21/02/2018

Swedish Club v Connect Shipping – important questions relating to law of marine insurance, particularly to claims for constructive total loss

The Court of Appeal handed down judgment on 19 February 2018 in a case raising important questions relating to the law of marine insurance, and in particular to claims for constructive total loss.

The first issue was as to the meaning and proper effect of the requirement in s.62(3) of the Marine Insurance Act 1906 that an assured must serve notice of abandonment with reasonable diligence after receipt of reliable information of the loss. In upholding the Judgment of Knowles J, the Court of Appeal held that an assured who receives information from his own surveyors to the effect that the Vessel is a constructive total loss, which would on the face of things be reliable information of the loss, will not be reliable if it is disputed by the insurers in what is also, on the face of things, a reliable opinion. The effect of this ruling appears to be, as the Court of Appeal recognised, that an assured can never have reliable information of the loss for the purpose of the Act where there is a bona fide dispute between the parties as to whether the Vessel is a constructive total loss.

The second issue was as to whether expenses already incurred by an assured prior to the giving of notice of abandonment could be ranked towards the calculation of constructive total loss. The Court of Appeal answered this question in the affirmative, overruling two previous first instance decisions which had held to the contrary, but following the views expressed in Arnould on Marine Insurance.

The third issue was as to whether SCOPIC fees paid to salvors could count as a cost of repair for the purpose of a claim for constructive total loss. The Court of Appeal held that it could be, on the basis that it was in substance an indivisible element of the salvage award that had to be paid by the owners in order to recover their vessel, and that (contrary to the submissions of the insurers) the owners were not contractually barred from so ranking it pursuant to paragraph 15 of the SCOPIC clause (which provided that “no claim whether direct, indirect, by way of indemnity or recourse or otherwise relating to SCOPIC remuneration” could be made by the owners against the vessel’s hull insurers).

Each of the above aspects of the Court of Appeal’s reasoning has important consequences to the marine insurance market. It remains to be seen whether the Court of Appeal’s judgment is the last word on the subject, or whether the case will be heard by the Supreme Court.

Michael Ashcroft QC and Luke Pearce appeared on behalf of the insurers, instructed by Thomas Cooper.

If you have any questions on the matters discussed and would like to seek advice please contact the Senior Clerks.