Uberrima Fidae in Life Insurance Contracts: Recent Developments

Recently, the Supreme Court of India had the occasion to consider an important question in a life insurance contract: whether an insurer can repudiate a life insurance policy for suppression of material information?

In Reliance Life Insurance Co. Ltd. and Ors. vs. Rekhaben Nareshbhai Rathod (24.04.2019 - SC) : MANU/SC/0593/2019, the question before the court was whether the life insurer was correct in repudiating the contract in view of the fact that the insured suppressed the following material information: the insured had suppressed the material fact that he had obtained life insurance just two months earlier to obtaining insurance from the appellant.

After taking life insurance from an insurer, the insured within two months taken life insurance from the appellant and while declaring whether the insurer had obtained another insurance policy previously, the insured had declared "NA". Within a year from obtaining insurance from the appellant, the insured expired and his spouse filed a claim, which was rejected. The respondent put forth an interesting and plausible argument: that the insurance agent took the insured's signature on a blank proposal which was in English and that the proposal form was filled-up either by the agent or the insurer. 

The Supreme Court rejected the contention by citing a decision given by the Mysore High Court, where the court held that when the insured signs on a blank proposal form the agent ceases to become the insurer's agent and instead becomes the insured's agent. It is interesting to note that the insurer was previously asked to deposit the decreetal amount in court, of which 50% was withdrawn by the insured's spouse. The court ordered under Article 142 of the Constitution that the insured's spouse could retain that amount.

In support of its decision, the Supreme Court cited both English and Indian precedents. It is of note that English law has undergone a dramatic shift owing to the enactment of the UK Consumer Insurance (Disclosure & Representations) Act, 2012. In this post, we will analyse these changes and draw heavily from this paper.

Till 2012, the law as regards pre-contractual duty of disclosure was virtually similar to the law in India. The legal scenario in UK dramatically changed with the enactment of the UK Consumer Insurance (Disclosure & Representations) Act, 2012 (hereinafter “2012 Act”). The 2012 Act bought a dramatic shift in the manner in which the pre-contractual duty of disclosure of material circumstances in consumer insurance contracts was viewed. The reforms that lead to the 2012 Act began in 2006 when the English and the Scottish Law Commissions decided to review the law on pre-contractual disclosure of material circumstances pursuant to a scoping paper issued in January 2006 on the areas that needed law reform. Based on the responses received to the scoping paper, three issue papers were published on topics associated with the pre-contractual disclosure obligations. The topics covered were misrepresentation and non-disclosure, warranties, and intermediaries and pre-contractual information.

These aspects were discussed in several seminars and meetings and the Law Commissions came up with a Report in June 2007 where the reform proposals were clearly outlined. The 2007 Report went on to call the existing state of affairs of permitting the insurer to avoid a policy for the consumer’s honest and reasonable failure to disclose material circumstances and at the same time empowering the Financial Ombudsman Service to order the insurer to pay the claim as “nonsense”. On the prevailing conditions, the 2007 Report observed:

“We think that the law should generally follow accepted practice, in the absence of an agreement to the contrary. Not every term is thought about or negotiated in advance. Currently the law imposes a default regime that undercuts, rather than supports, accepted market practice. In so doing, it risks defeating the reasonable expectations of the insured.”

The 2007 Report identified the following adverse effects of the existing regime on the UK insurance market:

• Insurance fails to meet the reasonable expectations of the customer since rejection of insurance claim creates a deep sense of grievance.
• It is in the best interests of consumers to obtain insurance. The existing state of affairs, however, creates a negative incentive deterring the consumer from obtaining insurance.
• The relevant law in the European and commonwealth countries are more insurance-friendly. This might drive away consumers from the UK market to more favourable insurance markets.

In view of the problems and the adverse effects of such problems on the UK insurance market, the 2007 Report sought to reform the law by taking into consideration the salutary objectives of disclosure of material circumstances of preventing adverse selection and thereby protecting the insurance market from non-viability. At the same time, the 2007 Report clarified that the consumers should be obligated to take reasonable care to answer the questions asked by the insurer clearly and accurately and in case of failure to do so, the insurers should be suitably compensated. The Report also noted that the proposed reforms would increase the premiums slightly considering that more claims would have to be paid by the insurer. Even so, the Report claimed that the consumers would not mind a small increase in premium for the additional cover these reforms would provide. On the quantum of increase, the 2007 Report claimed that since the reforms were either requirements of the Financial Services Authority or practice of the insurance ombudsman, the increase would be negligible. The reforms, the 2007 Report, claimed would ensure that law would ensure consumers’ reasonable expectations and good practice.

