The Ocean Victory Supreme Court decision and its implications on hull insurers

By Prof. Dr. Dieter Schwampe and Dr. Maximilian Guth, Dabelstein & Passehl, IUMI Professional Partner

The Supreme Court’s decision in the Ocean Victory case (Gard Marine and Energy Limited v. China Chartering Company) was recently published. The facts of the case are well known which is why they are not repeated here. However from a hull insurers perspective, the obiter of the decision as to the joint insurance clause 12 in the standard Barecon 89 form is of special interest:

  1. Clause 12 Barecon 89 stipulates that the bareboat charterer has to keep the vessel insured and that all insurance policies are to be in the joint names of the owners and the bareboat charterer. In contrast to clause 13, clause 12 Barecon 89 does not contain an express exclusion of any recovery rights against the bareboat charterer. Irrespective of this, the majority of the Lord Justices concluded that there is an implied understanding of clause 12 Barecon 89 that there would be no liability of the bareboat charterer for the hull value in the event of a total loss.
  2. This interpretation of clause 12 Barecon 89 by the majority of the Supreme Court precludes a recourse against a contractual party of the bareboat charterer (e.g. a time charterer) on the basis that the bareboat charterer had been liable to the owner. Whether clause 12 Barecon 89 will have the same effect under law systems other than the English one remains to be seen. Under German law, for example, it could very well be that clause 12 Barecon 89 will not be given the same meaning as put forward by the majority of the Supreme Court.
  3. Whether or not the Supreme Court’s interpretation of clause 12 Barecon 89, as well as the express clause to the same effect in clause 13 Barecon 89, has any effect on the cover under the insurance contract is a distinct question. This is to be answered according to the law applicable to the insurance contract.

The decision of the Supreme Court in the Ocean Victory case shows that co-insurance is still an area open to discussion, at least under English law. It is expected that insurers will look carefully at the implications of comparable joint insurance clauses on recourse possibilities. In the view of the court decision insurers and brokers should also review the effect of joint insurance clauses comparable to clause 12 Barecon 89 on cover under the insurance contract.