Marine insurance


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Marine insurance

  1. 1. Insurance Marine insurance
  2. 2. Marine insurance <ul><li>There is no legal obligation in English Law to insure ships, goods or freight </li></ul><ul><li>All marine insurance contracts agreed in the UK are governed by the Marine insurance Act 1906 </li></ul>
  3. 3. Principles of insurance <ul><li>Indemnity </li></ul><ul><li>Insurable interest </li></ul><ul><li>Utmost good faith </li></ul><ul><li>Doctrine of proximate cause </li></ul>
  4. 4. Indemnity <ul><li>Principle of Indemnity is that insurer will indemnify assured for loss and will restore him to the position he was immediately before loss occurred. </li></ul><ul><li>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. </li></ul><ul><li>Where indemnity is the purpose, assured should not be better off as a result of the loss, fraud will be otherwise encouraged. </li></ul><ul><li>Assured cannot claim more than once on the same risk with two insurers (double insurance) </li></ul><ul><li>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. </li></ul>
  5. 5. Insurable interest <ul><li>The subject matter must be a physical object exposed to peril. </li></ul><ul><li>Assured must have some legal relationship (not necessarily ownership) to the subject matter. </li></ul><ul><li>Assured must stand to benefit by its preservation. </li></ul><ul><li>Assured must stand to lose by its loss or damage. </li></ul>
  6. 6. Utmost good faith <ul><li>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. </li></ul><ul><li>e.g. shipowner must disclose that his ship has failed for example a special survey. </li></ul>
  7. 7. Doctrine of proximate cause <ul><li>Insurer is not liable for any loss which is not proximately caused by a peril insured against. </li></ul><ul><li>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. </li></ul>
  8. 8. Marine insurance
  9. 9. Types of policies <ul><li>Voyage policy: port to port, ship must be within the ports mentioned. (cargo policies) </li></ul><ul><li>Time policy: for a period of time, mainly 12 months, usually expiring at noon or midnight GMT. (H&M policy) </li></ul><ul><li>Policies can also be either valued or unvalued. </li></ul>
  10. 10. Warranties <ul><li>Assured undertakes that some particular thing SHALL or SHALL NOT be done </li></ul><ul><li>Express warranty is written in clauses e.g. institute warranties say class maintenance or warranty limits. </li></ul><ul><li>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. </li></ul><ul><li>Shipowner intending to breach any warranty must inform his underwriters. </li></ul>
  11. 11. Marine insurance policies Hull and machinery policy
  12. 12. Insurance market <ul><li>London marine insurance market is largest in the world. 1- Lloyd’s market, 2- IUA or Companies market. </li></ul><ul><li>P&I clubs of which several are based in UK. </li></ul>
  13. 13. Lloyd’s of London <ul><li>Is not a company but a society of individuals and corporate members with strict rules. </li></ul><ul><li>Areas: marine 17%, aviation 7%, motor 16%, non transport 59%. </li></ul><ul><li>Market capacity in 2004 about 18bn. </li></ul><ul><li>Capital provided by about 3000 individual members and 900 corporate members. </li></ul>
  14. 14. Lloyd’s of London <ul><li>Syndicates: group of members who band themselves into a joint venture. (about 110) </li></ul><ul><li>Underwriters: professionals who on behalf of their syndicates assess risk involved and charge premium. They deal with brokers. </li></ul><ul><li>Brokers: intermediaries between Lloyd’s and general public.130 authorised as brokers. </li></ul><ul><li>Managing agents: supervise syndicate, employ underwriters and provide administrative back-up. </li></ul>
  15. 15. Hull and machinery cover <ul><li>Owner gives details to broker. (utmost good faith) </li></ul><ul><li>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 ). </li></ul><ul><li>Broker prepares cover note for owners approval. </li></ul><ul><li>If assured approves, a formal policy is drawn up. </li></ul>
  16. 16. What is covered under H&M <ul><li>Actual total loss of ship’s hull, machinery and equipment. </li></ul><ul><li>Constructive total loss </li></ul><ul><li>Particular average ( accidental damage) </li></ul><ul><li>3/4 th of collision liability. </li></ul><ul><li>General average- ships proportion </li></ul><ul><li>Liability for salvage charges </li></ul>
  17. 17. Important clauses <ul><li>Perils: fire, explosion, piracy, earthquake, bursting of pressure vessels, negligence of master crew pilot, latent defects in machinery or hull, accidents etc. </li></ul><ul><li>Collision liability: only 3/4 th </li></ul><ul><li>Sister ship clause: allows to treat as if they were having different owners. </li></ul><ul><li>General average and salvage: vessels proportion. </li></ul>
  18. 18. Clauses contd. <ul><li>Sue and labour clause: cost incurred in minimising damage will be paid by insurer e.g. anchor recovery cost. </li></ul><ul><li>Navigation provisions: limited towage, no cargo transfer at sea etc. </li></ul><ul><li>Classification and ISM: must be classed and must have SMC. </li></ul><ul><li>Deductible: no claims will be paid unless over the deductible i.e. agreed minimum. </li></ul><ul><li>Exclusions: war, strikes, radioactive contamination, chemical, biological attack etc. </li></ul><ul><li>Navigating limits: institute warranty limits </li></ul>
  19. 19. Clauses contd. <ul><li>Helicopter engagement: no risk covered if not complying with ‘ICS Guide to helicopter/ ship operations’ </li></ul><ul><li>Additional perils. </li></ul><ul><li>Notice of claims: underwriters to be informed ASAP </li></ul><ul><li>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. </li></ul>
  20. 20. Protection & Indemnity <ul><li>Cargo claims: short delivery, loss or damage to cargo etc.. </li></ul><ul><li>Crew claims: medical expenses, repatriation, compensation for death and injury etc.. </li></ul><ul><li>Collision liabilities: 1/4 th </li></ul><ul><li>Fixed and floating objects: damage to dock, buoys etc.. </li></ul><ul><li>Third party injury and death claim: passenger, stevedore injury/ death. </li></ul>
  21. 21. P&I Contd. <ul><li>Oil pollution liability. </li></ul><ul><li>Special compensation or compensation under Scopic clause. </li></ul><ul><li>Expenses incurred in landing refugees, sick persons and stowaways, fines, unrecoverable general average contributions, wreck removal costs etc.. </li></ul><ul><li>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. </li></ul>
  22. 22. P&I Contd. <ul><li>After acceptance by a club, certificate of entry is issued to the ship. </li></ul><ul><li>Certificate of entry states all classes of cover provided and also the deductibles for each cover. </li></ul><ul><li>Certificate of entry used for COFR as well. </li></ul>
  23. 23. What is not covered by P&I <ul><li>Bogus Bill of lading. </li></ul><ul><li>Delivery of cargo without B/L </li></ul><ul><li>Clean bill issued for damaged cargo </li></ul><ul><li>Deck cargo carried on terms of under deck loading </li></ul><ul><li>Arrest or detention of a ship. </li></ul><ul><li>Failure to arrive or late arrival at loading port. </li></ul>
  24. 24. Fines normally covered <ul><li>Customs fines </li></ul><ul><li>Immigration fines </li></ul><ul><li>Fines for failure to produce proper documentation on board. </li></ul><ul><li>Fines for breach of regulations relating to construction, alteration of ship. </li></ul><ul><li>Fines incurred as a result of the conduct of the crew. </li></ul><ul><li>Fines imposed for failure to maintain safe working conditions. </li></ul>