MARINE INSURANCE 1. SEC.

101 Marine Insurance includes: (a) Insurance against loss of or damage to: (1) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise, effects, disbursements, profits, moneys, securities, choses in action, instruments of debts, valuable papers, bottomry, and respondentia interests and all other kinds of property and interests therein, in respect to, appertaining to or in connection with any and all risks or perils of navigation, transit or transportation, or while being assembled, packed, crated, baled, compressed or similarly prepared for shipment or while awaiting shipment, or during any delays, storage, transhipment, or reshipment incident thereto, including war risks, marine builders risks, and all personal property floater risks; (2) Person or property in connection with or appertaining to a marine, inland marine, transit or transportation insurance, including liability for loss of or damage arising out of or in connection with the construction, repair, operation, maintenance or use of the subject matter of such insurance (but not including life insurance or surety bonds nor insurance against loss by reason of bodily injury to any person arising out of ownership, maintenance, or use of automobiles); (3) Precious stones, jewels, jewelry, precious metals, whether in course of transportation or otherwise; and (4) Bridges, tunnels and other instrumentalities of transportation and communication (excluding buildings, their furniture and furnishings, fixed contents and supplies held in storage); piers, wharves, docks and slips, and other aids to navigation and transportation, including dry docks and marine railways, dams and appurtenant facilities for the control of waterways. (b) Marine protection and indemnity insurance, meaning insurance against, or against legal liability of the insured for loss, damage, or expense incident to ownership, operation, chartering, maintenance, use, repair, or construction of any vessel, craft or instrumentality in use of ocean or inland waterways, including liability of the insured for personal injury, illness or death or for loss of or damage to the property of another person. Goods and Ship

Basic marine policy - used to cover either the shipowner or the shipper (or buyer) of the goods Cargo policy - coverage is for goods; includes goods, cargoes, merchandise including air cargo and parcels Hull insurance - coverage is for the ship; insurance of vessels, craft, hull machinery including builders risks 2. Coverage of Hull Insurance hull machinery and everything connected in a vessel or ship covers ship against loss or damage due to heavy weather, fire, lightning, explosion, grounding, stranding, collision, machinery damage, ranging, piracy, barratry, sue and labor. covers the ff. types of vessels:

a. Liners - any ship working to a regular time schedule b. Passenger ships - design to carry passenger (also cargo) as trade (roll-on/roll-off "roro") c. Tankers - carry both dry and liquid cargo (oil tanker) d. Bulk carriers - designed to carry a particular type of cargo in bulk e. Container ship - designed primarily for the carriage of container boxes f. Reefers - container ship constructed with refrigerator holds g. Ferries - any vessel which engages in a regular pattern of short sea transit h. Lighters - craft used to bring cargo alongside a ship for loading i. Tugs motorized banca - used for assisting ship in harbor areas 3. Coverage of Cargo Insurance covers transfer of goods, cargoes or merchandise either by land, sea or air from its origin to the final destination

A. GENERAL PRINCIPLES The general principles of marine insurance - same with other types of insurance: Two Parties: 1. Assured / Insured agrees to pay a premium 2. Assurer / Insurer agrees that, if certain losses or damage occurs to certain interests of the insured, the insurer will indemnify the insured Marine Policy - may cover a single voyage, or may insure for a certain period of time Cargo - almost always insured by voyage Vessels - usually insured for a certain duration of time, usually year by year Cargo Policy - may be on a single lot or may be open to cover cargo as shipped by the insured Hull insurance or vessel insurance - may cover a ship or a whole fleet

