Cargo Insurance Fundamentals and Principles
Cargo Insurance Fundamentals and Principles
This domain tests the legal foundations that decide whether a claim is payable at all, before any policy wording is argued.
Insurable interest and indemnity
Marine Insurance Act 1906 s.5 defines insurable interest as a pecuniary interest in the safety of the subject matter or the adventure; s.6 requires the interest to exist at the time of loss, save for a "lost or not lost" policy, which is valid where the assured was ignorant of the loss. Indemnity is measured by the policy: a valued policy fixes the sum conclusively between the parties absent fraud (s.27(3)); an unvalued policy uses insurable value under s.16.
Fair presentation
The duty of utmost good faith in MIA ss.17–18 is replaced for commercial risks by the Insurance Act 2015: the assured must make a fair presentation - disclosure of every material circumstance it knows or ought to know, or sufficient information to put a prudent insurer on notice (s.3(3), with s.7 knowledge). Remedies under s.8 and Schedule 1 are proportionate for non-deliberate breach (avoidance, or reduced claim for understatement of risk) and avoidance for deliberate or reckless breach.
Proximate cause
MIA s.55: the insurer is liable for loss proximately caused by an insured peril; causes that are remote do not count. Where two causes operate, English courts identify the dominant or effective cause rather than simply favouring the assured.
Worked example
Canned food is spoilt because the vessel's machinery breaks down and the voyage takes six weeks longer, during which lacquer coating fails. Under ICC (A) machinery breakdown is an accident, so the peril looks insured - but the proximate cause of the spoilage is delay, excluded by clause 4.5 ("caused by delay, even though the delay be caused by a risk insured against"), with inherent vice under 4.4 reinforcing the exclusion. The claim fails. Had seawater from the same breakdown entered the hold and rusted the cans, the proximate cause would be seawater entry and (A) and (B) would respond.
Marks-losing traps
- Treating "all risks" as reversing the burden of proof on exclusions: the assured proves a fortuitous loss within the cover; the insurer proves the exclusion.
- Assuming the interest must exist when the policy is bought.
- Analysing every concurrent cause separately instead of identifying the dominant one.
- Forgetting that delay and inherent vice bite even in an (A) wording.