English Legislation on Marine Insurance. In Honor of the 115th Anniversary of the Marine Insurance Act 1906

Year 2021 marks the 115th anniversary of the Marine Insurance Act 1906 (hereinafter also MIA 1906), which was enacted by Parliament of the UK on December 21, 1906 and entered into force on January 1, 1907.

The full title of the MIA 1906 is ”Act to Codify the Law Relating to Marine Insurance“. In the recent reform of English insurance law in 2015–2016, some significant amendments were made to the Marine Insurance Act 1906. However, most of the provisions of the Act have remained unamended since the date of its enactment on December 21, 1906.

This article accompanies the translation of the Marine Insurance Act 1906, in which the author has tried to demonstrate all the amendments made to the text of the Act under the 2015–2016 English law reform.

Since some of the provisions of the Maritime Insurance Act 1906 were abolished by the Insurance Act 2015, this article provides for the text of the new provisions of English law, which came into force instead of the omitted provisions of the MIA 1906.

Moreover, the author would like to share his impressions in regard to his participation in the application of the MIA 1906 over the last 30 years of his practice in the area of maritime law and maritime insurance.

1. A Brief History of the Enactment of the MIA 1906

MIA the 1906 was not the first act of Parliament of the UK that regulates relations on marine insurance. It was preceded, inter alia, by An Act concerning Matters of Assurances amongst Merchants 1601, Marine Insurance Acts 1745 and 1788, Policies of Marine Assurance Act 1868.

For example, the 1601 Act (43 Eliz A.D. 1601 p. 12)¹ confirmed in his preamble that insurance is a custom which has existed between merchants since time immemorial, explained what is meant by an insurance policy and what is the essence of insurance of goods, merchandises, vessels and maritime ventures². The Act provided that the purpose of insurance is encouragement of marine trade and other ventures by distributing the losses of few, who risk, among the many, who do not³. In addition, the 1601 Act noted that the consideration of disputes arising from relations on marine insurance by royal court was associated with significant costs and delays. In this regard, the Act authorized the Lord Chancellor and the Lord Keeper of the Royal Seal to establish a permanent Commission of 14 persons to deal with insurance disputes⁴. The law stipulated the competence of the Commission and hearing procedure for disputes, appeal procedure against decisions of the Commission, required that its members be impartial.

The Marine Insurance Act 1745 (19 Geo. II. c. 37.), inter alia, prohibited the insurance of vessels and goods in the absence of insurable interest, as well as wagering or gaming insurance, with the exception of private warships insurance, and property proceeding out the ports of Europe and America, which are in possession of Spain and Portugal. The 1788 Act (28 Geo. III., c. 56.) prohibited and declared void insurance policies for ships and goods without specifying in them a person with an interest in the insured property.

The Marine Insurance Policies Act o1868 (31 & 32 Vict. c. 86), inter alia, defined an “insurance policy”; allowed any transfer of the policy by endorsement; allowed the policyholder to sue the insurer on his own behalf, if the policyholder had right to the insured property; determined what objections the insurer can raise against the requirements of the policyholders.

In contrast to the previous acts of Parliament of the UK, which governed only some separate issues of marine insurance, including the hearing procedure for insurance disputes, insurance interest, rules for transferring a marine insurance policy, assignment of the insured’s rights to a third party, etc., the MIA 1906 announced that it would codify the law related to marine insurance in general.

The MIA 1906 was drafted by Sir Mackenzie Dalzell Edwin Stewart Chalmers and was originally introduced to the House of Lords by Lord Herchel in 1894.

The main aim of the MIA 1906 during the period of its drafting was declared as the exact reproduction and codification of the existing legal provisions relating to the regulation of marine insurance, without any attempts to amend them⁵.

Chalmer’s project (and later the text of the Act) reflected the provisions of the aforementioned English laws of 1745, 1788, 1868. However, basically in the drafting of the MIA 1906 the point at issue was codification of case law since English insurance in general and marine insurance in particular were largely governed by the rules which were formulated in case law⁶.

English sources note that more than 2,000 of published judgments related to marine insurance were used by Chalmer to draft the MIA 1906⁷.

When codifying insurance law in the MIA 1906, draftspersons were tasked with formulating the provisions of the Marine Insurance Act in such way as to ensure the predictability of legal regulation. It was considered that the certainty of the rule laid down in the MIA 1906 is of more importance than its theoretical perfection⁸.

2. Structure and General Characteristics of the MIA 1906

The MIA 1906 at the time of its adoption consisted of 94 sections, which were consolidated into 17 parts, which were not numerated. To the date, sections 18, 19, 20, second sentence of section 17, subsection 2-5 of section 23, subsection 2 of section 25, second sentence of subsection 3 of section 33, section 34, section 92, 93, and Schedule 2 of the MIA 1906 were omitted. The rest of the text remained unamended in the form that existed at the time of the enactment of the Act in 1906.

Schedule 1 of the MIA 1906, which includes the form of Lloyd’s policy 1779 and the rules of its construction, remained also unamended. Schedule 2, which contained a list of Parliament of the UK Acts that had been abolished by the adoption of the MIA 1906, in contrary, was omitted by the Statute Law Reform Act 1927.

Parts of the MIA 1906 (in the text of the Act without numbering) and the Rules For Construction Of Policy in Schedule I have the following titles:

[1]⁹ Marine Insurance

[2] Insurable Interest

[3] Insurable Value

[4] Disclosure and Representations

[5] The Policy

[6] Double Insurance

[7] Warranties, &C.

