The Principle of Indemnity in Marine Insurance Contracts

Kyriaki Noussia

The Principle of Indemnity in Marine Insurance Contracts A Comparative Approach

^ Sprin er

Dr. Kyriaki Noussia University of Birmingham School of Law Edgbaston, Birmingham B15 2TT United Kingdom k.p.noussia@bham.ac.uk

Library of Congress Control Number: 2006938304

ISBN 978-3-540-49073-9 Springer BerHn Heidelberg New York

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Preface

Marine Insurance is considered one of the oldest of the many forms of commercial protection. It has flourished through the establishment of the institution of the ''coffee-houses'', wherein ''underwriting" was being conducted and from where the evolution and dominance of the Lloyd's has stemmed as the world's most famous insurance market. Marine insurance contracts are special in that they have special characteristics and also be­cause they are contracts of indemnity.

This book examines the principle of indemnity within marine in­surance contracts. The legal problems related to the principle, in theory and in practice, are discussed and evaluated through the citation and criti­cal analysis of the relevant case law in England as well in some of the most representative common law and continental law jurisdictions, together with an analysis comprising thoughts and proposals on possible extensions, fur­ther research options, and a possible fiiture law reform.

The book comprises of six (6) chapters: chapter one (1) discusses the history of marine insurance in England and the policy reasoning behind the enactment of the various English statutes as well as the history, legal framework and the way marine insurance is regulated in the other jurisdic­tions. Chapter two (2) discusses the concept and importance of insurable interest in relation to indemnity marine insurance contracts and the cove­rage offered under such contracts both in England and in the other legal systems. Chapter three (3) discusses types of losses in England and the rest of the law regimes. Chapter four (4) discusses valuation and the measure of indemnity available according to the type of contract each time as well as in the case of double insurance, both in England and in the rest of the legal systems. Chapter Five (5) examines the legal issues related to the rights of insurer on payment, in all jurisdictions. Chapter six (6) draws some general comparative conclusions and also explores the scope and na­ture of a reform in the area, in light also of the ongoing attempt for unifica­tion, which has been undertaken since 1998 by the Comite Maritime Inter­nationale (CMI).

The book is an updated version of the Ph.D. thesis of the author, which was submitted, defended and accepted from the School of Law, University of Southampton, UK in 2004.

VIII Preface

I am indebted to the Max Planck Society for the bursary which al­lowed me to read as a guest scholar at the Max Planck Institute of Com­parative and Private International Law in Hamburg (April 2002). I am also indebted to the Research Council of Norway for the research scholarship which enabled me to visit and research at the Scandinavian Institute of Maritime Law, within the Faculty of Law of the University of Oslo in Norway (November 2002). I would also hke to thank Prof Y. Tassel of the University of Nantes, France for providing me with the opportunity to read as a guest scholar at the Centre de Droit Maritime et Oceanique of the University of Nantes in France (March 2003).

The law is stated as at October V\ 2006.

Birmingham, October 2006 Kyriaki Noussia

Contents

Dedication V Contents IX Abbreviations XVII

1. The history and legislative framework of marine insurance 1 1.1. Historical and policy reasons behind the various English statutes.... 1

1.1.1. Early historical background 1 1.1.2. The Lombards , , 2 1.1.3. Early English marine insurance 3 1.1.4. The founder of Lloyds and the rise of the Lloyds coffee house

3 1.1.5. The first marine insurance companies 4 1.1.6. The evolution of Lloyds and other forms of marine

insurance companies 5 1.1.7. The growth and evolution of the system and law of marine

Lisurance 6 1.1.8. The policy reasons which generated the enactment of the

Marine Insurance Act 1906 8 1.2. The history and legislative framework of marine insurance in

Greece 9 1.3. The history and legislative framework of marine insurance in

Norway 11 1.4. The history and legislative framework of marine insurance in

France 13 1.5. The history and legislative framework of marine insurance in

the USA 15 1.5.1. Introductory remarks 15 1.5.2. The situation prior to and after the'Wilbum Boat Co v

Fireman's Fund Insurance Co case 16 1.6. The history and legislative framework of marine insurance in

Canada 20 1.7. The history and legislative framework of marine insurance in

Australia 21 1.8. General conclusive remarks and comparative discussion 22

X Contents

2. Indemnity marine insurance contracts: basic features and cover provided 27 2.1. Basic features of the marine insurance contracts 27

