Explanatory Memorandum for a Bill to amend the Commonwealth Marine Insurance Act 1909 ( MIA )

Transcription

1 MARITIME LAW ASSOCIATION OF AUSTRALIA AND NEW ZEALAND ACN ABN MLAANZ c/- Clerk Young GPO Box 4770 Melbourne VIC 3001 AUSTRALIA 13 May 2016 Explanatory Memorandum for a Bill to amend the Commonwealth Marine Insurance Act 1909 ( MIA ) 1. This Explanatory Memorandum is to be read in conjunction with the draft Bill for an Act to amend the MIA prepared by a sub-committee of MLAANZ ( the MLAANZ draft Bill ) which is set out below. 2. The Board extends its thanks to the sub-committee comprised of Stuart Hetherington, Dr Sarah Derrington, Neil Hiller and Paul Baxter, and chaired by Derek Luxford. 3. The MIA is based on the UK Marine Insurance Act 1906 (UK MIA) and is almost identical to the UK MIA in substance. When enacted the MIAs in both countries represented a codification of the existing marine insurance law and practice. The practices of the Australian marine insurance market have long reflected practices in the UK marine insurance market which is the most important marine insurance market globally. Generally there has been a consistency in judicial interpretation of the MIAs in both countries. 4. In 1986 the Commonwealth Insurance Contracts Act 1984 ( the ICA ) came into effect. There is no equivalent to the ICA in the UK. The UK insurance market and English law has always treated the MIA as applying to all contracts of commercial insurance and reinsurance even those contracts having nothing to do with the insurance of maritime risks which would be governed by the ICA in Australia. 5. In 2001 the Australian Law Reform Commission ( ALRC ) issued a comprehensive review of the MIA following extensive consultations with stakeholders ( the ALRC report ). The ALRC report recommended significant changes to the MIA especially in the areas of utmost good faith, disclosure, remedies for breach of contract and warranties as well as many others. The ALRC report included a draft Bill to amend the MIA to give effect to its recommendations ( the ALRC draft Bill ). Some of these recommendations especially in relation to non-disclosure, remedies and warranties were similar to corresponding provisions in the ICA. However to all intents and purposes none of the recommendations have been enacted and there is currently no legislative proposal to amend the MIA whether by adoption of the ALRC recommendations or otherwise. 6. In February 2015 the UK enacted the Insurance Act 2015 ( the UKIA ) which will come into effect in August The UKIA makes fundamental amendments to the UK MIA in relation to the key areas utmost good faith, disclosure, remedies for breach of contract and warranties. The substance of many of these amendments resembles to some extent the corresponding recommendations of the ALRC in its _1

2 draft Bill and to some extent the corresponding provisions in the ICA, albeit the actual language of the UKIA is for the most part quite different to the ALRC draft Bill and the ICA. 7. Once the UKIA comes into force in August 2016 the Australian MIA will be in the invidious position of retaining provisions over a century old which have now been discarded in mother legislation in the UK. As the UKIA (like the ALRC draft Bill) adopts a more pro-insured approach it would seem probable that this will place the Australian marine insurance market at a competitive disadvantage and at real risk of losing business. It will also mean that Australian marine insurance law will become obsolete in relation to the changes to English marine insurance law under the UKIA. In reality the UK has seized the opportunity for reform presented by the ALRC in 2001, although the UKIA reforms are confined to utmost good faith, nondisclosure, breach of contract, remedies for breach of duty and contract, and warranty provisions and do not touch the bulk of the MIA dealing with various peculiarities of marine insurance compared to non-marine insurance and particularly in relation to the handling of marine insurance claims such as the different measures of indemnity, actual and constructive loss, salvage, general average, valued and unvalued policies and many others. 8. With a view to maintaining the Australian marine insurance market in a competitive position, maintaining legal harmony with the UK marine insurance law and implementing key recommendations of the ALRC report the MLAANZ draft Bill amends the MIA in respect of the duty of utmost good faith (section 23), the duties of disclosure (sections 24, 25 and 26 and introducing new sections 26A, 26B, 26C and 26D), and provisions relating to warranties (sections 39 and 40). A new section 47A is introduced regulating the rights of insurers to cancel contracts of marine insurance. A new section 96 is introduced reflecting section 57 of the ICA to give the insured an entitlement to interest on late payment of claims. Interestingly the UK in its Enterprise Bill 2015 currently before the UK Parliament introduces a provision for an insured to claim damages for late payments of claims. This provision was not included in the UKIA. Section 96 of the amended MIA will, like section 57 the ICA, provide an entitlement to a prescribed rate of interest but not to damages. 9. The MLAANZ draft Bill also includes amendments to several provisions adopting ARLC recommendations which will assist the MIA to reflect current market practice by extending its operation to cover inland waters and incidental air risks (section 8(1)), ship repair previously confined to ship building (section 8(2)), repealing the 12 month limit on time policies (section 31(2)) and expanding section 35 to apply to cargo open or annual policies. Again the wording of these proposed amendments is drawn from the ALRC draft Bill, and are not considered controversial. 10. Apart from the new section 96 giving a right to interest on late payments of claims all of the amendments proposed in the draft Bill adopt the wording in the ALRC draft Bill in The ALRC wording has been preferred to the wording in the UKIA because it more closely aligns the MIA to the ICA which was the approach adopted by the ALRC in 2001, and where there is already a well established body of common law interpreting the provisions of the ICA whereas interpretation of the UKIA will involve entering unchartered waters as far as English common law is concerned. 11. The UKIA contains several opt out provisions including in relation to warranties. MLAANZ does not consider these provisions are appropriate for the MIA and there are no opt-out provisions in the MLAANZ draft Bill _1 Page 2

