Where there is constructive total loss, the insured has a couple options. Either he can treat the constructive total loss as a partial loss or he can treat the loss as an actual total loss. If he decides to do the latter, he must abandon the subject matter to the insurer (s 61) and give notice of abandonment to the insurer (s 62(1)). The notice must be given clearly in writing, orally, or partly in writing and partly by word of mouth (s 62(2)).104 The acceptance of the notice of abandonment can be either express or implied, but silence on the part of the insurer does not constitute an acceptance (s 62(4)). In the event of a valid abandonment, the insurer is entitled to take over the interest of the assured in whatever may remain of the subject matter (s 63).105

Partial loss

According to s 56(1), a loss that is not a total loss is a partial loss. So, for instance, where 20 crates of a cargo of 100 crates of whisky are lost, there is a partial loss.

Institute cargo clauses (A), (B) and (C)

Historical background

Throughout this chapter, references have been made to the Institute Cargo Clauses (A), (B) and (C).106 These three sets of Institute Cargo Clauses, in wide use in the insurance industry, are standard terms and were initially introduced in 1982. These, as stated in the Introduction, underwent amendments, and the current version is the 2009 version. Prior to the Institute Cargo Clauses, the insurance market used a standard form SG policy, attached as a schedule to the MIA. The acronym ‘SG’ stood for ships and goods. The SG policy, apart from using archaic language, was issued for insurance on ship, as well as goods and freight.The SG policy was criticised by the judiciary for its lack of clarity, simplicity and certainty.107

In 1978, the United Nations Conference on Trade and Development (UNCTAD) had also published a report108 that echoed the criticisms of the SG policy as antiquated and unclear. In response to these criticisms, the Institute of London Underwriters109 and the Lloyds Underwriters Association110 set up a working party to see how best the criticisms raised by the report could be addressed. The working party recommended the replacement of the SG policy with a new user-friendly form and cargo clauses. A new form (often called the MAR Policy, from Lloyd’s Marine Policy) was introduced. The Companies Marine Policy of the Institute of London Underwriters is similar to the MAR Policy, except that they use the word ‘Company’ instead of ‘Underwriter’. The MAR Policy validates the existence of the contract, since s 22 of the MIA states:

Subject to the provisions of any statute, a contract of marine insurance is inadmissible in evidence unless it is embodied in a marine policy in accordance with this Act. The policy may be executed and issued either at the time when the contract is concluded or afterwards.

104In some circumstances, a notice of abandonment can be excused. See 62(7) and Kastor Navigation Co Ltd v AGF MAT [2004] 2 Lloyd’s Rep 119. A right to claim for constructive total loss is not lost where the vessel becomes an actual total loss.

105See ‘Subrogation and double insurance’, above.

106For a comparative table of the extent of cover under these three sets of Institute Cargo Clauses, see Table 14.1.

107See Shell International Petroleum Co Ltd v Gibbs (The Salem) [1982] 1 QB 948; Merten v Vestey Bros Ltd [1920] AC 307, at pp 314–5.

108Marine Insurance – Legal and Documentary Aspects of the Marine Insurance Contract, UNCTAD Document TD/B/C14/ISL/270.

109It was founded in 1884 consisting of insurance companies involved in marine insurance as members.

110It represents Lloyd’s marine underwriters.

The MAR Policy lists the information to be provided:

(a)the policy number;

(b)the name of the assured (required by s 23(1));

(c)the vessel;

(d)the voyage or period of insurance;

(e)the subject matter insured;

(f)the agreed value (if there is any);

(g)the amount insured;

(h)clauses, endorsements, special conditions and warranties; and

(i)the underwriters’ (companies’) proportions.

Under s 24(1) of the MIA, the marine policy needs to be signed by or on behalf of the insurer. Where a company or corporation is the insurer, a corporate seal will be sufficient. Provision for the signature is made on the top page of the policy. The terms of insurance are set out in the Institute Cargo Clauses (A), (B) and (C), to be used with the MAR Policy form.