Kinds of Cargo Insurance: a. Open Policy provides automatic cover for all shipments of the assured, who is obligated to declare all shipments. Risk notes - issued on a per declaration basis b. Individual or Voyage Policy covers only one shipment at one time per voyage assured - must declare the policy prior to shipment Duration of Marine Cargo Insurance Cover - Insurance attaches from: Time the goods leave the warehouse or place of storage -Terminates: either on delivery a. To the final warehouse b. To any other warehouse prior to or at the destination which the assured elect to use for storage D. KINDS OF MARINE POLICIES Marine Policy document containing the terms and conditions of the contract must contain: names - assured and insurer/s subject-matter insured and the risk covered the voyage or period of time or both sums insured Different Types of Policies: 1. Voyage Policy

B. COVERAGE Two Parts: 1. Loss or damage to any of the properties enumerated in the Insurance Code 2. Liability insurance - pertaining to marine protection and indemnity insurance insurer will be liable for any liability that the insured may insure arising from marine operations

C. HULL INSURANCE and MARINE CARGO POLICY

contract is to insure the subject matter at and from one place to another the risk attaches only when the ship starts on the voyage

Marine policy does not cover a loss or injury which must inevitably take place in the ordinary course of the things. The term "perils of the sea" extends only to losses caused by sea damage, or by the violence of the elements, and does not embrace all losses happening at sea; include only such losses as are of extraordinary nature, or arise from some overwhelming power, which cannot be guarded against by the ordinary exertion of human skill or prudence. They insure against losses from extraordinary occurrences only - stress of weather, winds and waves, lightning, tempests, rocks and the like General rule: Everything which happens thru the inherent vice of the thing, or by the act of the owners, master or shipper, shall not be reputed a peril, if not otherwise borne in the policy. 3. Embraced in the term "Perils of the Sea" (ex. 549) - winds, waves, lightning, rocks, shoals, running foul of other vessels, and in general all causes of loss and damage to the property insured, arising from the elements, and inevitable accidents, other than those of capture and detention. - Vessel at sea is not heard from for a long time - presumed to have perished by perils of the seas - War risks - have been removed from ordinary marine policies and are covered by separate war risk policies; Ordinary marine policies no longer mean what they state and only cover those risks which are not excluded by the free of capture and seizure clause. - The main risks insured against in a marine policy are stated in the "perils clause" which is often supplemented by the "specially to cover" clauses, or restricted by provisions eliminating one or more of thr insured risks. 4. Collision and Running Down Clause - contained in the standard hull policy to cover liability incurred for damage to another vessel or structure, and sometimes even personal injuries incurred. Protection and Indemnity Policy - covers against collision liability not covered by the collision and running down clause, as well as against all other liability exposure

2. Time Policy subject matter is insured for a definite period of time ship may pursue any course it likes policy would cover all the risks from perils of the sea for the stated period of time cannot be for a period exceeding 1 year; but may contain a continuation clause 3. Mixed Policy combination: voyage and time policies covers the risk during particular voyage for a specified period of time 4. Valued Policy specifies the agreed value of the subject matter insured value in a valued policy - conclusive as between the insurer and the insured, whether the loss is partial or total (if there is no fraud or misrepresentation) 5. Open or Unvalued Policy value of the subject matter - not specified subject to the limit of the sum assured, it leaves the value of the loss to be subsequently ascertained 6. Floating Policy only mentions the amount for which the insurance is taken out and leaves the name of the ship/s and other particulars to be defined by subsequent declarations has come in vogue because of the difficulty of knowing by which ship or ships the goods are to be shipped

E. ASSIGNMENT OF POLICY Marine Policy - assignable by endorsement, or in any other customary manner Assignee - can sue on it on his own name subject to any defense which would have been available against the person who effected the policy - may be made: before or after the loss - An assured who has parted with or lost his interest in the subject matter insured - cannot assign

F. PERILS OF THE SEA vs PERILS OF THE SHIP 1. Distinctions

G. BARRATRY any willful misconduct on the part of master or crew in pursuance of some unlawful or fraudulent purpose without the consent of the owners, and to the prejudice of the owner's interests (American Insurance Law) every species of fraud or knavery in the master, by which the freighters or owners are injured an act of wrong done by the master against the ship and goods necessarily requires a willful and intentional act in its commission honest error of judgment or mere negligence - cannot be barratry, unless criminally gross

