Updated: 16 February, 2001

International Working Group on Marine Insurance Report to Plenary Session of the CMI Singapore, 16th February 2001

Marine insurance is a venerable and venerated institution, its antiquity in jurisprudence being second only to general average.

And marine insurance, problematic as its market forces may be from time to time, works relatively comfortably across borders, in and out of differing jurisdictions and legal systems. On its way, it applies a curious mix of local law, received foreign law, and established practice. It has its roots in the civilian law, yet it was fine-tuned to modernity under the mantle of the common law. It was the French marine insurance authority, Emerigon who told us in 1783

"Marine Insurance is a law not peculiar to one, but common to all commercial nations. Whence is it derived but from natural reason, existing in all men, and reaching the same results in all countries alike."

Throughout our work in this fascinating field of maritime law, we are reminded of two truisms, one on either side of the argument for review and reform:

First, and perhaps foremost, if it works, don't try to fix it. One is reminded of the executive who is required by his life insurer to submit to a medical examination, notwithstanding his own belief that he is invincible. While reading the doctor's report, he develops his first migraine; he has a twitch in his left eye by the end of the week, and high blood pressure within the month.

Second, as Dr Reme pointed out in our sessions this week on GA, nothing is too old to be changed for the better.

Somewhere between these two extremes is where the CMI's International Working Group on Issues of Marine Insurance finds itself.

The Background to the IWG's Work

At the CMI Antwerp Conference in 1998, Lord Mustill offered the suggestion that the CMI undertake a comparative study of the laws of marine insurance. He pointed out that it was many years since such a study had been made. The CMI took up the challenge, and with most valuable help from the Scandinavian Institute for Maritime Law, convened a colloquium on marine insurance in Oslo in the same year. The discussions in Oslo led to the identification of certain issues of marine insurance which appeared to warrant a comparative study. Those issues are listed in the IWG's conference papers at page 326. Curtailing the issues to be reviewed was felt to be the only way to achieve focus. Of course it has always been realised that the list may be expanded from time to time, though we must take heed of Lord Mustill's caution at this week's sessions, which I can perhaps illustrate with some old Cape folklore: spread your net too wide, and the shoal will escape.

The upshot of Oslo was the formation of our Working Group, the members of which are listed at page 326. The chairman of the group, Dr Thomas Reme, prepared a questionnaire which was sent out to all national associations, and to which many replied with useful synopses of their national laws. The questionnaire is at page 39 of the Yearbook.

The daunting task of evaluating the replies was undertaken by Prof Trine-Lise Wilhelmsen of the Scandinavian Institute. Her efforts have resulted in the preparation of an exhaustive (and I am sure at times exhausting) paper, parts of which she has delivered at a symposium in London in May 2000 convened by the BMLA and Tulane University, at our Spanish colleagues' CMI Colloquium in Toledo in September last year, and now at this conference.

This paper, limited as it may now be to what the IWG perceived as the issues of marine insurance most in need of a better understanding, represents perhaps the most comprehensive study of comparative marine insurance law since the labours of Sir MacKenzie Chalmers which gave birth to the 1906 English Marine Insurance Act. We are all indebted to Prof Wilhelmsen (and to her supportive family and Institute) for her hard work and incisive analysis.

Such was the complexity of the issues analysed by Prof Wilhelmsen, that the IWG decided to prepare a discussion paper for this Conference, in which an attempt was made to identify the main marine insurance problems in point form. The discussion paper was handed out to delegates at registration, and is on the University of Cape Town's shipping law website at <www.uctshiplaw.com>. It was used to facilitate discussions after Prof Wilhelmsen had dealt with each issue of the topics she covered. Though mindful of the danger of losing the shoal, the discussion paper nevertheless tries to point to many further problem areas in the law of marine insurance, if only for academic purposes.

The Singapore Conference Proceedings

Because the IWG is at an early stage of its marine insurance review, it was decided that it is premature to seek from delegates any national commitment to any specific issues. Instead, what we sought to do was to present certain of our findings to the sessions, stimulate debate, and then ask for an indication of whether or not we should proceed. I say then, because, although the way forward is the "Question Paramount" of our sessions, I though it best for us first to show to delegates at least a small part of what we, and especially Prof Wilhelmsen have achieved, and only thereafter ask if we should carry on. At the outset however, and in the discussion paper, delegates were warned that we would be seeking a formal mandate to continue if our quest was considered worthwhile.

