MARINE I – IRU08503

BIRM III
BY
KITENDE, FRANK
INSTITUTE OF FINANCE MANAGEMENT - IFM
Sub-enabling Outcomes:
• Understand marine insurance market
• Describe and effects different marine and cargo policies
• Analyze and describe factors affecting marine insurance
• Underwrite marine and cargo policies
• Effect stable cover to protect the marine, hull and cargo
• Underwriting and servicing of marine, hull and cargo
• Administer claims, settlement, and adjustments in marine, hull cargo
policies
Assessment Method
• Students will be assessed through:
- coursework assessment
- final examination.
• The coursework will comprise:
- at least two (2) tests and
- homework assignments.
• The coursework will carry forty (40) marks while the final examination
will carry sixty (60) marks.
Development of insurance as a business
• 15th. Century - marine insurance
• 16th. Century - life insurance
• 17th. Century - fire insurance
• 19th. Century
- ‘accident’ classes
- personal accident
- engineering
- fidelity
- employers’ liability & workers’ compensation
- general liability
12/05/2022 Kitende, frank 4
Introduction to Marine Insurance

• Maritime insurance was the earliest well-developed kind of insurance,

with origins in the Greek and Roman maritime loan. Separate marine
insurance contracts were developed in Genoa and other Italian cities
in the fourteenth century and spread to northern Europe. Premiums
varied with intuitive estimates of the variable risk from seasons and
pirates
• The modern origins of marine insurance law in English law were in the
law merchant, with the establishment in England in 1601 of a
specialized chamber of assurance separate from the other Courts
Origin of marine insurance market regulation
• The earliest known formal insurance regulation was the Genoese
decree of October 1369 mentioned above (Stefani 1958, p.64). In
Venice, a law forbidding insurance of foreign vessels was passed in
1421. Barcelona passed its earliest insurance law in 1435, and a more
comprehensive ordinance in 1484. In France, the Marine Ordinance of
1681 codified many aspects of insurance law.
• By the mid-eighteenth century, substantial insurance ordinances had
been passed in many commercial centres, including Hamburg (1731),
Amsterdam (1744), Bilbao (1738), London (1746), Rotterdam (1721),
and Stockholm (1750) (Magens 1755, Vol. 2).
Edward Lloyds of London from 16th C.
 Marine insurance definition:
• The MIA 1906, define the contract of marine insurance in the
following terms,
Sect1. contract of marine insurance is a contract whereby the insurer
undertakes to indemnify the assured, in manner and to the extent
thereby agreed, against marine losses, that is to say, the losses incident
to marine adventure.
• Theoretically, it is not contract of indemnity. it is not subjected to
actual loss sustained as in case of fire insurance but value agreed
upon in advance determined by consideration and cause of loss
(maritime peril)
Maritime adventure. MIA sect. 3, (2)
• 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
 Maritime peril:
“Maritime perils” means a perils consequent on, or accidental to,
navigation of the sea, that is to say, peril of the seas, fire, war peril,
pirates, rovers, thieves, captures, seizures, restraints, and detainments
of princes and peoples, jettisons, barratry, and any other perils, either
of the like kind or which be designated by the policy.
 Maritime peril
• Peril of the seas.
Perils of the sea refers to the natural accidents peculiar to the sea. It
can be maritime accidents and dangers such as storms, waves, wind,
collision of the vessel, fire, smoke and noxious fumes;
• sinking, flooding and capsizing, loss of propulsion or steering, and
any other hazards resulting from the unique environment of the sea.
• It also includes accidents caused as a result of stranding, striking a
submerged object, or encountering heavy weather or other unusual
forces of nature.
 Pirates
A pirate is a person who commits warlike acts at sea without the
authorization of any nation.
• Pirate or piracy may refer to criminal or unauthorised act.
• It does not normally include crimes committed against persons
traveling on the same vessel as the perpetrator (e.g. one passenger
stealing from others on the same vessel). The term has been used
throughout history to refer to raids across land borders by non-state
agents.
Piracy
• Pirates took a record 1,181 hostages in 2010, despite increased
patrolling of the seas, a maritime watchdog has said.
• The International Maritime Bureau (IMB) said 53 ships were hijacked
worldwide - 49 of them off Somalia's coast - and eight sailors were
killed.
• Overall, there were 445 pirate attacks in 2010 - a 10% rise from 2009.
• January 2011, a separate study found maritime piracy costs the global
economy between $7bn (£4.4bn) and $12bn (£7.6bn) a year
Source: http://www.bbc.co.uk/news/world-africa-12214905 (bbc 2011)
 Jettison
• Jettison means voluntary throwing away of the cargo or part of a
vessel's equipment for the lightening or relieving the ship for common
safety.
• The aim of the intentional throwing away of the goods or property is
to relieve the vessel from some imminent peril. Accidental falling of
things does not constitute jettison. The own inherent-vice of cargo is
also not included in the jettison
 Fire
• In olden times fire was the biggest maritime perils, but recently it has
been under control to a greater extent. Damage resulting from fire
and smoke is included under fire-peril. The water used for
extinguishing fire may cause damage to the insured goods. So, this
peril is also insurable.
• Damage done due to lightning, explosion and fire originating from
negligence of the crew is recoverable from underwriters. The losses
which are not included in the standard policy can be covered by
having special clauses and paying extra-premium
Marine fire
 Explosion
• The risk of explosion has greatly increased. The explosion on board of
a vessel damaging hull or cargo or both could be constructed as a
peril on the sea. An explosion on shore might damage a ship or its
cargo.
• Marine cargo policies were amended to include the risk of explosions
not clearly caused by war perils. The explosion, in case of hull policies,
'on shipboard or elsewhere' is covered in the amended "Inchmaree or
Negligence clause".
 Man-of-war
• This is the vessel which is authorised by nations for the purpose of
defence or attack in the event of hostilities. Any damage to the goods
or ships arising out of collision against a man-of-war is insurable.
 Barratry
• Barratry includes every wrongful act wilfully committed by the master
or crew the prejudice of the owner. The act of barratry must be
committed without the knowledge of the owner.
• The theft, the setting fire to ship, fraudulent selling of vessel and
cargo without the connivance of the ship-owner are the various
examples of the barratry. The insurer, if barratry insured, is liable for
losses arising out of barratry.
 Enemies

• The ships belonging to the foe (enemy) may cause loss to the insured
and is re-underwritten by the marine policy. This policy extends to all
the persons of the enemy country and to their hostile acts provided
such acts form part of the enemy actions.
Restraints and Detainments.
• The prevention to free use of a port by the government of the country
is called restraints. It may cause interruption and possible loss of
voyages involving such ports and sacrifice of cargo.
• The term 'detainments' covers losses resulting from the detention of a
vessel and its cargo by blockage or possibly quarantine regulation or
other interference by the police power of a nation while a vessel is in
port.
• It does not cover losses which are the result merely of delay or
interruption of the voyage, or loss of market or some other remote
result.
Strikes, Riots and Civil Commotion Clause
• The marine insurance on cargo is extended to cover from
warehouse to warehouse or otherwise insures the goods on
shore prior to shipment and after discharge; the danger of
underwriters being held liable for losses, resulting from the
unlawful acts of strikers from riots or civil commotions is
materially enhanced. The insurers are unwilling to assume
liability for losses due to unlawful acts.
All Other Perils :
• Loss occurred by salt water of the sea, action of
worms on timber, cattle dying due to want of fodder
as a result of lengthy voyage constitute sea perils.
There may be other damages due to oil, sweat, heat,
which are insured under other perils.
Respondent and Bottomry Bonds

