Marine Insurance Law in Korea Sung Won Park ** ABSTRACT This article is on the marine insurance law in Korea, however, not being an in-depth study but seeking to briefly introduce the marine insurance law in Korea and expand on some related issues to consider. The source of law and prevailing insurance policies applicable to hull insurance, cargo insurance and P&I insurance in Korea are introduced, followed by consideration of some of the issues arising from the marine insurance law in Korea. This article shows the way how not only the Korean Commercial Code but also the 1906 Marine Insurance Act in England is chosen to govern the hull insurance and cargo insurance involving the Korean companies and also shows that ITC (Hulls) 1983 for hull insurance and ICC 1963 (or 1982) for cargo insurance are prevailing in Korea. Lastly, it considers some issues arising from the marine insurance in Korea, in particular those being recently discussed such as the issue of warranty or a third party victim s direct claim against the liability insurer. KEYWORDS: Marine Insurance, Hull Insurance, Cargo Insurance, P&I Insurance, ITC (Hulls), ICC, Warranty, Direct Claim For this paper, several articles written by Professor In Hyeon Kim, in particular articles contained in 27 Transport Law, 43 Journal of Marine Law & Commerce, and Journal of 44 Marine Law & Commerce are considered. I would like to say a word of thanks to Professor In Hyeon Kim. ** Lawyer of Law office CHOI & KIM in Korea, Email: swpark@choikim.com.
102 The Asian Business Lawyer [Vol.13:101 The Table of Contents I. Introduction II. Source of Law III. Policies prevailing in Korea for Marine Insurance IV. Overview of Marine Insurance Law in Korea V. Other Issues arising from Marine Insurance Law in Korea Ⅰ. Introduction As in many other countries, three different kinds of marine insurance are available in Korea: Hull insurance, cargo insurance and P&I insurance. Although foreign insurance companies and P&I clubs can freely run their business in Korea, in the hull insurance and cargo insurance, the insurer is normally a Korean company. There are eleven Korean non-life insurance companies such as Samsung Fire & Marine Insurance Co. Ltd. and Hyundai Marine & Fire Insurance Co. Ltd. which are eligible for underwriting marine insurance. Those local insurance companies underwrite hull insurance and cargo insurance as well. As far as P&I insurance is concerned, foreign P&I clubs such as UK P&I Club, Britannia P & I Club, and Japan P&I Club still maintain dominant position within the Korean market. Those major P&I clubs maintain their correspondents in Korea, who sometimes play substantial role as claim handler in claim dispute for the benefit of their members. Many P&I insurance brokers also run their business in the Korean market. Korea P&I Club which started in 2000 has been quickly expanding its business. 1 However, most members of Korea P&I Club are still limited to Korean ship owners mainly with medium sized ship because, albeit partly, they are not yet a member of International Group of P&I clubs ( IG Club ). Korea Shipping Association ( KSA ) also provides P&I insurance service for their members. 2 The members of KSA also seem to be limited to those ship owners who operate vessels mainly within Korean territorial seas. KSA also provides the owners of Korean 1 The Korean government had a great role to establish a national P&I club. Korea P&I Club was established by the special act on the Korean Protection & Indemnity Club. For more information about Korea P&I Club, please refer to their official web-site, http://www.kpiclub.or.kr/eng/. 2 For more information about Korea Shipping Association, please refer to their official web-site, http://www.haewoon.or.kr/ksaeng/main/main.do.