2.1.1. Basic features of the marine insurance contracts in England .27 2.1.1.1. The nature of the marine insurance contract: basic

literature review 27 2.1.1.2. The nature of the interest: insurable interest 31

2.1.1.2.1. Definition and evaluation of the concept of insurable interest and the requirements set by law for it 32

2.1.1.2.2. On the illegality of the insured adventure ..40 2.1.1.2.3. The time when the insurable interest

must attach 40 2.1.1.2.4. Critique on the existence of the

requirement for insurable interest in relation also to overvaluation 42

2.1.2. Basic features of the marine insurance contracts in Greece...43 2.1.2.1. An introduction to the Greek legal system and the

interpretation of law in relation to contracts 43 2.1.2.2. The nature and objective of marine insurance

contracts in Greece 44 2.1.2.3. The formation of the marine insurance contract:

basic requirements 45 2.1.2.4. The nature of the interest: insurable interest 47

2.1.3. Basic features of the marine insurance contracts in Norway .47 2.1.3.1. General requirements for marine insurance

contracts under the Norwegian law regime 47 2.1.3.2. Insurable interest under the Norwegian law regime ..49

2.1.4. Basic features of the marine insurance contracts in France ...50 2.1.4.1. General requirements and duties of the contractual

parties to a marine insurance contract under the French law regime 50

2.1.4.2. The nature of the interest: insurable interest 51 2.1.5. Basic features of the marine insurance contracts

in the USA 52 2.1.5.1. General requirements for the formation of marine

insurance contracts in the USA 52 2.1.5.2. The nature of the interest: insurable interest 52 2.1.6. Basic features of the marine insurance contracts in

Canada 54 2.1.6.1. General requirements and the objective of marine

insurance contracts in Canada 54 2.1.6.2. The nature of the interest: insurable interest 55

2.1.7. Basic features of the marine insurance contracts in Australia 57 2.1.7.1. Basic requirements under the Australian

law regime 57

Contents XI

2.1.7.2. The nature of the interest: insurable interest 57 2.1.7.3. hisurable interest and the requirements for

marine insurance contracts under the Australian law regime: the reform proposals 59

2.2. The cover offered under marine insurance contracts in the various common law and continental law jurisdictions 65 2.2.1. The coverage offered under marine insurance contracts

in England 65 2.2.2. The coverage offered under marine insurance contracts

in Greece 70 2.2.3. The coverage offered under marine insurance contracts

in Norway 73 2.2.4. The coverage offered under marine insurance contracts

in France 74 2.2.5. The coverage offered under marine insurance contracts

in the USA 75 2.2.6. The coverage offered under marine insurance contracts

in Canada 76 2.2.7. The coverage offered under marine insurance contracts

in Australia 77 2.2.7.1. The coverage offered under marine insurance

contracts in the Australian law regime: the reform proposals ..78

2.3. General conclusive remarks and comparative discussion 80

3. Types of losses in marine insurance contracts 89 3.1. Types of losses in marine insurance contracts under the English

law regime 89 3.1.1. Indemnity and losses 89

3.1.1.1. Total losses: actual total loss 90 3.1.1.1 .a. Where the subject-matter is totally

destroyed: actual total loss of a ship -a "total wreck" 92

3.1.1.1.b. Actual total loss of a ship: a missing ship ..93 3.1.1.I.e. Actual total loss: where the subject-matter

insured ceases to be "a thing of the kind insured" 93

3.1.1.1.d. Actual total toss: where the assured is "irretrievably deprived" of the subject-matter insured 95

3.1.1.1 .e. Actual total loss of freight: actual total loss of freight caused by a total loss of ship and/or goods 96

3.1.1.1.f. Recovery for a partial loss 97 3.1.1.2. Constructive total loss 98

XII Contents

3.1.1.2.a. Types of constructive total loss: reasonable abandonment of the subject- matter insured 100

3.1.1.2.b. Types of constructive total loss: deprivation of possession of ship or goods 102

3.1.1.2.3. Effects of constructive total loss: abandonment of the subject-matter insured - the meaning of "the notice of abandonment" 105

3.1.1.2. Indemnity and partial losses 110 3.1.1.2.1. Indemnity and particular average losses.. 110 3.1.1.2.2. General average losses I l l 3.1.1.2.3. Indemnity and the "sue & labour" clause 113

3.2. Types of losses in marine insurance contracts under the Greek law regime 113

3.2.1. Total loss and abandonment under the Greek law regime .. 114 3.3. Types of losses in marine insurance contracts under

the Norwegian law regime 116 3.3.1. The cover offered under the Norwegian marine insurance

contracts 116 3.3.2. Types of losses under the Norwegian marine insurance

law 118 3.4. Type of losses in marine insurance contracts under the French

law regime 119 3.4.1. Losses under French marine insurance contracts 119 3.4.2. French marine insurance contracts and abandonment 119

