Insurance Excluded Losses and Causation .pdf
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4. EXCLUSION -‐ EXCLUDED LOSSES
Monday, February 17th
1-‐ STATUTORILY EXCLUDED LOSSES:
Effect of an exclusion, as any contract term, is a matter of construction. However, where
there is inconsistency between the cover provided by the policy and the exclusions, the
exclusion generally prevails.
The person relying on the exclusion must prove his entitlement to do so (insurer).
MIA S.55: PROXIMATE CAUSE RULE: the INSURER IS LIABLE FOR ANY LOSS
PROXIMATELY CAUSED BY A PERIL INSURED AGAINST
MIA s.55 contains a number of exclusions, must of which are dealt with specific terms in
o The insurer is not liable for losses not proximately caused by insured perils.
o The Assured need to prove that loss caused by an insured peril, to be insured
MIA 1906 s.55 – INCLUDED AND EXCLUDED LOSSES
(1) 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.
(2) In particular
(a) 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;
(b) 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
(c) Unless the policy otherwise provides, the insurer is NOT liable for ordinary wear &
tear, ordinary leakage & breakage, inherent vice or nature of the subject-‐matter insured,
or for any loss proximately caused by rats or vermin, or for any injury to machinery not
proximately caused by maritime perils.
(1) any loss which is not proximately caused by a peril insured
(2)(a) any loss attributable to the wilful misconduct of the Assured;
(2)(b) the insurer on ship or goods is not liable for any loss
proximately caused by delay, although the delay be caused by a peril
(2)(c)(i) ordinary wear and tear;
(ii) ordinary leakage and breakage;
(iii) inherent vice or nature of the subject matter insured;
(iv) any loss proximately caused by rats or vermin;
(v) any injury to machinery not proximately caused by
Subject to other provisions of the Act and subject to contrary provision by the parties (expect
for wilful misconduct)
2-‐ BUT there are also STANDARD FORM CONTRACTUAL EXCLUSIONS (in general clauses and
war & strikes clauses) to exempt underwriter from liability in certain circumstances.
ITCH 83 (International Hulls and Freight Clauses)
3-‐ BURDEN OF PROOF
Burden of proof generally lies on a person claiming the benefit of an exception to prove his
entitlement to do so – so on the insurer
1. WILFUL MISCONDUCT OF THE ASSURED
S. 55(2)(a) of the MIA
• Wilful misconduct of the Assured: an assured who consciously performs an act or
sets in motion a series of events calculated to cause a loss and succeeds in doing
so, may fail to recover for 3 reasons: illegality + loss not proximately caused by an
insured peril + even if the loss is proximately caused by an insured peril, recovery is
• The insurer is generally only liable for fortuitous losses, here not liable for “any loss
contributable to the wilful misconduct of the assured”
• This rule cannot be excluded by agreement.
• Idea of deliberate intention of bringing about the operation of an insured peril so as to
support an otherwise unsupportable claim against the insurer (by scuttling the ship) –
Extends to conscious or reckless omission to prevent conduct which is liable to cause the
operation of an insured peril.
• It must be committed by the Assured himself: either the “personal misconduct” of the
assured or of his alter ego or such misconduct on behalf of a person from whom his claim
derives -‐ do not include misconduct of servants (because employees).
Samuel v Dumas, 1924 HL*
Vessel fraudulently sunk on the owner’s instruction (fraud of the insurer).
Vessel was mortgaged and the mortgagee was held not to be complicit in the manoeuvre.
Mortgagee sought to recover for loss by peril of the sea. House of Lords held that the scuttling
of the vessel is not a peril of the sea -‐ Fortuity “involves an element of chance or ill luck
which is absent where those in charge of a vessel deliberately throw her away” -‐ fortuity
should be assessed in absolute terms and not relative to the assured claiming under the policy.
Even if the wilful misconduct of a SO in scuttling the vessel will not defeat a claim by an
independently insured mortgagee, though “it may well be that, when 2 persons are jointly
insured and their interests are inseparably connected so that a loss or gain necessarily
affects them both, the misconduct of one is sufficient to contaminate the whole insurance.”
