By a recent judgment1, the Italian Supreme Court has provided us with a significant interpretation of an Institute Classification Clause subject to English law and attached to an insurance contract ruled by Italian law.

The proceeding was originally commenced by the intended recipient of a cargo of steel pipes that had been loaded onto a vessel for carriage from Romania to Italy. The cargo was lost because the vessel sank.

The Underwriters rejected the insurance claim, arguing that the accident was not covered due to the breach of the Institute Classification Clause provided by the contract.

The Institute Classification Clause provided verbatim that «this insurance and the marine transit rates as agreed in the policy or open cover apply only to cargoes and/or interests carried by mechanically self-­‐propelled vessels of steel construction classed with a Classification Society which is a Member or Associate Member of the International Association of Classification Societies (IACS)».

The peculiarity of this case is represented by the circumstance that the aforesaid clause was subject  to  English  law,  whilst  the  rest  of  the insurance contract was entirely ruled by Italian law.

In light of the above, the Supreme Court applied the rule that provides that a clause subject to the law of a foreign judicial system has to be interpreted and applied according to interpretative criteria, rules and principles of that foreign judicial system.

Therefore, in the case at issue the Institute Classification Clause had to be interpreted and applied in accordance with the English law and practice.

As a consequence, the Supreme Court interpreted the aforesaid clause as a promissory warranty.

Under English law, by a promissory warranty “the assured undertakes that some particular thing shall or shall not be done, or that some condition shall be fulfilled” 2 . A promissory warranty is always material and to avoid the contract, the Underwriters need prove only that the promissory warranty has been violated, even if there is no casual connexion between the breach of warranty and the accident.

In the case under examination, the vessel was classed by the Croatian Register of Shipping (Member of the IACS) and such circumstance, in the claimant’s view, was sufficient to comply with the aforesaid Institute Classification Clause.

However, the  Italian Supreme Court, upholding the previous verdict delivered by the Court of Appeal, stated that the reference to the Institute Classification Clause has to be interpreted as a reference to the contents of the classification, i.e. to the limitations contained in the classification certificate.

In the case at issue, the Croatian Register of Shipping had provided the following restriction: “navigation in sea areas with the ship proceeding within 60 miles from the place of refuge and with sea conditions less than Force 4”. In the Supreme Court’s opinion, such restrictions should be considered as incorporated in the insurance contract by virtue of the classification clause.

Given that the sinking of the vessel had occurred with sea condition Force 10, the breach of warranty was evident.

Therefore the accident was not covered and the Underwriters did not have the burden of proving the casual connexion between the breach of classification warranty and the accident in order to reject the claim.

In conclusion, this decision has two particularly interesting  aspects:

  • it reminds us  the  Italian  rule  which provides that a clause subject to the law of   a foreign judicial system has to be interpreted and applied according to interpretative criteria and principles of that foreign judicial system; and
  • it provides us with a  significant interpretation  of   the   Institute Classification  Clause.

We suggest to keep in mind this interpretation in order to avoid unwelcome surprises also in terms of insurance.