“Inchmaree clause” includes the risks which have no connection with conventional marine characters, but are insured in marine policies, such as clause 6.2 in Institute Time Clauses
Hulls (1/10/83). 246 It notably consists of two kinds of events: losses caused by machinery
breakdown,247 or by the negligence or barratry248 of people other than the assureds. This
clause was designed and inserted into major modern standard forms in response to Thames and Mersey Marine Insurance Co v Hamilton, Fraser & Co (The Inchmaree).249 The case was
concerned with a marine time policy in the old SG Form protecting against perils of the sea and all other perils under the general words. The donkey-engine of the insured vessel, The Inchmaree, was damaged either due to the negligence of one of the engineers or by mere accident with reasonable care. It was admitted that the loss was not due to ordinary wear and tear. Having realised that the same incident would have happened on land without any marine character, the Lords unanimously limited the perils ejusdem generis by a narrow interpretation. In particular, Lord Bramwell suggested and found this definition sufficient: “All perils, losses and misfortunes of a marine character, or of a character incident to a ship as such.” Accordingly, the machinery breakdown did not fall into perils of the sea or any of the other perils; the assured was unable to get indemnified under the SG Form. As soon as the judgment came out, the earliest form of the Inchmaree clause was inserted as an additional cover by the Lloyd’s insurance market.
Besides the Inchmaree clause being featured as non-marine related risks, it is also famous for “the due diligence proviso”. Although the negligence and even barratry of the master or crew are insured against under the Inchmaree Clause, the negligence of the assured is explicitly excluded herein.
It has long been held that the negligent navigation of the assured should not release the insurer from his liability to indemnify the loss caused by perils of the sea in Trinder,
246 Clause 6.2 of Institute Time Clauses Hulls (1/10/83) states:
6.2 This insurance covers total loss (actual or constructive) of the subject-matter insured caused by
6.2.1 bursting of boilers breakage of shafts or any latent defect in the machinery or hull 6.2.2 negligence of Master Officers Crew or Pilots
6.2.3 negligence of repairers or charterers provided such repairers or charterers are not an Assured hereunder
6.2.4 barratry of Master Officers or Crew
6.2.5 contact with aircraft, helicopters or similar objects, or objects falling therefrom Provided such loss or damage has not resulted from want of due diligence by the Assured, Owners, Managers or Superintendents or any of their onshore management.
247 For the legal meaning and interpretations of the terms, latent defect, see The Caribbean
Sea [1980] 1 Lloyd's Rep 338; Promet Engineering (Singapore) Pte Ltd v Sturge (The Nukila) [1997] 2 Lloyd's Rep 146; as to bursting boilers and breaking shafts, see Thames & Mersey Marine Insurance Co v Hamilton, Fraser & Co (1887) 12 App Cas 484.
248 A statutory definition is laid down in rule 11 of the Rules of Construction in the 1906 Act;
“The term ‘barratry’ includes every wrongful act wilfully committed by the master or crew to the prejudice of the owner, or, as the case may be, the charterer.” For more details, see Hazelwood, S “Marine Perils and the Burden of Proof” in Thomas, D.R (ed) The Modern Law of Marine Insurance, (London : LLP, 1996) pp156-172.
Anderson & co v Thames and Mersey Marine Insurance Company. 250 In this case, a marine
freight policy against perils of the sea was effected by the defendant insurer. The master of the ship insured happened to be a part owner of the ship. Owing to his negligent navigation, the ship stranded upon a reef and the ship and the cargo were wetted and damaged to a critical extent. Accordingly, the cargo was sold at once. All the owners including the master claimed for total loss of freight against the insurer. In terms of the negligent navigation of the assured master, Smith L.J. stated:
…so in a marine policy sea perils are what are insured against. The risk undertaken by an underwriter upon a policy covering perils of the sea is that, if the subject-matter insured is lost or damaged immediately by a peril of the sea, he will be responsible, and, in my judgment, it matters not if the loss or damage is remotely caused by the negligent navigation of the captain or crew, or of the assured himself, always assuming that the loss is not occasioned by the wilful act of the assured.
Moreover, per Collins L.J., “His [Assured’s] negligence does not, any more than that of his servants, alter the character of the sea peril, which still remains the causa proxima,….” Thus, it becomes a general rule that the assured’s negligence cannot justify his insurer’s defence on this ground, with an exception of the “Inchmaree Clause”.
