MARINE INSURANCE & WAR RISKS

Howard N. Bennett, Lecturer in Law, University of Nottingham.

Paper delivered to the Nottingham University Centre for International Defence Law Studies, May 26, 1993. Copyright reserved.

I. THE HISTORY & STRUCTURE OF WAR RISKS COVER

Understanding the structure of modern war risks cover may be assisted by an appreciation of the history of the London insurance market, a market which owes its most famous name and much of its shape to the consumption of coffee.

The early evolution of Lloyd's.

William Laud, Archbishop of Canterbury whose religious policy was a major cause of the English civil war, was elected Chancellor of Oxford University in 1630. In that capacity, he was an influential patron of Oriental studies, in particular endowing a lectureship in Arabic. He befriended a Cretan scholar named Nathaniel Conopius who was fleeing from Mohammedan rule, and brought him to Oxford "where, from Balliol College, he disseminated his grave learning and amused his colleagues by brewing a black drink from roasted coffee berries". Conopius was subsequently expelled from Oxford by parliamentary visitors and returned to the Levant where he became bishop of Smyrna, but his legacy of coffee drinking flourished. So popular did it become among the undergraduate students of both Oxford and Cambridge that in 1677 one Cambridge don was moved to complain "Why doth solid and serious learning decline and few or none now follow it in the University? Answer: because of coffee-houses where they spend all their time".

The passion for coffee was not, however, confined to the universities. Puritan rule during the Commonwealth saw the suppression of most forms of entertainment and the new coffee houses flourished upon a pleasurable blend of caffeine and conversation. The first London coffee house was opened in 1652 in St. Michael's Alley, Cornhill, "by one Pasqua Rosâe and a `quarrelling partner' named Bowman, from whom Rosâe soon parted". Coffee houses proliferated, and we know that by 1688 one Edward Lloyd had opened Lloyd's Coffee House in Tower Street, not far from Tower Wharf and the Custom House. From the beginning, Edward Lloyd seems to have targeted the shipping community, although not necessarily underwriters. In 1691, Lloyd's moved to new premises at 16 Lombard Street where it remained for some 80 years. By the time Edward Lloyd died in 1713, leaving a substantial estate, Lloyd's was well established as a centre for business men to meet and as a location for the holding of auction sales, increasingly of vessels. The connection with marine underwriting seems not to have developed until the 1720s, but in the next two decades Lloyd's reputation grew, during which time it came to enjoy a de facto monopoly in the London marine insurance market. In the 1750s and 1760s, however, Lloyd's fell into disrepute. In 1763, the business passed into the somewhat ineffectual hands of Thomas Lawrence. Substantial profits during the Seven Years War gave way to less spectacular peacetime business and vulturine speculators indulged "under the guise of underwriting [in] an outbreak of gambling that had nothing to do with legitimate insurance". These were the days before the introduction of any legal requirement of an insurable interest in the subject-matter of the insurance. Policies taken out on the lives of sick or accused persons were tantamount to bets on the likelihood of natural demise or the imposition of capital punishment. The combination of such scandalous behaviour and the ambition of one of Lawrence's waiters, Thomas Fielding, led to the establishment in 1769 under Fielding's management of the rival New Lloyd's Coffee House at 5 Pope's Head Alley.

The new premises were, however, cramped, old and insanitary and only two years later the underwriters again looked for somewhere new. This prompted the election in 1771 for the first time of a Committee to represent the underwriters and the payment of a subscription, the first significant move by the underwriters themselves towards assumption of responsibility for the organisation of the market. Nevertheless, two years later the nine member Committee had failed to find alternative premises. Ultimately, an immigrant from the Baltic and an ordinary subscriber, one John Julius Angustein, arranged for the lease of two rooms in the Royal Exchange, whither the underwriters moved in March, 1774. Lloyd's had completed its metamorphosis from coffee house to organisation of underwriters.

The War of American Independence subjected Lloyd's to a severe ordeal. The official entry of France into the war in 1778 saw its hostile maritime action escalate from privateering and 656 ships were lost in 1779. It needs to be remembered that at the time there was no legal prohibition on the insurance of enemy vessels, and Lloyd's sustained heavy losses as a result of British successes as well as British reverses. The greatest disaster, however, came in August 1780. Two convoys totalling together some 63 merchantmen and protected only by one ship of the line and a couple of frigates encountered the combined fleets of France and Spain. Only eight merchantmen escaped resulting in losses of Ï1.5 million. A considerable number of Lloyd's underwriters failed to meet their obligations. Nevertheless, Lloyd's survived (as will be seen, it had no genuine competition) and soon found itself basking in a period of financial prosperity. "Seldom, if ever, has Lloyd's been more prosperous or more prominent than it was in the Napoleonic wars." Sharply rising commodity prices led to an increase in the demand for marine insurance creating an underwriters' market where coverage commanded whatever premiums the underwriters deemed necessary. In addition, the Royal Navy, which at one stage during the eighteenth century had been reduced to a shambolic state, was in a better position to fulfil its convoy protection duties.

The rise of Lloyd's to prominence within the marine market. What the above tale fails to elucidate is exactly why, in the eighteenth century, Lloyd's came to assume such a dominant position in the marine insurance market. The answer lies in a combination of corruption, chance and commercial expediency. At the beginning of the 18th century, there was no centre of marine insurance. Underwriting was very much a part-time activity pursued by persons of all calling. The "fixed point in a floating market" was provided by the brokers, or "office-keepers" as they were known, the term "broker" having fallen into disrepute as synonymous with a handler of stolen goods. The brokers would know where in the City of London to find individuals prepared to assume, on their personal account, a proportion of the risk in the course of their secondary interest of underwriting. The pivotal role of the broker emerges against the background of a market devoid of regulation:

When [the insurers] underwrote ... they usually were not acting as partners in a firm, but risking their private fortunes in such a way that there was no partnership control, no common liability, no check on what was written or who wrote it. It was a free-for-all trade and, so long as the office-keeper was willing to accept a man's security, there was no bar to the most unsuitable person committing himself to any extent on any risk. The one binding controlling element must have been the office-keeper's judgment; and his duty to his client was not only to get a risk completed at the best rate, but to make sure that it was placed with reliable men whose means would satisfy the claims when they arose. If his integrity and good sense failed, then the assured must suffer and the good name of the London market suffer with him.

