Insured perils

Question 1

Perils insured under the Institute Time Clauses – Hulls 1/10/83

Answer 1

6.1 This insurance covers loss of or damage to the subject-matter insured caused by
6.1.1. perils of the seas rivers lakes or other navigable waters
6.1.2 fire, explosion
6.1.3 violent theft by persons from outside the Vessel
6.1.4 jettison
6.1.5 piracy
6.1.6 breakdown of or accident to nuclear installations or reactors
6.1.7 contact with aircraft or similar objects, or objects falling therefrom, land conveyance, dock or harbour equipment or installation
6.1.8 earthquake volcanic eruption or lightning.
6.2 This insurance covers loss of or damage to the subject-matter insured caused by
6.2.1 accidents in loading discharging or shifting cargo or fuel
6.2.2 bursting of boilers breakage of shafts or any latent defect in the machinery or hull
6.2.3 negligence of Master Officers Crew or Pilots
6.2.4 negligence of repairers or charterers provided such repairers or charterers are not an Assured hereunder
6.2.5 barratry of Master Officers or Crew provided such loss or damage has not resulted from want of due diligence by the Assured, Owners or Managers.
6.3 Master Officers Crew or Pilots not to be considered Owners within the meaning of this Clause 6 should they hold shares in the Vessel

Question 2

Perils insured against under the Institute Time Clauses – Hulls 1/11/95

Answer 2

6.1 This insurance covers loss of or damage to the subject-matter insured caused by
6.1.1 perils of the seas rivers lakes or other navigable waters
6.1.2 fire, explosion
6.1.3 violent theft by persons from outside the Vessel
6.1.4 jettison
6.1.5 piracy
6.1.6 contact with land conveyance, dock or harbour equipment or installation
6.1.7 earthquake volcanic eruption or lightning
6.1.8 accidents in loading discharging or shifting cargo or fuel.
6.2 This insurance covers loss of or damage to the subject-matter insured caused by
6.2.1 bursting of boilers breakage of shafts or any latent defect in the machinery or hull
6.2.2 negligence of Master Officers Crew or Pilots
6.2.3 negligence of repairers or charterers provided such repairers or charterers are not an Assured hereunder
6.2.4 barratry of Master Officers or Crew
6.2.5 contact with aircraft, helicopters or similar objects, or objects falling therefrom provided that such loss or damage has not resulted from want of due diligence by the Assured, Owners, Managers or Superintendents or any of their onshore management.
6.3 Masters Officers Crew or Pilots not to be considered Owners within the meaning of this Clause 6 should they hold shares in the Vessel.

• Contact with aircraft not covered
• Superintendents part of due diligence proviso

Question 3

Perils insured against under the International Hull Clauses 2003

Answer 3

2.1 This insurance covers loss of or damage to the subject-matter insured caused by
2.1.1 perils of the seas, rivers, lakes or other navigable waters
2.1.2 fire, explosion
2.1.3 violent theft by persons from outside the vessel
2.1.4 jettison
2.1.5 piracy
2.1.6 contact with land conveyance, dock or harbour equipment or installation
2.1.7 earthquake, volcanic eruption or lightning
2.1.8 accidents in loading, discharging or shifting cargo, fuel, stores or parts
2.1.9 contact with satellites, aircraft, helicopters or similar objects, or objects falling therefrom.

2.2 This insurance covers loss of or damage to the subject matter insured caused by
2 2.2.1 bursting of boilers or breakage of shafts but does not cover any of the costs of repairing or replacing the boiler which bursts or the shaft which breaks
2.2.2 any latent defect in the machinery or hull, but does not cover any of the costs of correcting the latent defect
2.2.3 negligence of Master, Officers, Crew or Pilots
2.2.4 negligence of repairers or charterers provided such repairers or charterers are not an Assured under this insurance
2.2.5 barratry of Master, Officers or Crew provided that such loss or damage has not resulted from want of due diligence by the Assured, Owners or Managers.

2.3 Where there is a claim recoverable under Clause 2.2.1, this insurance shall also cover one half of the costs common to the repair of the burst boiler or the broken shaft and to the repair of the loss or damage caused thereby. (will share half the costs of opening up to find that defective part etc)

2.4 Where there is a claim recoverable under Clause 2.2.2, this insurance shall also cover one half of the costs common to the correction of the latent defect and to the repair of the loss or damage caused thereby.

2.5 Master, Officers, Crew or Pilots shall not be considered Owners within the meaning of Clause 2.2 should they hold shares in the vessel.

Question 4

Perils of the seas definition

Answer 4

MIA ROC (7)

The term “perils of the seas” refers only to fortuitous accidents or casualties of the seas. It does not include the ordinary action of the winds and waves.

