Reinsurers not liable for typhoon sinking

Posted: 8th September 2014

FerryWhen a passenger ferry sailed from an Asian port into the teeth of a typhoon, the result was not only a human catastrophe but an international dispute which culminated in a Court of Appeal ruling absolving reinsurers of any liability in respect of the vessel’s lost cargo.

Despite a number of prior bad weather bulletins, the ferry had set out from Manila and foundered after encountering Typhoon Frank. The vessel’s primary insurance policy was subject to a typhoon warranty, the terms of which were incorporated into an underlying reinsurance policy entered into on the London market.

The primary insurers faced a number of substantial claims in respect of the disaster and were engaged in litigation in the Philippines in which they were seeking to avoid the policy in reliance on the typhoon warranty. The reinsurers launched parallel proceedings in London and a judge granted them a declaration that they had no liability to indemnify the primary insurers in respect of lost cargo.

In dismissing the primary insurers’ appeal, the Court found that the typhoon warranty had been designed to prevent the vessel from sailing when there was any possibility of it encountering a typhoon or storm. In breach of the warranty’s plain terms, the vessel had left a safe port despite an extant storm warning. Her route had taken her into the predicted path of the typhoon and in those circumstances the reinsurance policy was avoided.