• A bottomry, or bottomage, is an arrangement in which the master of a ship

borrows money upon the bottom or keel of it, so as to forfeit the ship itself to the
creditor, if the money with interest is not paid at the time appointed at the ship's
safe return.
• This occurs, for example, where the ship needs urgent repairs during the course of
its voyage or some other emergency arises and it is not possible for the master to
contact the owner to arrange funds, allowing the master to borrow money on the
security of the ship or the cargo by executing a bond. Where both cargo and ship
are hypothecated, the bond is called a bottomry bond.
• Where both the ship and its cargo are hypothecated, the relationship is called
respondentia
Trade credit insurance
• Trade credit insurance, business credit insurance, export credit
insurance, or credit insurance
• Is an insurance policy and a risk management product offered by
private insurance companies and governmental export credit agencies
to business entities wishing to protect their account receivable from
loss due to credit risk such as protracted:
- default,
- insolvency or
- bankruptcy.
Trade Credit History
• Trade credit insurance was born at the end of nineteenth century,
• Most developed in the western Europe between WWI and WWII
• Several companies were founded in many countries; some of them
also managed the political risks of export on behalf of their state.
Export Credit Guarantee Department
• Information on the Great Britain Export Credit Guarantee Department
(ECGD) is presented. It is a government department that provides
provision of insurance cover against risks of default on export credit.
It also provides cover against the risk of expropriation of assets
invested abroad. Its short-term credit insurance operations were
privatized in 1991.
 The Role of the Export Credit
Guarantee Department (1)
• Originally the export credits guarantees were established for the purpose
of increasing Icelandic export mainly to countries with extraordinary
financial and/or political risk
• The general role is outlined in the Act
• to provide insurances and guarantees in order to promote export of Icelandic
goods and services, increase Icelandic investment abroad and participation in
construction projects abroad.
• The Export Credit Guarantee Department does not provide direct
credits/financing, refinancing, interest-rate support or aid financing – but
merely export credit insurance and guarantees

30
 The Role of the Export Credit
Guarantee Department (2)
• The export credit guaranteee department fulfills the role by:
• undertaking to insure loans which banks and other credit institutions grant to domestic
manufacturers of goods or providers of services for financing export loans granted to, or made
available to, foreign purchasers;
• underwriting claims held by Icelandic exporters against foreign purchasers, providing they have
come into existence in connection with the export of Icelandic goods and services;
• To sell insurance guarantees for services provided by Icelandic parties abroad. Also, to underwrite
project guarantees made by domestic parties in connection with project falling within the
reference limits which require public projects to be tendered out in the European Economic Area;
• insuring investments by domestic investors abroad against political risk;
• insuring equipment which domestic parties send abroad in connection with projects carried out
there against political risk.

31
 Lecture II
Marine Sales Contract
International Commercial Law:

Is the body of law that governs international sale transactions. A

transaction will qualify to be international if elements of more than one
country are involved.

Since World War II international trade has grown extensively.

International commercial contracts
Sale transaction agreements made between parties from different countries.
May involves:
• Export directly.
• Use of foreign agent to sell and distribute
• Use of foreign distributor to on-sell to local customers.
• Manufacture products in the foreign country by either setting up business or
by acquiring a foreign subsidiary.
• Licence to a local producer.
• Enter into a joint venture with a foreign entity.
• Appoint a franchisee in the foreign country.
Sales of Goods
Under the Sale of Goods Act 1979 there are a strict set of rules that retailers and
sellers must abide by. When you buy goods it means you've entered into a contract
with the seller of these goods. 

Under the Sale of Goods Act 1979 goods must be as described, of satisfactory
quality and fit for purpose.

Goods can be sold by:

i. Sample
ii. Description
iii. At a port of discharge.
All goods must be:
• as described
• of satisfactory quality and
• fit for purpose
Fit for purpose means both their everyday purpose, and also any
specific purpose that you agreed with the seller, (give example)

If they're not, the retailer/supplier is in breach of contract and you have

a claim under the Sale of Goods Act
Remedies

• Returning faulty goods

• Getting faulty goods replaced or repaired
• Proving your claim for faulty goods
• Expert's reports
Term of sales
Negotiations:
• Who should pay the costs of carriage of the goods
• Who should arrange customs clearance for export or import
• Who should pay the costs of loading and discharging
• How should the risk of loss of or damage to the goods be divided
between them
• Who should arrange Cargo insurance as a protection against these
risks
Guide to incoterms – International commerce
terms.
Group E (Ex) EXW Ex Work
Group F (Free) FCA Free Carrier
FAS Free Alongside Ship
FOB Free on Board
Group C (Cost) CFR (Formerly C&F) Cost and Insurance
CIF Cost, Insurance, Freight
CPT Cost Paid to
CIP Carriage and Insurance Paid to
Group D (Delivery) DAF Delivered at Frontier
DES Delivered Ex-Ship
DEQ Delivered ex-Quay
DDU Delivered Duty Unpaid
DDP Delivered Duty Paid
Rules for Incoterms
Rules for any mode of transport Rules for Sea and Inland
• Ex Works (EXW) Waterway Transport
• Free Carrier (FCA) • Free Alongside Ship (FAS)
• Carriage Paid To (CPT) • Free On Board (FOB)
• Carriage and Insurance Paid To (CIP) • Cost and Freight (CFR)
• Delivered at Terminal (DAT) • Cost Insurance and Freight (CIF)
• Delivered at Place (DAP)
• Delivered Duty Paid (DDP)
Ex Works

• Ex Works
• Seller delivers when it places the goods at the disposal of buyer at the seller’s premises or another named
place (i.e. works, factory, warehouse, etc.).

• Seller does not need to load the goods on any collecting vehicle, nor does it need to clear the goods for
export, where such clearance is applicable.

