Case: M/s Rajankumar and Brothers (Impex) Vs. Oriental Insurance Company Ltd

Respondent had waived the breach of warranty before the Appellants claim, by incorporating Clause 5.2 of the Policy. 6.3 We may now turn to whether the Respondent waived the breach of warranty by its conduct or any representation. During the course of arguments, it was put to the learned counsel for the parties whether the act of provision of General Average Guarantee amounted to a waiver of breach of warranty. It is commonly understood that a waiver in the context of marine insurance, apart from one already provided for by way of held covered or other such terms in the insurance contract, must include two elements, namely, (i) knowledge of the insurer, and (ii) unequivocal representation of the insurer. The presence of both these elements is indispensable.For instance, after the occurrence of loss, even if the insurer makes an express representation that it would affirm the contract and indemnify the loss, if the insurer can prove that such a representation was made without the knowledge that there was a breach of warranty on part of the insured, the liability of the insurer would stand discharged from the date on which the warranty was breached. Similarly, mere knowledge on the part of the insurer that there was a breach of warranty would not amount to a waiver, in the absence of an express representation to that effect. (Baris Soyer, Warranties in Marine Insurance (Cavendish, 2001) 206-213.) 6.4 Insofar as the element of knowledge is concerned, if the vessel carrying the insured cargo incurs loss, and the insurer seeks to investigate into whether or not there was a breach of warranty, no knowledge can be attributed to the insurer until such investigation is completed.(Id, 209.) Once there is knowledge, the second element, i.e., unequivocal representation comes into play. The representation must be of such a nature that it is sufficient for the insured to conclude that the insurer is aware of the breach of warranty and has chosen to waive such breach and indemnify the loss. The determination of whether or not these elements are present assumes more complexity in cases where such a representation comes from an agent of the insurer, or where such an agent has knowledge of the breach. However, these arguments with respect to representations made by the insurers agent have not been raised before us, and hence, such issues need not be addressed for the purposes of the present case. 6.5 Under the facts and circumstances of this case, the breach of warranty occurred when the Appellant informed the Respondent by letter dated 26.5.2010 that the subject vessel was classed by I.R.S., thereby indicating the subject vessel was compliant with the ICC. After the subject vessel ran aground on the midnight of 18.7.2010, the Appellant requested the issuance of General Average Guarantee, and the same was issued on 3.8.2010. At the outset, the General Average Guarantee in Form B dated 3.8.2010 issued by the Respondent to the GAA was only an undertaking to pay the shipowners and the GAA on behalf of the Appellant for their contribution to the General Average, as and when such contribution was ascertained. This Guarantee was issued as per Clause 2 of the Marine Insurance Policy, under which the Respondent had agreed to cover all general average and salvage charges. Clause 2 reads as follows: 2. This insurance covers general average and salvage charges, adjusted or determined according to the contract of affreightment and/or the governing law and practice, incurred to avoid or in connection with the avoidance of loss from any cause, except those excluded in Clauses 4, 5, 6 and 7 or elsewhere in this insurance. (emphasis supplied) At the time the aforesaid General Average Guarantee dated 3.8.2010 was issued, the Respondent was still under the impression that the subject vessel is in compliance with the ICC. Obviously, such impression was based on the representation made by the Appellant that the subject vessel was classed with I.R.S. It was only by the e-mail dated 9.8.2010 from its claim settling agent that the Respondent came to know that the subject vessel does not meet the prescribed classification. Subsequently, the Respondent withdrew the Guarantee and refused to pay the separate salvage security. Hence, the issuance of the General Average Guarantee cannot not be understood as a waiver inasmuch as the Respondent, on the date of such issuance, did not have the knowledge of the breach of warranty committed by the Appellant and was only fulfilling its duty to contribute to the General Average (as explained supra) in good faith, as required by Clause 2 of the Marine Insurance Policy. 