Marco conceptual

While the Courts’ view was mechanical in the old authorities¹⁰⁹, their attitude has changed and the current position is that conflicting incorporated terms are disregarded if they are incapable of being given a sensible meaning in the context, although the Courts will seek to give effect to them if the conflicting clauses can live together¹¹⁰. The reason for this principle is that in the ordinary course of events the parties may be assumed to have given express consideration to written terms and much less, if any, consideration to the

application of the incorporated terms¹¹¹.

106 In Charlesworth v Faber Bigham J accepted incorporation of a held covered clause into the reinsurance policy as such a provision was not unusual.

107 Per Bingham LJ, in Interfoto, at 445.

108 [2001] 1 Lloyd’s Rep 378, 287.

109 See Doe & Leicester v Biggs, (1809) 2 Taunt 109, 113 where Mansfield CJ held stated that “the general rule is, that if there be a repugnancy, the first words in a deed, and the last words in a will, shall prevail”.

110 Finagra Ltd v OT Africa Ltd [1998] 2 Lloyd’s Rep 622; Metalfer Corporation v Pan Oceanhipping Co Ltd [1998] 2 Lloyd’s Rep 632; Sabah Flour and Feedmills Sdn Bhd v Comfez Ltd. [1988] 2 Lloyd’s Rep 18.

Quinta CommunicationSA v Warrington [2000] Lloyd’s Rep IR 81. In Adamastos Shipping v Anglo-Saxon Petroleum [1959] AC 133 the charterparty incorporated the US “Paramount Clause”. The clause was worded as “This bill of lading shall have effect subject to… the Carriage of Goods by Sea Act of the United States...

1936…”. The House of Lords unanimously held that it did not make sense to begin a clause of a charterparty with the words “This bill of lading”; therefore on the true construction of the charterparty the Paramount Clause must be read as if it was “This charterparty shall have effect…”.

111 It is much the same principle whereby typed clauses prevail over printed clauses and handwritten clauses will ordinarily prevail over typed clauses. See Farmers’ Co-op Ltd. v National Benefit Assurance Co. (1922)

2.4.2.2 Inconsistency between Reinsurance – Insurance Contracts

In some early cases the independence of reinsurance and insurance contracts was recognised, and each was construed in accordance with its own terms. For instance, in Franco-Hungarian v Merchants Marine Insurance¹¹² the direct policy contained a held covered clause, whereas the retrocession policy did not, and the reinsurance was “as original”. Day J stressed that incorporated provisions operated only until the retrocession cover ended, according to its own term.

Nevertheless, in Marten v The Nippon Sea and Land Insurance¹¹³ Bigham J read the full reinsurance clause as extending the reinsurance cover beyond that stated in the

reinsurance. In this case the issue was related to the physical limits of cover: the insurance covered the risk from warehouse to warehouse while the reinsurance was stated to be

“from loading …until …safely landed at …port”. The goods were damaged in the customs warehouse after being discharged from the ship. Bigham J held that because of the

commonplace nature of the clause, it was carried into the reinsurance contract. Similarly, in Charlesworth v Faber¹¹⁴ the issue once again was the unusual character of the held covered clause, but Bigham J ruled that a held covered clause was in common use in connection with that particular kind of time policy on liners. He distinguished Franco-Hungarian by asserting that in Franco no evidence appeared to have been given to show that the clause was well known and in common use. It has been asserted that Bigham J’s reason is unconvincing¹¹⁵ because in Franco Day J did not mention the degree of any use of the relevant clause and his decision was based on the point that incorporation would have extended the reinsurer’s liability beyond that for which he actually contracted. It is unfortunate that the inconsistency between the terms of the insurance and reinsurance contracts was not taken into account by Bigham J and the learned judge did not give any weight to the terms of the reinsurance policy indicating the limited period of the

reinsurance cover. It can be deduced from Bigham J’s conclusions that if an inconsistency appears, the original insurance provisions can override the terms of the reinsurance

regardless of the independence of these contracts from each other. Consequently, those

13 Ll LR 530, 533 per Atkin LJ; City Tailors Ltd v Evans (1921) 9 Ll LR 394; The Ion, [1971] 1 Lloyd’s Rep 541.

112 Shipping Gazette, June 7, 1888.

113 (1898) Com Cas 164.

114 (1900) Com Cas 408, 412. However the case was ultimately decided on the basis that the reinsurance was unenforceable under the Stamp Act 1891 as it was made for a longer period than twelve months.

115 Butler and Merkin, para B-0130.

authorities show that if a term of the original insurance is common in nature, the full reinsurance clause may carry it into the reinsurance, thereby extending the reinsurer’s liability beyond his own contractual terms.