Nevertheless, the exceptional broker was no paragon of virtue. Scandal erupted in 1717. A broker finding himself short of Ï200 of cover on a vessel called the Vansittart added two fictitious names. Had the vessel completed her voyage safely, the fraud would have passed undiscovered. But the Vansittart was lost and the truth emerged. The ensuing widespread recrimination and the levying of accusations against brokers generally were fuelled in part by the coincidental commencement of a campaign to introduce chartered insurance companies to replace or compete with the individual underwriters. Prima facie, there seems to have been a case to answer, since merchants' livelihoods would depend upon individuals not known personally to them assembled by the broker. However, the clamour for the introduction of chartered companies was raised in no small measure by company speculators seeking access to the insurance market, for this was the era of the South Sea Bubble.

In 1711, faced with serious National Debt problems, the government established a company, the South Sea Company, to exploit a trading monopoly conferred by charter in return for taking over Ï9 million of the debt. Holders of government securities could exchange them for shares in the company, which would receive reduced interest from the Treasury. The shareholders would, however, benefit from an assuredly and increasingly profitable investment in the South Sea Company. The flaw was that the company's trading monopolies in reality were of little if any value, consisting of dealings in inwrought iron with Spanish subjects, some vague fishing rights and trade with Spanish South America, trade which never blossomed. By way of comparison, one commentator has postulated a company floated in London in 1943 "to develop British trade with Japan, to buy and sell base metals with Germany, and to run a fleet of trawlers to Iceland".

Between 1711 and 1720, when the company took over another Ï31 million of the National Debt, every speculator's trick was employed to maintain the apparent buoyancy of South Sea Company stock. By hook and principally by crook, its Ï100 stock rose to a height of Ï1000. But the government sponsored gambling on South Sea stock spread:

A perfect rage for speculation seized the entire country: fraudulent companies of every conceivable description were floated, and however absurd their ostensible purpose, they found people willing to invest in them ... The crowning imposition of all ... was a scheme "for carrying on an undertaking of great advantage, but nobody to know what it is." The ingenious deviser of this idea asked for a capital of half a million, and provided that every investor paying down two guineas per cent was to have Ï100 per annum for every Ï100 so subscribed. Extravagant as this sounds, the projector received 1000 subscriptions in a single morning, and decamped with his 2000 guineas in the afternoon. The nominal value of all these "Bubbles," as they were called, was Ï500,000,000 - about twice the value of all the land in England.

The bubble of deceit was pricked in 1720. The incorporated company was the key to stock amenable to speculation and, at the time, incorporation was by Royal Charter or by Act of Parliament. As the success of a petition for a charter was dependant primarily upon the success of extensive tactical bribery, a number of companies resorted instead to purchasing obsolete charters from firms which had ceased trading. Although charters granted the right to pursue a particular trade, such restrictions were then cavalierly ignored. However, in March 1720, a House of Commons committee met to investigate fraudulent schemes for the subscription of capital including the acquisition of obsolete charters. The result of its report was the preparation and passing in June 1720 of the Bubble Act, which, inter alia, rendered illegal the raising of public subscriptions either in the absence of authority of charter or Act of Parliament or under an obsolete charter. The institution of proceedings against companies with a view to forfeiture of their obsolete charters, combined with the adverse publicity engendered by the passing of the Bubble Act, triggered a stock market crash of unprecedented devastation in September 1720. In the course of that month, shares in the South Sea Company itself fell from 780 to 180 per cent. Although the company was too entwined with the nation's finances to be permitted to fail totally, it never regained public confidence. It "dragged out a struggling existence till 1807; and the faded splendours of its South Sea House survived long enough to secure immortality in the Essays of Elia".

Throughout the eighteenth century and beyond "the shadow of 1720 retarded the development of incorporated companies". New charters and authorising Acts of Parliament for any type of company were few and far between. But the Bubble Act itself had a more direct impact upon the evolution of the marine insurance industry. At the time of preparation of the Act, charters were being sought for a new marine insurance corporation and for an underwriting company operating under the purchased obsolete Elizabethan charters of the combined Mines Royal and Mineral and Battery Works. The petitions to Parliament for charters proving unavailing, the promoters appealed unto Caesar, "or rather (to be more accurate) they offered Caesar a bribe and Caesar accepted it". An impecunious government had fallen into arrears of Ï600,000 on the Civil List. The Prime Minister, Robert Walpole, engineered a scheme whereby the promoters of each of the petitions would pay the Government Ï300,000 for the award of charters granting exclusive rights to corporate marine underwriting. The ensuing support of the King, George I, led to the grant of exclusive charters to the Royal Exchange Assurance and the London Assurance, the relevant provisions being included in the Bubble Act. Permission for two charters was granted by s. 1, each of the beneficiaries being required by s. 2 to pay Ï300,000 "into the Receipt of the Exchequer ... for the Use of the King's Majesty, in order to discharge the Debts and Expenses of his Civil Government". The crucial provision, however, was s. 12 which prohibited ... all other Corporations or Bodies Politick, before this time erected or established, or hereafter to be erected or established, whether such Corporations or Bodies Politick, or any of them, be sole or aggregate, and all such Societies and Partnerships as now are, or hereafter shall or may be entered into by any Person or Persons, for assuring Ships or Merchandises at Sea ... from entering into any contract of marine insurance. However, s. 12 also declared that: ... any private Person or Persons shall be at Liberty to write or underwrite any Policies, or engage himself or herself in any Assurances of [marine insurance] as fully and beneficially as if this Act had not been made, so as the same be not upon the Account or Risque of a Corporation or Body Politick, or upon the Account or Risque of Persons acting in a Society or Partnership for that Purpose ...

At face value, therefore, the impact of the Bubble Act was threefold. First, individual underwriting via brokers remained unfettered. Secondly, competition was introduced in the form of the Royal Exchange Assurance and the London Assurance. Thirdly, the marine insurance market was closed absolutely except to individual underwriters and the two corporations. The reality, however, was that individual underwriting received an almost total monopoly. The stock market collapse of 1720 led to the corporations defaulting on their Ï300,000 statutory debts/bribes. 50% remissions enabled them to survive, but they made little impact on the marine market. They were not competitive; they imposed a limit of Ï10,000 on the sum assured; they were reluctant to accept risks attached to voyages between two overseas ports (known as "cross risks") or to cover neutral ships against the war risk of capture in enemy ports; they tended to impose restrictive terms and conditions. Individual underwriters helped themselves to over 90% of the marine market.

What, however, led to the marine market adopting Lloyd's as its centre? Edward Lloyd established a maritime connection but not an underwriting tradition. The 1730s and 1740s saw an export boom and a correlative growth in the demand for marine insurance, monopolised, in the wake of the Bubble Act, by individual underwriters. A leading criticism of the marine market prior to 1720 had been its scattered nature. Commercial expedience dictated concentration and Lloyd's became the centre, probably because of the development of the coffee house by its proprietors as a centre for shipping intelligence, exemplified by the establishment in the 1720s of the newspaper Lloyd's List, which has been published continuously ever since and survives today as the Lloyd's List and Shipping Gazette.

