). There has been a movement, instigated by what was the FSA, to challenge the
old practice of “deal now detail later”, and reform/modernise the placing of insurance at Lloyd’s. The intention
behind the reforms is to improve contractual certainty.
11
T he underwriters
the basis of the legal contract between the Association and the member and, in the event of
a dispute, are the documents which will be considered by the courts. The Rules themselves
are extremely lengthy and, because they deal in great detail with the relationship between
a shipowner member and the Association, there is no purpose in burdening the reader with
their provisions apart from the Rules which actually provide the insurance cover. These
are described at greater length in Chapter 23.
2.8 A comprehensive list of the Mutual War Risks Associations which presently provide war risk insurance cover to shipowners:
(a) The Combined Group of War Risk Clubs. This is a pool of three Associations
providing war risk cover for all nationalities of ship/operator, namely:
The London Steamship Owners Mutual Insurance Association Limited.
The North of England Protecting and Indemnity Association Limited.
The Standard Steamship Owners Mutual War Risks Association Limited.
(b) The United Kingdom Mutual War Risks Association Limited.
UK War Risks (as of 2009) insures ships of any flag or ownership, having previously been limited to UK flagged vessels.
(c) The Hellenic Mutual War Risks Association (Bermuda) Limited.
This Association insures Greek flag and Greek owned and/or managed ships,
mostly ocean-going.
(d) Den Norske Krigsforsikring for Skib.
This Association insures Norwegian flag and Norwegian-owned flagged-out
ships, mostly ocean-going.
(e) Krigsforsikringen for Danske Skibe.
This Association insures Danish flag and Danish-owned flagged-out ships,
mostly ocean-going.
(f) Sveriges Ångfartygs Assurans Förening.
This Association insures Swedish flag and Swedish flagged-out ships, mostly
ocean-going.
(g) The Canadian Shipowners Mutual Assurance Association.
This Association insures Canadian-owned ships, some ocean-going but mostly
coastal and lakers.
2.9 In addition, War and Strikes insurance is given on mutual terms by the Through
Transport Mutual Insurance Association Ltd. and the Through Transport Mutual Insurance Association of Europe Ltd. to containers, trailers and handling equipment. This
­includes some insurance for War Risks on Land.
2.10 The reader is asked to note two points. In former times, the Associations only
­insured ships of their national flags. With the modern tendency to “flag-out”, and the
establishment of open registers, such a clear distinction is no longer possible. The
­
­Associations now cover ships which are owned by the nationals of their country, mostly
regardless of the flags that they fly, in addition to those which fly the flags of their own
nationalities. In a chapter which is only intended to indicate who are the principal insurers
who give insurance cover to ships against war risks and the forms of policy which they
use, and in a book which is designed to describe and comment upon that insurance cover,
there is little point in commenting upon the detailed characteristics of the Mutual War
Risks Associations. This is a subject which would require a volume on its own.
12
CH A PT ER 3
The premiums
Background to premiums
3.1 If an underwriter were to assess his premiums for the war risk insurance to merchant ships on a comprehensive or whole basis, he would have to remember that losses will
occur during the following periods:
(a) A conflict between the super-powers which is most likely to be a world war or,
(b) a period of peace between the super-powers, in areas of the world which can be
described by the relative term of peaceful or,
(c) a period of peace between the super-powers, in areas of the world where there are
local wars or where there is a marked danger of a violent attack upon, or interference with, merchant ships.
3.2 If an underwriter were to take such an overall picture of the risks he was insuring,
he would have to take into account the consequences of a world war and the stupendous
losses that could be expected. His charge of premium would therefore be correspondingly high. Even if he could persuade the insured shipowners to pay it without fear of
being undercut by competitors, two exceedingly doubtful propositions, he would amass an
enormous sum of money with, if the prospect of a world war was remote, no apparent or
immediate purpose. The presence of such money would itself pose formidable problems.
Any attempt to establish it as a reserve would be challenged by the names of a Lloyd’s syndicate or by the shareholders of an insurance company who would want it distributed as
a profit, and also by the taxation authorities who would question whether it was a reserve
for a genuine purpose. A failure to convince them would give rise to an assessment to tax.
Even if these difficulties could be overcome, the additional difficulties of forecasting the
possibility of a world war and its probable duration would bring into question whether
this reserve was adequate to meet the expected losses. Last, but by no means least, is the
consideration that possibly not even the enormous capacity of the London market would
suffice to meet the claims arising from a world war, either with or without such a reserve.
It is considered that only some governments, or combinations of governments bound together by treaty to one another, possess this capability.
3.3 For these reasons, the underwriter and the insured shipowner agree to concentrate
on the peacetime war risk insurance as described in (b) and (c) above and to exclude from
the war risk policy any insurance of risks during a world war. This is achieved in the
policy, not perhaps entirely satisfactorily, by the notice of Cancellation and Automatic
Termination of Cover Clause, 6.2 (Chapter 4).
13
T he premiums
3.4 Confining the insurance to periods of peace between the great powers leaves two
other considerations. Many ships will trade only between peaceful places where even the
recently increased risks of terrorism, piracy and confiscation by developing countries
can to a great extent be contained or confined either to certain limited areas of the world,
or by sensible and reasonable precautions taken on board the ship, or in the event of a
casualty, by diplomatic representations, or on occasion by police or military action. Other
ships will trade to areas of the world which are dangerous at the time the insurance is
underwritten or which subsequently become dangerous at some time during the currency
of the policy.
3.5 By the normal methods of insurance, the underwriter is required to assess his
premium against his risk at the time that the insurance contract is made and cannot
subsequently vary his premium until the renewal of the risk, even though the risk itself
should suddenly and unexpectedly increase in a way that was never foreseen. It would,
however, scarcely be welcome to the insured shipowners whose ships trade solely between such peaceful places as South Africa to the United Kingdom, Canada to Rotterdam or Western Australia to Japan to have their premiums increased at the time the
contract is made because of the underwriters’ fear, which may or may not turn out to
be justified, that some other part of the world to which they do not trade is dangerous
or should suddenly become dangerous to merchant ships at any time during the period
of the insurance.
Additional war risk premiums and their calculation
3.6 Out of these considerations, therefore, has been born the concept of two premiums.
The first premium is paid for the whole period of the insurance, which will be paid for war
risk insurance cover to the insured ship throughout the world.
3.7 The second premium is the additional premium (the “AWRP”, as it is often referred
to) for visits which are made by the insured ship to geographically defined areas which
have a high element of danger to them. It contains no surprises when such areas can be
agreed between the parties when the contract of insurance is made or is renewed, even
if there is some surprise that the amount of the additional premium or premiums to be
charged for such visits during the period of the insurance is not then agreed.
3.8 What may come as a surprise to those who come fresh to war risk insurance is the
right that the underwriter reserves to him or herself to designate a new area at any time
during the period of the insurance, which is not among the areas that were agreed at the
time the insurance contract was made, and, by giving seven days’ notice, require additional premiums to be paid for visits to that area. Moreover, he or she can also require that
special terms and conditions should be applied to the insurance whilst the insured ship is
within the area. In substance, therefore, the insurer effects a unilateral alteration of the
agreed terms of the insurance which can only be justified if there is a clear provision in
the war risks policy or if there is a custom of the market which permits this. The situation
gives an insured shipowner little time to consult his professional advisers or his mortgagees, which he or she may be obliged to do.
3.9 Before coming to the explanation of why this is a long-accepted practice, it
should be noted that Clause 6.1, which on its own is known as the Notice of Cancellation
Clause, seems remarkably ill fitted for its purpose, bearing in mind that it must be strictly
14
T he premiums
construed against the underwriter who, in all but the most exceptional circumstances, is
the only party who is likely to make use of it. Clause 6.1 provides:
This insurance may be cancelled by either the Underwriters or the Assured giving 7 days
notice (such cancellation becoming effective on the expiry of 7 days from midnight of the day
on which notice of cancellation is issued by or to the Underwriters). The Underwriters agree
however to reinstate this insurance subject to agreement between the Underwriters and the
Assured prior to the expiry of such notice of cancellation as to new rate of premium and/or
conditions and/or warranties.
3.10 The first sentence seems clear enough to require no comment. The second sentence,
however, would appear to confirm that the underwriter, having given the seven days’ notice,
must restore the cover on terms which bind him or her for the remaining period of the contract as to premiums and conditions of insurance. No doubt such a strict interpretation of the
second sentence could be overcome by a subsequent notice every time the underwriter felt
it necessary to alter the premiums and conditions to reflect either an increased or decreased
degree of danger within the area concerned. This would present formidable administrative
problems and a most unwelcome degree of confusion both to the underwriter and to the
insured shipowner in circumstances where the need for absolute clarity is paramount.
3.11 There has been from time to time a tendency in the London market to refer to
visits of the insured ship to areas which have been declared dangerous and thus require
the payment of an additional premium or premiums, as “breaches of warranty” and to the
premiums so payable as “breach of warranty premiums”. If it ever was, this is certainly an
inaccurate description of the consequence of sailing into dangerous areas in the post-Insurance Act 2015 world.
3.12 In any event, it is well understood by the underwriters of the London market, by
the insured shipowners and by the courts, that the use of Clause 6.1 of the War Risk Policy
is a long and well-accepted device for surcharging the owners of insured ships who trade
to such areas and for imposing extra terms and conditions whilst they are within those
areas in order to fulfil the requirements which appear in the earlier part of this chapter.
Such expressions as “breach of warranties” and “breach of warranty premiums” can still
give rise to misunderstandings, and the final reason which persuaded the mutual war risk
associations to adopt in 1977 different provisions, which reflect more accurately the purpose for which Clause 6.1 is intended, can be briefly described.
3.13 Shortly after the reopening of the Suez Canal in 1975, a ship was chartered to load
grain in New Orleans for discharge in Bombay and Calcutta, a voyage which could have required two to three months to perform. At the time the Suez Canal area, which would have
needed little more than 16 hours to go through, was subject to additional premiums because of
the fear of terrorist action against ships transiting the Canal by those persons who disapproved
of its use. No other part of the voyage presented more than the usual hazards. It was for a time
contended that additional premiums were payable for the whole period of the voyage. Fortunately, the view of the mutual war risk association concerned was finally accepted that the
premium was payable only in respect of the time spent during the passage through the Canal.
3.14 In order to make the position absolutely clear, the mutual war risk associations
have adopted provisions in their rules which depend upon two new and further concepts,
the additional premium area and the additional premium. Their directors can, if they feel
that an area is becoming more than usually hazardous, or if they find that they are required
15
T he premiums
to do so by the provisions of any reinsurance treaty, declare any areas, defined as “any
ports, places, countries, zones or areas (whether of land or sea)” to be “additional premium areas” seven days after notice of any such declaration is given by the association
to its insured members. An additional premium area needs to be geographically defined
with some degree of precision, which gives rise to no special difficulty. If an insured ship
“shall proceed to or be or remain within any additional premium area” a premium “to be
arranged” is payable and there are powers for the association to stipulate terms and conditions whilst the insured ship is within the additional premium area.
3.15 The insured shipowner has power to suspend his cover whilst the insured ship is
within the additional premium area if he decides that he does not wish to have insurance
cover with his mutual war risk association during this time. This latter provision is aimed at
preventing the uncertain position arising from being “held covered” which gave rise to such
difficulty in The Litsion Pride,1 and also in preventing the insured owner from being forced
to accept the payment of a premium and the imposition of further conditions against his
will. It is suggested that the mutual war risk associations’ provisions are a more accurate reflection of the arrangements, and indeed the practice of the London market, of charging the
additional premiums for visits to dangerous areas than is Clause 6.1 of the War Risk Policy.
Who pays the AWRP?
3.16 There were historically no provisions in voyage charters permitting the recovery by
shipowners of additional war risk premiums from voyage charterers. That was because additional premiums charged by the underwriters for trading to dangerous areas were supposed
to be met from the freight which the shipowner receives for the discharge of his primary obligation of carrying the cargo from the loading to the discharging port, and of overcoming the
obstacles placed in his way. The rights of shipowners to recover additional premiums were
usually confined to time-charterparties. However, as time has passed, the prior situation no
longer seems to be the case and one these days regularly sees provisions in voyage charters
purporting to give a shipowner a right of recovery of these additional premiums.
3.17 In any event, whether it be in the context of a voyage or time-charter, any rights of
recovery of an AWRP will depend upon the terms of the particular charter.
Time-charter cases
3.18 There are a series of cases in which it has been held, on the particular terms of the
time-charters in those cases, that the charterer was obliged to reimburse the shipowner for
the AWRP. In World Magnate Shipping Ltd. v. Rederi A/B Soya2 the charterparty, which
had been concluded on the NYPE Form for a 10-year duration, read in material part:
If at any time during the currency of this Charterparty the Owners are required to pay
extra premiums in respect of war risks insurance over and above that being paid at the
1 Black King Shipping Corporation and Wayang (Panama) S.A. v. Mark Ranald Massie (The Litsion
Pride) [1985] 1 Lloyd’s Rep. 437. It is doubtful if The Litsion Pride represents good law any more, see Lord
Hobhouse in The Star Sea [2003] 1 AC 469 at §71; and Lord Sumption in Versloot Dredging BV v. HDI Gerling
Industrie AG [2017] AC at §14 “[Hirst J.’s] decision has not fared well in subsequent decisions”.
2 [1975] 2 Lloyd’s Rep. 498.
16
T he premiums
time of delivery to the Charterers … Charterers are to reimburse the actual costs of such
­premiums to the Owners.
Donaldson J. held3 that it made more sense, particularly in the context of a 10-year
time-charter, that this provision should refer to increases in the liability of the owners
for war risks insurance for trading the vessel within her limits, rather than solely being
concerned with the recovery of AWRP.
3.19 Telfair Shipping Corporation v. Athos Shipping Company S.A. (The Athos)4 was a
case in which the Athos had been withdrawn from her charter because of non-payment of
amounts due from the charterer under the terms of the charterparty. In fact these amounts
were additional premiums for visits to additional premium areas which, under the terms
of the charterparty, the charterers were obliged to reimburse to the owners. Neill J. ruled
against the shipowners on the withdrawal question—a judgment later upheld by the Court
of Appeal—but only on the grounds that it had taken place too early. The charterer had
been liable in principle to make the payments.
3.20 In Marine Transport Overseas GmbH v. Unitramp and Others (The Antaios)5
the relevant term of the charterparty read: “Any increase in War risks premiums for the
vessel, officers and crew, after delivery to be notified … and the (Charterers) to pay the
increase.” Goff J. agreed with the arbitrators that the charterers were liable to reimburse
the shipowners only in respect of increases in the rates of additional premiums which had
taken place after the delivery of the ship to the time-charterers.6 In Schiffahrtsagentur
Hamburg Middle East Line GmbH v. Virtue Shipping Corporation (The Oinoussian Virtue) (No. 2)7 the relevant clause read: “Any additional war risk insurance premium over
and above normal war risks insurance premiums … to be for Charterers account.” Goff J.,
again agreeing with the arbitrator, held that “normal” in this context meant the ordinary
rate of war risks insurance as contrasted with additional premiums which related to a
ship’s entry to an additional premium area.
3.21 In Pacific Navigation Corporation of Monrovia v. Islamic Republic of Iran Shipping Lines (The “EL CHAMPION”, “EL CHALLENGER” and “EL GENERAL”)8 the
charterparties read: “Basic War risk insurance premium to be always for owner’s account.
Any extra war risks insurance premium on Hull and Machinery due to vessels trading
Persian Gulf to be for Charterers account …”.9 Owners claimed AWRP by reason of the
vessels having been ordered to Bandar Abbas. Charterers argued successfully in arbitration that all of the premiums claimed by owners were basic, and not extra. Staughton J.,
overruling the arbitrator, held10 that Clause 68 required the charterers to reimburse the
owners for additional premiums payable occasioned by reason of the ships having entered
a geographical additional premium area on their voyages.
3 At 500–501.
4 [1981] 2 Lloyd’s Rep. 74.
5 [1981] 2 Lloyd’s Rep. 284.
6 The case went to appeal, but the Court of Appeal’s judgment was purely concerned with the procedural
obstacles to an appeal, and made no substantive findings.
7 [1981] 2 Lloyd’s Rep. 300.
8 [1985] 2 Lloyd’s Rep. 275.
9 The El General charter omitted the words “Persian Gulf”, but it was held nothing turned on this.
10 At 278–279.
17
T he premiums
3.22 In Islamic Republic of Iran Shipping Lines v. P. & O. Bulk Shipping (The
­ iscaria),11 the Discaria had been chartered to carry anhydrous ammonia from Qatar
D
to Iran, and was thus going to sail entirely within an additional premium area for a
considerable time. Her normal war risks insurance had been cancelled, and in its place
her owners had arranged a special insurance which insured, besides the usual war risks,
blocking and trapping insurance, and also loss of earnings. It was to last for 356 days at
a premium of U$16,000 per day. The key charterparty Clause read “N4. All additional
war risks premiums and blocking and trapping insurance together with war risks bonus
payable to officers and crew to be for Charterers account.” Staughton J. held that Clause
N4 gave the owners the right to recover from the charterers the additional war risks premiums which it specifically described. They could also recover the cost of the blocking
and trapping insurance, because this too was specifically described. They could not
recover the cost of the loss of earnings insurance which they had never had in the past;
Clause N4 did not stretch that far.
3.23 The relevant part of Clause 21(B) from the Balltime Form in Empresa Cubana de
Fletes v. Kissavos Shipping Company S.A. (The Agathon) (No. 2)12 read “… the Owners
to be entitled from time to time to insure their interests in the vessel and/or hire … as they
shall think fit, the Charterers to make a refund of the premiums.” Hobhouse J. held that
this was wide enough to include the whole of the Hellenic Association’s insurance, for hull
and machinery, for freight, for detention, for war P. & I. and for sue and labour. He rejected
the charterer’s argument that the clause was only wide enough to include the insurance of
the actual ship herself.
3.24 In Phoenix Shipping Company v. Apex Shipping Corporation (The Apex)13 the
charterparty read:
Premium for basic war risks insurance on hull and machinery and crew always to be for owner’s account but any additional premium and/or crew bonus in respect of these risks arising
from the vessel proceeding at Charterer’s request to areas currently or subsequently designated as excluded areas by vessel’s war risk underwriters to be for time-charterer’s account …
Mustill J. held that this too was wide enough to include the whole of the Hellenic War
Risks Association’s insurance. The freight insurance in particular was included because
this constituted part of the insurance of the ship herself.
3.25 Finally, Islamic Republic of Iran Shipping Lines v. Zannis Compania Naviera S.A.
(The Tzelepi)14 and Seavision Investments S.A. v. Norman Thomas Evenett and Others
(The Tiburon)15 are often quoted as being among the cases which define the extent of the
liability of the time-charterers to reimburse the owners for war risks premiums, but this
is not correct. The first of these cases relates to the offer by the Iranians to give insurance
through their own insurance company Bimeh, which was frequently made during the
Iran/Iraq War. The case is purely concerned with the extent of the authority given to the
charterers to arrange insurance while the ship was in the additional premium area of
11
12
13
14
15
[1985] 2 Lloyd’s Rep. 489, 493.
[1984] 1 Lloyd’s Rep. 183.
[1982] 2 Lloyd’s Rep. 407.
[1991] 2 Lloyd’s Rep. 265.
[1990] 2 Lloyd’s Rep. 418.
18
T he premiums
the Gulf, and properly belongs to the law of agency. The second case is concerned with
whether the Tiburon was properly included as a German-owned ship in the special insurance arranged for German owners.
The voyage charter cases
3.26 In Great Elephant Corporation v. Trafigura Beheer BV (The “Crudesky”)16 the
shipowners claimed AWRP from the charterers. The voyage charter in question had
been concluded on the BEEPEEVOY 3 form, and included the BP War Risk Insurance
Clause, which read in material part “War risk insurance additional premiums, crew
war bonus and insurance and additional expenses directly incurred as a result of the
vessel entering and or transiting an excluded area shall be for charterers’ account …”.
The charterers argued that the AWRP had accrued by reason of the vessel not having
been allowed to leave Nigerian waters (the excluded area), rather than as a result of it
entering or transiting the area. Teare J. rejected this argument,17 holding that the clause
was intended to cover the whole time spent by the vessel in an excluded area after it had
entered that area.18
3.27 In Gunvor SA v. Crugas Yemen Ltd19 Phillips J. awarded the claimant seller the
AWRP it claimed to be due under a term contract for the sale and purchase of gasoline CIF
Hodeidah (Yemen). That term contract had incorporated a long term COA on an amended
Asbatankvoy form, which itself provided for the charterer (Clearlake) to be liable to the
owner for any AWRP.
The BIMCO CONWARTIME and VOYWAR 2013 Clauses
3.28 In 1993, the Baltic and International Maritime Council (BIMCO) adopted the
CONWARTIME and VOYWAR 1993 War Clauses to replace some very out-of-date war
clauses, some of which date backed more than 50 years and no longer reflected modern
conditions. Updated iterations of the clause were released in both 2004 and most recently,
2013.
3.29 The CONWARTIME 2013 Clause, which (amongst other things) defines the
time-charterers’ liability to reimburse the owners reads in material part:
(d) If the Vessel proceeds to or through an Area exposed to War Risks, the Charterers shall reimburse to the Owners any additional premiums required by the
Owners’ insurers and the costs of any additional insurances that the Owners
reasonably require in connection with War Risks
(e) All payments arising under Sub-clause “(d) shall be settled within fifteen (15)
days of receipt of Owners’ supported invoices or redelivery, whichever occurs
first”.
16 [2012] 2 Lloyd’s Rep. 503.
17 At §76.
18 The case went up to the Court of Appeal where Teare J.’s decision on the demurrage claim (central to the
case) was overturned. The AWRP point though did not form part of the appeal.
19 [2018] EWHC 2061 (Comm).
19
T he premiums
3.30 The VOYWAR 2013 clause imposes liability for any additional premiums “required” by the owner’s insurers on the charterer, and lays down a somewhat more involved
regime than its time charter sister-clause:
(e)(i)
The Owners may effect War Risks Insurance in respect of the Vessel and any
additional insurances that Owners reasonably require in connection with War
Risks and the premium therefore shall be for their account.
(e)(ii) If, pursuant to the Charterers’ orders, or in order to fulfil the Owners’ obligations under this Charter Party, the Vessel proceeds to or through any area
or areas exposed to War Risks, the Charterers shall reimburse to the Owners any additional premiums required by the Owners’ insurers. If the Vessel
discharges all of her cargo within an area subject to additional premiums as
herein set forth, the Charterers shall further reimburse the Owners for the actual additional premiums paid from completion of discharge until the Vessel
leaves such area or areas. The Owners shall leave the area of areas as soon as
possible after completion of discharge.
20
CH A PT ER 4
Cancellation and automatic termination of cover Clause
4.1 This clause acts, either upon the giving of notice or automatically depending on the
trigger, to cancel the war risks cover otherwise provided upon the occurrence of certain
circumstances. From time to time, for example by the previous author of this text, the
possibility has been suggested of removing the provision that war risks insurance would
automatically cease “upon … any hostile detonation of any nuclear weapon of war” wherever it may occur. The Second Edition of this text (1995) suggested that there should be a
simpler provision that only loss of or damage to the insured object caused by “any weapon
of war employing atomic or nuclear fission and/or fusion or other like reaction or radioactive force or matter” should be excluded from the insurance.
4.2 Needless to say, no removal or development of the provision has taken place. The
format of the clause adopted on 1.10.83, which is quoted in paragraph 4.5, owed its ­origin
to the time when only the five Powers who formed the Five Permanent Members of the
­Security Council of the United Nations possessed nuclear weapons, the so-called “­ Nuclear
Club”. These were the United Kingdom, the United States of America, France, the USSR,
and the People’s Republic of China. If one of these Powers should use an atomic weapon
against another such Power, then this was tantamount to a “war” of a nature which would
automatically bring the insurance to an end in any event.
4.3 Is the clause still fit for purpose though? In an age of nuclear proliferation, many
countries outside the previous five have, or are believed to have, military nuclear capabilities. For instance, Israel, India, Pakistan, and possibly in the not too distant future,
North Korea or even, Iran. If one of these nations should employ a nuclear weapon against
a neighbour, this may (or may not) start a global conflict involving the Five Permanent
Members of the Security Council but, under the Clause dated 1.10.83, deployment of such
a weapon would bring all the War Risks insurance to an abrupt end. This would cause
great hardship to interests whose insured objects were far from the scene and in no possible danger. One hopes of course the situation will never arise.
4.4 The suggestion made in 4.1 has in fact been adopted by a new Clause dated 1.11.95,
but only in respect of ships and their freight. Cargo (where the clause appears at all) and
container insurance still contain the clause in its 1.10.83 version. It is therefore necessary
to consider their respective positions separately.
4.5 The clause in its 1.10.83 version (“the 1.10.83 version”) reads:
This insurance may be cancelled by either the underwriters or the assured giving seven days’
notice (such cancellation becoming effective on the expiry of seven days from midnight of
the day on which notice of cancellation is issued by or to the underwriters). The underwriters
21
Cancellation and automatic termination of cover Clause
agree however to re-instate the insurance subject to agreement between the underwriters and
the assured prior to the expiry of such notice of cancellation as to the new rate of premium
and/or conditions and/or warranties.
Whether or not such notice of cancellation has been given this insurance shall TERMINATE AUTOMATICALLY.
Upon the occurrence of any hostile detonation of any nuclear weapon of war … wherever
or whensoever such detonation may occur and whether or not the vessel/container/insured
object may be involved.
Upon the outbreak of war (whether there be a declaration of war or not) between any of the
following countries:
United Kingdom, United States of America, France, The Union of Soviet Socialist Republics, The People’s Republic of China.
In the event of the vessel/container/insured object being requisitioned, either for title or use.
4.6 The Clause in its 1.11.95 version (the “1.11.95 version”), for ships and their freight
only, is the same except for one important omission; the words “Upon the occurrence of
any hostile detonation … insured object may be involved” are excluded. A separate clause
in the Institute War and Strikes Clauses excludes loss or damage actually caused by a
nuclear weapon of war (5.2.3 for ships, 4.2.3 for freight).
4.7 The Cancellation and Automatic Termination of Cover Clause, in either of its two
versions, appears in the following Institute War and Strikes Clauses (Table 4.1):
The clause, in either version, does not appear in the Institute War and Strikes Clauses
which insure cargo, but this is because cargo is insured on a voyage rather than a time
basis. It should be noted that in the case of cargo stored afloat, only 48 hours’ notice, rather
than seven days is required.
4.8 It may initially seem odd that the Institute War and Strikes insurance should contain
provisions that allow unilaterally imposed increases in premiums during the currency of the
policy, or even the automatic cancellation of the policy before its dated expiry, and all without the fault of the insured or even his agreement. It is hoped that consideration of the four
separate parts of the clause will explain why this is not so draconian as may at first appear.
Cancellation on seven days’ notice
4.9 This is explained in Chapter 3, which describes how this provision is a well-accepted
device for charging additional premiums for trading to areas which become more than usually dangerous during the currency of the insurance. Without this flexibility in place no
doubt the underwriters would need to factor in the possibility of a vessel trading to these
unusually dangerous areas into all policies. No doubt that would be more unpalatable to the
shipping market than the need to pay additional premiums as and when required.
Table 4.1
Clause
Hulls—Time 1.11.95
Freight—Time 1.11.95
Containers—Time 1.1.87
Cargo stored afloat—1.5.16
6
5
7
14
22
Cancellation and automatic termination of cover Clause
Hostile detonation of any nuclear weapon of war
4.10 The use of different wording in the various Institute Clauses to cancel the insurance in the event of the explosion of a nuclear weapon, or to exclude the loss or damage
which it may cause to the insured object, can lead to anomalies. One of the purposes of this
Chapter 4 is to draw attention to cases where either: (a) the insurance is terminated by the
detonation of a nuclear weapon, and furthermore any physical loss of or damage to the insured object is excluded from the insurance cover; or (b) the insurance continues in being,
and only the physical loss of or damage to the insured object is excluded from its cover.
Ships and freight
4.11 The Cancellation and Automatic Termination Clause, in its 1.11.95 version, is
i­ncluded in the Institute War and Strikes Clauses Hulls—Time 1.11.95 and the Institute
War and Strikes Clauses—Freight 1.11.95, the clause number being 6 in respect of Hulls
and 5 for Freight. The consequence is that the hostile detonation of a nuclear weapon will
not bring the insurance to an end in either case (unless it causes a “war” between the Five
Permanent Members).
4.12 Both sets of clauses however contain identical exclusions:
5 This insurance excludes:
5.2 Loss damage liability or expense directly or indirectly caused by or contributed to by or arising from
5.2.1 ionising radiations from or contamination by radioactivity from any
nuclear fuel or from any nuclear waste or from the combustion of nuclear fuel
5.2.2 the radioactive, toxic, explosive or other hazardous or contaminating
properties of any nuclear installation, reactor or other nuclear assembly or nuclear component thereof
5.2.3 any weapon of war employing atomic or nuclear fission and/or fusion
or other like reaction or radioactive force or matter.
(The numbering here relates to the Hull Policy. The insurance for freight is numbered
“4”; 4.2 is slightly different reading “loss (total or partial) or expense directly or indirectly
caused by or contributed to by or arising from”.)
4.13 Although they have never been tested, these provisions would seem to exclude
from the insurance physical loss or damage caused by the detonation of any nuclear
weapon, whether it be hostile, in practice, or accidental. It is less clear however whether
Clause 5.2 excludes from the insurance cover loss of, or damage to, the insured object
caused by a nuclear explosion which arises from an agency other than a weapon. Possibly
it does not do so, but even if such loss or damage is covered, certain characteristics are
expressly excluded.
Containers
4.14 Containers are insured by the Institute War and Strikes Containers—Time
1.1.87. This insurance includes the Cancellation Clause (Clause 7) in its 1.10.83 iteration.
23
Cancellation and automatic termination of cover Clause
Consequently, the insurance comes to an end upon any hostile detonation of a nuclear
weapon wherever this may occur. The detonation has to be “hostile”; the insurance is not
brought to an end if the detonation is in practice or accidental.
4.15 There is an exclusion from the insurance for loss or damage to the containers arising from loss or damage caused by a nuclear explosion. Clause 5 reads:
5. This insurance excludes
5.1 Loss damage liability or expense arising from
5.1.1 a ny detonation of any weapon of war employing atomic or nuclear fission
and/or fusion or other like reaction or radioactive force or matter … .
4.16 This would exclude from the insurance loss of or damage to the insured object
caused by the detonation of a nuclear weapon of war whether it be hostile, in practice, or
accidental. Loss or damage caused by a nuclear explosion caused by other means would
not be excluded by these provisions. In this respect the insurance of containers seems less
restrictive than it is for ships and freight.
Cargo stored afloat
4.17 The Institute War and Strikes Clauses—Cargo stored afloat on mechanically propelled vessels 1.6.82 contain as Clause 14 the Cancellation and Automatic Termination of
Cover clause in its 1.10.83 version. The result is that the insurance cover will come to an
immediate end upon any hostile detonation of any nuclear weapon wherever it may occur.
In addition, Clause 3 reads:
3. In no case shall this insurance cover
…
3.8 loss damage or expense arising from any hostile use of any weapon of war
employing atomic or nuclear fission and/or fission or other like reaction or radioactive force or matter.
Thus loss or damage to the insured object will not be insured if it is caused by a hostile
detonation; a practice or accidental detonation will, however, not be outside the insurance
cover.
Cargo—War Clauses (general cargo), War Clauses (Special Cargo) and
Additional Expenses
4.18 This section deals with three separate forms of insurance:
• Institute War Clauses (Cargo) 1.1.82;
• Institute War Clauses for Special Cargoes;
• Institute Additional Expenses Clause (Cargo—War Risks) 1.7.85.
None of these Clauses contain the Cancellation and Automatic Termination of Cover
Clause in either version. This is because cargo is usually insured on a voyage rather than
a time basis. Consequently, their insurance does not come to an end upon the detonation
of a nuclear weapon whether it be hostile, in practice, or accidental.
24
Cancellation and automatic termination of cover Clause
4.19 They do however contain in Clause 3 (11 in the case of Additional Expenses)
3. In no case shall this insurance cover
…
3.8 loss damage or expense arising from any hostile use of any weapon of war
­employing atomic or nuclear fission and/or fusion or other like reaction or
radioactive force or matter.
4.20 Thus loss or damage to the insured object will not be insured if it is caused by a
hostile detonation. A practice or accidental detonation will, however, not be outside the
insurance cover.
4.21 It should be noted that whilst the Cancellation and Automatic Termination of
Cover Clause is not included in the Institute War Clauses 1.1.82 for cargo, another clause
exists which can be “attached” if desired. It is titled Institute War Cancellation Clause
(Cargo) 1.12.82, and speaks for itself:
The cover against war risks (as defined in the relevant Institute War Clauses) may be cancelled
by either the underwriters or the assured except in respect of any insurance which shall have
attached in accordance with the conditions of the Institute War Clauses before the cancellation become effective. Such cancellation shall however only become effective on the expiry
of seven days from midnight of the day on which notice of the cancellation is issued by or to
the underwriters.
Cargo—strikes
4.22 This section deals with two separate forms of insurance:
Institute Strikes Clauses Cargo 1.1.82;
Institute Strikes Clauses for Special Cargoes.
Neither of these contain the Cancellation Clause in either version. Consequently, their
insurance is not ended by the hostile detonation of a nuclear weapon. They, do, however,
contain the following exclusion in their Clause 3:
3 In no case shall this insurance cover
…
3.9 loss damage or expense arising from the use of any weapon of war employing
atomic or nuclear fission and/or fusion or other like reaction or radioactive
force or matter.
(In some cases this clause is numbered 3.8.)
4.23 There is a minor but important difference between the Cargo—War and the
Cargo—Strikes clauses. The former excludes “hostile” use of a nuclear weapon, whereas
the latter excludes only “use”. This would seem to exclude from the cover the consequences of “practice” use, since the word “use” seems to betoken something which is
purposeful, whilst leaving an accidental occurrence within it.
4.24 There is a lack of uniformity within the nuclear detonation clauses which will lead
to different results in the case of a casualty. This must not obscure the general desire of
underwriters to exclude the consequences of nuclear disasters from their insurance cover.
25
Cancellation and automatic termination of cover Clause
Outbreak of war between the Five Permanent Members of the Security
Council
4.25 The Cancellation and Automatic Termination of Cover Clause (there is no longer
the need to distinguish between the two versions of this clause) contains the following
provisions. This quotation uses the numbering of the insurance for Hull—Time 1.11.95.
6.2 … this insurance shall TERMINATE AUTOMATICALLY
6.2.1 upon the outbreak of war (whether there be a declaration of war or not) between any
of the following countries
United Kingdom, United States of America, France, The Russian Federation, the
People’s Republic of China.
4.26 These provisions appear in the following Institute War and Strikes Clauses
(Table 4.2):
4.27 Further, the loss or damage caused by the act which leads to the outbreak of war
between the Five Permanent Members is excluded from the insurance cover in some
­instances. In the Institute War and Strikes Hulls (5.1.1), Freight (4.1.1), Containers (5.1.2)
and Cargo Stored Afloat (3.9) this exclusion appears;
loss damage liability or expense arising from the outbreak of war (whether there be a declaration of war or not) between any of the following countries
United Kingdom, United States of America, France, the Russian Federation, the People’s
Republic of China.
4.28 This exclusion does not appear in the Additional Expenses insurance, and neither does it appear in the Cargo—War cover. In the Cargo—Strikes cover however (3.10
sometimes 3.9), the following exclusion appears: “… or any hostile act by or against a
belligerent power”. This would appear to have a similar effect.
4.29 The reasons why underwriters cannot insure the results of a conflict between the
Five Permanent Members, which could escalate into a world war, are fully described at
the beginning of Chapter 3.
4.30 There are many definitions of “war”, and these litter international treaties and
League of Nations and United Nations Conventions, all of which have their own purposes.
All that it is necessary to note here is that Chapter 6 deals with “war”, and describes that, in
a commercial document such as an insurance policy, one has to ask oneself what did commercial men and women mean when they included “war” in their document. This does not
necessarily lead to narrow legalistic definitions which are used elsewhere, although they
Table 4.2
Clause
Hulls—Time 1.11.95
Freight—Time 1.11.95
Containers—Time 1.1.87
Cargo Stored Afloat—1.5.16
6.2
5.2
7.2
14.1.1.2
26
Cancellation and automatic termination of cover Clause
may have some persuasive influence and cannot entirely be disregarded. Besides, whether
a state of war exists, to some extent at any rate, is also a question of fact. Questions such
as the degree and the ferocity of any fighting have also to be taken into account.
4.31 At the time of writing this Fourth Edition, and in comparison to when the Third
was written (2005), the world does seem somewhat more unstable. Nevertheless, a conflict
between two or more of the Five Permanent Members still seems remote. What will serve
the reader better is to relate two instances: one where Automatic Termination of Cover
actually took place, and one where it seemed likely to do so.
4.32 First, as to when the Automation Termination of Cover actually occurred. Early in
1962, the Chinese People’s Liberation Army invaded India over the North-East frontier in
furtherance of frontier disputes. These were of some antiquity, originally being made by
Tibet against British India. Some very fierce fighting took place as the Indian armed forces
were pushed back and China occupied a considerable tract of Indian territory. Eventually
the matter was settled by a Peace Treaty with some considerable frontier adjustments in
China’s favour, but until this happened there was undoubtedly a “war”. Under the Cancellation Cause as it then stood, the insurance cover ceased. Almost contemporaneously,
the Cuba Missile crisis took place, when the USSR was persuaded, with the very greatest
difficulty, to remove her missiles, targeted on American cities, from Cuba. At the time
there was no War Risk cover for ships, freight, containers or cargo stored afloat, this having been automatically terminated by the India/China conflict.
4.33 Second, as to when the Automatic Termination of Cover almost happened. A border dispute between the USSR and China broke out in the Far East during the early 1970s
and lasted for some years. Sometimes shots were exchanged between border patrols on
either side. As long as things remained at this level, the situation could not be described
as a war, but was rather a more than usually bitter frontier dispute. But would it become
one? That was the great question. It seemed at times that one side was poised to mount
an invasion of the other, and both sides possessed nuclear weapons. If that had happened
there would undoubtedly been a war which would have terminated the insurance cover.
Requisition
4.34 Most states have powers of requisition of their own subjects’ property in time of
emergency or need, either for title or for use. Requisition for title transfers the property
to the requisitioning government, whereas requisition for use leaves the property in the
hands of its original owner, but allows the state to use it as it wishes. Requisition must be
distinguished from angary, which allows the state to compel a neutral to allow the state to
use his property in any way that it requires.
4.35 Requisition, either for title or for use (but not angary), will bring the insurance to
an end by the operation of the Cancellation and Automatic Termination of Cover Clause,
the necessary provisions being found in the Institute War and Strikes Clauses (Table 4.3):
4.36 The justification for this is that a totally new position arises; a new person, the
Requisitioning Authority, is introduced, and the underwriter may not wish to contract
with him, or to see much enhanced risks brought into the insurance cover which were
never contemplated when the insurance was contracted.
4.37 There is moreover an exclusion which has the effect of excluding loss or damage
which may arise from the act of requisition. This is to be found in the Institute War and
27
Cancellation and automatic termination of cover Clause
Table 4.3
Clause
Freight—Time 1.11.95
Cargo Stored Afloat—1.5.16
Hulls—Time 1.11.95
Containers—Time 1.1.87
5.2.2
14.1.1.3
6.2.2
7.2.3
Strikes Clauses Hulls—Time 1.11.95 and the similar clauses for freight. It also appears in
the Container 1.1.87 Clauses although in a slightly different form. It does not appear in
the Institute Clauses for Cargo, Additional Expenses insurance, and Cargo Stored Afloat.
4.38 Using the numbers for the Hulls insurance:
This insurance excludes
5.1 Loss damage liability or expense arising from
5.1.2 requisition, either for title or use, or pre-emption
while the Container Clauses (5.1.3) exclude “requisition or pre-emption”.
It is suggested that there is no distinction to be drawn between “requisition” and “requisition for title and use”. It is still “requisition” in whatever form it appears.
The mutual associations
4.39 The associations listed in Chapter 2 give Mutual War Risks insurance to ships and
freight. To this number must be added the Through Transport Association which began
operations in 1968 to insure containers. This Chapter 4, which deals with the Cancellation
and Automatic Termination of Cover Clause, will draw attention to the provisions of the
Rules (as the terms and conditions of the Mutual Associations are known) which give it
similar effect. Lastly, it should be noted that Mutual Insurance Associations are known as
“Clubs”, a term which describes their chief characteristic of sharing out the losses equitably between all their members.
The Combined Group of War Risks Clubs
4.40 These are the Mutual War Risks Associations whose names are given in paragraph 2.8A. They operate a Pool between them with uniform Rules. Their insurance cover
is divided into two entirely separate parts. There is the Queen’s Enemy Risks cover (QER
cover) which will only become operative if the United Kingdom becomes involved in hostilities as a belligerent, and the non-Queen’s enemy Risks cover (non-QER cover), which
insures risks where the United Kingdom is not a belligerent. The QER cover is given by
Rule 2A. The non-QER cover is provided by Rules 2B to 2F and Rule 3.
4.41 The Cancellation and Automatic Termination of Cover Clause, in its 1.11.95 version (suitably altered to meet the purposes of a Club’s Rules) appears in Rule 4D.8. It
affects the non-QER cover only; it does not apply to the QER cover. Thus the machinery
exists for charging Additional Premiums for non-QER cover (Rule 4D.8.1) when sailing to
28
Cancellation and automatic termination of cover Clause
destinations which have suddenly become of more than usual danger. The hostile detonation of a nuclear weapon, wherever it may occur, will have no effect on the continuation of
either the QER cover or the non-QER insurance. The non-QER cover, however, contains
an exclusion of loss or damage caused by nuclear risks, including any nuclear weapons of
war (Rule 4D.3.3).
4.42 The outbreak of a war between the Five Permanent Members will not affect the
continuation of the QER cover, but will automatically terminate the non-QER cover (Rule
4D 8.2). In addition, loss or damage arising from the outbreak of war between the Five
Permanent Members is excluded from the non-QER cover (Rule 4D.4).
4.43 Requisition for title or for use will not affect the QER cover, but will automatically
terminate the non-QER cover. Loss or damage caused by the requisition is excluded from the
non-QER cover (Rule 4E.6). This rule must, however, be read in conjunction with its proviso.
If the shipowner member retains an insurable interest after requisition, as he is likely to do
when the requisition is for use only, then his insurance cover shall nonetheless continue.
UK War Risks
4.44 This is the United Kingdom Mutual War Risks Association. It was founded in
1913, and historically comprised a membership that was exclusively UK flagged. Latterly
its membership grew to include vessels that were UK owned, even if not UK flagged. Most
recently, in 2009, it opened its doors to international owners as well.
4.45 In the UK War Risks Rules, QER cover is given by Rule 2D. It applies only to
those vessels registered in the UK, Isle of Man, any of the Channel islands, or any British
overseas territory. The Automatic Cancellation provisions are materially identical to those
provided by the Combined Group of War Risks Clubs outlined above.
The Hellenic War Risks Club
4.46 The Hellenic was formed in 1960 for the benefit of Greek-owned ships, regardless
of the flags which they may fly, and was intended to complement the War Risks insurance
given by NATO if NATO should become involved in major hostilities. It contains no QER
cover, but confines itself to non-QER cover and its attendant risks. It too contains the
Cancellation and Automatic Termination of Cover Clause in its 1.11.95 version (suitably
amended for the purposes of a club), and thus contains the machinery for charging additional premiums when sailing to destinations which have suddenly become of more than
usual danger (Rule 4.1).
4.47 The cover does not cease upon the hostile detonation of a nuclear weapon wherever it takes place, but there is an exclusion of nuclear risks suffered by the insured ship
including any nuclear weapon (Rule 3.2). The insurance is automatically terminated by
the outbreak of war between the Five Permanent Members (Rule 4.2.1). There is an exclusion for any loss or damage which may be caused by such an outbreak (Rule 3.1).
4.48 The Requisition provision (Rule 4.2.2) is drawn in an unusual way, and this
­reflects the many flags under which Greek ships sail. The insurance is automatically terminated if the ship is requisitioned, either for title or for use, by the government of the
State where the ship is registered or where her main management is carried on. Such loss
or damage is excluded from the cover (Rules 3.3 and 3.4).
29
CH A PT ER 5
The insured perils
An overview
5.1 As is explained in Chapter 28 which considers “proximate cause” in detail, and in
common with the ordinary rules of causation, a claim against a war risk underwriter will
succeed only if the loss was “proximately caused” by one of the perils for which insurance
is given by the policy (a rule with its roots in section 55(1) of the Marine Insurance Act
1906, and which has received very recent attention from the Court of Appeal and Supreme
Court in The B Atlantic).1 In other words, the insured must show that the facts surrounding
the casualty which the insured object has suffered lead to the conclusion that the loss or
damage was caused by one (or more) of the perils against which the policy gives insurance
cover. The purpose of this and the following chapters is to consider the decisions which
have been made by the courts and, where appropriate, the practices of the London market
in relation to each of them.
“Insured perils” versus “risks covered”
5.2 There has in the past been much discussion about whether there is any difference
between “insured perils”, perhaps the older and more traditional description favoured
by the MAR form and the Marine Insurance Act, or “risks covered” (sometimes simply
“risks”), the terms used by the Mutual War Risks Associations. For the purposes of this
and the following chapters, it should be noted that section 2 of the Marine Insurance Act
1906 defines “maritime perils”. On the other hand, several cases have dealt with “all risks”
or simply “risks” and have defined how far the all-embracing expression of “all risks”
actually extends to give insurance cover. It is suggested that where the insurance policy
sets out in well-defined lists the misfortunes which the insured object may encounter, as
do the Institute Clauses and the Rules of the Mutual War Risks Associations, and states
clearly that insurance cover is given in case they are encountered and the terms upon
which it is given, there is no substantial difference between the two expressions. The
misfortunes themselves are now so well defined by a large body of case law that it can, and
will, be assumed that the meaning and extent of each separate misfortune is well known
to the parties to the insurance contract when they make it.
1 [2016] Lloyd’s IR 565 (CA); [2018] 2 WLR 1671 (SC).
30
T he insured perils
Approach to the interpretation of the insured perils
5.3 In the following chapters the main subdivisions of the insured perils of the Institute
Clauses and the Rules of the Mutual War Risks Associations each have a chapter devoted
to them. Each insured peril is described individually. That structure is necessary because
the proximate cause of any loss must be established by the insured with a considerable
degree of certainty. On the other hand, it is also necessary to appreciate that it is not always
possible to divide the insured perils into hard and fast categories. For instance, whilst on
one view “seizure” and “detention” could be regarded as having entirely independent
and distinct meanings, the authorities have not always treated them as such. Conversely,
where the meanings of insured perils do overlap, the language sometimes used in various
judgments can blur the strict distinctions which do still exist. Whilst, therefore, the perils
are treated separately in the following chapters so as to be able to properly delineate their
meanings, one should not, at least in respect of some, approach them as having a sense
of exclusivity about them. Rix J. cautioned against such an approach of “no overlap” in
the context of an aviation war risks policy in Kuwait Airways Corp v. Kuwait Insurance
Co SAK.2 It is suggested that the same approach should apply to the lists of perils in the
Institute and Mutual clauses.
5.4 Whilst “military and usurped power” is no longer an insured peril, some mention
of it is still required because the modern law, particularly on “revolution”, “rebellion”,
“insurrection” and “civil commotion”, so greatly depends for its evolution on the cases
concerning it. Likewise, mention of the similarly now defunct “consequences of hostilities
and warlike operations” from the f.c. & s. warranty cannot be omitted when considering
its successor perils of “war” and “hostile act by or against a belligerent power”. The prior
incarnations of these new perils were subject to so many and varying interpretations by
the courts that the result of any case was completely unforeseeable. It was therefore decided when the new system of war exclusions was implemented in 1983, replacing the
old Lloyd’s S.G. Form, that their intended purposes and functions would be better served
by these wholly new insured perils. Undoubtedly these new provisions, even though difficulties will arise in their interpretation, are more precise and thus more satisfactory to
insurer and assured alike. Whilst “warlike operations”, with all its uncertainties of what
was insured and what was not insured, has thankfully disappeared from the War Risk
insurance, it had an influence on the formulation of the law during the 100 years of its
existence (1883–1983) and it cannot be entirely ignored.
5.5 In line with the consistent thrust of the Supreme Court’s decisions in recent years,3
all of the perils should be approached and construed in a commercial, common sense
manner, giving effect to the ordinary meaning of the word or words which make them up:
see the Pesquerias and Spinney’s cases in the war risks policy context. See section 8.3 of
Chapter 8 for analysis of whether the proximate cause of a casualty must be proven to fall
within one of the specified insured perils in order for cover to be engaged.
2 [1996] 1 Lloyd’s Rep. 664 at 690.
3 For example Rainy Sky SA v. Kookmin Bank [2011] 1 WLR 2900; Arnold v. Britton [2015] AC 1619;
Wood v. Capita Insurance Services Ltd [2017] AC 1173.
31
T he insured perils
The role of criminal and public international law when interpreting the
insured perils
5.6 Many of the insured perils of the War Risk Policy involve the criminal liability of
the perpetrator, and this must be so in any insurance which gives cover against what other
people do to the insured object. A definition of a criminal offence at common law was not
rigidly binding on a court which was considering the same offence as an insured peril in
an insurance policy, where the judges felt free to give it the meaning that the two parties
to the contract must have intended it to mean. In the war risks context, for example, piracy
(Chapter 20) has definite requirements for the proof of the criminal offence of piracy, but
the rules for the proof of the insured peril of “piracy” are more general and less rigorous.
Before 1987, there was greater similarity between the criminal offence of riot and the insured peril of “riot”, but the Public Order Act 1986 (Chapter 17) has changed the position.
The suitability and role of this statute from a domestic perspective is one matter, but is
it apt to govern the insured peril of “riot”, particularly when it is contained in a contract
of insurance which has an international application? This would seem to lead to some
strange, and possibly very unsatisfactory results.
5.7 In many cases the obvious intention of the parties will lead straight back to the
technical criminal definition. However, this will not necessarily be the case, and neither
should it be assumed to be so. Where parties have reached particular agreement on the
meaning of words that otherwise would carry a different meaning under English criminal
law, one must defer to the parties’ autonomy: see Re George v. The Goldsmiths and General Burglary Insurance Association Ltd.4 This should be the case whether that agreement
is express or otherwise to be inferred.
5.8 Pickford J., in the Republic of Bolivia case,5 seems to have been the first judge
to have made a clear distinction between a criminal offence and an insured peril. Goddard J., in the Kawasaki case,6 called for construction in “a commonsense way” having
regard to the general tenor and purpose of the document which describes the parties’
intentions.
5.9 In sum, the criminal law provides a useful, and persuasive, indication of the meaning that parties will likely have intended to give to an insured peril which is on identical
terms with a criminal offence. However, each case will turn on the construction of the
particular policy at hand, and the circumstances in which it was concluded.
5.10 Broadly speaking, the same position is true in relation to the technical meaning of
any of the insured perils in Public International Law. As Mustill J. explained succinctly in
Spinney’s in the context of deciding whether the Court should receive the input of the Secretary of State of Foreign Affairs on whether or not the events in Lebanon had amounted
to a civil war:
The issue is not whether events in Lebanon were recognized by the United Kingdom
as amounting to a civil war in the sense in which the term is used in Public International
Law … The question here is whether there was a civil war within the meaning of the policy.
4 [1899] 1 QB 595 at 602–603.
5 Republic of Bolivia v. Indemnity Mutual Marine Insurance Co. Ltd. [1909] 1 K.B. 785.
6 Kawasaki Kisen Kabushiki Kaisha v. Bantham Steamship Co. Ltd. (No. 2) (1939) 63 Ll.L.Rep. 155;
[1939] 2 K.B. 544.
32
T he insured perils
The two questions are not the same, and a pronouncement by the Secretary of State on one
will not suffice to decide the other …7
Future conflicts—cyber warfare?
5.11 There is no caselaw considering how the insured perils to be discussed in the following chapters might fall to be applied in the context of cyber warfare or the increasingly
prevalent cyber attacks that occur throughout the world. Perhaps by the Fifth Edition of
this book, there will be.
5.12 Interesting questions may arise. Consider for example, the “rebellion” peril,
where one would need to bring events within the definition of an attempt to “supplant the
existing rulers or at least to deprive of authority over part of their territory”. When would
a cyber attack directed a country’s banking, healthcare and government infrastructure,
fall within this peril? Gone are the days, perhaps, when an armed mob would simply turn
up and take control over a country’s territory by force. And what of the “war” peril? It
seems conceivable that future wars may be fought solely through the deployment of cyber
weapons—through computer viruses or otherwise. Sooner or later the courts are likely to
need to grapple with this.
5.13 What is already clear though is that, as in the non-marine insurance market, the
degree of cover an insured can have for cyber risks varies enormously between different
policies. For example, cover from the Hellenic War Risks Association currently ostensibly
excludes cover for losses caused by the use, as a means of inflicting harm, of any computer
virus. However, that exclusion only applies once claims that would otherwise be excluded
by the exclusion, exceed US$150 million across Hellenic’s membership in any one policy
year.
5.14 By contrast, where the Institute Cyber Attack Exclusion Clause CL380 (10/11/03)
is incorporated into war risks cover taken out on the Institute terms, a similar but more
extensive exclusion applies, excluding cover for
loss damage liability or expense directly or indirectly caused by or contributed to by or arising
from the use or operation, as a means for inflicting arm, of any computer, computer system,
computer software programme, malicious code, computer virus or process or any other electronic system.
There is no provision equivalent to that in Hellenic’s cover to stay the effect of this
exclusion beneath a certain global claims limit. Both types of policy though do cover
losses arising from the use of a computer/computer programme/electronic system in the
launch/guidance/firing mechanism of any weapon or missile.
7 At 426.
33
CH A PT ER 6
War
6.1 It is in one sense surprising that “war” has been expressed as an insured peril only
since the MAR Form was introduced in 1983. It is, therefore, a new peril to the War Risks
Policy. Having said that, if not mentioned by name, the sense of “war” as being an insured
peril under war risk policies was caught by and large by Clause 2(a) of the now defunct
S.G. Form which provided “hostilities” and “warlike operations” as perils, and the f.c. & s.
warranty which spoke of “consequences of hostilities or warlike operations, whether there
be a declaration of war or not”. These words, however, gave rise to significant difficulties
of interpretation. The 1943 amendment to the f.c. & s. Clause was in response to the House
of Lords’ judgment in The Coxwold,1 and was intended to ensure that only in the clearest
cases would casualties, which could have been payable by either the Marine or the War
Risks Policies, be paid by the war risk underwriters.
The definition of “war”
6.2 War is defined in the Oxford English Dictionary as: “Hostile contention by means
of armed forces, carried on between nations, states or rulers, or between parties in the
same nation or state; the employment of armed forces against a foreign power, or against
an opposing party in the state”, and hostile as: “of, or pertaining to, or characteristic of
an enemy; pertaining to or engaged in actual hostilities”, and hostility as: “The state or
fact of being hostile; hostile action exercised by one community, state, or power against
another.”
6.3 On the one hand the new forms have done away with the need to consider the
myriad cases seeking to delineate the meanings of “hostilities” and “warlike operations”,
many of which did not speak with the same voice. However, it is quite possible that, at least
used sparingly and with a degree of caution, the cases which sought to define the scope of
“hostilities” in the past will be apt to apply to the meaning of the “war” peril. To the extent
that “war” is to be interpreted more narrowly than “hostilities” and (more likely) “warlike
operations”, it seems likely that the overspill will instead fall into the new wording “or any
hostile act by or against a belligerent power” (considered in Chapter 10).
6.4 Where, as is so very often the case, “war” appears alongside “civil war” in a list
of perils, the sense of the word is of a dispute with an international character. However,
if the word was to appear alone, it embraces a war of both an international or domestic
1 [1900] 2 Q.B. 339 at 343.
34
War
(i.e. civil) complexion: see Pesquerias y Secaderos de Bacalao de Espa˜na S.A. v. Beer2
and Spinney’s (1948) Ltd v. Royal Ins Co Ltd.3
6.5 In Driefontein Consolidated Gold Mines Ltd. v. Janson [1900] 2 QB 339 Mathew J.
quoted with approval Hall on International Law (4th edn), p.63:
When differences between states reach a point at which both parties resort to force, or one
of them does acts of violence, which the other chooses to look upon as a breach of the peace,
the relation of war is set up, in which the combatants may use regulated violence against each
other, until one of the two has been brought to accept such terms as his enemy is willing to
grant.4
6.6 Notwithstanding these seemingly authoritative definitions, over a series of cases
the courts have made it clear that when they are considering a commercial document such
as a war risks policy, they are not going to be bound by narrow, or technical, definitions—
even those quoted above. As foreshadowed in Chapter 5, the settled approach taken by the
courts is to consider the intention of the parties as disclosed by the documents, and then
proceed to give those documents, and their definitions, the meaning which the parties
obviously intended they should have. If the parties include “war” in their contract and
provide that certain consequences are to follow, “war” will therefore be given its normal
and popular meaning. This must mean that formal definitions, such as those set out above,
will have a persuasive effect only and will not constitute a binding authority from which
no deviation will be made. In other words, the individual facts of any case will be closely
considered.
6.7 Two cases in particular demonstrate the approach that the English courts will
take. The first is Kawasaki Kisen Kabushiki Kaisha v. Bantham Steamship Company Ltd.
(No. 2).5 The court was considering a charterparty, which gave both parties the “liberty
of cancelling this charter-party if war breaks out involving Japan”. After the date of the
charterparty, the Sino-Japanese War broke out and, on 18 September 1937, Bantham, by
notice, withdrew the ship, thus cancelling the charterparty. Kawasaki claimed that this
cancellation and withdrawal were wrongful and commenced arbitration proceedings. The
case made its way as a case stated to the High Court and the Court of Appeal.
6.8 On 15 August 1937, Japan had charged China with making war preparations against
her and stated that her patience was exhausted. The umpire (the arbitrators having failed
to agree) found as facts that:
(1) There had been no declaration of war by either side.
(2) Diplomatic relations between the two countries had not been severed; both
countries maintained their Embassies in each other’s capitals.
(3) By 19 September 1937, 50,000 Japanese troops, backed by their fleet and airforce, had engaged 1,500,000 Chinese troops in the neighbourhood of Shanghai, and that 100,000 Japanese troops with artillery and aircraft had engaged
300,000 Chinese troops in northern China. Over 50 battles, mostly of a ferocious nature, had been fought, with many killed and injured on each side.
2
3
4
5
(1948–49) 82 Ll Rep. 501 at 513.
[1980] Lloyd’s Rep. 406 at 427, 429.
343 to 344.
(1939) 63 Ll.L.Rep. 155; [1939] 2 K.B. 544.
35
War
(4) The Japanese Navy had blockaded the Chinese coast.
(5) The United States had appealed to both sides not to resort to war, and
(6) On 29 August and 2 September 1937, Japan had further described her purpose.
She desired to obtain a drastic improvement in China’s attitude and to purge
aggressive intentions, mostly in the Chinese army, towards her. China deserved
to be “beaten to her knees” and thereafter governed by Japan. There was not a
state of war between the two parties but merely “a major conflict”.
On all this, the umpire found that there was a “war” subject to the decision of the courts.
6.9 In the High Court, Goddard J. approved this finding and dealt with the quotation of
Mathew J. which is set out above. He did not consider this quotation as exhaustive. Some
people chose to think that China had not chosen to look on Japan’s actions as a breach
of the peace and, indeed, it had not so declared. On the other hand, the resistance of her
armies indicated that she so regarded it. The parties to a contract are not concerned with
the niceties of international law. They “intended the word ‘war’ to be construed as war
in the sense in which an ordinary commercial man would use it”. He considered that the
same principles of construction applied as those applied by Pickford J. in Republic of
Bolivia v. Indemnity Mutual Marine Insurance Company.6
6.10 On appeal, Kawasaki took three points. First, “war” does not have a loose or popular
meaning, but a technical meaning which is to be found in the principles of international law.
Lord Greene MR, giving the judgment of the Court of Appeal, dismissed this argument,
and said “… to say the English law recognises some technical and ascertainable description
of what is meant by ‘war’ appears to me to be an impossible proposition”.7 The second argument was that the courts are bound by the opinion of the Foreign Secretary whether a state
of war exists between two sovereign States and must accept his certificate as conclusive.
That too was rejected, with the Court reiterating that the Foreign Secretary’s view, which in
had he had declined to give one way or the other, was not determinative. Instead, the question was one of interpretation: “in the particular context in which the word ‘war’ is found
in this charterparty, that word must be construed, having regard to the general tenor and
purpose of the document, in what may be called a commonsense way”.8 Third, Kawasaki
argued that there can be no war unless there is animus belligerendi between the two States.
6.11 This argument received similarly short shrift. The court had heard the argument,
but was none the wiser. When armies were locked together in battle, there must be animus
belligerendi whatever this might happen to be.
6.12 The second critical case is Pesquerias y Secaderos de Bacalao de Espa˜na S.A. v.
Beer, which arose out of the events leading to the Spanish Civil War.9 The plaintiffs were
the owners of six ocean-going fishing trawlers based on Pasajes in north-western Spain.
On 3 July 1936, they effected an insurance policy with the defendant underwriters containing the following clause:
6 [1909] 1 K.B. 785. This principle has also been followed in National Oil Company of Zimbabwe (Private) Ltd. and Others v. Sturge [1991] 2 Lloyd’s Rep. 28, and in Athens Maritime Enterprises Corporation v.
Hellenic Mutual War Risks Association (Bermuda) Ltd. [1982] 2 Lloyd’s Rep. 483—The Andreas Lemos case.
7 ([1939] 2 K.B. 544 at 556)
8 At 558–559.
9 (1945–46) 79 Ll.L.Rep. 417; (1946–47) 80 Ll.L.Rep. 318 (C.A.); (1948–49) 82 Ll.L.Rep. 501; [1949] 1 All
E.R. 845 (H.L.).
36
War
This insurance is only to cover loss or damage to the within insured interest caused by strikers, locked out workmen or persons taking part in labour disturbances or riots or civil commotions arising from incendiarism, use of explosive bombs or other engines of destruction or
from any other malicious act whatsoever by any persons, including general average, salvage
and salvage charges as a direct result of malicious damage not recoverable under the Marine
Policies. Excluding war risks and excluding all other risks ordinarily covered under the vessel’s marine policy.
The Pesquerias Case
The facts
6.13 In February, 1936, the Spanish General Election returned the Republican Government, which contained many extreme left-wing elements, to power. The Government lost
no time in declaring a “state of alarm”, which had the effect of suspending certain laws.
On the 18 July 1936, General Franco landed in Spain from Spain’s African colonies and by
a pronunciamiento declared that a state of war existed. Nearly all the military commanders in Spain rose in his support as did most of the regular police. In particular General
Mola, the army commander in Pamplona, declared for Franco and set about the conquest
of the north-western provinces of Spain in his name. The garrison at San Sebastian rose in
his support although the Government later managed to subdue it. By the end of July, 1936,
General Mola’s troops were within 10 to 15 kilometres of Pasajes and San Sebastian. He
was also making considerable progress in his first military aim, namely to cut this part of
Spain off from France, although he only achieved this fully by the capture of the frontier
towns in the first week of September, 1936.
6.14 Faced with the defection of all but a few of the regular armed forces of the State and
the police of the country, the Government had no choice but to raise a militia from its citizens if it was to continue to exist. At first the militia had few arms and no uniforms other
than armbands. The Government attempted to impose military discipline upon its militia
but, at least in the early stages, with many criminal elements among its ranks, even such
limited restraints as military discipline manages to impose on trained and regular troops in
scenes of retreat and armed political upheaval were conspicuously absent. This goes far to
explain the facts of this case and the nature of the pleadings of the plaintiffs. Nevertheless,
the civil governors of the provinces did have some success in resisting General Mola’s
men and in maintaining some form of law and order in the territory under their control
although, in the nature of things, this was only of a limited nature. They also had considerable difficulty in controlling their men, and formal requisition to furnish them with what
they needed to fight a war, observing the forms required by the law, was beyond them.
The casualties
6.15 The Government was fighting for its life and its often unruly men took what they
needed. Besides taking what could justifiably be required for military purposes, there was
a considerable amount of looting and violence to those who opposed them. The scenes in
the plaintiff’s fish processing factory in Pasajes where four of the trawlers were berthed
can be imagined when the trawlers were required for Government service. There was no
polite if firm service of a requisition order by a naval officer or a ministry official; a large
and angry mob took what it needed with a minimum of explanation.
37
War
6.16 Other factors also weighed with the court. On 6 August 1936, one trawler was
sent from Pasajes to Bilbao where she was fitted with a naval gun. On 17 August 1936,
Bilbao was shelled by a Franco warship and the coast was being patrolled by other warships which had sided with him. In early September, 1936, San Sebastian was bombed and
was also shelled by a Franco cruiser. On 8 September 1936, the day that General Mola’s
troops entered Pasajes, the remaining three trawlers were despatched to Bilbao carrying
militiamen, military stores and refugees. General Mola further captured San Sebastian
on 13 September 1936. On 5 March 1937, the armed trawler was sunk in a battle with a
Franco warship. Another trawler was scuttled, being later raised and handed back to her
owners. The remaining two trawlers eventually escaped to a French port, whence they
were returned to their owners with the loss of much of their gear.
The courts’ decisions
6.17 In the High Court, Atkinson J. found on the facts that a loss had arisen on the
policy and gave judgment in favour of the plaintiffs. This judgment was unanimously
reversed by the Court of Appeal and in the subsequent further appeal to the House of
Lords, the judgment of Lord Greene M.R. in the Court of Appeal was cited with much
­approval. In the House of Lords, Lord Porter delivered the main speech with which the
other Lords, with only minor variations, unanimously agreed. Lord Porter found it necessary to draw different conclusions from the facts from those drawn by the trial judge and
meticulously did so. The following passages from his speech are informative: “The crux
of the matter is, was there a civil war or not? In my view there plainly was …”.10
Finally it was argued that civil war was not excepted from the risk on the grounds that the
word “war risk” did not include war between nationals of the same country. So far as the Court
of Appeal was concerned the argument was untenable, the contrary having been decided in
Curtis & Sons v. Matthew.11
From these cases, it would seem that the meaning of the insured peril of “war” is reasonably well settled in English law, even though it has only been an insured peril in the
War Risk Policy since 1983 and there are so far no decisions of the English courts which
consider it in that context.
World War II
6.18 Even as recently as the Second World War, wars were undertaken on a far more
formal basis than is common today. Each side would line up, issue ultimata, reject or
ignore them, and at a well-defined time start fighting one another. Since about 1950, there
has been a tendency for wars to start without warning or any of the historical preliminaries. The doctrine of the pre-emptive strike has had a great appeal to many an aggressor, and very often the fighting has taken place in a geographically localised, sometimes
very limited area. Everywhere else in the world the two participants to the conflict have
behaved peaceably towards each other. When considering the following conflicts and
10 At 513.
11[1919] 1 K.B. 425 (at 513, and see also Lord Morton at 514).
38
War
situations, it must be borne in mind that we are dealing with the insured peril of “war”,
and must consider it in the way that Lord Greene M.R. indicated.
6.19 On 3 September 1939, the United Kingdom declared war against the German
Reich. The fighting ceased on 8 May 1945 and an Armistice was signed by German representatives empowered to sign on behalf of the whole Reich, including that territory which
later became the German Democratic Republic, or East Germany. Peace treaties were
signed with the Federal Republic of Germany, or West Germany (1948) and with Austria
(1955), but were not signed with East Germany until 1978. Were the United Kingdom and
East Germany “at war” between 1945 and 1978? (in the sense we are concerned with here).
From a very early stage, a pattern of trade developed between the two countries, ships of
each national called at each other’s ports, visas were issued, at first argumentatively but
later freely, at least one action by an East German nationalised company was fought in the
English courts, businessmen came and went, and representatives of each government met
and discussed mutual problems. It can hardly be said that the insured peril of “war” would
ever arise in such a situation as this.
6.20 The above is consistent with the House of Lords’ decision in Board of Trade v.
Hain Steamship Company Ltd.12 In that case it was held that there could not be a loss
caused by “hostilities” after an armistice, even though it was recognised by the Court that
the armistice dated 11 November 1918 was no more than a temporary cessation of hostilities. The casualty happened on 25 December 1918, and thus predated the Peace Treaty
which was not signed until 1919.
The Korean War
6.21 In June 1950, North Korea launched an attack upon South Korea without any
warning. In answer to a resolution of the Security Council, the United States, the United
Kingdom, Australia, New Zealand, India, Greece, Belgium and Turkey sent contingents
to aid South Korea. China later joined in the fray on the side of North Korea, and savage
warfare continued until 1953 when an armistice was signed. During all this time, the
British Embassy (at this time the only Western Embassy) remained open in Beijing, trade
continued without let or hindrance between China and most of these countries, and their
ships came and went to Chinese ports. Whether a state of war existed between China and
North Korea on one hand and the other nations on the other is a most tangled matter with
plenty of room for diverging views, but if some insured object had been lost or damaged
in the fighting, even ships far from the Korean coastline which were attacked by prowling
warships or aircraft, then there should have been no difficulty in recognising the insured
peril of “war”.
The Falklands War
6.22 The following represent fairly clear examples of the distinction between “war” in
the sense of international law, and the insured peril of “war” in a commercial document
such as an insurance policy.
12 [1929] A.C. 535.
39
War
6.23 On 2 April 1982, Argentina, which had long laid claim to the Falkland Islands,
under the pretence of a naval exercise suddenly and without warning invaded the Falkland Islands and South Georgia. The United Kingdom protested and mounted a vigorous
diplomatic offensive. She also drew an Exclusion Zone around the islands and warned
everyone else not to enter it. The United States took a hand and sent its Secretary of State
on a round of “shuttle diplomacy” between the United Nations, Buenos Aires and London. Meanwhile the United Kingdom dispatched a strong military and naval task force
to re-possess the Islands, by force if need be. Having 8,000 miles to travel and some formidable logistical problems to overcome, it would be many weeks before it could arrive
on the scene.
6.24 On 25 April 1982, the British armed forces compelled the surrender of the
Argentine garrison in South Georgia. The fighting was very fierce if short-lived, and an
Argentine submarine was sunk in the process. In early May, a British submarine sank
an Argentine cruiser, the General Belgrano, even though she was outside the Exclusion
Zone because of the fear that she or her escorting destroyers might attack the approaching
British fleet with Exocet missiles. On 21 May, the British armed forces landed on the Falkland Islands, and in a series of hard fought if miniature battles, compelled the Argentine
surrender on 14 June. There was considerable loss of life, of ships, of aircraft and of other
materiel on both sides before the fighting came to an end.
6.25 During the whole of the period between 24 April and 14 June, neither nation, apart
from forbidding each other’s aircraft to land at their airports and recalling their ambassadors, interfered with the other’s citizens or property. British ships in Argentine ports were
not interned, but were merely ordered to leave. British soldiers taken prisoner in the early
engagements were not interned but were sent home. The considerable British community
in Argentina was left in peace. British journalists went into Buenos Aires and interviewed
senior political and military figures. Outside the narrow area of some ferocious fighting,
everything was peaceful.
6.26 Was there a war? The international lawyers have, from that day to this, been
engaged in disputatious discussion without finding a definite answer one way or the other.
Had there been loss or damage caused by the insured peril of “war”? Undoubtedly there
had.
6.27 During the fighting on the Falkland Islands, the Atlantic Conveyor was hit by
an Exocet missile whilst a few miles to the North of East Falkland and sank. This was
accepted by her Mutual War Risks Association as a proper claim arising out of the insured
peril of “war”. The Monsunen, a Falkland Island ship, was said to have disappeared and,
for a time, it was thought the Argentines had sunk her. She was later discovered beached
at Choiseul Sound, a very remote spot, with a wire wound round her propeller. She was
salvaged by the Royal Navy and when last seen was carrying Ghurkha troops. The Hercules, an American owned tanker, was hit by a bomb dropped from an Argentine aircraft,
while a considerable distance to the North of the Falkland Islands. The bomb did not
explode and was only removed with the greatest difficulty, but it caused a considerable
amount of damage to the ship. The British Wye was still some way out into the South
Atlantic carrying 35,000 tons of fuel oil for the Royal Navy when she was attacked by an
Argentine Hercules aircraft. It was not a sophisticated operation; the crew of the Hercules
could be seen rolling the bombs with their feet off the after ramp of the plane. Fourteen
bombs exploded harmlessly in the sea. The last bomb hit the ship just aft of the foc’sle
40
War
and went over the side without exploding, but taking with it a considerable length of the
ship’s cargo lines and 15 feet of the life-rail. In all these cases, the insured peril of “war”
had unquestionably arisen, and the loss or damage was accepted as proper claims by the
underwriters.
The First Gulf War
6.28 In other cases, difficulty might be found in deciding whether the insured peril had
arisen, and a typical example is provided by the first war against Iraq in 1990 and 1991.
The relevant period can be subdivided:
Period 1: 2 August 1990 to 16 January 1991
6.29 Iraq invaded Kuwait without warning and rapidly overcame the resistance of
the Kuwaiti armed forces. She defied a number of Security Council resolutions to leave
and proved immune to intense diplomatic pressure to persuade her to do so peaceably. A
coalition was formed to prevent a further invasion of Saudi Arabia. The United States,
the United Kingdom, Australia, France, Italy, Syria, Egypt, Pakistan and of course
Saudi Arabia contributed troops, ships and aircraft to a force whose defensive purposes,
at least initially, could be summarised by its name—Desert Shield. In mid-November
1990, when it was clear that nothing short of military force would eject Iraq from
Kuwait, the name was changed—Desert Storm. This period was not entirely devoid of
military activity; special forces, mainly American and British, were operating inside
Iraq, and Iraq fired a number of Scud missiles against Israeli cities and Saudi-Arabia’s
capital Riyadh.
Period 2: 16 January to end-February 1991
6.30 A ferocious aerial bombardment started with attacks aimed at neutralising the
Iraqi armed forces to make a ground attack less hazardous. The United States contributed
most of the aircraft, but was assisted by aircraft from the United Kingdom, France and
Italy. This was successful in its aim, and the ground forces met far less opposition than
they had feared. Kuwait was freed from Iraqi occupation by the end of February 1991.
Having no mandate from the United Nations to invade Iraq, the ground forces halted
their advance just north of the Kuwaiti frontier. No attempt was made to topple the Iraqi
regime; this was thought to be a job for the Iraqis themselves.
Period 3: March 1991 to February 2003
6.31 The removal of the Iraqi regime simply did not happen. Iraq was made subject
to sanctions until a series of measures, designated in UN resolutions, had been effected
by Iraq. These were not taken either. A number of teams of UN Inspectors remained in
the country until 1998 to disarm Iraq, primarily of atomic and biological weapons. It now
seems they were more successful than even they realised. American and British aircraft
patrolled areas in the North and South of the country to try and protect Kurds in the North
and Shi’a minorities in the South.
41
War
6.32 Would the insured peril of “war” have arisen during any of these periods? If loss
or damage to an insured object had been caused during Period 2, it would probably have
been easy to say that it had. Could it have arisen during Periods 1 and 3? That is much
more doubtful.
Conflict in Kosovo
6.33 In CMA CGM SA v. Beteiligung (The Northern Pioneer),13 which came before
the Courts in the form of an appeal under section 69 of the Arbitration Act 1996, CMA
had chartered four container ships on long-term charter. Whilst the Court of Appeal’s
judgment is concerned with a series of issues relating to section 69 itself, as a by-product
certain aspects of the tribunal’s decision, in which the definition of “war” was considered,
have made it into the public domain.
6.34 The shipowners were a German company and the ships all flew the German flag.
The charters were all on the New York Produce Exchange form and contained the familiar
Clause 31:
In the event of the outbreak of war (whether there be a declaration of war or not) between any
two or more of the following countries—the United States of America, the United Kingdom,
France, Russia, the People’s Republic of China, the Federal Republic of Germany and any
country of the EEC or in the event of the nation under whose flag the vessel sails becoming
involved in war … either the owners or the charterers may cancel this charter party.
6.35 The arbitrators, Sir Christopher Staughton, Mr. Adrian Hamilton Q.C. and Mr.
Kenneth Rokison Q.C., found that:
The particular (NATO) operation with which we are concerned started on 24 March 1999.
Germany participated as a member of NATO. Under the German Constitution, the German
Bundestag approved German participation in the operation. From 24 March 1999, the participation involved the deployment of ten Tornado ECR aircraft and four Tornado Recce aircraft
of the German Airforce initially suppressing Yugoslav air defences and reconnaissance, and
later switching to other targets. During the second half of April the intensity of the operation,
including Germany’s participation increased considerably. We conclude however, that the
operation was one operation starting on 24th March 1999, and the increase in Germany’s
participation was one of scale or tempo, rather than in the nature of Germany’s involvement.
6.36 It was by a majority that the arbitrators had found that:
1. events in Kosovo did not constitute a war within the meaning of the word; and
2. if events in Kosovo did constitute a war, Germany was not involved. They seem
to have been unanimous however on one point. Notices of Cancellation in cases
such as this must be given within a reasonable time. This notice was not given
until 29 April 1999. That was too late.
6.37 Only some parts of the arbitration award have reached the public domain through
the Court of Appeal’s judgment and these are quoted above. One does not have the advantage of reading the reasons. However, applying the approach set out in the cases above to
13 [2003] 1 Lloyd’s Rep. 212.
42
War
the facts of the situation during this NATO operation, it is evident that the distinguished
panel of arbitrators involved applied the law in an orthodox fashion in reaching their
conclusions.
6.38 Following the death of Marshal Tito, the disparate peoples which he had held
together as Yugoslavia began to break away to form their own states around their own
ethnic groupings. The Serbs wished to form a “Greater Serbia”, and began a form of
ethnic cleansing which was nothing less than genocide to clear Muslims out of Bosnia.
The West’s efforts to halt this by dispatching “peacekeeping troops” to Bosnia were
ineffective.
6.39 When the same thing was started in Kosovo, an area inhabited in roughly even
proportions by Orthodox Serbs and Muslim Albanians, NATO—although by its constitution a defensive alliance forbidden to take part in offensive operations—resolved to
take a much firmer stand at a much earlier date. Peacekeeping troops from many nations,
Germany among them, were promptly dispatched to stop the mayhem. Aircraft, including
Germany’s, were employed to suppress the lethal Serb air defences, and thereafter in very
limited roles.
6.40 The ground troops were forbidden to shoot unless to protect their own lives or
those of their comrades. There were no massive artillery bombardments aimed at causing
massive casualties or loss of life. The whole operation was partly political, and partly
humanitarian. Nobody wanted to see a Third World War start a few miles from the scene
of the catalyst which caused the First World War. There was a desire to stop the massive
killing and damage to property and the driving of people from their homes where they had
lived for generations. Nothing less like a “war”, interpreted in the “commonsense” way on
which Goddard J. and Lord Greene M.R. had been so insistent in the Bantham case could
be imagined.
The 9/11 attacks
6.41 In IF P&C Insurance Ltd (Publ) v. Silversea Cruises Ltd,14 in the context of construing a “loss of income” policy the Court of Appeal considered, obiter, whether the 11
September 2001 attacks on the World Trade Centre in New York constituted an “act of
war” or an “armed conflict”. Rix L.J., at [143], took the view that “act of war” and “armed
conflict” could be of broader effect than the word “war” insofar as they could arise within
a state of “war” being present, and that the responsive invasion of Afghanistan by the
United States less than a month later could assist in construing the 9/11 attacks themselves
as an “act of war”. It was also reaffirmed that public international law concepts of “armed
conflict between sovereign states” was not a particularly helpful way of thinking about
war. Ward L.J. however, at [147–148], again emphasising the approach of viewing the
events from the perspective of a business person and not an international lawyer, opined
that the 9/11 attacks were a terrorist attack, and not an “act of war”. The subsequent declaration of the “War of Terror” by the United States was a colloquialism, and did not alter
his conclusion. Furthermore, the singular nature of the attacks distinguished the situation
from the sense of continuity that is implicit within the concept of an “armed conflict”.
14[2004] Lloyd’s IR 696.
43
War
Key principles derived from the case law
6.42 In seeking to draw conclusions, one should remember that this insured peril is
included by agreement in a commercial document, and therefore the question to be asked
is what businessmen intended when they so included it. The complex rules of international
law are not to be regarded as ruling the interpretation, but rather those of simple “common
sense” With this in mind the following propositions are suggested:
1. The word “war” in a commercial document such as an insurance policy is given
its normal and common meaning. Any technical meanings it may have in international law are not relevant, or are at best of very limited relevance.
2. The insured peril of “war” will only arise where there is a conflict between two
or more nations whose governments have committed them to warfare, either by
aggression or defence thereto.
3. Such government may be de jure or de facto. It is not necessary that a de facto government should have all the characteristics which might otherwise be required,
such as at least some measure of international recognition by foreign nations;
it is sufficient if it has to some substantial degree the character of a sovereign
State and has the will and ability, either by persuasion or compulsion, to lead the
people over whom it rules into active hostilities.
4. Arguably, the insured peril of “war” can arise where two or more nations consider themselves at war with each other even though no military operations are
currently in process. It will not however arise when two nations who have been
at war now consider themselves to be at peace with each other even though no
peace treaty has been signed.
5. The insured peril of “war” can arise where two or more nations are at peace
with each other, but are conducting military operations with each other within a
limited area; in such an event, the insured peril will only arise within that limited area and such extensions thereto which are within the ranges and abilities
of the various weapons which are employed, such as missiles, patrolling ships or
aircraft.
6. A declaration of war is not required; it is sufficient if one nation makes an attack
upon another which seeks to repel it.
7. It is not required that the insured object should be the property of a belligerent.
The insured peril of “war” can also arise when the damaged property belongs to
a neutral.
44
CH A PT ER 7
Civil war
7.1 In the Pesquerias1 case, the House of Lords saw no essential difference between
“war” and “civil war” (other than the obvious one that wars are fought between nations
and civil wars between the citizens of a State). Lord Porter regarded the matter as settled
by the decision of the Court of Appeal in Curtis and Son v. Mathews.2
7.2 In Curtis the premises insured were in Dublin. On 24 April 1916, some 2,000 men,
describing themselves as the armed forces of the self-styled Provisional Government of
the Irish Republic, occupied the Post Office and other buildings in Dublin in an event
known to history as the “Easter Rising”. The British armed forces attempted to suppress
the insurgents and there was some vigorous street-to-street fighting. The Post Office itself
was shelled by artillery. This started a fire which spread through several intervening
buildings until it destroyed the plaintiff’s premises. The fire brigade was unable to put it
out because of the shooting by the insurgents. The court noted with approval the finding
of Roche J. when giving judgment for the plaintiffs: “I am satisfied that Easter week in
Dublin was a week not of mere riot but of civil strife amounting to warfare waged between
military and usurped powers and involving bombardment.”
7.3 There is now confirmation of the position apparent in the Pesquerias case in the more
recent case of National Oil Company of Zimbabwe and Others v. Sturge [1991] 2 Lloyd’s
Rep. 281. There, Saville J., applying the principle that in commercial documents words must
be given their ordinary everyday meaning said: “In this context ‘civil war’ means a war with
the special characteristic of being civil—i.e. being internal rather than external.”
Spinney’s (1948) Ltd. and Others v. Royal Insurance3
The facts
7.4 The most authoritative case on “civil war” is Spinney’s (1948) Ltd. and Others v.
Royal Insurance. The facts were complicated in the extreme, and they received a thorough
and exhaustive analysis from Mustill J. It is worth rehearsing them in some detail. No easy
assumptions could be made about whether any of the separate parties had de facto or de
jure status.
1 Pesquerias y Secaderos de Bacalao de Espa ˜na S.A. v. Beer (1945) 79 Ll.L.Rep. 417; (1947) 80 Ll.L.Rep.
318; (1948–49) 82 Ll.L.Rep. 501; [1949] 1 All E.R. 845.
2 [1919] 1 K.B. 425.
3 [1980] 1 Lloyd’s Rep. 406.
45
Civil war
7.5 The court found that Lebanon’s population consisted of about 3.5 million people
(the exact figure was not known) made up by about 1.6 million Christians and 1.6 million Muslims (plus 350,000 Palestinians). The Christians consisted of several individual
religious persuasions, the Maronites (the majority), Greek Orthodox, Greek Catholics and
some other smaller sects, all of whom were divided by deep and divisive doctrinal differences. The Muslims also were similarly divided by equally deep and divisive doctrinal
differences and here the court felt able to give proportions. Of every 11 Muslims five were
Sunnis, four were Shi’ites and two were Druze.
7.6 In order to govern the country, the National Pact of 1943 had divided the centres
of power so that the President of the Republic was a Maronite Christian, the President of
the Chamber of Deputies was a Shi’ite Muslim, the Prime Minister was a Sunni Muslim
and the Commander in Chief was a Maronite Christian. The Chamber of Deputies was
divided so that there were six Christian to five Muslim seats. The arrangement worked
quite efficiently if not to the entire satisfaction of all concerned, and Lebanon became a
very prosperous and fairly peaceful country. By 1975, however, the increase in the Muslim
proportion of the population to that of the Christians led to an expectation of a rearrangement in the Muslim’s favour, and the Muslim population was not immune to the tide of
Arab nationalism which swept the Middle East during the 1960s and 1970s. This expectation and the demands which accompanied it were resisted by the Christians in a way
which ensured that trouble was bound to ensue, as it indeed did.
7.7 Spinney’s ran a retail supermarket business selling mostly food. Their business in
West Beirut (a Muslim enclave) was conducted from two shops and a tower block which
seems to have contained their Head Office and a considerable quantity of food awaiting
distribution to retail outlets. Their property was insured with the Royal Exchange Assurance under conditions of great complexity. The perils, whether as insured or excepted
perils, which the High Court was called upon to consider were: Civil War, Usurped Power,
Invasion, Rebellion; Insurrection, Hostilities; Warlike Operations, Civil Commotion, and
the specific exclusion which read:
… Any act of any person acting on behalf of or in connection with any organisation with
activities directed towards the overthrow by force of the government de jure or de facto or to
the influencing of it by terrorism or violence.
7. 8 The events that took place are best presented in a diary form:
Table 7.1
Pre-February 1975
A deteriorating political and security situation leads to feuds and violence between the various
sects. There are also clashes between the regular army and the Palestinians whose presence is
greatly resented by the Christians. There are further clashes between the paramilitary forces
maintained by the various Christian and Muslim factions, sometimes involving the Palestinians.
The most powerful of these forces are maintained by the Maronite Christians (the Phalange), the
Shi’ite Muslims, the Druze, and the Palestinians themselves.
46
Civil war
February 1975
The government presently consists of:
– The President—Suleman Franjieh (Maronite Christian)
– The Prime Minster—Rashid-Al-Sulh (Sunni Muslim)
– Cabinet Ministers—Various representatives of the Phalange, other Christian political parties
and groups, and Jumblattist Shi’ites.
There is an ad hoc opposition consisting of two Muslims, Mr. Said Salan and Mr. Karami, and
a Maronite Christian, M. Raymond Edde. These three gentlemen are highly respected political
figures who lead their own followers to take more moderate courses than those favoured by the
Phalange and the Jumblattists both of whom are far more extreme.
