Appraising the Concept of Loss and Right of Indemnity in Nigerian Marine Insurance Law
Insurance contract (Marine inclusive) is a contract fundamentally founded on the principle of indemnity. That is to say that the assured fundamentally engaged in the contract with the insurer on the indisputable ground that in case and whenever the subject matter of insurance is lost or damaged as the case may be, he the insured is undeniably entitled to be indemnified by the insurer to the measure only of the loss or damage incurred by the assured. This is to be determined by the terms of their agreement as stipulated in the contract policy and other enabling laws regulating such a contract. The human society (business world) is very rationally responsive, yet very conservative in the use, employment and investment of its scarce resources. It is always the desire of every businessman not to compromise potential maximum returns from every worthwhile investment undertaken. To this extent, investments likely not to generate maximum returns or likely to result in litigations are strictly avoided, and that is the bane of insurance businesses in Nigeria. Over the years, it has been observed that the Nigerian business community has continued to shy away from patronizing insurance businesses in spite of its acclaimed juicy benefits. In-depth study into these observations reveals that certain provisions of the Nigerian Insurance Act are major constraints militating against realization of indemnity¬ – the basic principle upon which every insurance contract is founded. Following the constraints to indemnity presented by these sections of the Acts, insurance contract is generally perceived by many as a fraudulent conduit pipe through which the insured can easily be swindled of his hard earned resources without any fair considerations with regards to indemnifying him.
The urge to strengthen these laws regulating marine insurance contracts in Nigeria is therefore the focal point necessitating research in this area of law. The research adopts a doctrinal approach and utilizes descriptive and analytical methods to achieve its objectives. The primary sources of data employed in this study are statutes and case law. The secondary sources of data are textbooks, journal articles, internet materials and some relevant newspapers. The data were analysed through deductive reasoning. The study finds a general apathy and low patronage to insurance contracts by the Nigerian business community, level of education notwithstanding. This was attributed to insurers’ high level of unfaithfulness in disclaiming liabilities and its consequential denial of the insured’s right of indemnity which in most cases renders the insured poorer and most frustrated. Based on these findings, the study concludes with broad recommendations for thorough and in-depth reforms of the Nigerian Marine Insurance Act to reflect the 21st century legal and business realities in order to exploit full potentials inherent in marine insurance business in Nigeria.
1.1 Background to the study
Over the years, the uncertainty regarding the safety of goods transported through the seas has resulted in the insurance of those goods between the insured and the insurer with the sole aim of recovering from the insurer any loss or damage as the case may be of such goods, provided the terms and conditions of the insurance contract are fully complied with by the contracting parties.
Insurance contract is a contract of indemnity, an arrangement that normally relieves the insured of the intractable safety risk of his goods and transfers same to the risk bearer – the insurer. By this agreement, the assured undertakes to fulfill all stipulated conditions including but not limited to payment of agreed premium governing the contract, while the insurer undertakes a corresponding duty to faithfully and diligently indemnify the insured whenever the situation arises.
As a risk management tool, the basic role of insurance in the economic and social structure of the society is the provision of relief from the financial consequences of elements of uncertainty. Its principles have over the years been perfected and utilized for the purpose of protecting individuals and corporate bodies against financial losses arising from death or injury in the case of life or accident insurance, and or loss or damage in the case of property insurance.
However, section 56 of Nigerian Marine Insurance Act which provides for proximate cause of loss among other things works untold hardship on the part especially of the assured against being indemnified for his lost or damaged goods. The hardships created by this section have resulted in frustration and loss of livelihood of many people in shipping businesses.
One form of insurance contract and which is the focal point of this study is marine insurance contract.
Marine insurance is considered one of the oldest of the many forms of commercial protections and has flourished through the establishment of the institution of the “coffee- houses” wherein ‘underwriting’ was being conducted and from where the evolution and dominance of the Lloyd’s has stemmed as the world’s most famous insurance market3. It is a contract whereby the insurer undertakes to indemnify the assured in the manner and to the extent thereby agreed against marine losses, that is to say, the losses incident to marine adventure4, and marine adventure occurs when any ship, goods or other movables are exposed to maritime perils of which peril of the seas is obviously named as one of the perils5. The Marine Insurance Act defined maritime perils to mean, ‘perils consequent on or incidental to navigation of the sea, that is to say, perils of the seas, fire, war perils, pirates, rovers, thieves, capture, seizures, restraints, and detainments of princes and peoples, jettison, barratry and any other perils either of the like kind or which may be designated by the policy’.
