Nature of the marine insurance contract

One of the more important concerns to exporters and importers involved in an export transaction is that risks of damage or loss during trade transactions from seller to buyer. But the risks can be fully protected through special transportation insurance provided: marine insurance for example. Thus, when such loss or damage suffered during the transactions by sea, the trader can sue the carrier or the cargo-owner by insuring the goods from the insurer without going to the court. The trader will be entitled to be indemnified by the insurers at the value of the goods, or less but not excess.

The insurance contract is a contract of indemnity22, its nature is stated in schedule 1(1) of Marine Insurance Act 1906 that “A contract of marine insurance is a contract whereby the insurer undertakes to indemnify the assured, in manner and to the extent thereby agreed, against marine losses, that is to say, losses incident to the marine adventure. ” Generally, marine insurance is governed by Marine Insurance Act1906 (MIA), schedule of Act; Lloyds Marine Policy and Institute Cargo Clauses A or B or C .

2) The relationship in the insurance contract between the assured and the insurer

Under the MIA 1906, the assured has the duty to disclose all material23 facts to the insurers before the contract is concluded based on the doctrine of uberrimae fidei(otherwise known as the duty of utmost good faith). if the assured does not give sufficient information to the insurer, the insurance contract may be avoided24. This is a case of non-disclosure.

In addition to the obligation to ensure that all material circumstances are disclosed, the assured also under a duty to ensure that all material representations made by him or his agents to the insurer are true and accurate.

Otherwise, this will be a case of misrepresentation26. Therefore, the insurer is not entitled to avoid the insurance contract for any non-disclosure or misrepresentation unless he can show that the non-disclosure or misrepresentation was material before the contract is included. However, section 17 is applied before the conclusion of the contract under MIA 1906. The duty on the assured to disclose to the insurers material facts in pre-contract should be continuing during the performance of insurance contract in question.

The proposition on the duty of the assured to disclose a fact material to the risk being undertaken by the insurer does not continue in the post- contract was established in a leading case of Cory v Patton27. where the court said that “the assured need not communicate to the underwriters facts which afterwards come to his knowledge material to the risk insured against; and the non-disclosure of such facts will not vitiate the policy of insurance afterwards executed.

” This conclusion was also approved by the House of Lord in Niger Co. Ltd v Guardian Assurance Co. Ltd 28 that no duty of disclosing post-contract facts on the assured within his knowledge, which, if disclosed, might have induced the insurer to exercise its right to terminate the contract. 29 The House of Lord relied on these authorities in a recent case of The Star Sea30. helding that the duty of disclose all material information to the insurer is the positive duty on the assured to the risk proposed in the pre-contract stage.

Thus, the insurer is not allowed to rescind the contract by reason of the post-contract failure to disclose all facts which the insurer might have interest in knowing and might affect his conduct. 3) Insurance Cargo Clause (hereafter referred to as ICC)31 Insurance Cargo Clause provides standard terms on which an insurance cover may be obtained for the carriage of goods. There are three sets of cargo clauses (A, B, C), which defines risks covered and the exclusion of the losses.

ICC (A) covers for all risks of loss or damage to the insured subject-matter subject to the various exclusion clauses32Although the insurance is termed to covers so-called ‘all risks’, it does not mean that every thing which may cause the losses of damages to the insured subject matter and not fall with the exclusions is a risk that the assured is entitled to cover. As an indemnity contract, only loss or damage caused by a risk or things which are not certain to happen will be covered, in other words, it is a fortuitous event, not a certainty33.

The certainty or fortuity of losses is one of the limitations for ‘all risk’ covered. What is certainty or fortuitous must be tested from the assured’s standpoint34 if he is aware of the loss at the outset will happen as a matter of course, which renders the loss a certainty. Thus, where the loss or damage is caused by the inherent defect or vice of the goods themselves, the law treats this as a certainty35. A second limitation is found in the ICC (A) themselves under Clause 4,5,6 and 7, which are risks or perils the insurer will not cover generally.

It should bear in mind that the Clause A cover protects for loss or damage against ‘risk’ only, not against events which are certain to occur. 4) Summary In conclusion, clause A gives the insured the right to claim insurance indemnity relied on the loss is caused accidentally, he does not need to prove that the exact nature of the peril, as by Lord Summer described the burden of proof in Rhesa Shipping Co SA v Edmunds( The Popi M) 36that : “the assured need only give evidence reasonable showing that the loss was due to a casualty, not to a certainty…

I do not think that he has to go further and pick up one of the multitude of risks covered, so as to show exactly how this loss was caused. ” Therefore, for an “all risk” policy to apply, it suffices for an assured to prove that there is some casualty or accident. Indeed, in the present case, the loss of goods was suffered a casualty because the discharge all fertilizer in to the sea by the carrier was an act from prevent the ship from further damage. Nor the assured was able to contemplate that the carrier would have discharged all of his cargo, as the duty of carrier is to transfer the goods to the buyer safely.

As a result, the loss of fertilser was a casualty or accidence, not a certainty although the nature of goods is a certainty that may cause loss or damage, but there is not the case under an ‘all risk’ policy. Therefore, S can not exclude his liability for insured goods under the ICC Clause A. There is no need for the assured to show what happened to the goods37. Moreover, the assured has completed his duty to disclose all information before the conclusion of the contract, there is no duty of disclosure in pre-contract stage. G as a cif buyer is entitled to be indemnified for the effect of the loss of goods.

In order to recover under the policy the assured must have an insurable interest in the subject matter insured at the time of the loss. 38Insurance interest is defined in section 5 of MIA 1906. It is clear from these terms that a party who bears the risk has an insurance interest. However, the buyer does not have insurable interest in the goods simply by entering into the contract of sale. His insurable interest usually arises where when the risk in the goods has passed to him. In a cif contract, the general rule of passing risk is that risk in the goods passes as from time shipment of the goods.

This is because the parties have regulated the prospect of loss or damage in transit and covered it by the carriage contract and insurance which the seller is required to take out and transfer to the buyer subsequently. So far the buyer has two possible avenues of claim. The first is under his ‘all risk’ insurance cover. The second is against the carrier in the breach of his duty. If G chooses to recover under Clause A, then he cannot then also sue the carrier and retain the proceeds. Otherwise, he will be recovering more that once for his loss.

Thus, having been paid by the insurer, who is entitled to proceed against the carrier to reduce to level of indemnity for which the assured has made him liable40. This is the right of the insurer to be subrogated to the rights and remedy of the assured. Therefore, the insurer is entitled to claim recovery in respect of the subject matter insured from any party who is liable for the loss of goods from the time of the casualty. Whether there has been a total loss or merely a partial loss,41the insurer is only able to recover that which he has paid to the assured.

To sum up, G will be entitled to claim against the insurer if he is able to prove that the loss of goods is suffered accidentally. Also, G is allowed to claim indemnity of loss of goods resulting from the carrier’s failure to exercise of due diligence. Therefore, he then will have two rights of claims. If G claims indemnity from the insurer against the policy, in turn, where the insurer pays for a total or partial in the cases of goods, he is entitled to claim recovery from the party who had caused the loss of the goods and be liable for it.