5/D - Ocean Marine Insurance

Question 1

Nationwide Marine Definition

Answer 1

Model regulation that defines six categories of eligible marine risks:;

1. Imports
2. Exports
3. Domestic Shipments
4. Instrumentalities of Transportation or Communication
5. Personal Property Floater Risks
6. Commercial Property Floater Risks

Question 2

Implied Warranties of an Ocean Marine Contract

Answer 2

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

Question 3

Seaworthiness

Answer 3

The vessel must be:

• in a seaworthy condition
• fit for voyage (not be overloaded)
• have a competent captain and crew

Question 4

Conditions of Cargo

Answer 4

The owner of the cargo must guarantee:

• the cargo is sound,
• everything is loaded properly

Question 5

Legality

Answer 5

• The voyage must be legal

- Involvement of contraband, smuggling, or any other illegal activity will nullify the insurance contract

Question 6

No Deviation in Voyage

Answer 6

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.”

Question 7

Premiums

Answer 7

• 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.

Question 8

Ocean Marine Insurance Policies

Answer 8

Types:

1. Hull Coverage
2. Cargo Coverage
3. Freight Insurance
4. 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

Question 9

Hull Coverage

Answer 9

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

Question 10

Hull Deductible

Answer 10

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

Question 11

Cargo Policy

Answer 11

Cargo: The goods or property being moved in a shipment

• Cargo Coverage: insures cargo in transport
• Three Types of Cargo Coverage:
  
  1. Single Risk Form: insures the cargo on a single shipment only
  2. Floating, open or long term: insures multiple trips over a specific period of time
  3. 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

Question 12

Freight Insurance

Answer 12

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

Question 13

P & I Insurance

Answer 13

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

Question 14

General Terms: Loss

Answer 14

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

Question 15

General Terms: Salvage

Answer 15

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

Question 16

General Terms: Goods

Answer 16

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

Question 17

General Terms: Free on Board

Answer 17

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

Question 18

Assured

Answer 18

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

Question 19

Adventure

Answer 19

Adventure Clause:

• Describes the voyage
• Outlines prohibited activities
• Basis of policy coverage

Question 20

Returns of Premium

Answer 20

• 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

Question 21

Sue and Labor

Answer 21

The insured party is required to attempt to prevent further losses once damage occurs

Question 22

Pilotage and Towage

Answer 22

• 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

Question 23

Change of Ownership

Answer 23

• 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

Question 24

General Average Clause

Answer 24

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

Question 25

Particular Average Clause

Answer 25

Appropriates the loss to a particular company rather than each cargo owner sharing the loss

Question 26

Free of Particular Average (FPA) Clause

Answer 26

• 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%