[8] The Voyage

[9] Assignment of Policy

[10] The Premium

[11] Loss and Abandonment

[12] Partial Losses (Including Salvage and general Average and Particular Charges)

[13] Measure Of Indemnity

[14] Rights Of Insurer On Payment

[15] Return Of Premium

[16] Mutual Insurance

[17] Supplemental

Schedules

First Schedule

Form Of Policy

Lloyd’s S.G. policy

Rules For Construction Of Policy

1. Lost or not lost

2. From

3. At and from

4. From the loading thereof

5. Safely landed

6. Touch and stay

7. Perils of the seas

8. Pirates

9. Thieves

10. Arrests, &c., of kings, princes, and people

11. Barratry

12. All other perils

13. Average unless general

14. Stranded

15. Ship

16. Freight

17. Goods

Second Schedule

It is necessary to take into account while applying the MIA 1906 that its provisions do not exhaust the legal regulation of relations on marine insurance.

Pursuant to the provisions of subsection 2 of section 91 of the MIA 1906 common law rules, including merchant law, remain in force until they are inconsistent with the express provision of the Act and continue to apply to marine insurance contracts in England.

In fact, it is common law (case law) that contains most of English provisions governing relations on marine insurance. Common law also defines the scope, actual content and construction of the MIA 1906 provisions, often interpreting them exactly opposite of what one would expect given the literal wording of the text of the MIA 1906’s respective section.

The issue of the imperative character of the MIA 1906’s provisions is subject to section 87 of the Act. In this regard, subsection 1 of section 87 provides that where any right, duty, or liability would arise under a contract of marine insurance by implication of law, it may be negatived or varied by express agreement, or by usage, if the usage be such as to bind both parties to the contract. Therefore, by virtue of the general rule of subsection 1 of section 87 the agreement of the parties and the usage prevail over the provisions of the MIA 1906. The scope of this general provision is subject to subsection 2 of section 87, which provides that the provisions of section 87 extend to any right, duty, or liability declared by the MIA 1906 which may be lawfully modified by agreement.

In practice, it is needed to refer to the applicable rules of common law (case law) and legal doctrine of English marine insurance in each case to accurately answer the question of which rights, obligations and responsibilities provided by the MIA 1906 can and which cannot be amended by the agreements of the parties.

It is recognised, for example, that the provisions of section 4 of the MIA 1906, under which the assured should have an insurable interest in the subject of insurance, are imperative and cannot be contracted out either by agreement of the parties or by usage. The same applies to section 22 under which the contract of insurance to be embodied into the policy, and to section 41 under which the assured warrants to the insurer legality of adventure assured and that, so far as the assured can control the matter, the adventure shall be carried out in a lawful manner¹⁰.

All in all, almost 115 years after the enactment of the MIA 1906, it can be safely affirmed that in terms of abstract clarity and conciseness of wording, Sir Mackenzie Chalmers managed to create a truly immortal masterpiece.

The text of the Marine Insurance Act drafted by Chalmers is applied in England by analogy to all relations on property (and partly non-property) insurance, regardless of whether or not such relations are related to any marine risks.

The MIA 1906 became an example for the enactment of marine insurance acts in a number of others, especially common law, countries, including Australia (in 1907), New Zealand (in 1909), Singapore (in 1993), Canada (an Act of May 6, 1993), and others.

It is noteworthy that, for instance, in Canada, drafting the federal act on marine insurance, the Canadian legislator included in it literally unamended text written by Chalmers almost 100 years before the adoption of the 1993 Canadian Act.

3. Application of the MIA 1906 by English Courts

It can be assured that, from the point of view of abstract clarity and conciseness of wording, the provisions of the MIA 1906 fully meet the aim set for its draftspersons. Apparently, it justifies the desire of other countries to use the text of the MIA 1906 even 100 years after its adoption, to transfer its text into their domestic legislation literally unamended.

A different matter is the compliance of the text of the MIA 1906 with the real content of the provisions of English law in the marine insurance area, as well as requirements of predictability of legal regulation and reasonable expectations of participants of legal relations on insurance subject to English law.

In all mercantile transactions the great object should be certainty [of legal regulation]¹¹. Nothing is more mischievous than uncertainty in mercantile law¹².

In this respect, it is probably difficult to find anywhere else in the world an Act that led to the same amount of unnecessary litigation and absolutely unpredictable unfair judgments as the Marine Insurance Act 1906.

English courts hearing insurance disputes in many cases interpret the MIA 1906 in such way which exclusively protects the economic interests of insurer and derogates interests of the insured. In this regard, English judges leave unpunished any of the very bad faith, and sometimes even fraudulent, actions of insurer. Considering disputes under the contract of marine insurance, judges ignored completely obvious facts, including, inter alia, the fact that at the current level of development of communication tools, collection, storage, evaluation and transmission of information, insurers are a much stronger side of insurance relations either before and after the conclusion of contract of insurance.

Under the influence of English jurisprudence, English insurers often have to amend the terms of their contracts of adhesion in favour of insured after another English judge, ignoring all reasonable provisions and principles of good faith, proportionality and rationality, completely dismisses to protect the insured’s rights and interests, and insureds are once again responding to this with a massive exit from the English maritime insurance market.

To illustrate how the provisions of the MIA 1906 are applied by English judges, there could be cited hundreds of examples relating to such sore subjects of English insurance law as “utmost good faith”, “disclosure”, “warranties”, “conditions precedent”, “basis of contract clauses”. However, all of these issues have recently become the subject of the reform of the legislation on marine insurance and it may be possible to sort them out¹³.

We will focus in this article on such a rarely covered issue as the concept and definition of contract of marine insurance in English law.

3.1. Definition and Concept of a Contract of Marine Insurance

Definition of a contract of marine insurance is provided for in section 1 of the MIA 1906:

“1. Marine insurance defined

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”.

As it can be seen from the definition in section 1, it contains only obligation of the insurer and does not mention obligation of assured. For the rest, a Russian lawyer would say that exact the same definition of a contract of marine insurance and insurer’s obligation is contained in Russian legislation.