2014] Marine Insurance Law in Korea 103 coastal tankers with liability insurance required under the Korean Oil Pollution Damages Compensation Act. II. Source of Law A. Korean Commercial Code Korea has no separate insurance or marine insurance act. Instead, the 4th Chapter of the Korean Commercial Code ( KCC ) covers the insurance contract (i.e. insurance law), which includes the general clauses (Section 1) and those specific to non-life insurance (Section 2) and life insurance (Section 3). For marine insurance, KCC provides 25 Articles (Article 693 ~ Article 718) in its 4th sub-section of Section 2 of 4th Chapter as above. Article 693 of KCC provides that the insurer has an obligation to indemnify the loss suffered by the insured due to an incident in connection with marine business. Hull and cargo insurance are two major insurance stipulated in the marine insurance section of KCC. Although P&I insurance has become an essential insurance for Korean ship owners in practice, KCC or its marine insurance section has no separate provisions for P&I insurance. P&I insurance is, as a matter of Korean law, categorized as liability insurance and on that basis, provisions for liability insurance contained in KCC is applicable for P&I insurance to the extent that they are relevant. 3 Unlike other Korean insurance companies, KSA s hull policy provides for Korean governing law (Clause 1 of their hull policy) although they have a special clause stating that in case of co-insurance with an insurance company using a standard insurance policy such as Institute Time Clause (Hull) or Institute Voyage Clause (Hull), such standard policy shall be applicable, as a result of which English law shall be applicable. National Federation of Fisheries Cooperatives ( NFFC ) also provides hull insurance for domestic fishing vessel. As NFFC s hull insurance policy has no English governing law clause, Korean law is applicable to their hull insurance. P&I rules of Korea P&I Club and KSA provide the Korean governing law clause. 4 3 5th sub-section of non-life insurance section (i.e. Section 2) of Chapter 4 of KCC. 4 Clause 40 of KSA P&I Rules and Clause 48 of Korea P&I Club Rules.
104 The Asian Business Lawyer [Vol.13:101 B. English Law 1906 Marine Insurance Act The principle of party autonomy is also recognized in Korea. Although Article 663 of KCC provides that any agreement resulting in the insured s interest being less protected than when applying that in Chapter 4 of KCC (i.e. covering the insurance contract) shall be null and void, it also explicitly adds that re-insurance, marine insurance and other similar insurance are not so restricted. On this basis, Institute Time Clause (Hulls) and Institute Cargo Clause (ICC 1963 or 1982) can be and in fact can have been most commonly choosed and used by the Korean insurance companies for hull and cargo insurance. As a result, English law including 1906 Marine Insurance Act ( 1906 MIA ) which is chosen as the governing law in ITC (Hulls) and ICC 1963 5 or 1982 6 may also be applicable to such insurance contract involving the Korean insurance companies. In this regard, the Korean Supreme Court has maintained for several years that such agreement on English law as the governing law clause is valid even if the insurance contract is entered into by the Korean insurance company and Korean insured. 7 The wording of English governing law clause used for hull insurance and marine cargo insurance (under new policy and ICC 1982) is slightly different. 8 That is to say, whilst apparently no limitation is provided in ITC (Hulls) in regard to the matters to be governed by English law, it seems that only those matters to determine the liability and the settlement of claims are, in the marine cargo insurance (under new policy and ICC 1982), governed by English law. As the application of English governing law is different (limited) in the marine cargo insurance, the Supreme Court held in a case involving the marine cargo insurance policy and ICC that those issues other than liability and settlement of claims such as that of whether an insurance contract has been formed shall be determined not by English law but by Korean law. 9 5 To be precise, All questions of liability arising under this policy to be governed by the laws and customs of England are stated on the SG policy rather than on ICC 1963 itself. 6 Clause 19 of ICC 1982, which all states that This insurance is subject to English law and practice. 7 Supreme Court [S. Ct.], 90Daka25314, May. 14, 1991 (S. Kor.), Supreme Court [S. Ct.], 2002Da 59528, Nov. 25, 2005 (S. Kor.). 8 It is stated in ITC (Hulls) that This insurance is subject to English law and practice whilst it is stated on the marine cargo insurance policy (new) that Notwithstanding anything contained herein or attached hereto to the contrary, this insurance is understood and agreed to be subject to English law and practice only as to liability for and settlement of any and all claims. 9 Supreme Court [S. Ct.], 96Da39707, July. 14, 1998 (S. Kor.).