26 February 1975
A strike and a demonstration by fishermen in Sidon over an industrial dispute leads to a riot and
the death of one of the local leaders. Demonstrations in sympathy in Sidon and Beirut are put
down by the army with more deaths. The army is praised by the Christians and execrated by the
Muslims.
13 April 1975
M. Gemeyal (the Maronite Christian leader) attends the consecration of the new church and
gunmen kill four of his attendant supporters. The Phalange murder Palestinians in a bus.
Muslim and Christian suburbs exchange rocket and small arms fire. A ceasefire is arranged.
26 April 1975
The Jumblattists withdraw from the government and refuse to serve in any future government
which includes the Phalange.
15 May 1975
The Prime Minister resigns and the government falls. The Jumblattists refuse to serve in any
government that includes the Phalange, which refuses to support any government that does not
include it. Some military officers are appointed to run the government until the deadlock can be
resolved but have to resign after three days. There is much shooting and sporadic violence.
30 June 1975
Mr. Karami forms a government which includes M. Chamoun, a moderate Christian leader, but
excludes the Phalange and the Jumblattists. Two months of uneasy calm follow.
End-August 1975
A gaming dispute in Zamleh, a Christian village enclave, leads to shooting which spills over
into Tripoli.
7 September 1975
The Christians murder a busload of Muslims and Christian property in Tripoli and the north of
Lebanon is looted.
15 September 1975
There is violent fighting in Beirut and the Christians bombard the Souk.
47
Civil war
7.9 At this point, the court finds:
(1) The violence is basically sectarian.
(2) The Palestinians are hardly involved, if at all.
(3) Mr. Karami is doing all that he can to resolve matters peaceably and without
violence.
(4) Except for the bombardment of the Souk, fighting is in the traditional areas of
tension between the Christians and the Muslims (this seems to indicate that up
to now there is no invasion of enclaves, but sporadic shooting from one enclave
into another).
Table 7.2
End-September 1975
Syria now intervenes on the supposed basis that she cannot tolerate disorder on her borders
which might tempt the Israelis to intervene themselves. The Foreign Minister comes to Lebanon
to mediate and manages to persuade the politicians to form a “Government of National
Reconciliation”. It includes both the Maronites and the Jumblattists, but soon breaks down
because the Jumblattists continue to insist on being given more posts in the Civil Service and the
Army which they consider to be too pro-Christian. The Arab League also attempts to mediate
but fails. The President’s and the Prime Minister’s supporters fight in Tripoli.
October/November 1975
There is gunfire and looting in Beirut. A ceasefire fails to last. The Christian militias, apparently
with some support from the Palestinians, now invade the Muslim enclaves in West Beirut. The
court regards this as a turning point, in that fighting is no longer from fixed positions and, for
the first time, there is wholescale invasion of an enclave. There is an exodus of refugees and the
fighting, punctuated by ceasefires, dies down.
November 1975
Mr. Karami makes political moves to form a new committee. At first he meets with no success
but later things seem more hopeful. The Syrian President invites Gemeyal to Damascus for
talks.
6 December 1975
The worst violence so far breaks out in Beirut. In what appears to be a reprisal, the Phalange
murders 200 Muslims. The Muslim militias drive the Phalange out of West Beirut. Muslims and
radical politicians rejoin a “Higher Co-ordinating Committee”. Another uneasy peace begins.
Early January 1976
The Palestinians block a bridge which is vital to Christian communications. The Phalange
engages them and besieges some Palestinian camps. The Palestinians seek to raise the sieges.
Fighting also resumes between Christian East Beirut and Muslim West Beirut. The Lebanese air
force attacks the Muslims. There is fighting in other parts of the country.
15–18 January 1976
The Phalange occupies, with little resistance, two large working-class Muslim suburbs and
the refugees flee to West Beirut, setting up camps along the beach in the neighbourhood of
Spinney’s shops and tower block.
48
Civil war
19–20 January 1976
Syria again intervenes and moves a regular brigade, the Yarmouk Brigade, which consists of
Palestinians recruited into the Syrian army, into the Bekaa Valley.
20 January 1976
A Syrian political delegation arrives and manages to form a joint Lebanese-Syrian-Palestinian
Military Commission to end the fighting. At about this time, Syrian troops enter Beirut and
make their presence felt on the streets
7.10 The above is only a very short description of the court’s findings and the reader
who wishes a fuller account (which continues after January 1976) should read pages 412
to 425 of the judgment. It is, however, most important to appreciate the situation which
existed at the time Spinney’s loss took place:
(1) There was no hard and fast division of Christian against Muslim and the more
moderate and less radical of the elements of each religion often supported the
other, at least politically.
(2) Whilst there were enclaves, these were scattered throughout the country in suburbs, villages and small towns.
(3) There was no similarity to the American Civil War where the Confederacy
controlled from the start a large tract of territory, or the Spanish Civil War
where General Franco very rapidly gained control over a large tract of territory
shortly after hostilities started. Apart from the Lebanese regular army, which
rapidly disintegrated and took sides in accordance with each soldier’s religious
and political beliefs, there were no regular forces.
(4) There were various militias. The Palestinians had a large armed militia which
was intended for use against the Israelis. The Phalange had a large and powerful
militia of its own which owed allegiance to the Phalange’s leaders. Likewise the
Jumblattist Shi’ites had a similar militia which owed allegiance to its own political leaders. There were several other smaller but well-armed militias which
owed allegiance in various directions.
(5) Alliances were made and broken with bewildering rapidity. It was not unknown
for Muslims and Christians to unite to fight other Muslims or Christians, and
it would be going too far to say that all Christians lined up on one side and all
Muslims on the other.
7.11 Between 18 and 23 January 1976, Spinney’s two shops and the tower block were
broken into and looted. All the edible stock was removed. Some fixtures, fittings and furniture in the offices and shops were taken and the rest were smashed. Some minor internal
and external damage of the buildings was caused. There was a small fire in the basement
of the tower block, but this seems to have been caused by the looters lighting torches to
see their way to the basement food-stores rather than an attempt to set the building on fire.
The identity of the looters was not established with any certainty. Spinney’s had previously been presented with demands from some Muslim sects for food and money to feed
the refugees on the beach, and had in part met these demands. The looters were described
49
Civil war
as being of no one particular economic class and some were obviously well-to-do. Some
people loaded their cars with stolen goods. For a time one sect, the Nasserite militants or
Moribitoun, provided a guard to prevent looting until sent away by the watchman who
feared an outbreak of shooting. The Judge’s findings were:
(1) During the looting there was some shooting between the looters themselves and
between the looters and such persons who attempted to prevent it. The shooting
was sporadic and disorganised.
(2) Only small arms were used and the buildings were not fired upon.
(3) The Palestinians were not involved in the looting and when present they tried
to prevent it.
(4) Probably such shooting as there was came from members of various militias
who were present.
(5) A number of people were acting in concert with one another and they may have
been organised, but there was no evidence of an overall organisation to loot.
(6) Many people—particularly women and children—took advantage of the situation to loot.
(7) There was no sectarian motive for the attack on Spinney’s although the looters
seemed mainly to have been Muslims.
(8) Possibly some looters came from the refugees camped on the beach, but they
did not initiate the looting or form an organised body to loot.
(9) If there was a common origin, there was no basis to decide what that common
origin was.
7.12 Before moving on to the tests applied by the court to decide whether the loss was
due to “civil war”, the Judge’s decisions on the following points should be noted:
(1) On “treason” being a necessary ingredient to civil war (as opposed to “military
or usurped power”):
The expression “civil war” … is part of the contemporary speech, and I cannot see
any reason to suppose that it was introduced into this policy with the intent of calling
up the ancient doctrine of constructive treason.4
(2) On public international law: “The words [i.e., civil war] under construction are
to be given their ordinary business meaning, which is not necessarily the same
as they bear in public international law”.5
(3) On the nature of civil war as opposed to war:
In my judgment the ordinary and literal meaning of the words are the same; a civil
war is a war which has the special characteristic of being civil—i.e., internal rather
than external. This special characteristic means that certain features of an international war are absent. Nevertheless a civil war is still a war. The words do not simply
denote a violent internal conflict on a large scale.6
4 At 428–429.
5 At 429.
6 Ibid. A view later endorsed by Saville J. in National Oil Co of Zimbabwe (Private) v. Sturge [1991] 2
Lloyd’s Rep. 281 at 282.
50
Civil war
Was there a civil war within the meaning of the peril?
7.13 In seeking to determine if the insured peril of “civil war” has arisen on a set of
facts (or an alternative peril), and besides having regard to the three points lighted upon
above by the Court, it is suggested that the following three tests applied by the court
in Spinney’s case7 are also particularly relevant (even though the court was at pains to
emphasise that it was not attempting a general definition):
(1) Can it be said that the conflict was between opposing sides? It must be possible
to say of each fighting man that he owes allegiance to one side or the other, and
it must also be possible to identify each side by reference to a community of
objective leadership and administration. Complete identity is not necessary and
some allies bear considerable animosity to each other. But: “… there must be
some substantial community of aim which the allies have banded together to
promote by use of force”.8 A civil war is not necessarily restricted to two sides
but too many sides can become: “A melee without a clear delineation of combatants which is one of the distinguishing features of a war.”
(2) What were the objectives of the “sides” and how did they set about pursuing
them?9 The first question should always be whether the party’s aim was to seize
dominion over a whole or a part of the State. If not, it may still be a civil war
but: “… it will then be necessary to look closely at the events to see whether
they display the degree of coherence and community of purpose which helps
to distinguish a war from a mere tumultuous upheaval”. Participants can be
activated by tribal, racial or ethnic purposes, or even by a desire to change a
government’s policies rather than the government itself. Mustill J. took the view
that such motives were not inconsistent with civil war, but their presence did
require a more involved analysis of the wider situation than might be necessary
where conventional (what we might now term) “regime-change” motives were
present.
(3) What was the scale of the conflict, and its effect on public order and on the
life of the inhabitants?10 Factors which require consideration when seeking to
ascertain if internal strife has reached the considerable scale that “civil war”
requires are:
•
•
•
•
•
•
•
•
7
8
9
10
The number of combatants.
The number of casualties, both military and civilian.
The amount and nature of arms employed.
The relative sizes of territory occupied.
The extent to which it is possible to delineate territory.
The degree to which the populace as a whole is involved.
The duration and degree of continuity of conflict.
The extent to which public order and administration of justice has been
impaired.
N 3.
At 430.
Ibid.
Ibid.
51
Civil war
• The degree of interruption of public services and private life.
• The question of whether there have been movements of population as a
result of the conflict.
• The extent to which each faction purports to exercise an exclusive legislature, and administrative and judicial powers over the territory which it
controls.
7.14 Mustill J. clearly did not intend that the scale of the conflict should be judged by
these factors alone, or that other relevant factors should be excluded from consideration.
Neither did it intend that all the listed factors should exist to a substantial degree. It is,
however, clearly essential that a large number of the listed factors must exist, and moreover must exist to a substantial degree, before the scale of the conflict can be serious enough
to warrant the conclusion that a civil war exists. It is not correct, therefore, to say that each
faction in a conflict must hold a substantial proportion of territory.
7.15 In applying these three tests in Spinney’s case, the judge found that at the time of
the looting in January 1976 “civil war”, in the sense that it is used in a war risks policy,
did not exist. This case alone shows how difficult it can be, in any particular instance, to
identify “civil war” as an insured peril with any measure of certainty.
52
CH A PT ER 8
Revolution, rebellion, insurrection …
8.1 Considered in the strict order in which the insured perils are set out in the War
Risks Policy, “revolution, rebellion and insurrection” are the next insured perils to be considered. They are, however, so very close to each other in meaning and also to the meanings of “riots and civil commotions” which appear as insured perils in other paragraphs,
that they should be considered together rather than separately.
8.2 It is also apt to consider the cases on “Military or Usurped Power” when construing the scope of revolution, rebellion and insurrection. These are not insured perils in
the modern Institute War and Strikes Clauses although they appear as such in insurance
policies on other objects. In the Pan Am1 and Spinney’s2 cases they were excluded perils.
The relevant cases will continue to have some influence on future decisions, particularly
on rebellion and insurrection to which there is some particular similarity.
Must the proximate cause of a casualty be proven to fall within one of these
specified insured perils in order for cover to be engaged?
8.3 It has been suggested that where an insurance policy sets out no fewer than five
types of civil disorder in carefully graduated degrees, beginning with the most serious
and ending with the least, and moreover includes a generalised provision about civil strife
arising from any of them, then any kind of civil disorder which is within the bracket between the most and least serious disorders is insured by the War Risks Policy even though
it is not named as an insured peril by the policy. This suggestion seems to have arisen from
the Pan Am case,3 where it appears that there was an agreement between the parties that
if the insured peril of “insurrection” could not be proved then the more serious disorders
of rebellion, revolution and civil war could not arise. The 2nd Circuit Court of Appeals
describes this agreement:
All parties agree that if loss was not caused by insurrection then it could not have been caused
by any [other] terms relating to civil disorder. Insurrection presents the key issue because
rebellion, revolution and civil war are progressive stages in the development in civil unrest,
the most rudimentary form of which is insurrection.
1 Pan American World Airways Inc v. The Aetna Casualty & Surety Co. [1974] 1 Lloyd’s Rep. 207; [1975]
1 Lloyd’s Rep. 77.
2 Spinney’s (1948) Ltd. and Others v. Royal Insurance [1980] 1 Lloyd’s Rep. 406.
3 N 1.
53
R evolution, rebellion, insurrection …
8.4 Acceptance of the parties’ submissions on this point does not in itself signify
approval by the US court that this suggestion represents the law, to say nothing of the
position under English law. Indeed, and although this was not a point under consideration,
there is not even a hint of acceptance in the Supreme Court’s treatment of proximate cause
in The B Atlantic of such an exception to the rule that the proximate cause of a casualty
must come within the explicit terms of at least one of the insured perils of the policy as a
condition precedent to any liability on the part of the underwriter.
8.5 In reliance on the Pesquerias4 case, it has also been suggested that where an
insured peril such as “civil commotions” is insured by the policy, and another insured
peril of greater gravity is excluded such as “war”, and the loss is held to be due to “war”,
then the loss is not covered by the insurance. Whether one quite gets that meaning from
the Pesquerias case itself is debatable, but the general proposition is probably correct, if
only to give effect to the intention of the parties that losses due to the proximate cause of
“war” are not to be insured by the policy, and that a lesser peril which is insured cannot
have its meaning extended so that it includes a greater peril and thus defeats this intention.
It also reflects the approach of the Court of Appeal and Supreme Court in The B Atlantic,
where it was reaffirmed that if one of two proximate causes falls within an exception to
cover, the loss is not covered (even if the other cause falls squarely into one of the perils):
see e.g. Lord Mance in [2018] 2 WLR 1671 at §49 drawing upon Lord Blackburn’s speech
in John Cory & Sons v. Burr (1883) 8 App Cas 393.
Revolution, rebellion and insurrection defined
8.6 According to the Oxford English Dictionary:
(1) “Revolution” is defined as: “A complete overthrow of the established government in any country or state by those who were previously subject to it; a forcible substitution of a new ruler or form of government”.
(2) “Rebellion” is defined as: “Organised armed resistance to the ruler or government of one’s country; insurrection, revolt; open or determined defiance of, or
resistance to, any authority or controlling power”.
(3) “Insurrection” is defined as: “The action of rising in arms or open resistance
against established authority or governmental restraint; an armed rising, a
revolt; an incipient or limited rebellion”.
8.7 Even if insured perils or risks must be interpreted “in the sense which an ordinary
man would use [them]”—the approach of Goddard J. in the Kawasaki case5 —these interpretations must be approached with some caution. There remains some force in adopting
the approach of the authors of Hudson and Allen, The Institute Clauses Handbook (3rd
edn), p. 189, and consider a rebellion as becoming a revolution as soon as it succeeds. The
upheavals known to history as the French and Russian Revolutions began not as attempts
to change the governments of France and Russia, but to change the governments’ policies,
4 Pesquerias y Secaderos de Bacalao de Espa ˜na S.A. v. Beer (1945) 79 Ll.L.Rep. 417; (1946) 80 Ll.L.Rep.
318; (1948) 82 Ll.L.Rep. 501, [1949] 1 All E.R. 845.
5 Kawasaki Kisen Kabushiki Kaisha v. Bantham Steamship Company Ltd. (No. 2) (1939) 63 Ll.L.Rep. 155;
[1939] 2 K.B. 544. See paragraphs 6.6–6.10.
54
R evolution, rebellion, insurrection …
albeit in far-reaching and fundamental ways. They only became revolutions when the new
governments were substituted for the previous governments after it eventually became
clear that the previous governments were incapable of the desired changes.
“Military or usurped power”: the forerunners of “revolution, rebellion,
insurrection”
8.8 Before turning to the modern insured perils under consideration in this chapter, a brief
foray into the historical meaning of “military or usurped power”, which is not an insured
peril or risk in the modern War Risks Policy, is necessary for two reasons. First, most of the
decided cases deal in this area with it rather than with “revolution”, “rebellion” and “insurrection”. Second, for comparative purposes reference was made by Millet J. to the definition of
“military or usurped power” in the leading case on the modern terms, Spinney’s case.
8.9 Therefore, consideration must begin with the Treason Act 1351 which made it an
offence to wage war against the sovereign in his realm. The Act did not cover all the
doings of our turbulent and unruly ancestors and by the sixteenth century the doctrine of
constructive treason had become firmly established. In Bradshawe v. Burton6 and in R. v.
Messenger,7 the distinction appears that a rebellious mob asserts “usurped power” and is
guilty of high treason, whilst a common mob commits only felonies. High treason was an
offence against the monarch. “Usurped power” referred to a subject seizing and exercising power which only the constitutional government, namely the monarch, and later the
monarch and Parliament, could lawfully use. Lord Mansfield C.J. refined this further in
R. v. Gordon8 in which the chief proponent of the Gordon riots was prosecuted: “… If this
multitude assembled with intent, by acts of force or violence, to compel the legislature to
repeal a law, it is high treason.”
8.10 It was always a necessary ingredient to the offence of high treason that the subject
should have arrogated to himself powers which properly belong to the monarch alone or,
at least, that he should have attempted to do so. It was not, however, treasonable unless
the offenders were in “a posture of war” (bearing arms was enough to prove a treasonable
intent), and neither was it treasonable to seek, although armed for the purpose, the redress
of private grievances.
8.11 In Drinkwater v. The Corporation of the London Assurance9 Mr. Drinkwater’s
malting house in Norwich was insured by a fire policy with the following exclusion
clauses: “Burnt by any invasion of foreign enemies, or any military or usurped power
whatever.”
8.12 On 27 September 1766, a mob in Norwich protested at “the high price of provisions” (i.e. the high cost of living) and despoiled large quantities of flour. The magistrates
read the Riot Act 1714 and the mob, no doubt suitably impressed by its draconian penalties, dispersed peaceably to their homes. The next day, 28 September, their indignation
having overnight surmounted their fears of the Riot Act, they reassembled and this time
Mr. Drinkwater’s malting house was burnt down. They do not seem to have been very
6
7
8
9
(1597) 79 E.R. 1227.
(1668) 84 E.R. 1087.
(1781) 21 St. Tr. 485.
(1767) 2 Wils. K.B. 363.
55
R evolution, rebellion, insurrection …
determined or destructive since they only attacked two bakers and one miller and were
put to flight by 30 law abiding citizens without apparently too much difficulty. The court,
by a majority of three to one, gave judgment in favour of Mr. Drinkwater. Gould J. (the
dissenting judge) considered that it was “usurped power” to attempt to alter by force the
laws and the price of victuals and wanted to sign judgment in favour of the defendant
underwriter. Clive J. considered that “usurped power” must amount to high treason and
not, as here, a mere felonious riot and considered that judgment should be signed in the
plaintiff’s favour. The more influential decisions were given by the remaining two judges,
both of whom favoured the plaintiff. Bathurst J. considered:
Usurped power can only mean an invasion of the kingdom by foreign enemies, to give laws
and usurp the government thereof, or an internal armed force in rebellion assuming the power
of government, by making laws, and by punishing for not obeying those laws.
He did not consider this to be the case here.
8.13 Wilmot C.J. said:
My idea of the words, burnt by a usurped power, from the context, that they mean burnt or
set on fire by occasion of an invasion from abroad, or of an internal rebellion, when armies
are employed to support it, when the laws are dormant and silent, and firing of towns is unavoidable, these are the outlines of the picture drawn by the idea which these words convey to
my mind.
He further considered that an essential feature of a rebellious mob, which was guilty of
high treason was:
… A universality, a purpose to destroy all houses, all enclosures, all bawdy-houses. Here they
fell upon two bakers and one miller … to abate the price of provisions in a particular place;
this does not amount to a rebellious mob.
8.14 Another English case from the eighteenth century is Langdale v. Mason,10 where
Lord Mansfield was the presiding judge. It arose out of the Gordon Riots in 1780 where the
mob’s fear and fury were directed at Roman Catholics, although in their later stages the riots degenerated into wanton destruction. The government suppressed the riots with some
difficulty and in London the troops had to fire on the mob to restore order. A great deal
of damage was done to property and, amongst other destruction Mr. Langdale’s brewery
was burnt down. It was insured against fire by the Sun Fire office whose policy excluded
damage arising from: “Civil commotion and military or usurped power.”
8.15 Lord Mansfield directed the jury in the following terms:
What is meant by military or usurped power? They are ambiguous and they seem to have been
the subject of a question and determination [a reference to the Drinkwater case11] … They
must mean rebellion where the fire is made by authority; as in the year 1745, when the rebels
(led by Charles Edward Stuart) came to Derby; and if they had ordered any part of the town,
or a single house to be set on fire, that would have been by authority of a Rebellion. That is the
10 (1780) 1 Bennett’s Fire Insurance Cases 16.
11 N 9.
56
R evolution, rebellion, insurrection …
only distinction in this case—it must be a rebellion, got to such a head, as to be under authority … Usurped power takes in rebellion, acting under usurped authority.
8.16 In the Pan Am case12 the Circuit Court of Appeals adopted a different approach.
It dismissed Aetna’s pleadings based on the 1597 and 1688 cases somewhat brusquely by
saying that the pleadings were based on a false reading of English cases and were shot
through with non sequiturs. It held:
… that in order to constitute a military or usurped power, the power must be at least that of a
de facto government. On the facts of this case, the P.F.L.P was not a de facto government in
the sky over London when the 747 was taken. Thus the loss was not “due to or resulting from”
a “military … or usurped power”.
8.17 In another part of the judgment, the court held that not even in Jordan, where the
main elements of the P.F.L.P. were to be found,13 did the P.F.L.P. have the characteristic of
a de facto government.
8.18 Until the Spinney’s case14 the English courts did not give further close analytical
attention to “military or usurped power” but two further cases should be noted. In Rogers v. Whittaker15 Sankey J. considered whether the expression included foreign military
forces. He was considering a case where a Zeppelin had dropped a bomb on a warehouse.
He decided that “military power” included the exercise of a foreign military power in time
of war: “Military or usurped power suggests something more in the nature of ‘war’ and
‘civil war’ than ‘riot’ and ‘tumult’.”
8.19 In the Curtis case16 Bankes L.J. said: “Usurped power seems to me to mean something more than the action of an unorganised rabble … There must probably be action by
some more or less organised body with more or less authoritative leaders.” And added on
the Drinkwater17 case: “The acts were the acts of a common mob dispersed in less than an
hour acting feloniously and not treasonably.”
8.20 We can thus see why18 in Spinney’s case Mustill J. declined to follow the American view that “military or usurped power” can be exercised only by a government with at
least de facto status and felt that here the English and the American laws diverged:
Returning to the English cases, they clearly establish the proposition that one of the tests for a
usurped power is whether the acts in question amount to constructive treason … The usurpation consists of the arrogation to itself by the mob of a law-making and law-enforcing power
which properly belongs to the sovereign.
Spinney’s case, therefore, clearly points to the mob arrogating to itself the sovereign’s
powers as the proper test. It is not necessary that the mob should have attained the status
of a de facto government before it exercises “usurped power”.
12
13
14
15
16
17
18
N 1.
The Popular Front for the Liberation of Palestine.
N 2.
[1917] 1 K.B. 942.
Curtis & Son v. Matthews [1919] 1 K.B. 425. See paragraphs 7.1–7.5.
Drinkwater v. The Corporation of the London Assurance (1767) 2 Wils. K.B. 363.
At 435.
57
R evolution, rebellion, insurrection …
8.21 Mustill J. then applied the English test to Spinney’s case, and also dealt with universality of purpose thus: “… One must ask oneself whether those participating in the
events which appeared at the time in question had a sufficiently warlike posture, organisation and universality of purpose to constitute them an usurped power” and found that
the answer in the case of the casual looters was “no”. On the other hand, he answered
the question with a “yes” in the case of the militias and their civilian allies. It is true that
there was not complete identity of purpose in their many and varied motives but there was
universality of purpose in that they were all arrogating to themselves the power of government and were therefore exercising a usurped power: “By side-stepping the government
and proceeding to direct actions, the citizen groups arrogated to themselves the proper
functions of the State and thereby exercised (or constituted) an usurped power …”
Revolution, rebellion, insurrection in the War Risks Policy
8.22 Returning now to the insured perils of the War Risks Policy, until Spinney’s case
there was the temptation to equate all these expressions as being indistinguishable. It is
true that if a casualty should arise, it may be difficult indeed to disentangle the actual
events so that there is a clear pointer in one direction or the other. Nevertheless, the distinction does exist and Mustill J. indicated this in the Spinney’s case19: “… Are there
other requirements (‘military or usurped power’); in particular that the events should have
amounted to a rebellion or insurrection? It seems to me that in the particular context the
answer must be no.”
8.23 Even if in the Langdale case20 there was some indication that “usurped power”
connotes “rebellion” or “insurrection”, Mustill J. regarded Lord Mansfield as not necessarily equating them and this seems to be the modern view, however fine the distinction
may be in practice. The Judge adopted as a definition of “rebellion” that given by the
Oxford English Dictionary already seen at paragraph 8.6, viz.: “… Organized resistance
to the ruler or government of one’s country; insurrection, revolt” and added something
more: “… The purpose of the resistance must be to supplant the existing rulers or at least
to deprive them of authority over part of their territory.”
8.24 Regarding “insurrection” he again turned to the Oxford English Dictionary which
to him indicated an incipient or limited rebellion with a lesser degree of organisation. He
emphasised, however, that, in both “rebellion” and “insurrection”, there must be action
against the government with a view to supplanting it. It, like rebellion and revolution, must
though have a decidedly domestic character. Should outside actors be the protagonists, it
seems likely that the definitions would not be met: see Rogers v. Whitaker.21
8.25 The insured peril “insurrection” received close attention in the American case of
Home Insurance Company of New York v. Davila,22 a decision of the 2nd Circuit Court
of Appeals. Mr. Davila owned buildings at Jayuy in Puerto Rico which were insured with
the Home Insurance Company of New York against fire risks with the following exclusion
clause: “Ex loss or damage caused by insurrection.” On 30 October 1950, Puerto Rican
19 Ibid.
20 Langdale v. Mason (1780) 1 Bennett’s Fire Insurance Cases 16. See paragraph 8.12.
21 [1917] KB 942 at 944.
22 212 F. (2d) 731 (1952).
58
R evolution, rebellion, insurrection …
nationalists undertook violent actions at various places in Puerto Rico. Four carloads of
nationalists arrived at Jayuy and hoisted the nationalist flag. They set fire to several buildings and engaged in a violent gun battle with the police. The fire brigade was prevented
from attending to the fires by the shooting of the nationalists and Mr. Davila’s property
was seriously damaged. The court described the affair: “as an incident of the uprising
staged … by a little band of extremists calling themselves the Nationalist Party of Puerto
Rico”. Apparently, they had a rudimentary military organisation with officers, cadets and
a training programme. The size of their resources can be judged by the fact that they
devoted only four carloads of men to the City of Jayuy.
8.26 The judgment of the 2nd Circuit was given by Magruder C.J. The court was not
making a finding whether an “insurrection” had arisen; it was only concerned with the
District Court’s direction to the jury. It considered that the jury could find that there was
an “insurrection” if it was satisfied that the nationalist leaders had as their “maximum
objective” the overthrow of the government. Since apparently the District Court had not
so directed the jury, the case was remitted for a new trial.
8.27 Subsequently, in the Pan Am case,23 the 2nd Circuit added further to its judgment
on the Davila case: “Under Davila, revolutionary purpose need not be objectively reasonable. Any intent to overthrow, no matter how quixotic, is sufficient” and approved the
description given by the District Court that an “insurrection” means:
(1) A violent uprising by a group or movement [which is]
(2) acting for the specific purpose of overthrowing the constituted government and
seizing its powers.
8.28 In applying these principles to the Pan Am case itself, it is scarcely surprising that
the 2nd Circuit Court of Appeals found:
All risks insurers did not support the burden of proving that at the time of the loss the P.F.L.P.
intended to overthrow King Hussein [of Jordan]; if the P.F.L.P. was fighting Hussein, it was
fighting for survival rather than Hussein’s overthrow. Alternatively insurrection did not cause
the loss,
and made a further, and reassuring, finding that in London at that time there was no
insurrection.
8.29 In 1981, Mustill J. did have the advantage of considering the judgment of
Magruder C.J. in the Davila case (see above), but did not have before him the later judgment of Saville J. in National Oil Company of Zimbabwe and Others v. Sturge24 given
in 1991, where “insurrection” was directly in point. It seems that National Oil Company
of Zimbabwe25 is the first reported case to have reached the courts after the new forms
of insurance for cargo and for ships were adopted in 1982 and 1983 respectively. In that
case the plaintiffs (“the Others” included B.P., Mobil, Caltex and Total) owned the gasoil
and the mogas being transported through the Beira-Feruka pipeline which carried oil
from the coast to landlocked Zimbabwe. Mr. Sturge was the representative underwriter
23 N 1.
24 [1991] 2 Lloyd’s Rep. 281.
25 Ibid.
59
R evolution, rebellion, insurrection …
of the insurance of the oil which incorporated the Institute Strikes Clauses (Cargo) 1.1.82.
The material parts of the insurance read:
Risks covered
This insurance covers, except as provided in Clauses 3 and 4 below, loss of or damage to the subject-matter insured caused by
1.1 Strikers, locked-out workmen, or persons taking part in labour disturbances,
riots or civil commotions
1.2 any terrorist or any person acting from a political motive.
whilst the important exclusion read:
Exclusions
3. In no case shall this insurance cover
…
3.10 loss damage or expense caused by the war civil war revolution rebellion insurrection, or civil strife arising therefrom or any hostile act by or against a
belligerent power.
8.30 The material events can be set out:
1962: The Front for the Liberation of Mozambique (Frelimo) is founded. Its object is to gain independence from Portugal by violent means.
September 1974: Independence is granted and Frelimo begins to turn the country into a Marxist/
Leninist state. There is wholesale nationalisation of land, villagers are moved to new homes,
objectors are thrown into prison, and some people are sent off for “re-education”.
March 1976: The previous permission to the Rhodesian armed forces to cross the frontier in “hot
pursuit” is withdrawn. Sanctions against Rhodesia are now applied.
1976 to 1980: The Mozambique National Resistance Movement (Renamo) is founded. At first it is
ineffective, but rapidly gains in importance. It opposes Frelimo by violent means. A radio station
is established in Rhodesia.
February 1980: Rhodesia gains independence as the new state of Zimbabwe. South Africa takes
Rhodesia’s place as the main supporter of Renamo, and the radio station is moved there.
Late 1980: Renamo, much more effective than formerly, is now a formidable guerilla force. It
engages in operations against road, rail, water and electricity services, and there are frequent
ambushes of government troops besides many instances of murder of Frelimo supporters. By now
it controls considerable stretches of territory, and can field up to 8,000 men against the government’s army of about 20,000.
July 1982: Renamo attacks the pipeline, and between this date and January 1983 carries out
altogether five attacks upon it. A considerable quantity of Gasoil and Mogas is lost. By this time
Renamo is able to carry out many daring acts of sabotage over the whole country, and the position
is so serious that the President, Samora Machel, has to postpone a visit to London.
60
R evolution, rebellion, insurrection …
8.31 The underwriters were prepared to accept that the losses fell within the insured
perils, but contended that Clause 3.10 excluded any claim. The question arose whether
Renamo was engaged in a civil war, a rebellion, or an insurrection.
8.32 Notably only Spinney’s case and the Davila case were quoted by counsel for the
consideration of the court, and this confirms the dearth of available judicial authority on
this topic. Saville J. gave judgment that:
“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, although insurrection denotes a lesser degree of organisation and size than “rebellion”.
8.33 It did not matter what the motives of Renamo were, whether they were moved
by high altruistic motives such as the establishment of a democratic regime, or by simple
greed and the desire for power for themselves, provided that their purposes were clear.
The underwriters had made out their case, and were entitled to judgment in their favour.
8.34 These particular insured perils have not been considered by the English Courts in
detail since Saville J.’s decision in the Spinney’s case. The issues have, however, arisen in
two relatively recent Commonwealth cases.
8.35 In Grell-Taurel Ltd v. Caribbean Home Insurance Company Ltd 26 the Court
of Appeal of Trinidad and Tobago was tasked with considering the meaning of “insurrection”. On 27 July 1990, a group of armed men from the radical Mulismeen group
stormed the Police Headquarters in the Port of Spain, killing a sentry guard, and substantially destroying the building. At the same time, a group of around 42 heavily armed
men stormed the Parliament Chamber, killing six people, and taking a number hostage—
including the Prime Minister. Simultaneously around 70 Muslimeen attacked Television
House, taking a further 26 people hostage. The leader of the Muslimeen, Abu Bakr, later
that day appeared on television and stated that the Government of Trinidad and Tobago
had been overthrown.
Following Abu Bakr’s statement widespread and substantial looting commenced in the
Port of Spain and various other locations just outside of the city. The claimants, who were
engaged in the business of selling and servicing industrial equipment and machinery,
owned a facility known as the Grell-Taurel Compound. Having commenced in the Port of
Spain itself, over time, and by late on the 27 July, the looting had spread to the Grell-Taurel
site, and continued into the 28 July.
8.36 The company’s Fire and Special Risks policy excluded cover for loss or damage
arising from, amongst other things, the following “occurrences”: “mutiny, riot, military
or popular uprising, insurrection, rebellion, revolution, military or usurped power …” but
also provided that
any loss or damage happening during the existence of abnormal conditions … which are occasioned by or through or in consequence, directly or indirectly, of any of the said occurrences
shall be deemed to be loss or damage which is not covered by this insurance, except to the
extent that the insured shall prove that such loss or damage happened independently of the
existence of such abnormal conditions.
26 [2002] Lloyd’s Rep. IR 655.
61
R evolution, rebellion, insurrection …
8.37 One of the questions dealt with was whether it could be said that the looting at the
Grell-Taurel compound, which was situated a fair way outside of the centre of the Port of
Spain, could be said to have been caused by an “insurrection”, even if that was the correct
way to characterise what was going on in the centre of the city, such that the loss and
damage would fall outside the terms of the insurance. It decided that they could, and so
the claimant insured’s appeal was dismissed. The evidence suggested that across Trinidad
and Tobago the country was in the grip of widespread serious violence at the hands of
the Muslimeen, of the nature that was beyond the capability of the police to control and
suppress. That had led the Acting President to declare a state of emergency, not just in relation to once district, but across the whole of the country. At no time had the insurrection
been contained within the Port of Spain such as to mean the looting taking place in the
Grell-Taurel compound had not arisen as a result of it (indirectly or directly). It could not
be said that “the insurrection was so far removed in time and place, to the extent that it had
nothing to do with the looting”, which Warner J.A.27 considered to be the test one could
derive from Mustill J.’s judgment in the Spinney’s case.28
8.38 The most recent case to consider these perils is the decision of the Supreme Court
of the Fiji Islands in Tappoo Holdings Ltd v. Stuchbery,29which arose out of the armed
takeover of the Fijian Parliament by a group led by a Mr George Speight. As a result of the
takeover, a riot ensued in Suva, during which the claimant’s shop was looted and damaged
by the mob. The claimant’s material damage cover excluded “any loss or damage directly
or indirectly caused by or resulting from … (a) war, invasion, act of foreign enemy, warlike operations (whether war is declared or not), civil war, mutiny, rebellion, revolution,
insurrection, military or usurped power …”. The Fijian Court of Appeal held that the
actions of Mr Speight and his associates amounted to an “insurrection” from which the
claimant’s loss directly arose, and as such the loss was excluded.
8.39 On appeal, amongst other things, the claimant argued that the events could not
give rise to an insurrection because the numbers of individuals (only eight) involved
in the enterprise were too few. The Fijian Supreme Court dismissed the claimant’s
appeal, agreeing that there was an insurrection. In doing so it held 30 that an insurrection
constitutes “an attempt by force to overthrow the established government”, and that
whether or not the insurrection was likely to succeed was not a relevant consideration
when seeking to define events. Further the Court held that it was not necessary that a
large number of individuals be involved in the relevant acts, nor that the affair be highly
organised. It may be “a loosely organised affair”. Just as in the Grell-Taurell case, the
Fijian Supreme Court also considered that the fact the looting, causing the loss, was
motivated by the personal gain of those involved, did not militate against the cause of
the loss, for the purpose of the policy, arising from the insurrection (a defining feature
of which needs to be the overthrow of the government by the participants, rather than
personal gain).
27
28
29
30
At paragraph 93.
At 426.
[2006] FJSC 1; [2008] Lloyd’s Rep. IR 34.
At paragraph 28.
62
R evolution, rebellion, insurrection …
Conclusions
8.40 It is submitted the following conclusions can be drawn from the case law considering “revolution”, “rebellion” and “insurrection”:
(1) The meaning of “military or usurped power” became clear with the Langdale
case in 1780. It could only arise if there was treasonable intent, or at least that
of constructive treason. This in turn meant that the objects of the mob had to
include the unseating of the government or coercing it by force.
(2) “Military or usurped power” are no longer insured perils or excluded risks
of the Institute War and Strikes Clauses. Mustill J. found some difficulty in
equating “military and usurped power” with their modern equivalents “revolution”, “rebellion” and “insurrection”. There are however some common
characteristics, and these include the intention to replace the government or
to coerce it.
(3) There is always a danger of distortion in describing insured perils in a “steps
on the ladder” manner, imputing a descending order of gravity onto them. That
approach was to some extent deprecated by Rix J. in the context of a differently
worded aviation war risk policy in Kuwait Airways Corp v. Kuwait Insurance
Co SAK.31 Nevertheless, it is felt that such an order can, allowing for the necessary flexibility and overlap between the different perils to be preserved, be
drawn up in the order of “revolution”, “rebellion” and “insurrection”. Moreover,
it is suggested that Saville J. would have been justified in making a finding of a
more serious disorder in the Mozambique case.
(4) “Revolution”, as an insured peril, does not appear to have been judicially
defined in the war risks context. However, drawing upon the Oxford English
Dictionary’s definition, it is suggested that the following criteria should be
applied: there must be a complete overthrow of the established government
by the people over whom it formerly ruled, and a successful and complete
substitution by another form of government which rules over and controls the
territory in question and the people who live there. An element of forcible
substitution is required, although it would be sufficient if the substitution is
achieved without force provided that there is the threat of force, either actual
or implied.
(5) “Rebellion” as an insured peril means the organised, armed and forcible resistance to the government of the country by its subjects, even though assisted from
without. An essential aim is the intention to supplant the government, even
though in all the circumstances that aim may appear unlikely or impossible of
achievement.
(6) “Insurrection” as an insured peril is difficult to distinguish from “Rebellion”
whose characteristics it shares, in particular the aim to supplant or coerce the
existing government. A possible distinction is that it can include an upheaval
with a lesser degree of organisation, or which is less widespread. The likelihood
of success of an insurrection is not a factor in determining whether one exists.
31[1996] 1 Lloyd’s Rep. 664 at 690.
63
R evolution, rebellion, insurrection …
(7) The modern tendency of the courts is to search for the proximate cause of a loss,
and to define it strictly. “Revolution”, “rebellion” and “insurrection” are listed
as separate insured perils. It can therefore be expected that in future cases, the
courts will seek stricter definitions than presently exist.
8.41 It may be helpful to compare the contents of this chapter with Chapter 17 which
concerns the insured perils of “riots” and “civil commotions”. These are totally separate
insured perils and must be treated as such, even though the actual events of any casualty
may, in spite of the most careful analysis, appear to cross the strict boundary lines which
must be drawn around each separate insured peril.
64
CH A PT ER 9
… Or civil strife arising therefrom …
9.1 There appear to be no decided cases on this insured peril, apart from some indications in Spinney’s case.1 It is clear from the terms of the policy that this insured peril is intended to cover situations of civil disorder which arise during a war, civil war, revolution,
rebellion or insurrection, or which continue after the war etc. is over. As to the latter, it
can be envisaged that civil disorder of some kind might arise either during, or after, such
traumatic events. Provided that the civil disorder can factually be linked to war etc. in the
sense that it “arises” from them, or from one of them (i.e. a question of causation), a claim
will arise in respect of an insured object which is lost or damaged as a result.
9.2 “Civil” is defined in the Oxford English Dictionary as: “Of or pertaining to citizens; of or belonging to citizens; consisting of citizens or men dwelling together in a
community; also of the nature of a citizen.” “Strife” is defined as: “The action of striving
together or contending in opposition; a condition of antagonism, enmity or discord; contention, dispute; in a state of discord or contention; by force or violence (also appropriate
to a situation without violence).”
9.3 Following the indications in the Spinney’s case, it is suggested that such “civil
strife” must be of a most serious nature amounting at least to a “civil commotion” and
nothing less than this will cause this insured peril to operate on its own. Given the need
for a causative link between the “civil strife” and the perils mentioned earlier in the clause,
it might be the case that a lesser degree of cohesion between the participants involved in
the acts constituting “strife” would be required than Mustill J. held would be necessary for
“civil commotion” in Spinney’s at 438. If that is right, then it might be the case that widespread disorganized looting that would not of itself fall within any of the perils covered by
the clause might be covered if it arises as a consequence of an event which does fall within
the definition of one of the insured perils discussed in Chapters 6–8.
9.4 This does not mean that other disturbances of a lesser nature, which are insured
perils in their own right, are excluded from the insurance cover. These insured perils will
not separately cease to become complete simply because this insured peril will only operate where serious disturbances are involved.
1 Spinney’s (1948) Ltd. and Others v. Royal Insurance [1980] 1 Lloyd’s Rep. 406.
65
CH A PT ER 10
… Or any hostile act by or against a belligerent power
10.1 These words were not included in the f.c. & s. Clause until the 1943 version, and
then only in a heavily qualified form. The reasons for the decision of Alan Jackson’s Committee in 1983 to exclude “warlike operations” from the new MAR Form are described in
Chapter 1. Its place was taken by the wholly new insured peril of “war”, which in turn was
reinforced by “or any hostile act by or against a belligerent power”, promoted for the first
time to the full standing of an insured peril in its own right from its previously obscure
position. Whilst, as noted in Chapter 6, there are still a number of unanswered questions
about “war” as an insured peril, it can still be regarded as definite and precise. Whilst
there are few judicial definitions of the insured peril which this chapter considers, there
are sufficient to suggest the view that it, too, is definite and precise with a well-defined
field of application.
10.2 The Oxford English Dictionary defines “hostile” as: “feeling or showing dislike
or opposition; of or belonging to a military enemy” and “hostilities” as: “acts of warfare”.
“Belligerent” is defined as “hostile and aggressive”; “engaged in a war or conflict” (both
adj); “a nation or person engaged in war or conflict” (n).
10.3 Therefore, even before the eye reaches the word “power” a distinct flavour is introduced of warlike actions (or, one might say, “warlike operation”) by or against a State
or at the very least an organised body of persons. In connection with “power”, it should
be noted that the f.c. & s. Clause contained an explanation: “and for the purpose [of the
f.c. & s. Clause] power includes any authority maintaining naval, military or air forces
in association with a power”. This phrase has been left out of the MAR Form, no doubt
because it was felt to be unnecessary and added nothing to the insurance cover given.
10.4 Matters were put on to an even firmer and more definitive basis by Bailhache J. in
Atlantic Mutual Insurance v. The King.1 The Tennyson sailed from Bahia bound for New
York in February 1916 loaded in number 4 hold with a cargo of hides and skins. Five days
after sailing, on 18th February 1916, a bomb exploded in the hold, seriously damaging
the aft end of the ship and the hides and skins in number 4 hold, killing three seamen and
starting a fire. It was clearly a very powerful weapon, and it turned out that it was planted
there by Herr Niewerth, a German citizen living in Bahia. Niewerth was an electrical
engineer and the manager of a local factory. His house was the centre of German activities in Bahia and he never made any secret of his patriotic feelings. Atlantic, who were
the primary insurers, paid the claim of the owners of the cargo, and looked to Mr. King
1 [1919] 1 K.B. 309.
66
… Or any hostile act by or against a belligerent power
to reimburse them under the reinsurance policy. This document contained an exclusion
clause: “Warranted free from all consequences of hostilities or warlike operations …”
10.5 On “hostilities”, Bailhache J. had this to say:
In one sense, it is plainly true that the fire was due to a hostile act, but the plaintiffs say rightly,
as I think, that the word “hostilities” as used in the Clause, means hostile acts by persons acting as the agents of sovereign powers, or such organized or considerable forces as are entitled
to the dignified name of rebels as contrasted with mobs or rioters, and does not cover the act
of a merely private individual acting entirely on his own initiative, however hostile his actions
may be.
10.6 If matters had rested there, the plaintiff would have won his case because the conclusion must have been that Niewerth was acting on his own and not on the orders of his
government. The court seems not to have been too impressed with the defendant’s list of
27 similar instances, or the expressed policy of Germany to wage war, not only by means
of her armed forces but: “… by all her subjects wherever found who were willing to help
her by doing … mischief …”
10.7 What seems to have clinched the matter in the defendant’s favour was the production of a circular to all the German naval attachés in Germany’s overseas embassies that
they were to spare no effort to recruit “destruction agents”. The chief targets were to be
munitions for the United Kingdom, France, Canada, the United States and Russia. Bombs
were to be placed on board. Trouble was to be fermented in the ports. The use of anarchists
and criminals was sanctioned. Funds would be made available. Whilst there was no evidence that Niewerth ever saw the circular, it was reasonable to assume that a man of his
character was the servant, or agent, of Germany. There was no subsequent ratification of
his actions by Germany, and he was not an agent in the business sense, but:
I am disposed to think that a man is acting in such a case as this as the agent of his government
when knowing that the settled and concerted policy of that government is to avail itself of the
efforts of all its subjects … he uses such opportunity as presents itself under that policy.
10.8 Niewerth could thus be regarded as a German agent as fully as though he was a
member of the German armed forces and wore their uniform.
10.9 Two years later, in 1921, Bailhache J.’s views on the definition of “hostilities”2
received the support of the Court of Appeal and the House of Lords in The Petersham3 and
2 But not his decision that the The Matiana had been engaged in a warlike operation when she stuck a
reef whilst sailing under convoy. The Court of Appeal ([1919] 2 KB 670 CA) and the majority in the House
of Lords (Lords Cave and Shaw dissenting) ([1921] AC 99 HL) in reversing that decision considered that the
vessel’s participation in a convey did not constitute engagement in a warlike operation (cf. the position of the
warships escorting the convoy). The Court of Appeal and House of Lords upheld Bailhache J.’s decision in The
Petersham that the perils of “hostilities” and “warlike operations” had not been made out because the vessel
had collided with another vessel whilst undertaking a peaceful operation whilst sailing at night without lights
under order of the Admiralty. The point being there that even though the vessel was sailing without lights under order of the Admiralty, she herself was not involved in hostilities or warlike operations—in fact the very
contrary was true. All that could be said was that the risk of the vessel encountering a normal maritime peril of
collision had been enhanced, but that was not sufficient to invoke the war risks cover.
3 Britain S.S. Co. v. Rex (The Petersham) (1920) 3 Ll.L.Rep. 163, 205; (1920) 4 Ll.L.Rep. 245; [1921] 1
A.C. 99 (H.L.).
67
… Or any hostile act by or against a belligerent power
The Matiana.4 Atkin L.J. considered that “hostilities” implied enemy nations at war with
one another (The Petersham).5 When both The Petersham and The Matiana cases reached
the House of Lords as a conjoined appeal, Lord Atkinson added to this:6
I concur with Atkin L.J. thinking that the word “hostilities” connotes the idea of belligerents
properly so called, enemy nations at war with one another and is used to describe the operations, offensive, defensive, or possibly protective of the one against the other in the conduct
of the war.
10.10 Lord Wrenbury7 used different words, but in spite of an initial impression of
divergence, it is suggested that he meant the same:
All the decisions have, I think, proceeded, and in my judgment have rightly proceeded, upon
the footing that the word “hostilities” does not mean “the existence of a state of war” but
means “acts of hostility” or (to use the noun substantive which follows8) “operations of hostility”. The sentence may be read “all consequences of the operations of hostility (of war) or
operations warlike (similar to operations of war) whether before or after declaration of war.”
To attribute to the word the larger meaning—namely “all consequences of the existence of a
state of war”—would give the expression a scope far beyond anything which one can conceive
as intended.
10.11 The English approach to the definition of “hostilities” and “hostile act” received
much support in International Dairy Engineering Company of Asia v. American Home
Assurance Company.9 The court’s decision really turned on the “consequences” point but
it is clear that the court would have been equally prepared to sign judgment in the underwriter’s favour because the loss was due to “a hostile act by or against a belligerent power”
which was similarly excluded from the insurance cover. Sweigert D.J. held:
The term “hostilities” and “hostile act”… has been defined as actual operations of war, either
offensive, defensive or protective by a belligerent. It has also been held that the hostile act
need not involve the overt use of a weapon which is, in itself, capable of inflicting harm; it can
be an operation such as the extinguishment of a navigational light or the outfitting of ship—if
done for a hostile purpose.
10.12 The Vietcong could not be described as a nation but: “… [The] National Liberation Front [Vietcong] were engaging in hostilities with the Republic of South Vietnam and
as such insurgents had taken control of many regions of South Vietnam …” Undoubtedly
Bailhache J. would have accorded the Vietcong “the dignified name of rebels” and likewise considered them as “belligerent”.
4 Green v. British India Steam Navigation Co., British India Steam Navigation Co. v. Liverpool & London
War Risks Association (The Matiana) (1920) 3 Ll.L.Rep. 205; (1920) 4 Ll.L.Rep. 245; [1921] 1 A.C. 99 (H.L.).
5 At 695.
6 At 114.
7 At 133.
8 In the phrase “consequences of hostilities or warlike operations”.
9 [1971] A.M.C. 1001.
68
… Or any hostile act by or against a belligerent power
10.13 In conclusion:
(1) The words “hostile”, “belligerent” and “power” all point in the same direction,
that the agency which destroys or damages the insured ship must be a government or, at the very least, rebels.
(2) Such a government could have either de jure or de facto status, such as the Confederates in the American Civil War or the Nationalists in the Spanish Civil War.
(3) Rebels need to have the same status as is indicated for “rebellion” and “insurrection” (Chapter 8). It will not be sufficient if the persons causing the destruction
or damage to the insured ship are engaged in a mere civil commotion or a riot,
serious as both of these incidents are.
(4) The indications are that as things stand at present, this insured peril can only arise
in the context of a “war” or “civil war”. The possibility that it extends the insurance cover beyond them should not be entirely excluded. It is tempting to think
that if the hijackers in the Pan Am case10 had been employed by a State at war
with another State, in which the United States was neutral, or had been rebels,
then the loss of the 747 would have been covered by this insured peril. So far,
this line of thinking has not been sanctioned by the authority of judicial decision,
and until such a decision is given, this proposition must be treated with caution.
10 Pan American World Airways Inc. v. The Aetna Casualty & Survey Co. [1974] 1 Lloyd’s Rep. 207; [1975]
1 Lloyd’s Rep. 77.
69
CH A PT ER 11
Capture
Origin of the capture and seizure perils
11.1 The SG policy, in the form set out in Schedule 1 to the 1906 Act, covered the perils
of “takings at sea, arrests, restraints, and detainments of all kings, princes, and people”.
The peril of “takings at sea” does not appear1 in the modern clauses, but arrests, restraints
and detainments survive. Rule 10 of the Rules for Construction of Policy in Sch 1 provided
that the term “arrests, &c., of kings, princes, and people” referred to political or executive
acts, and did not include a loss caused by ordinary judicial process. The modern forms
continue to exclude ordinary judicial process, and generally cover only political or executive acts. The peril of “seizure” is an important exception (see Chapter 12).
11.2 When underwriters did not wish to insure war risks, the practice grew up of including an exclusion in the form of a so-called warranty “free of capture and seizure”,
known as the “f.c. & s.” warranty.2 Where on the other hand the policy was in respect of
war risks alone, the practice was to cover the risks which would be excluded by the f.c. & s.
warranty.3 The standard form of exception was that the insured ship or cargo was “warranted free of capture and seizure and the consequences of any attempts thereat” or similar wording. “Warranted free” meant that the insurers were not to be liable for the things to
which the warranty applies;4 in other words, an exception and not a promissory warranty.
11.3 New marine policy forms were introduced from 1982. The new forms replaced the
traditional exclusion and reinstatement method for insuring war risks with a direct statement of the perils covered. In The B Atlantic, Lord Mance noted5 that while the clauses
were freshly drafted, they did not abandon, but sought to bring fresh order and clarity to,
1 “Takings at sea” involved the seizure of the vessel and cargo by external force or the threat thereof in the
context of arrests, restraints and detainments and did not cover misappropriation of the cargo by the shipowner:
Shell International Petroleum Co. Ltd. v. Caryl Antony Vaughan Gibbs (The Salem) [1983] 1 Lloyd’s Rep. 342;
[1983] 2 A.C. 375, overruling Nishina Trading Co. Ltd. v. Chiyoda Fire & Marine Insurance Co. Ltd. (The
Mandarin Star) [1969] 1 Lloyd’s Rep. 293; [1969] 2 Q.B. 449. Misappropriation of the cargo by the shipowner
would be covered under all risks cover.
2 For a description of the practice, see Britain Steamship Co. Ltd. v. The King (The Petersham) [1919] 2
K.B. 670, per Atkin L.J. at pp.692–693.
3 For an example, see Yorkshire Dale Steamship Co. Ltd. v. Minister of War Transport (The Coxwold)
(1942) 73 Ll.L.Rep. 1; [1942] A.C. 691 at p.692.
4 Cory v. Burr (1883) 8 App. Cas. 393 per Lord Selborne LC at p.395, per Lord Blackburn at p.400, per
Lord Fitzgerald at p.404.
5 Navigators Insurance Co Ltd v. Atlasnavios-Navegacao Lda (formerly Bnavios-Navegacao Lda), (The
B Atlantic) [2018] 2 Lloyd’s Rep. 1; [2019] A.C. 136 at [16].
70
Capture
many of the time-honoured concepts used in the market, such that prior authority on those
concepts were therefore potentially relevant.
Capture, etc.: Hull, Freight and Cargo Clauses
11.4 There is a large degree of overlap, but also some important differences, between
the clauses for hull, freight and cargo respectively. The scheme for each of these will be
described, then the common provisions will be considered, before dealing with aspects
which are peculiar to each.
Capture, etc.: Hull Clauses
11.5 The structure of the Hull Clauses is as follows. The perils covered include loss of
or damage to the vessel caused by “capture seizure arrest restraint or detainment, and the
consequences thereof or any attempt thereat” (Clause 1.2) and “confiscation or expropriation” (Clause 1.6). There is provision for the Assured to be deemed to have been deprived
of the possession of the Vessel without any likelihood of recovery where the vessel has
been captured, etc., for a continuous period of 12 months (Clause 3). The most directly relevant exclusions are for: (i) requisition and or pre-emption (Clause 4.1.3); (ii) capture, etc.,
“by or under the order of the government or any public or local authority of the country in
which the Vessel is owned or registered” (Clause 4.1.4); (iii) arrest, etc., “under quarantine
regulations or by reason of infringement of any customs or trading regulations” (Clause
4.1.5); and (iv) “the operation of ordinary judicial process, failure to provide security or to
pay any fine or penalty or any financial cause” (Clause 4.1.6).
11.6 The risks insured are the perils with the exclusions; together they delimit the risks
covered.6 Whilst individual exclusions have different purposes, the purpose of clauses
4.1.5 and 4.1.6 is to preserve the essential meaning of the terms in a war risks policy, which
is to cover political and executive acts.7
Capture, etc.: Freight Clauses
11.7 The structure of the Freight Clauses is, with one exception, the same as the Hull
Clauses. The one difference is that there is provision (Clause 3) for payment of the amount
insured in the event that there is a CTL of the vessel under the Hull Clauses.
Capture, etc.: Cargo Clauses
11.8 The structure of the Cargo Clauses differs significantly from the Hull and Freight
Clauses. First, the cover only extends to capture, etc, arising from the war risks strictly
so-called, namely “war civil war revolution rebellion insurrection, or civil strife arising
6 Ikerigi Compania Naviera S.A. v. Palmer (The Wondrous) [1991] 1 Lloyd’s Rep. 400 at p.416 per
­ obhouse J; [1992] 2 Lloyd’s Rep. 566 per Lloyd L.J. at p.572; The Aliza Glacial [2002] 2 Lloyd’s Rep. 421 at
H
[24–27].
7 Ikerigi Compania Naviera S.A. v. Palmer (The Wondrous) [1992] 2 Lloyd’s Rep. 566 per Lloyd L.J. at
p.572.
71
Capture
therefrom, or any hostile act by or against a belligerent power” (Clause 1.2). Second,
there is no cover for confiscation or expropriation. Third, due to the limitation on the
scope of cover, there are no exclusions matching those set out in paragraph 11.5 in relation to Hull and Freight.
Differences between “capture” and “seizure”
11.9 “Capture” and “seizure” both involve depriving the insured of his property,8 but
they are nonetheless distinct and separate insured perils. Channell J., when giving judgment in Andersen v. Marten9 in 1907 quoted from Arnould when defining “capture” as:
“A taking by the enemy as prize, in time of open war, or by way of reprisals, with intent to
deprive the owner of all dominion or right of property over the thing taken.”10
11.10 Lord Fitzgerald in Cory & Sons v. Burr11 contrasted “capture” with “seizure”:
Capture would seem properly to include every act of seizing or taking by an enemy or belligerent. “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 lawful
authority or by overpowering force.
11.11 Hilbery J. in Forestal v. Rickards12 contrasted “capture” with “takings at sea”, an
insured peril which no longer appears in the Institute War and Strikes Clauses but which
to some extent is co-extensive with “seizure”:
Capture is a taking by the enemy as prize in time of open war with intent to deprive the owners
of their property and the goods. It is a belligerent act … A taking at sea is something less, and
it may be a taking at sea although at the time there is no intention thereby to deprive the owner
of his property and the ship, but merely the intention to take the ship in for an adjudication. It
is the lesser thing included in the greater which is capture.
This definition was noted with approval by Kerr L.J. in The Salem.13
The meaning of “capture”
11.12 Ships and cargoes are treated as objects of war to be taken in prize or by way of
reprisal and this is the meaning of the word “capture” in marine policies.14
25.
8 The topics of actual total loss, constructive total loss and notice of abandonment are treated in Chapter
9 [1907] 2 K.B. 248.
10 Ibid at p.253.
11 (1883) 8 App. Cas. 393 at p.405.
12 Forestal Land, Timber & Railways Company v. Rickards (The Minden); Middows v. Robertson (The
Wangoni); W.W. Howard, Bros. & Co. v. Kann (1940) 67 Ll.L.Rep. 484 at p.506; on appeal (1940) 68 Ll.L.Rep.
45 (C.A.); (1941) 70 Ll.L.Rep. 173; [1942] A.C. 50 (H.L.).
13 Shell International Petroleum Co. Ltd. v. Caryl Antony Vaughan Gibbs (The Salem) [1982] 1 Lloyd’s
Rep. 369; [1982] Q.B. 946 at p.992; on appeal to the House of Lords [1983] 1 Lloyd’s Rep. 342; [1983] 2 A.C.
375.
14 Kuwait Airways Corp v. Kuwait Insurance Co SAK [1999] 1 Lloyd’s Rep. 803 at 815 per Lord Hobhouse;
Anderson v. Martin [1907] 2 K.B. 248 at p.253.
72
Capture
11.13 Capture means the hostile seizure of property with intent to deprive the owner
of that property.15 It includes every act of seizing or taking by an enemy or belligerent.16
The US Supreme Court has held that the taking of a vessel by a rebel force is a capture,
provided the rebel force has belligerent status or is a de facto government.17 The use of actual force is not required; it is enough that there is the exercise of the paramount authority
of the State and the implicit threat of force.18 Force is implicit in every command made on
behalf of a State.19 Apprehension of capture is considered at paragraph 11.47.
11.14 The capture need not be by a power which is belligerent with respect to the vessel’s flag state20 and (like a seizure) the capture need not be lawful.21 The peril includes
any capture in consequence by which the ship is lost to the insured. A capture under a
commission 22 from a foreign State where there is no war, is a capture just as much as a
capture by an enemy.23
11.15 As between insurer and insured, it is immaterial whether ownership of the vessel
is transferred to the captor by international law.24 A ship is lost by the capture, even if
never condemned by a court or carried into any port or fleet of the enemy.25 If the ship is
recovered or retaken in a complete condition, but the owner has paid salvage or incurred
any expense in getting her back, the insurer must bear that loss.26
11.16 Once the vessel is captured, the insured is entitled to be paid for a total loss, and
the insurer stands in the place of the insured if the vessel is recaptured.27 The right to
recover for a total loss is not lost by the recapture, but if the insured claims a total loss he
must abandon the vessel as he cannot recover more than he has suffered.28 Whether there
was a total loss by the capture, or only a temporary obstruction to the voyage pending
15 Rodocanachi v. Elliott (1872–73) L.R. 8 C.P. 649 per Brett J at p.670.
16 Cory v. Burr (1883) 8 App. Cas. 393 at p.405 per Lord Fitzgerald.
17 Mauran v. Insurance Co, 6 Wall. 1 (1867) (Supreme Court of the United States). The rebel force was the
Confederate States of America.
18 Robinson Gold Mining Company & Others v. Alliance Insurance Company [1901] 2 K.B. 919; [1902] 2
K.B. 489 (C.A.); [1904] A.C. 359 (H.L.) (a case on seizure); Miller v. The Law Accident Insurance Co. [1902] 2
K.B. 694; [1903] 1 K.B. 712 (C.A.); [1904] A.C. 359 (H.L.); British and Foreign Marine Ins. Co. Ltd. v. Samuel
Sanday & Co. [1916] 1 A.C. 650 at p.665 per Lord Atkinson, at p.669 per Lord Parmoor.
19 British and Foreign Marine Ins. Co. Ltd. v. Samuel Sanday & Co. [1916] 1 A.C. 650 at p.659 per Lord
Loreburn, at p.672 per Lord Wrenbury.
20 Cory v. Burr (1883) 8 App. Cas. 393 at p.396 per Earl of Selborne L.C., observing that it was not a
belligerent capture in Powell v. Hyde (1855) 5 E. & B. 607 (Russian fort fired upon a British ship, alleging
that they thought it was Turkish, there being a war between Russia and Turkey but not Great Britain), but that
belligerence was unnecessary where the policy referred to both capture and seizure; Miller v. Law Accident Ins
[1903] 1 K.B. 712 at p.722 per Mathew L.J.
21 Powell v. Hyde (1855) 5 E. & B. 607 at p.611 per Lord Campbell C.J.; Miller v. Law Accident Ins [1903]
1 K.B. 712 at p.722 per Mathew L.J.; Berens v. Rucker (1761) 1 Blackstone W. 313 (insured entitled to recover
payment made to compromise a sentence of condemnation arising out of an unlawful capture).
22 A private ship under a commission of war (a letter of marque) was a privateer.
23 Goss v. Withers (1758) 2 Burr. 683 at p.695; (1758) 2 Keny 325 at p.342.
24 Ibid at pp.693 and 340 per Lord Mansfield. The court stated obiter that by the law of nations, property in
the vessel is obtained by the captor when the battle is over and all immediate pursuit has ceased, with all hope
of recovery gone; but revests in the original owner if the ship escapes or is retaken or is redeemed by payment
of a ransom.
25 Goss v. Withers (1758) 2 Burr. 683 at p.694; (1758) 2 Keny 325 at p.342.
26 Goss v. Withers (1758) 2 Burr. 683 at p.694.
27 Ibid at p.696; (1758) 2 Keny 325 at p.343.
28 Ibid.
73
Capture
recapture must be determined on the true facts as at the time an action is brought.29 Furthermore, the insured cannot abandon the ship, but only claim for a partial loss, if upon receiving notice of the capture he is also advised that the ship has been safely recaptured.30
Illustrative cases: the insured peril
11.17 The earliest case which concerns us is Goss v. Withers,31 which arose out of the
Seven Years’ War. The case concerned the David and Rebeccah and its cargo of fish which
was loaded in Newfoundland for Spain and Portugal. Whilst they were separately insured
under different policies, the court made no distinction between them, presumably because the ship and the cargo were owned by the same interests. Furthermore, there seems
to have been no exclusion of war risks from the policy. On the voyage, the ship needed
extensive repairs after suffering storm damage. She was then captured by a French privateer, the crew removed except for an apprentice and a landsman and the ship directed to a
French port with a prize crew on board. The ship was then retaken by a British privateer
and brought back to Milford Haven. Notice of abandonment was given to the underwriters. The cargo of fish went bad but it is not clear from the report if this was the result of
the prolonged voyage or the lengthy delays in Milford Haven.
11.18 Lord Mansfield made a clear distinction between the positions of the underwriter
who insures the ship on the one hand and any vendee or recaptor on the other. Where
the ship has not been condemned by an enemy Prize Court so that her legal ownership is
transferred from her true owner, a vendee or recaptor has no title against the owner of the
ship who retains his property in her. Regarding the underwriters, however Lord Mansfield
said:
But whatever rule ought to be followed, in favour of the owner, against a recaptor or vendee,
it can in no way affect the case of an insurance between the insurer and insured … The ship
is lost by the capture … and the insurer must pay the value … Capture by a pirate … or capture under a commission, where there is no war; do not change the property. Yet between the
insurer and insured, they are just upon the same foot as capture by an enemy.32
11.19 In the Goss case33 the court judged that the David and Rebeccah and her cargo
were total losses but it would appear that the storm damage to the ship, coupled with the salvage and other charges attending her recapture led in any event to what would now be called
a constructive total loss apart, of course, from the cargo which was an actual total loss.
11.20 Lord Mansfield emphasised that the mere fact of a capture might not necessarily
justify an abandonment to the underwriter and a claim for a total loss, using these words:
There might be circumstances under which a capture would be but a small temporary hindrance to the voyage; perhaps none at all; as if the ship was taken, and in a day or two, escaped
entire, and pursued her voyage. There are circumstances under which it would be deemed an
29 Hamilton v. Mendes (1761) 2 Burr. 1199 at pp.1210–1211 per Lord Mansfield.
30 Ibid at p.1211 per Lord Mansfield. The court expressed no view as to the result if the ship or cargo were
to be restored in safety between abandonment and action, or between action and judgment.
31 (1758) 2 Burr. 683.
32 Ibid at pp.694–695.
33 N 31.
74
Capture
average loss; if a ship taken is immediately ransomed by the Master and pursues her voyage,
there the money paid is an average loss.34
11.21 Lord Mansfield soon found himself making exactly the same points three years
later in Hamilton v. Mendes.35 The Selby was loaded with tobacco in Virginia for London
and sailed on 28 March 1760. On 6 May the French privateer Aurora of Bayonne captured
the ship and removed the crew except for the Mate and one man. A prize crew was put
aboard to take the ship to a French port. On 23 May the ship was retaken off Bayonne by
H.M.S. Southampton. On 6 June the ship arrived in Plymouth where the salvor apparently
had a right to one-eighth of the value. On 26 June the insured learnt of the fate of the vessel
and notice of abandonment was tendered. The underwriters’ response was that they were
not bound to take the ship. They were, however, ready to pay salvage and other expenses.
On 19th August the ship arrived in London where the cargo was discharged.
11.22 The question was whether the plaintiff had the right to abandon the ship on 26
June. It was held that he did not have this right or the right to claim for a total loss and was
entitled to no more than the relatively minor expenses which arose directly from the insured peril. In this case there was little, if any, damage to the ship or to the tobacco. Whilst
the capture continued, the vessel was a total loss. As to the effect of the recapture, Lord
Mansfield added by way of explanation to what he had said in the Goss case:36
It does not necessarily follow, that, because there is a recapture, therefore the loss ceases to
be total. If the voyage is absolutely lost, or is not worth pursuing; if the salvage is very high;
if further expense is necessary; if the insurer will not engage, in all events, to bear that expense, although it should exceed the value or fail of success; under these and many other like
circumstances the insured may disentangle himself and abandon, notwithstanding there has
been a recapture.37
11.23 In the middle of the eighteenth century, it seems to have been assumed that the
shipowner’s entitlement to a total loss payment was to be judged at the date that the notice
of abandonment was given. Possibly the assumption went even further, that the insured
owner was entitled to a total loss payment on the date that the notice was given. Lord
Mansfield found it necessary to correct this in the Hamilton case:38
The plaintiff’s demand is for an indemnity. His action then must be founded upon the nature
of his damnification as it really is at the time that the action is brought. It is repugnant, upon a
Contract of Indemnity, to recover as for a total loss when the final event has decided that the
damnification in truth is an average, or perhaps no loss at all.
Also:
I desire it may be understood that the point here determined is that the plaintiff upon a policy
can only recover an indemnity according to the nature of his case at the time of the action
brought or, at most, at the time of his offer to abandon.
34
35
36
37
38
Ibid at p.697.
(1761) 2 Burr. 1198.
N 31.
N 35 at p.1209.
N 35 at pp.1210, 1214.
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Capture
11.24 Lord Mansfield declined to give any guidance on the position if the ship and the
goods were restored safely between the dates of the notice of abandonment and the issue
of the writ or between the dates of the issue of the writ and the giving of the judgment.
Furthermore he stated that no inferences be drawn in case the ship or the goods should
be restored after the payment of the total loss or whether the insurer could in such a case
compel a refund of the money in exchange for the restored ship or goods.
11.25 The application of these principles was further worked out in a series of cases
arising out of the Napoleonic Wars or the 1812 War between the United Kingdom and the
U.S.A.
11.26 In Bainbridge v. Neilson,39 the Mary was insured with a valued policy of £6,000
on her hull and another policy of £4,000 on her freight. In 1807 the ship sailed from Jamaica bound for Liverpool. On 21 September she was captured by a French privateer, but
four days later was recaptured by a British privateer and taken to Loch Swilley. On 30
September the shipowner first heard of her capture (but not of her recapture). Notice of
abandonment was given to the underwriters on 1 October and the following day news of
the ship’s capture was confirmed. On 6 October the news of the ship’s recapture was first
heard and passed to the underwriters. The ship subsequently completed her voyage.
11.27 Lord Ellenborough C.J. and three other judges held that the notice of abandonment was properly given (in that the facts as known to the insured would, if true, entitle
him to give such a notice) but that it did not confer any rights on the plaintiffs and of itself
make a total loss out of a partial loss. The action was brought after the plaintiffs took
possession of the vessel but before the arrival of the ship in Liverpool, and thus after the
recapture of the ship. Lord Ellenborough C.J. said this:
The effect of an offer to abandon is truly this, that if the offer appear to have been properly
made upon certain supposed facts, which turn out to be true, the assured has put himself in a
condition to insist upon his abandonment: but it is not enough that it was properly made, upon
facts which were supposed to exist at the time, if it turns out that no such facts existed, or that
other circumstances had occurred which did not justify such abandonment.40
Here there was no question of huge expenses of recovery which might have arisen from an
insured peril and thus lead to a total loss being payable. The expenses were trifling and a
partial loss only was held to be justified. The fact that the insured was unaware of the true
situation was irrelevant.
11.28 In Patterson v. Ritchie,41 goods to the value of £1,400 were loaded on the Dispatch, namely 31 puncheons of rum, 120 tons of salt, a quantity of coal and some mats.
In August 1814 the ship sailed from Liverpool for Quebec. At the end of September the
ship was captured by an American privateer. In mid-October the crew returned home and
notified the owner what had happened. A notice of abandonment was given to the underwriters and a total loss payment requested but refused. On 27 October the ship and cargo
were recaptured by a British privateer and taken to Halifax. Eleven puncheons of rum
were sold to pay the cargo’s proportion of salvage. In May 1815 the ship reached Quebec,
being further delayed by the freezing of the Saint Lawrence river between November and
39 (1808) 10 East 329.
40 Ibid at p.341.
41 (1815) 4 Mau. & Sel. 393.
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Capture
April. The remaining cargo, although pilfered to a minor extent, was in good condition.
The underwriters paid all amounts due on the basis of a partial loss. It was held that whilst
the cargo was probably a total loss at the date that the notice of abandonment was given,
the circumstances had altered before the writ was issued and a partial loss was all that
was due.
11.29 In Brotherston v. Barber,42 the ship Fanny sailed from Maranham in Brazil for
Liverpool. On 19 April 1814 she was captured off the coast of Ireland by an American
privateer and her crew transferred to a Portuguese ship bound for Liverpool. On 25 April
the crew made a full report to the owner and Notice of Abandonment was given to the
underwriters. In May the ship was recaptured by H.M.S. Sceptre. In mid-June news of the
recapture reached the shipowners and the underwriters. Later in June the ship reached
Gravesend and on 26 September arrived at Liverpool. On 10 November the shipowner
issued a writ against the underwriters. In giving judgment that the loss was only a partial
loss and not a total loss, Lord Ellenborough C.J. said:
… it seems to me that these plaintiffs must stand, in regard to their claim for indemnity, in the
position in which subsequent events have placed them, at the time when they came to demand
it; that is when the action is brought.43
11.30 In Naylor v. Taylor44 goods were loaded on to the Monarch for carriage from
Liverpool to the River Plate. The insurance policy contained a liberty that in the event
of a blockade, or the ship being ordered out of the River Plate, they may be discharged at
another port. In February 1826 the London Gazette notified Brazil’s blockade of the River
Plate. In March the ship sailed from Liverpool, arriving in the River Plate on 22 May. On
23 May the ship and the cargo were captured by a Brazilian frigate. On 21 July the ship’s
crew overpowered the Brazilian prize crew and the ship and cargo escaped. In August notice of abandonment was given to the underwriters and refused. In September the ship and
the goods reached Liverpool. In 1827 a writ was issued against the underwriters claiming
a total loss of the goods. Lord Tenterden C.J. held there was no total loss:
If the abandonment is to be viewed with regard to the ultimate state of facts, as appearing
before the action brought, according to the opinion of the Court in Bainbridge v. Neilson[45]
there has not … been a total loss.46
11.31 In Rodocanachi v. Elliott47 silks were despatched from Shanghai to London and
sent overland by rail from Marseilles. The Franco-Prussian War broke out during the voyage. On 10 September 1870 the Prussian armed forces cut the rail links between Paris and
the north Channel ports. On 13 September the silks reached Paris and were warehoused.
On 19 September the Prussian armed forces completed the encirclement of Paris. In October notice of abandonment was given and, on the underwriters refusing to accept it, a writ
issued shortly afterwards. In November 1871 the silks arrived in London. During the siege
42
43
44
45
46
47
(1816) 5 Mau. & Sel. 418.
Ibid at p.423.
(1829) 9 B. & C. 718.
N 39.
N 44 at p.724.
(1873) L.R. 8 C.P. 649.
77
Capture
of Paris by the Prussian armed forces, the silks were shut up inside the city. At the time
the writ was issued, there was no realistic hope that they would be delivered in London
at a time that could be regarded as reasonable. The position was complicated by the sale
of the silks on 2 September 1870, subject to their being delivered within four months. In
the event, the buyers accepted delivery, paying the contract price of £9,362 12s. 6d. The
plaintiffs were nonetheless held to be entitled to receive a total loss (presumably less the
proceeds of sale) on the basis that at the date of the issue of the writ, the goods could be
regarded as being lost for an indefinite time.
11.32 Before we leave the ancient cases, we should note Cologan v. The Governor
and Company of the London Assurance,48 a case which went against the general trend.
In 1812 the Friendship sailed from Quebec bound to Tenerife with a cargo of wheat, fish
and barrel staves. She was separated from her convoy by a storm and was captured by
an American privateer. The privateer took some of the cargo for her own use and sent
her with a prize crew to an American port. On the voyage she was recaptured by H.M.S.
Shannon and sent to Bermuda. Bermuda at the time was short of food and an embargo was
placed upon the wheat and the fish from leaving the island. This was eventually permitted
but only on the basis that the cargo, together with an additional quantity of flour, should
be taken to Madeira for the use of the British garrison stationed there. This was safely
achieved. In an action for the total loss of the cargo some doubts are noticeable on the part
of some of the judges, but the court gave judgment in favour of the owners for the reasons
given by Bayley J.:
The destination is to Tenerife; the ship, with the cargo, in her course thither, is captured;
recapture follows, but not so as to enable the ship to proceed to Tenerife; for she is sent to
Bermuda, where she is placed under an embargo, from which she is never released, except
upon condition of altering her destination to Madeira. Therefore there has been no restitution
of any part of the cargo, as it regards the risk insured to Tenerife.49
11.33 The rule first enunciated by Lord Mansfield C.J. in Goss v. Withers50 and followed by the courts since then, notably by Lords Ellenborough C.J. and Tenterden C.J.,
was thus firmly established by 1872. It is not necessary that there should be condemnation
before the insured peril of capture can arise and the time to judge whether or not there is
a total loss is the date that the action is brought, namely the date the writ is issued, not the
date that notice of abandonment is given.
11.34 Ruys v. Royal Exchange Assurance Corporation51 concerned a case of undoubted capture and thus answered any questions on this score which were left open by
Rodocanachi v. Elliott.52 The Doelwyk was insured on a valued policy against war risks on
7 August 1896. She was carrying arms for the Emperor of Abyssinia with whom Italy was
then at war. On 8 August she was captured by an Italian cruiser. Notice of abandonment
was given to the underwriters on 14 August and refused. Shortly thereafter the shipowners
issued a writ against the underwriters claiming that the ship was a total loss. In December
48
49
50
51
52
(1816) 5 Mau. & S. 447.
Ibid at p.456.
N 31.
[1897] 2 Q.B. 135.
N 47.
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Capture
1896 the Prize Court in Rome condemned the ship in prize. The war being over, it did
not order confiscation. With the agreement of all parties the ship was disposed of by the
underwriters on a “without prejudice” basis.
11.35 The court first dealt with some preliminary issues, notably the shipowners’
knowledge at the time that the insurance was placed. Collins J. noted the line of authorities which are quoted above and gave judgment that on 21 August the ship was a total loss:
… much might be said for the view … that the rights of the parties should be finally ascertained upon a proper abandonment. But, the object of litigation being to settle disputes, it is
obvious that some date must be fixed upon when the respective rights of the parties may be
finally ascertained, and the line of the writ may be regarded as a line of convenience which
has been settled by uniform practice for at least seventy years …53
11.36 The Ruys case was followed by Andersen v. Marten54 and together the two cases
can be taken as implicit authority that the flag or nationality of the insured ship, or the
nationality of her owners, is immaterial to the insured peril of capture; the words in the
definitions “taking by the enemy” do not refer to the enemy of the insured ship’s flag or
her nationality or that of her owners, although it seems necessary that the captor himself
is in the service of a belligerent.
11.37 In Andersen55 the disbursements of the Romulus, a German ship, were insured
under a policy for one year commencing on 12 January 1905. The policy contained the
following clause: “Warranted free from capture, seizure and the consequence of hostilities …” In December 1904 the Romulus sailed from Cardiff bound for Vladivostok with
a cargo of coal. It was the time of the Russo-Japanese War. She was supplied with false
papers and instructed to follow a circuitous route to her destination to avoid Japanese warships. On 21 February 1905 whilst in the Urup Strait the ship was badly damaged by ice.
The crew obliged the master to sail for Hakodate to do repairs. On 26 February whilst in
the Tsugaru Strait and only 40 miles from Hakodate, the ship was stopped by a Japanese
cruiser and boarded by a naval party. The Japanese Captain was unimpressed by the false
papers, put a prize crew aboard, and ordered the ship to proceed to Yokosuka, which was a
greater distance away but where there is a Prize Court. On the following day bad weather
arose and the ship was beached to prevent her sinking. She broke her back. In March the
crew was taken to Yokosuka where the Prize Court investigated the circumstances of the
capture. In May a surveyor examined the ship and announced she was an actual total loss.
The ship was subsequently condemned as prize.
11.38 There was no doubt in the minds of the judges of the Queen’s Bench Division, the
Court of Appeal or the House of Lords, that the Romulus had been captured on 26 February. The question was whether she was lost by “capture” (an excluded peril) on that date or
by bad weather on the following day. All were unanimous that she was lost by “capture”
for the following reasons: Channell J., after noting with approval Arnould’s definition of
“capture” and Shee J.’s writings in Abbott on Shipping (11th edn, 1867) said this:
53 N 51 at p.142.
54 [1907] 2 K.B. 248; [1908] 1 K.B. 601; [1908] A.C. 334.
55 Ibid.
79
Capture
… Although mere capture in itself when there is no condemnation does not divest the property, when there is an adjudication of a Prize Court which is an adjudication in rem binding on
all the world, it is a decision not merely that the property has passed at the date of the decision,
but that it did pass at the time of capture and its effect therefore may be described as relating
back.56
11.39 In the Court of Appeal, Cozens-Hardy M.R. with the support of the other judges
adopted Channell J.’s reasoning, namely:
I think that most people, looking at the matter from a common sense point of view and apart
from technicalities, would say that under the circumstances the owner lost his ship by capture,
and that the Japanese captors afterwards lost their prize by shipwreck.57
He also drew attention to the ancient case of Hahn v. Corbett58 where the ship was first
lost by being driven on to a sandbank and afterwards captured. Here it was held that she
was lost by perils of the seas.
11.40 The House of Lords agreed with the two lower courts. Loreburn L.C., after noting that the ship was employed transporting contraband of war by fraud: “I think the reasonable and true way of regarding what actually occurred is that there was in fact a total
loss by capture on February 26, though its lawfulness was not authoritatively determined
until May 16 following”59 and Lord Halsbury: “… given the facts … it would have been
impossible in an English court to deny there was a total loss to the owner on February 26”
and “… the rightfulness of the seizure and consequently the change of property related
back to the time of capture.”60 In The Bunga Melati Dua, the Court of Appeal construed
the Andersen case as one where the peril occurred at the moment of the capture, with the
loss occuring by reason of the capture, but that (whether in terms of relation back or not)
the actual total loss was established only by condemnation.61
Unlikelihood of recovery
11.41 The cases quoted thus far explain two propositions on the insured peril of “capture”, namely that it is complete when the actual physical capture takes place irrespective
of any subsequent decision by a Prize Court, and that matters between the plaintiff shipowner and the defendant underwriter must be judged as they stand at the time that the
action against the underwriters is commenced. There is a further element that must be
considered which did not arise in either the Ruys62 or the Rodocanachi63 cases, because at
the time that the actions were commenced, there seemed to be no possibility of recovery
56 [1907] 2 K.B. 248 at p.255.
57 Dictum of Channell J. cited at [1908] 1 K.B. 601, p.607.
58 (1824) 2 Bing. 205.
59 [1908] A.C. 334 at p.339.
60 Ibid at pp.339–340 and 341.
61 Masefield AG v. Amlin Corporate Member Ltd (the Bunga Melati Dua) [2011] 1 W.L.R. 2012; [2011] 1
Lloyd’s Rep. 630 at [42–44] per Rix L.J.
62 Ruys v. Royal Exchange Assurance Corporation (The Doelwyk) [1897] 2 Q.B. 135.
63 Rodocanachi v. Elliott (1873) L.R. 8 C.P. 649.
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Capture
of the insured property. The further element, which was given greater prominence in the
subsequent cases, particularly on seizure, is that at the time that the action is commenced,
what is the possibility that the ship or the goods will be returned?
11.42 There is a line of cases before 1906 where this element was expressed in terms
as to whether or not “ultimate release from capture was a matter of uncertainty”. This
was altered by the Marine Insurance Act 1906, which defines constructive total loss in
subsection 60(2)(i) as follows:
In particular there is a constructive total loss—where the insured 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 …
It will be seen that “uncertainty” has been substituted by “unlikely”.
11.43 The test is thus somewhat stricter as is shown by Polurrian Steamship Co. Ltd.
v. Young.64 In 1912 the Polurrian loaded a cargo of Welsh coal for carriage to Istanbul.
On sailing, the Captain was aware that a war had broken out between Italy and Turkey
but he was not aware that Greece and Turkey had also gone to war, a development which
had occurred during the voyage. On 25 October 1912 a Greek destroyer intercepted the
Polurrian off Tenedos. The Master’s evidence was that “the Greek Captain said he had
orders to seize us; that he would convey us to Mudros Bay, Lemnos.” On 26 October notice of abandonment was given to the underwriters and refused, but the shipowners were
put in the same position as if a writ had been issued. This date is thus agreed as the date of
the commencement of the action. On 27 October discharge of the coal into the Greek flag
ship began. Subsequently all the cargo was taken by various units of the Greek fleet. The
Master met the Greek Admiral who, in spite of the Master’s denials, formed the view that
the Master knew of the hostilities between Greece and Turkey. Later the Master criticised
the interpreter, whose English was poor, and it is quite possible that a misunderstanding
arose because of language difficulties. After consulting with his government, the Admiral
ordered the Polurrian to Piraeus to be dealt with by the Prize Court, a suggestion which
emanated from the British Ambassador. On 28 November discharge was completed, and
the Polurrian accordingly sailed to Piraeus, where she arrived the following day. On 1
December an armed guard was put aboard and the Polurrian taken to the naval base in Salamis. On 8 December, the Greek Government, by now convinced that the Master did not
in fact know of the outbreak of war between Greece and Turkey and that he had conveyed
a wrong impression on this point to the Admiral, released the Polurrian.
11.44 Kennedy L.J. gave the judgment at the Court of Appeal with which the other
two members of the court agreed. On the facts, he considered that as the law stood before
1906, the shipowner would have been entitled to recover a constructive total loss; on 26
October the owner’s loss might have been permanent and was, at any rate, of uncertain
continuance. At the date of the trial, however, “uncertainty of recovery” had been substituted by “unlikelihood of recovery” in the 1906 Act, and the owners now had to establish
that it was not merely uncertain whether they could recover her within a reasonable time,
but that the balance of probability was that they could not do so.
64 [1915] 1 K.B. 922.