However, it would be a delusion.

In English law, the provision of section 1 of the MIA 1906 is irrelevant for a correct understanding of the concept and legal nature of a contract of marine insurance (and generally any property insurance contract), as well as the insurer’s obligation under such an agreement.

Instead of the clear definition provided for in section 1 of the MIA 1906 and formulated by Chalmers, an absurd legal fiction is applied in English insurance law¹⁴ – it is so-called “historic rule” pursuant to which “insurance contract is treated as analogous to a contract with a security firm, in which the security firm undertakes to prevent a break-in. Therefore, the insurer’s obligation is to prevent loss occurring rather than to compensate for loss”¹⁵.

With regard to marine insurance, the English concept of a property insurance contract means that, for instance, casco insurer who insures the vessel against the so called marine perils under the contract of marine insurance undertakes an obligation to protect the assured from loss, i.e. prevent the harmful effects of storms, tsunamis, earthquakes, volcanic eruptions; protect the insured vessel from lightning strikes, collisions, stranding, negligence of the master, crew, pilot, third party repair organisation, etc.

This concept of a contract of marine insurance has been used in a number of the England courts fateful judgments, including:

[1] Chandris v Argo Insurance Co. Ltd [1963] 2 Lloyd’s Rep. 65;

[2] President of India v La Pintada Compania Navigacion SA (The La Pintada) [1985] A.C. 104;

[3] President of India v Lips Maritime Corp. (The Lips) [1988] A.C. 395, 425, per Lord Brandon;

[4] Firma C-Trade SA v Newcastle P & I Association (The Fanti) [1991] 2 A.C. 1;

[5] Ventouris v Mountain (The Italia Express (No. 2)) [1992] 2 Lloyd’s Rep. 281;

[6] The Kyriaki [1993] 1 Lloyd’s Rep. 137;

[7] Callaghan v Dominion Insurance Co. Ltd [1997] 2 Lloyd’s Rep. 541;

[8] Sprung v Royal Insurance (UK) Ltd [1999] Lloyd’s Rep. I.R. 111;

[9] Apostolos Konstantine Ventouris v Trevor Rex Mountain (The Italia Express (No 3)) [1992] 2 Lloyd’s Rep 281.

Realising the entire inconsistence of the English concept of a contract of insurance, some English lawyers, referring to case law¹⁶, English legal doctrine¹⁷ and judicial practice in the other common law countries¹⁸, clearly show that it would be much more useful to consider that under the contract of insurance the insurer undertakes to compensate for the loss caused to the insured property by the perils insured against.

However, this opinion is not defining in England.

In the judgment in the recently heard case of the vessel Renos the Supreme Court of the UK qualified a contract of marine insurance and the insurer’s obligation under such a contract and did not ever try to cite section 1 of the Marine Insurance Act 1906. Instead, the Supreme Court once again formulated the English concept of a property insurance contract (in this case, a ship’s casco insurance contract) as follows:

“The first point to be made is that as a general rule, the loss under a hull and machinery policy occurs at the time of the casualty and not when the measure of indemnity is ascertained. A claim on an insurance policy is a claim for unliquidated damages. The obligation of the insurer is to hold the assured harmless against an insured loss, from which it follows that where the insurance is against physical damage to property the insurer is in breach of that obligation as soon as the damage occurs”¹⁹.

The Supreme Court of the UK referred to the judgment in the case Chandris v Argo Insurance Co Ltd [1963] 2 Lloyd’s Rep 65, 73-74 and to § 35 of the notorious House of Lords decision in case Firma C-Trade SA v Newcastle Protection and Indemnity Association (“The FANTI”) [1991] 2 AC 1.

In this regard, based on this concept of a contract of marine insurance, one should conclude that pursuant to English law the insurer undertakes the obligation in respect of which it is absolutely clear already at the conclusion the contract that, firstly, its execution is impossible, and secondly, that the insurer is even not going to fulfil this obligation in accordance with its content (and, consequently, does not make any preparations and does not bear any costs, even though it can and should bear the costs for preparation to fulfil its obligation under the contract of insurance).

It is clear that the conduct of the insurer is absolutely inconsistent with the principle of the utmost good faith, which is provided for by the provisions of section 17 of the Marine Insurance Act 1906.

Moreover, based on the English concept of an insurer’s obligation under a contract of marine insurance, the insurer is deemed to have breached this obligation not when it dismisses the insured’s claim for payment of measure of indemnity (as, for instance, it is provided for in Russian law), but already at the moment the loss occurs, i.e., when the peril insured against has caused damage to the insured property²⁰.

Consequently, at the same moment the insured’s rights are also deemed violated.

The English concept of a contract of marine insurance is of decisive importance for almost all other institutions of insurance law.

For instance, section 5 of the Limitation Act provides for that a claim based on a contract shall not be brought after the expiration of six years from the date on which the cause of action accrued. Moreover, it is stipulated that the running of the time limit for actions founded on the property insurance contract commences at the moment when the loss is caused by the perils insured against.

Pursuant to subsection 1 of section 35A of the Senior Courts Act 1981, the insured can recover interest from the insurer from the date when the cause of action arose, i.e., again, from the moment the loss occurred²¹.

Since the insurer’s obligation is deemed to be breached from the moment the loss occurred, the insurer is liable for the breach of its obligation and must recover losses incurred. However, an insured is not entitled to recover damages from the insurer for non-payment or delay in payment, for which the insurer is liable, since under case law rules there is no such thing as a cause of action in damages for late payment of damages²², and pursuant to section 67 and 68 of the Marine Insurance Act 1906, insurer’s liability is limited to the sum insured (under a valued policy) or of insurable value (under an unvalued policy). Bad faith insurer misuses these pointless limitations of the assured’s right to recover damages and sometimes such insurer does not pay measure of indemnity for years unpunished, even in cases when they admit that they are obliged to pay²³.