Peril of the Ship - insurer: not liable - examples: usual or ordinary movements of the sea (waves); ordinary wear and tear of the vessel; negligent failure of the shipowner to provide the vessel with the necessary equipment Peril of the Sea - insurer: liable - must be something which may or may not happen (not something which must happen) The insurer undertakes to insure against perils of the sea and similar perils, not against perils of the ship. There must, in order to make the insurer liable, be some casualty, something which could not be foreseen as one of the necessary incidents of the adventure. The purpose of the policy is to secure an indemnity against accidents which may happen, not against events which must happen.

H. INCHMAREE CLAUSE extension of cover to include damage or loss due to latent causes such as breakage of the ships drive shafts, bursting of its boilers, unseen defects in its hull, machinery, and auxiliary equipment; as well as due to errors in navigation, or negligence of its captain, officers, engineers, crew, pilots, etc. named after the ship Inchmaree (1887 landmark case Thames & Mersey Marine Insurance Co. vs Hamilton, Fraser & Co.) UK court declared that the above causes do not fit the definition of all other perilslosses or misfortunes.

2.

Losses from Extraordinary Occurrences

I. 1.

ALL RISKS POLICY Broad and Comprehensive Meaning All risks policy Meaning all risks whatsoever and covering all losses by an accidental cause of any kind Covering any loss other than a wilful and fraudulent act of the insured Pursuant to the purpose of an all risks insurance to give protection to the insured in those cases where difficulties of logical explanation or some mystery surround the loss or damage to property Grant greater protection than that afforded by the perils clause to assure that no loss can happen through the incidence of a cause neither insured against nor creating liability in the ship Written against all loss attributable to external causes

Ship becomes of less value by decay, and wear and tear, but as between parties to the policy it continues to be of the same value, and the same amount will be recoverable in a total loss, at whatever period of the risk it may happen, as will more distinctly appear under the head of total losses.

Ship includes the tackle, boat, provisions, and whatever is necessary to equip her for the voyage Guns, ammunition, etc. of an armed ship part of its insurable value If recently purchased cost with the addition of the premium: value in the policy

B. CHARTER PARTY 1. Insurable Interest in Charter Party Charter Party Contract of lease whereby the owner or the agent leases the hull of the vessel or part thereof, or the transportation of the tools or passengers or both, for a fixed price. Charterer Assumes responsibilities broadly similar to an owner Viewed by contracting parties (cargo owner or sub-charterer) as the owner of the ship Assumes liabilities towards the vessel owner May have a further interest in the chartered vessel Sub-lease or Purchase option insurable May have an insurable interest if the chartered ship sustains damage resulting in a particular average Lost earnings in sub-let ship represent an insurable interest Comprehensive cover: Charterers liabilities Interest in the event of a total loss and interest in the case of a particular average on the chartered ship 2. Formal Contract Charter party (Charta Partita divided document) Formal contract drawn up between the shipowner and the charterer C. KINDS OF CHARTER Determines the distribution of responsibilities and items of costs between shipowners and charterers i. Time Charter Ship is chartered as a functioning operating unit for a period of time Charterer pays the hire money and the ship transport cargo wherever the charterer wishes Short time (few weeks); Long time (15 years) Hire charge: cost/day or cost/month Charter hire depends on the duration of the charter Owners have to pay: depreciation, brokerage part of the claims depending on the conditions of the charter party, wages, provisions, maintenance and repairs, stores, supplies and equipment, lubricating oil, water, insurance survey and overhead charges Charter have to pay: fuel, port charges, stevedoring charges, cleaning of holds, dunnage, ballast water, commission on cargo, brokerage (unless otherwise agreed) and part of the claims, depending on the condition of the charter party Entire ships capacity let out Master and crew appointed by the owner Owners do not act as carriers ii. Voyage Charter Ship is chartered to carry cargo on specified voyage between places Shipowner pays for virtually everything (except loading and charging costs) Parties have to agree on lay time (cargo handling time) Freight usually assessed at so much per ton of cargo carried or alternatively as a lump sum for the voyage; depends on quantity of cargo Ship let out on full or part cargo basis

2.