The principle of indemnity in marine insurance contract and other insurance contracts was clearly and distinctly stated by Cotton, LG in Castellan v Preston where he said, the very foundation, in my opinion of every rule which has been applied to insurance law is this, namely that the contract of insurance contained in a marine or fire (and that equally applied to accident policies) is a contract of indemnity and of indemnity only, and that this contract means that the assured, in a case of loss against which the policy has been made, shall be fully indemnified, but shall never be more than fully indemnified. This is the fundamental principle of insurance and if ever a proposition is brought forward which is at variance with it, that is to say, which either will prevent the assured from obtaining a full indemnity or which will give the assured more than a full indemnity, that proposition must certainly be wrong.
The uncertain nature of contract of insurance regarding the happening of the event and its time of happening was exemplified by Channel, J in Prudential Insurance Co v Inland Revenue Commissioner8, where he emphasized thus: …the next thing that is necessary is that the event should be one which involves some amount of uncertainty. There must be some uncertainty whether the event will happen or not, or if the event is one which must happen at some time or another, there must be uncertainty as to the time at which it will happen.
The principle of indemnity, (being the reserved hope and the predominant factor attracting the assured into insurance contract) simply provides that where there is a loss or damage (total- actual or constructive, partial) of the insured subject matter, the insurer is duty-bound to indemnify the assured to exactly the value or extent of the loss or damage, no more, no less. However, for the assured to be entitled to such indemnity, he must have insurable interest in the subject matter at the time of the loss or damage9, must have maintained regular payment of the premium10, and was not in breach of other fundamental terms and conditions of the contract, which otherwise are capable of vitiating the entire contract and denying him rights to be indemnified.
To most Nigerian consumers as well as prospective consumers of insurance services, payment of the premium (no matter the amount) and fulfillment of these other conditions do not pose serious problems. But will the insurer, in genuinely established cases of loss or damage, accept liability and faithfully and promptly indemnify him as and when the circumstances arise? Or would he (the insurer) as a matter of habitual practice, involve him in series of protracted and sometimes endless litigations aimed at achieving denial of his claims? Here indeed lies the crux of the matter and the aversion to insurance contracts so profoundly expressed by most Nigerians including our learned experts.
1.2 Statement of the Problem
Most Nigerians are averse to insurance transactions despite the supposedly huge benefits available to policy holders. The fear that the insurer would involve him in series of litigations when situations for indemnification arise keeps him away from insurance businesses.
Marine Insurance Act11 operational in Nigeria over the decades is one of those numerous foreign legislation wholly imported from England and some other Western countries into Nigerian legal system and wholly applied without adequate consideration of our own socio-cultural, political, economic and legal backgrounds. The result of this lacuna has been that the Nigerian society especially the ‘return-on-investment’ business community is yet to appreciate the intrinsic jargons and basic concepts of insurance contract generally and marine insurance specifically.
The Nigerian Marine Insurance Act did not define some basic terms and clauses (for example, ‘proximate cause of loss’ of the ‘peril insured against’) to guide the courts in determining cause of loss and assured right to indemnity. A learned author observes thus:
The legal history of causation has been regarded as one of the most troublesome areas of the English law since the time of Aristotle and the famous category of material, formal, efficient and final causes, one involving the subtlest of distinctions. The subtlety still exists and will continue to exist as causation being in the realm of nature and like other subjects of nature does not adequately commend itself for absolute human understanding.
Ample evidences from existing literatures and landmark judgments by jurists and renowned scholars in this field have at different times and on different occasions expressed deep concern on the hardship and injustices suffered by the assured on the basis of this clause. This has perpetuated indelible and intractable insecurity in the minds and lives of the assured with regards to the goods he has already insured. The solution to these problems (the purpose of this work) is reforming the Act to shift insurer’s liability from proximate cause of loss of the peril insured against to loss by maritime peril whether or not insured against, and to attributable wrong(s) of the assured or his authorized agent(s). This is pragmatic and tenable with the 21st century legal and business realities aimed to advance marine insurance business in Nigeria.
1.3 Research Questions
The study addresses the following questions, to wit:
1. When does loss occur in marine insurance contract?
2. To what extent does the occurrence of loss determine right of indemnity?
3. How has ‘proximate cause of loss’ advanced the fundamental principle and objective of insurance contract with respect to indemnity in marine insurance law?
4. What reforms are necessary in law to advance marine insurance business in Nigeria bearing in mind legal and business environments in the 21st century?
