Insurance Law Implications of Delay in Maritime Transport

Aysegul Bugra

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CHAPTER 6 Freight insurance and the loss of time clause

Introduction

6.1 Delay in voyage can take several forms which may subsequently result in loss of freight, both in the sense of freight stricto sensu and freight in the sense of charter hire: Delay in earning freight contracted for may induce the assured to contract for substituted freight; delay can frustrate the object of the adventure together with a peril from which it ensues; and it can induce loss of hire where it results from an off-hire event under a time charterparty. 6.2 The exclusion of delay losses in s 55(2)(b) applies to policies on ships and goods leaving out policies on freight. The law on delay in relation to freight insurance, both in the sense of freight stricto sensu and freight in the sense of charter hire has been developed in light of common law authorities. Currently, the former is insured under the Institute Voyage Clauses-Freight and the latter under the Institute Time Clauses-Freight. The loss of hire is also separately insured under loss of hire policies1 and therefore the distinction between this type of policy and time policies on freight must be made for the purposes of losses consequent upon loss of time and their recoverability. The distinction between freight policies on time basis and loss of hire policies was clarified in The Wondrous 2 where it was observed that loss of hire policies cover a fixed sum to be paid by reference to a period of time whereas valued time policies on freight insure the part of the adventure represented by the hire to be earned under a particular contract.3 Moreover the latter requires a loss in respect of the subject matter insured to be proved and is concerned ‘with the earnings or potential earnings of the vessel and not with the expenses of earning these sums’.4 A calculation of loss suffered under a time charterparty may therefore be relevant in assessing whether the assured has successfully mitigated losses under a freight policy; however, it cannot be taken to answer the question whether there was a loss of freight. Unvalued policies on freight are now overtaken by loss of earnings or loss of hire policies.5 Loss of

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hire policies will be analysed in and this chapter will merely be concerned with freight policies on time and voyage basis. 6.3 The Loss of Time Clause which now reads ‘This insurance does not cover any claim consequent on loss of time whether arising from a peril of the sea or otherwise’6 was introduced against the background of some of the common law authorities with the aim of relieving the insurers from liability for any claim consequent upon loss of time. This chapter will scrutinise the common law background of the law on delay in regards to freight policies and shed light upon the scope of application of the Loss of Time Clause.

Early authorities on delay in earning freight

6.4 Pre-MIA decisions on mere delay on the voyage7 which were decided on the basis of policies on freight followed or cited authorities decided upon policies on cargo.8 It is submitted that those decisions should be considered separately with respect to the effect of delay on marine adventure and losses arising therefrom. It would arguably not be a fallacy to suggest that delay in earning freight would not amount to a loss of freight by loss of adventure on the ground that freight is a fixed sum, the measure of which would not depend on the timing of the arrival of the goods to their destination. Accordingly, there would be no loss of adventure in a freight policy in so far as the freight is eventually earned, albeit with some delay. The interest of the assured in that case would be the safe arrival of the goods upon which the earning of freight would depend. Nonetheless, the interest sought in a marine adventure in so far as goods are concerned is not merely the safe arrival of goods, yet also their timely arrival.9 Delay in the marine adventure resulting in the impossibility of selling seasonal goods would not merely delay the earning of the interest contemplated by the assured (as in delay in earning freight) yet could arguably destroy the adventure contemplated. 6.5 The common law judgments delivered prior to the enactment of the MIA 1906 consistently held that a mere retardation on a voyage where freight was eventually earned did not give the assured a right to claim for a total loss of freight.10 In M’Carthy v Abel,11 the assured had abandoned the freight upon a hostile embargo to the freight insurers which was accepted by them; the embargo

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having subsequently ceased, the ship continued the adventure and in fact earned freight. The assured claimed for a total loss of freight subsequent to the abandonment and the cessation of embargo, however the Court held, inter alia, that there was no total loss of freight as the freight had actually been earned, albeit with some delay. 6.6 This decision was followed a few years later in Everth v Smith 12 where the assured had insured freight that was planned to be earned from the carriage of a cargo of hemp between two ports and the carriage of another homeward cargo. The vessel could have discharged her outward cargo, yet was detained at an intermediate port and was prevented from loading her homeward cargo. The master finally procured some substitute cargo for the homeward voyage and the vessel could eventually prosecute the adventure, however with some delay due to the detention. The assured incurred detention expenses which exceeded the freight eventually earned from the substitute homeward cargo and claimed for total loss of freight arguing that the freight actually earned was not the specific freight contracted for. Lord Ellenborough enunciated that it was certainly a loss of the particular trade which the assured had personally in contemplation, but that it was not within the intention of the policy. He found that the insurance was on freight generally,13 and that it was therefore not material if the freight eventually earned was the one contracted for or a posterior one. The mere retardation of the adventure, and ‘the consequent inconvenience and expense arising from it’, were not a substantive cause of loss where the particular thing insured had not received damage and where freight was eventually fully earned, though with some delay. 6.7 The decision in Everth v Smith is authority for the proposition that the substituted freight could not give rise to a total loss of freight, if freight – albeit not the freight contracted for – is actually earned with some delay. It is not entirely clear whether this line of reasoning could apply to freight which is commensurate with a particular charterparty which may arguably not be considered as freight on general terms, but specific freight contracted for.14 It can therefore be suggested that unless the assured can prove the freight was not on general terms,15 the substituted freight would not be covered under the policy and the assured can claim the difference between the substituted freight and the freight contracted for, a claim for partial loss of freight. Nevertheless, even in the event that the assured is allowed to claim for a partial loss, such a claim can effectively be considered as a claim ‘consequent upon loss of time’ on the ground that the freight had to be substituted because of a delay on the voyage and be excluded under the current Loss of Time Clause. In

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Turnbull, Martin & Co v Hull Underwriters’ Association, Ltd 16 the subject-matter insured was ‘freight of frozen meat, chartered or as if chartered’. The policy also contained the special clause ‘chartered freights and freights are warranted free from any claim consequent on loss of time whether arising from a peril of the sea or otherwise.’ The earning of freight had been rendered impossible due to a fire occurring on board and the impossibility to have the ship repaired on site. According to the court, ‘chartered or as if chartered’ meant ‘contracted for, or as if contracted for’ and it was held that the loss of time clause applied not only to chartered freights, but to all freights.17 6.8 Another category of claim in a freight policy like in Everth v Smith could have been expenses arising from detention. The assured in that case had not particularly claimed these expenses, yet had claimed total loss of freight on the ground that the detention expenses had exceeded the freight eventually earned. It is submitted that these expenses can properly be characterised as expenses arising from delay and would give rise to the question of whether they would be excluded by virtue of the Loss of Time Clause. To the best knowledge of the author, this issue has not yet been canvassed by courts; however it was stated in The Wondrous 18 that

‘Freight insurance is concerned with the earnings or potential earnings of the vessel, not with the expenses of earning those sums. It is not concerned as such with the fact that the voyage took longer nor with the fact that the costs of performing it were higher than were expected”.19

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