Moreover, in a recent judgment in vessel Renos case, the Supreme Court of the UK ruled that, for the purposes of determining whether a vessel is constructively lost: “the loss occurs at the time of the casualty … if a casualty occurs within the policy period, and the loss develops after its expiry into one which is constructively total, there is still a constructive total loss under the policy”²⁴. “From the fact that [all] the loss suffered at the time of the casualty… it follows that the damage referred to in section 60(2)(ii) of the Act is in principle the entire damage arising from the casualty from the moment that it happens...”²⁵. The phrase “cost of repairing the damage” in paragraph (ii) of subsection 2 of section 60 of the MIA 1906 for the purpose of determining whether the vessel was a constructively lost included all the reasonable costs of salving and safeguarding the vessel from the time of the casualty onwards, together with the prospective cost of repairing her. “The cost of repairing the damage” was in no way “adeemed” because part of it had already been incurred at the time when notice of abandonment was given and action was brought on the policy²⁶.

3.2. Lloyd’s marine insurance policy (the First Schedule to the MIA 1906)

Pursuant to section 30 of the MIA 1906 a policy may be in the form in the First Schedule to this Act. Subject to the provisions of the MIA 1906, and unless the context of the policy otherwise requires, the terms and expressions mentioned in the First Schedule to the MIA 1906 shall be construed as having the scope and meaning in that schedule assigned to them.

Pursuant to the comments of the author of the Marine Insurance Act, the policy text in the form that was attached to the Marine Insurance Act form was finally formed in 1779, but most of its provisions are much older. It is deemed that the letters “S.G.” mean ship and goods²⁷. However, there is another opinion that they mean “salutis gratia”, i.e., for safety.

In the English judgments Lloyd’s Policy, attached in the First Schedule to the MIA 1906, is characterised as “hardly intelligible form”, as “absurd and incoherent instrument” as a policy drawn “with so much laxity” and containing “cabalistic letters”²⁸.

The retention of the SG Policy as a schedule to the Marine Insurance Act was often justified by many years’ practice pf the application of the Policy by English courts. It was noted that in consideration whether it is worth abolishing or amending the time-honored form of policy, it should not be forgotten that its text and terms so often become the subject of litigation and judgments that the meaning the English courts attach to almost every word of the Policy is common knowledge²⁹.

However, despite the “long-term practice” of applying the Policy, English judges dismissed the payment of measure of indemnity precisely with reference to the fact that they were not aware of the legal meaning of its terms.

For instance, in the case Athens Maritime Enterprises Corp v Hellenic Mutual War Risks Assn (Bermuda) Ltd. [1983] QB 647, 661, when vessel Andreas Lemos anchored in the territorial waters of Bangladesh, group of ragamuffins armed with the combat knives came aboard. They were ready to rob, but they did not encounter resistance and took the property from the ship and left. The well-known English judge Staughton J. dismissed to admit that the vessel had been attacked by rovers.

Despite the fact that the Policy had been applied in England for more than 300 years, the Judge noted that he was not aware of the meaning of the term “rovers”:

“I am by no means clear what are rovers… Its only current and popular meaning is, I suppose, a species of motor car, such as a Ford or a Vauxhall”³⁰.

The insured’s claim for damages was dismissed.

In the current English insurance market documents such as MRS (Market Reform Slip), GPD (Global Placing Document), standard form MRC (Market Reform Contract) and others are increasingly applicated. To the day there were no doubts in the usability of such documents for drawing up a contract of insurance. However, after examination of some English courts judgments, it cannot be ruled out that one day some English judge will say that he is not aware of such documents, and they are not provided by the Marine Insurance Act 1906, section 30 of the Act provides that a policy may be in the form in the First Schedule to this Act, and MRS, GDR or MRC are not listed in the First Schedule.

4. The reform of 2015 and 2016

The unpredictability of legal regulation, as well as inadequacy and archaism of some provisions of the MIA 1906 (and, to a much greater extent, the practice of their application by English courts) led to the fact that by the beginning of the 2000s, exit the English marine insurance market has become urgent necessity for many insureds.

International business involved in maritime commerce of the 21st century could not afford to have their relations with an insurance company to be governed by the dusty 18th century precedents. Moreover, any English judge could allow insurer to break the requirements of good faith, reasonableness and fairness of business practice with complete impunity, ignoring modern technical and informational capabilities which are at the disposal of insurance companies, and allow them to dominate over legal relations on insurance completely.

An increasing number of insureds, especially those who manage a modern fleet, began to look for insurance coverage in the other insurance markets, especially in the Norwegian one, which offered (and still offers) much more modern regulation of marine insurance, which guarantees in the vast majority of cases not only fair balance of interests of insureds and insurers, but also their joint contribution to improving the safety of shipping.

In 2002, the committee of British Insurance Law Association concluded without great enthusiasm that it was necessary to reform the English insurance law³¹. Reform drafting was entrusted to members of the English and Scottish Law Reform Commissions³². Ones have prepared a number of reports and recommendations, as well as drafts of relevant legislative acts.

The English insurance legislation was reformed through the UK Parliament enactment of the following Acts:

(1) Consumer Insurance (Disclosure and Representations) Act of March 8, 2002³³,

(2) Insurance Act of February 12, 2015, and (3) Enterprise Act of May 4, 2016.

5. Insurance Act 2015

First of all, it should be noted that in the course of the reform of the insurance legislation, its authors flatly refused to revise the English concept of a contract of property insurance³⁴.

The archaic fiction is still used in English law, pursuant to which the insurer under the contract of marine (and non-marine) insurance undertakes the obligation not to indemnify against losses, but to hold harmless / protect the assured and his property from the harmful effects of the insured perils. This fiction applies regardless of the provisions of any law or contract that provides for a different legal regulation in this respect.

