Legal Background
Marine cargo insurance is frequently written on an “all risks” basis. It is well established, however, that “all risks” does not mean “all losses”, but losses caused by fortuitous circumstances; namely, accidental losses as opposed to losses that are bound or certain to happen given the nature of the property insured or the voyage in question (British and Foreign Marine Insurance Co. v. Gaunt, [1921] All E.R. 447).
The requirement that the cause of the loss be “fortuitous” excludes the natural and inevitable action of wind and waves, ordinary wear and tear, inherent defects, and intentionally caused losses. What is essential in order to establish that the loss is “fortuitous” is an accident caused by the intervention of negligence, or adverse or unusual conditions without which the loss would not have occurred – There must be some casualty, something which could not be foreseen as one of the necessary incidents of the adventure (C.C.R. rishing Ltd. v. Tomenson Inc. (1990), 45 B.C.L.R. (2d) 145).
Further, marine “all risks” policies contain a specific exclusion for loss caused by “inherent vice or nature of the subject-matter insured”. The term “inherent vice” refers to a loss “stemming from qualities inherent in the thing lost” (C.C.R. Fishing Ltd. v. British Reserve Insurance Co., [1990] 1 S.C.R. 814). One of the most frequent applications of the term is in cargo insurance, where it refers to the inherent tendency of the cargo, shipped as it is, to sustain damage. The insurer does not agree to insure against damage that is bound to happen as a result of the natural tendency of the cargo to deteriorate or sustain damage.
The “inherent vice” exclusion is also used to describe a loss that, due to the manner in which the cargo is shipped, is regarded as inevitable. For example, fresh eggs shipped without any packing or protection are likely to sustain damage no matter how carefully they are handled. Chocolates shipped in an ordinary container in the summer are bound to melt. Damage that occurs in the course of ordinary handling and transportation of cargos, without the intervention of fortuity, is due to inherent vice and must be excluded from coverage.