Special Type of Insurance Burden of Proof: Insured has an initial burden of proving that: cargo was in good condition when the policy attached cargo was damaged when unloaded from the vessel the goods he transported was lost, damaged or deteriorated Insurer thereafter, should prove the exception to the coverage (specific provision which expressly excludes the loss from coverage) Coverage under an all risks provision of marine insurance policy creates a special type of insurance extends coverage to risks not usually contemplated; and avoids putting upon the insured the burden of establishing that the loss was due to the peril falling within the policys coverage

J. WAGES OF MARINERS and PROPERTY ON BOARD Wages of mariners Not insurable on account of their motives to exertion for the safety of the ship and cargo Mariner may insure his property on board, though bought with his wages

INSURABLE INTEREST

SEC. 102 The owner of a ship has in all cases an insurable interest in it, even when it has been chartered by one who covenants to pay him its value in case of loss: Provided, that in this case the insurer shall be liable for only that part of the loss which the insured cannot recover from the charterer. A. REQUIREMENT OF INSURABLE INTEREST Owner of the vessel has an insurable interest, although it has been chartered by one who promises to pay him its value in case of loss Insured should have insurable interest at the time of procurement and loss Every person has an insurable interest interested in marine adventure

Interested in marine adventure He stands in any legal or equitable relation to the adventure or to any insurable property at risk therein, in consequence of which he may benefit by the safety or due arrival of insurable property, or may be prejudiced by its loss, or damage thereto, or by the detention thereof, or may incur liability in respect thereof. Amount of insurable interest in the ship Its value at the time of the commencement of the risk Open policy Value, being once determined, continues to be the same during the continuance of the risk

Master appointed by the owners Owners act as carriers Owners have to pay: wages, provisions, maintenance and repairs, stores, supplies and equipment, lubricating oil, water, insurance survey and overhead charges, depreciation, fuel and port charges, stevedoring charges (depending on charter party), cleaning of hold, dunnage, ballast, commissions, brokerage and claims Charters have to pay: freight charges agreed upon under the charter party; part or whole of stevedoring charges (depending on the charter party)

Ship or goods upon which the money is lent at the risk of the lender, to the amount lent, and he stands in the place of an insurer to that amount; and to compensate him for this risk, he receives a higher rate of interest

C. INSURABLE INTEREST OF LENDER in the ship or goods hypothecated Reason: If the property is lost, he loses his debt. D. INSURABLE INTEREST OF BORROWER property pledged If the hypothecated ship or goods are lost borrower is discharged from his debt If ship/goods are hypothecated for the full value Borrower is not interested in their safety, for if they are: Saved they go to satisfy the debt; Lost by the risks within the hypothecation discharged from the debt Borrower interested only as far as the value of the property exceeds the amount for which it is pledged Vessel is bottomried for more than its value owner: no insurable interest (Illustration: 579)

iii. Demise Charter: Bareboat or Bare Bottom Charter Ship is chartered just as a hull Charterer should equip the ship with personnel, fuel and other necessaries and operate the ship Usually for a long period

D. CHARTERS LIABILITY Time Charter / Voyage Charter: Charterer Becomes liable as he occupies a position similar to an owner towards the sub-contracting party (sub-charterer or cargo owner) Liabilities towards third parties similar to those of a shipowner including liabilities for cargo or oil pollution Assumes liabilities towards the party he charters the ship from shipowner or another charterer Claimant may sue either the charter or shipowner; The charter party will eventually determine, contractually, who should bear the cost.