2014] Marine Insurance Law in Korea 105 III. Policies prevailing in Korea for Marine Insurance Almost all Korean insurance companies do not have (use) their own policy or general terms and conditions for hull insurance and marine cargo insurance. Accordingly, ITC (Hulls) and ICC 1963 or 1982 are most commonly used Korea. For P&I insurance, many of the Korean ship owners are still entered in IG Club and thus their rules are also prevailing for the P&I insurance involving the Korean ship owners. Although KSA and Korea P&I Club provide the hull insurance and P&I insurance to the Korean ship owners and they have their own policy or rules. Their policy or rules are (or at least their key parts such as the covered risks are) almost identical to those of ITC (Hulls) or IG Club rules. 10 It is not believed to meet the purpose of this paper to give some explanation about the well-known ITC (Hulls) or IG Club rules. ITC (Hulls) 1983 is most widely used but the following condition to limit its coverage are also frequently used in Korea 11 : ITC(Hulls) 1. 10. 83 but free of any claim in respect of partial loss of and/or damage to the Vessel unless caused by the Vessel being stranded, sunk, burnt, on fire, or explosion, in collision or in contact with any external object other than water (but including ice) including general average damage. In the meantime, a more limited policy, i.e., ITC (Hulls) Total Loss Only (including Salvage, Salvage Charges and Sue & Labour) which does not cover the general average and collision liability is also frequently used in Korea. KSA provides for its own hull insurance policy. The covered risks and exclusions are almost identical to ITC (Hulls) 1983 12 although their main policy is to cover the total loss only similarly to ITC (Hulls) Total Loss Only (including Salvage, Salvage Charges and Sue & Labour). Accordingly, KSA provides for additional optional policies to expand their coverage, which are to cover (1) particular average caused by the Vessel being stranded, sunk, burnt, on fire, or explosion, in collision or in contact with external object and general average ( FPL ), (2) other particular average in addition to FPL ( ITC ) and (3) 3/4 or 4/4 of collision liability. For the marine cargo insurance, ICC 1963 or 1982 is used in Korea. Although the transit clause (Clause 1 of ICC 1963 and Clause 8 of ICC 1982) provides for coverage of 60 days after the goods are discharged at the final discharge 10 In particular, the rules of Japan P&I Club. 11 ITC (Hulls) is attached to the policy on which the above condition is stated. 12 Clause 6 and 7 of ITC (Hulls) 1983.
106 The Asian Business Lawyer [Vol.13:101 port, it is reportedly the practice in Korea that the Transit Termination Clause 13 reducing the coverage period to 30 days after the goods are discharged is used particularly for the imported goods and thus, the Risk After Discharge Clause is used if it is necessary to restore the coverage period as in the original Transit Clause. It is also the practice in Korea that the Institute War Clauses (Cargo) and Institute Strikes Clauses are frequently attached to the marine cargo insurance policy with payment of additional premium. Although the P&I rules of KSA and Korea P&I Club are almost identical to those of IG Club, they provide for arbitration in Korea and Korean governing law clause. 14 The P&I rules of KSA as well as that of Korea P&I Club seem to be different from those of IG Club in that the rules of KSA and Korea P&I Club include express clauses on warranty. 15 As there is no concept of warranty under the insurance law in Korea, the rules of KSA and Korea P&I Club being governed by Korean law are thought to be in need of a separate and express clause in order to impose the obligation to comply with the warranty on the members and enforce the effect of breached warranty. The differences between the warranty clause of KSA and the warranty under 1906 MIA will be discussed below. IV. Overview of Marine Insurance Law in Korea A. Insured s Duty to Pay the Premium Insurers undertake the risk in consideration of receiving the premium. Under KCC, the insured has an obligation to pay the entire or at least the first installment of the premium to the insurer immediately after the insurance contract has been made, failing which, the insurance contract shall be regarded, unless agreed otherwise, as cancelled two months after the insurance contract was made (Article 650). The insurer becomes liable to indemnify the loss once the premium (or the first installment of the premium) is received (Article 656). Under 1906 MIA, unless otherwise agreed, the duty of the assured to pay the premium and the duty of the insurer to issue the policy are concurrent conditions, 13 The clause states that It is specially understood and agreed that the words 60 days in (C) (or in 8.1.3.) of the paragraph of the Transit Clause of the Institute Cargo Clauses are substituted by the words 30 days. 14 Clause 39 and 40 of KSA P&I Rules and Clause 47 and 48 of Korea P&I Club Rules. 15 Clause 13-2 and 13-3 of KSA P&I Rules and Clause 2-1 and 2-2 of Korea P&I Club Rules.
