Insurance case law · Marine liability

MS Amlin Marine NV v King Trader Ltd and others (The Solomon Trader) [2024] EWHC 1813 (Comm)

The case in short: The decision, upheld by the Court of Appeal, that a “pay first” clause in a marine liability policy was effective against third parties claiming under the Third Parties (Rights against Insurers) Act 2010. The insured was insolvent, had paid nothing, and so nothing was payable.

Citation

Full case name: MS Amlin Marine NV on behalf of MS Amlin Syndicate AML/2001 v King Trader Limited, Bintan Mining Corporation and The Korea Shipowners’ Mutual Protection & Indemnity Association
Neutral citation (first instance): [2024] EWHC 1813 (Comm)
Court: High Court of Justice, King’s Bench Division, Commercial Court
Judge: Mr Justice Foxton
Judgment date: 16 July 2024
Appeal: [2025] EWCA Civ 1387 (Sir Geoffrey Vos MR, Singh LJ and Males LJ, 5 November 2025) — appeal dismissed

Facts

The insurer issued a marine liability policy on 28 March 2018 to Bintan Mining Corporation, the charterer, in respect of the charterer’s liability. The cover ran for twelve months from 1 April 2018.

King Trader Ltd, the owner, had time-chartered the vessel Solomon Trader to the charterer under a charterparty dated 29 May 2017. In February 2019 the Solomon Trader grounded in the Solomon Islands.

The owner and the Korea Shipowners’ Mutual Protection & Indemnity Association obtained an award against the charterer on 14 March 2023 in LMAA arbitrations in Hong Kong. With costs and accrued interest the award now exceeds US$47 million. The charterer was wound up in the British Virgin Islands in March 2021 and in London in April 2024.

The policy contained what the market calls a pay first clause: in substance, the insurer was liable to indemnify only after the insured had itself paid the underlying liability. The charterer, being insolvent, had paid nothing. The third parties sought to recover from the insurer under the Third Parties (Rights against Insurers) Act 2010.

Decision

Foxton J held that the pay first clause was effective, so nothing was payable. A third party who takes over the insured’s rights under the 2010 Act takes those rights as they stand, subject to the terms of the policy.

The judge was candid about the policy consequences. He observed in a postscript that the state of English law on this issue in the light of the 2010 Act is not particularly satisfactory, noted the perverse underwriting incentives such provisions can create, and remarked that pay first clauses reduce the efficacy of liability insurance as protection for third parties at exactly the moment it is most needed. But, having been left outside the perimeter of statutory control, such clauses were beyond the reach of the common law rules on incorporation, interpretation and implication.

The Court of Appeal dismissed the appeal on all grounds. Sir Geoffrey Vos MR took the opportunity to restate what he preferred to call the onerous clause doctrine, previously known as the red hand rule: where a particularly onerous or unusual term is contained in one party’s standard terms and the other party does not actually know of it, it will not bind that other party unless the party relying on it shows that the clause was fairly and reasonably brought to the other’s attention.

Males LJ added three observations of direct interest to insurance buyers. First, the doctrine is unlikely to apply to a marine insurance contract where the insured was represented by specialist brokers, because such brokers can be expected to familiarise themselves with the terms available in the market — and if a proposed policy contains a genuinely unusual or unreasonable clause, it would be the brokers’ duty to draw it to the insured’s attention. Second, pay first clauses remain prevalent and the market can be taken to understand their effect. Third, whether such clauses should be rendered ineffective against third parties is a matter for Parliament; he noted that they were excluded from section 9(5) of the 2010 Act save to the extent that the insurance covers liability for death and personal injury.

Why it matters for insurance

The Third Parties (Rights against Insurers) Act 2010 is the mechanism by which an injured claimant can go directly to the insurer of an insolvent defendant. This decision marks out an important limit on it in the marine context: outside cover for death and personal injury, a pay first clause can defeat the third party’s claim entirely if the insured cannot pay.

For anyone buying liability insurance, the general lesson is to look for conditions that make the insurer’s obligation contingent on the insured having paid or discharged the liability first. In a solvent business that may look academic. It is not academic at all in an insolvency, which is precisely when the cover is most needed.

The judgment also contains a clear statement of what a broker is expected to do. Males LJ said in terms that if a proposed policy contains a clause that can genuinely be regarded as unusual or unreasonable, it is the brokers’ duty to draw that clause to the insured’s attention. That is the standard against which a broker’s advice on wordings will be measured, and it is a good reason to expect a written explanation of the unusual terms in any specialist placement.

References

MS Amlin Marine NV v King Trader Ltd and others [2024] EWHC 1813 (Comm) (Foxton J, 16 July 2024)
MS Amlin Marine NV v King Trader Ltd and others [2025] EWCA Civ 1387 (Court of Appeal, 5 November 2025)
Third Parties (Rights against Insurers) Act 2010, section 9

Frequently asked questions

What is a pay first clause?

A term making the insurer's obligation to indemnify conditional on the insured having first paid or discharged the underlying liability. If the insured cannot pay, nothing becomes payable under the policy, which matters most when the insured is insolvent.

Does the Third Parties (Rights against Insurers) Act 2010 override a pay first clause?

Not in this case. Section 9 of the Act renders certain conditions ineffective against a third party, but in the Court of Appeal Males LJ noted that marine insurance was excluded from section 9(5) save to the extent that it covers liability for death and personal injury. Foxton J held the clause effective and the Court of Appeal dismissed the appeal.

What did the courts say about the broker's role?

Males LJ observed that the onerous clause doctrine is unlikely to apply to a marine insurance contract where the insured was represented by specialist brokers, because such brokers can be expected to know the terms available in the market, and that if a proposed policy contains a genuinely unusual or unreasonable clause it is the brokers' duty to draw it to the insured's attention.

This page is insurance information for UK businesses, not legal advice. It summarises a reported judgment and explains why insurance buyers and brokers refer to it; it is not a substitute for reading the judgment or taking advice on your own facts. Case summaries are necessarily short and omit detail. Position stated as at August 2026.

Unusual terms explained before you sign

If a wording contains a pay first clause or anything else out of the ordinary, you should hear about it from your broker. Bristol-based, FCA-regulated, wordings first.

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Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority (FRN 724952). This page is general information, not advice on a specific policy.

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