On 30 April 2025, the Singapore High Court held that the insurers of a rig lost while under tow should pay a claim under a hull and machinery policy governed by English law. In doing so, the court held that if a ship is shown to be seaworthy and subsequently sinks in unexplained circumstances, the rebuttable presumption is that the vessel was lost by a peril of the sea. The court rejected the insurers’ argument that a breach by the insured of certain statutory and regulatory requirements and operational procedures regarding the conduct of the tow, entitled them to reject the claim under the policy pursuant to the provisions of section 11 of the UK Insurance Act of 2015.

The decision sheds more light on the complex issue of the burden of proof in marine matters where evidence is often not available on every aspect of the casualty. It also emphasised that a marine insurance contract is, at its heart, an agreement by insurers to accept certain risks and it is not open to insurers to reject claims for technical, non-causative reasons of the loss.

Overseas Chinese Banking Corporation Ltd (OCBC) was the mortgagee of a rig, the Teras Lyza (Vessel) which was insured under a hull and machinery policy issued by the defendants.

Following a number of surveys and approval by independent companies of the proposed towing operation, the Vessel left Vietnam under tow by the MT Teras Edan. Five days later the vessel developed a list to port and trimmed by the stern and capsized almost immediately. The owners of the Vessel appointed salvors, but after six weeks were advised that the Vessel could not be salved, no prospective buyers could be found, and she was subsequently refloated and sunk in deep water off the Philippines. The owners and OCBC gave notice of abandonment and claimed approximately USD70 million on the basis that the Vessel was a constructive total loss (CTL).

Underwriters rejected the claim on numerous bases including the fact that OCBC had failed to discharge the onus of proving the loss by perils of the sea because it could not identify how water had entered the hull of the Vessel, and on the basis of a breach of certain statutory requirements and operational procedures discussed below.

Perils of the sea.

The court agreed with both parties’ experts that under English law, in order to consider the meaning of the term “perils of the sea” the Court would consider the following:

1 Where there is an accidental unexpected ingress of seawater into a vessel causing loss or damage, prima facie, there is a loss by perils of the sea. This follows the decision of the Privy Council in Canada Rice Mills vs Union Marine and General Insurance [1941] AC 55 and numerous cases that endorsed that view.

2 It is only if the loss could be said to be due to uneventful decrepitude of a vessel in the prevailing conditions, or to inherent characteristics of the vessel not involving any fortuitous external accident or casualty, that the defendant would have a defence based on the ordinary action of wind and waves.

3 The burden of proving that some fortuity occurred is on the claimant and the burden of proving loss by way of inherent vice or in this case, decrepitude, is on the underwriters. However, if the claimant can prove any fortuity, the underwriters’ defence based on the ordinary action of wind and waves would fail.

Underwriters cited the Popi M [1985] 1 WLR 948 for the proposition that if the claimant cannot explain how the vessel capsized, it fails to prove a fortuitous accident or casualty. Underwriters argued that, if the claimant could not show not only that water entered the vessel but that there was an aperture that permitted water to entire the vessel, the claim should fail. In support of this argument the underwriters relied on the judgment of Lord Brandon in the Popi M which held that:

“It seems to me, however, that once it was shown that the water which sank the ship that entered through an aperture in her shell plating, the burden of proof was on the shipowners to show what peril of the sea, if any, could be shown, on a balance of probabilities, to have created that aperture. The shipowners could not, in my view, rely on a ritual incantation of the generic expression “perils of the sea”, but were bound, if they were to discharge successfully the burden of proof to which I have referred, to condescend to particularity in the matter.

In my opinion, Mr Justice Bingham [the trial court judge] adopted an erroneous approach to this case by regarding himself as compelled to choose between two theories, both of which he regarded as improbable and the other of which he regarded as virtually impossible. He should have borne in mind and considered carefully in his judgment, the third alternative which was open to him, namely, that the evidence left him in doubt as to the cause of the aperture in the ship’s hull and that, in these circumstances, the shipowners had failed to discharge the burden of proof which was on them.”

The Singapore court held that Lord Brandon’s approach in the Popi M reflected that every case has to be judged on the circumstances and evidence. He was not attempting to change the test set out in the Canada Rice Mills case. Lord Brandon acknowledged that the shipowners were entitled to rely on the established principle that “if a seaworthy ship sinks in unexplained circumstances in good weather and calm seas, there is a rebuttable presumption that she was lost by perils of the sea.” This did not however apply for two reasons. The first was that the trial court had felt unable to make a finding one way or another as to whether the ship was seaworthy. Secondly, the loss did not occur in unexplained circumstances. The reason the Popi M sank was clear. The evidence showed that, on a balance of probabilities, the aperture that opened in the hull plating was because the vessel was in a generally wasted condition.

