Chapter 10 Marine Insurance Flashcards
Ocean Marine
Marine Insurance - Cargo Insurance
Ocean Marine Insurance is the oldest form of insurance, probably dating to the middle ages. The organization of marine insurance took great steps forward with the formation & development of an insurance market on Lombard Street in London, England & subsequently – since 1769 – Lloyds of London. Today, Lloyds still plays a prominent role in marine insurance.
Because of their long tradition, marine policies tend to be the most traditionally worded policies in the insurance industry and to have the longest tradition of case law legal decisions covering the various terms & clauses of the policies. While care should be taken with any insurance to clarify any definitions provided in the policies, this is especially true in marine coverages, where the defined terms may have long histories.
Ocean marine insurance is designed to cover various hazards related to the movement of goods. The first and obvious protection that can be provided is for the cargoes themselves. This protection can be provided to the seller/shipper or to the buyer. Where ownership of and responsibility for the cargo are assumed is crucial in determining what coverage is needed. This used to be a simpler exercise than at present - as a limited number of shipping terms existed.
In 1990 the international shipping agency agreed on an expanded set of terms which allows transfer of ownership and responsibility at various points along the transit route, including at customs borders.
Risks are unavoidable in the shipment of goods. Goods are loaded and trans-shipped. Travel on the ocean provides its own set of perils. These risks require that the shipper take reasonable steps to ensure the safety of his goods while in transit, for instance with proper packaging and/or containerizing, and shipping on a vessel appropriate for the goods in question.
Goods are generally handled many times during shipment, and marine insurance is designed to provide coverage throughout this process. They are first loaded at the origination point onto a land vehicle (truck or train.) They are held in a port prior to loading onto a ship. They may be unloaded at an intermediate port, and held for trans-shipment on a second vessel. Upon arrival in the destination country, they must be cleared through customs then loaded onto land carriers for transport to the buyer’s premises. There may also be transfers between land transports on either the buyer’s or the seller’s end-during which time the goods are under the control of warehouse depot operators, and additional trucking or rail companies.
The marine policy may be scripted to meet a variety of situations and desired coverages. Generally, the policy covers perils of the sea, fire, assailing thieves (pirates,) jettison of the ship’s cargo, intentional and negligent acts of the ship’s captain, explosion, defects in the ship that cause damage, and other perils.
Ocean marine insurance is insurance used to protect cargo, vessels, and other it ems while they are being transported across the ocean. Both the vessel owner and the owner of the cargo are able to benefit from this insurance. Ocean marine insurance is not limited to ships, but can also cover items traveling by air and land as well.
Many types of ocean marine insurance exist: hull insurance, cargo insurance, and protection & indemnity (P&I) insurance. Each of these types covers something different.
Hull insurance covers the vessel and machinery if they get damaged. Many times the coverage will include coverage for damage caused by stranding, sinking, fire, and collision. The insurance can be written for an individual voyage or can be written to cover a period of time.
Cargo insurance is used to protect the actual cargo that is being shipped. This type of ocean marine insurance can be either specific–coverage certain damage–or all risk – covering a variety of incidences. Cargo insurance can also be special or open ended. Special insurance is bought on a transaction to transaction basis. Since the cargo is being moved through international territories, this insurance is not regulated by any particular countries.
Like other forms of insurance, OM policies are subject to exclusions, which are listed on the OM policy. They typically include damage due to dampness, breakage, delay or loss of market, acts of war, confiscation, strikes, riots or civil commotions.
MI is an extension of land-based property insurance. OM policies are highly specialized, unique, and, to a great degree, unregulated. Therefore, the MI UW has more discretion over pricing and coverage determination.
Various exclusions and limitations under commercial property insurance policies apply to property in the course of transit between locations.
Freight insurance - a type of business income insurance that c overs the shipping profit. It protects the insured against the loss of shipping costs and can be written separately or included with hull or cargo insurance.
- The owner of the cargo who prepays the shipping is covered for lost shipping cost with this coverage.
- The vessel owner who carries this coverage is protected against lost cargo.
Protection & Indemnity - protects the ship owner from the consequences of his agents’ negligent acts & includes:
- bodily injury for the vessel’s crew members;
- damage to the cargo through negligence; and
- damage to other property not caused by collision.
Running-down clause – covers collision damage to another vessel. It does not cover docks or injury to passengers.
Inchmaree clause - also known as the additional perils clause, covers losses to a vessel caused by:
- bursting boilers;
- breaking shafts;
- latent defects of machinery or the vessel; and
- negligence of the master or crew members for accidents in handling cargo.
Perils Covered
- Perils of the sea - the naturally occurring causes of loss a ship is exposed to during ocean travel, including windstorms, waves, collisions, sinking, stranding, running aground, and more.
- Perils on the sea – the manmade causes of loss that occur onboard ships during ocean travel, i.e. fire.
- Jettison - a covered ship peril involving the act of voluntarily throwing cargo or portions of a ship overboard to save the vessel from sinking or suffering other damage.
- Barratry - a covered peril that includes fraud or other criminal acts committed by the ship’s master or crew that result in a loss to the ship or its cargo.
Ocean Marine Clauses
Ocean marine contracts include several additional clauses & features. Some of the more common ones are:
a. General average losses - the law of general average is a legal principle of maritime law according to which all parties in a sea venture proportionally share any losses resulting from a voluntary sacrifice of part of the ship or cargo to save the whole in an emergency.
b. Particular average losses - Differs from a general average loss in that they do not require contributions from other parties. Under particular average, each owner of a property bears his own loss individually. Deductibles known as “memorandum clauses” are common with this type of policy.-
c. Sue and labor clause - In the event of loss, the PH or their representative is permitted and obligated to take action to prevent, limit, or reduce the loss. i.e. a boat captain, acting as a representative of the boat owner, is obligated to jettison the cargo, if this action is considered necessary to save the ship or cargo insured.
d. Implied warranties - Warranties are made part of an ocean marine contract without any expression on the part of the parties involved. Strict compliance is required for losses to be covered. Policies are voided if the implied warranties are violated.
The most common types of ocean marine implied warranties are that:
- a ship is seaworthy;
- the purpose of the voyage is legal;
- the ship’s course will not deviate from what was originally prescribed; and
- the cargo is in good condition and properly packaged.
Salvage
Marine law imposes an obligation on ship operators to try and save lives at sea. No salvage award is involved solely for life-saving efforts. To encourage the saving of property, a cash or monetary payment known as savage award is provided to persons engaging in salvage operations.
Salvage awards involve legally determined lien against the value of the property saved. This award may not be more than the amount saved and represents a loss to property owners in addition to the damage to property salvaged.
