MS Amlin Marine v King Trader: Court of Appeal upholds pay first clauses in marine insurance

The Court of Appeal has decisively upheld the enforceability of "pay first" clauses in marine insurance policies, rejecting three separate grounds of challenge in MS Amlin Marine NV v King Trader Limited & Ors [2025] EWCA Civ 1387.

The dispute arose from a marine insurance policy issued to Bintan Mining Corporation (the charterer) covering its liability under a time charterparty. Following the grounding of the Solomon Trader in the Solomon Islands in February 2019, an arbitral award exceeding US$47 million was obtained against the now-insolvent charterer. The critical issue was whether clause 30.13 of the policy—requiring the insured to discharge any liability before claiming recovery—survived the transfer of rights to third parties under the Third Parties (Rights against Insurers) Act 2010.

Sir Geoffrey Vos, Master of the Rolls, delivering the leading judgement, addressed three principal grounds of appeal. The inconsistency ground contended that the pay first clause contradicted the primary insuring obligation. Whilst acknowledging that the hierarchy clause in the policy gave precedence to specific terms over general conditions, the court found no true conflict. The pay first clause qualified rather than negated the indemnity, creating an enforceable condition precedent to recovery whilst leaving the underlying obligation intact.

The Master of the Rolls distinguished cases such as Glynn v Margetson and Alexander v West Bromwich Mortgage Co, emphasising that inconsistency required more than mere qualification or modification. Following Septo Trading Inc v Tintrade Ltd (The Nounou), the test was whether clauses could be read together fairly and sensibly. The pay first clause met this standard, particularly given Parliament's deliberate decision in section 9(6) of the 2010 Act to preserve such clauses in marine insurance contracts outside death and personal injury claims.

The second ground invoked what the Master of the Rolls preferred to term the "onerous clause doctrine" rather than the "red hand doctrine". This principle prevents enforcement of particularly onerous or unusual terms unless fairly and reasonably brought to the other party's attention. The court rejected this argument on multiple grounds. Pay first clauses are commonplace in marine insurance and Protection & Indemnity Club rules, having been recognised in The Fanti and the Padre Island. The charterer was represented by professional insurance brokers throughout the placement, who bore responsibility for explaining material terms. Moreover, the threshold for establishing a clause as onerous in commercial contracts between parties of equal bargaining power remains deliberately high.

Lord Justice Males emphasised that the doctrine's rationale—protecting parties from terms they could not reasonably be expected to know—has limited application to marine insurance, where specialist brokers routinely review policy wordings. The prevalence of pay first clauses, despite judicial criticism, demonstrates market acceptance and understanding of their effect.

The incorporation ground, suggesting the general terms and conditions were not part of the policy, was swiftly dismissed. The certificate expressly referenced the Marine Liability Policy booklet, and the policy structure made clear that both the specific insuring clauses and general conditions applied.

The judgement provides authoritative guidance on the interpretation of marine insurance policies and clarifies the limited scope of the onerous clause doctrine in commercial insurance contexts. It confirms that, absent legislative intervention, pay first clauses remain a valid risk allocation mechanism in marine insurance, reflecting established market practice and party autonomy in commercial contracting.

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