E. NOT SUBJECT TO USURY LAW Reason: One of the essential requirements of usury is that the loan must be absolutely repayable. In respondentia and bottomry loans, the repayment is subject to the condition that the vessel and goods shall arrive safely at the point of destination

E. CHARTERERS INTEREST Total loss insurance Often written on a daily reducing basis; On the last day of cover, where there is no future profit at risk, the insured amount is at zero Should the ship be lost, the charterer will not pay for charter hire, but he may find it hard to secure a replacement vessel either at the same rate or a ship so suited to the intended rate. As a result, the charterer may not earn the future freight, as anticipated what is covered

F. CHARTERERS LOSS OF HIRE If the chartered ship is sublet and the charterer wish to insure the difference between the charter rates paid and received this section of the cover will indemnify the charterer in the event that the ship sustains a particular average Typically written on a daily reducing basis On the last day of the cover, with no potential lost earnings at risk, the insured amount reaches zero (Illustration: 577)

F. INTEREST OF LENDER and UNDERWRITER If the same vessel or cargo should be the object of a loan on bottomry or respondentia and marine insurance The value of what may be saved shall be divided, in case of shipwreck, between the lender and the underwriter, in proportion to the legitimate interest of each one, taking into consideration, for this purpose only, the principal with relation to the loan, and without prejudice to the right of preference of other creditors

SEC. 104 Freightage, in the sense of a policy of marine insurance, signifies all the benefits derived by the owner, either from the chartering of the ship or its employment for the carriage of his own goods or those of others. SEC. 105 The owner of a ship has an insurable interest in expected freightage which according to the ordinary and probable course of things he would have earned but for the intervention of a peril insured against or other peril incident to the voyage. SEC. 106 The interest mentioned in the last section exists, in case of a charter party, when the ship has broken ground on the chartered voyage. If a price is to be paid for the carriage of goods, it exists when they are actually on board, or there is some contract for putting them on board, and both ship and goods are ready for the specified voyage. A. EXISTENCE OF INTEREST IN FREIGHTAGE Freight Denotes compensation for the use of a ship, and sometimes a compensation for the transportation of merchandise When the vessel is hired, so soon as the voyage is entered on, the right to freight commences. Transportation of merchandise: right on freight commences when the goods are put on board; or when a part have been received, and the rest are ready to be shipped. Freightage may be insured: if there is a risk of loss in case of the happening of a peril

SEC. 103 The insurable interest of the owner of the ship hypothecated by bottomry is only the excess of its value over the amount secured by bottomry. A. RESPONDENTIA and BOTTOMRY Governed by the same principles Respondentia Loan upon goods laden on board a ship Money is lent on the personal responsibility of the borrower Money is repaid to the lender upon the arrival of the goods Lender, in general, has only the personal security of the borrower Bottomry Loan on the ship Money is repaid to the lender upon the arrival of the ship Ship and tackle, being hypothecated, are liable, as well as the person of the borrower

B. PAYMENT IS CONDITIONAL Payment in Repondentia and Bottomry conditional Subject to the condition: that the vessel and goods, as the case may be, which is given as a security, shall arrive safely at the port of destination

Sec. 14: Expectancy is insurable of coupled with an existing interest in that out of which the expectance arises Expected freightage is expected profit: insurable, although it is in the nature of a mere hope or expectancy Interest in expected freightage exists: a. Charter party when the ship has broken ground on the chartered voyage b. If price is to be paid for the carriage of goods when the goods are actually on board, or there is some contract for putting them on board, and both ship and goods are ready for the specified voyage

Insurance of charterer reinsurance Interest limited to the value of the ship Illustration: Luisito chartered the vessel of Chiquito and obliged himself to pay P2M in case of loss. In this case, Luisito may insure the vessel up to P2M. However, if the value of the ship is only P1M, he can insure the ship only up to that amount.