1.4 Aim and Objectives of the Study
The aim of this Study is to appraise the Concept of Loss and Right of Indemnity in Marine Insurance Law through the following objectives:
1. critically appraise the concept of loss vis-à-vis the assured inherent right of indemnity in marine insurance contract;
2. take an in-depth look at the various laws regulating insurance contracts in Nigeria with bias on marine insurance contract;
3. appraise the various provisions of the marine insurance Act 2004 emphasizing ‘cause of loss’ of ‘peril insured against’ and right of indemnity;
4. suggest reforms in law in line with the 21st century legal and business realities with a view to advancing marine insurance business in Nigeria.
1.5 Significance of the Study
Marine insurance was originally conceived by shipping merchants with the principal aim of offering financial assistance to any of their members who suffered loss of or damage to his goods in the course of a voyage, the essence being to restore the victim to his erstwhile financial status before the misfortune.
Nigerian Marine Insurance Act 2004 and other subsidiary legislation on marine insurance were promulgated as legal instruments to guide and strengthen the modus operandi of marine insurance transactions amongst contracting parties.
Over the years, it has however been observed that some provisions of these Acts are engines of endless legal battles and controversies amongst parties. The doctrine of ‘proximate cause of loss of the peril insured against’ is for example, ‘one of the underlying principles of insurance, but its meaning and application has continued to befuddle the practitioners in the insurance industry as it cannot be deciphered with precision. The Marine Insurance Act incidentally did not define the words, ‘proximate cause’ as used in section 56. The meaning is therefore left to the courts to determine, and this has in many cases resulted to conflicting decisions with endless arguments’. It has generated so much legal controversies that the House of Lords in Leyland’s case14 described it as a ‘metaphysical topic’, creating more problems than it was legislated to solve. Prominent amongst these problems is the insurers’ relentless disclaim of liability. This has brought lasting disillusionment in the minds of the insuring public, leaving the marine insurance and shipping industries in continuous unsuccessful struggles to survive.
The existing literatures consulted both judicial and academic though noting these problems, did not provide any solution which lends justification to this research. The solutions as we observe are ingrained in the basis. That is, amending the law, the legal instruments upon which these transactions are based, to jettison the ‘proximate cause of loss’ clause, and focus liability of the insurer on ‘any loss by maritime peril’ whether or not the peril insured against, but exempting attributable wrong(s) of the insured or his authorized agent(s). With this, the Courts will be relieved of the unending struggles to find the exact meaning of proximate cause, and litigations over claims on this ground will be reduced to barest minimum. This will guarantee the insuring public peace of mind and financial security as well as full exploitation of the lofty potentials in insurance sector. The revenue base of the sector, its contributions to the Government coffers as well as its employment capacity will be increased. The Nigerian Legislature and indeed Nigeria would have been recognized in the Comity of Nations to have contributed to making the 21st century Marine Insurance Act.
1.6 Research Methodology
The study adopted doctrinal, descriptive and analytical designs by which relevant Nigerian Statutes (some of which are indeed whole reproduction of English laws), case law and applicable international legal standards are described and analyzed to show the position of the law on the subject matter. The data for the study were gathered from both primary and secondary sources. The primary sources are relevant statutes essentially the Marine Insurance Act and case law, both local and foreign while secondary sources of data for the study include opinions of experts as expressed in textbooks, journal articles, internet materials and some relevant newspapers. The data for the study were analyzed through deductive reasoning based on statutory provisions and judicial decisions.
1.7 Scope and Limitations of the Study
The study focuses on appraising the concept of loss of insured goods and right of indemnity of the assured in marine insurance contract relying heavily on the provisions of Nigeria’s Marine Insurance Act 2004, which however is a reproduction of the English Marine Insurance Act 1906. To this end, references were made to both local and foreign text books, case law and other relevant primary and secondary source materials.
1.8 Literature Review
There is avalanche of literature on the subject ‘insurance’, both marine and non-marine and legal and business perspectives. This essay being a legal research concentrated its literature review on the available legal literature on the subject. Most of the literatures on insurance law are foreign authored. There are, however few local texts on the subject.
Though there is avalanche literature on insurance law, none appraised the concept of loss and indemnity as it affects or concerns the assured in Nigerian insurance market.
Arnould on ‘Law of Marine Insurance and Average’ a leading and one of the most authoritative texts on marine insurance law, limited its discussion on the concept of loss and right to indemnity to marine insurance policies contracted in the English insurance market.
Barris Soyer in his book, ‘Warranties in Marine Insurance’ as the title portrays, concentrated on an examination of warranty provisions in marine insurance contracts. The author did not discuss the concept of loss and right to indemnity, let alone an examination of the concept of loss and right to indemnity as it may affect an assured in Nigeria insurance market.
