Supreme Court Rules On Inherent Vice - Loss Of Jack-Up Rig Under Tow

Global Process Systems Inc v. Syarikat Takaful Malaysia Berhad [2011]1 Supreme Court, 1 February 2011

As Lord Birkenhead LC noted in the famous case of British & Foreign Marine Insurance v. Gaunt [1921]2, a policy on "all risks" terms cannot be held simply to cover all damage howsoever caused "for such damage as is inevitable from ordinary wear and tear ... is not within the policies". The principle is simply this: insurance covers risks, that is to say something that might or might not happen, and not certainties.

The point was developed further in Soya GmbH v. White [1983]3, concerning a claim for heat damage to a consignment of soya beans on a voyage from Indonesia to Antwerp. The court in that case drew a distinction between cargo shipped with greater than 15% moisture content, which on the expert evidence it said was bound to suffer heat damage during the intended voyage, and cargo shipped with between 13% and 15% moisture content, which it said "might or might not" result in such damage. In the former case, damage would be regarded as inevitable and thus irrecoverable in principle; in the latter case the damage was fortuitous but resulted from an inherent vice, that is to say the moisture present in the cargo at the time of shipment. In that particular case the claim succeeded because the policy expressly included such loss, by way of an extension covering "heat, sweat and spontaneous combustion".

Commercial Court

The issue has recently come up for consideration again in the long running case of Global Process Systems Inc v. Syarikat Takaful Malaysia Berhad. The claim concerned the loss of a jack-up rig being towed on a barge from Galveston to Malaysia. The jack-up rig design allows a working platform to be floated into position and jacked up on cylindrical legs, to suit the sea depth at the point of operation. Steel pins are engaged into the legs through pinholes spaced at six foot intervals and, to reduce...