Marine hull insurance affords shipowners protection against physical damages and losses to their vessels. However, to recover on a hull policy, the loss must have been occasioned by a peril insured against.
The perils clause in the policy will list the causes of loss covered by the underwriter.
The recent M/V Alpha Star case (1997 A.M.C. 1099) in the Southern District Court of New York deals primarily with an admiralty action by a hull underwriter for a declaration of nonliability on a marine insurance policy.
The litigation arose out of a shipowner’s heavy weather claim for damages sustained to its 21-year-old ore/bulk/oil (“OBO”) carrier while on a winter trans-Atlantic voyage from Canada to France. The court’s opinion, which resembles a textbook on marine insurance, also provides an opportunity for shipowners and underwriters to examine some of the difficult legal issues that often arise under a hull policy’s “perils of the seas” clause.
No statutory limit set for sea-inflicted losses “Perils of the seas” are by far the most important peril insured against under hull policies. In the United States, there is no statutory definition of the term; and as a result, courts have offered various and at times conflicting opinions as to what constitutes a peril of the sea.
Generally, a peril must be “of the sea” and not merely occurring “on the sea.” The peril must be fortuitous in nature and the loss must be due to an extraordinary occurrence associated with the sea, such as the stress of winds and waves, or navigational mishaps such as collisions or groundings.
Determining if weather is a peril of the sea is a question of fact which requires examination of the vessel, its location, and the expectability and severity of the weather.
Vessel deterioration and ordinary wear and tear are not sea perils. When considering what is or is not a peril of the sea, the question is whether the loss arose from injury from an outside force or from weakness within the vessel.
In order to recover on a hull policy, the shipowner bears the initial burden of proving that the vessel damage arose from a named peril in the policy. In addition, the shipowner must establish that the loss was proximately caused by an insured peril and not some remote cause disconnected from the peril.
Proximate cause is generally defined as the predominant cause and not merely a remote incidental cause. Moreover, proximate cause is applied more strictly in marine insurance litigation than in negligence cases. In sum, determination of proximate cause is a matter of applying common sense and reasonable judgment as to the source of the loss alleged.
Proving that a vessel encountered a peril of the sea and was damaged, but failing to prove the peril was the proximate cause of the vessel’s damage, will prevent the shipowner from collecting on the hull policy.
This point is clearly illustrated in the Alpha Star case, where the court found the shipowner failed to carry its burden of showing that the vessel hull damage was proximately caused by the heavy weather. Rather, the underwriter established that a substantial amount of the damage was caused by advanced corrosion on the cargo holds. “Given the level of wastage in the structure of the vessel, which included corrosion far in excess of the allowed 25 percent, this damage was inevitable from the mere fact of being at sea and under way.”
The Alpha Star case is now on appeal. However, regardless of the outcome, a careful analysis of this decision may help shipowners and underwriters appreciate some of the legal difficulties often associated with perils of the seas clauses in hull policies.