Thomson Schoenbaum in chapter 19 of his book ‘Admiralty and Maritime Law: Practitioner Treaties Series’17 discussed marine insurance law generally. The text, though a leading authority in admiralty law in North America, the broad nature of the text denied it the in-depth specificity authority on the concept of loss and right to indemnity.
John Dunt’s work on ‘Marine Cargo Insurance’18 was not intended to be a comprehensive work on marine insurance law. The work did not examine the concept of loss and right to indemnity let alone the concept as it applies to Marine Insurance Market in Nigeria.
Similarly, Jason Chauh’s work on ‘Law of International Trade-Cross Border Commercial Transaction’19 is not a comprehensive work on marine insurance and did not treat the concept of loss and right to indemnity.
‘The Modern Law of Marine Insurance’ dwelt on appraising the achievement or otherwise of the English Marine Insurance Act, 1906 since inception. The book was never intended to be a comprehensive text on marine insurance law and therefore did not examine the concept of loss and indemnity in marine insurance law. Olusegun’s work ‘Insurance Law in Nigeria’21 is an introduction to insurance law generally. The work did not treat the concept of loss and right to indemnity. Similarly, Herbert Umezuruike’s work ‘Essays on the Insurance Decree 1990’22 examined the effects of the Decree on the Common Law Principles governing Insurance contracts. The work did not appraise the concept of loss and right to indemnity.
Generally, Insurance of any kind and of anything is a hedge against natural or man-made calamity. It’s your financial security. It’s your peace of mind. Insurance is a risk-transfer mechanism that ensures full or partial financial compensation for the loss or damage caused by event(s) beyond the control of the insured party. Under an insurance contract, a party (the insurer) indemnifies the other party (the insured) against a specified amount of loss occurring from specified eventualities within a specified period, provided a fee called premium is paid24. It is a means of protection from financial loss; a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss.
However, in order for the assured to establish a right of indemnity, that is, right of recovery for a loss suffered, it is a fundamental principle underlying insurance contracts that the loss must be shown to have been proximately caused by the peril insured against26. This principle is explained in the well known latin maxim,’causa proxima non remota spectator,’ that is, the proximate and not the remote cause must be looked to as the cause of loss of the insured property. Hodges27 observes that s 55(1) of Marine Insurance Act 1906 encapsulates the ‘general rule of causation to be applied for the purpose of resolving disputes regarding the cause of loss.’ It states:
subject to the provisions of this Act, and, unless the policy otherwise provides, the insurer is liable for any loss proximately caused by the peril insured against, but subject as aforesaid, he is not liable for any loss which is not proximately caused by the peril insured against.
The above provision declares the general rule of ‘causa proxima’…and the principle that the liability of the insurer hinges upon the loss or damage being ‘proximately caused’ by the ‘peril insured against’, and unless and until this rule is complied with, the insurer bears no liability. Section 56(1) of the our marine insurance Act is a verbatim reproduction and domestication in Nigeria of s 55(1) of the English Marine Insurance Act cited above, ninety-eight (98) years after its enactment in England, yet without any consideration of the socio-cultural, political and economic backgrounds of the Nigerian people. An average Nigerian who may aspire to engage in insurance transactions is business-minded in nature and as such is very wise and conservative in the use of his/her limited time and other resources.
‘Time is money’ is not only a popular slogan amongst Nigerians, but it’s so ingrained in our lives that investing such assets (the ‘time’ and the ‘money’ we believe it is) in businesses that are litigation-prone is an anathema that must be avoided at all cost and by all possible means. One such business that has been identified as being highly litigation-prone, and so avoided by many Nigerians including the elites, despite its potential benefits is the insurance business. The disillusionment by many to insurance contracts undoubtedly stem from the puzzling interpretations of some technical jargons comprising the laws regulating insurance contracts. Some of these interpretations, as conflicting as they may be in some cases, end up defeating the interest of the assured, thereby usurping him of his financial security and peace of mind, while at the same time afflicting him with huge financial losses, waste of precious time and abundance of untold miseries. He may even become poorer in all his efforts to assert his right of indemnity. These are some of the founded fears of the assured and Nigerians are not alone in this regard.
Hereunder are few cases to illustrate the current position of the law on ‘loss’ in marine insurance contract and the effect of ‘cause of loss’ and ‘peril insured against’ vis-à-vis the right of indemnity of the assured. Some English decisions which our courts follow as landmark cases provide different interpretations of what the ‘proximate cause’ of loss is and the immutable principles to be applied in determining it.