Institute Cargo Clauses (A)

The Institute Cargo Clauses (A) provide the widest cover. They cover all risks of loss or damage to the subject matter insured (cl 1), excepting loss or damage (or expense) caused by:

(a)wilful misconduct of the assured (cl 4.1);111

(b)ordinary leakage,112 ordinary loss in weight or volume, or ordinary wear and tear113 (cl 4.2);

(c)insufficiency or unsuitability of packing (cl 4.3);114

(d)inherent vice (cl 4.4);115

(e)delay, even though the delay was caused by a risk insured against (cl 4.5);

(f)insolvency and financial default of managers, charterers or operators of vessel where, at the time of loading of the subject matter insured on board the vessel, the assured are aware or, in the ordinary course of business, should be aware that such insolvency or financial default could prevent the normal prosecution of the voyage (cl 4.6)116 (Note: exclusion, however, does not affect the assignee in good faith (cl 4.7));

(g)use of any weapon or device employing atomic or nuclear fission and/or fusion or other like reaction or radioactive force or matter;117

(h)unseaworthiness of vessel or craft (cl 5.1.1) (Note: this exclusion does apply to assignee in good faith (cl 5.2.));

(i)unfitness of container or conveyance for the safe carriage of the subject matter insured (cl 5.1.2);

111See Chapter 10, “Unamended version’’ under “Loss of limits of liability”, on the meaning of wilful misconduct in relation to the Warsaw Convention. See also Lewis v Great Western Railway Co (1877) 3 QB 195.

112See Monchy v Phoenix Insurance Co of Hartford (1929) 34 LIL Rep 201.

113See ED Sasson and Co Ltd v Yorkshire Insurance Co (1923) 16 LIL Rep 129.

114See Berk and Co v Style [1956] 1 QB 180.

115See Soya GmNH Mainz Kommanditgesellschaft v White [1982] 1 Lloyd’s Rep 122; Mayban General Assurance Bhd,Ami Insurans Bhd, Malaysian National Insurance v Alstom Power Plants Ltd [2004] EWHC 1038 (Comm).

116In the 1982 version, the cover did not extend to loss, damage or expense arising from insolvency or financial default of the owners, charterers or operators of the vessel. Whether there was knowledge on the part of the assured was not a factor.

117Clause 4.7 in the 1982 version excluded use of any weapon of war employing atomic or nuclear fission and/or fusion or other like reaction or radioactive force or matter.

(j)war,118 civil war, revolution, rebellion, insurrection, or civil strife arising therefrom, or any hostile act by or against a belligerent power (cl 6.1);

(k)capture, seizure, arrest or restraint, or detainment (piracy excepted), or the consequences from such events (cl 6.2);

(l)derelict mines, torpedoes or bombs, or other derelict weapons of war (cl 6.3);

(m)strikers, locked out workmen, or persons taking part in labour disturbances, riots or civil commotions (cl 7.1);

(n)strikes, lock-outs, labour disturbances, riots or civil commotion (cl 7.2);

(o)act of terrorism being an act of any person acting on behalf of, or inconnection with, any organisation that carries out activities directed toward the overthrowing or influencing, by force or violence, of any government, whether or not legally constituted (cl 7.3);119 and

(p)any person acting from a political, ideological or religious motive (cl 7.4).

Some of these exceptions are also found in the MIA (e.g., wilful misconduct (s 55(2)(a)), delay (s 55(2)(b)), wear and tear (s 55(2)(c)) and inherent vice (s 55(2)(c)).

The phrase ‘all risks’ has been judicially interpreted to include losses that occur fortuitously. In British and Foreign Marine Insurance Co Ltd v Gaunt,120 a cargo of wool arrived damaged because of wetting. Lord Sumner expounded the ambit of ‘all risks’ thus:

‘All risks’ has the same effect as if all insurable risks were separately enumerated: for example, it includes the risk that when it happens to be raining the men who ought to use the tarpaulins to protect the wool may happen to be neglecting their duty. This concurrence is fortuitous; it is also the cause of the loss of the wetting. It appears to be what happened. For wool to get wet in the rain is a casualty, though not a grave one; it is not a thing intended but is accidental; it is something that injures the wool from without; it does not develop from within. It would not happen at all if the men employed attended to their duty.

There are, of course, limits to ‘all risks’. They are risks and risks insured against. Accordingly, the expression does not cover inherent vice or mere wear and tear . . . It covers a risk, not a certainty; it is something which happens from without, not the natural behaviour of that subject matter, being what it is, in the circumstances in which it is carried.

