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PRINCIPLE WISE AUTHORITY IN MARINE INSURANCE

FORMATION OF MARINE INSURANCE CONTRACTS

• Insurance contracts are contracts of indemnity but may not be perfectly indemnifying, it may
sometimes under indemnify and sometimes over indemnify.

Rickards v Forestal land, Timberland Railways Co. [ 1941] 3 ALL ER 62 at p76,HL


Lord Wrights judgement ; “ The object both of the legislature and of the courts have been to give effect to
the idea of indemnity, which is the basic principle of insurance and to apply in the diverse complications of
fact and law in respect of which it is to operate. In this way, the law merchant has solved, or sought to solve,
the manifold problems, which have been presented by the insurers of maritime adventures.

Castellain v Preston [1883] 11 QBD 380 at p 386


Brett J. “A contract of insurance contained in a marine or fire policy is a contract of indemnity, and of
indemnity only, and this contract means that the assured in case of a loss against which the policy has been
made, shall be fully indemnified but shall be never more than fully indemnified”.

Castellain v Preston [1883] 11 QBD 380 at p 401 CA


Lord Justice Bowen ; ‘ in all these difficult problems, I go back with confidence to the broad principle of
indemnity. Apply that and an answer to the difficulty will be found...but can it be any exception to the
infallible rule that a man can only be indemnified to the extent of his loss?”

Brotherston v Barber [1816] 5 M & S 418 at p 425


Lord Ellenborough. “The great principle of the law of insurance is that it is a contract for indemnity. The
underwriter does not stipulate, under any circumstances, to become the purchaser of the subject matter
insured, it is not supposed to be in his contemplation he is to indemnify only”.

British & Foreign Marine Insurance Co. Ltd. V Wilson Shipping Co. Ltd [1921] 1 AC188 at p814,HL.
Lord Sumner: “In practice contracts of insurance by no means always result in a complete indemnity, but
indemnity is always basis of the contract”

Irving v Manning, [1847]1 HLC 287 at p307


Mr. Justice Patteson; “A policy of assurance is not a perfect contract of indemnity”

SUBJECT MATTER INSURED

• Loss of voyage, Frustration of adventure.

RODOCONACHI V ELLIOT [1874] LR 9 CP 518


The insured goods were detained in Paris by the German Army when it became impossible to send them on
to their proper destination. The assured was entitled to abandon the goods to the insurer and recover for a
total constructive loss.

Anderson V Wallis [1813] 2 M & S 240

Barker V Blakes [ 1808] 9 east 283, 293-294.

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GAMING AND WAGERING CONTRACTS MIA s 4

• Where an assured has no insurable interest in the marine adventure as defined by S 5(2) of the act, he
will not be able to show he suffered a loss and thus he cannot effect an insurance policy, such an
insurance policy will be deemed a gaming and wagering and is illegal by section 1(1) of the Marine
Insurance Gambling Policies Act 1909. Where the policy is void the assured is entitled to a return
of premium by S 84(3)a, BUT WHEN THE POLICY IS ILLEGAL THE PREMIUM IS NOT
REFUNDABLE. This does not prejudice the rights of an assured who has a genuine expectation of
acquiring an interest. This has to be read with s 6 (1) where it is said that the crucial moment when
the assured must have insurable interest is at the time of the loss.

INSURABLE INTEREST MIA ss 5 to 15

Macaura v Northern Assurance Company Ltd [1925] AC 619 Walton J's


conclusion to the effect that an ordinary unsecured creditor had no insurable interest in his debtor's
property was approved in Macaura v Northern Assurance Company Ltd [1925] AC 619, a case much
relied on by Jones. In that case the House of Lords held that the appellant, who had sold timber lying
on his estate to a company of which he was the sole shareholder and also a substantial creditor, and
who had insured the timber with the respondent, had no insurable interest in the timber, and thus no
claim against the respondent when the timber was destroyed by fire. Although it lay on the appellant's
land, he had no responsibility to the company for its safety. The fact that the company was indebted to
the appellant and that the timber was the company's only asset, and for that reason the appellant
could be said to have had an interest in the preservation of the timber, was insufficient to confer an
insurable interest, because he stood in no ‘legal or equitable relation’ to the timber at all. Thus it is
settled law that an unsecured creditor with no legal or equitable relationship to the property of his
debtor does not have an insurable interest in that property.

DOUBLE INSURANCE, CONTRIBUTION AND RETURN OF PREMIUM MIA s 32 MIA s 80 MIA


s 84

North British and Mercantile Insurance Co. v London Liverpool and Globe Insurance Co. [1877] 5Ch
D 569 at p563 Lord Justice Mellish provided a common law definition saying “The rule is perfectly
established in the case of a marine policy that contribution only applies where it is an insurance by the same
person having the same rights, and does not apply where different persons insure in respect of different
rights”

Thames and Mersey Marine Insurance Co. Ltd. V Gunford Ship Co.[1911] AC 529 at p549 HL.
Over-insurance by PPI policies on hull and disbursements and disbursements were taken by the assured in
addition to the standard Hull and freight policies. The only source from which the disbursements could be
repaid was the freight which was already insured.
Lord Robson: “So far as these payments consisted of current working expenses necessary to earn freight
they were covered by the insurance on the gross freight, and so far as they consisted of repairs, outfit and
insurance premium on hulls they would ordinarily be included in policy on the ship and materials”.
In this case it was held that the Hull and Freight Insurers were entitled to avoid their policy on the grounds
of non-disclosure of a material fact; the existence of and the amounts of the wager policies were
circumstances material to be disclosed.

