MARINE INSURANCE SYMPOSIUM
OSLO, 4 6 JUNE 1998
ORGANISED JOINTLY BY CMI, NORWEGIAN MARITIME LAW ASSOCIATION
AND SCANDINAVIAN INSTITUTE OF MARITIME LAW
Summing up; Towards Harmonisation of Marine Insurance Conditions
The Role of the CMI by Patrick Griggs CMI
At the opening session on the morning of June 4th Hans Jacob Bull of the Scandinavian Institute of Maritime Law, set the scene. He identified the common interests of the CMI and the Scandinavian IML. The CMI is in the business of harmonisation and the Institute feels that the well respected and now historic Norwegian Marine Insurance Plan deserves to be more widely used and could form the basis for international harmonisation.
He warned that lessons might need to be learned from the comparative failure of the UNCTAD Model Clauses. These have not been used as the basis for insurance contracts anywhere in the world but they may, on the other hand, have triggered the major review of policy forms and conditions around the world and in particular have inspired the revisions undertaken by the London market in the 1990s.
Hans Jacob set out the three options, which we will need to consider before the close of this meeting:
International Convention (Mandatory)
Model Clauses/Rules (Non-Mandatory)
If option one or two is adopted the Norwegian Plan could form a useful starting point.
Following this opening Trine-Lise Wilhelmsen of the Scandinavian IML treated us to a whirlwind tour of the civil law countries, stopping off in all the Nordic countries, Germany, France, Greece, Italy and Belgium. She detailed for each country the extent to which marine insurance is covered by legislation (whether directory or mandatory) she then retraced her steps through the same countries dealing with Plans, Conventions and Standard Agreed Conditions. We were reintroduced to the Norwegian Plan and informed that in order to keep the Plan up to date a Permanent Revision Committee had been set up. She also referred to the fact that the Plan was not much use without the Commentaries, which are extensive and also subject to frequent updates. Interests covered under marine insurance policies were reviewed and some national differences were noted. We were advised that, somewhat to the regret of the authors of the Plan, P & I Clubs had opted to stay outside the Plan. Trine-Lise devoted a section of her presentation to the aspects of insurance which are commonly subject to national regulation such as insurable interest, insured value, perils insured against and perils which are excluded.
There then followed an interesting study of the issue, which has dominated our discussions the duty of disclosure. Trine-Lise suggested that the duty was widest in Norway, Denmark and Germany and drew a distinction between countries which required the assured to volunteer information and those which only required the assured to respond to the insurers questions.
Loss of class and unseaworthiness, change of flag/ownership and breach of safety regulations may all effect the policy. We were given an outline of the similarities and differences found in civil law countries in this regard.
In summarising and concluding Trine-Lise emphasised the many differences in marine insurance law between the civil law countries "harmonisation is obviously needed". In addition to differences between the directory and mandatory laws of each country there was huge scope for further differences to arise where national standard insurance contracts are in use.
I am sure that we are all grateful to Trine-Lise for the hard work which she put into the preparation of her paper - it will be a valuable source of information.
We then turned our attention to the common law countries and to Dr. Malcolm Clarke. He identified the common law countries as Australia, Canada, Hong Kong, New Zealand, Singapore and (somewhat surprisingly) Japan. These countries all have legislation or codes covering marine insurance. Dr. Clarke put the US in a separate category of those without statutory provisions but applying common law principles.
He suggested that there is relatively close harmony between the countries in the first category all having adopted the UK Marine Insurance Act 1906 with minor variations. Dr. Clarke reminded us of the divergence which had occurred between the 1906 Act countries and the US. He traced this divergence back to the 1955 case of Wilburn boat, which had given State Courts in the US the right to apply state law to marine insurance cases where the issue is not covered by "established and entrenched Federal law". This, Dr. Clarke suggested, meant that the outcome of marine insurance cases in the United States has become something of a lottery.
There is, he concluded, a degree of uniformity in the common law countries but, bearing in mind the current efforts of Australia to modernise the 1906 Act and the efforts of the US to produce its own marine insurance act or Restatement, this uniformity is breaking down all around us.
