Inherent Vice – The Cendor MOPU
Salvage vs Towage
June 20, 2021
The risk of deterioration of the subject matter insured as a result of its natural behavior during the ordinary course of the contemplated voyage or the inability of the subject matter insured to withstand the ordinary incidents of the contemplated voyage or the ordinary use of the subject matter insured without the involvement of an external fortuitous event
Loss or damage caused by inherent vice is an excepted peril (S.55 (2) (C) of the Marine Insurance Act 1906):
And as per exclusion 4.4 of ICC (A) (1/1/82) and (1/1/09):
4.4 loss damage or expense caused by inherent vice or nature of the subject-matter insured
Inherent vice includes as well the inadequate packaging. Insufficiency of packaging is an express exclusion under the Institute Cargo Clauses (A) (1/1/82) and (1/1/09):
4.3 loss damage or expense caused by insufficiency or unsuitability of packing or preparation of the subject matter insured to withstand the ordinary incidents of the insured transit where such packing or preparation is carried out by the Assured or their employees or prior to the attachment of this insurance (for the purpose of these Clauses “packing” shall be deemed to include stowage in a container and “employees” shall not include independent contractors)
This exclusion was placed in dispute when the insurers of the Cendor MOPU decided to put it in operation to deny the liability and reject the insured’s claim. Where three legs of a jack-up rig fell off in the course of a tow, the insurers decided that proximate cause of the loss was inherent vice because the legs were not capable of withstanding the normal incidents of the insured voyage, including the weather reasonably to be expected.
At first instance the Queen Bench Court dismissed the insured claim, and held that it was clear from the expert evidence that the legs did not have sufficient inherent fatigue life to complete the tow on departure from Galveston.
Returning back to the roots of the case, we need to mention the original facts of this case.
In May 2005 the assured purchased a self-elevating mat-supported jack-up rig, laid up in Galveston, Texas, for conversion to a mobile offshore production unit to be put into service off Malaysia. The rig had three tubular welded steel cylindrical legs, each 312 feet long. The rig’s platform could be jacked up and down by engaging steel pins into holes in each leg.
For a dry towage voyage to Malaysia, the assured obtained insurance on the rig under a policy on the terms of the Institute Cargo Clauses A (1982) subject to English law. The ICC A clauses insure against “all risks”, subject to various exclusions, one of which we mentioned above (Clause 4.4).
Despite some recommendations to the contrary, the assured decided to move the rig without cutting the legs, so that the legs remained attached to the jackhouse and extended some 300 feet into the air. Insurers required a warranty survey on the rig, which recommended the rig legs be inspected mid-voyage for expected signs of fatigue cracking. The rig left Texas on 23 August 2005. She was inspected at Saldanha Bay, north of Cape Town, on 10 October 2005. Approved repairs were made to the legs and on 19 October the voyage resumed. On 4 November 2005 the starboard leg fractured and was lost; the following day the remaining two legs broke in quick succession and also fell into the sea.
The fractures were the result of progressive stress fatigue cracking at the corners of the pinholes. Once the first leg had fractured and fallen off, the other legs were subjected to increased stress so that they also failed. The stresses were generated from the effect that the height and direction of the waves had on the pitching and rolling motion of the barge. The weather encountered was within the range reasonably contemplated for the voyage.
The insured claimed for the loss of the three rig legs. The insurers denied the claim on various grounds, including inherent vice.
The Queen Bench’s decision was reversed at Appeal that in considering whether the damage to cargo had been caused by inherent vice, the answer was to be found not by reference to what might be reasonably foreseeable as the ordinary incidents of that voyage, but by reference to wind or wave which, it would be the common understanding, would be bound to occur as the ordinary incidents on any normal voyage of the kind being undertaken.
A leg-breaking wave, not bound to occur in the way it did on any normal voyage round the Cape of Good Hope, caused the starboard leg to break off. That led to the others being at greater risk and then breaking off. It was not certain that that would happen and although with the benefit of hindsight it was highly probable, that high probability was unknown to the insurers and that was a risk against which insurers insured.
This was confirmed in the Supreme Court, dismissing the insurers’ appeal and addressed the following points:
(1) Under S55 (1) of the 1906 Act, whether a loss was covered by a marine insurance policy depended upon its proximate cause. The proximate cause was not the cause that was closest in time to the loss, but that which was proximate in efficiency. In Soya Gmbh 1983, it was established that proximate loss meant “the risk of deterioration of the goods shipped as a result of their natural behaviour in the ordinary course of the contemplated voyage without the intervention of any fortuitous external accident or casualty”, Soya followed. Only where the fortuity operating on the goods came from the goods themselves, could the proximate cause properly be said to be the inherent vice of the subject matter insured, therefore falling outside the cover of a policy of insurance.
(2) In Mayban the judge found that inability of a cargo to withstand the ordinary perils of the seas amounted to inherent vice. However, the effect of applying Mayban would be to reduce much of the purpose of cargo insurance, for the cover would then only extend to loss or damage caused by perils of the seas that were exceptional or unforeseeable and not otherwise. That would frustrate the very purpose of all risks cargo insurance, which was to provide an indemnity in respect of loss or damage caused by, among other things, all perils of the seas, Mayban overruled.
(3) The proximate cause of the loss in the instant case, applying commonsense principles, was not inherent vice or the ordinary action of the wind and waves, but an external fortuitous accident or casualty of the seas. It occurred under the influence of a leg breaking wave of a direction and strength catching the first leg at just the right moment, leading to increased stress and collapse of the other two legs in turn. The insurers was therefore liable under the policy.
As Lord Saville observed, in his leading judgment in the Supreme Court, there was nothing in the authorities on the meaning of perils of the seas or in those relating to the question of inherent vice which lends support to the test which had been applied by Blair J; On the contrary, cases such as the Canada Rice Mills 1940 case and The Miss Jay Jay 1984 make it clear that perils of the seas are not confined to cases of exceptional weather or weather that was unforeseen or unforeseeable, while inherent vice or nature of the subject-matter insured had never previously been defined as encompassing any fortuitous external accident or casualty that was unexceptional or foreseen or foreseeable.
Lord Mance similarly concluded, after an extensive review of hull insurance cases on perils of the seas, that the cases lend no support to a submission that, where cargo is unfit for the insured adventure, loss or damage which would have been avoided but for such unfitness falls to be regarded as a loss due to inherent vice rather than due to any marine peril which may have triggered and exploited such unfitness.
He also confirmed that extraordinary weather or sea conditions are not required for a peril of the seas, and that loss or damage to an insured matter in adverse weather that could reasonably be expected, which it would have been able to withstand had it been in a seaworthy condition, will amount to loss by perils of the seas.
To sum up, inherent vice only operates if it is the only proximate cause of the loss without any contribution of any external other factor.
