5/D - Ocean Marine Insurance Flashcards
Nationwide Marine Definition
Model regulation that defines six categories of eligible marine risks:;
- Imports
- Exports
- Domestic Shipments
- Instrumentalities of Transportation or Communication
- Personal Property Floater Risks
- Commercial Property Floater Risks
Implied Warranties of an Ocean Marine Contract
Ocean Marine Policies are “Utmost Good Faith” contracts:
- It is difficult to investigate all the risk involved
- Therefore, ships are required to adhere to certain Implied Warranties in order to receive coverage
Seaworthiness
The vessel must be:
- in a seaworthy condition
- fit for voyage (not be overloaded)
- have a competent captain and crew
Conditions of Cargo
The owner of the cargo must guarantee:
- the cargo is sound,
- everything is loaded properly
Legality
- The voyage must be legal
- Involvement of contraband, smuggling, or any other illegal activity will nullify the insurance contract
No Deviation in Voyage
The route of the voyage must be:
- clearly stated prior to departure
- adhered to throughout the voyage, with no change in destination or unnecessary delays
The voyage is also referred to as the “adventure.”
Premiums
- The policyholder has 45 days to pay the premium in full or develop a payment option that is acceptable to the insured and the insurer.
- Upon cancellation, the premium will be paid on a pro rata basis.
Ocean Marine Insurance Policies
Types:
- Hull Coverage
- Cargo Coverage
- Freight Insurance
- Protection & Indemnity (P&I)
Coverage:
- Loss of vessel
- Loss of cargo
- May extend to property stored on docks & piers
Basis of Policies:
- Valued basis: full amount of policy is paid in the event of a total loss
- Unvalued basis: amount of payment is determined after the loss
- Agreed value basis (or Valued Policy): the value of the vessel is determined at the issuance of the policy
Hull Coverage
Hull Policy: covers damages to, and loss of, a marine vessel
- Policy period: one year
- Establish a defined geographic area
Examples of Coverage:
- Fire
- Lightning
- Earthquake
- Piracy: intentional theft of a vessel and/or its cargo, or intentional sinking or deserting of a vessel
Examples of Exclusions:
- Acts of war
- Rioting and civil commotion
- Employee strikes
- Confiscation
- Damage due to dampness or breakage
Who/what is the “assured?”
The assured = the policyholder
Hull Deductible
Hull Policy Deductibles: either average or franchise deductibles
Average: standard, flat-rate deductible
Franchise:
- if damage amount exceeds deductible, the insurer pays the full cost of damages
- if damage is less than deductible, the assured (i.e. the policyholder) pays for all damages
Cargo Policy
Cargo: The goods or property being moved in a shipment
- Cargo Coverage: insures cargo in transport
- Three Types of Cargo Coverage:
- Single Risk Form: insures the cargo on a single shipment only
- Floating, open or long term: insures multiple trips over a specific period of time
- Warehouse-to-warehouse: insures cargo from point of origin to point of destination
Examples of Coverage:
- Fire
- Lightning
- Earthquake
- Piratry
- Jettisons: voluntarily removing cargo from a ship in an attempt to save the vessel or its crew
Freight Insurance
Freight: The charge for transporting goods, paid to the owner of the vessel.
Freight Insurance: Protects the vessel owner in the event that the freight costs are not paid; often combined with Hull coverage
P & I Insurance
Protection & Indemnity Coverage (P & I): Liability insurance that protects the ship owner in the event that the ship causes damages or injuries to a third party.
- Indemnifies the third party, not the policyholder
- Often included as part of hull coverage
- Covers carrier’s liability for bodily injury or property damage to crew, passengers and sometimes cargo
- Does not cover claims that fall under state or federal compensation acts
General Terms: Loss
Total Loss Classifications:
- Actual Total Loss: insured items that have disappeared or are not salvageable.
- Constructive Total Loss: items that have been damaged beyond repair, and the cost to repair exceeds the cost to replace
General Terms: Salvage
Salvage Charges and Awards
Two Meanings of “Salvage”:
- Vessel or cargo that was saved from damage or loss
- The act of saving a vessel or cargo that is in danger
a. “salvors” receive a “salvage award”
b. “salvage charges” are incurred by salvors in their rescue attempt
General Terms: Goods
Cost, Insurance, and Freight (CIF):
- Covers cargo when the seller is responsible for insuring the cargo during shipment.
Cost and Freight (CFR):
- Covers the cargo when the buyer of the goods is responsible for insuring the cargo during the shipment
Example: KLM Enterprises purchases shoes from Quality Productions in China, which need to be shipped to America
- CIF: Quality Productions covers the cost of the insurance for the shoes and the freight to get it to them in the USA
- CFR: KLM covers the cost of the insurance and Quality Productions covers the cost of the freight
General Terms: Free on Board
Free on Board (FOB): the seller of goods assumes responsibility for the cargo until it reaches the point of the delivery.
- If followed by a city name, it means that the seller is only responsible for the cargo until it arrives in that city
- At this point, the buyer becomes responsible for the goods
Assured
The Assured Clause:
- Names the insured
- States that no other claimant can collect more on a claim than the policy would have paid the assured
- Waives subrogation rights (in most cases) against the assured’s subsidiary or affiliate companies
Adventure
Adventure Clause:
- Describes the voyage
- Outlines prohibited activities
- Basis of policy coverage
Returns of Premium
- Change of ownership
- Termination of policy
- Vessel is laid-up in port, unless:
a. it is in unprotected waters
b. it is used for lightering
c. it is being repaired after a covered loss
d. total loss has occurred in the policy period
Sue and Labor
The insured party is required to attempt to prevent further losses once damage occurs
Pilotage and Towage
- Provides liability coverage for damages caused when vessel is being towed or piloted by an outside service
- Only applies if the use of pilotage and towage services is accepted local practice
Change of Ownership
- When vessel changes hands, coverage is automatically cancelled
a. unless insurer agrees in writing to continue coverage
b. if vessel is in the middle of a covered voyage, policy isn’t canceled until the voyage is complete - If vessel is temporarily requisitioned without assured’s consent, the policy is canceled after 15 days
General Average Clause
When the captain of a vessel decides to make a voluntary sacrifice of a part of the ship or its cargo in order to save the whole, all insurers for that ship must participate in the indemnification process
Particular Average Clause
Appropriates the loss to a particular company rather than each cargo owner sharing the loss
Free of Particular Average (FPA) Clause
- Excludes coverage for all partial or accidental losses, except those caused by stranding, sinking, burning, or collision
- Acts like a deductible : insurer is only liable for losses that exceed a set percentage of the value
- Percentage is usually 10%