Dr. Clarke warned those seeking to modernise the 1906 Act that important differences between marine and non-marine insurance law might be challenged if the marine insurance statute was put up for debate. Why should cargo insurance, for example, be subject to a different legal regime from insurance on consumer goods? There was a suggestion that in England marine and non-marine insurance are becoming polarised. Non-marine cases are, in practice referred to the IOB for resolution. The IOB has a clear bias towards the interests of the consumer. In the UK marine cases continue to be subject to litigation under a regime which is by no means consumer friendly.
Dr. Clarke then turned to the law of disclosure, which he described as an aspect of marine insurance causing "dissatisfaction". He questioned whether in the age of information technology it was still right to impose such a heavy obligation of disclosure on the assured. He expressed some criticism of the concept of the "prudent insurer" and wondered why there was no such recognised person as the "prudent proposer".
Drawing to a close Dr. Clarke quoted with approval Michael Sturleys plea for "predictability and uniformity" in marine insurance so that insurers and assureds could conduct their affairs on a sensible basis.
Finally Dr. Clarke took us step by step through the hazards of the reforming process. Codification is, he suggested, no longer in fashion at least in the UK. Experience shows that codification does not eliminate litigation. Lord Goff, he pointed out, had said that codification "should only be undertaken where the good it may do it perceived to outweigh the harm it must do". Codification stifles the ability of Judges to develop the law.
Lord Goff had also warned against the "temptation of elegance". Life is not simple or elegant and law must "reflect life in all its untidy complexity". On the subject of statutory reform Dr. Clarke expressed his personal doubts about the willingness of politicians to sponsor a new Marine Insurance Act. Marine insurance is not "sexy" and doesnt command votes therefore it is of no interest to politicians.
Amendments of parts of the Marine Insurance Act by "micro surgery" might be a possibility. Finally Dr. Clarke suggested that an alternative course of action might be to sponsor a "restatement" of a type produced by the American Law Institute but he warned that such a work which would not, by definition, be mandatory, would survive only by the "force of its own authority". He wondered whether we could, realistically, give it that force.
On Thursday afternoon Yvonne Batz from the University of Southampton, Institute of Maritime Law treated us to an elegant analysis of the duty of disclosure, the scope of the duty and the consequences of breach under English law. She analysed the provisions of the Marine Insurance Act and explained how the Act had been elaborated by case law in recent years. She examined "materiality", the continuous duty to disclose information and looked at the Pinetop decision of the House of Lords, which required the "prudent insurer to confirm the materiality and the actual underwriter to confirm that he had been induced by the representation to enter into the contract of insurance.
In looking at issues of misrepresentation Yvonne Batz concentrated on the period over which the obligation of utmost good faith extends. It certainly extends, in her view, beyond the date of the policy being entered into but how far beyond was a more complex question. The House of Lords may determine this issue when the "Star Sea" comes before it in early 1999.
The right to avoid a policy for misrepresentation was rightly described by Yvonne Batz as Draconian and comments from members of the audience suggested that avoidance of a policy was an unacceptable response in all but the worst case. Members of the audience also expressed distaste for an extension of the duty of utmost good faith into the claim phase of the relationship between insurer and insured.
Our final speaker on Thursday was Tom Remé who gave us the German view of the duty of disclosure and of the consequences of failure to disclose. As Trine-Lise had earlier explained Germany has General Rules of Marine Insurance which have remained largely untouched since they were first drafted in 1919 (ADS). I was interested to hear that Germany shares with UK the concept of that mythical figure the "prudent underwriter" (becoming more difficult to find by the day in the current soft market). In passing I mention Tom Remés test for distinguishing between negligence and gross negligence in the context of non-disclosure. If you outline the case to someone who has nothing to do with it and his reaction is to shake his head and ask how could he act like that then you can be sure you have a case of gross negligence".
In summary I concluded that Germany has less scope for doubt than most countries (civil or common law) on the issue of disclosure.
The Thursday afternoon session ended with an interesting discussion amongst delegates. I detected a tendency amongst all speakers to defend the law and practice in their own countries. I suppose that this should not have come as any surprise to me.
Amongst the longer interventions were contributions from Professor Michael Sturley (making further apologies for the decision of the Supreme Court in the Wilburn Boat case and giving an update on the law revision proposals in the United States) and John Hare (explaining the schizophrenia in South Africa as a result of being part civil/part common law. Jan Raffen gave us a round up of the chapter 3 -paragraph 1 of the Norwegian Plan in relation to the obligation to give full disclosure and emphasised that in relation to materiality it was necessary to consider whether the actual underwriter was effected by the non disclosure and not the mythical "prudent" one.
