CONTRACT (MARINE INSURANCE)

CONTRACT (MARINE INSURANCE)

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  Common Law example (Marine Insurance Act, 1906…on which Canadian Marine Insurance Act, 1993 is based) – “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.” Indemnification against risk.
  
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  The CCQ divides insurance, in the common law manner, into marine and non-marine insurance (2389 CCQ – payment to client if an even covered by insurance occurs…also 2390 CCQ and 2505 CCQ (also with incidental land risks and risks incidental to building, repair and launch of ship). Non-marine insurance is in turn divided into "insurance of persons and damage insurance (2391 CCQ), the latter classification including liability insurance (2396 CCQ).
  
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  Thesis of chapter is that single rule is not enough – need to weigh all the contacts, especially the express choice of the parties as well as public order, mandatory rules, evasion, etc. in a uniform methodology. Same process should be used for ancillary matters to the contract.
  

1. The Substantive Domestic Law of Marine Insurance

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  The Marine Insurance Act 1906 governs marine insurance but also guides other insurance in the UK. Nevertheless, insurance contracts are subject to the law applicable to contracts in general, but with rules particular to insurance, such as the basic principle of good faith. Influential even in civilian countries and even in U.S. and Canada, since it codifies the common law as it was in 1906. (Quebec has something very similar to this Act in CCQ.)
  

b) United States

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  In principle, marine insurance in the US is governed by federal admiralty law, which is interpreted, wherever possible, so as to be consistent with English admiralty law.
  
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  In Wilburn Boat, the USSC held that state law, not federal admiralty law, applied to a marine insurance contract "in the absence of a controlling federal admiralty principle.” In interstate cases at least, where no federal admiralty law rule exists (in this case, there was none regarding warranties) and no such rule needs to be fashioned, state law applies. Federal law would seem applicable to marine insurance in international cases, however. In principle, marine insurance is governed by US federal admiralty law, but Wilburn Boat is state law. This has created much confusion, but Wilburn Boat doctrine has generally been followed by US courts – question is whether this applies only to warranty or marine insurance in general…different states have treated this doctrine differently, often distinguishing from it on facts.
  
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  Federal law would seem to apply in international cases…
  
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  Still follows to a great extent the Marine Insurance Act 1906, as mentioned above.
  

c) France

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  Division of marine insurance (Law No. 67-522 of July 3, 1967) and other insurance.
  

d) Canada

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  Marine insurance has been the subject of provincial legislation as has general insurance. In 1983 however, the SCC held in Triglav, that there was a federal maritime law of which marine insurance law was an integral part. The decision would seem to invalidate provincial marine insurance legislation which has not been rescinded despite this judgment and the 1993 federal Marine Insurance Act (based on the 1906 UK law) – the latter’s effect is undecided.
  

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  Accessory matters governed by provincial statutes and not covered in the federal act, such as direct action, should continue to be subject to provincial law – see different bodies of law on p.343.
  
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  MIA of 1993 is very close to that of UK – there is no direct action statute.
  

e) Quebec

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  CCQ Art. 2389-2504 general articles on insurance. CCQ Art. 2505-2628 articles on marine insurance.
  

2. Conflicts and the Marine Insurance Contract

For example:

1. 
   the law of the contract between the insured and insurer
   
2. 
   the law of the arrangements of the broker and the insured
   
3. 
   the law of the broker/insurer arrangement
   
4. 
   the law of reinsurance
   
5. 
   the law applicable to a right of a third party against the insurer
   

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  These properly applicable laws are not necessarily the same
  
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  basic rule in contract is express choice – in every contract you should decide what law the contract is subject to, but if there is a mistake and no express choice then we use implied choice or inferred choice or subject to the mandatory rules of contract
  

Council Directive of June 22, 1988 – member states must amend their laws to abide by this

“large risks” includes all types of marine insurance and are free to be under any law chosen in the contract, even the law of outside nations

has provisions to prevent evasion of the law when the law chosen has no connection at all to the contract…also restricted to mandatory rules of the law of the forum…may also stipulate mandatory rules of the nation where the risk is stipulated or which imposes an obligation to take out insurance

where there is no choice or cannot imply choice, the applicable law is that with which the K is most closely connected, either the law where the risk is situated (rebuttable presumption) or the habitual residence or central administration of the policy holder

Third Council Directive of June 18, 1992 (p.349)

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  The Contracts Act 1990, being the UK version of the Rome Convention 1980, doesn’t apply to insurance risks in the EU but does apply to risks outside the EU. All reinsurance, however, inside or outside, is covered by the Act.
  

