GR M 004 Key Issues in Marine

KEY ISSUES IN MARINE
INSURANCE FOR GLOBAL

COMPANIES
April 28, 2014
John M. Sylvester
Michael T. Fitzgerald
Thomas M. Exl
Recording of this session via any media type is strictly prohibited.
Page 1
Introduction and Overview
What is Marine Insurance?
Historical Development of Marine Insurance Market
Key Considerations for Risk Managers
Types of Marine Coverage and Policies
Considerations in Underwriting Marine Insurance
The Law of Marine Insurance
2 Recording of this session via any media type is strictly prohibited. 1
Page 2
Introduction and Overview
• Insurance against the perils of marine commerce
o For example, if a ship sinks in transit, various types of
losses are possible: loss of cargo; loss of profit from sale
of cargo; damage to ship; third-party liability; personal
injury
o Key difference between marine insurance and other types
of insurance is that the “marine adventure” or peril
insured must be specifically maritime in nature
3 Recording of this session via any media type is strictly prohibited.
Page 3
“Marine adventure” – English Marine
Insurance Act of 1906:
• where any goods in shipment are exposed to
maritime perils (e.g., perils of the sea, fire, war,
pirates, jettisons, barratry)
• where the earning of any pecuniary benefit from
goods in shipment is endangered by exposure to
maritime perils
• where any liability to a third party may be incurred
by the owner of insurable property (or any party
with an interest in the property) by reason of
maritime perils
4
Page 4
Marine Insurance Markets
• English Market began with Lloyd’s of London in the
1600s
• Lloyd’s is not an insurer; it is a facility for the selling

of insurance by underwriting syndicates at Lloyd’s
• Historically, the capital for Lloyd’s syndicates was

provided by individual investors – “Names”
• Now, the capital is provided by corporations doing

business as syndicates
Page 5
• Lloyd’s began in 1688 at Edward Lloyd’s coffeehouse
in London
• Lloyd’s Coffee House was located near the Tower

Wharf and Customs House in London, so it was
frequented by shipowners, captains, and merchants
• At Lloyd’s Coffee House, various merchants entered

into a side business of underwriting the risk of a
ship’s safe passage to its destination, with its cargo
intact
Page 6
• By 1696, the “Lloyd’s News” and, later, “Lloyd’s List”
began publication containing the most authoritative
daily journal of shipping intelligence
• Over the years, Lloyd’s set up reporting stations

around the world to provide information on ship
movements
• Because of the need for buyers and sellers to have

the same information about the risk, the doctrine of
“uberrima fides” developed in the market, and the
7 law Recording of this session via any media type is strictly prohibited.
Page 7
• From modest beginnings in the 1600s, Lloyd’s has
grown to be one of the largest and most influential
marine insurance markets in the world
• Over time, other chartered London insurance

companies sprang up
• London continues to be a major marine insurance

center, not only for Lloyd’s Underwriters, but also
London-based insurance companies and P&I Clubs
Page 8
• Marine Insurance today is underwritten by:
o Underwriters at Lloyd’s
o Insurance companies located in London and throughout
the world
o U.S. insurance companies, most of which belong to the
American Institute of Marine Underwriters
o P&I (“protection & indemnity”) Clubs
Page 9
Key Considerations for Risk
Managers
Page 10
From Danger to Opportunity
• Every business and every production has risks. You
can’t get around it. (Lee Iacocca)
• The only strategy that is guaranteed to fail is not
taking risks. (Mark Zuckerberg)
Page 11
Plenty of Risks to Choose From
• Market risk
• Price risk
• Counterparty risks (non-payment, non-performance,
insolvency, valid documentation, taxation issues,
insurance cover)
• Credit risks
• Operational risks
• Geopolitical risks (piracy, terrorism)
• Compliance with laws / sanctions regulations
• Liabilities to third parties
Page 12
The Risk Review Process
• Forensic review of your business and YOUR risks
• Identify risks you can transfer to counterparties,

