Shipping Insurance and Reinsurance Clauses

Shipping Insurance and Reinsurance Clauses

How will the courts interpret shipping insurance clauses, particularly typhoon and storm warranties?   The expert maritime and shipping Bahamas lawyers at Parris Whittaker have years of experience advising and representing shipping clients on contracts and insurance.

The Court of Appeal in the UK recently upheld the earlier court’s finding of a breach of a typhoon warranty in a reinsurance policy, in a sad case where many lives were lost following a typhoon. (1)

What was the background?

The reinsurers (Amlin) of the defendant insurance company (Oriental) claimed in respect of an original policy of insurance under which it agreed to indemnify a Philippine shipping company against liability for loss of, or damage, to cargo.  

The policy contained a typhoon warranty as follows:

  • “the vessel shall not sail or put out of Sheltered Port when there is a typhoon or storm warning at that port…”, and
  • “the vessel shall not sail or put out of Sheltered Port … when her destination or intended route may be within the possible path of the typhoon or storm announced at the port of sailing, port of destination or any intervening point”

A breach rendered the policy void. Amlin then reinsured the policy with the respondent reinsurers, with no material difference in the wording of the typhoon/storm clause.
The vessel, Princess of the Stars, set sail despite storm and typhoon warnings, and sailed straight into the eye of the tropical depression.  The vessel was lost, leading to the loss of more than 800 lives and all its cargo. Amlin sought a declaration that it was not liable to indemnify Oriental in respect of such claims because of its breaches of the typhoon warranty.

What did the Court of Appeal decide?

The considering both parts of the typhoon warranty:

  • In respect of the first part (above), the court found no ambiguity as to the type or level of typhoon or storm warning. The warranty had to be construed in such a way as to prevent the vessel from sailing when there was any possibility of an encounter with a typhoon or storm.  The first part of the warranty had clearly been breached since the vessel set sail from Manila when the relevant storm warning was in place.
  • In respect of the second part, the relevant intention was that of the Master as to the route to be taken at the time of departure. His intended route was the usual route - which would take the vessel into the possible path of the typhoon, but changing to an alternative route if the weather deteriorated. This part of the warranty was therefore also breached.

What are the implications of this decision?

Whilst this particular policy was governed by English law and subject to exclusive English jurisdiction, it’s clear that the courts will interpret such clauses according to their plain meaning and in light of the parties’ intentions. Shipping companies must ensure their contracts and insurance terms are set out in clear terms and that they take specialist advice to ensure they are complied with.

How can we help?

For expert, strategic legal advice on shipping and maritime law, and all issues relating to shipping contracts and insurance policies, contact the Bahamas lawyers at ParrisWhittaker now.

1 Amlin Corporate Member Ltd v Oriental Assurance Corp (The Princess of the Stars) [2014] EWCA Civ 1135