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For more information, please contactJonathan Bruce, Partner, on+44 (0)20 7264 8773 orjonathan.bruce@hfw.com, orLaura Steer, Associate, on +44 (0)207264 8032 or laura.steer@hfw.com, oryour usual contact at HFW.The future of the MarineInsurance ActThe 1906 Marine Insurance Act (theAct) is over 100 years old and hasfaced growing criticism over recentyears with many feeling that the currentregime requires modernisation to bringit in line with global practice. It hastherefore been earmarked for changeby the Law Commission who have setout proposals to modernise the law.It is clear that the debate surroundingthe proposed reforms is of keyimportance to the London marineinsurance market, given that there areplenty of alternative markets (suchas Norway, France, Germany, NewYork to name a few) now vying forLondon’s business. Crucially, from thepurchasers’ perspective, these are allregarded as having a far less harshinsurance regime than England. Noneof us wants to see assureds movingbusiness to other centres, and this isone reason why the Law Commissionhas been looking to update the Act,for example through creating a fairersystem for the treatment of nondisclosureand breach of warranty.This being said, once the changeshave been implemented, there arelikely to be growing pains as a fairersystem with proportional remedies willinevitably lead to some uncertainty.This article examines some of thespecific proposals that have been putforward by the Law Commission inrelation to disclosure, placement of riskand premium and warranties.Disclosure and the assuredUnder the Act the assured is undera duty to disclose information toan insurer before the contract isconcluded. Section 18(1) providesthat the assured must disclose “everymaterial circumstance” which “in theordinary course of business” is knownor ought to be known. If the assuredfails to disclose such information thenthe insurer “may avoid the contract”.The only remedy under the currentsystem is avoidance of the contractand consequently an assured who failsto mention an arguably minor issue butis otherwise acting in good faith is atrisk of losing the benefit of the policy.The absence of a clear definition ofwhat is meant by “is known or oughtto be known” has led to confusionand many differing views betweenthe so-called leading authorities onthe subject. The Law Commissionis to propose the inclusion of a fullerdefinition in the statute.The broker’s knowledgeSection 19 of the Act imposes a precontractualduty on brokers to disclosematerial information that is known tothem or which they are “deemed toknow” (e.g. where material informationis known to the broker but not to theassured). When a broker breachesthese duties, the insurers may avoidthe policy which the Law Commissionbelieves is unfair on the assured. Theposition at law in relation to section 19is confused and this is reflected by thenumber of contradictory judgmentson the subject. Accordingly, the LawCommission’s proposals includeclarifying what a broker is “deemed” toknow” with a recommendation that thisis better defined for greater certainty.New remedies for non-disclosureAvoidance of the contract is the onlyremedy for non-disclosure under thecurrent regime. The Law Commissionhas proposed a fresh set of remediesthat will compensate the insurer puttingit in the position it would have beenin had it been provided with all therequired information by the assured.The proposed remedies look at theposition the insurer would have takenif it had been provided with the fullpicture at the start and includes:1. Where the insurer would havedeclined the risk altogether, thepolicy should be avoided, theclaim refused and the premiumsreturned.2. Where the insurer would haveaccepted the risk but includedanother contract term, the contractshould be treated as if it includedthat term.3. Where the insurer would havecharged a greater premium,the claim should be reducedproportionately. For example, if theinsurer would have charged doublethe premium, it need only pay halfthe claim.Placement of risk and premiumSection 53(1) of the Act provides thatfor the placement of marine risks(only) the broker is directly responsibleto underwriters for premium. This isthe position regardless of whether ornot the broker has been paid by theinsured. Where this section applies,only the broker may sue the assured,underwriters have no right to claimpremium from the assured. The LawMarine Insurance Bulletin 03


Commission’s proposals provide thatthe assured should be liable for thepremium on marine risks (as is thecurrent position on non marine risks),although the default rule is that thebroker will remain jointly and severallyliable with the assured to underwritersfor premium on marine risks, unlessthis has been varied by the contract.WarrantiesSection 33(3) of the Act states that awarranty “is a condition which mustbe exactly complied with, whetherit be material to the risk or not”. If awarranty is not complied with then“the insurer is discharged from liabilityas from the date of the breach ofwarranty, but without prejudice to anyliability incurred by him before thatdate”. The consequences of a breachof warranty are severe for an assuredand have been criticised for favouringthe insurer rather than the assuredas they apply even if the breach isminor, bears no relevance to the loss,or was remedied before the lossoccurred. Other markets have movedaway from this approach, in New Yorkunderwriters can only avoid the policyfor a breach of warranty if the breachwould materially increase the assured’srisk of loss. The Law Commission hasput forward proposals to reduce theseverity of a breach of warranty bysuggesting that they should be treatedas “suspensive conditions” i.e. thatthey would suspend