MS Amlin Marine NV v King Trader Limited & Ors

A clear “pay first” clause in a marine liability policy may make enforcement of an indemnity conditional on the insured first discharging the liability, including where the insured is insolvent or a third party claims under the Third Parties (Rights against Insurers) Act 2010.

The clause is not repugnant merely because the policy otherwise promises liability cover or preserves rights arising before termination. Greater caution may apply where a bespoke term conflicts with incorporated boilerplate, but clauses of co-ordinate status should ordinarily be read together if possible. Clear contractual language cannot be read down by implication based on inability to pay, insolvency or third-party enforcement.

The claimant insurer sought declarations concerning a charterers’ liability policy issued to Bintan Mining Corporation. The policy contained section 30.13, making the insured’s prior discharge of any loss, expense or liability a condition precedent to recovery.

Bintan entered liquidation after arbitral awards established liabilities exceeding USD 47 million to the first and third defendants. Those defendants were entitled to enforce Bintan’s transferred rights under the Third Parties (Rights against Insurers) Act 2010. The central issue was whether section 30.13 was ineffective, or should be read down, because of alleged inconsistency with the policy’s insuring provisions, termination provisions, insolvency, or the statutory direct-action regime.

1. Claim succeeded. Section 30.13 was effective. It was a condition precedent to the insured’s right of recovery and required prior discharge of the insured liability.
2. The court distinguished between a policy obligation arising when liability was established by a final unappealable judgment and the separate question whether payment could be enforced. A clause may create a defence to enforcement until a further requirement is met without inconsistency with the accrual of the indemnity obligation.
3. The principles concerning bespoke terms and incorporated boilerplate, traced to Glynn v Margetson [1893] AC 351, permit a printed term to be excluded or read down where it defeats or contradicts the contract’s main purpose. The court is more reluctant to do so where the allegedly conflicting provisions have co-ordinate documentary status.
4. Sections 30.13, 31 and 32, and the other claims provisions, could sensibly co-exist. The policy’s certificate incorporated the whole booklet, and the “pay first” clause was not hidden or inconsistent with the policy’s main purpose. The clause could operate meaningfully without destroying the liability cover.
5. The Third Parties (Rights against Insurers) Act 2010 did not prevent the clause from operating. Section 9 removed prior-discharge conditions only to the limited extent stated for marine insurance, namely liability for death or personal injury. The policy was marine insurance, but the present liabilities were not within that exception.
6. Neither contractual construction nor implication on grounds of necessity or business efficacy justified limiting the clause to cases where the insured had means to pay, excluding insolvency, or excluding claims by third parties. The concept of ability to pay was itself uncertain.
7. The court recognised that the result was unsatisfactory in policy terms and that “pay first” clauses may reduce the protection available to third parties. Their regulation, however, had been left outside the statutory scheme and could not be achieved through strained construction or implication.