Action to clarify Marine Insurance Act

The murky waters of the Marine Insurance Act may become plain sailing following a court decision, reports Roger Pearson.

A judgment in a Court of Appeal action will throw new light on the meaning of important provisions in the 1906 Marine Insurance Act which have never before been the subject of court challenge.

Insurance brokers Lowndes Lambert Group and Lowndes Lambert Marine are challenging a Commercial Court decision by Mr Justice Toulson on 24 July 1997 that they were not entitled to retain the proceeds of an insurance claim collected by them from underwriters in respect of damage to a ship, the Sun Tender.

The case raises questions as to the proper construction of the Marine Insurance Act 1906 in relation to the ambit of the lien conferred by s53(2). Mr Justice Toulson ruled that the general lien granted by s53(2) has no application in circumstances where there is more than one assured under a policy.

One question the court is being asked to decide is whether the words 'lien on the policy' contained in s53(2) are to be construed as referring to the policy document or to the policy and its proceeds. If the court decides that the lien extends to the proceeds then it is being asked to define whether that lien survives in circumstances where the proceeds are not received or retained as a separate fund but are paid into a mixed account.

The third question raised by the case is whether the wording of the section enables a general lien to be asserted in the context of a composite policy, in respect of the balance of insurance accounts between the brokers and the assured who instructs him, against a co-assured who is under no indebtedness to the broker.

Although the case centres on marine insurance, the matter is being viewed as one which could be of considerable significance to the insurance broking market in general.

Lords Justices Phillips, Waller and Chadwick were told in the Court of Appeal by Jonathan Gaisman QC for Lowndes that the points raised in the appeal had not been considered by any court since the passing of the Act in 1906.

He said the issues were of general importance 'to the insurance broking market at large'.