Very recently, The Toisa Pisces,251 addressed an unresolved issue under English law as to the
exact meaning and test of the “due diligence proviso” in the Inchmaree clause. The insurer issued a loss of hire marine policy incorporating Institute Time Clauses Hulls (1/10/83) and also insured against breakdown of machinery unless it was not resulted from wear and tear or was by want of due diligence by the assured. A propulsion breakdown occurred on 25 February 2009 and resulted in a loss equivalent to 30 days’ off –hire. A dispute arose as to the standard of care and the assured suggested a test equivalent to recklessness which could amount to a want of due diligence; whereas, the insurer’s submission rested mainly upon the authoritative treatise and stated a lower standard as to negligence, which was a lack of reasonable care in this case.
Blair J noted that it is necessary to read the provision as a whole, in conjunction with the terms relating to “negligence” as a matter of defining the extent of the indemnity. Negligence is a covered peril in its own right pursuant to the Inchmaree clause, but is limited to the negligence of the person named in the relevant clause. Evidently, the assured is not one of them; therefore the negligence of the assured cannot be indemnified under the clause. Moreover, a proper definition of “due diligence” in the context of marine insurance law had been affirmed by a Canadian decision, Secunda Marine Services Ltd. v. Liberty
250 [1898] 2 Q.B. 114 251 Supra 81, para 136
Mutual Insurance Company,252 which was followed by Blair J. As stated by Strathy and Moore:
253
“Due diligence” is a legal term used in a variety of contexts, including marine insurance. It essentially means “reasonable care in the circumstances”. In determining “due diligence”, the court will consider all the surrounding circumstances, including those known or reasonably to be expected. In setting a standard of due diligence, the court will consider the practice of others involved in the same industry, although a court may find that the industry practice is itself negligent.
Ultimately, the applicable legal test in English marine insurance law in respect of the “due diligence proviso” was established by Blair J, which is that “want of due diligence” is lack of reasonable care.
Regardless of such a clarified test of negligence now, in pure causation terms, a question may remain as to whether the “due diligence proviso” expressly indicates the parties’ intention to opt out of the application of the doctrine of proximity to a lower benchmark. In comparison with the similar term contained in the charterparty or bill of lading, according to Article IV- (2) of The Hague Visby Rules, for instance, the carrier or ship will not be liable for loss or damage arising or resulting from “(c) perils, dangers and accidents of the sea or other navigable waters” if without the actual fault and privity of the carrier and his servants/agents. Therefore, in light of the similar expression used in the “due diligence proviso”, does it indicate that the assured’s negligence will debar himself from the indemnity as long as the negligence remotely contributes to the loss or damage?
The tests of causation under the two branches of law have been distinguished in the ancient case, Hamilton, Fraser & Co v Pandorf &Co.254 This case was concerned with rats in the
context of carriage of goods by sea, the ingress of water through the hole in a bath pipe gnawed by rats was considered as a case of perils of the sea, whereof the ship-owner was not liable for the loss of the cargo spoilt by the sea water in accordance with the exceptions in the bill of lading and charterparty. It was unanimously held by the House of Lords that in a contract of affreightment, if necessary, the court should go behind the proximate cause of damage, for the purpose of ascertaining whether that cause was brought into operation by the negligent act or default of the shipowners or of those whom he is responsible; whereas in the context of marine insurance, had perils of sea been regarded as the proximate cause
252 Secunda Marine Services Ltd. v. Liberty Mutual Insurance Company [2006] NSCA 82 253 Strathy and Moore, The Law and Practice of Marine Insurance in Canada (LexisNexis
Butterworths, 2003) 120-121
of loss, the remote causes, such as the negligence of the assured would be irrelevant in determining the indemnity.
In principle, the Inchmaree clause should apply the doctrine of proximity unless the policy otherwise explicitly indicates in marine insurance law. It seems the most plausible explanation of such phrasing may be that the parties agree that the “due diligence” proviso has a prevailing effect over the enumerated incidents or risks in the clause; therefore, the assured’s negligence should be regarded as the proximate cause of loss over, but limited to, the enumerated causes.