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  The Rome Convention follows traditional English conflicts law to a great extent:
  

ii) Implied choice is the second; and

iii) The law of the country to which the contract is most closely connected is the third, where there is no express or implied choice

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  There is also a presumption under the Convention that the applicable law is the law of the country where the party who is to effect the performance characteristic of the contract has its central administration or its principle place of business. English law would be presumed with respect to English underwriters.
  

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  Federal choice of law rules govern the determination of which state law or foreign law applies to marine insurance contracts.
  

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  Where there is no express choice of law in the contract, US courts, when following the Restatement Second 1969 in respect of marine insurance, will look to the most significant relationship because in marine insurance there is usually no 'principal location of the insured risk'. This significant relationship test is often coupled with the governmental interest test in marine insurance. (Home Ins. Co. v. Dick – contacts test)
  
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  The step of implied choice is ignored under US conflicts law.
  
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  Much more wary of express choice, often made by the insurer, sometimes stipulates that must be made by insured to govern (life insurance). However, freedom of express choice is often more acceptable in marine insurance because the parties are usually of equal bargaining strength.
  

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  All common law jurisdictions of Canada (except NS, Alberta, BC) have provisions in their respective insurance acts stipulating when an insurance policy is deemed to be made in the province and thus subject to that provincial law.
  
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  Because the foregoing directives go not generally apply to marine insurance, contracts in every province are subject to the common law rules of private international law. Thus the analysis follows the UK steps generally:
  

ii) Inferred choice by the courts (3111 CCQ)

iii) Absent these, the most closely connected law applies (interpreted by Canadian courts to be the law of the head office or principal place of business of the insurer) – also 3112 CCQ.

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  This freedom of choice is subject to general public order restrictions. In Quebec for example:
  

ii) Mandatory rules of Quebec (3076 CCQ)

iii) Mandatory rules of the sole connected country (3111 CCQ); and

iv) Those of another closely connected country (3079 CCQ)

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  Someone got a life insurance policy – they did not specifically mention which law should apply here
  
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  Question at issue was whether Cuban or Ontarian law would apply – the jurisdiction is where the offer is accepted, which was in Toronto when the policies were mailed from the defendant’s head office.
  
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  Basic rule of Canadian conflict of law – the closest and most real connection or closest and most substantial connection. SCC said we accept the closest and most real connection which slips in between inferred choice and mandatory rules as seen above (there is an order).
  
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  Both the applications and policies were prepared in Ontario in a common standard form which complied with the law of that Province – it was a reasonable inference that a person applying for insurance would anticipate that the policies would be governed by the law of Ontario.
  

Gives effect to Second E.C. Directive on direct damage insurance, which permits freedom of choice of the applicable law in all types of marine insurance. French law, however, seems to be applied in the absence of any express choice.

1. Contacts Used to Discover the Properly Applicable Law (Robert Merkin)

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  Most important and usually only contact, if the choice is validly made and does not contravene public order, mandatory rules or attempt to evade otherwise applicable proper law.
  

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  These contacts are not given much weight given modern means of communication and given that a marine insurance contract may entail performance in many different jurisdictions. May govern currency of payment or prohibition of act called for by K if it is illegal under the law of the place of performance.
  

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  A basic rule in the law of insurance contracts – head office if in more then one country.
  

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  represents exceptions that have to be made to the place of business/head office rule
  

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  Also called 'place of machinery' or 'center of gravity' or ‘mechanics of creation’
  

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  The habitual residence for an individual or the central administration of the policy-holder if a legal person. Mentioned in Rome Convention and Directives. Maybe not as important as the principal place of business of the party providing characteristic performance for the purposes of RC article 4(2).
  

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  English law was found to be the proper law for a policy issued by a Kuwaiti insurance company that contained a Lloyd's marine standard form (Kuwait Insurance Co.). Cour de Cassation had an opposite decision.
  

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  Directing where suit must be taken or where arbitration is to occur, not determinative but significant.
  

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  Has been held to be a clear indication that the contract is governed by English law even where the same policy contained a "New York suable" clause
  

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  Insurance contracts are normally held to be subject to the rules of a legal system under which such contracts are valid, rather than to those of a legal system which regards them as illegal
  

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  The broker is the agent who finds one company or many companies – suppose a policy is written by a broker which they have for McGill and they get it written in London – what is the applicable law? Quebec, or where it is written? Depecage can allow you to have different laws for McGill against the broker and for McGill against the underwriter…
  
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  Depecage may also be necessary with regards to division of damages and other legal consequences for collision at sea. There are different problems with regards to limitation funds, presumptions of fault, pure economic loss, etc.
  
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  See above notes on contracts in general for this topic – CCQ and Rome Convention articles.
  

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