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Report No. 21

Clauses 52 and 53

General.-This deals with the assignment of a marine policy.

Corresponding provision in Indian Law.-The subject-matter of assignment of marine policy has been dealt with to some extent in the Transfer of Property Act, 1882. Section 130, Exception, in that Act first provides that the general provision regarding formalities of assignment of actionable claims does not apply to transfer of marine policies. The next section, section 130A, then proceeds to lay down certain special rules for assignment of marine policies; Section 135A deals with assignment of rights under marine policies. The following comparative table will show the provisions in the English Act and the corresponding provisions in the Transfer of Property Act:-

(English) Marine Insurance Act

(Indian) Transfer of Property Act

Section 50(1)

Section 130A(1)

Section 50(2)

Section 130A(1)

Section 50(3)

Section 130A(2)

Section 51

Section 130A(3)

Section 130A(4) which provides that the provisions of section 6(e) of the Transfer of Property Act do not apply to assignment of marine policies. The result is, that the general rule that a mere right to sue cannot be transferred, does not apply to marine policies.

State of assignment.-By the combined effect of sections 15, 50 and 51 of the English Act, the position regarding the stage at which a policy of marine insurance can be assigned (with reference to the assignment of the interest) is as follows:-

(i) the mere assignment of the interest of the owner does not transfer the policy-(section 15);

(ii) the owner of the goods may, however, assign the policy if there is no prohibition against assignment in the policy-(section 50);

(iii) such assignment may be made-

(a) before or at the time of parting with the subject-matter (section 51, main paragraph) whether or not loss has occurred-[section 50(1)], or

(b) after the loss has occurred (section 51, proviso);

(c) but not in between his parting with the subject-matter and the date of the loss-(section 51 main paragraph).

The principle appears to be, that to make a valid assignment, the assured must still be entitled to the insurance. When he loses the subject-matter, that is, the insurable interest, his title to insurance is also gone, and therefore he cannot subsequently assign it. But it must be noted that where the goods have been lost, what remains is merely the right of indemnity-which can always be assigned. Thus, in an English case1 goods insured under a marine policy were lost and after the loss the policy was assigned.

It was held that the assignee could maintain an action against the insurer. The reason for prohibiting assignment without the subject-matter is that the person must be prejudiced by the loss before he can recover on the policy. But, as Blackburn J. observed: "after the loss has happened the risk ceases at once the right to indemnity no longer depends on the right to property in the subject-matter but on the right of property in the thing lost".

Buyer and Seller of goods-C.I.F contract.-In a C.I.F. contract (cost, insurance and freight), it is the seller's duty to effect insurance, because the price includes the items of cost, insurance, and freight. In a F.O.B. (free on board) contract, it is for the buyer to insure the goods. Section 39 of the Indian Sale of Goods Act [corresponding to section 33 of the (English) Sale of Goods Act] provides that unless otherwise agreed, where goods are sent by a seller to a buyer by a route involving sea transit in circumstances in which it is usual to insure, the seller should give notice to the buyer to enable him to insure, failing which the goods are deemed to be at the seller's risk during the transit.

Effect of assignment.-The assignee can sue the insurer in his own name, irrespective of the fact that he was not interested in the subject-matter when the damage occurred.

Defences available.-The insurer is entitled to make any defence "arising out of the contract" which he would have had against the person by whom the policy was effected. Thus, an insurer may avoid the policy on the ground of non-disclosure of a fact by the assignor even though the assignee is innocent. But the defence must arise out of the "contract"-out of the very contract on which the assignee sues. As has been pointed out,2 if an insurer is liable under two policies, A and B, to the same assured, and he pays on policy A under a mistake of fact, he can claim a refund. If the assured sues him under policy B, he can set off (against the claim for the policy B) the claim for refund under policy A. But if policy B has been assigned in the meantime, the refund under policy A cannot thus be set off. The reason is, that the claim for refund does not arise out of the policy sued upon.

Deletion of sections 130A and 135A(1), Transfer of Property Act.-Sections 130A and 135A(1) of the Transfer of Property Act, 1882, should be deleted, since their substance is being incorporated in the clause under discussion.