We decided to concentrate on

• non-disclosure

• good faith

• alternation of risk

• warranties, and

• special clauses having special consequences.

Our first session, on Monday, opened with introductory comments from the Chair, much of which is available in the Yearbook at pages 325 – 329. It was pointed out that the common roots of all of our marine insurance would appear to us even in this early stage of our studies, to have many threads which run through most systems. These threads, once identified, could perhaps still be woven together by the IWG to form the fabric of appropriate harmonisation of attempts known to be under way in some countries to change areas of their marine insurance laws.

To set the proceedings into an international context, an invitation was then extended to delegates from a selection of countries to report upon their jurisdiction's approach to marine insurance and its possible review or reform. It was made clear that comments made by the speakers would not be taken as formal submissions of their national associations.

• Applying the CMI mission that the industry should be heard first, David Taylor reported that the London market was cautiously supportive of the CMI initiative for a detailed study of marine insurance law. He was encouraged by the commitment of the IWG to conduct its study by a fully consultative process and we are grateful to him for his ever-present and infectious enthusiasm. He confirmed the support of the market of the IWG effort by its nomination of Simon Beale, an active hull underwriter, to serve on the group.

The London market was not, according to David Taylor, resting on its laurels. The British Insurance Law Association under the guidance of Lord Justice Mance, has recently started an examination of insurance contract law, and may conclude with recommendations to the Law Commission on both marine and non-marine insurance.

The Joint Hull Committee was also taking a fresh look at hull wordings, and had deferred the start of its deliberations until it could take note of the outcome of this Singapore conference.

The London market had also been watching the efforts and the output of the Australian Law Reform Commission closely, and has agreed to comment on the report.

And against this background, there is an initiative in the European Union to work on a Restatement of Insurance Contract Law. Mr Taylor thus sees the CMI initiative as coming at an opportune time and as having demonstrated already that there is in the practice of marine insurance a lack of clarity and of transparency in relation to certain important legal issues.

• Dr Gerfried Brunn then spoke, wearing the hat of the German market and of IUMI, and indicated that although he and IUMI supported the initiative of a comparative study to improve the knowledge and understanding of marine insurance laws, no need was seen at this stage for any formal regulatory reform. He felt that the industry, which had for long been successful with self regulation, could look after its own needs, achieving flexibility through contractual terms, though he pointed out that the UNCTAD Model Clauses had found very little support. He expressed the view that even if ultimately only used to improve knowledge of marine insurance law, the IWG labours were worthwhile.
   

• Lord Mustill QC then regaled us with his characteristic combination of entertainment and sage advice. He too was fully supportive of an academic study, and of the benefits it may bring in either informal or appropriate reform measures undertaken nationally or by the market itself. But he cautioned against ideals which are too lofty - such as any consideration of an interntional convention on marine insurance. He also warned against the IWG taking on too much, and losing focus and credibility in the process. He mentioned that whatever his own views may be (acknowledging parenthood of the CMI process) the BMLA does not at this stage consider that international measures to change marine insurance law and practice are appropriate.
   

• Graydon Staring, the USA representative on the IWG, was next in line. He drew our attention to the anomalies of the federal v state problems in approaching marine insurance issues, and the confusing effects of that notoriously substandard legal ship, The Wilburn Boat. He pointed out that there have been calls from within the United States, from individuals and small interested groups rather than with US MLA endorsement, for a review and perhaps even reform of the law of marine insurance. One call is that of Prof Michael Sturley for a "Restatement" of the law of marine insurance to be undertaken. He expressed the pragmatic view that it was most unlikely that any formal legislative measures would be undertaken on a federal level, but that worse still, in his personal view, would be the enactment of state legislation - perhaps with differences in all 50 states.

Equally, it was his view and that of the USA MLA that formal internationalised marine insurance 'reform' by means of any type of international instrument is not, at this stage, appropriate. He pointed out also that there was, in many jurisdictions, consumer protection in place to correct possible inequities.