3.5. Types of losses in marine insurance contracts under the US law regime 121

3.6. Types of losses in marine insurance contracts under the Canadian law regime 122

3.7. Types of losses in marine insurance contracts under the Australian law regime 123

3.8. General conclusive remarks and comparative discussion 124

4. Valuation and the measure of indemnity in marine insurance contracts 127 4.1, Valuation and the measure of indemnity 127

4.1.1. Valuation and the measure of indemnity in England 127 4.1.1.1. Valued and unvalued policies 128 4.1.1.2. The mode of calculation and the finality of losses . 135

4.1.2. Valuation and the measure of indemnity in Greece 136 4.1.3. Valuation and the measure of indemnity in Norway 139 4.1.4. Valuation and the measure of indemnity in France 140 4.1.5. Valuation and the measure of indemnity in the USA 141 4.1.6. Valuation and the measure of indemnity in Canada 142

Contents XIII

4.1.7. Valuation and the measure of indemnity in Australia 142 4.2. Total losses and the measure of indemnity 143

4.2.1. Total losses and the measure of indemnity in England 143 4.2.2. Total losses and the measure of indemnity in Greece 149 4.2.3. Total losses and the measure of indemnity in Norway 150 4.2.4. Total losses and the measure of indemnity in France 154 4.2.5. Total losses and the measure of indemnity in the USA 155 4.2.6. Total losses and the measure of indemnity in Canada 157

4.3. Partial losses and the measure of indemnity 157 4.3.1. Partial losses and the measure of indemnity in England 157

4.3.1.1. Partial loss of a ship and the measure of indemnity 158

4.3.1.2. Partial loss of goods and the measure of indemnity 159

4.3.1.3. Partial loss of freight and the measure of indemnity 160

4.3.1.4. General average losses and the measure of indemnity 161

4.3.2. General average losses and the measure of indemnity in Norway 161

4.3.3. Successive losses and the measure of indemnity in England 163

4.3.4. "Sue & labour" and the measure of indemnity in England. 164 4.3.5. "Sue & labour" and the measure of indemnity in Norway.. 166 4.3.6. "Sue & Labour" and the measure of indemnity in Canada. 167

4.4. Over-insurance and the re-opening of valuation 167 4.4.1. Over-insurance, under-insurance and the re-opening of

valuation in England 167 4.4.2. Over-insurance and the re-opening of valuation

in Greece 172 4.4.3. Over-insurance and the re-opening of valuation

in Norway 172 4.5. Floating policies and open-cover insurance 174

4.5.1. Floating, open-cover policies and the measure of indemnity in England 174

4.5.2. Floating, open-cover policies and the measure of indemnity in Greece 192

4.5.3. Floating, open-cover policies and the measure of indemnity in France 192

4.5.4. Floating, open-cover policies and the measure of indemnity in the USA 193

4.5.5. Floating, open-cover policies and the measure of indemnity in Canada 193

4.6. Critical discussion on valuation and the measure of indemnity... 194 4.7. Salvage and the measure of indemnity 197 4.8. Consequential, future profit loss and the measure of indemnity.. 199

XrV Contents

4.9. Mortgagee's interest insurance and the measure of indemnity.... 204 4.10. Double Insurance and the measure of indemnity 207

4.10.1. Double insurance and the measure of indemnity in England 207

4.10.2. Double insurance and the measure of indemnity in Norway 211

4.10.3. Double insurance and the measure of indemnity in Canada 212

4.11. General conclusive remarks and comparative discussion 213

S.Subrogation rights arising from marine insurance contracts 215 5.1. The rights of the insurer on payment in marine insurance

contracts in England 215 5.1.1. The doctrine of subrogation: definition and perspectives... 215 5.1.2. The rights in respect of which subrogation arises and

their extent; the persons upon which subrogation rights may be effected 216

5.1.3. Recovery in the case of under-insurance or partial insurance 227

5.2. The rights of the insurer on payment in marine insurance contracts in Greece 230

5.3. The rights of the insurer on payment in marine insurance contracts in Norway 231

5.4. The rights of the insurer on payment in marine insurance contracts in France 234

5.5. The rights of the insurer on payment in marine insurance contracts in the USA 234

5.6. The rights of the insurer on payment in marine insurance contracts in Canada 237

5.7. The rights of the insurer on payment in marine insurance contracts in Australia 237

5.7.1. The main areas of the reform in relation to subrogation under the Australian law regime 239

5.8. General conclusive remarks and comparative discussion 241

6. Discussion on the principle of indemnity in marine insurance contracts 245 6.1. General critique 245 6.2. Advantages and disadvantages of the proposition for a

future law reform 252 6.2.1. General remarks on the idea of unification

and/or harmonisation 252 6.2.2. The arguments for and against a law reform by means

of new codification 253 6.3. Alternatives to legislative reform 259

Contents XV

6.4. Provisions related to indemnity in need of reform...., 261 6.4.1. The discussion on possible reform of the sections

on insurable interest 261 6.4.2. The discussion on possible reform of the sections relating

to the measure of indemnity 263 6.5. General conclusions and future prospects 264

