Marine insurance

Insurance Insurance

Marine insuranceMarine insurance

Marine insuranceMarine insurance

There is no legal obligation in English There is no legal obligation in English Law to insure ships, goods or freightLaw to insure ships, goods or freight

All marine insurance contracts All marine insurance contracts agreed in the UK are governed by the agreed in the UK are governed by the Marine insurance Act 1906Marine insurance Act 1906

Principles of insurancePrinciples of insurance

IndemnityIndemnity Insurable interestInsurable interest Utmost good faithUtmost good faith Doctrine of proximate causeDoctrine of proximate cause

Indemnity Indemnity Principle of Indemnity is that insurer will indemnify Principle of Indemnity is that insurer will indemnify

assured for loss and will restore him to the position assured for loss and will restore him to the position he was immediately before loss occurred.he was immediately before loss occurred.

In life insurance, purpose is to pay a known sum of In life insurance, purpose is to pay a known sum of money, with a possibility that as a result, assured money, with a possibility that as a result, assured will be better off than before.will be better off than before.

Where indemnity is the purpose, assured should not Where indemnity is the purpose, assured should not be better off as a result of the loss, fraud will be be better off as a result of the loss, fraud will be otherwise encouraged.otherwise encouraged.

Assured cannot claim more than once on the same Assured cannot claim more than once on the same risk with two insurers (double insurance)risk with two insurers (double insurance)

Assured cannot recoup his loss from another party Assured cannot recoup his loss from another party after the claim was settled. E.g. cargo owner after after the claim was settled. E.g. cargo owner after claiming from his insurers cannot claim again from claiming from his insurers cannot claim again from his carrier.his carrier.

Insurable interestInsurable interest

The subject matter must be a The subject matter must be a physical object exposed to peril.physical object exposed to peril.

Assured must have some legal Assured must have some legal relationship (not necessarily relationship (not necessarily ownership) to the subject matter.ownership) to the subject matter.

Assured must stand to benefit by its Assured must stand to benefit by its preservation.preservation.

Assured must stand to lose by its loss Assured must stand to lose by its loss or damage.or damage.

Utmost good faithUtmost good faith

Assured must disclose to the insurer Assured must disclose to the insurer before the contract is concluded, every before the contract is concluded, every material circumstance which is known to material circumstance which is known to the assured and which would influence the assured and which would influence the insurer’s judgement in fixing the the insurer’s judgement in fixing the premium or whether or not he would premium or whether or not he would accept the risk.accept the risk.

e.g. shipowner must disclose that his ship e.g. shipowner must disclose that his ship has failed for example a special survey.has failed for example a special survey.

Doctrine of proximate causeDoctrine of proximate cause

Insurer is not liable for any loss which Insurer is not liable for any loss which is not proximately caused by a peril is not proximately caused by a peril insured against.insured against.

E.g. if a ship is scuttled and seawater E.g. if a ship is scuttled and seawater entering the ship sinks her, owner entering the ship sinks her, owner may claim that the peril of seas was may claim that the peril of seas was the cause of his loss, but the insurer the cause of his loss, but the insurer would not be liable since scuttling is would not be liable since scuttling is a wilful misconduct of the assured.a wilful misconduct of the assured.

Marine insuranceMarine insurance

Types of policiesTypes of policies

Voyage policy: port to port, ship Voyage policy: port to port, ship must be within the ports mentioned. must be within the ports mentioned. (cargo policies)(cargo policies)

Time policy: for a period of time, Time policy: for a period of time, mainly 12 months, usually expiring mainly 12 months, usually expiring at noon or midnight GMT. (H&M at noon or midnight GMT. (H&M policy)policy)

Policies can also be either valued or Policies can also be either valued or unvalued.unvalued.

Warranties Warranties Assured undertakes that some particular Assured undertakes that some particular

thing SHALL or SHALL NOT be donething SHALL or SHALL NOT be done Express warranty is written in clauses e.g. Express warranty is written in clauses e.g.

institute warranties say class maintenance institute warranties say class maintenance or warranty limits.or warranty limits.

