Note: this judgment has been reversed by a decision of the Court of Appeal, delivered on 27 November 2008. For the note on the Court of Appeal judgment, click here

DMC Category Rating: Confirmed

Case note contributed by Jim Leighton BSc (Hons), LLB (Hons), LLM (Maritime Law), Trainee Solicitor and International Contributor to DMC’s CaseNotes

Background
The claimant owned the fishing trawler mfv "Resolute" and took out a policy of marine insurance with the defendant insurer through brokers. The period of cover was for 12 months. The insured value of the vessel was £120,000. The living accommodation on the vessel comprised a crew cabin 6 feet by 9 feet and a galley 6 feet by 6 feet.

The policy was in Aigaion’s Standard Trawler wording with the following additional express provisions described as "CONDITIONS":
"...Warranted Owner and/or Owner’s experienced Skipper on board and in charge at all times and one experienced crew member…"

During the term of the insurance policy, the claimant and his crew of three took the vessel out fishing for a day. They returned to North Shields and by 20:00 hours had made fast alongside. The crew landed the catch and, at 20:30 hours, the claimant went to file the vessel’s fishing log sheet at the Fisheries Office. The crew readied the vessel for fishing the next day before one of them, who lived in North Shields, went home and another visited a pub some 200 yards from the vessel. At 22:00 hours the claimant left the vessel to meet a friend at a café in Tynemouth and a few minutes later the fourth crew member also went to the pub. At about 22.20 hours, the claimant received a telephone call informing him that the vessel was on fire. When he and the crew returned to the vessel, the Fire Brigade was there putting out a fire which was extinguished by about 00:45 hours the following day.

The surveyors’ report concluded that the fire started in the galley/mess room but, because of the severity of the fire, it was not possible to identify the precise location of its seat or its cause with any certainty. Loss by human agency could not be completely ruled out but did not appear the most likely cause. On the evidence available, it was plausible that the fire was caused by operation or malfunction of the deep fat fryer or the fridge. As was usual when the crew were to return to the vessel for the night, the generator was left running while they were ashore.

The insurer declined to pay for the constructive total loss of the vessel citing the "at all times" crewing warranty.

The claimant made the following submissions.
1. The apparently literal meaning of the words of a warranty must be restricted if they produce a result inconsistent with a reasonable and business like interpretation - the words used ought to be given the interpretation which, having regard to the context and circumstances, would be placed upon them by ordinary men of normal intelligence, conversant with the subject-matter of the insurance. 

2. When the legal principles were applied to the facts, it became clear that the clause did not require an owner or skipper, together (depending upon how one approached the construction of the remainder of the clause) with an experienced crew member, to be on board the vessel 24 hours a day, 7 days a week, even when the vessel was in port.

3. The insurer’s construction was inconsistent with other clauses in the policy:

1. Clause 27 required the vessel to be moored when unattended;
2. Clause 26.1 maintained cover whilst the vessel was at a place of storage and when it was dismantled or being fitted out, occasions when one would not find two people remaining onboard; and
3. Clause 33.2 provided that claims were not recoverable for theft when the vessel was laid up out of commission, subject to exceptions.

It followed that it would be absurd to expect an owner/skipper and an experienced crew member to be on board when the vessel was in a locked space like a garage.

4. The clause was ambiguous and should be construed against the insurer because the clause was of its devising and it was the insurer that sought to rely on it.

5. Overall the clause had to be read as referring to the vessel needing an experienced skipper and crew member on board when underway; alternatively, the clause should be read as being qualified to the extent that a temporary stay ashore to have a meal or a drink would not amount to a breach of warranty.

The defendant’s submissions were the following.

1. This was a pure question of construction - the clause meant what it said and the court should conduct an exercise similar to that undertaken by Aikens J in The "Milasan" [2000] 2 Lloyd’s Rep 458 and by Gross J in The "Newfoundland Explorer" [2006] Lloyd’s Rep IR 704 - in each case the judge construed the crewing warranty by reference to the natural meaning of the words used and their commercial context. 
   
