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The Japanese eat very little fat and suffer fewer heart attacks than the British or Americans. On the other hand, the French eat a lot of fat and also suffer fewer heart attacks than the British or Americans. The Chinese drink very little red wine and suffer fewer heart attacks than the British or Americans. The Italians drink excessive amounts of red wine and also suffer fewer heart attacks than the British or Americans. Conclusion: Eat & drink what you like. “ It's English that kills you ”.
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Page 1: Marine & Cargo Insurance

.The Japanese eat very little fat and suffer fewer

heart attacks than the British or Americans.On the other hand, the French eat a lot of fat and also suffer fewer heart attacks than the British or

Americans.The Chinese drink very little red wine and

suffer fewer heart attacks than the British or Americans.

The Italians drink excessive amounts of red wine and also suffer fewer heart attacks than the

British or Americans.

Conclusion: Eat & drink what you like. “ It's English that kills you ”.

Page 2: Marine & Cargo Insurance

A very safe good morning to all of you..Topic: Marine

& Cargo Insurance

BY:- Mahak Goreja

Page 3: Marine & Cargo Insurance

What do we understand by INSURANCE?

Insurance in broad terms may be described as a method of sharing financial losses of few from a common fund who are equally exposed to the same loss.

The main principle underlying insurance is the pooling of risks.It is thus a co-operative devise to spread the loss caused by a risk ( which is covered by insurance) over a large number of persons who are also exposed to the same risk and themselves against that risk.

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Example:

Say 1000 motor cars valued @ 300000/- are observed over a period of five years. On an average say per year two are total loss by accident. Then the total annual loss would be Rs.600000. If the loss is to shared by all the thousand owners then they have to contribute Rs.600/-

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Basis of Insurance: Rate of contribution or premium The degree of hazard it is exposed to. Classification of various types of properties.

Important Elements Involved In the concept of Insurance

Subject matter of insurance:(Subject matter is property, human life, machinery, goods etc.)The PERIL (risk):(Peril is fire, storm, burglary, earth quake, injury, explosion etc.or we can say uncertain events or casualties)The financial loss: Financial loss is normally defined before the contract is signed.

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CONTRACT OF I N S U RANCEA contract of insurance is a contract by

which a person, in consideration of a sum of money , undertakes to make good the loss of another against a specific risk, e.g., fire, or to compensate him or his estate on happening of a specified event, e.g., accident or death.

Parties to Contract: INSURER & INSUREDThe person undertakes the risk is called the insurer , assuror or underwriter.

The person whose loss is to be made good is called the insured or assured.

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PREMIUM: The consideration for which the insurer undertakes to indemnify the assured against the risk is called the premium.

POLICY: The instrument in which the contract of insurance is generally embodied is called the ‘policy’.

The policy is not the contract;..it is the evidence of the contract.

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PRINCIPLES OF INSURANCE

1.UTMOST GOOD FAITH: The assured must disclose to the insurer all material facts known to him.

A mis-statement or withholding of any material information is fatal to the contract of insurance. Both the parties are under obligation for the full disclosure of material information. The rule‘ caveat emptor ’ does not apply to them.

Where the assured does not make a complete disclosure of everything

which it was material for the insurer to know in order to judge,(a) whether he should accept the risk, and(b) what premium he should charge, the insurer can avoid the contract.

Any fact is material if it has a bearing on the risk and would materially affect the insurer in deciding to make the contract or not.

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2.INDEMNITY:A contract of insurance (except life, personal accident and sickness insurances) is a contract of indemnity.In case of loss the assured is paid the actual amount of loss not exceeding the amount of the policy.

Indemnity is the controlling principle in contracts of fire, marine, and burglary insurances. The object of every contract of insurance is to place the assured in the same financial position, as nearly as possible, after the loss as if the loss had not taken place at all.

It would be against he public policy to allow an assured to make a profit out of the happening of the loss or damage insured against. This is because, if that were so, the assured might be tempted to bring about the event insured against in order to get the money.

Moreover, in the absence of principle of indemnity, there might be a tendency in the direction of over insurance.

