Breach of Warranty in a Marine Insurance Policy by Failing to Have the Vessel Properly Surveyed to Maintain Classification in Seapower Shipping Sdn Bhd v QBE Insurance (Malaysia) Bhd [2022] MLJU 1796 (High Court, Sibu) per Christopher Chin Soo Yin J

The Plaintiff owned the Malaysian Registered dumb barge, ‘Pertama Hijau’ (PH) (Net tonnage 708, and gross tonnage 2,360). The barge was submitted for survey by the reputable classification society Nippon Kaiji Kyokai (NKK). After the first survey, the barge is required to submit to an annual survey to ensure that its seaworthiness is maintained, thus retaining its classification. In order to be insured under a marine policy, ie a hull and machinery policy in this case, the survey is a mandatory marine insurance requirement, if the barge is to be traded in any waters.

PH was submitted for survey (note, there is usually a six month’s window to do this) to maintain her classification from 2 April 2018 to 2 July 2018 whilst in dry dock. NKK suspended the classification for most of this period. However, classification was reinstated when the survey was completed on 2 July 2018. On 27 September 2018, the barge was being towed when she floundered / capsized off the coast of the Solomon Islands, whilst laden with cargo.

The Defendant (Insurer / Underwriter) asserted that when the classification of the barge was suspended, the Plaintiff (Owner of the barge / Insured) has breached an express warranty of the marine policy. Note that Clause 4.1 of the marine policy stipulated that the insurance ‘shall terminate automatically at the time of … change of the classification society of the vessel, or change, suspension, discontinuance, withdrawal or deferred until arrival at her next port’. This had to be read together with the express warranty that ‘vessel class’ shall be ‘maintained through out the duration of the policy’.

Mr Justice Christopher Chin Soo Yin found that as the barge was submitted for a survey outside the designated window for a classification survey (ie 1 April to 1 October annually), it was not surprising that NKK suspended the classification of PH. It was the fault or neglect of the Plaintiff that triggered the breach of the warranty in the policy. The maintenance of a vessel’s classification was a routine requirement in the maritime industry and the Plaintiff failed to realise its importance.

His Lordship explained that ‘a breach of warranty in a marine insurance policy has the effect of discharging the insurer of liability under that policy’, citing the famous House of Lords judgment in Bank of Nova Scotia Appellants v Hellenic Mutual War Risks Association (Bermuda) Ltd. Respondents (“The Good Luck”) [1992] 1 AC 233, at pages 262-263. This point has also been discussed at length by the Court of Appeal in the Malaysian case of Amgeneral Insurance Bhd & Anor v Veheng Global Traders Sdn Bhd & Anor and other appeals [2017] MLJU 2319, and subsequently affirmed by the Federal Court, see [2019] 7 CLJ 715.

Thank you for reading IMSML Website Article 13/2022

Stay tuned for the next IMSML Website Article 14/2022:

Dispute for Charter Hire of a Dredger in Inai Kiara Sdn Bhd & Anor v Macon Charter BV [2022] MLJU 1274

Signing-off for today,

Dr Irwin Ooi Ui Joo, LL.B(Hons.); LL.M (Cardiff); Ph.D (Cardiff); CMILT

Professor of Maritime and Transport Law

Head of the Centre for Advocacy and Dispute Resolution

Faculty of Law

Universiti Teknologi MARA Shah Alam

Selangor, Malaysia

24 October 2022

Note that I am the corresponding author for the IMSML Website Articles. My official email address is: uijoo310@uitm.edu.my