6.6 Further, in any case, at the time of issuing the General Average Guarantee, the Respondent did not expressly state that it was aware of the non-compliance with the ICC and it was waiving the same. In fact, the moment the breach of warranty was discovered, the Respondent initiated steps to withdraw the General Average Guarantee that had been issued by them and refused to pay the additional salvage security, which clearly demonstrates that there was no intent to waive the breach of warranty. Therefore, it cannot be said that the Respondent had waived the breach of warranty through its conduct or representations after the claim was made by the Appellant. 7. Since we have concluded that the liability of the insurer was discharged on account of the breach of warranty caused by non-compliance with the classification requirement within the ICC, we do not consider it relevant to deal with the age limitation requirement therein for the purpose of the present case. 8. It is pertinent to note that during the course of hearing the present appeal, three other parties, namely K. Amishkumar Trading Pvt. Ltd., Baijnath Melaram and Viraj Impex Pvt. Ltd. (Intervenors) filed Intervention Applications No. 3 of 2016, No. 4 of 2016 and No. 5 of 2016 respectively in the present appeal. The aforesaid Intervenors filed individual consumer complaints against the Respondent before the NCDRC, which are presently pending adjudication.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]5. With respect to the first issue, it is not disputed that both the Cover Note and the Marine Insurance Policy stated that the ICC would be one of the warranties/terms of insurance. Additionally, Clause 6 of the Cover Note, as mentioned supra, prescribed that the subject vessel needed to conform to the current ICC, in the absence of which, the insurance cover would be subject to payment of an additional premiumAs is evident from the above, the ICC 01/01/2001 imposes two requirements to ensure that the vessel complies with a certain minimum standard of seaworthiness. The first is a classification requirement which requires that the vessel should be classed with a Classification Society which is a Member/Associate Member of the International Association of Classification Societies (IACS) or, in the case of vessels engaged exclusively in coastal trading, a National Flag Society. The second is an age limitation in respect of the insured vesselThus, it can be inferred from the above that an underwriter/insurer would usually trust the quality of, and be prepared to issue a reasonable premium for, a vessel classed with an IACS member society. On the other hand, the insurer may demand a higher premium, or deny insurance cover altogether, for a voyage in respect of a vessel classed by a non-IACS member society. Hence, the ICC prescribes classification with a member of the IACS as the baseline for ensuring that the policy involves less risk for the underwriterTherefore, Sub Clause 1 of the ICC 01/01/2001 provides that cargo interests are obligated to promptly notify insurance underwriters if the cargo is being carried by a vessel which is not classed as prescribed in the ICC, and Clause 5 makes it clear that failure to provide such information will lead to exclusion of the insurance coverWe are in agreement with the said contention of the Appellant, inasmuch as the 1978 version of the ICC was replaced by the ICC 13/4/92, the ICC 1/8/97, and the ICC 01/01/2001. As mentioned supra, the ICC 01/01/2001 is the most recent version of the ICC, and the one which is relevant for the purpose of the present caseHowever, the most recent version of the ICC, i.e., ICC 01/01/2001, parts of which we have quoted earlier, does not help the Appellants case inasmuch as it is stricter in its import. We find it useful to undertake a comparative analysis of the older versions of the ICC and the ICC 01/01/2001 in this regardThe aforementioned held covered provision acted as a saving clause to cater for situations where an assured discovered that the vessel in which their cargo was being carried fell outside the classification and/or age requirement in the ICC. In such a situation the assured cargo owner could still avail of the insurance cover subject to negotiating payment of an additional premium with the insurerHence, it appears that in order to avoid any confusion, the ICC 01/01/2001 has been drafted to expressly incorporate the aforesaid two requirements. Under the ICC 01/01/2001, the assured must immediately inform the insurer/underwriter if they discover that the vessel carrying the cargo does not meet the classification requirementAdditionally, if the vessel is such that a prudent underwriter would not be prepared to underwrite the risk at a reasonable premium, the assured is not entitled to the insurance cover.6 These requirements are important