As for burden of proof, it is on the claimant (the insured) to show that the loss or damage was fortuitous. There is no requirement on his part to show the exact cause of the loss. As expressed by Lord Sumner:

. . . the quasi-universality of the description does affect the onus of proof in one way. The claimant insured against and averring a loss by fi re must prove loss by fi re, which involves proving that it is not something else. When he avers loss by some risk coming within ‘all risks’, as used in this policy, he need only give evidence reasonably showing that the loss was due to a casualty, not to a certainty or inherent vice or to wear and tear. That is easily done. I do not think he has to go further and pick out one of the multitude of risks covered, so as to show exactly how his loss was caused. If he did so, he would not bring it any the more within the policy [at pp 57–58].

118See Kawasaki Kisen Kabushiki Kaisha of Kobe v Bantham Steamship Co Ltd [1939] 2 KB 544 on the meaning of war.

119Clause 7.3. has been much expanded in the 2009 version. In the 1982 version, it simply excluded ‘loss, damage or expense caused by any terrorist or any person acting from a political motive’. The amended clause reflects the realities of modern day contingencies and threats.

120[1921] 2 AC 41.

It must be noted that Institute Cargo Clauses (A) specifically exclude loss or damage due to wear and tear, as well as inherent vice, mentioned as excluded in the ‘all risks’ policy by Lord Summer.

Other than ‘all risks’, Institute Cargo Clauses (A) cover the assured for general average and salvage charges (cl 2), and collision liability (cl 3). The assured may become liable in the event of collision as a result of a ‘both-to-blame collision’ clause in the contract of carriage. It may come about as follows. Generally, where there is a collision and both ships are to blame, each is liable according to the degree of fault. It is customary for contracts of carriage to exclude liability for loss or damage caused by collision. Since the cargo owner cannot look to the carrier (even though the ship that is carrying the cargo is to blame for the collision) because of the exclusion, the issue is whether he can look to the other ship for full compensation. Under US law, this is possible. Once the non-carrying ship has compensated the cargo interest in full, they will include the sum paid to the cargo owner as part of the damages against the carrying vessel in proportion to the degree of fault. This means that, despite the exclusion clause in the contract of carriage between the cargo owner and (cargo carrying) shipowner, the latter becomes liable for loss or damage to cargo due to collision, albeit indirectly.To protect himself against this, the cargo carrying shipowner will normally include another clause (a both-to-blame collision clause) in the carriage contract, requiring the cargo owner to reimburse him with the sum paid to the other ship for collision damage to cargo.The end result is that the cargo owner bears some of the loss. Clause 3 is, therefore, designed to protect the cargo owner. (The both-to-blame collision clause has been held to be invalid in respect of bills of lading121 where the clause was held to be valid in charterparties.) Clauses 2 and 3 are also found in Institute Cargo Clauses (B) and (C).

Institute Cargo Clauses (B) and (C), unlike Institute Cargo Clauses (A), list the risks covered. The risks covered by Cargo Clauses (B) and Cargo Clauses (C) are, for the most part, identical. The differences are highlighted subsequently. As for exclusions, they are identical for all three sets of Clauses, apart from one in cl 4, namely exclusion of deliberate damage or deliberate destruction of cargo by wrongful act of person or persons, which is not included in Clauses (A).122

Institute Cargo Clauses (B)

The risks covered in Institute Cargo Clauses (B) can be grouped into two categories based on the strength of the causal connection. Clause 1.1 provides cover for loss or damage to goods which is reasonably attributable to:

(a)fire or explosion (cl 1.1.1);

(b)the vessel or craft being stranded, ground, sunk or capsized (cl 1.1.2);

(c)overturning or derailment of land conveyance (cl 1.1.3);

(d)collision or contact of vessel, craft, or conveyance with any external object other than water (cl 1.1.4);

(e)discharge of cargo at a port of distress (cl 1.1.5);

(f)earthquake, volcanic eruption, or lightning (cl 1.1.6).

Clause 1.2 provides cover where loss or damage to the goods is caused by:

(a)general average sacrifice (cl 1.2.1);

(b)jettison or washing overboard (cl 1.2.2);

(c)entry of sea, lake, or river water into vessel, craft, hold, conveyance, container, or place of storage (cl 1.2.3).

121See United States of American v Atlantic Mutual Insurance Co [1952] AMC 659, at p 661; American Union Transport Inc v United States of America [1976] AMC 1480, at p 1482.

122See Table 14.2.

Table 14.1 Risks covered under Institute Cargo Clauses (A), (B) and (C)

Table 14.2 Risks excluded under Institute Cargo Clauses (A), (B) and (C)

Table 14.2 Risks excluded under Institute Cargo Clauses (A), (B) and (C) (Continued )