The facts of the Cendor MOPU case were somewhat unusual. Lord Mance thought it “close to the line”, even applying the correct meaning of inherent vice. Had there been only gradual development of stress fractures in the rig legs due to the motion of the carrying vessel on the voyage, resultant repairs to the rig would not have been covered by the policy (as being due to fair wear and tear and/or inherent vice). However, since the “leg-breaking wave” was the proximate cause, and even though it was foreseeable and was foreseen, it provided the necessary element of external fortuity to enable the insured to recover under the policy.
The decision provides welcome clarification or guidance for the insurance market on many tricky issues, which should result in fewer and less complex coverage disputes. It is now clear that a loss is caused by inherent vice where the sole reason for that loss is the nature of the cargo, in that it would suffer loss irrespective of external fortuitous events.
The test in Mayban is no longer applicable, which will remove the need for complex expert evidence as to the conditions encountered on a voyage and whether these were reasonably to be expected. With confirmation of the strict limits of the inherent vice exclusion, insurers may now need to reconsider or seek advice upon existing cases in which this defence has been raised. Alternatively, if the effect of the decision is to expose insurers to risks they are not prepared to accept, for example where failure is very highly likely, some modification to rates or policy wordings may be required.
In addition to s55(2) of the 1906 Act, inherent vice “exclusions” are found in the 1982 and 2009 versions of the Institute Cargo Clauses and many other cargo covers. While the meaning of inherent vice will normally be the same under all marine insurances, application of the principles will depend on the nature and characteristics of the particular goods insured and of the insured voyage. Ultimately (as here) each case will turn on the application of principles clarified in the Cendor MOPU decision to the specific facts of each case, in particular what, based on expert evidence, a court decides is the true proximate cause of the loss.
The inherent moisture-type cases are likely to prove relatively straightforward. However, complex causation issues may arise with certain types of project cargoes where there has been progressive damage to the insured property as a result of movement or vibration of the carrying vessel in the course of the voyage. In such cases, the question is likely to be whether or not there was some external fortuitous “straw that broke the camel’s back”, or whether the damage was simply the result of the way the insured property naturally behaves when being transported.
While it appears that inherent vice and perils of the seas cannot both be concurrent proximate causes of a loss, in other circumstances issues of concurrent proximate causes of loss, one of which is inherent vice, may still pose problems. In this context, while not part of the decision, members of the Court expressed some interesting views on the true nature of the provisions of section 55(2) Marine Insurance Act 1906 and ICC A clause 4.4 and, in particular, whether these are situations of excluded perils or an amplification of the proximate cause rule. It may be that inherent vice is not to be considered as an excluded peril but simply as an example of a situation which is not a peril of the seas.
We gratefully acknowledge the invaluable contribution of Professor Robert Merkin, consultant to Norton Rose LLP, to the text of this briefing; any errors are ours alone.
- Global Process Systems Inc and another v Syarikat Takaful Malaysia Berhad, The Cendor MOPU  UKSC 5.
- Mayban General Insurance v Alstom Power Plants Ltd  2 Lloyd's Rep 609. A transformer suffered internal damage by violent movements of the carrying vessel on the voyage although the transformer itself did not move within the stow. It was common ground between the parties and so held in that case that the insurers would be liable only if the transformer was capable of withstanding the forces that it could ordinarily be expected to encounter in the course of the voyage. The evidence was that the conditions were neither extreme nor unusual so it was held that the loss could not have been caused by perils of the seas but was necessarily caused by inherent vice.
- per Bingham LJ in TM Noten v Harding  2 Lloyd’s Rep. 283
- Soya GmbH Mainz Kommanditgesellschaft v White  1 Lloyd's Rep 122
- Paterson v Harris (1861) 1 B & S 336
- Nelson Marketing International Inc v Royal and Sun Alliance Insurance Co of Canada (2006) 57 BCLR (4th) 27
-  1 Lloyd’s Rep 264; upheld for differing reasons by the Court of Appeal  1 Lloyd’s Rep 32.
- As, for example, in Mountain v Whittle  AC 615.
- Wayne Tank and Pump Co Ltd v Employers Liability Assurance Corporation Ltd  QB 57.
- J J Lloyd Instruments Ltd v Northern Star Insurance Co Ltd, (The Miss Jay Jay)  1 Lloyd's Rep 32. The reasoning of the Court of Appeal is open to some doubt and the approach of Mustill J at first instance seems to have been more attractive to Lord Mance in The Cendor MOPU.