Bibliography 269 Table of Cases 275 Table of Statutes 289 Index 293 About the Author 297

Abbreviations

AC Australian ICA Australian MIA 1909 AIMU

AK AllER ALRC AMC ANZ Cases App Cas Ap i B&PNR Bos & Pul (NR) B&C.

B&Ad

BingNC Brod & B

Burr CA Camp CB CCA C&F Ch cA.f. CMI Circ CLC Com Cas CPD

Appeal Court Australian Insurance Contracts Act Australian Marine Insurance Act 1909 American Institute of Maritime Underwriters AaTiK6(; KcbSi All England Law Reports Australian Law Reform Commission American Maritime Cases Australia & New Zealand Cases Appeal Cases ApjievoTiou toq Bosanquet & Pullet's New Reports Bosanquet & Pullet's New Reports Bamwall & Cresswells' King's Bench Reports Bamwall & Adolphus' King's Bench Reports Bingham's New Cases Broderip & Bingham's Common Pleas Reports Burrow's King's Bench Reports Cours d' Appel Campbells' Nisi Prius Cases Common Bench Reports Consolidated Case Annotations Clark & Fineelly's House of Lords Cases Law Reports Chancery Division Cost Insurance Freight Comite Maritime Internationale Circuit Common Law Cases Commercial Cases Law Reports Common Pleas Division

XVIII Abbreviations

CPML DMF East EEJ TTA

EXA ENaDxA Ex Exch ExD FCas Fed Rep F2d Fed Supp HL H&C

HLCas HoltNP ICA ICC IJOSL IntlLR IHC ISC(C) IWC(C) JBL JMarLC KB KINA KANA LlLRep LMCLQ

LOF LR LRCP LRHL LRQB Lloyd's Rep. LT MIA MIA RSBC

Code of Private Maritime Law Droit Maritime Francais East's Term Reports, King's Bench E7ci98(bpr|ar| Ejj.TiopiKO'o AiKaioi) E>.>.TiviKf| AiKaioawri E7Ei9scbpr|ar| NaDxiKoii AiKaioD Exchequer Reports Exchequer Reports Law Reports, Exchequer Division Federal Cases Federal Reporter Federal Reporter, Second Series Federal Supplement Clark & Finelly's House of Lords Reports Hurlstone & Coltman's Exchequer Reports House of Lords Cases Holt's Nisi Prius Law Reports Insurance Contracts Act International Cargo Clauses International Journal of Shipping Law International Insurance Law Review International Hull Clauses Institute Strike Clauses ( Cargo) Institute War Clauses (Cargo) Journal of Business Law Journal of Maritime Law and Commerce King's Bench K(b5i^ I6i(0TiKou NauTiKou AiKaiou K(b8i^ Ar||Lioaiou NauxiKou AiKaiou Lloyd's Law Reports Lloyd's Maritime and Commercial Law Quarterly Lloyd's Standard Form of Salvage Law Reports Law Reports Common Pleas Law Reports House of Lords Law Reports Queen's Bench Lloyd's Reports Law Times Reports Marine Insurance Act Marine Insurance Act Republic

Abbreviations XIX

MIARSM

MIARSNB

MIARSO

NMIP NoB NSWLR P&I PIE ppi QB set. SCR SDNY SDNYDC SG Policy Shaw S&M Sup Ct (NSW) Taunt TLR UNCTAD

UN Vern Ves Sen W&L WLR

State of British Columbia Marine Insurance Act Republic State of Manitoba Marine Insurance Act Republic State of New Brunswick Marine Insurance Act Republic State of Ontario Norwegian Marine Insurance Plan NojLiiKo Bf||Lia

New South Wales Law Review Protection and Indemnity Provisional Insurance Bureau Policy Proof Interest Queen's Bench Supreme Court New Supreme Court Reports State District of New York State District of New York District Court Ship and Goods Policy Shaw's Session Cases Sweet & Maxwell Supreme Court (New South Wales) Taunton's Common Pleas Reports Times Law Reports United Nations Commission on Trade & Development United Nations Vernon's Chancery Reports Vesey Senior's Chancery Reports Washington & Lee Law Review Weekly Law Reports