LW 620 Workshop Three

The Inchmaree Clause

Introduction

Guiding Questions

What is the Inchmaree Clause?

What is recoverable under the clause?

“[The] Inchmaree Clause was introduced to give the protection denied by this decision. [Thames & Mersey Marine v Hamilton Fraser (1887). It covers the negligence of servants, it covers explosion and bursting of boilers, it mentions breakage of shafts, which is rather a damage in itself than a peril causing damage, and it then covers loss or damage through latent defects. The Inchmaree Clause is, in my view, an extension of the list of perils insured against in an ordinary Lloyd's policy, and only the actual loss or damage to hull from the named perils is recoverable. Loss to the shipowner's pocket is only recoverable as the measure of the actual loss of or damage to hull” (per Scrutton J in Hutchins Brothers v Royal Exchange Assurance Corp [1911] 2 K.B. 398

Institute Cargo Clauses (Hulls) (1995)

‘6.2. This insurance covers damage to the subject matter insured caused by…

6.2.2. Bursting of boilers breakage of shafts or any latent defect in the machinery or hull…’

The Genesis

Prior to 1887, the standard Lloyd’s Marine Policy on hulls, which covered losses caused by perils of seas, such as fortuitous accidents resulting from the adverse elements at sea or any losses or mishaps in navigation was the lynch pin of all matters marine insurance. It was widely employed all over the globe. In that year, however, an accident occurred aboard the SS Inchmaree, a Scottish vessel, and the House of Lords, contrary to the industry’s conventional wisdom held that such an accident was not covered by the policy in question; it also ruled that the loss caused by a latent defect in the SS Inchmaree’s machinery was not caused by a peril of the seas, and that therefore, it was not covered by the policy. Not surprisingly, the marine insurance industry, particularly, the ship-owners, were concerned that expensive accident which might take place at sea might not be covered by the then Lloyd’s policy in vogue. Consequently, the marine industry responded by adopting a new clause, aptly named the Inchmaree Clause, providing additional coverage for an additional premium.

The new clause covered loss of or damage to the vessel directly caused by bursting of boilers, breakage of shafts, or any latent defect in the machinery or hull, (excluding the cost and expense of replacing or repairing the defective part), provided such loss or damage was not the result of the assured’s want of due diligence. Today, the Inchmaree clause including coverage for latent defects, explosions, negligence of master or mariners, and other special perils is now included in marine insurance policies to supplement the coverage under the perils clause.

Case Study One

The Thames and Mersey Marine Insurance Co Ltd v Hamilton, Fraser, & Co. The Inchmaree (1887) L.R. 12 App Cas 484

Insurance (Marine)—“Perils of the seas and all other perils,” &c.—Perils insured against—Words ejusdem generis—General Words—Donkey—engine, Injury to.

The Inchmaree was insured by a time policy in the ordinary form on the ship and her machinery, including the donkey-engine. For the purposes of navigation the donkey-engine was being used in pumping water into the main boilers, when owing to a valve being closed which ought to have been kept open water was forced into and split open the air-chamber of the donkey-pump. The closing of the valve was either accidental or due to the negligence of an engineer, and was not due to ordinary wear and tear.

The owners of the SS Inchmaree put in a claim for the loss sustained, but the insurers refused to pay on the basis that latent defects in machinery were not perils of the seas and therefore were not covered under the terms of the policy. The owners filed a claim against the insurers.

The questions stated for the opinion of the Court were, whether the defendants were liable under the policy in respect of the loss, (1) if it could have been avoided by proper care, and occurred through negligence; (2) if it occurred accidentally, without negligence.

The Queen's Bench Division gave judgment for the plaintiffs, and this judgment was affirmed by the majority of the Court of Appeal (Lindley and Lopes L.JJ.), Lord Esher M.R. dissenting.

On appeal

Held, reversing the decision of the Court of Appeal (17 Q. B. D. 195), that whether the injury occurred through negligence or accidentally without negligence, it was not covered by the policy, such a loss not falling under the words “perils of the seas,” & c., nor under the general words “all other perils, losses, and misfortunes that have or shall come to the hurt, detriment or damage of the subject-matter of insurance.”

LORD BRAMWELL

My Lords, I cannot agree with the judgment in this case. The donkey-engine was insured. The adventures and perils which the defendants were to make good, specified a great many particular perils, and “all other perils, losses and misfortunes that have or shall come to the hurt, detriment or damage of the aforesaid subject-matter of insurance, or any part thereof.” Words could hardly be more extensive, and if the question, I ought to say a question on them, arose for the first time, I might perhaps give them their natural meaning, and say they included this case. But the question does not arise for the first time. It has arisen from time to time for centuries, and a limitation has always been put on the words in question.

Definitions are most difficult, but Lord Ellenborough's seems right:

“all cases of marine damage of the like kind with those specially enumerated, and occasioned by similar causes.”

I have had given to me the following definition or description of what would be included in the general words:

“Every accidental circumstance not the result of ordinary wear and tear, delay, or of the act of the assured, happening in the course of the navigation of the ship, and incidental to the navigation, and causing loss to the subject matter of insurance.”

Probably a severe criticism might detect some faults in this. There are few definitions in which that could not be done. I think the definition of Lopes L.J. in Pandorf v. Hamilton very good:

“In a seaworthy ship damage to goods caused by the action of the sea during transit not attributable to the fault of anybody,” is a damage from a peril of the sea.

I have thought that the following might suffice:

“All perils, losses and misfortunes of a marine character, or of a character incident to a ship as such.”

