Friday, April 8, 2011

Marine Hull Insurance in a Malaysian jurisdiction | Define your Warranty clearly

SOON HAI KEE SHIPPING SDN BHD VS. TOKIO MARINE INSURANS (MALAYSIA) BERHAD.



This so-called bizzare judgment relates to the case of Soon Hai Kee Shipping Sdn Bhd v Tokio Marine Insurans (Malaysia) Berhad released in April 2010. The Kuching High Court basically concluded that the plain words of an express warranty contained in the usual marine hull policy cannot be outright relied on by insurers to void a claim.

In the case under dispute the plaintiff was the owner of a ship known as the M.V. Song Kian Baru. The defendant is the insurer.

The ship (including engine and crane) was insured under a Marine Hull (Institute Time Clause, 1983) Insurance policy for an agreed value of RM800,000 on 23rd March 2005. The policy contained the standardized clauses that were originally developed by the Institute of London Underwriters. A “Hull & Machinery Endorsement” schedule formed part of the policy that states….


  1. Warranted that the vessel be properly licensed and/or registered with the appropriate government marine department whose rules and regulations must be complied with at all times; failure to do so shall render this policy null and void,
  2. Warranted that the maximum loadline be observed,
  3. Warranted Malaysian government loadline maintained,
  4. Warranted vessel under government survey and all requirements complied with during the currency of this policy,
  5. Warranted vessel be 5 surveyed annually, and
  6. Warranted vessel be properly and reasonably maintained, equipped, kept-up, officered and manned during the currency of this policy.
The vessel sank the following day on 24th March, 2005 when it hit some hard object in the sea. The sinking of the ship was reported to the defendant on 26th March, 2005.

The plaintiff claimed for the insured sum of RM800,000 and also RM228,000 for costs involved in an attempt to salvage the ship (prescribed in the Sue and Labour clause in the policy).

The defendant denied liability on the ground that plaintiff breached expressed warranties (of which first and the last warranty were relied upon) in the policy, in particular the warranty that the ship be “properly licensed and/or registered with the appropriate government marine department whose rules and regulations must be complied with at all times” and should be “reasonably and properly officered and manned”. The defendant’s case is that the “certificate of competency” of the Master had expired and therefore the ship was not properly “officered”.
The entire case turns on two issues…. 

  1. applicability of the said warranty prescribed in the policy, and
  2. validity of the certificate of competency of the Master.

The Master was endorsed by the Marine Department on the Ship Registration Certificate, although he did not get his certificate of competency re-validated pursuant to the Merchant Shipping (Training and Certification) Rules 1999 (“The MSTC 1999″), which was the applicable written law. It is important to note that the Marine Department did issue notices to all owners and seamen in Sarawak concerning the requirement for re-validation as required under the MSTC 1999. “Write warranty with clarity… if you need any re-validation, say so!”

Notwithstanding, strange as it was, the High Court held that the MSTC 1999 only applies to West Malaysia and does not extend to Sarawak. Thus the Court found that the Master had a valid certificate issued under the Sarawak Merchant Shipping Ordinance 1960, which was not repealed.

What is more bizarre in addition to finding the Certificate of Competency of the Master as being valid is the Court further found the expressed warranty prescribed in the policy that required proper licensing and registration of the vessel is NOT wide enough to include the licensing of the Master or crew. Moreover, “officered and manned” was also not wide enough to cover a situation where a Master’s certificate of competency requires a re-validation under written law, and in this case the MSTC 1999.
Common sense did not prevail this time. The expressed warranty did not aid insurers despite clear evidence that the Master of the vessel did not possess a re-validated Certificate of Competency under the Merchant Shipping (Training and Certification) Rules 1999, which were made in order to comply with the country’s obligations under the International Convention on Standards of Training, Certification and Watchkeeping for Seafarers 1978 and 1995.

LESSON LEARNT
This means that marine hull underwriters must now be extra cautious in underwriting business in Sarawak (maybe even for Sabah….) especially when using the ordinary warranty wordings in practice. Now that the case is not being appealed against and would be taken as persuasive argument for future such cases, all warranty wordings have to be well defined and specific to include everything that the insurers regard as mandatory for compliance.

Bookmark and Share

No comments:

Post a Comment

Related Posts Plugin for WordPress, Blogger...