2014] Marine Insurance Law in Korea 107 and the insurer is not bound to issue the policy until payment or tender of the premium (Article 52). B. Risks Covered There is no provision in KCC which lists the risks to be covered by the marine insurance and therefore it is to be determined entirely on the basis of party autonomy. As ITC (Hulls) and ICC are prevailing in Korea, provisions included in those policies. 16,17 are also applicable to the hull and cargo insurance provided by the Korean insurance companies.in the meantime, Clause 9 of KSA s hull insurance policy lists the risks to be covered, 18 which are almost identical to Clause 6 and 7 of ITC (Hulls) 1983. As KSA s hull insurance policy is, however, to cover the total loss only, they provide for additional policies with a view to covering the partial loss and 3/4 or 4/4 collision liability as above. C. Causation As a matter of KCC, the insurer is liable for such loss that is reasonably attributable to the insured peril. In this regard, 1906 MIA provides that the insurer is liable for such loss proximately caused by a peril insured (Article 55-1). Proximately here is understood to be proximate in efficiency rather than in time, and a common sense approach is required in determining the proximate cause of a loss. It may be questioned whether and to what extent the causation required under KCC as above is different from that under 1906 MIA but in practice, they are not considered to be substantially different. 16 Clause 6, 7 and Clause 8 (3/4ths Collision Liability) of ITC (Hulls). 17 Clause 5 of ICC 1963 and Clause 1, 2 and 3 of ICC 1982. 18 Clause 9 (Risks covered) 9.1 This insurance covers the total loss to the insured vessel caused by: 9.1.1 perils of sea, rivers, lakes or other navigable waters 9.1.2 fire, explosion 9.1.3 violent theft by persons from outside the Vessel 9.1.4 jettison 9.1.5 piracy 9.1.6 breakdown of or accident to nuclear installations or reactors 9.1.7 contact with aircraft or similar objects, or objects falling therefrom, land conveyance 9.1.8 earthquake, volcanic eruption or lightning 9.2 This insurance covers the total loss to the insured vessel caused by the following risks provided that such loss has not resulted from want of due diligence by the Assured, Owners or Managers 9.2.1 accidents in loading, discharging, or shifting cargo or fuel 9.2.2 bursting of boilers breakage of shafts or any latent defect in the machinery or hull 9.2.3 negligence of Master, Officers, Crew, or Pilots 9.2.4 negligence of repairers or charterers provided that such repairers or charterers are not an Assured hereunder 9.2.5 barratry of Master, Officers, or Crew 9.2.6 loss to the Vessel caused by any governmental authority to prevent or mitigate a pollution hazard, or threat thereof resulting directly from damage to the Vessel for which the Underwriters are liable under this insurance 9.3 Masters, Officers, Crew or Pilots not to be considered Owners within the meaning of this insurance even if they hold shares in the Vessel.
108 The Asian Business Lawyer [Vol.13:101 D. Exclusions In respect of marine insurance, Article 706 of KCC provides that the insurer shall not be liable for the loss and expenses caused by (1) lack of seaworthiness of the vessel in case that the vessel or freight is insured, (2) intent or gross negligence committed by the charterer, shipper or consignee in case of cargo insurance, (3) ordinary expenses incurred during the navigation. On the other hand, Article 659 of KCC provides that the insurer is not liable for such loss caused due to the intent or gross negligence of the insured. Article 660 of KCC provides that the insurer is not liable for such loss caused due to war perils unless agreed otherwise. 19 Article 659 and 660 are also applicable for marine insurance as well as for other non-life insurance and life insurance. Article 678 of KCC which is applicable to non-life insurance provides that the insurer is not liable for such loss caused by nature or defect of the insured subject, or ordinary wear and tear of the insured subject. KSA s hull insurance policy includes the following 10 exclusions, 20 which are also almost identical to Clauses 23, 24, 25 and 26 of ITC (Hulls) 1983. E. Warranty 1906 MIA has provisions on warranty from Article 33 to 41. Warranty is defined in 1906 MIA as a promissory warranty by which the assured undertakes that some particular thing shall or shall not be done, or that some condition shall be fulfilled, or whereby he affirms or negatives the existence of a particular state of facts. If a warranty is not complied with, the insurer shall automatically be discharged from liability as from the date of breach of warranty. The warranty does not have to be material to the risk but must be exactly complied with. Where a warranty is breached, the assured cannot avail himself of the defense that the breach 19 However, Maritime perils in 1906 MIA includes war perils (Clause 3 of 1906 MIA). 20 Clause 17 (Exclusions) Loss and expenses caused by the following perils are not covered: 17.1.1 war, civil war, revolution, rebellion, insurrection, or civil strife arising therefrom, or any hostile act by or against a belligerent power 17.1.2 capture, seizure, arrest, restraint or detainment (battery and piracy excepted), and the consequences thereof or any attempt thereat 17.1.3 derelict mines, torpedoes, bombs or other derelict weapons of war 17.1.4 strikes, locked-out workmen, or person taking part in labor disturbances, riots or civil commotions 17.1.5 the detonation of an explosive 17.1.6 any terrorist or any person acting from a political motive 17.1.7 any weapon of war and caused by any person acting maliciously or from a political motive 17.1.8 any weapon of war employing atomic or nuclear fission and/or fusion or other like reaction or radioactive force or matter 17.1.9 intent or gross negligence committed by the Assured or their agent or employee (including a director in case of a company), for which the Master, Officers, Crew or Pilot are not regarded as an agent or employee of the Assured 17.1.10 ordinary wear and tear of the vessel.
