M/s Rajankumar and Brothers (Impex) vs Oriental Insurance Company Ltd.

1.2 The ICC is drafted and issued by the Joint Cargo Committee of the Lloyd’s Marketing Association (a premier marine insurance market in London) in consultation with insurance and shipping interests. It is commonly understood that this ‘classification’ relates to the seaworthiness of the vessel in which the cargo is carried. The ICC 01/01/2001 imposes two requirements to ensure that the vessel complies with a certain minimum standard of seaworthiness. The first is a classification requirement which requires that the vessel should be classed with a Classification Society which is a Member/Associate Member of the International Association of Classification Societies (‘IACS’) or, in the case of vessels engaged exclusively in coastal trading, a National Flag Society. The second is an age limitation in respect of the insured vessel. [Para 5][177-B-D; 178E-F]

1.3 An underwriter/insurer would usually trust the quality of, and be prepared to issue a reasonable premium for, a vessel classed with an IACS member society. On the other hand, the insurer may demand a higher premium, or deny insurance cover altogether, for a voyage in respect of a vessel classed by a nonIACS member society. Hence, the ICC prescribes classification with a member of the IACS as the baseline for ensuring that the policy involves less risk for the underwriter. [Para 5][179-E-F]

1.4 NCDRC has relied on the older version of the ICC, i.e. the 1978 version. The 1978 version of the ICC was replaced by the ICC 13/4/92, the ICC 1/8/97, and the ICC 01/01/2001. The ICC 01/01/2001 is the most recent version of the ICC, and the one which is relevant for the purpose of the present case. The most recent version of the ICC, i.e., ICC 01/01/2001 does not help the appellant’s case inasmuch as it is stricter in its import. English jurisprudence stipulates two requirements to avail of such ‘held covered’ provisions - first, ‘prompt notification’ to the underwriter, and second, the availability of cover at reasonable commercial market rates. However, the wording of the ‘held covered’ provision in the ICC 1978, did not expressly state these requirements, leading to the apprehension that it may be interpreted to mean that cover could be obtained in all cases, without any precautionary measures being followed by the assured. Hence, it appears that in order to avoid any confusion, the ICC 01/01/2001 has been drafted to expressly incorporate the aforesaid two requirements. Under the ICC 01/01/2001, the assured must immediately inform the insurer/underwriter if they discover that the vessel carrying the cargo does not meet the classification requirement. Additionally, if the vessel is such that a prudent underwriter would not be prepared to underwrite the risk at a reasonable premium, the assured is not entitled to the insurance cover. These requirements are important because the classification of the vessel is a significant factor for influencing the underwriter’s decision-making as regards whether an insurance cover should be issued for the marine voyage or not. [Para 5.1][180-A-C; 181-A-C]

1.5 Sub Clause 1 of the ICC 01/01/2001 provides that cargo interests are obligated to promptly notify insurance underwriters if the cargo is being carried by a vessel which is not classed as prescribed in the ICC, and Clause 5 thereof makes it clear that failure to provide such information will lead to exclusion of the insurance cover. It is the burden of the assured to inform the insurer about such non-compliance and negotiate a reasonable premium beforehand. [Paras 5 and 5.2][179-G-H; 180-A; 181-F]

1.6 Thus, where a vessel is not classed with a recognized classification society in terms of the ICC, any loss incurred by the cargo-owner will be excluded from the scope of the insurance cover. Further, the cargo owner is required to immediately notify the underwriters and negotiate an additional premium if the vessel is not classed in accordance with the ICC. [Para 5.6][189-D-E]

1.7 In the instant case, it is apparent that neither was the subject vessel in compliance with the ICC clause, nor had the appellant given prompt notification to the respondent about such non-compliance. The appellant, in its letter had informed the respondent that the vessel is of ‘I.R.S.’ class. However, the full form of ‘I.R.S.’ was not specified. The appellant has contended that the NCDRC wrongly interpreted the term ‘I.R.S.’ to mean ‘Indian Register of Shipping’ and that the subject vessel was actually registered and classified with the ‘International Register of Shipping’. However, the official website of the International Register of Shipping shows that its official acronym is ‘INTLREG’. Whereas ‘I.R.S.’ is the official acronym of the ‘Indian Register of Shipping’.Hence the appellant’s contention that ‘I.R.S.’ refers to the International Register of Shipping is prima facie not sustainable. [Para 5.7][189-E-H; 190-A]

1.8 The appellant had also averred in its complaint before the NCDRC that the Overseas Seller had produced a certificate dated 11.6.2010, certifying that the subject vessel was registered with an approved Classification Society as per the ICC. Further, that as per the said certificate, the class of the subject vessel was equivalent to Lloyd’s 100A1, and the subject vessel was seaworthy and not more than 30 years old. However, no such evidence of the vessel’s classification was ever provided to the respondent. It is true that the appellant has, during the course of hearing this appeal, placed the certificate dated 11.6.2010 before this Court. However, a perusal of the certificate shows that is only a selfcertification wherein the vessel owners have claimed that the subject vessel is classed with an approved classification society as per the ICC clause. It cannot be taken as conclusive evidence that the vessel was actually classed with an IACS member society. [Para 5.7][190-A-D]