• Fewest up front requirements for seller

• Example: “Ex works [factory] (Incoterms 2010)”
Ex Works
• Notes
• Seller has no obligation to load goods, even if better-suited to do so
• If seller does load goods, it does so at buyer’s expense and risk
• Better-suited to domestic transport (no obligation that seller clear goods for
export—only provide assistance if necessary at buyer’s expense and risk)
• Buyer bears all risk of loss from time seller places goods at buyer’s disposal
FCA
• Free Carrier
• Seller delivers the goods to the carrier or another person nominated by the
buyer at the seller’s premises or another named place.
• The parties are well advised to specify as clearly as possible the point within
the named place of delivery, as the risk passes to the buyer at that point.
• Notes
• Seller does clear goods for export; import formalities are buyer’s
responsibility
• Seller may contract for carriage at buyer’s expense and risk
FCA
• Seller’s delivery options
• If the named place is seller’s premises: seller must load goods onto buyer’s
means of transport
• If the named place is any other place: seller must place the goods at buyer’s
(or his carrier’s disposal) on seller’s mode of transport (ready for unloading)
FCA
• Improvements over Ex Works
• Seller clears goods for export
• Can be used to require seller to load goods, when seller is in a better position
to do so
• But…
• Buyer may have little idea what delivery at seller’s factory means
• Buyer has costs in addition to sales price that must calculated
• Seller has no control over carrier, insurance, etc.
CPT
• Carriage Paid To
• Seller delivers the goods to the carrier or another person nominated by the
seller at an agreed place (if any place is agreed between the parties) and the
seller must contract for and pay the costs of carriage necessary to bring the
goods to the named place of destination.
CPT
• 2 points of importance
• Place of delivery of goods to carrier
• Seller’s delivery obligation is complete
• Risk of loss passes
• Place of destination
• Seller contracts for and pays for carriage to the place of destination
 DAF - Delivered At Frontier
Delivery of goods is done at the specified point at the frontier at the seller's
expense.
Buyer is responsible for the import customs clearance, payment of customs
duties and taxes. The transfer of risk is made at the frontier
 DES - Delivered Ex Ship
Seller assumes expenses linked to the delivery of goods. At the arrival of the
ship, the risk is transferred to the buyer.
Buyer is accountable for the unloading fee, import customs clearance, payment
of customs duties and taxes, cargo insurance, and other costs
 DEQ - Delivered Ex Quay
Delivery of goods is done to the quay of the port at the seller's expense. He is
also responsible for the import customs clearance and payment of customs
duties and taxes at the buyer's end.
Buyer assumes the cargo insurance and other costs and risks
 DDU - Delivered Duty Unpaid
Delivery of goods and the cargo insurance to the final destination, which is often the project
site or buyer's premises, is done at the seller's expense.
Buyer is responsible for the import customs clearance and payment of customs duties and
taxes
DDP - Delivered Duty Paid
Seller is responsible for most of the expenses, which include the cargo
insurance, import customs clearance, and payment of customs duties and
taxes at the buyer's end, and the delivery of goods to the final point at
destination, which is often the project site or the buyer's premises.
It is a “door to door” delivery.
Risk is transferred when the goods are delivered
Rules for Sea and Inland Waterway Transport
• Free Alongside Ship (FAS)
• Free On Board (FOB)
• Cost and Freight (CFR)
• Cost Insurance and Freight (CIF)
FAS
• Free Alongside Ship
• Seller delivers when the goods are placed alongside the vessel (e.g., on a quay
or a barge) nominated by the buyer at the named port of shipment.
• The risk of loss of or damage to the goods passes when the goods are
alongside the ship, the buyer bears all costs from the moment onwards.
FAS
• Notes
• Usage: “FAS Charleston, SC, USA (Incoterms 2010)”
• Can be used in a string sale where seller procures goods already delivered for
shipment
• Seller is obligated to clear goods for export but not import
• Seller has no obligation to pay for contracts of carriage or insurance but may
contract for carriage and must assist buyer by providing necessary
information for insurance
FAS
• Notes
• Not appropriate when goods in container and delivered to carrier at terminal;
use FCA
• Might want to define what it means to be “alongside” ship
FOB
• Free on Board
• Seller delivers the goods on board the vessel nominated by the buyer at the
named port of shipment or procures the goods already so delivered.
• The risk of loss of or damage to the goods passes when the goods are on
board the vessel, and the buyer bears all costs from that moment onwards.
FOB
• Notes
• Notice change in 2010: “free on board” no longer means across the ship’s rail;
now means on board the vessel
• Another change in 2010: if requested by buyer or if it is commercial practice
and buyer does not instruct otherwise, seller may contract for carriage at
buyer’s risk and expense; seller may decline but must notify buyer promptly
• Therefore, may want to exclude if that is the intent
• Like FAS but goods must be placed on board
• Usage: “FOB Charleston, SC, USA (Incoterms 2010)”
CFR
• Cost and Freight
• Seller delivers the goods on board the vessel or procures the goods already so
delivered.
• The risk of loss of or damage to the goods passes when the goods are on
board the vessel.
• The seller must contract for and pay the costs and freight necessary to bring
the goods to the named port of destination.
 CFR
• 2 places of importance
• Place of delivery of goods
• Seller’s delivery obligation is fulfilled when goods are on board the vessel
• Risk of loss passes when the goods are on board the vessel
• Port of destination
• Seller pays for carriage to port of destination
CFR
• Examples:
• Contract says: Seller is to deliver goods on board vessel at Port of Charleston, SC,
USA. Terms of sale are: “CFR, Shanghai (Incoterms 2010).”
• Seller’s delivery obligation is fulfilled when the goods are on board the vessel in South
Carolina; risk of loss passes then also
• Seller must pay for shipment to Shanghai
• Contract says terms of sale are: “CFR, Shanghai (Incoterms 2010).” Silent as to
port of shipment
• Seller’s delivery obligation is fulfilled when the goods are on board the vessel in the port
selected by seller; risk of loss passes then also
• Seller must pay for shipment to Shanghai
CIF
• Cost Insurance and Freight
• Seller delivers the goods on board the vessel or procures the goods already so
delivered.
• The risk of loss of damage to the goods passes when the goods are on board
the vessel.
• The seller must contract for and pay the costs and freight necessary to bring
the goods to the named port of destination.
CIF
• Notes
• Like CFR but with additional obligation to procure insurance to port of
destination
• Insurance requirement is minimum cover (institute cargo clause c) in the
amount of contract price plus 10% from point of delivery to point of
destination
• Seller clears goods for export but not import
Final Advice
• 2000 division of rules by seller’s obligation
• E (Make goods available at own premises)
• F (Deliver goods to a carrier appointed by buyer)
• C (Contract for carriage without assuming risk of loss during shipment)
• D (Bear all costs and risks needed to bring goods to place of destination)
• But remember rules are split by mode of transport
Final Advice
• Usage—use the phrase “Incoterms 2010” after the rule and named
place
• Clarifies that 2000 version does not apply
• Ensures no confusion with UCC (esp. given new focus on domestic use)
• Usage—ensure you are naming the right location
• EXW, FCA, FAS, FOB, DAT, DAP, DDU=place of delivery
• CPT, CIP, CFR, CIF=place of desination
Final Advice
• Use contract of sale or terms and conditions
• Be careful modifying Incoterms Rules
• If you do modify rules (not advised), ensure contract clarifies what you are
modifying and what you are not
 MARINE INSURANCE MARKET

LLOYD’S AND THE LONDON INSURANCE

MARKET

05/12/2022 Kitende, f
THE LONDON INSURANCE MARKET

• The London insurance market is ‘a market within a market’ - a

distinct and separate part of the UK insurance market

• It deals in large, internationally-traded insurance and reinsurance

risks (‘London market business’)

05/12/2022 Kitende, f
THE LONDON INSURANCE MARKET
Who are the players?

• Lloyd’s of London (the ‘Lloyd’s market’)

• UK and foreign owned insurance companies (the ‘company market’)

• Major reinsurers (all of the top 20 are represented in London)

• (Marine) Protection and Indemnity (P&I) ‘clubs’

• International insurance and reinsurance brokers

05/12/2022 Kitende, f
THE LONDON INSURANCE MARKET
What insurance business goes on there?

• reinsurance, retrocession (10% of world)

• large, complex, unusual commercial & industrial risks (15% of world)

• marine insurance (15% of world)

• aviation insurance (30% of world)

• oil and energy insurance (60% of world)

05/12/2022 Kitende, f
THE LONDON INSURANCE MARKET
How big is the market?

• Premium income around $US 30 billion – nearly 30% of UK non-life

market

• Lloyd’s writes about 52%, companies about 43%, P&I Clubs about 5%

05/12/2022 Kitende, f
Lloyd’s
• Lloyd’s Act, 1871 gave Lloyd’s its legal status.

• Lloyd’s Act, 1982, established a Council of Lloyd’s to manage and

regulate the Society’s affairs. The council has 28 members.

• The council is responsible broadly for the management and

superintendence of the affairs of Lloyd’s

05/12/2022 Kitende, f
THE LONDON INSURANCE MARKET
Who are the players?

