GE Frankona Reinsurance Ltd v CMM Trust No.1400 the "Newfoundland Explorer"

This trial has raised a short point as to the true construction of the express term “Warranted fully crewed at all times” (“the warranty”), contained in a contract of marine insurance for a yacht, valued at US$3 million.

The Claimant is a company engaged in the business of insurance and reinsurance.

By a contract of marine insurance, policy no. 04YSP0005 (“the contract”), the Claimant insured the motor yacht “NEWFOUNDLAND EXPLORER” (“the vessel”) with effect from 5^th November, 2003, for an initial period of 3 months and, thereafter, by various endorsements, for further periods up to either the 4^th or 5^th May, 2004. The contract was governed by English law.

The Defendant was initially the mortgagee of the vessel; it had, in the event, become the legal and beneficial owner of the vessel, following a judicial sale.

As appears from the Agreed Statement of Facts (see below), on the 25^th April, 2004, the vessel was severely damaged by fire (“the casualty”). At the time, she was laid up alongside a berth in the marina at Fort Lauderdale, USA. The cause of the fire was the overheating of the vessel’s starboard side John Deere generator. No crew members were aboard the vessel at the time of the casualty; the master was at home, some 15 miles and (ordinarily) 30 minutes, away.

Disputes have arisen between the Claimant and the Defendant under the contract.

Pursuant to the order of Aikens J, dated 17^th October, 2005, the following Preliminary Issues have been before the Court for trial:

“ (1) On the proper construction of the contract of marine insurance, policy number 04YSP0005 (“the contract of insurance”), does the express warranty ‘Warranted vessel fully crewed at all times’ oblige the Defendant to keep at least one crew member on board the vessel the whole time, as opposed to intermittently or at intervals?

(2)

On the proper construction of the contract of insurance, do the words ‘at all times’ in the warranty mean 24 hours per day, and, if not, what do they mean?

(3)

On the proper construction of the contract of insurance, what was required in order to comply with the warranty ‘Warranted vessel fully crewed at all times’ when (a) the yacht was performing a coastal voyage; (b) the yacht was performing an ocean voyage; (c) the yacht was laid up alongside a berth; and (d) the yacht was laid up alongside a berth with the generator running?”

At the trial, both parties were content, rightly in my view, that Preliminary Issues 3(a) and (b) need not be answered. I shall not, therefore, do so.

The Preliminary Issues were fought on the basis of an Agreed Statement of Facts (“the SoF”). The SoF included the following:

“COMMON GROUND

5.

The contract of insurance contained the following express term: ‘Warranted fully crewed at all times’.

6.

The contract of insurance also incorporated the Institute Time Clauses Hulls Port Risks including Limited Navigation (20/7/87) CL.312.

7.

The Defendant owed the Claimant the duties of utmost good faith…..with regard to disclosure of material facts known to it and the truth of representations made by it on its behalf.

8.

For the purpose of the placement of the contact of insurance, a proposal form (‘the Proposal Form’) was completed and signed on behalf of the Defendant.

9.

Section III of the Proposal Form stated that the vessel had one full time crew member and two occasional crew members. The full time member of the crew was Captain Sergio Criado.

10.

By an endorsement to the Policy dated 5 March 2004…, the Claimant authorised the Defendant to move the Vessel from Miami to Fort Lauderdale with effect from 15 March 2004. The Vessel departed Miami under tow on 23 March 2004.

11.

At the time of the casualty, the Vessel was laid up.

12.

On 25 April 2004, the Vessel was severely damaged by fire (‘the casualty’).

13.

The casualty was caused by the overheating of the Vessel’s starboard side John Deere generator.

14.

No crew members were aboard the Vessel at the time of the casualty.

15.

On the day of the casualty, Captain Criado attended the Vessel from about 7 am until 2.30 pm, when he drove to his home some 15 miles from where the Vessel was berthed. After he left the vessel at 2.30 pm on 25 April 2004, none of the crew were on board the Vessel until Captain Criado returned (having been alerted to the casualty) at about 6.30 pm.

16.

The Vessel’s starboard side John Deere Generator had been running under load since about noon on 23 April 2004 and was left running when Captain Criado departed the vessel at 2.30 pm on 25 April 2004. This was because only ‘two phase’ electricity was available at Fort Lauderdale. In order to keep the vessel’s systems running (in particular the air conditioning units), ‘three phase’ electricity was required, alternatively it was necessary to run one or more of the vessel’s generators.

17.

Captain Criado’s home was….approximately 15 miles from the location of the Vessel’s berth….By car, in normal traffic, it takes approximately 30 minutes to get from Captain Criado’s home to the Vessel’s berth.