Based on further consultation and discussion, the UK and the Scottish Law Commissions published a joint Report in 2009 and tabled it in the UK and Scottish Parliaments in December 2009. Based on the recommendations in the 2009 Report, a Bill titled “UK Consumer Insurance (Disclosure & Representations) Bill” was initiated which eventually became UK Consumer Insurance (Disclosure & Representations) Act, 2012 after receiving royal assent in March 2012. The said statute came into force on 6th April 2013.

Salient features of the UK Consumer Insurance (Disclosure & Representations) Act, 2012 are summarised below:

• The Act wholly replaces the doctrine of utmost good faith as applicable to the insurer and the non-business insured. For the purposes of the 2012 Act, a non-business insured is an individual who enters into the insurance contract wholly or mainly for purposes unrelated to such individual’s trade, business or profession. 
• The replaced duty is “the duty to take reasonable care not to make a misrepresentation to the insurer.” 
• The purport of the said duty is that the insured must take reasonable care to answer insurer’s questions fully and accurately and in case the insured volunteers information, reasonable care must be taken to ensure that the information is not misleading. 
• The question as to whether reasonable care has been taken or not has to be determined after taking into account all the relevant circumstances, including the type of insurance contract, relevant explanatory material or publicity produced/ authorized by the insurer, clarity and specificity of the insurer’s questions, whether the agent was acting for the consumer. 
• Another relevant circumstance in case of a failure to respond to the insurer’s questions with respect to renewal/ variation of an insurance contract is the communication by the insurer to the insured of the importance of answering the said questions or the possible consequences of failing to answer those questions. 
• Misrepresentation made dishonestly amounts to lack of reasonable care. 
• However, if the insurer was, or ought to have been aware of particular characteristics or circumstances of the actual consumer, such characteristics have to be taken into account. 
• A qualifying misrepresentation is a misrepresentation by the insured before the insurance contract is entered into or varied for which insurer has a remedy against the consumer. 
• The insurer has a remedy only when the following are established: 
• where the consumer breached the duty to take reasonable care as stated above, and 
• the insurer shows that without the misrepresentation, the insurer would not have entered into or varied the contract or would have done so on different terms. 
• Unless contrary is shown, there is a presumption that: 
• the consumer is a reasonable consumer, and 
• the consumer knew the matter about which insurer asked a clear and specific question which was relevant to the insurer. 
• A qualifying representation is deliberate or reckless if the insured knew that such misrepresentation was misleading or did not care whether or not it was untrue or misleading. 
• A qualifying representation is careless if it is not deliberate or reckless. 
• The onus lies on the insurer to show that the qualifying representation was deliberate or reckless. 
• Remedies:

Qualifying Misrepresentation	Remedy
Deliberate or reckless	Avoid the contract and refuse all claims. Need not return premiums paid unless it is unfair to the consumer.
Careless- insurer would not have entered into contract but for it	Avoid the contract and refuse all claims but return the premiums paid
Careless- insurer would have entered into contract on different terms	Contract is to be treated as having been entered into on different terms
Careless- insurer would have charged higher premium	Amount paid on a claim may be reduced proportionately (X%): X% = (premium actually charged ÷ higher premium) * 100

• In case of careless misrepresentations, the insurer may give a notice of the careless misrepresentations and the remedy available or terminate the contract by giving reasonable notice to the consumer. 
• However, the insurer does not have the right to terminate a life insurance contract for careless misrepresentation. 
• Premiums paid for careless misrepresentation for the balance contract period after termination of contract by either party pursuant to the reasonable notice specified above should be returned. 
• Termination, however, does not affect the treatment of a claim that arose during the contract period prior to termination. 
• These provisions cannot be contracted out to the disadvantage of the consumer. 

In short, English law replaces uberrima fidae in life insurance law, with a more nuanced set of standards based on facts. Although the present decision cites English cases, these developments in English law and their impact have not been taken into account. The previous round on reforms in India in the form of the 190th Law Commission Report preceded these reforms in English law. Nevertheless, it would do good to have a re-look at our law in light of the developments world over. These questions should once again be discussed by the Law Commission. 

