A recent decision by the English Court of Appeal reaffirmed the enforceability of “pay first” clauses in charterers’ liability insurance policies. The judgment in MS Amlin Marine NV v King Trader Ltd [2025] EWCA Civ 1387 offers valuable guidance not only for the marine insurance market but also for the broader interpretation of contractual provisions alleged to be inconsistent or onerous.
The case began when Bintan Mining Corporation (BMC), the charterer of the vessel Solomon Trader, purchased a liability insurance policy from MS Amlin. After an incident that resulted in an arbitral award exceeding USD 47 million, BMC became insolvent. The vessel owners and their P&I Club sought to recover directly from the insurer under the Third Parties (Rights against Insurers) Act 2010. The insurer denied liability, relying on the “pay first” clause, which required the assured (BMC) to first discharge the liability before any indemnity became payable – something that was impossible due to BMC’s insolvency.
The Commercial Court upheld Amlin’s position, and the Court of Appeal confirmed that decision, holding the clause valid and enforceable even against third parties.
The appellants raised three main arguments: (1) that the clause conflicted with the insuring clause; (2) that it was an “onerous” clause that should have been expressly highlighted (under the red hand doctrine); and (3) that it had not been properly incorporated into the policy.
The Court rejected all three arguments. It held that the obligation to indemnify still existed but was subject to the condition that the assured first pay the claim. It also found that the clause was neither unusual nor onerous in the marine insurance context, particularly since BMC was a commercial entity advised by professional brokers. Finally, it concluded that the general terms containing the “pay first” clause were validly incorporated into the insurance certificate.
The judgment reinforces two key points:
- (1) “Pay first” clauses remain valid and customary in marine insurance, and any restriction on their effect against third parties would have to come from legislative, not judicial, reform;
- (2) When interpreting contracts, courts should seek to reconcile the various provisions, avoiding presumptions of inconsistency, and should be cautious before labelling a clause as “onerous” in agreements between sophisticated commercial parties.
For more information, please visit: https://www.bailii.org/ew/cases/EWCA/Civ/2025/1387.html