an insurer’s liabilitybut not discharge it. However, wherethe breach is remedied before theloss takes place, an insurer is requiredto pay the claim. From a broker’sperspective the reforms should reducethe broker’s own exposures to claimsfor breach of duty by their assureds foralleged breaches of claims notificationand premium warranty provisions.Further considerationsThe proposals outlined aboveprovide a brief insight into the LawCommission’s wide reaching plans forreform. However, there are areas whereone would expect further reformsand greater legislative clarity to bemade, for example concurrent causesand sue and labour, particularly in ajurisdiction which has been dealingwith such issues regularly for manyyears. London has an enviable statusas the world’s leading marine insurancemarket and the Marine InsuranceAct has governed the sector well forover a century. However, in order toremain competitive it may be that themarket now needs to accept statuteled principles that are both clearer andperceived to be fair for all parties toinsurance contracts.For more information, please contactLizzie Gray, Associate, on +44 (0)207264 8752 or lizzie.gray@hfw.com, oryour usual contact at HFW.“From a broker’sperspective thereforms shouldreduce the broker’sown exposures toclaims for breachof duty by theirassureds for allegedbreaches of claimsnotification andpremium warrantyprovisions. ”Section 53 of the MarineInsurance Act 1906 – thebroker’s liability for premiumSection 53(1) of the Marine InsuranceAct 1906 is a complex and difficultprovision, which appears to embodythe common law rule that an assuredis not liable to pay premium to itsinsurer, but is instead liable to pay thebroker, who receives the money in itsown name and has a separate debtto the insurer.This can be contrasted with thenon-marine insurance position, inwhich under CASS rules, the brokerusually holds the money on trust forthe assured until it is passed to theinsurer (which arrangement is knownas a “non-risk transfer TOBA”).Alternatively, the broker and insurermay agree that the broker receivesthe premium as agent for the insurer(a “risk transfer TOBA”). Under eitherof these arrangements, the assuredis deemed to have paid the insurerwhen it pays the broker.Quite apart from the inherent anomalyin having one rule for marine andone rule for non-marine insurance,practical concerns have been raisedover the potential consequences ofthe s53(1) rule, such as for examplethe possibility that the section mayrequire an assured to pay premiumto a broker even after that broker hasbecome insolvent and it is clear thatthe money will never be passed on tothe insurer.Section 53(1) further provides thatwhere a marine policy is effected onbehalf of the assured by a broker,“the broker is directly responsibleto the insurer for the premium”. Itis rare in practice for an insurer to04 Marine Insurance Bulletin


demand payment from a broker, andinsurers instead usually respondto non-payment by cancelling thepolicy in question. However, this isnonetheless another controversialprovision, although it should be notedthat some insurers feel that thisprotection is necessary, particularlyfor short-term policies which couldnot be cancelled, or when dealingwith unknown assureds who might belocated elsewhere in the world.Although section 53(1) appears tobe subject to contract (stating that itapplies “unless otherwise agreed”), itis difficult in practice for a broker tocontract out of its liability, as all threeparties would need to agree to such achange. If the broker and the insureragree that the broker is not liable forthe premium, this does not makethe assured liable; the result of sucha contract is rather that no party isliable for the premium.The Law Commission has proposedcertain reforms to section 53(1)designed to address the issuesidentified above. First, the LawCommission has proposed that,where marine insurance is effectedon behalf of an assured by a broker,the assured should be liable to theinsurer for the premium. The marketresponse to this has been largelypositive, although it has been notedthat such a change will only be trulyeffective if it is made clear that theunderlying common law rules areabolished. Concerns have also beenraised over the need to ensure thatthe assured does not become liableto pay premium twice, such as forexample where a broker to whompremium has been paid becomesinsolvent prior to paying that premiumon to the insurer.A further proposal is that the issueof the broker’s liability for premiumshould be subject to a contractbetween the insurer and the broker,with the default rule being thatbrokers are liable to pay premiums(alongside assureds) unless theycontract out. The rationale for thisis that in the Law Commission’sview it most closely resemblesmarket practice and would causeminimum disruption in the market.The Law Commission proposes thatthe parties be free to contract outof the default rule without difficulty.These proposals have proven morecontroversial.As to the ability of the insurer andbroker to determine the position bycontract, some have argued that theassured should have a part in anyagreement, on the basis that it isafter all their money that is in issue.As to the default position, it hasbeen noted that making the brokerliable by default for premium hasthe potential to put the broker in aposition of conflict with its client andcould also lead to uncertainty overthe various cancellation rights of thebroker and the insured that wouldundoubtedly be included in contractsas a result. The point has also beenmade that during the periods ofLloyd’s Reconstruction & Renewalunderwriters agreed to waive brokers’responsibility for premium and thatfor five years the default positionwas that brokers were not liable forpremium. Furthermore, it