Marine Insurance: Law and Practice




17.1 This chapter deals with a range of risks posed by various types of discord. They include war and strikes risks and are generally covered by policies incorporating clauses specifically described as war, or war and strikes, or strikes clauses. This is a well-established practice but gives a misleading impression, as the subject matter of these types of clause and of this chapter extends beyond insurance against risks from war and strikes in the normal sense of those terms. However, it is difficult to find a convenient all-embracing adjective for these risks,1 and the terminology of war and strikes risks has been traditionally and formally engrained, so it is also employed in this chapter. In practice, of course, what matters is not so much the generic term used to describe the risks in question as the construction of the particular terms used in the policy in issue. 17.2 The perils listed in the Lloyd’s SG Policy were not restricted to what are nowadays regarded as “marine” perils. They contained a more extensive list of perils activated by human agency, in particular embracing a number of perils of a warlike nature.2 However, whereas a comprehensive range of risks may have seemed reasonable when there was no immediate apprehension of susceptibility to war risks, actual exposure to them gave rise to particular difficulties, especially of increased expense, whether of premiums or losses. It therefore became common to exclude such risks from ordinary “marine” policies3 by means of a “free of capture and seizure” (“fc&s”) clause.4 The practice of separately insuring marine and war risks has been regularised since a resolution at Lloyd’s in 1898 that, as a general rule, war risks should be excluded from marine policies. Consequently, separate insurances are usually effected for war risks, either in the market or with a mutual insurance association (P&I Club). 17.3 A further qualification on normal insurance arrangements arises from the “Waterborne Agreement”, originally concluded in 1939 and made between various London underwriters. Although the cover provided by cargo insurance is generally extended so as to include transhipment risks, underwriters felt that this could expose them to undesirably high risks in wartime when there was an accumulation of cargo at ports. It was agreed, therefore, not to insure cargo against war risks on land. Thus, the Transit Clause in the current Institute War Clauses (Cargo) provides considerably more limited cover than that in the Institute Cargo Clauses in the case of marine risks.5 The deficiency in the cover available in the market may, however, be remedied by the Secretary of State’s exercising powers under the Marine and Aviation Insurance (War Risks) Act 1952.6 17.4 Even where war risks insurance appears to be available, it may not be so in practice. First, no matter how desirable the facility of war risks insurance may be in the interests of trade and of the nation, insurers are, of course, generally always free to decide not to offer it or only to offer it for high premiums, a not unlikely decision where contemporary circumstances indicate that risks are or are likely to be high. Secondly, the Termination Clause of the Institute War and Strikes Clauses for Hulls and Freight provides that, in certain events, the cover shall be automatically terminated7 and that, in all cases, either the underwriters or the assured have a general right, on giving seven days’ notice, to cancel the insurance.8 Of course, in either event, there is in theory nothing to prevent the parties from concluding a fresh agreement; indeed, the cancellation clause purports to provide for the reinstatement of the cover on the parties’ reaching agreement as to terms.9 Despite its also according the right of cancellation to the assured, the Termination Clause appears to be designed for the benefit of the insurer, allowing him to withdraw cover should there be a sudden substantial increase in the risk, either generally or in a particular locality, or because there is a voyage to an especially dangerous part of the area within the general limits of the policy. Nonetheless, it does benefit the assured in that he is covered against war risks until such time as the cover terminates according to the terms of the clause. When that happens, if cover cannot realistically be obtained from conventional sources, there are standing statutory powers for its provision by the State under the Marine and Aviation Insurance (War Risks) Act 1952.10 17.5 Formerly, a tortuous process was commonly involved in discovering the extent of war risks cover, since it was a common practice for the war risks policy to be framed with reference to the terms of the marine policy and to insure as war risks those risks which had been excluded from the marine policy, rather than to refer to them specifically—albeit specific reference might have been necessary for additional risks included in the war risks policy. Consequently, it was usually necessary to enquire: (i) what risks were contained in the marine policy, including any added by the incorporation of Institute clauses and suchlike; (ii) which of the risks in (i) were excluded from it by the fc&s clause; (iii) precisely what cover is reinstated by the war risks policy; and (iv) is the cover in the war risks policy extended to additional risks? 17.6 The fc&s clause is now obsolete and the separation and interpretation of marine and war risks cover is more clearly realised in the current standard form clauses. Separate sets of clauses are provided for war and strikes risks, which risks are excepted from the marine clauses by appropriate exclusion clauses.11

