Ashfords Solicitors - Marine Insurance

In particular businesses should ensure that they have comprehensive cover not only for financial loss or damage to equipment but also for crew wage claims, freight issues, a variety of personal injury claims, pollution and hazardous substances problems, legal and related (e.g. surveyors) costs, and, importantly nowadays, loss of business use.

Invariably any such insurance will be placed on a reputable market – such as Lloyds of London – through the use of specialist brokers. It is difficult to emphasise how important it is to have specialist brokers within the marine industry. For example the broker should be instructed to negotiate the best possible premium for the particular risk in question and at the same time ensure that underwriters do not give with one hand and take with the other, e.g. by increasing the deductible (or excess) whilst appearing to, for example, reduce the premium payable.

It is also important to check the policy itself – which can often be a daunting document. In particular it is important to understand that if insured for maritime accidents ("perils") it means in "insurance speak" :

"Perils consequent on, or incidental to, the navigation of the sea, that is to say perils of the seas, fire, war perils, pirates, rovers, thieves, captures, seizures, restraints and detainments of princes and peoples, jettisons, barratry, and any other perils either of the like kind or which may be designated by the policy". (!)

This is the actual wording from the Marine Insurance Act 1906 (Section 3) and over the last 100 years or so, each and every aspect of that wording has been challenged in some form or another. The moral therefore is to understand exactly what your policy does for you in the event of any problem, so you can understand with a high degree of certainty, whether or not your policy will be of assistance.

It is important to appreciate that any such policy is only one of indemnity. In other words, in consideration of the payment of a premium the underwriter agrees to indemnify the assured against loss or damage caused by certain specified perils. Accordingly, save for example in the case of a total loss, it will be in principle the responsibility of the assured to repair the defective damage and then claim monies due as a result of the policy direct from underwriters. In practice it is usually possible to negotiate with underwriters for payment in advance of any repair work, but this should not be taken for granted.

Whilst principles and procedures involved in placing insurance and making claims change, nevertheless there are some golden rules which run through English insurance law, a few of which are as follows:

A duty of utmost good faith (sometimes known as uberrimae fidei); this means that both underwriters, brokers and assured have a duty to be honest and transparent regarding their dealings. This is a very important principle which underpins not only marine insurance but all insurance laws. It also involves a duty of full disclosure of all relevant facts so that when an underwriter accepts a particular risk, he is apprised of all material facts. This in turn can cause major issues on what is, and what is not, a material fact. In general terms there has to be a significant misrepresentation of material facts that will allow an underwriter to avoid a contract.

Warranties; most insurance policies have a considerable number of warranties upon which underwriters can rely in the event they want to challenge the right to pay under the terms of a policy. The most obvious example is an indemnity that a vessel should be seaworthy at the commencement of her final voyage (assuming a claim is being made, for example, for a total or partial loss). There may also be a warranty that the vessel and her equipment satisfies all regulatory requirements and that the vessel has, for example, her correct maritime coastguard agency and/or classification society certification. Similarly owners may be in breach of the policy if they do not comply with IMO requirements, i.e. the need to have ISM and/or Marpol documentation, e.g. in connection with oil pollution cases etc.

Proximate cause: In order to establish a right of recovery, any loss must be shown to have been proximately caused by a peril insured. This means that any claim made under a policy of insurance must not be too remote and is given effect by the 1906 Act section 55. The onus is on the assured to prove the proximate cause of the incident and also to show that there was not an intervening event and/or any wilful misconduct of the assured which may prejudice or affect his or its right to make a claim.

Defences: In certain cases, such as cargo claims, there may be defences to paying under policies on the basis of, for example, inherent vice. This may be a defence put forward by underwriters that a particular cargo was inherently unsafe and liable to the outcome (e.g. fire) in any event.

Adjusters : Special rules govern whether or not average adjusters become involved; in general terms however a claim can either be declared to general average (i.e. where all parties have to bear the risk and make payment in proportion to their blameworthiness) or a particular average which applies if a claim can be dealt with by one party.

Subrogation: The right of subrogation is also enshrined in marine insurance law. This allows an insurer, once payment is made, to step into the "shoes" of an assured and acquire all of his or its rights and remedies in respect of the loss which the assured may have possessed against third parties. This is an important principle and often allows underwriters and/or insurers to recover a significant proportion of monies they have actually paid out in settlement of a claim.

Re-insurance: It should not be forgotten that most insurers will lay off their risk through re-insurance. On a substantial claim it will often be the re-insurers who make payment under the terms of a policy – although the majority of smaller claims will not involve an assured in dealing with the re-insurance underwriter and/or market.

Surprisingly, in England and Wales, the 1906 Act has stood the test of time and although there is talk of reform and/or amendment it still governs the legal aspects of all claims being made under a policy of marine insurance. Other legislation, e.g. The Third Parties (Rights Against Insurers) Act 1930 and The Contract (Rights of Third Parties) Act 1999 will be relevant but the fundamental principles are usually resolved under the 1906 Act.

In general terms it cannot be emphasised too strongly how important it is to be properly insured and have a very close rapport with your broker in order to do regular checks, so that in the event of any particular incident the policy will respond. It is only too easy (and indeed human nature) to only rely on such policies when an event has happened – in which case it may be too late. Check your policies now.

If any general or more detailed advice is required also don't hesitate to contact of Ashfords (01392 33 6039 and/or mobile 07785 724215 and/or mobile 07710 339907) who provide a 24/7 service for this type of work.

Ashfords is regulated by the Solicitors Regulation Authority. The information in this article is intended to be general information about English law only and not comprehensive. It is not to be relied on as legal advice nor as an alternative to taking professional advice relating to specific circumstances.

1st April 2007

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Marine Insurance

Introduction