Apart from the above, in view of the requirement of insurance agents to achieve targets and the realities that the insured are not really explained about the nuances of the proposal form, it would do good to making it mandatory to video-record all policy subscriptions. The agent read over the questions in the language that is understood by the insured and also record the answers. Leveraging technology can be solution to such problems.

Settlement of Insurance Claim and the Discharge of Insurance Contract

Recently, a two judge Bench of the Supreme Court of India had the occasion in New India Assurance Co. Ltd. v. Genus Power Infrastructure (04.12.2014) to discuss the law on discharge of an insurance contract.

Facts: 

Genus Power Infrastructure Ltd. (Genus) purchased a Standard Fire and Special Perils Policy (Policy) from New India Assurance Co. Ltd. (NIA) for its manufacturing unit. The total sum assured under the one-year policy was Rs. 91.10 crores. Within seven months from the date of the policy, a fire explosion occurred in the adjoining terminal of the Indian Oil Corporation. This caused severe damage to the manufacturing unit of Genus. Genus notified NIA of the accident and NIA appointed a surveyor and a loss assessor. The loss as per Genus was 28.79 crores while the surveyor assessed Rs. 6.09 crores as the loss. 

Genus signed a detailed letter of subrogation duly stamped accepting Rs. 5.96 crores in full and final settlement of its claim under the Policy. After three weeks from the letter of subrogation, Genus issued a notice to NIA stating that the discharge voucher was signed under extreme duress, coercion and undue influence by NIA who took undue advantage of the financial difficulties of Genus in trying to get the amount of 5.96 crores settled under the Policy and sought nomination of arbitrator. NIA replied that there was no arbitrable dispute in view of the letter of subrogation where Genus had accepted Rs. 5.96 crores and the full and final settlement of the claim.

Genus filed a petition under S. 11 of the Arbitration and Conciliation Act, 1996 for appointment of the arbitrator. The Delhi High Court determined that there was a valid arbitration agreement and appointed an arbitrator. This order was challenged by NIA through a Special Leave Petition to the Supreme Court.

Contentions:

Following were the contentions of NIA in the SLP: 

• The letter of subrogation was a detailed agreement signed after negotiations between the parties in the presence of two witness and should be therefore given effect. 
• The amount was as recommended by the surveyor reduced by the mandatory reinstatement premium payable under the policy. 
• When the company’s annual turnover was Rs. 500 crores, it is improbable that such a company would be financially coerced in giving the discharge receipt. 

Contentions on behalf of Genus were following:

NIA knew fully well that its manufacturing unit had been destroyed and therefore NIA used its dominant position to force Genus to sign the discharge voucher. 

Question: According to the Supreme Court, the following question arose for determination: 

“[W]hether the discharge in the present case upon acceptance of compensation and signing of subrogation was not voluntary and whether the claimant was subject to compulsion or coercion and as such could validly invoke the jurisdiction under Section 11 of the Act.”

Decision:

Following is the summary of the court’s decision 

• A bald plea or fraud/ coercion, duress or undue influence is not sufficient and a party which pleads that the above-stated acts have occurred should establish the same. 
• Factually, there was no protest or demur raised around the time or soon after the letter of subrogation was signed. 
• The notice by Genus was given only three weeks after the letter of subrogation. 
• The financial position of Genus was not so precarious that it was left with no remedy but to accept the said letter. 
• Since there was full and final satisfaction of the claim, noting in the policy survived and therefore, there was no arbitrable dispute for the court to exercise its power under Section 11 of the 1996 Act.

Comment

General insurance companies such as the NIA generally follow the procedure of determining the claim and informing the insured following which they give a pre-determined format of a letter of subrogation which provides, among other things, that the claim paid was in full and final settlement of the claim under the policy. Only after the signed letter of subrogation is given does the insurer makes payment of the claim. If the insured who had suffered loss (at times enormous loss) protests with the Insurance Company of the claim, even that amount would be locked up for a long time in disputes. So, the question is, as a matter of policy, should the letter of subrogation providing for full and final settlement of the claim be taken seriously? The second question is whether in such cases the insured should be asked to prove undue influence / coercion when the industry practice is well-known? 

First, given that by the very nature of the position of the parties, the insurer is in a dominant position. Two, how is the acknowledgement of full and final settlement of the claim different from an agreement that the insured will not file any suit/ invoke arbitration if the amount determined by the insurer is paid? The latter is a void agreement as it restrains legal proceedings while the former does not restrain access to legal fora but makes such access meaningless. 