Friday morning produced an interesting mixed bag of speakers. The subjects were maintenance, wear and tear, error in construction and issues of management (ISM Code).
Pierre Albertini concentrated on the problems caused for insurers by the economic pressures on maintenance budgets (he emphasised that generally speaking underwriters were keen to pay claims). Delay in effecting repairs, using cheap repairers and cheap crews, all have a direct effect on the level and frequency of claims. He toyed with some solutions including tough application of ISM Code by insurers and reducing the scope of the cover. He dismissed the latter suggestion on the basis that it would be unfair on good owners. To my ear he did not sound too optimistic on the prospects of anything being achieved in the short term by the application of these measures.
In considering his presentation I notice that he did not mention the solution selected by London underwriters which is to increase deductibles and thus eliminate the small claims which basically arise from lack of maintenance. In the context of soft market conditions it was mentioned that London underwriters had not felt able to insist upon the use of the 1995 ITC (Hulls) with their tough sanctions.
Lasse Brautaset expressed his concern at appearing before an audience of specialists in marine insurance. This did not prevent him giving us a clear explanation of the ISM Code, its structure and likely impact on standards of ship management and on the relationship between the insurer and the assured. He suggested that the new ISM Code was a positive move in the search for improved standards.
Prior to hearing from these two "practical" men we heard further from Michael Sturley. He chose to highlight an interesting difference between the Norwegian Plan clause 12 3 and clause 12 4) and the provisions of section 55 (2) (c) of the Marine Insurance Act. Both exclude the cost of replacing worn out parts but the Norwegian Plan covers consequential damage whilst the Marine Insurance Act does not. He suggested that this might be a difference of no practical effect because consequential damage is often written back in by the policy clauses.
This mornings sessions lead to an interesting and wide ranging debate mostly relating to the ISM Code and the effect it is likely to have on relations between underwriters, shipowners and third party claimants. Concern was expressed at the suggestion that insurers might make ISM certification and compliance the subject of a warranty or condition. It was suggested that Norwegian courts might, in any event, strike down such a clause. The audience was assured that the Norwegian Plan would require a causal link between the non-compliance and the casualty before a claim would be rejected.
One member of the audience suggested that in the absence of warranty or condition, ISM compliance was a matter for disclosure as between assured and insurer. (Because P & I Clubs are not covered by the Norwegian Plan the attitude of Norwegian Clubs in this connection cannot be predicted.
A cynical view, expressed by the only London broker present, was that the ISM Code could generate new business for underwriters prepared to offer E and O cover to directors, officers, designated persons and even ship managers.
The Friday afternoon session involved a Scandinavian double act of Hannu Honka and Nicolas Wilmot from Vesta, Bergen.
Hannu Honka indicated that it was necessary to draw a distinction between harmonisation and unification. Unification contemplated a single convention or code applied universally whereas harmonisation suggested separate laws in different countries producing approximately the same result. He reminded delegates that if harmonisation or unification was to be undertaken its object must be to encourage international trade and ease the problems involved in buying appropriate insurance. The Norwegian Plan could act as a model for any work in this direction. In connection with Finlands current review of its marine insurance law he suggested that Finland would be likely to develop its own law rather than adopt part or all of the Norwegian Plan.
The main theme of Hannu Honkas address was a consideration of the effect on a hull policy of a vessel becoming unseaworthy or of there being a breach of safety regulations. (In subsequent discussions it was agreed that breach of regulation could not be "merged" with unseaworthiness).
Hannu Honka mentioned, in passing, the possibility of EU regulations requiring cargo interests to be held responsible for the actions of ships on which they chose to load cargo. It was generally agreed that this could not be a helpful development.
Our final speaker on Friday afternoon was Nicolas Wilmot. In addition to his paper on Alteration of Risk during the currency of a policy he made some interesting general remarks regarding the multinational nature of the marine insurance market. He predicted that marine insurance will be "privatised" (his word) and that sophisticated assureds helped by smart brokers will, in future, pick clauses and jurisdictions which suit their requirements. They would not submit to clauses or jurisdictions which treat the assured harshly. He set out to define the perfect cover as one which was (1) comprehensive (2) clear in its terms (3) balanced as between assured and insurer (4) low in dispute generation (5) dynamic (frequently updated as to content).
