Marine Insurance

- Traditionally limited to policies that cover risks

associated with navigation, to which a ship, cargo,
freightage, profits, or other insurable interest in
movable property, may be exposed during a certain
voyage or a fixed period of time.

- Under present laws, it now includes inland marine

insurance
Scope of Marine Insurance
(1) Insurance against loss of or damage to:
a. vessels, aircraft, vehicle, goods, freights, cargo, profits,
bottomry etc. in respect to, appertaining to, or in
connection with risks of perils of navigation, transit or
transportation, or while being assembled, packed or
prepared for shipment, or while awaiting shipment, or
during delays, storage, transhipment, including war
risks;
b. Person or property in connection with or appertaining
to a marine, inland marine;
c. Precious stones, jewelry whether or not in course of
transportation
d. Bridges, tunnels, piers, docks, wharves, dams
Scope of Marine Insurance

(2) Marine protection and indemnity insurance – 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
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.
Kinds of Marine Insurance
(1) Ocean Marine Insurance
- Insurance over vessel, craft
- insurance for the protection of the carrier against liability to
others
- Insurance over cargoes not being transported
- Insurance over freight and income
(2) Inland Marine Insurance
- Includes insurance over cargo, infrastructure and floaters for
risks that do not relate to navigation itself (goods while being
packed; bridges and tunnels; personal property floaters or
protection that follows the insured property wherever may be
found even if not in transit
(3) Aircraft Policy Hull
- a type of aviation insurance
Risks or losses covered in marine insurance

Perils of the sea – includes those casualties due to unusual

violence or extraordinary causes connected with navigation

Perils of the ship – those from ordinary wear and tear of the
ship; from the ordinary, natural, and inevitable action of the
sea; from the negligent failure of the shipowner to make
vessel seaworthy

In the absence of stipulation, the risks insured against are

only perils of the sea (Go Tiaco v. Union). Thus, insured has
to prove that the cause of the loss is a peril of the sea
Risks or losses covered in marine insurance

All-risk policy – insures against all conceivable causes of loss

or damage except those excluded in the policy or due to
fraud or intentional misconduct of insured; covers all losses
during the voyage whether marine peril or not
Burden rests on insurer to prove that the loss is caused by a
risk excluded (Filipino Merchants v. CA)

Named perils policy – specifies the perils insured against

Some perils included in the perils clause

Barratry – willful conduct on the part of the 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 interest (when covered by the policy, proof of
willful and intentional act is necessary)

Jettison – usually involved in “general average” where the

goods are thrown overboard to save other cargoes and/or
the ship
Clauses that modify coverage

- Certain perils are not usually covered by the typical

“named perils clause” because they are not perils of the
sea; thus it is necessary to include certain clauses to
modify insurance coverage.
- Inchmaree Clause – included in a hull policy to cover loss
or damage through the bursting of the boiler, breaking
of shafts, or through latent defects of the machinery and
equipment, hull or its appurtenances, and fault or errors
in the navigation or management of the vessel.
 Insurable Interest in Marine Insurance

Ship owner’s insurable interest

a. Over the value of the vessel
- if chartered and charterer agreed to pay the shipowner the
value of the vessel in case of loss, insurable interest is only
up to the amount not covered by the charterer (Sec. 102)
- If hypothecated by a bottomry loan, only up to the excess of
the value of the vessel over the loan (Sec. 103)
b. Over expected freightage
- Freightage refers to all benefits derived by the shipowner,
either from chartering the vessel or using it to carry his
goods or of others (Sec. 104, 105), which owner would have
earned if not for the peril insured against or other peril
incident to the voyage
 Insurable Interest in Marine Insurance (Shipowner)

Exception: the shipowner has no insurable interest over

freightage if shipper or charterer has paid freightage in
advance and without obligation to refund in case of loss; in
this case, shipowner will not be damnified by the loss.

When does the interest exist?

(1) If there is charter party – when the ship has broken ground
in the chartered voyage
(2) In carriage of goods – when the goods are actually on board,
and both ship and goods are ready for the specified voyage
(Sec. 106)
 Insurable Interest in Marine Insurance

Charterer’s insurable Interest

a. Over the vessel up to the extent of the amount he is liable to

the shipowner, if the ship is lost or damaged during the
voyage
b. Over his expected profits or freightage if he accepts cargoes
from other persons for a fee
c. Over his own cargo
 Insurable Interest in Marine Insurance (Charterer)

Charter Party – is the charterer agreement wherein a ship is

let by its owner to the charterer
a) Bareboat or demise charter – charterer provides the vessel
with his own master and crew; charterer may employ
master and crew of shipowner but they are directly
responsible to the charterer as the latter’s agent and
employees
b) Voyage or trip charter – contemplates the carriage of goods
on a particular voyage or on a series of agreed voyages;
master and crew under employ of shipowner
c) Time charter – contemplates use of vessel for a specified
period of time or for duration of one or more specified
voyages; master and crew under employ of shipowner
 Insurable Interest in Marine Insurance

Cargo Owner/shipper’s insurable interest

- Over the cargo and expected profits
- One who has interest in the thing from which profits are
expected to proceed has an insurable interest in the profits
(Sec. 107)
Lender on Bottomry
- Has insurable interest over the ship up to the extent of the
loan.

