Risks of buyer seller and ship owner
In today’s world, the world of commerce and trade, goods are being always transported from one place to another, one country to another country. So when the goods are in transport through seas every one involved in this such as the buyer, the seller, and the ship-owner are in risk. Every one wants to be in peace without worrying about the risk. Every one wants to avert their risk. The insurance has made it possible. The insurer takes the liability to indemnify the insured for loss or damaged caused (in specified circumstances whatever happens). By making insurance contract the underwriter takes the responsibility to indemnify the insured under specified terms of the contract. The parties to a marine insurance contract are generally free to specify their terms of cover and indemnity by the insurer in exchange of specified premium paid by the insured. From the very beginning of cross boarder trade United Kingdom has become the most important place in formation and governing of marine insurance contract. So, the importance of a codified legislation was emerged from long ago and crossing over a long passage the Marine Insurance Act 1906 come in to force on January 1907.
Under a marine insurance contract the insurer is only liable to indemnify the insured for the loss or damaged caused by perils specified in the contract. So, when any loss or damage occurred, it arises question such as, does the peril caused damage or loss is insured peril under the contract of insurance? The underwriter always try to demonstrate that the peril caused the loss or damage is not covered by the terms of the insurance contract or it is an excepted peril or some other reasons for which they (the insurer ) is not liable. On the other hand the insured try to proof contrary (that the loss or damage is caused by an insured peril). These criteria of claiming insurance has given rise to more difficult issue such as causation. When any loss or damage suffered, how may we prove that the peril which has caused the loss or damage is an insured peril, and what is the legal test (if any) to follow in demonstrating that causation? Day by day, commercial world is becoming more technical and the issue of causation also is rising as a matter of critical analysis.
Section 55 of the Marine Insurance Act 1906 specially deals with this matter. Section 55(1) of the Act provides as follows: ‘subject to the provisions of this Act, and unless the policy otherwise provides, the insurer is liable for any loss proximately caused by a peril insured against, but subject as aforesaid, he is not liable for any loss which is not proximately caused by a peril insured against.’  Now, lets we see what does the term proximate cause and how far we can go within its operation.
Under a marine insurance contract the term proximate cause means the immediate/nearest cause of the loss or damage. When we say immediate cause which has caused the loss, we must bear in mind that the word ‘immediate’ we are not using to bind a time limitation, rather it is a continuing operative cause and we need to identify the efficiency of the caused. When any conflict arise about proximate cause and the insurer want to avoid liability by arguing that the insured peril did not caused the damage or loss suffered or it is remote. In this situation we need to clarify carefully and draw a distinguishing line between proximate and remoteness. Similar view has to be taken when the insured wants to be indemnified on same ground. In investigating the cause we need to identify what actually caused the damage or loss and its continuity of operation (if so happened). It is for the courts to determine in accordance with the relevant law that the caused is insured peril or not.
In the case of Leyland Shipping Co Ltd v Norwich Union Fire Insurance Society Ltd  the ship was insured against peril of the seas but any war risk was specifically excluded. It was torpedoed by German submarine and sustained severe injury. The ship then tugged to the harbour where a gale caused the ship to range and bump against the quay. Following the order of harbour authority the ship was moored inside the break water. As the torpedo caused the head of the ship seventeen feet aground, her back was broken as the tide rose and the ship sank. The assured claim under the policy of peril of the seas and argued that although it has suffered a partial loss by the torpedo, the total loss suffered by the gale and knocking of the quay which results sprang of the leak. On the other hand the underwriter argued that the torpedo was the main and operative cause of the loss suffered by the ship. The subsequent cause arises because of the original cause the torpedo and none of the later cause is to stop operation of the main and original cause.
The House of Lords held that from the time the ship was torpedoed, she was always under in imminent risk of sinking. The hitting of the torpedo was the proximate cause of the loss.
This case is often said the leading case proximate causes in marine insurance cover. Here the House of Lords has analyses the concept of proximate cause. Lord Shaw opined that proximate cause should not be treated nearest in time. His Lordship went on to suggest that proximate cause should be considered to the efficiency as an operating factor upon such the result. In situation where the various influence involved, the matter of fact should be considered carefully and to use common sense. His lordship was more willing to consider causation as a net than to isolate as a chain.