2. The commercial purpose of the warranty was to safeguard the insured property when in port as much as elsewhere. The presence of the skipper reduced the security risk; it would also minimise those risks if they materialised because, if he is onboard, the skipper can deal with an emergency. In any event, the crewing warranty was a "delimiting" clause rather than a "promissory" one; the effect of it was not that the policy came to an end when the warranty was broken, but only that the vessel was ‘off risk’ during the period when the warranty was not being complied with.
   
3. While it was very inconvenient for the owner or skipper to be onboard the vessel even while in port, it did not mean that it was so commercially nonsensical that the parties cannot have intended it; and
   
4. The apparent inconsistency between the wording in issue in this case and that of three of the standard clauses did not assist the claimant's argument as, firstly, such inconsistency is not uncommon and, secondly, greater weight should attach to terms which the particular contracting parties have chosen to include in the contract compared to standard pre-printed terms (see Lord Bingham in The "Starsin" [2003] 1 Lloyd’s Rep 571).

Judgment
Proper Approach to Construction
The judge stated that in The "Milasan" it was decided that the "rationale for the warranty was to ensure that the vessel was properly looked after all the time".

From The "Newfoundland Explorer", the judge highlighted that: "It is the purpose of the departure [of the crew from the vessel], rather than the distance travelled from the vessel which is critical" in deciding whether or not the crewing warranty was breached.

The key factors extracted from The "Newfoundland Explorer" by the judge indicated that the qualifications to the words "at all times" were also limited to those that would not defeat the underlying commercial purpose of the warranty – to ensure the vessel was properly attended ‘at all times’ in order to reduce the risk of an insured peril operating against the vessel. This meant that the qualifications broadly covered emergencies, such as the need to evacuate the vessel for safety reasons, and the performance of crewing duties to achieve the proper management of the vessel, such as collecting necessary crew and vessel supplies.

While the judge indicated he was not bound by the decisions in The "Milasan" and The "Newfoundland Explorer", he stated that "they adopt a consistent approach [and] I follow that approach first because I respectfully agree with it and secondly because it is desirable for this court to be consistent in its approach to policy wording."

Construction
The starting point of the construction exercise was to consider the natural meaning of the words and here "the natural and indeed literal meaning of the words is that the owner or the owner’s experienced skipper must be on board and in charge at all times." The judge added that there was no ambiguity "except, perhaps, as to whether the ‘one experienced crew member must also be on board and in charge at all times", which was irrelevant to the present dispute.

In terms of qualification to the literal wording, this should not end up being a means to arrive at what in retrospect would be a more advantageous bargain – the judge emphasised that that approach would be illegitimate and added: "We all make unwise bargains from time to time but the fact that we incur burdens that later seem folly does not relieve us from our legal obligation."

In applying The "Newfoundland Explorer", the Judge held that "… the skipper and crew were reasonably and no doubt deservedly ashore when the fire broke out but their absence was due neither to an emergency nor a requirement of crewing duties. The qualification would have to be a wide one to cover the fire and the absence in this particular case. I have already explained that I do not see the clause as being in any way ambiguous and the fact that its provisions are in a sense inconsistent with some of the standard terms of the policy is … of little weight." [Emphasis added]

Comment
The judgment contrasts the difference between the construction of an insurance warranty from the perspective of what a reasonable insured in their particular industry might expect it to mean and what that warranty means when construed from the perspective of an insurer’s risk management objectives in the context of the particular clause and policy as a whole – the latter being the approach adopted by the court.

Note should be give to the judge’s warning that "when used on their own without emphasis or explanation, [the words ‘at all times’] have quite often given rise to misunderstanding with smaller vessels. Since ‘at all times’ requires, at least in some cases, qualification in the interests of common-sense, no underwriter should assume that this wording has somehow received judicial blessing."

Following on from the logic of The "Newfoundland Explorer", it would also appear that the claimant would not be in breach of the crewing warranty if the purpose of his departure was to comply with statutory duties, such as going to the Fisheries Office to file the vessel’s fishing log sheet, as such a duty is surely part of the proper management of the vessel.