1.9 Even if it is accepted that the vessel is classed with the International Register of Shipping ‘INTLREG’, this does not help appellant’s case inasmuch the INTLREG is not one of the 12 accredited Member Societies of the IACS. Rather, it is the I.R.S. which is an IACS member. It has never been the case of the appellant that the subject vessel was classed by the Indian Register of Shipping. It is also not the appellant’s case that the subject vessel was classed with a National Flag Society. Hence, the appellant had committed breach of the classification requirement contained in Clause 1 of the ICC. [Para 5.7] [190-D-F]

1.10 The letter dated 26.5.2010 sent by the appellant to the respondent, in respect of the ship’s particulars, cannot be said to constitute ‘prompt notification’ as the particulars of the subject vessel’s classification were not clearly specified therein. The respondent may have, in good faith, assumed that ‘I.R.S.’ meant that the subject vessel was classed with the ‘Indian Register of Shipping’, and may have consequently inferred that the subject vessel fell within the scope of the ICC clause. [Para 5.8][190-F-H]

1.11 It was only pursuant to the appellant’s request for release of separate salvage security that the respondent’s claim settling agents, M/s. W.K. Webster & Co., London by e-mail dated 9.8.2010 informed the respondent that as per their investigation, the subject vessel was classed with Lloyd’s Register of Shipping only until 10.10.2007, after which the classification was withdrawn. Hence it was only from this e-mail that the respondents came to know that the shipment may fall outside the scope of the insurance cover, as per the terms of the ICC. Consequently, the ‘prompt notification’ requirement has not been satisfied, and there is no ground for the application of the ‘held covered’ clause. [Para 5.8][191-A-C]

1.12 No prudent underwriter would have agreed to cover the risk involved in a such a high value shipment under the Marine Cargo Clause even though the appellant had no documentary evidence on record to prove the classification of the subject vessel. However, neither of the parties has led evidence on whether the respondent would have agreed to insure the policy for a reasonable premium had the correct particulars of the subject vessel been disclosed. Hence, it is not appropriate to record any findings on the same. In any case, such question does not arise inasmuch as the appellant did not provide “prompt notification” in the first place. Hence, as provided under Clause

5 of the ICC, the insurer’s liability is automatically discharged. [Para 5.9][191-C-E]

1.13 Consequently, the appellant had committed breach of the warranty contained in the Marine Insurance Policy requiring the subject vessel to be classed in accordance with the ICC, and such breach of warranty discharged the liability of the insurer. [Para 5.9][191-F]

2.1 A warranty imposes certain obligations on the insured, and Section 35(3) of Marine Insurance Act, 1963 makes it amply clear that a warranty needs to be complied with, regardless of whether or not its non-compliance materially affects the risk involved in carrying the shipment. As a corollary, when a warranty is not complied with, i.e., there is a breach of warranty, the insurer is discharged from liability from the date of such breach, by virtue of Section 35(3). At the outset, therefore, it is important to note that the scheme of the 1963 Act is clear inasmuch as the automatic consequence of a breach of warranty is discharge of the insurer’s liability. Such discharge of liability does not require any express conduct or representation from the insurer. [Para 6][192-E-G]

2.2 However, Section 36(3) of the 1963 Act provides that the insurer may waive a breach of warranty. Such a waiver may be done either by or by way of incorporating certain terms in the insurance contract, such as the ‘held covered’ clause in the ICC or the exclusion clause found in the Institute Cargo Clauses, or by a representation or conduct of the insurer. [Para 6][192-G-H; 193-A]

2.3 It is commonly understood that a waiver in the context of marine insurance, apart from one already provided for by way of ‘held covered’ or other such terms in the insurance contract, must include two elements, namely, (i) knowledge of the insurer, and (ii) unequivocal representation of the insurer. The presence of both these elements is indispensable. [Para 6.3][194-E-F]

2.4 Even if the insurer makes an express representation that it would affirm the contract and indemnify the loss, if the insurer can prove that such a representation was made without the knowledge that there was a breach of warranty on part of the insured, the liability of the insurer would stand discharged from the date on which the warranty was breached. Similarly, mere knowledge on the part of the insurer that there was a breach of warranty would not amount to a waiver, in the absence of an express representation to that effect. [Para 6.3][194-F-H]

2.5 Insofar as the element of knowledge is concerned, if the vessel carrying the insured cargo incurs loss, and the insurer seeks to investigate into whether or not there was a breach of warranty, no knowledge can be attributed to the insurer until such investigation is completed. Once there is knowledge, the second element, i.e., unequivocal representation comes into play. The representation must be of such a nature that it is sufficient for the insured to conclude that the insurer is aware of the breach of warranty and has chosen to waive such breach and indemnify the loss. The determination of whether or not these elements are present, assumes more complexity in cases where such a representation comes from an agent of the insurer, or where such an agent has knowledge of the breach. However, these arguments with respect to representations made by the insurer’s agent have not been raised and hence, such issues need not be addressed for the purposes of the present case. [Para 6.4][195-A-C]