2014] Marine Insurance Law in Korea 109 has been remedied and the warranty is complied with before loss. For the purpose of this paper, the detailed consideration of warranty under 1906 MIA would not be necessary. There is no concept of and provisions for warranty in KCC. 21 However, the Korean court accepts the validity of an English governing law clause and as a result, the validity of warranty is also accepted almost as it is under English law. That is to say, in those cases where the insurance contract was concluded on the basis of ITC (Hulls) and the warranty was not complied with, the Supreme Court held that the insurer shall be discharged from liability even if the loss is not attributable to breach of warranty. 22 Although there is no concept of warranty in Korean law itself, some Korean insurers policy (although they are subject to Korean law) includes warranty clauses. 23 As discussed above, it seems that they need such express clause in their policy or rules in order to impose the obligation to comply with the warranty on the insured (members) and enforce the effect of breached warranty. The effect of warranty contained in Korea P&I Club rules 24 seems to be similar to that in 1906 MIA although the warranty provided in KSA s hull insurance policy and P&I rules seem to a bit different from (i.e. less strict than) that in 1906 MIA. Given that warranty is not a familiar concept in Korean law and practice, it is doubtful whether the Korean court will also accept the validity and effect of warranty clause prepared by Korea P&I Club and KSA as they intended. *Attempt to Make the Warranty Clause Less Harsh There is no doubt that warranty in marine insurance is a legal vehicle very harsh to the insured in particular in that the insured is not indemnified even if the loss is not attributable at all to the breach of warranty. It is understood that harshness of warranty has been heavily criticized in different jurisdictions such as Australia, Norway, etc. Also, many commentators in Korea have the view that warranty should 21 It seems that China has a provision on warranty in its Maritime Code whilst Japan has no such provision in its Commercial Code. 22 Supreme Court[S. Ct.], 94Da60332, October. 11. 1996(S. Kor.); Supreme Court[S. Ct.], 96Da27773, May. 15. 1998(S. Kor.). 23 Article 7 of KSA s hull insurance policy; Articles 13-2 and 13-3 of KSA s P&I rules and Articles 2-1; 2-2 of Korea P&I Club rules. 24 Clause 2-1 1. If a warranty is not so complied with, then, subject to any express provision in the Certificate of Entry, the Association is discharged from liability as from the time of the breach of warranty, but without prejudice to any liability incurred by the Association before that time. 2. Where a warranty is broken, the Member cannot avail himself of the defence that the breach has been remedied, and the warranty has been complied with, before loss.
110 The Asian Business Lawyer [Vol.13:101 be regarded as void in that it is too harsh to the insured because the insured, especially a private individual, is not aware of the exact meaning and effect of warranty under English law. In this respect, there is a Supreme Court judgment worth considering (Case No. 2009Da105383 25 ). That is to say, the Supreme Court held that although the insured breached the warranty, the insurer is not entitled to terminating the insurance contract because the insurer breached Article 3 of the Korean Act Regulating the General Terms by failing to explain the meaning and effect of warranty clause (being an important clause) to the insured, resulting that the warranty is not incorporated in the insurance contract. However, strong criticism has been made on this judgment because it is not clear on what basis the Supreme Court relied on the Korean law (Regulating the General Terms) although the underlying insurance contract provides for English governing law. 26 In fact, there is a lower court s judgment 27, which was delivered after the Supreme Court judgment in discussion where, however, the court refused to apply the Korean Law Regulating the General Terms on the basis that English law is chosen to govern the insurance contract. Another example of such attempt to alleviate the harshness of warranty can be seen in the KSA s P&I rules as well as in their hull insurance policy. Article 13-2 of KSA s P&I Rules provides that:... (2) If a warranty be not so complied with, then subject to any express provision in the Certificate of entry, the Association is discharged from liability caused by the breach of warranty 28 as from the time of breach of warranty, but without prejudice to any liability incurred by the Association before that time. Nevertheless a warranty is broken, where breach has been remedied, and the warranty complied with before occurrence of loss, the Member can avail himself of the defense. 25 The facts of this case can be briefly summarized as follows: the hull insurance contract between a Korean ship owner and a Korean marine insurance company had an English governing law clause. The insurance contract included a warranty clause stating that the insured should pass a condition survey no later than July 2, 2006. When the insurance contract was concluded, the insurer did not explain the effect of breach of warranty to the insured. In the meantime, the insured did not pass the condition survey until the originally set time but belatedly passed it on May 2, 2007. An incident (collision) occurred on May 6, 2007 and the insured claimed repair expenses which resulted from the collision. However, the insurer rejected the claim on the ground that the warranty was not complied with. 26 1906 MIA has no provision expressly imposing a duty to explain the meaning and effect of the policy or an important clause on the insurer but it is not entirely clear whether such duty can also be drawn from the duty of utmost good faith as provided in Article 17 of 1906 MIA. 27 Seoul High Court [Seoul High Ct.], 2012Na7207, (S.Kor.). 28 English version of KSA s P&I rules seems to be not yet updated to accommodate this part.