• Lloyd’s of London (the ‘Lloyd’s market’)

• UK and foreign owned insurance companies (the ‘company market’)

• Major reinsurers (all of the top 20 are represented in London)

• (Marine) Protection and Indemnity (P&I) ‘clubs’

• International insurance and reinsurance brokers

05/12/2022 Kitende, f
LLOYD’S
• Focal point of the London Market
• Insurance is written at Lloyd’s, not by Lloyd’s
• Risks carried by underwriting members (‘Names’), individual and
(now) corporate
• Names grouped into syndicates to spread risk
• Syndicates managed by Managing Agents (underwriting firms)
• Risks brought to market by (accredited) brokers

05/12/2022 Kitende, f
LLOYD’S

• Lloyd’s is a subscription market

• This means that the price and insurance terms quoted by the leading
underwriter are followed by the other underwriters who subscribe to
the risk (the ‘following market’)

05/12/2022 Kitende, f
LLOYD’S DEVELOPMENT

1688 Edward Lloyd’s coffee house (Tower Street)

1774 New premises in Royal Exchange – no longer a coffee house!
1870 Development of business written by syndicates
1887 First non-marine policies written by Cuthbert Heath
1906 San Francisco earthquake – Lloyd’s reputation established in the
USA
1986 Move to new Lloyd’s building, 1 Lime Street

05/12/2022 Kitende, f
 Lloyds of London from 16th C.

05/12/2022 Kitende, f
Lloyd’s Publications
There are numbers of publications which are at a great service to the
marine insurance. Some of are:
• Lloyd’s Register od Shipping
• Lloyd’s shipping Index
• Lloyd’s confidential Index
• Lloyd’s Confidential Ports Record
• Lloyd’s List
• Lloyd’s law reports
• Lloyd’s Survey Handbook
05/12/2022 Kitende, f
Lloyd’s total business by region

Source: Lloyd’s Annual Report 2010. All figures as at 31 December 2010.

78
Lloyd’s class breakdown by region

Source: Lloyd’s Annual Report 2010. All figures as at 31 December 2010.

79
Lloyd’s in numbers
• 85 syndicates of specialist underwriting experience and talent
• 178 brokers daily creating insurance solutions in over…
• 200 countries and territories which covers…
• 94% of FTSE 100 companies
• 97% of Dow Jones industrial average companies
• 90% of Fortune 500 Top 50 European companies
• 84% of Fortune 500 US companies

All underpinned by 323 years of underwriting experience

Source: Lloyd’s customer data provided by Xchanging. All figures as at 31 December 2010.

80
LLOYD’S
Why was Lloyd’s so successful?

• FINANCIAL STRENGTH – based on a ‘chain of security’

• PROFITABILITY – the capital provided by Members ‘worked twice’

• INNOVATION AND FLEXIBILITY – driven by internal competition and a

massive concentration of expertise

05/12/2022 Kitende, f
LLOYD’S – THE BAD YEARS
1. Huge losses:
GBP 11 billion 1988-92
- catastrophic claims
- Pollution claims

2. Drop in capacity: 32,000 Names in 1980, approx. 1,100 now

3. Internal Problems: about 12,000 Names, involved in litigation at one

time
05/12/2022 Kitende, f
RECONSTRUCTING LLOYD’S
• Rapid growth of ‘corporate’ capital – now provides 93% of Lloyd’s capacity

• Ending of ‘unlimited liability’ for many Names

• Creation of reinsurance vehicle ‘Equitas’ to contain old long-tail risks

• Mergers and consolidation

• Convergence with the ‘company’ market

05/12/2022 Kitende, f
 Lloyd’s of London
Growth in membership
1953 3,400
1978 10,000
1989 34,000
1994 17,500
What happened to all those members from 1989?
Losses in 1988-1992 of $14 billion
1,500 members went bankrupt
Now accepting corporate capital with limited liability
 Active Members in Lloyd’s
1995-2006

http://www.lloyds.com/Lloyds_Market/Capacity/Members.htm
LLOYD’S by 2012
• 1017 corporate members

• 1124 individual members

• 46 managing agents

• approximately 75 syndicates

• 146 Lloyd’s accredited brokers

05/12/2022 Kitende, f
LLOYD’S CAPACITY 1998-2007

05/12/2022 Kitende, f
Lloyd’s global reach reflected in business
split worldwide.

05/12/2022 Kitende, f
THE (LONDON) ‘COMPANY’ MARKET
• Several hundred insurers that write nearly half of all ‘London market’
business

• Share many large risks with the Lloyd’s market

• Also share many systems and back-office functions with Lloyd’s

• Many London market companies represented at the London

Underwriting Centre (LUC)
05/12/2022 Kitende, f
THE P&I ‘CLUBS’ (PROTECTION AND INDEMNITY
ASSOCIATIONS)

• Mutual associations of ship owners providing cover to supplement

normal marine insurance

• First association formed in 1855

• Cover injury to crew and passengers, 25% of collision liabilities,

pollution (including oil spills) and other liability risks

• Used by around 90% of ship owners

05/12/2022 Kitende, f
 EFFECTING MARINE INSURANCE CONTRACT

05/12/2022 Kitende, f
Marine Insurance Parties
Ansured
• The assured also called the Insured, is the person who has taken out
the policy and is obligated to pay premium

Additional Assureds
• Policy of marine insurance frequently either name additional assureds
or contain a clause that extends the insurance to additional assureds
by description.

05/12/2022 Kitende, f
Underwriters.
• Are the entities that agreed to indemnify the assured upon the
happening of an insured loss (Insurer).
• Can be corporate or individual
1. Underwriting agents
• Entities that has authority to inter into or sign insurance policy on
behalf of underwriters.
• May represent more than one underwriters and may not be liable for
insurance contract.

05/12/2022 Kitende, f
2. P&I Clubs
• These are similar to mutual insurance companies that offer third party
liability coverage to ship-owners.
• Members of P&I are ship-owners, Both are insured and insurer.
• P&I do not normally issue policies of insurance.
• The terms of coverage provided are usually set out in the club’s Rules.

05/12/2022 Kitende, f
3. Insurance Companies.
• The traditional insurance companies also operate in marine insurance field as
underwriters.
• They may or may not use an underwriting agent.

Broker
• Brokers play an important role on marine insurance. They are the agent of insured.
• Broker canvass the market to find the underwriter willing to insure the insured and
willing to negotiate terms for insurance.
• Involved in claim.

05/12/2022 Kitende, f
MARINE INSURANCE CONTRACT.
• WHEN CONTRACT IS DEEMED TO BE CONCLUDED,
• MIA 1906, s.21
A contract of marine insurance is deemed to be concluded when the
proposal of the assured is accepted by the insurer, whether the policy
be then issued or not; and, for the purpose of showing when the
proposal was accepted, reference may be made to the slip or covering
note or other customary memorandum of the contract.

05/12/2022 Kitende, f
• CONTRACT MUST BE ENBODIED IN POLICY
MIA 1906, s.22
Subject to the provisions of any statute, a contract of marine insurance
is inadmissible in evidence unless it is embodied in a marine policy in
accordance with this Act. The policy may be executed and issued either
at the time when the contract is concluded, or afterwards

05/12/2022 Kitende, f
WHAT POLICY MUST SPECIFY: MIA 1906 s.23
A Marine policy must specify:
Sub-sec;
1. The name of the assured, or of some person who effects the insurance on his behalf:
2. The subject-matter insured and the risk insured against;
3. The voyage, or period of time, or both , as the case may be, covered by the
insurance;
4. The sum or sums insured;
5. The name or names of the insurers.
6. Marine policy must be signed by the insurer. (S.24 MIA)

05/12/2022 Kitende, f
MARINE INSURANCE POLICIES
1. Time and Voyage policies: MIA S.25
- Marine insurance policy may be voyage or time policy.
- If it use the words “at and from” or “from” a particular place to
another place it is a voyage policy.
- If it insure a subject matter for a period of time it is a time policy.
- A voyage policy come to an end at the conclusion voyage. A time
policy comes to an end upon expiry of the time specified.
• Time and voyage policy if combined forms a MIXED POLICY.