The efficiency of proximate cause also found in earlier case of Reischer v Borwich  where a vessel was insured against collision. It was collided with and sustained considerable damage. Temporary repair was provided on emergency basis. But
Subsequently the vessel was sunk by an ingress of water during the course of permanent repair. The underwriter refused liability on the basis that the vessel was insured against collision but the collision was not the proximate cause in this case. They (the insurer) also argued that the proximate cause of the total loss was sinking in the port of repair and their (insurer) liability does not extend up to that. The House of Lord held that the collision was the proximate cause of the loss suffered by the vessel. From the starting of collision up to the sinking it was an n operative cause which never ceases to act. The underwriter was liable to indemnify. Their lordship held that proximate cause rule is as the parties in an insurance contract intended and if any conflict arises, the intention of the parties indicated in the contract should be dealt with good sense and the explanation of causation should not be filled with commercial technicality, it should be so simple to understand a man on the street. Similar view was emphasis in some other authorities such as Yorkshire Dale Steamship Co. Ltd v Minister of War Transport (The Coxwold)  and Clan Line Steamers Ltd. v Board of Trade (The Clan Matheson)  . According to Viscount Simon LJ in The Coxwold  case the question was to identify the effective and predominant cause of the accident that happened, whatever the nature of that accident may be  . Again in selecting proximate cause from a range of competing factors, ‘the matter is determined as one of fact, and the choice falls upon the one to which may be variously ascribed the qualities of reality, predominance, efficiency’. 
This view of defining proximate cause was also confirmed by Lord Denning MR in Gray v Barr, Prudential Assurance Co. Ltd (Third Party)  . His lordship said , ‘‘ since 1918 it has been settled in insurance law that the cause is that which is the efficient or dominant cause of the occurrence or, as it is sometimes put, what is in substance the cause; even though, it is more remote in point of time, such cause to be determine by common sense.’’ 
In determining the proximate cause of any loss or damage occurred, the issue is a question of fact and is to be ascertained by applying common sense. The insurer is only liable to indemnify the insured if the peril which has caused the loss or damage is an agreed peril to cover according to the contract, otherwise he (the insurer) does not owe any liability to indemnify. The ‘cause’ (to be a proximate cause) which has caused the loss/damage is not necessarily have to be the nearest in time but must have to be an efficient or dominant ‘cause’ to carry out the loss/damage.
In Brownsville Holdings v Adamjee Insurance  , where the court had to deal with the issue of causation, here, a vessel was sank and primary evidence focused that water entered in to the engine room. But it was a common thought that only the water entered in to engine room was insufficient to cause the vessel sank and therefore the aft compartment must also have suffered some flooding. Further more the insured claimed indemnity on the ground of negligent repair. Thus the court had to find out the cause of sinking especially the proximate cause and it was found that the initial entry of water in to the engine room was the cause of sinking of the vessel and it was a continuing operation which did not lost its existence and thus it was proximate cause. It was also argued that even though the issue of initial entry of water did not explained in the claim, it does not stop to be a proximate cause as long it is not create deliberately. In this case the court emphasized the test applied in Leyland Shipping v Norwich Union  .
As we have discussed above that the proximate cause need not necessarily to be the nearest in time but have to be continuing in efficiency or domination. Lets we see courts view in deciding the nearest in efficiency to be the proximate cause than the nearest in time. In Canada Rice Mills v Union Marine,  a cargo of rice was carrying from one port to another port. Because of extremely bad weather during the course of transit the hatches to the hold had to close. This made lack of ventilation and the cargo was damaged by heat. Even though the vessel was insured against perils of the sea, the underwriter refused to indemnify the insured on the ground that the cause which has sustained the damage was the heat, not the insured perils of the sea. It was held by the Privy Council that the peril of the sea (bad weather) even though was not the nearest in time was the dominant cause of the damage and it did not seas to operate and the insured is entitled to be indemnified under the insured peril of ‘perils of the sea’. Lord Wright stated that; ‘where the weather conditions so require, the closing of the ventilators is not to be regarded as a separate or independent cause, interposed between the peril of the sea and the damage, but as being such a matter of routine steamship necessitated by the peril that the damage can be regarded as the direct result of the peril.’ 