2. DELIBERATE, OR MALICIOUS, DAMAGE
-‐ ICC (B) and (C) Clauses: no cover for “deliberate damage to or deliberate destruction of the
subject-‐matter insured or any part thereof by the wrongful act of any person or persons.” – ICC
(B) cl.4.7; ICC(C) cl.4.7
3. WEAR & TEAR
S.55(2)(c) of the MIA
Consistently with the fortuity rule, the insurer not liable for ordinary wear & tear, unless
the policy otherwise provides
More relevant to ship than to goods
Loss caused by ordinary WT may be excluded even if not inevitable.
May be eliminated by contrary provision (but never happened)
Stated more forcefully in ICC, cl.4.2
4. LEAKAGE & BREAKAGE
S.55(2)(c) of the MIA
• Consistently with the fortuity rule, the insurer not liable for ordinary leakage &
breakage, unless the policy otherwise provides
• Not concern extraordinary LB resulting from an insured peril
• May be outset by contrary provision
The Cendor MOPU, 2011*
Lord Mance: "While not myself attempting any exact definition, ordinary wear and tear
and ordinary leakage and breakage would thus cover loss or damage resulting from the
normal vicissitudes of use in the case of a vessel, or of handling and carriage in the case of
cargo, while inherent vice would cover inherent characteristics of or defects in a hull or cargo
leading to it causing loss or damage to itself -‐ in each case without any fortuitous external
accident or casualty.”
• Damage resulting from normal events are excluded.
• Contrasted to exclusion of inherent vice.
5. INHERENT VICE OR NATURE (OF THE SUBJECT-‐MATTER)
S. 55(2)(c) of the MIA
• The insurer is not liable for damages resulting from inherent vice, unless the insurance
cover provides otherwise.
• Peril may be introduced in the policy that overrides the exclusion of inherent vice.
S oya v W hite, 1 983
Lord Diplock: “This phrase [generally shortened to ”inherent vice” where it is used in
s.55(2)(c)] refers to a peril by which a loss is proximately caused ; it is not descriptive of the loss
itself. It mans the risk of deterioration of the goods shipped as a result of their natural
behaviour in the ordinary course of the contemplated voyage without the intervention of
any fortuitous external accident or casualty.” Definition limited to the natural behaviour of
the SM in the absence of fortuitous perils (no overlap between the inherent nature of the SM and
the fortuitously pertain peril of the sea).
Lord Diplock’s definition was alter approved by the SC in …
The Cendor MOPU, 2011 SC*
Lord Mance: "While not myself attempting any exact definition, ordinary wear and tear
and ordinary leakage and breakage would thus cover … while inherent vice would cover inherent
characteristics of or defects in a hull or cargo leading to it causing loss or damage to itself -‐
in each case without any fortuitous external accident or casualty.”
Core of the definition: the natural behaviour of the subject-‐matter in the ordinary
course of events
Loss may caused by IV even if not inevitable
The fact the SM suffers from IV and the fact that it suffers a loss do not per se mean that
the loss was caused by the IV (so as to be unindemnifiable)
Loss may be caused by IV where the intrinsic nature of goods is such that, from their
natural behaviour, they are “not fit to make the voyage in the ordinary way”.
IV also includes the necessary packing of the goods (both adequacy of the material
and the method of packing) – so cargo and its packing -‐However ICC 2009, cl.4.3
specifically exclude inadequate packing.
Loss may arise from the IV of the SM even if external factors affect its behaviour:
Noten v Harding, 1990
A loss may be caused by inherent vice if it results from a cause externally from the SM
but originally arose from the SM. Cargo of leather gloves in container – moisture from leather
gloves in a container rose, condensed and dripped onto the gloves, which became mouldy and
got moisture, condenses inside the container. Question was whether or not came from the gloves
or not. At the end it was considered that even though came from the gloves, the moisture came
from outside first. Loss was held to be caused by IV though it was not inevitable that there
would always be such an occurrence, and the fact that moisture had left the goods to
return to them did not necessarily make it an external cause.
• Not enough that the SM had inherent vice and suffered a loss; the burden is on the
insurer to prove that the loss was proximately caused by the IV.
-‐ Excluded in ICC – ICC cl.4.4
6. RATS OR VERMIN
S.55(2)(c) of the MIA
• The insurer is not liable for any loss proximately caused by rats or vermin, unless the
policy provides otherwise.