2014] Marine Insurance Law in Korea 111 KSA s hull insurance policy has also similar provisions to make the breach of warranty remediable (Article 7-2). There are two differences between KSA s warranty clauses and that in 1906 MIA. First, the insurer under the KSA s rules or policy shall still be liable for the loss which occurred after the breached warranty was remedied whilst breach of warranty is irremediable under 1906 MIA. Second, the insurer under the KSA s rules or policy would be exempted from liability only if the loss is attributable to the breach of warranty whilst the insurer under 1906 MIA is not liable for the loss even if the breach of warranty did not contribute to the loss. F. P&I insurance Whilst the hull insurance and cargo insurance are entered into on voluntary basis, as a matter of Korean law, ship owners are in some respect forcibly entered into P&I insurance. The owners of oil tankers are required to buy liability insurance or similar arrangement for the victims caused by oil pollution (Article 14 of the Korean Oil Pollution Damages Compensation Act). The owner of general cargo vessels are also required as such to protect the victims caused by fuel oil pollution (Article 47 of the Korean Oil Pollution Damages Compensation Act). In the meantime, every ship owner is required to enter into an insurance contract sufficient to compensate the crew for injury or death, etc. (Article 106 of the Korean Seamen s Act). As there is no separate section or clause for P&I insurance in KCC, and P&I insurance is regarded as a liability insurance, the provisions for liability insurance in KCC, 29 to the extent that they are relevant, are applicable for P&I insurance. * Issue of direct claim Article 724 of KCC provides that third party victims are entitled to a direct claim against the liability insurer in relation to the incident for which the insured is liable. Under the UK s Third Parties (Rights Against Insurers) Act 1930, the third party victims can be entitled to a direct claim against the insurer in the event that the insured becomes bankrupt or makes a composition or arrangement with his creditors. However, most of P&I Club rules including those of KSA, Korea P&I Club and IG Clubs has a so called pay to be paid rule. 30 This means that the insurer is not liable unless and until the insured first provides payment the victim. 29 5th sub-section of non-life insurance section (i.e. Section 2) of Chapter 4 of KCC. 30 Clauses 36 (4) and 37 of KSA P&I Rules; Clause 44 (4) of Korea P&I Club Rules.