As we see in marine insurance cover when the insured claim to be indemnify under a policy and the underwriter refuse on the basis that the policy does not cover the loss or damage sustained English courts traditionally look to the proximate cause of the loss or damage and if the cause (proximate) is an insured peril or not. If it is an insured peril the underwriter is liable to indemnify the assured for the loss or damage sustained otherwise not. The difficulties arise when a loss or damage occurred by a combination of perils. In this combined perils (suppose two) one may be insured and the other is not covered or expressly excluded. How courts respond in such situation? Problem may also arise when
just one event which has caused the loss or damage may be classified as covered, not covered or excluded peril. There is actually not any concluded rule, the general rule is that where there are two concurrent and equally cause of a marine loss, and one comes with in the policy and the other does not, the insurer will still have to pay as long as one is covered peril and the other is not covered but not expressly excluded, but if the other is expressly excluded the insurer is not liable  . In Miss Jay Jay  a yacht which was insured against perils of the sea. It was taken to voyage and damage of hull of the yacht was caused because of the waves. It was found in investigation (engineer report) that the yacht was damaged because of two combined cause namely, the defective structure of the yacht and the operation of the waves. The underwriter refused to indemnify the damage on the ground that the defective design was not an insured peril. It was held that the underwriter is liable to indemnify the insurer as the yacht was insured against perils of the sea and the waves were a concurrent and effective cause of the damage. Further more to avoid liability of the other cause (the defective design of the yacht) of the damage need to be expressly excluded and as it was not expressly excluded and the damage was caused combined with insured peril, the underwriter held liable to indemnify. In such a situation the wording and terms of the policy prevails in first instance, and in this case (Miss Jay Jay) it was also held that the terms of the policy was wide enough to make claim. However in a more recent case, in Svenska Handelsbanken AB v Dandridge (The Aliza Glacial)  Potter LJ stated that ‘whenever an argument as to causation arises in respect of rival causes contended for under a policy of insurance, the first task of the court is to look to see whether one of the causes is plainly the proximate cause of the loss.’ Again his Lordship went on to say that it (one plainly proximate cause) should ‘only when a court is driven to the conclusion’ of more than one proximate cause, that the concurrent cause rules apply. 
Lets we have a look again to the Marine Insurance Act 1906 and what it has laid down regarding the loss/damage covered and not covered. Section 55(2)(a) provides: ‘the insurer is not liable for any loss attributable to the willful misconduct of the assured, but unless the policy otherwise provides, he is liable for any loss proximately caused by a peril insured against, even though the loss would not have happened but for the misconduct or negligence of the master or crew’.
So if any loss or damage is caused by the willful misconduct of the assured he is not entitled to be indemnified. The contract of insurance is a contract of indemnity and the insured is generally entitled to indemnity for any accidental loss or damage of course he
is not entitled to be benefited from his own (willful) wrong. As the cover in insurance is for accidental or fortuitous the willfulness of the assured bring the term accidental/ fortuitous to a certainty. If the willful wrongful act of the insured caused the loss or damage it is more likely to think that the insured has intentionally caused the loss to take benefit from the insurer. Even though the section does not cover the willful misconduct, in some circumstances (unless the policy otherwise provide) it may cover negligence or even misconduct. Willful misconduct and negligence misconduct are two different acts. In a very old authority Lewis v Great Western Ry Co.  Cotton LJ commented that willful misconduct is something more and it (willful misconduct) is entirely different from negligence. In Wood v Associated National Insurance Co. Ltd.  where the ship-owner sent the ship in to voyage even though there was insufficient crew in the ship for the voyage. It was held by the Australian Supreme Court that it was a reckless act by the ship-owner and was considered as ‘willful misconduct’ and was not entitled to indemnity.
In the above case the owner ordered the vessel to voyage, but what happen in different situation when the loss or damage caused by the misconduct of master or crew but the owner were connived. In today’s commercial world when the assured claim for indemnity in such situation the underwriter at first stage wants to argue that the loss has caused by the willful misconduct by the assured or if it is done by the master, crew or third party than the assured has consented it. Lets we look how courts deal in such situation when willful misconduct is pleaded. In National Justice Compania Naviera SA v Prudential Assurance Co. Ltd.  (famously known as The Ikarian Reefer) the vessel was insured against risk of the sea, barratry and fire. Here the vessel was grounded and some fire started in engine room but quickly spread to the entire ship. In claim for indemnity the insurer refused to pay on the ground that the vessel been actually destroyed by the crew but with the connivance of the assured. Therefore it was a willful misconduct of the assured and they (the insurer) were not liable to indemnify. The court at first instance held that the grounding was caused by master’s negligence and was lack of evidence to prove setting of deliberate fire. But the Court of Appeal overturned the trial judge decision and held that the loss of the ship was caused by scuttling and it was authorized by the owner. Stuart-Smith LJ stated that: ‘if the owners failed to prove that the grounding was fortuitous and therefore a peril insured against, but the underwriters failed to prove that either the grounding or the fire was deliberate, then success or failure would depend upon whether the proximate cause of the constructive total loss was the grounding or the fire. If the former, the underwriters would succeed; if the later, the owners’  .