because, as discussed earlier, the classification of the vessel is a significant factor for influencing the underwriters decision-making as regards whether an insurance cover should be issued for the marine voyage or notIt is true that the Courts reasoning in Everbright was significantly predicated upon the fact that the respondent insurer had issued an open-cover insurance in which the insurer had only issued a cover-note based on the details of the cargo and the port of origin and destination of the voyage, and the relevant particulars of the vessel had not been provided to the insurer in advance. This is important to note because in the present case, though the Respondent initially issued the Cover Note dated 14.5.2010 (supra) without knowing the particulars of the vessel, it subsequently issued the Marine Insurance Policy dated 2.7.2010 after having received the Appellants communication that the vessel was classed as I.R.S5.6 Thus, it can be seen from the above decisions that where a vessel is not classed with a recognized classification society in terms of the ICC, any loss incurred by the cargo-owner will be excluded from the scope of the insurance cover. Further, the cargo owner is required to immediately notify the underwriters and negotiate an additional premium if the vessel is not classed in accordance with the ICC5.7 In the instant case, it is apparent that neither was the subject vessel in compliance with the ICC clause, nor had the Appellant given prompt notification to the Respondent about such non-compliance. The Appellant, in its letter dated 26.5.2010 (supra) had informed the Respondent that the vessel is of I.R.S. class. However, the full form of I.R.S. was not specified. As mentioned supra, the Appellant has contended that the NCDRC wrongly interpreted the term I.R.S. to mean Indian Register of Shipping and that the subject vessel was actually registered and classified with the International Register of Shipping. However, our perusal of the official website of the International Register of Shipping shows that its official acronym is INTLREG. (See International Register of Shipping, About, https://intlreg.org/about/.) Whereas I.R.S. is the official acronym of the Indian Register of Shipping. (See Indian Register of Shipping, About IRClass, https://www.irclass.org/aboutirclass/. ) Hence the Appellants contention that I.R.S. refers to the International Register of Shipping is prima facie sustainableThe Appellant had also averred in its complaint before the NCDRC that the Overseas Seller had produced a certificate dated 11.6.2010, certifying that the subject vessel was registered with an approved Classification Society as per the Institute Classification Clause. Further, that as per the said certificate, the class of the subject vessel was equivalent to Lloyds 100A1, and the subject vessel was seaworthy and not more than 30 years old. However, no such evidence of the vessels classification was ever provided to the Respondent. It is true that the Appellant has, during the course of hearing this appeal, placed the certificate dated 11.6.2010 before this Court. However, a perusal of the certificate shows that is only a self-certification wherein the vessel owners have claimed that the subject vessel is classed with an approved classification society as per the ICC clause. It cannot be taken as conclusive evidence that the vessel was actually classed with an IACS member societyEven if we were to accept the Appellants contention that the vessel is classed with the International Register of Shipping (hereinafter INTLREG for convenience), this does not help its case inasmuch the INTLREG is not one of the 12 accredited Member Societies of the IACS. Rather, it is the I.R.S. which is an IACS member. It has never been the case of the Appellant that the subject vessel was classed by the Indian Register of Shipping. It is also not the Appellants case that the subject vessel was classed with a National Flag Society. Hence we find that the Appellant had committed breach of the classification requirement contained in Clause 1 of the ICC5.8 The letter dated 26.5.2010 sent by the Appellant to the Respondent, in respect of the ships particulars, cannot be said to constitute prompt notification as the particulars of the subject vessels classification were not clearly specified therein. The Respondent may have, in good faith, assumed that I.R.S. meant that the subject vessel was classed with the Indian Register of Shipping, and may have consequently inferred that the subject vessel fell within the scope of the ICC clauseIt was only pursuant to the Appellants request for release of separate salvage security that the Respondents claim settling agents, M/s. W.K. Webster & Co., London by e-mail dated 9.8.2010 informed the