3 12. In the opinion of MLAANZ the imminent coming into effect of the UKIA in August 2016 makes the case for corresponding amendments to the MIA contained in the draft MLAANZ Bill compelling. Possible additional amendments to the MIA not covered in the MLAANZ draft Bill 13. In the Australian marine insurance market especially in relation to cargo open or annual policies which often contain significant non-marine risks such as stock through-put or extended storage, there is considerable uncertainty in many cases as to whether the MIA or the ICA applies to such contracts of insurance. Changes to underwriting practices in the marine cargo markets in the century since the MIA was enacted and especially the development of annual or open cargo policies have led to many insurers issuing policies containing significant non-maritime risks or even risks arguably not even incidental to maritime risks in the context of the definitions of maritime perils and maritime adventure in sections 7, 8 and 9 of the MIA. At the time of enactment of the MIA most cargo business was written on a single voyage basis and that practice is reflected throughout the MIA. The ALRC considered this issue and saw merit in principle for appropriate reform to end uncertainty as to whether the MIA or ICA applied, but considered it premature to recommend such a reform (see generally paragraphs 3.24 to 3.34 and 8.38 to 8.6 in its Report). An option considered but not adopted by the ALRC by way of such reform was to expand the MIA to cover all modes of transit risks known as MAT insurance (paragraphs 3.24 to 3.34 of the ALRC report). 14. There is a strongly held view in some sections of the marine insurance market that the MIA needs reform to clarify those matters. This clarification is particularly important at the time of the placement of the cover (the broking and underwriting stage) because at the replacement of an open or annual cargo cover it is often not possible for the parties to know to what extent the future cargo to be declared under these contracts will include marine risks as invariably the policy cover is expressed to apply to all sendings that is to say transits by land, sea or air. In the UK the market practice is to treat all such covers as marine insurance even if the maritime context is relatively minor, but this is not a legal issue because there is no equivalent of the ICA. An Australian insurer needs to determine which regime applies not just at the placement of the insurance but also in relation to claims handling as there are many provisions relevant to claims handling in the MIA which are unique to it as mentioned in paragraph 6 above. 15. Due to the considerable uncertainty in the market at the moment as to which regime applies with annual and open cargo policies there is arguably a case for amendment of the MIA to clarify the position as to what should be covered under a contract governed by the MIA going beyond the traditional concepts of maritime risks or mixed risks whether incidental to maritime perils or covered by trade usage or by express wording in the policy, which is how the scope of maritime perils are defined in sections 7, 8 and 9 of the MIA. The MLAANZ draft Bill does not adopt such amendments, rather it adopts only limited amendments to section 8 and 35 (see paragraphs 7 and 8 above) to give effect to the ALRC recommendations in relation to those sections. 16. MLAANZ has considered these issues and recognises that there might well be a case for such further reform. Such reform would introduce important changes in the MIA which do not appear in the UK MIA post the UKIA, although they reflect the marine market practice in the UK, and which are unlikely to be enacted in that jurisdiction due to the absence of an equivalent to the ICA. The UK market in effect adopts an MAT approach to transit and incidental risks, but in any event the UK MIA is treated as applying to all commercial insurance. For that reason these _1 Page 3