CONCEALMENT SEC. 109 In marine insurance, each party is bound to communicate, in addition to what is required by Section 28, all the information which he possesses, material to the risk, except such as is mentioned in Section 30, and to state the exact and whole truth in relation to all matters that he represents, or upon inquiry discloses or assumes to disclose. SEC. 110 In marine insurance, information of the belief or expectation of a third person, in reference to a material fact, is material. SEC. 111 A person insured by a contract of marine insurance is presumed to have knowledge, at the time of insuring, of a prior loss, if the information might possibly have reached him in the usual mode of transmission and at the usual rate of communication.

B. SHIP OWNERS INSURABLE INTEREST ON FREIGHT Commences: By vessels sailing with the cargo on board When the owner, having goods ready to ship, or a contract with another person for freight, has commenced the voyage, or incurred expenses and taken steps towards earning the freight

C. PARTIAL LOST ON FREIGHT Occasioned by: the loss of the ship, after a part of the voyage is performed, which makes it necessary to hire another ship to carry on the cargo to the port of destination in order to earn the freight a loss of the part of the cargo, whereby the ship is prevented from earning a part of the freight Where on account of the perils insured against, only freight pro rant is earned. If the ship should have carried the goods to a port within one days sail of the port of destination, but should be disabled, by the perils in the policy, from completing her voyage, the assured would be entitled to recover for the loss.

A. STRICTER APPLICATION OF RULES ON CONCEALMENT AND REPRESENTATION Due to the nature of the property being insured and its location: Usually, the insured relies entirely on the representation of the insured because the vessel is on the sea or in a port and not available for inspection Assured Must disclose to the insurer, before the contract is concluded, every material circumstance which is known to the assured Deemed to know every circumstance which, in the ordinary course of business, ought to be known by him Fails to make disclosure: insurer may avoid the contract

D. ARRIVAL IN BULK If goods arrived in bulk in consequence of sea damage or otherwise whole freight still due assured on freight has no claim for any loss

In case of: Destruction of a part of the goods OR Loss of half of the value of the goods by sea damage or otherwise, though they remain in bulk underwriter pays their value according to the invoice or valuation

SEC. 107 One who has an interest in the thing from which profits are expected to proceed has an insurable interest in the profits. Person who possesses interest in a thing has insurable interest in the profits accessory follows the principal Illustration: Aldo owns certain goods worth P500k. He has a buyer in the port of destination willing to buy the goods for P550k. In this case, Aldo has insurable interest over the goods and over the expected profit. He can insure the profit separately although this is in the nature of a mere hope or expectancy. He has an interest in the goods from the sale of which the profits shall be realized and loss of the goods would also mean loss of the profits.

B. REQUIRED DISCLOSURE All facts within the partys knowledge which are material to the contract and as to which he makes no warranty, and which the other has no means of ascertaining State the exact and whole truth in relation to all matters that he represents Sec. 30 Need not be disclosed: any circumstance which diminishes the risk and any circumstance which it is superfluous to disclose by reason of any express or implied warranty

C. BELIEF OR EXPECTATION OF THIRD PERSON Material in reference to a material fact Insured presumed to have knowledge, at the time of insuring, of a prior loss, if the information might possibly have reached him in the usual mode of transmission and at the usual rate of communication

SEC. 108 The charterer of a ship has an insurable interest in it, to the extent that he is liable to be damnified by its loss. Charterer may insure the ship up to the extent of the damage that he will suffer in case of loss of the same

SEC. 112 A concealment in a marine insurance, in respect to any of the following matters, does not vitiate the entire contract, but merely exonerates the insurer from a loss resulting from the risk concealed: (a) The national character of the insured; (b) The liability of the thing insured to capture and detention; (c) The liability to seizure from breach of foreign laws of trade; (d) The want of necessary documents; and (e) The use of false and simulated papers. Insurer is exonerated only if the foregoing is the cause of the loss. Cause something else: insurer still liable

Amount of insurable interest of charterer in the vessel depends on the amount he is liable to pay in case of loss of the vessel