Question 5

Pirates definition

Answer 5

MIA ROC (8)
The term “pirates” includes passengers who mutiny and rioters who attack the ship from the shore.

May also be committed by crew (although this would usually be barratry). Piracy requires robbery or attempted robbery effected with the use of violent rather than clandestine conduct and be for private rather than political gain. It must take place on the high seas, tidal waters, port or harbour, but not a mere inland waterway.

Question 6

Thieves definition

Answer 6

9. The term “thieves” does not cover clandestine theft or a theft committed by any one of the ship’s company, whether crew or passengers.

Question 7

Barratry definition

Answer 7

11. The term “barratry” includes every wrongful act wilfully committed by the master or crew to the prejudice of the owner, or, as the case may be, the charterer.

Templeman: Examples of barratry would be the casting away of the vessel by the master or crew, the setting fire to her or running her ashore, or fraudulently selling either the vessel / cargo.

Question 8

Restraint of princes definition

Answer 8

MIA ROC 10 - The term “arrests, &c., of kings, princes, and people” refers to political or executive acts, and does not include a loss caused by riot or by ordinary judicial process

Question 9

Concept of latent defect and how damage arising can be claimed

Answer 9

Damage arising from a latent defect can be claimed under Cl 6.2.2 of ITC hulls 1/10/83. (Not the defect itself! – covered in IAPC)

Question 10

Oceanic Steamship v Faber - 1906

Answer 10

Vessel “Zealandia” - flaw discovered due to an imperfect weld made ten years previously. Assured sought to recover for damage due to latent defect under Inchmaree Clause. Claim rejected as there was no damage due to a latent defect, just a latent defect had been discovered.

Held no claim for latently defective part, only if the latent defect had caused damage to hull or machinery.

Question 11

Hutchins Bros v Royal Exchange Assurance – 1911

Answer 11

Defect in ship’s stern frame covered up by makers when built in 1906. Became visible by ordinary wear and tear few years later and stern frame condemned. Assured sought to recover cost of repairing sternpost as a loss by latent defect. No claim under Inchmaree Clause as there has been no (consequential) loss or damage to hull and machinery during currency of policy.

Question 12

Wills and Sons v World Marine Insurance – 1911

Answer 12

Latently defective weld in chain caused chain to fail and damage was caused by falling ladder and buckets. Scrutton said “a good example of a legitimate claim” under Inchmaree

ie. latent defect had caused damage to hull and machinery so a claim arose, not for chain, but for the parts damaged as a consequence of its failing.

Question 13

Scindia Steamships v London Assurance - 1937

Answer 13

Latently defective shaft broke in drydock and as a result the propellor fell off and was damaged. Held assured could recover for the propellor but not the shaft, shaft being the latently defective part and therefore not recoverable.

Question 14

Jackson v Mumford [1902]

Answer 14

Latent defect is a defect in material (not design- later dismissed) (novel torpedo ship – hollow conrods – damage during sea trials (craftmanship etc was all in spec, just the design was defective).

Jackson v Mumford [1902] The leading Judge in the Court of Appeal included obiter dicta in his judgment as follows: “The phrase ‘defect in machinery’ means a defect of material, in respect either of its original or after-acquired composition.” He added: “the phrase does not cover the erroneous judgment of the designer as to the effect of the strain which his machinery will have to resist, the machinery itself being faultless, the workmanship faultless, and the construction precisely that which the designer intended it to be”. As a consequence, the view was held for many years that the word ‘defect’ was limited to a ‘defect in material’ and that damage caused by a weakness or defect in design was not included within the term ‘latent defect’.

Question 15

Dimitrios N Rallias [1922]

Answer 15

A defect which could not be discovered by a person of competent skill and using ordinary care [negligence is not a test of latency].

It has to be something that you ‘could not’ discover, not something you ‘might not’ discover.

Question 16

Brown v Nitrate Producers [1937]

Answer 16

Latent not just to the eye but to all the senses. The test carried out to identify such defect must be reasonable, i.e ‘such an examination as a reasonably careful man skilled in the matter would make’ [can’t expect them to check every rivet]

Question 17

Caribbean Sea [1979]

Answer 17

The vessel sank in moderate weather and investigation showed that a short tube connecting the starboard main sea suction valve to the ship’s side had developed a circumferential crack. The Owners argued that the loss was caused by a latent defect; the Insurers contended that the loss was due to wear and tear or to a defect in design.