Notwithstanding, he supports the review initiative of the CMI as a means of promoting better understanding of the problems of marine insurance in an international context.

• Andrew Robinson, of South Africa, was then invited to give the background to the South African marine insurance law. South Africa is an English 'satellite' jurisdiction which inherited much of the English law of marine insurance, though not the 1906 Act per se. Although most South African policies are written subject to English law, that law is construed in what is a civilian legal system. And, he pointed out, South African admiralty law applies the indigenous Roman-Dutch law as the fall-back regime which governs issues of marine insurance.

This has resulted in inconsistencies and uncertainties in certain aspects of marine insurance law which prompted an initiative from South African marine insurers to promote the preparation of a local marine insurance Act. Efforts have been on hold for some time, and the profession and the market are both keeping watch on the CMI review initiative. The South African MLA will draw on the IWG's research to guide any future South African reform.

• Last, but by no means least in achievements in the field, was Ian Davis, the Australian Law Reform Commissioner. Mr Davis took the meeting through the Australian marine insurance reform process, currently summarised in the Commission's published report upon which he invited all present to comment in the future.

The Australian initiative results from a formal reference from the Government of Australia that the 1909 Marine Insurance Act, based largely upon the English 1906 Act, be subjected to close scrutiny in the context of maintaining and enhancing the effectiveness of, and competition within, the Australian marine insurance industry. He drew our attention to the workings of the market, which underwrites extensively on Institute clauses.

The aim of the Australian initiative is to address some of the anomalies of English (and to an extent international) marine insurance law which have been inherited by Australia and to streamline Australian law and practice while still keeping a balance between seeking workable Australian alternatives to those anomalies and the concern that radical domestic reform may make it difficult for Australian insurers to find reinsurance or co-insurance in the international market.

The ALRC had been given until the end of last year to submit its formal report to government. In the light of the CMI initiative and in anticipation of this conference, the commission had been allowed an extension to the end of April 2001. The Commission hopes that the continuing work of the IWG will help it in understanding the degree to which law and practice have become standardised around the law and practice of England and the extent to which there is variation. With this in mind, the ALRC supports the CMI initiative, and will make available to it the experience of its own research.

An invitation was later made for any other nations who may be engaged in a similar process, to take the floor. There were no volunteers.

The session then proceeded to the main business of the presentation of Prof Wilhelmsen's report, in topic order, with each topic being followed by discussions broadly considering the points raised in the discussion paper. The topics for the day had the audience either in complete awe of the academic complexities of non-disclosure and good, better and best faith, or suffering from serious jet-lag induced reticence. Jean-Serge Rohart pointed out that had we taken a vote on the way forward at the end of Monday's sessions, few hands would have been raised. But important issues were discussed upon the extent of the duty to disclose, the norms against which an absence of such duty should be assessed, and the consequences of a failure to disclose.

Good faith, too, was clearly a fundamental issue subject to diverse interpretation across legal systems and even within national laws operating in those systems. Of particular interest was the extent to which the absence of good faith gives rise to any remedy to the aggrieved party. Does good faith have teeth? was the question asked, regrettably rhetorically. The English invention of utmost good faith was also discussed, especially in the light of the very recent House of Lords' opinions in The Star Sea.

Tuesday saw a much more spirited and participative audience whose contributions gave great encouragement to those of us involved in the quiet background and often lonely academic process. Particularly gratifying was the contribution of those from the market. We are acutely aware that no change in marine insurance law (whether this be perceived as reform or retrogression) could ever be effective without the support of the industry which the law of marine insurance should serve.

Because we felt it was necessary to provide a platform for as many contributions as possible, and because we were not to seek a vote on the specifics of review or reform, it was decided to open the debate to all present. This gave vigour to the contributions.

Prof Wilhelmsen made her presentation on the consequences of an alteration of risk during the currency of cover. This re-visited much of the material on non-disclosure, and elicited practical examples from Dr Reme to put the problem into context. It was clear that there was much divergence in the approach of different nations to the obligation to disclose alteration of risk. Of particular interest was the approach to the vexed question of materiality. And in the absence of a specific defined obligation in some jurisdictions to inform an insurer of a change in risk, the whole issue of good faith was re-visited. What emerged was that while many civilian regimes had a defined obligation of contractual good faith, those nations which drew on English law lacked a clear lead as to the content of good, or utmost good faith, and to the consequences of its absence in the behaviour of either of the parties.