Implied warranty are not written but Implied warranty are not written but implied by law e.g. seaworthiness at the implied by law e.g. seaworthiness at the beginning of voyage, legality- drug beginning of voyage, legality- drug running or going to port under UN running or going to port under UN embargo.embargo.

Shipowner intending to breach any Shipowner intending to breach any warranty must inform his underwriters. warranty must inform his underwriters.

Marine insurance Marine insurance policiespolicies

Hull and machinery policyHull and machinery policy

Insurance marketInsurance market

London marine insurance market is London marine insurance market is largest in the world. 1- Lloyd’s largest in the world. 1- Lloyd’s market, 2- IUA or Companies market.market, 2- IUA or Companies market.

P&I clubs of which several are based P&I clubs of which several are based in UK.in UK.

Lloyd’s of LondonLloyd’s of London

Is not a company but a society of Is not a company but a society of individuals and corporate members individuals and corporate members with strict rules.with strict rules.

Areas: marine 17%, aviation 7%, Areas: marine 17%, aviation 7%, motor 16%, non transport 59%.motor 16%, non transport 59%.

Market capacity in 2004 about 18bn.Market capacity in 2004 about 18bn. Capital provided by about 3000 Capital provided by about 3000

individual members and 900 corporate individual members and 900 corporate members.members.

Lloyd’s of LondonLloyd’s of London

Syndicates: group of members who band Syndicates: group of members who band themselves into a joint venture. (about 110)themselves into a joint venture. (about 110)

Underwriters: professionals who on behalf of Underwriters: professionals who on behalf of their syndicates assess risk involved and their syndicates assess risk involved and charge premium. They deal with brokers.charge premium. They deal with brokers.

Brokers: intermediaries between Lloyd’s Brokers: intermediaries between Lloyd’s and general public.130 authorised as and general public.130 authorised as brokers.brokers.

Managing agents: supervise syndicate, Managing agents: supervise syndicate, employ underwriters and provide employ underwriters and provide administrative back-up.administrative back-up.

Hull and machinery coverHull and machinery cover

Owner gives details to broker. (utmost Owner gives details to broker. (utmost good faith)good faith)

Broker prepares slip and takes first to Broker prepares slip and takes first to lead underwriter, then to succession lead underwriter, then to succession of others until the risk is 100% of others until the risk is 100% covered ( some syndicates might not covered ( some syndicates might not be interested ).be interested ).

Broker prepares cover note for owners Broker prepares cover note for owners approval.approval.

If assured approves, a formal policy is If assured approves, a formal policy is drawn up.drawn up.

What is covered under H&MWhat is covered under H&M

Actual total loss of ship’s hull, Actual total loss of ship’s hull, machinery and equipment.machinery and equipment.

Constructive total lossConstructive total loss Particular average ( accidental Particular average ( accidental

damage)damage) 3/43/4thth of collision liability. of collision liability. General average- ships proportionGeneral average- ships proportion Liability for salvage chargesLiability for salvage charges

Important clausesImportant clauses

Perils: fire, explosion, piracy, Perils: fire, explosion, piracy, earthquake, bursting of pressure earthquake, bursting of pressure vessels, negligence of master crew vessels, negligence of master crew pilot, latent defects in machinery or pilot, latent defects in machinery or hull, accidents etc.hull, accidents etc.

Collision liability: only 3/4Collision liability: only 3/4thth Sister ship clause: allows to treat as if Sister ship clause: allows to treat as if

they were having different owners.they were having different owners. General average and salvage: vessels General average and salvage: vessels

proportion.proportion.

Clauses contd.Clauses contd. Sue and labour clause: cost incurred in Sue and labour clause: cost incurred in

minimising damage will be paid by insurer minimising damage will be paid by insurer e.g. anchor recovery cost.e.g. anchor recovery cost.