In Ion-ides v Universal Marine Insurance Co, a shipment of 6,500 bags of coffee from Rio de Janeiro to New York was insured and warranted, ‘free from all consequences of hostilities’. During the American civil war, the light of Cap Matters was extinguished by troops for military purposes, as a result of which the ship missed and went ashore on a reef and eventually broke up. About 120 bags of the coffee were saved by sailors and appropriated by military troops while about 1000 bags were totally lost. In an action to recover for the loss, court held that the proximate cause of the loss of 120 bags confiscated and the 1000 bags which were lost was as a consequence of hostilities and that the underwriters were not liable as they were exempted by the warranty. But as regards the remaining 5,380 bags, it was held that the loss was due to the perils of the seas and the insurers were held liable. The proximate cause of loss of this number was the accidental stranding on the vessel and the extinction of light was the remote cause. In Cory v Burr29, a ship was insured under a time policy and warranted ‘free from capture, seizure and the consequences of any attempt thereat. In consequence of smuggling (barratry) by the Master of the ship, the ship was seized and detained by Spanish Officials. In an action to recover the expenses incurred in the course of releasing the vessel, court held that the proximate cause of the loss was the seizure, and not the barratry of the Master, thus the underwriters were not liable by the warranty. The case of Pink v Fleming30 involved insurance on a cargo of oranges and lemons, warranted ‘free from partial loss or damage, unless such loss was consequent upon collision with another ship. The vessel had a collision during the voyage and was put in the port for repairs. To effect the repairs, it was necessary to discharge the fruits into lighters and later reloaded. When the vessel finally arrived at its destination, it was found that the fruits were damaged considerably, in part, due to the handling in loading and re-loading, and in part, due to delay in the voyage. The question before the court was whether the damage to the fruits was caused by the collision or in consequence of its perishable nature, or due to the delay of the voyage and was within the meaning of the policy. The Court of Appeal held that the proximate cause was not the collision or any perils of the sea, but the perishable nature of the cargo, coupled with handling and delay.
The cases cited above illustrate where the causes were independent of the other, but where they are co-related, to determine the ‘proxima causa’, one has to determine the dominant or effective cause of the loss, and not the cause nearest in point of time.31 Thus, in deciding whether the loss arises from any of the risks insured against, the proximate or the last of the causes is to be ascertained, and for the right to recover the loss to be established, the peril must have operated directly and not circuitously on the subject matter of the insurance.32 Section 56(2) of the Nigerian Marine Insurance Act further provides:
The insurer is not liable for any loss attributable to the willful misconduct of the assured, but, unless the policy otherwise provides, he shall be liable for any loss proximately caused by a peril insured against, even though the loss would not have happened but for the misconduct or negligence of the master or crew.
In Reischer v Borwick, the Plaintiffs insured the paddle Tug Rosa with the Defendants under a policy of marine insurance which included cover for collision damage, but not for loss or damage caused by the perils of the seas. Whilst proceeding along the River Danube, Rosa collided with a floating snag which fouled the port paddle wheel causing considerable damage to the Tug’s machinery. The damage included a hole in the cover of the condenser, which allowed water to enter the Tug. The Captain anchored the Tug and effected some temporary repairs (by plugging the condenser outlet pipes) before calling for assistance. When another arrived and started towing Rosa towards the nearest dock, the plug in the condenser outlet on the port side fell out and the crew was unable to prevent the rush of water which then entered the Tug through the hole in the condenser cover. To save lives, Rosa was beached and abandoned. The Plaintiffs claimed damages for the total loss of the Tug, but the Defendants only agreed to indemnify the plaintiffs for the actual or immediate damage caused by the collision, and not for the subsequent loss. The Court of Appeal upheld the decision of the trial Judge and ruled in favour of the plaintiff owner of the Tug. The collision remained the efficient and predominant cause of the loss of Rosa. Lopes, LJ noted,
…In cases of marine insurance, it is well settled law that it is only the proximate cause that is to be regarded and all others rejected, although the loss would not have happened without them. Damage received in collision, must therefore, in this case be the proximate cause of the loss to entitle the plaintiff to recover. The damage received in the collision was the breaking of the condenser, and it was the broken condenser which really caused the proximate loss. The Tug was continuously in danger from the time the condenser was broken, and the broken condenser never ceased to be an imminent element of danger, though the danger was mitigated for a time by the insertion of the plug in the outside of the vessel. The cause of the damage to the condenser was the collision, and the consequences of the collision- that is, the broken condenser- never ceased to exist, but constantly remained the efficient and predominating peril to which the damage now sought to be recovered was attributable. It was contended that the towing of the Tug through the water after the collision was the proximate cause of the loss now sought to be recovered. It was however admitted that this was a reasonable and proper act in the circumstances. This may have been a concurrent cause, and one without which the loss would not have happened; but in my judgment, it is not, but the broken condenser is the proximate cause.
