Sub-section (2) of s 55 of the Marine Insurance Act 1906, which is entitled as “excluded losses”, includes inherent vice. Chalmers’ states that s 55(2) embodies the deductions of the general rule established in sub-section (1).315 It has been followed and contemplated in Soya
v White that the sub-section, which is introduced by “in particular”, aims to set out examples
314 CT Bowring & Co Ltd v Amsterdam London Insurance Co Ltd (1930) 36 Ll. L. Rep. 309 315 Sir Chalmers, M.D., Chalmers’ Marine Insurance Act 1906 (9th edn, Butterworths, 1983) 78
of the application of the sub-section (1) which is the general rule for ascertaining the underwriter’s liability. The aim is to clarify the scope of cover rather than import exclusions. That is to say, the risks itemised in sub-section (2) are uninsured circumstances under for which the underwriter is not liable, provided that the risk is determined to be the proximate cause. However, a particular rule of construction was laid out by virtue of the clause “unless the policy otherwise provides”, which leaves room to alter the scope of coverage. According to Lord Diplock in this regard, “The question whether particular kinds of inherent vice are covered is simply one of construction of the policy concerned.”316 Therefore, pursuant to this
provision, inherent vice is not an insured peril but subject to otherwise agreement.
The same position can be found in the jurisdiction of Australia. In HIH Casualty and General Insurance Limited v Waterwell Shipping Inc and Anor,317 a fishing vessel sank at berth in
Kenya as a consequence of incursion of sea water during the operation of fumigation. It turned out that the starboard sea water suction valves were left open due to the negligence of the master and his crew and the wall of strainer box failed to prevent the sea water due to corrosion. The assureds claimed for a constructive total loss, which had been approved by the initial trial judge on the ground that the loss was proximately caused by an insured peril, namely, the master and the crew’s negligence. However, the underwriter appealed by alleging that he was not liable as the proximate cause of the sink was wear and tear which is excluded pursuant to s 61(2) of the Marine Insurance Act 1909,318 alternatively, wear and
tear and negligence. The Supreme Court of New South Wales excluded the situation of competing/concurrent causes in this case and affirmed that the proximate cause was the insured peril of negligence. Therefore, the Court dismissed the appeal.
With the construction of s 61, the Court emphasised in particular that those itemised risks are not excluded perils but uninsured ones, which is in line with the prevailing opinion in English courts:
Section 61(1) describes the ambit of the insurer's liability by reference to a particular loss, namely one "proximately caused by a peril insured" and goes on to describe a loss for which the insurer is not liable, namely one "which is not proximately caused by a peril insured against". One limb is the converse of the other; neither intrudes upon the other.
Section 61(2) begins with the words "In particular". Those words suggest that what follows in subs (2) does not add to or detract from the ambit of the insurer's liability described in subs (1). Rather, it exemplifies losses for which,
316 Supra 230, p 126 317 [1998] NSWSC 436
318 S 61 under Australian Marine insurance Act 1909 is completely identical to s 55 of the
English Marine Insurance Act 1906, which is in respect of the doctrine of proximity and insured and excluded losses.
in accordance with subs (1), the insurer is or is not liable. Paragraphs (a) and (b) speak of liability for loss. Paragraph (c) speaks also of liability "for ordinary wear and tear, ordinary leakage and breakage, inherent vice or nature of the subject matter insured."
The court held that the expression in Sub-section 2 including inherent vice and wear and tear not only includes the loss in itself, in this case the loss due to wear and tear, but also extends to the loss caused by those perils. Therefore, an underwriter is not liable for the loss proximately arising therefrom “unless the policy otherwise provides”.
An interesting question is how to interpret the word “otherwise” in this provision. Evidently, if the clause expressly states that inherent vice is within coverage, notwithstanding subject to a restrictive construction on such terms, 319 the underwriter will be liable for the losses
proximately caused by inherent vice in this regard. For instance, the “latent defect” afforded by the Inchmaree Clause is such an agreement to cover loss caused by inherent vice320.
Similarly, an insurance against loss by “heating or sweating” may be sufficient to displace the “inherent vice” exception.321 However, besides insured perils and uninsured perils, there
is also a third type of excluded perils in marine insurance. In the event that inherent vice is listed under “exclusions” in the policy, such as Institute Cargo Clauses, does the provision mean to clarify the liability scope of the insurers in an “otherwise” manner? In other words, does this clause have the effect of altering the insurer’s liability of indemnity by the expression of “exclusions” relying on the condition that the policy “otherwise” indicates? Before answering this critical question, it is worth reiterating the distinction between uninsured perils and excluded perils and emphasizing the legal significance of such distinction. The loss proximately arising solely from a peril of either category will not be recoverable by the insurers, while under the circumstances of concurrent causes, the rules and legal consequences are different as discussed in the Chapter 2. The insurer will be liable if the loss is concurrently caused by an insured peril and an uninsured peril. In contrast, the insurer will not liable in the situation of a concurrency of an insured peril and an excluded peril. It is not rare in practice that the counsel’s submissions on both sides may address a situation of concurrent causes in respect of inherent vice or wear and tear. Accordingly, it is important to identify the effect of such a clause in order to ascertain the insurer’s liability when the concurrent causality issue has been raised. Although it may be unnecessary to distinguish whether inherent vice is uninsured or excluded peril in the context of marine insurance law, as it has been ascertained by the Supreme Court that it cannot be one of the concurrent proximate causes, this question is concerned with the legal nature of all the risks listed under s 55(2) as a matter of interpretation of the statute. Therefore, it is still of
319 Overseas Commodities Ltd v Style [1958] 1 Lloyd's Rep 546, 560 320 The Caribbean Sea [1980] 1 Lloyd's Rep 338, 347
significant importance to identify the legal nature of these perils and to find out the proper construction of s 55(2) by taking inherent vice as an example.
Returning to the question proposed above, if inherent vice, etc. are listed as exclusions in the policy, on the grounds of the general rules which take account of the legal connotation, viz., intention of parties and commercial sense and the purpose of the policy to construe the contract terms, there is no doubt that the word “exclusion” articulates the insurer does not insure against those perils and, in the literal manner, the risks should be excluded as they are entitled. However, in the current judicial view, the effect of such a clause is no more than a provision of uninsured perils, which means “exclusion” is not an otherwise agreement. It has been clarified in the judgment of The Cendor Mopu by the Supreme Court: Lord Clarke considered that the exclusion of inherent vice by s 55(2)(c) was not exclusion at all. It is merely an amplification of the proximate cause rule and thus is an example of a circumstance of a loss not proximately caused by a peril insured against. Also, Lord Mance added that the exclusion of inherent vice in the contract ought not to alter its status as merely an uninsured peril under section 55(2)(c) of the 1906 Act.
Therefore, it seems that, taking Institute Cargo Clauses (B) as an example, inherent vice is equivalent to the unmentioned risks in the “Risks Covered” Clause, even though it is listed in the Exclusions. Even though the Institute Cargo Clause (A) 2009 has replaced the wording “except as provided in Clauses 4, 5 6 and 7 below” used in 1982 version with “except as excluded by the provisions of Clauses 4, 5 6 and 7 below” in the risk clause in order to give a clearer indication that the clauses referred to are exclusions, it may still be faced with the same obstacle in attempting to make inherent vice as an exclusion on account of The Cendor Mopu. As a result, if an underwriter genuinely intends to escape from such risks under this provision, an exclusion clause may be not sufficient and requires more explicit emphasis. Alternatively, he may resort to warranty clauses in order to avoid the legal effect of inherent vice as uninsured peril or avoid alleging a case of concurrent causes in terms of causation.