Respondent that as per their investigation, the subject vessel was classed with Lloyds Register of Shipping only until 10.10.2007, after which the classification was withdrawn. Hence it was only from this e-mail that the Respondents came to know that the shipment may fall outside the scope of the insurance cover, as per the terms of the ICC. Consequently, we find that the prompt notification requirement has not been satisfied, and there is no ground for the application of the held covered clause5.9 Further, as per the observations of the Singapore Court of Appeal in Everbright Commercial Enterprises (supra), we consider it highly unlikely on the facts of this case that any prudent underwriter would have agreed to cover the risk involved in a such a high value shipment under the Marine Cargo Clause (which covers almost all risks of loss or damage), even though the Appellant had no documentary evidence on record to prove the classification of the subject vessel. However, neither of the parties has led evidence on whether the Respondent would have agreed to insure the policy for a reasonable premium had the correct particulars of the subject vessel been disclosed. Hence we do not consider it appropriate to record any findings on the same. In any case, such question does not arise inasmuch as the Appellant did not provide prompt notification in the first place. Hence, as provided under Clause 5 of the ICC, the insurers liability is automatically, we conclude that the Appellant had committed breach of the warranty contained in the Marine Insurance Policy requiring the subject vessel to be classed in accordance with the ICC, and such breach of warranty discharged the liability of the insurerA warranty imposes certain obligations on the insured, and Section 35(3) makes it amply clear that a warranty needs to be complied with, regardless of whether or not its non-compliance materially affects the risk involved in carrying the shipment. As a corollary, when a warranty is not complied with, i.e., there is a breach of warranty, the insurer is discharged from liability from the date of such breach, by virtue of Section 35(3). At the outset, therefore, it is important to note that the scheme of the 1963 Act is clear inasmuch as the automatic consequence of a breach of warranty is discharge of the insurers liability. Such discharge of liability does not require any express conduct or representation from the insurer6.1 In the instant case, though the Respondent initially issued the Cover Note dated 14.5.2010 without knowing the particulars of the vessel in which the Appellants cargo was to be carried, it subsequently issued the Marine Insurance Policy after the particulars of the subject vessel, including the purported classification of I.R.S., were received. However, while the importance of the ICC is undoubtedly more significant in cases of open-cover insurances where the specific details of the vessel carrying the cargo are not known to the insurer, as held in Nam Kwong Medicines (supra), a facultative insurance policy in which the details of the subject vessel are specified, need not be mutually exclusive with the ICCIt is not the Appellants case that the Respondent had chosen to issue the Marine Insurance Policy despite being informed by the Appellant that the vessel was non-classed. Rather the Appellant had represented that the subject vessel was I.R.S. classed. That being the case, as noted in Everbright Commercial Enterprises and Kam Hing Trading (supra), it was not the Respondents burden to have investigated the Appellants claim and informed the Appellant that the subject vessel was non-classed. Hence, at the outset it is important to note that the mere formal issuance of the Marine Insurance Policy by the Respondent does not indicate acceptance/waiver of the vessels classification or lack thereofHowever, it cannot be said that the ICC was an implied warranty within the meaning of Clause 5.2. It was stated on the face of the Marine Cargo Cover dated 14.5.2010 and the Marine Insurance Policy that the ICC is one of the warranties/terms of insuranceIn any case, the Appellants stand is that the subject vessel was classed with the INTLREG (which it has mistakenly referred to as I.R.S.). As the Singapore Court of Appeal has observed in Everbright Commercial Enterprises (supra) and as discussed supra, the very purpose of adopting the ICC is to ensure that the vessel chosen by the insured meets certain minimum standards of seaworthiness, by virtue of being classed with one of the well-established member societies of the IACS. The Appellant, having known that the subject vessel was classed with the INTLREG, which neither was nor is a member of the IACS, was privy to the fact that the subject vessel was not compliant with the minimum