What should be material is whether the protest subsequent to the letter of subrogation is genuine or merely an afterthought. From this perspective, the date of receipt of the money by the insured could be a very relevant in deciding whether the protest was in time or not. 

In this case, the court was perhaps strict in stating that the protest was belated (three weeks after the letter of subrogation). In any case, the insured should, in future, immediately (within a day or two) make a protest (through email or registered post with acknowledgement due) of the amount of loss failing which the insured may lose the opportunity to question the correctness of the surveyor’s or the insurer’s determination of loss.

SCI Interprets Institute Cargo Clauses (A): Metal Powder Co. v. Oriental Insurance

In June 1983, Metal Powder purchased 15.06 MT of yellow phosphorus from a West German company. The goods were sent through MV Palam Trader to be delivered to Port Bombay and then to Metal Powder's factory in Tamil Nadu. The goods were insured through Oriental Insurance Co. for Rs. 2.65 lakhs. During transit the ship caught fire (October 1983). Since the cost of repairs of the ship was much ghigher than the insured value of the ship, the shipowners deemed the loss as a total loss and had given a notice of abandonment of the ship to its insurers. These facts  were communicated by the shipowners to the insured and the insured in turn promptly communicated the same to the insurer. On lodging of the claim, the insurer repudiated the claim on the ground that the ship was abandoned by its owner due to bankruptcy and Clause 4.6 of the applicable Institute Cargo Clauses (A) excluded loss, damage or expense arising from insolvency or financial default of owners, managers, operators, or charterers of the vessel from the scope of insurance. The defendant had also raised another contention regarding the refusal by the insured to take up the insurer's offer of transporting by a third party of the cargo to the insured's destination at an additional cost of USD 900 (In this post, we will focus on the first contention). The insured's contention was that Clause 5.1 of the Institute Cargo Clauses (A) covered the risk of "non-delivery" and that the insurer was liable.

The matter came up eventually before the Supreme Court where the Supreme Court decided in favour of the insured. The court held that since the risk of "non-delivery" was expressly covered in the insurance policy, the insurer could not resort to the exclusion contained in Clause 4.6 considering that insolvency was a matter of "authoritative determination under the relevant municipal laws of a country and that the insurer had not produced anything of that sort before the court. The court further held that merely because the repair cost of the material exceeded the insured value and because the owner had abandoned the ship did not mean that the owners were adjudged insolvent.

The decision can be accessed from this link. 

The present provisions of the ICC make such an exclusion very narrow. See this link for further reading on the subject.

Global Process Systems v. Syarikat Takaful Malaysia Berhad ( UK SC, 2011)- II

In the last post, we had discussed about rigs and their transportation on barges. In this post, we’ll discuss certain other technical aspects and also the judgement. The judgement, it may be noted, has a bearing on marine cargo insurance. We'll look into the judgement in this post.

But, to recap, during the voyage of the barge which carried the rig (see this picture), all the three legs of the rig broke of and fell into the sea. The owner of the rig , the insured, made a claim with its insurers for the loss caused. The insurers rejected the claim. The insured sued. The insurers argued that the insurer was not liable for the loss because the loss was caused due to inherent vice. The insurers contended that since the loss not caused by any an unexpected accident or casualty, therefore the loss was proximately caused by inherent vice. This ground of inherent vice was relied upon by the insurers as it was an exception to insurer liability under the contract. Section 55(2)(c) of the English Marine Insurance Act, 1906 also provided:

“Unless the policy otherwise provides, the insurer is not liable for ordinary wear and tear, ordinary leakage and breakage, inherent vice or nature of the subject matter insured, or for any loss proximately caused by rats or vermin, or for any injury to machinery not proximately caused by maritime perils.”

The Commercial Court determined that the loss was due to metal fatigue in the legs. As we discussed in the previous post, the legs in this rig were mat-type legs and therefore the legs were cylindrical structures.Fatigue occurs when there is repeated stress on the legs. According to the court, the stress in the legs were due to the pitching and rolling motion of the barge due to the height and direction of the waves.

An important aspect that had bearing on the case was that there was a risk of fatigue was well known to the insurers and the insured. Therefore, the insurers insisted that the rig be inspected again in Cape Town, South Africa and necessary remedial operations be conducted. On this condition, the insurers granted a certificate approving the voyage. Thus, both knew that the voyage was risky for the rig. Therefore, the insurers took the ground of inherent vice.