The Bubble Act had one further consequence. Shipowners dissatisfied with the coverage and premium rates available at Lloyd's came together to constitute unincorporated associations in the form of mutual assurance associations or clubs so as to divide their losses between themselves. Although the Bubble Act corporate duopoly on marine insurance business was repealed by the Marine Insurance Act 1824, and the mid-nineteenth century saw the advent of incorporation by registration and limited liability, both Lloyd's and the associations survived the advent of fresh competition, although it was established in 1875 that associations with more than twenty members were in law companies requiring registration under the Companies Act 1862.

Association members do not pay premiums as such. A provisional contribution is required from all association members. At the end of the association year, the management calculates the liabilities for the previous twelve months and makes a supplementary call or gives a refund as appropriate. The association year commences and ends at noon February 20, Greenwich time. The terms of coverage are determined by the association rules, which usually provide, inter alia, for automatic renewal subject to termination by either the member or the association in accordance with the procedure specified in the rules.

The evolution of marine war risks coverage. In 1898 a small group of French explorers under the command of Captain Jean Baptiste Marchand planted a French flag in the village of Fashoda in the Sudan, then under the dominion of Great Britain. The resulting diplomatic incident threatened to develop into war between Britain and France until Marchand was ordered to withdraw. The 1890s also saw considerable tension between Britain and the United States. The watching marine underwriters were acutely aware of the power of the navies of both France and the United States and a General Meeting of Lloyd's, held on June 15, 1898, adopted for the first time a formal policy of severing marine and war risks.

The agreements concluded in Lloyd's coffee house in the eighteenth century for the assumption of risk in return for payment of a premium developed into a standard form contract, the S.G. Policy. This policy developed on an entirely ad hoc basis. It was "not a planned document and never during the whole of its long life did it acquire this characteristic". As both law and practice developed, risks were amended and exceptions developed. Moreover, a complex way of presenting the cover evolved. Although the S.G. Policy itself spelt out the cover granted in terms of a list of risks and exceptions, the market also developed a series of standard clauses for particular types of risk, e.g. for cargo, hulls or freight, for hulls for a period of time or for a voyage. These more detailed statements of the cover would be appended to the S.G. Policy. However, as both the S.G. Policy and the standard clauses had the force merely of contractual terms, they were open to amendment. Thus a particular risk might be crossed out, or an endorsement slip might be attached to the policy or standard clauses by glue. The result was hardly a model of clarity. As early as 1791, Buller J. remarked that "it is sufficient to say that a policy of assurance has at all times been considered in courts of law as an absurd and incoherent instrument".

In the seventeenth century, it was customary to insure against both marine and war risks in the same policy. This tradition endured into the nineteenth century when "it was still thought to be at once the duty and the advantage of a marine underwriter to cover war as willingly as he covered collision, fire or stranding". By the nineteenth century, however, the market had come to appreciate that the two categories of risk constituted separate species and a movement towards separate coverage commenced. This first took the form of building upon the "f.c and s. clause", i.e. that the underwriter excluded liability for the the risks of capture and seizure. Such an exclusion dates from tension between Britain and France in 1739 and was developed through the Napoleonic wars. In the early nineteenth century, the infant United States navy demonstrated the limits of the protection even the Royal Navy could extend to merchant shipping against determined predators. 1862 saw the invention of the propelled torpedo and 1893 the launch by the French navy of the first submarine. Moreover, the value of ships and cargo had multiplied manifold since the Napoleonic Wars. The formal break did not come however until 1898. In the light of the Fashoda incident, Lloyd's resolved to insure war and marine risks under separate policies and, the following year, determined that, in the absence of contrary agreement, all marine policies should include an f.c. and s. clause. The insurance companies following suit, this became the practice of the London market. Although subject to revision, the f.c. and s. clause endured until the 1980s.

The mechanics of the separation were, nevertheless, far from immediately apparent. A typical example is furnished by Panamanian Oriental Steamship Corp. v. Wright (The Anita). The policy in the usual S.G form had the F.C. & S. Clause deleted and incorporated the Institute War and Strikes Clauses (Hulls-Time). Clause 1 provided that: Subject always to the exclusions hereinafter referred to, this insurance covers only the risks excluded from the Standard Form of English Marine Policy by the clause:- "Warranted free of capture, seizure, arrest, restraint or detainment, and the consequences thereof or of any attempt thereat ..."

This provoked the following cry of despair from Mocatta J.: It is probably too late to make an effective plea that the traditional methods of insuring against ordinary marine risks and what are usually called war risks should be radically overhauled. The present method, certainly as regards war risks insurance, is tortuous and complex in the extreme. It cannot be beyond the wit of underwriters and those who advise them in this age of law reform to devise more straightforward and easily comprehended terms of cover. However the form taken by the war risks cover here, since clause 1 of the Institute clauses only covers the risks excluded from the S.G. form by the f.c. and s. clause, requires one to see what cover is given by the S.G. form on the facts, which would be excluded from it by the f.c. and s. clause, for it is only in respect of such exclusion that the plaintiffs can recover under the present policy.

Thus, only if the risk in question was prima facie within the S.G. cover, but then excluded by the f.c. and s. clause, was it then within the war risks cover, subject to further express exclusion or modification. Further condemnation came from the United Nations Conference on Trade and Development in its 1978 report on marine insurance: The very concept of granting an insurance cover and excluding it in the same document (the S.G. Form), and then excluding it again in attached clauses, which override the first document in any case, and then granting it again (either in another document or as an additional attachment) by reinstating the original exclusion, is so complicated and contorted that the uninitiated is confused by the very procedure of insurance without even considering the complicated draftsmanship. The very complexity of the subject matter calls for the most simple and straightforward procedures.

Reform of the Institute clauses in the 1980s responded to these criticisms. The f.c. and s. clause was laid to rest. Self-contained sets of clauses for marine risks and for war risks were introduced, those risks covered by the war risks clauses being expressly excluded from marine risks coverage. Moreover, it is to be noted that the reinsurance capacity of the London market of Lloyd's and the insurance companies and its preference for reinsuring primary cover issued subject to the Institute clauses result in the clauses having an overseas applicability.

