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Philip Roche Partner Transport, Energy and Trade September 2008
An Introduction to Marine Insurance
Today: • • • • Introduction Basic principles The Standard Shipowner Insurances Future issues
• Nature of Marine Insurance • Marine Risk • The parties: – Owners – Operators – Banks – Charterers – Cargo interests – Crew
Something to Confuse • Conditions and Warranties – General English Law Position – Marine Insurance Position .
Risks • Loss – Total – Constructive Total • Abandonment • Arranged/compromised – Partial Loss • What proportion of loss is partial loss? • Deductibles .
Risks • Perils of / on the Sea – Stranding / Sinking / Collision / Heavy weather – Fire / Theft / Jettison / Barratry • Extraneous Risks – Bursting boilers / breaking shafts / bad bunkers – Rusting / chipping / staining – Non-delivery / sweat .
Risks • Fortuity vs Certainty • Inherent Vice • Delay .
Risks • Political – War – Strikes / Civil commotion – Terrorism / Piracy .
300 Drachma Cargo A .Risks • Salvage.300 Drachma Total Value 900 Drachma . Sue and Labour • General Average Ship .300 Drachma Cargo B .
General Average • Ship Aground • Cargo A thrown overboard Ship Cargo A Cargo B Total .300 Dr 600 Dr .300 Dr .Nil .
General Average Ship Cargo A Cargo B Total 300 Dr Nil 300 Dr 600 Dr • Ship and Cargo B – pay Cargo A 100 Dr each – so Ship Cargo A Cargo B Total 200 Dr 200 Dr 200 Dr 600 Dr .
Fundamental Characteristics of Marine Insurance contracts • Marine Insurance Act 1906 • • • • Utmost Good faith Insurable Interest Proximate Cause Mitigation .
A contract of marine insurance is a contract based upon the utmost good faith and. if utmost good faith be not observed by either party. the contract may be avoided by the other party .Utmost Good Faith • S17 MIA .
ought to be known by him.…the assured must disclose to the insurer. If the assured fails to make such disclosure. every material circumstance which is known to the assured and the assured is deemed to know every circumstance which. If it is not true. before the contract is concluded. the insurer may avoid the contract .Utmost Good Faith • S18(1) . the insurer may avoid the contract • S20(1) – Every material representation made by the assured…must be true. in the ordinary course of business.
Utmost Good Faith • Materiality • Circumstances requiring disclosure – Physical hazard – Moral hazard – Other circumstances • Misleading or inaccurate circumstances .
Utmost Good Faith • Circumstances not requiring disclosure: – Diminution of risk – Within insurer’s actual or presumed knowledge .
• Contract of indemnity • S5 MIA – legal or equitable relation to the marine adventure – whereby assured benefits from safe or due arrival of the property – or is prejudiced by its loss, damage or detention • S6 MIA – assured must have an insurable interest at the time of loss
• S55(1) MIA …the insurer is liable for any loss proximately caused by a peril insured against but…he is not liable for any loss which is not proximately caused by a peril insured against.
• Section 39 MIA 1906 – implied warranty at the commencement of the voyage – reasonably fit in all respects • The Eurysthenes – turning a blind eye
The Main Types of Marine Insurance • Hull and Machinery – Increased Value • Cargo • P&I • War • Mortgagees Interest Insurance .
Hull and Machinery • Institute Time Clauses (Hulls) ITC(H) 1995 • International Hull Clauses 2003 • All Risks • Total Loss Only • Named Perils Only • Burden of Proof .
dock or harbour • Earthquake/volcanic eruption/lightning • Accidents in loading/shifting cargo .Perils (I) Total loss/partial loss • marine perils • fire/explosion • Violent theft/jettison/piracy/ • Contact with land conveyance.
helicopters or objects therefrom . officers crew or pilots Negligence of repairers or charterers Barratry Contact with aircraft.(II) • • • • • Machinery breakdown or damage / latent defect Negligence of master.Perils .
Cover • Salvage – charges and contributions • Collision liability (RDC) 3/4ths or 4/4ths • Expenses .Hull Machinery .
Hull and Machinery – Scope of Cover What is not covered: • • • • • Wear and tear / Corrosion Losses due to unseaworthiness Losses due to negligence Scuttling and losses due to fraud War risks .
MIA 1906 • Assured indemnified for losses incident to a marine adventure • Maritime perils include perils incidental to navigation • The Helen .Marine Perils • Marine adventure .a marine peril .blockade .
civil war. rebellion.1 loss.The Marine Policy (1) • ITC Hulls ‘95 24 War exclusion In no case shall this insurance cover loss damage liability and expense caused by: 24. damage. insurrection or civil strike arising therefrom. or any hostile act by or against a belligerent power” . revolution. liability or expense caused by war.