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Capture
11.45 Whilst the test of “unlikelihood of recovery” is firmly established, Kennedy L.J.
glossed the statutory definition by adding that the unlikelihood of recovery was “within
a reasonable time”.65
11.46 In the Forestal66 cases Lord Wright in the House of Lords approved Kennedy
L.J.’s judgment and added:
There is a real difference in logic in saying that a future happening is uncertain and saying
that it is unlikely. In the former, the balance is even. No one can say one way or the other. In
the latter, there is some balance against the event. It is true that there is nothing in the Act to
show what degree of likelihood is required. If on the test of uncertainty the scales are level,
any degree of unlikelihood would seem to shift the balance, however slightly. It is not required
that the scale should spring up and kick the beam.67
Apprehension of capture
11.47 Apprehension of capture is to be distinguished from actual capture.68 In English
law, the question to be asked is whether the frustration of the adventure was due to a
peril or to something done to avoid a peril.69 It should be noted that different perils may
operate in different ways. Whilst a restraint of princes (such as a declaration of war by
the vessel’s flag State) may affect a vessel far from the enemy port, making it unlawful
to continue the voyage, a risk of capture by the enemy at the same port may not have any
relevant causative effect at a distance. Thus, where the insured sells his cargo at a neutral
intermediate port in order to avoid the risk of confiscation at the port of destination, which
has declared itself closed to vessels from certain nations, there is no total loss by capture
or “detention of princes” as there is no direct and immediate operation of the peril, only
an apprehension of the peril.70 However, where the cargo is warehoused and abandoned
to underwriters at a neutral port as a result of war being declared in respect of the port of
destination, the illegality of continuing the voyage amounts to a loss by restraint of kings,
princes or people.71
11.48 In Hadkinson v. Robinson72 a cargo of pilchards was loaded on to the Pascaro in
Penzance for Naples. The pilchards were insured that they were: “… Warranted free from
average unless general or the ship should have stranded.” There was also a liberty to sail
in convoy from Falmouth. In October 1800 the ship, having completed loading, sailed to
Falmouth for her convoy. In January 1801 the ship sailed in convoy with H.M.S. Seahorse.
After a time sheltering from bad weather, the convoy sailed from Lisbon. On 5 March
65 Ibid at p.937.
66 Forestal Land, Timber & Railways Co. Ltd. v. Rickards (The Minden); Middows v. Robertson (The
Wangoni); W.W. Howard, Bros. & Co. v. Kann (1940) 67 Ll.L.Rep. 484; (1940) 68 Ll.L.Rep. 45 (C.A.); (1941)
70 Ll.L.Rep. 173; [1942] A.C. 50 (H.L.).
67 [1942] A.C. 50 at p.87.
68 British and Foreign Marine Ins. Co. Ltd. v. Samuel Sanday & Co. [1916] 1 A.C. 650 at p.665 per Lord
Atkinson; Becker Gray & Co. Ltd. v. London Assurance Corporation [1918] A.C. 101.
69 Becker Gray & Co. Ltd. v. London Assurance Corporation [1918] A.C. 101 at p.108 per Lord Dunedin.
70 Hadkinson v. Robinson (1803) 3 Bos. & Pul. 388. The decision was distinguished in British and Foreign
Marine Ins. Co. Ltd. v. Samuel Sanday & Co. [1916] 1 A.C. 650 at pp.665, 670, 672.
71 British and Foreign Marine Ins. Co. Ltd. v. Samuel Sanday & Co. [1916] 1 A.C. 650 (restraint of kings,
princes and peoples).
72 (1803) 3 Bos. & Pul. 388.
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Capture
the convoy received news that all British ships were debarred from entering the ports of
the Kingdom of Naples. On 16 March the Commodore ordered the ship not to proceed to
Naples but to go to Port Mahon in Minorca for further news. On 25 March the ship arrived
in Port Mahon where the news was confirmed. Under the directions of the Vice-Admiralty Court, the cargo is surveyed and then sold for a very small sum. Later intelligence
revealed that France and the Kingdom of Naples have signed a treaty excluding all ships
under British colours from Naples. To sail for Naples would be to invite confiscation of
ship and cargo. On 23 April, notice of abandonment was tendered and refused.
11.49 In the subsequent proceedings, a jury found for the defendant underwriters. Under the procedures of the time the plaintiff obtained an order that the defendant should
show cause why the verdict should not be set aside and a new trial ordered. The verdict
was, however, found to be correct as Lord Alvanley C.J., noting that the policy covered
“capture” and “detention of Princes”, explained:
But it has appeared to me that where underwriters have insured against capture and restraint
of princes, and the captain, learning that if he enter the port of his destination the vessel will
be lost by confiscation, avoids that port, whereby the object of the voyage is defeated, such circumstances do not amount to a peril operating to the total destruction of the thing insured … I
think that the detention of the cargo on board the ship at a neutral port in consequence of the
danger of entering the port of destination cannot create a total loss within the meaning of the
policy, because it does not arise from a peril insured against … The Plaintiff therefore cannot
recover, unless the article be totally lost by a peril within the policy; and such peril must, as I
think, act directly and not collaterally upon the thing insured.73
11.50 Lord Alvanley’s judgment was given on 20 May 1803. On 16 July 1803, Lord
Ellenborough C.J. heard the case of Lubbock v. Rowcroft74 which concerned a very similar
case. Twenty bags of pepper bound for Messina on board the Nelly also arrived in Minorca. Messina was blockaded by French warships (a surprising way to treat a treaty partner) and the Master decided not to risk certain capture. The case never got properly under
way because a belated examination of the bills of lading revealed that the pepper had been
endorsed over to a receiver in Minorca. This resulted in the plaintiff being “non-suited”,
but not before his Lordship made it perfectly clear that, even though he did not refer to the
Hadkinson case,75 he would have reached a similar decision to Lord Alvanley C.J.
11.51 Kacianoff v. China Traders Insurance Co. Ltd.76 dealt with a different situation.
The plaintiffs were Russian merchants importing various goods, in this case large quantities of salt beef, into Eastern Russia and Siberia from San Francisco. The Russo-Japanese
War had broken out on 8 February 1904, and the first two shipments, loaded on the Coptic
and the Corea and bound for Vladivostok and Port Arthur respectively, had been captured
by the Japanese navy. The underwriters had accepted these losses as proper claims. The
third shipment was insured for total loss only for, amongst other risks, “capture, seizure”.
It was in the process of being loaded on to the China for carriage to Vladivostok via Nagasaki, and the ship was due to sail on 26 February 1904, when the underwriters sent a cable
to the merchant’s agents in San Francisco pointing out that if the shipment went ahead,
73
74
75
76
Ibid at pp.392–393.
(1803) 5 Esp.50.
N 72.
[1914] 3 K.B. 1121.
83
Capture
the point would be taken that the insured merchants had deliberately caused its loss. They
justified this very high-handed action by pointing to the indisputable fact that Japanese
warships were known to be stopping and capturing ships and cargoes and, indeed, had
already done so with the plaintiffs’ goods. Very surprisingly the agents accepted this because they were unwilling to cause further loss to the underwriters and they did not take
any of the points which seem to have been open to them. The goods were discharged and
sold to Shanghai. Notice of abandonment was given and refused.
11.52 The plaintiffs claimed for a constructive total loss, giving credit for the sale
proceeds. Judgment was given for the underwriters by Pickford J. in the High Court, and
by Lord Reading C.J., Phillimore L.J. and Lush J. in the Court of Appeal. All four judges
were in agreement that no insured peril had begun to operate. There were very reasonable
grounds to expect that the cargo would be lost, in fact its “capture” was almost certain. On
the other hand, the prospective instruments of the “capture”, the Japanese warships, were
many thousands of miles away at the time of the plaintiffs’ loss and “capture” could not be
said to be its proximate cause. One is left with the feeling, perhaps unjustifiably, that the
plaintiffs’ agents adopted a remarkably supine stance towards the underwriters. Surely a
firmer attitude taken at the time and a claim under the Sue and Labour Clause might have
served the plaintiffs better than a direct challenge of the nature which they actually made.
The reports do not show such a claim being made even in the alternative. For the purposes
of this work however, the decisions are very clear on the point whether or not the insured
peril of “capture” had caused the loss.
11.53 No doubt encouraged by the decisions in the Sanday case,77 the plaintiffs pursued the case of Becker Gray & Co. Ltd. v. London Assurance Corporation.78 In June 1914
Beckers, a British firm, sold 500 bales of jute to German buyers. Property was not to pass
until the goods arrived in Hamburg and were paid for there. On 6/7 July 218 bales were
loaded in Calcutta on to the Kattenturm, a German ship which sailed shortly afterwards.
On 28 July the plaintiffs effected war risk insurance with British underwriters on the
goods. The insured perils included: “Men of war … enemies … takings at sea, arrests,
restraints and detainments of all Kings, Princes and people of what nation, condition
or quality soever.” On 4 August the United Kingdom declared war on Germany. On 6
August the ship put into Messina, later shifting to Syracuse. On 1 September notice of
abandonment was given, the goods being described as a constructive total loss through
the consequences of hostilities. On 2 September the underwriters rejected the notice and
put the plaintiffs in the same position as though a writ had been issued. In October the
Italian Government, by decree, forbade the export of jute. On 11 November the plaintiffs,
through the British Consul in Rotterdam, asked the shipowners, Hansa Lines, to deliver
the goods. On 20 November Hansa replied that the German Government had forbidden
its delivery. On 17 December following the rejection of a second notice of abandonment
a writ was issued. The jute was sold in Italy on a “without prejudice” basis. In June 1915
the Admiralty confirmed by letter, which was accepted by both sides, that at the time
any enemy steamer would have been at the risk of capture. The letter did not, indeed
cannot, say that the ship would have been captured. Given the strength of the Royal Navy
77 Sanday v. British & Foreign Marine Insurance Co. [1915] 2 K.B. 781.
78 [1918] A.C. 101.
84
Capture
and the French Navy in the Mediterranean at the time, and particularly in the neighbourhood of Gibraltar, the inference must be that the risk of capture was a high one.
11.54 In the High Court, Bailhache J. held that the goods were not lost by a peril insured against but from steps taken by the Captain to avoid an insured peril which had
not begun to operate. This finding was unanimously upheld by the Court of Appeal. On
appeal to the House of Lords, all five Law Lords, Lords Loreburn L.C., Atkinson, Wrenbury, Dunedin and Sumner, were unanimous that even though the ship would have been
in peril of capture, this was not enough for the plaintiffs’ case. The plaintiffs could not
prove “capture”, Lord Dunedin saying: “… if I had to decide positively I should decide
as Bailhache J. did—that the captain went into Messina to avoid a peril and not under the
stress of an actual peril.”79
11.55 Lord Dunedin had noted80 that one of the main writers, Phillips, thought otherwise and that the result under American law and Continental law might have been different. English law followed the course set by the Hadkinson81 and Kacianoff 82 cases and he
considered this to be correct. He distinguished the Sanday case83 where British shipowners suddenly found that the declaration of war made continuation of their voyages illegal.
There was nothing illegal (at least in English law) in the German Master continuing his
voyage.
11.56 With the benefit of hindsight from the Forestal cases,84 it does seem strange that
the courts were not invited to consider the position of the German Master, who no doubt
had orders from his government, as the Hansa letter indicates, or the Italian Government’s
decree which was surely a “restraint”. Perhaps the plaintiffs might have succeeded in
taking these points.
11.57 But it must not be thought that a “capture” must have taken place before the
insured peril of “capture” arises. Butler v. Wildman85 is often quoted that “capture” is
complete if property is lost or destroyed when actual “capture” is imminent and this case
can be distinguished on its facts from the Hadkinson,86 Lubbock87 and Becker88 cases. A
large quantity of Spanish dollars was insured on the S.G. Form for carriage from Cadiz to
La Guaira via Cuba. It was the time of the South American rebellions, which resulted in
the formation of the South American countries we know today. The defendant underwriters knew that the King of Spain was at war with, in the court’s words: “… Certain persons
exercising the powers of government in parts beyond the sea in South America, formally
part of the Spanish Empire.”
11.58 Whilst it was not stated in so many words, there seems to have been no doubt in
the minds of the judges that these persons had the status of de facto governments. A ship
79
80
81
82
83
84
85
86
87
88
Ibid at p.109.
Ibid at pp.107–108.
N 72.
N 76.
British and Foreign Marine Ins. Co. Ltd. v. Samuel Sanday & Co. [1916] 1 A.C. 650.
N 66.
(1820) 3 B. & Ald. 398.
N 72.
Lubbock v. Rowcroft (1803) 5 Esp. 50.
Becker Gray & Co. Ltd. v. London Insurance Corporation [1918] A.C. 101.
85
Capture
of war carrying a letter of marque gave chase to Captain Jose Lopez and his ship which
she eventually captured. Before she did so but whilst she was still in hot pursuit, Captain
Lopez threw the dollars into the sea. He did so as a loyal Spanish citizen to prevent so
large a sum of money falling into the hands of his country’s enemies. Abbott C.J. and Bayley J. considered this to be a loss by jettison which they thought had a wider application
than to general average alone. Abbott C.J. could not distinguish the case from setting fire
to a ship to prevent her falling into the enemy’s hands, for which the writers Emerigon
and Pothier thought the underwriters liable. Bayley J. thought there was a loss by enemies
similar to a destruction of the ship by fire, the enemy being the proximate cause. Best J.
was particularly impressed by previous French decisions quoted by Pothier which had
been given in the plaintiff’s favour. “Enemies”, without the general words “and of all other
perils, losses, and misfortunes that had or should come, to the hurt, detriment, and damage
of the said goods …” would include only the actual taking and destruction. The general
words give cover in this instance for risks which are ejusdem generis to the specific perils
insured by the policy: “… By including all losses which are the consequences of justifiable
acts done under certain expectation of capture or destruction by enemies.” Holroyd J. gave
a concurring judgment.
11.59 The court gave judgment for the plaintiff. It can be questioned if, after throwing
the dollars overboard, the result would have been the same if Captain Lopez had managed
to make good his escape. It is suggested that, provided the evidence indicates that a reasonable man could have concluded that capture was imminent at the time of the jettison,
and this must depend on the evidence before the court, the judges would still have given
judgment in the plaintiff’s favour.
11.60 Butler’s case89 does not seem to determine precisely whether the general words
are essential to include a loss of the nature that occurred there. Abbott C.J., Holroyd J. and
Bayley J. would appear to have been satisfied that the “general words” were not necessary,
whereas Best J. seems to have been quite certain that they were. Subsequent judgments
seem to tend towards Best J.’s view in preference to the views of the other three judges.
There is, however, the little known or quoted case of Gordon v. Rimmington90 which indicates that Lord Ellenborough L.C. seems to have been quite certain that they were not so
essential. The Reliance sailed in 1804 from Bristol to West Africa, whence she was due
to sail to the West Indies. The nature of the voyage raises some questions in the mind as
to the exact nature of her employment, but this was not pertinent to the case. She arrived
in the River Gambia in June, 1804, and there she was chased by a much more powerful
and much faster French privateer. She tried to escape, but the privateer was rapidly overhauling her. The crew fired the guns into the hatchways to set her on fire and escaped in
the boats. She was completely burnt. Only sketchy details of the insurance are given in
the report, but the shipowners are shown as pleading that she was lost by fire to prevent
her and her cargo falling into the hands of the king’s enemies. The judgment in Gordon is
very short and to the point:
This case is new; but I am clearly of opinion that the plaintiff is entitled to recover. Fire is expressly mentioned in the policy, as one of the perils against which the underwriters undertake
89 Butler v. Wildman (1820) 3 B. & Ald. 398.
90 (1807) 1 Camp. 123.
86
Capture
to indemnify the assured; and if the ship is destroyed by fire, it is of no consequence whether
this occurred by a common accident, or by lightning, or by an act alone in duty to the state.
Nor can it make any difference whether the ship is thus destroyed by third persons, subjects of
the King, or by the captain and crew acting with loyalty and good faith. Fire is still the causa
causans and the loss is covered by the policy.91
11.61 The report does not mention a jury, but ends with a laconic statement “verdict
for the defendant”. This is surprising in view of Lord Ellenbrough L.C.’s robust direction.
There is however a footnote:
Although this point of insurance law be new in England, it has long been decided in foreign
countries that, as the master is justified in burning the ship under such circumstances, the
insurer is liable for the loss … So it has been held, that the insurer is liable, if a ship is burnt,
without any fault in the master, from an apprehension that she has the plague on board, and to
prevent the infection from spreading.
11.62 Possibly the distinction is that the insured peril of “fire” does cover such a loss
as that of the Reliance to avoid her capture by the enemy, whereas destruction of property
by means which are not included in an insured peril requires the aid of the general words
to bring them within the cover afforded by the underwriter. So long as the general words
are included in the policy, the point is probably of no real importance, and here reference
is particularly made to “attempt thereat” (Chapter 14).
Prize and search cases
11.63 The second of the two aspects is the cases which the Prize Court has dealt with
which are often quoted in relation to the insured perils of “capture” and “seizure”. Whilst
on the facts there can be little difference between “capture” and “seizure” as an insured
peril, or for the purposes of consideration by the Prize Court, particularly in the case
of neutral vessels, it must be borne in mind that these are Prize Court cases and that it
could be very misleading to quote them as fully binding in the field of insurance. There
are distinctions of an important nature as Bankes and Scrutton L.J.J. pointed out in The
Sommelsdijk case.92 There are a great number of cases but three will serve to demonstrate
the point.
11.64 A belligerent nation has long had the right as a matter of customary international law to visit and search neutral vessels at sea. During the First World War this was
extended to allow searches in port because of the impossibility of searching a large vessel
at sea and the risk posed by lurking submarines. Sir Arthur Channell described it thus in
The Bernisse:93
… so little suspicion is required to justify a search that their Lordships are not prepared to say
that if a boarding officer were to state that finding a cargo to be in bulk he thought something
91 Ibid at pp.123–124.
92 Nederlands American Steamship Co. v. H.M. Procurator-General, The Sommelsdijk (1925) 22 Ll.L.Rep.
358; (1925) 23 Ll.L.Rep. 119; [1926] 1 K.B. 84.
93 [1920] P. 1; [1921] A.C. 458; (1920) 5 Ll.L. Rep. 359.
87
Capture
may be hidden under it, and therefore directed a search, his conduct would be so unreasonable
as to subject the Crown to a liability for damages.94
The suspicion must, as always, be an honestly held suspicion even if others could criticise
it as being unjustified.
11.65 In the cases of The Bernisse and The Elve95 neutral Dutch shipowners claimed
damages from the Crown for the loss of one ship and the damage to the other. In May,
1917, both ships sailed from Rufisque in French Colonial Africa carrying ground nuts for
Rotterdam. They had French clearances and should not therefore have been required to
obtain British clearances as well, known at the time as the “green clearance”. They were
stopped by H.M.S. Patria near the Faroe Islands and were required to go into Kirkwall
to obtain green clearances. The Masters protested that this would take them through the
danger area where they were liable to be attacked by U-boats. They received an answer
to the effect that their voyages would take them through the danger area in any event, and
one U-boat more or less would make little difference. Royal Navy officers and ratings
sailed with them to make sure that they went to Kirkwall. Both were torpedoed, the Elve
being sunk and the Bernisse severely damaged. The Prize Court and the Privy Council
held that this was a wrongful use of the right to visit and search, and awarded damages to
the Dutch owners.
11.66 The Sommelsdijk,96 concerned an appeal by the Crown to the Court of Appeal
against an award of compensation by the War Compensation Court, established under the
Indemnity Act 1920 to deal with compensation to people whose interests had suffered by
the exercise of His Majesty’s Royal Prerogative during the First World War. In 1915, the
Sommelsdijk, a Dutch ship, loaded grain in Buenos Aires for Sweden. She was visited
and searched off The Downs by H.M. Naval Patrols who sent her into London for a full
search. A naval party was put on board her and she was escorted by a torpedo boat. After
six weeks’ search when no contraband was found, she was released. Her owners claimed
damages. During the hearing, the terms “capture” and “seizure” were freely used but it is
essential to appreciate them in their true context.
11.67 Bankes L.J. posed the two important questions. First, is a visit and search effected under the royal prerogative? Second, is such a claim within the jurisdiction of the
Prize Court? If it was in the Prize Court’s jurisdiction, then the terms of the Indemnity Act
excluded it from the jurisdiction of the War Compensation Court. The commission of the
Prize Court authorised it to deal with “all manner of captures, seizures, prizes and reprisals of all ships.” Since the Prize Court exercised exclusive jurisdiction in this respect, and
awarded compensation and judged responsibilities by applying “the rules of international
law”, Bankes L.J. considered that the appeal should be allowed for these reasons alone
without making any decision on the prerogative point.97
11.68 Scrutton L.J. noted Oppenheim’s view that: “Seizure is effected by securing
possession of the vessel through the captor sending an officer and some of his own crew
on board” and added: “I cannot doubt that what happened here was a seizure, the legality
94
95
96
97
(1920) 5 Ll.L. Rep. 359; [1921] A.C. 458. at p.464.
Ibid.
N 92.
[1926] 1 K.B. 84 at pp.92–96.
88
Capture
of which could be investigated in the Admiralty sitting in Prize …”98 That legality would
be judged not by the rules of common law, but the more general law which is the law of
nations and which is applied by the Prize Court. Finally there could not be any question of
the Royal Prerogative. That gave the King power over his own subjects only and did not
extend to those who owed him no allegiance. Atkin L.J. gave similar judgment and the
appeal was allowed.
11.69 The last case that needs to be considered is The Mim.99 The Mim was a Norwegian ship and Norway was a neutral country at this stage of the Second World War.
In August 1939 the ship was chartered to carry grain from Australia to a wide range of
European discharging ports, among them Hamburg. On 3 September the United Kingdom
declared war on Germany. On 14 October the ship bunkered in Las Palmas. By this time
the cargo had been sold to the Norwegian Grain Monopoly. The charterparty had been
“cancelled” and the ship was instructed to sail around the north of Scotland and to discharge at Vaksdal. On 31st October the ship was stopped and visited by a boarding party
from H.M.S. Colombo north-west of the Faroe Islands. Suspicions stemmed from the original range of destinations and the circuitous route being sailed. The ship was ordered into
Kirkwall for a search following a route prescribed by the boarding officer with his party
on board. On the way, she stranded on Reefdyke, north of Ronaldshay and was a total loss.
11.70 The plaintiffs pleaded that the boarding party was responsible for the navigation,
and that if the Master was negligent, the ship’s officers had become the defendants’ agents.
Furthermore, the defendants were wrongly in possession and were therefore responsible
for the ship’s loss. Hodson J. held that there was nothing exceptionally dangerous in the
prescribed route and the plaintiffs failed on this point. There was no ulterior motive in
sending the ship to Kirkwall and the rights of visit and search were properly conducted.
The boarding officers’ suspicions were perfectly justified. On the Court of Appeal’s findings in The Sommelsdijk100 he noted that the Court of Appeal was considering the jurisdiction of the Prize Court:
… and rejected the argument that a mere temporary detention in exercise of the right of visit
and search was, for the purpose of the definition, inconsistent with capture. This use of the
word “seizure” is no doubt in a sense wider than that normally used by international lawyers
who speak of the centuries old right of belligerent warships to visit and search merchant ships,
whether enemy or neutral, as a right existing before capture or seizure …101
11.71 Hodgon J. thought “seizure” was not an appropriate description of what had happened to the Mim, and that the sole question was whether the Crown’s actions were rightful
or wrongful. He decided that they were rightful and the plaintiffs’ claim therefore failed.
11.72 It seems that, until The Mim case, there was no English case that dealt directly
with these points. There was, however, an American case, Wilcocks and Others v. Union
Insurance,102 which on similar facts went the other way. The distinction was made that in
98 Ibid at p.96.
99 [1947] P. 115.
100 Nederlands American Steamship Co. v. H.M. Procurator-General, The Sommelsdijk (1925) 22
Ll.L.Rep. 358; (1925) 23 Ll.L.Rep. 119; [1926] 1 K.B. 84.
101 N 99 at p.119.
102 (1810) 2 Binn. 574.
89
Capture
the Wilcocks case, the crew were held to be in the hands of the captors who had seized the
ship. Such a finding could be expected to lead to a different conclusion.
11.73 When drawing conclusions on “capture”, comparisons must be made with the
similar conclusions on “seizure”, which themselves lead on to further comparisons with
“arrest, restraint or detainment” (see Chapter 13).
90
CH A PT ER 12
Seizure
Meaning of “seizure”
12.1 The origin of the perils of capture and seizure are treated in the introduction to
Chapter 11. The most comprehensive definition of all is that given by Lord Fitzgerald in
the House of Lords in Cory & Son v. Burr:1
Capture would seem properly to include every act of seizing or taking by an enemy or belligerent. 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 lawful authority or
by overpowering force.
12.2 The concept of a “seizure” is thus wider than “capture” and is to be given its ordinary and natural meaning of a forcible taking of possession either by lawful authority
or by overpowering force.2 “Seizure” is not a term of art in insurance law, and there is no
requirement that those taking possession intend to keep the vessel for themselves; their
intention may simply be to plunder the cargo.3 A “seizure” need not be by a belligerent
power or in time of war.4 Nor does it need to be lawful.5 It would previously have included
piracy.6
12.3 In order for there to be a seizure, there must be a forcible taking of possession.
There are two elements to this, namely force and the taking of possession. The presence
of force is a question of fact, and it is clear that implicit force is sufficient. Where the act is
that of the State, there is no difficulty with “force”, since force is in reserve behind every
1 (1883) 8 App. Cas. 393 at p.405.
2 Kuwait Airways Corp v. Kuwait Insurance Co SAK [1999] 1 Lloyd’s Rep. 803 at 812 per Lord Hobhouse;
Cory v. Burr (1893) 8 App. Cas. 393 at p.405; Johnston & Co v. Hogg (1883) 10 Q.B.D. 432 at p.434 per Cave J.
(locals took possession of a vessel and ejected the Master and crew in order to plunder the cargo; their conduct
rendered the vessel a CTL and this was held to be within the warranty that the vessel was free from capture and
seizure, and the consequences of any attempt thereat).
3 Johnston & Co v. Hogg (1883) 10 Q.B.D. 432 at p.434 per Cave J.
4 Cory v. Burr (1883) 8 App. Cas. 393 at p.396 per Earl of Selborne LC, at p.400 per Lord Blackburn, citing
Kleinwort v. Shepard (1859) 1 E. & E. 447; 28 L.J.Q.B. 147 (passengers rising in mutiny; not barratry because
not Master or crew; not pirates because lawfully in the ship), approved by Lord Hobhouse in Kuwait Airways
Corp v. Kuwait Insurance Co SAK [1999] 1 Lloyd’s Rep. 803 at p. 814; Miller v. Law Accident Ins [1903] 1 K.B.
712 at p.722 per Mathew L.J.
5 Robinson Gold Mining Co v. Alliance Ins Co [1901] 2 K.B. 919; [1902] 2 K.B. 489 CA; [1904] A.C. 359 at
p.361 per Lord Halsbury LC; Bayview v. Mitsui Marine [2003] 1 Lloyd’s Rep. 131 at p.137, CA.
6 Dean v. Hornby (1854) 3 E. & B. 180. Piracy is now excluded (see clause 4.1.7).
91
Seizure
State command.7 In Bayview v. Mitsui8 it was common ground that a seizure did not require actual force, but that the threat of force or its indicia were required.9 It was held that
this was absent on the facts of the case, on the basis that there was no display of force. At
first instance, Steel J. had held that the officials were not acting as organs of the State and
in that capacity there was no display or threat of overwhelming force.10 This seems correct
in the case of persons who merely have access to property as a result of their official status, and remove it surreptitiously. However, an official acting in an openly corrupt manner
may do so on the basis that he is immune from challenge due to his status, and this may
amount to an implicit assertion of the force of the State.
12.4 As for the taking of “possession”, this is a mixed question of fact and law, and the
concept may have broader or narrower meaning in different contexts. In the context of a
constructive total loss, the phrase “deprived of the possession” of the property in section
60(2) has been given the broad meaning of being deprived of “the free use and disposal”
of the property.11 Such a broad definition is unlikely to be useful in the present context,
where it is the loss of control which is in view. Legal possession of a ship remains with
its owners. However, physical control of the ship is exercised by the owners through the
Master and crew as their employees. The Master accordingly has custody of the vessel on
behalf of the owners. The same is true of the cargo. The shipowner has possession of the
cargo, which has been bailed to it by or on behalf of the cargo owner, and the shipowner
exercises that possession physically through the Master and crew of the vessel. The cargo
owner (or whoever is the bailor) does not have possession of the cargo, only a right to possession. This matters because possession of the ship or cargo may be lost to their owners
in different ways. The Master or crew may make off with the vessel, or dispose of the
cargo. Passengers on board may take the vessel or cargo from the Master and crew. Third
parties may take the vessel from the crew, or may force the crew to sail the vessel contrary
to the owners’ instructions. Not all of these situations amount to a “seizure”.
12.5 The basic question is whether where there is a misappropriation by a person already in actual possession of the vessel or cargo. Misappropriation of the vessel by the
Master or crew is barratry, and not a seizure.12 Similarly, in The Salem13 misappropriation
of cargo by the shipowner as bailee was held not to be a “taking at sea”, a peril akin to seizure.14 In Bayview Motors Ltd v. Mitsui Marine,15 customs officials at a port of transshipment appropriated consignments of vehicles for their own purposes and without lawful
justification. Since the goods were voluntarily in the possession of customs for clearance,
there was no “seizure”, only a theft.16
7 British and Foreign Marine Ins. Co. Ltd. v. Samuel Sanday & Co. [1916] 1 A.C. 650 at p.659 per Lord
Loreburn, at p.672 per Lord Wrenbury; Forestal Land, Timber & Railways Co. Ltd. v. Rickards (The Minden)
[1942] A.C. 50 at p.81 per Lord Wright.
8 [2003] 1 Lloyd’s Rep. 131.
9 Ibid at p.137.
10 [2002] 1 Lloyd’s Rep. 652 at [34].
11 Owners of the Bamburi v. Compton (The Bamburi) [1982] 1 Lloyd’s Rep. 312.
12 See the US cases of Greene v. Pacific Mutual Life Insurance Company (1864) 91 Mass. (9 Allen) 217 and
The “Hai Hsuan” [1957] 1 Lloyd’s Rep. 428; [1958] 1 Lloyd’s Rep. 351.
13 [1983] 2 AC 375.
14 Ibid at pp.388–389 per Lord Roskill.
15 [2003] 1 Lloyd’s Rep. 131, CA.
16 [2003] 1 Lloyd’s Rep. 131 at pp.136–137 per Tuckey L.J.
92
Seizure
12.6 By way of contrast, where the passengers take control of the ship, there is a seizure, since passengers are not in possession of the vessel.17 The Master and crew need not
be ejected from the vessel in order for there to be a seizure. If the Master and crew are
forced to obey the instructions of a third party, possession of the vessel can still be lost to
the owners, since the Master and crew no longer hold the vessel for the owners but for a
third party, the latter having control.18
12.7 Finally, there is the question of the nature of the motive for taking possession. In
Cory v. Burr, Lord Fitzgerald’s definition19 (set out in part in paragraph 12.1) referred to
any act of taking forcible possession. However, the Earl of Selborne L.C. had referred to a
forcible taking of possession:
not for a temporary purpose, not as incident to a civil remedy or the enforcement of a civil
right, not as security for the performance of some duty or obligation by the owners of the ship,
but … in order to obtain a sentence of condemnation and confiscation of the ship.20
This seems to suggest an implicit exclusion of civil enforcement and perhaps a requirement that the party taking possession do so for a public purpose. Whilst the perils of “arrests, restraints, and detainments of all kings, princes, and people” in the S.G. Form were
to be understood (by Rule 10) as referring to political or executive acts, and not including
ordinary judicial process, there is no such implicit restriction on the scope of seizure.
Seizure may include the act of private individuals such as pirates or passengers, or public
officials acting in a private capacity, as in Bayview Motors Ltd v. Mitsui Marine.21 The
scope of the peril will, however, normally be restricted by express exclusion of matters
such as ordinary judicial process (for the exclusions, see Chapter 23).
Illustrative cases describing the insured peril
12.8 Touteng v. Hubbard 22 was a charterparty case. In 1800 the Economy of Stockholm, a Swedish ship, was chartered to load fruit at Ponte del Gada for carriage to London. The charterparty contained a clause “restraint of Princes and Rulers during the said
voyages always excepted”. In late December, 1800, the ship sailed from London but was
driven back by heavy weather and in January, 1801, took refuge in Ramsgate. There she
was embargoed by the British Government’s embargo on all Swedish vessels, and she
remained in Ramsgate until June, 1801, when the embargo was lifted. The Captain was
willing to perform the voyage but the charterer refused on the grounds that there was no
point in sailing to load fruit at that time of the year. The shipowner sued for his whole
freight (£748 2s. 6d.) and his expenses during the detention (£397 6s. 6d.). Lord Alvanley
17 Naylor v. Palmer (1853) 8 Ex. 739; affmd on appeal (1854) 10 Ex. 382; Kleinwort v. Shepard (1859) 1
El. & El. 447.
18 In Panamanian Oriental SS v. Wright [1970] 2 Lloyd’s Rep. 365, Mocatta J. observed at p.380 that in
Polurrian Steamship Co. Ltd. v. Young [1915] 1 K.B. 922 at p.935, owners were said to have been deprived
of possession where the vessel had been boarded by a naval officer and required to follow warships. The test
Mocatta J. applied was loss of control (see pp.380–381).
19 N 1 at p.405.
20 Cory v. Burr (1883) 8 App. Cas. 393 at p.396.
21 N 15.
22 (1802) 3 Bos. & Pul. 291.
93
Seizure
C.J. found only one prior decision of assistance, namely a decision of Marshall J. in what
seems to have been an insurance case: “… If a British ship be arrested or seized by the
authority of the British Government from State necessity, this shall be a detention within
the meaning of the policy for which the insurer is liable.”23 A detention by the home government of the vessel is now subject to express exclusion in the Institute Clauses.
12.9 With an insured peril of such a wide nature, it is inevitable that some cases should
often find their way into the reports even though close examination reveals only the loosest connection. Two have already been noted. Two more are Rohl v. Parr24 and Jones v.
Schmoll,25 both cases of a repulsive nature concerning as they do cargoes of slaves. The
first case dealt with the application of a deductible upon loss and the second with a mutiny
among the slaves so that their connection with the insured peril of “seizure” is not obvious.
Another case which is frequently quoted, again without appearing to be fully relevant, is
Court Line v. Dant and Russell.26 This case concerns the frustration of a charterparty
when the Yangtze River was closed by a boom during the China-Japan War in the 1930s.
12.10 Cases more directly on “seizure” as an insured peril include two of a particularly interesting nature. In Powell v. Hyde,27 the court heard that on 17 March 1854, the
Bedlington sailed from Galatz bound for London. Her policy on the S.G. Form included a
warranty: “Warranted free from particular average, unless stranded, sunk or burnt; also
from capture and seizure, and the consequences of any attempt thereat.”
12.11 Before reaching the mouth of the Danube, she had to pass a Russian fort which
was firing on Turkish troops. She flew the British flag which the Russians said they mistook for the Turkish flag when they fired upon her. The court thought this to be an unlikely
excuse. The United Kingdom was at the time neutral, only later being engaged in the
Crimean War. The crew took to the boats, being later rescued by the Russians, and the
ship was sunk. Lord Campbell found on the evidence that the Russians intended to detain
the ship and gave judgment:
Capture is not confined to lawful capture but includes any capture in consequence whereof the
ship is lost to the insured … When they had fired on the ship, and the crew had left her, and
she was at the mercy of the Russians, I am of opinion that she was seized by them; that there
was, not only an attempt at seizure, but an actual seizure.28
12.12 Coleridge J. thought that it was a capture by lawful authority and the intention
was to seize her. Wightman J. held that if the exception was confined to legal actions,
illegal actions could not be within the insured perils. To him seizure could be either legal
or illegal. He further held that it was either a seizure or an attempt at one. In signing judgment for the underwriters, the court did not feel it necessary to make a clear distinction
between capture and seizure as both were excepted. The inference from the judgment appears to be that if the Russians had succeeded in stopping the ship, they would either have
retained her, thus capturing her, or would have seized her temporarily before releasing her.
23 Ibid at p.301. The decision was referred to by Bailhache J. in Sanday & Co. v. British and Foreign Marine Insurance Company [1915] 2 K.B. 781 at p.786.
24 (1796) The Times, 10 March; 1 Esp. 445.
25 (1785) 1 Term Rep. 130.
26 (1939) 64 Ll.L.Rep. 212; 161 L.T. 35; 44 Com. Cas. 345.
27 (1855) Ed. & Bl. 607.
28 Ibid at p.611.
94
Seizure
12.13 A clearer distinction appears in Johnston & Co. v. Hogg.29 The Cypriot was insured on the S.G. Form with the following clause: “Warranted free of capture and seizure
and the consequences of any attempt thereat”. On 7 October 1879, the ship ran aground in
the Brass River. On the following day, local inhabitants chased away the Master and the
crew and took possession of her. They did so much damage to the ship that both parties
agreed that she was a constructive total loss. The jury found that the locals intended to
plunder the cargo but did not intend to keep the ship. The plaintiff shipowners contended
that to constitute “seizure”, there must be taking with intent to keep the ship as one’s own
and not merely to plunder her.
12.14 Cave J. rejected this view, holding30 that the word “seizure” could be used in a
more general or in a more restricted sense, depending on context, but that its ordinary and
natural meaning, as used in this policy, was that of a forcible taking of possession. Even
though the locals did not intend to keep the ship, and lost interest in her as soon as they
had plundered her, the court held that it was still a “seizure” and judgment was signed for
the underwriters.
12.15 One of the leading cases on “seizure” is Cory & Sons v. Burr.31 Before considering the Cory case itself, four earlier cases frequently quoted in the courts in connection
with “seizure” will be considered. The first, Havelock v. Hancill,32 and a similar American case, American Insurance Company v. Dunham,33 can both be distinguished quite
easily on the wording of the policies. The third case, Livie v. Janson,34 was a decision on
proximate cause. None of these three cases seems appropriate to “seizure”. A fourth case,
Arcangelo v. Thompson,35 is rather closer.
12.16 In Havelock v. Hancill,36 the Economy was insured for 12 months to engage in
“any lawful trade”. The insured perils included barratry of the Master and mariners “and
all other perils, losses and misfortunes that had or should come to the hurt, detriment or
damage of the said ship”. In March, 1785, the ship sailed from Ostend bound for Sunderland. The Master put into Shields to smuggle ashore a large quantity of brandy and other
liquors which belonged to him. The Customs promptly seized the ship and, but for the
prompt payment of £408 by the owner, a large sum in those days, would have forfeited
her. The underwriter pleaded that the policy only covered the Master’s barratry whilst
engaged in a lawful trade and this trade was unlawful. Lord Kenyon C.J. gave judgment
for the shipowner: “If the owner of the ship conducts himself with propriety, he is entitled
to be indemnified against all the perils insured … Now in the present case, the owner is
not engaged in any unlawful trade.” However, it does not follow that a warranty free of
capture or seizure on account of unlawful trading would only apply where the insured
owner was a party to such trading.37
29
30
31
32
33
34
35
36
37
(1883) 10 Q.B.D. 432.
Ibid at pp.434–435.
(1881) 8 Q.B.D. 313; (1882) 9 Q.B.D. 463; (1883) 8 App. Cas. 393.
(1783) 3 Term Rep. 277.
2 Wend. N.Y. 463.
(1810) 12 East 648.
(1811) 1 Camp. 620.
N 32.
Cory v. Burr (1883) 8 App. Cas. 393 at p.402 per Lord Blackburn.
95
Seizure
12.17 In American Insurance Company v. Dunham,38 a ship was seized and detained
on facts which were very similar to the Havelock39 case. Prohibited goods were found on
board which the Master intended to smuggle. The insurance policy appears to have contained a clause freeing the underwriter from liability for “seizure” or “detention” arising
from an illicit or prohibited trade. The American courts held, in a decision which can also
be distinguished from the Cory case on the wording of the policy, that this clause only
applied where the illicit or prohibited trading took place with the owner’s knowledge and
consent. The shipowners were awarded judgment.
12.18 The Arcangelo case40 is rather closer to the Cory case (though concerned with
capture rather than seizure) because the question of barratry also arose. In 1797 a ship,
warranted to be Danish, was insured for a voyage from Trieste to Hamburg. There was no
f.c. & s. Clause in the policy. Shortly after leaving Trieste and apparently following a prior
agreement which the Danish Captain had made with the French Captain, she was captured
by a French privateer and taken to Venice where both ship and cargo were condemned in
prize. Underwriters’ counsel objected that the loss was from barratry, whereas the plaintiff claimed it arose from “capture”. Lord Ellenborough C.J. answered him thus:
The plaintiff was no party to the barratrous agreement under which the ship was taken. As to
him, the loss actually arose from the capture. He might have recovered under a count laying
the loss by barratry; but the ship was actually taken by a French privateer, I think this declaration, laying the loss by capture, is sustained by the evidence.41
12.19 In the Cory case42 there was a warranty against: “Capture and seizure and the
consequences of or any attempt thereat” in the S.G. Form on which the Rosslyn was insured. In May, 1879, the Master loaded eight tons of tobacco in Gibraltar with the intention
that it should be trans-shipped surreptitiously at sea on to a coaster which should then
smuggle it into Spain. For this he was bribed £30. It was common ground that he was
guilty of barratry. Instead of the coaster, two Spanish revenue cutters appeared out of the
night and seized the ship. She was taken to Cadiz where the Master and crew were put in
jail and proceedings to condemn and forfeit the ship were commenced. The owner had to
pay a large sum to get her released and the action was for its recovery.
12.20 In the High Court,43 on a special case, Field and Cave J.J. gave judgment for the
underwriters. In view of the warranty, it is not difficult to appreciate why the plaintiff
strained every nerve to prove that the loss was caused by barratry. He advanced the view,
quoting the Second Edition of Arnould as authority, that loss arising from barratry was in
a class of its own in that the barratry need not be the proximate cause of the loss; it was
sufficient that it was a remote cause. That being so, the seizure off Cadiz was the result
of the barratry in Gibraltar. Not even the judges who were prepared to accept Arnould’s
view, notably Field J., who considered that a barratrous act “hardly ever is” the proximate
cause of a loss, and Cotton L.J., would agree that the loss was caused by barratry in this
case. Field J. joined Cave J. in deciding that the loss was caused by “seizure”.
38
39
40
41
42
43
2 Wend. N.Y. 463.
N 32.
Arcangelo v. Thompson (1811) 2 Campbell 620.
Ibid at p.621.
(1881) 8 Q.B.D. 313; (1882) 9 Q.B.D. 463; (1883) 8 App. Cas. 393.
(1881) 8 Q.B.D. 313.
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Seizure
12.21 The case went to the Court of Appeal44 and to the House of Lords45 and the
views of Field and Cave J.J. were upheld. The Earl of Selbourne L.C. rejected the argument of the plaintiffs that “capture and seizure” covered belligerent acts only, since whilst
this might be true of “capture” alone, “seizure” was a much wider expression which included non-belligerent seizure such as seizure by Revenue authorities.46 Seizure was to be
given its natural meaning (see further, paragraph 12.2).47
12.22 A distinction can be drawn between the Arcangelo48 and the Cory cases,49 apart
from the fact that there was no warranty in the former case. In the Arcangelo case, the barratrous act considered of letting the privateer capture the ship, virtually handing her over.
In the Cory case, the barratrous act was the loading of the tobacco in Gibraltar with intent
to smuggle it. As Field J. recognised, the plot would have succeeded and there would have
been no loss to the owners but for the appearance of the Spanish revenue cutters and the
seizure which they then effected. It is worth noting a comment of Brett L.J. that, but for
the warranty, the shipowner could have sued either in barratry or seizure. He was careful
to add that “… It is a warranty against seizure whether by an enemy or by piracy and, as
so enlarged, there is nothing to prevent it from applying to a seizure which is the result of
barratry.” If there had been an f.c. & s. Clause in the Arcangelo case,50 then, even though
the barratry and the capture were apparently simultaneous, the underwriters would have
been excused.
12.23 Another case, Banque Monetaca and Carystuiaki and Others v. Motor Union
Insurance Company Ltd.51 involved fine distinctions as to whether or not the ship was
lost by seizure or by piracy. The policy was against war risks, substantially of capture,
seizure, or arrest and the consequences thereof; and there was an exception for loss from
piracy. Roche J. adopted the analysis of Pickford J. in Republic of Bolivia v. The Indemnity
Mutual Marine Assurance Company, Ltd.52 that it was not the nature of the act which
mattered, but the motive, the pirate acting for private rather than public ends. Because the
political and military motivation of those affecting the seizure seemed to be the dominant
motives, even though those of personal gain were undoubtedly strong, this was held to be
a “seizure”.
12.24 A case that arose from the first Gulf War (1990–91) is of interest although it concerns aircraft rather than ships, namely Kuwait Airways Corporation v. Kuwait Insurance
Company SAK.53 Kuwait Airways insured the 23 aircraft of its fleet with Kuwait Insurance on an “all risks” basis but with war risks excluded. A separate policy insured these
risks and specified the insured perils in a list as follows:
44
45
46
47
48
49
50
51
52
53
(1882) 9 Q.B.D. 463.
(1883) 8 App. Cas. 393.
Ibid at p.395.
Ibid at p.396.
(1811) 2 Camp. 620.
N 43; (1882) 9 Q.B.D. 463; (1883) 8 App. Cas. 393.
N 35.
(1923) 14 Ll.L.Rep. 48.
[1909] 1 K.B. 785.
[1996] 1 Lloyd’s Rep. 664 (High Ct.); [1997] 2 Lloyd’s Rep. 687 (C.A.); [1999] 1 Lloyd’s Rep. 803 (H.L.).
97
Seizure
(a) War, invasion, acts of foreign enemies, hostilities (whether war be declared
or not), civil war, rebellion, revolution, insurrection, martial law, military or
usurped power or attempts at usurpation of power
(b) …
(c) …
(d) any malicious act or act of sabotage
(e) confiscation, nationalisation, seizure, restraint, detention, appropriation, requisition for title or use by or under the order of any Government (whether civil
military or de facto) or public or local authority
(f) …
12.25 Iraq invaded Kuwait on 2 August 1990 and occupied Kuwait Airport. The Iraqi
armed forces took possession of 15 aircraft belonging to Kuwait Airways, and during the
next few days flew them to Baghdad. They also took a large quantity of spares. Kuwait
Insurance paid in February 1991 the sum of $300 million, contending that this was an
overall ground limit to cover for any one occurrence, any one location. The House of
Lords held that this limit did not apply to spares. Cover was extended to include loss of or
damage to aircraft spares “other than Paragraph (a)”. It was not disputed that the spares
were lost by a cause, such as “invasion”, which fell within paragraph (a) set out above, but
there was an issue as to whether it could also be “seizure” within paragraph (e).
12.26 In the House of Lords, the main judgment was given by Lord Hobhouse, with
whom Lords Lloyd, Clyde and Hutton agreed (Lord Browne-Wilkinson dissenting in part).
Lord Hobhouse confirmed54 that the ordinary meaning of “seizure” was that adopted in
the Cory case, namely the act of “taking forcible possession either by a lawful authority or by overpowering force”, and that it included both belligerent and non-belligerent
takings.55 He rejected the argument that each paragraph should be construed so as not
to overlap with the others, and observed that in any event the typical incidents of war
(covered by paragraph a) included the destruction of property rather than matters affecting title or possession (covered by paragraph e). There was nothing in the wording of the
clauses to give “seizure” anything other than its ordinary meaning.56 Since the assured is
entitled to an indemnity if he proves that his loss was proximately caused by any one of a
number of perils covered by the policy, Kuwait Airways would therefore recover, provided
that the risks in paragraph (a) were simply omitted from the cover for spares when not in
transit and were not, on the true construction of the policy, excepted perils.57 The House
of Lords held that there was no exclusion and the insured was entitled to recover in respect
of the spares.
The presence of force
12.27 How much force is required to effect a seizure? Two cases in particular, Robinson Gold Mining Company and Others v. Alliance Assurance Company,58 and Miller v.
54
55
56
57
58
[1999] 1 Lloyd’s Rep. 803 at p.812.
Ibid at p.814.
Ibid at p.815.
Ibid.
[1901] 2 K.B. 919; [1902] 2 K.B. 489 (H.L.).
98
Seizure
The Law Accident Insurance Company59 address this question. Both cases should be read
together because they have been used as guides as to the degree of force that is necessary,
particularly on “restraint”, in the line of cases currently ending with The Bamburi in 1981.60
12.28 Robinson’s case61 concerned a shipment of gold made on the eve of the outbreak
of the Boer War. Robinson Gold Mining Company was incorporated in the Republic of
South Africa and the gold emanated from that territory as it was before the start of the
war. On 2 October 1899, the gold was loaded onto a train at Johannesburg for Cape Town
where it was to be shipped to London. On the same day, it reached the frontier station at
Vereeniging. Whilst it was still within the Republic’s territory, the resident justice, acting
on the instructions of the Republic’s Attorney-General, ordered the railway company to
unload the gold. The railway company complied and armed guards accompanying the
gold did not attempt to resist. On 9 October 1899, more of Robinson’s gold was taken on
the orders of the Republic’s government whilst it was in a bank in Johannesburg. Again
there was no resistance. On 11 October 1899, the Republic declared war on the United
Kingdom. The gold was insured against: “… arrests, restraints and detainments of all
kings, princes and people of what nation, condition or quality soever.” The policy contained an f.c. & s. Clause.
12.29 Phillimore J. found that the taking was lawfully made and was a “seizure” within
the meaning of the f.c. & s. Clause. He rejected the arguments that seizure required a hostile taking and that seizure excluded the operation of the law. Sir Walter Scott (later Lord
Stowell) disposed of this idea in The Maria,62 which Phillimore J. cited with approval: “It
is a wild conceit that wherever force is used, it may be forcibly resisted; a lawful force
cannot be lawfully resisted …” The only exception is in time of war, when there is a right
to attack and a right to resist.
12.30 Judgment was signed for the defendant underwriters and the plaintiff appealed.
In the Court of Appeal, Collins M.R. noted that the plaintiffs were in difficulty because
the perils insured (arrests, restraints and detainments) imported some act of force, while at
the same time getting out of the warranty “free from capture and seizure”. The argument
that there was no force, but the insured willingly acquiesced to the Government’s right to
invite owners to part with their property, was rejected:
The suggestion that a subject or resident of the Transvaal owing allegiance to its Government,
or to all events subject to and under the protection of its laws, in surrendering so large a share
of his property is not yielding to force and that the act of taking possession of his property
is not a seizure on the part of the authorities, seems to me incapable of serious argument.63
12.31 Mathew L.J. considered that if the goods had been taken at sea, that would have
been a “capture”, adding: “Here there was a capture, for which no force was necessary;
and there was a seizure, unaccompanied by any actual violence. … Can there be any
doubt that belligerency or an act of violence is not necessary.”64 Belligerency was said to
59
60
61
62
63
64
[1902] 2 K.B. 694; [1903] 1 K.B. 712 (C.A.); [1904] A.C. 359 (H.L.).
[1982] 1 Lloyd’s Rep. 312.
Robinson Gold Mining Co v. Alliance Ins Co [1901] 2 K.B. 919; [1902] 2 K.B. 489 CA; [1904] A.C. 359.
(1799) 1 C. Rob. 340 at 360.
[1902] 2 K.B. 489 at p.497.
Ibid at p.502.
99
Seizure
be excluded by the terms of the warranty (presumably by virtue of the addition of seizure
and detention) and the suggestion that violence is indispensable, was held to be farfetched,
presumably on the basis that the threat of force sufficed. Cozens-Hardy L.J. simply noted
his agreement with both judgments.
12.32 The House of Lords dealt very briefly with the case as all five Law Lords considered that the Court of Appeal was plainly right. The Earl of Halsbury L.C. considered
it plain, and the other Lords concurred with this, that the gold was lost because of a “seizure” and it did not matter whether that “seizure” was lawful or unlawful.
Public or private ends
12.33 In Nesbitt v. Lushington,65 the Industry was loaded with wheat and coal for carriage from Youghall to Sligo. Bad weather forced her to take shelter in Elly Harbour. At
the time, there was a severe lack of corn in that part of Ireland and the mob from ashore
took control of the ship, weighed her anchor so that she went aground, and forced the Captain to sell the wheat at a sum which was about three-quarters of its invoice value. This
they removed from the ship leaving only ten tons which, being damaged in the stranding,
was thrown overboard. The cargo was insured on the S.G. Form and one plea was that
the loss was due to arrests, restraints or detainments “by people”. Lord Kenyon C.J. held
that this was not arrests, restraints or detainment of “people”, as “people” referred to “the
ruling power of the country.”66 Buller J. similarly stated that people “means the supreme
power … the power of the country, whatever it might be.”67
12.34 In Societe Belge des Betons S.A. v. London and Lancashire Insurance Co. Ltd.,68
insurance was on the S.G. Form with the f.c. & s. Clause deleted, covering “arrest, restraints, and detainments of all kings, princes and people”. At the start of the Spanish Civil
War, two Belgian companies were engaged on harbour works in Valencia through their
wholly owned subsidiary, Iberica, which seems to have owned the equipment and the barges
engaged on the work. On 18 July 1936 the Spanish Civil War began. In Valencia a strike
began, led by the main communist, syndicalist and anarchist unions who armed their members. The garrison was subdued. The Popular Executive Committee (P.E.C.) was formed
“from the very entrails of the people” and exercised the function of government. On 18
August the workers’ management committee notified Iberica’s manager, Mr. Ceresa, that
he was to make no management decisions without first informing it. On 4 September Mr.
Ceresa saw the governor who refused to help him. He was sent back to the works where a
document was served upon him to the effect that the works were being taken over. He was
threatened with death if he stayed and departed for his home in France. On 14 September the
plaintiffs received Mr. Ceresa’s report. On 6 October notice of abandonment was tendered.
The underwriters refused to put the plaintiffs in the same position as if a writ had been issued and referred them to the Belgian Foreign Office. On 6 November the P.E.C. granted an
incautacion of Iberica’s property. On 10 November the plaintiffs issued a writ. In December
the government replaced the P.E.C. whilst confirming all its previous incautaciones.
65
66
67
68
(1792) 4 Term Rep. 783.
Ibid at p.787.
Ibid at p.788.
(1938) 60 Ll.L.Rep. 225; [1938] 2 All E.R. 305; 158 L.T. 352.
100
Seizure
12.35 Porter J. held that on 10 November it was unlikely that the barges or other property would be recovered within a reasonable time. He then posed the question “Was there
a seizure by peoples?” and answered, on the basis of Nesbitt v. Lushington,69 that it “was
undoubtedly a seizure, but it is established law that a seizure by the governing power of
the country is necessary in order that the assured may recover under this head.”70 Originally it was a seizure by the workers to protect their livelihoods, but it had the support
of the P.E.C. whose acts were later acquiesced in and confirmed by the government. Although in his reasoning Porter J. referred to a “seizure”, his finding71 was that the loss was
by a “restraint of peoples”.
Seizure of the ship by those on board
12.36 Can a ship suffer “seizure” by those on board her? The answer is that it may
do so, depending on whether those taking possession are members of the crew or not.
Naylor v. Palmer72 is a convenient starting point. The Victory was to carry 360 Chinese
emigrants from Canton to Callao. The monies laid out on provisions and goods for the
emigrants were insured by British underwriters on the S.G. Form but without an f.c. &
s. Clause. At some time during the voyage, the emigrants “piratically and feloniously”
murdered the Captain and several of the crew and took over the ship. The background is
not clear, but it appears that they were not willing emigrants. They landed on the nearest
land and made good their escape. The ship was not damaged and the Mate and the rest of
the crew could have completed the voyage; in fact they never did. Pollock C.B. dismissed
the defendant’s pleas that the loss arose out of the emigrants’ unwillingness to go to Peru,
which seems to have been unattractive to them, and decided:
The act of seizure of the ship, and taking it out of possession of the Master and crew by the
passengers, was either an act of piracy and theft, and so within the express words of the policy,
or, if not of that quality, because it was not done animo furandi, it was a seizure ejusdem generis analogous to it … falling within the general concluding words of the perils enumerated
by the policy.73
12.37 Then came Kleinwort v. Shepard.74 The Henriette Marie, a Dutch ship, was to
carry 350 emigrants from Macao to Havana. She and the provisions for the voyage were
insured on the S.G. Form, which included “pirates” and “thieves” as insured perils, but
this time there was an f.c. & s. Clause: “Warranted free from capture and seizure, and the
consequences of any attempt thereat.”
12.38 Again, some, but not all, of the emigrants “piratically and feloniously” assaulted
the Captain and some of the crew, and by force stole, took and carried away the ship and
provisions from the Captain and the crew’s custody and made good their escape. The
plaintiff pleaded that “seizure” could only arise if caused by a belligerent, or by persons
69
70
71
72
73
74
N 66.
(1938) 60 Ll.L.Rep. 225 at p.234.
Ibid at p.235.
(1853) 8 Ex. 739; affmd on appeal (1854) 10 Ex. 382.
Ibid at p.750.
(1859) 1 El. & El. 447.
101
Seizure
from without the ship, and excluded everything done by those lawfully on board her. Lord
Campbell C.J. held that the actions of the passengers were within the ordinary meaning
of “seizure”, namely the act of taking forcible possession, and that there was no reason
to give “seizure” a restricted meaning which depended on the motives of those taking
possession. Indeed, the court observed: “we clearly think it would extend to a capture or
seizure by pirates.”75
12.39 The scene shifts to the United States where two decisions deal with the misdeeds of the crew. Both are decisions of the Circuit Court of Appeals and, although
nearly a century apart, should be considered together. Greene v. Pacific Mutual Life
Insurance Company76 concerned a case of a whaler where the crew killed the Master
and the Mate and badly wounded the other officers. The ship was also badly damaged
and the voyage had to be abandoned. She was insured for “barratry” but “seizure” was
excluded by the American form of f.c. & s. Clause. Bigelow C.J. held that this was
clearly barratry, one form of which was by the crew forcibly dispossessing the Master
and officers of the ship. As for seizure, this was construed as not applying to such barratrous acts, of either the Master or the crew. The court was of the view that the Master
has by law possession and control of the ship and could not be said to seize what was
already in his own keeping. As for the crew, they were said to have “qualified possession”, in that it is in their care and custody, subject to the order of the Master. Their
taking the vessel was described as a breach of trust, not a seizure, the latter requiring
the taking of possession by superior force from without. The English case of Kleinwort
v. Shepard was distinguished on the basis that mutiny by passengers can be treated as
violence from without.
12.40 This analysis, which seems to depend on the Master having legal possession of
the ship, is not strictly accurate as a matter of English law. The Master has actual possession (or custody) of the vessel, but not legal possession, the latter remaining in the Owners
as his employers. Since a seizure may unlawful, and thus of no effect on legal possession,
it is actual possession which matters.
12.41 Nearly a century later, the U.S. Court of Appeals (4th Circuit) heard the case
of The “Hai Hsuan”.77 At the end of the Second World War, the United States sold to
the Nationalist Government of China 13 vessels and assumed the position of mortgagee.
Civil war broke out in China, and by the end of 1949 the Communists had established
the People’s Republic of China. The Nationalists were confined to the island of Taiwan.
In January 1950 the United Kingdom recognized the Communist Government, but the
United States did not do so. Orders were given for the ships to sail to Taiwan, but all
such orders were disobeyed and communist flags were raised on the vessels as the Masters or crew defected. The war risks policies covered barratry, but excluded capture and
seizure.
12.42 Thomsen C.J. gave the judgment of the District Court. He allowed the claim in
respect of six vessels, but held that the “Hai Hsuan” was seized, because the Master had
resisted the crew. The judge considered that there was a distinction between the “possession and control” of the ship by the master and the “qualified possession” of the crew.
75 Ibid at p.454. See Cory v. Burr (1893) 8 App. Cas. 393 at pp.396, 402.
76 (1864) 91 Mass. (9 Allen) 217.
77 [1957] 1 Lloyd’s Rep. 428; [1958] 1 Lloyd’s Rep. 351.
102
Seizure
The Court of Appeals held that there was no such distinction, applied the Green v. Pacific
Mutual78 analysis, and allowed the claims for barratry in respect of all seven ships.
Seizure of the cargo by those on board
12.43 As we have seen, there can be no seizure of the ship itself by the Master or crew,
though it can be seized by others on board, such as passengers. So far as the cargo is concerned, seizure by those other than the Master and crew is in principle the same as seizure
of the ship. Seizure of cargo by the Master is not an act of barratry if done with the connivance of the Shipowner,79 but would otherwise be barratry since it is an act prejudicing
the Shipowner, who is liable for his misconduct.80
12.44 In the Forestal case,81 cargoes owned by British subjects were on board German
ships at the outbreak of the Second World War. The Masters were ordered by the German
government to take refuge, return to Germany if possible, and as a last resort scuttle the
ships. Two ships were scuttled and one reached Germany. The House of Lords held that
when the Masters obeyed these orders they held the goods as agents of the German government and not as bailees of the insured, and so the insured was deprived of possession
of the cargoes by an executive act of government. Lord Wright held82 that it was a restraint
of princes within the war risks of “capture seizure arrest restraint or detainment … also
the consequences of hostilities or warlike operations.”, which were intended to repeat the
words printed in the body of the policy, “enemies, … takings at sea, arrests, restraints and
detainments of all kings, princes and people.” This was on the basis83 that the Master,
being in possession of the goods as a carrier for the assured, seized them in the sense that
he ceased to hold them as carrier and changed the character of his possession by taking
and controlling them as agent for the German government with the intention and effect
of holding them adversely to the assured and applying them to the hostile purposes of his
government, thereby depriving the assured of them. It was not barratry, as the Shipowners
were assumed to be sympathetic with or subject to the government orders. Lord Porter
also held84 that there was a loss by restraint of princes and that this was a seizure.
12.45 In Shell International Petroleum Co. Ltd. v. Caryl Anthony Vaughan Gibbs (The
Salem),85 the Shipowner agreed to carry a cargo of crude oil to Italy with the intention
of misappropriating it, and delivering it to South Africa, in breach of sanctions. Most of
the cargo was discharged at Durban, and a small quantity went down with the ship when
it was subsequently scuttled. The cargo was insured under a form of open cover on the
78 Greene v. Pacific Mutual Life Insurance Co. (1864) 91 Mass. (9 Allen) 217.
79 Shell International Petroleum Co. Ltd. v. Caryl Anthony Vaughan Gibbs (The Salem) [1983] 1 Lloyd’s
Rep. 342; [1983] 2 A.C. 375.
80 Rule 11 of the Rules of Construction in the 1906 Act defines “barratry” as including every wrongful act
wilfully committed by the master or crew to the prejudice of the owner, or, as the case may be, the charterer.
Barratry can only be committed against the shipowners: Shell International Petroleum Co. Ltd. v. Caryl Anthony Vaughan Gibbs (The Salem) [1983] 1 Lloyd’s Rep. 342; [1983] 2 A.C. 375 at p.392.
81 Forestal Land, Timber & Railways Co. Ltd. v. Rickards (The Minden) (1940) 67 Ll.L.Rep. 484; (1940) 68
Ll.L.Rep. 45 (C.A.); (1941) 70 Ll.L.173; [1942] A.C. 50 (H.L.).
82 [1942] A.C. 50 at p.78.
83 Ibid at pp.79–80 per Lord Wright.
84 Ibiid at pp.110–112.
85 [1981] 2 Lloyd’s Rep. 316; [1982] 1 Lloyd’s Rep. 369 (C.A.); [1983] 1 Lloyd’s Rep. 342 (H.L.).
103
Seizure
Lloyd’s S.G. Form with the Institute Cargo Clauses (F.P.A.) and Institute strikes, riots and
civil commotions clauses attached.
12.46 The claim was complicated by the fact that in The Mandarin Star86 the Court of
Appeal had previously misconstrued the decision in the Forestal case and held that there
was a “taking at sea” where the shipowners had wrongfully misappropriated cargo. The
House of Lords overruled The Mandarin Star.87 Cargo owners had not obtained all risks
cover, and the standard Lloyd’s S.G. Policy did not cover wrongful misappropriation of
cargo by a shipowner. Cover included88 “takings at sea, … 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. …”. But there was no such
thing as a “taking at sea” of the cargo by the shipowner, as there was no deprivation of
possession.
86 [1969] 1 Lloyd’s Rep. 293; [1969] 2 Q.B. 449.
87 Ibid.
88 The peril of “thieves” was covered, but does not apply to theft by passengers or crew: Rule 9 of Schedule
1 to the Marine Insurance Act 1906.
104
CH A PT ER 13
Arrest, restraint, detainment …
General
13.1 In addition to capture and seizure, the Institute Clauses also refer to “arrest, restraint and detainment”. This is similar to the S.G. Form’s perils of “arrests, restraints, and
detainments of all Kings, Princes and people, of what nation, condition or quality soever”.
Rule 10 of the Marine Insurance Act 1906 Rules for construction of policy provided that
this term referred to political or executive acts, and did not include riot or ordinary judicial
process. Although that Rule no longer applies, the same effect is achieved1 by the express
exclusions of quarantine, customs or trading regulations (Clause 4.1.5) and of ordinary
judicial process (Clause 4.1.6). Exclusions are considered in Chapter 23.
Arrest
13.2 As noted in paragraph 13.1, ordinary judicial process is excluded, and the effect
of the exclusions as a whole is to limit the peril of “arrest” to political or executive acts.
It is not clear what sort of event is covered only by this peril, particularly when it is found
together with the broad perils of “seizure”, “restraint” and “detainment”. In Rodocanachi v.
Elliott,2 Brett J suggested in argument that “seizure” is a taking possession of goods for the
purpose of confiscating them, “arrest” is a taking with the intention of restoring them at one
time or other, and “restraint” is preventing the goods from being got away, without laying
hands upon them. On this classification, distinctions are to be drawn between perils which
involve a taking of the property (seizure and arrest) as against those which simply impede
the property (restraint), and between perils which are permanent (seizure) and those which
are temporary (arrest and restraint). In his judgment, Brett J held that it was not an arrest
where goods were besieged, since arrest required that the goods be seized and taken out of
the possession of the owner.3 An embargo is not a capture or seizure since it leaves the property in the possession of the owner.4 However, in Johnston v. Hogg,5 Cave J said that it was
impossible to give distinct and different meanings to such words as “capture”, “seizure”,
“arrest”, “detention” and “restraint”. Whilst it would be going too far to suggest that these
perils cannot be differentiated at all, it is clear that the terms all overlap to some degree.
1
2
3
4
5
Ikerigi Compania Naviera S.A. v. Palmer (The Wondrous) [1992] 2 Lloyd’s Rep. 566 per Lloyd LJ at p.572.
(1872–73) L.R. 8 C.P. 649 at p.659.
Rodocanachi v. Elliott (1872–73) L.R. 8 C.P. 649 at p.670.
Driefontein Consolidated Gold Mines Limited v. Janson [1900] 2 Q.B. 339 at p.344 per Mathew J.
(1882–83) L.R. 10 Q.B.D. 432 at p.435.
105
A rrest, restraint, detainment …
Restraint
13.3 As noted in paragraph 13.1, ordinary judicial process is excluded, and the effect
of the exclusions as a whole is to limit the peril of “restraint” to political or executive acts.
The word “restraint” has a wide commercial meaning.6 It may be a lawful or unlawful
restraint.7 It is a word more properly applicable to persons than to goods, so that a restraint
of goods means a restraint of those having the custody of goods.8 The words “restraint
of princes” have the same meaning in charterparties and insurance policies;9 and it is a
restraint “of princes” if it is an act of a sovereign state or prince.10 There may be an overlap
between restraint and seizure.11
13.4 A blockade is a restraint, provided the blockade is effective; it is effective if the
enemies’ ships are in such numbers and position as to render the running of the blockade
a matter of danger, although some vessels may succeed in getting through.12 There is
no difference in principle between a siege, a blockade and an embargo, so far as regards
the question whether it amounts to a restraint.13 In both a besieged or blockaded town
or port, the detention is the act of a sovereign power, and it does not matter whether it is
the act of the State in which the goods are, or the act of the enemy.14 However, there is
no restraint unless the ship or cargo is within a blockaded port; there is no restraint if the
vessel voluntarily refrains from entering a port for fear of becoming subject to a blockade.15 There is nevertheless a restraint if the ship is within the port and liable to have its
cargo destroyed if it does not leave.16 Where a ship is ordered into port by the flag state in
anticipation of war breaking out, and for the purpose of taking control of cargo onboard
all, there is also a restraint of princes or people.17 The requisition of a ship is also a restraint of princes,18 though such a restraint is subject to express exclusion (Clause 4.1.3).
13.5 A limitation, restriction or confinement may be a restraint if imposed by the application of external force without taking possession of the person or goods which are
6 Owners of the Bamburi v. Compton (The Bamburi) [1982] 1 Lloyd’s Rep. 312 at p.315; Ikerigi Compania
Naviera S.A. v. Palmer (The Wondrous) [1991] 1 Lloyd’s Rep. 400 at p.417 per Hobhouse J; [1992] 2 Lloyd’s
Rep. 566 per Lloyd L.J. at p.571.
7 Miller v. Law Accident Ins [1903] 1 K.B. 712 at p.722 per Mathew L.J.
8 Rodocanachi v. Elliott (1873–74) L.R. 9 C.P. 518 at p.522.
9 Rodocanachi v. Elliott (1872–73) L.R. 8 C.P. 649 at p.666 per Bovill C.J. (cargo of silks was trapped in
Paris when it was surrounded by German armies in the Franco-Prussian war).
10 Geipel v. Smith (1871–72) L.R. 7 Q.B. 404 at p.410 per Cockburn C.J. (charterparty, with an exception
for restraint of princes and rulers)
11 Seizure of a vessel by revenue officers on account of smuggling is a restraint of princes: Cory v. Burr
(1883) 8 App. Cas. 393 at pp.399–400 per Lord Blackburn, referring to Havelock v. Hancill (1789) 3 T.R. 377.
12 N 10.
13 Rodocanachi v. Elliott (1872–73) L.R. 8 C.P. 649 at pp.664–665 per Bovill C.J., p.670 per Brett J, p.671
per Grove J.
14 Ibid at pp.667–668 per Keating J.
15 Ibid at p.665 per Bovill C.J.; Hadkinson v. Robinson (1803) 3 Bos. & Pul. 388; Lubbock v. Rowcroft
(1803) 5 Esp. 50; Forster v. Christie (1809) 11 East. 205.
16 Miller v. Law Accident Ins [1903] 1 K.B. 712 at pp.720–721.
17 Czarnikow v. Leslie & Anderson (1941) 70 LL. Rep. 319 at p.326 (the German government took control
of all German merchant shipping in anticipation of the outbreak of war between Germany and Great Britain
in 1939).
18 F.A. Tamplin Steamship Company v. Anglo-Mexican Petroleum Products Co Ltd [1916] 2 A.C. 397 at
p. 426 per Lord Parker (charterparty case).
106
A rrest, restraint, detainment …
restrained.19 Goods are restrained or detained where they are by the application of a hostile force prevented from being carried to their destination.20 However, there need not be
actual force used if the Master submits to the orders of the authorities.21
13.6 In Miller v. Law Accident Ins,22 a government prohibition on the import of diseased cattle, which prevented a cargo entering the port of discharge, was held to be a
“restraint” of people, as it was an act of State and not analogous to an arrest to enforce
the rights of a private individual.23 The claim was dismissed on the basis of the f.c. & s.
warranty. The situation was distinguished from the line of cases which hold that there is
no restraint where the vessel refrains from entering a blockaded port on the basis that the
Master did not act voluntarily, since the government intervened and detained the cattle on
board the vessel by the prohibition on landing.24 There was a restraint because the Master
was subject to the jurisdiction of the local authorities. In the case of voluntarily refraining
from entering a port, the Master will successfully avoid being subject to the control of the
authorities.
Detainment
13.7 As noted in paragraph 13.1, ordinary judicial process is excluded, and the effect
of the exclusions as a whole is to limit the peril of “detainment” to political or executive
acts. The word “detainment” has a wide commercial meaning.25 It means the same as
“detention”.26 A vessel is detained in a commercial or conditional sense if it is unable to
leave without infringing regulations and would have been stopped by force if it had tried
to do so.27
13.8 Where the ship is unable to leave port on its voyage due to an embargo, there
is a detention.28 However, if the Master refrains from entering the port of destination
in order to avoid confiscation, there is no “detention of princes”, only an apprehension
of the same.29 The fact that a detention is under the ordinary laws is not fatal to a
claim.30
19 Olivera v. Union Insurance Company (1818) 16 U.S. (3 Wheat.) 183 at pp.189–190, US Supreme Court,
per Marshall C.J., applied in Rodocanachi v. Elliott (1873–74) L.R. 9 C.P. 518 at p.523.
20 N 3 per Brett J.
21 Miller v. Law Accident Insurance [1903] 1 K.B. 712 at pp.721–722 per Mathew L.J.
22 [1903] 1 K.B. 712.
23 Ibid per Vaughan Williams L.J. at p.718.
24 Ibid at p.721 per Stirling and Mathew L.J.
25 N 6.
26 Miller. v. Law Accident Insurance [1903] 1 KB 712 at p.722 per Mathew L.J.
27 Ikerigi Compania Naviera S.A. v. Palmer (The Wondrous) [1991] 1 Lloyd’s Rep. 400 at p.417 per Hobhouse J; [1992] 2 Lloyd’s Rep. 566 per Lloyd L.J. at p.571.
28 Rotch v. Edie (1795) 6 T.R. 413.
29 Hadkinson v. Robinson (1803) 3 Bos. & Pul. 388; Lubbock v. Rowcroft (1803) 5 Esp. 50; Forster v.
Christie (1809) 11 East. 205.
30 Panamanian Oriental Steamship Corporation v. Wright (The Anita) [1970] 2 Lloyd’s Rep. 365; reversed
[1971] 1 Lloyd’s Rep. 487; Miller v. Law Accident Insurance [1903] 1 KB 712; Ikerigi Compania Naviera S.A.
v. Palmer (The Wondrous) [1991] 1 Lloyd’s Rep. 400 at p.415 per Hobhouse J; [1992] 2 Lloyd’s Rep. 566 per
Lloyd L.J. at p.571.
107
A rrest, restraint, detainment …
13.9 The detention must be fortuitous.31 In The Wondrous, the voluntary conduct of the
shipowners in not paying port dues, leading to the ordinary consequence that the vessel
was not cleared for departure, was not a fortuity.32 However, that the vessel could only be
cleared for departure by shipowners discharging the financial obligations of the exporter
and Charterer in respect of the cargo was fortuitous, as it was not an ordinary incident of
ownership of the vessel or of trading.33
13.10 In The Wondrous, Lloyd L.J. held that if a vessel were detained by reason of the
expiry of her International Safety Certificates that would not be a detainment within the
perils insured.34 It is not clear whether this would be on the grounds that it was not a fortuity, an analysis relied on by Hobhouse J. at first instance, or because the perils were to
be read together with the exclusions, as Lloyd L.J. held.
Cases illustrating the insured peril
13.11 It was at one time thought that every subject consented to, and adopted as his
own, every act of his government and this was so decided in Conway v. Gray.35 This
being so, a claim could not be made for the restraints of a subject’s own Prince. This was
overruled by the Court of Exchequer Chamber in Aubert v. Gray.36 In 1859, 30 bales of
carpets were insured on the S.G. Form for shipment from London to Alicante on board
the Jovellanos. The shipowner and the cargo owner were both Spanish subjects. The
policy contained the insured perils of: “Arrests, restraints, and detainments of all Kings,
Princes and people of what nation, condition or quality soever”. There was no f.c. & s.
Clause.
13.12 In Corunna, the ship was embargoed by the Queen of Spain to carry troops to
fight in the current war between Spain and Morocco. The cargo was discharged during
bad weather and was unceremoniously dumped on the quayside. The weather continued
wet and rainy and the carpets were severely damaged. The court’s judgment was read by
Erle C.J.: “The restraint of a Prince caused the loss, the assured have used the words which
expressed that they are to be indemnified against any restraint from any Prince”;37 and:
The assertion that the act of the government is the act of each subject of that government is
never really true. In representative governments, it may have a partial semblance of truth; but
in despotic governments it is without that semblance.38
13.13 Rotch v. Edie39 had considerable influence on “restraint”. The case was decided
at a time when it was accepted that a policy on a ship insured not only the loss of the ship
31 Ikerigi Compania Naviera S.A. v. Palmer (The Wondrous) [1991] 1 Lloyd’s Rep. 400 at p.415 per Hobhouse J; see generally H Bennett, ‘Fortuity in the Law of Marine Insurance’ (2007) LMCLQ 315.
32 Ibid at p.416.
33 Ibid.
34 Ikerigi Compania Naviera S.A. v. Palmer (The Wondrous) [1992] 2 Lloyd’s Rep. 566 per Lloyd L.J. at
p.572.
35 (1809) 10 East 536.
36 (1862) 3 B.&.S. 169.
37 Ibid at p.181.
38 Ibid at p.182.
39 (1795) 6 Term Rep. 413.
108
A rrest, restraint, detainment …
but the loss of the adventure as well. This is no longer the case.40 The facts of Rotch v.
Edie were these: in 1792, three whaling ships, Adelaide, Adele and Victor were insured
“at or from L’Orient” for voyages to “all ports, seas and places between the Cape of Good
Hope and Cape Horn” until their return to L’Orient. The policy was on the S.G. Form and
insured against: “Arrests, restraints and detainments of all Kings, Princes and people of
what nation, condition or quality soever and against all other perils, losses and misfortunes that should come to the hurt, detriment or damage of the said ships.” In January
1793 the Minister of Merchant Marine in Paris instructed the Admiralty Court in L’Orient
to lay an embargo on all French ships. This affected the three insured vessels, which were
unable to leave. Clearances and passports were not granted so the perishable stores were
sold off and the crews discharged. Notices of abandonment were given and refused in
February and August 1793.
13.14 The plaintiff successfully sued for total losses. Lord Kenyon C.J. held that an
arrest or an embargo at the load port by a Prince, not an enemy, was insured by the policy:
“The plaintiff has, in fact, lost the voyage; the ships have been detained either by Kings,
Princes, or people, the governing power of the country where [they are].”41 In The Bamburi,42 Staughton J (as arbitrator) considered that the decision was still good law, notwithstanding that it was probably based on the theory (now discarded) that there could be a loss
of adventure with respect to a ship.
Force
13.15 The word “restraint” indicates some degree of power to prevent the insured shipowner from carrying on with a course of action on which he is properly embarked. Just as
in the case of “seizure” case it is sufficient that there is the threat of force were there to be
non-compliance with the authorities43, the same applies to “restraint”.44
13.16 In Miller v. The Law Accident Ins Co,45 the Bellvue carried a cargo of bulls from
Liverpool to Buenos Aires. Before the shipment, an Argentine decree had forbidden the
import of diseased animals into Argentina, and also the import of animals from countries
where certain diseases were prevalent. The bulls were insured under a policy which covered arrests, restraints or detainments and “all other perils, losses and misfortunes that
have or shall come to the hurt, detriment or damage of the said goods and merchandises
or any part thereof”. There was also an f.c. & s. Clause which covered “capture, seizure
or detention”.
13.17 On arrival of the vessel in Buenos Aires the bulls were found to be diseased and
the Argentine authorities ordered the vessel to leave the port. Transhipment was permitted
outside port limits. The bulls were transhipped into lighters where they spent some days
40 The history of this change and the reasons for it were traced by Staughton J. in Owners of the Bamburi
v. Compton (The Bamburi) [1982] 1 Lloyd’s Rep. 312.
41 N 39 at pp.422–423.
42 Owners of the Bamburi v. Compton (The Bamburi) [1982] 1 Lloyd’s Rep. 312.
43 Robinson Gold Mining Company v. Alliance Assurance Company [1901] 2 K.B. 919; [1902] 2 K.B. 489
(C.A.).
44 Miller v. The Law Accident Insurance Company [1902] 2 K.B. 694; [1903] 1 K.B. 712 at pp.720, 721–722
(C.A.)
45 Ibid.
109
A rrest, restraint, detainment …
and then to another vessel in which they were taken to Montevideo. After 40 days’ quarantine, they were sold at a considerable financial loss.
13.18 Bigham J. held that there was no restraint of people and the claim failed. He also
held that the f.c. & s. Clause applied on the basis that “detention” covered arrests, restraints
and detainments.46 On appeal the Court of Appeal reversed the judge on “restraint”. Stirling and Mathew L.J.J. considered that there was an exercise of force by the Argentine
Government, and if no force was actually used, it was because the Master submitted to
the orders of that government’s servants; the Argentine State had plenty of force in reserve
to enforce its demands if necessary. There was therefore a “restraint”, but the claim still
failed on the basis of the f.c. & s. Clause for the same reason as given by the judge.
13.19 The Miller case47 was followed by St. Paul’s Fire & Marine Insurance Co. v.
Morice.48 An American insurance company had insured a bull for carriage from New
York to Buenos Aires on board the Merchant Prince. On arrival, it was found to be infected by foot and mouth disease and was slaughtered by the Argentine authorities on
board the ship. St. Paul’s had paid their assured under the primary policy which contained
a mortality Clause and claimed against their reinsurers who were Lloyd’s underwriters.
Kennedy J. found some difficulty with the mortality Clause, which seemed to him to cover
fortuitous or accidental death or death by disease, but not death by slaughter. However, he
made a similar finding to the Miller case,49 that the actions of the Argentine authorities
were excluded from the policy by the f.c. & s. Clause.
13.20 A “restraint of Princes” was held to arise in Sanday v. British and Foreign Marine Insurance Company.50 In July 1914, linseed was loaded into two British ships, the St.
Andrew and the Orthia in Argentina for carriage to Hamburg. It was sold on C.I.F. terms
but property was not to pass until delivery in Hamburg. This never took place, and so the
property in the linseed remained in the plaintiffs throughout. On 4 August 1914, the United
Kingdom declared war on Germany and proclamations were made by Her Majesty’s Government prohibiting trade between British subjects and Germany on 5 August and 9 September 1914. On 9 August, the St. Andrew, when off the Lizard, first heard of the war from
a French warship which suggested she should seek orders from her own government. The
Naval Control Officer in Falmouth sent her to Liverpool to discharge which she duly did.
The Orthia was warned by her owners whilst in a bunkering port of the outbreak of war and
of the Admiralty’s suggestion that she should proceed to a British port. She duly did so and
discharged her cargo in Glasgow. Besides there being no prospect of the linseed being sent
on to Hamburg within any reasonable time, it also suffered substantial physical damage.
13.21 By policies written on the S.G. Form and dated 31 July 1914, the linseed was
insured on both vessels against the perils of: “… Takings at sea, arrests, restraints, and
detainments of all Kings, Princes, and people of what nation, condition, or quality soever.”
The free of capture and seizure Clause was deleted from the policy. On 7 September 1914,
Notice of abandonment was given and refused, no point being taken that the notice was
late.
46
47
48
49
50
[1902] 2 K.B. 694 at p.700.
Miller v. The Law Accident Insurance Company [1902] 2 K.B. 694; [1903] 1 K.B. 712.
(1906) 11 Com. Cas. 153.
N 47.
[1915] 2 K.B. 781; [1916] 1 A.C. 650.
110
A rrest, restraint, detainment …
13.22 The plaintiffs claimed for a constructive total loss of the goods on the grounds
that the adventure had been terminated by a “restraint”. The defendant underwriters argued that: there was no loss, or if there was a loss it was not caused by an insured peril; the
peril insured against was not the proximate cause of the loss; if loss was claimed because
of any action by the United Kingdom authorities, then such actions would not amount to
“restraint”. The Court of Appeal held that submission to the municipal law, namely the
common law principle which made it unlawful to trade with an enemy, was not a loss by
“ordinary judicial process”.51 The argument that restraint of princes did not apply to an
act of the executive of which the insured was a subject was also rejected.52 On a further
appeal, the House of Lords held that the 1906 Act had not altered the rule that insurance of
goods for a voyage insured not just the cargo against the risk of injury but also their safe
arrival at destination.53 The House also held that the declaration of war was a restraint of
princes as it was an executive act which made it unlawful for the vessels to continue to
Germany, there being no difficulty with a requirement for “force” where the master submits to a requirement, since force is in reserve behind every State command.54
13.23 Lastly, it should be noted that a warranty was added to the cargo policies as a
result of this case, and that this warranty was considered in the Forestal cases.55 This warranty has been further refined to a direct exclusion from the Institute War Clauses (Cargo)
in respect of “Any claim based upon loss of or frustration of the voyage or adventure.”
(Clause 3.8).
The frustration Clause
13.24 Three important cases on “restraint of princes” arose in 1940 and 1941, and
were heard together as representative cases, known as Rickards v. Forestal.56 Just before the outbreak of the Second World War, the plaintiff British firms shipped goods on
three German ships. The marine and war risks insurance on the cargoes covered “enemies … surprisals, takings at sea, arrests, restraints and detainments of all kings, princes
and people,” and, by incorporation of the Institute War Clauses, the risks excluded by an
f.c. & s Clause, and “the consequences of hostilities” or “warlike operations …” Each
policy also contained what was referred to as the frustration Clause: “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 peoples …” Such frustration clauses
were introduced into use following the decision in the Sanday case57 that a voyage policy
on goods insured the loss of the voyage even if the goods were not physically lost.
51 [1915] 2 K.B. 781 at pp.804–805 per Lord Reading C.J., at pp.824–825 per Bray J.
52 Ibid at pp.808–809 per Lord Reading C.J., at p.828 per Bray J.
53 [1916] 1 A.C. 650 at pp.657–658 per Earl Loreburn, p.663 per Lord Atkinson, p.668 per Lord Parmoor,
p.674 per Lord Wrenbury.
54 Ibid at pp.658–660 per Earl Loreburn, p.665 per Lord Atkinson, at pp.669–670 per Lord Parmoor,
pp.671–672 per Lord Wrenbury.
55 Forestal Land, Timber & Railways Co. Ltd. v. Rickards (The Minden); Middows, Ltd. v. Robertson (The
Wangoni); W.W. Howard Bros. & Co. Ltd. v. Kann (The Halle) (1940) 67 Ll.L.Rep. 484 (1940) 68 Ll.L.Rep. 45
(C.A.) (1941) 70 Ll.L.Rep. 173, [1942] A.C. 50 (H.L.).
56 Ibid.
57 [1916] 1 A.C. 650.
111
A rrest, restraint, detainment …
13.25 All three ships had sailed in August 1939, the Minden from Buenos Aires for
Durban, where the cargo was to be transhipped to China, the Wangoni from Bremen for
Cape Town and the Halle from Australia for London. They would not reach any of these
ports until after the outbreak of war on 3 September 1939, but at the time of sailing the
pre-war crisis between the United Kingdom and France on the one hand and Germany on
the other was at its height. The exact date and form of the orders given by the German
Government to the Masters of German ships was not known at the dates of the hearings,
but it was accepted that the German Government had taken control of all German shipping and had instructed the Masters that they should take refuge in neutral ports and if
possible return to Germany. They were to avoid capture by Allied warships and, as a last
resort, they were to scuttle their ships. In compliance with these orders, the Minden took
refuge in Rio de Janeiro, the Wangoni in Vigo and the Halle in Bissao. Subsequently all
three ships left their ports of refuge to return to Germany. In September and October 1939
respectively, the Minden and the Halle were challenged at sea by Allied warships and were
scuttled with the loss of their cargo. The Wangoni managed to reach Hamburg in March
1940. Only the Master of the Wangoni, through the medium of neutral agents, offered to
land the cargo and restore it to the plaintiffs, first in Vigo and later in Hamburg. He first
required some very onerous conditions to be met on payment of freight and discharging
costs and the giving of guarantees.
