Marine Insurance
value less the amount of loan hypothecated by
- Insurance dealing with vessels
- Sec.101, IC, the real nature of marine insurance is
actually more of transportation insurance, anything
to do with vessels, crafts, aircrafts, vehicles and
goods. Etc.
- Most general, not really marine related, and not
just limited to marine vessels
- Precious stones, jewelry or precious metals
- mostly dealing with transportation
- bridges, tunnels and other instrumentalities of
transportation are covered by marine insurance
 what makes the rules on marine insurances
different from other types of insurances?
1. Insurable interest:
Example: A person owns a building which is valued
at 100M, an owner can insure that building for
100M. The owner obtains that loan for a creditor,
and executes a real estate mortgage in favor of the
creditor.
In the amount of 30M, for how much can the owner
of the building insure the building? 100M as
(insurable interest on the part of the owner) even if
the loan obtained is only for 30M.
Creditor, has an insurable interest to the extent of
the credit in his favor – 30M. if the building gets
destroyed, the
Marine Insurance: (example)
Vessel is worth 100m, and can insure it for 100m,
what if the owner obtains a loan, is hypothecated by
bottomry, the lender on bottomry grants a loan for
30m. Question, for how much can the vessel owner
insure the vessel? How much is his insurable
interest?
Consider, what is the nature of a loan that is
hypothecated loan. (the payment of the loan is
conditioned upon the safe arrival of the collateral,
the collateral is the vessel) Can the owner still
insure the vessel for 100M? No. He cannot. Because
his insurable interest is limited only to 70M, the
bottomry. Reason for that is the loss of the vessel
extinguishes the obligation that is hypothecated.
The loss of the vessel means that the owner will no
longer pay the creditor.
The vessel owner has already received the 30M so if
his vessel gets lost, what would happen is that his
loss is only amounting to 70m, because he has
already previously received the amount of the loan
hypothecated by bottomry. (Limited liability rule,
no vessel, no liability) the destruction of the
collateral extinguishes the obligation, the vessel
sank, that means he will no longer pay the 30m. His
loss is only limited to 70m. – reason for section103
of the Insurance code.
How about the creditor? It is the extent of his
interest, in the same case, 30M.
Example 2.
A vessel was the subject of a charter party. Is
leasing of a vessel. Can the charter insure the
vessel? Yes. To the extent to which he shall be
damnified. The charter, chartered an entire vessel.
Can he insure the vessel for its value? It depends, if
it is bare-boat charter party (just the vessel) so that
means in a bare-boat charter party, who controls the
vessel? It is the charter who controls the vessel, and
since he controls the vessel, chances are in their
charter party there is an agreement that the charter
will have to pay the ship owner in the event the
vessel gets lost, if that is the agreement that means
that the charter can insure the boat for the value.
Because he is supposed to be damnified.
How about if it is a total charter party which is in a
contract of affreightment, in that case, where it is a
contract of affreightment it is the lease of the
entirety of the vessel but the only thing done by the
charter is to pay the freight and he can now make
use of the entire vessel. SO what that does mean,
the charter makes use of the entirety of the vessel,
but who provisions the vessel, it is the ship owner,
who controls the vessel? It is the ship owner thru
the captain. In that case, there is a great likelihood
that there is no agreement that the charter will
reimburse the ship owner because of the loss of the
vessel. Because the vessel is still in the control of
the ship owner, so in that case can the charter insure
the vessel in its full value? No. because he is not
supposed to be damnified in case of loss.
When it comes to determining insurable interest
over freight:
It is similar to that of an ordinary insurance, only
that a marine insurance, freightage can already be
insured, or the expected freight can be already
insured for as long as it is within the ordinary
conduct of business of the insurer.
An expected freight based on an ordinary and
probable course of things, can already be insured in
marine insurance.
On the other hand, in ordinary insurance, on the rule
of expectancy, expected freight cannot be insured,
unless there is already an existing interest that is
accompanying it like a contract of carriage that has
already been executed by the parties, the goods are
placed now in the hands of the carrier.