The London market is not, however, the only war risks insurer. Towards the end of the nineteenth century, the incidence of revolutions in South American republics resulted in underwriters requiring enhanced premiums for war risks cover for vessels operating in their waters. Consequently, 1898 saw the first mutual war risks association to provide cover at a lower cost. The Government also has an important involvement stemming from the first World War. In 1903, it appointed a committee under the chairmanship under Austen Chamberlain to consider whether private enterprise could accommodate marine insurance in time of war involving the United Kingdom. The committee concluded that it could, but losses from the Russo-Japanese War, which confirmed the efficacy of the torpedo, and the growing power of the German navy, prompted a considerable retreat from war risks cover by both the London market and the associations. Consequently, in 1913 a second committee chaired by Huth Jackson drew up the scheme adopted by the Government on August 5, 1914. With respect to hulls, the Government offered 80% reinsurance cover, controlling by regulation both premium rates and settlement of claims. As regards cargoes, the Government opened a State Insurance Office offering primary insurance directly to merchants for cargoes in British hulls at a uniform rate for all voyages. The Government, however, did not appropriate to itself any monopoly and permitted the private sector to compete for cargo cover.

The effect of the scheme was that the Government ended up covering poor cargo risks, whilst Lloyd's and the companies undercut it with respect to the better risks and made considerable profits. Since the purpose of the scheme was not to enable the Government to participate in the insurance market but to ensure the continuance of certain voyages, the result was not without justification. But it led to abandonment of the uniform rate for cargoes. Overall the Government made a profit of Ï32 million on hulls insurance against a Ï7.5 million loss on cargo cover. The State Insurance Office covered approximately 27% of the total value of war-time cargoes, while the remaining Ï6,000 million went to the private sector.

The second World War saw a different scheme. The Government entered into a gentlemen's agreement, which was duly observed, with Lloyd's and the companies which divided war risks into two groups. With respect to voyages to or from a port in this country, the private sector underwriters agreed only to quote rates higher than the Government's. As regards voyages between two overseas ports, the underwriters were left unfettered. To a certain extent, the Government was protected against competition while foreigners were not compelled to subscribe to United Kingdom government insurance. "It was a sensible arrangement which at once protected the British tax-payers, preserved an invisible export, and brought us during the war millions of pounds worth of foreign currency. It also guaranteed the survival of our marine insurance market after the war was over".

The current statutory framework for government war risks insurance is provided by the Marine and Aviation (War Risks) Act 1952. By virtue of this Act, the Government is empowered to reinsure ships and cargoes against war risks except that if the ship is not a British ship the war risks must arise either during the continuance of a war or other hostilities in which the United Kingdom is engaged or after any such war or hostilities in consequence of things done or omitted during such events. The Government is also empowered by s. 2(1) to carry on business:

(a) at any time when it appears that reasonable and adequate facilities for the insurance of British ships against war risks, or any description of such risks, are not available, for the insurance of such ships against such risks or, as the case may be, that description thereof;

(b) during the continuance of any war or other hostilities in which Her Majesty is engaged, for the insurance of ships (whether British or not);

(c) at any time when it appears that reasonable and adequate facilities for the insurance of cargoes carried in ships against war risks, or any description of such risks, are not available, for the insurance of such cargoes against such risks or, as the case may be, that description thereof;

(d) during the continuance of any war or other hostilities in which Her Majesty is engaged, for the insurance of cargoes carried in ships ...;

(e) during the continuance of any such war or hostilities, for the insurance of goods consigned for carriage by sea while the goods are in transit between the premises from which they are consigned and the ship or between the ship and their destination.

But no insurance may be provided under paras. (b), (d) or (e) unless, in the interests of the defence of the realm or the efficient prosecution of any such war or hostilities as described above, it is necessary or expedient so to do. The key term "British ship" is not defined but encompasses also ships of India and of the Republic of Ireland. The statutory definition of "war risks" reflects the insurance terminology of the time. For the purposes of the 1952 Act, it means: risks arising from any of the following events, that is to say, hostilities, rebellion, revolution and civil war, from civil strife consequent on the happening of any of those events, or from action taken (whether before or after the outbreak of any hostilities, rebellion, revolution or civil war) for repelling an imagined attack or preventing or hindering the carrying out of any attack, and includes piracy.

Pursuant to s. 1 of the 1952 Act, since 1954 there has been a standing reinsurance agreement between the government and mutual assurance associations. The current agreements, officially between the Secretary of State for Transport and a number of British mutual war risks associations, dates from February 18, 1988. Its principle provisions are as follows. It provides 95% reinsurance on British ships and other vessels the Secretary of State is prepared to accept for reinsurance (known as "reinsured ships") against "Queen's enemy risks". If the Secretary of State considers that reinsured ships are or may be exposed to Queen's enemy risks, he may serve a premium notice on the Association. In the event of service of premium notice, the Secretary of State will determine the level of (additional) premium the Association will charge the owners of reinsured ships. Only if such a notice is served, is any premium payable by the Association, in which case it will be 95% of the premium the Secretary of State determines shall be charged to the shipowners. The Association has to obtain the written consent of the Secretary of State before accepting or paying any claim, but block authorisations may be given. In any event, however, the Secretary of State is bound by any final judgment obtained by a shipowner against the Association. The definition of "Queen's enemy risks" is left to the Association's rules, and is found in r. 2A. The extensive definition of Queen's enemy risks therein contained covers loss of or damage to a ship; detention following capture, seizure, arrest, restraint or detainment; collision liability; wreck liability; requisitioned and chartered ships and suing and labouring. Two overriding provisos restrict Queen's enemy risks to risks arising out of hostilities involving the United Kingdom and to the definition of "war risks" in s. 10(1) of the 1952 Act.

II. THE IMPACT OF WAR ON CONTRACTS OF INSURANCE

If the United Kingdom is not a belligerent, the outbreak of war has no impact upon the rights of the parties to a contract of insurance. In any litigation arising out of the war, which of the belligerents caused the loss is irrelevant. Thus, in Aubert v. Gray, a Spanish subject was held entitled to recover against an English insurer by reason of the seizure of his ship by his own government. Moreover, outbreak of war involving the United Kingdom has no impact upon the rights of a British citizen under a contract of insurance, nor upon the rights of a neutral. Nor, despite the fact that assisting an enemy of the Crown is contrary to public policy, does it invalidate an insurance contract with an enemy assured. The impact of public policy in this regard upon contracts of insurance was encapsulated by Lord Davey in three rules in Janson v. Driefontein Consolidated Mines Ltd. First, "the King's subjects cannot trade with an alien enemy, i.e., a person owing allegiance to a Government at war with the King, without the King's licence. Every contract made in violation of this principle is void ...." However, this principle of public policy assumes a state of actual war and "threatened war or anticipated war or imminent war is peace". Secondly, by way of corollary: no action can be maintained against an insurer of an enemy's goods or ships against capture by the British Government. One of the most effectual instruments of war is the crippling of the enemy's commerce, and to permit such an insurance would be to relieve enemies from the loss they incur by the action of British arms and would, therefore, be detrimental to the interests of the insurer's own country. Nor may an enemy alien maintain an action against a British insurer for loss occasioned by his own Government and the prohibition extends to United Kingdom or neutral citizen who conclude an insurance contract as the agent of an enemy alien. But as the essence of the illegality lies in assisting the enemy, it is lawful to accept and sue for premiums. Thirdly, "if a loss has taken place before the commencement of hostilities, the right of action on a policy of insurance ... is suspended during the continuance of war and revives on the restoration of peace".

