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29 June 2011
A recent decision of the Milan Court of Appeal raises significant issues of interpretation for the Classification Clause in cargo insurance policies.
Proceedings were originally issued by the intended recipient of a cargo of steel pipes that had been loaded on the general cargo vessel Medtrader in Constanta, Romania, for carriage to Chioggia, Italy. The cargo was lost when the vessel sank off the Greek island of Skyros.
The goods had been purchased by the intended recipient, an Italian company, on cost and freight terms. Insurance for the cargo had been arranged by the company's forwarding agents, stipulating an insurance policy with an Italian underwriter. The policy had been concluded by using an Italian form entitled "Polizza Italiana di Assicurazione Merci Trasportate 1983", which referred to the Institute Cargo Clauses (C) (January 1 1982) and to the Institute Classification Clause (January 1 2001), both of which provide that English law applies.
According to the Institute Classification Clause, the insurance agreed in a policy applies only to cargoes carried by vessels classed with a classification society that is a member or associate member of the International Association of Classification Societies (IACS).
Immediately after the sinking, the cargo interest notified the claim for total loss of the cargo to the underwriters and supplied the relevant documentation, including Medtrader's certificate of class, which had been issued by the Croatian Shipping Registry. This showed that the vessel was classed, but with the following restriction: "Navigation in sea areas with the ship proceeding not more than 60 miles from the place of refuge and with sea condition not more than 4." The Croatian registry was associated with the IACS at the relevant time and the limitations contained in the classification certificate were compatible with the voyage to be performed. However, when the vessel sank it was not within the geographical limitation set by the class certificate and the sea conditions, as far as these could be ascertained, were much more severe than Force 4.
The underwriters rejected the claim, arguing that:
The Italian recipient of the cargo commenced legal proceedings against the cargo underwriters before the court of first instance. It sought payment of total loss indemnity. It argued that:
The court of first instance decided in favour of the underwriters and rejected the claim.
On appeal, the appellant re-stated its position. In particular, it argued as follows:
On January 20 2011 the Milan Court of Appeal upheld the defences put forward by the underwriters and rejected the appeal.
On the issue of applicable law, the Court of Appeal confirmed the first instance decision. It concluded that the parties, by referring to Italian law in the Italian policy form and to English law in the attached Institute Cargo Clauses and Institute Classification Clause, had adopted the so-called 'depeçage' technique. The Rome Convention 1980 on the applicable law to contractual obligations expressly allows for such an approach, which enables parties to choose different laws in connection with different parts of the same contract.
As a result, the court applied the common law discipline of breach of warranty, affirming that in order to be discharged from liability, the insurers of the cargo did not have the burden of proving the causal relationship between the breach of classification warranty and the casualty.
On the interpretation of the classification clause, the court concluded that, notwithstanding the different wording of the clause in the hull and machinery cover and in the Cargo Institute Clauses, in both cases the insured is responsible for ensuring that the vessel is classed with a classification society agreed by the underwriters and that its class within such society is maintained. However, the insured is also responsible for ensuring compliance with recommendations and class restrictions imposed by the classification society before the insured risk begins to run.
These two decisions are the only judicial interpretations from the Italian courts of the wording of the Institute Classification Clause.
The notion that the cargo classification clause requires full classification of the vessel without recommendations is highly controversial and will certainly give rise to debate among authors, given that it fails to take into account either the historical evolution of the clause through its various versions or the differences between its literal formulation and that of the corresponding classification clause for hull and machinery insurance cover.
For further information on this topic please contact Maurizio Dardani, Marco Manzone or Lawrence Dardani at Genoa Chambers by telephone (+39 010 576 1816), fax (+39 010 595 7705) or email (email@example.com, firstname.lastname@example.org or email@example.com ).
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