India: Consequences Of Breach Of Class Warranties In A Hull & Machinery Claim – Supreme Court Of India

The Supreme Court of India¹ in the case Hind Offshore Pvt Ltd V. IFFCO -Tokio General Insurance Co Ltd considered whether non-disclosure of a Hull and Machinery damage to Classification Society would entitle the H&M insurer to reject a subsequent H&M Claim on the premise that vessel of was not in class as the Insured had not disclosed the earlier incident to the Classification Society.

Brief Facts:

Hind Offshore (Insured) bareboat chartered M.V. Sea Panther from the owners, Astron Equities SA. The Insured took out an annual H&M policy covering various risks including perils of the sea. The H&M policy was subject to the vessel possessing a class warranty.

First Incident: On voyage from Singapore to Mumbai, the vessel sustained main port engine damage. The surveyor opined that crank shafts and connecting rods were beyond repair. Considering the wait time for replacement of crank shafts, temporary repairs were carried out.

In the meantime, H&M policy was renewed with an annual renewal. The vessel was classed with ABS after due inspection.

Second Incident and claim of the Insured: On voyage from Mumbai to SLQ Complex, Mumbai, the vessel collided with a Tugboat. As a result of the collision, the vessel sank with cargo onboard. The Insured made a claim for total loss of the vessel and cargo under the H&M Policy.

Repudiation of the claim by the Insurer:

The Insurer repudiated the claim on the ground that vessel was not in class on the date of the second incident as the Insured had not informed the classification society of the first incident. The Certificate of Class would not remain valid for non-compliance of the warranty requirement.

Challenge before the judicial forum.

The Insured filed a consumer complaint before National Consumer Forum for loss of vessel, loss of earnings and loss of interest. The National Consumer Forum dismissed the Complaint. The Insured appealed before the Supreme Court of India. The Insured challenged the repudiation of the claim on the following grounds (amongst others):

i. There was no withdrawal, suspension or cancellation of the Class by ABS and in the absence thereof, the same cannot and could not be presumed to have been automatic.

ii. Class Certificate issued by the ABS was after a rigorous physical inspection of the vessel and its machinery that was conducted by ABS

iii. there was no breach of class warranty insofar as there were neither any recommendations, requirements or restrictions imposed by ABS relating to unseaworthiness to be complied with by the Insured

iv.The Insured complied with all statutory requirements relating to the seaworthiness of the vessel.

Decision of the Supreme Court of India (SCI):

The SCI confirmed the order of the National Consumer Forum and dismissed the appeal of the Insured on the following main grounds:

i. In a time policy, there is no implied warranty that the ship shall be seaworthy at any stage but where with the privity of the Insured, the ship is sent to sea in an unseaworthy state, the insurer is not liable for any loss attributable to unseaworthiness. It is in that light, the Classification Certificate assumes relevance with reference to the manner in which it was obtained. In view of the warranty requirement, the Insured is expected to bring to the notice of the Classification Society the shortcomings or the defects if any, before the issue of such Class Certificate since the insurance coverage to be provided by the insurer is based on such Class Certificate which is assumed to have been issued by the Classification Society after keeping in view all aspects including the defects if any brought to their notice.

ii. It is in that light the provisions extracted above becomes relevant as to the circumstance under which the Class will be suspended and the Certificate of Classification will become invalid in the circumstances stated therein, which also refers to such suspension and invalidation, if any damage, failure or deterioration repair has not been completed as recommended.

iii. The appellant has not established that the defects were brought to the notice of the Classifi cation Society and thereafter the certificate had been obtained. In such a situation when it is subsequently noticed that these defects were not intimated and the warranty class had not been complied, the Classification Certificate would automatically become invalid.

Conclusion:

The SCI has taken the correct approach in dismissing the Appeal of the Insured. This is a case where the Insured did not (for reasons best known to the Insured) inform the classification society of the first incident. This first incident would result in the vessels class being withdrawn. The Insured ought to have informed classification society of the first incident and got the vessel classed after following the recommendations of classification society (if any).

The case highlights the importance of following due process in addressing marine incident rather than allowing commercial exigencies to run the operation of the vessel.

Footnote

1. 2023 SCC ONLINE SC 966, 2023 INSC 697

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