III. THE SCOPE OF WAR RISKS COVERAGE UNDER THE INSTITUTE CLAUSES

The discussion of the precise scope of war risks cover will be based on the Institute War Clauses (Cargo). Clause 1 lists the risks covered as follows:

1.1 war civil war revolution rebellion insurrection, or civil strife arising therefrom, or any hostile act by or against a belligerent power

1.2 capture seizure arrest restraint or detainment, arising from risks covered under 1.1 above, and the consequences thereof or any attempt thereat

1.3 derelict mines torpedoes bombs or other derelict weapons of war.

War & civil war. As a distinct insured peril, "war" was introduced in the 1982/1983 revision of the Institute clauses, replacing in part the phrase "warlike operations".

In defining "war" for insurance purposes it is clear that contract law has the upper hand over international law. In Driefontein Consolidated Gold Mines Ltd. v. Janson, Mathew J., at first instance, quoted the following definition from Hall on International Law:

When differences between States reach a point at which both parties resort to force, or one of them does acts of violence, which the other chooses to look upon as a breach of peace, the relation of war is set up, in which the combatants may use regulated violence against each other, until one of the two has been brought to accept such terms as his enemy is willing to grant.

However, in the leading case of Kawasaki Kisen Kabushiki of Kobe v. Bantham SS. Co. both the Court of Appeal and the Foreign Office emphasised that true issue was not a search for a term of international legal art but the construction of a commercial contract. The case concerned a charterparty which gave liberty to cancel "if war breaks out involving Japan". Fighting broke out between Japan and China, but there was no formal declaration of war and diplomatic relations remained intact. The shipowner purported to exercise the liberty to cancel. When consulted for its opinion, the Foreign Office responded that "the current situation in China is indeterminate and anomalous and His Majesty's Government are not at present prepared to say that in their view a state of war exists." However, the statement went on to say that the meaning of the word "war" in a charterparty may be viewed rather as turning upon the interpretation of the contract and that the attitude of the Government was not necessarily conclusive of such interpretation. Lord Greene observed that the question was not whether there had broken out a war recognised by the Government, otherwise the court would either have taken judicial notice of such recognition or have sought an answer from the appropriate Government department. Expressly left open was the question of whether recognition by the Government that war had broken out would have determined the interpretation issue.

His Lordship then expressly refuted the argument that one should seek and then apply a technical meaning of war within the principles of international law:

Where these principles of international law for this purpose are to be found I must confess that I remain in complete doubt, since the only source of these principles suggested to us was the writings of various writers on international law. It is to be observed, as indeed it was to be expected, that these writers do not speak with one voice, and it is possible to extract from their pages definitions of "war" which not only differ from one another, but which are inconsistent with one another in important respects ... [T]o say that English law recognises some technical and ascertainable description of what is meant by "war" appears to me to be a quite impossible proposition.

Likewise, his Lordship rejected an argument that war requires an animus belligerendi on the part of both, or at least one, of the combatants. "What precisely animus belligerendi means is again a matter of great obscurity. In fact, to define "war" as a thing for which it is requisite to have animus belligerendi is coming very near to defining the thing by itself". It was held that "war" in its context was to be construed in accordance with commercial common sense, resulting in a finding of war at the relevant date:

... [T]o suggest that, within the meaning of this charterparty, war had not broken out involving Japan on the relevant date is to attribute to the parties to it a desire to import into their contract some obscure and uncertain technicalities of international law rather than the common sense of business men.

The court expressly rejected the suggestions that war presupposed either a formal declaration of war or the severing of diplomatic relations.

Normally, "civil war" will be dealt with expressly in the policy, but, failing express mention, it is included within the term "war" unless the context clearly demonstrates a contrary intention. The leading authority on the definition of "civil war" is Spinney's (1948) Ltd. v. Royal Insurance, in which Mustill J. had to determine whether there was a civil war in Beirut in January 1976. Declining to proffer a general definition, his Lordship identified and elaborated upon three relevant questions. First, can it be said that the conflict was between opposing "sides"?

It must be possible to say of each fighting man that he owes allegiance to one side or another, and it must also be possible to identify each side by reference to a community of objective, leadership and administration.

It does not necessarily follow that the objective of all those on any one side must be identical. There may be considerable differences and even animosities between allies. But there must be some substantial community of aim, which the allies have banded together to promote by the use of force. Nor in my view need there always be only two sides. Two factions might fight one another, and also the state, in order to seize power. This would still be a civil war. But if the factions are too numerous, the struggle is no more than a melee, without the clear delineation of combatants which is one of the distinguishing factors of a war.

Secondly, consideration needed to be given to the objectives of the "sides" and how those objectives were pursued. Classically, the objective should be the seizure of power, but ordinary usage, which will reflect the intention of the parties, embraces "[forcing] changes in the way power is exercised without fundamentally changing the existing political structure" or conflict motivated by racial, tribal or ethnic animosities.

Nevertheless, one should ... always begin by enquiring whether the parties have the object of seizing or retaining dominion over the whole or part of the state. If it is found that they do not, there may still be a civil war; but it will then be necessary to look closely at the events to see whether they display the degree of coherence and community of purpose which helps to distinguish a war from a mere tumultuous internal upheaval.

Prospect of success is not relevant. The third issue generally to be considered is the scale of the conflict and its effect on public order and the life of the general populace. In the event, Mustill J. held there was no civil war in Beirut at the relevant time by reason of the sporadic nature of the fighting and the absence of both ascertainable sides and clear purpose. Indiscriminate, random and pointless violence did not constitute a civil war, in contrast to the Easter uprising in Dublin in 1916, considered in Curtis v. Mathews. The General Post Office and other public buildings were occupied by persons calling themselves a Provisional Government, who proclaimed an Irish Republic. Bombardment by the British army of the post office caused a fire which spread and destroyed the plaintiff's premises and contents. The plaintiff brought an action on his policy which covered loss and damage "directly caused by war, bombardment, military or usurped power ... and fire ... directly caused by any of the foregoing, whether originating on the premises insured or elsewhere". Roche J. entertained no doubts as to the existence of a connection between the uprising and the World War then raging. "As to the actual course of the rising in Dublin itself, there was a week of fighting, a suspension of all normal life, a casualty list of over 1300 ... and great destruction of property". It was no mere riot, but civil conflict amounting to war.

