LAW OF SCUTTLING

Dominion, Volume 34, Issue 80, 28 December 1940, Page 5

LAW OF SCUTTLING

British Test Case Favours Underwriters

ATTEMPT TO RECOVER INSURANCE

The German practice of scuttling vessels to avoid capture startled the world in the early months of the war. This practice had equally startling repercussions in the matter of marine insurance policies and led to a recent test case in England by which Mr. Justice Hilbery, of the King’s Bench Division, gave judgment in favour of three Lloyds’ underwriters from whom compensation was claimed in respect of cargoes lost when German ships reached Germany or were scuttled after the outbreak of the war. It was a test ease on which claims involving millions of pounds depended. Mr. Justice Hilbery’s judgment is the subject of an article by Mr. W. P. Rollings, M.A., LLB., in the December issue of the “New Zealand Law Journal,” in which he comments that provisions drafted to meet certain specified conditions may be the cause of widespread grief among policy-holders of a later generation if not revised to meet the needs of changing times. “For a short time before the war began British merchants were in the habit of insuring their cargoes against war risk as well as the usual marine risks, and many policies in the standard form used by Lloyds and other groups of companies were taken out with British underwriters,” writes Mr. Rollings. “A very large part, of this insurance related to cargo in foreign bottoms, and much of it was on board German merchant vessels in various parts of the globe. “On the outbreak of war. as we now well know, Hitler ordered these vessels to head for home. If capture by the British Navy seemed imminent, they were to scuttle themselves. Many did so. On the loss of their cargoes by scuttling, or in some cases by the successful return of the German merchantmen to Germany, British merchants who had taken out war risk insurance duly presented their claims to the underwriters. The claims were not met. The underwriters informed the surprised cargo-owners that, though extra premiums to cover war risks had been paid, there was (they were advised) no clause in the standard form of policy sufficiently apt to cover scuttling. At least there was an ambiguity, and the question of the underwriters’ liability to meet the claims would have to be decided by litigation.

Huge Sum Involved

“The total value of the risks involved seems to be very high indeed. It was stated in the English daily Press at the time of the hearing before Mr. Justice Hilbery, to be £lO,000,000. The three cases taken were selected from the numerous claims as being those most representative of the issues in dispute, and were tried on the basis of agreed statements of facts. Counsel eminent at. the Admiralty Bar were engaged in tlie argument, which occupied nine days. The underwriters agreed at the outset to pay the costs of both sides, whatever the result, and as the case has since gone to the Court of Appeal and is to go to the House of Lords we have the curious spectacle of defendants financing appeals against a judgment in their own favour. “In the first of these cases, cargo in a German-owned steamship was insured for a voyage from South American ports to Hong Kong or Shanghai, including transhipment at Durban. The vessel sailed from Bio on September 6, 1939, in an attempt to reach Germany, and on September 29, in the presence of a British warship, she was scuttled by her master and crew oil tlie Faroe Islands. In the second case, goods were shipped on a German vessel from Bremen to Capetown. On the obtbreak of war the vessel abandoned her voyage, and, after sheltering for some months in a neutral port, ran the British blockade successfully and arrived in Hamburg on March 5, 1910. In the third instance, the German vessel was on a voyage from Australia to London and, after having sheltered for a short time in a neutral port, was intercepted in an attempt to reach Germany and was scuttled in the presence of a French warship on October 16, 1939. “The policies covering these three cargoes were all in tlie same form. They incorporated tlie Institute War Clauses, and they were expressly warranted free of any claim based on loss or frustration of the insured voyage or adventure caused by arrests, restraints or detainment of kings, princes or people. To explain how the policies came to lie in this form it is necessary to go back Io the Great. War.” New Clause in Policies.

Details of the case of British and Foreign Marine Insurance Co.. Ltd., v. .Sunday and Co. (1916) are given by Mr. Bollings, as a result of which “a clause was drafted excluding from the risk accepted by insurers loss of the voyage or frustration of the adventure caused by arrests, restraints or detainment of kings, princes or people, and tliis exception became in due course a sanctified part of the standard marine policy, Frustration of the adventure through other causes remained part of the risk.

‘•lt is perhaps likely that this exception had appeared in policies for so many years before this war began that on war insurance again coming into vogue its effect■ was overlooked. The war-risk clauses by themselves were undoubtedly apt to cover loss by

scuttling. Mr. Justice Hilbery expressly held that at the time of being scuttled the German ship was engaged in a warlike operation within the meaning of the Institute War Clauses, cl. 1 (b).

“But, since the exception introduced after Sunday’s case was a general warranty applicable to the whole policy, the scope of the war-risk clauses was cut down accordingly. When the German captain sailed from Bio in an attempt to reach Germany he was acting as the agent of the German Government, and tlie adventure was there and then frustrated by restraint of princes. In Sunday's ease, the restraint was that of the British Government, and in the present case it was that of the German Government. The exception applied and the plaintiffs were not entitled to recover. It might be true that the subsequent loss of the cargo was caused as well by other causes which were within the policy; but it has been decided that where there are shown to be two causes of Hie one loss, one of them being a peril insured against and the other a peril of which the policy is warranted free, the insured cannot recover.

“In the case of the ship which successfully returned to Germany the Court held that up till she left the neutral port where she took shelter there was a possibility that the plaintiffs might have received their goods, and it could not be said that there was a constructive total loss. In fact, letters had passed through neutral channels showing that, on certain terms, the cargo might have been available. “Immediately tlie ship left the neutral port for Germany there was evidence of a frustration of the adventure caused by restraint of princes, and the subject matter of the insurance was gone. The ease of tlie third ship was decided by parallel reasoning. Till she loft the neutral port there was no evidence of any loss due to an insured peril, and when she did the adventure was immediately frustrated.”