18.

Captain Criado’s office was ….less than 400 metres from the location of the Vessel’s berth….However, it is the Claimant’s case that Captain Criado would not have been able to see the Vessel from his office.

19.

At the time of the casualty Captain Criado was at home.

20.

The crew members employed by the Vessel’s previous owner were dismissed by the Defendant in February 2004. Thereafter, no crew member lived aboard the Vessel.

DISPUTED ISSUES

27.

The true factual position with regard to the crewing of the Vessel at any particular time.”

The Claimant’s case: For the Claimant, Mr. Kendrick QC submitted that the warranty meant what it said. So far as concerned Preliminary Issues (1), (2) and 3(c) – (d), the Defendant was obliged to keep at least one crew member on board the vessel at all times, i.e., the whole time, 24 hours a day. Alternatively, the warranty obliged the Defendant to keep at least one crew member on board the vessel 24 hours a day:

“ subject to (i) emergencies rendering his departure necessary or (ii) necessary temporary departures, but within the vicinity of the vessel, for the purpose of performing his crewing duties.”

Mr. Kendrick relied on the natural and ordinary meaning of the warranty’s wording and on its commercial purpose – namely, the presence of at least one crew member on board, so as to safeguard the valuable yacht. As a matter of the true construction of the warranty, for the vessel to be fully crewed, the crew had to be on board; that is how the vessel is crewed. No implication was necessary to arrive at this construction. In the circumstances, in particular the facts set out in paragraphs 14, 15, 17, 19 and 20 of the SoF, it did not matter whether the warranty was a “delimiting” warranty or a “promissory” warranty; either way, the Defendant must fail. If it was necessary to decide on the nature of the warranty, Mr. Kendrick submitted that it was a warranty delimiting the risk.

The Defendant’s case: For the Defendant, Mr Eder QC submitted that the warranty looked to the crew actually employed, not to their location at any particular time. The Defendant did not take the risk of (for instance) a crew member’s unauthorised departure from the vessel. Alternatively, the warranty went no further than requiring a sufficient crew to properly look after the vessel. There was no absolute standard, given the different situations contemplated by the contract (including limited navigation, movement of the vessel and the Hurricane Plan); the contract was not confined to the vessel being laid up and the answer as to sufficiency of crew was relative to the circumstances affecting the vessel. Expert evidence was necessary to determine both the true construction of the warranty and any question(s) of breach. The Court should not stray beyond the confines of the (agreed) SoF. The Defendant’s construction did not lead to uncertainty; consider, for example, the implied warranty of seaworthiness. The warranty was to be construed strictly against the Claimant; in that sense the maxim “contra proferens” was applicable. If the Claimant had wanted a crew member to be on board 24 hours a day, different wording could and should have been used. If necessary to determine its nature, the warranty was “promissory”, rather than “delimiting”; on the Claimant’s construction, it was draconian in nature. In summary, the answer to the Questions posed by the Preliminary Issues should be “no” or, at least, they should not be answered more positively than encompassed by the Defendant’s alternative case.

I was most grateful to both Mr. Kendrick and Mr. Eder for their respective submissions.

Natural and ordinary meaning: I take as my starting point the natural and ordinary meaning of the language of the warranty. A vessel is “crewed” by the crew (whatever its number) performing such duties as are required on board her. That is, naturally and ordinarily, how a vessel is crewed. Leaving to one side for the moment any particular crewing duties requiring performance otherwise than on board the vessel and any other necessary departures or emergencies, a vessel is not crewed if the crew is elsewhere; or, put another way, exceptional instances apart, if the crew is elsewhere it is not crewing the vessel. No implication is needed to reach this conclusion; it flows instead from the natural and ordinary meaning of the word “crewed” - and does not benefit from elaboration.

In terms of crew numbers, whether a vessel is “fully crewed” or not must depend on what she is doing; manifestly, a vessel undertaking an ocean voyage will have different crewing requirements to a vessel laid up alongside a berth. However, as already discussed (and exceptional instances apart), a vessel will not be crewed, let alone “fully crewed” if no crew members are on board. Accordingly, “fully crewed” must mean at least one crew member on board the vessel, whatever she is doing. As the Claimant does not contend that compliance with the warranty required the presence of more than one crew member on board the vessel, while laid up alongside a berth, it is unnecessary to consider the question of numbers further.

