(Re)Insurance Weekly Update 4 - 2015

Gard Marine & Energy Ltd v China National Chartering

Court of Appeal confirms insurer's right of subrogation depends on underlying contract between the parties

http://www.bailii.org/ew/cases/EWCA/Civ/2015/16.html

The first instance decision in this case was reported in Weekly Update 32/13. The owners of a vessel had entered into a demise charter which provided that joint insurance would be taken out for the benefit of the owners and the demise charterers (with the premium being paid by the demise charterers). When the vessel became a total loss, the insurers paid and sought to bring an assigned claim against a third party to whom the vessel had been time-chartered by the demise charterers (based on the breach of a safe port warranty). That third party argued that the demise charterers had had no liability to the owners and so had no claim to pass on to it (and hence there was no claim for the insurers to be assigned to either). At first instance that argument was rejected by the judge and the third party appealed. The Court of Appeal has now held as follows:

(1) There had been no breach of the safe port warranty. The appeal therefore succeeded on that point.

(2) Although not required to do so, the Court of Appeal nevertheless went on to consider the subrogation argument because it raised "an important issue of principle". Clause 12 of the charterparty between the owners and the demise charterers provided that the demise charterer would pay for the hull insurance, which would be taken out in their joint names. The question then arose whether: "If a loss occurs as a result of a breach of contract or negligent conduct on the part of the party who pays the premium, can the insurer use the name of the "innocent" party to sue the "guilty" party once the insurer has paid for the loss?" The Court of Appeal answered this as follows: "Since insurance is usually intended to cover an insured for any breach of contract or duty on his part, it is generally thought that the answer to this question must be "No"; otherwise the party paying the premium has not secured the insurance cover he was entitled to expect". The Court of Appeal said that clear words to exclude that result were not required, so long as it was evident that the insurance was intended to be for the joint benefit of the parties.

The Court of Appeal also confirmed that it is vital to construe terms of the underlying contract between the parties (the terms of the insurance policy had not even been disclosed here), and that clear words were not required to exempt liability for negligence. If a contract requires a party to that contract to insure the parties, the prima facie position will be that the parties intended to look to insurers to indemnify them, rather than to each other.

Clause 13 of the charterparty had provided that the owners...