4 topics do not appear to have been considered by those who have been involved with the reform of the UK MIA at any stage including the submissions to and reports by the English and Scottish Law Reform Commissions from 2006 which led to the enactment of the UKIA in MLAANZ considers that before any further amendments to the MIA of the type mentioned in paragraphs 12 to 15 above are considered, that it would be prudent to seek views from the insurance industry not just the marine insurance industry but also from the non-marine insurance industry which might be affected by what in practice would be a potentially significant expansion of the operation of the MIA into risks currently underwritten the non-marine market and where the relevant insurance contracts are governed by the ICA. An example for instance is in relation to long term storage of cargo under ISR policies which do not necessarily have any direct or even incidental connection with transit perils whether by sea, land or air. Such risks are also now often covered in annual or open cargo policies. Ironically and for historical reasons cargo carried by land and by air in Australia is often insured by the marine departments of Australian insurers (as it is in the UK) but with the recognition that if there is no sea transit component to the contract then the ICA will govern the insurance contract. The uncertainty arises when cargo annual or open policies extend their cover to multi-modal transit not just sea transit. An MAT type policy governed by the MIA would probably reflect market practice and the pre ICA law. However even with an MAT policy there will still be the issue of non-transit risks not incidental to transit such as stock throughput. 18. As these areas are untouched in the UKIA and were deemed premature or unnecessary by the ALRC in 2001, MLAANZ has not considered them for inclusion in its draft Bill. However it is proposing to raise them with the marine insurance industry to try to assess whether the marine insurance industry is in favour of any of these possible amendments as a matter of principle. If there is sufficient support for such reforms then appropriate amendments could be drafted for subsequent consideration by the whole insurance industry in Australia. Bill for an Act to amend the Marine Insurance Act 1909 and for related purposes The Parliament of Australia enacts: 1. Short title This Act may be cited as the Marine Insurance Amendment Act Commencement This Act commences on a date to be proclaimed. 3. Application This Act applies to all contracts of marine insurance concluded or renewed on or after the day which this Act commences. 4. Schedule The Marine Insurance Act is amended as set out in the applicable items in the Schedule. Schedule - Amendment of the Marine Insurance Act _1 Page 4

5 1. Subsection 8(1) Omit "on inland waters or"; Note: The heading to section 8 is replaced by the heading "Scope of marine insurance". 2. Subsection 8(1) After "land" insert "or air". 3. Subsection 8(2) Repeal the subsection, substitute: "(2) Unless the contract otherwise provides, a ship in course of building or repairs, the launch of a ship, or any adventure analogous to a marine adventure is covered by the provisions of this Act, in so far as applicable; but, except as by this section provided, nothing in this Act shall alter or affect any rule of law applicable to any contract of insurance other than a contract of marine insurance as by this Act defined." 4. At the end of section 8 add: "(3) Unless it expressly provides otherwise, a contract of marine insurance protects the assured against losses on all inland waters; (4) Unless the contract expressly provides otherwise or the context requires otherwise, all references in this Act and in a contract of marine insurance to the "sea" and the "seas" include references to inland waters. 5. Duty of utmost good faith - Section 23 Repeal the section, substitute: (1) A contract of marine insurance is a contract based on the utmost good faith and there is implied in such a contract a provision requiring each party to it to act towards the other party, in respect of any matter arising under or in relation to it, with the utmost good faith. (2) If reliance by a party to a contract of marine insurance on a provision of the contract would be to fail to act with the utmost good faith, the party may not rely on the provision. (3) Subsection (2) does not limit the operation of subsection (1). (4) In deciding whether reliance by an insurer on a provision of a contract of marine insurance would be to fail to act with the utmost good faith, the court shall have regard to any notification of the provision that was given to the assured, whether a notification of a kind mentioned in this Act or otherwise. (5) The requirement that each party act toward the other party with the utmost good faith extends for the duration of the relationship between the parties set out in the contract of marine insurance except in relation to any claim or other aspect of the relationship which becomes the subject of litigation between the parties, in which case the requirement ceases when the litigation is _1 Page 5

6 6. Subsection 24(1) commenced but only in relation to the claim or other aspect that is the subject of that litigation. Repeal the subsection, substitute: (1) Subject to the provisions of this section, the assured must disclose to the insurer, before the contract is concluded, every circumstance which is known to the assured, or which a reasonable person in the circumstances could be expected to know, to be material. 7. Subsection 25 Omit the subsection, substitute: every circumstance which is known to the agent or which a reasonable person in the circumstances could be expected to know to be material; and 8. Subsection 26(1) Omit the second sentence. 9. After section 26 Insert: S.26A No other duty of disclosure (1) Without otherwise limiting or restricting section 23 of this Act, this Act does not, and a contract of marine insurance may not, impose on an assured a duty of disclosure before the contract is concluded greater than that provided for by this Act. (2) A contract of marine insurance may include an express term providing for a duty of disclosure by the assured after the contract has been concluded. S.26B Remedies for non-disclosure and misrepresentation (1) Subject to any contrary term in the contract, if there is a breach by the assured or its agent of the obligations in sections 24, 25 or 26, the following subsections apply. (2) If the breach is fraudulent the insurer is entitled to avoid the contract. (3) If the breach is not fraudulent and the insurer proves that the non-disclosure or misrepresentation induced it to enter into the contract: (b) if the insurer proves that it would not have entered into the contract if there had been no breach - the insurer is entitled to avoid the contract but must return the premium to the assured; if the insurer proves that it would have entered into the contract but on different terms - the insurer: (i) is not entitled to avoid the contract; and _1 Page 6

