Tuesday, 25 March 2014

INSURANCE LEGISLATION LOOPHOLE.

"The Waratah", The Sydney Morning Herald, Saturday 14 August 1909, page 13

"THE MISSING STEAMER WARATAH.
A FRUITLESS SEARCH.
REINSURANCE RISEN TO SEVENTY GUINEAS."

LONDON, August 5.

'The tug that has been searching for the steamer Waratah has returned to Mossel Bay, near Cape Town. No trace of the missing steamer has been seen.'

LONDON, August 6.

'The wreck of the Maori has deepened apprehensions regarding the Waratah, whose reinsurance has risen to seventy guineas.'

'It is roughly estimated the vessel is valued at £175,000, and her cargo at £200,000.'

The Inquiry quoted figures of :

The cost of the ship to her owners was £139,900, the builders' contract price; extras, £390; refrigerating machinery, £7,475; plate, linen, crockery, &., £3,739; incidental and travelling expenses, wages, and supervising during building, £2,352; in round figures, £154,000. 

The insurances were:” 

On hull and machinery 

£135,000, 

On disbursements 

£15,000.

£ 150 000.

No references were made to the value of the cargo at the Inquiry. This is interesting in itself and perhaps reflects the confusion surrounding the exact nature and weight of cargo - underestimated by Mr Larcombe. Moreover there is a intriguing question surrounding gold on board Waratah and whether it was relocation of Commonwealth gold with very significant implications for overall cargo insurance....  



'THE WARATAH.
HIGH REINSURANCE.
VESSELS CONTINUE SEARCH.'

London, Aug. 12.

'The reinsurance on the steamer Waratah amounts to 90 guineas, which is the highest ever paid on a vessel of that size. The underwriters suggest that she may have broken her propeller or rudder, instancing the case of the steamer Waikato, which was missing south of the Cape for a long time (103 days).'

'Reinsurance is insurance that is purchased by an insurance company from one or more other insurance companies (the "reinsurer") as a means of risk management. The ceding company and the reinsurer enter into a reinsurance agreement which details the conditions upon which the reinsurer would pay a share of the claims incurred by the ceding company. The reinsurer is paid a "reinsurance premium" by the ceding company, which issues insurance policies to its own policyholders.'

Marine Insurance Act 1908
Public Act 1908 No 112
Date of assent 4 August 1908

extracts:

'A contract of marine insurance is a contract whereby the insurer undertakes to indemnify the assured, in manner and to the extent thereby agreed, against marine losses—that is to say, the losses incident to marine adventure.'

'Subject to the provisions of this Act, every lawful marine adventure may be the subject of a contract of marine insurance.'

'Maritime perils means the perils consequent on or incidental to the navigation of the sea—that is to say, perils of the seas, fire, war perils, pirates, rovers, thieves, captures, seizures, restraints, and detainments of princes and peoples, jettisons, barratry  (misconduct by crew of a ship resulting in its damage), and any other perils, either of the like kind or designated by the policy.'

'Subject to the provisions of this Act, every person has an insurable interest who is interested in a marine adventure.'

'In particular a person is interested in a marine adventure where he stands in any legal or equitable relation to the adventure, or to any insurable property at risk therein, in consequence of which he may benefit by the safety or due arrival of insurable property, or may be prejudiced by its loss, or by damage thereto, or by the detention thereof, or may incur liability in respect thereof.'

'Unless the policy otherwise provides, the declarations must be made in the order of despatch or shipment. They must, in the case of goods, comprise all consignments within the terms of the policy, and the value of the goods or other property must be honestly stated, but an omission or erroneous declaration may be rectified even after loss or arrival, provided the omission or declaration was made in good faith.'

'Unless the policy otherwise provides, where a declaration of value is not made until after notice of loss or arrival, the policy must be treated as an unvalued policy as regards the subject-matter of that declaration.'

'In a voyage policy there is an implied warranty that at the commencement of the voyage the ship shall be seaworthy for the purpose of the particular adventure insured.'

'Where the policy attaches while the ship is in port, there is also an implied warranty that she shall, at the commencement of the risk, be reasonably fit to encounter the ordinary perils of the port.'

'A ship is deemed to be seaworthy when she is reasonably fit in all respects to encounter the ordinary perils of the seas of the adventure insured.'

'In a time policy there is no implied warranty that the ship shall be seaworthy at any stage of the adventure; but where, with the privity of the assured, the ship is sent to sea in an unseaworthy state, the insurer is not liable for any loss attributable to unseaworthiness.'

In the case of the Waratah, she had to be declared seaworthy before departing Durban Port. Inspection was undertaken by a Lloyd's representative. However, this inspection could not take into account latent defects (hidden structural weaknesses).

A declaration with regard to the cargo manifest value had to be made 'in good faith'. On the surface this should simply have been a matter of submitting customs records of cargo and value. 'Good faith' seems a bit dodgy. The Inquiry struggled to establish the exact cargo contents of the Waratah when she departed Durban. Legislation clearly provided a loophole.

The conclusion of the Board of Trade Inquiry refers to the storm of 28 July, as a 'gale of exceptional violence'. This takes care of the clause referring to a vessel being seaworthy for 'ordinary perils of the seas'. The storm as described was not 'ordinary', and therefore Lloyds and the re-insurers were liable for losses.

It also explains why the Inquiry went into so much detail establishing whether the Waratah was unstable or not, ultimately deciding that the vessel was stable and seaworthy when she departed Durban.



Lloyds of London

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