insurers and/or banks
• ARE THE REMAINING RISKS ACCEPTABLE AND

MANAGEABLE TO YOU?
Page 13
Manage Your Risks
• YOUR AIM MUST BE A CONTROLLED ENVIRONMENT.
• Put a risk policy in place
o Risk analysis
o Limits
o Authorities
o Operations procedure
o Monitoring
o Reporting
Page 14
Risk Management Through a
Commercial Contract
• Clearly define the objectives and responsibilities of
the parties
• Use INCOTERMS
• General Terms and Conditions are useful to fill the
gaps
• Does the contract meet all insurance and banking
requirements?
• PLEASE NOTE THAT A CHARTER PARTY AND A BILL
OF LADING ARE ALSO CONTRACTS
Page 15
What are Incoterms
• Created in 1936 by the International Chamber of
Commerce (ICC)
• Regularly updated, most recently in 2010 but 2000
Rules are still referred to
• Incoterms DO NOT give you a complete contract
of sale
• Incoterms do not deal with the transfer of
ownership of goods
• Incoterms state which party has the obligation to
make carriage or insurance arrangements
• Specify the place of delivery as precisely as possible
Page 16
How to Approach the Insurance
Markets
Choose your broker wisely
o Presence in your markets
o Familiar with your line of business and risks involved
o Proactive claims-handling department
o Transparent broker compensation
Page 17
Your Relationship With Insurers
• Meet your lead underwriter
• Make sure that the underwriter understands your
business and the risks involved
• UTMOST GOOD FAITH: you must disclose BEFORE
contracting every material circumstance of your
business or transaction that you wish to insure:
corporate structure, goods, conveyances,
geographical regions, limits, etc.
Page 18
Operating An Insurance Policy
• Strictly comply with the policy terms -- e.g., warranties that
some particular thing shall or shall not be done
• Keep insurers closely informed about changes to your
organization and business
• Make sure that the policy is amended to reflect changes
• Protect yourself through proactive measure, e.g. vetting
procedures for vessels/terminals; use of independent
inspectors
• In cooperation with insurers/broker get an Emergency
Procedure in place
• Renewals should not be negotiated at the last minute
Page 19
In Case of An Accident
• Follow the Emergency Procedure
• Take all necessary measures to protect people from
injury or death
• Protect property from further loss
• Alert your broker’s/insurer’s claims department
• Duty to mitigate loss (experts on the scene)
• DO NOT ACKNOWLEDGE LIABILITY
• Start collecting evidence (witness statements,
photographs, survey reports, retention of samples,
20
etc.) Recording of this session via any media type is strictly prohibited.
Page 20
Claims Handling
• Pre-contract disclosures
• Policy wording
• Claim notification/documentation
• Appointment of loss adjustor
• Close contact with people involved within company
• FULL COOPERATION WITH BROKER’S/INSURER’S
CLAIMS DEPARTMENT IS KEY
Page 21
Types of Marine Coverage and
Policies
Page 22
Lines of Marine Insurance
• Cargo Insurance
• Marine Liabilities
o (e.g. Charterer’s Legal Liability)
• Hull & Machinery Insurance
• Protection & Indemnity (P&I) Insurance
Page 23
Unlocking Cargo Terms/Phrases
Definitions and/or Translations
• Average – Loss
• Collision – 2 vessels running into each other
• Franchise – Threshold
• General – Shared
• Particular – Partial or Individual
• Warranty i. Exclusions, e.g. Paramount; ii. Coverage
requirements, e.g., loading survey
Page 24
Unlocking Cargo Terms/Phrases
Definitions and/or Translations
• Average Warranty – Insuring Terms/Coverage
o FPA – Free of Particular Average Total loss only
o WA – With Average – Total and Partial losses
o WA 3% – loss /no loss 3% Franchise Threshold
o All Risks – covered unless specifically excluded
• General Average – Shared Loss

• Irrespective of percentage – perils added and includes total
and partial losses
• Sue and Labor – Act to avoid/minimize loss
Page 25
Cargo Insurance
• Provides coverage for cargo in transit (with
incidental storage)
• Ocean Cargo Insurance/Certificates are an integral
part of international trade
• Who requires marine cargo insurance?
o Anyone engaged in the movement of goods
o Buyers, sellers, importers, exporters, manufacturers, and
banks
• The Terms of Sale impact who purchases insurance

