The Marine Insurance Act Centenary A Cause for Celebration?
Richard Cornah praises the UK Marine Insurance Act, which has been an international foundation-stone of good practice for the past 100 years.
Studying for the Association of Average Adjusters exams when the Act was a mere 75 years old, it seemed to me as an impatient young man that it already contained much that was old-fashioned. Having now exchanged the sharp suits of youth for the cardigans of middle age, the Marine Insurance Act feels more like a familiar friend, and a centenary toast or two seems to be in order.
It is difficult to over estimate the influence of the MIA; many of those countries that did not actually use it as a model for their own statutes have adopted the standard Institute Clauses which are subtitled as being “subject to English Law and practice”.
In these circumstances it is perhaps surprising that English Law was itself rather a late developer in terms of codifying marine insurance, compared to many other European states. It was Lord Mansfield, widely recognised as the founder of English mercantile law, who created the beginning of order out of medieval chaos. A barrister by training, he became Chief Justice of the King’s Bench in 1756.
Lord Mansfield has read widely amongst the work of European jurists and had studied Roman civil Law. He saw the incorporation of appropriate elements of this body of legal and practical experience as the only solution, arguing that “The maritime law is not the law of a particular country but the general law of nations”. He began to give reasons for his judgments in public and instituted a system of specialised jurors, consisting of prominent merchants, who served regularly on commercial cases. He also sought to identify general principles that should be applied consistently.
The volume of litigation continued to give rise to concern during the nineteenth Century and a growing body of opinion felt it necessary to bring together established practice and principles. In 1894 a Bill entitled the “Marine Insurance Codification bill,” later to become the Marine Insurance Act, was first introduced by Lord Herschell in the House of Lords.
The aims of the bill were innately conservative – to codify pervious Court decisions and to crystallise accepted practices. The measure received a rough ride particularly in the House of Commons and only reached the Statute books in 1906. How has it served us since?
The fundamental requirement for utmost good faith is set out in Section 17 (echoing Lord Mansfield’s comments in Carter v. Boehm (1766)). There have been a number of cases in recent years to try to clarify whether this obligation existed only when the policy was being negotiated or continued thereafter and whether it related only to matters of disclosure, etc or also related to the presentation of claims.
It has been settled under English law for some time that, if part of a claim is fraudulently presented, the Assured loses all right of recovery, including those losses that were properly put forward. More recently, the House of Lords ruled in the “STAR SEA”  that the duty of good faith imposed on both parties to an insurance contract by section 17 continues to apply after the conclusion of the insurance contract.
It is in fact extremely rare for an insurer to seek to avoid liability under the terms of section 17, but disputes relating to the specific problem of non-disclosure are more common. Section 18 requires the Assured to disclose every material circumstance which might influence the judgement of a prudent insurer in fixing the premium or accepting the risk.
However, the wording of the Act has proved difficult to pin down in a number of respects. The Courts have since had to wrestle with difficult issues relating to the objectivity of the test, whether an actual inducement has occurred and whether the influence or inducement had to be decisive.
Since the earliest days of insurance, policies have contained warranties that place restrictions on , for example, where the vessel can trade or what cargo it can carry. Under Section 33 of the Marine Insurance Act 1906, a warranty “is a condition which must be exactly complied with whether it be material to the risk or not.”
For example, if a vessel breaches a warranty regarding cargo and the vessel later grounds for wholly unrelated reasons, the breach is still fatal to that claim.
Although most policies have “held covered” provisions in the case of breach of warranty, it has long been argued that the Act imposes too servere a penalty in many cases, particularly when the breach is unrelated to the loss.
The Australian Law Reform Commission, which completed a detailed review of their 1909 Marine Insurance Act in July 2000, singled out warranties as the most significant area in need of reform. Such views are widely shared and the International Hull Clauses 2003 have therefore adopted a graduated approach that gives a more proportionate remedy for each kind of breach.
By contrast, there is a related area in which the Act arguably left insurers with too little protection. Section 39 deals with the seaworthiness of the vessel under a time policy and states that “where…the ship is sent to sea in an unseaworthy state, the insurer is not liable for any loss attributable to unseaworthiness.”
For an insurer to use this defence successfully he has to prove firstly that the alleged unseaworthiness actually caused the loss. Secondly, that the Assured (at a senior management level) know of or deliberately turned a blind eye to that unseaworthiness.
It may be that Section 39(5) provided Insurers with adequate protection in the days when Shipowners had a much more “hands on” relationship with the running of their vessels. Nonetheless, it has presented insurers with a very steep mountain to climb and they have looked to other means to safeguard their position.
Constructive Total Loss can often be another frustrating area for the practitioner. The Act and the standard Clauses do not always provide a clear route map to which one can direct the parties for guidance.
Although total losses have attracted most public attention, particularly if pollution is involved, the greatest area of activity in marine hull insurance is the day-to-day calculation and settlement of partial loss claims for Particular Average, and, to a decreasing extent these days, General Average.
With regard to Particular Average repairs the Act says in Section 69(1). “Where the ship has been repaired, the assured is entitled to the reasonable cost of the repairs….” I would suggest that these few plain words “reasonable cost of the repairs” represent the hidden jewel amongst such a virtuoso exercise in drafting.
The wisdom of opting for simplicity is demonstrated by the almost complete absence of litigation on this point in the succeeding hundred years.
There is one exception to the absence of modern authority on this topic, and it is a very significant one, “The Median Princess”. The plaintiff owners were looking to prove that the vessel was a constructive total loss.
Counsel for the defendant underwriters argued that ‘reasonable cost of repairs’ refers only to permanent repairs: nothing else could be included. The plaintiff shipowners understandably argued for a much wider interpretation. Roskill J agreed and preferred to determine “what would have to be expended to put the ship right”.
The most common objection to codification of the law is that there is a loss of flexibility and a tendency to freeze the law so that it cannot cope with future changes. This is a price that has be paid for the desired objective of certainty, but the drafters of the Act were careful to be no more prescriptive than was necessary, so that the Act has largely stood the test of time.
The “all or nothing” penalty for breach of warranty and non-disclosure (where the only remedy is complete avoidance of the policy) has often been criticised, with considerable justification. Both areas will doubtless be looked at in detail by the Law Commission in their forthcoming review of Insurance Contract Law. Aspects of CTL claims also remain a nettle to be grasped.
Whether you send or carry good by sea it remains in challenging adventure and the support offered by an effective system of insurance remains as important as ever. I would suggest that, despite some imperfections, the Marine Insurance Act remains an excellent platform from which to build that support.
(Richard Cornah : Chairman of Richards Hogg Lindley, Vice Chairman of Association of Average Adjusters.)