2.6 In the instant case, though the respondent initially issued the Cover Note dated 14.5.2010 without knowing the particulars of the vessel in which the appellant’s cargo was to be carried, it subsequently issued the Marine Insurance Policy after the particulars of the subject vessel, including the purported classification of ‘I.R.S.’, were received. However, while the importance of the ICC is undoubtedly more significant in cases of ‘open-cover’ insurances where the specific details of the vessel carrying the cargo are not known to the insurer, a ‘facultative’ insurance policy in which the details of the subject vessel are specified, need not be mutually exclusive with the ICC. Mere formal issuance of the Marine Insurance Policy by the respondent does not indicate ‘acceptance’/waiver of the vessel’s classification or lack thereof. [Para 6.1][193-A-E]

2.7 It was contended by the appellant that non-compliance with the ICC stood waived by Clause 5.2 of the Marined Insurance Policy. However, it cannot be said that the ICC was an ‘implied’ warranty within the meaning of Clause 5.2. It was stated on the face of the Marine Cargo Cover dated 14.5.2010 and the Marine Insurance Policy that the ICC is one of the warranties/terms of insurance. [Para 6.2][193-G-H; 194-A]

2.8 In any case, the appellant’s stand is that the subject vessel was classed with the ‘INTLREG’ (which it has mistakenly referred to as ‘I.R.S.’). The very purpose of adopting the ICC is to ensure that the vessel chosen by the insured meets certain minimum standards of seaworthiness, by virtue of being classed with one of the well-established member societies of the IACS. The appellant, having known that the subject vessel was classed with the ‘INTLREG’, which neither was nor is a member of the IACS, was privy to the fact that the subject vessel was not compliant with the minimum standard of seaworthiness as laid out in the Marine Insurance Policy. Clause 5.2 only waives breaches of implied warranties of seaworthiness where the assured was not privy to the unseaworthiness of the vessel. Hence, the appellant would not be saved by Clause 5.2 of the Policy, and it cannot be said that the respondent had waived the breach of warranty before the appellant’s claim, by incorporating Clause 5.2 of the Policy. [Para 6.2][194-A-D]

2.9 Under the facts and circumstances of the present case, the breach of warranty occurred when the appellant informed the respondent by letter dated 26.5.2010 that the subject vessel was classed by ‘I.R.S.’, thereby indicating the subject vessel was compliant with the ICC. After the subject vessel ran aground on the midnight of 18.7.2010, the appellant requested the issuance of General Average Guarantee, and the same was issued on 3.8.2010. At the outset, the General Average Guarantee in ‘Form B’ dated 3.8.2010 issued by the respondent to the GAA was only an undertaking to pay the shipowners and the GAA on behalf of the appellant for their contribution to the General Average, as and when such contribution was ascertained. This Guarantee was issued as per Clause 2 of the Marine Insurance Policy, under which the respondent had agreed to cover all general average and salvage charges. At the time the aforesaid General Average Guarantee dated 3.8.2010 was issued, the respondent was still under the impression that the subject vessel is in compliance with the ICC. Obviously, such impression was based on the representation made by the appellant that the subject vessel was classed with I.R.S. It was only by the e-mail dated 9.8.2010 from its claim settling agent that the respondent came to know that the subject vessel does not meet the prescribed classification. Subsequently, the respondent withdrew the Guarantee and refused to pay the separate salvage security. Hence, the issuance of the General Average Guarantee cannot be understood as a waiver inasmuch as the respondent, on the date of such issuance, did not have the knowledge of the breach of warranty committed by the appellant and was only fulfilling its duty to contribute to the General Average in good faith, as required by Clause 2 of the Marine Insurance Policy. [Para 6.5][195-D-F]

2.10 Further, in any case, at the time of issuing the General Average Guarantee, the respondent did not expressly state that it was aware of the non-compliance with the ICC and it was waiving the same. In fact, the moment the breach of warranty was discovered, the respondent initiated steps to withdraw the General Average Guarantee that had been issued by them and refused to pay the additional salvage security, which clearly demonstrates that there was no intent to waive the breach of warranty. Therefore, it cannot be said that the respondent had waived the breach of warranty through its conduct or representations after the claim was made by the appellant. [Para 6.6][196-D-E]

2.11 Thus, the appellant had committed breach of warranty and the same was not waived by the respondent. As a result the respondent rightly repudiated the claim of the appellant. [Para 9][197-B]

Everbright Commercial Enterprises Pte Ltd v. Axa Insurance Singapore Pte Ltd [2001] SGCA 24; Thames and Mersey Marine Insurance Co Ltd v. H T Van Laun & Co [1917] 2 KB 48; Liberian Insurance Agency Inc v. Mosse [1977] 2 Lloyd’s Rep 560; Nam Kwong

Medicines & Health Products Co. Ltd. v. China Insurance Co. Ltd. [2002] 2 Lloyd’s Rep. 591; Kam Hing Trading (Hong Kong) Ltd. v. The People’s Insurance Co. of China (Hong Kong) Ltd. and Anr. [2010] 4 HKLRD 630 – referred to.

John Dunt, Marine Cargo Insurance by (Informa Law, Routledge, 2009) 166 – referred to.