Marine Insurance: Law and Practice




16.1 The main object of hull insurance is to insure against loss of, or damage to, the insured vessel. However, the owner of the vessel may as a result of its use also sustain substantial losses by incurring liability to third parties. It was held in 1836 that such liability was “neither a necessary nor a proximate effect of the perils of the sea” and was, therefore, irrecoverable under the normal form of policy.1 Thus, it became common practice to cover such losses by a “running down clause”, today more commonly described as a collision liability clause. 16.2 The collision liability clause which appears, in almost identical language, in the current Institute hulls clauses2 and the International Hull Clauses3 is described as a “3/4ths Collision Liability” clause. In addition, the International Hull Clauses provide optional cover for 4/4ths collision liability and in respect of fixed and floating objects.4 Their 4/4ths Collision Liability Clause5 states that, “If the Underwriters have expressly agreed in writing, then Clause 6 [the 3/4ths Collision Liability Clause] is amended such that the words ‘three fourths of’ are deleted on each occasion in which they appear in Clause 6”. 16.3 It has been said generally of the collision liability clause that “It is in each case a special contract very different from the contract of insurance in its ordinary form; and the liability under it does not depend upon the ordinary perils covered by the policy, but upon the special matters mentioned in the clause itself”.6 In any event, it is conventionally provided expressly that the indemnity provided by the clause is in addition to the indemnity provided by the other terms and conditions of the insurance,7 so the insurer will be liable under the clause whatever sum he must pay under the rest of the contract, even if it is for a total loss of the vessel insured. 16.4 Under the 3/4ths Collision Liability clause, the underwriters only agree to indemnify the assured for three-fourths of his relevant liability. Moreover, in respect of any one collision, the underwriters’ total liability is expressly limited to their proportionate part of three-fourths of the insured value of the vessel insured.8 16.5 The incomplete cover provided by the 3/4ths Collision Liability clause reflects a practice of leaving the assured to be his own insurer for part of the risk, so as to urge him to take greater care, to the advantage of the insurer. As a consequence, however, it became common for shipowners to arrange mutual insurance of the uninsured sum, by P&I Clubs. The high value of modern vessels is such, however, that the original insurer may be prepared nowadays to insure the full amount. This could be done by contracting on the basis of a contract providing for the insurer’s full liability. If, as is more common, the standard hulls clauses are still used, the references to “three-fourths” could quite simply be deleted. A more usual practice, however, has been to add a further “excess liabilities clause” to the basic terms. As noted above, cover can be extended under the International Hull Clauses 4/4ths Collision Liability Clause by obtaining the underwriters’ written agreement to that effect.9

Legal costs

16.6 The 3/4ths Collision Liability Clause further provides for legal costs.10 The Institute clauses and the International Hull Clauses begin with the words: “The Underwriters will also pay three-fourths of the legal costs incurred by the Assured or which the Assured may be compelled to pay in contesting liability or taking proceedings to limit liability,”. The Institute clauses continue with the words: “with the prior written consent of the Underwriters”. The International Hull Clauses continue with the words: “provided that their prior written consent to the incurring of such costs shall have been obtained and that the total liability of the Underwriters under this Clause 6.3 shall not (unless the Underwriters’ specific written agreement shall have been obtained) exceed 25% of the insured value of the insured vessel”. 16.7 The clause was originally introduced to counter the effect of Xenos v Fox,11 where it was decided that the insurers were, under the running-down clause or suing and labouring clause in issue there, not liable for defence costs incurred by the assured and probably not for costs that might be recovered by the assured in a collision action. The history of this provision and the context in which it appears (the 3/4ths Collision Liability clause) make it clear that it applies only to costs of defence, including costs to limit liability. Attack costs—costs of bringing proceedings against the other vessel—are recoverable separately.12

Relevant events

16.8 The insurer is liable only if there is a “collision”. “Collision”, when used alone, without other words, means two navigable things coming into contact.13 It is not sufficient for the insured vessel to run into something attached to another vessel. Thus, a steamship did not “come into collision with any other ship or vessel”, so as to make the insurers liable, where it ran into the nets attached to and extending from a fishing vessel which was about a mile distant from the steamship.14 “Nets … are not a part of the ship … nor are they things which it is necessary for her to have and without which she could not prudently put to sea.”15 There may, however, be a collision with a ship if there is a collision with a part of it which is not contained within the main part of the ship, for example an anchor.16 16.9 So long as there is a collision, it is not essential for the insured vessel to come into direct physical contact with the other vessel. In The Niobe,17 a ship was insured during towage and the insurers were liable if “the ship hereby insured shall come into collision with any other ship or vessel”. The tug, but not the tow, collided with another vessel. Lord Bramwell (dissenting) thought that the plain words of the contract, being given neither too narrow nor too wide a construction, did not permit the tow to recover from the insurers: “the parties did not contemplate the case that has occurred, and perhaps would have raised the premium if they had”.18 However, the majority of the House of Lords held that the tow could recover, the parties having contracted on the basis of the generally known rule of the law of towage that, for questions of liability, tug and tow were to be considered as one. The Earl of Selborne said:19

“I should hold [the words to be construed] to extend to cases in which the injury was caused by the impact, not only of the hull of the ship insured, but of her boats or steam launch, even if those accessories were not (as in this case) insured as being, in effect, parts of the ship. I should also hold them to cover an indirect collision, through the impact of the ship insured upon another vessel or thing capable of doing damage, which might by such impact be driven against the ship suffering damage. I should take the same view, as against insurers in similar terms, of a tug towing one or more barges (in which case the barge owners would not be liable for a collision) if damage to any vessel were caused by the barge or barges being driven against it through the improper navigation of the tug, although there might have been no impact of the tug itself upon the injured vessel.”

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