Consequently, the rule formulated by common law that the insured cannot recover damages for delay or non-payment of damages by the insurer is still applied in English law (i.e., in Russian terminology, if it were applicable, we would say – for non-payment or delay in payment of measure of indemnity). This rule is a general principle, but Articles 28, 29 and 30 of the Enterprise Act 2016 slightly amended this rule.

Apart from that, the Insurance Act 2015³⁵ abolished a number of provisions of the MIA 1906, including the second sentence of section 17, sections 18, 19, 20, the second sentence of subsection 3 of section 33 and section 34.

In general, without getting into specifics, the amendments incorporated into the MIA 1906 by the Insurance Act 2015 can be summarised as follows.

5.1. Utmost good faith

Section 17 of the MIA 1906 still provides that a contract of marine insurance is a contract based upon the utmost good faith. However, subsection 1 of section 14 of the Insurance Act 2015 now provides for that “any rule of law permitting a party to a contract of insurance to avoid the contract on the ground that the utmost good faith has not been observed by the other party is abolished”³⁶.

Paragraph (a) of subsection 3 of section 14 of the Insurance Act 2015 directly provides for in this respect that the following words are abolished and omitted:

“and, if the utmost good faith be not observed by either party, the contract may be avoided by the other party”.

5.2. The new duty of fair presentation of the risk

After the reform of 2015, subsection 2 of section 21 of the Insurance Act 2015 comprises the following provision:

“(2) In the Marine Insurance Act 1906, sections 18 (disclosure by assured), 19 (disclosure by agent effecting insurance) and 20 (representations pending negotiation of contract) are omitted”³⁷.

Moreover, subsection 3 of section 21 of the Insurance Act also abolished “any rule of law to the same effect as any of those [sections 18, 19 and 20 of the MIA 1906] provisions”.

Instead of the previously effective provisions of sections 18, 19 and 20 of the MIA 1906, Part 2 (sections 2 – 8) of the Insurance Act 2015 imposed on the insured the duty of fair presentation of the risk.

In this regard, it should be noted that instead of the abolished provisions of sections 18, 19, 20 of the MIA 1906, sections 2–8 of the Insurance Act 2015 provide for the following rules:

“PART 2 THE DUTY OF FAIR PRESENTATION

Section 2. Application and interpretation (1) This Part applies to non-consumer insurance contracts only.

(2) This Part applies in relation to variations of non-consumer insurance contracts as it applies to contracts, but –

(а) references to the risk are to be read as references to changes in the risk relevant to the proposed variation [of the contract], and

(b) references to the contract of insurance are to the variation.

Section 3. The duty of fair presentation (1) Before a contract of insurance is entered into, the insured must make to the insurer a fair presentation of the risk.

(2) The duty imposed by subsection (1) is referred to in this Act as “the duty of fair presentation”.

(3) A fair presentation of the risk is one – (a) which makes the disclosure [of the information] required by subsection (4),

(b) which makes that disclosure in a manner which would be reasonably clear and accessible to a prudent insurer, and

(c) in which every material representation as to a matter of fact is substantially correct, and every material representation as to a matter of expectation or belief is made in good faith.

(4) The disclosure [of the information] required is as follows, except as provided in subsection (5) –

(a) disclosure of every material circumstance which the insured knows or ought to know, or

(b) failing that, disclosure which gives the insurer sufficient information to put a prudent insurer on notice that it needs to make further enquiries for the purpose of revealing those material circumstances.

(5) In the absence of enquiry, subsection (4) does not require the insured to disclose a circumstance if –

(a) it diminishes the risk, (b) the insurer knows it, (c) the insurer ought to know it, (d) the insurer is presumed to know it, or (e) it is something as to which the insurer waives information.

(6) Sections 4 to 6 make further provision about the knowledge of the insured and of the insurer, and section 7 contains supplementary provision.

Section 4. Knowledge of insured (1) This section provides for what an insured knows or ought to know for the purposes of section 3(4)(a).

(2) An insured who is an individual knows only – (a) what is known to the individual, and (b) what is known to one or more of the individuals who are responsible for the insured’s insurance.

(3) An insured who is not an individual knows only what is known to one or more of the individuals who are –

(a) part of the insured’s senior management, or (b) responsible for the insured’s insurance. (4) An insured is not by virtue of subsection (2)

(b) or (3)(b) taken to know confidential information known to an individual if –

(a) the individual is, or is an employee of, the insured’s agent; and

(b) the information was acquired by the insured’s agent (or by an employee of that agent) through a business relationship with a person who is not connected with the contract of insurance.

(5) For the purposes of subsection (4) the persons connected with a contract of insurance are –

(a) the insured and any other persons for whom cover is provided by the contract, and

(b) if the contract re-insures risks covered by another contract, the persons who are (by virtue of this subsection) connected with that other contract.

(6) Whether an individual or not, an insured ought to know what should reasonably have been revealed by a reasonable search of information available to the insured (whether the search is conducted by making enquiries or by any other means).

(7) In subsection (6) “information” includes information held within the insured’s organisation or by any other person (such as the insured’s agent or a person for whom cover is provided by the contract of insurance).

(8) For the purposes of this section – (a) “employee”, in relation to the insured’s agent, includes any individual working for the agent, whatever the capacity in which the individual acts,

(b) an individual is responsible for the insured’s insurance if the individual participates on behalf of the insured in the process of procuring the insured’s insurance (whether the individual does so as the insured’s employee or agent, as an employee of the insured’s agent or in any other capacity), and

(c) “senior management” means those individuals who play significant roles in the making of decisions about how the insured’s activities are to be managed or organised.