It was argued by the insurers that insurance was a contract aimed at protecting against risks and not certainties and since it was certain that the rigs would be affected by metal fatigue, they were not liable for the loss of the legs.

Inherent Vice: as the Proximate Cause
Loss due to Inherent vice means that the loss is caused due to the nature of the goods itself and not due to any external causes.

In Soya GmbH Mainz Kommanditgesellschaft v. White [1982] 1 Lloyd’s Rep 122, Soya beans were to be transported by ship. The goods were insured against the risk of heating, among other things. When the goods arrived to the port, it was in a heated condition. Relying on the ground of inherent vice, the insurers denied liability. Donaldson LJ held that a loss is proximately caused by inherent vice if the natural behavior of the goods is such that they suffer a loss in circumstances in which they are expected to be carried.

However, the House of Lords in the same case [1983] 1 Lloyd’s Rep 122, supplied a different definition. Lord Diplock held :

“[Inherent vice] means the risk of deterioration of the goods shipped as a result of their natural behavior in ordinary course of the contemplated voyage without the intervention of any fortuitous external accident or casualty.”

Now, there is a subtle difference between the above two definitions. To clarify, we would take the soya bean example. If the subject matter, that is, soya beans was wet when it was loaded in the ship, then the insurer is not liable because the subject matter inherently suffers from vice, that is, wetness. The proximate consequence of the heatedness would be the wetness of the subject matter. It was the fault of the insured to not keep the goods away from moisture. Therefore, it is right that the insurers should not be liable.

However, the definition of Donaldson LJ seems to suggest the incapability of the subject matter to stand the expected events of voyage as inherent vice. The UKSC in the present case favoured Lord Diplock’s definition. In T M Noten BV v. Harding –[1989] 2 Lloyd’s Rep 283, Bingham LJ held that the proximate cause of the loss was inherent vice of the subject matter, that is, the goods were shipped wet.

Noting the above decisions and another, the UKSC held:

“[T]hese cases do not provide authority for the proposition that inherent vice or nature of subject matter insured is established by showing that the goods in question were not capable of withstanding the normal incidents of the voyage, including weather reasonably expected. What they do establish is that where the only fortuity operating on the goods comes from the goods themselves, the proximate cause of the loss can be properly be said to be the inherent vice or the nature of the subject matter insured and so (in the absence of provisions to the contrary) falls outside the cover.”

The Court also disagreed with the decision in Mayban General Insurance v. Alstom Power Plants Ltd [2004] 2 Lloyd’s Rep 609, where a transformer, the cargo, was damaged due to the movement of the vessel due to wind and sea action. The court stated that the goods transported must be capable of withstanding the “forces” that could be reasonably expected during the voyage. The court stated that since there was no unusual cause which caused the damage.

This, according to the UKSC, would have the consequence of reducing “much of the purpose of cargo insurance, for the would then only extend to loss or damage caused by perils of the seas that were exceptional, unforeseen or unforeseeable, and not otherwise. This…would go far to frustrate the very purpose of all risks cargo insurance, which is to provide indemnity in respect of loss or damage caused by, among other things, perils of the seas.”

Seaworthiness:

Section 55(2)(c) also states that insurer is not liable for ordinary wear and tear. In Mayban General Insurance, the court implied that insurers would not be liable if the cargo was unseaworthy. Seaworthiness is defined in Section 39 of the Act to mean “reasonably fit in all respects to encounter the ordinary perils of the seas of the adventure insured.” Perils of the seas is defined in the Act to only mean fortuitous accidents or casualties of the seas and does not include action of the winds and waves. Therefore the court implied that seaworthiness did not include the ability of the cargo to withstand wind and wave action.

Seaworthiness of the vessel is an implied warranty in the marine insurance policy. If the vessel is not seaworthy, the insured is not entitled to be indemnified by the insurers irrespective of whether the loss was proximately caused by the unseaworthiness.

The court held, by an analogy to the seaworthiness standard in Section 39, the mere fact that the goods are not reasonably fit in all respects to encounter ordinary perils of the seas of the adventure insured does not by the reason alone deprive the assured of the right to be indemnified.

But then, when the seaworthiness standard in the Act refers to a higher standard, that is, the ability to withstand “fortuitous accidents or casualties of the seas”, does it not mean that seaworthiness would also include a lesser standard, I.e., the ability to withstand wave and wind action would also be covered?

In any case, Section 39 dealt with seaworthiness of a vessel (hull insurance) while the present case dealt with cargo insurance.