Concealment – Marine Insurance
That there are facts that are to be disclosed even
thought you are not asked, facts that need to be
disclosed when asked, and facts that need not be
disclosed, even if asked.
In marine insurance, the categories of facts that you
need to disclose even if your not asked are the same.
But with respect to facts, that you need to disclose
only when asked, Marine insurance tells us that
when the information is something that is material
to the risk, there must be disclosure. ***(peculiar)
even matters of belief and expectation if they are
dealing with something that are material, THEY
MUST BE COMMUNICATED.
Example 3:
Terms lost or not lost – the marine insurer is
actually insuring the possibility that the vessel
might have sank already earlier.
A person takes a Marine Insurance over his vessel,
under the terms lost or not lost, he took the marine
insurance now the vessel left the port 3 days ago,
but he took the insurance only now under the terms
lost or not lost. Now if the insurer at that time has
already received information that the vessel might
have sank, even though information is unverified
and he has not taken means to question the
truthfulness of the insurance, even if the same
matter is a mere belief or information, that should
be communicated. It is something that must be
revealed to the insurer, otherwise the insured will be
guilty of concealment.
Ordinary rules, there need be a causal connection
with the fact concealed and the reason for the loss
even if there is no connection with the fact
concealed and the reason for the loss, once there
concealment, an insurer may rescind or deny
liability.
Example 4:
A woman was pregnant when taking insurance, she
never disclosed her pregnancy, she did by reason of
an accident. Can the insurer deny or rescind liability
based on concealment? Even though the reason of
the death has nothing to do with the pregnancy? No
need for causal connection, it is the rule in ordinary
insurance.
Do we apply the same rule in marine insurance?
Yes. We apply that rule in Marine Insurance.
As a general rule, the rule in general types of
insurances, that there need not be a causal
connection between the fact concealed and the
reason for the loss, it is also applicable in marine
insurance, but there are certain matters where there
is a need to establish a causal connection between
the fact concealed and the reason for the loss, when
it comes to marine insurance. REFER TO SEC.112,
IC
"Section 112. A concealment in a marine insurance,
in respect to any of the following matters, does not
vitiate the entire contract, but merely exonerates the
insurer from a loss resulting from the risk
concealed:
 "(a) The national character of the insured;
"(b) The liability of the thing insured to
capture and detention;
"(c) The liability to seizure from breach of
foreign laws of trade;
"(d) The want of necessary documents; and
"(e) The use of false and simulated papers.
Example 5:
A vessel is of a registry which is a country which is
at odds with multiple countries. The voyage will be
from Manila to a country in the middle east and it
will have to pass to certain areas, for instance
somewhere near Persian golf area. Vessel that is
registered in Israel. The vessel will pass through the
Persian Golf, encountering counties or vessels that
are belonging to Arab countries, now if that voyage
is a known path or is known to be dangerous for
Israeli Vessels, necessarily there must be disclosure
that the vessel is of that registry.
Because that is something that is material such that
it must be disclosed.
For example, the vessel sank in the pacific, can the
insurer deny liability based on concealment that the
vessel was of Israeli, even though the course of the
voyage will passing through the Persian gulf area.
No. Insurer cannot deny liability based on that,
because, Sec.112, if you will use the National
Character of the Vessel as a ground to deny liability
or reason by reason of concealment, you have to
establish a connection between the fact concealed
and the reason for the loss. Here the vessel sank in
the pacific has nothing to do with the national
character of the insured. Thus, the insurer must be
able to show that the loss was arising from that fact
that was not concealed which is the registry of that
Vessel. Sec.112, establish a causal connection.
Implied Warranty:
In every marine insurance there are implied
warranties, what are these implied warranties:
1. Implied warranty of seaworthiness; (properly
manned, equipped and provisioned) a vessel may be
also sea worthy for some purpose, but not for
others.
A vessel must be sea worthy at the commencement
of the voyage, that is the time you determine
seaworthiness.
Example 6:
How about if the vessel become unseaworthy in the
interim.