• Damage directly caused by vermin is not included with perils of the seas (so can be
• However, if rats gives opportunity to another insured peril to operate and if this 2nd
one is the proximate cause of the loss (and not rats), then covered and the insured
Hamilton v Pamdorf (1887)
Damaged to cargo caused by seawater due to rats gnawing through a pipe was
considered as a loss caused by peril of the sea. Proximate cause of the loss was the ingress of
seawater and not the rats. an ingress of sweater made pss by rats gnawing a pipe on board ship
is a peril of the seas (so fall outside the exclusion and so covered):
7. INJURY TO MACHINERY
S.55(2)(c) of the MIA
• The insurer is prima facie not liable for any injury to machinery not proximately
caused by maritime perils.
This codifies the HL decision in The Inchamree 1887 HL (due to the closure of a valve
which should have been open, water was forced into and spilt the air chamber of a
donkey-‐pump; this was held not to be caused by the insured perils of “perils of the seas
ad of any other perils.” HL: loss was not caused by an insured peril, so not recoverable)
Subject to contrary provision
-‐ ITVC (Institute Time and Voyage Clauses): Inchmaree clause covering inter alia loss or damage
caused by bursting of boilers, breakage of shafts or any latent defect in the machinery or hull
Also in Perils Clauses covers loss caused by breakdown of or accident to nuclear installations or
S.55(2)(b) of the MIA
• Enacts the rule at CL that “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”
– proximate causation is a question of fact
• Marine Insurance is to insure for loss to property. The operation of perils may cause
delay and delay may cause losses but it’s an economic loss rather than a property loss.
• Position slightly different with freight, considered as an economic interest, in case of
freight clause → won’t be excluded as an economic loss.
• Subject to contract provision
-‐ The Loss of Time Clause (previously known as the time charter clause) appears in both the
time and voyage forms of the current Institute Freight Clauses : “this insurance does not cover
any claim consequent on loss of time whether arising from a peril of the sea or otherwise”
(The words “any claim consequent on loss of time” mean “any claim for losses due to delay”)
The Playa de las Nieves, 1978 HL*
Time charter party, containing a of hire clause (payment excluded for time loss for in a
list of cases). Shipowners insured freight under a policy excluding “any claim consequent on loss
of time whether arising from a peril of the sea or otherwise”. Vessel’s machinery broke down,
necessity for the ship to be repaired. Went off-‐hire under the terms of the charterparty.
Shipowner sought to recover for loss of freight from the assured.
Held: Lord Diplock: the loss of freight was due to the Break down of the machinery,
which triggered the off-‐hire clause.
Question as to whether the proximate cause of the loss was a peril insured against
is irrelevant (insurer tried to argue that the breakdown of machinery was not an insured peril).
The exclusion in the insurance cover “contemplates a chain of events expressed to be
either “consequent on” or arising from” one another. It expressly makes the operation of the clause
dependent upon the presence in the chain of an intermediate event (loss of time) between the loss
for which the claim is made (loss of freight) and the event which in insurance law is the proximate
cause of that loss (peril insured against)… the intermediate event is not a peril though it may be the
result of a peril (…)”. -‐ The clause is concerned with an intermediate event between the
occurrence of a peril insured against and the loss of freight of which the peril was, in
insurance law, the proximate cause”
The clause “postulates a chain of events, viz (1) the occurrence of a peril insured
against, resulting in (2) loss of time, resulting in (3) loss to the assured of freight which he
would have earned from the use or hire of his vessel”
“When a voyage charter is frustrated by the actual destruction of the major part of the
carrying vessel or of the machinery essential to enable the vessel to carry the agreed cargo or is
frustrated by the outbreak of hostilities it may not spring to one’s lips to describe the resulting loss
of freight under the voyage charter as ‘consequent on loss of time’. These … may well be the kind of
cases to which Lord Atkin refers as possibly having placed too wide a construction on that phrase.”
= unless the claim is manifestly shown to be based on loss of time (eg, on loss of hire under
an off-‐hire clause or where frustration is constituted by a frustrating delay), in accordance with
the contra proferentem rule of construction, a claim will not easily be defeated by a Loss
of Time Clause.
Three fold event:
1) Operation of an insured peril
2) Resulting loss of time
3) Causing a loss to the Assured (a loss of freight)
= these 3 folds have to occur for the insured to recover for loss by delay. NOT because of
the loss of time.
Otherwise, Losses resulting from delay are normally excluded.