Also in Ballantyne v Mackinnon, the plaintiff insured the steamship, ‘Progress’ with the defendant insurers under a time policy of insurance. Progress departed Hamburg with an insufficient supply of coal, bound for Sunderland. When she was some forty-one miles away from her port of destination under sail and reduced steam power, her captain hailed a steam trawler and was towed into Sunderland. The owners of the steam trawler successfully brought an action in the Admiralty Court for salvage and the plaintiff owner of Progress then sought to recover that same amount by way of an indemnity from the defendants. The Court of Appeal upheld the decision of the trial Judge and ruled that the ‘loss did not arise from any peril insured against.’ There was no accident or casualty and any loss arose solely from the insufficiency of coal, which amounted to inherent vice. Al Smith, LJ said,
…upon this evidence, how can this Court find as we were invited to do by the plaintiff, that the Lord Chief Justice (the trial Judge) came to a wrong conclusion upon the question of fact as to the non-existence of a sea peril when the towage services were rendered to Progress? There was no weather, no sea on, no accident or casualty of any kind to the ship, no incursion of salt water into the ship which could have completed the voyage under sail, and no reasonable apprehension of danger. …As before stated, we agree with the Lord Justice when he held upon the evidence before him that the loss sustained was not occasioned by a peril of the sea, for in our judgment, the loss complained of arose solely by reason of the inherent vice of the subject matter insured; we mean the insufficiency of coal with which the ship started upon her voyage, the consequence of which was that what in fact did happen must have happened, namely, that the ship ran short of coal, no sea peril bringing this about in any shape or way or placing the ship in a position of danger thereby.
In Leyland Shipping Co Ltd v Norwich Union Fire Insurance Society, the plaintiffs (appellants) were owners of the steamship, Ikaria, which was insured with the defendants (respondents) underwriters. The policy of insurance covered inter-alia, loss by perils of the seas, but warranted ‘free from capture, seizure and detention and consequences thereof or any attempt thereat, piracy excepted, and also from all consequences of hostilities or warlike operations whether before or after declaration of war’. After a voyage from South America, Ikaria was awaiting a pilot outside Le Havre when she was struck forward by a torpedo and no.1 hatch was filled with water. The crew brought the badly damaged vessel into Le Havre, and would have been saved if she had been allowed to remain there. However, a gale sprang up which caused Ikaria to range and bump against the quacy to such an extent that the port authorities, fearing that she would sink and block the quacy, ordered for her removal and anchored in the outer harbor, near the break water. Whilst anchored there because of weather conditions and the fact that Ikaria was down by the head as a result of the torpedo damage, she grounded at each low tide, and eventually foundered and was lost. The ship owners claimed that the loss was caused by perils of the seas, but the insurers refused payment. Upon further appeal, the House of Lords, in upholding the decisions of the lower courts, ruled that the loss was not due to the perils of the seas. The constant grounding when she was anchored near the break water was not a novus actus interveniens. The proximate cause of the loss remained the damage caused by the torpedo, and therefore, the underwriters
were protected by the warranty against all consequences of hostilities. In the course of determining the actual cause of loss of Ikaria, Lord Dunedin @ p. 363 said,
…The solution will always lie in setting as a question, which of the two causes was what I will venture to call (though I shrink from multiplication of epithets) the dominant cause of the two. In other words, you seek for the causa proxima, if it is well understood that the question of which is proxima is not solved by mere point of order of time.
On his own part, Lord Shaw of Dunfermline, had this to say,
… In my opinion, my Lords, too much is made of refinements upon this subject. The doctrine of loss has been, since the time of Aristotle and the famous category of material, formal, efficient and final causes, one involving the subtlest of distinctions … .To speak of proxima causa as the cause which is nearest in time is out of the question. Causes are spoken of as if they were as distinct from one another as beads in a row or links in a chain, but – if this metaphysical topic has to be referred to – it is not wholly so. The chain of causation is a handy expression, but the figure is inadequate. Causation is not a chain, but a net. At each point, influences, forces, events, precedent and simultaneous meet; and the radiation from each point extends infinitely. At the point where these various influences meet, it is for the judgment as upon a matter of fact to declare which of the causes thus joined at the point of effect, was the proximate and which was the remote cause.