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3.INSURABLE INTEREST: It means that the assured must be so situated with regard to the thing insured that he would benefit from it’s existence and suffer loss from it’s destruction.

It means that, the assured must be in a legally recognized to relationship so that he will suffer a direct financial loss on the happening of the event insured.

It is the existence of insurable interest in a contract of insurance which distinguishes it from a wagering agreement.

In life insurance, insurable interest must be present at the time when the insurance is effected.

In fire insurance, it must be present at the time of insurance and at the time of loss.

In marine insurance, it must be present at the time of loss of the subject matter.

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4.Causa Proxima: The assured can recover the loss only if it is proximately caused by any of the perils insured against. This is called the rule of “causa proxima”.

The rule is causa proxima non remota spectatur, i.e., the proximate or immediate and not the remote cause is to looked to and if the proximate cause of the loss from the insurer.Every loss that clearly and proximately results, whether directly or indirectly, from the event insured against is within the policy.

5.Risk must attach: The insurer receives the premium in a contract of insurance for running a certain risk. If for any reason the risk is not run, the consideration fails, and the insurer must return the premium.

6.Mitigation of loss: In the event of some mishap to the insured property , if the assured does not take all necessary steps to mitigate the loss , the insurer can avoid the payment of loss which is attributable to the assured’ s negligence.

He must act as an uninsured prudent person would act under similar circumstances in his own case.

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7.Contribution:Where there are two or more insurances on one risk, the principle of contribution applies as between different insurers.

The aim of contribution is to distribute the actual amount of loss among the different insurers who are liable under different policies in respect of the same subject-matter.

EXAMPLE: A insures his house against fire for Rs.10,000 with insurer X, & for Rs.20,000 with insurer Y .A loss of Rs 12,000 occurs. X is liable for Rs.4,000 and Y for Rs.8,000. If the whole amount of the loss is paid by Y, he can recover Rs.4,000 from X.

8.Subrogation: The doctrine of subrogation is a corollary to the principle of indemnity. According to it, the insurer who has agreed to indemnify the assured on making good the loss, is entitled to succeed to all the ways and means by which the assured might have protected himself against the loss.

Example: A insures his goods with B for Rs 1,000. The goods are damaged by fire caused by C , a miscreant . A recovers the loss from B and subsequently he succeeds in recovering this loss from C also. He must hold the amount recovered from C in trust for B.

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PRACTICAL PROBLEMS: CASE.1

A ship insured against marine losses is sunk.The insurer pays the value in full.The ship is subsequently salvaged.

Who is entitled to the sale proceeds of the salvaged ship.?

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Solution to Case.1

The insurer is entitled to the sale proceeds of the salvaged ship.[Subrogation]

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PRACTICAL PROBLEMS: CASE.2

A house is insured against fire for Rs.50,000.It is burnt down but it is estimated that Rs.30,000 will restore it to the original condition. How much is the insurer is liable to pay ?

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Solution to Case.2

Insurer is liable to pay Rs.30,000 only.(Indemnity)

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PRACTICAL PROBLEMS: CASE.3

A insures his house against fire for Rs.40,000 with B and for Rs.60,000 with C.A fire occurs and a loss is estimated at Rs. 14,000.A recovers Rs.14,000 from B.

What are the rights of B against C ?

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Solution to Case.3

B can claim Rs. 8,400 from C as the loss of Rs.14,000 will be borne by B and C in the ratio of 40,000: 60,000 [Contribution].

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PRACTICAL PROBLEMS: CASE.4

A, to meet the claims of his creditors, borrows Rs.10,000 from B.To protect his interest, B takes out an insurance policy on the life of A.A pays the entire amount to B and then dies.

Can B recover on the policy ?

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Solution to Case.4

B can recover on the policy.[Insurable interest].

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PRACTICAL PROBLEMS: CASE.5

A contracted to build a house for B for which he was to be paid Rs.2,00,000.All the materials were to be supplied by B.

Can A insure the materials for the period during which the building is being constructed.?

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Solution to Case.5

A can insure the materials .(Insurable interest).