Port of Manila in the Port of Japan, in the
meantime, the ship captain died, but in the process it
became unseaworthy. Can the insurer deny liability?
Under the law, if the vessel became unseaworthy,
the vessel should exert means in order to make
herself seaworthiness. Should exert reasonable
efforts to make her seaworthy. (40:00)
For example, it contemplates successive voyages.
At every commencement of the voyage, the vessel
shall be seaworthy. Implied warranty of
seaworthiness.
2. No improper deviation:
The prohibition is concerning proper deviation may
be proper so how do you know if the deviation is
proper or improper, sec,126, :
"Section 126. A deviation is proper:
"(a) When caused by circumstances over
which neither the master nor the owner of
the ship has any control;
"(b) When necessary to comply with a
warranty, or to avoid a peril, whether or not
the peril is insured against;
"(c) When made in good faith, and upon
reasonable grounds of belief in its necessity
to avoid a peril; or
 "(d) When made in good faith, for the
purpose of saving human life or relieving
another vessel
Proper types of deviation.
Deviation is departure from the course of the
voyage. Course of the voyage, agreement of the
parties, suppose there was no agreement of the
parties, see what is the route establishment of
mercantile practice. Follow the path, which is most
natural, direct and most advantageous course. If you
don’t follow that, you are guilty of deviation.
Example 7:
The voyage is from the port of Manila to the port of
San Francisco, while en route in it s course from
MNL to SFR, there was a tsunami caused the vessel
to be pushed towards another location, the vessel
would now pick up from where it was pushed. 
proper type of deviation
What if there is an improper deviation, then there is
breach of an implied warranty. And the breach if
warranty will cause that recission and denial of the
policy.
3. the vessel will not engage in any illegal venture
4. (Conditional Implied warranty) conditional in the
sense that if the nationality or neutrality of the
vessel expressly warranted, then the vessel should
be in possession of documents that will prove its
nationality or neutrality, conditional since it is only
applicable when of the nationality or neutrality of
the vessel has been expressly warranted.
 so if the vessel will be found not in possession of
the documents, then there is a breach of the implied
warranty.
Loss
In marine insurance, losses may be Total or Partial,
the meaning of a partial loss is anything that is not
total.
What is total loss?
a. actual total loss:
The total destruction of the thing insured,
irretrievable loss by sinking or by being broken up.
Any damage of the thing which renders it valueless
to the owner for the purpose of which he held it.
And any event which effectively deprives the owner
of possession at the port of destination of the thing
insured (the vessel has been seized by pirates and
can no longer be retreived)
b. Constructive total loss:
Constructive total loss is one that gives the right of
the person insured, the right to abandon, meaning
there is a possibility to exercise the right of
abandonment.
When can a person exercise the right of
abandonment, the thing insured had been lost or
damaged to the extent of more than ¾. 
constructive total loss as a right
Whatever things that may be salvaged from that
vehicle, it is now the insurer shall take charge of
that.
Can an insurer shall specify that its liability shall
only be for actual total loss and will not cover
constructive total loss, well that is within the
parameters of the discussion of the parties. The
point here is, if you will get a marine insurance, you
have to find out what is being covered by your
policy, if what is being covered is actual total loss,
then that will mean that actual constructive loss will
not be a compensable risk.
Constructive total loss: exercise the right of
abandonment, consequence of which, an insured
shall be waiving all his interest he may have over
the subject of the insurance in favor of the insured
and claim total loss of from the insurer.
Free from particular average clause:
What are averages? May be the extraordinary risk to
a vessel from the point of departure, from the point
of destination, this may be risks that are
extraordinary or any type of damage with respect to
the vessel or the cargo.
Two Concepts of Averages:
a. General – is the extraordinary risk of the vessel.