Page 26
Cargo Insurance
• Principal areas of coverage
o Perils of the Sea
– Most important coverage of marine insurance policies
– A broad term covering specific types of losses, including:
Stranding; Sinking; Grounding; Collisions with other vessels;
Heavy Weather; Ice
o Assailing Thieves
o Barratry
o Jettison
– Defined as the intentional throwing overboard of the ship’s cargo,
material, or stores in time of peril, for the common safety of the
ship and her cargo
o Fire, lightning and earthquake
o All Other Like Perils
Page 27
Cargo Insurance
• All Risks
o Shipments of goods insured sufficiently packed to
withstand the voyage covered by the policy are insured
against all risks of physical loss or damage from any
external cause.
• Paramount Warranties/Paramount Exclusions
o Free of Capture and Seizure (FC&S) (War Perils)
o Strikes, Riots, and Civil Commotion (SR&CC)
o Radioactive Contamination Exclusion (RACE)
o Chemical, Biological, Biochemical, and Electronic
Exclusion (CBE)
o Delay and Inherent Vice
Page 28
Cargo Insurance
• War Risks Perils coverage provided by separate
policy.
o Coverage is only while water borne or airborne (no coverage for
inland transit legs of the voyage)
o 48-hour cancellation provisions
o “On Application” rates may apply (e.g., shipments to Iraq or
Afghanistan)
• SR&CC Coverage provided by endorsement to the marine
cargo policy.
o 48-hour cancellation provisions
o TRIA Terrorism coverage at the assured’s direction is
(i) included for an additional premium, or (ii) excluded
Page 29
Cargo Insurance
Unique Coverage Features:
• Warehouse-to-Warehouse Coverage
o 1 insurer for all 3 legs of transit
• General Average and Salvage Charges (GA)
• Seaworthiness (Airworthiness)
o Vessel being in sound condition and well maintained
o Vessel being properly manned (number of and qualification of crew)
• Sue and Labor

o Assured required to take steps to prevent or minimize loss
Page 30
Cargo Insurance
• Transportation Carriers
o Ocean vessel; aircraft; tug and barge; truck; rail; and package parcel
delivery service
• Carrier’s Legal Liability

o Cargo owner must name and waive carrier (none)
o Standard Release Bill of Lading/Air Waybill (normal legal liability)
o Declared Value Bill of Lading/Air Waybill (legal liability is at an agreed
higher amount)
o Insured Bill of Lading/Air Waybill (all risks)
Page 31
Cargo Insurance
• Carriers’ Legal Liability – Defenses and Exemptions
for loss or damage due to:
o Acts of God
o Acts of government
o Riots and labor disturbances
o Improper or insufficient packing or stowage
o Inherent vice of the cargo
Page 32
Charterer’s Legal Liability
• Cargo owner charters a vessel. Under the Charter
Party Agreement, the Cargo Owner is responsible
for:
o Safe berth at the designated
– Port(s) of loading
– Port(s) of offloading
o Loss or damage to cargo carried by the vessel

