In this blogpost, Pramit Bhattacharya, Student, DamodaramSanjivayya Natioanl Law University, writes about the concept of excluded losses in the case of Marine Insurance. Section 55 of the Marine Insurance Act, 1963, which deals with the concept of excluded losses and also the important elements of the provisions are dealt with, in this post.

Maritime law is one of the oldest and the most established law. There are a lot of nodal laws like marine contracts, marine torts, shipping, worker compensation, and any other dispute that may arise on the navigable waters of the world. Maritime law is also known as admiralty law, and it regulates maritime offenses and issues.[1] Maritime laws comprise of both domestic laws of a state and private international laws. Maritime law also governs the relationship between the private entities who operate their vessel in the oceans of the world. Issues like marine navigation and marine commerce also fall under the purview of the maritime law. Numerous commercial activities are also covered by the maritime law. Even though some of these activities may be land based, but they still come under the ambit of maritime law. One of the oldest insurance contract which has been authenticated, i.e. a contract which truly envisaged the characteristics of a contract in the sense that risk of loss was transferred due to an uncertain event and in lieu of which consideration was made, was a marine insurance contract.[2] The origin of marine insurance is not a recent development. The concept of marine insurance has been existent for several centuries. One of the most comprehensive and definite law regarding marine insurance was introduced by the English when they formulated the Marine Insurance Act, 1906.[3]

Excluded losses

Under the English Marine Insurance Act, 1906 Section 55 (1)[4] provides all the framework in relation to excluded and included losses under the maritime law. Under the Indian Marine Insurance Act, 1963 also, the same provision, i.e. Section 55 governs the issue of excluded and included losses. The principle of proximate cause is applied to determine the liability of the insurer. Section 55 of the Marine Insurance Act, 1963 states that there are certain situations in which the insurer is not liable for the loss which has been insured against. Section 55 (1) states that the insurer is not liable for any loss which is not proximately caused by a peril insured against. Section 55 (2) (a) states that the insurer is not liable for any loss which has been suffered by the assured if the loss occurred due to the willful misconduct or negligence of the assured party. But if the loss occurred due to proximate cause, and the wilful negligence of the assured also contributed in happening of the loss, the insurer would be liable. Clause (b) states that the insurer wouldn’t be liable for any loss which has been proximately caused due to any delay, even though the delay due to a peril was insured against. Clause (c) talks about normal wear and tear in normal course of business. The clause states that the insurer is not liable for the ordinary wear and tear, ordinary breakage and leakage, some inherent defect which was present from the start, on the thing which has been insured, any loss to machinery or product which haven’t been caused by maritime peril, or any loss caused by vermin or rats. The reliance has been placed on the Act to provide a necessary defense to the insurer.

Proximate cause

The interpretation of the Act makes it clear that the party who has insured the subject matter of the insurance is liable only for the losses which have been proximately caused by peril. The question of proximate cause has been discussed over and over, to understand what actually can be considered a proximate cause. The English law on marine insurance is very clear on the point of the proximate cause, though. And Since the Indian Law is based on the English Law, the stand taken by them can act as an authority for the Indian Law also. According to the English authorities, it is the cause proximate in effect which must be considered instead of the proximity of time. In simple words proximate cause can be defined as the dominant cause of the loss or damage.[5] In the judicial pronouncement of Reischer v Borwich[6], it was observed by the Court that the tugboat was insured against the risk of collision or collision with any object. The tug boat was although not insured against the perils of the sea. The tugboat had a collision, and it was damaged. The Court was of the opinion that the assured was entitled to recover the loss from the insurer since the proximate cause of the loss was a collision and it was a proximate cause in effect and not in time.

Burden of proof

Now the question arises that which party should prove whether the cause of the damage was proximate or not. Under almost all the legal system, the party who is making the claim or the assertion that the cause was proximate has the burden of proof. The assured, in order to discharge his burden of proof does not have to exclude all the possibilities as to how a particular damage to the subject matter take place, but the assured has to satisfy the Court that according to the balance of probabilities, the loss was proximately caused by a peril which he has insured against. In a situation where there is an equal probability that the loss or damaged was caused by a peril which was not covered by the insurance policy, the assured will fail in discharging his burden of proof. In such a case the insurer will not be liable for the loss, and the assured wouldn’t be able to sustain his claim. Once the assured has discharged his burden of proof (discharging the burden of proof in a prima facie manner will suffice), then the burden of proof shifts to the other party. In such a case the insurer will have to set up a counter argument, and satisfy the Court that the damage occurred due to a peril which hasn’t been insured. The insurer can also prove that the damage occurred due to the wilful misconduct of the assured party, or assured’ privity to wilful misconduct, or a breach of warranty.

Wilful misconduct

Section 55 (2) states that if the damaged is caused by the wilful misconduct of the assured, then the insurer wouldn’t be liable. The willful misconduct can range from negligence to gross disregard. It is of vital importance to identify the quality of the act of the assured to check whether the act fell under the category of wilful misconduct or not. One more point which is to be considered is that if the ship sent to sail was unworthy of sailing or not. If yes, then also it will constitute willful misconduct on the part of the assured. One more question which arises here is that can complete indifference, disregard and inaction can also be considered as wilful misconduct. The stand has been made clear by the Court that taking no action and showing indifference will also constitute wilful misconduct.

Loss caused by delay

Section 55 (2) (b) very clearly states that the insurer wouldn’t be liable for any loss due to any kind of delay even if the assured has taken insurance against the peril due to which the delay was caused. There can be many causes for a delay, but the most apt cause of the delay will be considered.

Ordinary wear and tear

As per section 55 (2) (c)  states that the insurer is not liable for any ordinary wear and tear in the ordinary course of operations, for instance, wear and tear caused to a ship due to the effect of waves and wind. A little depreciation is always there, and the law also recognizes this fact. The insurer is liable only for losses which are beyond the regular wear and tear. Ordinary leakage and breakdown also fall within the scope of normal wear and tear.

Inherent defect

If there is any inherent vice in the subject matter and the damage is caused due to such inherent vice, then to the insurer wouldn’t be liable. The point here to note is that since the insurer is alleging or claiming that the subject matter had some inherent defect or vice, the burden of proof lies on him that it is indeed so. Damage which happens in the regular course of business without any externalities can be due to inherent vice and such losses would also be excluded from the liability of the insurer.

Concluding remarks

Marine insurance plays a very vital role in securing loses of the buyers, sellers, and ship owners and it helps them to conduct their business on or through the seas and the oceans. The risks at the high seas are much unexpected, and it is important that at least some of the risk is financially covered through the insurance. Marine insurance generally fulfills the overseas transportation requirements. Excluded loses are also an important part of the marine insurance law so that the insurers are not made liable for the loss which happened due to the misconduct of the assured party or due to any event which was inevitable.

[1]http://www.pfri.uniri.hr/~bopri/documents/02_MaritimeLaw.pdf

[2]http://www.nos.org/media/documents/vocinsservices/m4-2f.pdf

[3]http://www.legislation.gov.uk/ukpga/Edw7/6/41/contents

[4]http://www.legislation.gov.uk/ukpga/Edw7/6/41/section/55

[5]file:///C:/Users/Administrator/Downloads/fulltext_stamped.pdf

[6] [1894] 2 QB 548 at p.550 http://caselawquotes.net/P/ProximateCause.html