Navigation provisions: limited towage, no Navigation provisions: limited towage, no cargo transfer at sea etc.cargo transfer at sea etc.

Classification and ISM: must be classed Classification and ISM: must be classed and must have SMC.and must have SMC.

Deductible: no claims will be paid unless Deductible: no claims will be paid unless over the deductible i.e. agreed minimum.over the deductible i.e. agreed minimum.

Exclusions: war, strikes, radioactive Exclusions: war, strikes, radioactive contamination, chemical, biological attack contamination, chemical, biological attack etc.etc.

Navigating limits: institute warranty limitsNavigating limits: institute warranty limits

Clauses contd.Clauses contd.

Helicopter engagement: no risk Helicopter engagement: no risk covered if not complying with ‘ICS covered if not complying with ‘ICS Guide to helicopter/ ship operations’Guide to helicopter/ ship operations’

Additional perils.Additional perils. Notice of claims: underwriters to be Notice of claims: underwriters to be

informed ASAPinformed ASAP Tender provision: lead underwriter Tender provision: lead underwriter

will be entitled to decide the repair will be entitled to decide the repair berth, and has a right of veto berth, and has a right of veto concerning a place of repair or concerning a place of repair or repairing firm.repairing firm.

Protection & IndemnityProtection & Indemnity

Cargo claims: short delivery, loss or Cargo claims: short delivery, loss or damage to cargo etc..damage to cargo etc..

Crew claims: medical expenses, Crew claims: medical expenses, repatriation, compensation for death and repatriation, compensation for death and injury etc..injury etc..

Collision liabilities: 1/4Collision liabilities: 1/4thth Fixed and floating objects: damage to Fixed and floating objects: damage to

dock, buoys etc..dock, buoys etc.. Third party injury and death claim: Third party injury and death claim:

passenger, stevedore injury/ death.passenger, stevedore injury/ death.

P&I Contd.P&I Contd. Oil pollution liability.Oil pollution liability. Special compensation or Special compensation or

compensation under Scopic clause.compensation under Scopic clause. Expenses incurred in landing refugees, Expenses incurred in landing refugees,

sick persons and stowaways, fines, sick persons and stowaways, fines, unrecoverable general average unrecoverable general average contributions, wreck removal costs contributions, wreck removal costs etc..etc..

Freight, demurrage and defence cover Freight, demurrage and defence cover (FD&D cover): indemnifies members (FD&D cover): indemnifies members for legal costs incurred in connection for legal costs incurred in connection with FD&D dispute, but not the actual with FD&D dispute, but not the actual sum itself.sum itself.

P&I Contd.P&I Contd.

After acceptance by a club, After acceptance by a club, certificate of entry is issued to the certificate of entry is issued to the ship.ship.

Certificate of entry states all classes Certificate of entry states all classes of cover provided and also the of cover provided and also the deductibles for each cover.deductibles for each cover.

Certificate of entry used for COFR as Certificate of entry used for COFR as well.well.

What is not covered by P&IWhat is not covered by P&I

Bogus Bill of lading.Bogus Bill of lading. Delivery of cargo without B/LDelivery of cargo without B/L Clean bill issued for damaged cargoClean bill issued for damaged cargo Deck cargo carried on terms of under Deck cargo carried on terms of under

deck loadingdeck loading Arrest or detention of a ship.Arrest or detention of a ship. Failure to arrive or late arrival at Failure to arrive or late arrival at

loading port.loading port.

Fines normally coveredFines normally covered Customs finesCustoms fines Immigration finesImmigration fines Fines for failure to produce proper Fines for failure to produce proper

documentation on board.documentation on board. Fines for breach of regulations relating Fines for breach of regulations relating

to construction, alteration of ship.to construction, alteration of ship. Fines incurred as a result of the Fines incurred as a result of the

conduct of the crew.conduct of the crew. Fines imposed for failure to maintain Fines imposed for failure to maintain

safe working conditions.safe working conditions.