– Cargo owner is required to have his cargo underwriters waive
rights of subrogation in favor of the vessel owner
Page 33
Hull Insurance
• Basic coverage includes:
o Named perils physical damage to the vessel’s hull and her
machinery
o General Average and Salvage Charges
o Collision Liability
o Sue and Labor
• Warranty of Seaworthiness
• Amount Insured is Agreed Value
• Coverage applies to Named/Scheduled Vessel or
Vessels
Page 34
Protection & Indemnity
Insurance (P&I)
• P&I Insurance Policies
o Cover claims for damage or compensation for a large
number of categories of loss, including:
– Injury to or loss of life of crew members
– Removal of wreck of the named vessel
– Damage to fixed or floating objects or property (other than
vessels)
– Liability for loss or damage to cargo
Page 35
Considerations in the
Underwriting of Marine Insurance
• General Considerations
o Years in business
o Loss record
o Loss control
o Geographic limits
o Contract review
• Considerations for Cargo Insurance
• Considerations for Hull and P&I Insurance
Page 36
The Law of Marine Insurance
Page 37
Key Legal Issues in Marine
Insurance
• Choice of Forum
• Choice of Law
• Insurable Interest
• The Doctrine of Uberrima Fides
Page 38
Admiralty Jurisdiction and
Choice of Forum
• Admiralty Jurisdiction
o Article III, Section 2 of the Constitution gives federal
courts jurisdiction over “all cases of admiralty and
maritime jurisdiction”
– 28 U.S.C. § 1333
– Marine insurance contracts are within federal court’s admiralty
jurisdiction
– “Saving to suitors” clause in § 1333
Page 39
Admiralty Jurisdiction and
Choice of Forum
• Choice-of-Forum
o Federal Court – Admiralty Jurisdiction
o State Court
o Federal Court – Another Jurisdictional Ground (diversity,
etc.)
Page 40
Choice of Forum–
Issues to Consider
• Right to a Jury Trial
o Generally, no right to jury trial in admiralty. See, e.g.,
Concordia Co. v. Panek, 115 F.3d 67 (1st Cir. 1997)
o F.R.C.P. 9(h)(1) designation = no jury trial
o Be aware of removal issues and potential to lose right to a
jury trial
• Choice of forum can affect the choice-of-law
analysis
Page 41
Choice of Law
• Choice-of-Law Problems Arising in Marine Insurance
Disputes
o Marine insurance law not codified
o U.S. courts used to borrow from English law to fill gaps in
federal maritime law related to marine insurance
o Wilburn Boat Co. v. Fireman’s Fund Ins. Co., 348 U.S. 310
(1955) – U.S. courts began looking to state law in the
absence of a controlling federal maritime law precedent
o Since 1955, Marine insurance governed by both federal
maritime law and state law
Page 42
Choice of Law – Aftermath of
Wilburn Boat
• Wilburn Boat is a highly criticized case and the
choice-of-law analysis has since been layered and
complex
• There are two layers to the choice-of-law analysis
o Vertical Choice-of-Law Analysis
– Maritime vs. State Law
o Horizontal Choice-of-Law Analysis
– If state law applies, which state law governs?
Page 43
Choice of Law – Aftermath of
Wilburn Boat
• Courts interpret Wilburn Boat differently
o Fifth Circuit is pro-state law
– To apply, the federal maritime rule must be “entrenched” federal
precedent
– Notwithstanding entrenched federal precedent, courts may apply
state law if state has substantial interest
o Eleventh Circuit seems to favor application of federal
maritime law
– If a maritime rule is “well-established” or “entrenched,” it
preempts the state law rule
• Choice-of-law provisions in marine policies are
44
generally enforced
Page 44
Insurable Interest
• An insurable interest in the subject matter insured
must exist at time of loss, not at contracting
• An “Insurable Interest” is defined differently, in

some circumstances, under state law than it is
under maritime law
o This is often true with respect to cases involving the sale of
goods
o Whether a loss is covered can turn on this definition
Page 45
Insurable Interest
• Defining Insurable Interest
o English Marine Insurance Act of 1906
– Very broad definition, including legal and equitable relationships
to property
o Federal Maritime Law – Hooper v. Robinson, 98 U.S. 528

(1878)
– In the law of marine insurance, insurable interests are “multiform
and very numerous.”
– Injury from the loss of something or benefit from its preservation
is sufficient to create an insurable interest
o Uniform Commercial Code

– Requires title or a security interest
Page 46
Insurable Interest
• ABB Power T&D Co. v. Gothar Versicherungsbank
VVAG, 939 F. Supp. 1568 (S.D. Fla. 1996)
o Court held that an insurable interest under federal admiralty
law means “any pecuniary interest”
o Court held that insurable interest is an “entrenched” principle
that preempts state law
o ABB Power is the only post-Wilburn Boat case confirming this
“entrenched” principle of maritime law
Page 47
Misrepresentations, Nondisclosure,
and Uberrima Fides
• Marine insurance is a contract “uberrima fides” – requiring
the “utmost good faith” by both parties
o In practice, operates against the insured alone
• The insured is bound to disclose every fact within his