On what ‘proximate’ means, the Learned Lord Justice of the House of Lords said,
… To treat proximate cause as if it was the cause which is proximate in time is as I have said, out of the question. The cause which is truly proximate is that which is proximate in efficiency…. In my opinion accordingly, proximate cause is an expression referring to the efficiency as an operating factor upon the result. Where various factors or causes are concurrent and one has to be selected, the matter is determined as one of fact, and the choice falls upon the one to which may be variously ascribed the qualities of reality, predominant efficiency. Fortunately this much would appear to be in accordance with the principles of plain business transactions, and is not at all foreign to the law. …to apply this to the present case, in my opinion, the real efficient cause of the sinking of this vessel was that she was torpedoed. Where an injury is received by a vessel, it may be fatal or it may be cured; it has to be dealt with. In so dealing with it, there may, it is true, be attendant circumstances which may aggravate or possibly precipitate the result, but which are incidents flowing from the injury or receive from it an operative and disastrous power.
The vessel, in short, is all the time in the grip of the casualty. The true efficient cause never loses its hold. The result is produced, a result attributable in common language to the casualty as a cause, and this result, proximate as well as continuous in its efficiency, properly meets, whether under contract or under the statute, the language of the expression, ‘proximately’ caused.
This principle regarded as locus classicus, laid down in the Leyland case, that the term, ‘proximate cause’ should be construed to mean, ‘predominant or efficient cause’ has been applied in a number of more recent cases.
In Yorkshire Dale SS Co Ltd v Minister of war Transport, ‘Coxwold’, Coxwold was a small motor vessel of 1,124 gross tons which was on a requisition charter to the Ministry of war transport during the Norwegian campaign in 1940. On a voyage from Greenock Narvik, coxwold was sailing in a convoy at night, which was zigzagging in poor visibility without displaying navigation lights. Due to the poor visibility, coxwold lost contact with the ship ahead and ran aground on the isle of skye during a heavy rain squall. At the time of the stranding, the nearby lighthouse was operating on reduced power and was not visible; the ship nearest to coxwold also ran aground. The ship owners claimed to recover, under the terms of the requisition, for a partial loss. The charterers, (ministry of war transport) admitted that, at the time of the stranding, coxwold was engaged on a warlike operation, but denied liability on grounds that the loss was not proximately caused by the warlike operations, but by the negligent navigation of the crew. On further appeal, the House of Lords, overturned the decision of the Court of Appeal and ruled that the effective and predominant cause of the stranding was the warlike operations on which the vessel was employed. Viscount Simon, LC42 noted as follows;
… One has to ask what was the effective and predominant cause of the accident that happened whatever the nature of the accident may be. It is well-settled that a marine risk does not become a war risk merely because the conditions of the war may make it more probable that the marine risk will operate and a loss will be caused. It is for this reason that sailings without lights, or sailing in convoy, are regarded as circumstances which do not, in themselves, convert marine risks into war risks. But where the facts as found by the Judge establish that the operation of war peril is the ‘proximate cause’ of loss as in the above sense (case), then the conclusion that the loss is due to war risks follows.
Lord Wright further observed:
… once it is clear, as this House held in Leyland’s case, that ‘proximate’ here means, not latest in time, but predominant in efficiency, there is necessarily involved a process of selection from among the co-operating causes in order to find what is the predominant cause in the particular case, and in doing this, common sense would be properly applied.
According to Phillips on Insurance,
In the case of concurrence of different causes to one of which it is necessary (that is, because of the nature of the contract) to attribute the loss, it is to be attributed to the efficient and predominating peril whether it is or is not in activity at the consummation of the disaster. The choice of the real or efficient cause from out of the whole complex of the facts must be made by applying common sense principles. Causation is to be understood as a man in the street, and not as either the scientist or the metaphysician would understand it. Cause here means what a business or a sea faring man would take to be the cause without too microscopic analysis, but on a broad view.
