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Insurance

Marine insurance
Marine insurance
 There is no legal obligation in English
Law to insure ships, goods or freight
 All marine insurance contracts
agreed in the UK are governed by the
Marine insurance Act 1906
Principles of insurance
 Indemnity
 Insurable interest
 Utmost good faith
 Doctrine of proximate cause
Indemnity
 Principle of Indemnity is that insurer will indemnify assured
for loss and will restore him to the position he was
immediately before loss occurred.
 In life insurance, purpose is to pay a known sum of money,
with a possibility that as a result, assured will be better off
than before.
 Where indemnity is the purpose, assured should not be better
off as a result of the loss, fraud will be otherwise encouraged.
 Assured cannot claim more than once on the same risk with
two insurers (double insurance)
 Assured cannot recoup his loss from another party after the
claim was settled. E.g. cargo owner after claiming from his
insurers cannot claim again from his carrier.
Insurable interest
 The subject matter must be a
physical object exposed to peril.
 Assured must have some legal
relationship (not necessarily
ownership) to the subject matter.
 Assured must stand to benefit by its
preservation.
 Assured must stand to lose by its loss
or damage.
Utmost good faith
 Assured must disclose to the insurer before
the contract is concluded, every material
circumstance which is known to the assured
and which would influence the insurer’s
judgement in fixing the premium or whether
or not he would accept the risk.
e.g. shipowner must disclose that his ship has
failed for example a special survey.
Doctrine of proximate cause
 Insurer is not liable for any loss which
is not proximately caused by a peril
insured against.
 E.g. if a ship is scuttled and seawater
entering the ship sinks her, owner
may claim that the peril of seas was
the cause of his loss, but the insurer
would not be liable since scuttling is
a wilful misconduct of the assured.
Marine insurance
Types of policies
 Voyage policy: port to port, ship must be
within the ports mentioned. (cargo policies)
 Time policy: for a period of time, mainly 12
months, usually expiring at noon or midnight
GMT. (H&M policy)
 Policies can also be either valued or
unvalued.
Warranties
 Assured undertakes that some particular
thing SHALL or SHALL NOT be done
 Express warranty is written in clauses e.g.
institute warranties say class maintenance
or warranty limits.
 Implied warranty are not written but
implied by law e.g. seaworthiness at the
beginning of voyage, legality- drug
running or going to port under UN
embargo.
 Shipowner intending to breach any
warranty must inform his underwriters.
Marine insurance
policies
Hull and machinery policy
Insurance market
 London marine insurance market is
largest in the world. 1- Lloyd’s
market, 2- IUA or Companies market.
 P&I clubs of which several are based
in UK.
Lloyd’s of London
 Is not a company but a society of individuals
and corporate members with strict rules.
 Areas: marine 17%, aviation 7%, motor 16%,
non transport 59%.
 Market capacity in 2004 about 18bn.
 Capital provided by about 3000 individual
members and 900 corporate members.
Lloyd’s of London

 Syndicates: group of members who band themselves


into a joint venture. (about 110)
 Underwriters: professionals who on behalf of their
syndicates assess risk involved and charge premium.
They deal with brokers.
 Brokers: intermediaries between Lloyd’s and general
public.130 authorised as brokers.
 Managing agents: supervise syndicate, employ
underwriters and provide administrative back-up.
Hull and machinery cover
 Owner gives details to broker. (utmost
good faith)
 Broker prepares slip and takes first to
lead underwriter, then to succession of
others until the risk is 100% covered
( some syndicates might not be
interested ).
 Broker prepares cover note for owners
approval.
 If assured approves, a formal policy is
drawn up.
What is covered under H&M
 Actual total loss of ship’s hull, machinery
and equipment.
 Constructive total loss
 Particular average ( accidental damage)
 3/4th of collision liability.
 General average- ships proportion
 Liability for salvage charges
Important clauses
 Perils: fire, explosion, piracy,
earthquake, bursting of pressure
vessels, negligence of master crew
pilot, latent defects in machinery or
hull, accidents etc.
 Collision liability: only 3/4th
 Sister ship clause: allows to treat as if
they were having different owners.
 General average and salvage: vessels
proportion.
Clauses contd.
 Sue and labour clause: cost incurred in
minimising damage will be paid by insurer
e.g. anchor recovery cost.
 Navigation provisions: limited towage, no
cargo transfer at sea etc.
 Classification and ISM: must be classed
and must have SMC.
 Deductible: no claims will be paid unless
over the deductible i.e. agreed minimum.
 Exclusions: war, strikes, radioactive
contamination, chemical, biological attack
etc.
 Navigating limits: institute warranty limits
Clauses contd.
 Helicopter engagement: no risk
covered if not complying with ‘ICS
Guide to helicopter/ ship operations’
 Additional perils.
 Notice of claims: underwriters to be
informed ASAP
 Tender provision: lead underwriter will
be entitled to decide the repair berth,
and has a right of veto concerning a
place of repair or repairing firm.
Protection & Indemnity
 Cargo claims: short delivery, loss or damage
to cargo etc..
 Crew claims: medical expenses, repatriation,
compensation for death and injury etc..
 Collision liabilities: 1/4th
 Fixed and floating objects: damage to dock,
buoys etc..
 Third party injury and death claim:
passenger, stevedore injury/ death.
P&I Contd.
 Oil pollution liability.
 Special compensation or compensation
under Scopic clause.
 Expenses incurred in landing refugees,
sick persons and stowaways, fines,
unrecoverable general average
contributions, wreck removal costs etc..
 Freight, demurrage and defence cover
(FD&D cover): indemnifies members for
legal costs incurred in connection with
FD&D dispute, but not the actual sum
itself.
P&I Contd.
 After acceptance by a club, certificate of
entry is issued to the ship.
 Certificate of entry states all classes of cover
provided and also the deductibles for each
cover.
 Certificate of entry used for COFR as well.
What is not covered by P&I
 Bogus Bill of lading.
 Delivery of cargo without B/L
 Clean bill issued for damaged cargo
 Deck cargo carried on terms of under
deck loading
 Arrest or detention of a ship.
 Failure to arrive or late arrival at
loading port.
Fines normally covered
 Customs fines
 Immigration fines
 Fines for failure to produce proper
documentation on board.
 Fines for breach of regulations relating to
construction, alteration of ship.
 Fines incurred as a result of the conduct
of the crew.
 Fines imposed for failure to maintain
safe working conditions.