Loan on bottomry – made by shipowner/ship agent

guaranteed by vessel itself, repayable upon arrival at
destination
Loan on respondentia – taken on security of the cargo
repayable upon the safe arrival at cargo destination
Insurable Interest in Marine Insurance

- Mortgagee of a vessel may insure the ship because he will

be damnified by its loss
- Both the shipowner and shipper have insurable interest
over the goods
- The consignee (buyer) has insurable interest over the
goods even if there is still no transfer of ownership while
goods are in transit (his interest over the goods is based
on the perfected contract of sale and the contract rests in
the vendee an equitable title even before delivery,
whether the contract of shipment is FOB, CIF, C&F)
- See Filipino Merchants Insurance v. CA
Concealment in Marine Insurance
- In marine insurance, each party is bound to communicate, in
addition to what is required by Sec. 28, all the information
which he possesses, material to the risk, except those
mentioned in Sec. 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. 109)

- Sec. 28. Each party to a contract of insurance must

communicate to the other, in good faith, all facts within his
knowledge which are material to the contract
- Sec. 30. Neither party is bound to communicate information
of the following matters, except in answer to inquiries of the
other…
Opinions or expectations of third persons

- In marine insurance, information of the belief or

expectation of a third person, in reference to a material
fact, is material (Sec. 110)

- This is different from the general rule under Sec. 35

where matters of belief, judgment, or opinion of third
persons (except experts) are not material
 Concealment
As a general rule, insurer may rescind insurance contract
even if the risk concealed is not the cause of the loss.

Sec. 112 however provides that insurer will be exonerated

only if the risk concealed is the cause of the loss
(a) National character of the insured
(b) Liability of the thing insured to capture and detention
(c) Liability to seizure from breach of foreign laws of trade
(d) Want of necessary documents
(e) Use of false and simulated papers

- Concealment will not vitiate contract but merely

exonerate insurer from loss resulting from risk concealed
Representations in Marine Insurance
- Statements made to give information to the insurer and
otherwise induce him to enter into the insurance contract
- If a representation by a person insured by a contract of
marine insurance is intentionally false in any material
respect, or in respect of any fact on which the character
and nature of the risk depends, the insurer may rescind
the entire contract (Sec. 113)
- The eventual falsity of a representation as to expectation
does not, in the absence of fraud, avoid a contract of
marine insurance (Sec. 114)
- If representation with fraud, avoids the contract
- If unintentional or not fraudulent, insurer may rescind
from the time representation becomes false
 Implied Warranties in Marine Insurance

Seaworthiness
- A ship is seaworthy when reasonably fit to perform the service
and to encounter the ordinary perils of the voyage contemplated
by the parties to the policy (Sec. 116)
- Warranty extends not only to the condition of the structure of the
ship but also requires that it be properly laden and provided with
a competent master, sufficient number of competent officers and
seamen, requisite appurtenances and equipment (cables, anchors,
food, water, fuel), and other necessary or proper stores and
implements for the voyage (Sec. 118)
- Ship that is seaworthy for the purpose of insurance upon the ship
may be unseaworthy for the purpose of insurance upon the cargo
(cargoworthiness, Sec. 121)
When must seaworthiness exist
Voyage policy – at the commencement of the voyage
Time policy – at the commencement of every voyage
commenced during the stipulated time
Voyage in stages – at the commencement of each portion
of stage
Port policy – at the time the vessel is exposed to any risk at
the port
Cargo policy and goods are transshipped – at the
commencement of each particular voyage

When ship becomes unseaworthy during the voyage, an

unreasonable delay in repairing defect exonerates insurer
on ship or shipowner’s interest from liability from any loss
arising therefrom (Sec. 120)
 Implied Warranties in Marine Insurance

Warranty that necessary documents are carried

- Where nationality or neutrality of ship or cargo is expressly
warranted, it is implied that ship carries requisite
documents to show such nationality or neutrality and that
it will not carry documents casting reasonable suspicion
thereon (Sec. 122)