Should disputes arise he set out his requirements for dispute resolution, which needed to be (1) speedy (2) low in costs (3) Non-confrontational in nature (4) practical and conducted with a businessmans approach. He further suggested that disputes should be settled at several centres depending on which was most convenient to the parties. In this connection he mentioned (1) Oslo (2) London (3) New York (4) Hong Kong (5) Cape Town. Nicolas Wilmot then took up his main theme which was an analysis of the Norwegian Plan provisions on alternation of Risk (clause 3 8 to 3 13). He drew unfavourable comparisons between these provisions and the ITC (Hulls) Classification Clause (1995 version) which he regarded as unfair and unreasonable.
A lively debate followed during the course of which much emphasis was placed on the dynamic nature of the Norwegian Plan and its ability to adapt to changing market and commercial circumstances.
Saturday opened with a paper presented by John Hare, University of Cape Town, who spoke of the relationship between the insurance broker, the assured and the insurer. He examined the different types of authority which the broker may have and explained the concept of "ostensible" authority or authority by estoppel which appears to be unique to the common law. He took the audience through the various steps involved in the creation of an insurance contract with particular emphasis on the role of the broker in negotiating the terms of the insurance contract with the underwriter. He suggested that from the lawyers point of view there were occasions on which the broker appeared to be serving two masters; notably in relation to the payment of premium and collection of claim monies. He recommended members of the audience to read the case of Eagle Star v Spratt which contains the best available description of the way in which Lloyds underwriters write their business.
The final speaker was Haakon Stang Lund (Wikborg Rein) who explained to the audience the Scandinavian concept of "Identification". This subject is covered by paragraph 6 chapter 3 of the Norwegian Plan. This is not, we were told, a concept applicable only in the field of insurance. It is a concept of wider application in commercial legal relationships and determines which individuals or companies a person or entity must "live and die with". This is a non-scientific definition. In the context of marine insurance and of the Norwegian Plan the rules in relation to identification are found in the Norwegian Plan as supplemented by general principles of contract law.
It seems to me on having had identification explained that the net result in the insurance context is much the same in common law countries though in order to achieve that position we would draw on the law of tort and contract law with particular reference to the law of agency.
In a brief discussion in the time available following this session John Hare suggested that his analysis showed the Norwegian Plan, on this issue of identification, to be distinctly assured friendly because there are fewer individuals whose actions can adversely affect the rights of the assured.
I hope that you have found this brief summary of the discussions which have taken place in recent days of some help and that it will assist you to focus on the conclusions to be drawn. As a result of these discussions and presentations we are significantly better informed about the similarities and differences between the marine insurance law in a substantial number of countries which have marine insurance industries.
As a footnote to this, my analysis of the difference between the Norwegian Plan (and other similar codes) and the common law system based upon the 1906 Marine Insurance Act is that the Marine Insurance Act or equivalent in common law countries states the principles (the skeleton) and leaves the courts to devise the details (the flesh). The Norwegian Plan (and other similar codes) contains the principle and the detail (the whole body). I hope that this is not an over simplification.
It is on the differences between the various legal systems that we need to focus. It would be nice to report that the differences are points of detail only. Some are but many are points of principle and in this connection I need only refer you to yesterdays heated debate on the ways in which warranties are dealt with under the various systems of law. Identifying the differences is a starting point but we also know that if a harmonising or unifying instrument is to be prepared there will have to be sacrifices of principle.
Let me draw our discussions to a conclusion by putting the case for and against harmonisation. Perhaps a useful starting point is to remind ourselves of the UN Resolution, which lays down the ground rules for seeking to achieve international uniformity in any particular area of the law. The Resolution directs that a "compelling need" should be demonstrated. We dont have to follow the UNs resolution but it strikes me as a sensible test. Is there a need compelling or otherwise for achieving harmonisation?
The one thing that has struck me in all our discussions has been the limited number of speakers who have strongly advocated uniformity.