112 The Asian Business Lawyer [Vol.13:101 Under English law, the pay to be paid clause was held as valid, 31 resulting that the insurer (P&I club) can reject the direct claim from the third party victim relying on the pay to be paid clause even if the insured (member) is in bankruptcy. As a matter of Korean law, such pay to be paid clause is likely to be treated as null and void in that it cause the compulsory provision (i.e. Article 724 of KCC) to be paralyzed. This means that if a direct claim is raised under the KSA P&I Rules or that of Korea P&I Club, then those clubs would not be able to refuse the payment to the third party victim relying on the pay to be paid clause. On the other hand, as KSA gives up the pay to be paid rules for those cases where such rule is not admitted by the terms of International Convention or Korean law, 32 they are not able to rely on the pay to be paid rules so far as the third party victim s direct claim is granted by law, See, e.g. claim for the oil pollution damages under 1992 CLC or Bunker Convention, claim for crew injury or death under the Korean Seamen s Act. This is because third party victims are under those Conventions 33 entitled to a direct claim against the P&I insurer. It would give rise to a complicated issue if the P&I insurance (between the insurer and the insured) is governed by English law. That is to say, if the third party victim s direct claim against the insurer is to be governed by the law governing the insurance contract (i.e. English law) then its direct claim against the insurer shall not be accepted due to the pay to be paid clause contained in the P&I rules. However, if it is to be governed by the Korean law (or any other laws not recognizing the validity of such pay to be paid clause) then the third party would be held entitled to a direct claim against the insurer. There is a lower court case where such direct claim is not accepted on the basis that it is to be governed by the English law. 34 V. Other Issues Arising from Marine Insurance Law in Korea A. Non-disclosure and Misrepresentation The theory of utmost good faith (Article 17 of 1906 MIA) or the assured s obligation to disclose material circumstance (Article 18 and 19 of 1906 MIA) or to make material representation (Article 20 of 1906 MIA) is adopted in Article 651 of 31 Fanti, The and The Padre Island [1990] 2 Lloyd's Rep 191, HL. 32 The latter part of Article 36(4) of their Rules. 33 Article VII (8) of 1992 CLC and Article 7 (10) of Bunker Convention. 34 Busan High Court [Busan High Ct.], 2008Na3906, (S.Kor).
2014] Marine Insurance Law in Korea 113 KCC. Article 651 of KCC provides that the insurer may terminate the contract in case that the insured, with intent or gross negligence, failed to disclose or incorrectly disclose material circumstances to the insurer. Further, Article 655 of KCC provides that even if the insurance contract has been terminated on the basis of Article 651 after the incident occurred, the insurer is nevertheless not obligated to pay the insurance money and entitled to return of already paid insurance money, if any, provided that the incident is attributable to the insured s failure to disclose the material circumstances. The insured s duty to disclose the material circumstance under KCC is different from that under 1906 MIA in that (1) the insured s intent or gross negligence is not required under 1906 MIA for the insurer to avoid the contract, (2) the insurer can avoid the contract and thus become liable to return the premium although the insurer under KCC who has terminated the insurance contract is not so liable, (3) the insurer under 1906 MIA can avoid the contract even if the loss is not attributable to the assured s failure to disclose the material circumstance, and (4) under 1906 MIA there should be a causal connection between the assured s failure to disclose the material circumstance and the making of the contract (i.e. actual inducement) for the insurer to avoid the contract whilst no such causal connection is required under KCC. B. Subrogation As a matter of Korean law, the insurer can also be subrogated to the rights of the insured by payment of insurance money to the insured (Articles 681 and 682 of KCC). However, requirement for and effect of such subrogation under KCC is slightly different from that under English law in that payment of insurance money automatically results in the assignment of the insured s right to the insurer and thereby entitles the insurer to exercise, in its own name, the rights of the assured. As a result, the insurer under KCC is entitled to exercise the right of the insured even if a subrogation letter is not obtained from the insured or no notification of assignment is given from the insured to the third party who is liable for the loss sustained by the insured.
114 The Asian Business Lawyer [Vol.13:101 REFERENCES Books, Reports, and Other Nonperiodic Materials In Hyeon Kim, Transport Law in South Korea (2011) Jong Hyeon Choi, Maritime Law (2d ed. 2014) Periodic Materials Jong Hyeon Choi, Insurer s Duty of Explanation of Insurance Clauses in a Marine Insurance Contract, 28-2 Journal of Korea Maritime Law Association (2006) In Hyeon Kim, Korean Maritime Law Update: 2010, 42-3 Journal of Maritime Law and Commerce (2011) In Hyeon Kim, Warranty and Pay-to-be-Paid Rule in Korea, 43 Journal of Maritime Law & Commerce 4 (2012) Se Min Park, A critical analysis on the effectiveness and the extent of application of English law and practice clauses in Marine Insurance, 33 Journal of Korea Maritime Law Association (2011) Young Haw Suhr, Warranty Clause in Marine Insurance and the Insurer s Duty to Explain Korean Supreme Court Case 2010. 9. 9. 2009DA105383, 33-1 Journal of Korea Maritime Law Association (2011) Young Joon Park, A comment on Korean Supreme Court Case about the Duty of Utmost Good Faith on English Marine Insurance Act (1906), 29-2 Journal of Korea Maritime Law Association (2007)