There is some debate as to the extent to which war, whether civil or otherwise, must involve governments whether de iure or de facto, i.e. "entities that have at least significant attributes of sovereignty". Although stressed in United States law, English law's recipe for "war" includes no such ingredient, as the discussion in Spinney's demonstrates. Although Curtis saw the declaration of a Provisional Government, it can hardly be said to have enjoyed "significant attributes of sovereignty".

Revolution, rebellion & insurrection. These perils are the modern successors to the peril of "usurped power", which first appeared in a fire policy in 1720 in an exclusion prompted by the 1715 Jacobite uprising and covering losses caused by "invasion, foreign enemy, or ant military or usurped power whatsoever". Given the paucity of authority on the modern perils, there follows a discussion of "usurped power" to clarify the general territory.

The concept emerged through the law of treason. A rebellious mob sought to usurp power because it sought to arrogate to itself the prerogatives of Parliament and monarch, amounting to treason within the Treason Act 1351. In contrast a common mob, which sought merely the redress of private grievances, committed no treason, although the 1710 Riot Act rendered felonious the failure to disperse within one hour after the reading of a statutory proclamation. In Drinkwater v. The Corp. of the London Assurance a mob in Norwich, protesting at the high cost of provisions, destroyed a quantity of flour before dispersing when the Riot Act was read. However, the next day, another mob formed and burnt down the plaintiff's malting house. The defendant insurer unsuccessfully sought to rely upon the above exclusion. Wilmot C.J. stated:

My idea of the words burnt by usurped power, from the context, is that they mean burnt, or set on fire by occasion of an invasion from abroad, or an internal rebellion, when armies are employed to support it. When the laws are dormant and silent, and firing of towns is unavoidable, these are the outlines of the picture drawn by the idea which these words convey to my mind.

"Usurped power" did not embrace the power of a common mob. A mob "wants a universality of purpose to destroy, to make it a rebellious mob, or high treason". In Langdale v. Mason, Lord Mansfield in his direction to the jury concerning the meaning of "military and usurped power" admitted the terms to be ambiguous, but stated that they must involve rebellion, where the loss is sanctioned by authority.

"Usurped power" is closer akin to war and civil war than to mere riot. It is more than the action of an unorganised rabble. In Spinney's, Mustill J. stated that the English cases "clearly establish the proposition that one of the tests for a usurped power is whether the acts in question amounted to constructive treason ... The usurpation consists of the arrogation to itself by the mob of a law-making and law-enforcing power which properly belongs to the sovereign". It was held to be sufficient to show "a mob in posture of war, acting with a common intent and some degree of leadership, in pursuance of aims which properly lie within the prerogative of the sovereign" as opposed to an outright rebellion or insurrection.

There is no judicial consideration of the meaning of "revolution". The Oxford English Dictionary definition involves the complete overthrow, accompanied by actual or threatened force, of an established government by its former subjects and its successful and complete substitution by another government. "Rebellion" was alluded to briefly in Spinney's. Mustill J. referred to the Oxford English Dictionary defining "rebellion" as "organised resistance to the ruler or government of one's country; insurrection, revolt", adding that "the purpose of the resistance must be to supplant the existing rulers or at least to deprive them of authority over part of their territory". "Insurrection" was stated in Spinney's to be similar to "rebellion" but encompassing also the notion of an incipient, limited or less well-organised rebellion. It still involves action with intent to change the government. In Rogers v. Whittaker, in the context of an exclusion covering "insurrection, riots, civil commotion", "insurrection" was stated to be a form of "domestic disturbance" not embracing Zeppelin air raid damage.

In National Oil Co. of Zimbabwe (Private) Ltd. v. Sturge activities of the Renamo movement in Mozambique were characterised as an insurrection, enabling underwriters to rely on the war risks exclusion in the Cargo Clauses (Strikes). Saville J. observed that:

"Rebellion" and "insurrection" have somewhat similar meanings to each other. To my mind, each means an organised and violent internal uprising in a country with, as a main purpose, the object of trying to overthrow or supplant the government of that country though "insurrection" denotes a lesser degree of organisation and size than "rebellion".

It was held that the motive behind the desire to change the government was irrelevant. Saville J. acknowledged that purely foreign intervention did not constitute an insurrection, but held that Renamo, although receiving considerable support and direction from external sources, was not a "force from outside exclusively carrying out foreign aims and ambitions".

Civil strife arising therefrom. This covers the civil disorder arising from the preceding list of perils but not classifiable as constituting any of them. Civil strife may also arise from, for example, war even after the war has officially ended. There is, however, no authority on the precise meaning of "civil strife" and in particular the relationship between "civil strife" and "civil commotion" is unclear.

Any hostile act by or against a belligerent power. This replaces the old peril of "hostilities" which used often to be followed by the phrase "or warlike operations". There being no modern authority on the phrase "any hostile act by or against a belligerent power", there follows a discussion of "hostilities", which may ultimately be held to be synonymous with, or at least analogous to, the modern terminology.

On February 18, 1916, an explosion occurred in the hold of the Tennyson by reason of a bomb planted there by Herr Niewerth, a German citizen resident in the Brazilian port of departure. In the subsequent litigation, Atlantic Mutual Insurance Co. v. King, the defendant reinsurer successfully invoked a clause excluding "all consequences of hostilities or warlike operations". On the meaning of "hostility", Bailhache J. observed that:

In one sense, it is plainly true that the fire was due to a hostile act, but the plaintiffs say rightly, as I think, that the word "hostilities" as used in the Clause, means hostile acts by persons acting as the agents of sovereign powers, or such organised and considerable forces as are entitled to the dignified name of rebels as contrasted with mobs or rioters, and does not convey the act of a merely private individual acting entirely on his own initiative, however hostile his actions may be.

"Agent" was not to receive a technical meaning and embraced all individuals who sought to further the policy of the German government to destroy enemy life and property. The court had before it a circular to all German naval attachâs instructing the immediate mobilisation of "destruction agents", and Niewerth was duly held to be such an agent.

The leading case of British Steamship Co. v. R. (The Petersham) arose out of a loss by collision between two ships in convoy when both vessels, in compliance with Admiralty regulations, were being navigated without lights as a precaution against enemy action. The lost ship had been requisitioned under the terms of a charterparty rendering the Admiralty liable for the "consequences of hostilities or warlike operations". The House of Lords held that merchant ships sailing in convoy in time of war could not be regarded as a "hostility". Lord Wrenbury observed that:

the word "hostilities" does not mean "the existence of a state of war" but means "acts of hostility" or ... "operations of hostility." The sentence may be read "all consequences of operations of hostility ... or operations warlike ... whether before or after declaration of war." To attribute to the word the longer meaning - namely, "all consequences of the existence of a state of war" - would give the expression a scope far beyond anything which one can conceive as intended.