Dr. Clarke quoted Lord Goff and the previous Chairman of the English Law Commission in support of the proposition that codification was no longer fashionable. Lord Goff went so far as to say that codification should only be undertaken "when the good it may do is perceived to outweigh the harm it must do". The law should "reflect life in all its complexity, and we have to be constantly on our guard against stating principles in terms which do not allow the possibility of qualifications or exceptions as yet unperceived".
Trine-Lise, in her conclusions, suggested that there were some "common principles" underlying the marine insurance system. In different countries the approach to solving problems and the structure of local insurance conditions were very different and made the need for harmonisation obvious.
This meeting was not designed as a contest between the comparative merits of the Norwegian Plan and other competing sets of insurance conditions, codes of statutes. From time to time it did get a bit competitive in that sense. However, it struck me that the various protagonists rather relished the differences and felt that they had a good chance of "selling" their particular cover to customers at the expense of other operators in the market.
Marine insurance is, and always has been, a competitive business. At various times different markets have captured a particular piece of business because they have had a competitive advantage. This advantage could be in terms of capacity, cost, soundness of security or breadth and clarity of conditions. The conditions of the cover are one of the insurers marketing tools.
Would any of these competing markets be happy to have one of its marketing tools removed by international regulation or agreement? Do they rely want a "level playing field"?
I move now to consider the possible instruments of harmonisation. Traditionally harmonisation or unification of law on an international basis has been achieved by:
Model Law (Voluntary)
International Rules (Usually Voluntary)
Additionally the US has adopted a process of Restatement as a matter of creating order out of chaos in a particular area of the law.
In my view, and I need to hear yours, a convention would be inappropriate and would receive minimal support.
A Model Law might share the fate of the UNCTAD Model Clauses do you agree with me on this?
You may feel that voluntary codes and rules might fail for the same reason.
On the face of it we have now run out of options if we assume that the US Restatement is also inappropriate.
I am left with one thought which I would like to share with you. During these few days together we have identified aspects of marine insurance which are important in most jurisdictions. My list would read like this:
Insurable interest need for.
Insured value time at which subject of insurance is to be valued.
Ordinary wear and tear (inherent vice).
Inadequate maintenance, fault in design, construction or material.
Duty of disclosure before and during currency of cover nature and extent of duty.
Consequences of loss of class, unseaworthiness and breach of safety regulations.
Warranties; express and implied, consequences of breach alteration of risk.
Change of flag, ownership/management.
Misconduct of assured during period of cover.
Responsibility for conduct of others/"identification".
The duty of good faith scope.
Management issues (ISM).
My tentative thought is that the Scandinavian Law Institute, assisted with data input from member maritime law associations of the CMI and a number of other academic institutions, might prepare a comparative law study on these twelve issues (we may wish to shorten or lengthen the list). Each section could end with a summary and an indication of the majority solution to the particular problem. Do you think that this would be a useful document? Would it just be of interest to academics or might it contribute towards harmonisation particularly amongst those nations which are currently reviewing their marine insurance law?
It seems to me that out of this exercise we might produce a number of solutions which are not controversial and which might form the basis of wider acceptance. I have in mind in particular Hannu Honkas suggestion that in matters of safety there should be no scope for competition. It may be that this would be a small contribution to maritime safety for which hull underwriters could actually claim some credit.
In discussions following this address the proposal was welcomed and a number of further suggestions were made. John Hare suggested that the proposed document would certainly help his country and others undertaking a review of their marine insurance law.
Michael Sturley also welcomed the idea and suggested that if it resulted in a degree of international predictability in certain areas this would be an achievement.
Nicolas Wilmot also welcomed the suggestion but questioned whether insurance terms were necessarily a big marketing tool scope of the cover was. He emphasised that many of the issues listed should not be in a competitive area between sets of underwriters.
Hannu Honka asked for more information about the system of Restatement in the hope that we could learn something from the Americans.
Haakon Stang Lund also supported the proposed work but in the field of maritime safety it would be very unfortunate if higher standards were enforced by the insertion of warranties in policies bearing in mind the likely dire consequences of breach.
Hans Jacob Bull confirmed the Scandinavian Maritime Law Institute would be interested in helping and suggested that the summary section should aim, in relation to each issue, to set parameters within which individual national solutions should be found. He suggested that this was perhaps the thinking behind EU directives.
Thomas Remé also welcomed the proposal but inquired whether the study should be widened to embrace cargo insurance.