05/12/2022 Kitende, f
2. Valued and Unvalued policies

05/12/2022 Kitende, f
Valued Policy; MIA s.27
• A valued policy is a policy which specifies the agreed value of the
subject-matter insured.
• Subject to the provisions of this Act, and in the absence of fraud, the
value fixed by the policy is, as between the insurer and assured,
conclusive of the insurable value of the subject intended to be
insured, whether the loss be total or partial.
• Unless the policy otherwise provides, the value fixed by the policy is
not conclusive for the purpose of determining whether there has
been a constructive total loss.
05/12/2022 Kitende, f
Unvalued Policy. MIA S.28
• An unvalued policy is a policy which does not specify the value of the
subject-matter insured, but, subject to the limit of the sum insured,
leaves the insurable value to be subsequently ascertained, in the
manner hereinbefore specified.

05/12/2022 Kitende, f
Other forms of marine insurance policies:
• Building risks policy: for construction of marine vessels
• Floating policy: large reserve of cover for cargo. A large initial sum is
granted and each time shipments are sent, the insured declares this
and the value of the shipment is deducted from the outstanding sum
insured
• Small craft: increasing leisure use of small boats brought introduction
of a policy aimed for small craft. It is comprehensive in style, covering
a wide variety perils including liability

05/12/2022 Kitende, f
Construction of the contract.
The general rule of interpretation of the contract apply to marine
policies.
1. Intention of the parties.
First consideration by the court will be on the whole contract which will
promote the intention of the parties to the contract.

2. Narrow Construction of Exceptions.

Generally, Court tend to broadly interpret coverage clauses and
narrowly interpret exclusions.

05/12/2022 Kitende, f
3. Contra Proferentem, doctrine
Means: the words of the contract should be interpreted against the
interest of the person who drafted it.
In case of any ambiguity, such ambiguity is almost always resolves on
the favour of an interpretation that benefit the insured.

05/12/2022 Kitende, f
Marine Insurance Premium
An insurance premium is the amount of money charged by a company
for active coverage. The sum a person pays in premiums, also referred
to as the rate of insurance which applies to sum insured.

Insurance premium has to be paid at inception of insurance contract.

MIA 1906 s31 (1). Amount of the premium.

• Where an insurance is effected at a premium to be arranged, and no
arrangement is made, a reasonable premium is payable

05/12/2022 Kitende, f
Marine Insurance Premium
Additional premium.
• Payment for extra insurance cover
• a payment made to cover extra items added on to existing insurance
MIA 1906. s.31(2)
Where an insurance is effected on the terms that an additional
premium is to be arranged in a given event, and that event happens but
no arrangement is made, then a reasonable additional premium is
payable.

05/12/2022 Kitende, f
Marine Insurance Premium
When the premium payable:
MIA, s.52
Unless otherwise agreed, the duty of the assured or his agent to pay
the premium, and the duty of the insurer to issue the policy to the
assured or his agent, are concurrent conditions, and the insurer is not
bound to issue the policy until payment or tender of the premium.

05/12/2022 Kitende, f
Marine Insurance Premium
Policy affected through broker
MIA s.53.
Sub-sec 1.
• Unless otherwise agreed, where a marine policy is effected on behalf
of the assured by a broker, the broker is directly responsible to the
insurer for the premium, and the insurer is directly responsible to the
assured for the amount which may be payable in respect of losses, or
in respect of returnable premium.

05/12/2022 Kitende, f
Sub-sec 2.
Unless otherwise agreed, the broker has, as against the assured, a lien
upon the policy for the amount of the premium and his charges in
respect of effecting the policy; and, where he has dealt with the person
who employs him as a principal, he has also a lien on the policy in
respect of any balance on any insurance account which may be due to
him from such person, unless when the debt was incurred he had
reason to believe that such person was only an agent.

05/12/2022 Kitende, f
Policy affected through broker (Summery)
• Thus means the underwriter must look to the broker, and to the
broker alone, for payment of premium.
• The insured on the other hand, has a right of direct recovery from the
underwriter for any loss which may occur as a result of insured peril,
or for any returnable premium.

05/12/2022 Kitende, f
Return of Premium
1. Enforcement of return MIA. S.82
Where the premium or a proportionate part thereof is, by this Act,
declared to be returnable,—

a. If already paid, it may be recovered by the assured from the insurer;

and
b. If unpaid, it may be retained by the assured or his agent.

05/12/2022 Kitende, f
2. Return by agreement MIA. S.83

Where the policy contains a stipulation for the return of the premium,
or a proportionate part thereof, on the happening of a certain event,
and that event happens, the premium, or, as the case may be, the
proportionate part thereof, is thereupon returnable to the assured.

05/12/2022 Kitende, f
3. Return for failure of consideration MIA. S.84
i. Where the consideration for the payment of the premium totally
fails, and there has been no fraud or illegality on the part of the
assured or his agents, the premium is thereupon returnable to the
assured.
ii. Where the consideration for the payment of the premium is
apportionable and there is a total failure of any apportionable part
of the consideration, a proportionate part of the premium is, under
the like conditions, thereupon returnable to the assured.
iii. In particular ;
05/12/2022 Kitende, f
- Where the policy is void, or is avoided by the insurer as from the
commencement of the risk
- Where the subject-matter insured, or part thereof, has never been imperilled
- Where the assured has no insurable interest throughout the currency of the
risk
- Where the assured has a defeasible interest which is terminated during the
currency of the risk, the premium is not returnable
- Where the assured has over-insured under an unvalued policy, a
proportionate part of the premium is returnable
- over-insured by double insurance

05/12/2022 Kitende, f
Deferred premium
Some insurance companies offer insurance policies with a deferred
premium. Under a deferred premium policy, the buyer is able to pay
the premium in instalments over time, instead of paying the entire cost
in one lump sun.
Both buyers and sellers can benefit from a deferred premium
arrangement.
• The buyer is able to spread his payments out over time, rather than
spending a large sum of money all at once. He also enjoys cover and
protection immediately.
• help insurance companies sell more policies
05/12/2022 Kitende, f
Laid-up return
• As freight rates and trade volumes have dropped, an increased
number of vessels are being laid-up whilst owners reduce costs and
sit out the current downturn
• The Institute Time Clauses – Hulls 1/10/83 allows for lay-up returns to
be reimbursed by underwriters.
“A lay-up return is a return of premium for the period a vessel is laid-up
either in a port or a specified lay-up area”.

05/12/2022 Kitende, f
Laid-up return cont…
• The amount of return will depend on whether the vessel is under
repair or not and the number of crew on board.

• This is in contrast to a “Cancelling Returns Only” (CRO) designated

policy where the annual rate will be lower but the Assured continues
to pay full premium during the lay-up.

05/12/2022 Kitende, f
 Lecture V.
PRINCIPLE OF INSURABLE INTEREST
• INTRODUCTION
- Insurable interest
- Attachment of interest
- Defeasible and Contingent interest
- Partial interest
• CARGO interest
• HULL interest

05/12/2022 Kitende, f
introduction

The principle of insurable interest is a fundamental to all

insurance contracts. It is based on the theory that a person
who purposes an insurance contract is seeking protection
from loss, rather than seeking a profit from the existence of
the policy.

05/12/2022 Kitende, f
Definition of insurable interest.
Section 5.
This section of the Act confer an insurable on any person
interested in marine adventure.

This section refers to a “person”, in law extend to

embrace any party or organisation (eg a shipping
company, export company, etc.) that proposes a marine
insurance contract.
05/12/2022 Kitende, f
• To have insurable interest, the person must be
interested in the adventure to the extent that he can
suffer a loss should an accident befall the adventure
or the subject matter insured therein, or whereby he
may incur a legal liability in the respect of the
adventure.

