Davis, Ian --- "Marine Insurance" [2001] ALRCRefJl 11; (2001) 78 Australian Law Reform Commission Reform Journal 45

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Reform Issue 78 Autumn 2001

This article appeared on pages 45– 48 of the original journal.

Marine insurance

The Australian Law Reform Commission has finalised its review of the Marine Insurance Act 1909 (MIA). The ALRC’s final report was delivered to the Attorney-General before the end of April, and at the time of printing, the ALRC’s recommendations were still under parliamentary embargo. Ian Davis* provides an update on the inquiry.

Following the publication of its Discussion Paper 63 (DP 63) in July 2000, the ALRC received almost 20 written submissions and was greatly assisted by the members of its Advisory Committee. Broadly speaking, those submissions and the Committee endorsed a range of measured reforms to take into account some of the more striking criticisms of various aspects of the Marine Insurance Act, particularly in relation to warranties. None of the submissions received by the ALRC argued for extreme reform, such as the repeal of the MIA and incorporation of all marine insurance within the Insurance Contracts Act 1984 (ICA). There were also some fairly strong submissions from a number of sources that there be no change in some areas, notably that the requirement of an insurable interest be retained (although it had been removed in relation to non-marine insurance by the ICA).

The ALRC was reminded by many of the people from whom it received comments or submissions that marine insurance is essentially commercial insurance as, with one or two exceptions, no consumer insurance remains governed by that Act following the removal of pleasure craft to the ICA in 1998. Furthermore, marine insurance is inherently international and extreme reform could possibly see Australian insureds or insurers unable to obtain proper cover at competitive rates. Although it must be conceded that the strong pro-consumer orientation of the ICA – and the Commission’s 1982 report Insurance Contracts (ALRC 20) that preceded it – does not have the same application in the present circumstances, nonetheless even in purely commercial transactions the law should not be allowed to persist unchanged if it is seen to be working unfairly, harshly or unduly in favour of one side of the transaction.

One aspect of reform to the Australian legislation in this area that sets it apart from any similar reform processes that might take place overseas is that Australia has had a comprehensive non-marine general insurance legislative scheme in the ICA for 15 years. There are, therefore, a number of threshold issues which face reformers in Australia in this area that do not confront their counterparts overseas.

Firstly, the ALRC must consider whether marine insurance legislation should be retained as a distinct and different legislative scheme, and determine whether there are strong, objective grounds for maintaining a distinction between the two schemes. In this context, familiarity with the existing legislation both within Australia and overseas is one argument for retaining the distinction (even if the MIA itself is changed in detail). However, it is also clear from the ALRC’s research that the significantly more radical changes that the ICA introduced were accepted by the industry within Australia and overseas with few disruptions to the industry, and no large or lasting impact on premium levels.

Secondly, if the MIA is to be retained as a distinct legislative scheme, should any changes to it reflect the changes introduced by the ICA? It would be undesirable to create a series of legislative schemes all different from each other and none of which are familiar overseas unless there were compelling reasons to do so. For example, there have been suggestions that changes should be made to the concept of ‘utmost good faith’ in relation to marine insurance. The best proposition might well be simply to re-enact in the MIA the relevant provisions in the ICA (s13 and 14). Alien as this might be to overseas marine insurers, it is very familiar to Australian non-marine insurers (bearing in mind that many broking and insurance companies in Australia are involved in both sectors of the market). Indeed, co-insurers and reinsurers of Australian non-marine risks already would be familiar with, and have adapted to, these changes, whether or not they are aware of it.

This illustrates that some of the amendments may appear to be more drastic in appearance than in substance, particularly after almost a century of statutory inertia. Notwithstanding that last remark, one aid to acceptance of any proposed reforms would be the appearance that the reforms are in fact limited in scope and easily digestible both intellectually and in business. This could be achieved by retaining the familiar structure of the MIA and by introducing concepts familiar in other areas, where feasible.

Overseas reform

Although Australia appears to be the only country actively looking to reform its marine insurance legislation in the immediate future, there have been various moves to amend the original scheme devised at the beginning of the 20th century in different countries. New Zealand adopted a series of significant reforms, particularly in relation to breach of warranties, in its Insurance Law Reform Act 1977, which relates to both marine and non-marine insurance. However, some of these changes have been read down in subsequent case law. Questions relating to the non-disclosure of material circumstances and the 1977 amendments were reviewed by the Law Commission of New Zealand in its Report 46 Some Insurance Law Problems, published in May 1998. At that stage, the solutions proposed by s 21 and 54 of the ICA relating to non-disclosure and breach of warranty were ultimately rejected, although the NZ Law Commission’s report was published prior to the enactment in Australia of s 21A of the ICA.

In 1980, the Law Commission for England and Wales issued a report Insurance Law: Non-disclosure and Breach of Warranties, which sought to make amendments in those two areas, both of which are covered in the ALRC’s current inquiry. However, no legislative change ensued.