Section 5. Knowledge of insurer

(1) For the purposes of section 3(5)(b), an insurer knows something only if it is known to one or more of the individuals who participate on behalf of the insurer in the decision whether to take the risk, and if so on what terms (whether the individual does so as the insurer’s employee or agent, as an employee of the insurer’s agent or in any other capacity).

(2) For the purposes of section 3(5)(c), an insurer ought to know something only if –

(a) an employee or agent of the insurer knows it, and ought reasonably to have passed on the relevant information to an individual mentioned in subsection (1), or

(b) the relevant information is held by the insurer and is readily available to an individual mentioned in subsection (1).

(3) For the purposes of section 3(5)(d), an insurer is presumed to know –

(a) things which are common knowledge, and

(b) things which an insurer offering insurance of the class in question to insureds in the field of activity in question would reasonably be expected to know in the ordinary course of business.

Section 6. Knowledge: general

(1) For the purposes of sections 3 to 5, references to an individual’s knowledge include not only actual knowledge, but also matters which the individual suspected, and of which the individual would have had knowledge but for deliberately refraining from confirming them or enquiring about them.

(2) Nothing in this Part affects the operation of any rule of law according to which knowledge of a fraud perpetrated by an individual (“F”) either on the insured or on the insurer is not to be attributed to the insured or to the insurer (respectively), where –

(a) if the fraud is on the insured, F is any of the individuals mentioned in section 4(2)(b) or (3), or

(b) if the fraud is on the insurer, F is any of the individuals mentioned in section 5(1).

Section 7. Supplementary (1) A fair presentation need not be contained in only one document or oral presentation.

(2) The term “circumstance” includes any communication made to, or information received by, the insured.

(3) A circumstance or representation is material if it would influence the judgement of a prudent insurer in determining whether to take the risk and, if so, on what terms.

(4) Examples of things which may be material circumstances are –

(a) special or unusual facts relating to the risk, (b) any particular concerns which led the insured to seek insurance cover for the risk,

(c) anything which those concerned with the class of insurance and field of activity in question would generally understand as being something that should be dealt with in a fair presentation of risks of the type in question.

(5) A material representation is substantially correct if a prudent insurer would not consider the difference between what is represented and what is actually correct to be material.

(6) A representation may be withdrawn or corrected before the contract of insurance is entered into.

Section 8. Remedies for breach

(1) The insurer has a remedy against the insured for a breach of the duty of fair presentation only if the insurer shows that, but for the breach, the insurer –

(a) would not have entered into the contract of insurance at all, or

(b) would have done so only on different terms. (2) The remedies are set out in Schedule 1 [the latter is not provided here. – V. K.].

(3) A breach for which the insurer has a remedy against the insured is referred to in this Act as a “qualifying breach”.

(4) A qualifying breach is either – (a) deliberate or reckless, or (b) neither deliberate nor reckless. (5) A qualifying breach is deliberate or reckless if the insured –

(a) knew that it was in breach of the duty of fair presentation, or

(b) did not care whether or not it was in breach of that duty.

(6) It is for the insurer to show that a qualifying breach was deliberate or reckless”.

5.3. Warranties

Paragraphs (a) and (b) of subsection 7 of section 10 of the Insurance Act 2015 provide for that the second sentence of subsection 3 of section 33 (nature of warranty) and the whole section 34 (when breach of warranty excused) of the MIA 1906 are omitted³⁸.

Moreover, section 10 of the Insurance Act 2015 also comprises with the following rules:

“Section 10. Breach of warranty

(1) Any rule of law that breach of a warranty (express or implied) in a contract of insurance results in the discharge of the insurer’s liability under the contract is abolished.

(2) An insurer has no liability under a contract of insurance in respect of any loss occurring, or attributable to something happening, after a warranty (express or implied) in the contract has been breached but before the breach has been remedied.

(3) But subsection (2) does not apply if – (a) because of a change of circumstances, the warranty ceases to be applicable to the circumstances of the contract,

(b) compliance with the warranty is rendered unlawful by any subsequent law, or

(c) the insurer waives the breach of warranty. (4) Subsection (2) does not affect the liability of the insurer in respect of losses occurring, or attributable to something happening –

(a) before the breach of warranty, or (b) if the breach can be remedied, after it has been remedied.

(5) For the purposes of this section, a breach of warranty is to be taken as remedied –

(a) in a case falling within subsection (6), if the risk to which the warranty relates later becomes essentially the same as that originally contemplated by the parties,

(b) in any other case, if the insured ceases to be in breach of the warranty.

(6) A case falls within this subsection if –

(a) the warranty in question requires that by an ascertainable time something is to be done (or not done), or a condition is to be fulfilled, or something is (or is not) to be the case, and

(b) that requirement is not complied with”.

5.4. Basis of contract clauses and conditions precedent to insurer’s liability

Sections 9 and 11 of the Insurance Act 2015 finally prohibit the bad faith practice of the insurers that declare any or separate statements made by the insured during the conclusion or amendment of the contract the so-called “basis of contract”.

The problems that may arise from such reservations, as a rule, relate to absolutely minor issues that may have no bearing on the risk.

For instance, let us assume that in the course of negotiation on the conclusion of a casco insurance contract, the insurer persuades the shipowner to make a statement that the ship does not have any unrepaired damage at the date of the contract, and the insurer declares such a statement of the insured as the “basis of the contract”. Later it turns out that before the conclusion of the contract of insurance one of the heating elements of the galley device on the vessel was damaged due to the fault of the cook, and it did not work, which the crew reported to the superintendent, and the superintendent to the shipowner’s manager. After the conclusion of the contract, the superintendent ensured in a convenient port the replacement of the faulty element, and the vessel incurs multi-million damage a month after the replacement as a result of a collision with another vessel that is solely liable for the collision.