Having considered the approach taken by a number of courts, the Singapore court held that:

“… the balance of probabilities test does not entail the court choosing between two alternatives advanced by the parties. Instead, the Popi M stands for a more general proposition, viz, that it is open to a court to find that “neither party’s theory is more probable than not and [to] decide the issue based on the incidence of the burden of proof.”
In conclusion, the court held that:

“In other words, where there is an accidental, unexpected ingress of seawater into a vessel causing loss or damage, prima facie, there is a loss by perils of the sea. It is only if the loss could be said to be due to uneventful decrepitude of a vessel in the prevailing conditions or to inherent characteristics of the vessel not involving any fortuitous external accident or casualty, that the defendant would have any defence based on ordinary action or wind and waves.”

Divers were unable to find any aperture in the hull through which the water could enter to cause the list and trim and the evidence of the underwriters’ expert was that the vessel was inherently unstable. Despite this, and the evidence of the claimant’s expert that they could not firmly hypothesise why the vessel capsized so suddenly, the court held that underwriters had failed to discharge their burden of proof that the loss was caused by an inherent vice or decrepitude of the vessel.

Breach of warranty.

Under English contract law, a warranty is a contractual statement or promise made by one party to another that a present fact or circumstance is true. A breach of a warranty that leads to a loss entitles the offended party to claim damages. If the warranty lies at the heart of the contract, it is known as an innominate term or condition, breach of which entitles to offended party to cancel a contract.

Section 10 of the UK Insurance Act of 2015 modified the law for insurance contracts:

“Breach of warranty
(1) Any rule of law that breach of a warranty (express or implied) in a contract of insurance results in the discharge of the insurers’ liability under the contract is abolished.

(2) An insurer has no liability under a contract of insurance in respect of any loss occurring or attributable to something happening after a warranty (express or implied) in the contract has been breached, but before the breach has been remedied.”

The effect of this change is to terminate all of the rights of insurers in various legislation and decisions of the courts to allow underwriters to avoid liability under a contract of insurance in the event of breach of a warranty. Secondly, however, it sets out the clear right of underwriters to avoid liability in the event of an unremedied breach of a warranty. This was necessary in order to clarify the position.

Section 11 of the Act then provides that:

“Terms not relevant to the actual loss

(1) This section applies to a term (express or implied) of a contract of insurance, other than a term defining the risk as a whole, if compliance with it would tend to reduce the risk of one or more of the following –

(a) Loss of a particular kind;

(b) Loss at a particular location;

(c) Loss oat a particular time.”

(2) If a loss occurs, and the term has not been complied with, the insurer may not rely on the non-compliance to exclude, limit or discharge its liability under the contract for the loss, if the insured satisfies subsection (3).

(3) The insured satisfies this subsection, if it shows that the non-compliance with the term would not have increased the risk of loss which actually occurred on the circumstances in which occurred.”

Section 11 accordingly operates as an exception to section 10 and provides for a specific type of warranty for which a breach will not suspend the insurers’ liability. This occurs if: the warranty does not define the risk as a whole; or the warranty is of such a nature that compliance with it would tend to reduce the risk of loss; or the insured is able to demonstrate that non-compliance with the warranty would not have increased the risk of loss.

The term “risk as a whole” has not been defined previously and the court preferred a broad definition of what constitutes the “risk as a whole.” Examples would be where a vessel is insured for pleasure purposes, but used for commercial purposes or a towing operation took place outside of the geographical limits contained in the policy. This view was informed in part by the Law Commissions report on the Insurance Act of 2015 which provided that the real mischief they were trying to address was reliance by insurers on breaches of irrelevant warranties.

Underwriters had argued that the vessel was unseaworthy because of the installation of certain bulwarks which contributed to a loss of stability and because the vessel was towed via an ocean route rather than being towed along a coastal route with access to sheltered waters. The court however had accepted the claimant’s experts evidence that there was insufficient evidence to demonstrate the vessel was sent to sea in an unseaworthy state.

Comment.

This case again demonstrates that it is often difficult for an underwriter, insured or a court to determine the actual cause or causes of the loss of a vessel at sea. Even when the vessel is recovered or can be examined, there are competing theories as to the originating cause. All cases have to be decided based on all of the circumstances.

The case also emphasised that in analysing these circumstances and the evidence, the court must remain focused on the burden of proof borne by the claimant and by the underwriters. The loss of a vessel at sea is rebuttably presumed to be as a result of a “peril of the sea”, but the court must have regard to any evidence advanced by the underwriters regarding the cause of the loss to determine whether an exception such as unseaworthiness was causative.

No general guidance can be provided on this issue because every case differs, but it does emphasise the need for underwriters to act promptly following a casualty to gather as much evidence as possible and to submit that evidence to an appropriate expert before deciding whether or not to reject a claim under the policy.

Insofar as the warranty issue is concerned, the Insurance Act and this decision reflect a continued move away from underwriters’ right to rely on a breach of any warranty to avoid liability under a policy. If the warranty relates to the “risk as a whole” then a breach entitles underwriters to avoid liability. If, however, it does not do so and the insured persuades the court that non-compliance would not have increased the risk, underwriters will be held to be liable to indemnify the insured.

Maritime insurance is usually governed by UK law. South African insurance law on warranties, presumption and onus is different in its approach.