In 1983, the Supreme Court of Canada held that marine insurance law was a matter for the federal parliament rather than the provincial parliaments. Before then, marine insurance law had been governed by statutes of the various provinces. In response to this decision, Canada passed the Marine Insurance Act 1993. Although almost a century after the enactment of the parent legislation in the UK, this Act incorporated the formulation in the original UK Act of 1906 as its basic structure but with some drafting and a few substantive changes. For example, the Canadian Act was specifically modified so that it covers inland waters and not just ‘risks of the sea’. It should also be noted that Canadian common law varies significantly from the Anglo-Australian position, particularly in relation to the consequences of a breach of warranty.

In the second half of 2000, the British Insurance Law Association announced that it would be conducting a review of British insurance law and practice, to be headed by Lord Justice Mance. Although marine insurance is a specific and distinct part of that review, the scale of the overall review is large and its results may well not be known for some time. Its final report could well be an interesting point of reference in relation to any, or any further, amendment to Australian marine or non-marine insurance. This British review comes at a time when the Joint Hull Committee of Lloyd’s of London is undertaking a complete re-writing of all the Institute clauses, which form the basis of many marine insurance policies written throughout the world, especially in Australia, whether or not governed by English, Australian or other national laws. That re-writing is due to be completed by the end of 2002 and is anticipated to reflect a complete rethinking of the wordings, rather than just an adaptation of the clauses in their present form.

In the United States, the issue of marine insurance is a matter for state, rather than federal, law. Consequently, there is no national marine insurance legislation. Indeed, only California appears to have any legislation that deals specifically with marine insurance. Although US practice and common law is firmly rooted in English law and practice, there are divergences and, governed as it is by state law, there is great scope for non-uniformity within the United States. There is no significant move to unify US marine insurance law at present.

The European Commission has indicated that it wishes to review the diverse insurance laws in Europe with a view to harmonisation there. For reasons that emerge from the work done by the Comité Maritime International (CMI) (discussed below), there could be great difficulties involved with this and it may well be quite some time before anything substantial emerges and is broadly accepted.

The CMI inquiry

The most significant current international inquiry into marine insurance law is that being conducted by the Comité Maritime International. In 1998, it was suggested that the CMI should investigate whether there was any scope for the harmonisation of national marine insurance law and practice around the world. Work done by an international working group (including Dr Sarah Derrington of the Centre for Maritime Law at the University of Queensland) led to a report published at the CMI Conference in Singapore in February 2001 by Professor Trine-Lise Wilhelmsen of the Scandinavian Institute of Maritime Law. This paper was an analysis of information provided by various national maritime law associations concerning the duty of disclosure, the duty of good faith, alteration of risk, and warranties in marine insurance law.

These were four of a total of 12 areas of law that were the subject of questionnaires sent out by the CMI to its member maritime law associations. Analysis of the remaining eight is yet to be done. Professor Wilhelmsen’s work confirmed earlier statements that there was limited scope for harmonisation because of the very different approaches taken in various national laws in relation to, for example, the consequences of a breach of warranty (however that concept might be expressed) and the concept of alteration of risk. Although there is a broadly similar legal framework among common law countries (and there are significant divergences even there), there are major differences between common law and civil law approaches to a number of fundamental concepts, which would be difficult to reconcile without radical amendment.

It was suggested some time ago that there was no real scope for an international convention on this subject, and this was reaffirmed at the CMI’s Singapore Conference. Similarly, it appears unlikely that there is much scope for a model law. However, there is some prospect that the international working group, which has been commissioned to continue its research, will be able to prepare some model clauses or model rules of practice for presentation at the next CMI conference in 2004. Even if this is done and receives wide acceptance, it would have no direct legal impact and it would ultimately be up to the industry and the parties to each contract to decide whether or not to adopt any such new clauses or rules of practice. Although certain model clauses prepared by the insurance industry in London, notably the various Institute clauses, have received very widespread acceptance in the past, others, such as those prepared by UNCTAD in 1982, have passed into obscurity.

The terms of reference for the ALRC’s review of the MIA were amended to extend the reporting date until the end of April 2001 to accommodate, apart from other matters, the CMI conference. Although no substantive decision emerged from that conference, the scope of the debate in both conference sessions and discussions with other delegates made it clear that at present Australia is more advanced in its review of this area than any of the other current moves towards review or harmonisation. To that extent, the nascent reviews in the United Kingdom and Europe did not provide much direct guidance at this stage although no doubt the work done in Australia will be considered in those jurisdictions. The question of harmonisation in Europe is, of course, complicated by the fact that all but one of the members states are civil code countries. The one exception is the extremely important common law jurisdiction of the UK, which has had, and still retains, a profound influence on the law and practice in this area.

*Ian Davis is a Commissioner with the Australian Law Reform Commission. He led the ALRC review of the Marine Insurance Act 1909 (Cth).