DMC/INS/02/01
Everbright Commercial Enterprises Pte Ltd v. AXA Insurance
Singapore Pte Ltd
the ‘Sirena I’
Singapore Court of Appeal; LP Thean JA; [2001] 2 SLR 316; April 2001
Case Note contributed by Ang &
Partners, International Contributors for
Singapore
MARINE INSURANCE: CARGO ALL RISKS INSURANCE COVER NOTE: ‘APPROVED VESSEL’:
INSTITUTE CLASSIFICATION CLAUSE: CHARTERED VESSELS: HELD COVERED PROVISIONS:
FACTS TO BE TAKEN INTO ACCOUNT
Summary
Where an open cover for cargo insurance provides for shipments to be ‘Per
any approved vessel’ and is subject to the Institute Classification Clause (‘ICC’),
an approved vessel is one which falls within the parameters of the cover note,
including the ICC. The insured has the responsibility to ensure that the vessel
in which the cargo is to be carried conforms to the terms of the ICC. The
insurer is under no obligation to inform the insured in cases where the carrying
ship does not comply with the ICC. Where the carrying ship does not comply with
the ICC, there is simply no contract between the insured and the insurer.
Despite the ICC expressly providing that chartered vessels ‘must’ be
classed in accordance with the classifications listed in the clause and comply
with the age limits there set out, the ‘held covered’clause in the ICC could
still apply to chartered vessels, since they are ‘vessels not falling within
the scope of the above’ within the meaning of the clause.
In order for the insured to benefit from the provisions of the held covered
clause, the risk must be capable of being insured at a reasonable commercial
rate of premium. That was not the case here. Given the facts available to the
parties at the time of loading, no reasonable commercial premium would have been
available for insuring a shipment on board her.
DMC Category Rating: Developed
FOR MORE DETAIL, READ ON
Facts
"Everbright" were a trading company dealing in wood
products, and had been insuring their shipments of cargo with the "AXA"
through Wilcom Underwriting Agency Pte Ltd ("Wilcom"). Wilcom were
insurance brokers and were at all material times AXA’s agent.
In May 1997, Everbright obtained from Wilcom a cover note for the insurance of about 6000 cubic metres of vitex round logs to be shipped from the Solomon Islands to Tuticorin in India. The cover note was on Institute Cargo Clauses (A) (‘All Risks’) terms. The cover note included the Institute Classification Clause (‘ICC’). In June 1998, Everbright chartered on a voyage basis, a ship called the ‘Sirena I’ to carry the shipment..
The loading of the logs commenced on July 2 1998 and on that day, Everbright
sent a fax to the insurer’s agents, informing them of the loading, and giving
details of the Sirena I. Loading was completed on July 21 and the ship
eventually sailed on August 12 1998. In the meantime, the owners of the Sirena I
had taken her into Indonesian waters and refused to sail her to the discharge
port. Despite negotiations with the owners and Everbright paying advance
freight, the ship eventually
disappeared with all the cargo on board her.
On 2 December 1998, Everbright submitted a formal claim under the cover note for the total loss of the cargo, in the amount of US$1.3 million. AXA rejected the claim on the grounds that the Sirena I was not an ‘approved vessel’ and did not comply with the terms of the ICC.
The ICC read in material part as follows:
"13/4/92 Institute Classification Clause
(1) The Marine Transit Rates agreed for this insurance apply only to cargoes…
carried by mechanically propelled vessels of steel construction, classed as
below by one of the following Classification Societies:
(there followed a list of 10 Classification Societies together with the
relevant class symbols, plus a proviso setting out the maximum age for different
types of ship)
(2) Chartered vessels….. which are mechanically propelled and of steel
construction must be classed as above and not over the age limitations specified
above.
(3) (Not relevant for this case)
(4) Cargoes…. carried by mechanically self-propelled vessels not falling
within the scope of the above are held covered subject to a premium and on
conditions to be agreed.’
[the paragraph numbering has been inserted for ease of reference].
At first instance, the trial judge dismissed the claim. She held that the Sirena I was not an ‘approved vessel’ for the purposes of the insurance, in that she did not comply with the requirements of the ICC. Neither did the ship fall within the provisions of the held covered clause of the ICC as it was a chartered ship and – under the provisions of the ICC – all chartered vessels must comply with the classifications specifically set out in the ICC. Even if the Sirena I did fall within the scope of the held covered clause, it was impossible to obtain a reasonable commercial rate of premium for insuring the cargo shipped on board. Consequently, there was no contract of insurance between Everbright and AXA in relation to this shipment. Everbright appealed.
The Judgment
The judgment of the court was delivered by LP Thean JA.
