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Paul Davison Partner Beachcroft LLP

Paul Davison Partner Beachcroft LLP

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Paul Davison Partner Beachcroft LLP

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  1. GLOBAL PROCESS SYSTEMSvSYRIKAT TAKAFUL MALAYSIA (2011)The “Cendor Mopu”The Scope of “Inherent Vice” Exclusion Paul Davison Partner Beachcroft LLP

  2. Overview • The Cendor Mopu – the Facts • Supreme Court Decision and Reasoning • Wider Implications of the Decision

  3. The Cendor Mopu – The Facts • Oil Rig – laid up in Texas • 2005 – purchased by Insured • To be used for offshore production off coast of Malaysia • Transferred by barge - 3 legs 300ft in the air • Off Cape of Good Hope – • 1 leg broke off • Next day followed by other 2 legs

  4. The Cendor Mopu – The Insurance • Insured purchased a marine cargo policy for the journey • Indemnity : “all risks” – including perils of the seas • Excludes:- “Loss, damage or expense caused by inherent vice or nature of the subject matter insured” – clause 4.4

  5. Supreme Court Decision – The Issue • What caused the loss • Inherent vice (excluded); or • Perils of the sea (insured)

  6. Supreme Court - Decision • Proximate cause of loss - a large wave:- • Caught leg at right moment – causing collapse • Led to unexpected stress on and collapse of the other 2 legs • Cause of loss– perils of the seas - not “Inherent Vice” • Loss covered by the policy

  7. Supreme Court - Reasoning What is “Inherent Vice”? • Does note encompass intervention of any fortuitous external accident • Limited to “natural behaviour of goods …. in the circumstances in which they are expected to be carried” per Donaldson LJ

  8. Supreme Court - Reasoning What are “Perils of the Seas”? • Must be fortuitous accident • Not ordinary action of wind and waves Held • Weather encountered was contemplated for the voyage • Sufficient if wind and waves had an extraordinary effect rather than being extraordinary in themselves

  9. Wider Implications • Inherent vice exclusion - Narrowed • Does not apply where there is any fortuitous external event - even if the event is to be expected • Applies only where the loss is caused entirely by the internal state of the insured subject matter • Proximate cause of loss - key issue • External straw that broke the camels back= not inherent vice

  10. Wider Implications • Insurers can only deny such claims if loss caused by: • Ordinary wear and tear – i.e. cause was inevitable; or • Inherent vice – if due entirely to characteristics of the goods • Key – absence of any fortuitous external accident or casualty