9. INSOLVENCY AND FINANCIAL DEFAULT
-‐ Under the ICC: the insurer is not liable for loss caused by insolvency or financial default of
sea carriers, to an assured who at the time he ships cargo is or should be ware that such
financial instability could be prevent normal prosecution of the voyage, except if assignee taking
in good faith. The insurer does not insure against inability to pay.
ICC 09, cl.4.6 – ICC 82, cl.4.6
10. DISCORD (“ WAR AND STRIKES”)
-‐ Exclusion clauses for excluding the risk of discord perils from both “marine” and “war and
strikes” cover and for allocating such risks between different types of policy. Usually
excluded from standard marine perils but include in another set of clauses.
11. BOTTOM TREATMENT
Standard Hull clauses
12. WAGES AND MAINTENACE
Standard Hull Clauses: U shall be not liable for wages and maintenance of the master, officers,
crew or any member thereof, except …
13. AGENCY COMMISSION
Standard Hull Clauses
14. MYSTERIOUS DISAPPEARANCE AND STOCKTAKING
Reverses the normal burden of proof
Losses may either be total or partial. Partial losses cause practical problems, particularly
if they are small. There may be doubts as to why the loss is caused (wear and tear,
inherent vice) it may not be worth to bother to bring and defend the claim.
Important use if excluding or limiting the Assured’s entitlement to claim in specified
circumstances occurs in the case of partial losses
Insurance has often been effected “free of particular average” – S.76 MIA: ”(1) Where
the subject-‐matter insured is warranted free from particular average, the assured cannot
recover for a loss of part, other than a loss incurred by a general average sacrifice, unless
the contract contained in the policy be apportionable; but, if the contract be apportionable,
the assured may recover for a total loss of any apportionable part.
(2) Where the subject-‐matter insured is warranted free from particular average, either
wholly or under a certain percentage, the insurer is nevertheless liable for salvage
charges, and for particular charges and other expenses properly incurred pursuant to the
provisions of the suing and labouring clause in order to avert a loss insured against.”
S.76(2) recognises that a particularly common way of excluding partial losses has been
to exclude small partial losses (advantageous for both the insurer and the assured, for
example eliminate the difficulty, inconvenience and expenses of small claims, or avoid
the necessity of discerning whether a claim was caused by an insured peril or WT…).
Historically two ways to deal with it:
o FRANCHISE CLAUSE: excludes specified losses of less than a certain
percentage – example with IFCTCF 83, cl.12, IVCF cl.10 “no cover partial loss,
other than general average loss, under 3% unless caused by fire …” -‐ cannot
recover for losses up to a certain amount, percentage (of the value of the SM). But
if the loss exceeds the specified amount, you can recover for the whole loss.
o DEDUCTIBLE CLAUSE: an agreed amount is deducted from all claims for
partial losses however large or small the loss. So a stage further -‐ you get
nothing up to a specified amount but you can recover beyond. Generally arises
out of Hull Insurance (IHC 03 cl.15, ITCH cl.12).
The exclusion rather it is a franchise or deductible may be limited, some risks may be
covered without regard of their amount.
-‐ SUCCESSIVE LOSSES SUFFERED BY A SINGLE TYPE OF SM
In an insurance on ship, successive particular average losses occurring during a
single voyage may be aggregated (alone fall under the limit but exceed it if put
together), whether voyage or time policy, for freight and goods.
However the position can be defined or modified by agreement -‐ commonly contracts
exclude form the aggregation some partial losses like general average or salvage.
-‐ LOSS OF A DIFFERENT CHARACTER
• Exclusion of one type of loss clearly should not apply to a loss of a different character.
• S.76 of the MIA: “(3) Unless the policy otherwise provides, where the subject-‐matter
insured is warranted free from particular average under a specified percentage, a general
average loss cannot be added to a particular average loss to make up the specified
(4) For the purpose of ascertaining whether the specified percentage has been reached,
regard shall be had only to the actual loss suffered by the subject-‐matter insured. Particular
charges and the expenses of and incidental to ascertaining and proving the loss must be
*[Particular average means partial loss].
When we are looking at a claim under an insurance contract, we will look at where the
Assured is arguing that the loss occurred as a result of an insured peril → regard to the
connection between them. How is causation proved?