13.26 The House of Lords held that there was a constructive total loss of the goods
whilst they were still covered by the policy, at the time when the Master obeyed the instructions of his government and held them as servant of that government rather than
as bailee of the insured, which amounted to a restraint of princes.58 As Lord Wright explained, the Master’s actions could not be piracy, as they were done on the express orders
of the national government, and they could not be barratry, as it was to be presumed that
the shipowners were sympathetic to his conduct.59 Furthermore, the claim was not within
the scope of the frustration Clause, as that only applied where the claim was based solely
on the loss of the voyage rather than on the loss of the goods.60
13.27 The frustration Clause was considered subsequently in Atlantic Maritime Co Inc
v. Gibbon,61 where there was insurance in respect of freight against loss caused by restraint of princes, civil war and warlike operations, but warranted free of claims based on
either loss of, or frustration of, any voyage or adventure caused by restraints of princes, or
loss proximately caused by delay. The insured chartered the vessel to carry cargo from a
Chinese port under Communist control to Japan. While waiting outside the port to load,
the master was warned by naval forces of the then Chinese Government to leave the port,
and, after witnessing warlike operations, he left and did not return. The insured brought
a claim for loss of freight. It was found that the Master did not act voluntarily, but due to
a restraint of princes or an episode of civil war, and was justified in treating the charter
as lost. The Court of Appeal upheld that finding by a majority, albeit with considerable
doubt. Nevertheless, the Court of Appeal held that the frustration Clause applied, and that
58 [1942] A.C. 50 at p.64 per Viscount Simon L.C., pp.78–80 per Lord Wright, p.110, 112 per Lord Porter.
59 Ibid at p.80.
60 Ibid at p.65 per Viscount Simon L.C., p.71 per Viscount Maugham, p.91 per Lord Wright, pp.107–108
per Lord Porter.
61 [1954] 1 Q.B. 88.
112
A rrest, restraint, detainment …
the insured was not able to rely on the peril of civil war without relying also on restraint
of princes, since the latter was the real, efficient cause, operating in the context of a civil
war.62
Mutual War Risks Associations—practice
13.28 In the Third Edition of this work, the late Michael Miller set out his personal experience of the practice of the Mutual War Risks Associations in cases of arrest, restraint
or detainment between the late 1960s and the early 1980s. These were cases which did not
result in litigation. The reader is referred to paragraphs 13.51–13.62 of the Third Edition
for Mr Miller’s insightful comments as to how the practice of the Associations was more
commercial than strictly legal.
The Bamburi decision
13.29 In contrast to the approach of the Mutual Associations, the Market underwriters
preferred that the issue should be defined in a test case by way of a judicial arbitration
before Staughton J. as to The Bamburi.63
13.30 The Bamburi was a cement carrier insured against war risks on the S.G. Form
with the Institute War & Strikes Clauses attached. The Persian Gulf and adjacent waters
were an excluded area and additional premiums had been paid for entry. The vessel sailed
from Mombasa bound for Khor-al-Zubeir. She arrived on 22 September 1980 and commenced discharge. On the same day, Iraq invaded Iran, and the resultant war lasted for
eight years. Fighting in the vicinity was heard by the crew and several bombs fell nearby.
The harbour master initially told the Captain that if he wishes, he may sail without a pilot,
but then informed him that all shipping movements were prohibited. After completion of
discharge on 24 September, permission to sail was refused. On 29 September the crew
was repatriated. The Master, Chief Officer and Chief Engineer stayed nearby, and visited
the vessel, until they left on 10 October. Notices of abandonment were given and refused.
The Chief Engineer returned on 22 December, the Chief Officer returned on 14 January 1981, and two further crew members joined them in May 1981.Maintenance by this
skeleton crew continued to the date of the arbitration. The vessel remained undamaged,
personnel were permitted to leave, and there was no Iraqi presence onboard. No response
was given to requests for permission to leave.
13.31 Staughton J. decided that the order not to sail emanated from an executive organ
of the government and that a prohibition of all navigation was a “restraint of princes” regardless of the motive.64 This was in response to an argument that a restriction for safety
reasons was not a restraint of princes.65 Staughton J. was of the view that safety was in
fact not the motivation; rather it was to avoid the embarrassment of vessels being sunk in
Iraqi waters.66 The position would be different if there were simply limits to permissible
62
63
64
65
66
Ibid at pp.118–119 per Lord Evershed M.R., at p.134 per Jenkins L.J., at pp.137–138 per Morris L.J.
N 42.
Ibid at p.315.
Cf Bulchow Vaughan and Co. v. Compania Minera (1916) 32 T.L.R. 404.
Ibid.
113
A rrest, restraint, detainment …
navigation, but in such a case the limit would not prevent navigation and would be unlikely
to amount to a restraint.
13.32 As to the question of deprivation of possession, Staughton J. accepted that on
the narrowest legal definition, owners had not been deprived of possession; however, they
had been deprived of the free use and disposal of their vessel.67 Payment or non-payment
of hire for the vessel was irrelevant.68 As for the example of constructive total loss in
section 60(2)(i) of the 1906 Act, which depends on the assured being deprived of possession, Staughton J. reviewed the authorities and held that, though the law may have taken
a wrong turn, the Act intended “possession” to mean “free use and disposal”.69 Finally,
Staughton J. decided that it was unlikely that the owners would recover their vessel within
12 months, and so there was a constructive loss.70
The 12-month Clause
13.33 As a result of the Bamburi decision, the Detainment Clause was included in the
Institute War and Strikes Clauses for containers and ships. This Clause has been in existence for many years but before 1982 was scarcely used. It reads:
In the event that the [] shall have been the subject of capture, seizure, arrest, restraint, detainment, confiscation or expropriation, and the assured shall thereby have lost the free use and
disposal of the [] for a continuous period of twelve months then for the purpose of ascertaining
whether the [] is a constructive total loss, the assured shall be deemed to have been deprived
of the possession of the [.] without any likelihood of recovery.
13.34 The Institute War and Strikes Clauses for freight contain a similar provision,
although the wording is slightly different. For immediate purposes, it should be noted that,
when the 12 months have passed, the assured is excused from the onus of proof, which has
always been difficult to discharge, that at a set point of time it was unlikely that the insured
object could be recovered.
13.35 At least one attempt has been made to contend that the wording of the Detainment
Clause creates an independent right to receive payment for a constructive total loss once
the stipulated period of detention has expired. In Sunport Shipping Ltd. v. Tryg-Baltica
International UK Ltd. (The Kleovoulas of Rhodes)71 this received short shrift in both the
High Court and subsequently in the Court of Appeal. Clarke L.J., dismissed the owners’
contentions on the basis that the proximate cause of the original detention of the vessel
was the unlawful importation of drugs into Greece and that the whole of the detention or
detainment arose from the infringement of the Customs regulations, without any break
in the chain of causation. The Detainment Clause is not an insured peril, but simply the
mechanism which governs when a ship has become a constructive total loss.
67
68
69
70
71
Ibid at p.317.
Ibid.
Ibid at p.320.
Ibid at p.322.
[2003] 1 Lloyd’s Rep. 138.
114
CH A PT ER 14
… And the consequences thereof or any attempt thereat
14.1 The Institute War and Strikes Clauses read: “Capture seizure arrest restraint or
detainment, and the consequences thereof or any attempt thereat” whereas the rules of the
Mutual War Risks Associations read: “Capture, seizure, arrest, restraint or detainment,
and the consequences thereof or any attempt thereat.” The differences in punctuation
should not produce any difference in construction: both “consequences” and “attempt”
apply to each of the preceding insured perils.
14.2 The war risk cases on “consequences” all arise out of the f.c. & s. Clause of the
S.G. Form, where the standard form of the warranty included the words “and the consequences thereof or any attempt thereat”. They have thus been decided in the context of an
exception to a peril, which would otherwise have been insured by the Marine Policy, or an
excepted peril which is turned into an insured peril in the War Policy, and have to be read
in that context. At the date of writing, there have been no cases decided on the modern Institute War and Strikes Clauses’ “consequences and attempt”. It is suggested that the cases
of the S.G. Form continue to be authoritative. The question as to what is a “consequence”
of an insured peril simply involves identifying whether the proximate cause continues to
operate.1 The “consequences” of an insured peril are the losses resulting from that peril,
and the word does not enlarge the peril.2 Causation in general is considered in Chapter 28.
Cases on causation decided before Leyland Shipping Co v. Norwich Union Fire Insurance
Society,3 need to be considered with some care, as before Leyland the proximate cause
was normally identified as the cause latest in time rather than that which was the most
efficient cause.
14.3 Ionides v. The Universal Marine Insurance Company4 concerned 6,500 bags of
coffee loaded on board the Linwood in Rio de Janeiro bound for New York with calls in
Belize and New Orleans. The coffee was insured on the S.G. Form with the following
exclusion clause: “… free from capture, seizure, and detention, and all the consequences
thereof, or of any attempt thereat, and free from all consequences of hostilities, riots, or
commotions.” The ship ran aground when the Master was confused by the absence of a
light, which had been extinguished by Confederate troops in the American Civil War.
1 Ionides v. The Universal Marine Insurance Company (1863) 14 C.B. (N.S.) 259.
2 Liverpool and London War Risks Association Limited v. Ocean Steamship Co. Limited [1948] A.C.
243 at p.257 per Lord Wright; Costain-Blankevoort (U.K.) Dredging Co. Ltd. v. Davenport (The Nassau Bay)
[1979] 1 Lloyd’s Rep. 395.
3 [1918] A.C. 350.
4 N 1.
115
… A nd the consequences thereof or any attempt thereat
Confederate officers took the Captain and crew prisoner. 150 bags of coffee were landed
and seized by Federal troops and, if the Confederate troops had not prevented it, another
1,000 bags could have been safely landed. The ship then broke up in bad weather and the
remaining coffee was lost.
14.4 The act of extinguishing the light was held to be a hostile act, but the loss of the
ship was not a consequence of that act. Erle C.J. considered various scenarios as to what
would or would not be a consequence.5 First, a hostile attempt is made to take a ship. In
her endeavours to escape she goes aground. This is a loss by the “consequences of hostilities”. Second, the ship is chased by an enemy warship and, in trying to avoid being taken,
she is forced into a bay from which the wind will not let her escape. The wind drives her
ashore. This loss results from an “attempt at capture”. Third, there are two channels to a
port, only one of which is mined. In ignorance, the Master uses the mined channel and the
ship is mined. The proximate cause of the loss is the “consequences of hostilities”. Fourth,
a ship is chased into a bay from which she escapes on a change of wind. She is later lost
in a storm which, but for the chase and the resultant delay, she would have avoided. The
proximate cause is perils of the seas, not an attempt at seizure. Fifth, the Master, aware of
mines in one channel, uses the other and runs the ship aground by bad navigation. This
is not a loss proximately connected with the consequences of hostilities, but with a peril
of the seas.
14.5 In the Linwood, Erle C.J. considered that the ship was wrecked as a result of “perils of the seas”, but that only 5,350 bags of coffee were lost by this cause. One thousand
bags could have been landed but for the hostile actions of the Confederate troops. The
underwriters were excused paying for these because of the exception. Willes J. agreed. As
to “consequences” he said this:
I apprehend it is a fallacy to say that a larger sense is to be given to this exception by reason
of the use of the word “consequences” than if the word used had been “effects”. In construing
the exception we can only look to the proximate consequences of hostilities.6
And: “the word ‘consequences’ is to be dealt with according to the ordinary rule, as meaning proximate consequences only.”7 Byles and Keating J.J. agreed.
14.6 Although “any attempt thereat” has for many years figured in the War Risk Policy, there is not the wealth of decided cases as there is with “consequences”. In Butler v.
Wildman,8 the Captain of a ship threw a quantity of dollars overboard in order to avoid
them falling into the hands of the enemy, which was pursuing his vessel and subsequently
captured it. Abbott C.J. considered that it was a loss by jettison (though unusual in that
the currency was not thrown overboard to save the ship), or that it was ejusdem generis
with the named perils and so within the sweeping up clause of “all other losses and misfortunes, etc”. It was, he considered, indistinguishable from the situation of a captain who
sets fire to his ship to prevent her falling into the hands of the enemy, and was recoverable.
Bayley and Holroyd J.J. agreed, adding that it would also be a loss by enemies. Best J.
considered that it might not be a loss by enemies without an actual taking or destruction
5
6
7
8
Ibid at pp.286–287.
Ibid at p.289.
Ibid at p.290.
(1820) 3 B. & Ald. 398.
116
… A nd the consequences thereof or any attempt thereat
by the hand of the enemy, but that it was within the general wording, which included “all
losses which are the consequences of justifiable acts done under the certain expectation of
capture or destruction by enemies”.9 Under the modern form of wording, it is suggested
that the claim would be justifiable as resulting from the enemy’s “attempt” to capture the
currency.
9 Ibid at p.407.
117
CH A PT ER 15
Derelict mines, torpedoes, bombs and weapons of war
Generally
15.1 Loss or damage caused by derelict mines, torpedoes, bombs or other weapons
of war now pose special difficulties. These do not arise from the law itself, since the establishment of the claim will concern issues of fact only. They arise from the wording of
the policy and in particular the inclusion of the word “derelict”. Where the suggestion for
the use of this word came from, or why it was included, is not known but it is interesting
to note that the earlier drafts of the new Institute War and Strikes Clause with the new
MAR Form did not include it. As will be seen it poses a problem of no mean order. The
Mutual War Risks Associations have attempted to avoid this problem by insuring the
consequences of these weapons being used, both in respect of unqualified mines and other
weapons, and “derelict” mines and other weapons.
15.2 Before 1983, there were attempts to argue that the f.c. & s. warranty excluded the
risk of contact with mines and torpedoes from the Marine Policy in only certain, but not
all, circumstances. These attempts were never pleaded in court and thus put to the test, if
only because of the well-known practice of the London market to cover loss or damage
arising from mines and torpedoes under the War Risk Policy. This policy, as has already
been noted earlier in Chapter 1, included “mines, torpedoes, bombs or other engines of
war” as specific insured perils and this, it is suggested, would have defeated any serious
attempt to plead that in some circumstances the Marine Policy on the S.G. Form would
have covered loss or damage caused by such weapons. Before 1983, therefore, it could be
said that loss or damage caused by such weapons were at least traditionally regarded as
matters for the War Risk Policy and were accepted as such, although as mentioned earlier,1
the marine underwriters accepted the claim on the Granwood in circumstances that might
have justified a refusal to do so.
15.3 Since 1983, the new Institute Time Clauses have excluded from their insurance
only “derelict mines, torpedoes, bombs or other derelict weapons of war” and the new
Institute War Clauses include these as insured perils word for word in the same form. This
seems to beg the question that the underwriters of the Marine Policy intend to bear at least
some of the risks of mines and other weapons which cause loss of or damage to the insured
object. will be found in the chapters devoted to ships, cargo and containers.
1 See Chapter 1.
118
Derelict mines, torpedoes, bombs and weapons of war
15.4 The word “derelict” is defined in the Oxford English Dictionary as meaning:
Forsaken, abandoned, left by the possessor or guardian; especially of a vessel abandoned at
sea; land left dry by the recession of the sea; a piece of property abandoned by the owner or
guardian especially a vessel abandoned at sea. A person abandoned or forsaken.
It is suggested that these definitions will, at the best, give only marginal help to the court
which has to decide what is meant by “derelict mines, torpedoes, bombs or other derelict
weapons of war” and whether, in the particular circumstances that exist between the Marine Policy and the War Risk Policy, indeed if either policy, should bear the risk of loss or
damage that may be caused. This will apply particularly where the Marine Policy is on a
different form to the MAR Form and has a simple exclusion of all mines and other weapons from its cover regardless of whether or not they are “derelict” in any sense of the word.
15.5 At the seminar held in October, 1983 to introduce the new MAR Form, the question was put to the members of Mr. Alan Jackson’s Committee—what was intended by
the expression “derelict”? No clear answer was forthcoming. The learned authors of Hudson & Allen, The Institute Clauses Handbook,2 suggest that the word has been added to
reverse the effect of the decision in The Nassau Bay.3 In that case British armed forces
stationed in Mauritius during the Second World War had, on the conclusion of the conflict, dumped their unwanted ammunition in shallow water off the coast of Mauritius.
Subsequently the Nassau Bay, engaged in dredging operations, was badly damaged by an
explosion. The High Court held that this was not the result of a “warlike operation”.
15.6 Hudson & Allen took the view that if the relevant mine is sown or the weapon is
fired so that one of the risks in Clause 1.1 of the War Risk Policy is involved (dealing for
the moment with just the ship’s insurance), then a claim for loss or damage would be paid
under that clause. Equally if such a weapon was used by a striker, or somebody engaged in
a civil commotion, or a terrorist, then the war risks underwriters would have to meet the
claim under the War Risk Policy, Clause 1.4 or 1.5, whichever is appropriate.
15.7 If this is the correct view, then the draftsmen of the War Risk Policy appear to have
considered that the sowing of mines and the firing of weapons would only take place during a war, or some other lesser upheaval, which is an insured peril provided for in Clauses
1.1, 1.4 and 1.5 of the War Risk Policy, so that, in order to give comprehensive insurance,
it was only necessary to make special provision for “derelict mines”. In this way, they
intended that the War Risk Policy would give insurance cover in all instances where such
weapons cause loss of or damage to the insured ship; either the loss or damage would be
caused by an insured peril specifically provided for in Clauses 1.1, 1.4, and 1.5 of the War
Risk Policy, or if not by “derelict” weapons in circumstances similar to the Nassau Bay.
There are, however, some serious flaws to this line of reasoning.
15.8 These insured perils, war, strikers, terrorists or whatever else, do not exhaust the
possibilities in which such weapons, derelict or otherwise, may be encountered. Weapons
have been known to be discharged accidentally. In addition, what should happen if a vessel encounters a mine laid in peacetime? Such mines could not be described as “derelict”,
2 Lloyd’s of London Press Ltd., 1986.
3 Costain-Blankevoort (U.K.) Dredging Co. Ltd. v. Davenport (The Nassau Bay) [1979] 1 Lloyd’s Rep.
395. The authors of Arnould (19th edn) opine similarly at §24–32.
119
Derelict mines, torpedoes, bombs and weapons of war
but would not either fall within one of the insured perils in Clauses 1.1, 1.4 or 1.5. It would
be difficult to impute malice, political motives or even terrorism to a government which
appeared to be anxious to protect its own coastline from the possibly harmful attentions
of others, however unreasonable its fears might be, and to require any approaches to its
ports or its coastline through designated channels which its own armed forces could all
the more easily watch. It would appear that these eventualities would now fall outside of
the cover provided by the War Risk Policy (cf. the cover provided by the Mutual War Risk
Associations—see below).
Ships and freight
15.9 Ships are insured by the marine clauses for a set number of insured perils only
which do not include mines or other weapons. It is arguable that the insured perils of “fire,
explosion” (Clause 6.1.2) could be stretched to insure explosions caused by mines and
other weapons, but it is suggested that this clause insures internal fires and explosions
only. Derelict mines and other weapons are excluded from the marine clauses, and are
insured by the war clauses (Clause 1.3). The same is true of freight, although the clause
numbers are 7.1.2, 18.3 and 1.1.3 respectively. It is thus possible to say that ships and
freight have insurance for derelict mines and other weapons, but not for these weapons
when the appellation “derelict” cannot be applied.
15.10 There is not the same problem with the insurance given by the Mutual War Risks
Associations. Their rules give insurance for “mines” and other weapons, and also “derelict
mines” and other weapons. Even though there may be a problem with the insurance given
by the London Market, recent history has shown how it has been resolved in a practical
way.
15.11 In 1984, 16 ships were damaged by mysterious explosions in the Red Sea. Such
factors as the short space of time within which the explosions occurred, the depth of water
at the sites of the explosions, the many different ports which the affected ships had come
from, the nature of the damage to the bottoms of the ships and the interesting fact that four
ships were damaged at positions in a straight line, all pointed in the direction of mines
sown from a moving craft as the only possible cause. Although suspicion centred on one
particular ship, the culprit was never traced with any certainty and this fact alone would
have made it impossible to say whether the actual sowing of the mines was in pursuance
of a naval operation in connection with a war, or whether it was the work of a terrorist or
somebody acting from malice or from a political motive. In fact, the chief suspect was a
ship supposedly under Libyan control. If these suspicions were justified, again Libya was
not at war with anyone and it would be difficult to see what appellation could be applied
to her from the risks insured by the War Risk Policy. In the subsequent sweeping operations, the Royal Navy recovered a mine of recent Soviet manufacture which was obviously
freshly sown. Lying on the bottom of the sea as it was designed to do, there seemed to be
no question of it having broken adrift and drifted from elsewhere. While there was nothing determinative to connect it with the mines which had damaged the ships, there was at
least a strong indication that the mines which had caused the damage to the ships were not
“derelict” in the normal sense that the word is used.
15.12 Many will find astonishing the assertion that where there are casualties that could
involve the War Risk Policy, there are often difficulties, sometimes of a most extreme
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Derelict mines, torpedoes, bombs and weapons of war
nature, in ascertaining with any degree of certainty how the casualty happened and what
were the motives or reasons for any human agency that was involved. Whether or not a
particular casualty should be paid for by the Marine Policy or the War Risk Policy (or
both or neither) will depend not so much upon fine consideration and interpretation of the
clauses of each policy as on the establishment of the actual facts; it is not impossible to
foresee the claimant insured shipowner faced with enormous difficulties in establishing
that his casualty comes within one of the insured risks of the War Risk Policy, and the
defendant marine underwriter encountering equally grave difficulties in showing that he
is entitled to the benefit of the exclusion clauses of the Marine Policy. The re-designation
of the former insured risk of mines and other weapons as “derelict” has, perhaps inadvertently, immeasurably increased such difficulties.
15.13 In advance of any judicial decisions on the point, it is submitted that the better
view is that, in all circumstances, the War Risk Policy should pay for any loss or damage
caused by any such weapons because:
(1) The views advanced by Hudson & Allen as described above are a correct interpretation of the intentions of the draftsmen, and will in any case cover most
situations where mines are sown or other weapons are fired.
(2) Traditionally the War Risk Policy has insured loss or damage caused by mines,
torpedoes, bombs and other weapons and it is intended that it should go on
doing so.
(3) There was a ready acceptance by the London market that the War Risk Policy
should meet the claims arising from the Red Sea mines.
(4) There has been an equally ready acceptance to meet the claims arising from
mines, which cannot be described as “derelict” in the sense the word is normally used, in the Arabian Gulf during the Iran/Iraq War, even though in this
instance there is evidence that the mines were sown as a “hostile act by or
against a belligerent power”, namely Iran.
15.14 However, despite the above approach being the one that would seem to best reflect the practice of the London market, it is open to serious question whether or not the
courts would feel able to resolve the question of interpretation through reliance on that
practice in circumstances where the clear words of the policies seem to suggest the contrary position. It is, of course, a cannon of the construction of contracts, including those of
insurance, that they should be construed by reference to their wording, giving due account
to the background factual matrix against which they were concluded. It would not normally allowed that further evidence should be given to show that the parties to the contract
had intended a different effect or result or that the words of the contract should be given a
different meaning to that normally attributable to them.
Containers
15.15 Containers are insured on the London market for marine risks on an “all risks”
basis, but there is a qualification regarding their machinery; this is only insured for “fire,
or explosion” which originates “externally to the machinery” (Clause 4.2.1). Derelict
mines and other weapons are excluded from the marine insurance (Clause 6.3), but are
insured by the War and Strikes Clauses (Clause 1.3).
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Derelict mines, torpedoes, bombs and weapons of war
15.16 It thus appears that containers, including their machinery, are insured for damage done by derelict mines and other weapons by the War and Strikes insurance. For
mines and other weapons, to which the label “derelict” cannot be applied, there is insurance under the marine clauses except possibly to their machinery. Even in this case,
Clause 4.2.1 could be stretched to include an “explosion” of these weapons, because it
originates externally.
Cargo
15.17 The “all risks” insurances, broadly the (A) Clauses, give insurance against “all
risks” of loss or damage except that derelict mines etc. are excluded (Clause 6.3). These
are insured by the war clauses (Clause 1.3). It can thus be said that mines and other weapons are insured by the (A) Clauses, except for derelict mines and other weapons which are
insured by the war clauses.
15.18 The clauses that give more limited insurance, the (B) and (C) Clauses, are in a
very similar position to ships and freight. They too give insurance for a set number of
insured perils, among them “fire or explosion” (Clause 1.1.1). They too exclude derelict
mines and other weapons (Clause 6.3), but are insured for derelict mines and other weapons by the war clauses (Clause 1.3).
15.19 The redrafting of the Institute Time Clauses in the early 1980s (now further
revised by the 1/1/09 iteration) was excellent, but in the case of mines and other weapons
there are a series of anomalies. It has always been the intention of the London market that
mines and other weapons should be excluded from the marine clauses and insured by the
war clauses. This could easily be achieved by deletion of the word “derelict” in both sets
of clauses at the next revision. If, as the learned authors of the Institute Clauses Handbook
suggest, there is a wish to give insurance in cases such as the Nassau Bay case, then the
addition of a sentence in brackets which included “derelict” mines and other weapons
would suffice.
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CH A PT ER 16
Strikers, locked-out workmen or persons taking part in labour
disturbances, riots or civil commotions
The “strikes risk” Clause
16.1 The standard clauses providing war risks cover for “Strikers, Locked-out Workmen or Persons taking part in Labour Disturbances, Riots or Civil Commotions” have
a lengthy history, but have generated relatively little litigation. There appears to be no
case in which strikers or their counterparts, workmen who have been excluded from their
workplace by their employer locking the factory gates, or persons taking part in labour
disturbances, have been judicially considered in the context of a War Risks Policy. The
overlapping limits of “riot” and “civil commotions” as civil disturbances of a serious nature are discussed in Chapter 17.
In determining the limits of cover, reference will therefore be made to disputes arising
outside of the insurance arena. The reported cases are drawn from other areas of international trade (notably, in respect of laytime/demurrage) and from civil and criminal cases
testing the definitions of “riot”, “lock-outs” and “civil commotion”. The decision to “read
across” from trade union litigation and charterparty cases is justified by the reciprocal use
of shipping cases in recent decisions of the Court of Appeal and Employment Appeal Tribunal.1 Whilst the precise limits of the contractual and regulatory definitions of key terms
might not be identical, the courts have identified a broad range of common principles.
Although most of the above definitions are given in laytime cases, there would appear
to be no reason to suppose that these should not apply to the insured perils in the War
Risks Policy. Moreover, there is no reason to limit the “strikers” to those who are engaged
in the business of the ship in some way, such as stevedores, tug crews, crane drivers,
linesmen, pilots or customs officers, who render some services to her; strikers from other
places of work or interests, even those that have no connection with the ship or even with
shipping in general, can give rise to the insured peril.
16.2 The strikes clause was taken from the S.G. Form with Institute War and Strikes
Clauses attached. It has never been regarded as a well-drafted or happily worded clause
and has given rise to difficulties in its interpretation.
It is a pity that “riots and civil commotions” were not in 1983 removed to Clause 1.1
of the MAR Form, leaving this clause to deal with the consequences of industrial action
which are themselves serious enough to merit a clause of their own. Had this been done,
then the true intentions of the War Risks Policy would have been better expressed, namely
1 Connex South Eastern Ltd v. National Union of Rail Maritime and Transport Workers [1999] IRLR 249
(CA) and Norris v. London Fire & Emergency Planning Authority [2013] ICR 819.
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that the policy should give cover for a number of violent disturbances, as expressed in Pan
American World Airways Inc v. The Aetna Casualty & Surety Co.2 as being in descending
order of seriousness whoever caused them, and a separate clause would be left to deal with
loss or damage caused by industrial disputes or disturbances which can be of a violent
nature.
16.3 It has been suggested that “persons” should be read ejusdem generis with “strikers” and “locked-out workmen”.3 If this were so, then some very odd results would follow.
Cover would only be given in riots and civil commotions if the perpetrators were strikers
or locked-out workmen or something akin, and it would not be given in the case of anyone
else who could not be so described. Alternatively, it could also be argued that damage
done by strikers and locked-out workmen and other persons would not be covered at all
unless it was a riot or civil commotion or a labour disturbance of a most violent nature
which would involve considering if an insured peril had arisen simply because of the
degree of violence used. If this were correct, then there would be an important gap in the
insurance cover where stevedores, workmen or other persons like them caused damage
to a ship, because the War Risks Policy would not pay for it and Clause 24 of the Marine
Policy would be strong enough to exclude it from that policy’s cover.
16.4 Furthermore, if two strikers of an alarming appearance should damage a ship,
there would be no cover because two people cannot form a riot; they would need to be
joined by more people before there could be a riot, when cover would be given by the War
Risks Policy.4 This would effectively frustrate the intentions of the new Institute Time
Clauses, both marine and war that, like the old S.G. Forms which they were replacing,
there should be no gaps in the insurance cover that was provided. A very artificial position
would arise if this reading were adopted as the correct one. It is suggested that the following summary truly reflects the intention of the Institute War and Strikes Clauses and is
consistent with the wording that is used in it. These clauses give insurance against loss or
damage caused by (1) strikers, or (2) locked-out workmen, or (3) persons (whoever they
are) taking part in labour disturbances, riots or civil commotions.
“Strikers”
16.5 Turning now to considering the three separate insured perils, there is an enormous body of case law on “strikers” in the maritime field out of charterparty and bills
of lading disputes, mostly on laytime. Aligned with this is a further body of trade union
disputes which have been resolved on similar principles.
There is one important limitation on most forms of war risks marine cover. Apart from
the special cover given by the Mutual War Risks Associations, where in one narrow instance “strikers” has a wider application, it must be remembered that the Institute War
and Strikes Clauses are solely concerned with physical loss or damage that they cause to
the insured object. Whilst this might arise by way of an act or an omission, we are not
2 [1974] 1 Lloyd’s Rep. 207; [1975] 1 Lloyd’s Rep. 77. See paragraphs 6.16–6.26, 8.13, 8.30, 8.31, 17.13,
17.24–17.26.
3 Nishina Trading Co Ltd v. Chiyoda Fire & Marine Insurance Co Ltd, The Mandarin Star [1969] 2 QB
449, 467 per Phillimore L.J.
4 The modern definition of riot under the Public Order Act 1986 requires 12 people; the common law
offence required a minimum of three. See Chapter 17.
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concerned with the consequences of delay to the vessel or the cargo, as in laytime/demurrage disputes.
16.6 The definition of “strikes”, as with many forms of industrial action, has developed
through case law and statutory intervention over the past 150 years. English judges resolving commercial disputes have stressed its mutable and non-exhaustive nature, as in The
Laga, where McNair J. stated:
one has got to bear in mind that the meaning of the word “strike” must change with the progress (if that is the right word) of industrial history and it may have a different meaning today
from the meaning given to it a century ago.5
In 1876, it was held that there was a strike if the workmen went on strike for higher wages
and for this purpose alone. Unions had only recently become lawful, and the emphasis
was on more money to relieve the appalling poverty of the time. This rather restrictive
view was developed in further cases until Sankey J.’s famous definition which appeared
in Williams Bros. Hull Ltd. v. Naamlooze Vernootschap W H Berghuys Kolen-handel.6
The ship was chartered by her Dutch owners for a voyage from Hull to Rouen. The owner
found that his crew refused to face the German submarine menace in the North Sea and
no other seafarers could be induced to take their place. Sankey J. had some difficulty in
deciding there was a strike which arose from fear to do a particular thing, or perform a
particular contract, but he eventually held that a “grievance”, not necessarily connected
with wages, would be sufficient: “I think the true definition of the word ‘strike’, which I do
not say is exhaustive, is a generally concerted refusal by workmen to work in consequence
of an alleged grievance …”7 This definition continues to form the basis for many labour
law disputes, although there are specialist definitions of both “strikes” and “lock-outs” to
be found in a limited number of the current statutory codes governing employee and trade
union rights and immunities.8
16.7 MacKinnon J. followed this by holding in Seeberg v. Russian Wood Agency Ltd 9
that a sympathy strike was also a strike. A Latvian ship was ready to load in Leningrad.
The stevedores, in pursuing a policy of refusing to handle Latvian ships in sympathy with
some Latvian union’s grievances, refused to load her. The rest of the port was working
normally. This was still a “strike”. McNair J. had to deal with a very similar case in J. Vermaas Scheepvaartbedrijf N.V. v. Association Technique de L’Importation Charbonniere
(The Laga).10 The Laga arrived in Nantes on 12 March 1963, to discharge coal, and by
the time it was her turn to discharge, the stevedores, crane drivers, pilots and tug crews
refused to unload coal ships. They had no grievance with their employers, but they wanted
to assist the French coalminers who were on strike. Counsel for the shipowners contended
that a sympathetic strike was not a strike, there being no grievance against the employers
on the part of the strikers. McNair J. ruled against him in a judgment which made much of
5 [1966] Lloyd’s Law Rep. 582, 590.
6 (1915) 21 Com. Cas. 253.
7 (1915) 21 Com Cas 253, 257.
8 S Deakin and G Morris, Labour Law (Hart, 6th edn, 2012), [11.72] describe the comprehensiveness of
the definitions in ss. 235(4) (5) Employment Rights Act 1996 as “unusual”.
9 (1934) 50 Ll.L.Rep. 146.
10 [1966] 1 Lloyd’s Rep. 582.
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the General Strike (1926). Nobody could say that this was not a “strike”, even though most
of those taking part had no quarrel with their employers:
… The word “strike” is a perfectly good, appropriate word to use to cover a sympathetic strike
and a general strike and there is no need for it today to have any ingredient of grievance between those who are refusing to work and their employers.
It made no difference that only coal carriers were affected and the rest of the port was
working normally. As noted above, this reflected the shifting nature of industrial relations.
There is no reason why this gradual evolution should not continue, at least insofar as the
terms are extended in labour law disputes.
16.8 Finally, the Court of Appeal decided that there was a strike in Tramp Shipping
Corporation v. Greenwich Marine Inc. (The New Horizon).11 The ship arrived in St. Nazaire in May, 1973, to discharge grain from Norfolk. It was usual and normal for the stevedores to work three shifts around the clock when asked, although there was no legal
or contractual obligation on them to do so. At the time, they were engaged in industrial
action to improve their working conditions, and were restricting their work to eight hours
a day. For ten days, during the ship’s stay in the port, they refused to do any work at all.
Lord Denning M.R. noted Sankey J.’s definition and added:
If I may amplify it a little, I think a strike is a concerted stoppage of work by men done with
a view to improving their wages and 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 an apprehension of danger.
Stephenson L.J. added to this:
In my judgment, it is a species of stoppage. There cannot be a strike without a cessation of
work by a number of workmen agreeing to stop work; and the question is, what kind of concerted stoppages are properly called strikes today? It must be a stoppage intended to achieve
something, to call attention to something, as my Lord has said; a rise in wages, improvement
of conditions, support for other workers; for political changes; an expression of sympathy or
protest.
Lord Denning’s definition of strike in The New Horizon was considered by the Court of
Appeal in Connex South Eastern Ltd v. National Union of Rail Maritime and Transport
Workers.12 The dispute arose in the context of a ballot for industrial action comprising an
overtime and rest day ban. The validity of the ballot was contested under the Trade Union
and Labour Relations (Consolidation) Act 1992, which defined a strike in section 246 as
“any concerted stoppage of work”.13 The Court of Appeal agreed unanimously that the
intended action constituted a strike in that it was “concerted action” and a “stoppage of
11 [1975] 2 Lloyd’s Rep. 314.
12 [1999] IRLR 249 (CA).
13 The definition in s. 246 was amended by entry into force of s. 229(2A) (added by the Employment Relations Act 1999) for the purposes of balloting procedures, but leaves the wide definition of strike untouched for
e.g. trade union immunity disputes.
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work”. Aldous L.J. defined “concerted” as “mutually planned” and a “stoppage of work”
as “encompass[ing] any refusal to work”.
These definitions have been further refined by later case law. In Norris,14 firefighters
with the role of “starred crew managers” (designated CM*) were competent to cover for
the higher level role of watch manager, and received additional payment when they did so.
Following a period of industrial action, three “starred” crew managers refused to cover
for the higher role, under the impression that they were not contractually obliged to do so.
Each received a 20 per cent deduction in pay on the basis that their refusal to act up constituted taking part in a strike or other industrial action. These deductions were challenged.
Underhill J. held that “a refusal to do work which the employee is not contractually
bound to do may become industrial action if but only if another element is present”,15 such
as the intention to apply pressure on the employer to achieve some ulterior aim. He exemplified this “ulterior aim” by referencing the dicta of Lord Denning in The New Horizon,
that distinguished employment related disputes from “a bomb scare or by apprehension
of danger”.16
Having decided that Norris was not engaged in a strike, Underhill J. nonetheless gave a
reasoned obiter analysis of the “sole actor” point. He was clear that, following Bowater,17
a person acting alone cannot strike or participate in industrial action as each required
collective action:
As a matter of ordinary language, I agree that it is unnatural to refer to a single person “taking part in” action undertaken by no one else: it is like one hand clapping. I also agree that
in ordinary usage “industrial action” connotes action of some kind taken by more than one
worker acting together.18
For the purposes of assessing cover under the war risks clauses, this final limitation might
be the most pertinent. It is clear that the term “strike” is interpreted broadly enough to
cover a wide range of industrial action, but cannot normally be the action of a lone individual. The actions of a single disaffected worker in causing damage to an insured vessel
might fall outside this part of the clause, although potentially not cover entirely. The limits
of indemnification for malicious acts are considered in Chapter 19.
“Locked-out workmen”
16.9 There should be no difficulty in recognising and identifying with sufficient precision “locked-out workmen” as people locked out of their place of work by their employers,
usually as a means of exerting pressure in a labour dispute where some “grievance” has
been expressed.
In Bloomfield v. Springfield Hosiery Finishing Co Ltd,19 a decision of the short-lived
National Industrial Relations Court, Donaldson J. found that the period of employment for
14
15
16
17
18
19
Norris v. London Fire & Emergency Planning Authority [2013] ICR 819.
At [20]. Emphasis in original.
See paragraph 16.8.
Unreported, 27 May 1982.
At [26].
[1972] 1 WLR 386.
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accrual of redundancy rights was not interrupted by a strike or even the dismissal of workers on strike (with an offer to re-hire on amended terms). In interpreting the Redundancy
Payments Act 1965, he stated:
It is a commonplace that one man’s strike is another man’s lock-out and it will, we think, suffice to say that similar considerations apply to the definition of “lock-out” as to the definition
of “strike”.20
“Persons taking part in labour disturbances”
16.10 These are more difficult to define and here the conclusions must be offered more
tentatively. There is likely to be considerable overlap with the labour law concept of “a
trade dispute”.21 It is suggested that they are not workmen with some sort of “grievance”
and may be people who simply attach themselves to some labour disturbance, interpreted
in its broadest sense, and may not have any justifiable or legitimate interest in its outcome.
Examples of “labour disturbances”
16.11 Previous editions discussed at this point a series of well-known UK industrial
disputes of the 1970s and 1980s, but without referencing legal sources. The examples previously used—of Grunwick and Wapping—are maintained, but with the factual matrix
as described judicially.
The House of Lords was asked to resolve the role of the Advisory, Conciliation and
Arbitration Services (ACAS) in Grunwick Processing Laboratories Ltd v. ACAS.22 ACAS
had suggested that the appellant employer recognise a union (APEX) for the purposes
of industrial relations. It did so on the basis of a consultation exercise carried out by
questionnaire. ACAS was only able to canvas the opinion of those who were on strike as
members of the Union, and who had been (mostly) dismissed by their employer. The twothirds of employees not involved in the industrial action could not be contacted because
the employer refused to supply contact details. Overturning the decision of the Court of
Appeal, the House of Lords found that ACAS had an overriding obligation to reflect the
views of the employees as a whole, and that its recommendation to Grunwick’s managers
to recognise APEX for collective bargaining purposes was ultra vires.
The ensuing dispute led to the involvement of the wider Trade Union movement. This is
described by Lord Scarman in his subsequent report.23 APEX were perceived as a “white
collar”, moderate union.24 The widening of the dispute brought in less “conservative”
unions. Local postal workers refused to sort or deliver mail to the Grunwick offices and a
substantial mass picket was arranged from 13 June 1977. This led to notorious incidences
of violence, with mass arrests, and allegations of brutality on both sides.
20 At 391.
21 See generally, S Deakin and G Morris, Labour Law (Hart, 6th edn, 2012), [11.26]–[11.29].
22 [1978] AC 655.
23 “Report of a Court of Inquiry under the Rt Hon Lord Justice Scarman, OBE into a dispute between
Grunwick Processing Laboratories Ltd and Members of the Association of Professional, Executive, Clerical
and Computer Staff” (Cmnd 6922, 1977).
24 At [12].
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Wherever fault actually lay, it is clear that the disturbance outside the Chapter Road
premises involved the Police, members of the dismissed workforce, representatives of
the wider community and members of other unions whose workforce was not directly
involved in the dispute. It remains an obvious example of a “labour disturbance”.
16.12 The circumstances giving rise to the dispute centred on the movement of News
Group Newspapers Ltd from its traditional base around Fleet Street to a new site at Wapping are well known. The best judicial description in given in Stuart-Smith J.’s judgment
in NGN Ltd v. SOGAT’8225 in respect of an interlocutory injunction sought against “unlawful picketing, marches and demonstrations”. He describes a long-standing situation
in which violence towards the police, threats of violence to workers entering the site, and
threats (and actual damage) to vehicles leaving the site were not uncommon. Given the
size of the demonstrations, estimated as up to 7,000 people at some events, those involved
in the wider protests could not have been limited to the employees directly affected by the
industrial action.
Here there was a recognisable grievance, and it could be said of the persons who joined
in that they were “persons taking part in a labour disturbance”. It is suggested that, had
they turned their hands to destroying or damaging a ship, cargo, containers or whatever,
the insured peril would have been complete.
25 [1987] I.C.R. 181, 193–200.
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CH A PT ER 17
Riots, civil commotions
17.1 In ordinary parlance, “riot” and “civil commotion” are not easy to distinguish one
from the other and the victims are not likely to appreciate fine distinctions. Moreover,
when the courts are faced with only one or other term, either as an insured peril or as an
excluded peril, which they must consider in the circumstances of the case, the distinctions
can become further blurred. Nevertheless, there are important distinctions between them
and in a work such as this, they must be explored. As a start, there are definitions of “riot”
and “civil commotion” which, in the legal field, are to be preferred to the definitions given
by the Oxford English Dictionary. These will be illustrated with cases.
“Riot”
17.2 Until 1987, “riot” had a well-settled meaning in English common law. Various
definitions had been given, but the most comprehensive was that given by Phillimore J. in
Field v. Receiver of Metropolitan Police.1 Each element had to be present:
(1)
(2)
(3)
(4)
number of persons, three at least;
common purpose;
execution or inception of the common purpose;
an intent to help one another by force if necessary against any person who may
oppose them in the execution of their common purpose;
(5) force or violence not merely used in demolishing, but displayed in such a manner as to alarm at least one person of reasonable firmness and courage.
17.3 With the entry into force of sections 1, 2 and 10 of the Public Order Act 1986, the
law on “riot” was substantially altered. The Act abolished the common law criminal offence of “riot”, which had been assumed to provide the limits of the insured peril of “riot”.
In its place was substituted section 1 of the Public Order Act 1986:
(1) Where twelve 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.
1 [1907] 2 K.B. 853, 860. It was followed in Munday v. Metropolitan Police Receiver [1949] 1 All ER 337.
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R iots, civil commotions
(2) It is immaterial whether or not the twelve 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.
17.4 Moreover, section 10(2) of the 1986 Act provided that Rules 8 and 10 of the Marine
Insurance Act 1906 should be construed in accordance with section 1. The precise source
of this provision is not clear, and was not discussed in the Green Paper, White Paper or
Law Commission report that preceded the Bill.2 It is assumed that this was intended to
ensure that all statutory references to riot were updated to refer to the statutory offence,
but this may have been unnecessary in respect of the 1906 Act. The “rules for interpretation” appended to the 1906 Act were only ever an indication of practice at the time of
the passage of the Act, and not binding on contracting parties.3 Section 10(2) makes an
oblique reference only, saying in effect that rioters who attack the ship from the shore
must be rioters within the definition of section 1, and “arrests etc. of Kings, Princes and
people” (which is no longer an insured peril) shall not include rioters who come within
the definition of the same section. Nevertheless, the intention seems clear that the section
1 definition should, in respect of policies taking effect on or after 1st April 1987, apply to
the insured peril of “riot”. It would indeed be strange if rioters who attack the ship from
the shore must be 12 or more in number, whereas for every other purpose three would be
enough.
17.5 The underlying assumption at the heart of this analysis is that the limits of the
peril of “riot” track the criminal law. This is not an isolated issue and problems have arisen
in respect of the interpretation of other overlapping perils/offences such as “theft”.4 Given
that the insurance market should be concerned with the identification of the optimal level
of cover, there is an inherent weakness in tracking the criminal standard. The failure to
adopt an autonomous definition of “riot”, or to reword the clause so as to pick a neutral
term, assumes that the perceived benefits of continuity outweigh the consequences of
change occurring in criminal law for reasons unrelated to insurance. The effect of section
10(2) is, as described above, likely to guide judicial interpretation of the word “riot” in the
marine insurance context to the new definition, but without an obvious market reason for
so doing. The restatement of the limits of the criminal offence was to ensure proportionate scaling of seriousness of offence to potential sanction.5 The statutory offence of riot
carries a potential sentence of imprisonment double that of “violent disorder”, which only
requires three participants and less concerted hostility. The effect of these changes on case
law examples is described at paragraph 17.10.
2 Home Dept, “Review of the Public Order Act 1936 and related legislation” (HMSO, Cmnd 7891, 1980),
Home Office, “Review of Public Order Law” (HMSO, Cmnd 9510, 1985) and Law Commission, “Criminal law
offences relating to public order” (L Com No 123, 1983).
3 See MD Chalmers & D Owen, The Marine Insurance Act 1906 (Clowes & Sons, 1st ed, 1907) p.142.
4 In the marine context, see Clothing Management Technology Ltd v. Beazley Solutions [2012] Lloyd’s
Rep. IR 329, [45] and generally Dobson v. General Accident Fire & Life Ass Corpn [1990] 1 QB 274. See also
M Wasik, “Definitions of crime in insurance contracts” [1986] JBL 45.
5 R v. W(N) [2010] 1 WLR 1426, [14] per Moore-Bick L.J.
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R iots, civil commotions
17.6 There are substantial differences between the common law offence and the statutory reformulation. Comments can be made as follows:
(1) There now need to be 12 persons or more taking part in place of the previous
three. Riot is the most serious offence in the statutory triumvirate of riot/violent/disorder and affray.6
(2) There is now the need for unlawful violence, or at least the threat of it, whereas
under the common law it was enough that the rioters were prepared to commit a tort which was not a crime. Since all violence is unlawful—except in
self-defence—there is probably no substantial difference.
(3) The common purpose remains but this may now be inferred from conduct. It
seems that it is no longer necessary to show that the common purpose was either completed, or at least actually began.
(4) The necessity to prove force or violence displayed in such a manner as to alarm
a person of reasonable firmness or courage has disappeared. The threat of
force or violence is enough and may be inferred from conduct on the common
purpose.
(5) The fear of force or violence is now related to personal safety, but the person
of reasonable firmness or courage need not be present at the scene. It is enough
that if he were, he would fear for his personal safety.
Elements that remain unchanged:
(1) Riot, as was held in London & Lancashire Fire Insurance Co. v. Bolands,7 can
be committed in private as well as in public places;
(2) Riot can be committed by (threatening) violence to property and not just to
persons.8
17.7 Unlike the criminal law, the insured peril of “riot” is not concerned with who
is guilty of “riot” because they use unlawful violence as opposed to those in the crowd
who refrain from its use. The question is whether a riot has occurred. In this respect, the
insurance coverage questions are akin to the “riot compensation” case law under the Riot
(Damages) Act 1886 (and its successor legislation). So, to focus on a key part of the actus reus: in a civil case, the cause of the loss must be at least one person using unlawful
violence and at least 11 more using or threatening violence. As will be shown from the
recent case law, there does seem to have been some difficulty in the application of the
Public Order Act definition. These difficulties will be highlighted and considered in the
case reviews that follow.
Riot as a public order offence
17.8 A clear example of the kind of serious public disorder that constitutes riot under
the Public Order Act 1986 is found in R v. Lewis.9 Following the shooting by armed police
6
7
8
9
Ss. 1, 2 and 3 of the Public Order Act 1986 respectively.
[1924] AC 836.
Mitsui Sumitomo Ins Co v. The Mayor’s Office [2014] Lloyd’s Rep. 20, [77].
[2014] 2 Cr App R (S) 27.
132
R iots, civil commotions
of Mark Duggan in London, looting, violence and property destruction broke out across
British cities. In Birmingham, a group of around 40 men assembled outside a public house
before breaking into it and throwing petrol bombs to set it on fire. The apparent motive
for this activity was to attract the police so that officers could be fired at with handguns.
Much of the disorder was captured on CCTV, and the perpetrators mostly remained in
groups of above a dozen active participants. Eight were convicted of riot (among other
offences).
Levenson L.J.’s description of the issues considered at trial is indicative of the difficulty
courts have had in summarising the components of riot:
The particular issues in relation to the allegation of riot were (a) whether the 12 or more
persons using or threatening unlawful violence shared the common purpose of attacking the
police and (b) whether each appellant used unlawful violence, or encouraged others to use
violence, for the common cause.10
For this is not the offence of riot that section 1 of the Public Order Act describes:
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.
For each appellant to commit riot, he must have used unlawful violence for the common
purpose. Those who threaten unlawful violence do not commit riot, but a minimum of
11 other people present must (at least) threaten violence for the active violence to be riot.
This lack of clarity may be due in part to the format of the definition, in that the wider
circumstances are described first, and the actions of the defendant only at the end of the
clause.11
Riot as an insured peril
17.9 The Andreas Lemos12 is well known as an authority on the limits of piracy as an
insured peril, but contained considerable discussion of riot as a peril in the marine context. This pre-dates the statutory reformulation of the definition. Staughton J. was faced
with an attempt by armed men to covertly steal ship’s lines and related equipment from a
vessel anchored in the Chittagong roads. He noted the judicial criticism of the use of the
technical criminal definition of riot in US aviation insurance case law,13 but considered
its substitution by the “ordinary meaning of the word” unsuitable for a marine insurance
policy in which many phrases are archaic and better viewed as terms of art.14 On this basis, he took the meaning of “riot” to be that in use in determining criminal liability and in
imposing an obligation on local authorities to compensate for the occurrence of a riot. On
10 At [41], emphasis added.
11 For an example of this in practice, see the discussion at paragraph 17.17.
12 Athens Maritime Enterprises Corpn v. Hellenic Mutual War Risks Assocn (Bermuda) Ltd, The Andreas
Lemos [1982] 2 Lloyd’s Rep. 483.
13 Pan American World Airways v. The Aetna Casualty & Surety Co [1974] 1 Lloyd’s Rep. 207.
14 Citing Shell Intl Petroleum Co Ltd v. Gibbs, The Salem [1982] 1 Lloyd’s Rep. 369, 376 per Kerr L.J.
133
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the facts, there was no riot at the time of the loss, as the thefts had been covert, although
he found that a riot (as then defined) did occur after the loss:
A riot did occur. But it was not complete until after the loss … Clandestine thieves who use
or threaten violence in order to escape, after the theft has been committed, do not give rise to
a loss by riots …15
17.10 This case provides the most obvious example of a finding which would have to
be reversed if it were to be decided under the new definition of riot under the Public Order
Act 1986. The evidence before Staughton J. was of six to seven locals. This would meet
the requirement of three persons under the common law rule, but not the 12 required under the 1986 Act. This represents a narrowing of cover sold internationally on the basis of
an attempt to modernise English public order offences in light of social unrest played out
through labour disturbances and football hooliganism in 1980s Britain. Despite Staughton
J.’s preference for “riot” as a term of art, a business-like interpretation (as with “war”)16
that followed the understanding of the business community might have been preferable.
Nonetheless, the authorities lead to the conclusion that the technical definition is the current preferred option.
The Riot (Damages) Act 1886 and the Riot Compensation Act 2016
17.11 It has long been accepted that damage to some property caused by “any persons riotously and tumultuously assembled together”17 must be paid for by the community on the
basis that the community owes a duty to each subject to keep the Queen’s peace and must
pay for any damage arising out of any failure to do so.18 In 1886 the financial aspects of this
duty were imposed on the police authority as representatives of the community. This duty
has been the subject of recent Supreme Court consideration, and subsequent amendment by
statute in 2016. For the purposes of interpreting marine insurance policies, the recent litigation and statutory changes to the riot compensation scheme make relatively little difference,
but go some way in showing the ongoing difficulties of establishing a state of “riot”.
17.12 The Riot (Damages) Act 1886 was until recently the source of the obligation on
the police authority to compensate those who suffer losses as a result of riots. The liability
imposed on the police authority was strict. Payment of these sums was made out of reserves, a situation which was often considered unsustainable in light of the funding basis
of modern police forces.19 Given the nature of the statutory scheme as a form of indemnification for loss following riot, it provides a useful source of judicial practice on the limits
of the peril in insurance. It should be noted that the conditions for indemnification are not
identical, as the 1886 Act requires also a state of tumultuousness. This is considered in the
case law in paragraphs 17.4–17.9.
15 N 12 at 492.
16 See Chapter 6.
17 S. 2(1), Riot (Damages) Act 1886.
18 The origins of the 1886 Act dating back to 1285 are described in Bedfordshire Police Authority v. Constable [2009] Lloyd’s Rep. IR 39, [8]–[12] per Walker J.
19 A useful summary of the issues is found in the independent review of the 1886 Act commissioned by the
Home Office in 2013: N Kinghan, ‘Independent Review of the Riot (Damages) Act 1886’ (HO_02091_G, 2013),
archived at www.gov.uk/government/publications/riot-damages-act-independent-review.
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R iots, civil commotions
17.13 Previous editions of this work paid considerable attention to the case law under
the 1886 Act applying the common law definition of riot. Given the passage of time since
the passing of the Public Order Act 1986, these cases must be seen as generally of historic
interest only. These will now only be referred to insofar as they remain relevant to courts
applying the statutory definition. As Moore-Bick L.J. made clear in a criminal trial under
the Public Order Act 1986:
It has been recognised more than once by this Court that the Act is to be given its natural and
ordinary meaning and should not be interpreted by reference to the common law offences
which it abolished.20
17.14 The two main sources of litigation under the Riot Damages Act 1886 in the Public Order Act era were the disturbances at the immigration detention centre at Yarl’s Wood
in Bedfordshire in 2002, and those in London and other major British cities in 2011 following the shooting of Mark Duggan by police.
17.15 The Yarl’s Wood disturbances led to parallel litigation between, first, the operators of the detention centre and the local police authority21 (a claim for compensation
under the 1886 Act) and, second, the police authority and its public liability insurers22
(to recover any sums paid under the first action). Neither case turned on the definition of
riot,23 and it was assumed that there was a state of riot from around 7:30pm on the night
of the 14/15 February 2002 until at least 10:30pm, but possible until as late as 2:00am. The
claim for compensation for damage to property by fire, theft and violence was put as high
as £32 million with several attempts at a mass escape from the detention centre.
17.16 The 2011 disturbances which led to the Mitsui Sumitomo litigation occurred
across large parts of London and surrounding areas, and in other major cities, including
Birmingham. On 8 August 2011, a group of youths broke into, looted and then set on fire
the Sony distribution warehouse in Enfield, Middlesex. In considering whether a riot had
occurred (in partial fulfilment of the requirements for compensation under the 1886 Act),
Flaux J. held:
… there is no doubt that the elements of the statutory offence of riot were satisfied in this case.
There were more than 12 youths present, using or threatening unlawful violence which … includes violence towards property. In my judgment, even if not all the gang were smashing
down the door or throwing petrol bombs, the others by their presence were threatening unlawful violence … even the two 12-year-olds … encountered outside, who were presumably
some sort of lookout.24
17.17 This passage is criticised in Smith and Hogan for conflating support for a common purpose to use violence with the required element of the offence that at least 12 must
20 R v. W(N) [2010] 1 WLR 1426, [13].
21 Yarl’s Wood Immigration Ltd v. Bedfordshire Police Authority [2009] 1 All ER 886 (QBD); [2010] QB
698.
22 Bedfordshire Police Authority v. Constable [2009] Lloyd’s Rep. IR 39 (QBD); [2009] Lloyd’s Rep. IR
607 (CA).
23 The action under the 1886 Act was concerned with whether a “contracted out” public service provider
was entitled to protection under the Act; the public liability policy case turned on whether the 1886 Act obligation on the police fell within “liable in damages”.
24 Mitsui Sumitomo Ins Co v. The Mayor’s Office [2014] Lloyd’s Rep. 20, [69].
135
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have used or threatened violence for it to be a riot.25 The support of the boys at the door
ought not to have been included in the dozen required. Nonetheless, on the facts described
in Mitsui it is likely that there were at least a dozen active participants, and the finding was
not challenged in the subsequent appeal.26
17.18 Whilst the subsequent appeals to the Court of Appeal and Supreme Court focused on the kinds of losses for which compensation was available until the 1886 Act, a
useful “rule of thumb” was suggested by Lord Dyson MR: “the focus of the enquiry is
whether property has been damaged or destroyed as a result of mob violence”.27 This concept of “mob violence” would provide a useful alternative phrasing should the wording of
the war risks policy be revised, as a neutral term not constrained by the technicalities of
the Public Order Act definition.
17.19 The significant losses after the 2011 riots contributed significantly to the repeal
of the 1886 Act and its replacement with by the Riot Compensation Act 2016. The key provisions of that Act came into force on 6 April 2017.28 The most significant change for the
purposes of war risks is the removal of the somewhat archaic requirement that the cause
of the damage be both “riotous and tumultuous”. Compensation will now be awarded on
the basis of a riot, as defined by the Public Order Act 1986.29
17.20 The meaning of “riot” has been amended within criminal law to ensure that a
wider range of offences, each with an appropriate sanction, could be created. The assimilation of the insured peril- which will apply to perils occurring across the globe- to English criminal law is not justifiable, and means that cover has been substantially reduced
with the passage of the Public Order Act 1986.
“Civil commotion”
17.21 Unlike “riot”, “civil commotion” does not enjoy a well-defined character in English law. The source of much of the judicial analysis is the direction given to the jury by Lord
Mansfield in Langdale v. Mason.30 He described the (excluded) peril of “civil commotion”
in the following terms: “I think a civil commotion is this; an insurrection of the people for
general purposes, although it may not amount to a rebellion, where there is usurped power.”
17.22 The jury decided that the Gordon Riots, in which
rioters … traversed [London] for several days burning and destroying Roman Catholic chapels, public prisons, and the houses of various individuals the ostensible purpose of their assembling being to procure the repeal of a wise and humane law (which had passed for some
indulgences to Roman Catholics)
amounted to a “civil commotion”. These attacks constituted a civil commotion as in pursuit of a general purpose (the repeal of the recent law) and was sufficient even they did not
have as a purpose the overthrow of the government (a treasonable purpose).
25 D Ormerod QC & K Laird, Smith & Hogan’s Criminal Law (OUP, 14th ed, 2015), [32.2.1.2].
26 [2014] Lloyd’s Rep. 612, [70].
27 [2014] Lloyd’s Rep. 612, [67].
28 The Riot Compensation Act 2016 (Commencement) Regulations 2017.
29 S. 1(6), Riot Compensation Act 2016.
30 (1780), digested in JA Park, A System of the Law of Marine Insurance (3rd ed, 1796), p.445; EH Bennett,
Fire Insurance Cases (Hurd & Houghton, 1872), p.16.
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R iots, civil commotions
17.23 In Levy v. Assicurazione Generali31 a warehouse in Jaffa (now part of Tel-Aviv)
was damaged in December 1936 by fire, a peril insured against. However, the policy
contained a widely drafted “reverse burden” Clause, which required (on its face) that the
insured prove that none of the exclusion clauses were operative. The excluded clauses
included “civil commotion”. Moreover, the clause continued:
Any loss or damage happening during the existence of abnormal conditions whether physical
or otherwise, directly or indirectly, proximately or remotely, occasioned by or contributed to
by or arising out of or in connection to with any of the said occurrences shall be deemed to
be loss or damage which is not covered by this insurance, except to the extent that the insured
shall prove that such loss or damaged happened independently of the existence of such abnormal conditions.
The Privy Council approved the following definition from Welford and Otter-Barry’s text,
The Law Relating to Fire Insurance:
Civil Commotion. This phrase is used to indicate a stage between a riot and civil war. It has
been defined to mean an insurrection of the people for general purposes, though not amounting to rebellion; but it is probably not capable of any very precise definition. The element of
turbulence and tumult is essential; an organized conspiracy to commit criminal acts, where
there is no tumult or disturbance until after the acts, does not amount to civil commotion. It is
not, however, necessary to show the existence of any outside organization at whose instigation
the acts were done.32
This definition is a restatement of Mansfield’s direction in Langdale. Applied to the facts
of the case, the Privy Council held that this fell short of the level of disorder required. As
will be seen from the findings of the court in the Spinney’s case33 the last sentence of the
definition should now be regarded as qualified at least to some extent.
17.24 An issue that arises in respect of both riot and civil commotion is the physical
proximity of the participants to one another, so as to create an identifiable breakdown of
law and order. This is most clearly demonstrated in the insurance case law in London and
Manchester Plate Glass Company Limited v. Heath.34 The plate glass windows of large
stores were insured for damage: “Caused directly by, or arising from, civil commotion or
rioting.” In March 1912, the windows of the insured were broken for the second time as
part of a campaign orchestrated by the Suffragette movement. The attacks were dispersed
throughout London’s West End and were perpetrated with no other acts of violence or
resistance (although other Suffragette actions did end in disorder).
17.25 When the case came before Bucknill J. he removed it from the jury on the basis
that, following Lord Mansfield’s direction in Langdale v. Mason, there could not have
been a “civil commotion”. He was unanimously upheld by the Court of Appeal, Vaughan
L.J. saying: “It is plain that in this case there has been no insurrection of the people for
the purpose of general mischief” and Buckley L.J.: “Commotion connotes turbulence or
31 (1940) 67 Ll.L.Rep. 174; [1940] A.C. 791.
32 A Welford & W Otter-Barry, The Law Relating to Fire Insurance (Butterworths, 3rd edn, 1932), p.64.
33 Spinney’s (1948) Ltd. and Others v. Royal Insurance [1980] 1 Lloyd’s Rep. 406. See paragraphs 7.7–7.15,
8.17, 8.18, 17.27–17.29.
34 [1913] 3 KB 411.
137
R iots, civil commotions
tumult and, I think violence or intention to commit violence … The acts were done without causing any tumult or disturbance …” and Hamilton L.J.:
… A civil commotion … must at least involve that the acts which constitute the commotion
should be acts done by the agents together, and not merely acts which are done in pre-concert
and simultaneously and in proximity to one another.35
17.26 The existence of an organised conspiracy to commit criminal acts was not
enough to establish the requirement of localised lawlessness, “the breaking of the glass
did not arise from civil commotion. There was, at the moment of breakage at any rate,
no commotion other than the breakage of the glass”.36 This is consistent with statements
made elsewhere in Langdale v. Mason is describing civil commotion as “an insurrection
of the people resisting all law, setting the protection of the government at nought, taking
from every man who was the object of their resentment that protection”.37
17.27 The importance of the disregard for the rule of law is shown by two House of
Lords cases which arose out of (presumed) Irish Republican activity in the early 1920s.
In each of Boggan38 and Cooper,39 armed men took control of motor vehicles from their
owners by threatening force. The brazenness of the actions of the perpetrators led Viscount Finlay to remark in Cooper that “those who were engaged in this abstraction must
have been acting with some force behind them which made them feel they were the masters of the situation”.40 In Boggan, the Earl of Birkenhead found that the proximate cause
of the loss was both civil commotion and riot: “the car was taken by men who were working … in the interests of those who were carrying out disorder and engaged in violent
courses in Ireland”.41
These issues must generally be a matter for the court to determine on the basis of the
proximate cause doctrine, but English law appears to recognise preparatory acts (the theft
of the cars) as potentially an act of civil commotion, where an ongoing state of disorder
exists.
17.28 The leading modern authority on civil commotion is Spinney’s case.42 The dispute arose out of insurance cover for retail premises in Beirut which were looted and/or
seriously damaged by fire. The political situation in the Lebanon at the time was complex
and deteriorated over time, with factions divided by religious, political and racial differences. The policy covered losses by fire, but excluded (among other perils):
(a) … civil war;
(b) Mutiny, civil commotions assuming the proportions of or amounting to a
popular rising, military rising, insurrection, rebellion, revolution, military or
usurped power …
35 Ibid per Vaughan L.J. at 416, Buckley L.J. at 417, and Hamilton L.J. at 421.
36 Ibid at 418.
37 Langdale v. Mason [1780] 2 Park 965.
38 (1923) 16 Ll.L.Rep. 64.
39 (1922) 13 Ll.L.Rep. 219.
40 Ibid at 222.
41 Ibid at 66.
42 Spinney’s (1948) Ltd and Others v. Royal Insurance [1980] 1 Lloyd’s Rep. 406. See paragraphs 7.7–7.15,
8.17, 8.18.
138
R iots, civil commotions
Mustill J. sought to define and distinguish a series of perils, including “civil commotion”
to enable distinctions to be drawn between “civil commotion”, “insurrection” and “riot”.
He treated Langdale v. Mason as the root of the definition of civil commotion.43 The court
said, on the difference between an “insurrection” and a “civil commotion”:
It still remains to be considered whether the “civil commotion” assumed the proportions of or
amounted to a popular rising—which is broadly to be equated to an “insurrection”. For a popular rising, there must be some unanimity of purpose … and this must involve the displacement
of the government. I doubt whether a violent attack by one section of the population on the
other on the grounds of … religion or race would be described as a rising. Adopting this interpretation, I would not say that the disturbances in the Lebanon amounted to a popular rising …
… and on the dimensions of the proportion of the population involved and the degree
of tumult for a civil commotion to exist: “All one can say is that it must involve a really
substantial proportion of the populace, although obviously not all of the population need
participate, and that there should be tumult and violence on a large scale”.
17.29 Mustill J. concluded:
… 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. Confusing and fragmentary
as the violence in the Lebanon may appear … a state of civil commotion … [was] prevalent
in Lebanon.
The emphasis on size and seriousness both of the disturbances and the degree of disorder
should be noted.
Riot, civil commotion in other common law jurisdictions
17.30 The South African courts had to consider “civil commotion” and Soloman J.
made the following observations in Lindsay Pirie v. The General Accident Fire & Life
Assurance Corporation Limited.44 He noted that Lord Mansfield was directing a jury in a
particular case and was not giving a definition suitable for all occasions. He then added:
… and that the effect of his directions to the jury was that a rising of the people (by which I
presume he meant a considerable number of the population) for purposes of general mischief
amounting to civil commotion …
The court also noted that the Gordon Riots started as a rising against Roman Catholics,
eventually degenerating into destruction and plunder. There was never an “insurrection”
which intended to overthrow the government.
17.31 In the US courts, the exclusion of “civil commotion” was pleaded by Aetna in the
Pan Am case.45 The main judgment, which was fully approved by the 2nd Circuit Court of
Appeals, was given by the District Court.
43 Ibid at 437.
44 [1914] S.A.R. (App. D) 574.
45 N 13.
139
R iots, civil commotions
17.32 The District Court made the point: “Civil commotion occurs in a locale—a city,
a country or an area. It is essentially a kind of domestic disturbance … The authorities
speak consistently of and the cases all concerned local … outbreaks and domestic disturbances.” Applying this to the Pan Am case,46 the District Court found great geographical
difficulties:
It stretches the concept beyond breaking to reach for our hijacking from Dawsons Field or
the rest of Jordan, or to sweep the Pan American aeroplane into a kind of globally scattered
“commotion” based upon a supposed identity of causes, motives or purposes.
17.33 Aetna pleaded the Cooper47 case as authority for the proposition that a loss arising from a “civil commotion” need not take place at the scene of the commotion. The
court found itself unimpressed by the reasoning of the House of Lords and felt more
persuaded by the decision of the 4th Circuit Court of Appeals in the Hartford case.48
Besides setting fire to the mine, a crowd of miners had caused some disturbance some
distance away from the mine on the issue of whether the union should be recognised by
the mine’s owners. The 4th Circuit Court of Appeals decided that even if there was a
“civil commotion”, it was too far away to have been responsible for the damage to the
mine. Bearing in mind the requirement of the American law that loss or damage arising
from a “civil commotion” must be caused at the scene of the commotion itself, which is
reflected in the District Court’s decision, it is not surprising that the District Court in the
Pan Am case49 felt that it was not necessary to go into the vexed question of whether there
was a “civil commotion” in Jordan as a whole (although it did decide there was no such
commotion at Dawsons Field for the simple reason that there was no population to disturb
there) and dismissed Aetna’s plea that the loss of the 747 was due to “civil commotion”
with the comment:
Less needs to be added concerning the contention that the loss “resulted” more generally from
“civil commotion” in Jordan. However wide the net of causation may be, it cannot in fact span
this much on any sensible reading of our record, including especially the P.F.L.P.’s go-it-alone
terrorist “external operations”.
17.34 In recent years, claims for riot, civil commotion and cognate terms have been
tested in the Caribbean and Fijian courts. In Grell-Taurel,50 serious disorder in Trinidad and Tobago accompanied an attempt to overthrow the government. The litigation
concerned contemporaneous looting and property damage to commercial properties. The
policy excluded loss by insurrection (and other war risks), but was amended to cover riot.
In the face of a reverse burden of proof clause, the insured was not able to satisfy the court
that the damage to the insured property was sufficiently unconnected to the insurrection,
even though it was geographically removed from the seat of Government.
46 Ibid.
47 Cooper v. The General Accident Fire & Life Assurance Corporation Ltd. (1922) 12 Ll.L.Rep. 514; (1922)
13 Ll.L.Rep. 219 (H.L.); See paragraphs 17.30–17.31.
48 295 F. 663 (1924). See paragraph 17.15.
49 N 13.
50 Grell-Taurel Ltd v. Caribbean Home Ins Co Ltd [2002] Lloyd’s Rep. IR 655.
140
R iots, civil commotions
17.35 In Tappoo,51 similar circumstances arose in an attempt to overthrow the government of Fiji. The Lloyd’s policy covering the commercial premises excluded losses for
“… war, invasion, act of foreign enemy, warlike operations (whether war is declared or
not), civil war, mutiny, rebellion, revolution, insurrection, military or usurped power …”
Underwriters claimed that the attempted coup constituted an insurrection, whilst the insured argued that the looting and rioting which was the immediate cause of the damage
was not causally related to the coup. The Fijian Supreme Court upheld the insurer’s analysis of the situation and denied recovery.
Summary
17.36 “Riot” has the characteristics set out in section 1 of the Public Order Act 1986,
which are noted at the start of this chapter. The following should also be noted:
(1) Riot can be a once-only disturbance without a principal cause.
(2) It can be the work of a “mindless mob” of the kind rejected by Mustill J. when
considering “civil commotion” in the Spinney’s case.52
(3) Unlike “civil commotions” it can be a disorder in a very small area without the
widespread tumult that “civil commotion” requires.53 The English courts will,
unlike the American, recognise that loss or damage can arise some distance
away from the scene of the “riot”.
(4) The same cause can give rise to a number of separate and individual riots in several localities, sometimes many miles apart, and possibly even simultaneous.
17.37 A “civil commotion” has the following characteristics:
(1) A substantial proportion of the population, or at least a substantial number of
people, rise to engage in “general mischief” or “to do terrible things”.
(2) Such “general mischief” or “terrible things” do not envisage the overthrow of
the government as a principal cause (although this may be regarded as a desirable result by at least some of the participants); if they did, the insured perils of
“rebellion” or “insurrection” would arise. There must, however, be a principal
cause or causes such as arise out of differences in political views or aspirations,
religious beliefs, or racial or ethnic differences.
(3) It is not necessary that there should be leaders or factions which promote such
principal cause or causes, although if there are such leaders or factions, the presumption that “civil commotion” is responsible for any violence is enhanced,
particularly if they instigate it or do nothing to discourage or disown it.
(4) Widespread tumult is a necessary ingredient and furthermore a very considerable degree of tumult. Tumult here involves violent damage to persons or
property or the threat or possibility thereof or at least the intention to cause
it. It also requires a considerable number of persons acting together. A mere
criminal conspiracy to do damage by individuals, perhaps even small groups
51 Tappoo Holdings Ltd v. Stuchbery [2008] 1 Lloyd’s Rep. 34.
52 N 33; see paragraph 17.27.
53 This underlies the decision in Mann v. Lexington Ins Co [2001] Lloyd’s Rep. IR 179, which considered
contractual limits per occurrence on riot(s) in Indonesia.
141
R iots, civil commotions
of individuals, and even similar damage simultaneously over a wide area, will
not constitute tumult, although in some circumstances there may be a number
of simultaneous “riots”. Tumult does not need to be continuous and may be
sporadic over a long period.
(5) The English law recognises that if a “civil commotion” exists elsewhere, loss or
damage caused in a peaceful place, always provided that the loss or damage is
done in the general cause of the “civil commotion”, will still be loss or damage
caused by “civil commotion”.
142
CH A PT ER 18
Any terrorist …
Maritime terrorism: incidences and litigation
18.1 It is evident from databases tracking terrorist incidents that insured vessels have
been the subject of terrorist attacks on multiple occasions during the past 50 years. The
Rand Database of Worldwide Terrorism Incidents recorded 136 maritime targets since
records began in 1968.1 British flagged vessels can be found within this, notably in a
series of attacks on British vessels purportedly carried out by anti-Cuban protesters in
United States waters in the late 1960s.2 The motive seems to have been to discourage
trade with Cuba. Vessels insured at Lloyd’s would certainly also be within this list, and
some examples are detailed at paragraphs 18.18–18.29. Whilst it is possible to observe
practice in settling these claims, there have been remarkably few reported cases on point.
This is not due to a lack of unresolved issues. O’May described the uncertainty of the position of terrorist losses within marine and war risks cover at the time of the anti-Cuban
attacks:
In 1968, the Granwood and Caribbean Venture were severely damaged by external explosions
at Miami. “Credit” was claimed by a shadowy outfit calling itself “Cuban Power” … In the
Granwood claim, for instance, agreement was reached between marine and war risk underwriters for each to fund 50 per cent of the claim pending full investigation.3
Judicial approaches to interpreting terrorism as a contractual term
18.2 Although the meaning of terrorism in insurance has not been tested before the
UK courts, the Court of Appeal recently confirmed its approach to interpreting the related
perils of “acts of war” and “armed conflict”. In obiter comments in IF P & C Insurance
Limited v. Silversea Cruises Limited, The Silver Cloud,4 Rix and Ward L.J.J. considered
whether the 9/11 attacks could fall within those perils.5 Both accepted that the question
was not to be determined by technical definitions of public international law but by the
1 http://smapp.rand.org/rwtid/search.php.
2 These include The Granwood (24/05/68, Key West); The Lancastrian Prince (01/08/68, waters off
Florida); The Caribbean Venture (08/08/68, Miami). Irish Republican attacks on British flagged vessels are
reported in the early 1980s, notably HMS Hecate (02/11/1981) and The St Bedan (23/02/1983, Lough Foyle).
3 D O’May “War Risks” [1976] LMCLQ 180, 181.
4 [2004] Lloyd’s Rep. IR 696.
5 At [139]–[140] (Rix L.J.); [147] Ward L.J.
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A ny terrorist …
“common sense” understanding of commercial operators.6 Ward L.J.’s approach is likely
to be adopted by future courts in respect of terrorism claims:
For my part I do not believe that men of business, the underwriters and the insured, would
have said as they watched those aircraft smash into the Twin Towers, “That’s an act of war!”
They would have concluded, as the U.S. authorities described it in their Worldwide Cautions … that these were “terrorist actions from extremist groups … with links to Usama Bin
Laden’s Al Qaeda organisation” and “retaliatory actions by terrorists … who harbor grievances against the United States”.7
18.3 Nonetheless, the definition of terrorism is unlikely to be developed in an entirely
ad hoc fashion. The courts are likely—as with “war”—to draw upon elements taken from
definitions in related areas. This chapter therefore reviews the contractual definitions in
marine insurance policies, the statutory definitions in anti-terror (and related) legislation
and case law relating to insurance cover for non-marine terrorism. Collectively, this will
provide the likely components for any future judicial determination of disputes under an
insurance policy.
The definition of terrorism in marine insurance policies
18.4 The standard Hull & Machinery policies, both marine and war risks, simply name
terrorism as an excluded and included peril, without further definition.8 However, the
Institute Cargo Clauses provide a definition of terrorism that requires further comment.9
Clause 7.3 excludes losses:
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.
The limiting effect of this clause in its own right is considerably reduced by the inclusion
of Clause 7.4, which further excludes losses “caused by any person acting from a political,
ideological or religious motive”.
18.5 The Cargo Clauses definition is similar to that used in section 2, Reinsurance
(Acts of Terrorism) Act 1993. However, as the statutory definition merely defines the
scope of state intervention in the property reinsurance market for terrorism risk, it is unlikely ever to receive judicial analysis. Whilst it is legally possible that a claim might be
brought against Pool Re, or the Treasury, for acting ultra vires, it is hard to imagine the
circumstances in which this would arise. Some limited guidance can be gained from the
practice of Pool Re as it is seeking to extend its operations.10
18.6 The addition of Clause 7.4 captures individuals acting not in concert with others,
but in support of a wider cause. Given the rise of “lone wolf” attacks—such as the murder
6 Citing Kawasaki Kisen Kabushiki Kaisha of Kobe v. Bantham Steamship Company Limited [1939] 2 KB
544, 559 and Spinney’s (1948) Ltd v. Royal Insurance Co Ltd [1980] 1 Lloyd’s Rep. 406, 426.
7 At [147].
8 E.g. cl 24.2 Institute Time Clauses Hulls 1983: “any terrorist or any person acting from a political motive”.
9 Cl 7.3, Cargo Clauses A, B, C (2009).
10 www.poolre.co.uk/who-we-are/about-pool-re/.
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A ny terrorist …
of British MP Jo Cox—this would exclude such acts even if not considered terrorism per
se.11 Even with the combination of Clauses 7.3 and 7.4 there are circumstances that fall
outside the express limits. For example, the primary statutory definition of terrorism in
English public law has added racial motivation to the previous definition of “political,
ideological or religious motive”.12
Statutory definitions of terrorism
18.7 Where marine policies provide only for a terrorism exclusion without further
definition, one likely source of interpretative assistance is likely to be statutory definitions. With the exception of the Reinsurance (Acts of Terrorism) Act 1993 noted in
paragraph 18.5, UK law adopts a common definition for terrorism, found in section 1, Terrorism Act 2000 (as amended).13 The definition is a composite one. First, it imposes limits
on the intended purpose of the action or threatened action. This must be “designed to
influence the government or an international governmental organisation or to intimidate
the public or a section of the public”, and made “for the purpose of advancing a political,
religious, racial or ideological cause”. This is supplemented by section 1(5) which makes
clear that a “reference to action taken for the purposes of terrorism includes a reference to
action taken for the benefit of a proscribed organisation”.
18.8 Second, sections 1(2) and (3) provide a typology of actions that will be considered
terrorism if done (or threatened) for these purposes:
(a)
(b)
(c)
(d)
involves serious violence against a person,
involves serious damage to property,
endangers a person’s life, other than that of the person committing the action,
creates a serious risk to the health or safety of the public or a section of the public,
or
(e) is designed seriously to interfere with or seriously to disrupt an electronic system.
(3) The use or threat of action falling within subsection (2) which involves the use of firearms or explosives is terrorism whether or not subsection (1)(b) is satisfied.
18.9 Finally, section 1(4) provides guidance on potential territorial limits:
(a) “action” includes action outside the United Kingdom,
(b) a reference to any person or to property is a reference to any person, or to property, wherever situated,
(c) a reference to the public includes a reference to the public of a country other than
the United Kingdom, and
(d) “the government” means the government of the United Kingdom, of a part of the
United Kingdom or of a country other than the United Kingdom.
11 www.theguardian.com/uk-news/2016/nov/23/thomas-mair-found-guilty-of-jo-cox-murder
(accessed
25/08/2017).
12 Added to s. 1 Terrorism Act 2000, by s. 75, Counter-Terrorism Act 2008 on the advice of the independent
reviewer of terrorism legislation, Lord Carlile, The Definition of Terrorism (Cm 7052, 2007), [66].
13 A Greene, ‘Defining Terrorism: One Size Fits All?’ (2017) ICLQ 411.
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A ny terrorist …
This definition has been criticised as a “race to the bottom” to create the broadest possible
legal construct, and reliant on prosecutorial and administrative discretion to avoid undue
interference with civil liberties and/or overly broad criminal offences.14 This view has
received some support from obiter comments in litigation in the Supreme Court.15
18.10 From the perspective of commercial law, a catch-all definition for terrorism
raises no comparable policy objections, particularly if the definition is used to exclude
losses from marine coverage but include them within war risks cover. However, an overly
wide definition of terrorism may cause issues of overlap with other included or excluded
perils (such as war, malicious acts, piracy and others). This may cause practical issues
where losses are ascribed to multiple proximate causes, one of which is expressly covered
and the other expressly excluded as in The B Atlantic, with the result that the loss suffered
is neither within war risks nor standard marine cover.16
18.11 A narrower definition can be found in section 2, Reinsurance (Acts of Terrorism)
Act 1993, which created the Pool Re scheme for the reinsurance of property risk arising
through terrorism. Whilst this might at first sight appear to be an “insurance” definition,
its function is to enable State intervention in a commercial market. Moreover, its application to newer forms of terrorist action, such as cyber-risks has proved problematic.17 It
defines acts of terrorism as:
the 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.
The requirement of an organisation (and this is defined as “any association or combination
of persons”) means that acts of an individual would not be considered terrorism. Given
that this was enacted as a response to Irish Republican terrorism in the 1990s, this definition seems dated, given the subsequent rise of single person attacks.
18.12 Ultimately, the limits of terrorist risk in standard marine insurance cover would
be best set by treating the issue as a contractual question of interpretation, given the numerous potential overlapping perils. The statutory definitions would be best treated only
as a starting point, and ought not to be treated as exhaustive. The purpose of the definition
here is risk-allocation, and not some broader public policy objective.
The judicial interpretation of “terrorism” in insurance-related litigation
18.13 The English courts have not considered terrorism risks within the standard “war
risks” policies. However, some limited consideration has been given in respect of:
(i) The duty to insure against terrorism risks in respect of commercial residential
property;
14 See Greene, ibid, and Hansard (HC Deb, 14 December 1999, vol 341, cc152–233).
15 R v. Gul [2013] UKSC 64, [62].
16 Navigators Insurance Co Ltd v. Atlasnavios-Navegacao Lda (formerly Bnavios-Navegacao Lda), The
B Atlantic [2019] AC 136.
17 S. 21, Counter-Terrorism & Border Security Act 2019 widened the potential scope of the reinsurance
pool to any losses consequent on a terrorist attack, and not only where the attack caused physical damage to
insured property. This provision came into force on 12/02/19.
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A ny terrorist …
(ii) the exclusion of liability in a commercial “public and products liability” policy
(iii) The aggregation of losses arising out of the 9/11 attack; and
(iv) loss of business for Cruise Ship operators following the 9/11 attack.
18.14 In Qdime Ltd v. Bath Building (Swindon) Management Company Ltd,18 the ­Upper
Tribunal (Lands Chamber) had to establish whether a requirement to insure against explosion (as required by the standard Council of Mortgage Lenders guidelines) should be read
as to include a duty to purchase cover for the residential property against terrorism risk. The
management company for the property (and the individual leaseholders) argued that terrorism cover was unnecessary and the costs of that element could not be passed on to them. In
interpreting the clause, Judge Edward Cousins made specific references to terrorism cover
as defined by section 2(2) of the Reinsurance (Acts of Terrorism) Act 1993, as considered
in paragraph 18.5: “… 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 …”19 This is a clear
indication that the interpretation of terrorism within insurance contracts does not operate
solely on the basis of the criminal/public law standard found in the Terrorism Act 2000.
18.15 In Aioi Nissay Dowa Insurance Co Ltd v. Heraldglen Ltd,20 the High Court was
faced with claims on retrocession policies covering aviation losses following the twin
attacks on the World Trade Centres as part of the 9/11 plot. The crucial issue was whether
the attacks on the Towers constituted a single incident or two separate events for the purpose of the aggregation clause and policy limits.
The approach to “terrorism” as an insured peril in Heraldglen was necessarily brief.
The policy covered (by Clause AVN 48B) claims caused by “(d) any act of one or more
persons, whether or not agents of a sovereign Power, for political or terrorist purposes”.
Any question of whether the actions of the 9/11 conspirators fell within insured cover
would be resolved by the wider cover offered by Clause (g): “hi-jacking or any unlawful
seizure or wrongful exercise of control of the Aircraft in flight made by any person or
persons on board the Aircraft acting without the consent of the Insured”.
18.16 In Axa Corporate Solutions SA v. National Westminster Bank,21 Axa claimed
that the “public and products liability” element of cover provided to NatWest Bank was
subject to an exclusion against losses arising in connection with terrorism. The putative
exclusion was in the form “terrorism exclusion- wording to be agreed” and was said to
have been incorporated into the 2002–03 policy (and subsequent renewals) as a response
to the 9/11 attacks. The potential existence of the clause became significant when Nat
West notified Axa that it was being sued in US courts for providing banking services to a
UK charity (Interpal) which was alleged to have links to Hamas, the Palestinian organisation linked to suicide bombings in Israel. The litigation against Nat West in US courts
is ongoing.22
18.17 Much of the litigation in the UK High Court was concerned with factual matters
as to whether the parties had “negotiated out” this exclusion in negotiations subsequent
18
19
20
21
22
[2014] UKUT 0261 (LC); [2014] 3 EGLR 18.
At [14].
[2013] 1 C.L.C. 440; [2013] Lloyd’s Rep. I.R. 281.
[2010] 2 CLC 149.
Weiss v. National Westminster Bank (2016) 176 F. Supp. 3d 264.
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A ny terrorist …
to the initial offer of cover on terms contained in a fax from Axa. Hamblen J. found that
the insured and broker were unable to substantiate this claim. On that basis, the exclusion
clause stood. Whilst no final wording was ever agreed, the clause (“terrorism exclusion—
wording to be agreed”) was accepted by Hamblen J. as “words of substance and content
on their own … they state and identify that which is excluded from cover”.23 He refused
to provide detailed guidance on the meaning of the clause in the abstract and it does not
appear that the issue was revisited in subsequent proceedings. At this point, there is therefore little authority in favour of employing the Terrorism Act 2000 as indicative of the
position in insurance. Contrast the position in respect of riot as an insured peril, where it
is assumed that reforms in criminal law influence the limits of cover.