Government participation

17.7 In the twentieth century, the Government assumed liability for war risks in two ways. First, during the two World Wars, ships were requisitioned under a form of charterparty, designated T99, whereby the Admiralty undertook liability for war risks but excluded it for marine risks, which shipowners therefore needed to insure themselves. The precise division of responsibility in such a case is clearly a matter of construction of the charterparty, though the cases concerned with this process are relevant here since, in this respect, the charterparty was drafted with reference to marine insurance market practice, the Admiralty undertaking those risks which were normally excluded from a marine policy by an fc&s clause.12 “It is true”, said Lord Wright, “that these words occur in the present and similar cases in a charterparty entered into between the Crown and the owner of the requisitioned ship, but they are to be construed as if they occurred in a policy, because they form part of a contract of indemnity which is, in truth, a contract of marine insurance.”13 Although such an agreement may have that effect in practice, Lord Wright’s dictum is, however, inconsistent with Admiralty Commissioners v Ropner & Co,14 where it was held that the charterparty was not a marine policy, because it failed to comply with the requirements of the Marine Insurance Act 1906.15 17.8 The Government has undoubtedly participated more obviously in marine insurance in other ways,16 principally by virtue of legislation17 now embodied in the Marine and Aviation Insurance (War Risks) Act 1952.18 Subject to certain controls,19 the Secretary of State20 has various powers enabling him to act immediately to ensure that insurance against war risks21 is available in wartime and in certain cases where the United Kingdom is currently at peace. The importance of foreign vessels, both as independent carriers of goods to and from the United Kingdom and as subjects of charterparties, is recognised in that these powers are not limited to British vessels. 17.9 The 1952 Act provides, first, that the Secretary of State may enter into agreements with any authorities or persons to reinsure any war risks against which a ship or aircraft or its cargo is insured; though, in respect of a ship or aircraft which is not British, he can only do so in so far as the war risks arise during, or in consequence of things done or omitted during, the continuance of a war or hostilities in which Her Majesty is engaged.22 17.10 Secondly, at any time when it appears to him that reasonable and adequate facilities are not available for the insurance of British ships, British aircraft or cargoes carried in ships or aircraft against war risks, or any description of such risks, he may carry on business to provide such insurance.23 17.11 Thirdly, even if such facilities do exist, during the continuance of any war or other hostilities in which Her Majesty is engaged, he may carry on business to insure: ships and aircraft (whether British or not); cargoes carried in ships or aircraft, and goods consigned for carriage by sea or by air, while the goods are in transit between the premises from which they are consigned and the ship or aircraft or between the ship or aircraft and their destination.24 In these cases, he must not undertake insurance against risks other than war risks unless he is satisfied that, in the interests of the defence of the realm or the efficient prosecution of any such war or hostilities, it is necessary or expedient to do so.25 The Secretary of State’s power in relation to goods in transit is important in that it enables him to provide cover which has been generally denied by the market for goods on land by virtue of the Waterborne Agreement.26 17.12 This protection for the cargo-owner is extended in that, fourthly, the Secretary of State has power to pay compensation27 to the owner of the goods consigned to or from the United Kingdom,28 the Isle of Man or the Channel Islands and lost or damaged in consequence of an uninsured war risk during transit after discharge or before shipment.29 The compensation may be paid if the goods were discharged in one of the stipulated countries within seven days of the Secretary of State’s beginning to carry on business for such transit risks and the loss occurred: if their destination is within the port or place of discharge, within 15 days of discharge; or, if the destination is outside such port or place, within 30 days of such discharge.30 In the case of goods consigned from one of the stipulated countries, the goods must have been consigned within seven days of the Secretary of State’s beginning to carry on such business, though there is no specified time limit for the period whilst they are in transit to the ship or aircraft.31 In all cases, however, the owner cannot claim unless he and his agents exercised all due diligence for securing that no delay occurred while the goods were in such transit.32 17.13 The Secretary of State is empowered to establish a “marine and aviation insurance (war risks) fund” for receipts and payments under the statutory provisions.33 To strengthen the cover which is authorised by the Act, it is also provided that, where the Secretary of State acts as a reinsurer and the insurer has become insolvent, sums payable by the Secretary of State shall be payable directly to the assured,34 and also that agreements and instruments made by virtue of the Act shall not be inadmissible in evidence simply by virtue of not being embodied in a marine policy in accordance with the Marine Insurance Act 1906.35


Exclusion from marine risks cover

17.14 The basic Institute hulls, freight and cargo clauses all contain clauses excluding specified war and strikes risk from their cover of “marine” risks. The war exclusion clause and the strikes exclusion clause appear as separate clauses within the hulls and freight clauses and as separate parts of more comprehensive exclusion clauses in the cargo clauses. In all cases, however, the provisions of the war and the strikes exclusion clauses are in similar terms, though with slight variation. The relevant exclusions are as follows.

War exclusion clause

17.15 The majority of standard marine clauses provides36 that in no case shall the insurance cover loss damage liability or expense caused by

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