05/12/2022 Kitende, f
Attachment of the interest.
The marine insurance law does not demand that the proposer
to have insurable interest at the time of concluding the
contract as it is in other form of contract of insurance.
The marine insurance contract is deem to be concluded when
the underwriter signified his acceptance of the risk on the
broker’s slip or other document used for placing the risk.
(MIA, 1906, sect. 21)
The proposer need only to have a reasonable expectation of
acquiring an insurable interest to legally effect of marine
insurance contract.
05/12/2022 Kitende, f
Attachment of the interest. Cont….
Sect.6. provide that an insured, who affect a marine insurance
contract in anticipation of acquiring an insurable interest, may
not claim under the contract if no insurable exists at a time of
loss.
Example:….!
Further, where the assured loses his insurable interest before
a loss occurs he cannot recover the loss under the policy.
Institute cargo clause: No claim will attach to the policy where
the assured has no insurable interest a time of loss.
05/12/2022 Kitende, f
Attachment of the interest. Cont….
“Lost or no not lost” clause:
Provided in SG policy form. A facultative contract retrospectively (ie the
risk has already attached when the contract is proposed to
underwriter.)
The underwriter agrees, conditionally, to accept the from inception
including claim for losses that occur prior to date of conclusion of
contract.

05/12/2022 Kitende, f
Defeasible and Contingent interest
• A defeasible interest is one which exists at the commencement of the
risk but ceases to exist during the period covered by insurance.
• Eg. When the buyer reject the goods, (overdue delivery)
• Insurance cover terminate during transit,
• No premium has to be returned unless the provision state so.

05/12/2022 Kitende, f
Contingent interest
• Is one which attached after the adventure has commenced.
• When the seller affect the policy to cover the goods in the event that
the buyer exercised his rejection rights such policy will be on a
contingent interest.

05/12/2022 Kitende, f
Assignment

Briefly explain the insurable interest based on marine insurance (Hull

and Cargo) separately.

05/12/2022 Kitende, f
 PRINCIPLE OF UTMOST GOOD
FAITH

05/12/2022 Kitende, f
Contents
• Introduction
• Material circumstances
• Disclosure to underwriter
• Excuses for Non-disclosure to underwriter
• Representation and Mis-representation
• Innocent Mis-representation
• Effect of break of Good Faith by the Assured or Broker.
• Negligence of the Broker in regarding to Good Faith

05/12/2022 Kitende, f
Introduction
• The proposer is in position to know all relative information
regarding the subject matter insured and the insurable
interest necessary for a reasonable assessment of the risk.
• The underwrite on the other hand, has no information, other
than such circumstances as it came to his knowledge in the
ordinary course of business.
• Since the underwriter has no sufficient information, then his
free to ask any relevant questions before he commit himself
for the risk.
05/12/2022 Kitende, f
Introduction cont….
• This puts the underwriter at advantage edge.
• Withholding the material prejudicial to risks can be advantagouse to
the proposer.
• How?
• Section 17, MIA 1906, provide that a contract of marine insurance is
uberrimae fidei (i.e bound by the utmost good faith).
• This, make it essential for the proposer to disclose every material
circumstances before the conclusion of the contract.

05/12/2022 Kitende, f
Material Circumstances (MIA, 1906, sec. 18)
• The proposer and broker are required to disclose every circumstance that
is material to the risk. Sect. 18(4) of MIA 1906
“Whether any particular circumstance, which is not disclosed, be material
or not is, in each case, a question of fact”.
• The question of material fact has been noted on Sec18 (2) MIA 1906.
“Every circumstance is material which would influence the judgment of a
prudent insurer in fixing the premium, or determining whether he will take
the risk”
Thames & Mersey Marine Insurance Co. Ltd (1911)
Give example of material facts based on marine insurance policies.
05/12/2022 Kitende, f
Disclosure to underwriter
Disclosure
Is an advice by the insured and/or his servants and/or his broker to the
underwriter.
• Can be Verbally or in writing
• Non-disclosure constitute the Breach of good faith
What if the material fact did not come to the knowledge of the insured
after the conclusion of the contract?
There is any defence to the servant who concluded the marine contract
on behalf of his employer regarding this principle?

05/12/2022 Kitende, f
Disclosure by agent MIA sect. 19
Subject to the provisions of the preceding section as to circumstances
which need not be disclosed, where an insurance is effected for the assured
by an agent, the agent must disclose to the insurer—
• Every material circumstance which is known to himself, and an agent to
insure is deemed to know every circumstance which in the ordinary
course of business ought to be known by, or to have been communicated
to, him; and
• Every material circumstance which the assured is bound to disclose,
unless it come to his knowledge too late to communicate it to the agent.

05/12/2022 Kitende, f
What if one of the part (employer or agent) has fail to reveal the
information which one of the part has knowledge of such information?

Laing v. Union Marine Insurance Co., Ltd (1895)

Particular or unusual risk must come brought to the notice of

underwriter when the insurance is effected.

What time disclosure of material fact is needed?

05/12/2022 Kitende, f
Renewal:
A renewal is deemed to be a new contract in the eye of the law, even
when the term in the new contract are the same as in the expired
contract.

Before the renewal contract is concluded assured and/or his broker but
disclose every material circumstance which affects the renewal.

05/12/2022 Kitende, f
Excuse to disclosure of material fact.
MIA sect 18.(3)In the absence of inquiry the following circumstances
need not be disclosed, namely:—
(a) Any circumstance which diminishes the risk;
(b) Any circumstance which is known or presumed to be known to the insurer.
The insurer is presumed to know matters of common notoriety or
knowledge, and matters which an insurer in the ordinary course of his
business, as such, ought to know;
(c) Any circumstance as to which information is waived by the insurer;
(d) Any circumstance which it is superfluous to disclose by reason of any
express or implied warranty.
Give examples of such materials on each above.
05/12/2022 Kitende, f
Representation and Mis-representation
The doctrine of good faith imposes two duties on the parties to an
insurance contract:

1. Not to misrepresent any matter relating to the insurance - i.e. to

tell the truth

2. To disclose all material facts relating to the contract - i.e. not to

conceal anything

05/12/2022 Kitende, f
Representation MIA sect 20.
REPRESENTATIONS PENDING NEGOTIATION OF CONTRACT
1. Every material representation made by the assured or his agent to
the insurer during the negotiations for the contract, and before the
contract is concluded, must be true. If it be untrue the insurer may
avoid the contract
2. A representation is material which would influence the judgment of
a prudent insurer in fixing the premium, or determining whether he
will take the risk.
3. A representation may be either a representation as to a matter of
fact, or as to a matter of expectation or belief.
05/12/2022 Kitende, f
4. A representation as to matter of fact is true, if it be substantially correct, that is to
say, if the difference between what is represented and what is actually correct would
not be considered material by a prudent insurer.

5. A representation as to a matter of expectation or belief is true if it be made in

good faith.

6. A representation may be withdrawn or corrected before the contract is concluded.

7. Whether a particular representation be material or not is, in each ease, a question

of fact.

05/12/2022 Kitende, f
MISREPRESENTATION
To affect the validity of the agreement the false statement must:

• be one of fact (not law, opinion or belief)

• be made by a party to the contract
• be material to the contract
• induce the contract (be something that the other party relied on in
contracting)
• cause some loss or disadvantage to the person who relied upon it

05/12/2022 Kitende, f
Innocent misrepresentation
Refer to MIA Sect 20. (3) to (5)

05/12/2022 Kitende, f
Brach of good faith

This may take two forms -

1. misrepresentation or non-disclosure

2. In either case the breach may be either innocent or fraudulent

05/12/2022 Kitende, f
Effect of breach of good faith.
• Underwriter is entitled to avoid the contract
• If it before the risk attached, premium has to be returned to insured.
• After the risk attachment No return of premium

1. What will be the situation if there is fraud in relation to the contract

while the risk is not yet attached?
2. What will be the right of underwriter on long term contract if some
claims has settled, while some of material fact were not fully
disclosed by the insured?