The court upheld the judgment at first instance, holding the Sirena I not to
be an approved vessel under the cover note, in that she did not comply with the
requirements of the ICC. The court said:
‘Bearing in mind the nature of an open cover insurance and the function of
the ICC, which is part of the cover note, we think that where a vessel is
declared by Everbright to AXA which complies with the terms and conditions of
the cover note, AXA are obliged to accept it for the purpose of the insurance
and such a vessel is an ‘approved vessel’. In our opinion, an approved
vessel is one which falls within the parameters of the ICC. In this regard, a
vessel falls within the parameters of the ICC in one of two ways, namely: (i)
where the vessel possesses one of the classifications listed in the ICC and is
within the age limitation stated there and (ii) where the vessel does not
possess any of such classifications and/or is not within the age limitation, but
falls within the ‘held covered clause’ of the ICC. AXA are under no
obligation to inform Everbright that the vessel declared by them does or does
not fall within the parameters of the ICC. The responsibility rests with
Everbright to ensure that the vessel declared is one which can, at least, fall
within the scope of the held covered clause. If the held covered clause applies,
AXA are entitled to impose a higher premium and other conditions, if any, in
providing insurance for the shipment. If the held covered clause does not apply,
AXA are not under a duty to inform Everbright that they are not providing cover
for such a vessel. In such circumstances, there will simply be no contract of
insurance for the shipment."
It was not disputed that the Sirena I was a chartered vessel and did not have a classification listed in the ICC. The question then was whether she came within the held covered clause. The court held that the words in paragraph 4, namely ‘not falling within the scope of the above’ should be construed as referring both to ships under paragraph 1 of the clause and to chartered ships under paragraph 2. To construe the wording in paragraph 2 as requiring all chartered ships to meet the conditions set out in paragraph 1 would not ‘give effect to the commercial purpose of the ICC and would give rise to difficulty in practice.’ The commercial purpose of the "held covered" clause was to provide a fall back position to maintain the insurance cover under the cover note, in the event that the vessel does not meet the classification and age requirements, upon the payment of additional premium and/or imposition of other conditions. The "held covered" clause could therefore apply to a chartered vessel.’ The court recognised that this interpretation rendered paragraph 2 of the ICC in effect ‘superfluous.
Given the finding that the Sirena I fell within the held covered clause, it
was then necessary to determine whether a reasonable commercial rate of premium
was available for the coverage of the shipment, in the light of the increased
risk involved. This had to be examined in the light of the facts that were
available to the parties when loading commenced on July 2 1998, even if all
those facts were not actually known to the parties at that time. The court held
that the following were the relevant and undisputed facts about the Sirena I
which could have been known to the parties on July 2:
a) the ship was not classed by any recognised classification society;
b) the ship was registered in Belize, a flag of convenience. ‘Vessels
which sail under a flag of convenience automatically attract higher risks,
since countries of flags of convenience are recognised to have poor
standards in matters concerning vessels..’
c) the ship was not listed or found in Lloyd’s Register of Ships;
d) the owners of the vessel were registered in the British Virgin
Islands;
e) the cover was on Institute Cargo Clauses (All Risks) terms;
f) the shipment was ‘a chartered shipment, where there is a higher risk
involved, bearing in mind the size and value of the cargo to be insured’;
g) the vessel was not insured with any P&I club.
The court concluded that, when confronted with these facts, ‘a reasonable and prudent underwriter would be put on enquiry and upon enquiry, would find that there was no record of the Sirena I and what emerged would be a vessel with a highly suspect background….. In our judgment, in the circumstances, a reasonable commercial rate of premium would not be available for insuring a shipment of logs on board the Sirena I.’
The court held accordingly that Everbright could not successfully invoke the held covered clause.
An alternative argument advanced by Everbright was that AXA was estopped from denying the contract of insurance, as Everbright had duly informed Wilcom about the vessel undertaking the carriage and of the loss of cargo. In the course of these communications, Wilcom/AXA had not informed Everbright that the vessel was not approved and that the contract was invalid. The Court held that there was no estoppel as there was no duty on the part of AXA to inform Everbright whether the vessel so declared fell within the terms of the ICC.
Therefore, the Court concluded that there was no contract of insurance between Everbright and AXA.
Comments:
The duty rests entirely upon the insured to ensure that the
vessel which is employed for the carriage of the goods is one which fulfils the
requirement under the ICC, or at least falls within the scope of the "held
covered" clause. The insurer has no prior knowledge of the vessel
undertaking the carriage in the case of an open cover marine insurance. This is
in contrast with a facultative insurance where the details of the cargo and
vessel are furnished to the insurer and they can then make an informed decision
on whether to accept the shipment for immediate insurance.
The latest version of the ICC, introduced with effect from 1 January 2001, makes no specific reference to chartered ships.