18.18 The closest analogous case to terrorism property damage claims in marine insurance is found in the Silver Cloud litigation, concerning maritime business interruption
risks. In IF P & C Insurance Limited v. Silversea Cruises Limited, The Silver Cloud,24
an amended version of the 1996 Norwegian Plan 25 (which was primarily used for oil
tankers) was used to insure a cruise ship operator against risks including financial losses
from terrorist action. Following the 9/11 attacks against the World Trade Centers, the
Pentagon and other sites, the US government issued warnings (including the “Worldwide
Cautions”) as to the likely risk of further attacks against US citizens worldwide. It was not
contested that the 9/11 attacks and the subsequent warnings had a substantial detrimental
effect on Silversea’s profitability and it sought to claim under its insurance.
18.19 As described by Rix L.J., the policy provided for three distinct but related layers
of cover:
Ai: “This insurance covers loss due to the vessel being wholly or partially deprived of income
as a consequence of an occurrence within the policy period of one of the following events”,
with the relevant named perils identified as:
[5] Blockage or closure of any canal or navigable waterway, capture, seizure, confiscation,
or any other event which directly interferes with the scheduled itinerary of the vessel
by … terrorists … actual or threatened …
[7] Acts of war, armed conflict, strikes, riots, and civil commotions which interfere with
the scheduled itinerary of the insured vessel, whether actual or threatened.
To this was added Aii:
The Assured’s loss of anticipated income expected to be earned on any future cruise as detailed in the current Cruise Atlas ….
This loss of income was further defined as:
To cover the Ascertained Net Loss resulting from a State Department Advisory or similar
warning by competent authority regarding acts of war, armed conflict, civil commotion’s
[sic], terrorist activities, whether actual or threatened, that negatively impacts the Assured’s
23 At [124].
24 N 4.
25 A full copy of the policy terms is appended to the Court of Appeal judgment.
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A ny terrorist …
bookings and/or necessitates a change to the scheduled cruise itinerary, subject to a maximum
period per event of 6 months from date that management within Silversea Cruises Ltd. shall
determine and will so notify the Berkely Group accordingly.
18.20 Finally, the cover in section B provided for additional liability for “cruise credits” and/or “on-board credits” incurred in circumstances that would trigger cover under
Ai. Cover under B was therefore dependent on liability under that earlier provision.
18.21 The application of these provisions to the conditions in the cruise ship market
immediately before and after the 2001 attacks proved contentious. As Tomlinson J. noted
this “was not assisted by the extraordinary level of mutual mistrust which seems now to
exist between insurer and insured”.26
18.22 A number of issues were raised on appeal, but for our purposes, the key considerations were:
(i) The proper construction of Clause Aii in light of the effect of both the 9/11 attacks and the subsequent warnings on customer demand for cruises; and
(ii) Whether the events of 9/11 could (irrespective of their characterisation as terrorist acts) constitute losses under Aii, para 7 under “acts of war”.
Before considering these issues in detail, it is worth reviewing the relationship between
the cover Ai and Aii. Rix L.J. made clear that the difference between them was temporal:
the critical distinction between Ai and Aii is that Ai is concerned with the immediate consequences of Ai insured perils upon the operations of the vessels and their current itineraries,
whereas Aii is concerned with loss of custom or the less immediate consequences of Aii
insured perils on future cruises.27
The insured perils under Aii: the relationship between the 9/11 attacks and the
subsequent US government warnings
18.23 The underwriter contended that on the proper construction of Aii, losses due
to the 9/11 attacks (rather than the subsequent government warnings themselves) were
excluded from coverage. If correct, then the consequences would be considerable for the
insured’s claim, as losses jointly attributable to an insured and an excluded peril would
fall outside the insurer’s obligation to indemnify (applying Lord Phillips M.R. in The
Demetra K):
Where a policy provides cover against one of two or more concurrent causes of a casualty, a
claim will lie under the policy provided that there is no relevant exclusion. Where, however,
a policy contains an express exclusion of cover in respect of loss resulting from a specified
cause, underwriters will be under no liability in respect of a loss resulting from that cause,
notwithstanding the fact that there may have been a concurrent cause of the loss which falls
within the cover.28
26 At [5].
27 At [73].
28 Kiriacoulis Lines SA v. Compagnie d’Assurances Maritimes Aeriennes et Terrestres (CAMAT), The
Demetra K [2002] 2 Lloyd’s Rep. 581, [18].
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A ny terrorist …
18.24 Rix L.J. refused to interpret Aii as excluding losses arising from terrorist acts
from cover. Such losses were simply not insured perils for Aii (but were insured perils for
Ai and B). On this basis, losses arising due to a combination of the 9/11 attacks themselves
and the subsequent warnings fell within Aii:
There is no intention under this policy to exclude loss directly caused by a warning concerning terrorist activities just because it can also be said that the loss was also directly and
concurrently caused by the underlying terrorist activities themselves.29
Did 9/11 amount to “acts of war” or “armed conflict” within the seventh
paragraph of perils under cover Ai?
18.25 The Court of Appeal considered whether the acts and consequences of the 9/11
attacks could constitute “acts of war” or “armed conflict” under Clause Ai. The interest
in this additional classification lay in the requirement for terrorism losses that that the
acts “directly” interfere with the scheduled itinerary, but for the extended coverage for
hostilities, mere interference was sufficient. As the causal effect of the attacks was contested, it was potentially to the insured’s advantage to recharacterise the losses as due to
“acts of war” or “armed conflict”. Having heard detailed argument on the point, both Rix
and Ward L.L.J. expressed a view, although it in both cases it was obiter and somewhat
tentative. Nonetheless, it provides a useful insight into the potentially overlapping nature
of terrorism and war-related perils. This has some significance in establishing whether
terrorism can be the result of state or quasi-state actions.
18.26 For Rix L.J., terrorism and war-related perils were not mutually exclusive: “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”.30
His approach was generally pragmatic, and influenced by the kinds of considerations
identified by Mustill J. in Spinney’s, namely as to the “scale and ramifications of the
conflict”.31
18.27 Ward L.J. did not agree on this point. He distinguished the 9/11 attacks and its
perpetrators from the consequential conflict against Afghanistan and viewed war as a
state-on-state action: “But it was not a war against them for war is not conducted against
an individual and his wicked henchmen, however real a threat they pose to the security
of a state”.32 On this basis, the implication is that terrorism is not state action, at least not
when carried out overtly.
18.28 Ultimately, this point remains unresolved.33 It is the view of the author that the
pragmatic approach of Rix L.J. is to be preferred, so that acts of violence might constitute
both acts of terror and acts of war, in appropriate circumstances. Ultimately, the final
analysis will depend on the terms of the particular insurance policy. The potential overlap
between war and terror needs only to be resolved where either the recoverability for losses
between each differs, or where one is insured and the other excluded.
29
30
31
32
33
At [104].
At [143].
At [143].
At [147].
Mummery L.J. simply agreed (at [145]), without expressing a view on this point.
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A ny terrorist …
Prior claims related to terrorism
18.29 The Third Edition of this text contained a list of claims handled by the London
market that are indicative of the likely approach taken to terrorism losses. This section is
quoted below:
(1) In 1987, an Air India Boeing 747 was destroyed over the North Atlantic by a
bomb placed among the aircraft’s navigational equipment. This was clear from
the wreckage which was, with some difficulty, brought to the surface. The aircraft and her cargo were lost, and all on board were killed. The perpetrators
were thought to be Sikh extremists living in Canada, although this was never
proved with certainty. The public cause was the desire of the Sikhs for an independent state of their own. The indiscriminate nature of the incident needs
no comment.
(2) In 1988, a Pan American Boeing 747 was destroyed over Lockerbie in Scotland by a bomb placed among the passengers’ luggage. This again was clear
from the wreckage. Again, the aircraft and her cargo were lost and all on
board were killed. In addition, people were killed and injured, and much
property was destroyed or damaged in the town of Lockerbie onto which
some of the wreckage fell. The perpetrators were originally unknown (at
least publicly), and the public cause was thought to be a revenge attack for
the recent accidental shooting down of an Iranian Airbus by the U.S.S. Vincennes. Painstaking investigation by the Scottish police later indicated that
some others may have been responsible. They have yet to be extradited and
tried, so that nothing can be said whether they did or did not cause the loss
of the aircraft. Likewise the public cause cannot be ascertained. It was clear
from the damage that this was a terrorist attack, that it was indiscriminate,
and that somebody had caused it, almost certainly for a public cause, even if
that public cause was uncertain. This was sufficient to complete the insured
peril.34
(3) Again in 1988, the City of Poros, a Greek holiday ship which gave tourists day
trips to the Greek Islands in the neighbourhood of Athens, sailed from Piraeus
with 400 passengers. A group among the passengers threw hand grenades
and opened fire with machine guns. Many passengers were killed or injured
and the ship herself was seriously damaged. The outrage had been carefully
planned; it cannot have been an easy task to smuggle the weapons on board,
and fast motor-boats were on hand to convey the perpetrators from the scene.
The perpetrators were not known with any certainty, although it is thought
that Abu Nidal, a splinter group which had broken away from the P.L.O., were
probably responsible. Abu Nidal’s exact aims are not certain, and may not even
exist, but it is known to nurse a grievance that the State of Israel continues to
34 This account of the events is retained from the Third Edition, written by Michael Miller.
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A ny terrorist …
exist, and a grudge that the P.L.O. pursues policies which are not to its liking.
In spite of these uncertainties, the Mutual War Risks Association concerned
accepted that the insured peril was complete. Again the indiscriminate nature
of the attack needs no comment, and nobody does this sort of thing unless they
are terrorists.35
35 See the Third Edition of this book, paragraph 18.16.
152
CH A PT ER 19
… Or any person acting maliciously or from a political motive
Malice and maliciously
19.1 This element of war risks cover has generated a steady trickle of disputes in the
English courts. A number of key issues have been identified in recent litigation, and these
provide the focus for this chapter. The courts have identified four main sources of ambiguity within the “malicious acts” cover, and these are taken in turn.
19.2 First, the extent to which “malice” requires some personal spite targeted at the
owner or operator of the property damaged, rather than some more generalised mental
element. This has been considered in some depth by Colman J. in The Grecia Express1 and
in The North Star,2 by the Court of Appeal (in relation to non-marine losses) in Tektrol,3
and by the Supreme Court in The B Atlantic.4 This edition therefore concentrates in detail
on the judicial reasoning adopted in those cases, and readers interested in the historic
position are directed to the Third Edition of this work.
19.3 Second, where the burden of proof lies in respect of identifying the instigator of
the malicious damage. In practice, whether the insured that it was not complicit in the
infliction of deliberate damage to insured property as a component of the insured peril.
The alternative is that the underwriter would be required to raise complicity by way of a
positive defence, such as wilful misconduct.
19.4 Third, the relationship between the positive cover for “malicious acts” and
potentially overlapping excluded perils, such as barratry and detention for customs
infringements. This has arisen in particular in respect of standard war risks cover for
Hull & Machinery. This point of construction was considered at all levels in The B
Atlantic,5 including at the Supreme Court stage. Linked to this is the application of
the proximate cause doctrine to “malicious acts” cases where “overlapping” excluded
perils might be found to have had significant causal effect. This was also considered in
The B Atlantic.
1 Strive Shipping Corp v. Hellenic Mutual War Risks Assocn (Bermuda) Ltd, The Grecia Express [2003]
1 CLC 40.
2 North Star Shipping Ltd v. Sphere Drake Insurance plc [2006] 1 CLC 606.
3 Tektrol Ltd v. International Insurance Co of Hannover Ltd [2005] 2 CLC 339.
4 Navigators Insurance Co Ltd v. Atlasnavios-Navegacao Lda (formerly Bnavios-Navegacao Lda), The B
Atlantic [2018] 2 WLR 1671; [2018] 2 Lloyd’s Rep. 1.
5 [2012] 1 Lloyd’s Law Rep. 619 (Hamblen J.); [2015] 1 Lloyd’s Law Rep. 117 (Flaux J.), [2017] 1 WLR
1303 (CA).
153
… Or any person acting maliciously or from a political motive
Malice as “targeted” or “wanton” vandalism
19.5 On the question of targeted spite, Lord Mance in The B Atlantic6 drew a distinction between the case law on this question, those predating the drafting of the Institute
Time Clauses (Hulls) 1983, and a series of subsequent first instance decisions. The historic case law can be read as providing a more restrictive interpretation of malicious acts,
requiring some degree of targeted ill-will towards the insured property. The more recent
case law had adopted a wider approach under which acts of untargeted vandalism could
still fall within the peril. Lord Mance evidently preferred the narrower test, but his judgment requires careful consideration to establish the precise position in law.
19.6 The B Atlantic concerned the deliberate planting of a substantial quantity of narcotics on board a vessel in harbour in Venezuela. On discovery of the drugs, the vessel
was impounded as part of judicial proceedings. The wider issues in this case are discussed
elsewhere in this book,7 but one question was whether secreting the drugs constituted a
malicious act. The dispute in The B Atlantic progressed to the Supreme Court on the basis
that planting the drugs was a malicious act, but the Supreme Court was not prepared to
hear the case on this basis, and requested submissions on this point.8
The “targeted malice” test
19.7 In The Mandarin Star,9 the Court of Appeal was faced with a marine cargo policy
over goods which the master of the vessel refused to deliver to the consignees, but instead
mortgaged them with a third-party, as a form of security for unpaid freight. The perils
insured included theft and “loss or damage by persons acting maliciously”.
19.8 Lord Denning M.R. treated “maliciously” as requiring “spite or ill-will”.10 His formulation evidently required some motivation beyond personal gain, but did not resolve whether
some degree of personal animus was required, such that it was action not merely against
the property but against the owner. Edmund Davies L.J. agreed with Denning M.R.,11 and
Phillimore L.J. read the peril as restricted to incidences of civil disturbance and the like.12
19.9 This ambiguity was identified but not resolved by Mustill J. in The Salem in determining that the “malicious acts” clause was inapplicable on the facts.13 Mustill J.’s
approach to the malicious acts issue was not tested in the subsequent appeals to the Court
of Appeal or House of Lords. His initial approach was to assume, consistent with a narrow
reading of The Mandarin Star, that personal malice was required:
The conspirators were not inspired by personal malice against [the owners of the cargo]; they
simply wished to steal the cargo, the identity of the owner being immaterial. The same is the
case as regards the destruction of the cargo remaining on board when the vessel sank.14
6
7
8
9
10
11
12
13
14
N 4.
See Chapters 11 and 12.
At [14].
Nishina Trading Co Ltd v. Chiyoda Fire & Marine Insurance Co Ltd, The Mandarin Star [1969] 2 QB 449.
At 462.
At 463.
At 467.
Shell International Petroleum Co Ltd v. Gibbs, The Salem [1981] 2 Lloyd’s Rep. 316, 328.
At 328.
154
… Or any person acting maliciously or from a political motive
19.10 However, Mustill J. was prepared to countenance the wider version of malice to
include acts of wanton violence, directed against the goods rather than the owner of the
goods, but held that it was unnecessary to decide the point.15
The “wider” test developed by Colman J.
19.11 In The Grecia Express,16 Colman J. was faced with competing explanations of
the cause of the loss of an ageing passenger ferry. The physical cause of the loss was generally agreed between the parties, as a valve was opened in the auxiliary engine room,
and the entry of seawater caused the vessel to capsize and sink. Combined with the cutting of the mooring ropes, this rendered the vessel a potential constructive total loss. The
question was who had carried out these actions. The owners contended that it was persons
unknown acting maliciously (an insured peril under the war risks policy in place) whereas
the underwriter argued that the watchman was complicit and that this was either a loss by
barratry or wilful misconduct by officers of the ship-owning company. In either alternate
circumstances the defendant underwriter would not be liable for the loss.
19.12 The defendant insurers argued that for the sinking to be malicious, it had not
only to be deliberate but “for the purpose of harming the insured”. Combined with its argument that the insured had to prove a lack of complicity, this would make it necessary (in
Colman J’s words): “for the owner to prove that the motive for the sinking was directed at
him and not by him”.17 This raised comparisons with the elements required to be proven to
establish barratry, and in particular whether the insured had to prove a lack of complicity.
The issue of proof is dealt with at paragraph 19.35.
19.13 For the purposes of establishing the meaning of “malicious acts”, Colman J. reviewed three sources considered in the previous edition of this work: the obiter comments
of the Court of Appeal in The Mandarin Star18 and The Salem,19 and section 58, Malicious
Damage Act 1861. He treated the analyses given by Denning M.R. and Mustill J. as obiter
on the basis that the decisions in The Mandarin Star and The Salem did not turn on which
definition was adopted.20
19.14 In considering those definitions in light of the facts of The Grecia Express, Colman J. was prepared to read the clause as covering wanton damage, rather than limiting
it to cases of personal grievance. He drew comfort from the general nature of war risks
perils, which are in the most part “necessarily wholly unrelated to the identity of the
insured”.21 Even for those risks which might be personal in nature (and he listed several useful examples including arrest, strikes and labour disturbances) none require as a
proven element of the peril that it “was aimed at or directed against the owners personally
as distinct from the vessel itself”.22
15
16
17
18
19
20
21
22
At 328.
[2002] 2 Lloyd’s Rep. 88.
At 95.
N 9.
N 13.
At 96.
Ibid.
Ibid.
155
… Or any person acting maliciously or from a political motive
19.15 In working towards a usable definition of malice for the purposes of war risks
cover, he drew on section 58, Malicious Damage Act 1861 and offered the following test:
Provided that the evidence establishes that the vessel was lost or damaged due to the conduct
of someone who was intending to cause it to be lost or damaged or was reckless as to whether
such loss or damage would be caused, that is enough to engage the liability of war risks
underwriters.23
19.16 The addition of “recklessly” inflicted harm to the insured events would make
the peril substantially wider than under the narrow version. This was demonstrated in
the subsequent decision in The North Star, where Colman J. reiterated this approach to
malicious damage:
The causing of deliberate or reckless damage to the vessel by someone who is neither a terrorist nor someone acting from a political motive and is not a member of the crew24 is therefore
an insured peril for which the insurers will be liable unless they prove to the requisite standard of proof that the claim is fraudulently advanced because the assured was complicit in the
causing of damage.25
The test in The B Atlantic
19.17 Lord Mance matched Colman J. in starting his analysis with a contextual point.
Rather than consider the nature of war risks perils as a whole, he focused on the immediate context of the neighbouring perils of “any terrorist” and “any persons acting from
a political motive”.26 He saw a common thread running through the clause of persons
“whose actions are aimed at causing loss of or damage to the vessel …”27
19.18 Lord Mance made the point that those who surreptitiously planted the drugs
wanted the opposite result: that the drugs go undetected and the vessel suffer no adverse
effects. This raises the question whether there are only two types of acts: (1) those with
targeted malice and (2) those without; or three, (1) those with targeted malice, (2) those
with malice towards the property but not motivated by some spite towards the owner, and
(3) those who were reckless as to whether a loss would occur or not. This is the ambiguity
which Mustill J. identified in The Salem, and, it is submitted, remains unresolved even
after The B Atlantic.
19.19 Lord Mance provided the following definition:
any person acting maliciously … should … be understood as relating to situations where a
person acts in a way which involves an element of spite or ill-will or the like in relation to the
property insured or at least to other property or perhaps even a person, and consequential loss
of, or damage to, the insured vessel or cargo. It is not designed to cater for situations where the
state of mind of spite, ill-will or the like is absent.28
23
24
25
26
27
28
At 96.
These exclusions reflect the policy terms, the reference to the crew relates to the exclusion of barratry.
At [83]. The limits of malicious acts cover were not a ground of appeal, [2006] 2 Lloyd’s Rep. 183.
At [14].
Ibid.
At [22].
156
… Or any person acting maliciously or from a political motive
19.20 There is then a distinction between actions where harm was intended but it might
be uncertain as to whether it was motivated by malice towards the insured person or property and circumstances such as The B Atlantic where the perpetrator was either indifferent
as to whether a loss would occur, or more realistically, would hope that no loss would
occur, but was indifferent to any harm caused to the insured property (rather than to the
success of the criminal enterprise) if one did.
19.21 Lord Mance’s definition is wide enough to capture actions which are either directed with targeted malice towards the specific insured property, or generalised malice
(such as random vandalism). He acknowledged this could encompass the issue raised by
Colman J.:
I do not consider that Colman J. was intending to do more than decide the narrow issue before
him, which was, as indicated, whether spite, ill-will or the like required conduct targeted specifically at the insured property or its owner, rather than casual or random vandalism … His
references to recklessness must be read in the context of the issue before him, whether the
cover extended to casual or random vandalism.29
19.22 Lord Mance’s definition is consistent with a model in which losses which are
intended are insured, but recklessness is not sufficient:
What the context and authorities indicate is that an element of spite, ill-will or the like is required. But I would not limit the concept to conduct directed towards the insured interest. An
act directed with the relevant mental element towards causing the loss of or damage or injury
to other property or towards a person could lead to consequential loss of or damage to an insured interest within clause 1.5, whether the actor was a terrorist, a person acting maliciously
or a person acting from a political motive.30
19.23 The final sentence of Lord Mance’s conclusion above, linking together the perils
of terrorism, political motive and malicious acts indicates that this analysis would hold
across all of these perils. Given the paucity of case law on terrorism and politically motivated losses, this is significant, even if obiter.
19.24 The test in the B Atlantic was applied in McKeever v. Northernreef Ins Co SA,31
before Dias Q.C. (sitting as Deputy High Court Judge). McKeever concerned a yacht insured on Northernreef terms for perils including perils of the sea, piracy, theft and malicious acts. It was not therefore a standard war risks policy, but a hybrid. The vessel
grounded and subsequently abandoned in a secure state. When the claimant insured returned to the vessel the following day with Coastguard assistance, it was surrounded by
small vessels and had been systematically looted. Entry to the vessel had been gained
by smashing windows. The broken windows were the presumed source of much of the
water (up to six inches deep in some sections) in the vessel when it was recovered. The
proceedings before the High Court were marked by the absence of the Uruguayan insurer,
although it did not contest jurisdiction and the policy was subject to English law.
19.25 Whilst Dias Q.C. was prepared initially to view the smashing of the windows
as a malicious act under the test in The B Atlantic as the damage and destruction was
29 At [24].
30 At [28].
31 Unreported, [2019] 5 WLUK 444.
157
… Or any person acting maliciously or from a political motive
intended, even if not the subsequent entry of the water, she found some difficulty in reconciling that approach with Lord Mance’s comments on The Salem. On the assumption that
Lord Mance treated The Salem as requiring that the malicious act be an action for its own
distinct purpose and not part of some wider scheme, Dias Q.C. found that the smashing of
the windows was not qualitatively distinct from the deliberate destruction of the remainder of the cargo in The Salem. In both cases, these were not the deliberate destruction of
property as an act of pure spite, but actions motivated by some ulterior purpose, namely
personal profit.
19.26 In the Brilliante Virtuoso,32 Teare J. was faced with a policy covering “malicious acts” and “vandalism or sabotage”. The circumstances of the damage to the vessel
were extraordinary, with a fire deliberately caused by persons permitted on board on the
pretence that they were security guards. The fire was started on the basis of a further pretence that these armed men were pirates disguised as security guards. In fact, this was a
complex fraud with the owner complicit in these actions. The innocent co-insured Bank
sought to recover on the policy. In applying the decision of the Supreme Court in The B
Atlantic in light of the MacKeever case, Teare J. developed two limitations on the definition of “malicious acts”. First, the actions of those assisting the owner in a scuttle, were not
malicious acts because they were not contrary to the interests of the owner. The damage
was caused to the vessel, but in the wider pursuit of promoting the insured’s fraudulent
scheme. Deliberate damage was not therefore motivated (as was required) by “spite, illwill or the like”.33 This is akin to the limit on the peril of barratry in Hull & Machinery
cover that the actions must be to the prejudice of the owner.34 This restriction is not necessary to prevent recovery on the policy where the owner was the claimant, as the doctrine
of wilful misconduct would operate. It does restrict the rights of innocent co-insureds.
19.27 The second restriction adopted by Teare J. is novel. He found that the threat of
violence to those of the crew who were not a party to the conspiracy—which he accepted
would have seemed real—was insufficiently indicative of the activity as a whole for the
operation to be characterised as malicious.35 With respect, this seems an unnecessary
additional requirement. The real question is whether the proximate cause of the loss was a
malicious act, and not whether the operation as a whole could be so characterised.
Malicious damage: specific intent and non-marine insurance cases
19.28 There is recent case law on the required mental element to establish specific
malicious intent in the non-marine insurance context. These relate to policy exclusions
removing coverage for losses which were caused maliciously and pre-date the decision
in The B Atlantic. In Porter v. Zurich Insurance,36 Coulson J. was faced with insurance
claims arising out of a deliberate fire set by the insured in a residential property. The
insured attempted suicide by burning down his house following significant personal and
mental problems. The underwriter denied liability for the initial damage by fire and for
32
33
34
35
36
[2019] EWHC 2599 (Comm).
At [504].
Arnould at [23.46].
At [505].
[2010] Lloyd’s Rep. IR 373.
158
… Or any person acting maliciously or from a political motive
subsequent thefts from the property whilst it was boarded up and awaiting repair. In respect of the fire damage, it relied on “General Exclusion Clause 1” which excluded “any
wilful or malicious act by a member of the family or by a person lawfully at or in the
home”.
19.29 Coulson J. found that the express clause, and the effect of general principles of
law (including the ex turpi causa doctrine) was to deny liability for the fire damage unless
the insured was legally insane at the time of the fire:
Mr Porter is only able to circumvent all of those difficulties, and to recover in respect of the
fire claim, if he is able to demonstrate that, on 27 March 2001, he did not know “the nature and
quality of the act he was doing; or if he did know it, that he did not know that he was doing
what was wrong.” If Mr Porter is able to establish that, in accordance with this test, he was
insane according to law, then he can recover; if he is able to show mental illness which falls
short of this test, then the claim in respect of the fire damage must fail.37
This approach blurred the lines between malicious, reckless and intentional acts in the
insurance context.
19.30 The scope of malicious acts cover was also considered in the Court of Appeal
decision in Tektrol.38 The litigation concerned liability on an “all risks” business interruption policy. The business developed energy-saving devices and the source code for its
software was a key business asset. Due to a burglary and an unrelated computer virus, all
copies of the source code were lost. As with most “all risks” policies, there was a series
of excluded perils, and Clause 7(b)(i) excluded: “erasure loss distortion or corruption of
information on computer systems or other records programmes or software caused deliberately by rioters strikers locked-out workers persons taking part in labour disturbances
or civil commotion or malicious persons”.
The appeal in Tektrol was heard after the decision in The Grecia Express, but none of
the marine insurance authorities were cited to the court.
19.31 Whilst the types of damage bear little resemblance to standard marine war risks
cover, the excluded perils are familiar. Buxton L.J. treated the enumerated perils other
than “malicious persons” as requiring some physical proximity and understood deliberately as requiring some intention to cause the loss of the source code and not “accidentally
or carelessly in the course of other depredations”.39 He was concerned that the addition of
“malicious persons” to the list of excluded causes could potentially exclude the actions of
a wide range of remote hackers. He was evidently concerned by this sudden alteration in
the nature of the perils excluded:
I am therefore driven to the conclusion that although … the author of the virus was a “malicious person”, the clause does not extend to interferences by such people that are not directed
at the computer systems, etc, used by the insured at the premises. If the insurer wished to
exclude all damage caused however indirectly by a computer hacker he needed to place that
exclusion in a separate clause, and not refer to malicious persons in the same terms as rioters
or locked-out workers.40
37
38
39
40
At [23].
N 3.
At [11].
At [12].
159
… Or any person acting maliciously or from a political motive
19.32 The approach of Buxton L.J. in Tektrol suggests that a malicious act which is
indiscriminate in nature, in the way that the release of a computer virus is indiscriminate,
should not be treated as falling within the malicious act exclusion in non-marine insurance
cases.
Conclusions on malicious conduct
19.33 The meaning of maliciousness is insurance contracts is not universal, and depends in part on the nature of the neighbouring perils.
19.34 It is possible to reconcile The Grecia Express, The B Atlantic and Tektrol on the
following basis:
(1) A vandal that boards three ships at random and smashes the first glass window
he encounters on each vessel can be acting maliciously, even in the absence of
targeted malice against the owner of each vessel; but
(2) A vandal that catapults a cannon ball randomly into a crowded harbour,41 with
no intended targeting, simply for the pleasure of damaging property might lack
the specific intent provided by physical proximity to establish malice against
particular property.
Malicious acts: proof of complicity
19.35 The defendant insurers in The Grecia Express also failed to persuade the court
on its second contention: that for the act to be malicious the insured needed to establish
that it was not complicit. Referencing the judicial treatment of the peril of barratry in
the Court of Appeal in Elfie A Issaias v. Marine Insurance Co Ltd 42 he noted that “it is
presumed that the sinking was both wrongful and to the prejudice of the owner or charterer …” 43 and for the underwriter to raise some defence to the claim, such as proof of
wilful misconduct. Colman J. thought it would “be strange indeed” for a higher standard
to be imposed where the vessel was proved to have been sunk intentionally by vandals
than sunk by the crew. This must be correct, at least until such time as the Issaias decision
is reconsidered.
Malicious damage and related perils
19.36 The decision of Lord Mance in The B Atlantic44 that there was no malicious act
was, in his view, sufficient to dispose of the dispute.45 However, the Supreme Court having
given leave to appeal on the wider issues raised, he gave a fully reasoned (if presumably
obiter) analysis of the relationship between the cover for malicious acts (in Clause 1.5) and
the limited cover for capture and seizure (Clause 1.2), where related to the infringement
of customs rules (Clause 4.1.5).
41
42
43
44
45
This simple hypothetical scenario avoids any complications that the use of an explosive would bring.
(1923) 15 Ll L Rep. 186.
At 416.
N 4.
At [31].
160
… Or any person acting maliciously or from a political motive
19.37 The initial issue is one of construction of the policy. At first instance, Flaux J.
had found that the exclusion in Clause 4.1.5 would not apply “where the only reason why
there has been an infringement of the customs regulations is because of the malicious
acts of third parties”.46 Lord Mance rejected this approach on the basis that none of the
criteria for an implied term to this effect was met.47 Difficult hypothetical scenarios had
been raised in litigation on this issue as far back as The Anita, where Lord Denning considered how the clause would respond to a “put up” job where contraband was planted by
the authorities as the pretext for arresting the vessel.48 Lord Mance was satisfied that these
issues could be resolved by the application of the proximate cause doctrine, as in such
cases the dominant cause of the loss would be the malicious act of planting the contraband
rather than its seizure.49
19.38 Where, as in the facts of The B Atlantic, the cause of the loss was the combined
effect of the planting of the narcotics and the seizure of the vessel that resulted from their
discovery, a rule of law was required to determine the underwriter’s liability. Applying the
approach of Lord Blackburn in Cory v. Burr,50 Lord Mance viewed the exclusion in 4.1.5
as the dominant provision:
where the perils insured include both detainment and malicious acts and the policy wording
introduces different stages in an inquiry, at each of which different considerations may apply.
Subsequent authority confirms Lord Blackburn’s conclusion that, where an insured loss arises
from the combination of two causes, one insured, the other excluded, the exclusion prevents
recovery.51
Examples from beyond the litigated cases
19.39 In the previous edition, the former author gave examples from his personal experience that the practice of underwriters was to follow the guidance of Lord Denning M.R.
in The Mandarin Star and these are reproduced below. To the extent that these conflict
with the subsequent explanation of the law described above, they should be treated as of
historic interest only.
It may be helpful to describe some of the cases where the Mutual War Risks Associations have accepted claims on the basis that persons were “acting maliciously”:
(1) In Haifa, fires broke out simultaneously in the ship’s crew accommodation aft,
in the accommodation amidships and in the paint store forward. The fire brigade found definite evidence that arsonists had been at work. The crew could
have caused these fires, but it was thought more likely that the stevedores had
done so, being disgruntled with the Master.
46 [2015] 1 Lloyd’s Rep. 117 at [258].
47 At [33].
48 Panamanian Oriental Steamship Corpn v. Wright, The Anita [1971] 1 Lloyd’s Rep. 487.
49 At [34]–[36].
50 (1883) 8 App Cas 393.
51 At [49]. He cited in further support of this rule: P Samuel & Co Ltd v. Dumas [1924] AC431, 467, per
Lord Sumner; Wayne Tank and Pump Co Ltd v. Employers Liability Assurance Corpn Ltd [1974] QB 57, per
Lord Denning M.R. at p 67B—F, per Cairns L.J. at p 69B—D and per Roskill L.J. at pp 74E—75D.
161
… Or any person acting maliciously or from a political motive
(2) In Canada, drunken youths threw inflatable life rafts over the side of ferries to
see if they floated.
(3) Again in Canada, a moored ship was cut adrift.
(4) In Mombasa, three naval ratings from H.M.S. Eagle, well gone in drink and
disgusted with their officers, their ship and East Africa in general, entered the
engine room of a merchant ship and smashed all the gauge-glasses.
(5) Between Durban and Singapore, a North Korean crew expressed their disgruntled feelings with the owners and the Greek officers by throwing the navigation
equipment overboard.52
Political motive
19.40 “Political motive” so far appears to have received no judicial definition. The
current definitions of “political” in the Oxford English Dictionary are of variable use, but
the fifth definition offered is apt: “Relating to or concerned with public life and affairs as
involving questions of authority and government; relating to or concerned with the theory
or practice of politics”.53
19.41 In the discussion of malicious acts at paragraph 19.22 it was noted that Lord
Mance assumed that the perils of terrorism, politically motivated acts and malicious acts
all required some degree of intentional harm, over and above mere recklessness:
An act directed with the relevant mental element towards causing the loss of or damage or
injury to other property or towards a person could lead to consequential loss of or damage to
an insured interest within clause 1.5, whether the actor was a terrorist, a person acting maliciously or a person acting from a political motive.54
Whilst this would not be binding on a future court, it is highly persuasive. The potential
overlap between politically motivated acts and the malicious acts peril is considerable. Political malice would still be malice. There does remain the possibility of treating malicious
acts as wider in nature, despite Mance’s assertion to the contrary. The kind of indiscriminate actions seen in Tektrol, ought, with respect, to not be so readily excluded from the
politically motivated sphere. The Stuxnet virus was used to degrade physical machinery
in order to slow the processing of nuclear material.55 The indiscriminate release of a virus
of this kind might be both politically motivated and lack the specific intention to harm
particular targets to constitute a malicious attack under Lord Mance’s approach.
19.42 The previous edition of this work noted that influence of attacks on British vessels trading with Cuba on the drafting of this clause:
In the early history of this insured peril, “political motive” was intended to include such
actions as those of Cuban exiles in Miami in 1964. Disapproving of British ships trading to
Cuba, they placed limpet mines on the hulls of British ships regardless of whether they were
52 See the Third Edition of this work at paragraph 19.10.
53 “political, adj. and n.” (OED Online), www.oed.com/view/Entry/146887? (5th defn) “Relating to or concerned with public life and affairs as involving questions of authority and government; relating to or concerned
with the theory or practice of politics”.
54 N 30.
55 www.businessinsider.com/stuxnet-was-far-more-dangerous-than-previous-thought-2013-11.
162
… Or any person acting maliciously or from a political motive
themselves trading with Cuba. During the early stages of its work, Mr. Alan Jackson’s Committee considered “ideological motive”. It was felt that this was too narrow for the purposes
of the war and strikes insurance.56
19.43 It will be apparent to the reader that there is a considerable degree of overlap
between “terrorists”, “acting maliciously” and “political motive”. It is possible to identify
examples of behaviour that fall outside some elements of the triptych of perils. Individuals acting alone will often fall outside the definition of “terrorist”. Similarly, actions
taken against dissident groups (rather than governments) might constitute politically motivated acts but be insufficiently targeted at a state power to constitute a terror attack.
Finally, actions that are indiscriminately violent might be malicious, but might be difficult
to distinguish in practice from losses that will be not covered under war risks insurance,
particularly if the motive is not the infliction of damage but some wider scheme, such as
burglary. It remains open to underwriters to remove or restrictively redefine cover for
malicious acts. Absent this, further litigation is not unlikely.
56 See the Third Edition, paragraph 19.12. These attacks are considered in respect of terrorism and are
covered in Chapter 18.
163
CH A PT ER 20
Piracy
Piracy as an insured peril: Hull & Machinery cover
20.1 In recent decades, piracy has alternated between being treated as an insured peril
under the standard marine policies (alongside perils of the sea and other maritime risks)
and under war risks policies (with political risks).1 Whether it is treated as a marine or a
war risks peril is a matter for the parties and the market, but it would normally be insured
under one form of cover and specifically excluded under the other.2
20.2 At present, piracy is by default located within maritime risks (under the Institute
Times Clauses Hulls (1982) and other standard Hull & Machinery policies)3 but is commonly excluded by contract variation and insured within war risks cover. This places
piracy alongside other deliberate acts by third parties, such as “malicious acts” and terrorism. The specific variations to cover which remove violent theft, piracy and barratry from
marine perils and extend cover to include them in the war risks clauses were drafted in
2005 as a response to increased levels of modern piracy.4 Despite this change in approach,
many leading texts still consider piracy as a part of the standard marine risks.5
Piracy as an insured peril: cargo cover
20.3 Piracy is an insured peril under Institute Cargo Clauses A (as all risks cover), but
not Institute Cargo Clauses B or C. In the 1983 and 2009 variants of the Institute Cargo
Clauses (A-C), certain named war and strikes risks are specifically excluded by Clauses 6
and 7, but the exclusion of “capture or seizure” in Clause 6.2 explicitly does not apply to
piratical seizures. Cargo Clauses B and C do not, in any event, insure piracy (whether by
1 See Marine War Risks (3rd edn), Chapter 20.
2 The “seamlessness of cover” that normally exists between the perils excluded under maritime risks
policies and those insured under war risks policies was frustrated at times by the drafting of the pre-1982 policies. See Panamanian Oriental Steamship Corpn v. Wright, The Anita [1971] 1 Lloyd’s Rep. 487, 491 where
Ld Denning M.R. described the arrangement of the policy as “very complicated but hallowed by practice”.
3 It is similarly insured (by default) in the International Hulls Clauses 2003.
4 “Violent Theft, Piracy and Barratry Exclusion—for use with the Institute Time Clauses Hulls 1/10/83”
(JH2005/046) and the associated “Violent Theft, Piracy and Barratry Extension—for use with the Institute
War & Strikes Clauses Hulls -Time 1/10/83”. Equivalent clauses exist to amend the ITCH 1/11/95: “Violent
Theft, Piracy and Barratry Extension—for use with the Institute War & Strikes Clauses Hulls—Time 1/11/95”
(JW2005/003).
5 J Gilman, et al., Arnould’s Law of Marine Insurance and Average (Sweet & Maxwell, 19th edn, 2018),
Chapter 23.
164
Piracy
seizure or otherwise) as a named peril.6 The Institute War & Strikes Clauses do not (by
default) cover piracy, that being treated as marine peril rather than a war risk.7
Piracy: the limits of the peril
20.4 Piracy as a peril has been the subject of careful judicial scrutiny, as its precise
limits differ from those in other legal contexts. Moreover, its relationship to other perils,
such as violent theft, barratry, terrorism, seizure, and capture will be important in policies
which do not treat each of these risks equally. The need to carefully identify the limits of
piratical losses is added to by the changing nature of modern day piracy. The last two decades has seen the rise (and fall) of Somali piracy-for-ransom and the rise of violent theft
of cargo in the Gulf of Guinea. As ever, changing circumstances raises fresh questions on
the limits of insured perils and exclusions.8
20.5 As noted in previous editions, the words “piracy” and “pirates” are elastic terms
whose meanings can vary depending on the circumstances. The precise limits of the
peril in a marine insurance policy is fundamentally a matter for the parties but in the absence of express words the courts have often made reference to other legal and non-legal
definitions.
These include:
(1) Piracy jure gentium by hostes humani generis, or piracy against the Law of
Nations by the enemies of all mankind. It is a criminal offence, and any state
which captures a pirate may try and punish him regardless of where his crimes
were committed.
(2) Piracy which is a crime against the domestic laws of a state. These will vary
from state to state.
(3) Piracy as defined by treaty in Public International Law. For example, Articles
100–107 of the United Nations Convention on the Law of the Sea empower (and
sometimes, oblige) contracting states to act against pirates on the High Seas.
(4) Piracy as defined by statute entitling officers and men of the Royal Navy to a
bounty for dealing with pirates.
(5) Piracy for the purposes of commercial documents such as charterparties, bills
of lading, and insurance policies.
20.6 This work is particularly concerned with the last aspect, but there are some common threads which run through them all, and in considering “piracy” as applied to commercial documents, the courts and NGOs have drawn on sources from across the range.
Piracy: incidences
20.7 The International Chamber of Commerce hosts the International Maritime Bureau’s Piracy Reporting Centre, which logs the location, nature, and outcome of suspected
6 For further consideration of the position in respect of cargo insurance, see J Dunt, Marine Cargo Insurance (Informa, 2nd edn, 2015), paragraphs 10.1–10.3.
7 CL 397 (2016).
8 www.icc-ccs.org/piracy-reporting-centre/live-piracy-map.
165
Piracy
piratical attacks globally.9 The real-time global piracy map that it maintains shows hot
spots in the Gulf of Guinea, the Gulf of Aden and in the waters surrounding Indonesia.
Other regions are identified as being of high risk when at berth. Many of the incidences
during 2017 were relatively minor in terms of loss of or damage to hull or cargo, but some
were potentially more serious with the use of weapons against crew members. The centre
has created a “Community of Reporting” intended to counter the under-reporting attacks
on vessels, particularly in the Gulf of Guinea, but the figures produced should be treated
as indicative rather than the complete picture.
20.8 The reported data from 2010–18 show a considerable shift in the distribution of
attacks since the high water mark in the Gulf of Aden in the mid-2000s. The 2017 reports show 180 incidents across the globe, broadly in line with the 2016 figures. However,
this does not mean that the position is entirely static. Attacks in some regions have been
significantly reduced by the intervention of littoral States in hot spots, but some of this
activity is displaced to neighbouring locations. Moreover, the nature of the attacks varies
considerably, with pirates variously engaged in the capture of the vessel, cargo and crew
for ransom in some areas; the kidnapping of crew in others; and smaller scale operations
involving the forcible theft of cargo and parts.
Focusing on the frequency of attacks and attempted attacks, there is a notable shift
in the past decade. The 2010 figures show three-quarters of the 445 attacks linked to
six key locations (Somalia and Gulf of Aden, South China Sea, Bangladesh, Indonesia,
Nigeria, Red Sea), with Somalia and the Gulf of Aden accounting for 43% of the overall
total. By 2017, the year-end figure had reduced to 180 incidents, with notable hotspots in
Indonesia (24%), Nigeria (18%), the Philippines (12%), Venezuela (7%) and Bangladesh
(6%).
Piracy: definitional issues
20.9 Cases concerned with the definition of piracy in marine insurance policies and
other commercial contracts have often considered, but not found themselves constrained
by, definitions from criminal and public international law. The orthodox approach is to
treat it as a question of contractual interpretation, albeit one informed by the norms of
both criminal and public international law.
20.10 The leading decisions on the meaning on piracy for the purposes of marine insurance are Republic of Bolivia v. Indemnity Mutual Marine Assurance Co, Ltd10 and The
Andreas Lemos.11 In the Republic of Bolivia case, Pickford J. was concerned with goods
seized whilst in transit on a voyage on the Amazon, in a region on the Brazilian/Bolivian
border. The insured cargo was seized by armed men hostile to the establishment of Bolivian control over the region, as the vessel carrying the goods was also shipping supplies intended for the Bolivian authorities. In determining the meaning of the word piracy within
the “warranted fc&s” Clause, and having reviewed competing definitions in criminal and
public international law texts, he stated:
9 www.icc-ccs.org/piracy-reporting-centre. At the time of writing, annual reports were available for
2010–17.
10 [1909] 1 KB 785.
11 [1982] 2 Lloyd’s Rep. 483.
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Piracy
… I am not at all sure that what might be piracy in international law is necessarily piracy
within the meaning of the term in a policy of insurance. One has to look at what is the natural
and clear meaning of the word “pirate” in a document used by business men for business purposes; and I think that, looking at it in that way, one must attach to it a more popular meaning,
the meaning that would be given to it by ordinary persons, rather than the meaning to which
it may be extended by writers on international law.12
This approach was affirmed subsequently by the Court of Appeal, although there was no
unanimity as to what criteria this entailed. The issues raised in the Republic of Bolivia
case provide a useful guide to many of the contentious points in later case law.
20.11 First, Pickford J. noted that the policy related to a river voyage policy and so references to piracy as limited to actions on the high seas would be inappropriate. This was
specifically doubted by Vaughan Williams L.J. on appeal,13 but he did not receive support
in this from Farwell L.J. and Kennedy L.J. This issue: whether “piracy” can only occur
on the high seas, was the subject of detailed consideration in The Andreas Lemos, and is
considered at paragraph 20.14.
20.12 Pickford J. continued by considering the motive required for an act to be piratical, and distinguished personal and political motivations:
[Piracy’s] essence consists in the pursuit of private, as contrasted with public, ends. Primarily
the pirate is a man who satisfies his personal greed or his personal vengeance by robbery or
murder in places beyond the jurisdiction of a State. The man who acts with a public object may
do like acts to a certain extent, but his moral attitude is different, and the acts themselves will
be kept within well-marked bounds. He is not only not the enemy of the human race, but he is
the enemy solely of a particular State.14
This distinction between political and personal acts is critical for distinguishing between
the modern perils of piracy and terrorism, amongst others. In this, Pickford J. received the
full support of the Court of Appeal.15
20.13 The third element is the type of action undertaken. Piracy has long been expressed as “robbery at sea”.16 Whether the event need be maritime (as opposed to riverine
or estuarine) was noted above, but there remains the issue as to whether it need be robbery.
In some early cases, the issue was whether this required overt force and/or violence, but in
latter days the courts have had to consider whether the form of “piracy-for-ransom” operated out of Somalia and neighbouring states constituted piracy for marine cover.
These issues, and their associated authorities, are considered in turn below.
12 N 10 at 790.
13 Ibid 799.
14 Ibid 791.
15 Ibid, per Vaughan Williams L.J. (at 796), Farwell L.J. (at 799) and Kennedy L.J. (at 803).
16 As in The Republic of Bolivia case, n 10, per Kennedy L.J. at 802–803 quoting (with approval) the
­definition given in T Carver, A Treatise on the Law Relating to the Carriage of Goods by Sea (4th edn, 1905),
p.117:
Piracy is forcible robbery at sea, whether committed by marauders from outside the ship or by mariners
or passengers within it. The essential element is that they violently dispossess the master, and afterwards carry away the ship itself, or any of the goods, with a felonious intent.
167
Piracy
Piracy and location: high seas/territorial waters
20.14 In many of the pre-twentieth-century cases, piracy as an insured peril was assumed to be limited to events on the high seas, in accordance with its definition in international law at that point in time. The early criminal definition of the offence of piracy
also assumed geographic limits, but based on the limits of admiralty law, and extending
“throughout all seas, and the ports, creeks, and rivers beneath the first bridges next the
sea even unto the higher water mark”.17 The modern definition for international law purposes (in Article 101, UNCLOS) remains limited to attacks on the high seas or “in a
place outside the jurisdiction of any State”, although acts of incitement can occur in any
jurisdiction. In The Andreas Lemos,18 Staughton J. was faced with the removal of valuable
equipment (mostly, mooring ropes) by armed men whilst the vessel was moored within
port limits, and Bangladesh territorial waters. The policy’s “FC&S Clause” excluded the
consequences of piracy from cover. The judge continued the tradition of distinguishing
the interpretation of a commercial contract from defining piracy for criminal or public
international law purposes. In determining the geographic limits of piracy in a marine
insurance policy, he stated:
I see no reason to limit piracy to acts outside territorial waters. In the context of an insurance
policy, if a ship is, in the ordinary meaning of the phrase “at sea” … or if the attack upon her
can be described as “a maritime offence” … then for the business purposes of a policy of
insurance she is … in a place where piracy can be committed.19
In reaching this conclusion, Staughton J. drew some support from the definition offered
in rule 8, Schedule 1 of the MIA 1906 and three American cases,20 which envisage piracy
as encompassing attacks from the land, and thereby not (presumably) limited to attacks
outside territorial waters.
Piracy and method: theft/attempted theft/ransom
20.15 If piracy is, as many of the criminal cases suggest, “robbery at sea” then what of
actions that do not fall within the definition of robbery? In The Andreas Lemos,21 a group
of men armed with machetes removed mooring ropes from the vessel. This was undertaken stealthily, and Staughton J. had to consider whether the use of force was a required
element for an act of “piracy”. Kennedy L.J. in the Republic of Bolivia case had approved
the definition of piracy in Carver’s Carriage of Goods by Sea22 that piracy is “forcible
robbery at sea” and a similar view was expressed in The Salem where Denning L.J. stated
“there were no pirates here because there was no forcible robbery”.23 On this basis, the
17 R v. Dawson (1696) St Tr 5. The criminal jurisdiction has been tested, at least in Scots law, in more recent
times, see Cameron v. HM Advocate [1971] JC 50.
18 N 11.
19 Ibid at 490.
20 Ibid at 490. The American cases reviewed were U.S. v. Smith (1820) 5 Wheat 153; U.S. v. Furlong (1820)
5 Wheat 184 and People v. Lol-lo (1922) Ann Dig Vol 1, p.164.
21 N 11.
22 N 16.
23 [1982] QB 946, 986. The point was not discussed in the subsequent appeal to the House of Lords.
168
Piracy
actions of the assailants in The Andreas Lemos was not piracy, it was “clandestine theft
which was discovered; force or a threat of force was used by the men to make good their
escape”.24 This clear divide between clandestine theft and robbery was consistent with the
definitions of the offence in section 8, Theft Act 1968.
20.16 If the physical elements of piracy are those of robbery, but at sea, what of the
consequences of unsuccessful attacks? This issue was raised in the special reference to
the Pricy Council in In Re Piracy Jure Gentium in 1934,25 but remains a practical issue
for marine insurance, as modern pirates have access to considerable weaponry that could
cause significant damage to a vessel irrespective of whether it is captured. The Privy
Council was concerned with whether the criminal offence of piracy was made out even
though the attack was unsuccessful, and readily confirmed that it was: “a frustrated attempt to commit a piratical robbery is equally piracy jure gentium”.26 This decision was
considered in passing in The Andreas Lemos, and is likely to represent the position in
marine insurance law also.
20.17 Finally, what of those attacks which are not meant to gain permanent control of
the goods or vessel attacked but merely to hold it to ransom? This has been the modus
operandi in the Gulf of Aden since the turn of the century, and is commonly referred to
as Somali piracy. It is clear that the market has considered such losses as piratical, with
substantial levels of compensation paid.27 In the only case on point, Masefield v. Amlin,28
the Court of Appeal was concerned with the nature and timing of the loss, but assumed
that the event fell within the peril of piracy.29 It was common ground that the seizure of
the vessel and the insured cargo of bio-diesel constituted a loss within the policy, which
covered all risks, except for certain war risks (“capture, seizure, arrest restraint or detainment (piracy excepted), and the consequences thereof or any attempt thereat”).30 Piracy
(as an exception to the excluded risks) was therefore insured. Rix L.J. treated the actions
of the Somali pirates as piratical seizure even where “where there was not only a chance,
but a strong likelihood, that payment of a ransom of a comparatively small sum, relative
to the value of the vessel and her cargo, would secure recovery of both”.31
20.18 Recent litigation has tested whether damage to the vessel by a simulated attack
by pirates or similar could constitute piracy. In The Brilliante Virtuoso,32 men said to be
armed guards boarded a vessel, set off an explosive and set it on fire, causing extensive
damage. The owner was found to be complicit in what was shown to be a complex fraud.
24 N 11 at 491.
25 [1934] AC 586.
26 Ibid at 588.
27 An estimate of $80 million was given of ransom payments paid in 2008. See House of Lords EU
­Committee, Combating Somali Piracy: the EU’s Naval Operation Atalanta (2010, HL Paper 103), www.publications.parliament.uk/pa/ld200910/ldselect/ldeucom/103/103.pdf at [53].
28 [2010] 1 Lloyd’s Rep. 509 (QBD); [2011] 1 Lloyd’s Rep. 630 (CA).
29 Somali piracy has been considered in respect of charterparties: Eleni Shipping Ltd v. Transgrain Shipping BV, The Eleni P [2019] 2 Lloyd’s Rep. 265 (off hire); Osmium Shipping Corp v. Cargill International SA,
The Captain Stefanos [2012] 2 Lloyd’s Rep. 46 (off hire); Pacific Basin IHX Ltd v. Bulkhandling Handymax AS,
The Triton Lark [2012] 1 Lloyd’s Rep. 151 (refusal of voyage order); Cosco Bulk Carrier Co Ltd v. Team-Up
Owning Co Ltd, The Saldanha [2011] 1 Lloyd’s Rep. 187 and general average claims: Mitsui & Co Ltd v. Beteiligungsgesellschaft LPG Tankerflotte mbH & Co KG, The Longchamp [2018] 1 Lloyd’s Rep. 1.
30 [2010] 1 Lloyd’s Rep. 509 at [8].
31 [2011] 1 Lloyd’s Rep. 630 at [56].
32 [2019] EWHC 2599 (Comm).
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Piracy
Nonetheless, the Bank which had provided the mortgage for the vessel’s purchase sought to
recover on the war risks policy as innocent co-insured. Piracy was an insured peril. Teare
J. denied that the activities of the armed men constituted piracy. In doing so, he reiterated
the need to interpret the peril as would be understood by the reasonable business person.33
This involved making explicit certain implicit limits on the peril of piracy: First, despite
the significant damage to the vessel and apparent threats to the crew, in his view there
was “no attack on the vessel. Rather, there was an arranged rendezvous at sea pursuant
to which the master was willing to let the armed men board”.34 This is important because
it is not simply stating that the complicit owner was barred from recovery due to wilful
misconduct, but that no loss by piracy occurred because the owner was complicit in the
actions. This was reinforced by his second finding on the motives of the “attackers”: “the
motives of the armed men were not to steal or ransom the vessel or to steal from the crew,
but to assist the Owner to commit a fraud upon Underwriters”.35 This means that personal
gain alone is not sufficient (so as to distinguish from political actions), but that particular
types of personal gain are required. Teare J. rejected the further argument that the Owner
was a pirate, viewed from the perspective of the co-assured bank.36 The act of the Owner
was that of attempted insurance fraud, not piracy.
20.19 The facts of The Briliante Virtuoso were extraordinary, and give rise to further
unanswered questions on the limits of piracy. Teare J. interpreted the Republic of Bolivia
case as requring more than simply an unlawful attack at sea, and relied on the suggestion
that the attack need to be indiscriminate in nature: “The conduct must be that which a
business man would say amounted to piracy”.37 This would appear to exclude from the
definition of piracy collusion between the owner of a vessel and actual pirates, even if the
insurance protects an innocent cargo owner or bank. Teare J.’s vision of the overwhelming
causative force of collusion by the insured has the potential to narrow considerably a wide
range of marine insurance policies, except those offered on an all risks basis.
20.20 Re Piracy Jure Gentium38 is freely quoted in commercial piracy cases although
it was entirely criminal with no commercial elements at all. On 1 April 1931, two Chinese
junks pursued a third cargo junk and fired shots at her from a range of 200 yards. They
were prevented from boarding her by the intervention of two merchant steamers, the Hang
Sang and the Shui Chow, until H.M.S. Somme, in answer to their radio messages, could
arrive. The pirates surrendered and were taken off to Hong Kong for trial as pirates jure
gentium. The jury found them guilty but themselves posed a question of law: whether an
accused person may be convicted of piracy in circumstances where no robbery has taken
place.
20.21 The full Court of Hong Kong decided that, in such circumstances, there was
no piracy without robbery, which meant that the accused had to be acquitted. This was a
surprising decision, because the criminal law had, for many years, regarded an unsuccessful attempt to commit a crime as equally blameworthy as a successful one. The question
was posed to the Privy Council whether actual robbery was an essential element to the
33
34
35
36
37
38
At [486].
At [487].
Ibid.
At [491].
At [486].
N 25.
170
Piracy
crime of piracy jure gentium, or whether an attempt to commit a piratical robbery, albeit a
frustrated attempt, will make the offence complete. The Privy Council answered: “Actual
robbery is not an essential element to the crime of piracy jure gentium and … a frustrated
attempt to commit a piratical robbery is equally piracy jure gentium”.
20.22 The Privy Council thus answered the narrow question posed by its terms of
reference. It included a review of the findings of the previous legal writers, which is a
fascinating account.39 The Council did however add a passage of its own, after noting
Kenny’s view (paragraph 20.16) that piracy is any armed violence at sea which is not a
lawful act of war:
… Although even this would include a shooting affray between passengers on a liner which
could not be held to be piracy. It would, however, correctly include those acts which, as far as
their Lordships know, have always been held to be piracy, that is, where the crew or passengers of a vessel on the high seas rise against the Captain and officers and seek by armed force
to seize the ship.40
The definition is then only a partial one. At least insofar as the criminal law was concerned, a private robbery by one passenger of another might not be considered to be piratical, simply because it occurred at sea. This point has not been litigated directly.
Piracy and strangers: crew/passengers
20.23 As noted above, the Privy Council’s decision in Re Piracy Jure Gentium stated
that piratical actions against the ship or its cargo need not come from outside the vessel,
but may include the actions of passengers or crew.
20.24 The decision in Brown v. Smith41 concerned insurance over the slave vessel The
Friendship and its cargo. Whilst off the coast of Africa, the crew mutinied and intended
to sail for an enemy port. Unable to navigate the vessel, the mutinous crew had to rely on
the boatswain, who covertly sailed for Barbados, then under British control. The vessel
was then recaptured by British authorities. The issue before the court was whether there
had been a total loss of the vessel (given its recapture) and not which peril was the cause
of the loss. The reported facts describe the actions of the crew as piratical, but this is not
considered in the judgment. This case is typical in assuming without detailed argument
that barratrous acts of the crew can be piratical. In a similar vein, Porter J. in Marstrand
Fishing Co Ltd v. Beer, The Girl Pat considered the taking of a vessel for personal use
by the master of a fishing vessel as within the limits of a policy insuring “among other
things, against perils of the seas, against theft and against barratry”.42 In this case, the
loss was claimed as resulting from barratry and the issue before the court was whether
an actual or constructive total loss had occurred, Porter J. finding that no such loss was
proven.43
39
40
41
42
43
The student of history will find this in the report [1934] AC at pp.589–600.
N 38, at 598–599.
(1813) 1 Dow 349; 3 E.R. 725.
(1936) 56 Ll L Rep. 163, 170.
Ibid at 174.
171
Piracy
20.25 The Scots case of Cameron v. HM Advocate44 raised the question of whether
mutinous actions by crew could constitute piracy, albeit in the criminal context. The crew
of a trawler took forcible control of the vessel and landed the skipper at Peterhead, before
navigating the vessel on to the high seas. Whilst there was an issue as to whether the offence could be committed in territorial waters, there was no suggestion that the status of
the crew prevented the act being classed as piracy:
The essential elements of this crime are no more and no less than those which are requisite to
a relevant charge of robbery where that crime is committed in respect of property on land and
within the ordinary jurisdiction of the High Court.45
Piracy and seizure for political motive
20.26 The definition of piracy is limited by the operative motive of the person or organisation causing loss to the insured property. Unlike the relationship with barratrous losses,
where a set of circumstances could be both barratrous and piratical, identifying the motive
will be important distinguishing between a loss caused either by piracy, terrorism or state
seizure. This issue will be problematic from an evidential standpoint when, for example,
a vessel is seized by a local warlord, and the motive could credibly have been some combination of political considerations and personal gain.
20.27 This issue was demonstrated in Banque Monetaca & Carystuiaki v. Motor Union Insurance Company Ltd,46 a case of some complexity. In June, 1920, the Filia was
bound from Constantinople to Batum. She had some engine trouble and anchored off
the Turkish coast, first at Samsun and then at Kerassounde. Her insurance included the
insured perils of “capture, seizure, or arrest and the consequences thereof, or warlike operations, whether before or after declaration of war”. Piracy was however an excluded risk.
20.28 This was the time of great political upheaval in Turkey following the First World
War. The Government of Turkey, before it was taken into the firm hands of Kemal Ataturk, was weak and uncertain. There was, however, the general aim of resisting the Greek
army, which was preparing to invade Turkey, and of expelling it from the Aegean coast of
the country. Some military operations had already taken place. In the Kerassounde area,
a local warlord, Osman Agha, held sway. He was the President of the National Defence
Association, a body affiliated to the Turkish Nationalists whose main aim was resistance
to the Peace Treaty. Osman was in part a nationalist leader, and in part a feudal baron.
Barons good, barons bad, Osman was one of the worst, looting and robbing his fief and
helping himself to whatever took his fancy. He had recently boarded and robbed a French
steamer, and the Kemalists had found it necessary to apologise to the French Government.
The presence of the Filia aroused his worst instincts, and it was not long before he had
boarded and seized her, even running up the Turkish flag. She was never recovered, and it
appears that the Master, the crew, and the passengers were murdered.
20.29 Roche J. declined to find that the loss of the vessel was due to piracy. In doing
so, he noted that the burden of overcoming any uncertainty in the evidence lay with the
44 (1971) SLT 333.
45 Ibid at 55.
46 [1923] Ll L Rep. 48.
172
Piracy
underwriter to prove that the piracy exception applied, but found that he could resolve the
case without relying on the burden of proof. Roche J. described Osman as “a person of
very low character” and “a brigand”:
I am satisfied that he did capture and seize this Greek vessel under cover of and largely upon
motives of a political character. That is to say, he desired to effect a stroke against the Greeks.
It may be, and I dare say it was, the case that personal gain was also a motive, but the action
in my view was dominantly political and military.47
This led to the conclusion: “I am satisfied, so far as I have the evidence, that in this case
there was a loss from seizure and not from piracy”.48 On this, judgment was signed for
the plaintiff.
20.30 The evidence here showed that Osman’s main motives were to attack his country’s enemies wherever he could find them, and they were thus military or political by nature rather than robbery for personal gain. He had some local standing, and even became
governor of the province in December, 1920. Following the Republic of Bolivia case, it
was impossible to call him a pirate. This was a seizure case.
Anti-piracy measures and marine insurance
20.31 Where piracy is an anticipated risk, the insured may be required to take preventative measures to mitigate the risk. This may arise as part of the insured’s obligation
to ensure the vessel is seaworthy, or in response to specific contractual provisions. In
respect of the risk of Somali piracy (particularly for vessels transiting the Gulf of Aden) a
common standard was created. In the recent litigation in The Brilliante Virtuoso, the war
risks policy required compliance with “Recommended Best Practice” (which was taken
to refer to the Best Management Practices guidance applicable at that date).49 The current
basis for preparedness is set by “Best Management Practices to Deter Piracy and Enhance
Maritime Security in the Red Sea, Gulf of Aden, Indian Ocean and Arabian Sea”, known
as BMP5, and this should be treated as best practice for transiting any areas of significant
risk.50
The BMP5 advice covers risk assessment, planning by on-shore management and by
the Master, technical ship protection measures and guidance on reporting both during and
after an attack.
Piracy: nature and timing of loss by piratical seizure
20.32 Recent litigation has concerned the effect of a piratical seizure on the insured
property, and whether this constitutes a total loss of the property insured at the moment
of capture.51 In Masefield v. Amlin,52 the Court of Appeal was required to determine the
47
48
49
50
51
52
Ibid at 50.
Ibid.
Suez Fortune Investments Ltd v. Talbot Underwriting Ltd [2019] EWHC 2599 (Comm) at [48].
(2018), https://eunavfor.eu/wp-content/uploads/2018/06/BMP5-PP.pdf.
For further discussion of the nature of capture and seizure, see Chapters 11 and 12.
Masefield v. Amlin, The Bunge Melati Dua [2011] 1 Lloyd’s Rep. 630.
173
Piracy
effect of piratical seizure of a cargo of bio-diesel. As this occurred as part of the spate
of attacks in the waters surrounding Somalia, the vessel, crew and cargo was released as
expected after the payment of a ransom which represented a relatively small fraction of
the value of the property seized.53 The cargo owner would normally be liable for a general
average contribution to this payment, which would presumably have been covered by the
cargo policy, although this was not considered on appeal. However, the more substantial
loss was caused by the delay in the voyage, with the bio-diesel missing its market for resale, which caused a potentially substantial financial loss to the insured.54 As delay was
not a peril insured against,55 the insured sought to avoid this loss by claiming that the
cargo was a total loss at the moment of seizure, meaning that a full indemnity was payable
from that moment. If correct, then the underwriter would bear the risk of any subsequent
fall in value. The particular policy in question was found at first instance to exclude a
claim for constructive total loss of the goods by piratical seizure,56 and so the insured had
to establish an actual total loss to recover.
20.33 The case therefore turned on whether seizure by the Somali pirates constituted
an actual total loss of the cargo seized (a claim for constructive total loss of this kind was
excluded under the policy) or only a partial loss, such as the contribution to the general
average loss by ransom payment.
20.34 Rix L.J. recognised that there was no direct authority on the nature of piratical
capture for ransom. Perhaps the closest was an obiter comment from Kuwait Airways
Corpn v. Kuwait Insurance Co SAK which he had decided (as Rix J.): “In case of capture,
because the intent is from the first to take dominion over a ship, there is an actual total loss
straightaway, even though there later be a recovery”.57
He therefore resolved the case by considering in turn: (1) The nature of actual total loss
in marine insurance; (2) the case law on piratical capture; and (3) the case law on total
losses where the insured property was (or could have been) restored to the owner.
Actual total loss in marine insurance
20.35 The approach of the courts has been to apply the doctrine of actual total loss
in marine insurance strictly (“with the utmost rigour” as Rix L.J. put it),58 as the lesser
requirements of constructive total loss cover cases of mercantile impossibility with actual total losses describing physical impossibility.59 For capture of this type, the test for
an actual total loss is that of “irretrievable deprivation” under section 57(1) MIA 1906.
Counsel for the insured asserted that under Dean v. Hornby, piratical seizure of the cargo
constituted an actual total loss (ATL), unless there was recovery of the insured property
53 The ransom paid was $2 million, against a combined value of vessel and cargo of $80 million; ibid [12].
54 The loss of value (plus storage expenses) was claimed at $7.6 million against an agreed value of cargo
of $13.3 million.
55 Under s. 55(2)(b) MIA 1906: “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”.
56 [2010] 1 Lloyd’s Rep. 509.
57 [1996] 1 Lloyd’s Rep. 664, 687.
58 N 52 [16] and exemplified at [19]–[23].
59 Ibid, quoting Sir M Chalmers and D Owen, The Marine Insurance Act 1906 (Clowes & Sons, 1907),
p.86. The lack of a formal system of constructive total loss in non-marine insurance means that marine and
non-marine cases should not be treated as identical.
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Piracy
before the date of commencement of proceedings. On the facts before the court, proceedings were agreed as commencing on the issue of the notice of abandonment, some 11 days
before the ransom was paid and the vessel released.
Piratical capture and loss
20.36 Dean v. Hornby60 concerned a vessel captured by pirates in late 1851 in modern
day Chile and subsequently captured by an English warship in early 1852. Its recapture
did not restore it to the insured owners, and it was taken by the prize master to the nearby
port of Valparaiso. On hearing of this, the owner gave a notice of abandonment to its insurer, on the mistaken understanding that it had been condemned as a prize at Valparaiso.
In fact, it left on a voyage for Liverpool, under the control of the prize master. En route, it
suffered minor damage due to heavy weather, and was unjustifiably sold on the mistaken
advice of a surveyor that the vessel was too badly damaged to be usefully repaired. The
vessel was purchased, repaired (at minor cost) and arrived in London under the control
of her new owner. Proceedings for possession were successfully pursued by the original
owner, who sold the vessel and litigation then commenced as to the proper distribution
of the purchase price between original owner and underwriter. For this, the court had to
determine whether the notice of abandonment issued in 1852 gave rise to a total loss or a
partial loss.
20.37 Lord Campbell C.J. described the applicable rule as follows:
… if once there has been a total loss by capture, that is construed to be a permanent total loss
unless something afterwards occurs by which the assured either has the possession restored,
or has the means of obtaining such restoration.61
20.38 In addition to this, counsel for the insured in Masefield suggested that the ATL
“can be made good if the condition subject to which recovery is feasible is one which an
assured has no duty to perform”.62 This contention was based on Stringer v. English &
Scottish Marine Insurance Co Ltd.63 In Stringer’s case, the cargo owner insured was not
deprived of a claim for a total loss by its failure to deposit “bail” in an American prize
court, at a level estimated at double the value of the property insured, described by Blackburn J. as “an unreasonable speculation”.64 On this basis it was argued that the piratical
capture of the bio-diesel was an actual total loss, and remained so at the time of the notice
of abandonment and commencement of proceedings.
Capture and recovery
20.39 Having identified the line of case law dealing with marine captures, including
piratical seizures, Rix L.J. continued by reviewing a series of aviation disputes involving
60
61
62
63
64
Dean v. Hornby (1854) 3E&B 180; 118 ER 1108.
At (1854) 3E&B 180, 190; 118 ER 1108, 1112.
N 52 at [40].
Stringer v. English & Scottish Marine Insurance Co Ltd (1869) LR 4 QB 676.
Ibid at 691.
175
Piracy
capture and hijacking.65 He acknowledged that his earlier comments in KAC v. KIC were
incorrect, and that “the mere intention to exercise dominion over seized property” did not
constitute an ATL.66
20.40 On this basis, Rix L.J. found that:
piratical seizures in the circumstances of this case, where there is not only a chance, but a
strong likelihood, that payment of a ransom of a comparatively small sum, relative to the
value of the vessel and her cargo, would secure recovery of both, was not an actual total loss.
It was not an irretrievable deprivation of property. It was a typical “wait and see” situation.67
Examples of losses by piracy from outside the litigated cases
20.41 Previous editions of this text have been much improved by examples drawn from
Michael Miller’s personal experience. These are preserved below as quotations, and references given back to the Third Edition:
As a matter of practice, the Mutual War Risks Associations have refused to recognise as
piracy a claim where a ship was invaded by marauders and damaged whilst she was tied
up alongside in the port of Santos. The port is in a lagoon which is approached by a narrow
channel and the ship could not be said to be “at sea” in any sense of the word; moreover the
marauders came from the shore and seemed to be the normal petty criminals which are to be
found in any city or port.68
Another case which was accepted by one of the Mutual War Risks Associations as a case of
piracy is of interest. The ship was waiting at sea to enter the port of Lagos. She was not at
anchor, but was stopped in the water with her engines on stand-by. She was boarded from a
small boat by several persons who attacked the crew, forced open several of the containers,
and began thieving. The ship was got under way and the marauders were chased off the deck.
Before they dived into the sea, they let both the bower-anchors go. The anchor chains snapped,
and both anchors were lost. It seemed uncertain exactly when the anchors were let go, but the
Association concerned accepted that they were let go during the course of the thieving and the
assaults upon the crew, and that this was a case of piracy.69
20.42
A recent case in 1998 shows the sheer effrontery of some of the attacks. A Greek vessel was
anchored off the South Harbour of Manila when “police officers” boarded her and announced
that they were looking for a seaman who was said to have murdered a prostitute. Such cases
are all too common and the Master, and such of the crew who were aboard at the time entertained no suspicions when they were required to assemble in the crew mess-room for police
investigations. There the “police officers” dropped all pretence and said they were taking over
the ship. They required her to sail at once, and when the Chief Engineer refused to start the
engine he was assaulted. The ship duly sailed for the open sea, and the original seamen still
on board were landed at various islands.
65 Notably, the arbitral decision of Michael Kerr QC (as he was) in Dawson’s Field (1972); KAC v. KIC,
n 57, and Scott v. Copenhagen Reinsurance Co UK Ltd [2003] Lloyd’s Rep. 696.
66 N 52 at [56].
67 Ibid.
68 See the Third Edition of this work at paragraph 20.39.
69 Ibid.
176
Piracy
Some of the crew were on shore leave in Manila, and raised the alarm when they found
their ship was gone. A helicopter search was made but the ship was not sighted. A fortnight
later, she was seen off the Sultan Shoal but sailed before the Singapore Police could organise
an attempt at re-possession.
Another week passed before she was again found at Kota Kimbalu. She was re-possessed
by number of “heavy gentlemen”, who persuaded the miscreants that their time had run out.
The expenses incurred were met by the Mutual War Risks Association with whom she was
insured. No court proceedings were necessary; she was either “seized” or had been taken by
pirates. Dr. Lushington’s guidance in The Magellan Pirates … indicated that, in a case which
was not a criminal trial of pirates, it made no difference that the ship was taken in port and
not on the open sea.70
Summary
20.43 As conclusions, the following are suggested:
(1) Piracy as an insured peril in an insurance policy must be distinguished from the
criminal offence of piracy jure gentium, or a criminal offence under a local statute. The two have a number of similarities but:
(a) the criminal offence will only exist if the accused is hostes humani
generis—the enemy of all mankind—so that he may be tried and punished
by any State which captures him, regardless of where he has committed his
depr edations or whom he has injured whereas,
(b) for the purposes of the insured peril in any insurance policy, he need only be
a “sea robber”, and the further conclusions which follow relate to such a “sea
robber” only.
(2) Piracy must be committed “at sea” or “on the sea” as it is generally understood in
everyday parlance, and such considerations as port limits or a State’s territorial
waters are immaterial.
(3) Piracy may be committed in ports, harbours or inland waters immediately adjacent to the sea provided that it merits the new concept developed by Staughton J.
from the Republic of Bolivia71 case of “maritime offence”.
(4) Violence, or the threat of violence, is an essential element to piracy as it is to robbery and must be present before or at the time the offence is committed. Violence
only to effect escape is not sufficient.
(5) A pirate’s aim must be his personal gain but this need not be material gain. It
will be sufficient if his depredations are committed to satisfy his desire to cause
material or physical harm to others.
(6) There is no piracy where the predators are pursuing political aims, however
unlikely their fulfilment might be. They were undoubtedly pursuing political
aims in the Republic of Bolivia72 case, but it might not be so easy to distinguish
whether the culprits in the City of Poros massacre (in 1988) were motivated by a
political aim or a simple psychotic desire to murder, and any enquiry is unlikely
70 Ibid.
71 N 10.
72 Ibid.
177
Piracy
to reach a definite conclusion. This might not give rise to difficulty if they can be
described by the insured peril of “terrorist”.
(7) There is no piracy where the predators are acting under the authority of a State or
with a State’s commission, however atrocious their acts may be.
(8) It seems to be generally accepted that in English law both passengers and crew
may commit piracy by seizing the ship and there are several indications among
the judgments quoted that this is so. It is hard to draw a distinction between an
outsider who robs a seaman or a passenger, and a fellow seaman or passenger
who does the same thing. It is not clearly defined in the judgments.
178
CH A PT ER 21
Confiscation and expropriation
21.1 “Confiscation” and “expropriation” were not insured perils under the S.G. Form,
but were introduced in the early 1980s when the new Institute Time Clauses were introduced with the MAR Form. They are found in the Clauses for Hulls, Freight and Containers, but are not insured perils in the Cargo clauses. Relevant exclusions are those for
requisition, and for capture and seizure, etc., by the country of registry of the vessel (or
place of business of the container insured), or as a result of infringement of customs or
trading regulations (see Chapter 23).
21.2 There is no authority on the meaning of confiscation or expropriation, though
vessels have been confiscated on account of smuggling in the Anita,1 the B Atlantic,2 and
(subject to release by payment) in Cory v. Burr.3 In the South African case of the Morning Star,4 the vessel was confiscated for non-payment of a fine. The ordinary meaning of
confiscation is where the state appropriates property on the grounds of illegality. Expropriation is dealt with in international law, and refers to the appropriation of foreign-owned
property by the State for political purposes. Compensation may be required if it is to be
lawful. It is distinguishable from nationalization by the State of the property of its citizens.
1 Panamanian Oriental Steamship Corpn. v. Wright (The Anita) [1970] 2 Lloyd’s Rep. 371.
2 Atlasnavios Navegacao Lda v. Navigators Insurance Co Ltd (The B Atlantic) [2019] A.C. 136; [2018] 2
Lloyd’s Rep. 1.
3 Cory v. Burr (1883) 8 App. Cas. 393.
4 Incorporated General Insurances Ltd v. A.R. Shooter t/a Shooter’s Fisheries (the Morning Star) [1987]
1 Lloyd’s Rep. 401. Failure to pay the fine was held to be the proximate cause of the loss.
179
CH A PT ER 22
Sue and labour
Introduction
22.1 The insured may recover from the underwriter in respect of expenditure incurred
as a result of an insured peril, where that expenditure is, or is part of, the measure of indemnity. This chapter is concerned with the recovery of expenditure which is not part of
the measure of indemnity but is incurred to avert or diminish loss covered by the policy.
The S.G. Form contained a centuries-old provision which permitted the assured to sue and
labour, but did not oblige him to do so, namely:
… 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 use of the clause has been traced back to 1669, and the phrase “sue, labour and travel”
described exertions extending beyond physical labour and comprehended attempts to procure a result by supplication, persuasion and the expenditure of money.1 This clause has
been replaced by Duty of Assured Clauses (in different terms) in the Hull Clauses and
in the Cargo Clauses.2 Unlike the S.G. Clause, these clauses do impose an obligation
on the assured and their servants and agents. The obligation arises in case of any loss or
misfortune and is to take reasonable measures to avert or minimise a loss which would be
recoverable under the insurance. The Cargo Clause requires in addition that the insured
ensure that all rights against carriers, bailees or other third parties are properly preserved
and exercised. Such steps are not strictly in the nature of sue and labour, unless the rights
preserved concern the recovery of the goods rather than obtaining damages.3
22.2 Section 64(2) of the 1906 Act provides that 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”, and are not included in
particular average. They are therefore not recoverable as a partial loss. Section 78(1) then
provides that 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
1 Royal Boskalis Westminster NV v. Mountain [1999] QB 674; [1997] LRLR 523 at p.614 per Phillips L.J.
2 Clause 13 of the ITC—Hulls and Clause 16 of the Institute Cargo Clauses.
3 Kuwait Airways Corporation v. Kuwait Insurance Co SAK [1996] 1 Lloyd’s Rep. 664 at p.698 per Rix J.
180
Sue and labour
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. The Duty of Assured Clause in the Institute Clauses has been held to
be within a Clause section 78(1).4
22.3 Where there is a sue and labour Clause which does not expressly provide for
reimbursement of expenses by underwriters, a term to that effect that may be implied.5
However, it is an open question whether the insured is entitled to sue and labour expenses
in the rare case of a policy which contains no sue and labour Clause at all.6
22.4 The 1906 Act provides that certain losses and charges are not recoverable under
the sue and labour Clause. This is of course subject to the wording of the particular clause.
In the absence of agreement to the contrary, one category of irrecoverable expenses are
those incurred for the purpose of averting or diminishing any loss not covered by the
policy.7 Other specific losses and charges which are not recoverable as sue and labour
expenses, unless specifically agreed, are8 General Average losses and contributions,9
and salvage charges,10 as defined by the 1906 Act. General average losses are defined in
section 66, which provides that (subject to any express provision in the policy) general
average expenditure and contributions are recoverable from the insurer,11 provided the
loss or contribution were incurred for the purpose of avoiding, or in connection with the
avoidance of, a peril insured against.12 Salvage charges are defined as those recoverable
under maritime law by a salvor independently of contract.13 This does not include services
in the nature of salvage rendered by the assured or his agents, or any person employed for
hire by them, and 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.14
22.5 Sub-section 78(4) 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. The entitlement to recover expenses pursuant to section 78(1) and the duty to act
imposed by section 78(4) are not necessarily co-extensive. It may be equally reasonable to
take action or to do nothing, so an expense may be recoverable under 78(1) even if there
was no duty to act under 78(4).15 The duty in section 78(4) is said to apply “in all cases”; in
particular, it is not restricted to a casualty giving rise to an abandonment.16
4 Noble Resources Ltd v. Greenwood (the Vasso) [1993] 2 Lloyd’s Rep. 309 at pp.312–313.
5 Netherlands Insurance Co. Est. 1845 Ltd v. Ljungberg & Co A.B. [1986] 2 Lloyd’s Rep. 19, Privy Council. The contrary obiter dictum of Neill J. in Integrated Container Service Inc v. British Traders Insurance Co
Ltd [1981] 2 Lloyd’s Rep. 460 at pp.464–465 was not considered by the Privy Council.
6 See the discussion in Arnould’s Law of Marine Insurance and Average, 19th edn, 25–36 to 25–37.
7 Section 78(3).
8 Section 78(2).
9 Defined in section 66 of the 1906 Act.
10 Defined in section 65 of the 1906 Act.
11 Section 66(4) and (5).
12 Section 66(6). The test is not whether the casualty was due to an insured peril, but whether general
average was for the purpose of avoiding such a peril.
13 Section 65(2).
14 Ibid.
15 Royal Boskalis Westminster NV v. Mountain [1999] QB 674; [1997] LRLR 523 at p.634 per Phillips L.J.
16 Kidston v. Empire Marine Insurance Co. (1866) L.R. 1 C.P. 535 at pp.542–544 per Willes J.
181
Sue and labour
22.6 Section 87(2) provides that any duty declared by the Act which may be lawfully
modified by agreement, may be negatived or varied by express agreement, or by usage,
if the usage be such as to bind both parties to the contract. Modifying the duty in section
78(4) would plainly be lawful.
Commencement and duration of sue and labour
22.7 The duty to sue and labour, and any right to recover expenses, arises when an
insured peril is operative or obviously imminent,17 and continues (subject to one caveat18)
for so long as it is reasonable to act so as to preserve the property from an insured peril.
The peril must be one which is insured under the policy. If, for example, expenses are
incurred in forwarding goods insured only against total loss, when there is no danger of
such loss, the expenses are not recoverable as sue and labour expenses.19 However, forwarding costs are recoverable under a policy on freight, where the freight would be a total
loss if the goods were not forwarded to their destination.20 In the Third Edition of this
work, Mr Miller described his personal experience of the practical reality of forwarding
goods affected by war risks.21
22.8 The question of just how likely an insured peril must be has proved controversial.
In Lohre v. Aitchison,22 Brett L.J. formulated the test as requiring the danger to be such
that without unusual or extraordinary labour or expense a loss will “very probably” fall
on the underwriters.23 In the Integrated Container Service case,24 Eveleigh L.J. noted25
that there was nothing in the sue and labour Clause or in the 1906 Act which required
that loss would “very probably” occur in the absence of steps to sue and labour. All that
was required, in his view, was that the expenses were reasonably incurred.26 Dillon L.J.,
however, referred to the formulation of Brett L.J. and noted that probability of loss was
emphasised throughout that judgment.27 The third member of the court agreed with both.28
In Royal Boskalis v. Mountain,29 Rix J. considered that none of the definitions in the
authorities were intended to be exclusive, and that as a matter of general principle Eveleigh
L.J. had stated the position “compendiously and accurately” in saying that “the assured
should be able to recover all extraordinary expenses reasonably incurred by him where
he can demonstrate that a prudent assured person, mindful of an obligation to prevent a
17 Royal Boskalis Westminster NV v. Mountain [1999] QB 674; [1997] LRLR 523 at p.614 per Stuart-Smith
L.J.; Linelevel Ltd v. Powszechny Zaklad Ubezpieczen SA (the Nore Challenger) [2005] 2 Lloyd’s Rep. 534 at
[82] per Cooke J.
18 The caveat is the effect (if any) of notice of abandonment, of the issue of a Claim Form, or of a Writ
Agreement or Writ Clause, discussed below.
19 Great Indian Peninsular Railway Company v. Saunders (1862) 2 B. & S. 266; Booth v. Gair (1863) 15
C.B. (N.S.) 291.
20 Kidston v. The Empire Marine Insurance Company (1867) L.R. 2 C.P. 357.
21 §24.17 of Miller, Marine War Risks (3rd edn).
22 (1878) 3 QBD 558.
23 Ibid at p.566.
24 Integrated Container Service Inc v. British Traders Insurance Co Ltd [1984] 1 Lloyd’s Rep. 154.
25 Ibid at p.158.
26 Ibid.
27 Ibid at p.162.
28 Ibid at p.161 per Griffiths L.J.
29 Royal Boskalis Westminster NV v. Mountain [1999] QB 674; [1997] LRLR 523.
182
Sue and labour
loss, would incur expense of an unusual kind”. The issue seems not to have been live in
the Court of Appeal, though Stuart-Smith L.J. accepted a formulation consistent with the
views of Rix J.30 In The “Brillante Virtuoso”,31 Flaux J. held that it was difficult to discern
a clear ratio from the Integrated Container Service case, but that it was not necessary to
resolve the issue on the facts before him, as the vessel was still in the grip of the peril
and further loss was highly likely.32 The difference between Brett L.J. and Eveleigh L.J.
remains unresolved as a matter of authority.
22.9 Since the insured property may continue to be at risk of loss for a considerable period, involving a significant burden, the question arises as to when the duty to act
and the right to recover expenses come to an end. In the Kuwait Airways case,33 Rix J.
applied the principles of marine insurance and held that notice of abandonment did not
terminate the sue and labour engagement, but that the issue of a writ did do so.34 That
is the time at which the parties’ rights as regards any constructive total loss are crystallised.35 In the Court of Appeal,36 Staughton L.J. declined to express a view on the
conclusion reached by Rix J. because he did not consider it to be the relevant enquiry.37
22.10 In The B Atlantic,38 Flaux J. considered the position where notice of abandonment was declined, with the lead underwriter scratching the so-called “writ Clause” on
the notice, so that the insurers agreed to put the owners in the same position as if a writ had
been issued that day. He considered that at the time of a writ agreement the vessel would
in many cases still be in the grip of the insured peril, such that it was in the interests of
both parties that sue and labour expenses continue to be expended in mitigating the loss;
and this was implicit in a writ agreement.39 Flaux J. returned to the topic in The Brillante
Virtuoso,40 where there was a notice of abandonment and issue of a Claim Form without
a writ agreement. He accepted that there may be exactly the same practical need for sue
and labour expenses to be incurred after the Claim Form is issued (the vessel in that case
still needed standby tugs) but that once a Claim Form is issued, the parties’ relationship is
governed by the Civil Procedure Rules rather than by the contract of insurance.41
Effect of failure to sue and labour
22.11 The duty in section 78(4) to take reasonable measures to avert loss does not
mean that if the agents of the insured are not reasonably careful throughout the transit, the
30 Ibid at p.614.
31 Suez Fortune Investments Ltd v. Talbot Underwriting Ltd (the Brillante Virtuoso) [2015] 1 Lloyd’s Rep.
651 at [288–296].
32 Ibid at [296].
33 Kuwait Airways Corporation v. Kuwait Insurance Co SAK [1996] 1 Lloyd’s Rep. 664.
34 Ibid at pp.696–697. In The B Atlantic, Flaux J. held that this aspect of the decision was obiter: [2015] 1
Lloyd’s Rep. 117 at [339].
35 Polurrian Steamship v. Young [1915] 1 KB 922 at pp.927–928; Rickards v. Forestal Land, Timber and
Railways [1942] AC 50 at pp.84–85.
36 [1997] 2 Lloyd’s Rep. 687.
37 Ibid at p.696. The right to sue and labour was held to have been lost at an earlier date, when the insurers
admitted and paid the claim for US$300 million, the maximum ground limit under the policy.