Rules of causation provide a means of distinguishing between those causes which trigger
liability and give rise to certain defences in accordance with the contractual relationship
between assured and insurer. Whether or not a loss is covered by a marine policy depends on
ascertaining its proximate cause -‐ Burden: on the claimant to prove (on a balance of
• FORTUITY: to recover an indemnity, assured must prove that a loss was caused by the
fortuitous operation of an insured peril. Insurance is generally about fortuitous losses
(things that may or may not happen – peril of the sea…); fortuity does not however
always work, some losses are caused by deliberate conducts, such as piracy… the guiding
idea remains fortuity but is not the single one.
• INEVITABILITY: The Cendor MOPU 2011: lack of inevitability is no proof of a fortuitous
external accident or casualty. Lord Mance queried “whether and to what extend there
exist a further principle of insurance law, that loss which is inevitable is irrevocable”: as
long as the insured did not know that the loss would happen, then he should be
covered (if both parties known the loss was inevitable, no insurance – if assured alone
knows, no cover)
• S.55(1): the general principle is that the insurer’s liability is only for any loss
proximately caused by an insured peril + subject to other provisions of the MIA +
subject to contrary provision in the policy (most important)
-‐ PROXIMATE CAUSE
Judges consider that what we are looking for is not the last cause in point of time (as it was
commonly treated before) but “the real, dominant or effective cause” or the real efficient
cause” (proximate in efficacy, so more difficult to identify) –question of fact
-‐ REASONS FOR THE PERIL
The assured can recover for a loss, which is proximately caused by an insured peril, and the
nature and scope of the peril is a question o the construction of the policy. If this is so, and the
claim is not excluded by law or by a term of the contract, the reason why the insured peril
arose or operated so as to cause the loss is irrelevant.
Since negligence is in principle irrelevant to whether a loss has been caused by an insured
peril, this is a fortiori true where the peril causing the loss is uninsured
-‐ CONCURRENT CAUSES
An uninsured peril may give rise to an insured peril which proximately causes the loss and
enables the assured to recover under the policy. If several contributing causes: attempt to
discover whether one of the causes is plainly the proximate cause of the loss, in efficiency
as the dominant cause of the loss.
If one cause is an insured and the other an excluded peril, and shown that the proximate cause of
the loss falls within the exclusion: the exclusion prevails.
-‐ IDENTIFYING THE PERIL
Identifying the peril against which the assured claims to be covered is different from proving
-‐ ANTICIPATED LOSSES
Assured cannot recover for a loss resulting from mere apprehension that a loss from an
insured peril may or even is certain to occur. If a loss from one peril is apprehended and
avoided but a loss is then suffered, and even if the that loss would not have occurred but for the
necessity of avoiding the original peril: no recovery for a loss caused by that peril if it did not
cause the loss (if there is to be recovery: must be because the loss was caused by different peril
and that peril was insured)
Action taken to avert one peril may justify a claim for a loss caused by another peril
(another peril -‐ recover for loss by fore where ship is brunt to avoid a loss by capture).
Sufficient to constitute a loss by an insured peril that the loss was caused by necessary and bona
fide action taken as a consequence of, and in order to avert, the insured peril of which there was
an immediate danger and which was reasonably certain to cause the loss but for the action in
question (must be sthg equivalent to the relevant peril).
-‐ PERILS OF THE SEA
Any loss caused by the perils of the sea is within the policy, though it would not have
occurred but for the concurrent action of some other cause which is not within it.
Otherwise, underwriters would always be able to raise the question whether the vessel was able
to meet the perils of the sea.
Proof of causation:
• Insurance contract may get around it by the terms included in the policy. “caused by” or
as the Inchmaree clause “provide the loss as not resulted from due diligence”.
• Different terms may be used and deliberately or not intend to mean something.
• One of the major qualification on causation → as a general rule, if a loss is proximately
caused by an insured peril it does not matter that it is caused by negligence..
Becker Gray v London Ass, 1987
Assured insured from loss against detention. In order to avoid capture, the vessel put into a
port of refuge, into a neutral port. Held that the loss occurred did not result from peril of
detention as the peril of detention was avoided. A loss resulted from mere apprehension of the
peril is not generally recoverable.
• However when actions were taken where a peril was imminent the loss of avoidance
may be recoverable. → Knight of St. Michel; the Canada Rice Case.
• Distinction between when you take action to avoid a peril and where you take actions as
a result, consequence of an immediate threat of a peril.