The shipowner who did not pay attention to the fact that his statement was declared by the insurer as the “basis of the contract” and attached little importance to the damaged heating element in the galley, meets a dismissal of his claim for payment of measure of indemnity in respect of losses arising from a collision of vessels with reference to the fact that the insurer does not bear any risk under the contract at all from the moment of its conclusion, because the surveyor’s report confirms the malfunction of the heating element in the galley, and the shipowner made a statement at the conclusion of the contract of insurance (regarding the absence of unrepaired damage on the date of the contract), which was declared by the insurer as the “basis of the contract”. It goes without saying that in this case the English court will dismiss to recover the losses of the insured after several years of litigation.

The same consequences for the insured’s claim for recovery of collision damage will take place if his statement made in the course of negotiation over the conclusion of a contract of insurance is declared condition precedent to insurer’s liability.

Sections 9 and 11 of the Insurance Act 2015 comprise for those and similar cases provisions that prohibit the conversion of insured’s statements made in connection with the conclusion or amendment of a contract of insurance into a warranty:

“Section 9. Warranties and representations (1) This section applies to representations made by the insured in connection with –

(a) a proposed non-consumer insurance contract, or

(b) a proposed variation to a non-consumer insurance contract.

(2) Such a representation is not capable of being converted into a warranty by means of any provision of the non-consumer insurance contract (or of the terms of the variation), or of any other contract (and whether by declaring the representation to form the basis of the contract or otherwise)”.

“Section 11. Terms not relevant to the actual loss

(1) This section applies to a term (express or implied) of a contract of insurance, other than a term defining the risk as a whole, if compliance with it would tend to reduce the risk of one or more of the following –

(a) loss of a particular kind, (b) loss at a particular location, (c) loss at a particular time. (2) If a loss occurs, and the term has not been complied with, the insurer may not rely on the non-compliance to exclude, limit or discharge its liability under the contract for the loss if the insured satisfies subsection (3).

(3) The insured satisfies this subsection if it shows that the non-compliance with the term could not have increased the risk of the loss which actually occurred in the circumstances in which it occurred.

(4) This section may apply in addition to section 10”.

The Insurance Act 2015 also comprises provisions on the consequences of filing fraudulent claims by the insured, but these provisions are not discussed in this article.

6. Enterprise Act 2016

6.1. Insured’s right to recover damages from the insurer

Sections 28, 29 and 30 of the Enterprise Act provide that now the insured is entitled to recover damages from the insurer for unreasonable refusal or delay in regard to payment of the losses caused by the perils insured against.

These rules mitigate the adverse consequences for the insured of the concept of a property insurance contract in English law, pursuant to which the insurer undertakes not to compensate the insured’s losses, but to hold harmless / protect the insured from losses and is liable for non-fulfilment of its obligation from the moment after loss. Of course, these are still not punitive damages, which are recovered from bad faith insurers in Canada and the United States, and which, as a punishment for a particularly cynical and bad faith conduct of the insurer during the handling the insured’s claim, can be hundreds of times higher than the actual losses incurred by the insured³⁹. Nonetheless, these provisions of the Enterprise Act 2016 are a big step forward compared to the quite recent situation when there were completely no provisions in English law that entitled the insured to recover damages.

As noted above, pursuant to the general rule of English law, the insurer is liable for losses incurred by the insured and caused by the perils insured against.

The extent of the insurer’s liability is subject to Sections 67 and 68 of the MIA 1906, which limit the insurer’s liability to the limit of the sum insured (under a valued policy) and the insurable value (under an unvalued policy). English law did not earlier allow for the recovery of damages for refusal or delay in regard to payment of the losses under a contract of insurance.

Now under section 28 of the Enterprise act 2016 (subsection 1 of section 13A of the Insurance Act 2015), each contract of insurance concluded under English law has an implied term that if the insured makes a claim under the contract, the insurer must pay any sums due in respect of the claim within a reasonable time.

Pursuant to subsection 3 of section 13A of the Insurance Act, what is reasonable will depend on all the relevant circumstances.

Paragraphs (a)–(d) of subsection 3 of section 13A provide for the following as the examples of things which may need to be taken into account:

(а) the type of insurance; (b) the size and complexity of the claim, (с) compliance with any relevant statutory or regulatory rules or guidance,

(d) factors outside the insurer’s control.

Pursuant to subsection 4 of section 13A, if the insurer shows that there were reasonable grounds for disputing the claim (whether as to the amount of any sum payable, or as to whether anything at all is payable), then (under paragraph (a)) the insurer does not breach the term implied by subsection (1) merely by failing to pay the claim (or the affected part of it) while the dispute is continuing, but (under paragraph (b)) the conduct of the insurer in handling the claim may be a relevant factor in deciding whether that term was breached and, if so, when.

Subsection 5 of section 13A provides for that remedies available for breach of an implied term in regard to payment within a reasonable time include, among others, damages.

It is directly provided for by paragraphs (a) and (b) of subsection 5 of section 13A in this respect that these remedies are in addition to and distinct from (a) any right to enforce payment of the sums due, and (b) any right to interest on those sums (whether under the contract, under another enactment, at the court’s discretion or otherwise).

Therefore, the insured’s claim for recovery of damages for the insurer’s breach of an implied term in regard to payment within a reasonable time is not subject to the limitations provided for by sections 67, 68 and other sections of the MIA 1906, under which the sums which the assured can recover in respect of a loss are limited to the sum insured or the insurable value of the property insured.

Section 30 of the Enterprise Act 2016 (subsection 1 of section 5A of the Limitation Act 1980) provides for a one-year time limit for an action in respect of breach of the implied term in regard to payment within a reasonable time which begins its running from the date on which the insurer has paid all the sums claimed by the insured under the contract.