As a matter of natural and ordinary language, for the vessel to be “fully crewed at all times” while laid up alongside a berth, there must be at least one crew member on board her 24 hours a day; “at all times” means what it says - the whole time, not some of the time. At all events, that is how I would interpret the wording of the warranty, at least as a matter of first impression. Here, however, questions of context and practicalities require careful reflection and some qualification. To such matters, I turn next.

Context and practicalities: The context powerfully reinforces the impression, based on language alone, that the warranty ordinarily requires the presence of at least one crew member on board the vessel. This was a valuable yacht. It can readily be understood that the presence of a crew member on board affords some protection or safeguard against such risks as vandalism, fire, pollution, the onset of bad weather or theft. While it is true that there are circumstances in which human presence can increase some risks to a vessel (see The Moonacre [1992] 2 Lloyd’s Rep. 501, at p.507), I do not think that the tail should be allowed to wag the dog. The briefest consideration of the context serves to explain why the warranty should focus on the need for an on board “watchman”, a fortiori if and when machinery was running. Moreover, in the context of a valuable yacht, that a crew member should be required on board 24 hours a day is in no way surprising.

However, as foreshadowed, it seems to me that considerations of commercial commonsense also point to the need for some qualification of the literal meaning of the wording “at all times”. So:

Pausing here, I have anxiously considered but am unable to accept Mr. Eder’s submission that the focus of the warranty was on the employment of sufficient crew, rather than their location. Mr. Kendrick’s memorable retort to this submission was that on such a footing, the Marie Celeste would have complied with the warranty. I agree with Mr. Kendrick. To confine the warranty to matters of employment is, with respect, unreal. A warranty solely focused on employment does not begin to meet the commercial purpose underlying this contractual provision. While it is of course the case that a failure to employ a crew would place the Defendant in breach of warranty, the employment of sufficient crew will not, by itself, constitute compliance with the warranty. If once however it is accepted that the warranty is not confined to questions of employment, then it seems inevitable to me that its true focus must relate to the location of the crew; save for the qualifications already discussed, that location must be on board the vessel at all times. For completeness, this construction makes good practical sense, whether the vessel is laid up alongside a berth (the situation with which the contract is primarily concerned) or undertaking the other limited activities additionally contemplated by the contract; for example, it is difficult to envisage how the vessel could be “fully crewed at all times” when at sea, if the crew were anywhere other than on board the vessel.

Provisional Conclusion: Pulling the threads together so as to give effect to the wording of the warranty but allowing for the qualifications necessarily arising from the commercial context, my provisional conclusion is this:

Remaining considerations: As indicated, this is a provisional conclusion. Before arriving at a final conclusion, a variety of other matters remain to be considered.

First, as it seemed to me, my task on the trial of these preliminary issues was to construe the warranty and, so far as appropriate, answer the questions posed. In the view which I take of the matter, expert evidence was neither required for nor relevant to, the performance of this task. It is, however, fair to Mr. Eder’s submissions to acknowledge that it is not for me to decide whether or not the warranty has been breached. I express no view as to the need for expert evidence in that regard; indeed all questions of breach of warranty are for another day, if (notwithstanding this judgment) they cannot be resolved between the parties.

Secondly, as noted, the question of whether the warranty was “delimiting” or “promissory” was addressed in argument. This distinction (notwithstanding some disapproval of the terminology which it is unnecessary to cite) is helpfully explained in Arnould’s Law of Marine Insurance and Average (Vol. II, 16^th ed.), at para. 680:

“ …the mere use of the word ‘warranted’ in a policy is not conclusive of the legal effect of what follows. Generally it is used in the sense defined in the Marine Insurance Act s.33…i.e. as equivalent to a condition precedent. But it is also used to indicate an exception to the general cover provided by the policy, for example, ‘warranted free of capture and seizure’ or ‘warranted free of average’….It has been suggested that warranties in insurance policies fall into two classes, namely those which delimit or describe the risk, and are not of a promissory character, and promissory warranties, breach of which entitles the underwriter to terminate the risk…..”

For my part, I agree with the parties that in the present case it is unnecessary to resolve the question of whether the warranty was “delimiting” or “promissory” in nature. I therefore express no final conclusion on this topic. My inclination, however, would be to hold that this was a delimiting warranty; the Claimant would be off-risk in the event that a casualty occurred at a time of non-compliance with the warranty. That, to me, seems to meet the commercial purpose of the warranty. I can see no good commercial reason why, if the breach of this warranty was once remedied, the Claimant should not be liable for a subsequent casualty, causally unconnected to the prior breach. I would accordingly have been reluctant to go further and hold that this was a promissory warranty, so that any breach would discharge the insurer from liability automatically, as from the date of the breach.