05/12/2022 Kitende, f
Breach of Good Faith in English law.
Innocent breach Fraudulent breach

Right to avoid the policy as whole YES YES

Right to keep the premium too NO YES

Right to claim damage too NO YES

Right to ignore the breach and let the policy stand YES YES

Right to refuse a claim and let the policy stad NO NO

05/12/2022 Kitende, f
Negligent of the broker
Broker usually act an agent of the assured.
Therefore breach of good faith by broker is deemed to be breach of
good faith by the assured.
However the assured might have ground to sue the broker for the
damages
1. Assured is guilt of a non-disclosure or a mis-representation.
2. Where broker fail to disclose material fact which has been
communicated to him by the assured.

05/12/2022 Kitende, f
 MARINE INSURANCE
WARRANTIES

05/12/2022 Kitende, f
Introduction
MIA sec 33(1)

“A warranty, in the following sections relating to warranties, means a

promissory warranty, that is to say, a warranty by which the assured
undertakes that some particular thing shall or shall not be done, or that
some condition shall be fulfilled, or whereby he affirms or negatives the
existence of a particular state of facts”.

05/12/2022 Kitende, f
Warranty

• A promise made by the insured relating to some facts, or a promise

to do something

• May relate to the past, present or future (e.g. promise that the
insured will continue to do something)

05/12/2022 Kitende, f
Thus, where a warranty is incorporated in a contract of marine insurance,
the assured is giving an undertaking to abide by the terms of the warranty.
MIA sect 33 (3)
“A warranty, as above defined, is a condition which must be exactly
complied with, whether it be material to the risk or not. If it be not so
complied with, then, subject to any express provision in the policy, the
insurer is discharged from liability as from the date of the breach of
warranty, but without prejudice to any liability incurred by him before that
date”.
What are the purpose of warranty in marine insurance contract?

05/12/2022 Kitende, f
Purpose of warranty in marine insurance contract.

1. Protect underwriter from losses not contemplated by the policy

2. To improve the risk in the underwriter’s favour

3. To maintain the risk in the relation to the premium paid.

05/12/2022 Kitende, f
Breach of warranty. MIA sect39 (3)

When the assured fail to comply exactly with the term of a warranty the
underwriter is discharged from liability as from the date of breach but
remain liable for all losses occurred before the date of breach.

If the assured become aware of the breach, has to request continue of cover
(continue being at discretion of the underwriter unless the breach was held
covered by the policy condition)

Differentiate the remedies on breach of warranty and utmost good faith.

05/12/2022 Kitende, f
Excuse for breach of warranty MIA sect 34.
1. Non-compliance with a warranty is excused when, by reason of a change of
circumstances, the warranty ceases to be applicable to the circumstances of
the contract, or when compliance with the warranty is rendered unlawful by
any subsequent law.
2. Where a warranty is broken, the assured cannot avail himself of the defence
that the breach has been remedied, and the warranty complied with, before
loss.
3. A breach of warranty may be waived by the insurer.

How warranty can be created?

05/12/2022 Kitende, f
CREATION OF WARRANTIES

• Express warranties (written in the policy)

• Implied warranties (e.g. MIA s.39)
• Arising from answers to questions in a proposal form with a ‘basis of
the contract clause’ (This does not apply to ‘consumer’ insurances)

05/12/2022 Kitende, f
Express warranty MIA sect 34

1. An express warranty may be in any form of words from which the

intention to warrant is to be inferred.

2. An express warranty must be included in, or written upon, the policy, or

must be contained in some document incorporated by reference into
the policy.

3. An express warranty does not exclude an implied warranty, unless it be

inconsistent therewith.
05/12/2022 Kitende, f
It customary to commence the word of express warranty with
“warranted…….”
An express warranty does not exclude the existence of implied
warranty.
Express warranty are commonly used in H&M policies.

05/12/2022 Kitende, f
“Held Covered”

• Provision regarding the breach of warranty.

• Protecting the assured from effect of breach of locality of warranty,

particularly where the breach was outside his control, this is
subjected to additional premium

05/12/2022 Kitende, f
Implied warranty
• This does not appear in the policy document, but it existence as part of
marine insurance contract is established by statute in the form of MIA, 1906.

The MIA 1906, incorporated the following implied warranties.

• Warranty of legality, Sect 41

• Warranty of seaworthiness of the ship, Sec 39
• Warrant that the ship is fit to carry the good, Sec 40
.

05/12/2022 Kitende, f
Warranty of Legality (MIA, 1906, sect. 41)
This means that the venture which is insured is a lawful one.
“There is an implied warranty that the adventure insured is a lawful
one, and that, so far as the assured can control the matter, the
adventure shall be carried out in a lawful manner”.
The adventure may be lawful at inception but become illegal if the
voyage is continued, and the situation that arising was dealt by the
Courts.
Sanday v. British & Foreign Marine Insurance Co., Ltd (1915)

05/12/2022 Kitende, f
Where more than one interest is involved in an adventure (eg. Ship and
cargo carried thereon are owned by different parties). The exposure to
marine peril is termed as “common maritime adventure”
The implied warranty is incorporated by law, in covering each part
separately.
Likewise for the insurance of the warehouse to warehouse policy. This
implies warranty legality of the contract from perils of the sea to land.

05/12/2022 Kitende, f
Seaworthiness (MIA sect. 39 and 40)
Hull (MIA sect. 39) (Voyage policy)
1. In a voyage policy there is an implied warranty that at the commencement of the voyage
the ship shall be seaworthy for the purpose of the particular adventure insured.
2. Where the policy attaches while the ship is in port, there is also an implied warranty that
she shall, at the commencement of the risk, be reasonably fit to encounter the ordinary
perils of the port.
3. Where the policy relates to a voyage which is performed in different stages, during which
the ship requires different kinds of or further preparation or equipment, there is an
implied warranty that at the commencement of each stage the ship is seaworthy in
respect of such preparation or equipment for the purposes of that stage.
Bouillon v. Lupton (1863)

05/12/2022 Kitende, f
4. A ship is deemed to be seaworthy when she is reasonably fit in all
respects to encounter the ordinary perils of the seas of the adventure
insured.
5. In a time policy there is no implied warranty that the ship shall be
seaworthy at any stage of the adventure, but where, with the privity of
the assured, the ship is sent to sea in an unseaworthy state, the insurer
is not liable for any loss attributable to unseaworthiness.

Thomas v. London & Provincial Marine & General Insurance Co., Ltd
(1913)
05/12/2022 Kitende, f
What if the loss of the vessel was as a result of two aspect of
unseaworthiness where the insured was not privy to one of the aspect.
(Time policy)

Thomas v. Tyne and Wear Steam Ship Freight Insurance Association

(1917)
Loss was due to
1. Insufficiency and incompetency of the crew
2. Unfitness of hull.

05/12/2022 Kitende, f
The requirement of the seaworthy ship vary depending on the type of
vessel,
Generally, the ship
1. Capable of withstanding the ordinary action of wind and waves
2. Must not be overloaded
3. Must be properly crewed.
4. Must be proper fitted and equipped.
5. Must be adequately fuelled

05/12/2022 Kitende, f
Voyage and time policy.
1. Voyage policy, when the ship sail unseaworthiness, underwriter is
discharged from all liability from such date.
2. Time policy, without knowledge of the insured, unseaworthiness
condition of the vessel. Subjected to the policy condition. The
underwriter remains liable for all insured losses incurred.
3. Time policy, with the knowledge of the insured of the
unseaworthiness of the vessel, and a loss was proximately caused
by insured peril but as a result of unseaworthiness, insurer not
liable for the loss but the policy remain enforce.
05/12/2022 Kitende, f
Cargo (MIA sect 40).
1. In a policy on goods or other moveables there is no implied warranty
that the goods or movables are seaworthy.
2. In a voyage policy on goods or other moveables there is an implied
warranty that at the commencement of the voyage the ship is not only
seaworthy as a ship, but also that she is reasonably fit to carry the goods
or other moveables to the destination contemplated by the policy.
Inherent vice, or vice prope
Eg. the spontaneous heating of copra, fruit become rotten, wine turn to
sour, meat become putrid.