The trial Judge commented as follows: ”…in considering whether there was a defect in the hull or machinery which directly caused the loss of or damage to the ship, one is concerned with the actual state of the hull and machinery and not with the historical reason why it has come about that the hull and machinery is in that state. If the hull and machinery is in such a state that there can properly be said to be a defect in it, and such defect is the proximate cause of the casualty, it would seem to matter not that it had come into existence by virtue of (for example) poor design, or poor construction, or poor repair, unless a casualty so caused is excluded from the cover…”

In rejecting both of the Insurers’ defences he found that the proximate cause of the loss was a combination of fatigue cracks arising from faulty design and the normal working of the ship. The defect constituted a latent defect, not wear and tear.

(One question left open by the decision in “Jackson v Mumford” was whether a “defect in machinery” was restricted to a “defect of material”, or whether, for example, damage caused by the negligent assembly of materially sound parts of an engine would fall under the definition, despite the absence of a defect of any material. In this case the Judge approved the notion that the inadequacy of a particular part could constitute a shortcoming of, as opposed to a defect in, the machinery. On the other hand, he departed from the narrowness of the earlier judgment in also approving the suggestion that a defect in machinery did not have to be a material defect and could include incorrect assembly)

Question 18

“Nukila” [1997]

Answer 18

A jack up rig, insured under a marine policy subject to Institute Time Clauses Hulls 1/10/83 including the Additional Perils Clause, sustained damage to one of its legs caused by a faulty weld on the leg which was agreed to be a latent defect. The insurers resisted the claim on the basis that the entire leg and welding was all one part, and therefore latently defective, the recovery of which was excluded.

In the Court of Appeal the lead Judge imposed 3 tests:
1. was there damage to subject matter insured?
2. did it occur during policy?
3. was it caused by a latent defect?

It was held that damage was different from, and over and above the original latent defect even though both were contained in one component.

The case is important for a number of reasons, not least because it clarified that, in terms of ITCH 1/10/83, cover exists under the Inchmaree clause if, as here, the assured can show that damage to the subject matter insured has occurred which is proximately caused by a latent defect in that subject-matter. The exclusion of the cost of repairing/replacing the originally defective part was viewed as a separate exercise; in any event it was not relevant in the case of the Nukila since the insurance policy included the Additional Perils Clauses.

Question 19

The Institute Additional Perils Clauses – Hulls 1/10/83: extra cover offered and limitations

Answer 19

1 In consideration of an additional premium this insurance is extended to cover
1.1 the cost of repairing or replacing
1.1.1 any boiler which bursts or shaft which breaks
1.1.2 any defective part which has caused loss or damage to the Vessel covered by Clause 6.2.2 of the Institute Time Clauses - Hulls 1/10/83,
1.2 loss of or damage to the Vessel caused by any accident or by negligence, incompetence or error of judgement of any person whatsoever.

2 Except as provided in 1.1.1 and 1.1.2, nothing in these Additional Perils Clauses shall allow any claim for the cost of repairing or replacing any part found to be defective as a result of a fault or error in design or construction and which has not caused loss of or damage to the Vessel.

3 The cover provided in Clause 1 is subject to all other terms, conditions and exclusions contained in this insurance and subject to the proviso that the loss or damage has not resulted from want of due diligence by the Assured, Owners or Managers. Master Officers Crew or Pilots not to be considered Owners within the meaning of this Clause should they hold shares in the Vessel

Question 20

Burden of proof - all risks cover

Answer 20

Claimant only needs to show that the damage was fortuitous

Question 21

Burden of proof - named perils cover

Answer 21

Claimant needs to show on the balance of probabilities that the loss was due to a named peril. The burden of proof on an issue of wilful misconduct rests unequivocally on the insurers.

Question 22

The Popi M 1985

Answer 22

A vessel insured under a time policy was steaming through the Mediterranean in good weather when shell plating in the engine room suddenly opened up, flooding and later sinking the vessel. The owners advanced a number of theories as to what might have caused the sudden shell plating failure, including contact with a submarine. The insurers declined to settle the claim on the basis that the loss was due to ordinary wear and tear on an elderly vessel. The House of Lords reviewed the extensive expert evidence and, finding it inconclusive, rejected the claim, saying “it is always open to the Court… to conclude that the proximate cause of the ship’s loss, even on a balance of probabilities, remains in doubt, with the consequence that the Shipowners have failed to discharge the burden of proof which lay upon them.”

Question 23

Marel – 1991

Answer 23

Vessel sank after a ‘bump’ had been felt - owners claimed collision with a submerged container or similar. Held near impossible for container to cause such damage, followed Popi M and found that owners had failed to discharge the burden of proof upon them.

Judgement upheld by court of appeal.

Question 24

Definition of loss or damage

Answer 24

Loss or Damage means any loss, cost, injury, liability, obligation, expense (including interest, penalties, attorneys’ fees and disbursements), litigation, proceeding, claim, charge, penalty or damage suffered or incurred by a Person.