Marine Insurance: Law and Practice

F D Rose

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CHAPTER 18 EXCLUSIONS

I INTRODUCTION

Construction

18.1 The effect of an exclusion, as with any contract term, is a matter of construction. However, where there is inconsistency between the cover provided by the policy and the exclusions, the exclusions generally prevail.1

Statutory exclusions

18.2 The Marine Insurance Act 1906, section 55 is entitled “Included and excluded losses”. However, its main objective is not apparently to regulate the extent to which the parties can modify the rights and liabilities which would otherwise arise under the contract. Rather, it is to lay down the proximate cause rule, to amplify that rule and to define certain of the parties’ rights and liabilities within the framework of that rule. What emerges, however, is a mixture of the proximate cause rule and a regulation of rights and liabilities. The section is drafted in language which, in subsection (1), states the proximate cause rule in positive and negative terms and, in subsection (2), provides three particular instances of the rule.2 The third of these “examples” of the general rule in fact incorporates more than one individual type of loss. 18.3 Therefore, for purposes of exposition, the statutorily excluded losses are listed individually below with the insertion of small Roman numerals into the statutory numbering. They are:

(1) any loss which is not proximately caused by a peril insured against;
(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 insured against;
(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 maritime perils.

18.4 Exclusion (1) merely repeats the proximate cause rule in negative terms. To that extent, it states what is obviously excluded and is merely repetitive. Exclusion (2)(a) is in a class of its own, for it excludes all losses attributable to the assured’s wilful misconduct, whatever the contract says and whatever the effect of the proximate cause rule.3 Exclusion (2)(b) is, in one sense, a particular application of the proximate cause rule, for a loss caused by delay is not a loss caused by an insured peril (assuming, at least, that delay is not the insured peril). However, it is, in another sense, an exclusion of a particular type of loss that may be caused by an insured peril. The exclusions in (2)(c) are not so much exclusions of losses that are otherwise recoverable but examples of losses that would not normally fall within the proximate cause rule. 18.5 The provisions of section 55 are subject to the other provisions of the Act.4 They are, moreover, subject to contrary provision by the parties,5 though with one exception. The exception is wilful misconduct, it being stated without qualification that “The insurer is not liable for any loss attributable to the wilful misconduct of the assured”.6 18.6 So far as the proximate cause rule is concerned, section 55(1) states generally that the insurer is liable for any loss proximately caused by a peril insured against but not liable for any loss not proximately caused by a peril insured against. The simplicity with which that rule may be stated, however, does not obviously accommodate circumstances where there is an independently classifiable “cause” of an insured peril or where the insured peril produces a circumstance which may be both a consequence of that peril and a distinguishable “cause” of the assured’s loss. The rules developed at common law to deal with this difficulty are incorporated into section 55(2) of the Act in various ways. 18.7 First, so far as antecedent causes of the designated insured peril are concerned, section 55(2)(a) of the Act: affirms the proximate cause rule where the loss would not have happened but for the misconduct or negligence of the master or crew; but overrides it in the case of “any loss attributable to the wilful misconduct of the assured”.7 18.8 Secondly, so far as successive causes are concerned, section 55(2)(b) provides, in the case of two types of subject matter of insurance, that “the insurer on ship or goods is not liable for any loss proximately caused by delay, although the delay be caused by an insured peril”.8 18.9 Thirdly, section 55(2) does what the subsection purports to do, namely, to provide examples of the general rule. It states that “the insurer is not liable for ordinary wear and tear, ordinary leakage and breakage, inherent vice or nature of the subject matter insured, or for any loss proximately caused by rats or vermin”.9 If any one of these is a cause of the loss and is not a specified insured peril, clearly the assured has no case for recovery. It is interesting, however, that the two limbs of the sentence quoted are differently phrased, with a specific reference to proximate cause in the case of rats and vermin but not in the other cases. 18.10 Section 55(2)(c) concludes with “or for any injury to machinery not proximately caused by maritime perils”. This typifies the occasional habit of the draftsman of the Act of incorporating into codifying legislation which he drafted the effect of particular legal decisions without precisely formulating the rule in terms of an accurately expressed principle of possible general application. The phrase in question is undoubtedly derived from the House of Lords’ decision in The Inchmaree,10 in which, due to the closure of a valve which should have been open, water was forced into and split the air chamber of a donkey-pump; this was held not to be caused by the insured peril(s) of “perils of the seas … and of any other perils”. The House simply decided that the loss to the insured subject matter was not caused by an insured peril. Since the particular peril in section 55(2)(c) (“maritime perils”) includes all perils “which may be designated in the policy”,11 that subsection conforms to the general rule that the assured can only recover for a loss to the subject matter insured which is proximately caused by an insured peril. 18.11 What, it is submitted, is not done by any of the provisions of section 55 is the establishment of any particular proximate cause rule which ousts the normal rule. Thus, the final part of section 55(2)(c) does not stipulate that, in the case of machinery, the peril must be of a specific type for the proximate cause rule to operate. This is just as well for, although section 55 is generally subject to contrary provision, it would not be readily apparent exactly how much contrary provision were required beyond what needs always to be done, ie to specify the subject matter to be insured and the perils against which it is to be insured. Similarly, it is argued that section 55(2(b) is not intended to preclude recovery for losses caused by delay where delay is an insured peril. The language of section 55(2)(b) clearly contemplates cases where delay is not an insured peril and, to be effective, the permission to make provision contrary to section 55(2)(b) must contemplate that it may be. Likewise, the fourth part of section 55(2)(c), excluding the underwriter’s liability for losses proximately caused by rats or vermin. That was drafted on the basis of cases where such a loss was not proximately caused by something within the definition of an insured peril12 and was not intended to require that, in a case where such a loss was specifically designated in the policy, the assured was precluded from recovering or had to resort to any further contradictions of exception (2)(c)(iv) in the policy.

Standard form contractual exclusions

18.12 Exclusion clauses appear in all the main Institute clauses, both the general clauses and the war and strikes clauses. Their principal aim is obviously to exempt the underwriters from liability in certain circumstances. But, in doing so, some of them also fulfil a further function, ie, in cases where a risk is not excluded from both the general clauses and the war and strikes clauses, to provide for the allocation of risks either to the general clauses or to the war and strikes clauses, and also thereby to prevent recovery under both types of clause.

Hulls and freight

18.13 The general hulls and freight clauses include:

a navigation exclusion clause;13
a navigation limitation clause;14
a 3/4th Collision Liability exclusion clause;15
a war exclusion clause;
a strikes exclusion clause;
a malicious acts exclusion clause;
a nuclear exclusion clause.

18.14 Standard hull cover generally contains total or qualified exclusions of three outlays, namely:

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