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PRACTICAL PROBLEMS: CASE.6

A’s goods in a warehouse are insured.B is the insurer.The goods are burnt.A recovers their full value of Rs.1,000 from B.Then A sues the warehouse keeper and recovers Rs.1,000 from him.B claims this amount from A but A refuses to make over the amount to B. How would you decide the dispute between A and B ?

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Solution to Case.6

A is bound to pay Rs.1,000 to B.(Castellain vs.Preston)

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PRACTICAL PROBLEMS: CASE.7

A firm of contractors assured a lorry against fire.In reply to a question in the proposal form, “ state the address at which the lorry will be usually garaged” a wrong address was given.The policy contained a clause that answers to the queries in the proposal form were the basis of the contract.The risk of fire was the same as the address given and at the correct address.

If the lorry is damaged by fire, are the insurers liable ?

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Solution to Case.7

The insurers are not liable. [ Dawsons Ltd. Vs.Bonnin (1922) ]

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The Kinds of Insurance 1.Life Insurance:

In this case certain fixed amount becomes payable on the death of the assured or on the expiry of a certain fixed period, whichever is earlier.

2.Fire Insurance:It covers the losses caused by fire.

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………..The Kinds of Insurance

3.Marine Insurance:It covers all marine losses, that is to say, the losses incidental to marine adventure.

4.Personal Accident Insurance:In this case, the amount payable is a compensation for any personal injury caused to the assured.

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………..The Kinds of Insurance

5.Health Insurance: Health insurance is becoming an important form of insurance. It provides benefit for medical expenses.

6.Property Insurance:Property insurance takes various forms like theft or burglary insurance, fire insurance, liability insurance etc.

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MARINE INSURANCE

“The mistakes of doctors and nurses are covered by the earth and the mistakes of shipmasters and crew are covered by the insurance”

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MARINE INSURANCE

ORIGINATED IN ENGLAND owing to frequent movement of ships over high seas for trade.

PROVIDES COVER FROM LOSS suffered due to marine perils loss incurred during shipment of cargo over water bodies

like rivers, lakes and inland waterways. ships under construction, and ships transporting

consignment GOVERNED BY - Indian Marine Insurance Act 1963

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MARINE INSURANCE – A FACILITATOR OF TRADE

• Trade involves movement of goods. Goods in transit are exposed to multiple perils at every stage-loading/ unloading, transit, storage.

• Cargo insurance enables traders to venture their capital more freely, thus expanding the scope of their operations.

• Banks would not finance overseas trade without cargo insurance.

• Marine policy/certificate is often lodged with the bank as collateral security.

• Who buys insurance- whether buyer or seller- is determined by the sales contract

• Common trade terms- FOB (Free on Board), C & F (Cost & Freight), CIF ( Cost, Insurance & Freight) - INCOTERMS

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KEY FEATURES OF MARINE INSURANCE

• International in nature. The marine clauses and forms used are same the world over.

• Insurable Interest must exist at the time of loss, not necessarily at the time of effecting insurance.

• A marine policy is freely assignable unless it contains terms expressly prohibiting assignment. It may be assigned either before or after loss.

• Agreed Value Policy- the sum of money payable under the policy is agreed on advance. Underinsurance is not applicable to marine contracts.

• Risk can incept at any point of the voyage.

• ‘Lost or not lost’- Cover maybe granted for shipments which have commenced transit and may have already been lost ( unknown to the Insured and the insurer)

IIF

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MARINE INSURANCE PROVIDES COVER FOR -Export/Import of goods by

•Sea•Air•Road/Rail•Post Parcel

Inland Transit

•Road/Rail•Air•Post Parcel•Coastal voyage•Inland Vessels

IIF

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Marine Insurance (Contd.)

