Perils of the seas, inherent vice and causation

The long-awaited decision of the Supreme Court in Global Process Systems Inc v Syarikat Takaful Malaysia Berhad (The Cendor Mopu) [2011] UKSC 5 has clarified the complex relationship between the insured risk of perils of the seas and the excluded peril of inherent vice. Following the lead of the Court of Appeal the Supreme Court has confirmed that there is only inherent vice if the loss has been caused by something internal to the insured subject matter and not as a consequence of the operation of some external fortuity.

The Cendor Mopu: the facts

The facts of the case were relatively straightforward. In May 2005 the assured purchased an oil rig, Cendor Mopu, which was at the time laid up in Galveston, Texas. The assured wished to convert the oil rig into a mobile offshore production unit for use off the coast of East Malaysia. The assured obtained insurance from the insurers under a policy on the terms of the Institute Cargo Clauses A (1982) for the transportation of the oil rig. The ICC A insure against ‘all risks’, subject to various exclusions one of which was in respect of ‘loss, damage or expense caused by inherent vice or nature of the subject matter insured’: the inherent vice exclusion in clause 4 replicates that found in s55(2)(c) of Marine Insurance Act 1906.