38 Atlasnavios-Navegação Lda v. Navigators Insurance Co Ltd (the B Atlantic) [2015] 1 Lloyd’s Rep. 117.
39 Ibid at [343–345].
40 Suez Fortune Investments Ltd v. Talbot Underwriting Ltd (the Brillante Virtuoso) [2015] 1 Lloyd’s
Rep. 651.
41 Ibid at [303–304].
183
Sue and labour
insured cannot recover for anything to which their want of care contributes.42 That much is
clear. However, there is an issue as to how the duty under section 78(4) to take measures to
avert or minimize a loss is compatible with the principle in section 55(2)(a) that the insurer
is liable for any loss proximately caused by an insured peril, even though the loss would
not have happened but for the negligence of the master or crew. There are first instance
dicta that breach of the section 78(4) duty gives rise to a claim for damages.43 However,
in National Oilwell (UK) Ltd v. Davy Offshore Ltd,44 Colman J. held that breach of such
duty did not sound in damages, but that an omission to act as a prudent uninsured could be
the proximate cause of loss.45 In State of the Netherlands v. Youell,46 Phillips L.J. agreed,
holding that section 55(2)(a) applied before and after a casualty, and section 78(4) only had
significance in the rare case where negligence in failing to sue and labour displaces the
prior insured peril as the proximate cause of the loss and can be said to break the chain of
causation between peril and loss.47 However, this was not part of the ratio of the Court of
Appeal’s decision, as Buxton L.J. declined to decide the point,48 and Butler-Sloss L.J. simply said that the appeal should be dismissed. In practice, the point is unlikely to be significant, as such negligence is usually a separate insured peril; indeed, section 78(4) appears
never to have provided underwriters with a defence since the passing of the 1906 Act.49
22.12 In The Aliza Glacial, the Court of Appeal held obiter that the same approach
applied to contractual sue and labour provisions.50 However, in The Grecia Express,51 the
sue and labour provision in the Hellenic rules stated that in the event that the Owner commits any breach of his obligation, the Directors may reject any claim by the Owner arising
out of the occurrence or reduce the sum payable by the Association in respect thereof by
such amount as they may determine. Colman J. held that the contractual clause was not to
be construed in the same way as section 78(4) and imposed a positive contractual duty.52
In The Silva, where the provision was materially identical to that in The Grecia Express,
Burton J. was inclined to follow Colman J., but did not need to do so on the facts.53
Extraordinary expenses
22.13 Sue and labour expenses must be unusual and extraordinary. Examples of such
expenses in the context of the Iran/Iraq War of 1980–1988 were described by Mr Miller
42 British & Foreign Marine Insurance Co Ltd v. Gaunt [1921] 2 A.C. 41 at p.65 per Lord Sumner; State of
the Netherlands v. Youell [1998] 1 Lloyd’s Rep. 236 at 241 per Philllips L.J.
43 Astrovlanis Compania Naviera SA v. Linard (the Gold Sky) [1972] 2 Lloyd’s Rep. 187 at p.221 per Mocatta
J.; Noble Resources Ltd v. Greenwood (the Vasso) [1993] 2 Lloyd’s Rep. 309 at pp.314–315 per Hobhouse J.
44 [1993] 2 Lloyd’s Rep. 582.
45 Ibid at p.619.
46 [1998] 1 Lloyd’s Rep. 236.
47 Ibid at p.245.
48 Ibid at pp.246 and 249.
49 Masefield AG v. Amlin Corporate Member Ltd (the Bunga Melati Dua) [2011] 1 Lloyd’s Rep. 630 at [76];
State of the Netherlands v. Youell [1998] 1 Lloyd’s Rep. 236 at pp.244–245.
50 Handelsbanken ASA v. Dandridge (The Aliza Glacial) [2002] 2 Lloyd’s Rep. 421 at [58].
51 Strive Shipping Corporation v. Hellenic Mutual War Risks Association (the Grecia Express) [2002] 2
Lloyd’s Rep. 88.
52 Ibid at p.160.
53 Melinda Holdings Sa v. Hellenic Mutual War Risks Association (Bermuda) Ltd (The Silva) [2011] 2
Lloyd’s Rep. 141 at [48–49].
184
Sue and labour
in the Third Edition.54 The ordinary costs of maintaining and crewing a vessel are not
sue and labour expenses, even if they prevent insured losses arising. However, where
the insured vessel is detained, the costs of manning the vessel throughout the period
of detention may be recoverable if they are not an ordinary manning expense, such as
those incurred pursuant to charterparty obligations, but are incurred in order to mitigate
the detention, so as to ensure that the vessel may sail promptly in the event of being
released.55
22.14 In Royal Boskalis v. Mountain,56 a waiver of claims and release of a deposit were
extracted by duress, by the seizure of a fleet of dredging vessels and their personnel. These
were claimed as sue and labour expenses under a war risks policy. The argument that the
sacrifice of claims and of a deposit could not be sue and labour expenses was rejected.
Charges and expenses involve the disbursement of money or money’s worth, and this
included the foregoing of a valuable claim.57
22.15 Where expenses are incurred both for the purpose of extricating the vessel from
the insured peril and for some other purpose which is not sue and labour, the expenses
are not apportioned between those purposes, but are all regarded as sue and labour
expenses.58 It is only if the insurers can demonstrate that the relevant expenditure was
incurred solely for the other purpose that the expenditure will not be recoverable as sue
and labour.
Salvage and general average
22.16 In Aitchison v. Lohre,59 it was held that a salvage liability was not a sue and
labour expense, as it was not incurred through the efforts of the insured to preserve the
property, but through the efforts of a third party who had not been engaged by or on behalf
of the insured.60 Salvage by third parties not engaged by owners of the property in danger does still occur, but it is not common due to modern communications. Most salvage
operations are contractual in nature. The 1906 Act reflects this decision, and excludes
non-contractual salvage from the scope of sue and labour.61
22.17 In Royal Boskalis v. Mountain,62 Stuart-Smith L.J. said that it had never been
doubted that if a salvor is engaged under Lloyd’s Open Form of Salvage Agreement, that
underwriters are liable to indemnify the insured against the salvage award as a sue and
labour expense.63 Phillips L.J. also noted that underwriters regularly indemnify insureds
in respect of Lloyd’s Open Form (LOF) awards, and held that the claim failed in Aitchison
54 Miller, Marine War Risks, 3rd edn, §24.33- to 24.34.
55 N 38 at [355].
56 N 29.
57 Ibid [1997] LRLR 523 at p.615 per Stuart-Smith L.J., at pp.636–637 per Phillips L.J.
58 Royal Boskalis Westminster NV v. Mountain [1999] QB 674; [1997] LRLR 523 at p.647 per Phillips L.J.;
ACE European Group v. Standard Life Assurance [2013] Lloyd’s Rep. IR 415 at [46–49] per Tomlinson L.J.;
Atlasnavios-Navegação Lda v. Navigators Insurance Co Ltd (The B Atlantic) [2015] 1 Lloyd’s Rep. 117 at [346]
per Flaux J.
59 (1879) 4 App. Cas. 755.
60 Ibid at p.764 per Lord Blackburn.
61 Section 65(2).
62 N 29.
63 Ibid [1997] LRLR 523 at p.614.
185
Sue and labour
because the salvors rendered their services as volunteers and not as agents engaged by the
Master under contract, a distinction reflected in section 65(2) of the 1906 Act.64
22.18 In referring to LOF awards, the Court of Appeal was probably considering only
a salvage award under article 13 of the Salvage Convention,65 and not an article 14 award,
or a SCOPIC award. An article 13 award is the conventional award for saving the property
from danger. Article 14 is special compensation in respect of damage to the environment,
and was in practice short-lived. It was replaced in LOF by a contractual regime known as
SCOPIC. Although its origin lies in environmental protection, the effect of the SCOPIC
regime, when incorporated, is to provide salvors with an exception to “no cure no pay”, so
that they may recover expenses plus an uplift even where the salvage is not conventionally
successful, regardless of environmental issues. Agreeing to such terms may be the only
basis on which salvors will undertake the otherwise speculative task of salving a casualty.
In The Renos,66 the Supreme Court considered, in the context of a claim for constructive
total loss, whether SCOPIC expenses were part of the cost of repair, and held that they
were not, as they were directed at environmental damage rather than reinstatement of the
vessel.67 However, this does not answer the question whether engaging a salvor on terms
which includes SCOPIC is recoverable as a sue and labour expense, where engaging a
salvor on such terms was reasonable.
Illegality
22.19 Issues can often arise as to whether certain payments made to secure insured
property from detention are irrecoverable as sue and labour expenses on the ground that
they are tainted with illegality or against public policy. Examples are the payment of
ransoms to pirates and of bribes to officials. In Royal Boskalis v. Mountain,68 a waiver of
claims and release of a deposit were extracted by duress. The waiver and payment of the
deposit were treated as ransom payments, and were in principle recoverable as sue and
labour expenses, the conduct of the insured being lawful under the law applicable to the
policy and under the law of the forum.69
22.20 In The Bunga Melati Dua,70 it was argued that as there could be no duty under
section 78(4) to pay a ransom demand, as such a demand was unlawful to make even if not
unlawful to pay, a detention which could only be ended by such payment should be treated
as giving rise to no prospects of recovery, the possibility of a ransom being discounted.
This was rejected as a non sequitur.71
64 Ibid [1997] LRLR 523 at p.633.
65 The Salvage Convention 1989 has the force of law: Merchant Shipping Act 1995, section 224 and Schedule 11.
66 Sveriges Angfartygs Assurans Forening (The Swedish Club) v. Connect Shipping Inc [2019] UKSC 29.
67 Ibid at [27].
68 Royal Boskalis Westminster NV v. Mountain [1999] QB 674; [1997] LRLR 523. In The Bunga Melati
Dua, Rix L.J. observed that this part of the decision may strictly be obiter: [2011] 1 Lloyd’s Rep. 630 at [64].
69 Royal Boskalis Westminster NV v. Mountain [1999] QB 674; [1997] LRLR 523 at p.614 per Stuart-Smith
L.J. and at p.636 per Phillips L.J. Pill L.J. at p.623 reserved his opinion on the question whether ransom payments were recoverable. Since the waiver of claims was unenforceable on account of the duress, there was no
loss, and the claim failed.
70 Masefield AG v. Amlin Corporate Member Ltd (the Bunga Melati Dua) [2011] 1 Lloyd’s Rep. 630.
71 Ibid at [72].
186
CH A PT ER 23
Exclusions
23.1 The War and Strikes Clauses Hulls contain a number of important exclusions.
First, there are exclusions of general effect in relation to nuclear weapons of war (Clause
4.1.1), war between the permanent members of the UN Security Council (Clause 4.1.2),
and requisition or pre-emption (Clause 4.1.3). Second, there are exclusions which restrict
the scope of cover for perils such as capture and seizure, arrest, restraint and detainment,
namely: capture, seizure, arrest, restraint, detainment, confiscation or expropriation by or
under the order of the government or any public or local authority of the country in which
the vessel is owned or registered (Clause 4.1.4); and arrest, restraint, detainment, confiscation or expropriation under quarantine regulations or by reason of infringement of any
customs or trading regulations (Clause 4.1.5). Finally, there are further general exclusions
in relation to the operation of ordinary judicial process, failure to provide security or to
pay any fine or penalty or any financial cause (Clause 4.1.6); and piracy (Clause 4.1.7).
The exclusions for nuclear weapons and war between the major powers are not subject to
comment here. Piracy is dealt with in Chapter 20.
General approach to construction
23.2 The exclusions must be given a “business-like interpretation in the context in
which they appear”.1 Since the Clauses are to be used worldwide, they must be given a
wide meaning to the extent that they are intended to cover laws in force anywhere in the
world, and cannot turn on niceties of local law.2 The draughtsmen are to be taken to have
had in mind decisions of the courts on earlier editions of the clause which have given the
wording a settled meaning.3 The burden lies on underwriters to bring themselves within
the exclusion.4 In The Anita5 Lord Denning M.R. referred to a shifting legal burden, but
1 Panamanian Oriental Steamship Corp v. Wright (The Anita) [1971] 1 W.L.R. 882; [1971] 1 Lloyd’s
Rep. 487 at p.492; Handelsbanken ASA v. Dandridge (The Aliza Glacial) [2002] 2 Lloyd’s Rep. 421 at [24]
and [39].
2 Sunport Shipping Ltd & Ors v. Tryg-Baltica International (UK) Ltd (The Kleovoulos of Rhodes) [2003]
1 Lloyd’s Rep. 138 at [12] and [38].
3 Ibid at [28].
4 Panamanian Oriental Steamship Corp v. Wright (The Anita) [1971] 1 W.L.R. 882; [1971] 1 Lloyd’s Rep.
487 at pp.492, 495; Handelsbanken ASA v. Dandridge (The Aliza Glacial) [2002] 2 Lloyd’s Rep. 421 at [24].
5 Panamanian Oriental Steamship Corp v. Wright (The Anita) [1971] 1 W.L.R. 882; [1971] 1 Lloyd’s Rep.
487 at p.492.
187
Exclusions
the modern approach is to regard the position as one in which the evidential burden shifts.6
It is an open question as to whether the exclusions are to be construed against underwriters on the basis of the contra proferentem rule. In The Aliza Glacial it was conceded in the
Court of Appeal (without adverse comment) that if the task of the Court is to ascertain the
extent of the risk in the light of the defined perils read together with the relevant exclusion, there is no room for the operation of that rule.7 However, in The Silva the rule was
applied by Burton J. to the “financial cause” exclusion.8 In The B Atlantic the issue did
not have to be resolved, but Hamblen J. suggested that there was force in the point that if
underwriters have to bring themselves within the exclusion as a matter of fact, one would
logically expect the burden to be on them to do likewise as a matter of construction.9 In
the Supreme Court, Lord Mance said that what is required is “an exercise of construction
of the particular wording, giving effect at each stage to the natural meaning of the words
in their context.”10
Requisition (Clause 4.1.3)
23.3 The first event excluded is that of requisition. Requisition is typically something
which occurs in time of war or hostilities involving an exercise of executive or military
power.11 Many states have laws requiring their citizens or subjects to assist in times of
national emergency, and to allow the authorities to use their property in the national interest. In the United Kingdom the Crown has the power by prerogative in times of emergency
to requisition British ships.12 In Burma Oil Company (Burma Trading) Ltd v. Lord Advocate13 it was held that there was no general rule that the prerogative could be exercised,
even in time of war or emergency, by taking property without paying for it.
23.4 The exercise of this prerogative power amounts to a restraint of princes.14 It has
been exercised many times in recent history. Immediately before the outbreak of the First
World War a Proclamation was issued stating that a national emergency existed, and
authorizing the Lords Commissioners of the Admiralty to requisition and take up any
British ship within the British Isles or the waters adjacent thereto. The requisitioning of
a British ship outside British waters was held to be ultra vires the Proclamation by Bailhache J. in Russian Bank for Foreign Trade v. Excess Insurance Co Ltd.15 The prerogative
6 Melinda Holdings Sa v. Hellenic Mutual War Risks Association (Bermuda) Ltd (The Silva) [2011] 2
Lloyd’s Rep. 141 at [4] per Burton J.
7 Handelsbanken ASA v. Dandridge (The Aliza Glacial) [2002] 2 Lloyd’s Rep. 421 at [37].
8 Melinda Holdings Sa v. Hellenic Mutual War Risks Association (Bermuda) Ltd (The Silva) [2011] 2
Lloyd’s Rep. 141 at [46(ii)].
9 Atlasnavios Navegacao Lda v. Navigators Insurance Co Ltd (The B Atlantic) [2012] 1 Lloyd’s Rep. 629
at [26].
10 Atlasnavios Navegacao Lda v. Navigators Insurance Co Ltd (The B Atlantic) [2019] A.C. 136; [2018] 2
Lloyd’s Rep. 1 at [40].
11 Kuwait Airways Corp v. Kuwait Insurance Co SAK [1999] 1 Lloyd’s Rep. 803 at 815 per Lord Hobhouse.
12 The Broadmayne [1916] P. 64. A British Ship is defined by section 1 of the Merchant Shipping Act 1995.
13 [1965] A.C. 75.
14 In Russian Bank for Foreign Trade v. Excess Insurance Co Ltd Bailhache J. considered that the order
had to be either lawful or accompanied by the use or threat of violence [1918] 2 KB 123. On appeal [1919] 1 KB
39, Scrutton L.J. expressed the view obiter that an ultra vires requisition may nevertheless still be a restraint
of princes.
15 [1918] 2 KB 123. The point was not decided on appeal: [1919] 1 KB 39.
188
Exclusions
power of requisition was exercised in the Suez crisis in 1956 and most recently in the Falklands War in 1982 by Orders in Council. These Orders in Council referred to British ships
“wherever the ship may be”. The territorial scope of these Orders has not been challenged.
23.5 The current legislation is The Civil Contingencies Act 2004, which provides in
Part 2, sections 20 and 22(3)(b) for emergency regulations to make provision of any kind
that could be made by Act of Parliament or by the exercise of the Royal Prerogative, in
particular to enable the requisition or confiscation of property (with or without compensation). Although the prerogative permits ships to be acquired by transferring title
to the Crown, in practice it is sufficient for the Crown to requisition “for use”, often on
terms set out in a charterparty, whilst leaving title and operations in the hands of their
owners.16
23.6 There is no requisition if an authority merely directs a vessel to deviate to a specified port so that the cargo on board may be requisitioned if necessary, the vessel in fact
not being employed for government purposes.17 Where a ship is prohibited from discharging, and the cargo is subsequently requisitioned and ordered to be discharged elsewhere,
the initial detention is not a requisition, which requires the property to be taken possession of by, or put at the disposal of, the government.18 Mere negative prohibition is not a
requisition.
23.7 There is an unresolved issue as to whether a ship can only be requisitioned by
the flag-state, and a cargo can only be requisitioned by the State of which the owner is a
citizen (or the company incorporated). In the Third Edition,19 Mr Miller described a case
where a foreign vessel was “requisitioned” by Brazilian authorities in order to assist in a
pollution incident and suffered physical damage as a result of being ordered to load and
dispose of a dangerous cargo. The War and Strikes underwriters refused to pay the shipowner’s claim. Whilst it may be doubted whether a vessel can be requisitioned by a State
other than the one in which it is registered,20 it is not clear what peril would encompass
compliance with an order to undertake positive actions such as loading a cargo. The vessel
was neither seized nor subject to the negative restrictions associated with arrest, restraint
or detention. The question would only arise in the context of “requisition” amounting to
an insured peril, such as war. In such a context, the justification for requisition (such as it
is) would be a presumed common purpose between owner and flag-state in defeating an
enemy. No such rationale exists between a State and a foreign vessel.
23.8 It should be noted that requisition, whether for title or for use, may terminate the
insurance (Chapter 4). The position is different in the case of the two Through Transport
Mutual Insurance Associations, where it merely suspends the insurance during the period
of the requisition. It is again different in the case of the British Mutual War Risks Associations. Where it is requisition for use only, the insurance can continue.
16 As in The Broadmayne [1916] P. 64 and The Sarpen [1916] P. 306. In the Southern District Court of New
York it has been held that requisition is a formal process, and does not include the informal ransacking of a
vessel: Flota Merchante Dominicana C. Por. A, Owner of the “Santo Domingo” v. American Manufacturers
Mutual Insurance Company [1970] A.M.C. Vol. II, 1678.
17 Bombay and Persia Steam Navigation Company v. The Shipping Controller (1921) 7 Ll.L.Rep. 226.
18 France Fenwick and Company Limited v. The King [1927] 1 K.B. 458.
19 Third Edition, paragraphs 21.23–21.24.
20 In the Gulf War (1990–1991) the UK chartered the foreign ships it required: Third Edition, paragraph
21.25.
189
Exclusions
Pre-emption (Clause 4.1.3)
23.9 The second event excluded by Clause 4.1.3 is that of pre-emption. This is the right
to purchase property. The right arose in the circumstances described by Lord Parker in
The Zamora,21 as follows. During the Napoleonic Wars the British took the view that
naval stores were absolute contraband and were lawful prize, even when carried in a
neutral ship. Other States took the view that such stores were contraband only if destined
for use by an enemy government, and if destined for use by civilians were not contraband
at all. A compromise was reached whereby instead of condemning such stores they were
purchased compulsorily from their neutral owners. This practice subsequently became
part of international law. It is a right confined to naval stores.
Exclusion for capture, etc., by the “home” government (Clause 4.1.4)
23.10 This exclusion applies to capture, seizure, arrest, restraint, detainment, confiscation or expropriation by or under the order of the government or any public or local
authority of the country in which the vessel is owned or registered. There may be more
than one State with the relevant connection to the vessel. First, a vessel may be registered by its owners in one State and by Bareboat Charterers in another State. Second, the
exclusion also refers to “the country in which the vessel is owned”. Since registration is
not ownership, this is potentially a different State. Although a clumsy phrase, it seems
that the vessel is owned where its owner is located, in the domicile of an individual or the
place of incorporation of a company. This may, in effect, be a requisition by the State of
the owner of a ship which is registered elsewhere. In the Container Clauses, the exclusion
refers to the country where the Assured have their principal place of business.
Exclusion for quarantine regulations, customs or trading regulations
(Clause 4.1.5)
23.11 This exclusion applies to arrests, etc.,22 in respect of quarantine, customs and
trading regulations. The exclusion is not limited in its effect to the perils covered by
Clause 1.2 (capture, seizure, etc.) and Clause 1.6 (confiscation or expropriation).23 The
exclusion applies to other perils, such as malicious acts, where such an act has resulted in
an arrest, etc., under relevant regulations; and it is not subject to any implied limitation that
it does not apply where the infringement is due some other peril (such as malicious acts).24
Underwriters bear the burden of showing that the vessel was confiscated for a reason
falling within the exclusion, but the insured would bear the burden of showing (if alleged)
that the foreign court acted without jurisdiction and simply under political direction.25
21 [1916] 2 A.C. 77 at p.105.
22 Not unnaturally, it does not apply to capture. But nor does it apply to seizure.
23 Atlasnavios Navegacao Lda v. Navigators Insurance Co Ltd (The B Atlantic) [2019] A.C. 136; [2018] 2
Lloyd’s Rep. 1 at [32].
24 Atlasnavios Navegacao Lda v. Navigators Insurance Co Ltd (The B Atlantic) [2019] A.C. 136; [2018] 2
Lloyd’s Rep. 1 at [33].
25 Panamanian Oriental Steamship Corp v. Wright (The Anita) [1971] 1 Lloyd’s Rep. 487; [1971] 1 W.L.R.
882 at p.887 per Lord Denning M.R., citing Blackburn J. in Castrique v. Imrie (1870) L.R. 4 H.L. 414 at p.430:
“… we must (at least till the contrary is clearly proved) give credit to a foreign tribunal for knowing its own law,
and acting within the jurisdiction conferred on it by that law …”
190
Exclusions
23.12 The first part of the exclusion refers to an arrest, etc., “under” quarantine regulations, whereas the second part refers to arrest, etc., “by reason of” infringement of
other regulations. As a matter of ordinary language, a detention “under” a regulation
suggests that the regulation is the source of the power, whereas a detention “by reason of”
infringement of a regulation suggests a causal link between an actual infringement and
the detention. Consistent with this, a detainment “under” quarantine regulations does not
require there to be any actual infringement of those regulations.26 However, Lloyd L.J.
in The Wondrous considered that the difference in wording was just careless drafting.27
23.13 In The B Atlantic28 it was common ground that the exclusion did not apply if an
infringement of customs regulations was not reasonably arguably a ground for the arrest, etc
of the vessel as a matter of the relevant local law, and Hamblen J. agreed that it was unlikely
that the exclusion would apply in such circumstances.29 In that case it was assumed, until the
matter came before the Supreme Court, that the act of concealing drugs on board the vessel was
a malicious act, it being argued that the proximate cause of the loss was the malicious act and
not the detention. The Court of Appeal therefore considered whether the phrase “by reason of”
involved a question of proximate cause.30 It was argued that “by reason of” asked a question as
to “why” the vessel was detained, a question not identical to proximate cause.31 The Court of
Appeal did not consider the how/why distinction to be useful, and concluded that the detention
was a proximate cause of the loss and was undoubtedly “by reason of” the infringement.32
In the Supreme Court,33 the argument that the proximate cause was the malicious act rather
than the infringement of customs regulations was rejected; the putative malicious act could
not be sensibly distinguished from the infringement.34 As for the construction of the perils
and the exclusion, there are three stages: the first stage is the identification of an insured peril,
the second is whether the detention was the means by which the loss was incurred, and the
third stage is to ask whether such detainment was by reason of any infringement of customs
regulations.35 It is possible for a loss to be proximately caused both by the insured peril (such
as a malicious act) and by a detainment within the scope of the exclusion.36 Whilst the general
aim in insurance law is to identify a single real, effective or proximate cause of any loss, the
correct analysis is in some cases that there are two concurrent causes, particularly where an
exceptions clause takes certain perils out of the prima facie cover.37
23.14 The exclusion does not expressly identify by whom any infringement must be
committed, but there is no implied implication that the infringement must be one committed by the insured itself or by its servants or agents.38 The clause is unnecessary to cater
26 Ikerigi Compania Naviera. SA v. Palmer (The Wondrous) [1992] 2 Lloyd’s Rep. 566 at p.571.
27 Ibid.
28 Atlasnavios Navegacao Lda v. Navigators Insurance Co Ltd (The B Atlantic) [2012] 1 Lloyd’s Rep. 629.
29 Ibid at [63]–[65].
30 Atlasnavios Navegacao Lda v. Navigators Insurance Co Ltd (The B Atlantic) [2017] 1 W.L.R. 1303;
[2016] 2 Lloyd’s Rep. 351 at [59]–[61].
31 Ibid at [59].
32 Ibid at [61].
33 Atlasnavios Navegacao Lda v. Navigators Insurance Co Ltd (The B Atlantic) [2019] A.C. 136; [2018] 2
Lloyd’s Rep. 1.
34 Ibid at [41].
35 Ibid at [41].
36 Ibid at [42].
37 Ibid at [43].
38 N 28 at [34]–[47] per Hamblen J.; correctly not appealed [2019] A.C. 136; [2018] 2 Lloyd’s Rep. 1 at [50]
per Lord Mance.
191
Exclusions
for cases of smuggling by shipowners themselves.39 As for crew smuggling without the
knowledge of owners, that is barratry and generally excluded by the conjunction of Clause
4.2 of the Institute War and Strikes Clauses Hulls Time with Clause 6.2.5 of the Institute
Time Clauses Hulls, which covers barratry.40 Clause 6.2.5 is subject to a proviso, namely
“that such loss or damage has not resulted from want of due diligence by the Assured,
Owners or Managers”. However, in The B Atlantic, Lord Mance considered it improbable
that the Institute War and Strikes Clauses Hulls Time were intended to pick up a narrow
band of barratrous conduct, to which owners were not privy, but which they had failed to
exercise due diligence to guard against.41
23.15 In The B Atlantic,42 the Supreme Court considered a series of scenarios in which
the exclusion might be applied. The first was that of a “put-up job”, a scenario suggested by
Lord Denning M.R. in The Anita.43 The scenario would involve a seizure on a knowingly
false basis, without any smuggling taking place, or where the authorities planted drugs on
board. Lord Mance considered that to be an obvious case, since there would be no customs infringement in fact.44 The second scenario involved a malicious third party planting
drugs in order to blackmail the shipowners. The third scenario involved a third party
planting drugs and then informing the authorities in order to get the vessel detained. Lord
Mance considered these two examples to be indistinguishable, and suggested that “[t]he
centrality of the intentional motivation to the causation of a loss may well be capable as a
matter of causation of taking the loss outside the scope of the exception in Clause 4.1.5.” 45
23.16 Smuggling is an infringement of customs regulations within the meaning of the
exception.46 Whilst detention for infringement of customs regulations does not necessarily involve smuggling,47 it is a paradigm case48 and more likely to lead to a prolonged
detention and a deemed CTL49 than other less heinous infringements.50
39 N 33 at [50]. Lord Mance did not identify the reason for this. In the Court of Appeal, Christopher Clarke
L.J. said that it would be contrary to public policy: [2017] 1 W.L.R. 1303; [2016] 2 Lloyd’s Rep. 351 at [37].
40 N 33 at [50] per Lord Mance.
41 Ibid.
42 N 33.
43 Panamanian Oriental Steamship Corp v. Wright (The Anita) [1971] 1 W.L.R. 882; [1971] 1 Lloyd’s
Rep. 487.
44 N 33 at [36].
45 Ibid at [37].
46 Panamanian Oriental Steamship Corp v. Wright (The Anita) [1971] 1 WLR 882, CA.
47 See e.g. Ikerigi Compania Naviera. SA v. Palmer (The Wondrous) [1992] 2 Lloyd’s Rep. 566 (lack of
outward customs clearance due to charterers’ default in payment of sums due).
48 Atlasnavios Navegacao Lda v. Navigators Insurance Co Ltd (The B Atlantic) [2017] 1 W.L.R. 1303;
[2016] 2 Lloyd’s Rep. 351, Court of Appeal at [36], citing The Kleovoulos of Rhodes and Fenton Atkinson L.J.
in The “Anita” at 889. The Court of Appeal noted at [40] that smuggling may not involve a breach of customs
regulations where the smuggling was intended to take place entirely within the territory of same state.
49 Institute Clause 3 provides that if the Assured has lost the free use and disposal of the vessel for a continuous period of 12 months (amended to six months in The B Atlantic) then for the purpose of ascertaining
whether the vessel is a constructive total loss the assured shall be deemed to have been deprived of the possession of the vessel without any likelihood of recovery.
50 Atlasnavios Navegacao Lda v. Navigators Insurance Co Ltd (The B Atlantic) [2017] 1 W.L.R. 1303;
[2016] 2 Lloyd’s Rep. 351, Court of Appeal at [37].
192
Exclusions
23.17 The exclusion in respect of trading regulations was introduced in the aftermath
of the Iran/Iraq War and as a result of the effect on vessels of international sanctions.51 It
is to be construed as a general term and not as applying to any regulation which affects
the insured in his trade.52 Regulations concerned with the management and conservation
of fish stocks were therefore not trading regulations even though they impacted on the
trade of fishing.53
Exclusion for “the operation of ordinary judicial process” (Clause 4.1.6)
23.18 The exclusion for “ordinary judicial process” in Clause 4.1.6 reflects Rule 10 of
the rules of construction for the S.G. Form, as set out in the Schedule to the 1906 Act. Its
origin lies in Finlay v. The Liverpool and Great Western Steamship Company,54 where a
shipowner sought to defend a short delivery claim under a bill of lading by relying on a
restraint of princes exception, a court having ordered the shipowner to deliver the missing
goods to their true owner. Martin B. held that restraint of princes referred to “the forcible
interference of a State or of the government of a country taking possession of the goods
manu forti” and did not extend to the actions of a court. In the subsequent case of Crew
Widgery & Co. v. Great Western Steamship Company,55 Field and Wills J.J. held that a
restraint of princes exemption in a bill of lading did not apply to an arrest in respect of a
collision claim. Then, in Miller v. The Law Accident Insurance Co56 the Court of Appeal
overturned the decision of Bigham J. that a refusal to allow the landing of cattle was
not restraint of princes because it was a matter of the ordinary municipal law. Vaughan
Williams L.J. denied that there was any analogy between that case and that of arrest or
detention of a ship to enforce the rights of a private individual.57
23.19 In line with these authorities, in The Anita, Mocatta J. said58 that
the words “ordinary judicial process” … refer to the employment of Courts of law in civil
proceedings. If a rationale be required for this, it is that in such cases the State is merely
providing a service to litigants, rather than exercising its own power through the Courts for
its own purposes.
Confining the exclusion to “ordinary” judicial process would include the very common
event of the arrest of ships for civil and commercial claims. The activities of Prize Courts
are not “ordinary” judicial process. A state of war is not “ordinary”.59 In The Anita, Mocatta
J. held that it was not “ordinary judicial process” where the act was that of an extraordinary
military tribunal operating outside the normal judicial structure of the country.60
51 Handelsbanken ASA v. Dandridge (The Aliza Glacial) [2002] 2 Lloyd’s Rep. 421 at [30].
52 Ibid.
53 Ibid at [31].
54 (1870) 22 L.T. 251.
55 (1887) W.N. 161.
56 [1903] 1 K.B. 712.
57 Ibid at p.718.
58 Panamanian Oriental Steamship Corp v. Wright (The Anita) [1970] 2 Lloyd’s Rep. 365 at p.377; not
appealed [1971] 1 W.L.R. 882.
59 Sanday v. British and Foreign Marine Isnurance Co [1915] 2 K.B. 781 at pp.824–825.
60 Panamanian Oriental Steamship Corp v. Wright (The Anita) [1970] 2 Lloyd’s Rep. 365 at p.378; not
appealed [1971] 1 W.L.R. 882.
193
Exclusions
23.20 An example of the courts being used extraordinarily is The Silva,61 where the
vessel was subject to an executory arrest at Port Suez in 2008 purportedly pursuant to
part of a judgment entered in 1996 in the Port Said Court in respect of the grounding of a
different vessel in Egypt in 1989. The relevant part of the judgment was liability for court
dues and the arrest was at the instance of the court itself.62 As an attempt by the court to
collect an unconstitutional contribution towards a fund for judges from an unconnected
party it was not “ordinary judicial process” but an exercise of extortion under the veneer
of court process.63
23.21 Confining the exclusion of ordinary judicial process to “civil” proceedings, as
the definition64 of Mocatta J. does, would remove from its scope any criminal proceedings. Nevertheless, the exclusion goes on to refer to failures to pay fines or penalties, as
noted below.
Exclusion for “failure to provide security or to pay any fine or penalty or
any financial cause” (Clause 4.1.6)
23.22 The exclusion for failure to provide security or to pay any fine or penalty or any
financial cause comprises three categories; the first two are specific and the third is on its
face potentially very broad.
23.23 The first category is a failure to provide “security”. Shipowners are commonly
required to provide security for claims against a vessel in order to secure release from
arrest or detention. The security may be in respect of commercial claims or in respect of
claims by States, such as in respect of pollution. In order to fall within the exclusion, the
security in question must be reasonable.65 If it was not reasonable for the owners to provide the surety demanded in respect of the vessel because the sum required exceeded the
full value of the ship and would otherwise enable her to be treated as a constructive total
loss, the exclusion would be inapplicable.66
23.24 The second category is a failure to pay any fine or penalty. Unlike ordinary
judicial process, it would cover criminal matters, but would be limited to the ordinary
process and not, for example, a fine or penalty imposed for political rather than purely
legal reasons.
23.25 The third category is broadly stated as “any financial cause”. In The Wondrous, the vessel was unable to leave port as a result of not having paid the sums required
before customs clearance could be granted, and it was held that it was detained due to a
financial cause within the meaning of the exclusion.67 The Court of Appeal held that a
61 Melinda Holdings Sa v. Hellenic Mutual War Risks Association (Bermuda) Ltd (The Silva) [2011] 2
Lloyd’s Rep. 470.
62 These comprised court costs and a contribution to the Judges’ Fund, for the health and welfare of the
judges and their families, the latter fund being regarded as unconstitutional: Ibid at [7].
63 Ibid at [42]–[43], [45].
64 Panamanian Oriental Steamship Corp v. Wright (The Anita) [1970] 2 Lloyd’s Rep. 365 at p.377.
65 Handelsbanken ASA v. Dandridge (The Aliza Glacial) [2002] 2 Lloyd’s Rep. 421 at [62] per Potter L.J.
For an example, see Atlasnavios Navegacao Lda v. Navigators Insurance Co Ltd (The B Atlantic) [2015] 1
Lloyd’s Rep. 117 at [324–334] per Flaux J.
66 Ibid.
67 Ikerigi Compania Naviera. SA v. Palmer (The Wondrous) [1991] 1 Lloyd’s Rep. 400 at p.417 per Hobhouse J.; [1992] 2 Lloyd’s Rep. 566 per Lloyd L.J. at p.573.
194
Exclusions
financial cause does not have to be a matter for which the insured shipowners (as opposed
to cargo interests) are responsible and the words are to be given their ordinary (and wide)
meaning.68
23.26 Though the words are wide, they must be construed in their context, namely as
an exemplar of exclusions of claims arising out of ordinary judicial process.69 In The Aliza
Glacial, Toulson J. had said that the wide words must have some limitation, since in the
case of terrorists seizing a vessel and demanding a large ransom, on a literal construction
a loss due to refusal to pay would be a financial cause.70 In the B Atlantic, Flaux J. had
sought to rely on the implied limit on “any financial cause” as supporting an implied limit
on the exclusion for infringement of customs regulations.71 The Court of Appeal reversed
this, and stated that The Aliza Glacial was a decision on causation, and did not involve
any implied limitation on the scope of the exclusion.72 In the Supreme Court, Lord Mance
confirmed that the phrase “any financial cause” is aimed at ordinary financial vicissitudes,
and not at a refusal to pay (say) an outrageous terrorist demand, adding that “[t]he cause
of the vessel’s loss would still be the terrorist activity”.73 This would seem to confirm the
causation rather than construction analysis, so that the mere fact that the insured may be
able to buy his way out of a situation created by a non-financial peril does not bring the
exclusion into play.
68 Ikerigi Compania Naviera. SA v. Palmer (The Wondrous) [1992] 2 Lloyd’s Rep. 566 per Lloyd L.J. at
p.573, at p.576 per Nourse L.J., overruling Hobhouse at p.417 (vessel could not leave port as the exporters had
not provided a foreign currency guarantee).
69 N 61 at [46(ii)].
70 As noted by the Court of Appeal: Handelsbanken ASA v. Dandridge (The Aliza Glacial) [2002] 2 Lloyd’s
Rep. 421 at [52].
71 Atlasnavios Navegacao Lda v. Navigators Insurance Co Ltd (The B Atlantic) [2015] 1 Lloyd’s Rep. 117
at [254]–[255].
72 Atlasnavios Navegacao Lda v. Navigators Insurance Co Ltd (The B Atlantic) [2017] 1 W.L.R. 1303;
[2016] 2 Lloyd’s Rep. 351, Court of Appeal at [51].
73 N 33 at [38].
195
CH A PT ER 24
War risks and marine insurance legislation
24.1 Most marine insurance legislation applies to war risks policies as it does to other
marine policies and, as such, is described throughout this work in the relevant places. This
chapter deals with three distinct matters, namely the nature of the legislation and its effect
on common law principles; the duty of fair presentation of the risk; and the control of risk
management clauses, including insurance warranties.
The Marine Insurance Act 1906: construction and effect on the common law
24.2 The 1906 Act took a very long time to reach the statute book. However, after more
than a century as the primary statutory source, it was amended by the Insurance Act 2015
with effect from 12 August 2016. In addition to reforming key aspects of marine insurance
law, the 2015 Act established a new procedure for contracting out of those reformulated
statutory defaults. The applicable law is determined by the date of the policy. The English
courts have not yet had to contend with policies made under the 2015 Act1 although cases
have been decided under the corresponding changes to aspects of consumer insurance law
under the Consumer Insurance (Disclosure & Representations) Act 2012, which came into
force on 6 April 2013.2 The current period is therefore a transitional one, with the majority
of disputes arising on the basis of policies agreed under the 1906 Act alone, but with the
likelihood of disputes arising under policies issued under the 2015 Act. Which Act applies
is of considerable legal significance not only because of the changes made to the substantive rules, but also in the nature of the legislation.
24.3 At the time that the Marine Insurance Bill was first introduced in 1894, moves
were afoot to codify the common law and the law merchant that were founded upon
the decisions of the judges, sometimes stretching over centuries.3 Codifying Acts had
appeared on such matters as partnership, arbitration and sale of goods. The intention in
the codification advanced by Sir Mackenzie Chalmers was to produce the existing law in a
code contained in an Act of Parliament with as few changes as possible, except in instances
where the existing case law had ceased to represent the public perception of what the law
1 The first case under the 2015 Act, Young v. Royal & Sun Alliance [2019] CSOH 32 was heard by the Outer
House in Scotland on 03/04/19.
2 In particular, Southern Rock Insurance Co Ltd v. Hafeez [2017] CSOH 127; [2018] Lloyd’s Rep. IR 207
and Ageas Insurance Ltd v. Stoodley [2019] Lloyd’s Rep. IR 1.
3 An excellent account of the process is found in R Ferguson, ‘Legal Ideology and Commercial Interests:
The Social Origins of the Commercial Law Codes’ (1977) 4 JLC 18.
196
War risks and marine insurance legislation
ought to be. Another feature of the codifying Acts is that it is perfectly permissible to
contract out of their provisions. The adoption of the Insurance Act 2015 changes these general principles, at least in those areas now governed by the new statute. First, it provides a
specific regime for contracting out of its provisions which is prima facie more restrictive
than the approach under the 1906 Act. Second, the 2015 Act was not generally codifying in
nature but reforming in that it sought to rebalance certain duties and remedies.
Interpretation of the 1906 Act as a codifying statute
24.4 The Marine Insurance Act 1906 was (in part) a codifying Act. This has an influence on the process of statutory interpretation, although this effect should not be overstated. Bennion states the rules as:
(1) In the first instance, a codifying Act is to be construed in the same way as any
other Act, without reference to the earlier legislation or case law.
(2) If, however, real doubt arises as to its legal meaning:
(a) …
(b) in so far as the Act constitutes codification (with or without amendment) of
common-law rules, relevant case law may be referred to.
(3) Where a common law rule is replaced by an enactment that is not intended to
codify the rule, the enactment should be construed without reference to earlier
case law.4
24.5 The 1906 Act describes itself in its long title as a codifying Act. As stated in
Bennion, the presumptions made about a statute of this kind only apply where there is real
doubt as to the meaning of a provision. This is known as Lord Herschell’s rule, after his
statement to this end in Bank of England v. Vagliano Bros:
I think the proper course is in the first instance to examine the language of the statute and to
ask what is its natural meaning, uninfluenced by any considerations derived from the previous
state of the law, and not to start with inquiring how the law previously stood, and then, assuming that it was probably intended to leave it unaltered, to see if the words of the enactment will
bear an interpretation in conformity with this view.5
24.6 The willingness of the courts to look at case law from before the 1906 Act has varied. The Act is only a partial code, as section 91(2) makes clear: “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”. In interpreting the meaning of the word “privity” in relation to unseaworthiness in section 39(5),
Roskill L.J. in The Eurysthenes6 noted that the nature of the 1906 Act was not perfectly
consistent, that the statute did more than simply codify:
4 D Bailey and L Norbury, Bennion on Statutory Interpretation (Lexis, 7th edn, incorporating 2nd suppl,
2019), [24.8].
5 [1891] AC 107, 144–145.
6 Compania Maritima San Basilio SA v. The Oceanus Mutual Underwriting Association (Bermuda) Ltd,
The Eurysthenes [1976] 2 Lloyd’s Rep. 171.
197
War risks and marine insurance legislation
In certain respects, notably in s. 60, which deals with constructive total loss, the 1906 Act
went further than simply to consolidate the pre-existing law. In that respect it altered it and
did so in terms which “circumscribes completely the concept of constructive total loss” so
as to leave no room for consideration of the antecedent common law concept of such a loss.7
But this very fact shows how dangerous it is, save within well recognized limits, to seek to
ascertain the true meaning of a word or a phrase in a consolidating statute by research into
earlier law, whether it be case law or statute law, unless there is real doubt what the language
of the statute means.8
24.7 Important examples of the “real doubt” criterion are found in the House of Lords’
consideration of section 18(2) in Pan Atlantic.9 In determining the proper interpretation of the
requirement of “influence” on the judgment of the prudent insurer, Lord Mustill (with whom
Lords Goff and Slynn agreed) reviewed pre-1906 case law (notably, Ionides v. Pender)10 and
historic texts11 although ultimately this evidence was not conclusive, and he favoured an outcome based on the natural wording of the statute.12 Similarly, in answering why the 1906 Act
did not contain a specific requirement for inducement as a pre-condition for avoiding a policy
for a failure to disclose a material circumstance, Lord Mustill undertook a careful review of
the pre-Act texts and cases. In this situation, he was faced with the absence of a statutory provision on inducement, and the deletion (found in the draft Bill) of a specific reference in what
became section 91(2) to the common law rules of fraud and misrepresentation applying unless
inconsistent with the 1906 Act. Despite the removal of a specific reference to misrepresentation, Lord Mustill (and the other members of the House) held that the 1906 Act required the
element of inducement in non-disclosure cases as in misrepresentation. Unlike the materiality
issue, the absence of a provision makes it more difficult to argue that there was “real doubt” in
determining the meaning of the statute as enacted, as the doubt only surfaces by comparison
of the statute with the requirements in other parts of the law, and not on its face.
24.8 Recent litigation on section 53 of the 1906 Act, which governs the payment of premiums in marine policies, considered the use of pre-Act sources where the statute codifies
commercial (rather than judicial) practice. In Eide UK Ltd v. Lowndes Lambert Group
Ltd,13 the Court of Appeal was required to interpret section 53(2) of the 1906 Act. At first
instance, the statute had been construed without reference to pre-Act sources. Phillips L.J.
reversed this approach, on two distinct grounds.14 First, on the general observation that
the 1906 Act was not a complete code and on this specifically referenced section 91(2).
Second, on the basis that section 53 was describing a commercial practice in place at the
time of the 1906 Act, and that this could be varied by agreement.15
24.9 The 1906 Act was not simply a codifying measure, and even where it sought to
codify existing principle, it normally only created an incomplete code. Recent judicial
7 Citing Irvine v. Hine [1950] KB 555, 568 per Devlin J.
8 N 6 at 184.
9 Pan Atlantic Ins Co Ltd v. Pine Top Ins Co Ltd [1995] 1 AC 501.
10 (1873–74) LR 9 QB 531.
11 Primarily, J Duer, The Law and Practice of Marine Insurance, vol. II (1846), J Arnould, A Treatise on
the Law of Marine Insurance and Average (2nd edn, 1850) and T Parsons, A Treatise on Maritime Law, vol. II
(1859).
12 N 9 at 538.
13 [1999] QB 199.
14 At 206.
15 The principle of freedom of contract is enshrined in s. 87, MIA 1906.
198
War risks and marine insurance legislation
practice is mixed, but the weight of authority is in favour of reviewing pre-1906 case law
where there is ambiguity on the face of the statute, or where the statute can be considered
incomplete by comparison with equivalent common law rules.
The Insurance Act 2015: construction and effect on the common law
24.10 Unlike the Marine Insurance Act (MIA) 1906, the Insurance Act (IA) 2015 was
not primarily intended to codify existing marine insurance practice. Indeed, the 2015 Act
was largely focused on consumer and commercial domestic insurance, with the expectation that international risks such as marine and war risks would “contract out” of its
provisions where appropriate to do so.16 Some parts of the 2015 Act are evidently intended
to replicate the position under the 1906 Act, some codify changes in the common law
position that have arisen subsequent to the 1906 Act, and others provide for an entirely
novel position. An example of each approach is useful here:
(1) Maintaining the 1906 Act
The statutory test for whether a circumstance is material for the purpose of
the pre-contractual duties of non-disclosure and misrepresentation is identical in
section 18(2) MIA 1906 and section 7(3) IA 2015, whether it would “influence the
judgement of a prudent insurer in determining whether to take the risk and, if so,
on what terms”, thus preserving the authority of the House of Lords decision on
the limits of materiality in Pan Atlantic.17
(2) Codifying Subsequent Case Authority
The House of Lords in Pan Atlantic determined that the insured’s failure to disclose material circumstance was only operative where that omission induced the
underwriter to enter into the agreement. This requirement was not found in the 1906
Act and represented an example of common law principles applying in the absence of
specific provision in the 1906 Act. The requirement of inducement is now provided
for in section 8(1) IA 2015 as a codification of that part of the Pan Atlantic decision.
(3) Reforming the 1906 Act
The remedy for breach of the pre-contractual duties under the 1906 Act was
strict and unvarying: avoidance of the contract at the option of the innocent party.
This has been substantially reformed in the IA 2015, with avoidance available
only in certain limited circumstances, and a range of other proportionate remedies available to the court.18
The best approach to the 2015 Act is to take each provision on its own merits rather
than assume some overarching legislative intent, such as codification or reform.
Contracting out under the Marine Insurance Act 1906 and the Insurance Act 2015
24.11 The Marine Insurance Act 1906 contained no specific mechanism by which contracting parties could vary statutory defaults. The vast majority of the rules in the 1906
16 See Law Commission, Insurance Contract Law: Business Disclosure; Warranties; Insurers’ Remedies
for Fraudulent Claims; and Late Payment (Law Com No 353, 2014) at [11.33].
17 N 9.
18 Sch 1, IA 2015.
199
War risks and marine insurance legislation
Act are default rules which are simply made subject to contrary intent in the policy, and in
many cases this is expressly provided for in the Act.19
24.12 The Insurance Act 2015 is different in nature and has a specific regulatory regime that governs “contracting out” clauses. For consumer insurance contracts (as defined
by section 1, Consumer Insurance (Disclosure & Representations) Act 2012), any attempt
by the contract to put the insured in a “worse position” than that stipulated by the Insurance Act 2015 is of no effect.20 More importantly for war risks policies, the provisions of
the Insurance Act 2015 apply in non-consumer contracts unless the specific requirements
for contracting out in sections 16–17 Insurance Act 2015 are satisfied.
24.13 For commercial lines, a “disadvantageous” term is one which puts the insured in
a “worse position” than the default rule contained within the statute. For that contractual
provision to have effect, two distinct tests must be met. First, under section 17(2) there is a
“notice” requirement that: “the insurer must take sufficient steps to draw the disadvantageous term to the insured’s attention before the contract is entered into …” Second, under
section 17(3), the term must be “clear and unambiguous as to its effect”. Two caveats must
be borne in mind when considering the thresholds that these criteria set:
(1) The expectations of “notice” and transparency of effect both scale, according to
the characteristics of the insured and the nature of the transaction. In most war
risks policies, with cover arranged by brokers and on behalf of sophisticated
commercial parties, these requirements will be significantly reduced;
(2) The “notice” requirement under section 17(2) is specifically subject to section
17(5), which removes the possibility of breach of that element “if the insured (or
its agent) had actual knowledge of the disadvantageous term when the contract
was entered into …”
24.14 The current published advice on drafting suggests making specific reference to
the inapplicability of the rule provided for in the Insurance Act 2015 and making specific
reference to the extent of any varied duty and/or remedy.21 This operates on the assumption that the level of clarity required varies less with the sophistication of the insured than
the level of notice required. If correct, then whilst compliance with section 17(2) might
readily be assumed because the broker was actively involved in the determining the scope
of the war risks policy, an unclear term might be ineffective, even if the underwriter did
not draft it or specifically request its inclusion.
Utmost good faith, non-disclosure, misrepresentation and fair presentation
of the risk under the MIA 1906 and IA 2015
24.15 It has been suggested that the insured’s duty to present the risk to the underwriter
is of relative unimportance in war risks markets.22 This is part of a wider vision of war
19 The limits of contracting out of the 1906 Act are considered in J Davey, ‘Utmost Good Faith, Freedom
of Contract and the Insurance Act 2015’ (2016) 27 ILJ 247.
20 S. 15, Insurance Act 2015.
21 D Kendall and H Wright, Practical Guide to the Insurance Act 2015 (Informa, 2017), Chapter 8,
especially [8.18]–[8.23].
22 See North Star Shipping Ltd v. Sphere Drake Ins Plc, The North Star [2006] 2 Lloyd’s Rep. 183 at
[25]–[38] (CA).
200
War risks and marine insurance legislation
risks cover as responding to events done to the insured’s property which were not within
the control of the insured.23 However, at least one notable recent case arose in the context
of a war risks policy (The North Star), and led to Longmore L.J.’s call for statutory reconsideration of the area. This justifies a review of the pre-contractual duties of the insured
under the 1906 and 2015 Acts, not least to establish to what extent the result would be
different under the new provisions.
24.16 The relative unimportance of the duty to fairly present the risk to the insurer prior
to the formation of the policy was argued in expert evidence on the basis of two distinct reasons: first, that the majority of risks insured under a war risks policy operate outside of the
insured’s control and are based on world events within the underwriter’s expertise. Second,
that the moral hazard issue of the insured’s honesty is reduced by the subsidiary nature of
the war risks policy, as the war risks underwriter would assume that the Hull & Machinery
underwriter had investigated these issues. Evidence to this effect was given by an experienced former underwriter in The North Star but rejected by the Court of Appeal.24 The duty
to disclose circumstances material to war risks should therefore be assumed to operate fully
in these markets. The Court of Appeal recognised that the nature of the market was relevant
to the likely reaction of underwriters to evidence relating to the character of the assured:
In reality, given the low premium, high turnover nature of war risk business, although he
would ask the broker, I doubt that a prudent underwriter would wish to undertake his own
detailed enquiries. I expect he would decide not to take the risk, particularly if the market was
firm from the underwriter’s point of view …25
Misrepresentation and non-disclosure under the MIA 1906
24.17 The pre-contractual duties on the insured to disclose material circumstances and
to not make misrepresentations were found in section 18 and section 20 of the Marine Insurance Act 1906. The separate duty on the insured’s broker was imposed by section 19 MIA
1906 and is considered at paragraph 24.27. For policies issued after 12 August 2016, these
provisions have been repealed and replaced by provisions in the Insurance Act 2015.
24.18 These duties are commonly viewed as examples of the general duty of utmost
good faith imposed on both parties to the marine insurance contract by section 17 MIA
1906 as a codification of the principle established by Lord Mansfield in Carter v. Boehm.26
Section 17 has also been substantially amended by the 2015 Act. For the remainder of this
section, it is assumed that the policy under consideration was agreed prior to the entry of
the 2015 Act.
Non-disclosure under the MIA 1906
24.19 Section 18(1) provided for a duty of pre-contractual disclosure of all material circumstances known to the assured prior to the formation of the contract, with the
23 See paragraph 24.53 in respect of the use of warranties and other risk management clauses in war risks
policies.
24 See the evidence of Mr Posgate as a former underwriter in The North Star at [27].
25 See the evidence of Mr Hall at [31], as expert witness for the insurers, which was accepted by the Court
of Appeal.
26 (1766) 3 Burr 1905, 97 ER 1162.
201
War risks and marine insurance legislation
underwriter entitled to avoid the contract ab initio if the duty is breached. Section 18(1)
does not detail the precise limits of what ought to be disclosed by the insured, but extends
it beyond actual knowledge by the statement that “the assured is deemed to know every
circumstance which, in the ordinary course of business, ought to be known by him”. This
led to considerable litigation on the limits of the insured’s knowledge, particularly in respect of corporate insureds. As will be seen, the equivalent provisions of the Insurance
Act 2015 contain considerably more detailed principles by which to determine the knowledge of the insured and underwriter. Under the MIA 1906, the knowledge of the corporate
insured is generally judged by the standard of “directing mind or will”, this being an
application of the general principle that “[t]he extent of the knowledge of a company can
only be determined by reference to the rule of law which makes the inquiry necessary”.27
Arnould supports the obiter comments of Staughton L.J. in PCW Reinsurers extending
this to include the knowledge of those responsible for arranging the company’s insurance,
and this better reflects the general principle that corporate knowledge is best assessed by
a consideration of the reason for the enquiry.28
24.20 The next important qualification on the duty of pre-contractual disclosure is
found in the limits of materiality. Failure to disclose a circumstance is only operative if it is
material to the risks insured under that policy. Information must therefore be relevant to the
calculation of the risks covered. In many policies this will include circumstances related to
the physical risk to be faced by the insured property and to the character of the insured (the
“moral hazard”). This latter element includes information related to the likelihood of the
insured submitting an entirely fraudulent or exaggerated claim for recovery. An excellent
example of the need for the circumstance to be relevant to the actual risks insured is found
in The Elena G.29 The ultimate beneficial ownership of the yacht insured, as within the corporate group of Mr Goussinsky, a controversial Russian oligarch, was not disclosed to the
underwriter. In judging materiality, David Steel J. found that the possibility of malicious
attacks against the vessel as a means of harming the oligarch was not material to the placement of a marine risks policy. However, the decision might have been reversed if the policy
were a standard war risks policy, insuring against attacks of that nature. The determination
of materiality in each case is a question of fact under section 18(4) MIA 1906.
24.21 The specific test for materiality under section 18(2) was the subject of the House
of Lords decision in Pan Atlantic. As noted in paragraph 24.10, both the 1906 Act and the
Insurance Act 2015 share the definition of materiality: “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”. Three key elements emerged from the majority
decision in Pan Atlantic. First, the reference to the “prudent insurer” in section 18(2)
refers to a hypothetical reasonable insurer as personification of the market. As such it is
a purely objective test and does not consider the actual underwriter to whom the risk was
broked.30 Second, for a circumstance to “influence the judgment of a prudent insurer”,
27 PCW Syndicates v. PCW Reinsurers [1996] 1 Lloyd’s Rep. 241, 253 per Staughton L.J.
28 J Gilman, et al., Arnould’s Law of Marine Insurance and Average (Sweet & Maxwell, 19th edn, 2018),
[16–06].
29 [2001] 2 Lloyd’s Rep. 378.
30 The approach in Berger v. Pollock [1973] 2 Lloyd’s Rep. 442 to treat “prudent insurer” as a reference
to both the actual and the hypothetical insurer, creating a mixed objective/subjective test for materiality was
definitively rejected by the Court of Appeal in CTI v. Oceanus [1984] 1 Lloyd’s Rep. 476.
202
War risks and marine insurance legislation
it need only alter the thought process of the prudent underwriter in its calculation of the
risk. This is necessarily a speculative enquiry in which the reaction of the hypothetical
underwriter to the risk placed is compared to that of the hypothetical underwriter where a
legally compliant disclosure had been made. It need not change the final outcome. On this
basis, a circumstance would be material if considered in its risk assessment by the prudent
underwriter, even if that hypothetical being would ultimately offer the same terms and at
the same price. Finally, the House of Lords determined that the section 18(2) formulation
of materiality was an incomplete statement of the law. That is, there remained further
common law requirements before a remedy could be claimed. This arose from the nature
of the 1906 Act as a partial codification of the law of marine insurance, as described in
paragraph 24.4. As the need for an effect on the actual underwriter was not settled when
the 1906 Act was drafted, the statute left this issue for the common law to determine. The
House of Lords was unanimous that for an underwriter to exercise its rights under section
18(1), it would need to establish that its own decision to enter into the contract was affected
by the failure to make full disclosure. This requirement, of inducement, brought non-disclosure into line with the equivalent principles in misrepresentation.
24.22 Thus far the limits of section 18 have described the elements that the underwriter must establish to avoid the contract, namely that the information was within the
knowledge of the insured (actual or constructive), that it was material and that it induced
the actual underwriter to enter into the policy. A further series of limitations is provided
in section 18(3), but these represent a series of heterogenous exceptions to the duty to
disclose:
(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.
Section 18(3)(a) should be considered as merely confirming the result of the application
of the principles described above that a non-disclosure is only operative where it would
prejudice the risk assessment made by the underwriter. A circumstance which reduces
the risk insured ought to be disclosed as a matter of practice because it may reduce the
premium, but the law does not require permit the underwriter to avoid the policy because
the risk described was lower than the actual risk.
Section 18(3)(b) is of greater significance in that it limits disclosable circumstances to
those not generally known to underwriters, either as a matter of common knowledge or
as part of their commercial functions. In war risks policies this is likely to significantly
reduce the level of disclosure required, as war risks underwriters would be expected to
be aware of the global political, economic and social tensions that raise the frequency and
seriousness of war risks losses. Information particular to the vessel would nonetheless
remain outside of the underwriter’s knowledge.
203
War risks and marine insurance legislation
Section 18(3)(c) reiterates that the underwriter may waive the disclosure of specific
circumstances and indeed, disclosure as a whole. Policies have been litigated outside of
the war risks sector in which the duty of disclosure has been reduced to its lowest possible state by way of contractual waiver, and the courts have suggested that fraudulent
non-disclosures by the insured can never be the subject of a waiver, and rarely in the case
of statements by agents.31
Section 18(3)(d) states that a circumstance need not be disclosed if the subject of a
warranty, whether express of implied. Under the 1906 Act, the underwriter would be
discharged from liability by breach of warranty and so additional protection by way of
pre-contractual disclosure was judged to be superfluous. As considered at paragraph
24.53, the default remedy for breach of a promissory insurance warranty was altered by
section 10, Insurance Act 2015. For contracts made under the 2015 Act, the existence
of a warranty on a matter would no longer render disclosure of related circumstances
unnecessary.
The modern application of section 18 MIA 1906
24.23 A detailed review of application of the Pan Atlantic interpretation of section 18
by subsequent courts is beyond the scope of this chapter. The recent decision of AXA v.
Arab Insurance Group32 is nonetheless instructive. It concerned the placement of a reinsurance treaty covering marine energy risks in the 1990s. The risk was described as a new
one, with no loss history, but it was in reality the relaunching of a product which had been
unsuccessful under a previous underwriting team. The approach of the Court of Appeal
shows the current approach of the English judiciary to the requirements of the 1906 Act
during this transitional phase:
24.24 First, it should be noted that the courts have moved away from treating section
18 as requiring a review of each and every circumstance which might have been disclosed.
Rather, the courts have considered the placement of the risk is a more holistic fashion,
as to whether a “fair presentation of the risk” took place.33 This is best viewed as the
combined effect of the section 18(1) duty to disclose and the section 18(3)(c) possibility
of waiver. A fair presentation would be one which either provides all required material
circumstances, or failing that, provides the underwriter with sufficient information to
request further details. An insurer which fails to enquire further will normally be taken to
waived its right to that further information. This, as is seen at paragraph 24.45, is reflected
in the statutory formulation of the law under the Insurance Act 2015.
24.25 Second, the test for inducement has become increasingly sophisticated. It is not
sufficient for the underwriter to merely show that it would not have entered into the policy
on the terms agreed if full disclosure had occurred. The insured will be entitled to adduce
evidence to show that it would have provided further explanatory and/or exculpatory evidence alongside the circumstances which were omitted, such that the underwriter would
have made the same contract even after accounting for the omitted circumstances.
31 HIH Insurance & General Insurance Ltd v. Chase Manhattan Bank [2003] Lloyd’s Rep. IR 230 at [15].
32 [2017] Lloyd’s Rep. IR 216.
33 Kerr L.J. was an early adopter of this phrase, as in CTI v. Oceanus [1984] 1 Lloyd’s Rep. 476.
204
War risks and marine insurance legislation
24.26 Finally, whatever the formal nature of section 18, the appellate courts have on
occasion expressed the view that underwriters should not rely on the remedy of avoidance
ab initio except where plainly justified. Males J. at first instance in AXA v. Arab Insurance
Group34 noted the dicta of Staughton L.J. in Kausar v. Eagle Star Insurance Co Ltd:
Avoidance for non-disclosure is a drastic remedy. It enables the insurer to disclaim liability
after, and not before, he has discovered that the risk turns out to be a bad one; it leaves the insured without the protection which he thought he had contracted and paid for. Of course there
are occasions where a dishonest insured meets his just deserts if his insurance is avoided; and
the insurer is justly relieved of liability. I do not say that non-disclosure operates only in cases
of dishonesty. But I do consider that there should be some restraint in the operation of the
doctrine. Avoidance for honest non-disclosure should be confined to plain cases.35
This does not mean that section 18 will not be enforced according to the wording of the
statute. But underwriters should be cognisant of judicial sentiment in marginal cases.
The broker’s duty of pre-contractual disclosure under section 19 MIA 1906
24.27 Under section 19, Marine Insurance Act 1906 where insurance is arranged
through an agent, there is an additional and equivalent duty of disclosure on the agent. As
with section 18, the duty extends to the agent’s actual and to deemed knowledge, where
an agent to insure. The dominant explanation of this provision at present is that this is not
knowledge which is imputed to the principal, but a separate legal duty.36 The remedy for
a breach of section 19 is not mentioned in the statute but is avoidance of the policy.37 This
will often expose the agent to liability to the putative insured in contract and/or tort, for
loss or diminution of cover.
Misrepresentation under section 20 MIA 1906
24.28 The principles relating to misrepresentation codified in section 20 of the Marine
Insurance Act 1906 generally reflect the position in general contract law and this section will focus on two important differences. First, in the treatment of representations of
opinion where the interpretation of section 20(5) MIA 1906 differs from the common law
position. Second, in the application of section 2(2) of the Misrepresentation Act 1967 to
restrict the availability of avoidance ab initio as a remedy for misrepresentation.
24.29 The divergence between the common law and insurance law approach to misrepresentations of opinion can be seen in Economides.38 Under Smith v. Land & House,39 the
34 [2016] Lloyd’s Rep. IR 1.
35 [2000] Lloyd’s Rep. IR 154, 157.
36 See Arnould, n 28, [16.30].
37 HIH Casualty & General Insurance Ltd v. Chase Manhattan Bank [2003] 1 Lloyd’s Rep. IR 230, [89]
per Ld Hobhouse:
… the insurer’s only remedy for non-disclosure and the insurer’s primary remedy for misrepresentation is
the avoidance of the policy. The breach of duty on the part of the broker thus directly damages the position of
the assured and, because it may lead to a claim over by the assured against the broker, only indirectly damages
the position of the broker …
38 Economides v. Commercial Union [1998] QB 587.
39 Smith v. Land and House Property Corporation (1884) 28 ChD 7.
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War risks and marine insurance legislation
general contract law position is that a statement of opinion made by someone in a position
of expertise generates an implicit secondary statement that the speaker has reasonable
grounds on which to base that opinion. A negligent statement of opinion would, in those
circumstances, be operative on the basis of the implied factual statement. Section 20(5),
however, states that “a representation as to a matter of expectation or belief is true if it
be made in good faith”. Economides (and subsequent case law) confirms that the effect of
section 20(5) is to limit operative statements of opinion to those made without honesty.
There is no implied statement that the speaker has evidence to support that statement.
24.30 There are no marine war risks cases applying the Economides decision, but it
was relied upon in Rendall v. Combined Ins Co of America,40 a reinsurance case arising
out of the 9/11 attacks. The reinsurers claim for misrepresentation focused on estimates
given on the number of days of business travel during the insured period. Across a total of
around 25,500 employees, this was set at 160,000 days on risk across the entire business.
Creswell J. was faced with suggestions from counsel that the Economides decision was
not of universal application, and perhaps unsuitable for commercial lines. He disagreed.
It was necessary first to establish whether the representation was one of fact or “opinion
or belief” to which s. 20(5) applied. Where the representation was of “opinion or belief”:
In an insurance context one cannot, consistently with section 20(5) of the MIA 1906, find in
a representation of expectation or belief, an implied representation that there are reasonable
grounds for that belief (Economides supra Simon Brown L.J.). Once statute deems an honest
representation as to a matter of expectation or belief to be true, there is no scope for inquiry
as to whether there were objectively reasonable grounds for that belief.
(Peter Gibson L.J. in Economides)41
There are no obvious grounds for limiting the interpretation of section 20(5) to consumer
lines, and it should be assumed to apply universally.
24.31 The second key difference in the insurance context is the judicial unwillingness
to use the discretion conferred under section 2(2) Misrepresentation Act 1967 to substitute
a money award for the remedy of rescission. The clearest statement to this effect is found
in Highlands Insurance Co v. Continental Insurance Co,42 where Steyn J. explained:
Where a contract of reinsurance has been validly avoided on the grounds of a material misrepresentation, it is difficult to conceive of situations in which it would be equitable within the
meaning of s.2(2) to grant relief from such avoidance.43
24.32 This section concludes with a review of the litigation in The North Star,44 which
tested the limits of non-disclosure described above in the war risks arena. The vessel was
insured on the basis of war risks clauses (1/10/83) and seriously damaged in an explosion
whilst moored near Piraeus, resulting in a claim for a constructive total loss. The vessel
was owned by a one ship company but for simplicity this account echoes the approach of
40
41
42
43
44
[2006] Lloyd’s Rep. IR 732.
At [103].
[1987] 1 Lloyd’s Rep. 109.
At 118.
[2006] 2 Lloyd’s Rep. 183.
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War risks and marine insurance legislation
the court in treating the beneficial owners of the corporate group as the insured owners
of the vessel. The underwriters denied liability on the grounds that the insureds were
complicit in the damage to the vessel and/or that the policy was voidable on the grounds
of non-disclosure. The litigation dealt with the second ground, and the Court of Appeal
action was further limited by the restriction that the insured could not challenge the finding of inducement. The appeal was therefore primarily concerned with whether the undisclosed circumstances related to the character of the insureds were material. These were:
(1) Pending criminal proceedings in Greece, which included allegations of dishonesty in respect of funds;
(2) Civil proceedings in Panama, which involved allegations of fraud;Additional
circumstances related to the valuation of the business and cancellation of a prior
policy for non-payment of premium were not discussed in detail on appeal and
were described by Waller L.J. as “very arguably not material”. Nothing more
will be said of these, and the live issue was the failure to disclose allegations in
ongoing civil and criminal legal actions.
24.33 As noted in paragraph 24.16, the Court of Appeal dismissed suggestions that the
standard disclosure of material circumstances was not required (or at least, was much reduced) in the negotiation of war risks policies.45 The question then arose whether allegations
as to the insured’s probity which were unproven at the time of placement of the risk were
material, and if so, whether subsequent evidence showing the allegations to be groundless
was relevant to the determination of the appropriate remedy for failure to disclose.
24.34 Waller L.J. noted that the disclosure of allegations had proved a difficult issue
and one on which courts had taken different approaches. On one approach, allegations
were immaterial, what mattered was the existence or not of the suggested misconduct. On
this view, clandestine misconduct would be material, even if no public allegation of it had
been made. Requiring disclosure of the allegation was therefore superfluous:
the only occasion on which the allegation as an allegation must be disclosed is when it is not
true … a conclusion so devoid of any merit that I do not consider that a responsible insurer
would adopt it and nor do I.46
24.35 The contrary view, which was ultimately adopted by the Court of Appeal, in The
North Star is that the existence of an unproven allegation is itself a circumstance which
would normally be material as it would “raise doubts about the risk”.47 This mirrors the
approach taken in Brotherton,48 and avoids putting on underwriters the need to prove that
the allegations were accurate in order to be entitled to avoid the policy. Applied to the facts
in The North Star, the underwriter was entitled to disclosure of the serious allegations
made against the insured, even if unproven at the time of placement of the risk. This was
not a costless allocation of responsibility, and Waller L.J. noted the likely effect on an
insured against whom an untrue allegation had been made:
45 Paragraph 24.15.
46 At [5], quoting Reynolds v. Phoenix Assurance Co Ltd [1978] 2 Lloyd’s Rep. 440, 460 per Forbes J.
47 At [8], quoting Phillips J. in Inversiones Manria SA v. Sphere Drake Insurance Co, Malvern Insurance
Co and Niagara Fire Insurance Co, The Dora [1989] 1 Lloyd’s Rep. 69.
48 Brotherton v. Aseguradora Colseguros SA [2003] Lloyd’s Rep. I.R. 746.
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War risks and marine insurance legislation
The law in this area is, as others have recognised, capable of producing serious injustice. If
every false allegation of dishonesty must be disclosed in all types of insurance, that may place
some insureds in the position of finding it difficult to obtain cover at all, and will certainly
expose them to having the rates of premium increased unfairly. I do not myself see it as a practical answer to say that exculpatory material can be produced, because unless the material is
such as to prove beyond peradventure that the allegation is false, in which event the allegation
seems to me no longer material, an underwriter is not likely to be prepared to take time sorting
out the strength or otherwise of the allegation. In many instances he would be likely to take
the view there is no smoke without fire and turn the placement down or at the very least rate
the policy to take account of the allegation.49
24.36 In a series of first instance decisions,50 Colman J. sought to mitigate the effects
of this allocation of risk by suggesting that the underwriter’s subsequent use of its remedy
of avoidance of the policy would be curtailed in circumstances where the allegations were
(at the time of the operation of the remedy) demonstrably untrue. This expansion of the
doctrine of utmost good faith was innovative, but rejected by the Court of Appeal. If the
criteria under section 18 were met, the underwriter was free to avoid the policy without
any ongoing supervision or regulation by judicial process.
24.37 The additional comments provided in The North Star case by Longmore L.J.
provide the backdrop to the subsequent reform of the law of pre-contractual disclosure. He
noted that the court was bound by authority to reach the outcome given, but:
It is gratifying to know that the Law Commission has published a Scoping Paper in preparation for a review of insurance contract law and it is much to be hoped that this area of the law
will receive the Law Commission’s detailed consideration and that proposals emerging from
that consideration will be enacted. Australia with its Insurance Contracts Act 1984 is well
ahead of the United Kingdom in this field.51
The statutory reforms implemented as a result of the Law Commission review provide the
focus for the remainder of this section.
Misrepresentation and non-disclosure (“ fair presentation of the risk”) under
the IA 2015
24.38 The changes to the pre-contractual duties of the insured enacted as a result of
the Law Commission’s review of insurance contract law are limited in scope but of considerable significance. When compared to the 1906 Act, there are relatively few changes,
but those that have been introduced—and the new remedial regime is the most obvious
example—require careful attention. In respect of war risks insurance in particular, the
effect of the statutory changes on market practice is likely to be limited.
24.39 The Law Commission project generated two distinct statutory regimes for
pre-contractual duties: the Consumer Insurance (Disclosure & Representation) Act 2012
(known as CIDRA) which applies to consumer insurance contracts and the Insurance
49 At [17].
50 Notably, in Strive Shipping Corp v. Hellenic Mutual War Risks Association (Bermuda) Ltd, The Grecia
Express [2002] 2 Lloyd’s Rep. 88, 132–133.
51 At [54].
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War risks and marine insurance legislation
Act 2015 for commercial lines.52 It is assumed for the purposes of this text that war risks
policies are written on a commercial basis.
24.40 The fundamental principles regulating the flow of pre-contractual information
under the Insurance Act 2015 mirror those under the Marine Insurance Act 1906. The entry
into force of the 2015 Act repealed sections 18–20 MIA 1906 and made significant changes
to section 17 MIA 1906. The applicable provisions are section 3 (duty of fair presentation),
sections 4–6 (knowledge of the insured and underwriter), section 7 (supplemental) and
section 8 (remedies, as detailed in Schedule 1). There are some important differences from
the position under the 1906 Act and these are the primary focus of this section.
24.41 The obligations on the insured to disclose and to not misrepresent are merged
into a single duty under section 3(1) to make a “fair presentation of the risk”. Section 3(3)
describes a fair presentation as one:
(a) which makes the disclosure required by subsection (4),
(b) which makes that disclosure in a manner which would be reasonably clear and
accessible to a prudent insurer, and
(c) in which every material representation as to a matter of fact is substantially correct, and every material representation as to a matter of expectation or belief is
made in good faith.
24.42 Section 3(3)(b) regulates, for the first time, the format of the information which
is being disclosed. This provision reflects concerns regarding “data dumping”, by which
insureds and their representatives could provide a huge quantity of unfiltered data and
still comply with the standard used under section 18, MIA 1906.53 The statutory model
includes expectations on the presentation of salient information and not simply the content
of the bundle.
24.43 The description of the duty not to misrepresent mirrors that in section 20 MIA
190. In particular, it maintains the rule that statements of expectation or belief are not
operative if made in good faith. The rule in Economides will continue to apply.54
24.44 The disclosure component of the duty of fair presentation is described in section
3(4), but then limited by section 3(5). This is the equivalent arrangement to sections 18(2),
(3) in the Marine Insurance Act:
(4) The disclosure required is as follows, except as provided in subsection (5)—
(a) disclosure of every material circumstance which the insured knows or ought
to know, or
(b) failing that, disclosure which gives the insurer sufficient information to put
a prudent insurer on notice that it needs to make further enquiries for the
purpose of revealing those material circumstances.
52 The definition of “consumer insurance contract” for these purposes is found in s. 1, CIDRA 2012 and
requires the insured to be “an individual who enters into the contract wholly or mainly for purposes unrelated
to the individual’s trade, business or profession”. All other contracts of insurance are non-consumer insurance
contracts.
53 This was the evidence of David Hertzell, then Law Commissioner, to the Special Public Bill Committee
on the Insurance Bill in Question 7, archived at https://services.parliament.uk/Bills/2014-15/insurance/documents.html.
54 See paragraph 24.29.
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War risks and marine insurance legislation
Subsection (5) provides the modern list of circumstances not judged to be material:
(5) In the absence of enquiry, subsection (4) does not require the insured to disclose
a circumstance if—
(a)
(b)
(c)
(d)
(e)
it diminishes the risk,
the insurer knows it,
the insurer ought to know it,
the insurer is presumed to know it, or
it is something as to which the insurer waives information.
24.45 What would be viewed under the MIA 1906 as information being waived by the
underwriter arises in two distinct places in sections 3(4), (5). First, where a presentation
only provides partial information on the risk but provides sufficient data for an underwriter to ask further question then the duty under section 3(4) is met. In these circumstances, the onus should shift to the underwriter to make further enquiries as it has been
sufficiently put on notice of an issue. Second, there is the possibility of information being
explicitly waived under section 3(5)(e). These provisions generally replicate the position
taken by the courts in applying section 18 MIA 1906.
24.46 There are significant changes in the rules which identify the knowledge of the
insured for the purpose of establishing which circumstances must be disclosed. For individual insureds, knowledge for the purposes of the duty to disclose under section 3(4)
(a) is limited by section 4(2) to that known to the insured and to those responsible for the
insured’s insurance. For corporate insureds, the relevant persons under section 4(3) are the
insured’s senior management and those who are responsible for the insured’s insurance.55
For both individual and corporate insureds, the imputation of knowledge held by a person
responsible for arranging insurance is subject to further restrictions where that knowledge
is held confidentially.56
24.47 In respect of the knowledge of the insured, section 4(6) assumes that the risk
has been investigated: “Whether an individual or not, an insured ought to know what
should reasonably have been revealed by a reasonable search of information available
to the insured (whether the search is conducted by making enquiries or by any other
means)”. This would presumably extend beyond a search of the insured’s own databases
(required under section 4(7)) and would encompass subscription to paid information services for corporate insureds. This goes beyond the current position under MIA 1906. The
mechanism for identifying the corporate mind has also changed, and the senior management team is defined as “those individuals who play significant roles in the making of
55 This is defined in s. 3(8)(b):
an individual is responsible for the insured’s insurance if the individual participates on behalf of the insured
in the process of procuring the insured’s insurance (whether the individual does so as the insured’s employee
or agent, as an employee of the insured’s agent or in any other capacity).
56 S. 4(4) provides:
A n insured is not by virtue of subsection (2)(b) or (3)(b) taken to know confidential information
known to an individual if—
(a) the individual is, or is an employee of, the insured’s agent; and
(b) the information was acquired by the insured’s agent (or by an employee of that agent) through
a business relationship with a person who is not connected with the contract of insurance.
S. 4(5) defines a person “connected with a contract of insurance”.
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War risks and marine insurance legislation
decisions about how the insured’s activities are to be managed or organised”.57 In complex
corporate structures, as are often found in shipping, this would encompass those who have
ownership of the vessel but also those charged with its management.
24.48 Section 5 defines the limits of the underwriter’s knowledge for the purposes
of disclosure. This is primarily of importance due to the rule in sections 3(5)(b), (c), (d)
that the insured need not disclose information that is either known to the underwriter, or
that the underwriter ought to know or is taken to know. The most commercially significant limitation is in respect of presumed knowledge, which is defined in section 5(3) as
“things which are common knowledge”, and “things which an insurer offering insurance
of the class in question to insureds in the field of activity in question would reasonably
be expected to know in the ordinary course of business”. This sets the standard as that
of a reasonable war risks underwriter and will set a higher threshold on matters of global
political tension than that of the average insurer.
24.49 The definition of materiality in the Insurance Act 2015, which was been the subject of considerable litigation (see paragraph 24.21), is unchanged from section 18(2) MIA
1906.58 Similarly, the requirement of inducement of the actual underwriter is maintained,
but now as part of the statutory regime, under section 8(1).
24.50 The most significant legal change lies in the alteration of the remedies for
breach. The standard remedy of avoidance is no longer the default remedy. Indeed, there
is no default remedy under the current scheme. Section 8 creates a two-tier system for
breach: those that are “deliberate or reckless” and those that are not. The burden of proof
is on the underwriter to show the breach is at the higher level. Once the breach has been
characterised, the appropriate remedy is determined by Schedule 1. For “deliberate or
reckless” breaches, the remedy is avoidance and the underwriter need not return the premium.59 For all other breaches, the court must determine what the insurer would have
done in the absence of the failure to make a fair presentation of the risk. Divergent views
have been expressed on how this will operate in commercial markets. On one view the
court would determine simply what changes to the bargain struck the underwriter would
want to reflect the failure to make a fair presentation.60 On the other, the court would have
to determine what the outcome would have been in light of the prevailing commercial
circumstances at the time.61 If the outcome (however determined), was that the underwriter would not have underwritten the risk, then the remedy of avoidance is available.
If the underwriter would have demanded a higher premium, then the claim is reduced to
the extent that the premium was underpaid. If the underwriter would have insisted on
amended terms (other than a variation in premium) then the policy is enforced as if those
terms had been agreed. Negotiating a settlement between underwriter and insured where
there has been a failure to present the risk fairly will be particularly difficult where the
evidence is that a variation in terms would have been agreed. Undertaking this form of
57 S. 4(8)(c) IA 2015.
58 S. 7(3) IA 2015.
59 Under para. 2, Sch 1 IA 2015.
60 P MacDonald Eggers and Sir S Picken, Good Faith & Insurance Contracts (Informa, 4th edn, 2018),
[16.21].
61 J Davey, ‘Proportionality, Fair Presentation of the Risk & the Hypothetical Bargain: The Law Commission’s Remaking of Commercial Insurance Law’ (2019) LMCLQ 359.
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War risks and marine insurance legislation
statutory redrafting of the contract with full hindsight knowledge of a casualty that has
occurred is likely to be challenging.
24.51 The doctrine of utmost good faith given effect to in section 17 of the 1906 Act has
been of greater academic interest than of commercial effect. Under section 14, Insurance
Act 2015 the remedy of avoidance is removed from section 17 and from any equivalent
common law rule. The precise effect of this provision is open to question. The intention of
the Law Commission was to render “utmost good faith” of interpretative assistance only,
but it remains possible for a court to develop a common law rule with some remedy other
than avoidance, for an example to support a claim in damages. Rules to this effect have
been developed in other common law countries.62
24.52 The pre-contractual duties under the Insurance Act 2015 are a relatively gentle
evolution from those found within Marine Insurance Act 1906. The remedies are much
more complex and provide genuine uncertainty. It is possible for commercial parties to
contract out of the new remedial regime, but would have to do so within the statutory
framework set out in sections 16–17 of the 2015 Act.
Warranties and risk management clauses
24.53 Lord Griffiths in the Vesta case said:
It is one of the less attractive features of English Insurance Law that breach of a warranty in
an insurance policy can be relied upon to defeat a claim under the policy even if there is no
causal connection between the breach and the loss.63
The strictness of the remedy for non-compliance with insurance warranties led to clauses
formerly classified as warranties being redesigned to have less severe consequences, and
eventually to statutory reform by way of the Insurance Act 2015.
24.54 Warranties do not play a big part in war risks insurance. Since this is insurance
against what other people do to the insured object, it is not surprising that their influence
is very small on war risks insurance compared with the part that they play in the insurance
against marine risks. However, war risks insurance has long contained a clause limiting
the operation of the vessel within certain geographic boundaries. This clause was, for
some time, referred to as the “Navigation Warranty” and the equivalent clause in a P&I
policy generated the leading case on warranties in marine insurance prior to the entry
into force of the Insurance Act 2015: Bank of Nova Scotia v. Hellenic Mutual War Risks
Association (Bermuda) Ltd. (The Good Luck).64 Before moving to a review of this line of
case law, it should be noted that this clause is no longer drafted as an insurance warranty.
Navigation limits: the current contractual provisions
24.55 The key contractual restriction on the operation of the vessel in war risks insurance
is the navigation limits Clause. The current version is entitled the Navigation Limitations
62 See Young v. Tower Insurance, [2016] NZHC 2956; [2017] Lloyd’s Rep. IR 605 as applied in Kilduff v.
Tower Insurance [2018] NZHC 704; [2018] Lloyd’s Rep. IR 621.
63 Forsikringsaktieselskapet Vesta v. Butcher [1989] AC 852, 893–894.
64 [1988] 1 Lloyd’s Rep. 514, [1989] 2 Lloyd’s Rep. 238 (C.A.), [1991] 2 Lloyd’s Rep. 191 (H.L.).
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War risks and marine insurance legislation
for Hull War, Strikes, Terrorism and Related Perils Endorsement (JW2005/001A) and
is routinely included in war risks policies. This creates a class of “Areas of Perceived
Enhanced Risk” (APER) that insured vessels are not permitted to “enter, sail for or deviate towards”.65 These areas are updated by the Joint War Committee,66 which normally
meets on a quarterly basis.67 The forerunners of this clause were often cast as promissory
warranties. The current version is not a promissory warranty and contains a complex series of limits on cover offset by held covered clauses. The precise legal consequences of
entering or navigating towards an enhanced risk area are complex will be subject to the
changes in the 2015 Act. Clause 2 operates on the basis that a voyage is intended (or underway) which would breach the obligation in Clause 1 not to sail towards an APER, and
provides mechanisms for renegotiating cover to avoid breach of Clause 1 and remedies for
breach of Clause 1 if no successful variation of cover is made. Each element of the clause
is considered in turn, before an overall assessment is given:
1. NAVIGATION PROVISIONS
Unless and to the extent otherwise agreed by the Underwriters in accordance with
Clause 2, the vessel or craft insured hereunder shall not enter sail for or deviate
towards the territorial waters of any of the Countries or places, or any other waters
described in the current List of Areas of Perceived Enhanced Risk (listed areas) as
may be published from time to time in London by the Joint War Committee.
Analysis
Breach of this clause is not restricted to entering an APER, but would occur on sailing for
(or deviating towards) a controlled region. This is important for determining the moment
at which non-compliance commences.
2. BREACH OF NAVIGATION PROVISIONS
(a) If the Insured wishes to secure continuation of coverage under this insurance
for a voyage which would otherwise breach Clause 1, it shall give notice to
Underwriters and shall only undertake such voyage if it agrees with the Underwriters any amended terms of cover and any additional premium which may be
required by the Underwriters.
Analysis
This is a form of “held covered” Clause. The precise legal effect of these clauses varies
considerably according to their terms, and each needs to be interpreted carefully. The
clauses are considered in detail in Chapter 28. One crucial issue is whether the clause imposes additional duties (including to give notice) on the insured, or whether the clause is
permissive in nature. Clause 2(a) provides the basis for the insured to maintain “continuation of coverage” but does not impose contractual obligations on the insured to take these
steps. It operates “If the insured wishes to secure continuation of cover …”. Failure to
65 Cl 1, Navigation Limitations for Hull War, Strikes, Terrorism and Related Perils Endorsement.
66 This is given contractual effect: Cl 3, Navigation Limitations for Hull War, Strikes, Terrorism and
Related Perils Endorsement.
67 The operation of the JWC is recorded at www.lmalloyds.com/lma/jointwar.
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War risks and marine insurance legislation
negotiate a variation in cover in advance to encompass the voyage concerned puts at risk
“continuation of coverage”. There is no duty on the underwriter to offer extended cover.68
The mechanism for interrupting cover (and the possibility of further remedial action by
the insured) is found in Clauses 2(b), (c), (d).
