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03 December 2019
According to the Bremen Court of Appeal, the proximate cause of a vessel's grounding after its main engine cut out was the bad weather, rather than the engine problem. Further, the insurer's right to request information from the assured was limited to information relating to the proximate cause and did not extend to remote causes.
In August 2013, approximately one month after the ship left the port of loading in Vietnam, it suffered increased temperatures in two engine cylinder units and a fire in a scavenging air duct of its main engine. In order to assess the cause of the problem, the master ordered that the main engine be switched off. At this time, the ship was approximately 40 nautical miles off the eastern coast of South Africa.
Investigations revealed that a significant number of fuel injection valves were defective or dirty. Attempts to restart the engine failed. The ship was unmaneuverable and drifted towards the coast of South Africa. At a distance of 20 nautical miles from the coast and a water depth of 75 metres, the ship dropped anchor. Finally, the master requested the assistance of a salvage tug from Cape Town. When the tug arrived, the weather had deteriorated to winds of six to eight on the Beaufort scale and waves of up to 10 metres. The attempts to make a towing connection between the tug and the ship failed. The anchors could not hold the ship, which drifted further to shore and finally grounded.
After its refloating, the South African maritime authority prohibited the ship from being towed to a South African port. Rather, the authorities ordered that the ship be towed out of South Africa's 200-nautical mile exclusive economic zone. On its way, the ship sank and became a total loss.
The plaintiff, a ship finance bank, sued the ship's hull and machinery insurer on the basis of an assignment of rights under an insurance policy issued by the insurer. The policy had been written on the basis of the German General Marine Insurance Conditions (ADS) and the German Transport Insurance Association (DTV) hull clauses and was subject to German law.
The parties disputed whether the ship had been lost due to a peril insured under the policy.
At first instance, the insurer's claim was granted.
The appeal court confirmed the first-instance judgment that the total loss had been caused by a peril insured. The court accepted that a number of factors had contributed to the final loss of the ship, including the fire in the scavenging air duct and the failure of the main engine, which might have triggered the cove exclusions of unseaworthiness or wear and tear (DTV Hull Clauses 23 and 27). However, in marine insurance, if more than one factor contributes to a loss, the relevant factor is that which was the proximate cause of the loss (ie, the factor which was, with high probability, the most relevant and effective cause of the incident).
The court accepted that the engine problems had led to the ship's unmaneuverability, but held that this was not the proximate cause because further factors had made the loss more likely. The court accepted that unmaneuverability due to engine problems may make it conceivable and not unlikely that a ship will ground. However, given the conditions of modern ocean shipping, it would be more likely that such a ship could be saved by a salvage tug. Even after becoming unmaneuverable, the ship had not been at risk of sinking unless the weather deteriorated. Even if the ship had been unseaworthy on commencement of the voyage and even if the cause of the engine failure had been wear and tear, it had been at risk of sinking only when the weather deteriorated, which had not only prevented a towage connection, but also caused the ship to drag its anchor and finally ground. Thus, the court held that the loss had been caused by a peril insured.
Finally, the court accepted that the claim was due under the policy. The court agreed that this required that documentation requested by the insurer had been provided by the assured (Sections 43 and 44 of the ADS). The court also found that the assured had not, or at least not completely, provided the information requested in respect of the ship's technical condition on commencement of its voyage. However, the court held that the information duty of the assured extended only to facts relating to the incident. What relates to an incident is a question of causation. As the loss was proximately caused by a peril of the sea, the insurer's right to information did not extend to the ship's technical condition on commencement of its voyage.
The appeal court is believed not to have granted leave for further appeal to the Federal Court of Justice. It has been reported that the defendant insurer applied for leave for appeal directly with the Federal Court of Justice, but the Federal Court rejected this application without stating a reason.
The decision is highly questionable – in respect of both causation and insurers' right to information.
As regards causation, the court asked the right questions and established the right factors for determining the proximate cause. However, the proper application of those principles would have led it to ask whether a ship is more likely to ground in winds of six to eight on the Beaufort scale if it has a working engine and is maneuverable or if its engine has to be switched off due to issues and cannot be restarted. While the court expressly states that proximate cause is not necessarily the first or last cause, in essence, the court looked only at the last cause – namely, the weather that had driven the ship ashore.
Even more criticism must be raised against the court's denial of the insurer's right to access information regarding the ship's technical condition on commencement of the voyage. According to Federal Court of Justice case law, insurers have a right of access to information and facts which are connected with an event in order to assess coverage. The assessment of what is required in this respect is not an ex post but an ex ante approach. It is possible to determine whether an event is insured under a policy only on the basis of all relevant facts.
The case was one of general importance, so the appeal court should have granted leave for further appeal to the Federal Court of Justice. It is unfortunate that the Federal Court did not provide its reasons for dismissing the insurer's leave application. The appeal court decision is likely to cause considerable problems in the daily practice of claims settlements. The courts are thus expected to have to deal with the problem again. Hopefully, in such instances, the Federal Court will agree to hear the case.
For further information on this topic please contact Dieter Schwampe at Arnecke Sibeth Dabelstein by telephone (+49 40 31 779 70) or email (email@example.com). The Arnecke Sibeth Dabelstein website can be accessed at www.asd-law.com.
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