VOID CONTRACTS

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ILLEGAL CONTRACTS

POLICY PROOF OF INTEREST

SLIP METHOD OF FORMATION

SIGNING OF SLIP

SUBROGATION, MIA s 79 V ABANNDONMENT, MIA ss 62, 63 THE DIFFERENCE OF


RULE

79(1) subrogation in the event of total loss


79(2) subrogation in the event of partial loss

The right of subrogation is in order to minimise the total loss of the incident and is as important as the
principle of indemnity itself. By way of subrogation the insurer once he as indemnified the assured has the
rights to step into the assureds shoes and sue on behalf of the assured (that is in the assureds name contrary
in case of assignment where the insurer may sue in his own name).

Simpson V Thomson [1877] 3 App Cas 279 at p 284, HL


Lord Cairns: “ I know no foundation for the right of underwriters, except the well known principle of law,
that where one person has agreed to indemnify the another he will, on making good the indemnity, be
entitled to succeed to all the ways and means by which the person indemnified might have protected himself
against or reimbursed himself for the loss”

Burnand V Rodocanachi [1882] 7 App Cas 333 at p 339.


Lord Blackburn: “The general rule of law( and its obvious justice) is that where there is a contract of
indemnity ... and a loss happens, anything that reduces or diminishes that loss, reduces and diminishes that
amount that the insurer is bound to pay; and if the indemnifier has already paid it, then, if anything which
diminishes the loss comes into the hands of the person to whom he has paid it, it becomes an equity that the
person who has already paid the full indemnity is entitled to be recouped by having that amount back.”

Attorney-General v Glen Line Ltd and Liverpool and London War Risks Association Ltd. [1930] 37
Lloyd’s Law Rep 55 at p61; [1930] 36 Com Cas 1 at p 13
Lord Atkin: “In respect of abandonment the rights exist on a valid abandonment and in respect of
subrogation they arise only on payment.”
In practice, insurers rarely accept the abandonment for this carries with it not only the rights but also the
liabilities in respect of the abandoned property. [Obvious liabilities are expenses incurred for the removal of
the wreck and damage caused by oil pollution as in River Wear Comrs v Adamson [1877] 2 App Cas 743;
The Mostyn [1928] AC 57; Arrow Shipping Co v Tyne Improvement Comrs [1894] AC 508.]
However, should they agree, whether expressly or impliedly, to assume ownership over the subject matter
insured, then they would be able to retain any profit made on its sale. In this case the insurer was allowed to
retain the whole proceeds of the sale, even though that the insurers actually profited from the result.

Yorkshire Insurance Co. v Nisbet Shipping Co Ltd [1961] 1 Lloyd’s rep 479
Lord Diplock: “it is to be noted that the subsection [s 79(1)] which comes into operation only upon payment
of the total loss by the insurer, deals with two distinct matters;

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(1)The interest of the assured in the subject matter insured and (2) the rights and remedies of the assured in
and in respect of that subject matter”.
Lord Diplock observed that ONLY in the case of abandonment the insurer is entitled to although not bound
to take over; if he does then the whole interest of the assured in the subject matter insured is transferred to
him. Thus it can be argued as the insurers had assumed all responsibility in respect of the subject matter
insured, they should be allowed to keep any reward arising there from, which may be regarded as the
consideration (price) the good with the bad with the transfer of ownership.
In the above case the insurer paid the insurers paid the assured a sum of 72,000GBP for a total loss in
accordance with the terms of the agreement. Subsequently due to GBP devaluation, the assured received
from the third party a sum in excess of what they had received from the insurer. The insurer then proceeded
against the assured claiming not only what they had paid out but also the excess they received. The court
held that the insurers were entitled to be paid only the amount they had paid under the policy. The excess
belonged to the assured. The rule is that the insurer is entitled only to what he has in fact paid out under the
policy as per the principle of indemnity s 1 of the MIA 1906.

Houstman v Thornton [1816] Holt N P 242 The same rule applies in case of a missing ship: the insure ,
on paying out, is entitled to keep the vessel should she reappear later ( s 58).

Simpson v Thompson [1877] 3 App Cas 279 at p 292, HL


Lord Blackburn: “ The right to receive payment of freight accruing due but not earned at the time of
disaster is one of those rights so incident to the property in the ship, and it therefore passes to the
underwriters because the ship has become their property”. As per s 63(2) the insurer is entitled to freight
earned after his acceptance of the abandonment.

SLIP AS EVIDENCE

BROKERS DUTIES IN PLACING COVER


DUTY TO OBTAIN APPROPRIATE COVER
PROPER PLACING OF RISK
SIGNING INDICATION

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