Warranty vs. improper deviation

Deviation – departure from the course of the voyage

insured, or an unreasonable delay in pursuing the voyage
or the commencement of an entirely different voyage (Sec.
125)
 Implied Warranties (Improper Deviation)
Deviation is proper:
(a) When caused by circumstances over which neither master
nor owner of ship has any control;
(b) When necessary to comply with a warranty, or to avoid a
peril, whether or not peril is insured against
(c) When made in good faith, and upon reasonable grounds of
belief in its necessity to avoid a peril
(d) When made in good faith, to save human life or relieve
another vessel in distress(Sec. 126)
- Every deviation not specified in Sec. 126 is improper (Sec.
127)
- Insurer not liable for loss happening to thing insured
subsequent to improper deviation (Sec. 128)
Implied Warranties in Marine Insurance

1. That ship is seaworthy at inception of insurance

2. That ship will not deviate from agreed voyage unless
deviation is proper
3. That ship will not engage in illegal venture
4. Warranty of possession of documents of neutrality and
nationality’ that ship will carry requisite documents of
nationality or neutrality of ship or cargo where such
nationality or neutrality is expressly warranted
5. Presence of insurable interest
 Loss in Marine Insurance
Total vs. partial
Actual vs. constructive

Actual Total Loss

(a) Total destruction of thing insured
(b) Irretrievable loss of thing by sinking, or being broken up
(c) Any damage to the thing rendering it valueless to the
owner for the purpose for which he held it; or
(d) Any other event which effectively deprives owner of the
possession, at the port of destination, of the thing insured
Actual Total Loss

- Actual loss may be presumed from the continued absence

of a ship without being heard of (Sec. 134); generally, fact
of actual total loss should be established by sufficient
evidence
- Upon an actual loss, a person insured is entitled to
payment without notice of abandonment (Sec. 137)
- An insurance confined in terms to an actual loss does not
cover a constructive total loss, but covers any loss which
necessarily results in depriving the insured of the
possession, at the port of destination, of the entire thing
insured (Sec. 139)
Constructive Total Loss

- One which gives to a person insured a right to abandon

under Sec. 141 (Sec. 133)
- Where the thing insured has been reduced to such state
or placed in such position by the perils insured against as
to make its total destruction or annihilation though not
inevitable, yet highly imminent or its ultimate arrival
though not utterly hopeless, yet exceedingly doubtful
- -insured may abandon goods or vessel to the insurer and
claim for whole insured value, or he may, without
abandoning the vessel, claim for partial actual loss
 Constructive Total Loss
- A person insured may abandon the thing insured and
recover for a total loss when the cause of the loss is a
peril insured against if:
(a) Actual loss of more than ¾ of value or would have been
spent to recover it from the peril
(b) Injured as to reduce value more than three-fourths
(c) Thing insured is ship and voyage cannot be performed
without incurring expense of more than ¾ the value of
thing abandoned
(d) If cargo or freightage insured and voyage cannot be
performed or another ship procured without incurring
expenses exceeding ¾ of value of cargo or freightage
Abandonment
- Act of the insured by which, after a constructive total
loss, he declares the relinquishment to the insurer of his
interest in thing insured (Sec. 140)
- Equivalent to a transfer by insured of his interest to the
insurer, with all the chances of recovery and indemnity
(Sec. 148)
- Abandonment must neither be partial nor conditional
(Sec. 142)
- Must be made within reasonable time after receipt of
reliable information of loss (Sec. 143)
- Made by giving notice to insurer, orally or in writing; if
orally, written notice must be submitted within 7 days
from oral notice (Sec. 145)
Abandonment
- if marine insurer pays for loss as if actual total loss, he is
entitled to whatever may remain of thing insured, or its
proceeds or salvage, as if there was formal abandonment
(Sec. 149)
- Notice of abandonment must be explicit and specify cause
- Upon an abandonment, acts done in good faith by agents
of insured in respect to thing insured, subsequent to loss,
are at the risk of the insurer and for his benefit (Sec. 150)
- Where notice of abandonment is properly given, rights of
insured not prejudiced even if insurer refuses to accept
abandonment (Sec. 151)
- Abandonment once made and accepted is irrevocable,
unless ground upon which it was made proves unfounded
(Sec. 154)
Abandonment

-on an accepted abandonment of ship, freightage earned

prior to loss belongs to insurer of freightage, but freightage
subsequently earned belongs to insurer of ship (Sec. 155)

- If insurer refuses to accept valid abandonment, he is liable

as upon actual total loss, deducting from the amount any
proceeds of the thing insured which may have come to the
hands of the insured (Sec. 156)