(example) a vessel is on its course and it met an
inclement whether, because of the inclement
whether there is a peril that the vessel might capsize
and because of that, goods have to be jettisoned. If
goods are jettisoned then, who will shoulders the
burden of the goods that were jettisoned? Jettison is
considered to be a general average risk, it is an
extraordinary peril which is exposing both the
vessel and the cargo. Like in the previous example,
the inclement whether exposing the vessel and the
cargo and the rule concerning general average is all
persons who are benefited from the general average
will have to contribute. It is not only the owners of
the cargoes that shall shoulder the burden, this will
have to be shared, the owner of the cargoes of the
insured the same, the goods shall be jettisoned. The
most logical thing that the owner of the cargoes is to
claim from the insurer, but may the insurer demand
reimbursement from the shipowner or the other
owner of the cargoes?
- the owner of the cargoes may claim from the
insurer, because the subject of the loss is a general
average, and the insurer now has the right of
reimbursement from the shipowner and the owner
of the other cargoes, that is how to approach the
liability of the parties.
b. Gross Average – but if it is not an extraordinary
peril, it is something that exposes only the vessel or
the cargo and that it is an ordinary peril in
navigation, we refer to that as a particular average.
Question is what is an example of an ordinary
average? Goods were damage from the movement
of the water. Then that is a particular average, and if
the policy contains a free from particular average
clause, then your insurer cannot be held liable for
that particular average.
Even if you policy contains a FPA clause, and it
exonerates your insurer for particular averages, it
will not exonerate that insurer for general averages.
What is the extent of the insurance you are taking.
Example 8:
Building valued at 100M, insured in 100M, lost
90%, recovery shall be 90M.
Co-insurance principle: if a property is under
insured, then the insured shall act as an insurer with
respect to the uninsured portion.
The vessel has a value of 100m it was insured for
50M, was it under insured? Yes, it was under
insured for the amount of 50M, for co-insurance,
since the vessel is under insured, with respect the
50M under insured who will act as the insurer? The
insured is acting as if he were an insurer.
In the case, from a 100M value of the vessel, there
are two insurers, the real insurer and the insured
acting as the insurer.
Now applying the principle of double insurance,
liability of the insurance among themselves.
Because the insured is as if an insurer, you will now
apply the liability of insurers among themselves.
And the rule with liability of insurers among
themselves, they are liable with respect with there
proportionate of degree of liability taking into
consideration that extent of which the have agreed
to become liable. In this case, the insurer agreed to
be liable to the extent of 50% / 100M therefore the
extent of the liability of the insurer is 1/2 , now the
loss on the part of the insured is 50% to the value of
the vessel 100m the loss is in reality 50M, so you
have a loss that is worth 100M, who will share in
the burden of the loss? The insurers, the real insurer
and the insured acting as an insurer. Applying the
co-insurance loss, the loss shall be shared 25% by
the real insurer and 25% and the insured acting as
an insurer.
The principle of co-insurance is very relevant if the
vessel is under insured or the subject of the
insurance is under insured and there was a partial
loss.
Under insurance and there was partial loss, the rules
will now be different with respect to the co-
insurance principle
 co-insurance is automatic in marine insurance, it
is not automatic on fire. In fire insurance, it can be
stipulated upon the parties that the fire insurer can
become liable applying the concepts of co-
insurance, meaning that co-insurance must be
stipulated, for co-insurance to become applicable to
fire. But in marine, shall be automatic.
Concepts with regard to abandonment:
1. if the insured shall exercise the right of
abandonment, aside from the fact that the extent of
the loss must be more than ¾ of the value,
abandonment shall be exercised unconditionally and
totally and not partially. Once the ¾ threshold has
been reached he has to make a choice, do I exercise
the right of abandonment or not? If he exercises that
right of abandonment? Abandon, claim total loss, he
losses all his interest to the insurance.
Marine Insurers are liable mainly for losses arises
from perils of the sea and not general liable for
perils of the ship
 Perils Of The Sea: extraordinary perils of
navigation
 Perils of the Ship are ordinary perils of
navigation, if goods are destroyed by reason of
salinity of the water – it is ordinary for sea water to
be salty
 if an insurance covers all types of risks, then that
will be covered.
As a general rule, marine insurers are liable only for
perils of the sea.