The Marine Policy (2) • ITC Hulls ’95 24.2 capture seizure arrest restraint or detainment (barratry and piracy excepted) and the consequences thereof or any attempt thereat 24.3 derelict mines torpedoes bombs or other derelict weapons of war .
The Marine Policy (3) • Strikes exclusion clause (cl 25) • Malicious acts exclusion clause (cl 26) • Nuclear exclusion clause (cl 27) .
1 war. insurrection or civil strike arising therefrom. this insurance covers loss or damage to the vessel caused by: 1.The War Risk Policy (1) Institute War and Strikes Clauses (Hull/Time) ’95 1 Perils Subject always to the exclusions hereinafter referred to. or any hostile act by or against a belligerent power” . rebellion. revolution. civil war.
The War Risk Policy (2) • 1.3 derelict mines torpedoes bombs or other derelict weapons of war .2 capture seizure arrest restraint or detainment and the consequences thereof or any attempt thereat • 1.
5 any terrorist or any person acting maliciously or from a political motive 1. locked out workmen or persons taking part in labour disturbances 1.6 confiscation or expropriation .The War and Strikes Policy (3) 1.4 strikers.
Definitions War Capture Civil War Seizure Revolution Arrest / Restraint /Detainment Rebellion / Insurrection Requisition Terrorism .
. damage to docks etc. collision liability to the extent not covered by H & M (RDC Cover).P & I Insurance • Originally set up as mutual insurance by ship owners to cover risks that could not be insured by what is now recognised as H & M cover. • Pollution. personal injury.
ITC (Hulls) –only 3/4’s liability for collision –3/4’s “Running Down Clause” • 1/4 self insured to encourage shipowner to be careful! .Collision • Standard Hull and Machinery Policy .Coverage .
Collision • RDC (running down clause) specifically excludes • Removal or disposal of obstructions including –wrecks –cargo –any other thing .
Liabilities in respect of Seamen • • • • • Death Personal Injury Illness compensation Damages Compensation for lost personal effects and wages • Repatriation .
e. –Welders undertaking repairs at sea –supercargoes .g.Liabilities in respect of Supernumeraries • For temporary “crew members”.
Liabilities in respect of Passengers • As for crewmen but including –Loss of or damage to baggage –Accompanied vehicles .
Fines • Fine for oil pollution • Fine for mistake in the preparation of customs documentation • Clubs DO NOT provide cover for any losses. –SOLAS –ISM . fines arising from noncompliance with statutory requirements e.g.
Stowaways • • • • • Expenses Deviation expenses Security guards Immigration fines C/P disputes .
Damage to Property • Fixed and floating objects (“FFO”) –eg. • Buoys • piers • dolphins • fenders • lightships .
Pollution • P&I Club is insurer for all claims for pollution damage • Pollution insurance is compulsory for all ships in USA but only tankers in rest of world • Claimants have direct right of action against insurer .
Cargo • Most common are area of claims –Loss of Cargo –Shortage of Cargo –Damage to cargo • wetting • fire • breakage • contamination .
Salvage • Article 14 of Lloyds Open Form –special compensation –SCOPIC • General Average –where cannot recover cargo GA contribution due to contract of carriage breached .
Sue and Labour.catch all Sue and labour unusual or borderline claims. members may refer their claim to: –The Managers of the Association –The Association Board of Directors –London arbitration . the omnibus rule if fail. Omnibus Risks Incidental to Shipowning • • • • Umbrella coverage .
ICC(C) .most restricted cover .Cargo Institute Cargo Clause A .ICC(A) .ICC(B) .full cover Institute Cargo Clause B .restricted cover Institute Cargo Clause C .
“Risks Covered” – All Risks • All risks cover clause covers all losses likely to be suffered in a marine casualty subject to exceptions provided in Clauses 4. • Inevitable loss or damage is not covered. . 5. and 7. 6.
This concurrence is fortuitous.“Risks Covered” – All Risks • British & Foreign Marine Insurance Co v Gaunt  2 AC 41 per Lord Sumner: “All risks has the same effect as if all insurable risks were separately enumerated. for example. it is also the cause of loss by wetting. it includes the risk that when it happens to be raining the men who ought to use the tarpaulins to protect the wool may happen to be neglecting their duty.” .