(b) In the event of any breach of any of the provisions of Clause 1, the Underwriters
shall not be liable for any loss, damage, liability or expense arising out of or
resulting from an accident or occurrence otherwise covered under this insurance during the period of breach, unless notice of such breach is given to the
Underwriters as soon as practicable and any amended terms of cover and any
additional premium required by them are agreed.
Analysis
The immediate effect of Clause 2(b) is to act as a form of “suspensive condition”. There
are two initial consequences for the underwriter’s liability. First, cover is suspended during the period of breach. As breach occurs when the vessel enters, sails for or deviates
towards an APER, this period is not restricted to the period when the vessel is within the
APER. Second, whilst the period of breach would normally end when the vessel exited the
APER, cover does not immediately revert to its prior standard, as occurrences which arose
during the period of breach but which only led to harms outside of that window would
not be insured. The obvious example is a “hot pursuit” scenario derived from The Good
Luck, where the vessel is attacked shortly after leaving the APER, but where the attack
was motivated by its entry into the APER.
These consequences for cover are subject to the further “held covered” extension provided
that notice is given promptly and the insured agrees to any variation in terms required by
the underwriter. Whilst the clause does not say so expressly, it would appear that an insured which notified “as soon as [was] practicable” a breach of Clause 1 would not attract
the suspension of cover set out in Clause 2, even in the notice were given after the start
of the breach. This, of course, assumes that mutually acceptable terms to vary cover are
agreed. As above, the underwriter has no duty to offer cover.
(c) The absence of prior notice shall not affect the cover under this insurance but
it is a condition of this insurance that the Insured is bound to declare to the
Underwriters all breaches of the provisions of Clause 1.
(d) If Clause 2(c) is deleted, continuation of coverage under this insurance is conditional upon notice to the Underwriters being given prior to the vessel or craft
entering the listed areas.
Analysis
Clauses 2(c) and (d) provide alternative consequences for a breach of Clause 1. Clause
2(c) is the default. Whichever clause is operative should be read as detailing the effect
on the underwriter’s liability for the period after the breach of Clause 1 has ended. These
68 This was the approach adopted by Teare J. in Suez Fortune Investments Ltd v. Talbot Underwriting
Ltd, The Brilliante Virtuoso [2019] EWHC 2599 (Comm) at [524]. There, it was considered (albeit obiter) that
additional cover was agreed on the basis that the period outside of standard navigational limits did not exceed
48 hours and was for the purpose requested.
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War risks and marine insurance legislation
remedies are in addition to any limit on cover under Clause 2(b). Clause 2(d) is unambiguous, and states that prior notice of a vessel entering an APER is a pre-condition of
continuation of coverage. Read alongside 2(b) this effectively removes the contractual
mechanism for giving notice “as soon as is practicable” after the vessel has entered an
APER. Notice must be given in advance. This would make prior notice of entry into or
sailing (or deviating) towards an APER a condition precedent to the underwriter’s continuing liability under the policy.
Clause 2(c) provides for a duty to give notice of any breaches of Clause 1 as a “condition” of the insurance. This duty is not made subject to any specific time limit for compliance and states that the lack of prior notice “shall not affect cover”. This part of the clause
was considered in The Litsion Pride as “tend[ing] to emphasize that cover continues even
in the absence of punctual information of the voyage” and that prior notice was not a condition precedent.69 The precise effect of this clause could be more clearly expressed, but
makes greatest commercial sense as a pre-condition to the bringing of any claim under the
policy that the insured has notified of all breaches under Clause 1. Notification of breaches
at renewal would already be regulated by the duty of fair presentation of the risk. This part
of 2(c) would have effect as a claims condition rather than as a restriction on liability for
losses arising, as under 2(d). Both are significant restrictions on the underwriter’s liability
for losses and are as commercially significant as the remedy in Clause 2(b) for substantive
breaches of navigation outside of permitted limits.
Clauses which imposing limits on an insured’s conduct and which are intended to control the level of risk transferred to the underwriter will be subject to the rules in the Insurance Act 2015 where the policy is issued on or after 12 August 2016. These are discussed
in paragraph 24.73.
24.56 The precise effect of the Navigation Limitations clauses in their previous iterations was determined in part by the marine insurance legislation on risk management
clauses, and in particular the law of insurance warranties. However, the effect of the legislation is diminished by the specific remedies provided for in the recent versions of the
clauses, which reduces the need to classify the clause in order to discover the remedy for
breach.
Navigation limits as promissory warranties
24.57 Historically, the navigation limits clause above was often described as an insurance warranty. In light of the changes in both commercial practice and substantive law,
this section on the nature of insurance warranties is much changed from previous editions.
First, because war risks policies generally have relatively few clauses requiring the insured to deal with its property in a particular way. This is part of the general observation
that war risks cover largely insures risks that arise independently of the insured’s conduct.
The Navigation Limits are a rare counter example. Second, the strict rule for breach of
promissory warranty has been repealed in respect of contracts made after 12 August 2016.
69 Black King Shipping Corporation and Wayang (Panama) SA v. Mark Ranald Massie, The Litsion Pride
[1985] 1 Lloyd’s Rep. 437, 470.
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War risks and marine insurance legislation
It could be recreated by specific contract provision, but a detailed review of that position
is undeserved. Despite these changes, an understanding of the position some 20 years ago
is vital in order to appreciate the shifts in law and practice.
Promissory warranties and the MIA 1906
24.58 The nature of a warranty in a marine insurance policy, whether for marine or
war risks, was clearly stated in section 33 of the Marine Insurance Act 1906, which read:
33. Nature of Warranty
(1) A warranty, in the following sections70 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.
24.59 The crucial provision was section 33(3), which detailed the remedy for breach.
For contracts made after 12 August 2016, this has been repealed and replaced by the
regime found in section 10, Insurance Act 2015. The remainder of this section reviews the
position for contracts made prior to that date. In order to appreciate the judicial interpretation of section 33, it must be read alongside section 34(2), (3):
(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.
24.60 The precise effect of non-compliance with an insurance warranty prior to the
House of Lords’ decision in The Good Luck was contested. On one view, the warranty
operated akin to breach of condition in general contract law, enabling the underwriter
to terminate the contract for breach, but requiring an election to do so.71 On the other,
the term was akin to a condition precedent, and non-compliance with the clause meant
that the insurer was no longer on risk. This would occur automatically and would not be
dependent on an election being made. The express wording of section 33(3) suggested the
latter position, but the wording of section 34(3) suggested that the underwriter could waive
(by election) a breach of warranty.
24.61 Kerr L.J. in State Trading Corporation of India v. M. Golodetz Ltd favoured the
automatic discharge model:
70 The sections relating to warranties are sections 33 to 41.
71 This was the view of May L.J. in the Court of Appeal: [1990] 1 QB 818.
216
War risks and marine insurance legislation
Thus, the correct analysis of a breach of warranty in an insurance contract may be that, upon
the true construction of the contract, the consequence of the breach is that the cover ceases
to be applicable unless the insurer subsequently affirms the contract, rather than to treat the
occurrence as a breach of the contract by the insured which the insurer subsequently accepts
as a wrongful repudiation.72
24.62 The precise effect of a breach of warranty was confirmed by the House of Lords
in The Good Luck.73 The owners of the Good Luck, Franicons, entered the ship for insurance in the Hellenic Association and also mortgaged her to the Bank of Nova Scotia. In
accordance with normal practice, the Association, on the owners’ request, gave a letter
of undertaking to the bank by which it undertook to tell the bank if the insurance ceased.
Naturally, it was a matter of importance to the bank to know if the borrower was no longer
insured for war risks. There were many facets to this case and, at first instance, Hobhouse
J. found the Association liable in damages for failing to observe a “duty to speak”.74 This
finding was unanimously reversed by the Court of Appeal, which entered judgment in
favour of the Association, but this chapter can only be concerned with what the Court of
Appeal had to say on the subject of warranties.
24.63 The directors of the Mutual War Risks Association had the power to give orders,
prohibitions and directions that ships entered in the Association for insurance shall not go
to “any port, place, country, zone or area” which has become so dangerous that the Association did not give insurance within it. The Rules of the Association contain the following
provision, which in 1982 read as follows:
Every insurance given by the Association shall be deemed to contain or shall contain a warranty by the owner that all such orders, prohibitions, directions … shall be acted upon and
complied with by the insured ship … PROVIDED ALWAYS THAT: The breach of such warranty shall not operate to invalidate the insurance if the owner shall prove that such breach
occurred without any personal fault or any want of due diligence on the part of the owner or
managers of the entered [insured] ship or was committed in order to avoid loss by the risks
insured by the policy.
24.64 Right at the start of the Iran/Iraq War in 1980, the directors of the Association had made a direction that ships entered in the Association were not to go to Bandar
Khomeini or its approaches. On 6 June 1982, the Good Luck was hit by missiles whilst
within the prescribed zone and suffered such severe damage that she subsequently became
a constructive total loss. The bank contended that at the date of the attack, or very shortly
afterwards, the Association knew that the insurance of the ship had ceased because of the
breach of warranty in being in the neighbourhood of Bandar Khomeini at all, but it did not
tell the bank. The Association contended that the insurance had not ceased (the issue of a
constructive total loss only became clear much later), and that it was entitled to a reasonable time to make up its mind whether or not to regard the insurance as terminated. In the
event, on 4 August 1982, the directors of the Association decided that the claim should not
be paid; they did not, however, decide that the insurance should be terminated, but that it
72 [1989] 2 Lloyd’s Rep. 277, 287.
73 Bank of Nova Scotia v. Hellenic Mutual War Risk Association (Bermuda) Ltd, The Good Luck [1992] 1
AC 233.
74 [1988] 1 Lloyd’s Rep. 514.
217
War risks and marine insurance legislation
should be left to run its normal course. The bank was advised of this decision on 5 August
1982. Unknown to the Association, the bank, between April and mid-July 1982, advanced
further money to the owner, the Good Luck being part of the security, and this money was
the basis of the damages awarded against the Association.
24.65 Had the insurance in fact ceased when the ship entered the prohibited zone on
6 June 1982? The Court of Appeal took as its baseline two well-established principles
of law. First, in any contract, the breach of a condition, which is a term going right to its
root, or the repudiation of a contract, by one party gives the other party an option. He may
accept the position that the contract is at an end and sue for damages. Alternatively, he
may disregard the breach or refuse to accept the repudiation, when the contract remains
in full effect; in other words, he can hold the first party to his bargain. Second, in general
insurance law (excluding marine insurance) the position appeared to have been settled, at
least in the view of leading non-judicial sources.75
Another part of the judgment dealt specifically with the point at issue:
We do not agree that the entry of a vessel into a PZ [prohibited zone] … in breach of warranty … has the effect automatically and without more of bringing the contract of insurance to
an end. It entitles the insurer to treat the contract as at an end if he so chooses, but the matter
is one for his choice.
24.66 Since on the facts there was no unreasonable delay on the part of the Association
in making its decision, the Association would have been entitled, if it so chose, to wait
until 4 August to decide whether it treated the contract as being at an end; had it done so,
notification would then have had to be given to the Bank without delay.
24.67 The House of Lords76 reversed the judgment of the Court of Appeal and restored
that of Hobhouse J. Lord Goff treated the statutory remedy as explicable on the basis of
a contingent contractual promise (a condition precedent) rather than a promissory Clause
(such as a condition):
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 of the insurer.77
The basis for this was the fundamental nature of the promissory warranty in insurance law:
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.78
On this basis, no possibility of “waiver” as such arises, as was mentioned under section
34(3) of the 1906 Act. The underwriter does not elect whether to affirm the contract or
75
76
77
78
Law Reform Committee Fifth Report (Conditions and Exceptions in Insurance Policies) (1957) (Cmnd. 62).
[1992] 1 AC 233.
At 262–263.
At 263.
218
War risks and marine insurance legislation
to bring liability to an end, it occurs automatically. Strictly speaking the insured would
need to establish that the doctrine of promissory estoppel prevented the underwriter from
relying on a breach of warranty. As was stated in HIH Casualty & General Ins Ltd v. AXA
Corporate Solutions:
In dealing with the law the judge started by recognising that where there is a breach of warranty there is no scope for traditional waiver by election because the insurer is automatically
discharged from liability upon breach and therefore has no choice to make.79
24.68 Previous editions of this text expressed the view that the decision of the House
of Lords in The Good Luck was incorrectly decided, as it favoured a strict interpretation
of the statute over commercial practice. The current authors do not share that view, not
least because the application of the doctrine of repudiatory breach to insurance contracts
would not be unproblematic. In any event, market practice has shifted away from the use
of insurance warranties and towards the suspension of liability. Notably, this remains a
remedy which applies automatically in the event of non-compliance, and is not dependent
on the underwriter becoming aware of the breach and actively bringing cover to an end.
Risk management clauses under the MIA 1906
24.69 In previous editions, Michael Miller sought at this point to distinguish between
true insurance warranties and other forms of risk management clause. What appears
in paragraphs 24.70–24.72 is (largely) unamended text, as it remains a useful description
of emerging market practice. However, later paragraphs then refine this distinction in
order to enable a contrast to be drawn with the law as is stands under the Insurance
Act 2015.
24.70 There is a practice in the London Market that exclusions from the cover given by
the policy are prefaced by the words “warranted free of” or “from” followed by a number
of instances where the policy does not give insurance cover. The marine policy on the S.G.
Form was warranted free of the perils listed in the Free of Capture and Seizure Clause.
Many instances will be noted in the cases referred to in this work that certain insurances
are “warranted free of particular average” or of other matters which are not included in
the insurance cover. These are not warranties at all and the statement that they are could
be misleading. They are express exclusions from the insurance cover given by the policy.
They cannot in any event fit the definition of a warranty given by section 33(1), not being promissory in character. It seems, however, from what Mocatta J. said in The Anita
case80 that their true nature and the intentions that lie behind them are well understood
by the courts, and that it is unlikely that the inaccurate description will lead to unforeseen
results. Reference has also been made to the custom of the London Market in referring to
visits to dangerous areas as “breaches of warranty” and the additional premiums charged
for such visits as “breach of warranty premiums”.
24.71 The marine insurance market has for many years recognised ways of mitigating the strictness of the rule in section 33 as interpreted in The Good Luck. The most
79 [2003] Lloyd’s Rep. I.R. 1, [7].
80 See paragraphs 1.15–1.16.
219
War risks and marine insurance legislation
prominent historically was the “held covered” clause by which the insured could seek an
extension of cover on the payment of an additional price and/or variation of cover. These
clauses have been drafted in a variety of ways and are often of uncertain legal effect. They
seek to capture a practice of renegotiation of cover in the light of changed circumstances
but their precise effects have not been the subject to detailed litigation. They remain in use
in war risks cover, not least in the “navigation limits” clauses.
24.72 Marine insurance policies have over time reduced the number of obligations
on the insured classified as warranties in favour of the “exclusions” and policy limits
discussed. Policies have also adopted bespoke remedies for non-compliance with policy
terms, such as termination of cover the next time that the vessel is in port.
Insurance warranties and risk management clauses under the IA 2015
24.73 The creation and operation of insurance warranties and other forms of risk
management obligations is now regulated by sections 9–11 of the Insurance Act 2015.
Section 9 has minimal impact on the marine war risks market, as it prohibits the creation of warranties by “basis of the contract” clauses, a practice not commonly used in
the London market for marine policies. However, sections 10–11 are of considerable
importance.
24.74 Section 10(1), (7) repeal the common law and statutory remedy for breach of insurance warranty established in section 33(3) MIA 1906 and as interpreted by the House
of Lords in The Good Luck. The new default remedy for breach of insurance warranty is
stated in section 10(2):
An insurer has no liability under a contract of insurance in respect of any loss occurring, or
attributable to something happening, after a warranty (express or implied) in the contract has
been breached but before the breach has been remedied.
24.75 This broadly aligns the effect of a breach of insurance warranty with that of a
“suspensive condition” as described in the non-marine case of Kler Knitwear.81 The underwriter is “off risk” for the period of non-compliance between breach and remedying
the breach (if and when that occurs).82 However, the remedy is slightly wider than this, as
section 10(2) also excludes liability for any loss attributable to an event occurring during
that period of breach. Take a hypothetical example based on The Good Luck: a vessel
enters a prohibited war zone in breach of warranty. The master realises his error and
withdraws from the zone but is attacked by a hostile helicopter which pursues it out of
the zone. The likely effect of section 10(2) is to relieve the underwriter from liability for
damage to the vessel, even if it occurs outside the prohibited zone, as it is attributable to
actions between the moment of breach and the moment of remedying the breach. This is
very similar to the contractual remedy provided in the Navigation Limits clause discussed
in paragraph 24.55.
81 Kler Knitwear Ltd v. Lombard General Insurance Co Ltd [2000] Lloyd’s Rep. IR 47.
82 Ss. 10(5), (6) Insurance Act 2015 provide for a statutory regime for remedying breach of warranty.
220
War risks and marine insurance legislation
Section 10(3) lists a series of reasons why an insurance warranty would be inoperative,
where:
(a) because of a change of circumstances, the warranty ceases to be applicable to the
circumstances of the contract,
(b) compliance with the warranty is rendered unlawful by any subsequent law, or
(c) the insurer waives the breach of warranty.
24.76 Sections 10(5), (6) IA 2015 provide the statutory basis for determining the moment at which the breach of warranty is remedied, something unfamiliar to the English
courts, as De Hahn v. Hartley83 and section 34(2) MIA had specifically stated this to be
legally irrelevant. There are two classes of breach, the general case (under section 10(5))
and warranties imposing a time limit for action. For the general class of warranties, remedying a breach occurs “if the insured ceases to be in breach of the warranty”. This new
default favours the insured in breach of a major obligation but for a short period of time,
but does little for the insured who is in breach of relatively trivial obligations but on a
regular basis. Section 10 does not require a causal relationship between the breach of
warranty and the loss that occurred. We will return to this issue in respect of section 11,
in paragraph 24.78.
24.77 For warranties that require some action to be done (or not done) or some state
of affairs to exist (or not) by a particular point in time the insured cannot never return to
compliance. It will always have missed the deadline. For such clauses, the breach is taken
as remedied under section 10(5) when: “the risk to which the warranty relates later becomes
essentially the same as that originally contemplated by the parties”. A clause that required
security training for crew traversing an area of increased pirate activity to be concluded
within 90 days of the start of the policy would fall within this second class, if categorised as
a warranty. More complex cases are likely to arise and trouble the courts. It is possible for
commercial parties to contract out of section 10 IA 2015, subject to the “contracting out”
provisions in sections 16–17 IA 2015, considered in paragraphs 24.12–24.14.
24.78 The potential ambit of section 11 is much wider. It is a complex clause, which
underwent considerable change during the Law Commission consultation process. It has
the potential effect of preventing an underwriter from limiting or discharging liability for
a failure to comply with a risk management clause. This is an extraordinary intervention
in commercial insurance markets. Moreover, the clause has no obvious mechanism for
scaling the level of intervention so that sophisticated insureds receive a lower level of
protection.
24.79 Section 11 provides:
(1) This section applies to a term (express or implied) of a contract of insurance,
other than a term defining the risk as a whole, if compliance with it would tend
to reduce the risk of one or more of the following—
(a) loss of a particular kind,
(b) loss at a particular location,
(c) loss at a particular time.
83 (1786) 99 ER 1130; 1 Term Rep. 343.
221
War risks and marine insurance legislation
(2) If a loss occurs, and the term has not been complied with, the insurer may not
rely on the non-compliance to exclude, limit or discharge its liability under the
contract for the loss if the insured satisfies subsection (3).
(3) The insured satisfies this subsection if it shows that the non-compliance with
the term could not have increased the risk of the loss which actually occurred
in the circumstances in which it occurred.
(4) This section may apply in addition to section 10.
24.80 Section 11 applies to clauses beyond insurance warranties. There are three key
elements that define the ambit of the section: one positive, two negative:
(1) Section 11 is restricted to clauses where “compliance” with the clause would
alter the level of risk. This limits the kind of clause regulated by section 11 to
those where an obligation is placed upon the insured, rather than where the
contract reduces cover on the occurrence of some extraneous event;
(2) Clauses which “define the risk as a whole” are outside the ambit of section 11.
The navigation limits clauses restrict all liability under a war risks policy and
would satisfy this requirement. Clauses which fall within this exclusion are not
regulated by section 11, even if the final positive requirement are met;
(3) Assuming neither (1) nor (2) exclude the operation of section 11, it regulates
clauses which, if complied with, would restrict losses of a particular kind, location or time. This identifies the intended function of the clause, as a risk management clause. This could be a condition precedent, an insurance warranty or
some form of condition.
24.81 Where the clause falls within section 11, the insured is able to prevent the underwriter from relying on breach of the clause in question to limit or deny liability where it
can prove: “that the non-compliance with the term could not have increased the risk of the
loss which actually occurred in the circumstances in which it occurred”.
24.82 The precise nature of the test set out in section 11(3) is contested.84 It has been
argued that this is a form of causal enquiry, although this is contrary to the Law Commission’s stated intention. The better view is that it is a mixed test of the expected function of
the clause (set at the time of contracting) compared to the nature of the loss (set at the time
of the loss, or once further information is available). This is not enough to resolve the uncertainties within section 11. It is not clear how specific the characterisation of the function
of the clause should be, nor indeed the characterisation of the loss. A contractual clause
requiring an annual security review might be designed specifically to control the risk of
piracy at sea, but could in practice reduce the risk of malicious acts committed in port.
24.83 In sophisticated commercial markets, where the presence of specific contractual promises to reduce the level of risk are likely to be significant in setting the level
of premium, a suitable response to the litigation risks inherent in section 11 would be
to “contract out” of the clause entirely. This is not required where it is clear that all risk
management clauses are of general application in that they define “the risk as a whole”.
84 The competing views are set out in R Merkin & O Gurses, ‘Insurance Contracts after the Insurance Act
2015’ (2016) 132 LQR 445, 465–466.
222
CH A PT ER 25
Total loss and notice of abandonment
Actual and constructive total losses
25.1 Issues of total loss may have a character of their own in War Risks cases, and this
chapter will focus on those features rather than aiming for a comprehensive treatment.
The Marine Insurance Act 1906 addresses “Loss and Abandonment” in sections 55–78.
25.2 Section 56(1) provides that a loss may be either total or partial, and that any loss
other than a total loss is a partial loss. Total loss is further divided by sub-section (2) into
actual total loss and constructive total loss.
25.3 Section 57(1) states that there is an actual total loss in three situations: (i) where the
subject matter insured is destroyed; (ii) where the subject-matter is so damaged as to cease
to be a thing of the kind insured; or (iii) where the Assured is irretrievably deprived of the
subject-matter insured. War risk examples are not difficult to find: the insured object is destroyed by sinking after a missile strike; it is so damaged that it ceases to be a thing of the
kind insured when the explosion of a mine breaks the ship’s back and one half sinks; and
the assured is irretrievably deprived of possession where his ship is captured by a belligerent and condemned by a Prize Court. In the context of marine insurance, the existence of a
doctrine of constructive total loss has meant that the concept of an actual total loss has been
applied more strictly.1 In The Bunga Melati Dua,2 cargo owners claimed that their cargo
was an actual total loss, on the basis that they were irretrievably deprived of it, when the
vessel carrying it was captured by pirates. The Court of Appeal rejected their arguments
that piracy (like capture) created an automatic actual total loss and that, in any event, the
law could not take account of the payment of a ransom in calculating the prospects of recovery. Seizure by pirates who habitually released vessels against payment of a ransom did
not lead to an inference that the property was irretrievably lost, though such an inference
could be made in different circumstances.3 Capture and seizure are by their nature perils
which lead to intermediate cases, where there is a prima facie total loss, but the property
may be restored to its owner.4 The test under section 57(1) is irretrievable deprivation, and
1 Masefield AG v. Amlin Corporate Member Ltd (the Bunga Melati Dua) [2011] 1 W.L.R. 2012; [2011] 1
Lloyd’s Rep. 630 at [16].
2 Ibid.
3 The Court of Appeal distinguished Dean v. Hornby (1854) 3 E & B 180, where pirates took a vessel for their
own use, and recapture by the Crown did not restore the owners to possession: Masefield AG v. Amlin Corporate
Member Ltd (the Bunga Melati Dua) [2011] 1 W.L.R. 2012; [2011] 1 Lloyd’s Rep. 630 at [26–33] per Rix L.J.
4 Roux v. Salvador (1836) 3 Bing NC 266 at pp.285–286 per Lord Abinger C.B.; Masefield AG v. Amlin Corporate Member Ltd (the Bunga Melati Dua) [2011] 1 W.L.R. 2012; [2011] 1 Lloyd’s Rep. 630 at [35] per Rix L.J.
223
Total loss and notice of abandonment
essentially that is an inference of fact.5 If the property is restored after deprivation, the
effect may nevertheless still be a constructive total loss (see paragraph 25.17).
25.4 Section 57(2) provides that in the case of an actual total loss, no notice of abandonment need be given.6 However, such notice is required where a constructive total loss
is claimed. Where there is a valid abandonment, section 63(1) provides that the insurer
is entitled to take over the interest of the insured in what remains of the subject-matter
insured.7 It may not be an easy question to answer whether a total loss is actual or constructive and thus whether notice of abandonment is required.
25.5 Constructive total loss is a more complex concept. The basic concept is that there
is a constructive total loss if a partial loss is financially equivalent to a total loss, even
though it is not in physical terms a total loss.8 In the majority of cases the distinction corresponds to that between physical and mercantile impossibility.9 Section 60(1) contains
a general definition, subject to any express provision in the policy,10 so that there is a
constructive total loss in two situations: (i) where the subject-matter insured is reasonably
abandoned on account of its actual total loss appearing11 to be unavoidable; or (ii) because
the subject-matter could not be preserved from actual total loss without an expenditure
which would exceed its value when the expenditure had been incurred.
25.6 That general definition is then followed in section 60(2) by three particular instances of a constructive total loss. Sub-section (2) supplements sub-section (1) and does
not merely illustrate it.12 The three instances are:
(i)
Where the assured is deprived of the possession13 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,14 or (b) the cost of recovering the ship or goods, as the case may
be, would exceed their value when recovered; or
5 Masefield AG v. Amlin Corporate Member Ltd (the Bunga Melati Dua) [2011] 1 W.L.R. 2012; [2011] 1
Lloyd’s Rep. 630 at [56] per Rix L.J.
6 Kaltenbach v. Mackenzie (1878) 3 C.P.D. 467 at p.471 per Brett L.J. (abandonment takes place at the time
of settlement of the claim for an actual total loss).
7 See The WD Fairway [2009] 2 Lloyd’s Rep. 191 and The WD Fairway (no.3) [2009] 2 Lloyd’s Rep. 420.
8 Sveriges Angfartygs Assurans Forening (The Swedish Club) v. Connect Shipping Inc (The Renos) [2019]
UKSC 29 at [11]. It is also a constructive total loss where the subject-matter insured is reasonably abandoned
on account of its actual total loss appearing to be unavoidable: s.60(1) of the 1906 Act.
9 Sir Mackenzie Chalmers, The Marine Insurance Act, 1906 (1907), p.86, cited by Rix L.J. in Masefield
AG v. Amlin Corporate Member Ltd (the Bunga Melati Dua) [2011] 1 W.L.R. 2012; [2011] 1 Lloyd’s Rep. 630
at [17].
10 The Institute Time Clauses—Hulls contain provisions in Clause 19 relating to the constructive total loss.
This provision is incorporated into the War and Strikes Clauses Hulls (Clause 2).
11 Although the Act refers to an actual total loss “appearing” to be unavoidable, it is an objective test:
Sveriges Angfartygs Assurans Forening (The Swedish Club) v. Connect Shipping Inc (The Renos) [2019]
UKSC 29 at [12].
12 Petros M. Nomikos Ltd. v. Robertson (1939) 64 Ll.L.Rep. 45 per Lord Wright at p.50; Rickards v.
Forestal Land Co. Ltd. [1942] A.C. 50 per Lord Wright at p.84.
13 In section 60 “deprived of the possession” of the property has been given the broad meaning of being
deprived of “the free use and disposal” of the property: Owners of the Bamburi v. Compton (The Bamburi)
[1982] 1 Lloyd’s Rep. 312; Royal Boskalis Westminster NV v. Mountain [1997] L.R.L.R. 523.
14 Recovery has to be unlikely “within a reasonable time”: Polurrian Steamship Co. Ltd. v. Young [1915]
1 K.B. 922 at p.937 per Kennedy L.J.; Forestal Land, Timber & Railways Co. Ltd. v. Rickards (The Minden)
(1941) 70 Ll.L.Rep. 173; [1942] A.C. 50 at p.87 per Lord Wright; Societe Belge S.A. v. London & Lancashire
Insurance Co. (1938) 60 Ll.L.Rep. 225 at p.234; Irvin v. Hine [1950] 1 K.B. 55 at p.569.
224
Total loss and notice of abandonment
(ii) In the case of damage to a ship, where she is so damaged by a peril insured
against, that the cost15 of repairing the damage would exceed the value of the
ship when repaired;16 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.
25.7 The complexity of section 60 reflected the common law, which the 1906 Act
largely sought to codify. In the case of unvalued policies,17 which were previously common, there could be great uncertainty as to whether the cost of cure would exceed the
value of the insured property. Modern policies are now almost always valued.18 Furthermore, the total loss provisions of the Institute Time Clauses—Hulls (Clause 19), as incorporated into the War and Strikes Clauses, provide that the insured value shall be taken as
the repaired value.
Election for a constructive total loss
25.8 The assured is not compelled to treat a casualty as a constructive total loss. 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”. The notice of abandonment is notice to the underwriters of this election between a partial loss and a constructive total loss.19 Unless notice
is waived by the insurer or the circumstances are such that there would be “no possibility
of benefit to the insurer if notice were given to him”, notice is a condition precedent to
the assured’s right to claim for a constructive total loss.20 Such a notice is, however, not a
condition precedent to the existence of a constructive total loss.21 The requirements and
effect of such a notice, and of its acceptance or rejection, are dealt with in section 62. The
election between partial loss and constructive total loss is a true election, though it differs
from other cases of election, in particular in that it is irrevocable only if the abandonment
is accepted by the underwriter.22
15 The cost of recovery and repair includes all such costs arising from the casualty, irrespective of the date
of any notice of abandonment; costs incurred prior to the notice do not reduce the loss, and are therefore to be
taken into account: Sveriges Angfartygs Assurans Forening (The Swedish Club) v. Connect Shipping Inc (The
Renos) [2019] UKSC 29 at [18–19]. However, the objective purpose of Scopic charges is not to enable the ship
to be repaired, but to protect an entirely distinct interest of the shipowner, namely his potential liability for
environmental pollution, and such charges are not relevant: Ibid at [25].
16 The statutory definition states that 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.
17 Defined by section 28 of the 1906 Act.
18 Defined by section 27 of the 1906 Act.
19 Kaltenbach v. Mackenzie (1878) 3 C.P.D. 467.
20 Sveriges Angfartygs Assurans Forening (The Swedish Club) v. Connect Shipping Inc (The Renos) [2019]
UKSC 29 at [5].
21 Robertson v. Petros M. Nomikos Ltd [1939] A.C. 371 (recovery on a freight policy on the basis that the
ship was a CTL, even though the shipowners had elected under the hull policy to treat the loss as partial).
22 N 20.
225
Total loss and notice of abandonment
25.9 Whilst the principle of indemnity requires that an insured who recovers for a
total loss must cede to underwriters any remaining interest in the property insured,23
underwriters usually do not wish to take over responsibility for the property, which may
result in a wreck removal order without the benefit of owners’ Protection and Indemnity Association cover. In practice the notice of abandonment is therefore simply rejected
as a matter of course, with underwriters preferring to receive any salvage that may be
obtained, pursuant to section 79(1).24
Abandonment
25.10 Although section 60(1) of the Act refers to an actual total loss “appearing to be
unavoidable”, the question whether there has been a constructive total loss depends on the
objective facts.25 So far as there are future or unknown facts, a reasonable assessment of
the probabilities must be made, but the test does not depend on the opinion or predictions of
the owner, however reasonable.26 One does not judge by the result, but from the probabilities
as they would have appeared to a reasonable assured at the moment when he knew of his loss
and could have given notice of abandonment, had notice been required.27 Although one may
ask whether the prudent uninsured owner would repair, the factors to be taken into account
are limited by the 1906 Act to a comparison between the cost of repair and the repaired
value.28 The effect of an offer to abandon is that if the offer appears to have been properly
made upon certain supposed facts, which turn out to be true, the assured has put himself in
a condition to insist upon his abandonment; but it is not enough that the notice was properly
given, upon facts which were supposed to exist at the time, if it turns out that no such facts
existed, or that other circumstances had occurred which did not justify abandonment.29
Although the loss occurs at the time of the casualty, and includes any development of the
damage thereafter, the loss must still be total at the time of notice of abandonment in order
for the election to be valid.30 Strictly speaking, in determining the rights of the parties it is
the circumstances at the time of the issue of the Writ, now the Claim Form, which matter.31
However, in practice underwriters agree at the time of rejection of a notice of abandonment
to put the shipowners in the same position as though a Writ had been issued. Notwithstanding such an agreement, sue and labour expenses incurred thereafter may be recoverable.32
23 Roux v. Salvador (1836) 3 Bing. N.C. 266.
24 Houstman v. Thornton (1816) Holt N.P. 242.
25 N 11.
26 Ibid.
27 Rickards v. Forestal Land, Timber & Railways Company [1942] A.C. 50 at p.110 per Lord Porter.
28 Sveriges Angfartygs Assurans Forening (The Swedish Club) v. Connect Shipping Inc (The Renos) [2019]
UKSC 29 at [26].
29 Bainbridge v. Neilson (1808) 10 East 329 at p.341 per Lord Ellenborough; n 11.
30 Hamilton v. Mendes (1761) 2 Bur 1198; Sveriges Angfartygs Assurans Forening (The Swedish Club) v.
Connect Shipping Inc (The Renos) [2019] UKSC 29 at [15].
31 Ruys v. Royal Exchange Assurance Corporation (The Doelwyk) [1897] 2 Q.B. 135. The 1906 Act did not
change this: Polurrian Steamship Co. Ltd. v. Young [1915] 1 K.B. 922; Forestal Land, Timber & Railways Co.
Ltd. v. Rickards (The Minden) (1941) 70 Ll.L.Rep. 173; [1942] A.C. 50.
32 Atlasnavios Navegacao Lda v. Navigators Insurance Co Ltd (The B Atlantic) [2015] 1 Lloyd’s Rep. 117
at [343].
226
Total loss and notice of abandonment
25.11 In Hamilton v. Mendes,33 a ship was captured by a French privateer in the Seven
Years War and then recaptured by a British man-of-war a few weeks later. The insured
received notice of both at the same time, and purported to give notice of abandonment.
Lord Mansfield held that he was only entitled to claim for a partial loss, as there had only
been a short interruption to the voyage and no great expense incurred; there could be no
vested right to abandon upon capture, since the insured had to make an election, and could
not do so before advice was received of the loss.34
25.12 In Bainbridge v. Neilson,35 a ship was captured and a few days later recaptured.
The insured received notice only of the capture, and gave notice of abandonment. He
then received news of the recapture, and that the ship was safe, with minor expense being
incurred, but persisted in the abandonment. It was held36 that the insured was not entitled
to persist in his abandonment. Even though the notice had been genuinely made upon
notice of capture, the true facts were that the vessel was safe and not lost.
25.13 In Roura & Forgas v. Townend,37 the insured had voyage chartered a ship to
carry jute from Calcutta to Spain, and insured their anticipated profit against total or
constructive loss of the vessel on its prior voyage to Columbo and then to the load port of
Calcutta. The first news of the vessel was that it had been captured in the Indian Ocean
by a German prize crew, and in their charge had stranded on the coast of Denmark. She
was salved by her owner, and repaired, without notice of abandonment being given, her
owner being uninsured. Roche J. held that there was a constructive total loss of the vessel,
its return being unlikely, and the fact that it was restored to its owners before the insured
brought their action was immaterial; restoration precludes recovery where it results in the
loss of the insured being made good to him before action, and the restoration of the ship
here did not make good the insured’s loss of profit on the voyage.38
25.14 In Bradley v. H. Newsom Sons & Co.,39 The Jupiter was in the course of a
voyage with a cargo of timber from Archangel to Hull in October 1916. A German submarine surfaced and fired shots to force her to stop. The Master and crew were ordered
to leave the ship and took to the boats. German officers boarded the ship and placed
bombs on board to scuttle her. Explosions were heard from the ship and in the darkness
it was assumed (wrongly) that she had sunk. The shipowners reported the sinking to
the charterers. Shortly thereafter, the vessel was found, still afloat and barely damaged,
and the Royal Navy beached her near to Leith. The charterers claimed to be entitled to
take delivery of the cargo at that port without paying freight, on the basis that the shipowners had abandoned the voyage. The ship was in fact able to continue the voyage,
and the cargo was delivered in Hull without prejudice to the charterers’ contentions.
The House of Lords by a majority (Lord Sumner dissenting)40 held that there was no
33 (1761) 2 Bur 1198.
34 Ibid at pp.1210–1211.
35 (1808) 10 East 329.
36 Ibid at p.341 per Lord Ellenborough C.J.
37 [1919] 1 K.B. 189.
38 Ibid at p.196; Robertson v. Petros M Nomikos Ltd [1939] AC 371, 382–383 (Lord Wright), 395 (Lord
Porter); Sveriges Angfartygs Assurans Forening (The Swedish Club) v. Connect Shipping Inc (The Renos)
[2019] UKSC 29 at [17].
39 [1919] A.C. 16.
40 Lord Sumner (Ibid at p.36) said that the word “abandonment” raised special considerations of marine
insurance law which were not in question.
227
Total loss and notice of abandonment
abandonment. Lord Finlay L.C. said that for this purpose there must be abandonment
without any intention to retake possession, and without any hope of recovery.41 On the
facts, the vessel had not been abandoned, the master and crew simply leaving by force
and then assuming that the vessel was lost.
25.15 In another carriage case, Court Line Ltd. v. The King,42 the Lavington Court
was in convoy from the United Kingdom to the Middle East via the Cape of Good Hope
with a cargo of military stores in 1942. She was struck by torpedoes and, fearing that she
was going to be torpedoed again, the Master ordered the crew to take to the lifeboats.
The Master expressed the view that, failing another attack, the ship would float for a
considerable time and could be saved. She was still afloat when a warship returned, and
the Master and some of his officers made an inspection. They concluded that provided
the weather stayed fair, she could be towed to safety. Tugs were requested from Gibraltar,
but the warship and the Master and crew of the casualty could not remain with her. Tugs
found the casualty and towed her for 500 miles before she foundered. The shipowners
claimed charter hire for the period of the towage, a clause in the charter providing that
the hire ceased on a constructive total loss. Scott L.J. considered the different senses in
which there could be abandonment under the 1906 Act, and distinguished between abandonment of the property by the Master and crew (as where a total loss seems inevitable)
from abandonment of the property to underwriters by owners making an election to treat
a loss as a constructive total loss.43 Du Parcq L.J. considered that the word “abandoned”
in section 60(1) had only one sense, and referred to the shipowner or his agent giving
up the property for lost, that is renouncing all their rights in the ship except the right to
recover insurance.44 The Court of Appeal by a majority held that the vessel had not been
abandoned within the meaning of section 60: the vessel was entrusted to the tugs being
sent out by the Royal Navy, an actual loss did not seem inevitable and if the owners were
out of possession, it was not unlikely that the ship would be recovered.
Consequences of rejection of notice of abandonment
25.16 When underwriters refuse to accept notice of abandonment but agree to put the
assured in the same position as though a Writ (now a Claim Form) had been issued, there
is no change in ownership of the property insured as between insured and insurer. As
between insured and third parties, it is an open question as to whether a person may divest
himself of ownership by abandonment.45 The answer will depend on the context in which
the question arises and the law of the place where abandonment takes place. Whether an
owner is liable for wreck removal or for port or other charges is a different question to
41 Ibid at pp.24, 27. See also Viscount Haldane at p.32, Lord Parmoor at p.49 and Lord Wrenbury at
pp.57–58.
42 (1945) 78 Ll.L.Rep. 390.
43 Ibid at pp.396–397.
44 Ibid at p.399.
45 The Douglas (1882) 7. P.D. 151, 160; The Utopia [1893] A.C. 492, 498; The Crystal [1894] A.C. 508, 519;
Suart v. Merchants’ Mar Ins Co Ltd (1898) 3 Com. Cas. 312 at 314–315; Oceanic SN Co v. Evans (1934) 40 Com.
Cas. 108 per Greer L.J. at 111; Blane Steamships Ltd v. Minister of Transport [1951] 2 K.B. 965 per Cohen L.J.
at pp.990–991; Vandervell v. IRC [1966] Ch. 261 at 274 per Plowman J.; Smith v. MV “Ross Revenge” [2017] 2
Lloyd’s Rep. 288 at [13].
228
Total loss and notice of abandonment
whether (say) a salvor is entitled to keep long-sunken cargo for himself on the basis that it
became res nullius by abandonment.
Restoration
25.17 Where underwriters agree to put the insured in the same position as if an action
had been brought (or an action has in fact been brought) the subsequent full recovery of
the property by the insured has no effect on the claim for a total loss.46 However, where
the property is restored, in part or in whole, before the action is brought, or deemed to
be brought, the effect of that restoration is relevant as to whether there is no more than a
partial loss. In principle, the test should remain the same, namely whether on the basis of
all the circumstances, restoration included, there has been a total loss. With the passage
of time, speculation as to the likelihood of recovery of the ship or goods will have been
resolved in whole or in part. Nevertheless, a question may remain as to whether the property has been “recovered”. If there is a capture, followed by recapture, and the property is
returned with only a short interruption and no great expense, there is no total loss.47 However, if a recapture puts the ship in such a position that the owner cannot get her without
paying more than she is worth, there is a constructive total loss.48 In Lozano v. Janson,49
Lord Campbell C.J. said that if, before action brought, goods had been restored to the
assured, or he had had the means of getting possession of them, under such circumstances
as ought to have induced a prudent man to take possession of them, his claim could only
be made for a partial loss.50 Where the cargo may be recovered by the insured taking steps
to do so, including incurring expense, the test corresponds to the duty to sue and labour.51
Time for giving notice of abandonment
25.18 Notice of abandonment must be given with reasonable diligence after 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 enquiry.52 It may be difficult to determine
whether the information is reliable or doubtful. Aside from the difficulty in ascertaining
the nature of any physical casualty, additional difficulties arise in parts of the world where
local authorities will not permit easy entry through their frontiers, or which are dangerous
in a military or a political sense. Where ships are detained, it may not be immediately
clear whether they have been seized or have otherwise suffered an insured peril of the
War or Strikes insurance, and it is often very difficult to get a clear explanation for a ship’s
detention.53
46 Ruys v. Royal Exchange Assurance Corporation (The Doelwyk) [1897] 2 Q.B. 135.
47 Hamilton v. Mendes (1761) 2 Bur 1198; Bainbridge v. Neilson (1808) 10 East 329.
48 Shepherd v. Henderson (1881) 7 App. Cas. 49 at p.71 per Lord Blackburn.
49 (1859) 2 E. & E. 160.
50 Ibid at p.177.
51 Rickards v. Forestal Land Co. Ltd. [1942] A.C. 50 per Lord Wright at p.96.
52 Section 62(3).
53 In the Third Edition of this work (paragraphs 27.48–27.49), Michael Miller gave an account of his personal experiences in obtaining reliable information in The Good Luck and in The Angolan cases.
229
Total loss and notice of abandonment
25.19 Questions arose in The Anita as to when notice of abandonment should be given
so that it was not too early so that it had no meaning, and not too late so that it was ineffective. The shipowners had to prove that their ship was a constructive total loss because they
had been deprived of possession and it was unlikely that they would recover them within
a reasonable time (section 60(2)(i) of the Marine Insurance Act 1906). In The Anita,54 the
vessel was detained by Vietnamese authorities on account of smuggling shortly after her
arrival on 7 March 1966. After a hearing before a Special Court on 25 April, an order
was made for the confiscation of the vessel. The vessel remained detained until August
1967, and four separate notices of abandonment were sent. Mocatta J. considered55 that
the first notice given on 2 May was too early, but that as from the second notice, after six
months of negotiations, it was unlikely that the shipowner would recover his ship within a
reasonable time and the unlikelihood increased as time went on. In such cases it may be a
matter of fine judgement by the assured as to when notice of abandonment must be given,
with successive notices being advisable with each development in the situation. Given that
underwriters are unlikely to accept any notice, this is unsatisfactory. However, there is no
objection in principle to repeated notices, since a notice is merely an offer, which remains
executory unless and until it is accepted.56
The 12-month Clause
25.20 Clause 3 of Institute War and Strikes Clauses Hulls provides that in the event
that the vessel shall have been the subject of capture, etc.,57 and the assured shall thereby
have lost the free use and disposal of the vessel for a continuous period of 12 months then
for the purpose of ascertaining whether the vessel is a constructive total loss the assured
shall be deemed to have been deprived of the possession of the vessel without any likelihood of recovery.
25.21 The Mutual War Risks Associations use a clause in a different form. The Hellenic Association’s Rule 3.14, for example. It reads:
If an Owner is deprived of the free use and disposal of an Entered Ship by capture, seizure,
arrest, restraint, detainment, confiscation or expropriation:
3.14.1 no claim for an actual or constructive total loss shall arise if such deprivation lasts for
a period of less than 183 days (or such shorter period as the Directors may, in their discretion,
decide);
3.14.2 if such deprivation lasts for a continuous period of 12 months, the Owner shall be
deemed to have been deprived of the possession of the ship without any likelihood of recovery.
25.22 These clauses relieve the insured from having to prove that it is unlikely that
he can recover the property. However, they do not excuse him from proving that he was
deprived of possession, nor excuse him from giving notice of abandonment within the
proper time if otherwise required.
54 Panamanian Oriental Steamship Corporation v. Wright (The Anita) [1970] 2 Lloyd’s Rep. 365; reversed
[1971] 1 Lloyd’s Rep. 487.
55 Ibid at p.383.
56 Pesquerias y Secaderos de Bacalao de España S.A. v. Beer (1945–46) 79 Ll.L.Rep. 417 at p.433 per
Atkjnson J.; not considered on appeal (1946–47) 80 Ll.L.Rep. 318 (C.A.); (1948–49) 82 Ll.L.Rep. 501 (H.L.).
57 The perils referred to are: capture, seizure, arrest, restraint, detainment, confiscation or expropriation.
230
Total loss and notice of abandonment
Cases where notice of abandonment is not necessary
25.23 Section 62(7) provides 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. Disproving any possibility of benefit is an onerous task. It is easier where there is nothing to abandon. One such situation is possibly
where there is a loss of freight consequent upon the constructive loss of the vessel, as in
Rankin v. Potter.58 It might be doubted whether this was an actual or constructive total
loss with respect to the freight. However, in the Rankin case it was acknowledged that
there might be a constructive total loss of freight with something to abandon, as where the
cargo is saved and might be forwarded in a substituted vessel.59 The total loss of freight, a
chose in action, is extensively discussed by Lord Wright M.R. in the Yero Carras case.60
More recent analysis of loss of freight and loss of earnings claims can be found in The
Wondrous,61 and in The Capricorn.62
Missing ships
25.24 Sometimes ships simply go missing. Section 58 provides that where the ship
is missing, and after the lapse of a reasonable time no news of her has been received, an
actual total loss may be presumed. This does not answer the question as to whether the
presumed total loss was on account of marine risks or war risks. There have been instances
of insistence, usually at the behest of mortgagees, that a provision should be inserted in the
war insurance that a missing ship should be treated as a war rather than a marine risk. In
the absence of such a clause, the question remains. If the claim is on a marine policy with
an f.c. & s clause, the insured need not prove that there was no capture or seizure, etc., and
may recover on the basis of a presumption that the vessel foundered.63 If the claim is on
a war risks policy, and it can be inferred that the ship would have reached an area where
war risks were in operation, it may be concluded that the loss was by war risks.64 These
are instances of ordinary inference rather than the operation of any presumption of law.
58 (1873) L.R. 6 H.L. 83 (1873) 2 Asp. 65.
59 Ibid at pp.102–103 per Brett J.
60 Yero Carras (Owners) v. London and Scottish Assurance Corporation Ltd. (The Yero Carras) (1935)
53 Ll.L.Rep. 131. See also Kulukundis v. Norwich Union Fire Insurance Society Ltd [1937] 1 K.B. 1; (1936) 55
Ll.L.Rep. 55.
61 Ikerigi Compania Naviera S.A. v. Palmer (The Wondrous) [1991] 1 Lloyd’s Rep. 400 at pp.415–417 per
Hobhouse J.
62 Cepheus Shipping Corporation v. Guardian Royal Exchange Assurance Plc (The Capricorn) [1995] 1
Lloyd’s Rep. 622 at pp.637–641 per Mance J.
63 Green v. Brown (1743) 2 Str. 1199.
64 Munro, Brice & Co. v. Marten [1918] 2 K.B. 78; reversed on the facts [1920] K.B. 24.
231
CH A PT ER 26
Held covered
The “family” of held covered clauses
26.1 War risks policies, in common with many types of insurance contract, often
contain held covered clauses. In war risks insurance, these frequently appears in connection with entry to an area for which an additional premium is chargeable by the underwriter due to the prevailing political circumstances in the region. The current clause
regulating the entry into an “area of perceived enhanced risk” (APER) is considered
in Chapter 24. The effect of a “held covered” clause is to alter the legal consequences
of non-compliance with policy limits, or other circumstances in which cover would be
reduced. This family of clauses reflect market practice and their precise legal effect have
troubled the courts.
26.2 We begin with a review of what the clauses are meant to achieve in practice, before moving to a detailed consideration of their legal effect. Generally, prior notice of entry is expected in order that the additional premium may be agreed, the underwriter may
be put on notice when the extra risk of greater danger arises and there may be certainty
in the relationship between the shipowner and the underwriter. There has long been the
danger that the insured ship may enter such an area without the shipowner’s knowledge;
in the past this has happened because there has been an accident on board and repairs are
urgent, or because sick or injured seamen have to be landed for medical treatment ashore,
or because the charterer requires the Master to load or discharge at a different port. News
of this may not reach the shipowner in time for prior notice to be given. To guard against
the shipowner losing his insurance cover inadvertently, an extra clause was added to ensure that his insurance will continue and a typical provision in the early twentieth century
read: “Or held covered at a premium to be arranged.” These can be termed “simple held
covered clauses”.
26.3 These clauses can lead to abuse because sometimes there is the temptation, to
which some succumb, to enter an additional area and hope to slip in and out unobserved. If
there was a casualty whilst within the APER area, the commonly held belief was that one
is “held covered” and all that one had to do is to produce the premium to get the resulting
claim paid. For the reasons which appear below, this belief is often profoundly mistaken.
In response to those issues, a series of “complex held covered” clauses have developed,
which are much less amendable to statements about their precise legal effect, and which
require detailed legal analysis. Failure to give advance notice often requires the courts to
resolve a series of interrelated questions:
232
H eld covered
1(a) Does the clause, properly interpreted, require the insured to give notice of entry
into an APER, or is the clause merely permissive?
1(b) If the clause requires the insured to give notice, during what period must notice
be given?
1(c) If the clause requires the insured to give notice, what are the legal consequences
of a failure to give timely notice?
2(a) Is the underwriter required to provide extended cover and if so what is the effect
of a failure to give timely notice on this duty?
2(b) If the underwriter is required to provide extended cover, how is any additional
premium payable calculated?
3(a) If the clause permits the underwriter to insist upon amended cover (in addition
to any increase in premium), how are amendments determined?
4(a) To what extent does the doctrine of utmost good faith apply to the process of
notifying underwriters of entry into an APER and/or negotiation of additional
premium and/or amended terms?
“Simple” held covered clauses
26.4 The difficulties that these early clauses caused can be demonstrated by a brief
review of the case law. In Greenock Steamship Co v. Maritime Ins Co, Ltd,1 the court
was faced with a breach of the implied warranty of seaworthiness alongside a contractual
clause stating: “Held covered in case of any breach of warranty, deviation, and/or any
unprovided incidental risk or change of voyage, at a premium to be hereafter arranged”.
The facts arose before the adoption of the Marine Insurance Act 1906, but the principles
remain unchanged.2 The vessel left Montevideo with sufficient supplies of coal for the
expected voyage, but these supplies proved to be insufficient in light of strong head winds
and high seas. The master therefore ordered that parts of the ships fittings and cargo be
used as fuel. The insured shipowner was unaware of the lack of seaworthiness due to insufficient bunkers for the voyage intended until after the vessel left port, and so no notice
was given or additional premium negotiated. Bigham J. (at first instance) read the clause as
fixing the underwriter with the obligation to insure those risks which were held covered,
but on the basis of the information known to the parties at the time of the loss:
… it entitles the shipowner, as soon as he discovers that the warranty has been broken, to
require the underwriter to hold him covered. It also entitles the underwriter to exact a new
premium commensurate with the added risk. But what is to happen if the breach is not discovered until a loss has occurred? I think even in that case the clause still holds good, and
the only open question would be, what is a reasonable premium for the added risk? To answer
this the parties must assume that the breach was known to them at the time it happened, and
must ascertain what premium it would then have been reasonable to charge. If they cannot do
it by agreement, they must have recourse to a Court of law. It is like the case of goods sold at
a reasonable, though an unnamed, price. The sale is good, but the price has to be ascertained,
either by agreement or at law.3
1 [1903] 1 KB 367, affd [1903] KB 657 (CA).
2 See ss. 39(1), (3) (seaworthiness) and ss. 31, 88 (reasonable premium) MIA 1906.
3 At 374–375.
233
H eld covered
26.5 On these facts, Bigham J. found that the reasonable premium which would be
charged would be greater than the loss which eventuated and so the underwriter was not
obliged to pay the claim. The process described in Greenock Steamship of “set-off” of the
potential claim and the additional premium leaves unanswered the question of whether the
underwriter could have recovered the excess. This is of vital importance where the vessel
enters an APER and emerges unscathed, is the underwriter nonetheless entitled to its additional premium? As will be seen, these practical and legal difficulties were influential in
the development of held covered clauses and judicial attitudes to them.
26.6 Subsequent cases considered the requirement of notice in respect of simple held
covered clauses, and the effects of the doctrine of utmost good faith on the kinds of information required. The first of these is Hood v. West End Motor Car Packing Company4
where a motor car, in breach of the policy requirements that it should be loaded below
deck, was shipped on deck. There was a “held covered” provision, stating “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”. In the Court of Appeal
Swinfen-Eady L.J. described the assured’s duty:
… Notice must be given to the underwriters within a reasonable time after the facts have come
to the knowledge of the assured, if he wishes to rely on this clause”5 to which Scrutton L.J.
added: “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.6
This was an application of the approach of the House of Lords in Thames & Mersey
Marine Ins Co Ltd v. HT Van Laun & Co, that notice needed to be given within a reasonable period from the time the insured became aware of the issue.7
26.7 Donaldson J. commented in some detail on the likely time period within which
notice must be given in Liberian Insurance Agency Inc. v. Mosse.8 There was a “held
covered” clause in the policy that described the insured goods as “enamelware cups and
plates” shipped in cases. Many of the goods were not cups and plates; some were touched
up by overpainting; some were “seconds” bought at a cheap price; most seriously of all,
a substantial part of the consignment was not even loaded in cases, but in cartons which
gave less protection to their contents:
If the assured is to take advantage of the held covered clause, he must give notice to underwriters expressly or impliedly seeking cover in accordance with the clause within a reasonable
time of learning of the change of voyage or of the omission or error in the description. What
time is reasonable will depend on the circumstances.9
26.8 No guidance on the length of time which is reasonable to suit every situation is
possible, but Donaldson J. went as far as it is possible to go:
4
5
6
7
8
9
[1917] 2 K.B. 38.
At 45.
At 48.
[1917] K.B. 48, 51.
[1977] 2 Lloyd’s Rep. 560.
At 566.
234
H eld covered
Thus if the assured learns the true facts whilst the risk is still current, a reasonable time will
usually be a shorter period than if this occurs when the adventure is already ended. If the
assured learns the true facts when the assured property is in the grip of a peril, which is likely
to cause loss or damage, a reasonable time will be short indeed.10
Held covered clauses, notice and the doctrine of utmost good faith
26.9 As seen above, the simple held covered clauses were interpreted as creating corresponding obligations on the underwriter to extend cover and on the insured to give
reasonable notice and pay the additional premium. A further series of cases tested not
the timing but the ambit of the insured’s duty to communicate the changed circumstances
to the underwriter. In particular, courts began to explain the insured’s duty in relation
to the doctrine of utmost good faith. Before reviewing these cases, it must be noted that
these cases represent the highwater mark of this doctrine, and subsequent judicial and
legislative interventions have much reduced its modern impact. Nonetheless, these are the
leading authorities on held covered clauses, and must be reviewed before we reflect on the
limiting effect of changes in the general principles of insurance law.
26.10 The assured’s duty was put more strongly by McNair J. in Overseas Commodities Limited v. Style.11 The insured goods were tins and their marks were queried by the
underwriters. The French suppliers gave two separate and mutually contradictory explanations. Only the more favourable explanation was shown to the underwriters: “To obtain
the protection of the ‘held covered’ clause, the assured must act with the utmost good faith
towards the underwriters, this being an obligation which rests on them throughout the
currency of the policy.”
26.11 Following the lead given by McNair J., Donaldson J. in Liberian Insurance
Agency Inc. v. Mosse made it clear that the obligations contained in section 17 of the
Marine Insurance Act 1906 were not simply obligations to be observed at the time that the
insurance contract was made; they arose every time the “held covered” provision operated.
In The Litsion Pride12 Hirst J. explained the reason for this and whilst he did not say so in
so many words, it is clearly a matter within the contemplation of each party that: “… From
a commercial point of view it seems to be most important that the underwriter should have
available all the material facts which affect the fixing of an additional premium.”
Simple held covered clauses: conclusions
26.12 The case law in the first half of the twentieth century viewed held covered clauses
as mutually obligatory, with underwriters required to extend cover at a premium to be set
by the agreement or by the Court, and insureds required to make full and timely disclosure
of the circumstances requiring extended cover. The precise effect of failing to meet these
requirements was not resolved, as the doctrine of utmost good faith, and in particular its
application after the conclusion of the contract, was unsettled. Those issues arose in The
Litsion Pride.
10 Idem.
11 [1958] 1 Lloyd’s Rep. 546.
12 Black King Shipping Corporation and Wayang (Panama) S.A. v. Mark Ranald Massie (The Litsion
Pride) [1985] 1 Lloyd’s Rep. 437.
235
H eld covered
Complex held covered clauses
26.13 As Lord Sumption stated recently in the Supreme Court, the approach of Hirst J.
in The Litsion Pride13 “has not fared well in subsequent decisions”.14 It is both the leading
case on held covered clauses, and yet largely discredited in its explanation of the fundamental principles of insurance law. This requires detailed attention.
26.14 Black King were the ship’s owners, Wayang were the ship’s mortgagees and
Mr. Massie was a representative underwriter of the War Risks Policy. The basic facts
were fairly simple. Black King was a one-ship company among a group of similar companies forming the Macedonia Group. All the ships were mortgaged to S.H.L. of Lubeck
except for Black King’s ship, the Litsion Pride, which was mortgaged to Wayang. She
was insured on the S.G. Form with Institute War and Strikes Clauses attached. The
additional premium mechanism extended to various areas, one of them the Arabian
(Persian) Gulf north of latitude 24 north. The policy contained a complex held covered
clause which Hirst J. divided for analytical reasons into parts (A) and (B) and that is
followed here:
1.(A) T his coverage shall extend worldwide, but in the event of a vessel or craft insured
hereunder sailing for, deviating towards, or being within the Territorial Waters of
any of the Countries or places described in the Current Exclusions as set out below
(including any port area that at the date of this notice constitutes part of such a
country or place however it may hereafter be described) additional premium shall
be paid at the discretion of insurers hereon.
(B) Information of such voyage or deviation shall be given to insurers as soon as
practicable, and the absence of prior advice shall not affect the cover hereon. In
the event of the insured not requiring continuation of coverage for a vessel proceeding into or remaining within an excluded area, he shall so advise insurers
hereon before the commencement of such voyage, deviation or period, and it shall
be at the insurers’ discretion whether and on what terms the insurance shall be
reinstated.
26.15 The factual background to this dispute was described recently by Lord
Sumption:
The Litsion Pride was insured against war risks on terms which required her owners to give
notice as soon as practicable of her entry into specified war zones and to pay an additional
premium. The owners traded her into a war zone without giving notice, dishonestly intending
to avoid the payment of the additional premium if the vessel got out unscathed. When she
was hit by a missile and sunk, they gave the required notice by a letter which they dishonestly
backdated to a date before the vessel entered the war zone. The fraud was irrelevant to the
merits of the claim, because the vessel was held to be insured under a held covered clause with
or without prior notice 15
As in previous editions, this can be best explained in diary format. During the material
time, the Iran/Iraq War was in its second year. Events took the following course:
13 [1985] 1 Lloyd’s Rep. 437.
14 Versloot Dredging BV v. HDI Gerling Industrie Versicherung AG, The DC Merwestone [2017] A.C. 1, [14].
15 Idem.
236
H eld covered
1982
2 July
The ship sails from Dunkirk with sugar for Iran. This means that she must enter the additional
premium area, and at this stage, this fact is amply apparent to her owners.
4 July
E.T.A. Bandar Abbas is notified for 26 July. During the war, ships bound for Iranian ports always
called at Bandar Abbas either for discharge, or for orders and convoy to northern ports.
8 July
Wayang raises the point that the ship is going to Iran and seeks confirmation that she is fully
covered. They do not wish their name to be connected with the enquiry and they do not address
their query to the owners.
14 July
The enquiry is now addressed to the owners in Cyprus saying that the insurers had raised it,
which is not so. The owners could infer that the underwriters already knew of the voyage.
21 July
The charterers nominate Bandar Khomeini as the discharging port. This is presently the most
dangerous port in Iran, being well within the range of the Iraqi helicopters and airforce bombers.
Several ships have already been attacked.
27 July
The ship reaches Djibouti.
2 August
The ship crosses latitude 24 north.
A letter bearing this date is prepared in the owner’s London office. Addressed to the brokers, it
gives formal notice of the ship’s proposed visit to Persian Gulf. It is not dispatched and a junior
employee is subsequently blamed for an oversight.
11 August
The ship is hit by missiles launched from Iranian helicopters in the Khor Musa Channel, which
is the entrance to Bandar Khomeini port. Her cargo of sugar catches fire, she grounds and is lost.
Notice is given to the underwriters of the casualty. This is their first intimation that the ship is
within the additional premium area.
12 August
The 2 August letter is now given to the underwriters who see it for the first time.
26 August
A writ is issued.
237
H eld covered
Complex clauses: prior notice
26.16 The underwriters pleaded, consistent the approach taken to simple held covered
clauses, that notice of entry within a reasonable time into the additional premium area was
a condition precedent to extending cover and the shipowners had plenty of notice of the
ship’s impending entry.16 Hirst J. felt that he could not so hold. This was not a clause that
made no provision for notice, but an “extensive and elaborately drawn clause laying down
a detailed series of stipulations as to notices for various purposes”.17 The parties had failed
to include a term in the contract to the effect that the giving of notice was a condition precedent to continuing cover. His attention was drawn to the equivalent Rules of the Hellenic
(Bermuda) Mutual War Risks Association which, at the time of the casualty, read:
It is a condition of the insurance [given by the Association] … that the owner shall give
prompt written notice … of the fact that the entered [insured] ship will enter, has entered or is
in the additional premium area as soon as the owner knows of such fact.
This was suggested to be a good example of an express provision that was totally lacking
in the Litsion Pride’s “held covered” clause. On this point, he ruled against the underwriters although they won the case on other grounds.
26.17 The nature of this held covered clause, and the simpler variants that preceded it,
in part reflected justified concerns that the shipowner, through no fault of his own, could
become uninsured where entry to an additional premium area was made without notice
first being given to the Association. At the time of drafting in the mid-1970s there was
still the possibility of this happening. The earlier cases were concerned with ships which
were very often out of contact with their owners. The miracle of modern communications
had not then been achieved and some latitude had to be given by the courts based on an
understanding that the owner could not always be expected to know just where his ship
was or what she was doing. In the Hood case (paragraph 26.6) there was also a possible
problem of communications in wartime. Modern telecommunications and ship tracking
have much reduced this risk. There is now every reason for the shipowner to know just
where his ship is and what it is currently doing.
26.18 The nature of the current complex clause was discussed in brief in The Brilliante
Virtuoso.18 The analysis of Teare J. on this point is strictly obiter, but he did explain his
reasoning. Counsel had argued that the effect of the current Clause 2 of the Navigation
Provisions did not require actual agreement for cover to continue, only a potential agreement based on what would have been agreed if the insured had made a suitably detailed
presentation of the facts. Teare J. found no express words in clause 2 to support this approach, but in any case noted that any potential agreement (as per Liberian Agency v.
Mosse)19 was limited by the availability of a market by which a reasonable commercial
rate could be calculated. On the facts of The Brilliante Virtuoso, no underwriter would
have agreed extended cover at any price.
16 See paragraph 26.6.
17 N 14 at 469.
18 Suez Fortune Investments Ltd v. Talbot Underwriting Ltd, The Brilliante Virtuoso [2019] EWHC 2599
(Comm), [543].
19 N 8.
238
H eld covered
The doctrine of utmost good faith
26.19 Having determined that there was no contractual defence, Hirst J. determined
that the continuing duty of utmost good faith had been breached by the insured’s failure
to relevant information, finding “in accordance with commercial good sense that the insured is required to notify any relevant information available from time to time”.20 As to
whether this required a single notification or a series of disclosures, Hirst J. stated:
as part of the duty of utmost good faith, it must be incumbent on the insured to include within
it all relevant information available to him at the time he gives it; and in any event the selfsame duty required the assured to furnish to the insurer any further material information
which he acquires subsequent to the initial notice as and when it comes to his knowledge,
particularly if it is materially at variance with the information he originally gave.21
This was viewed as applicable to any culpable misrepresentation or non-disclosure.22
The remedy under section 17 of the Marine Insurance Act 1906 was avoidance ab initio.
As has been discussed in detail since this case, this would be disproportionate if it made
the entire contract void ab initio, rather than negativing the additional cover provided by
the “held covered” clause.
26.20 This view of the continuing duty of utmost good faith has not found favour with
later courts. The House of Lords in The Star Sea rejected any suggestion that the continuing duty of utmost good faith at claims extended beyond any sanctioning of dishonesty or
fraud. In specific reference to the approach in The Litsion Pride, Lord Hobhouse stated:
The particular claim was only fraudulent in so far as the broker had not been truthful in dealing with the insurers at that stage. The reasoning adopted by Hirst J. has been criticised both
by academic writers and by other judges in later cases. I consider that it should not any longer
be treated as a sound statement of the law …23
26.21 In recent times, this reliance on a pure utmost good faith basis for the insured’s
duties at the claims stage has fallen away as a source of controlling the insured’s dishonesty, with the “forfeiture” rule assuming precedence.24 In light of this, the modern position is that only fraudulent statements by which the insured seeks to recover an indemnity
to which it is not entitled provide a defence under this common law rule. Underwriters that
want greater protection should negotiate express contractual clauses to that effect.
26.22 For contracts agreed after the entry into force of the Insurance Act 2015, section 14(1) makes clear that the doctrine of utmost good faith no longer attracts the remedy of avoidance ab initio, and section 17 of the Marine Insurance Act 1906 is amended
accordingly.
26.23 The decision in The Litsion Pride remains relevant to the likely construction of
a complex held covered clause, but the discussion of utmost good faith is not good law.
Unless the insured’s conduct meets the requirement for the underwriter to deny liability
20
21
22
23
24
At 512.
Ibid.
Ibid.
[2003] 1 A.C. 469, [71].
See Versloot, n 14.
239
H eld covered
on the basis that the claim is fraudulent, on the basis of current authority it will need to
establish a contractual defence, such as the lack of timely notice. There remains open the
question of whether, in some circumstances, the use of a held covered clause could constitute the making of an additional contract of insurance, so as to trigger the pre-contractual
duty of fair presentation of the risk found in section 18 of the Marine Insurance Act 1906
and its successors, rather than the post-contractual duty found in section 17.
26.24 As conclusions the following are suggested:
(1) In the absence of an express provision, the giving of notice under the “held covered” clause is not a condition precedent, either to the continued insurance cover
of the insured ship, or to the insurance cover whilst she is in the additional premium area. It needs an express provision to make it so.
(2) In the absence of an express provision, notice must be given within a reasonable
period, that is reasonable in all the circumstances after the insured shipowner
becomes aware, or ought to have become aware, of the position of his ship.
(3) The earlier cases allowed considerable latitude to the insured in giving notice,
because of the greater difficulty of communications at the time. With the increasingly greater efficiency of modern communications, this latitude will be
reduced—always provided, of course, that some event such as a war does not
intervene to hinder communications.
(4) Recent high-level authorities have cast considerable doubt on earlier suggestions
that communications between insured and underwriter in respect of a held covered clause attract the doctrine of utmost good faith as a post-contractual duty.
The current (slight) preference is for the rules relating to fraudulent claims to
regulate this exchange of information.
240
CH A PT ER 27
Wilful misconduct and fraudulent claims
27.1 In order to maintain the expected level of losses, marine insurance law and practice developed a range of rules to control the insured’s behaviour during the period when
the underwriter is on risk. This chapter is concerned with those rules that restrict the
insured’s ability to bring about losses by deliberate or reckless conduct. The application
of the rules has been less frequent in war risks insurance, as marine risks underwriters
are more likely to face “scuttling” losses and the like, but war risks underwriters have
defended claims before the courts, and these are reviewed in this chapter.
27.2 Historically, marine insurance relied in this regard on the “wilful misconduct”
rule, whereby losses proximately caused by the insured’s deliberate or reckless actions
were treated as outside the limits of cover. In more recent years, the courts have developed
(and sometimes discarded) alternative mechanisms, including the continuing duty of utmost good faith and the forfeiture rule for fraudulent claims. These rules are not mutually
incompatible, but vary in their requirements for application and remedy. What unites them
is that in each case the underwriter will have a near total defence to liability to a claim
connected to the misconduct and that this defence will normally be based on a principle of
public policy rather than contractual choice. Each rule is reviewed in turn, before a consideration of their cumulative effect. As much of this chapter is concerned with culpable
behaviour by the insured, we begin with a review of the standard and burden of proof.
Proof of wilful misconduct and scuttling
27.3 Allegations of criminal and/or fraudulent conduct by the insured have serious
consequences. If proven, there are likely to be long-term implications for the individuals
concerned and their business interests. Criminal charges may follow, and there is the
possibility of proceedings for contempt of court, where evidence is not given honestly.
Where the allegations are not substantiated, there is a serious risk of reputational harm,
and in some circumstances, the underwriters may face action for defamation. In light of
these pressures, the courts have developed a detailed process for considering allegations
of fraud.
27.4 The standard and burden of proof in the war risks insurance context was restated
by Teare J. in The Brilliante Virtuoso.1 He drew extensively on the approach he had adopted
1 Suez Fortune Investments Ltd & Piraeus Bank AE v. Talbot Underwriting Ltd & Ors, The Brilliante
Virtuoso [2019] EWHC 2599 (Comm), [60].
241
W ilful misconduct and fraudulent claims
in The Atlantik Confidence litigation,2 an iteration of the approach taken by Aikens J. in
The Milasan.3 These are best presented as a series of seven related points of principle:
(1) The burden of proving scuttling to support a defence of wilful misconduct or
fraudulent claim falls on the underwriter. The standard of proof is the “balance
of probabilities”, but the evidence required to satisfy the court mist reflect the
seriousness of the accusations made, and will “fall not far short of the rigorous
criminal standard”;4
(2) There is no presumption of innocence, but the court should give “due weight” to
the effects of finding that the insured acted fraudulently and criminally;
(3) It is not usually possible to find direct evidence of scuttling, and the Court
will consider all “relevant indirect and circumstantial evidence” in making its
decision;
(4) The insurer will not normally be able to establish a complete narrative in how the
scuttling occurred, and it is no bar to the underwriter’s claim that “parts of the
canvas remain … blank”;5
(5) The question for the court is whether the facts proved are sufficiently unambiguous to establish complicity;
(6) The previous good character of the insured is not a bar to a finding of complicity;
(7) Proof of motive is not required, but may assist in demonstrating “dishonesty in
fact”.
In concluding, Teare J. adopted the guidance of the court in McGregor v. Prudential in
respect of the overall standard of proof to be met: “even strong suspicion of the plaintiff’s
guilt is inappropriate” and that the court need be satisfied that complicity is “the only
probable conclusion”.6
Wilful misconduct in war risks insurance
27.5 The Marine Insurance Act 1906, by way of section 55(2)(a), establishes that losses
proximately caused by wilful misconduct are not recoverable. This is a rare example of a
mandatory provision of the Act, and is not subject to contrary intention in the policy. The
nature of this rule means that it is primarily concerned with the insured’s conduct up to
the moment of the loss, and less obviously concerned with the insured’s conduct post-loss,
for example, in the presentation of the claim. The wilful misconduct rule is therefore temporally limited. The other doctrines under review also have temporal limits of one form
or another, but can often be invoked for actions after the casualty, and are superior in that
regard. The rise in alternative bases for denying the claim is a contributing factor in the
decline in use of the wilful misconduct defence, although it remains active. The Court of
2 Kairos Shipping and another v. Enka 7 Co. LLC and others, The Atlantik Confidence [2016] 2 Lloyd’s
Reports 525, [7].
3 Brownsville Holdings Ltd v. Adamjee Insurance Co, The Milasan [2000] 2 Lloyd’s Rep. 458, [28].
4 This is not the place for a detailed critical analysis of this position, but see J Hjalmarsson, ‘The Standard
of Proof in Civil Cases: An Insurance Fraud Perspective’ (2013) 17 IJEP 47.
5 Citing Michalos v. Prudential Insurance, The Zinovia [1984] 2 Lloyd’s Rep. 264, 273 per Bingham J.
6 McGregor v. Prudential [1998] 1 Lloyd’s Rep. 112, 114–115.
242
W ilful misconduct and fraudulent claims
Appeal in The Gold Sky7 noted the prevalence of such cases in the early decades of the
twentieth century, and their sharp decline thereafter.8 Recent years have seen the return
in the use of the defence, notably in cases where the claimant is an innocent co-insured,
such as a bank.
27.6 It is useful at this point to take a modern example of scuttling. In The Brilliante
Virtuoso, Teare J. found that the owner of the vessel had conspired with the master, the
chief engineer and the co-ordinator of the salvage operation to permit armed men to enter
the vessel in an apparent piratical attack by armed men masquerading as security guards.9
The extensive fire damage created a constructive total loss of the vessel, and a potential claim for US$77million. The claim by the owner was struck out in earlier proceedings for failure to provide documents required in disclosure, and for lying to the court in
those proceedings.10 The removal of the owner as claimant left the court to determine the
remaining claims from the bank in its own interest as co-insured and from the mortgagee
indemnity insurance underwriter who had partly indemnified the bank (by way of subrogation). As Teare J. stated:
The mere fact that the Owner is disabled from claiming by reason of his wilful misconduct
does not disable the Bank from claiming. However, in order to make a successful claim the
Bank has to show that the loss was caused by an insured peril.11
Wilful misconduct as a contractual exclusion or public policy rule
27.7 Section 55(2)(a) is stated as an example of the application of the general principle
of proximate cause stated in section 55(1) and discussed in Chapter 28. It reads 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.
27.8 The effect of section 55(2)(a) requires some explanation. Underwriters are only
liable for losses proximately caused by insured perils, and it is extremely unlikely that the
intended effect is simply to prevent insurers from expressly insuring this kind of cause.
The generally agreed interpretation is that section 55(2)(a) excludes losses even if the wilful misconnect is only an indirect rather than the proximate cause of the loss.12 This wider
causal test was stated in Trinder, Anderson & Co v. Thames & Mersey Mar Ins Co,13 and
drew its inspiration from a similar approach to loss indirectly caused by unseaworthiness.14
7 Astrovlanis Compania Naviera SA v. Linard, The Gold Sky [1972] 1 Lloyd’s Rep. 331, 333–334.
8 A rare exception is Continental Illinois National Bank & Trust Co. Of Chicago And Xenofon Maritime
SA v. Alliance Assurance Co. Ltd, The Captain Panagos DP [1989] 1 Lloyd’s Rep. 33.
9 N 1 at [473]–[477].
10 As described at [18]. The “strike out” proceedings are reported at [2016] EWHC 1085 (Comm).
11 At [479].
12 J Gilman, et al., Arnould’s Law of Marine Insurance and Average (19th edn & supp, 2018), [22.56]
13 [1898] 2 QBD 114.
14 Thompson v. Hopper (1856) 6 El & Bl 937, 119 ER 1113.
243
W ilful misconduct and fraudulent claims
This rule derives from two distinct but interconnected principles, one of construction, the
other of public policy. First, insurance policies generally cover fortuities and not events
certain to occur. This assists the court in interpreting contractual language and especially
the limits of insured perils. Second, as a matter of public policy, insureds ought not to be
able to recover where the cause of the loss is their own wrongdoing. This is a version of
the contractual ex turpi causa rule. It reflects the risk of moral hazard. As noted in The
Brilliante Virtuoso, the wilful misconduct of the insured is a personal bar to recovery and
does not, of itself, prevent a claim by an innocent co-insured.15
27.9 Judicial comments have stated that wilful misconduct is a rule of construction
and not public policy, and vice versa.16 It is better understood in modern times as a rule of
public policy that also informs contractual interpretation rather than simply one of contractual allocation of the risk, but there is no consensus on this.
27.10 The courts have long recognised that wilful misconduct and other public policy doctrines may overlap. In The Michael, Kerr J. noted that many non-marine policies
included specific clauses that deprived the insured of the benefit of the policy where the
claim was tainted by fraud, and that this principle applied even in the absence of a specific
clause to that effect.17
Wilful misconduct: deliberate actions, gross negligence and recklessness
27.11 As considered in earlier editions of this text, the extent to which an act is considered “wilful” is a key limit on the doctrine. Deliberate misconduct by the insured, such
as an order to scuttle the vessel, is self-evidently wilful. The use of this as a defence to
a claim is limited by the difficulty of making and proving such an allegation. The case
law on whether reckless or grossly negligent actions constitute wilful misconduct require
greater analysis.
27.12 First, it should be noted that for section 55(2)(a) to apply the action must be both
wilful and amount to misconduct. Not all deliberate actions are misconduct. Second,
many of the cases discussing non-deliberate wilful misconduct are concerned with the
vessel being sent to sea in a potentially unseaworthy state. Third, the decisions are primarily to be found in other common law jurisdictions. The cumulative effect on English law
must be read in light of that wider context.
27.13 Section 55(2)(a) has received relatively little judicial consideration but there are
two cases of interest which will serve as examples of “wilful misconduct”, particularly
because they demonstrate that actual intention to cause the loss is not a necessary element.
They also indicate that “recklessness” may be sufficient to amount to “wilful misconduct”. The first is the American case of Orient Insurance Company v. Adams,18 where a
ship was released from its berth by the master’s order without prior verification that the
15 At [489]. See Samuel v. Dumas [1924] AC 431, 445–446.
16 For a recent statement that it is a matter of policy, see C A Blackwell (Contractors) Ltd v. Gerling Allegemeine Versicherungs AG [2008] Lloyd’s Rep. IR 529 per H.H.J. Mackie at [49], for the contrary see Beresford
v. Royal Insurance Co Ltd [1938] AC 586, 595 per Lord Atkin. For a detailed academic commentary on the fortuity requirement in insurance, see H Bennett, ‘Fortuity in the Law of Marine Insurance’ (2007) LMCLQ 315.
17 Piermay Shipping Co SA v. Chester, The Michael [1979] 1 Lloyd’s Rep. 55. On the facts, no fraud by the
insured was found and the Court of Appeal upheld the judgment on that basis: [1979] 2 Lloyd’s Rep. 1.
18 123 U.S. 67 (1887).
244
W ilful misconduct and fraudulent claims
steam engine had sufficient pressure to navigate. Harlan J., for the US Supreme Court,
affirmed the approach of the lower court, holding “… the misconduct of the master, unless
affected by fraud or design, would not defeat a recovery on the policy”.19 This sets the
limits of wilful misconduct as requiring intent, or reckless conduct,20 but does not include
negligence.
27.14 The second is a decision of the Supreme Court of Queensland, Wood v. Associated National Insurance Company Ltd, The Isothel.21 The Isothel was a fishing vessel
which left port in May, 1981, with a crew of four, the skipper who was part owner and the
only person on board qualified to manage the boat, and three fishermen, none of whom
could navigate her or even use the radio. Shortly after sailing, the bilge pump was found
not to be working, and the boat was anchored in a position which was unsafe in any winds
blowing from north of east. There was no danger at the time because the wind was in the
south-east although it was rising. The skipper went ashore to get help, and together with
his father, another part-owner, repaired the bilge pump and also did some repairs to the
main engine which needed attention. Both men then returned ashore leaving the boat anchored and in the charge of an unskilled crew.
27.15 During the next two days the skipper visited the beach opposite the position
where the boat was anchored. On the second day, it was raining and he could not even see
the boat. Although well aware from the weather forecasts that the wind was backing to the
north-east and a storm was expected from that quarter, he made no attempt to return to the
boat but spent the night at home. In the subsequent storm, the anchor line parted, the crew
abandoned the boat, and she was driven onto the rocks and became a total loss. The trial
judge found that there was no intention to cause her loss, but that the plaintiffs had recklessly disregarded the consequences of their conduct to such an extent that they were guilty
of “wilful misconduct”. This finding, which was based upon section 61(2)(a) of the Marine Insurance Act 1909 (Commonwealth), which is in the same terms as section 55(2)(a)
of the Marine Insurance Act 1906, was upheld on appeal.
27.16 More recently, the Supreme Court of Canada determined the limits of wilful
misconduct under the relevant Admiralty rules for the limitation of liability22 alongside
the marine insurance doctrine. Peracomo Inc v. Telus Communications Co,23 concerned
the actions of Mr Vallée, the operator of the fishing vessel Realice. The appellant company
was the vehicle through which Mr Vallée owned the boat. Having caught his fishing gear
on a submerged fibre optic cable, he cut through the cable with an electric saw. He believed
at the time that the cable was no longer in use. In fact, it was live and his actions caused
nearly CAN$1 million in damage. The majority decision was delivered by Cromwell J.,
and found that the appellant lost the protection of the insurance policy through reckless
conduct within the statutory definition of wilful misconduct.24 The Supreme Court catalogued the evidence used to support this finding at first instance: the charts on board the
19 At 73.
20 At 72.
21 [1985] 1 Qd R 297. Noted at R Salter, ‘Marine Insurance- Wilful Misconduct of the Assured’ (1985)
LMCLQ 415.
22 Art 4, Convention on Limitation of Liability for Maritime Claims 1976.
23 Peracomo Inc v. Telus Communications Co, the Realice [2014] 2 Lloyd’s Rep. 315.
24 The relevant provision of Canadian law is s. 53(2) MIA, SC 1993, namely: “an insurer is not liable for
any loss attributable to the wilful misconduct of the insured”.
245
W ilful misconduct and fraudulent claims
vessel were significantly out of date; the existence of cable had been publicised, and the
skipper relied on his memory of a map glimpsed in a museum.
27.17 The Supreme Court explained its reasoning for the finding of wilful misconduct
on the basis of underwriting:
A loss caused by the insured’s wilful misconduct is not the product of a fortuitous event or an
accident and is therefore not within the scope of the insured risks. The purpose of the wilful
misconduct exclusion, therefore, is to draw a line between the sorts of perils that are insured
and the sorts that are not.25
27.18 The test to be applied extended wilful misconduct beyond the deliberate acts
which characterised scuttling cases, and out to “conduct exhibiting reckless indifference
in the face of a duty to know”.26 This formulation was subject to a powerful dissent from
Wagner J. He interpreted wilful misconduct as requiring subjective recklessness: the actual appreciation and deliberate running of a risk.27 On his reading of the facts, Mr Vallée
had a sincere belief that the cable was not live when he cut it and this meant it was not
wilful misconduct.
27.19 The closest English law has to these authorities is Papadimitriou v. Henderson.28
The Ellenico Vouno was insured for a voyage on the S.G. Form with Institute War and
Strikes Clauses attached. There was a warranty in the policy that the ship was not to go to
a Spanish port or a Spanish possession in the Mediterranean and was not to carry arms,
ammunition, or instruments of war, but this was not to exclude cars, trucks, benzene,
coal, coke “or similar”. From the outset, it was appreciated by all concerned, including the
underwriters, that this was a risky venture, because the goods were to be carried from the
USSR, the principal supporter of the Republican Government of Spain, for that government’s use. The Spanish Navy had mostly declared for General Franco, and the Nationalists in the Spanish Civil War always had a strong naval force at their disposal.
27.20 The better view, surveying the approach of the authorities explored above, is
that this would fall short of “wilful misconduct” as the skipper was not indifferent to loss,
and was pursuing commercial objectives (releasing his gear from an entangled submarine
cable), albeit negligently. Underwriters routinely insure the negligent operation of routine
tasks, and can frame appropriate exclusions.
Forfeiture rule in war risks insurance
27.21 Where the conduct of the insured is demonstrably fraudulent, underwriters may
deny liability on the basis of the forfeiture rule. In the absence of a fraudulent claims
clause,29 what constitutes a fraudulent claim under this rule remains a matter for the
courts, but the Insurance Act 2015 now provides an extended series of statutory remedies
25 At [51].
26 In support of this proposition, Cromwell J. cited a series of Canadian motor accident cases and P Cane,
‘Mens Rea in Tort Law’ (2000) 20 OJLS 533.
27 Citing Thomas Cook Group Ltd v. Air Malta Co Ltd [1997] 2 Lloyd’s Rep. 399, 408 and D Damar, Wilful
Misconduct in International Transport Law (Springer, 2011), pp.272–273.
28 (1939) 64 LlLL Rep. 345.
29 The standard war risks policies do not routinely include a fraudulent claims clause, unlike many
non-marine insurance policies.
246
W ilful misconduct and fraudulent claims
for fraudulent claims provided the contract was agreed after 12 August 2016. This section
will review the limits of the doctrine before assessing the remedies at both common law
and under the statute.
The limits of “ fraudulent claims” for the purposes of forfeiture
27.22 The past two decades have seen considerable litigation on the limits of the “forfeiture rule” in insurance contract law. Much of this litigation has been concerned with
establishing the necessary elements required for a claim to be considered fraudulent, and
make available the remedy. This rule is also temporally constrained in that it only applies to
fraudulent conduct prior to the issue of proceedings, after that the rules of the court replace
those of the contract.30 As with wilful misconduct, an entirely dishonest claim is considered
fraudulent. Where the insured has conspired to bring about the loss, such as in a scuttle, any
potential claim is forfeit. In these circumstances, this remedy adds relatively little to the contractual position, as the insured would not normally be able to show a loss within the perils
insured under the contract, and/or the insurer would be able to defeat the claim on the basis
of wilful misconduct. More difficult are cases where there is an honest claim which could
have been presented, but which has become tainted by fraudulent conduct in the manner of
its presentation. Where the fraudulent conduct occurs after the casualty, it is more difficult
for the underwriter to assert that wilful misconduct was part of the causal narrative of the
loss, and it is more likely that the forfeiture rule alone will govern the outcome.