knowledge that is material to the risk
o This is true even if the insurer does not inquire
o Failure to disclose can void the policy ab initio or even after the
risk has attached
o Doctrine operates regardless of insured’s intent
Page 48
and Uberrima Fides
• This policy is not only harsh, it is broad because of
the definition of “materiality”
o Fact considered “material” if the existence of the fact would
affect the decision of a prudent insurer to underwrite the risk
or even charge a different premium
• Traditional rule undeniably harsh, but insurers’

arguments in favor of rule have less force in today’s
world
Page 49
and Uberrima Fides
• Policyholders have had some success and American courts
have circumvented strict application of the doctrine in
various ways
o Certain facts were not “material”
– Steelmet, Inc. v. Cariber Towing Corp., 842 F.2d 1237 (11th Cir.
1988)
o Nondisclosure did not void coverage because it related to a
matter of common or public knowledge
– Anne Quinn Corp. v. Am. Mfrs. Mut. Ins. Co., 369 F. Supp. 1312
(S.D.N.Y. 1973)
o Courts have split on whether the doctrine is an “entrenched”
federal precedent
Page 50
Take Away Points
• Risk Managers should focus on the particular law
applicable to a marine insurance policy, which may
affect:
o Forum for dispute and availability of a jury trial
o Insurable Interest Issues
o Duties of Disclosure
• These considerations can be outcome-determinative
in a coverage dispute
Page 51

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KEY ISSUES IN MARINE

INSURANCE FOR GLOBAL

Recording of this session via any media type is strictly prohibited.

Historical Development of Marine Insurance Market

Key Considerations for Risk Managers

Types of Marine Coverage and Policies

Considerations in Underwriting Marine Insurance

The Law of Marine Insurance

2 Recording of this session via any media type is strictly prohibited. 1

3 Recording of this session via any media type is strictly prohibited.

• Lloyd’s is not an insurer; it is a facility for the selling

• Historically, the capital for Lloyd’s syndicates was

• Now, the capital is provided by corporations doing

• Lloyd’s Coffee House was located near the Tower

• At Lloyd’s Coffee House, various merchants entered

• Over the years, Lloyd’s set up reporting stations

• Because of the need for buyers and sellers to have

• Over time, other chartered London insurance

• London continues to be a major marine insurance

9 Recording of this session via any media type is strictly prohibited.

10 Recording of this session via any media type is strictly prohibited.

11 Recording of this session via any media type is strictly prohibited.

• Identify risks you can transfer to counterparties,

• ARE THE REMAINING RISKS ACCEPTABLE AND

13 Recording of this session via any media type is strictly prohibited.

14 Recording of this session via any media type is strictly prohibited.

17 Recording of this session via any media type is strictly prohibited.

18 Recording of this session via any media type is strictly prohibited.

19 Recording of this session via any media type is strictly prohibited.

22 Recording of this session via any media type is strictly prohibited.

• Hull & Machinery Insurance

• Protection & Indemnity (P&I) Insurance

23 Recording of this session via any media type is strictly prohibited.

24 Recording of this session via any media type is strictly prohibited.

• General Average – Shared Loss

• The Terms of Sale impact who purchases insurance

29 Recording of this session via any media type is strictly prohibited.

• General Average and Salvage Charges (GA)

• Sue and Labor

• Carrier’s Legal Liability

31 Recording of this session via any media type is strictly prohibited.

32 Recording of this session via any media type is strictly prohibited.

o Loss or damage to cargo carried by the vessel

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35 Recording of this session via any media type is strictly prohibited.

36 Recording of this session via any media type is strictly prohibited.

37 Recording of this session via any media type is strictly prohibited.

• The Doctrine of Uberrima Fides

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43 Recording of this session via any media type is strictly prohibited.

• An “Insurable Interest” is defined differently, in

45 Recording of this session via any media type is strictly prohibited.

o Federal Maritime Law – Hooper v. Robinson, 98 U.S. 528

o Uniform Commercial Code

47 Recording of this session via any media type is strictly prohibited.

• The insured is bound to disclose every fact within his

48 Recording of this session via any media type is strictly prohibited.

• Traditional rule undeniably harsh, but insurers’