The debate then turned to warranties, presented as one of the most profound differences between those applying English law (or perhaps more problematically, a local interpretation of English law) and those relying on civilian based, and largely codified systems. For most European (used in its neutral geographical rather than its political sense) systems express no need for the English warranty, with its consequences of automatic termination of cover, regardless of whether the breach was material to the loss (thereby probably being causative of it) or even if it had already been remedied. The continental opinion appeared to be that there was no need for a "warranty" when the parties were free to contract special terms as essential to there being cover. Such are, for instance, the newer terms requiring consistency of ownership, class, management and ISM certification.

And it was in relation to this debate that it was most useful to have the informal input of delegates from the USA, Israel, Greece, Australia, Spain, South Africa, Italy, France and others (to whom omission from this imperfect summary should not give any offence). Especially useful were the comments from both the UK market and the legal profession, for pains were taken to assure them that what they were witnessing was not an attack on the English legal system, but rather an enquiry whether the laws which England exported to so many countries were being correctly understood and applied in those countries. It was clear that English law and practice would not give up its warranty easily, yet equally clear that the warranty was anathema to others - even those working comfortably within their received English law applied in their own courts.

Such was the cut and thrust of the debate that the enemy that is time robbed us of delving into the legalities of special clauses with special effects, and the demands made upon policies and the law by more recent attempts by the insurance industry to play a meaningful role in improving the dreadful loss statistics that so shame shipping. Our inability to schedule these vital issues into our discussions should not be construed as in any way relegating them to the B league.

But the hospitality of our hosts called, and we were left with a comparatively short time to discuss what had been referred to at the outset as "Section A Issues" upon which the IWG would be seeking a lead from this conference.

The Way Forward

In asking for an informal show of hands for the way forward, even to get to this next stage of plenary and then to a resolution of the Assembly, we had to know if you, our colleagues, wanted us to continue, and if so, to what end. It was pointed out that a journey without a destination could leave its travellers wandering in a wilderness. Yet we could at this stage in all fairness not name the station at which the train would stop. Perhaps only the line along which it would travel.

Hence the following "Question Paramount" was put to the floor:

Is an evaluation of the national laws of marine insurance such as is presently under way by the IWG considered to be an exercise worth continuing, academically, and or in practice, to the benefit of both the marine insurance industry and maritime law?

The short debate which followed produced, without expressed demur, the view that whilst it was neither necessary nor prudent to determine the precise way in which the exercise would end, the IWG review initiative was seen as of great benefit in promoting better knowledge and understanding of often diverse laws, and equally often diverse interpretations of the same laws. Its agreed usefulness warrants a continuation of the exercise. The meeting held the view that even if the product of the IWG's efforts was merely the dissemination of knowledge which itself would promote harmonisation in the approach of national jurisdictions to common problems, this would fall within the ambit of the CMI's aims.

It was pointed out from the chair that the group would like to have the freedom to recommend, at an appropriate time, some tangible result. Some paper, of whatever nature and effect. This may take the form of a set of CMI approved guidelines which could help countries engaged in their own initiatives to re-write their laws of marine insurance; or a set of Rules on Certain Issues of Marine Insurance such as may be incorporated into marine insurance contracts in a way which will provide more certainty about the law to which those contracts may be subject; or even contractual terms devised in consultation with the industry which may address some of the problems identified. At this stage, the only end result which is not considered feasible or desirable is a formal convention. But the IWG is not now at the stage where it can ask approval for any particular form of instrument, be it private or public in its legal nature.

Though not fully debated, the mood of the sessions seemed to approve the approach that the IWG focus its attentions on the primary issues already identified, though some may not be able to be viewed in isolation from complementary secondary issues which are not themselves under review. There was broad acceptance, if only by lack of challenge, of the terms of reference which Section A attempted to define.

It is accordingly my pleasure to submit the attached resolution for consideration and adoption by the Assembly of the Comite Maritime International.

John Hare
Shipping Law Unit
University of Cape Town
jehare@law.uct.ac.za 

16/02/2001 13:33:58 / evr