has beenargued that there is no good reasonin today’s market why uncreditworthyassureds should effectively beinsured by their brokers in respect oftheir liability for premium.Despite the controversy arising insome areas, the Law Commission’sproposals are a welcome attempt toreform what has become an unclearand in some respects anomalousarea of marine insurance law. Many inthe market will await with interest tosee how they will be taken forward.For more information, please contactBen Atkinson, Associate, on +44 (0)207264 8238 or ben.atkinson@hfw.com,or your usual contact at HFW.Another revision to GeneralAverage: York Antwerp Rules2016?Preparations continue by the ComitéMaritime International (CMI) forrevisions and amendments to thecurrent set of York Antwerp Ruleson general average. The CMI haverecently written to the presidentsof all the relevant national maritimelaw associations asking for theircomments on a number of issuesarising out of general average, so thatthese issues may be considered laterthis year at the CMI Symposium inDublin.This consultation is as a resultof the conclusions of the CMIGeneral Average Working Groupat the 2012 Beijing Conference.The Working Group noted that theYork Antwerp Rules 2004 had notfound acceptance in the shippingcommunity, and that a new set ofYork Antwerp Rules was desirablewith a view to their adoption at the2016 CMI Conference. It is hopedthat an early consideration of theissues prior to the 2016 meeting ofthe CMI in New York will avoid whatsome in the maritime communityconsidered a missed opportunity inBeijing to revise the York AntwerpRules 2004, which have not beenMarine Insurance Bulletin 05


quickly adopted. Indeed BIMCO haveeven issued circulars, such as thatdated July 2007, recommending thatthe 2004 rules are not incorporatedinto contracts and stating thatthey would not be used in BIMCOstandard forms, where the 1994 YorkAntwerp Rules would continue to bepreferred.There are a number of general issueswhich are being canvassed by theCMI for consideration by the variousnational maritime law associations,including the British Maritime LawAssociation. The CMI are canvassingopinion on a number of issues,including:1. How the new 2016 York AntwerpRules could help increase the useof absorption clauses which arenow found in most hull policies.The CMI note that absorptionclauses play a significant role inreducing the number of small,uneconomic collections ofsecurity and contributions fromcargo.2. Although the problem of piracyhas diminished of late, thequestion is asked whetherthe payment of ransom asa legitimate expense shouldsomehow be expressly providedfor within any new revision to theYork Antwerp Rules.3. The CMI also ask whether thereare any areas of the generalaverage process where costscould be avoided, reduced orcontrolled, including adjusters’fees, costs of collecting security,the format of adjustments, andthe involvement of legal andother representatives.4. There is a suggestion that arule of application should beincluded in any revisions to theYork Antwerp Rules in orderto make it clear that whereclauses in contracts providefor the application of the YorkAntwerp Rules any revisions arealso incorporated. It is realisedthat some courts may hesitateto accept the new rule ofapplication can have an effect onthe interpretation of older generalaverage clauses. However, it isthought that other courts mightfind this rule useful. The problemenvisaged is that when generalaverage clauses include thelanguage “any amendmentshereof” it may be unclear whichversion of the Rules applies.5. There is considerable discussionover the use of substitutedexpenses, and whether certainsubstituted expenses should beexpressly allowed within generalaverage where they are of cleargeneral benefit to commercialinterests without considerationto the savings incurred – e.g.towage to destination and/orforwarding cargo.6. There is also debate over theapplication of non-separationallowances and, in particular,where there has been frustrationby reason of delay. They askwhether there is any sort offormula that should be used fordetermining when there havebeen non-separation allowancesarising from delay.7. There is a suggestion thatthere should be no allowancein general average for crewwages at all. The position is,at the moment, that they areallowed while the vessel isdetained at a port of refugefor the common safety, or toreflect repairs necessary for thesafe prosecution of the voyage.There is discussion over whetherfurther clarity is required as towhen crew wages are allowed i.e.when they stop and when theystart.8. Whether there should be anyallowance for permanent repairsat the port of refuge which wouldbe less than the combined costof temporary and permanentrepairs.There are many more minor issuesthat have been raised by the CMI fordiscussion by the national maritimelaw associations, and they will nodoubt be published in any workingpapers of the CMI in the months tocome.What is clear is that there hasbeen little adoption of the YorkAntwerp Rules 2004, and there isa definite desire to ensure that anynew York Antwerp Rules revisionsare well taken up by the maritimecommunity. In order to achieve this,any changes will need to result inrevised rules which are relevant andapplicable to the type of disputesand problems that are seen today.We would imagine that, in particular,general average has to find a wayto effectively deal with massivecontainer casualties such as the“MSC FLAMINIA” and “AMSTERDAMBRIDGE”. This will clearly be achallenge for the future of generalaverage and will doubtless colourthe revisions, if any, made by theCMI in 2016. There will be some whomaintain that the 1994 rules remain06 Marine Insurance Bulletin

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