COVERS THREE MAIN INTERESTS in a marine venture :-Hull – it represents the ship;Cargo – it is the goods being transported

by the vessel; andFreight – is the profit or earnings of the

ship at the end of a marine venture. Marine insurance policy covers not only

sea voyage but also purely inland transits through any mode like rail, road,multimodal, even by post

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MARINE INSURANCE COVERAGE FORTUITOUS - sea accidents or casualties caused

without willful intervention of human (an element of chance or ill luck)

INSURED PERILS Fire, Pirates and Thieves, Stranding Barratry - act willfully committed by master and crew

against owner or charterer of ship, Jettison –throwing of cargo overboard due to either a

deliberate act or at the wake of grave danger Taking at sea –when vessel is captured by enemy or

others Foundering at Sea –ship has been reported lost after

a stipulated time Collision –ship collides with another ship or with other

objects, causing damage UNINSURED PERILS Wear and Tear, Leakage, Breakage of goods, Inherent

Vice, Loss by Rats and Vermin

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MARINE POLICY MANDATORY REQUIREMENTS (MARINE

INSURANCE ACT, 1963) Name of assured, or someone representing him; object being insured and perils thereof The voyage, period of time, or both; Insured sum; Name of insurer TYPES OF POLICIES Time and Voyage Policy Valued/Unvalued Policy (settled value of subject matter) Floating policy Open Policy

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HULL INSURANCE HULL refers to ocean going vessels (ships,

trawlers, barges, fishing vessels, etc) REGISTRATION OF INDIAN SHIPS - The

Indian Register of Shipping (IRS) CERTAIN TERMS USED TO MEASURE A

SHIP Register Tonnage – Gross, Net and Dead TYPES OF VESSELS Ocean going or general cargo vessels, Dry

bulk carriers, Tankers or Liquid bulk carriers, Combination carriers, Container vessels, Passenger vessels

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TYPES OF HULL POLICIESa) HULL AND MACHINERY INSURANCE: cover

to protect ship owner from partial/total lossb) DISBURSEMENT AND INCREASED VALUE

INSURANCE: insurance for all those items not included in hull insurance estimation (upto 25 percent of insurance value)

c) PREMIUMS OF INSURANCE: as amount of insurance cover is very high, so are premiums. So, it is safe to insure premiums, including premium of the premium reducing policy.

d) RETURNS OF PREMIUM: policy is also applicable for a total loss situation. It is to insure the prospective returns in case of total loss

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Types Of Hull Policies (contd.)

e) LOSS OF HIRE INSURANCE: protects owner from loss incurred incase ship is stranded due to some failure in machinery

f) LOSS OF PROFITS INSURANCE: protects the Charterer’s in case of total lossg) SHIP REPAIRER’S LIABILITY: provides

cover to losses suffered other than repairs, due to negligence or an accident

h) BUILDERS’ RISK POLICY: covers risk of builders from beginning of construction, till delivery including all test and trials conducted before the delivery

i) CHARTERER’S LIABILITY POLICYj) WAR RISKS

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CARGO INSURANCE Cargo insurance are codified under the

Institute of Cargo Clauses (A), (B) and (C). RISKS COVERED BY ICC CLAUSES All perils, Fire (including while extinguishing) Collision with another vessel/other objects Disposal of cargo at a port of distress Lightning, earthquakes, volcanic activity Loss caused due to incursion of water Package lost/ damaged in loading and

unloading process (called sling loss) GENERAL EXCLUSIONS CLAUSE - willful

misconduct, breakage, financial default

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COMMODITY CLASSIFICATION FOR UNDERWRITINGCARGO CLASSED INTO 5 CATEGORIES FOR UNDERWRITING

PURPOSE:

CATEGORY A - VERY LOW RISKCATEGORY B - LOW RISKCATEGORY C - MEDIUM RISKCATEGORY D - HIGH RISKCATEGORY E - EXTREMELY HIGH RISK

CATEGORISATION HAS BEEN MADE CONSIDERING THE DAMAGES THAT CAN HAPPEN TO THE CARGO WHILE IN TRANSIT

IIF

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FREIGHT INSURANCE Profit a ship owner makes by transporting his

own cargo or the cargo of another person TYPES OF FREIGHT: Prepaid Freight – paid in advance by owner

of goods, at his own risk. Covers this while insuring goods.

Freight payable on delivery – paid once goods are delivered. If carrier fails to deliver goods, then they are not entitled to freight.