27.23 There are three established (but not exhaustive) categories of conduct that fit
this model of a claim which is true in part. First, the insured might seek to embellish its
claim by recovering more than its contractual entitlement. This form of exaggerated claim
has been held to constitute a fraudulent claim, subject to certain limited caveats. Claims
of this nature are likely to be relatively rare in war risks. Second, the insured might seek
to fraudulently persuade the underwriter that it had complied with policy limits when it
had in fact broken them. This is often referred to as “suppression of a defence” and would
often involve the submission of documents known to be untrue. As noted in Chapter 26,
there have been allegations of this kind of behaviour in war risks, notably with breach of
navigation limits and the giving of notice under a held covered clause. Finally, there is the
category of “fraudulent devices”, which involves the use of false evidence to support a
claim that is otherwise honest. This latter category was the subject of the litigation in the
Supreme Court in The DC Merwestone.31
27.24 An exaggerated claim will normally constitute a fraudulent claim, and the entirety of the claim will be forfeit. Litigation on these facts has arisen in non-marine insurance cases, where the level of indemnity due under the contract has to be estimated
more frequently. This is less common in marine insurance as the constructive total loss
device (and established principles for assessing repair costs) minimise the opportunity for
insureds to inflate the value of an otherwise honest claim. For the claim to be fraudulent,
the level of exaggeration needs to be “material”32 and the inflation of the claim must be
30 Versloot Dredging BV v. HDI Gerling Industrie Versicherung AG, The DC Merwestone [2016] 2 Lloyd’s
Rep. 198 at [67], Manifest Shipping v. Uni-Polaris, The Star Sea [2003] 1 AC 469, [77].
31 N 30.
32 Galloway v. Guardian Royal Exchange (UK) Ltd [1999] Lloyd’s Rep. IR 209 applying the decision in
Orakpo, n 33.
247
W ilful misconduct and fraudulent claims
dishonest.33 In Gottlieb,34 a claim for repairs to a house insured against damage from burst
pipes were inflated by the inclusion of fraudulent elements, including replacement housing
costs. The level of materiality required should not be overstated, it means that the fraud
should not be inconsequential. In Galloway,35 an honest claim for around £16,000 was
inflated by the invention of a further loss of £2,000. The claim was held to be fraudulent.
27.25 There are few cases which have turned purely on the suppression of a potential
defence. In most cases, the insured has also inflated the claim, or made some other false
assertion. The closest analogue is The Litsion Pride.36 As considered in Chapter 26, the
owners undertook a voyage into an active area of hostilities, without notifying the insurer
under the held covered clause. After the loss occurred, the owners produced a letter, apparently dated before the voyage, in which they instructed the broker to arrange extended
cover. The letter, which purported to have been sent in advance of entry into the additional
premium area, was found to be an attempt to deceive the underwriter and to generate a
more favourable attitude to the claim.37 This is not strictly speaking suppression of a
defence, but an attempt to persuade the underwriter to waive its rights. Moreover, on the
facts the lack of prior notice was not fatal to reliance on the held covered clause. Nonetheless, the facts would not need to be altered dramatically to have an example of an attempt
to disguise a breach of policy limits. No such discussion occurred in The Litsion Pride, as
it was argued on the basis that the conduct constituted a breach of the continuing duty of
utmost good faith. That doctrine is considered at paragraph 27.34.
27.26 The final form of post-casualty fraud has troubled the courts the most in recent
times, the “fraudulent device”. In these cases, the insured has a good claim but seeks to
embellish its evidence in order to obtain a better or quicker settlement. The claim is otherwise good, and the underwriter does have a prima facie contractual duty to indemnify
the insured. Prior to the decision of the Supreme Court in The DC Merwestone,38 any
fraudulent statement made in support of the claim was treated as material providing it met
the criteria established by Mance L.J. (as he then was) in The Aegeon:
… the courts should only apply the fraudulent claim rule to the use of fraudulent devices or
means which would, if believed, have tended, objectively but prior to any final determination at trial of the parties’ rights, to yield a not insignificant improvement in the insured’s
prospects—whether they be prospects of obtaining a settlement, or a better settlement, or of
winning at trial.39
27.27 The DC Merwestone concerned a complex set of facts stemming from the poor
maintenance and operation of a cargo vessel. Prior to leaving Klaipeda in cold weather,
the deck pump was used to clear ice from hatches. The pump was not properly emptied
of water, and subsequently froze, cracking its housing. This caused water to enter the
bow thruster room. The seawater was able to make its way aft because the watertight
33 Orakpo v. Barclays Insurance Services Co Ltd [1995] LRLR 443, 451.
34 AXA General Insurance Ltd v. Gottlieb [2005] Lloyd’s Rep. I.R. 369
35 N 32.
36 Black King Shipping Corporation and Wayang (Panama) SA v. Massie, The Litsion Pride [1985] 1
Lloyd’s Rep. 437.
37 At 507.
38 N 30.
39 Agapitos v. Agnew (The Aegeon) [2002] 2 Lloyd’s Rep. 42, [45] per Mance L.J.
248
W ilful misconduct and fraudulent claims
bulkheads had not been properly sealed when cables where run through them. After several hours at sea, water emerged into the engine room. Attempts to pump the area clear
failed due to poor operation of the pumps. Eventually, the engine room flooded causing
substantial damage to the engine and parts.
27.28 In progressing the claim, one of the vessel’s owners asserted that the crew had
ignored a bilge alarm shortly before the casualty, as a false positive. Crucially, the owner
stated in writing that he had spoken to the master for corroboration of this chain of events.
This was untrue, he had not received corroboration at the time.
27.29 The extent to which this admittedly false representation was material to the
claim was challenged before the Supreme Court, with Lord Sumption making clear that
the test developed by Mance L.J. unduly favoured the underwriter. In cases where the
insured had only sought to claim what it was contractually entitled to, the law took a less
strict approach to fraudulent evidence used in support of the claim. The replacement test
was stated as follows: “although a lie uttered in support of a claim need not have any adverse effect on the insurer … it must at least go to the recoverability of the claim on the
true facts”.40
27.30 One crucial difference between the test suggested by Lord Mance and that
adopted by Lord Sumption is the timing of the measured effect. Lord Mance is interested
in the effect of the lie on the process of negotiations, and whether it would deliver a strategic advantage to the insured. By contrast, Lord Sumption’s approach is to ask whether the
final outcome would be changed, whether the lie (if believed) would change the judicial
decision.
27.31 The above discussion should not obscure the fact that underwriters are well
placed to negotiate express contractual clauses to ensure certainty in respect of fraudulent claims. The litigation in The DC Merwestone could readily have been avoided by the
adoption of a simple clause, such as that in the International Hulls Clauses 2003.
The forfeiture remedy at common law
27.32 Where the forfeiture rule applies, it deprives the insured of the benefit of the
entire claim, even if good in part.41 It was thought not to affect earlier, honest claims. The
position was not settled in respect of subsequent honest claims.
The forfeiture remedy under the Insurance Act 2015
27.33 Section 12 of the Insurance Act 2015 provides for a series of statutory remedies
in the event of a fraudulent claim. An adapted version of the same remedies is found
in section 13 for group policies. The primary remedy is that in section 12(1)(a), (b): the
right not to pay the claim, or to recover “any sums paid by the insurer to the insured in
respect of the claim” as appropriate. This mirrors the common law remedy of forfeiture.
Section 12(1)(c) provides for a new remedy, the right to treat the contract as terminated.
Unlike termination for breach of condition, this is not simply effective from the moment
of election, but terminates the contract “with effect from the time of the fraudulent act”.
40 N 30 at [36].
41 See Gottlieb, n 34.
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W ilful misconduct and fraudulent claims
Section 12(2) provides the statutory scaffolding for this remedy, making clear that termination has the effect of putting the underwriter “off risk” for any loss occurring after the
fraudulent act, without any requirement to return premium. Under sections 12(3) and (4),
rights and obligations relating to losses or claims made or notified before the fraudulent
act are unaffected.
The continuing duty of utmost good faith in war risks insurance
27.34 Hirst J. in The Litsion Pride suggested that the duty of utmost good faith continued in full effect for information provided during the claims process.42 As Lord Sumption
noted in The DC Merwestone: ‘His decision has not fared well in subsequent decisions’43
and Lord Hobhouse in The Star Sea suggested it was not good law.44 The precise limits of
the doctrine of utmost good faith are uncertain, but much more limited than suggested by
Hirst J. The most likely result is that the continuing duty will not catch any case likely to
reach the courts that would not otherwise fall under either the wilful misconduct or forfeiture rules. The window for any such litigation to challenge the status quo is limited. Section 14 of the Insurance Act 2015 repealed the statutory remedy of avoidance for breach
of the duty of utmost good faith in section 17 of the Marine Insurance Act 1906, and any
common law analogue. Any extension of the utmost good faith doctrine would only apply
to contracts made before the 2015 Act came into force.
Cumulative effect
27.35 Of the rules considered in this chapter, the wilful misconduct doctrine has the
potential to have the widest ambit, at least if the approach of the Canadian courts in The
Realice were followed. Whilst the fraudulent claims rule and the more recent iterations
of the continuing duty of utmost good faith probably require some form of subjective
dishonesty or deceit, wilful misconduct, on The Realice approach, might not. However,
this lack of convergence is a further reason to reject the approach in The Realice as only
requiring objective recklessness to establish wilfulness: i.e. that a reasonable person of the
class would have appreciated the risk. It would be better for the rules to all be limited to
intentional or subjectively reckless conduct. This provides a consistent degree of culpability. Assuming that English law confirms that position, there would then be a reasonably
convergent approach to remedies. Unless varied by express contractual term, the contract
is not voidable ab initio, either for wilful misconduct or fraudulent claims. The primary
rule is that the claim is not recoverable by the insured. This is a personal bar to recovery in
wilful misconduct, and a fraudulent claim would similarly not affect the rights of innocent
co-insureds within a group insurance policy under section 13, Insurance Act 2015. The
right to terminate the policy is novel to the forfeiture rule under the Insurance Act 2015,
and there is a strategic advantage in the use of that doctrine.
42 N 36.
43 N 30 at [14].
44 Ibid at [71].
250
CH A PT ER 28
The proximate cause
28.1 It is a fundamental principle of English law that the assured who seeks to establish
a claim, or the underwriter who seeks to contest it, must first establish the facts of the
casualty, and then show that the facts bring the casualty within the bounds of an insured
peril, or in the case of the underwriter, within the bounds of an exclusion. These principles are too well known to need emphasis here, and a reader who desires to look into this
aspect of the matter more closely will find the principles admirably explained by the
learned authors of Arnould (19th edn), Chapter 22, particularly with regard to marine
insurance.
28.2 Many people find it difficult to accept that a war risks case presents anything more
than the usual challenge of determining the proximate cause. There will of course be no
difficulty where a missile strikes the ship, or a shell hits it. The surrounding circumstances
and the damage speak for themselves. But it is not always so easy where there is a fire in
the cargo. Was this caused by spontaneous combustion, or was it caused by sabotage? The
difficulties are exacerbated when the ship is sunk in deep water and cannot readily be examined without huge expense. Particular difficulties will be found with oil cargoes, where
the risk of explosion in the tanks is always a high one. Was the proximate cause inherent
in the cargo or the gases which it gives off? Or was there some incendiary device in the
tanks? Mines are, curiously enough, difficult to blame with absolute certainty for some
casualties as will be seen in other parts of this work. They are rarely seen, and the modern
type of mine lies on the bottom of the sea where it is well out of sight.
28.3 Although the new type of war risks insurance tries to name the event itself as
the insured peril, and concentrates less than before on the motives of people, these will
inevitably arise where there are cases of detention. Lastly, evidence depends on that most
imponderable of elements in all litigation, the factual and expert witnesses, and the effect
they create on the court. The tests to be applied to establish the proximate cause are clear
enough, but the results in court can never be regarded as a foregone conclusion.
28.4 Considered below are the aspects of proof which are most likely to be of concern
to the assured or to the underwriter concerned with a war risk casualty. Three particular
aspects are dealt with:
1. The modern position on proximate cause generally (§28.6 to §28.13).
2. War Risk cases:
(a) Several things happen more or less at once. What caused the casualty? Is it
an insured peril or is it an exclusion?
(b) A casualty happens but its cause cannot be established with any certainty.
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T he proximate cause
28.5 Given the subject of this book, and the availability of more detailed general texts
covering the topic, the focus here is on cases in which issues arose concerning proximate
loss in the context of a dispute about the operation of a war risks policies. However, it is
necessary to stray outside this field from time to time to ensure the law is accurately related.
Proximate cause generally
28.6 The Marine Insurance Act 1906 contains in section 55(1) a succinct encapsulation
of the importance of establishing the proximate cause:
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.
28.7 As Lord Brandon explained in The Popi M,1 a Judge must be
satisfied on the evidence that [an event] is more likely to have occurred than not. If such a
Judge concludes … that the occurrence of an event is extremely improbable, a finding by him
that it is nevertheless more likely to have occurred than not, does not accord with common
sense. That is especially so when it is open to the Judge to say simply that the evidence leaves
him in doubt whether the event occurred or not, and that the party on whom the burden of
providing that the event occurred lies has therefore failed to discharge such burden.
In Ide v. ATB Sales Ltd,2 Thomas L.J. explained at §6
As a matter of common sense it will usually be safe for a judge to conclude, where there are
two competing theories before him, either of which is improbable, that having rejected one it
is logical to accept the other as being the cause on the balance of probabilities.
That, despite first appearances perhaps, is not in conflict with The Popi M, because as
Longmore L.J. later explained in ACE European Group Ltd v. Chartis Insurance UK Ltd3
of the passage from Ide v. ATB: “Of course the judge has to be satisfied that the second
theory is, on the balance of probabilities, correct”.
28.8 Generally speaking, unless the policy provides otherwise, the event which constitutes the “proximate cause” of the loss needs to have occurred during the currency of the
policy (cf. the loss to which it gives rise).4
28.9 In describing the test of the proximate cause of the casualty, judges have used
different expressions (and have given some warnings) as to how the proximate cause or
the excluded risk is to be established. The modern approach is to focus with precision on
establishing the proximate cause in a flexible manner in contrast to the historically more
linear or temporal approach that was previously taken5. It was the House of Lords decision
1 [1985] 2 Lloyd’s Rep. 1 (HL) at 7 col 2.
2 [2008] EWCA Civ 424.
3 See ACE European Group Ltd v. Chartis Insurance UK Ltd [2013] Lloyd’s Rep. IR 485 at §35.
4 Kelly v. Norwich Union Fire Ins Society Ltd [1990] 1 W.L.R. 139 at 149.
5 See for example the approach advocated for by Lord Esher in Pink v. Fleming (1890) 25 QBD 396, which
no longer represents the law. See also Lord Mance’s explanation of the prior approach in The Cendor MOPU
[2011] 1 Lloyd’s Rep. 560 (SC) at §49.
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T he proximate cause
in Leyland Shipping Co v. Norwich Union Fire Insurance Society6 which changed the tide
(see at 363). The case concerned a vessel which had been torpedoed by a German submarine, and which then sank a few days after having been brought into harbour. The question
for the Court was whether the owners were entitled to recover from the insurers in respect
of the total loss of the vessel under a time policy of marine insurance, but subject to the
f.c. & s. Clause (ie. “warranted free … from all consequences of hostilities or warlike
operations whether before or after declaration of war”).
28.10 The House of Lords held that the proximate (or “dominant” per Lord Dunedin at 363, “efficient” per Lord Shaw)7 cause of the vessel’s sinking was having been
torpedoed—and thus the owners were not entitled to recover under their policy. Lord
Dunedin explained in the context of needing to determine if the loss fell within the main
policy of the f.c. & s. Clause exception,
the moment that the two clauses have to be construed together it becomes vital to determine
under which expression it falls. The solution will always lie in settling as question of fact
which of the two causes was … the dominant cause of the two.8
The Supreme Court recently confirmed, not that there was any doubt, that the approach in
Leyland is the right approach to proximate cause in The Cendor MOPU.9 In re Etherington and the Lancashire and Yorkshire Accident Insurance Co10 is an old example of a case
in which a cause anterior in time (within cover) was held to be the proximate cause of a
loss notwithstanding the accrual of a later potential cause (which was excepted) that was
lighted upon in The B Atlantic litigation.11
28.11 What, then, is the proximate cause of a loss? When The B Atlantic reached the
Court of Appeal,12 Christopher Clarke L.J. explained “the search is for what is sometimes
expressed as the proximate or operative, and sometimes as the dominant or effective,
cause. The difference adjectives … all seek to identify what even or events have the necessary causative potency”.13
28.12 The question of what is the proximate cause (whichever of the variously used
adjectives one has in mind) is a question to be “answered applying the common sense of
a business or seafaring man”, and not “the subtlety of the legal mind”: Bingham L.J. in
T M Noten BV v. Harding.14 See also Galoo Ltd v. Bright Grahame Murray,15 eschewing
a simplistic reliance on the “but for” test.16
28.13 Whilst the Court might seek to ascertain one single real or effective proximate
cause of any loss, there may on occasions be two (or more) concurrent proximate causes:
6 [1918] AC 350.
7 At 370–371.
8 At 363.
9 [2011] 1 Lloyd’s Rep. 560 (SC) at paragraph 19.
10 [1909] 1 KB 591.
11 See paragraph 25 of the Court of Appeal’s judgment [2017] 1 WLR 1303 and paragraph 48 in the
Supreme Court [2019] AC 136.
12 [2017] 1 WLR 1303.
13 See paragraph 23.
14 [1990] 2 Lloyd’s Rep. 283 at 286, 287 and 289.
15 [1994] 1 WLR 1360 at 1373 to 1375 per Glidewell L.J.
16 See further Lord Greene M.R. making a similar point in the context of a war risk dispute in Athel Line
Limited v. Liverpool & London War Risks Insurance Association Limited [1946] KB 117 at 122.
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T he proximate cause
The B Atlantic (SC).17 If there are two proximate causes, one of which is covered and the
other is specifically excluded, the loss is not recoverable under the policy: John Cory &
Sons v. Burr;18 Wayne Tank and Pump Co Ltd v. Employers Liability Assurance Corporation Ltd;19 The Miss Jay Jay;20 The Cendor MOPU;21 The B Atlantic (SC).22 However,
recovery is not precluded if there are two proximate causes, but only one is an insured peril
if the other cause, albeit not within the scope of the policy, is not specifically excluded: see
e.g. The Miss Jay Jay.23
Several things happen more or less at once
28.14 In Green v. Elmslie,24 The Fly was bound from Exeter to London. She was insured only against “capture”. She was driven by a high wind over to the French coast
where a French privateer captured her. The underwriters contended her loss was due to
perils of the seas which was not insured. Lord Kenyon C.J. found the case too clear to
admit of argument. On any other coastline she would have been perfectly safe. She had
suffered “capture” and the underwriters had to pay.
28.15 In Livie v. Jansen,25 The Liberty was bound from New York to London. A letter, saying that she would sail in spite of the American embargo, was seen by the underwriters when
the insurance was placed, and this led to the insurance being given but “warranted free from
American condemnation”. In December 1808, laden with valuable cargo, she was waiting in
New York for a suitable opportunity to elude the embargo. This opportunity was thought to
occur on the night of 15 January 1809, and, with a pilot on board, she took a proper course for
the open sea. Ice drove her ashore on Governors Island where she was badly damaged. Next
day, the U.S. Customs seized her and managed to refloat her. Lord Ellenborough C.J. held:
It all depends on what was the proximate cause. If partially damaged before, and later totally
lost, prior damage does not give rise to a claim against the underwriters. The total loss was the
event which gives rise to a claim but it was an excepted peril.
The proximate cause was held to be the American seizure, and judgment was thus entered
for the underwriters.
28.16 Hahn v. Corbett26 was a case in which cotton goods were loaded on to the Mary
for carriage from London to Maracaibo. They were insured against perils of the seas, but
the insurance was “warranted free of capture and seizure”. The cotton was consigned to
those who had espoused the revolutionary cause during the South American Wars of Independence. On 17 September 1822, the ship arrived off the Gulf of Maracaibo and the next
17
18
19
20
21
22
23
24
25
26
[2019] AC 136 at §43 per Lord Mance.
(1883) 8 App Cas 393 per Lord Blackburn.
[1974] QB 57 per Lord Denning M.R. at 67 and Cairns L.J. at 69 (obiter).
[1987] 1 Lloyd’s Rep. 32.
A paragraph 11 per Lord Saville.
At §49 per Lord Mance.
At 37 col 1 per Slade L.J.
(1784) 1 Peake 278.
(1810) 12 East 648.
(1824) 2 Bing. 205.
254
T he proximate cause
day, being unable to get a pilot, she anchored near the bar. She drifted into shoal water,
ran aground and was lost. The Master asked Fort San Carlos for help only to find that,
unbeknown to him, the Royal Forces of the King of Spain had recently recaptured it from
the rebels. He and the crew were put in jail and the Spanish authorities treated the ship and
cargo as prize. All the cargo, both the damaged and undamaged cargo, was removed and
seized by the Spanish authorities.
28.17 Best C.J. distinguished this case from the Livie case. There the ship and the
goods were only damaged by perils of the seas. In the Green case, the ship was driven,
undamaged, over to the French coast and there captured. In the Hahn case, however, the
ship was destroyed by the grounding, nine miles off the coast, and the goods were as good
as lost before the Spaniards took them, not to save them but to appropriate them. Judgment
was rightly given for the owners of the goods.
28.18 The facts of Cory & Son v. Burr27 are set out in Chapter 12. The barratrous agreement made by the Master led to the ship being seized by the Spanish revenue authorities.
The seizure was held to be the cause of the loss, not the misdeeds of the Master.
Leyland Shipping Company Limited v. Norwich Union Fire Insurance Society
Ltd.28
The facts
28.19 In Leyland Shipping altogether nine judges in the High Court, the Court of
Appeal and the House of Lords could agree that the torpedo and not the subsequent foundering was the proximate cause of her total loss. Those that expressed an opinion on proximate cause did so in different terms, which are interesting to note.
28.20 In January 1915, the Ikaria was on the last stages of a voyage from South America
to Le Havre. She was torpedoed by a German U-boat, and brought into the port of Le Havre.
A few days later, however, she sinks in the outer harbour, a total loss. She was insured for
marine risks on the normal S.G. Form with the f.c. & s. Clause attached which warranted
that the policy was free from: “The consequences of hostilities or warlike operations”.
28.21 On these facts, the shipowners sued for a total loss caused by perils of the seas,
pleading that there was a novus actus interveniens. The underwriters defended the suit,
pleading that the loss was caused by hostilities and that there was an unbroken chain
between the torpedoing and the total loss. When the case reached the House of Lords,
Lord Dunedin gave firm guidance:
Yet I think the case turns on a pure question of fact to be determined on commonsense principles. What was the cause of the loss of the ship? I do not think that the ordinary man would
have any difficulty in answering she was lost because she was torpedoed.
and:
The solution will always lie in settling as a question of fact which of the two causes was what I
would venture to call (though I shrink from the multiplication of epithets) the dominant cause
27 (1881) 8 Q.B.D. 313.
28 N 6.
255
T he proximate cause
of the two. In other words, you seek for the causa proxima, if it is well understood that the
question of what is proxima is not solved by the mere point of order in time.
28.22 Lord Shaw of Dunfermline reinforced Lord Dunedin:
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 may culminate in a result of which it still remains the
real efficient cause to which the event can be ascribed.
Where various factors or causes are concurrent, and one has to be selected, the matter
is determined as one of fact, and the choice falls upon the one to which may be variously
ascribed the qualities of reality, predominance, efficiency.
28.23 In more recent times comes the case of Bayview Motors Ltd. v. Mitsui Marine
and Fire Insurance Co. Ltd.29 Bayviews were motor dealers on the Island of Providenciales in the Turks and Caicos Islands. They bought ten pick-up trucks from Toyota. The
voyage from Japan to the Turks and Caicos Islands is tortuous in the extreme with no deep
water port which ocean-going ships can enter to discharge such cargo. The arrangement
was that the cargo should be discharged at Santo Domingo in the Dominican Republic, and then transhipped onto a smaller ship for carriage to its destination. The Bills of
­Lading did not specify that the trucks were a transhipment cargo, although Toyota wrote
and cabled to the customs authorities in Santo Domingo in an attempt to correct this
­oversight. The trucks were insured by Mitsui on an “all risks” basis, although Clause 12
contained an exclusion, “Warranted free of capture, seizure, arrest, restraint or detainment and the consequences thereof”.
28.24 The first five trucks arrived at Santo Domingo on 11 August 1997, to be joined
by the other five on 14 September 1997. They were put into a customs compound. Ignoring
the communications from Toyota, the Customs took the view that Santo Domingo was
their final destination. Bayview protested vigorously, and there then followed a sequence of
appointments not kept, letters unanswered and telephone calls not returned. Eventually on
5 April 1998, the Chief of the Customs wrote a letter declaring that as the trucks “had not
been transhipped [sic] within the time allowed by the customs regulations, they would be
treated as abandoned”. This meant that they would be sold locally to pay the customs duties.
28.25 Mitsui rejected Bayview’s claim on the grounds that the trucks had been
“seized”. The High Court dismissed this argument, preferring the view that the Dominican customs authorities were guilty of a complex and fraudulent plot to steal the trucks
and convert them to their own use. Judgment was entered in Bayview’s favour. On appeal
the Court of Appeal (with Tuckey L.J. giving the leading judgment) confirmed this view
and dismissed Mitsui’s appeal. “Seizure” may not have been covered by their policy, but
theft certainly was.
A casualty happens but its cause cannot be established
28.26 This chapter has so far dealt with the problems of two possible insured perils both of which are known. This last part will deal with a situation which is all too
29 [2003] 1 Lloyd’s Rep. 131.
256
T he proximate cause
common with war risk insurance, where the cause of the casualty is not known for certain and has to be deduced from what facts can be established, or at any rate inferred as
the probable cause. Where there are two policies covering different insured perils, and
the possible cause of the loss is likely to fall on one or other of the two policies, a serious problem can arise for the assured. If he sues each underwriter separately, the views
formed by two different judges of what actually happened might well be opposed, and
might each separately decide that the proximate cause was not insured by the one policy
which was presently before the court. His only safe course is to sue both underwriters
in the same proceedings, so that one judge can form a view on what the facts were on
the balance of probabilities, and then proceed to decide which policy (or neither policy)
should respond. This involves the risk of paying the costs of the successful underwriter,
which could be very substantial, and it can only be hoped that, in the case of a shipowner, his Freight, Demurrage and Defence Association will stand behind him and meet
the resulting bill.
28.27 Given the nature of seafaring, it is scarcely surprising that this problem has
arisen on scores of occasions. An early case is Green v. Brown.30 The Charming Peggy
sailed from North Carolina bound for London. She was insured with a warranty in the
policy against captures and seizures. She disappeared without trace. The underwriters
insisted that because of the capture and seizure clause the owners must prove that the loss
was due to other causes. Lea C.J. instructed the jury, however: “All that is required is the
best proof that the nature of the case admits of which plaintiff has given”. The jury found
for the plaintiff.
28.28 To move to more recent history, Munro Brice & Co. v. War Risks Association
Limited and Others31 is a typical case where the loss of the ship may have been due to
perils of the seas and was equally likely to have been caused by a war risk. The shipowners would obviously have preferred to win against the war risks underwriters, who gave
insurance for £5,460 for: “Risks of capture, seizure and detention of King’s enemies,
or consequences of hostilities and warlike operations by or against the King’s enemies”
whereas the marine underwriters gave insurance for £1,500 for perils of the seas. Their
policy contained the f.c. & s. Clause. The cargo of timber, which also belonged to Munro
Brice, was insured against war risks by the Crown.
28.29 The ship left a Mexican Gulf port on 21 March 1917. She was fully loaded with
timber and had the usual deck cargo, but there was no suggestion that she was overloaded,
or was unsafely loaded in any way or was not well-found. She was never heard of again.
In the High Court, Bailhache J. found as a fact that the sinkings of timber ships were
“definitely known” although of course some had disappeared without trace after being
attacked. He remarked that to succeed on the War Risks Policy the court would have to be
satisfied “beyond reasonable doubt” that the ship had been torpedoed:
The difficulty in the case is to get the [ship] within the danger area. If that difficulty were
overcome I would have no hesitation in finding that she was sunk there by a war peril although
nothing is definitely known.
30 (1743) 2 Str. 1199.
31 [1918] 2 K.B. 78.
257
T he proximate cause
28.30 Bailhache J. was later overruled by the Court of Appeal that adopted a radically
different approach when reversing Bailhache J.’s judgments, and ordering the war risk
underwriters to pay for the loss of both ship and cargo. The cases reached the court under
the names of Munro Brice & Co. v. F. W. Marten (the hull claimant) and Munro Brice
& Co. v. The Crown (the cargo claim)32 and were heard together. Bankes L.J. gave the
unanimous judgment of the court, Scrutton and Atkin L.J.J. simply concurring. He began:
[Counsel] says, of course, as in every case of circumstantial evidence, that it is a question
of weighing the probabilities; but it is not enough to say (when you find on one side a bare
possibility not amounting even to a probability and on the other side you find a series of probabilities which ought to carry conviction to a reasonable mind) that there is a bare possibility
which has not been excluded, and therefore no definite conclusion ought to be arrived at.
28.31 Bankes L.J. went on to explain what he meant. Bailhache J. had found that the
ship might have reached the U-boat danger area. She had met with bad weather, but she
ought to have coped with that. There was, therefore, “just the possibility” that something
may have happened. Bankes L.J. reasoned
Now I ask myself, is that a sufficient justification for refusing on the balance of probabilities
to arrive at a conviction that the real cause of this vessel foundering was that she did reach the
submarine area and was torpedoed?
28.32 The Court of Appeal quoted with strong approval the judgment of Roche J. in
Compania Maritima of Barcelona v. Wishart33 which Bailhache J. had doubted. This is
another case of doubt whether the Pelayo was lost by perils of the sea or enemy action:
At all events, my own conclusion upon the facts is that the Pelayo was not torpedoed, was not
mined, and that the facts and probabilities strongly point to her loss being a loss by foundering
through the action of wind and sea. The line between surmise and legitimate inference is not
easy to draw. But although in this case demonstration and certainty are not unobtainable, the
law allows, and ever demands, that an inference shall be drawn from such facts as point to a
conclusion.
28.33 On the strong authority of the Court of Appeal, it would seem that the clearest
explanation of how to proceed in such matters comes from Roche J., that every known fact
should be considered and a conclusion reached in a commonsense way. It is tempting to
think that the technical approach adopted by Bailhache J. in the Munro Brice34 case must
be correct. However, as the Court of Appeal subsequently showed, it is not safe to take
too literally Bailhache J.’s guidance where the defendant underwriter produces a plausible
explanation for the loss of the ship.
28.34 The problem was taken one stage further when the Court of Appeal had to consider the loss of the Arnus in Compania Naviera Martiartu v. The Royal Exchange Assurance Corporation.35 The ship left Vivero on 26th April 1921. A proper course would have
32
33
34
35
(1920) 2 Ll.L.Rep. 2.
(1918) 23 Com.Cas. 264; (1918) 14 Asp.M.L.C. 298.
Munro Brice & Co. v. F. W. Marten, Munro Brice & Co. v. The Crown (1920) 2 Ll.L.Rep. 2.
[1923] 1 K.B. 651.
258
T he proximate cause
taken her clear of the Armen Rock Light, Ushant and Penmarsh Point. On the night of 27
April, the 2nd Officer, who was on watch, saw what he described as floating wreckage
about 75 yards long and 24 yards wide about two feet above the water. It looked like a hull
or a large raft and seemed to pass clear of the ship down the port side. He heard no noise
and felt no shock. The night was fine and clear with a smooth sea. The ship subsequently
sank in deep water, settling down by the head. The crew abandoned the ship three hours
before she finally sank, and were all picked up by fishing boats. The plaintiffs’ case was
that she hit this wreckage, stripping off the bilge-keel causing damage to the plates of
the ship’s side. The defendant’s case was that the Chief Engineer had admitted seawater
deliberately by opening a valve in the valve box in the boiler room, and further opening
a sea inlet. This admitted water to a ballast tank whose port manhole cover was loose or
open. The watertight doors failed to stop the water from passing to the cross bunker and
from thence into the fore part of the ship, which accounted for her sinking by the head.
Moreover, the owners had connived in all of this.
28.35 In the High Court, Bailhache J. found for the shipowner. The judge formed an
unfavourable impression of the Chief Engineer but a favourable opinion of the 2nd Officer.
This was an error, because the 2nd Officer gave his evidence on commission and was
never before the court. The judgment concluded:
I agree that in a case of this kind when a ship goes to the bottom of the sea in calm weather on
a fine night, although it is enough to make a prima facie case against the underwriter to say
she is at the bottom of the sea, yet very little evidence shifts the burden on to those claiming
against the underwriters and imposes upon them the obligation of showing what the particular
peril was that sent her to the bottom of the sea, apart of course from the seawater.
28.36 The underwriters appealed. The Court of Appeal asked shipowner’s counsel
what would be the result if the court was left in doubt whether or not the shipowners had
made out their case. He answered that the court must then fall back on the presumption
that, the ship being a seaworthy and properly found ship, she was lost by an unascertained peril and that the peril was covered. This answer did not find favour with the court.
Bankes L.J. said:
This contention is, in my opinion, quite untenable having regard to the facts of this case. If the
assured makes out a prima facie case, as the (shipowner) in the present case did, then unless
the underwriters displace their prima facie case the assured is no doubt entitled to rely upon
the presumption. On the other hand, if the prima facie case, which was the foundation on
which the presumption was rested, fails because the underwriters put forward a reasonable
explanation of the loss, the superstructure falls with it. If both the assured and the underwriters put forward an explanation of the loss, the loss is not unexplained in a sense which
would admit of the presumption, merely because the court is unable to say which of the two
explanations is the correct one.
28.37 Bankes L.J., as were the other judges, was quite certain that the ship had been
scuttled and he felt that the trial judge had been influenced by the unfortunate misapprehension of the 2nd Officer’s evidence. The shipowners may have established that the loss
of the vessel was due to a peril covered by the policy; on the other hand, the underwriters
had advanced a perfectly reasonable and tenable defence which, on the evidence, he preferred. Scrutton L.J. did not wish to discuss the burden of proof but:
259
T he proximate cause
… In my present view, if there are circumstances suggesting another cause than a peril insured
against was the dominant or effective cause of the entry of the sea water into the ship … and
an examination of all the evidence and probabilities leaves the court doubtful what is the real
cause of the loss, the assured has failed to prove his case.
and, when distinguishing The Charming Peggy:36
… When there is evidence on each side suggesting the real cause the court must determine
on a balance of probabilities, as in every case of circumstantial evidence, and not be deterred
from finding in favour of the stronger probabilities by the fact that some remote possibility
exists the other way.
28.38 Eve J., sitting in the Court of Appeal, agreed, and the court allowed the appeal.
Subsequently Scrutton L.J.’s dictum was unanimously approved by the House of Lords in
Rhesa Shipping Co. S.A. v. Fenton Insurance Co. Ltd., Rhesa Shipping Co. S.A. v. Herbert
David Edmunds (The Popi M).37
28.39 Mitrovich Bros. & Co. v. Merchants Marine Insurance Company Ltd.38 was a
case very similar to the Munro Brice cases, except that the plaintiffs sued the marine and
the war risks underwriters in separate actions. On 14 January 1917, the French iron sailing ship General de Boisdeffre sailed from Mejillones in Chile with a cargo of nitrate for
Brest. She was never heard of again. The voyage should have taken five months and the
question arose whether she had been lost by perils of the seas or had been torpedoed by a
U-boat almost within sight of her destination. Either was perfectly possible.
28.40 First, it was necessary to round Cape Horn. No evidence was given to the court of
the weather conditions round the Cape at the time. Most of the gales come out of the west
or south-west, and these would have been favourable to her; there is the world of difference between running before a gale and beating up into it. In August 1917 some fishermen
found a barrel off Penmarsh, which was way off her course for Brest, of the type which
was used in lifeboats. It did not have the name of the ship to which it belonged upon it, as
all lifeboat equipment is supposed to have, and 30 hours later, in the same area, a coat was
found with a seaman’s book in the pocket. The coat was identified by the seaman’s parents
as belonging to their son, a seaman on the ship. Rowlatt J., when invited to decide that
the ship had been lost by perils of the seas in the approaches to the English Channel, was
deeply sceptical and declined to do so. He found it particularly difficult to accept that the
coat could have remained afloat for a minimum of 30 hours, and considered that if the ship
had been in the area at all, then it was more likely that she had been torpedoed by a U-boat.
The war risks insurance was placed in France, and it appears from the scanty details in the
report that the French war risks underwriters had successfully denied liability.
28.41 United Scottish Insurance Company Ltd. v. British Fishing Vessels Mutual War
Risks Association Ltd. (The Braconbush)39 was a case between two insurance companies,
because the plaintiff had issued an “all risks” insurance policy to the owners of the Braconbush and had reinsured its war and strikes liabilities with the defendant. On 29 January
36
37
38
39
Green v. Brown (1743) 2 Str. 1199.
[1985] 2 Lloyd’s Rep. 1; [1985] 1 W.L.R. 948; [1985] 2 All E.R. 712 (H.L.).
(1922) 12 Ll.L.Rep. 451 (1923) 14 Ll.L.Rep. 25.
(1945) 78 Ll.L.Rep. 70.
260
T he proximate cause
1942, the Braconbush, whilst one mile off Duncansby Head, suffered a casualty which
was variously described as an underwater explosion or an underwater noise. This ripped
open her hull, and in spite of efforts made to beach her with the assistance of another
fishing boat, she sank in deep water. The crew all survived. There were two possibilities,
and both were considered as likely to have caused her loss. Did she hit some underwater
wreckage, or did she hit a drifting float which had broken adrift from the German minefields in the North Sea? These floats were laid around the peripheries of the German minefields, and, with a small explosive charge, seem to have been intended to give warning to
any German ship off her proper course that she was straying into a minefield. Against a
strong hulled ship, they would have done no damage. Against a ship with a frailer hull
such as a fishing boat, they could prove fatal.
28.42 Atkinson J. reviewed the law on burden of proof, clearly feeling it was well
described in the Munro Brice case. He quoted with approval the dictum of Bankes L.J. on
probabilities and possibilities and that of Roche J. in the Wishart case, and added further
that of Atkin L.J. in the Munro Brice case:
The plaintiffs had to establish that the claim which they made was made out by the facts.
To do so it was not necessary that they should produce witnesses who saw the war risk
operating … what you want is to weigh probabilities, if there be proof of facts sufficient to
enable you to have some foothold or ground for comparing and balancing probabilities at their
respective value, the one against the other.
28.43 He also noted what Scrutton L.J., in the same case, had to say on how individual
judges will react when quoting another case:
… two learned Law Lords in the minority were of the opinion that the three in the majority
were guessing, and the three learned Law Lords in the majority were of the opinion that they
were drawing a reasonable inference from the facts proved …
28.44 In the Braconbush case, Atkinson J., having reviewed all the evidence that was
available at great length, came to the conclusion that the most likely explanation for the
loss of the ship was an explosive float and gave judgment for the plaintiffs.
28.45 Finally, the dictum of Mr. Sherlock Holmes, taken from The Sign of Four, is
“When you have eliminated the impossible, whatever remains, however improbable, must
be the truth.” However sound this may or may not be for criminal investigation, it cannot
be acceptable in a civil case which turns on the balance of probabilities. Lord Brandon,
who gave the unanimous judgment of the House of Lords, made this very clear in Rhesa
Shipping Company S.A. v. Herbert David Edmunds and Others (The Popi M)40 when he
actually quoted this dictum.41
28.46 On 5 August 1978, the Popi M was in the Mediterranean bound on an easterly
course and off the coast of Algeria. The weather was fine and the sea was calm. There
was a sudden inrush of water into the engine room and the ship sank. There were two
plausible reasons advanced for this, that she had suffered a failure of her hull plating, or
40 [1985] 2 Lloyd’s Rep. 1.
41 A point made again by Popplewell J. in European Group Ltd and Others v. Chartis Insurance [2012]
Lloyd’s Rep. IR 603 at §77.
261
T he proximate cause
that she had had a collision with a submarine. In the High Court, Bingham J. rejected the
evidence that the hull plating had failed, even though she was an elderly ship, and was
scarcely convinced that she had been in collision with a submarine, although such collisions were not unknown during the days of the Cold War. This led him to accept, that
on the balance of probabilities, the collision with the submarine was the more likely and
this justified a finding that the ship was lost by perils of the seas. The Court of Appeal,
although it ventured the opinion that the collision with the submarine was most unlikely,
upheld the judgment.
28.47 The House of Lords, however, reversed the judgments of the lower courts, and
gave judgment in favour of the underwriters. Too close attention to the two theories had
led them away from the third possibility, that neither theory was right. In this case, the
shipowners had failed to discharge the burden of proof of explaining what was the actual
peril of the sea which had caused the loss of the ship, and in such a case they were not
entitled to judgment. Scrutton L.J. had explained it in the Martiartu case in the following
terms:
… if there are circumstances suggesting that another cause than a peril insured against was
the dominant and effective cause of the entry of the seawater into the ship … and an examination of all the evidence leaves the Court doubtful what is the real cause, … the assured has
failed to prove his case.
28.48. More recently, in Ace European Group Ltd v. Chartis Insurance UK Ltd42 Popplewell J. provided a detailed recitation of the doctrine of proximate cause, and the question of proof where there are two improbable causes considered in The Popi M and later
in Ide v. ATB Sales Ltd43 by Thomas L.J. In Ace European, the issue was whether certain
“50/50” clauses were engaged, the clauses providing that each of two insurers of the risk
were to pay 50% of the loss if “after proper investigation it is not possible to ascertain
whether the cause of such Damage happened prior to termination of the marine adventure
of subsequently” or “where it is not possible to establish if the loss or damage was caused
before or after arrival of the goods at the job site or store or place”.44 Having cited widely
from paragraphs 3, 4 and 6 of Thomas L.J.’s judgment in Ide v. ATB where The Popi M had
been considered, Popplewell J. held the clauses would be engaged if either (1) there was
such uncertainty that it was not possible to reach any conclusion as to when the relevant
damage occurred or (2) one theory was so improbable that even if the other theory was
ruled out, it could not as a matter of common sense be described as more likely than not
to have occurred.45
Conclusion on proximate cause
28.49 As a conclusion, it must be said that whether or not a particular casualty comes
within the terms of an insured peril, or an excluded peril, must turn upon the facts of any
42 [2012] Lloyd’s Rep. IR 603 at paragraphs 77 to 83. The Judge’s approach to causation was approved of
on appeal by Longmore L.J.: [2013] Lloyd’s Rep. IR 485.
43 N 2.
44 See paragraph 82.
45 See paragraph 82.
262
T he proximate cause
case, upon the evidence which is available, and the conclusions that can be drawn from
them. Strangely, war risk cases usually pose extremely difficult questions in all these
fields. The facts do not always present themselves in an understandable form, and considerable extra investigation is necessary. Even when this is done, an analysis of the result
does not always point to a definite conclusion. It therefore frequently happens that inferences have to be drawn to supplement that which is definitely known and can be established. It does seem that the most that can be done is to take the situations which are most
likely to arise where there is a question of a war risk casualty, and discuss the situations
against the background of the decided cases. This is what this chapter has attempted to do.
263
CH A PT ER 29
Cargo War and Strikes Clauses
Introductory
29.1 Unlike ships, cargo is insured for War and Strikes under two separate sets of
clauses, the War Clauses and the Strikes Clauses.
Institute War Clauses (Cargo)
29.2 The War Clauses (Cargo) cover war, etc. (Clause 1.1), capture and seizure, etc.
(Clause 1.2), but notably only arising from risks covered under Clause 1.1, derelict mines,
etc. (Clause 1.3) and general average and salvage charges incurred to avoid or in connection with the avoidance of loss from a risk covered (Clause 2). The perils are considered
elsewhere: war, etc. is considered in Chapters 6–10; capture and seizure, etc. are considered in Chapters 11–14; and derelict mines, etc. are considered in Chapter 15.
Institute Strikes Clauses (Cargo)
29.3 The Strikes Clauses (Cargo) cover damage caused by strikers, etc. (Clause 1.1),
any terrorist or any person acting from a political motive (Clause 1.2), and general average
and salvage charges incurred to avoid or in connection with the avoidance of loss from a
risk covered (Clause 2). The perils are considered elsewhere: strikers, etc. is considered
in Chapter 16; terrorism is considered in Chapter 18; and political motives are considered
in Chapter 19.
29.4 These Clauses do not cover all of the perils excluded from the Marine Clauses. In
particular, they do not cover the pure economic loss to which an industrial dispute may
give rise. Nor is physical loss or damage to the cargo due to delays caused by strikes,
etc. insured by the Cargo Strikes Clauses (or for that matter by the new Cargo Marine
Clauses).
Exclusion Clauses
29.5 Both the War Clauses (Cargo) and the Strikes Clauses (Cargo) exclude wilful
misconduct of the Assured (Clause 3.1), loss damage or expense caused by delay, even
though the delay be caused by a risk insured against (Clause 3.5), loss damage or expense
arising from insolvency or financial default of the owners, managers, charterers or operators of the vessel (Clause 3.6), and any claim based upon loss of or frustration of the
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Cargo War and Strikes Clauses
voyage or adventure (Clause 3.7). There is also an exclusion in respect of unseaworthiness
of vessel or craft, unfitness of vessel, craft, conveyance container or liftvan for the safe
carriage of the subject-matter insured, where the Assured or their servants are privy to
such unseaworthiness or unfitness, at the time the subject-matter insured is loaded therein
(Clause 4).
29.6 Both the War Clauses (Cargo) and the Strikes Clauses (Cargo) contain exclusions
in respect of nuclear weapons. The War Clauses refer to “hostile” use, but the Strikes
Clauses do not contain such a qualification. The test of a nuclear weapon may be a
non-hostile use.
29.7 The Strikes Clauses (Cargo) contain two extra exclusions not found in the War
Clauses (Cargo), namely:
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
…
3.10 loss damage or expense caused by war civil war revolution rebellion insurrection, or civil strife arising therefrom, or any hostile act by or against a belligerent
power.
Duration—War Clauses
29.8 Duration of the insurance cover is different between the Cargo War Clauses and
the Cargo Strikes Clauses, and this is explained by the Waterborne Agreement, a marine
market agreement which provides that certain types of war risks can only be covered
whilst the insured object is afloat.1
29.9 The Cargo War Clauses provide cover only from the time that the insured goods
are loaded onto “an oversea vessel” until they are discharged from “an oversea vessel”
at the port of discharge or until the expiry of 15 days, counted from midnight of the day
of “arrival”, whichever shall first occur. If only part of the goods are loaded, or remain
on board, then only that part is insured. An “oversea vessel” is defined as a vessel carrying the insured goods between ports on a sea-passage. “Arrival” is defined as “anchored
moored or otherwise secured” at a berth or place within the harbour area; if however
that is not available, “arrival” is complete, and the 15 days begin to run, when the vessel
reaches the waiting area. That is the general principle, which is contained in Clause 5.1.
To this general principle there are a number of exceptions to allow for the character of
a sea voyage and the necessities that arise from any disruption of it so far as the Waterborne Agreement will allow. War risks for cargo differ considerably from the duration
of cover for marine risks, where there is standard cover from warehouse to warehouse.
29.10 The first of these exceptions (Clauses 5.1.3 and 5.1.4) provides that the insurance
reattaches, or begins to run again, when the vessel sails from the port of discharge without
having discharged the insured goods and continues until the insured goods are discharged
at the final or substituted port of discharge, or 15 days after the vessel’s arrival (as defined
1 See: www.lloyds.com/help-and-glossary/glossary-and-acronyms?Letter=W.
265
Cargo War and Strikes Clauses
above) thereat, whichever shall first occur. It is important to note that this reattachment
requires that prompt notice is given to the underwriters and that an additional, or further,
premium is paid if this is required.
29.11 The second exception, contained in Clauses 5.2 and 5.3, provides for the situation
where the oversea vessel discharges the insured goods for transhipment at an intermediate
port, or discharges them there as a port of refuge. The insurance continues only for 15
days after arrival (as defined above), but will reattach when the insured goods are loaded
onto an on-carrying oversea vessel or an aircraft. If they are carried onwards by sea, the
insurance continues on the conditions of the Cargo War Clauses. If however they are carried onwards by aircraft, then the current Institute War Clauses (Air Cargo) will apply.
Here there is an exception to the rule that the insured goods will only be insured whilst
afloat; during the 15 days, the insurance remains in force whilst the insured goods are at
the discharge port. If the contract voyage is terminated at another place other than the
contracted destination, then the insurance cover terminates on discharge, but can reattach
again on shipment onto an on-carrying vessel, and can also reattach if the original vessel
continues her voyage. Again it is important to note that such reattachment requires that
prompt notice is given to the underwriters and that an additional, or further, premium is
paid if this is required.
29.12 The third exception, contained in Clause 5.4, provides that the insurance against
the risks of “mines and derelict torpedoes” is extended to any period whilst the insured
goods are on board craft in transit to or from the oversea vessel, but this is limited to a
period not exceeding 60 days following discharge from the oversea vessel. This period
can, however, be extended by agreement. It is to be noted that here insurance is given
for “mines”, unqualified by the word “derelict” as is the insurance for mines in Clause 1,
whereas “torpedoes” are so qualified. There is no apparent reason for this. The difficulties
posed by the word “derelict” are discussed in Chapter 15.
29.13 The fourth, and last, exception, contained in Clause 5.5, provides that the insurance cover remains in force during a deviation by the oversea vessel from the contract of
carriage, or the exercise by her of any liberty granted by its terms. Yet again it is important
to note that prompt notice must be given to the underwriters and that an additional, or
further, premium is paid if this is required.
29.14 Clause 6 provides that, where the assured changes the destination of the insured
goods, they will be “held covered at a premium and on conditions to be arranged subject
to prompt notice being given to the underwriters”. Clause 7 states: “Anything contained
in this contract which is inconsistent with Clauses 3.7, 3.8 or 5 shall, to the extent of such
inconsistency, be null and void.”
Duration—Strikes Clauses
29.15 The Strikes Clauses follow a very different and very much clearer pattern, being
free of the complications of the Waterborne Agreement. Nevertheless, strikes risk cover
may not exactly match any marine risks cover in this respect.
29.16 Clause 5 provides the general rule that the insurance commences from the time
that the goods begin their journey, which may be inland, and continues until they reach
their destination, which may also be inland. There is a maximum time limit of 60 days
after discharge. If after discharge they are to be sent to a different destination, then the
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Cargo War and Strikes Clauses
insurance ceases at the time that the journey to that other destination begins. It does,
however, remain in force during delay beyond the control of the assured, and this includes
any deviation or other action by the shipowner exercising the liberties given to him by
the contract of carriage. It does not remain in force indefinitely. The maximum time limit
and other termination provisions still apply, and there is a further condition contained in
Clause 6.
29.17 Clause 6 provides that if the contract of carriage is terminated, or the journey of
the goods is otherwise terminated short of their destination, then the insurance will also
terminate “unless prompt notice is given to the underwriters and continuation of cover is
requested when the insurance shall remain in force, subject to an Additional premium if
required by the Underwriters”, until the insured goods are delivered to their destination,
or are otherwise disposed of as may be agreed. There is again a limit of 60 days from the
time the insured goods reach their original, or other, destination.
29.18 Clause 7 simply provides that when the agreed destination is changed by the
assured, he is to be “held covered” at a premium and on conditions to be arranged subject
to prompt notice being given to the underwriters.
Duration—notices
29.19 The Cargo War Clauses and the Cargo Strikes Clauses contain an array of notice provisions in various forms. It is not clear why they are not standardized, nor is it
clear whether they are “conditions precedent” to the insurance, as they do not describe
themselves as such. They are all in the nature of “held covered” clauses, as to which see
Chapter 26.
Minimising losses and waiver
29.20 Clauses 11 (minimizing losses) and 12 (non-waiver) are in the same form in both
the Cargo War Clauses and the Cargo Strikes Clauses. In The Vasso,2 it was held that a
minimizing losses clause had no role in defining the scope of the primary cover, substantially conforms to sue and labour in section 78 of the 1906 Act, and was not a condition
precedent.
Reasonable despatch
29.21 Clause 13 of both the Cargo War Clauses and the Cargo Strikes Clauses state
that: “It is a condition of this insurance that the Assured shall act with reasonable despatch
in all circumstances within their control.”
29.22 This is a somewhat general provision, stated to be “a condition of this insurance”.
It is potentially applicable to minimizing losses (see Clause 11), to the giving of notice ­under
the Duration provisions (see paragraph 29.19), and also potentially amounting to a warranty as to delays in transit. In the Litsion Pride,3 it was argued at first instance that similar
wording in the Rules of the Hellenic (Bermuda) Mutual War Risks Association constituted
2 Noble Resources Ltd v. Greenwood (the Vasso) [1993] 2 Lloyd’s Rep. 309 at p.313 per Hobhouse J.
3 Black King Shipping Corporation v. Massie (the Litsion Pride) [1985] 1 Lloyd’s Rep. 437.
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Cargo War and Strikes Clauses
an express “condition precedent”, and that a notification requirement in respect of entering A.P. areas was also to be construed as such. That argument was rejected, but without
considering the reasonable dispatch clause. The provision remains unconstrued by the
English courts. Commentators agree that it is probably not a warranty, but disagree as to
whether it applies pre- or post-casualty.4
4 See J Dunt, Marine Cargo Insurance (Informa Law from Routledge, 2nd edn, 2015), paras 11.34–11.40
and J Gilman et al., Arnould’s Law of Marine Insurance and Average (Sweet & Maxwell, 19th edn, 2018),
paragraphs 19–67.
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CH A PT ER 30
Containers
30.1 Containers are insured in the London Market by the Institute War and Strikes
Clauses Containers—Time. Containers may also be insured on mutual terms, with cover
that is similar to the Institute Clauses cover.
30.2 The Institute insured perils and principal exclusions for containers are identical
or similar in wording to the clauses used to cover ships and need little further separate
comment. In the exclusion for capture and seizure, etc., by or under the order of a government or any public or local authority, the relevant country is not that of the vessel’s
registration, but of the country where the Assured have their principal place of business.
There are additional exclusions for shortage or withholding of labour, for insolvency or
financial default.1
30.3 The Container Clauses end with a Schedule which consists of a series of boxes in
which are entered details such as the type and size of the containers which are insured,
their identification marks, their value, and the agreed Deductible. The details entered in
the box “Sea and Territorial Limits (which are deemed to include normal flying routes
between these Sea and Territorial Limits)” describe the geographical area within which
the containers are insured. Clause 6 defines the scope of the insurance.
30.4 Clause 6.1 provides that the containers are insured only whilst on board an oversea vessel,2 (including whilst on deck) or on board an aircraft, within the sea and territorial limits specified in the Schedule. Clause 6.4 reinforces this by excluding loss, etc.,
arising whilst the container is not on board an oversea vessel or an aircraft. There are two
exceptions to this general rule. First, the insurance for the risks of “mines and derelict
torpedoes, floating and submerged” is extended by Clause 6.2 whilst the containers are
on board any vessel or craft (i.e. not necessarily an oversea vessel). Second, the insurance
for strikers, terrorists and persons acting from a political motive is extended by Clause 6.3
whilst the containers are on board any vessel or craft or whilst ashore, including whilst
loading and unloading, except for loss or damage arising out of war, etc.
30.5 Where containers leave the agreed scope of the insurance, there is no held covered
provision in the Container War and Strikes Clauses (whereas there is such a clause in the
Marine Clauses). This is because of the Waterborne Agreement, a market understanding
which restricts war risk cover for goods to the time whilst they are on the vessel.
1 See Integrated Container Service Inc v. British Traders Insurance Co Ltd [1984] 1 Lloyd’s Rep. 154,
where the assured recovered sue and labour expenses arising from the insolvency of their container lessee.
2 Deemed to mean a vessel carrying the container from one port or place to another where such voyage
involves a sea passage by that vessel.
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CH A PT ER 31
War risk insurance in time of war
Note for the Fourth Edition
This chapter considers the arrangements between the United Kingdom government and
the insurance industry for State support for the marine (and aviation) war risks market
in the event of the outbreak of war. The Act of Parliament under which this operates (the
Marine and Aviation Insurance (War Risks) Act 1952) and the 1988 Reinsurance agreements remain in place.1 What follows is the expert analysis provided by Michael Miller in
the previous edition. He begins by explaining the lack of progress in bringing about much
needed reforms since the Second Edition in 1994.
Note from the previous author
There was great concern in 1913 that British merchant ships would be attacked by the
powerful German High Seas Fleet. There was equal concern in 1939 that they would be
similarly attacked by the large German U-Boat fleet, and during the Cold War (1950 to
1995–2000) that they would be subject to the attentions of the very powerful navy of the
USSR. There was always the danger that the Cold War would become “hot” and result in
actual hostilities between NATO and the Warsaw Pact countries.
Now that the Cold War is over there is no powerful navy left in the world which might be
expected to attack British merchant ships, and the question arises if it is any longer necessary to have a form of contract with Her Majesty’s Government whereby the Secretary
of State can bring the non-Queen’s Enemy Risks insurance to an end by issuing a General
Premium Notice and so substituting for it the Queen’s Enemy Risks insurance.
Unquestionably Her Majesty’s Government will require British (and perhaps foreign)
ships in support of such military operations as it undertakes and will either have to give
them insurance or pay for the insurance which they themselves effect. The South Atlantic
War (1982) to eject Argentina from the Falkland Islands is the example which springs to
mind, and nobody can say whether or not there will be others. It is only prudent to have
an insurance scheme in place which is ready for instant use, but it will be very different
from that which presently exists. The publication of the Third Edition cannot wait until
this is in place and much work will have to be done before it is. It may be helpful to have a
1 The most recent statement of the current position is found in the annual report to Parliament, of which
the most recent is: Dept for Transport, Marine and Aviation Insurance (War Risks) Fund Account 2016–17
(HC843, 2018).
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chapter which describes the Queen’s Enemy Risks insurance as it presently is, and to this
end [this chapter] is reproduced from the Second Edition.2
31.1 Under the Notice of Cancellation and Automatic Termination of Cover Clause, war
risk insurance provided by the Institute War and Strikes Clauses attached to the MAR
Form and most of the Mutual War Risks Associations terminates upon the hostile detonation of a nuclear weapon of war, or the outbreak of war between the United Kingdom, the
United States of America, France, the Union of Soviet Socialist Republics and the People’s
Republic of China (Chapter 4). The reasons why this happens are given in Chapter 3 on
“The premiums”. This does of course open a yawning gap in the insured shipowners’
insurance cover, and the purpose of this chapter is to discuss how it is to be filled to the
extent that it is possible to do so.
31.2 At paragraph 3.2, the point is made that the risk is so huge that only governments,
or combinations of governments, have the necessary capacity to provide such insurance.
The schemes of individual governments vary enormously in the scope or range of the
insurance which they offer. The United States has a scheme, referred to generally as “The
Binder” which gives ships insurance when they are taken into the service of the State
during wartime. Norway, Denmark and France have similar schemes, whilst ships put into
NATO’s service will be insured by the Interallied Insurance Organization. A discussion
in depth will concentrate upon the British scheme, which Canada has copied in most of
its essential details.
31.3 Governments have different priorities than do commercial underwriters. The
exercise of the Royal Prerogative of Her Majesty to requisition British ships carries with it
the obligation to pay for their use, and to make good or pay for damage which they suffer
whilst they are compulsorily in her service. The requisitioning laws of various countries
are not necessarily the same in every respect, and, as an example, a difference can readily
be seen in Robinson Gold Mining Co. and Others v. Alliance Insurance Co.3 There the
Republic of South Africa, as it existed on the outbreak of the Boer War, was obliged to pay
for requisitioned cattle and wagons only; the owners of all other requisitioned property had
the right to share in any booty which the Republic, if victorious, might have captured from
its enemies during the course of the war. If there was no booty, then there would be no
compensation. In addition, a government has a natural desire to make sure that merchant
ships, if lost, should be replaced, or if damaged repaired, in the national interest so that
they can continue to carry the sinews of war and the country’s seaborne trade. If a government is unable to ensure that this is possible, then it probably cannot prosecute the war.
31.4 Immediately before the First World War, His Majesty’s Government desired that
the loss of or damage to merchant ships should be dealt with on insurance principles.
This had several advantages. Marine insurance principles were already well developed,
the compensation for lost merchant ships would be limited to their insured values, which
were readily ascertained, or if the government desired, controlled, and the scheme could
be virtually self-financing by charging premiums.
31.5 The resources of the State were behind the scheme, but it was always intended
that the necessary funds should be raised from premiums without calling for a subvention
2 This appeared as Chapter 41 in previous editions.
3 [1901] 2 K.B. 919; [1902] 2 K.B. 489.
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from the taxpayer. Another vital consideration was that money to replace a lost ship or to
repair a damaged one would be available immediately, and thus make possible the prompt
replacement or the repair in the national interest. The government asked the London
Group of War Risks Associations (The London Group) (see paragraph 2.6) to prepare
a scheme. Out of this, the concept of insurance of King’s (Queen’s) Enemy Risks (in
­Canada referred to as the Canada Engaged Risks) was born. The London Group added
the necessary extra insured perils to its insurance, known as the King’s Enemy Risk, and
His Majesty’s Government reinsured them. These are insured perils to be contrasted with
the other insured perils which the London Group covers which are discussed earlier in
this work; these are not reinsured by Her Majesty’s Government, there being no element
of the Sovereign’s enemies being involved, and they are therefore known as the NonQueen’s Enemy Risks.
31.6 From that date to this, the London Group has insured King’s (Queen’s) Enemy
Risks and His (Her) Majesty’s Government has given them reinsurance in proportions
which have varied between 75% and 100%. Loss or damage suffered by merchant ships
in both World Wars was paid for by this arrangement, primarily by the London Group
which was reinsured by His Majesty’s Government. Whilst, as we shall see, this insurance
arrangement is continually operative, there have been three occasions since the Second
World War when it has had real meaning; the Korean War (1950–1953), the Anglo-French
invasion of Egypt (1956) and the Falklands War, sometimes referred to as the South
Atlantic War (1982). On all occasions, merchant ships were requisitioned or chartered to
support the military to carry troops and all that troops need to fight a war. On each occasion, His, or latterly Her, Majesty had “enemies”.
31.7 The complaint has often been raised, with more eloquence than reason, that
­shipowners have been unduly favoured by this scheme. During the First World War, the
damage to civilian property in the United Kingdom was trivial, mostly resulting from
some ineffectual Zeppelin raids, which nevertheless caused great alarm, and a bombardment by the German High Seas Fleet on coastal towns in the early days of the war. There
was one very important exception to this general statement—the loss of and damage to
merchant ships was very substantial. Those whose property was damaged by the exercise
of the Royal Prerogative were compensated under the Indemnity Act 1920, some of whose
workings are described at paragraph 11.66. In World War II when a considerable amount
of damage was done to civilian property, particularly by bombing, there was a war damage scheme which also operated on insurance lines, and householders paid premiums for
the cover which it afforded.
31.8 There have, during the course of the years, been several updatings of the enabling
Act, which gives the Secretary of State (formerly the Minister) for Transport the statutory
powers which he needs to enter into a Reinsurance Agreement, and of the Reinsurance
Agreement itself. The current enabling Act is the Marine and Aviation Insurance (War
Risks) Act 1952. This Act is now well out of date, and moves are afoot for a further
updating so that Her Majesty’s Government can give reinsurance for the latest forms that
war risk insurance has taken in the past 40 years since 1952. Nevertheless, the Act does
give the Secretary of State a great number of the powers which he needs for the basic
essentials of the Reinsurance Agreement. The Act deals with cargo and aircraft as well
as ships, but so far as merchant ships are concerned, the following characteristics are the
most interesting.
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War risk insurance in time of war
31.9 The Secretary of State may give reinsurance for war risks at any time in respect of
a British ship, but for a ship other than a British ship he may afford such reinsurance only
“during the continuance of any war or other hostilities in which Her Majesty is engaged or
arise after any such war or hostilities in consequence of things done or omitted during the
continuance thereof” (section 1(1)).
31.10 There is a definition of “war risk” (section 10) but no definition of a “British ship”
for the purposes of the Act. This expression, strange as it may seem, is one of the most elusive terms known to the law. It is true that the Act allows ships of India and the Republic of
Ireland to be considered as “British ships” (section 10(2)) but this is not of much help nowadays. In 1952 it did not matter particularly, because British-owned ships were, with few
exceptions, registered in the United Kingdom and could be described as “British ships”,
loose as the term is. Nowadays many British-owned ships are registered for a variety of
reasons under other flags. But from a practical proposition, Her Majesty’s Government
will depend upon their availability in time of war. They cannot be described as “British
ships” in any sense of the expression. Even registration in the United Kingdom cannot be
regarded as a totally reliable guide when the very odd case of The Polzeath4 is considered.
There, the Registrar of British ships in King’s Lynn raised the question whether the ship
was entitled to be registered as a British ship. She was owned by a British company with
some British and some German directors, but the main shareholder was a German living
in Hamburg. He was in the habit of sending instructions in the most peremptory form
on the minutest details to the British directors, and, after the First World War broke out,
continued doing so through neutral Dutch intermediaries. It was held by Bargrave Deane
J. that the ship was not entitled to be registered as a British ship and she was accordingly
struck off the register. Bearing in mind the great variety of shareholdings from all over the
world which make up the ownership of British companies owning British-registered ships,
the question raises itself just how far registration by itself is, in the absence of an express
provision, a reliable guide as to what is or what is not a “British ship” for the purposes of
an Act which gives no definition for its own purposes.
31.11 Until the Act can be amended, the Secretary of State and the London Group have
done what it is possible to do to resolve the position with the following definition: “British ship—A ship registered in the United Kingdom, the Isle of Man, any of the Channel
Islands or any British Colony.” This seeks to make registration alone the test; once a
ship is accepted for registration in any one of these places, she can, for the purposes of
the Queen’s Enemy Risks Rules and Her Majesty’s Government Reinsurance Agreement,
be considered as a British ship, at least as long as this registration lasts. The Rules also
contain a warranty that she shall remain so registered, so that if she is removed from the
register for any reason, the insurance position is clear to all concerned.
31.12 This position is not entirely satisfactory and will not be so until this definition, or
something similar, can be incorporated into a new enabling Act. For the present, so long
as Bermuda and Gibraltar remain colonies, ships registered in these territories can be considered as “British ships”. Ships registered in places which were once colonies, but now no
longer are, such as Hong Kong, Singapore and the Bahamas, cannot be regarded as British
ships. Their problems are dealt with by the Reinsurance Agreement.
4 [1916] P. 117.
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War risk insurance in time of war
War risks are defined by the Act (section 10(1)) as:
War Risks means risks arising from any of the following events that is to say, hostilities,
rebellion, revolution and civil war, from civil strife consequent on the happening of any of
those events, or from action taken (whether before or after the outbreak of any hostilities,
rebellion, revolution or civil war) for repelling an imagined attack or preventing or hindering
the carrying out of any attack, and includes piracy.
31.13 As will be seen from Chapters 6 to 21, this definition falls well short of the commercial war risk cover as it has now developed. In 1952 it was quite adequate to describe
the war risk cover which was excluded from the marine policy by the Free of Capture and
Seizure Clause, and which was insured by the War Risk Policy. At the time of writing,
over 40 years later, it no longer serves this purpose. The development of the commercial
war risk cover has far outstripped it, and in any case war risks insurance is no longer given
on the basis of the Free of Capture and Seizure Clause (Chapter 1). It does, however, define
the insured perils for which the Secretary of State can presently give reinsurance cover,
and he is not permitted to step beyond the defined boundaries, fixed as they are by statute.
31.14 Nevertheless, a considerable amount of important insurance cover can be given
by the London Group and reinsured by the Secretary of State. The insured perils are set
out in Rule 2.A of the London Group’s Rules, and begin with a condition precedent that
they: “… must have arisen out of war or other hostilities involving the United Kingdom.”
31.15 In respect of the entered ship’s hull and machinery, the insured perils are:
War or any hostile act by or against a belligerent power;
Capture, seizure, arrest, restraint or detainment and the consequences thereof or any
attempt thereat;
Mines, torpedoes, bombs or other weapons of war, including derelict mines, torpedoes,
bombs or other derelict weapons of war.
These insured perils have all been discussed in earlier chapters and they bear the same
meaning for Queen’s Enemy Risks as they do for the non-Queen’s Enemy Risks; there is
no difference.
31.16 If the entered ship is captured, seized, arrested, restrained or detained then:
(i) Her running expenses are recoverable except for the first seven days.
(ii) Likewise the expenses attending her capture etc. and her release and restoration
are recoverable. Included under this head is damage to property which she may
have caused during her capture, etc. for which her owner may be legally liable.
(iii) There is also a 90-day rule, which applies to insured perils under the nonQueen’s Enemy Risk cover.
This detention cover is subject to the same limitations as the cover which applies to insured perils for non-Queen’s Enemy Risk cover.
31.17 Third party liability (Protection and Indemnity) cover is given for:
(i) Collision damage to another ship.
(ii) Removal of wreck, including the lighting or marking of a wreck, provided that
the entered ship was wrecked by one of the insured perils for which the hull and
machinery are insured.
The Queen’s Enemy Risk cover has its own sue and labour provision.
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War risk insurance in time of war
31.18 These are the same insured perils which have been insured for many years by the
Queen’s Enemy Risk cover, and they have been found in two world wars to represent the
most immediate risks to a merchant ship in wartime. As has been remarked already, they
do not include all the risks which are now included in the commercial war risk cover but
the Secretary of State does not have power to reinsure the insured perils which have made
their way into war risk insurance since 1952. This gave rise to problems concerning the
ships which accompanied the Task Force to the Falkland Islands (1982). The shipowners,
who had obligations to their shareholders, and sometimes to their mortgagees as well, to
maintain their insurance to the fullest extent that was possible, would have had to take
out extra cover to insure these extra insured perils at a very heavy additional premium. In
the event, Her Majesty’s Government had extra powers which were pertinent to the Falklands War alone, so that it could by a separate agreement give reinsurance cover for the
insured perils which fell outside the description of “war risks” contained in section 10(1)
of the enabling Act. Since Her Majesty’s Government was also able to give reinsurance
for 100%, a satisfactory position could be reached that the ships could be insured by the
London Group, and reinsured by Her Majesty’s Government, without any premium at all.
Nevertheless the whole matter emphasised the need for an extension of the Secretary of
State’s powers under the enabling Act.
31.19 There is a further rule which is intended to permit the Secretary of State to give
reinsurance for ships that are “requisitioned and chartered ships” for periods outside hostilities in which Her Majesty is engaged. Ships, for instance, required to rescue British
subjects from Aden or Beirut could be insured under the Rules which insure non-Queen’s
Enemy Risks, but this would entail a sizeable, perhaps huge, additional premium which
the Secretary of State would have to pay. He might prefer to give reinsurance himself and
so avoid this substantial cost. The Rule itself is presently not of much help because of the
limitations which the current enabling Act put upon the Secretary of State, both as to the
amount of insurance he is able to give and the ships he is able to insure during a period
when Her Majesty is not engaged in hostilities. It is hoped that with a new enabling Act,
this Rule can be extended to a meaningful extent, so that the Secretary of State can fulfil
a natural desire when such occasions arise.
The reinsurance agreement
31.20 Turning now to the Reinsurance Agreement itself, the agreement between Her
Majesty’s Government and the London Group at the time of the Falklands War was dated
18th February 1954. It followed the same format as the two Reinsurance Agreements used
during the two world wars, and it was for such a similar conflict that it was framed. Drawn
up in 1913 in haste, and starting from nothing, it was a notable achievement in its time.
During both world wars, there was a strong element of practice which grew up in its interpretation and use. This expertise had all disappeared by 1982, both within Her Majesty’s
Government and the London Group, and the obscure drafting of the Agreement led to
arguments, invariably inconclusive, on its meaning. In a matter as important and as far
reaching as this, it was scarcely satisfactory that its meaning should not be readily apparent.
Work on clarifying the Agreement was already projected by the London Group in 1980, but
no substantial progress had been made before the Falklands War. Immediately afterwards,
there was common agreement between Her Majesty’s Government and the London Group
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War risk insurance in time of war
that a more easily comprehensible Agreement should be used. Another feature which was
regarded as being impractical was the necessity to issue special policies to all ships in wartime, which would have led to huge administrative difficulties and all the inconvenience
which would have resulted. In addition, the existing Agreement was entirely unsuitable for
the modern type of “war” (see Chapter 6). Now that the London Group uses Certificates of
Entry and Rule Books, which unlike the previous annual policies last throughout the time
each ship is entered for insurance in one of the Associations of the London Group, surely
a better way could be found. The Queen’s Enemy Risks could be identified in a special
section of the Rule Book so there could be no doubt as to what the insured perils were and
equally no doubt that they were wholly separate from the non-Queen’s Enemy Risks for
which the Secretary of State gives no reinsurance. Once this was done, then they could be
reinsured by quite a short Reinsurance Agreement which simply stated that it reinsured
them, and contained the necessary ancillary details for this purpose.
31.21 This sensible suggestion found ready acceptance and was fairly simple of achievement. As has already been remarked, the Queen’s Enemy Risks are in a special section of
the Rules and a new Reinsurance Agreement, which took effect on 18th February 1988,
was drafted. Known as “Agreements concluded under section 1(1) of the Marine and Aviation Insurance (War Risks) Act 1952, between certain shipowners’ Mutual Insurance
Associations and the Secretary of State for the Reinsurance of British and other Ships
against War Risks”, it is a public document which is obtainable from Her Majesty’s Stationery Office. Among its most important provisions are those set out below.
The reinsurance: Clauses 1 to 3
31.22 The Secretary of State reinsures the London Group for 95% in respect of Queen’s
Enemy Risks, and the Group makes no changes to its Rules which affect his interest without his consent.
The reinsured ships: Clauses 4 to 5
31.23 The Secretary of State gives reinsurance for British ships (as described above)
and such other ships as he is prepared to accept for reinsurance in wartime only, when Her
Majesty is engaged in hostilities. Primarily this is intended for British-owned flagged-out
ships where the Governments of those flags will permit them to take part in any hostilities, and whose owners will sign a letter of commitment that they will be made available
to Her Majesty. On these two conditions being fulfilled, Her Majesty’s Government will
give the shipowner a certificate of acceptability which will enable the Mutual War Risk
Association of his choice to give Queen’s Enemy Risk cover in wartime when Her Majesty
is engaged in hostilities. This certificate may be withdrawn by the Secretary of State if
later these conditions cease to be fulfilled.
Insured values: Clauses 6 to 8
31.24 The old method of assessing the insured values on building costs, and making
allowances for depreciation, no longer pertains. Since 1972, there has been an agreement
with Her Majesty’s Government, now enshrined in these clauses, that marine insurance
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War risk insurance in time of war
values for which each ship is insured for total loss under the marine policies shall be
the insured values for the purposes of the Reinsurance Agreement. There are elaborate
arrangements in the Reinsurance Agreement, and also in the Rules, for querying the
insured value of any individual ship, and if necessary taking disputes to arbitration. Also
there are arrangements to keep under review, and if necessary to control, insured values
which may rise in times of crisis.
Conversion into sterling: Clauses 9 to 11
31.25 For non-Queen’s Enemy Risks the Associations accept ships for reinsurance in
a variety of currencies. In wartime, the ships are only insured in sterling, so after a General Premium Notice all values have to be converted into sterling and any further entries
accepted by the London Group have to be accepted in the same currency.
The reinsurance premiums: Clauses 12 to 14
31.26 No reinsurance premiums are payable until a General Premium Notice (where ships
are exposed to Queen’s Enemy Risks generally) or a Special Premium Notice (where ships are
exposed to Queen’s Enemy Risks in a limited area only) is issued by the Secretary of State.
Ninety-five per cent of Queen’s Enemy Risks premiums are payable to the Secretary of State
who determines what the premiums are to be after consultation with the London Group.
General premium notices: Clause 15
31.27 The Secretary of State determines:
• The premium period and any subsequent premium period after its expiry.
• The advance and supplementary Queen’s Enemy Risk premiums.
The Queen’s Enemy Risk premiums only become payable when each ship’s “Get you Home”
insurance cover comes to an end. The Queen’s Enemy Risk premiums may be payable pro
rata for broken periods. The London Group may, with the Secretary of State’s consent, make
a separate charge for other expenses which are primarily administrative charges.
Special premium notices: Clause 16
31.28 The former method, where Queen’s Enemy Risks were likely to arise in a limited
area, and where that area was to be subject to Queen’s Enemy Risk premiums for any
visiting ship, is no longer used. The Secretary of State may require additional premiums
to be payable to such visits in the same way as additional premiums are charged for nonQueen’s Enemy Risks cover.
Consultation: Clause 17
31.29 The Secretary of State and the London Group will consult each other throughout
and seek the other’s guidance on matters pertaining to General Premium Notices and to
Special Premium Notices.
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Settlement of claims: Clauses 18 to 21
31.30 The Secretary of State’s consent is needed before acceptance of any claims for
Queen’s Enemy Risks. Where the directors have a discretion whether or not to accept a
claim, they must first have the Secretary of State’s consent to accept it.
Disputes: Clause 31
31.31 Formerly all disputes had to be submitted to arbitration. Since the Arbitration Act
1979, it is nearly impossible to appeal from an Arbitrator’s Award. Since any disputes are
likely to be of the most complex nature, and concern highly complicated matters of law, it
seems that the highly skilled and experienced judges of the High Court are better able to
resolve them. Furthermore, there is a well-settled chain of appeals to the Court of Appeal,
and if necessary to the Supreme Court, which never presents a substantial difficulty. Disputes under the Reinsurance Agreement between the Secretary of State and the London
Group are therefore to be dealt with by the courts. Likewise disputes between the London
Group and the insured shipowners on the terms of the Rules are to be dealt with similarly.
31.32 To this general rule there is but one exception. Disputes over the insured values
of individual ships are to be dealt with by arbitrators. In court, a judge could only form a
view on such matters with the help of expert witnesses. It is considered far better that such
expert witnesses should themselves deal with the matter in a judicial capacity.
Commencement and termination: Clauses 33 to 35
31.33 The Reinsurance Agreement commenced on 20 February 1988. It can be terminated on 20th February in any year on three months’ notice by either side.
31.34 The remaining clauses deal with the administrative arrangements which are necessary between the parties to such a Reinsurance Agreement and, in a brief synopsis of a
complex Agreement, need not be mentioned here.
31.35 A brief description of the effects of this Reinsurance Agreement and the Rules
must be given. The Queen’s Enemy Risk insurance and its reinsurance are continuous
even in time of peace. No Queen’s Enemy Risk premium is charged for the insurance in
peacetime, and indeed there is no reason for this as long as Her Majesty has no enemies.
It lies where it is, dormant but able to take effect immediately that it is required. A war
then starts involving Her Majesty. The London Group’s war risk insurance does not
include the Notice of Cancellation and Automatic Termination of Cover Clause, so that,
unlike the London Market, the insurance given by the Rules continues unless or until the
Secretary of State, considering that the time has now arrived to start charging premiums
for the reinsurance, issues a General Premium Notice. This is a document, stating that
from a future date (which may be no more than the next few hours) Queen’s Enemy
Risk premiums will be charged for reinsurance provided between certain specific dates,
known as a Premium Period. This is a decision which rests with the Secretary of State
alone, although it is contemplated that he would consult with the London Group before
taking such a step.
31.36 A General Premium Notice has a much greater effect than simply stating that
premiums have now got to be paid to the Secretary of State by the London Group, and
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charged by them to their shipowner members. It has the additional effect of bringing to
an end all the non-Queen’s Enemy Risk insurance given by the London Group, leaving
only the Queen’s Enemy Risk insurance. This termination of non-Queen’s Enemy Risks
insurance does not take effect immediately. The non-Queen’s Enemy Risk insurance
continues in respect of each individual entered (insured) ship until she has reached a safe
and friendly port and for three days thereafter. Some ships, of course, may never achieve
this if they are trapped in hostile ports which they never succeed in leaving; they would
become the first casualties of war. The modern war being what it is, it is quite possible
that the directors may wish to give non-Queen’s Enemy Risk insurance, which is outside
the scope of the Reinsurance Agreement with Her Majesty’s Government, once more,
either in whole or in part and if necessary upon special terms. They have the power to do
this for what periods and for what areas of the world they see fit, on the basis of mutual
contributions or fixed premiums. The reinsurance with His Majesty’s Government during both world wars was given on the basis that His Majesty would probably be engaged
in a global conflict. As has already been stated, the four wars in which the UK has been
involved since the Second World War5 have all been very local in nature and have not
been “wars” in the previous and traditional sense. Local and limited in extent they may
have been, but they have also been very savage in nature with plenty of opportunity for
sinking or damaging merchant ships within a limited area. On none of the four occasions
did the Secretary of State, or his predecessor, the Minister, consider it necessary to issue
a General Premium Notice. Had he done so, the provision of non-Queen’s Enemy Risk
insurance for the rest of the world which was not affected by the fighting would have
been necessary.
31.37 A recent example comes readily to mind with the Falklands War (1982). The
Secretary of State might have found it necessary to issue a General Premium Notice. If
he had done so, the non-Queen’s Enemy Risk insurance would have come to an end, a
procedure which is more appropriate to a global conflict rather than the more limited war
that it was always expected to be. War risks could arise in other parts of the world quite
independently of the Falklands War. The directors of the London Group have power, if
they see fit, to restore the non-Queen’s Enemy Risk insurance subject to special conditions
if these are appropriate. Had this step been necessary during the Falklands War, one obvious special condition would have been the exclusion of the area of the fighting of the war,
which would have had to be geographically and precisely defined, so that the insurance
would be given worldwide except for this area. The necessary powers are contained in
Rule 5.B of the Rule Book and provide a quick and easy method of restoring insurance.
It may be necessary to restore non-Queen’s Enemy Risk insurance even in the event of a
global conflict, but again Rule 5.B contains the necessary powers for this purpose should
the directors wish to use them.
31.38 In the previous pages, the author has attempted to give a concise description of an
immensely complex agreement, and it can only be hoped that the reader will regard it as a
general guide only, and use it to assist understanding of the insurance arrangement that is
provided, and of the documents that give it effect.
5 Korean War (1950–1953); Anglo-French invasion of Egypt (1956); Falklands (South Atlantic) War
(1982); Gulf War (1990–1991).
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The NATO war risks insurance scheme
Introductory
31.39 The Cold War lasted from the Berlin Blockade in June, 1948, until it effectively
came to an end with the tearing down of the Berlin Wall and the Reunification of Germany
in October, 1990. During the period of the Cold War, the North Atlantic Treaty Organisation was dedicated to one purpose only—to deter, and if deterrence failed, to repel, an
attack by the East European Powers of the Warsaw Pact. Its constitution forbade it from
undertaking any offensive operations, and, during the whole period of the Cold War, it
was purely defensive in its nature. The 16 Member Nations who formed the Alliance are
shown in Table 31.1.
31.40 The Treaty of Ottawa 1951 required that if any Member Nation of this Alliance
should be attacked, then the other Member Nations would come to her aid.
31.41 At first the threat was seen as that of a land invasion by the numerically vastly
superior armed forces of the East, but by the late 1960s the nature of the threat had changed
considerably. By this time, thanks to the genius of Admiral Gorckov, the Soviet Union had
built up a huge ocean-going fleet to which could be added the contingents of its allies. The
submarine force was very strong, and those with memories of the Battle of the Atlantic,
when the U-boats very nearly won the Second World War for Germany, could be under no
illusions what this portended. If this was not enough, Admiral Kidd, CINCLANT (C.-in-C.,
North Atlantic) himself proclaimed in a television programme that the initial losses in ships
would be “A hell of a lot”. NATO’s armed forces in Europe, and Europe’s civilian population,
depended on re-supply from North America and, to a lesser extent only, from the rest of
the world. This meant huge numbers of ships, and if the ships were now in danger of attack
or destruction, any war between NATO and the Warsaw Pact could be lost at sea. It is not
generally realised how acute was the danger to the West during the late 1970s and early
1980s. Besides the political and military chiefs and some journalists, there were few people
who appreciated how great it was. Among these were the author, and then only because he
was privileged to render some services to NATO. It was only the firm resolve shown by the
West, such as the stationing of cruise missiles in Western Europe in 1982 and 1983, which
persuaded the West’s potential opponents that NATO was too tough a nut to crack. Even then,
the danger only decreased by slow degrees, and NATO could not afford to drop its guard.
31.42 If then the danger to the ships was so extreme, and NATO could not hope to
win a war without them, insurance became an important question. As will be seen from
Table 31.1 NATO Founder Members
Belgium
Canada
Denmark
Federal Republic of Germany
France
Greece
Iceland
Italy
Luxembourg
Netherlands
Norway
Portugal
Spain
Turkey
United Kingdom
United States of America
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Chapters 3 and 4, the commercial war risks insurance would come to an end on the outbreak of a war such as a war between NATO and the Warsaw Pact, and it was most questionable if the commercial market was in any position to give war risks insurance during
such a conflict. Damaged ships would need to be repaired and lost ships replaced, and this
meant money. Some members of the Alliance had comprehensive insurance arrangements
with their shipowners such as the United States, the United Kingdom and Canada; other
Member States had less comprehensive schemes, whilst some had none at all. Some states
had large fleets and only a small population. With such a small tax base, they had no hope
of financing a scheme such as the British. And yet their ships were vital to the Alliance.
31.43 Out of these considerations was born the concept of a NATO insurance scheme
which would be financed on the mutual principle. It was very probably the first time in history that a military and defensive alliance has undertaken marine insurance. The decision
was taken, with the approval of the Council of Ministers, that such insurance should be
given by a body formed specially for the purpose, the Interallied Insurance Organisation
(I.I.O.); the I.I.O. should be a NATO Civil Wartime Agency (N.C.W.A.); the United Kingdom
should be the host country and should provide the Secretariat; the Planning Board for Ocean
Shipping (P.B.O.S.) should delegate the task of the necessary planning in peacetime to its
subordinate body, the Shipping War Losses Working Group (S.W.L.W.G.); the S.W.L.W.G.
should report to the Planning Board, and could look for assistance to the Senior Civil Emergency Planning Committee (S.C.E.P.C.). It should liaise with other planning groups and
departments of NATO, both civil and military. This may sound all very bureaucratic, but in
an organisation as large as NATO, it is essential to establish firm lines of communication.
Anyway, NATO was full of very friendly people from all the Member Nations of the Alliance who were always anxious to help. It was never difficult to have dealings with them.
First stage—1970 to 1982
31.44 After a false start in the late 1960s, the S.W.L.W.G. began its deliberations in May
1970. It was attended by delegations from most of the Member Nations of the Alliance
under a Chairman provided by Greece. Admiral Pagonis was a