Thirdly, also as noted, Mr. Eder argued that the “contra proferentem” rule was applicable, in the sense that the warranty should be construed strictly against the Claimant. As to this submission:

Fourthly, I have arrived at my provisional conclusion as to the true construction of the warranty without reference to authority. Two authorities were, however, cited, to which it is now right to refer.

Mr. Eder placed reliance on the decision in Simmonds v Cockell [1920] 1 KB 843. The headnote said this:

“By a policy of insurance the contents of premises used for business and residential purposes by the assured and his wife were insured against loss by housebreaking or theft. The policy contained a clause: ‘Warranted that the said premises are always occupied.’ [Italics added] During a temporary absence of some hours of the assured and his wife on a Sunday the premises were left unattended and were broken into and some of the contents were stolen. In an action on the policy,

Held, that the warranty did not mean that the premises should at no time be left unattended, but that they should be continuously occupied as a residence; that there had in the circumstances been no breach of the warranty, and that the assured was therefore entitled to recover the loss on the policy.”

Furthermore, Roche J went on to remark (at p.845) that if insurers had wanted a “continuous presence of some one in the premises”, they could have stipulated that “the premises were never to be left unattended”.

I do not, with respect, derive assistance from this authority. In the first place, the context is altogether too far removed from that of the present case. The considerations relating to the use or occupation of the property in Simmonds v Cockell are very different from those pertaining to the crewing of a £3 million yacht. See, for instance, the observations of Roche J (at p.845) as to the protection which the clause did provide, on the facts of that case. Secondly, as Mr. Kendrick rightly submitted, the language of the clause in that case must be considered with regard to the “spectrum” of clauses available in property insurance.

The second authority to which I should refer is The Milasan [2000] 2 Lloyd’s Rep. 458. This was also a case of yacht insurance. The claim against insurers failed on a number of grounds. One of those grounds involved a breach of warranty, which was in these terms: “Warranted professional skippers and crew in charge at all times.” The claimants there accepted that this was a promissory warranty – there was no argument that it was a term simply delimiting or describing the risk. At p.467, para. 24, Aikens J held as follows:

“(1)

I accept….that a practical construction must be given to the words of the warranty. I think it is clear that the insurers were concerned to ensure that the vessel was properly looked after all the time, both winter and summer, and wherever she was – whether cruising or in a marina for the winter months….

(2)

….The ‘skipper’ together with the ‘crew’ has to be ‘in charge’ of the vessel ‘at all times’. In my view the wording ‘professional skippers and crew to be in charge’ means that the skipper and the crew’ together are to take care of and manage the vessel; that is the sense in which they are to be ‘in charge’ of her. They are also to be ‘in charge’ of the vessel together ‘all the time’. The last phrase is …quite clear. It means that there must be a professional skipper and a crew that looks after the vessel the whole time, as opposed to intermittently or at intervals…..”

As the claimants had not employed anyone who was a “professional skipper” over a period of time, they were in breach of warranty. Later in the judgment, when summarising his conclusions, Aiken J said this, at p.498, para. 162(2):

“On the proper construction of the ‘professional skipper warranty’ the claimants were obliged to keep a suitably qualified skipper on board the yacht at all times…..”

Mr. Kendrick submitted that the decision in The Milasan was that a skipper and crew had to be on board at all times, not intermittently. Accordingly, it supported the Claimant’s case here. For his part, Mr. Eder submitted that the decision of Aikens J on this issue was to be found in para. 24 of his judgment; in that paragraph, the learned Judge had said nothing about the skipper and crew being “on board” at all times; Aikens J should not be read as going beyond this, when he came to summarise his conclusions in para. 162(2).

I am prepared to assume in Mr. Eder’s favour that the ratio of the decision of Aikens J (on this issue) is to be found in para. 24 and that, insofar as the Judge went further in para. 162, those later observations were obiter. That said, those later observations are instructive as to the learned Judge’s thinking; there is certainly no reason to suppose that they were anything other than carefully expressed. As such, with respect, they are of considerable persuasive force and, albeit dealing with a clause differently worded, do lend some support to Mr. Kendrick’s argument. I do not, however, base my decision on The Milasan. My decision is based on the wording of the warranty in the present contract, construed in context. But I take comfort from the fact that the view to which I have come is consistent with the observations of Aikens J in that case.

In all the circumstances, the provisional conclusion as to the true construction of the warranty, set out earlier, does not require revision and stands as my final conclusion.

Accordingly, I would answer the Questions posed by the Preliminary Issues as follows:

I shall be grateful for the assistance of counsel in drawing up the order and on all questions of costs.