standard of seaworthiness as laid out in the Marine Insurance Policy. Clause 5.2 only waives breaches of implied warranties of seaworthiness where the assured was not privy to the unseaworthiness of the vessel. Hence, the Appellant would not be saved by Clause 5.2 of the Policy, and it cannot be said that the Respondent had waived the breach of warranty before the Appellants claim, by incorporating Clause 5.2 of the PolicyDuring the course of arguments, it was put to the learned counsel for the parties whether the act of provision of General Average Guarantee amounted to a waiver of breach of warranty. It is commonly understood that a waiver in the context of marine insurance, apart from one already provided for by way of held covered or other such terms in the insurance contract, must include two elements, namely, (i) knowledge of the insurer, and (ii) unequivocal representation of the insurer. The presence of both these elements is indispensable.6.4 Insofar as the element of knowledge is concerned, if the vessel carrying the insured cargo incurs loss, and the insurer seeks to investigate into whether or not there was a breach of warranty, no knowledge can be attributed to the insurer until such investigation is completed.(Id, 209.) Once there is knowledge, the second element, i.e., unequivocal representation comes into play. The representation must be of such a nature that it is sufficient for the insured to conclude that the insurer is aware of the breach of warranty and has chosen to waive such breach and indemnify the loss. The determination of whether or not these elements are present assumes more complexity in cases where such a representation comes from an agent of the insurer, or where such an agent has knowledge of the breach. However, these arguments with respect to representations made by the insurers agent have not been raised before us, and hence, such issues need not be addressed for the purposes of the present case6.5 Under the facts and circumstances of this case, the breach of warranty occurred when the Appellant informed the Respondent by letter dated 26.5.2010 that the subject vessel was classed by I.R.S., thereby indicating the subject vessel was compliant with the ICC. After the subject vessel ran aground on the midnight of 18.7.2010, the Appellant requested the issuance of General Average Guarantee, and the same was issued on 3.8.2010At the time the aforesaid General Average Guarantee dated 3.8.2010 was issued, the Respondent was still under the impression that the subject vessel is in compliance with the ICC. Obviously, such impression was based on the representation made by the Appellant that the subject vessel was classed with I.R.S. It was only by the e-mail dated 9.8.2010 from its claim settling agent that the Respondent came to know that the subject vessel does not meet the prescribed classification. Subsequently, the Respondent withdrew the Guarantee and refused to pay the separate salvage security. Hence, the issuance of the General Average Guarantee cannot not be understood as a waiver inasmuch as the Respondent, on the date of such issuance, did not have the knowledge of the breach of warranty committed by the Appellant and was only fulfilling its duty to contribute to the General Average (as explained supra) in good faith, as required by Clause 2 of the Marine Insurance Policy6.6 Further, in any case, at the time of issuing the General Average Guarantee, the Respondent did not expressly state that it was aware of the non-compliance with the ICC and it was waiving the same. In fact, the moment the breach of warranty was discovered, the Respondent initiated steps to withdraw the General Average Guarantee that had been issued by them and refused to pay the additional salvage security, which clearly demonstrates that there was no intent to waive the breach of warranty. Therefore, it cannot be said that the Respondent had waived the breach of warranty through its conduct or representations after the claim was made by the Appellant7. Since we have concluded that the liability of the insurer was discharged on account of the breach of warranty caused by non-compliance with the classification requirement within the ICC, we do not consider it relevant to deal with the age limitation requirement therein for the purpose of the present case8. It is pertinent to note that during the course of hearing the present appeal, three other parties, namely K. Amishkumar Trading Pvt. Ltd., Baijnath Melaram and Viraj Impex Pvt. Ltd. (Intervenors) filed Intervention Applications No. 3 of 2016, No. 4 of 2016 and No. 5 of 2016 respectively in the present appeal. The aforesaid Intervenors filed individual consumer complaints against the Respondent before the NCDRC, which are presently pending adjudication.