- If person insured omits to abandon, he may recover his

actual loss (Sec. 157)
Requisites of Valid Abandonment

1) There must be actual relinquishment by person insured of

his interest in thing insured
2) There must be constructive total loss
3) Abandonment must neither be partial nor conditional
4) Must be made within a reasonable time after receipt of
reliable information of the loss
5) Must be factual
6) Made by giving notice to insurer orally or in writing
7) Notice of abandonment must be explicit and specify
particular cause of abandonment
Average

-are all extraordinary or accidental expenses which may be

incurred during the voyage in order to preserve the vessel,
cargo, or both, and any damage or deterioration which vessel
may suffer from the time it puts to sea from port of departure
until it casts anchor in the port of destination as well as those
suffered by merchandise from the time they are loaded in the
port of shipment until they are loaded (Art. 306, Code of
Commerce)
 Kinds of average
(a) Simple or particular average
- All expenses and damages caused to the vessel or to her
cargo which have not inured to the common benefit and
profit of all persons interested in the vessel and her cargo
- Suffered by and borne alone by owner of cargo or of
vessel, as the case may be
(a) General or gross average
- Includes all damages and expenses deliberately caused
by master of vessel or upon his authority, in order to
save vessel, its cargo, or both at the same time, from real
and known risk
- Must be borne equally by all of the interests concerned
Requisites of general average

1) There is a common danger

2) For the common safety, part of the vessel or of the cargo
or both is sacrificed deliberately
3) From the expenses or damages caused follows successful
saving of the vessel and cargo
4) Expenses or damages should have been incurred after
taking proper legal steps and authority (formalities
under Code of Commerce)
5) It must not be caused by any fault of the party asking the
contribution
General Average Negligence Clauses
- Clauses which essentially provide that if shipowner
exercises due diligence and makes ship seaworthy, he is
not only exonerated for cargo loss or damage arising out
of an error in navigation or management of the ship, but
is also entitled to general average contribution
- Inserted by shipowners into bill of lading and charter
parties to overcome precedent in IRRAWADDY
- Legality of these clauses was tested when a small vessel
called Jason ran aground in the south coast of Cuba in
1904 due to negligent navigation. The contract of carriage
of the Jason contained a general average negligent clause
- At the onset of the voyage, Jason was seaworthy. The
shipowner incurred considerable salvage charges and
sought general average contribution
General Average Negligence Clauses
- SC ruled not against public policy or law for a carrier to
provide in its contract of carriage a clause that requires
contributions into a gross average even if the need for
general average sacrifice or expenditure arouse out of a
cause for which carrier is exonerated, such as error in
navigation
- Under US law, shipowner must expressly provide in
contract of carriage for a “Jason” result by including a
Jason clause. Otherwise, the rule of the IRRAWADDY will
control and shipowner will be denied contribution in
general average when the need for the sacrifice or
expenditure was due to negligence of the shipowner or
its employees (in IRRAWADDY case, SC rejected owner’s
general average claim; ship grounded due to negligent
navigation of master)
New Jason Clause
- Protective clause inserted into a charter party or bill of
lading which provides that shipowner entitled to recover
in general average even when loss caused by negligent
navigation
- Gives shipowner the right to seek general average
contributions if the accident, danger, damage or disaster
occurs with or without the negligence of the shipowner
or his employee, so long as need for intentional sacrifice
or expenditure is a cause for which the carrier is not
responsible for cargo loss or damage under the terms of
the contract of carriage or maritime law.
New Jason Clause
“In the event of accident, danger, damage or disaster, before
of after commencement of the voyage resulting from any
cause whatsoever, whether due to negligence or not, for
which, or for the consequence of which, the carrier is not
responsible by statute, contract, or otherwise, the goods,
shippers, consignees, or owners of the goods shall
contribute with the carrier on general average to the
payment of any sacrifices, losses, or expenses of a general
average nature that may be made or incurred, and shall pay
salvage and special charged incurred in respect of the goods.
”

- This statement is incorporated by reference into every

ocean bill of lading subject to the US Carriage of Goods by
Sea Act of 1936
Co-insurance in Marine Insurance
- A marine insurer is liable upon a partial loss, only for such
proportion of the amount insured by him as the loss bears
to the value of the whole interest of the insured in the
property insured (Sec. 159)
- If vessel valued at P500,000 is insured for only P400,000
and is damaged to the extent of P250,000, the insurer
required to pay only 80% of the loss suffered or P200,000;
the other 20% or P50,000 is borne by insured (insured
considered a co-insurer as to the uninsured portion)
- In marine insurance, there is co-insurance if loss is partial
and amount of insurance is less than value of property
insured
- If total loss, co-insurance cannot apply and insured can
recover the full amount of the policy