In Ashworth v General Accident, Fire and Life Assurance Corporation46, the motor vessel (Mountain Ashworth) was insured under a time policy insurance. On a voyage along the Irish coast, calling at different ports, Mountain Ash suffered a series of mishaps, including engine failures and stranding, which caused hull and rudder damage. After leaving Arklow where the hold of the ship had been pumped out by the local fire brigade, Mountain Ash again suffered engine trouble, and because the hold could no longer be pumped out, she was beached until repairs could be completed. However, while being beached, a severe gale sprang up and Mountain Ash was so battered by heavy seas that she was abandoned as a constructive total loss. The owner claimed on his policy of insurance under the heads of ‘perils of the seas’. The supreme court of Ireland ruled that the vessel had put to sea in an unseaworthy state with the privity of the owner. In reaching their decision, the Court was faced with the problem of having to determine which was the proximate or dominant cause of the loss. Black J said:
… Applying this reasoning [the theory of persistence ‘grip’] to the present case, the first cause- the un-seaworthiness, made it necessary to beach the ship, thereby placing her in a situation in which she was in continuous danger of being swung round by the waves and made a total constructive loss. The first cause never lost its grip, the operation of the second cause being unpreventable. Therefore, the first cause -the un-seaworthiness, was the dominant cause within the meaning of the binding decision in the Leyland’s case.
In Gray and another v Barr48, though a non-marine case, was nevertheless involved with insurance law and brushed on the topic of proximate cause. Lord Denning MR, summarized the current legal position as follows:
… Ever since that case (Leyland’s case) in 1918, it has been settled in insurance law that the ‘cause’ is that which is the effective or dominant cause of the occurrence or as it is sometimes put, what is in substance the cause even though it is more remote in point of time, such cause has to be determined by common sense49.
In Miss Jay Jay50, the underwriters refused payment for the loss of the Yacht on the basis that the Yacht was unseaworthy due to defective design for which the manufacturers, and not the insurers were liable. The Court of Appeal ruled that the damage was caused by a combination of adverse weather and defective design. Both were concurrent and effective causes of the loss, and Lawton LJ elaborated on the law where under a time policy, there are two proximate causes of loss, – an included cause of loss (adverse weather) and a cause of loss (un-seaworthiness), which was not expressly excluded by the policy. Lawton LJ51 noted thus:
…if the defects in the design and construction had been the sole cause of the loss, then the plaintiff would not have been entitled to claim either at common law52 or because of an express exclusion in the policy. On the facts as the Judge found, the un-seaworthiness due to design defects was not the sole cause of the loss. It now seems to be settled law at least as far as this court is concerned that if there are two concurrent and effective causes of a marine loss, and one comes within the terms of the policy, the other does not, the insurers must pay. … The plaintiffs were not privy to the defects in design, s 39(5) MIA 1906, nor to the fact that at the material time, the Cruiser was not seaworthy. They had not impliedly warranted that it was, s 39(5) above, nor had they failed to take reasonable steps to maintain and keep the Cruiser in a proper state of seaworthiness as they were required to do under the policy. The loss was not caused by wear or tear so as to cause ‘debility’. Since the defendants did not exclude un-seaworthiness or design defects which contributed to the loss without being the sole cause (as they would have done), the plaintiffs’ claim falls within the policy provided that what happened in the sea conditions was a proximate cause of the loss.
Reference should also be made to the position of our law with regards to when loss of insured property is caused by apprehension of a peril. According to Hodges, ‘It is well established in insurance law that where there is apprehension of a peril and action is taken to avoid that peril, the assured cannot recover under the head of that peril should a subsequent loss occurs, because the proximate cause of loss is no longer that peril’, noting that the rule has proved on occasions to appear unfair and unjust, but that the principle of insurance law clearly made manifest in section 55(1) Marine Insurance Act 1906, still remains one of indemnity for loss proximately caused by the peril insured against’.
1.9 Organisation of the work
This work is divided into five chapters. Chapter one deals with introductory issues such as the background information on the subject matter, problems necessitating the study, research questions, aim and objectives, significance of the study, research methodology, scope and limitations of the study, a review of some literature relevant to the study, and organisation of the work. Chapter two discusses insurance contracts in Nigeria, the origin and historical development, distinct features between general contract and insurance contract, types of insurance contracts in Nigeria. Chapter three focuses on loss in marine insurance law, types of loss –total, partial, missing ship, actual total, constructive total loss, proximate cause of loss of the peril insured against, distinction between actual and constructive total loss, effect of constructive total loss, abandonment, notice of abandonment, forms of giving the notice, time within which to give the notice, effect of abandonment, ownership of a validly abandoned property which the insurer refuses to take over, particular and general average loss respectively, disclaim of liability and its effects on the various interest groups and stakeholders in our society. Chapter four examines the rights, measures and methods of indemnity in marine insurance law. Chapter five summarises the findings of the study, proffers some recommendations and concludes the work.
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