Clearly the ramming by a merchantman of an enemy vessel would be a "hostility". It suffices also if the master of the ramming vessel has an honest belief that he is engaging the enemy. What is not known is the effect of the phrase "by or against a belligerent power". After 1943, the f.c. and s. clause, not dissimilarly worded, defined "power" as including "any authority maintaining naval, military or air forces in association with a power". Given the existence today of a "war" peril, the obvious question is what the "hostile act" peril adds to the coverage. The phrase "belligerent power" in international law generally denotes a party to an armed conflict. If the same meaning is applied in the insurance context, "war" would seem to swallow the "hostile act" etc. peril. However, were any power contributing to hostile acts to be viewed as "belligerent", then this peril might extend to isolated acts of hostility, or a series of such acts, not amounting to a war as such, for example acts of armed provocation or state sponsored terrorism. The latter possibility would, however, produce duplication in the war and strikes clauses for both hulls and freight, where terrorism is a separate peril, and potential double coverage in the area of cargo insurance, where terrorism is a strikes peril possibly covered by a different insurer. It is suggested that the phrase encompasses two types of act. First, hostilities, as defined above, before there can be said to be an outbreak of war, perpetrated by or against a party to the war which subsequently breaks out. Secondly, in so far as "war" in an insurance policy might be construed as denoting an armed conflict between powers recognised as states in international law, "hostile acts by or against a belligerent power" could embrace hostilities perpetrated by or against an entity not so recognised at the time of the hostility.

Capture & seizure. In Cory v. Burr, a case turning on an f.c. and s. clause, Lord Fitzgerald stated that:

In the construction of this warranty it is observable that "capture" and "seizure" do not mean the same thing. "Capture" would seem properly to include every act of seizing or taking by an enemy or belligerent. "Seizure" seems to be a larger term than "capture" and goes beyond it, and may reasonably be interpreted to embrace every act of taking forcible possession either by a lawful authority or by overpowering force.

In Forestal Land, Timber & Railways Co. v. Rickards (The Minden), Hilbery J. observed that "capture is a taking by the enemy as prize in time of open war with intent to deprive the owners of their property in the goods. It is a belligerent act". It seems clear, therefore, that capture is but a particular aspect of the wider peril of "war". It is not, however, necessary for the captured vessel to have been condemned in a Court of Prize for the underwriter to be liable, even though, in the absence such condemnation, a purchaser or recaptor of the vessel does not have good title as against the assured. Indeed, an act of taking possession is not an indispensable pre-requisite to a completed capture. Obedience to a hostile force is sufficient. "Capture" extends to the taking of neutral vessels.

"Seizure" is a peril of wider ambit than capture. It is not confined at common law to belligerent acts, need not be lawful, and, receiving its ordinary meaning, does not require the intention, initial or sustained, permanently to deprive the assured of his property. A vessel can be seized by those on board, but not by the master or crew to whom it has been entrusted. Such conduct constitutes the peril of barratry, which may, however, lead to seizure by, for example, customs authorities.

Arrest, restraint & detainment. These perils replace the S.G. policy phrase "arrests, restraints, and detainments of all kings, princes, and people" stated by sch. 1 r. 10 of the Marine Insurance Act 1906 to refer to political or executive acts and not to include losses caused by riot, a separate peril, or ordinary judicial process. As the existing case law relates to the old wording, it remains unclear to what extent the removal of the reference to "kings, princes and people" may extend the scope of the perils beyond acts political or executive. Ordinary judicial process remains excluded under the Institute clauses.

In so far as there may be any difference between the perils, "restraint" may embrace an interdiction preventing free use of property without deprivation of possession while the terms "arrest" and "detainment" carry clear connotations of physical inhibition. The courts, however, have not been faced with a policy separating the three, with the result that the cases portray one combined peril. Moreover, there is considerable overlap between the combined peril and, in particular, seizure. In Miller v. Law Accident Insurance Co. a prohibition on the landing of a cargo of bulls was held to be a restraint and therefore prima facie covered. However, the underwriters successfully invoked a "capture, seizure or detention" exclusion, which was held to remove the cover otherwise provided by the phrase "arrests, restraints, and detainments".

A requirement common to the perils of capture, seizure, arrest, restraint and detainment is that the peril be not incurred voluntarily. There is, however, no requirement of proof of either actual use of force or resistance. An absence of any realistic alternative suffices. Thus, where the seizing or restraining force is a government, its latent power provides the necessary compulsion. Moreover, as stated by Lord Wright in Rickards v. Forestal Land, Timber & Railways Co. (The Minden):

there may be a restraint, though the physical force of the state concerned is not immediately present. It is enough ... that there is an order of the state, addressed to a subject of that state, acting with compelling force on him, decisively exacting his obedience and requiring him to do the act which effectively restrains the [subject matter insured].

On the outbreak of World War II, the German government ordered all German ships to take refuge in neutral ports, return to Germany if possible or, as a last resort, to scuttle. The master of the Minden abandoned her planned voyage, but failed in his attempt to run the Allied blockade and scuttled his ship. In an action by the British cargo owners, the House of Lords held there was a restraint of princes (i.e. the German government) as soon as the master seized the goods

in the sense that he ceased to hold them as carrier and changed the character of his possession by taking and controlling them as agent for the German government with the intention and effect of holding them adversely to the assured and applying them to the hostile purposes of his government.

The restraint may equally be imposed by the government of the assured. The possibility of an indemnity from the restraining power does not negate the existence of the peril. A requirement that vessels follow a particular route in time of war is not a restraint.

The consequences thereof. It is important to note that this is a peril in its own right under the Institute clauses: the assured is entitled to recover for "loss or damage to the subject-matter insured caused by ... the consequences" of capture, seizure, arrest, restraint or detainment. There is no case on this new peril, and the old authorities on "consequences" in the context of an f.c. and s. clause need careful handling. Whether something is a "consequence" will depend on whether it was proximately caused by capture etc. But the Institute clauses appear to permit recovery for the losses caused by the consequences, or, to put it another way, the consequences of the consequences of capture etc.

A likely consequence of capture etc. is to retard the vessel in the pursuance of its voyage or to prevent accomplishment of the voyage altogether. The common law of marine insurance recognises claims for loss of the marine adventure with respect to cargo insurance but not with respect to hulls. However, cl. 3.7 of the War Clauses (Cargo) expressly excludes "any claim based upon loss of or frustration of the voyage or adventure" and anything in the contract inconsistent with cl. 3.7 is null and void to the extent of the inconsistency.

Any attempt thereat. There is no authority on the meaning of an attempted capture etc. Assistance may be found in the criminal law on attempts, although it should be remembered that the same considerations do not necessarily underpin the imposition of criminal liability and determination of the extent of insurance coverage.