When a policy is assigned by the assured to a third party, the third party may be defeated in claim as was assured  . On the other hand when third party buy insurance on the subject matter owned by another, in that case the willful misconduct of the owner of the goods does not affects the third party  .
As we see above section 55(2) (a) deals with willful misconduct of the owners and the negligence and misconduct by masters or crews, section 55(2) (b) deals with delay.
Section 55(2) (b) states that: ‘unless the policy otherwise provides, the insurer on ship or goods is not liable for any loss proximately caused by delay, although the delay be caused by a peril insured against’  .
This subsection is sometime conflicted with the application of proximate cause rule in marine insurance cover. It raises argument between the parties to identify the proximate cause regarding the loss or damage occurred. As we have discussed above the proximate cause is the cause which is effective, efficient and dominant for the loss or damage occurred, not merely the nearest in time. This subsection (section 55 (2) (b)) sometimes put the doctrine in question in relation to efficiency of proximate cause. In Taylor v Dunbar  where a cargo of pig and cattle meat was putrid because of the adverse weather caused the voyage delayed. So the proximate cause of the loss should be the bad weather, but in this case delay was considered the proximate cause of the loss. Again, in Pink v Fleming  where a collision put the ship in emergency repair and a cargo of fruits had to move to make the necessary repair and reloaded again, some of the fruits been damaged because of the down and uploading especially for the delay. Lord Esher MR, in this case opined that proximate meant last in time and his Lordship went on to say that under English law of marine insurance only the last cause can be regarded as proximate cause and even though the delay was necessitated by the collision and the collision was an effective cause but still can not be viewed as the proximate cause. However this view was rejected by House of Lord in the classical case of Leyland Shipping Co. v Norwich union Fire Insurance Co. Ltd.  more over it was held that where a vessel ran aground necessitating repairs of such duration that the adventure was frustrated, the proximate cause of the lost freight was the perils of the sea. Again according to this section if any loss occurred by concurrent perils and one is expressly excluded peril the insurer held not liable. In section 55 of the Marine Insurance Act has given concern about the loss caused by delay but nothing is outlined about the freight. Anyway in their contract of marine insurance the parties are normally give careful observation before concluding the contract and when any conflict arise the terms of the policies is given priority.
Section 55(2) (c) also excludes insurers liability for some other reason. Under this section the insurer is exempted from liability for the loss or damage which may occur in the natural courses of event. It might occur in the courses of ordinary voyage, but not necessarily that it will occur. So by excluding the ordinary wear and tear the underwriters are avoided from the liabilities which may occur in an ordinary condition of the voyage. In Whiting v New Zealand Co. Ltd  , Roche J expressed about ordinary wear and tear that it is more or less a natural test or incident which the goods have to suffer and which the underwriter has not insured against  . In regarding ordinary leakage and breakage under this section, it largely depends on the construction of the policy of insurance cover and type of goods insured. Loss may be sustained in the goods insured by inherent vice which is the natural tendencies and internal development of the goods. Sometime external factors may generate inherent vice for example insufficient packaging etc. Inherent vice is defined by Lord Diplock  ‘as a result of their natural behavior in the ordinary course of the contemplated voyage without the intervention of any fortuitous external accident or causality’. Similarly as specified in this section the insurers are exempted from the loss occurred from rats or vermin and any fault or injury to the machinery which is not proximately caused by insured perils.
Finally, according to the proximate cause rule, the insurer is only liable to indemnify if the loss or damage is caused by an insured peril. Following this it is very difficult to prove that insured peril is the cause of damage without any legal test. It seems more complicated when the loss occur from several causes. The Law (section 55) is not much assisted in finding link rather it depends on the common sense. Section 55(2) also raises more conflicting issues such a ‘willful misconduct’ of the assured and regarding ‘delay’. When willful misconduct of the assured is implemented by master or crews, how to link the misconduct as proximate cause or acts of master or crews is the proximate cause. Again when delay is necessitated by for example bad weather and delay is considered the proximate cause, it undermine the efficiency test of proximate cause than timing. Thus sometimes narrow in wording and comprehensiveness  . Anyway, in modern commercial world, the parties to an insurance contract are free to specify their cover and the institute clauses generally want to avoid the conflicting area of proximate cause.