I put it forward with distrust, but it would comprehend all the cases cited where the assured has recovered, save perhaps the Panama case. For example, it would include the case of the ships blown over while in dock, of the ship damaged by its moorings giving way, of the ship fired into by a ship. It would not include the cases put by Lord Esher, or the case I put of the captain seized with giddiness dropping the chronometer into the hold; nor would it include the present case. The damage to the donkey-engine was not through its being in a ship or at sea. The same thing would have happened had the boilers and engines been on land, if the same mismanagement had taken place. The sea, waves and winds had nothing to do with it.

The Clause in the Courts

1. “CAUSED BY”

The phrase “caused by” refers to the damage resulting from “the bursting of boilers, breakage of shafts or any latent defect in machinery or hull” and not to the damaged suffered by the machinery or hull itself. The phrase was examined in the following cases

Case Study One

Hutchins Brothers v Royal Exchange Assurance Corp [1911] 2 K.B. 398

The Issues

Insurance (Marine)—Ship—Damage to Hull—Latent Defect in Stern Frame—Cost of replacing defective Stern Frame.

The Facts

A policy of insurance on a ship, the Ellaline for twelve months, covering the ordinary perils insured against by a Lloyd's policy, provided that the insurance should also cover loss of or damage to the hull through any latent defect in the hull. In 1906, when the ship was built, the builders put into her a stern frame, supplied by a foreign firm, which contained a latent defect that was not discoverable by reasonable inspection until, during the currency of the policy, it became visible owing to the ordinary wear and tear of the ship. The stern frame was in consequence condemned:—

Held, that the cost of a new stern frame was not recoverable under the policy.

SCRUTTON J.

In this case, heard before me without a jury, the owners of the steamship Ellaline claimed against the defendants as underwriters a sum of £137, being the defendants' proportion of an expense of about £2300 incurred by the plaintiffs in replacing a stern frame condemned because of a crack or fissure. Was this “loss of or damage to the hull through a latent defect”?

The clause I have to construe is commonly known as the “Inchmaree Clause.” The machinery of the Inchmaree was damaged by an explosion, either through a valve becoming salted up, not in ordinary wear and tear, and the closing not being discoverable by reasonable care, or by the valves being closed by negligence of the engineers. The House of Lords in Thames and Mersey Marine Insurance Co. v. Hamilton, Fraser & Co held that such damage was not recoverable either as a peril of the sea or under the general words in a Lloyd's policy. The Inchmaree Clause was introduced to give the protection denied by this decision. It covers the negligence of servants, it covers explosion and bursting of boilers, it mentions breakage of shafts, which is rather a damage in itself than a peril causing damage, and it then covers loss or damage through latent defects.

The Inchmaree Clause is, in my view, an extension of the list of perils insured against in an ordinary Lloyd's policy, and only the actual loss or damage to hull from the named perils is recoverable. Loss to the shipowner's pocket is only recoverable as the measure of the actual loss of or damage to hull. In the present case, has any damage to the hull occurred during the currency of the policy through latent defect? The only damage is, in my view, the latent defect itself, which by wear and tear has become patent. But the latent defect did not arise during the currency of the policy; it existed in 1906, and the underwriter does not insure against ordinary wear and tear and its consequences. Has any part of the hull been lost in fact during the currency of the policy? The stern frame has not been lost in fact; it is there as it was before the policy began; the only change is that a previous latent defect has by wear and tear become patent. It has not been constructively lost during the currency of the policy; it was constructively lost in 1906, if the true facts had been known; what has happened during the currency of the policy is the discovery of the true facts. If it is said there is a loss of hull, because the shipowner has had to replace it and suffered loss during the currency of the policy, it is true that the expense is incurred during the currency of the policy, but the damage alleged to be covered by the policy, as a latent defect, came into existence in 1906, and must have been repaired then, if discovered.

For these reasons I hold that no loss of or damage to hull has happened during the currency of the policy from perils insured against, and that the discovery of pre-existing loss or damage, though impossible on reasonable examination before the date of the policy, is not enough to give a claim.

In my view what is recoverable under this part of the Inchmaree Clause is:

(1.) Actual total loss of a part of the hull or machinery, through a latent defect coming into existence and causing the loss during the period of the policy. This was the kind of latent defect alleged in the Inchmaree case.

(2.) Constructive total loss under the same circumstances, as where, though the part of the hull survives, it is by reason of the latent defect of no value and cannot be profitably repaired.

(3.) Damage to other parts of the hull happening during the currency of the policy, through a latent defect, even if the latter came into existence before the period of the policy. The pre-existing latent defect itself is not damage, indemnity for which is recoverable, even if by wear and tear it becomes visible during the policy.

I think this is substantially the result arrived at by Fletcher Moulton L.J. and Walton J.; and it is not uninteresting to note that it was the result arrived at by the plaintiffs' solicitors, who wrote, in making a claim on behalf of their clients on a third party, “We have exhaustively inquired into the question as to whether or not the cost of renewing the stern frame can be recovered from underwriters, and it was with much regret that we came to the conclusion that no claim could possibly be asserted.” Arriving by independent investigation at the same conclusion I give judgment for the defendants with costs.

Judgment for defendants.

The plaintiffs appealed.

FLETCHER MOULTON L.J.

It is suggested that this was a “loss of or damage to hull through a latent defect in the hull” within the meaning of the Inchmaree Clause. It was in my opinion nothing of the kind. It was not loss or damage caused by a latent defect, but a latent defect itself. To hold that the clause covers it would be to make the underwriters not insurers, but guarantors, and to turn the clause into a warranty that the hull and machinery are free from latent defects, and, consequently, to make all such defects repairable at the expense of the underwriters. There are no words in the clause which warrant such an interpretation. The fact that it begins with the word “insurance” negatives, in my opinion, the possibility of its being so interpreted.