Lump sum Freight – when carrier is not required to deliver entire cargo, but a sizeable amount of cargo should be delivered.

Time charter hire – paid to ship owner by owner of goods for making use of the ship for transporting his goods

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INSTITUTE CARGO CLAUSES (A), (B) & (C)Risks/Contingencies Covered by ICC(A):a)All risks of loss or damage to the subject

matter insured except those specifically excluded. The term “all risks” is not to be construed as embracing loss or damage, which is inevitable. The loss or damage, in order to be recoverable, must have occurred fortuitously.

b)General average and salvage charges incurred to avoid loss from any cause or causes except those excluded.

c)Liability under “Both to Blame Collision” clause of the bill of lading.

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d) Charges reasonably and properly incurred to avert or minimize an insured loss and to preserve and pursue recovery rights are also covered (as per Duty of Assured Clause).

e) In the event of termination of the transit resulting from a risk covered. EXTRA CHARGES incurred in unloading, storing and forwarding the insured cargo to destination (as per the Forwarding Charges Clause).

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Comparison between the institute cargo clauses (A), (B) & (C)

Type of risksCovered () not covered () A B CLoss / damage reasonably attributable to:

1. Fire or explosion 2. Vessel/Craft being stranded, grounded, sunk or capsized. 3. Overturning/derailment of land conveyance.

4. Collision or contact of vessel, craft or conveyance With any external object other then water. 5.   Discharge of cargo at a port of distress 6. Earthquake, volcanic eruption, lightning

7. General average and salvage charges incurred to avoid loss from any cause except those excluded 8. General average sacrifice

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A B C 9. Jettison 10. Washing overboard 11. Entry of sea, lake or river water into the vessel,

craft, hold, conveyance, container, lift van or place of storage. 12. Rainwater damage 13. Total loss of any package lost overboard or dropped whilst loading or unloading from vessel or craft. 14. Piracy. 15. Deliberate damage or destruction by wrongful act

of any person or persons, (i.e. by malicious acts) (Can be covered by malicious Damage Clause for I.C.C (B) and (C) upon payment or extra premium)

16. In the event of frustration of the voyage resultingfrom a risk covered, extra charges incurred inunloading, storing and forwarding to destination

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A B C

17. Reasonable charges for averting or minimizing loss recoverable under this insurance and also those incurred, to pursue recovery rights against carriers, bailees or third parties.

18. Other or extraneous perils all involving a fourtuity and from external causes(s), for example: Damage as a result of shifting in heavy weather

Improper stowage Rough handling Breakage, leakage, denting, scratching, crushing, crumpling, chipping, chafage

Heating sweating Infestation, mould, mildew, rust, county damage

Hook and sling damage Contact with mud, oils and acids, damage by other cargo Shortage, theft, pilferage, non-delivery

Other loss/damage caused fortuitously and from external cause or causes

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A B C 19. liability under “Both to blame collision” Clause of Bill of Lading.

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COMMON EXCLUSIONS Loss, damage or expenses attributable to willful misconduct of

the assured Ordinary or inevitable losses Loss, damage or expense caused by inherent vice or nature of

the subject matter insured Loss/damage due to insufficient, unsuitable or defective

packing (including stowage) Loss/damage or expenses proximately caused by delay even if

the delay is caused by a peril insured against Loss damage or expenses arising from insolvency of the

owners, managers, charterers or operators of the vessel. Loss damage due to un seaworthiness of the vessel or craft,

container, lift van employed for carrying the insured matter. Wars, strikes and civil commotions unless covered under

separate endorsements.

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Some extra terms Jettison general insurance:One of the

most ancient aspects of maritime law is general average. When an intentional sacrifice of property is made onboard ship to avoid a common peril, or when an intentional expenditure is made, also to avoid a common peril, general average requires all of the parties to the marine adventure that benefited by the intentional sacrifice or expenditure to contribute money on a pro

rata basis.

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READ SOMETHING EXTRA http://www.jus.uio.no/lm/england.marin

e.insurance.act.1906/doc.html

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Clauses under the policy