It is noteworthy that in Joyce v Realm Marine Insurance Co.Ltd¹¹⁶, Blackburn J

disregarded an express discrepancy between the provisions of reinsurance and insurance agreements. Here, the original insurance contained an extension clause providing that

“outward cargo to be considered homeward interest twenty-four hours after her arrival at her first port of discharge”. The reinsurance policy which was affected after the vessel had arrived in Africa (outward destination) did not mention the extension clause and provided cover “from the loading thereof and thereafter while the cargo was being conveyed between African ports and on its homeward voyage”. The cargo was damaged after the vessel arrived at an African port and at a time when the cargo had remained on its outward journey for more than twenty-four hours. Blackburn J was of the view that the

incorporation wording permitted him to use the original policy terms as evidence to construe the reinsurance provisions. Consequently “from the loading thereof” was interpreted as covering constructive loading, in line with the original insurance.

Interestingly, this case pre-dated Franco Hungarian in which the independence of the reinsurance contract was emphasised. However Franco is so poorly reported that it is not clear whether Day J distinguished Joyce¹¹⁷.

In Joyce, Blackburn J referred to Bell v Hobson¹¹⁸ where in fact incorporation was not the issue and the concern was construction of marine policy terms. Lord Ellenborough stated that where an insurer’s liability in respect of marine cargo is expressed as commencing

“from the loading on board”, the phrase is to be confined to the place from whence the risk commenced. He also added that if there was anything to indicate that a prior loading was contemplated by the parties, it will release the case from that strict construction¹¹⁹. Blackburn J adopted Lord Ellenborough’s view but modified, to the effect that bringing the construction of the terms of the original policy into the reinsurance contract by virtue

116 (1871-72) LR 7 QB 580.

117 Butler and Merkin, para B-127. The authors also submitted that Joyce did not create a general rule and applies only to the particular facts of the case.

118 (1812) 16 East 240.

119 (1812) 16 East 240, 243.

of the full reinsurance clause was possible. It may be assumed that if there had been no words of incorporation, the decision in Joyce could have been different¹²⁰.

In Stronghold Insurance Co Ltd v Bulstrad Insurance and Reinsurance plc¹²¹ the

reinsurance contained the words: “all settlements made by the Company shall be binding on their Reinsurers and the Reinsurers agree to pay to the Company any amounts that may be recoverable under this Agreement within 15 (fifteen) days after the receipt of the necessary papers proving the loss.” The retrocession agreement stated “all clauses terms and conditions as original insofar as applicable and to pay as may be paid thereon.” The reinsurer argued that the effect of the “all clauses terms and conditions as original”

wording in the retrocession was to incorporate the “follow the settlements” clause into the retrocession. The latter clause overrode the “pay as may be paid thereon” clause so that, without proving actual liability, the reinsurer could make a claim against the

retrocessionaire where the reinsurer acted in a bona fides and businesslike manner. HHJ Mackie QC applied the requirements of incorporation laid down in HIH v New

Hampshire Insurance and held that “pay as may be paid” and “follow the settlements”

clauses produced opposite results so that the two clauses were inconsistent each other and the latter could not be incorporated into the retrocession agreement.

It is suggested that, while examining the effect of the incorporation wording on construing inconsistent terms, it is crucial to bear in mind that reinsurance and insurance contracts should be read according to their own terms as they are independent from each other¹²². In other words, where the parties to the reinsurance made a specific agreement, this should not be disregarded¹²³. Obviously, problems are sidestepped if it is accepted that the “as original” wording has no function other than confirming that the terms of reinsurance match the original policy unless the parties agree otherwise. Moreover, even if the

incorporation purpose is accepted, the Privy Council’s declaration in Australian Widows’

120 It is seen in some recent authorities that the full reinsurance clause has been construed in similar

understanding to Joyce. For example in Vesta v Butcher [1989] 1 Lloyd’s Rep 331 the majority of the House of Lords gave the warranty in the reinsurance contract a meaning in the same way as of the original

insurance. Furthermore, in Groupama Navigation et Transports & Ors v Catatumbo Seguros [2000] 2 Lloyd’s Rep 350 , the Court of Appeal held that the inconsistency should be overcome by construing the reinsurance terms in the same way as of the direct policy. It should nevertheless be noted that in both cases the back to back presumption underlay the decisions. That presumption and these cases are examined in detail below.

121 Unreported, see the March 2008 issue of Insurance Law Monthly.

122 See O’Neill and Woloniecki para 1-35 where independent feature of these two contracts is emphasised.

123 Heath Lambert Ltd v Sociedad de Corretaje de Seguros [2004] Lloyd’s Rep IR 905.

Fund v. National Mutual¹²⁴ has made it clear that “subject to the same terms and

conditions as original” should be construed as if it were prefaced with the words “except as herein otherwise provided”.