The general time limit for other actions of the insured founded on the contract of insurance is provided for by section 5 of the Limitation Act 1980 and amounts to 6 years from the date on which the cause of action accrued.

Pursuant to the abovementioned “hold harmless” rule, right of action (cause of action) accrues to the insured on the date when the perils insured against caused damage to the property insured.

7. Results of the reform

Only the practical application of the new Acts will be able to answer the question of whether the English legislator has managed to get closer to creating a balance of interests of insurers and insureds to any extent.

In their content, the new provisions leave the impression that behind their verbosity and the declared intention to offer insureds “more favourable” conditions compared to the almost total disenfranchisement that they incur due to the application of the MIA 1906, there is a persistent desire to leave everything as before, and perhaps even aggravate the position of insureds (preventing their exit from the English insurance market).

For instance, in contrast to the provisions of the now abolished paragraph (d) of subsection 3 of section 18 of the MIA 1906, which exempted the assured from the obligation to disclose to the insurer any circumstance which is superfluous to disclose by reason of any express or implied warranty, subsection 5 of section 3 of the Insurance Act 2015 does not provide for a similar exemption for the insurer from the obligation to disclose such circumstances.

Now, in addition to the obviously superfluous information that the insured and the insurance broker must disclose to the insurer under sections 3 and 4, subsection 4 of section 22 of the Insurance Act 2015, the insurer must also disclose information that refers to any express or implied warranty, if, for example, such information must be disclosed pursuant to sections 3, 4, 6 and 7 of the Insurance Act 2015.

8. Non-imperative character of the new insurance legislation

Almost all the new provisions inserted into the English insurance legislation by the Insurance Act 2015 and the Enterprise Act 2016 are non-imperative, and (subject to the transparency requirements under section 17 of the Insurance Act 2015) the insurer is entitled to contract out these terms from its contract of adhesion, which it concludes with the insured (see sections 16, 17 and 18 of the Insurance Act 2015).

It is obvious that the exception to this rule is the abolished by subsection 3 of section 14 of the Insurance Act 2015 right of the insurer to avoid the contract of insurance ab initio in any case and at any time if it is suspected that the insured has not observed the utmost good faith, as it was provided for by section 17 of the MIA 1906 before the reform.

The Insurance Act 2015 does not provide that the insurer is entitled to restore its right to avoid the contract in the form that was stipulated in the abolished part of section 17 of the MIA 1906, even though the Insurance Act 2015 itself provides for sufficient opportunities for the insurer to avoid the contract of insurance unilaterally, for example, if the insured breaches its duty to make a fair presentation of the risk regardless of the degree of its fault or if the insured is absolutely not at fault (see section 16 of the Insurance Act 2015).

English insurers have already prepared sets of model clauses that contract out the application of all or any of the provisions of the new insurance legislation provided by the Insurance Act 2015 and the Enterprise Act 2016⁴⁰.

Moreover, the application of the new provisions of the Insurance Act 2015 and the Enterprise Act 2016 may also be contracted out or limited under a clause prepared for a specific contract of insurance.

9. Translation of the Marine Insurance Act 1906 into Russian language

The translation of the MIA 1906 attached to this article is the most complete edition of such a translation with all amendments to the said Act as of July 13, 2021.

Due to the fact that most insurers, whose rules are known to the author, either completely or in large part contract out the application of the Insurance Act 2015 and the Enterprise Act 2016, the provisions of the MIA 1906, which were abolished during the recent reform of English legislation, are still applied to relations arising from contracts of insurance entered into by such insurers.

For this reason, in the translation of the MIA 1906 attached to this article, the author has retained all the provisions abolished by the Insurance Act 2015, highlighting them in the text of the translation in a dark colour. It has been done for the convenience of reference to the translation of the MIA 1906 in those cases when the application of the provisions of the Insurance Act 2015 is contracted out completely or in the relevant part under the contract of insurance.

The translation proposed to readers is, of course, not the first translation of the MIA 1906 into Russian. The following translations of the MIA 1906 known to the author and published earlier can be listed:

1. English Act 1906 on Marine Insurance / Transl. from English by H.Ya. Gorkina, Ph.D. of the Petrograd Polytechnic Institute. Petrograd: Printing House of A. Benke, 1916 [Angliyskiy zakon 1906 goda o morskom strahovanii. Perevod s angliyskogo H.Ya. Gorkinoy, kandidata ekonomicheskyh nauk Petrogradskogo Polytehnicheskogo instituta. Petrograd: Tipografiya A. Benke, 1916].

2. Translation published in the book: Lindenbraten Z.Ya., Dolgov S.N. Marine Insurance. Part 2 (English Act 1906, clauses, French provisions, Hague rules). Moscow. 1924. P. 5–38 [Lindenbraten Z.Ya., Dolgov S.N. Morskoiye strahovaniye. Ch. 2 (Angliyskiy zakon 1906 goda, clauses, francuzskiye usloviya, Gaagskiye pravila). Moskva, 1924. Str. 5–38].

3. Translation published in the book: Vinogradov P.P. Marine Insurance. Moscow, 1934. P. 152–175 [Vinogradov P.P. Morskoiye strahovaniye. Moskva, 1934. Str. 152–175].

4. Translation by Musin V.A. published in the book: Materials on Maritime Law of the Foreign Countries. Issue VI. Moscow, 1980. P. 47–78 [Materialy po morskomu pravu zarubezhnih stran. Vypusk VI. Moskva, 1980. Str. 47–78].

5. Translation published in the book: Marine Insurance Act 1906. Odessa, 2001. P. 4–63 [Marine Insurance Act 1906. Zakon o morskom strahovanii 1906 g. Odessa, 2001. Str. 4–63].

These publications were taken into account by the author in the preparation of the translation attached to this article. ■