Transfer of Property (Amendment) Act, 1944-History of-It appears that the need for passing the Transfer of Property (Amendment) Act, 1944, which inserted the provisions regarding marine policies arose in this way. Section 135 of the Transfer of Property Act, as it stood then, ran as follows:-

"135. Every assignee, by endorsement or other writing, of a policy of marine insurance or of a policy of insurance against fire, in whom the property in the subject insured shall be absolutely vested at the date of the assignment, shall have transferred and vested in him all rights of suit as if the contract contained in the policy had been made with himself."

The words "property shall be absolutely vested" implied that at the time of the assignment the assignee must have become the owner of the goods. It was realised, however, that while this requirement would be all right for fire insurance, it was difficult to comply with it in marine insurance. Frequently, it is difficult to determine whether at a given time the property in the goods which are the subject-matter of a contract of sale has passed. Loss is very often unknown either to the shipper or to the consignee, and it is possible that after the policy is assigned it is discovered that goods had been lost and the property had not yet passed to the consignee.

Further, often the assignee would be a person who has only a limited interest in the subject insured (e.g., a pledgee). Section 50 of the (English) Marine Insurance Act, which is much wider should, it was felt, be adopted. To make the matter complete, section 51 of the English Act was also adopted. (Section 15 of the English Act, however, was regarded as standing on a different footing and as not proper for inclusion in the framework of the Transfer of Property Act).

It had also been pointed out by commercial bodies that section 79 of the (English) Marine Insurance Act did not (at that time) find a place in the Transfer of Property Act, with the result that grave doubts were felt as to whether the doctrine of subrogation applied in India and whether an insurer could, availing of this doctrine, sue in his own name without making the assured a party. It was, therefore, felt that section 79 of the Marine Insurance Act should also find a place in the Transfer of Property Act. As a consequential change, it was decided to exclude section 6(e) of the Transfer of Property Act from its application to any right to sue under the proposed provisions. An amendment Bill on these lines was therefore, introduced at the instance of commercial bodies. The Statement of Objects and Reasons appended to that Bill is given below:-

"The rules and principles governing a marine insurance policy being materially different from those governing a fire insurance policy, it is very unsatisfactory to accord the same treatment in the matter of assignment to both categories of policies. To take but one instance, a fire insurance policy is not assignable after loss, but the nature of a marine insurance contract is such as to require that marine insurance policies should be assignable even after loss. In the United Kingdom, assignability of marine insurance policies after loss is placed beyond doubt by section 50 of the Marine Insurance Act. But in the absence of a similar provision here, it is doubtful if Courts in British India would hold that they are so assignable. It is proposed, therefore, to amend the Transfer of Property, Act by

"(i) omitting from section 135 thereof the reference to marine insurance policy; and

(ii) inserting a new section reproducing the provisions of section 50 of the Marine Insurance Act".

"Provincial Governments, High Courts, and commercial bodies in the Provinces have been consulted and they afe almost unanimously in favour of legislation on these lines, As assignability of marine insurance policies is dealt with in the United Kingdom in sections 50 and 51 of the Marine Insurance Act, it is, as suggested by the Calcutta High Court, also necessary, for the sake of completeness, to reproduce the provisions of section 51 of that Act which preclude assignments where the insured has no subsisting interest in the property injured.

"The need for the enactment of provisions corresponding to section 79 of the Marine Insurance Act and for amending section 6(e) of the Transfer of Property Act has also been represented to Government. On consideration of the opinions expressed by the Provincial Governments, High Courts, and leading commercial bodies Government has now reached the conclusion that this is desirable.

"It is recognised that, while legislation on the above lines would clarify the law of assignment and subrogation of marine insurance policies, the whole law of marine insurance will not be put on a satisfactory basis, unless comprehensive legislation on the lines of the Marine Insurance Act, 1906 is enacted for British India. Such a project, however, must necessarily await the termination of the war".

1. Lloyd v. Fleming, 1872 LR 7 QR 299 (302): 41 LJ QB 93.

2. Lord Chorley Shipping Law, 3rd Edn., p. 307.

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