MS Amlin court win sets major precedent: Marine insurers entitled to rely on pay-first clauses

The Court of Appeal has delivered a landmark judgment on 5 November 2025 in MS Amlin Marine NV v King Trader Limited, upholding the validity of "pay-first" clauses in marine insurance policies. The unanimous decision provides important clarity for the marine insurance market.

Background

In February 2019, the vessel Solomon Trader grounded in the Solomon Islands, leading to an arbitration award on 14 March 2023 against the charterer (Bintan Mining Corporation) exceeding US$47 million. The charterer subsequently entered insolvent liquidation.

The marine insurance policy issued by MS Amlin contained a "pay-first" clause, which provided that it was a condition precedent to recovery that the charterer "shall first have discharged any loss, expense or liability". Because the insolvent charterer could not pay the award, MS Amlin argued it had no liability under the policy to provide indemnity.

The vessel owner and the P&I Club sought to enforce the award directly against MS Amlin Under the Third Parties (Rights against Insurers) Act 2010, essentially seeking to bypass the pay-first requirement.

The court's decision

The appellants challenged the High Court's decision on three grounds, all of which were dismissed:

• Incorporation: The court held that the general terms and conditions (containing the pay-first clause) were clearly incorporated into the policy.
• Inconsistency: The court found that the pay-first clause did not negate the insuring clause but rather qualified when the indemnity could be enforced. The indemnity fell due when the arbitration award was made, but could not be enforced until the insured had paid the claim. The court emphasised that pay-first clauses are commonly used in the insurance and reinsurance industry, and Parliament had specifically decided not to outlaw their use in marine insurance (except for death and personal injury cases).
• Onerous clause doctrine: The court reformulated what has traditionally been called the "red hand doctrine", preferring the term "onerous clause doctrine". It emphasised the high threshold required to show that a clause is onerous or unusual, particularly in commercial contexts. Pay-first clauses did not meet this threshold because they are commonly deployed by both P&I Clubs and in marine insurance generally.

Crucially, the court noted that the charterer had been represented by a professional insurance broker and suggested that the onerous clause doctrine could "never be applicable in any normal case in which a party has its own professional broker or adviser".

What does this mean for insurers?

• Pay-first clauses are enforceable: The decision confirms that marine insurers can rely on pay-first provisions even where the insured becomes insolvent and third parties seek to claim under the Third Parties (Rights against Insurers) Act 2010; this is a significant protection for marine insurers.

• Standard market terms are protected: Clauses that are commonly used in the market are less likely to be considered "onerous" or "unusual".

• Professional representation is important: Where insureds are represented by professional brokers, courts will expect brokers to draw important terms to their clients' attention. This makes it more difficult for insureds to argue they were unaware of key policy conditions, strengthening insurers' positions.

• Commercial contracts more likely to be enforced: The court emphasised that between parties of equal bargaining power, courts should respect party autonomy and be slow to intervene. Commercial parties are free to allocate risks as they see fit, and courts will generally look to enforce their bargains.

• The position is stable: The court noted that any change to the legal treatment of pay-first clauses must be a matter for Parliament. Given that these clauses remain prevalent in the market, the current legal position appears stable.

• Broader implications: The reformulation of the onerous clause doctrine and the emphasis on the high threshold required to challenge contractual terms will have implications beyond marine insurance, strengthening the enforceability of standard terms across commercial insurance generally.

It should be noted that although this case does give rise to issues of more general application, the findings were based on the specific facts of the case, including the commercial nature of the parties and the fact the insured was professionally represented. In cases where the insured is an unrepresented consumer, the outcome may be very different.