05/12/2022 Kitende, f
Institute Cargo Clause (ICC)
• Seaworthiness and/ or Fitness to Carry Insured Goods
• Fitness of Container to Carry Insured Goods
• Fitness of Overland Transport to Carry Insured Goods

05/12/2022 Kitende, f
 TIME AND VOYAGE POLICIES

05/12/2022 Kitende, f
Contents
Time and Voyage Policies
• Attachment and Termination of Risks
• Different Voyage
• Change of Voyage
• Deviation
• Excuse for Deviation and Delay
• Transhipment

05/12/2022 Kitende, f
Introduction
Time and Voyage policies.
Determination of duration in marine insurance is very important, since a
policy covers only losses relating to accident occurred within the duration
of cover.
For instance on voyage policy, the proposer has to specify the
commencement and termination of voyage related to either Hull or Cargo.
For time policy, the proposer will specify the date and time for
commencement of the contract and termination of the contract will be
determined by the period of time for which proposer offers the contract
and to the extent the insurer is prepared to accept.

05/12/2022 Kitende, f
Early forms of marine insurance cover were always based on a “voyage”
basis.
The question was on duration of cover for voyage policy.
Few H&M policies effected on a voyage basis but they still exist in
modern practice
Practically all cargo insurance contract are effected on voyage basis, this
makes no difference as those of long term contract or cover for period
of time, where in each, declaration and insurance certificate is issued,
and the contract are subjected to current law and practice regarding as
in duration of cover for voyage policy (warehouse to warehouse)
05/12/2022 Kitende, f
Most insurance contract effected to cover ship and shipowners’ interest
are effected on “time” basis until 1959, where the issue of time policy
exceeding 12 month where prohibited by the MIA, 1906. the Act
declaring such policy is void in law.
Today there is legal restriction on the period of which marine insurance
policy can be effected, but it continue to be the practice of Hull
underwriter to write time policy for not exceeding 12 month.
Reasons. ????????

05/12/2022 Kitende, f
Attachment of cover – Hull Voyage policies.
MIA, 1906, sect. 42-1.
Where the subject-matter is insured by a voyage policy "at and from" or
"from" a particular place, it is not necessary that the ship should be at
that place when the contract is concluded, but there is an implied
condition that the adventure shall be commenced within a reasonable
time, and that if the adventure be not so commenced the insurer may
avoid the contract.
• Both Lloyd’s SG policy and the insurance company Hull policy based
on SG format specify that the cover commenced “at & from the place
named in the policy.

05/12/2022 Kitende, f
MIA, 1906. Rule 3 provide that:
1. When the ship is lying in good safety at the place named in the
policy for commencement of the voyage, the risk shall attach
immediately the underwriter concludes the contract with the
proposer.
2. Where, at the time the contract is concluded, the ship is not arrived
at the place named in the policy for commencement of the voyage
cover does not attach until she arrived at such place in a good
safety.

05/12/2022 Kitende, f
Different voyage
A voyage policy cover only the voyage specified therein. If the ship
departs from a place other that specified in the policy or sails for a
destination other that specified in the policy there is to be a “different”
voyage.
In case of a different voyage the marine insurance cover does not
attach and the insured entitled to a return of the premium paid for the
risk.
The standard Hull voyage clause have never held the insured cover in
the case of mistake in specifying the voyage in the placing slip and/or in
the policy.

05/12/2022 Kitende, f
Different voyage
MIA, 1906, sects. 43 and 44.
43. Alternative port of departure
Where the place of departure is specified by the policy, and the ship
instead of sailing from that place sails from any other place, the risk
does not attach.
44. Sailing for different Destination
Where the destination is specified in the policy, and the ship, instead of
sailing for that destination, sails for any other destination, the risk does
not attach.

05/12/2022 Kitende, f
Change of voyage
This applies to only Hull voyage policies, and indirectly, to cargo policies.
MIA. 1906, sects. 45 -1&2
1. Where, after the commencement of the risk, the destination of the ship
is voluntarily changed from the destination contemplated by the policy,
there is said to be a change of voyage.
2. Unless the policy otherwise provides, where there is a change of voyage,
the insurer is discharged from liability as from the time of change, that is
to say, as from the time when the determination to change it is
manifested; and it is immaterial that the ship may not in fact have left
the course of voyage contemplated by the policy when the loss occurs.

05/12/2022 Kitende, f
The term is not applied to circumstances, where following an accident,
there is no choice but to terminate the voyage short of destination.

05/12/2022 Kitende, f
Deviation
MIA, 1906, sects. 46 - 1
Where a ship, without lawful excuse, deviates from the voyage
contemplated by the policy, the insurer is discharged from liability as
from the time of deviation, and it is immaterial that the ship may have
regained her route before any loss occurs.

05/12/2022 Kitende, f
MIA, 1906, sects. 46 – 2 & 3
• There is a deviation from the voyage contemplated by the policy—
• Where the course of the voyage is specifically designated by the policy, and
that course is departed from; or
• Where the course of the voyage is not specifically designated by the policy,
but the usual and customary course is departed from.
• The intention to deviate is immaterial; there must be a deviation in
fact to discharge the insurer from his liability under the contract.

Excuse for deviation are those of delay.

05/12/2022 Kitende, f
DELAY IN VOYAGE
MIA, 1906, sects. 48
In the case of a voyage policy, the adventure insured must be
prosecuted throughout its course with reasonable dispatch, and, if
without lawful excuse it is not so prosecuted, the insurer is discharged
from liability as from the time when the delay became unreasonable.

05/12/2022 Kitende, f
EXCUSES FOR DEVIATION OR DELAY
MIA, 1906, sects. 49 - 1
• Deviation or delay in prosecuting the voyage contemplated by the policy is excused
—
• Where authorised by any special term in the policy; or
• Where caused by circumstances beyond the control of the master and his employer; or
• Where reasonably necessary in order to comply with an express or implied warranty; or
• Where reasonably necessary for the safety of the ship or subject-matter insured; or
• For the purpose of saving human life, or aiding a ship in distress where human life may be in
danger; or
• Where reasonably necessary for the purpose of obtaining medical or surgical aid for any
person on board the ship; or
• Where caused by the barratrous conduct of the master or crew, if barratry be one of the
perils insured against.

05/12/2022 Kitende, f
MIA, 1906, sects. 49 - 2
When the cause excusing the deviation or delay ceases to operate, the
ship must resume her course, and prosecute her voyage, with
reasonable dispatch.

05/12/2022 Kitende, f
SEVERAL PORTS OF DISCHARGE
MIA, 1906, sects. 47 – 1&2
• Where several ports of discharge are specified by the policy, the ship
may proceed to all or any of them, but, in the absence of any usage or
sufficient cause to the contrary, she must proceed to them, or such of
them as she goes to, in the order designated by the policy. If she does
not there is a deviation.
• Where the policy is to "ports of discharge", within a given area, which
are not named, the ship must, in the absence of any usage or sufficient
cause to the contrary, proceed to them, or such of them as she goes to,
in their geographical order. If she does not there is a deviation.

05/12/2022 Kitende, f
End of Lecture: