Maritime Insurance Law Part 5

Pursuant to the earlier topic of Introduction to Maritime Law in Malaysia, published on 22 February 2021, in the coming series the basis and elements of Marine Insurance claims will be explored.

The Construction Of Marine Policies

1. 1. Principles Of Construction

      The words in a policy is to be construed in a commercial sense according to the understanding of merchants (Hart v Standard Mar Ins Co)

   2. Consistency And Precedent

      The marine insurance market is characterised by the use of standard form contracts, albeit often adapted to the needs of the parties.
      When words and phrases have been given judicial interpretation, the courts are reluctant to undermine the understandings generated by earlier precedents such as Gale v Lewis, George Hunt Cranes Ltd v Scottish Boiler and General Insurance Co Ltd and The Kleovoulous of Rhodes.
      In Ramco (UK) Ltd v International Insurance Co of Hannover Ltd the Court held that the if a form of words has been used for a very long time, the court should not meddle with it

   3. The Intentions Of The Parties : The Factual Matrix

      In Burgess v Wickham, it was held that the intentions of the parties is to be construed from the objective view of the words in the policy.
      The basic principle used is that the intention of the parties must be discovered from what they have actually written and not what it may be surmised on however probable grounds they may have intended to write (Shore v Wilson). This excluded extrinsic evidence of what the words intended since the intention is immaterial.
      This principle now is deemed as not applicable (Youell v Bland Welch & Co Ltd) as the court held that extrinsic evidence needs to be brought in to prove the intention of the parties.
      The new principles was codified in the case of Investors Compensation Scheme v West Bromwich Building Society

   4. Previous Dealings And Negotiations

      In Allianz Marine Aviation (France) v GE Frankona Reinsurance Ltd it was held that previous contracts between parties are permissible as an aid to construction.
      In insurance this is allowed for the purpose of rectifying the of a policy.
      In Chartbrook Ltd v Persimmons Home Ltd confirming the decision in Investment Compensation Scheme v West Bromwich Building Society, it was held that previous negotiations are excluded whereby the said negotiations may be drenched in subjectivity and may be in dispute.
      The summary of Chartbrook is that previous negotiations can only be used as an aid of construction to rectify the said agreement or some common assumption acted on by the parties which could give rise to estoppel by conventions.
      Parties also cannot rely on previous drafts of the agreement as an aid of construction as it is found to fall foul of the principle in Investment Compensation Scheme v West Bromwich Building Society. This was confirmed in the case of Mopani Copper Mines plc v Millenium Underwriting Ltd

   5. Subsequent Conduct

      A contract has to mean the same to the parties a day, a month or a year ahead as it did on the day it was executed (James Miller & Partners v Whitworth Street Estates (Manchester) Ltd). As such a an underwriter cannot rely upon documents and figures prepared after the execution of the agreement (Absalom v TCRU Ltd) and any subsequent changes to the policy wordings are irrelevant in determining the objective meaning of the policy when it was originally drafted.

   6. Application Of Marine Insurance

      In the case of Robertson v French it was held that extrinsic evidence will be admitted in connection with the construction of a commercial document whereby words must be construed in respect of the subject matter of the policy and in order to effectuate the immediate intention of the parties. The court also went on to state that t words in the policy is the evidence of the intention of the parties given the surrounding circumstance at the point of entering into the contract of insurance. The decision herein were applied by the Court in the subsequent cases of Hart v Standard Mar Ins Co and Glynn v Margetson.
      In Carr v Monefiore it was decided that the partial unloading and loading of the cargo at Montevideo was sufficiently within the words of the policy to cause it to attach and expressed their agreement with the decision in the case of Nonnen v Kettlewell.
      In the case of Blackett v West England Mar Ins Co the words contended were held to be consistent with the contractual bargain and the words ‘at and from Lagos”.
      Subsequently in Hydames Steamship Co v Indemnity Mutual Marine Assurance Co the Court of Appeal decided that the form of policy being one used for insurance of ship, cargo and freight any part of it which was inapplicable to freight must be struck out as “inconsistent with the previous part of the policy” and this required the words to be omitted. Hence the assured were allowed judgment.
      Marten v Vestey was an interesting case whereby the High Court held that the contract of insurance ended at the port of discharge as opposed to the final port within the policy. The Court of Appeal overturned this decision to give effect to the words of the Policy. On appeal to the House of Lords, the decision saw overturned to concur with the decision of the High Court on the ground that commercial efficacy should be given importance over the plain reading of the words within the four corners of the policy.

   7. Usage of Trade

      In the case of Mason v Skurrey, Lord Mansfield stated “the question is, whether the usage has not explained the generality of the words. If it has, every man who contracts under a usage does it as if the point of usage were inserted in the contract in terms.
      In Pelly v Royal Exchange Assurance Co, the court held that “What is usually done by such a ship, or such a cargo, in such a voyage, is understood to be referred to in every policy and to make a part of it as if it was expressed”.
      It is also noted that negative obligations can be brought into a contract by way of usage. This is seen in Section 87 MIA below:-

      1. Where any right, duty, or liability would arise under a contract of marine insurance by implication of law, it may be negatived or varied by express agreement, or by usage, if the usage be such as to bind both parties to the contract.
      2. The provisions of this section extend to any right, duty, or liability declared by this Act which may be lawfully modified by agreement.

   8. Usage Must Not Be Contrary To Terms Of Contract

      If the policy contains terms in contradiction to the usage, such usage will be rejected from being used to construe the intention of the parties (Blackett v Royal Exchange Assurance Co, Palgrave, Brown & Co v Owners of SS Turid and Kum v Wah Tat Bank Ltd).

   9. Certainty and Uniformity

      The usage must be sufficiently certain in its terms as to be capable of being written into the contract without ambiguity (Nelson v Dahl as approved in Brown v IRC). The usage must also be uniform as held in (Levi v Barnes).

   10. Uniformly Acted Upon

       Unless the usage was acted upon, it cannot be written into the contract (Nelson v Dahl). Routes used to travel is not a strict usage but only a commercial habit or practice (Reardon Smith Line v Black Sea and Baltic General Ins Co).

   11. Notorious In The Particular Branch Of Trade

       The usage must be notorious i.e. it must have existed under such circumstances, or for such a length of time, as to have become generally well known to all persons concerned in or about the branch of trade to which it relates, and so as to warrant a presumption that contracts are made with reference to it (Nelson v Dahl).

   12. Reasonableness

       The usage must be reasonable, an if it is not so it cannot be admitted as part of the contract (Ougier v Jennings).
       In the cases of Anglo African Merchants Ltd v Bayley and Carvill America Ltd v Camperdown UK, it was held that usage was unreasonable to treat a broker as acting for underwriters when pursuing a claim on behalf of the insured or to accept that a broker is paid by the underwriters even though his duties are owed to the insured (respectively).
       The court will however be reluctant to reject a usage which have been agreed to by the parties (Scott v Irving).

   13. Legality

       Usage must be consistent with the rules of positive law (Goodwin v Robarts). However, this seems to be against usage within marine insurance law because the application of usage has had varying degree of efficacy except insofar as it may contradict public policy or offends against statutory rules.
       In the case of Palmer v Blackburn it was held that the usage of Lloyd’s was good although it was inconsistent with principles of indemnity. This was later codified and is Section 16 MIA today.

   14. Local Or Limited Usage Prevail Over General Usage

       When there is a conflict the local or limited usage clauses prevails over general usage clauses.
       In Blackett v Royal Exchange Assurance Co, it was held that the underwriter is in general entitled to expected that they will be carried in the hold as opposed to on the deck. Every policy in in the absence of any express terms to the contrary is generally read as though it contained on the face it an exemption in terms against all liability on goods carried on the deck.
       Whenever the it can be shown that, by a well settled usage of the particular trade, goods of the specific description of those insured are customarily carried on deck, the more general usage gives way to the more particular usage, and the underwriter is liable for any loss upon the goods so carried without any necessity of proving notice (Da Costa v Edmunds).

   15. Usage May Bind Those Ignorant Of It

       The presumption generally is that the custom is known to those engaged in that particular industry or trade.
       This was abserved in Noble v Kennoway, Da Costa v Edmunds and Mollet v Robinson.
       However this presumption will be weaker for usages in a particular locality, description of persons. As such these usages may not be general enough and notorious (Grissel n Bristowe).

   16. Usages At Lloyd’s

       Usages at Lloyd’s will generally be binding on underwriters, but will have to be proved against others, unless they have become part of the general law as set out in the Marine Insurance Act 1906 (Gabay v Lloyd).

   17. Incorporation Of Policy Terms

       This arises in cases of creation of facultative reinsurance contracts where the terms of the direct policy are incorporated into the reinsurance and bills of lading which incorporate the terms and conditions of the charterparty.
       Incorporation of an individual term is effective if, (1) it is german; (2) it makes sense subject to permissible manipulations, altering the names of the parties to match those in the main agreement; (3) it is consistent with its new context; and (4) it is apposite for inclusion (HIH Casualty and General Insurance Ltd v New Hampshire Insurance Co).
       In marine insurance, issues of construction may arise where the covers are arranged in layers and the excess layer insurances incorporate the terms of the primary layer cover. In such cases, incorporation is straightforward if the excess policy does not contain any of its own terms which are in conflict with the terms of the primary layer policy.
       Usually arbitration or jurisdiction clauses are not recognised as a term or condition of a contract but as a separate undertaking and as such the courts will not incorporate the same.
       It is not always clear if the incorporated term is to be read in the same way or whether its wording is to be manipulated so as to fit the contract into which it is incorporated. (Friends Provident Life & Pensions Ltd v Sirius International Insurance Corp).

   18. Implied Terms To Give Business Efficacy To Contract

       The parties must have intended that each of them should do what was necessary to give effect to the contract as a practical business transaction and that if on the face of it performance of the literal terms therein appearing must mean that it would fail in that regard the court should add to it a term which when carried out would make it reasonably effective, and will do so on the basis of what must have been in the minds of the parties had they given their attention to the matter. (The Moorcock and Liverpool City Council v Irwin).

   19. Principal Rule Of Construction

       Rules of Construction is usually used when there is a dispute as to what the obligation are. This rule applies to marine insurance just like it does to other commercial contracts (Robertson v French).
       This rule has to be applied so as not to defeat the intentions of the parties (Burges v Wickham).

   20. Words To Be Taken In Their Plain, Ordinary Meaning

       The Policy is to be construed according to the sense and meaning as collected in the first place from the terms used in it, which words are to be understood in its plain, ordinary and popular sense (Robertson v French).
       Within marine insurance policy construction, the rule of plain, ordinary meaning does not play a big part since the policies, then and now, are highly technical in nature.

   21. Customary And Technical Meaning Of Words

       Evidence must be given to show that words in usage in a certain trade is true and acceptable. In such case the words cannot be given its plain and ordinary meaning. This is called translating the contract (Grant v Maddox).
       The cases of Hoskins v Pickersgill and Parr v Anderson show the application of this within the ambit of marine insurance.

   22. Words To Be Considered In Their Context : Meaning Of Context

       Context has three meanings – (1) the overall context of the contract – includes factual matrix as recognised in Investors Compensation Scheme v West Bromwich Building Society; (2) contractual Context including taking account of the objective of the contract; (3) context of the particular phrase in which the disputed word appears in. (Moody v Surridge and Sirius International Insurance Co (Publ) v FAI General Insurance Ltd)

   23. Words To Be Considered In The Context Of The Policy As A Whole

       In Charter Re v Fagan it was held that a word or phrase takes its meaning from the context in which it appears.
       Robertson v French – The court interpreted the two policies to be separate and not one as contended by the assured in the case. This meant the court decided within the context of the policies individually and not together.
       In the cases of Moody v Surridge and Marten v Vestey the Courts decided within the context of the policy.

   24. Words To Be Considered In Their Immediate Context

       In the case of The Inchmaree, it was held that the expression “all other perils” which concluded the list of specific insured perils in the Lloyd’s S G form extended only to risks of the type covered by the specific perils and did not cover the explosion of a donkey boiler.

   25. Policy To Be Construed So As To Make It Effective

       The Court will attempt to give effect to all parts of the policy (Yorkshire Insurance v Campbell).An insurance policy for a particular purpose should only be construed as such and other parts of the policy should be struck out to give efficacy to the policy (Hydanmes Steamship Co v Indemnity Mutual Marine Assurance Co).

   26. Written Clauses Have Greater Weight Than The Printed And Formal Parts Of The Policy

       In Dudgeon v Pembroke it was held that the policy should not give importance to printed words should written terms be inserted to intend a different type of policy than the meaning the printed words would carry.
       The same was held in The Alexion Hope and Otago Farmers’ Co-operative Association v Thompson.

   27. Ambiguity

       As in Investors Compensation Scheme v West Bromwich Building Society, the court must assume that the parties did not intend to achieve unreasonable results, so that the more unreasonable the results, the more unlikely for the parties to have intended to achieve the results.
       The case of Rainy Sky SA v Kookmin Bank restated the principle by introducing the element of reasonable man standard to it.
       In some cases, the ambiguity that arises are not due to the words. Here the court will adopt the rule of construction where it will be held against the person who drafted the contract because the drafting party has failed to keep the language plain and simple (Tarleton v Staniforth).
       This is the contra proferentum rule which is not applied much to marine insurance cases when the parties have not agreed to adopting it.

If you have any questions or require any additional information, please contact our lawyer that you usually deal with.

This article is written by our Principal Associate, Chakaravarthi