The Criminal Attempts Act 1981 s. 1 provides, inter alia, that a person is guilty of an attempt if he "does an act which is more than merely preparatory to the commission of the offence". It is, however, difficult to draw the distinction between an act "merely preparatory" and an attempt, which will encompass acts of preparation which are not "merely" preparatory. In R. v. Gullefer it was held to be unnecessary that "the offender must have crossed the Rubicon and burnt his boats". Moreover, the statutory formulation emphasises exceeding that which can only be preparatory, rather than concentrating upon any degree of proximity to the act which should complete the offence. An attempt is committed "when the defendant embarks upon the crime proper", when he is "on the job". There is sufficient evidence of attempted murder to go to the jury where the defendant gets into a person's car and points a loaded sawn-off shot gun at him even though, to complete the crime of murder, it might be necessary still to remove the safety catch and pull the trigger. However, it is not an attempted theft to try unsuccessfully to render void a greyhound race in order to recover a bet laid on a losing dog. Doing x (jumping on to the race track) to try to produce effect y (annulation of the race by the stewards) in order to produce opportunity z (to reclaim the wagered money from a bookmaker) did not cross the frontier from mere preparation to attempted theft from the bookmaker.

A similar distinction has been drawn in insurance law in considering whether the peril of fire embraces damage occasioned by water used either to extinguish the flames or to prevent them from spreading. The fire underwriters are liable where there is "an actually existing peril of fire and not merely a fear that it might break out". "Is it a fear of a peril that will happen in the future or has the peril already happened and is so imminent that it is immediately necessary to avert the danger by action?" This should be contrasted with apprehension and consequent avoidance of a peril, in which case no peril has occurred. An attempt seems to imply that the peril is under way. For example, the jettison of money to avoid its seizure, when under pursuit by an enemy vessel where the pursued vessel subsequently escapes, probably provides an example of loss caused by an attempted capture. Similarly, the proximate cause of the loss would be attempted capture where the master is seeking to escape, ran his vessel ashore or put into a bay where there was neither harbour or anchorage and the vessel, unable to get out, was then driven ashore by the wind and waves.

In the criminal law, the concept of an attempt also possesses an important mental element or mens rea. Since, ex hypothesi, the act constituting the crime has not been accomplished, criminal liability is being imposed to sanction the state of mind. Consequently, the criminal law requires an intent to produce the result which constitutes the completed crime. Even if the mens rea for the completed crime falls short of the subjective test of intent, the mens rea for the attempted crime is the stricter test. It is, however, highly unlikely that the mental element will assume importance in insurance law. Two situations might be considered. First, suppose that S, a seller in a belligerent country, informs its government that B, a neutral buyer, is acting as an enemy agent. S's purpose is to escape from a losing contract. The result is the seizure of B's vessel. Through criminal law eyes, whether S has committed an attempted seizure will depend upon whether the resulting seizure was a "virtually certain" consequence of S's act. For the insurance lawyer, however, the issue is not the culpability of S, but the liability of the war risks insurer, which depends upon the result to B. There has been a seizure, and B will recover under that head. Secondly, should the master of a vessel mistake the intentions of another vessel and, consequently, jettison some of the cargo, there will be no recovery. Even assuming the master acted reasonably under the circumstances, marine policies cover the perils specified, not mistaken apprehensions thereof.

Derelict mines torpedoes bombs or other derelict weapons of war. This peril was inserted into the Institute clauses to reverse the decision in Costain-Blankevoort (U.K.) Dredging Co. Ltd. v. Davenport (The Nassau Bay). A dredger off Mauritius sucked up a number of 20mm Oerlikon shells dumped in the sea by British armed forces at the end of World War II. They exploded resulting ultimately in the sinking of the vessel. On collecting the insurance money, the owners were assessed to tax under the Capital Allowances Act 1968. They appealed on the basis of an exemption covering war risks which were construed in accordance with normal marine insurance coverage at the time. Therefore, the question was whether the explosion could be said to a consequence of hostilities or warlike operations. Holding that it could not, Walton J. stated that the dumping of ammunition was an act of pacification not hostility. The "derelict mines" etc. peril was subsequently introduced into the War clauses and excluded from the Marine clauses in order to place insurance liability for such occurrences upon the war risks underwriters.

The equivalent provision of the rules of the Mutual War Risks Associations refers to "mines, torpedoes, bombs or other weapons of war, including derelict mines, torpedoes, bombs or other derelict weapons of war". This prompts the question who is liable under the Institute clauses for mines etc. which are not derelict. In so far as they cause loss in the context of a named war or strikes peril, such as war, insurrection or terrorism, they will be subsumed within such a peril. However, it would be wrong to assume that loss can be occasioned by a weapon of war only if either derelict or discharged in the context of particular war or strikes risks. Accidental and test firing in peacetime, and discharge of weapons such as mines laid deliberately but legitimately as part of national defences are but three examples which fall into neither category.

Nuclear weapons. Clause 3.8 of the War Clauses (Cargo) excludes "loss damage or expense arising from any hostile use of any weapon of war employing atomic or nuclear fission and/or fusion or other like reaction or radioactive force or matter". Non-hostile use would fall outside this exclusion, but would not constitute a covered peril unless the weapon were "derelict". Nor would the marine cargo clauses necessarily provide cover as they exclude claims arising from the "use" of any nuclear weapon. Unless "use" were to be equated with manufacture, stockpiling and/or deployment, accidental detonation could be covered by the Cargo Clauses A (all risks).

IV. MUTUAL WAR RISKS ASSOCIATION COVERAGE

The coverage afforded by an association depends entirely upon the rules of the particular association. Mention has already been made of the Queen's enemy risks which are reinsured by the Government in time of war involving the United Kingdom. "Non-Queen's enemy" cover provides war risks cover for vessels outside of the scope of the Government reinsurance scheme. This will tend to embrace not only war risks of the type described above and strikes risks, but also detention and diversion expenses and protection and indemnity cover. The former cover out of pocket expenses, subject to a deductible of seven days expenses, occasioned by a ship not being able to proceed with its planned voyage for a reason specified in the rules. Moreover, if the detention or diversion lasts longer than 90 days, the assured is entitled to 10% per annum of the ship's insured value calculated on a pro rata basis over the entire period. Such cover has been triggered, for instance, by the closure of the Suez canal in time of war resulting in the trapping of vessels in the canal or a diversion around the Cape of Good Hope. In the case of detention, this cover bridges the period until the vessel can be declared a constructive total loss. Protection and indemnity cover embraces liabilities incurred by the shipowners to third parties, for example in respect of killed or injured crew.