Two Proximate Causes:

The insurers also argued, without prejudice, that the loss was caused by two proximate causes- inherence vice and perils of the sea. They relied on a decision that dealt with hull insurance- Miss Jay Jay [1987] 1 Lloyd’s Rep 32 where it was held that where there were two proximate causes, and where the policy excluded one cause from the cover, the assured would not be entitled to be indemnified. While Lord Saville rejected the argument for the reason that it was not the case where there were two proximate causes, Lord Mance did not wish to go into the question without hearing arguments.

In any case, the court held that the rolling and pitching of wave the barge in the sea conditions encountered caused the damage and the insurers were liable for the loss.

 

Comments on the Case:

• INCE & Co., Incisive Risk
• Norton Rose, The true scope of inherent vice - The Cendor MOPU
• Waltons & Morse, The Supreme Court clarifies the scope of application of the "inherent vice" exclusion in cargo insurance
• Case Comment by the UKSC Blog
• Sam Tacey, Ajita Shah, Wave goodby to inherent vice exclusions? (Comment on the Court of Appeal Decision) 
• Shipping and Trade Law Case Update (Court of Appeal Judgement)

Global Process Systems v. Syarikat Takaful Malaysia Berhad ( UK SC, 2011)

Petroleum exploration is a technology-intensive activity. One of the chief equipments used in petroleum operations are drilling rigs. While, rigs built for drilling on land (onshore) are less complex, offshore (in the sea/ ocean) rigs are much more complex and expensive.

The rig in dispute in this case was a self elevating mat supported jack up rig. Jack up rigs are rigs which are self-elevating. These form one of the most popular offshore rigs used throughout the world. Essentially, a jack up rig floats in the water and the legs are jacked up. Once the destination (the drilling site) is reached, the legs of the rig go underwater into the sea bed and elevate the jack up rig floor to a certain height depending upon the depth of the sea water and the length of the legs of the rig. The figure here shows a jack-up rig that is jacked up.

When the drilling operations in a particular location is complete and the rig needs to move to a different location, the rigs are jacked down and are moved to different locations by the use of tugs. Where the next location is too far, the rig is taken on a barge. The below figure shows a jacked down rig on a barge.

Jack up rigs can be either mat type or independent leg type. In case of independent leg type, the tip of the legs consist of spud-cans. Spud-cans cylindrical steel shoes with pointed edges. These penetrate into the sea-bed and make the legs stable.

Jack-up rigs can also have mats instead of spud-cans. Mats consist of a flat surface which is laid on the sea bed and are attached to the edge of the legs.

The legs of the mat supported jack-up rig is cylindrical and is made of steel. Below is an example of how mat type jack up rigs look from the sea bed

In the present case, the legs were of 312 feet in length each and weighted about 312 tonnes. The rig was transported to convert it into a Mobile Offshore Production Unit. The rig was transported on a barge. Usually Production Platforms are fixed structures on the sea. However, it might be advantageous to use a movable platform from cost, convenience and re-use perspectives. Such a movable platform is known as a Mobile Offshore Production Unit.

While the legs were being transported on the barge with the legs extending in the air (see the second figure of the post. The legs are independent leg type. However in our case, the legs were of the mat type rig.

During the voyage, all the three legs broke of and fell into the sea. Syaikit Takaful Malaysia Berhad (STMB) who owned the rig made a claim with its insurers for the loss caused to STMB. Insurers rejected the claim. STMB sued the insurers before the commercial court. The insurers argued that the insurer was not liable for the loss because the loss was caused due to inherent vice. The insurers contended that since the loss not caused by any an unexpected accident or casualty, therefore the loss was proximately caused by inherent vice. This ground of inherent vice was relied upon by the insurers as it was an exception to insurer liability under the contract. Section 55(2)(c) of the English Marine Insurance Act, 1906 also provided:

“Unless the policy otherwise provides, the insurer is not liable for ordinary wear and tear, ordinary leakage and breakage, inherent vice or nature of the subject matter insured, or for any loss proximately caused by rats or vermin, or for any injury to machinery not proximately caused by maritime perils.”

The central argument of the insurers was that the loss was proximately caused by inherent vice in the rig. The court had to consider the validity of this argument. 

The judgement can be downloaded from here. The decision of the court will be analysed in a subsequent post.

(all images from Rigzone- http://www.rigzone.com/training/insight.asp?insight_id=339&c_id=24)