Topic: Marine & Cargo Insurance

BY:Mahak Goreja

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.

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/-

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.

A 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 Contract: INSURER & INSURED Parties to death.
The 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.

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.

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.

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.

2.INDEMNITY:A contract of insurance (except life,

3.INSURABLE INTEREST: It means that the assured

must be so situated with regard to the thing insured that he would benefit from its existence and suffer loss from its 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.

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.

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.

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.?

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

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 ?

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

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 ?

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].

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 ?

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

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.?

A can insure the materials . (Insurable interest).

As 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 ?

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

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 ?

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

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.

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.

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.

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

31

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
32

I F 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 33 and the insurer)

I F 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

34

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

the vessel; and Freight 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
35

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

36

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
37

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
38

HULL AND MACHINERY INSURANCE: cover to protect ship owner from partial/total loss b) 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
a)
39

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 Charterers in case of total loss g) SHIP REPAIRERS 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) CHARTERERS LIABILITY POLICY j) WAR RISKS
e)
40

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
41

I F COMMODITY CLASSIFICATION FOR UNDERWRITING

CARGO CLASSED INTO 5 CATEGORIES FOR UNDERWRITING PURPOSE: CATEGORY CATEGORY CATEGORY CATEGORY CATEGORY A B C D E VERY LOW RISK LOW RISK MEDIUM RISK HIGH RISK EXTREMELY HIGH RISK

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

42

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
43

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.
44

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).

45

Comparison between the institute cargo clauses (A), (B) & (C)
Type of risks Covered () not covered () A B C

Loss / 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

46

8. General average sacrifice

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 resulting from a risk covered, extra charges incurred in unloading, storing and forwarding to destination

47

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

48

19. liability under Both to blame collision Clause of Bill of Lading.

49

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.

50

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.

http://www.jus.uio.no/lm/england.marin e.insurance.act.1906/doc.html