7 (ii) and (iii) assured to that the breach; and is not liable to indemnify the insured for any loss proximately caused by the undisclosed or misrepresented circumstance; is entitled to reduce any liability that it may have to the reflect any variation in premium, deductible or excess insurer would have required if there had been no 47A. (iv) is entitled to cancel the policy in accordance with Section S.26C No greater remedies A contract of marine insurance may not provide for any remedies for a breach by the assured or its agent of the obligations in sections 24, 25 or 26 more favourable to the insurer than those provided for by section 26B. S.26D Following insurers (1) This section applies if there is a breach by the assured or its agent of the obligations in sections 24, 25 or 26 and it is proved that an insurer (in this section called the "following insurer") underwrote a proportion of a risk on a contract of marine insurance only because one or more other insurers (in this section called the "leading insurers") had already underwritten a proportion of the risk. (2) The following insurer is deemed to have been induced to enter into the contract by the breach only if all of the leading insurers were induced by the breach to enter into the contract. 10. Subsection 31(2) Repeal the sub-section. 11. Subsection 35(1) After "floating" insert ", open or annual". Note: The heading to section 35 is replaced by the heading "Floating, open and annual policies". 12. Subsection 35(1) After "ships" insert "or other insurable property". 13. Subsection 35(3) Omit "shipment. They", substitute "shipment and they". 14. Subsection 35(3) Omit "policy and the", substitute "policy. The". 15. Section 39(3) Repeal the sub-section, substitute _1 Page 7

8 (3) Subject to this Act no warranty and no express or implied term in a contract of marine insurance is a warranty or otherwise has the effect that any breach of it by the assured entitles the insurer to be discharged from any liability under the contract. (4) Subject to this Act, a warranty or an express term in a contract of marine insurance may provide that, if there is a breach by the assured of a warranty or an express term in the contract, the insurer is discharged from all liability to indemnify the assured for any loss proximately caused by the breach. (5) Without prejudice to any other burden of proof provided for by statute or common law, the insurer bears the burden of proving that there was a breach of a warranty or express term of the contract and the assured bears the burden of proving that the loss for which it seeks to be indemnified was not proximately caused by or attributable to, as the case requires, the breach. 16. Section 40(1) After "warranty" insert "or a term of a contract of marine insurance", in each place that the word "warranty" appears. 17. Section 40(2) Repeal the subsection. 18. Section 40(3) re-number 40(2) After "warranty" insert "or any term of a contract of marine insurance by the insured". 19. After section 47 Insert: S.47A Cancellation of contracts of marine insurance. (1) Subject to any express term in a contract of marine insurance, where: (b) (c) (d) the assured has failed to comply with a provision of the contract; or the assured did not comply with the duty of utmost good faith; or the assured has made a fraudulent claim under the contract; or this Act otherwise permits: the insurer may cancel the contract in accordance with this section. (2) An insurer who wishes to exercise a right to cancel a contract of marine insurance, whether under this section or pursuant to an express term of the contract, shall give notice in writing of the proposed cancellation to the assured. (3) Any notice of an insurer's intention to cancel a contract of marine insurance has effect to cancel the contract at any time specified in the notice after the earlier of the following times: the time when another contract of marine insurance between the assured and the insurer or some other insurer, being a contract that is _1 Page 8

9 intended by the assured to replace the first-mentioned contract, is entered into; (b) 4pm on the third business day after the day on which the notice was given to the assured. 20. After section 95 Insert: "96 Interest on claims (1) Where an insurer is liable to pay to a person an amount under a contract of marine insurance or under this Act in relation to a contract of marine insurance, the insurer is also liable to pay interest on the amount to that person in accordance with this section. (2) The period in respect of which interest is payable is the period commencing on the day as from which it was unreasonable for the insurer to have withheld payment of the amount and ending on whichever is the earlier of the following days: (b) the day on which the payment is made; the day on which the payment is sent by post to the person to whom it is payable. (3) The rate at which interest is payable in respect of a day included in the period referred to in subsection (2) is the rate applicable in respect of that day that is prescribed by, or worked out in a manner prescribed by, the regulations under the Marine Insurance Act (4) This section applies to the exclusion of any other law that would otherwise apply. (5) In subsection (4): "law" means: (b) a statutory law of the Commonwealth, a State or Territory; or a rule of common law or equity." (6) The Governor General may make regulations not inconsistent with this Act to prescribe the applicable rate of interest referred to in subsections (2) and (3) _1 Page 9

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