• The assured does not have to show the exact cause of the loss.All Risks • The assured has the burden of proving that some fortuitous loss or damage has occurred during the time that the policy was in effect. • Financial losses such as loss of profit will not be recoverable insofar as they are not accompanied by physical loss or damage. .
In particular a person is interested in a marine adventure where 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 be prejudiced by its loss or by damage thereto. every person has an insurable interest who is interested in a marine adventure. or by the detention thereof. or may incur liability in respect thereof. .Mortgagee’s Interest Insurance MIA 1906 Section 5 Subject to the provisions of this Act.
assignment by shipowner of its rights in the insurance policies with inclusion of a “loss payable clause” in favour of the mortgagee 2. the mortgagee and owner take out joint policies of insurance with a “loss payable clause” in favour of the mortgagee .Mortgagee’s Interest Insurance Mortgagee’s Protection 1.
Mortgagee’s Interest Insurance The Good Luck . “Typically.Hobhouse J. or due to some act or omission of the borrower which is not in itself an insured peril. as for example some wilful casting away of the vessel with the privity of the borrower” . this type of policy covers losses which are not recoverable from the borrower’s insurers due to some nondisclosure or misrepresentation by the borrower.
provided always that such Insured Peril occurs or exists without the privity of the Assured. would prima facie be covered by the Owners’ Policies and Club Entries. and not excluded therein. but in respect of which there is subsequent non-payment … by any of the underwriters of Owners Policies and Club Entries as a result of any Insured Peril.1 below. . in the absence of an Insured Peril set out in Clause 2.Mortgagee’s Interest Insurance • Indemnity – Clause 1 This insurance will indemnify the Assured for loss resulting from loss of or damage to or liability of the Mortgaged Vessel which.
2.1 Insured Perils 2.2 breach of Section 39(5) of the Marine Insurance Act of 1906.. including without limitation 126.96.36.199. .1. 2.1 -Perils “2.1 breach of any implied warranty of seaworthiness or legality.IMIC .1 Avoidance of the Owners’ Policies and Club Entries .Clause 2. whether such misrepresentation or non-disclosure arises from the assured thereunder or any of such assured’s insurance agents or insurance brokers.2.1.2 breach of any statutory provision or any express or implied promissory warranty or condition. on the grounds of misrepresentation or non-disclosure of any material circumstances.
1.5 breach of any warranty or condition in any of the Owners’ Policies and Club Entries which requires compliance with any condition survey.2. 2. flag.1.2. 188.8.131.52 breach of any warranty or condition in any of the Owners’ Policies and Club Entries in respect of the classification of the Mortgaged Vessel by a Classification Society or any failure to comply with the recommendations of such Society to the extent required by such warranty or condition.Clause 2.1. management or charter on a bareboat basis of the Mortgaged Vessel.2. structural survey or P&I Club survey requirements and pursuant to which clauses underwriters deny a claim.3 breach of trading warranties contained in any of the Owners’ Policies and Club Entries.1.IMIC . . 2.6 breach of any warranty or condition in any of the Owners’ Policies and club Entries in respect of the ownership.Perils 2.
6 .Perils 2. or the operation of any applicable provision in any of the Owners’ Policies and Club Entries which provides for a time limitation on the presentation of claims.3 failure of the assured under the hull and machinery policy or the owners.1.4 2.IMIC .5 2. managers or superintendents of the vessel or any of their onshore management to exercise due diligence in respect of any loss or damage to the Mortgaged Vessel where such failure to exercise due diligence entitles the underwriters of the owners’ hull and machinery policy to deny a claim otherwise recoverable thereunder.Clause 2.1.1. casting away of or damage to the Mortgaged Vessel.1. avoidance of a claim under any of the Owners’ Policies and Club Entries or of any of the Owners’ Policies and Club Entries by reason of breach of the duty of good faith in respect of such claim.1 . any deliberate or fraudulent. 2.
Clause 2.1.IMIC .Perils 2. the final judgment or award of the courts or arbitration tribunal agreed to have jurisdiction under the express terms of Owners’ Policies and Club Entries (or in the event of their being no such express terms. a competent court) following a contested hearing whereby the Owners’ claim is not recoverable under either Owners’ hull and machinery or war risks policies on the grounds that the loss has not been proved to have been proximately caused by a peril insured under those policies….7 in the event of the total loss of the Mortgaged Vessel. .1 .
.Law Reforms • the test for materiality in non-disclosure and misrepresentation would change from that of a prudent underwriter to that of a "reasonable insured" • a requirement that insurers can only rely on breach of warranty where there is a causal link between the alleged breach and loss.
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