Marine Insurance Flashcards
What is the difference between ATL and CTL
Actual Total Loss (ATL): This occurs when a ship or cargo is entirely destroyed or irretrievably lost. It is a straightforward and physical loss with no possibility of recovery. An example would be a ship sinking or cargo being completely damaged beyond salvage.
Constructive Total Loss (CTL): This occurs when the cost of repairing or recovering a damaged ship or cargo would exceed its insured value. In CTL, the item is not entirely lost, but the expenses involved in making it seaworthy or recovering it make it economically impractical. An example could be a ship that is heavily damaged but not completely destroyed.
What is Notice of Abandonement?
In the context of marine insurance, when a ship is declared a Constructive Total Loss (CTL), the insured party may issue a Notice of Abandonment to the insurance company.
The Notice of Abandonment is a formal declaration by the insured that they are abandoning their interest in the damaged property (ship or cargo) to the insurance company. By doing so, the insured seeks to claim the full insured value of the property as a total loss.
The insurance company will then assess the validity of the claim and decide whether to accept the abandonment. If accepted, the insured receives compensation for the agreed-upon insured value, and the insurance company takes ownership of whatever remains of the damaged property.
define general average:
““any extraordinary sacrifice or expenditure is intentionally and reasonably made or incurred for the common safety for the purpose of preserving from peril the property involved in a common maritime
adventure.”
it is:
1. An extraordinary sacrifice or expenditure
2. which is intentionally and reasonably made
3. against a peril
4. in order to benefit the common venture
What is a GA example?
A time-chartered ship fully loaded with grain and operating under a voyage charter grounds in heavy weather. To float the vessel it is necessary to hire in another vessel to remove some of the cargo to lighten the vessel. Four tugs are required to tow the vessel off and surveyors and divers are needed to assess the damage. The damage is superficial, and the vessel is allowed to reload the cargo and proceed to the
destination.
§ All the costs are determined and apportioned amongst the parties by an Average Adjuster (a person with a legal background and expertise in dealing with General Average).
§ The rules of adjustment of general average are determined under the York-Antwerp Rules
§ The shipowner, and all parties involved in the voyage will be required to contribute
§ Insured ship’s proportion of General Average (and any salvage cost) is covered by Hull and Machinery Insurance
How is a GA declared?
As soon as the incident occurs involving General Average, the shipowner must notify:
§ Hull and Machinery insurers
§ P and I club
§ Classification Society surveyor
§ Discharge port agents
Appoint:
An average adjuster
A general average surveyor
Maybe an admiralty surveyor if towage involved
What is the effect of the ‘Pollution Hazards’ clause in Hull and Machinery policy in the event of grounding and subsequent oil pollution?
First of all, the pollution hazard clause provides an
exception to the general principle that insurance is
against fortuitous losses. This clause is related to direct loss of or damage to the vessel caused by any governmental authority acting under the powers vested in it to prevent or mitigate a pollution hazard or damage to the environment (taken from the case of the MV Torrey Canyon where the Royal Air force bombed a grounded tanker to set it alight to reduce oil pollution (with an embarrassing lack of success).
Additional wording has now been added to cover governmental response to broader threats to the environment than oil pollution - for example damage to sensitive coral reefs.
What is the effect of the ‘Sue and Labour (Duty of the Assured)’ clause in Hull and Machinery policy in the event of grounding and subsequent oil pollution?
The insured has to take reasonable measures to minimse the effect of the damage of the insured property. Under this clause, the costs derived from these measures are insured, as well as the damaged cargo as agreed in the insurance policy.
What is the effect of the ‘Salvage and General Average’ clause in Hull and Machinery policy in the event of grounding and subsequent oil pollution?
If, during the grounding incident, the ship’s master intentionally jettisons some cargo to lighten the ship and prevent further damage, it may trigger the General Average clause. General Average requires all parties involved in the maritime adventure (shipowner, cargo owners, etc.) to proportionately share the costs of the intentional sacrifice (jettisoned cargo) to prevent a greater loss.
For example, if the shipowner decides to sacrifice a portion of the cargo to refloat the ship, the value of the sacrificed cargo would be shared proportionately among all parties with a financial interest in the cargo on board. This includes contributions from the cargo owners and potentially their insurers.
What is the liability for shipowners in the event of ship grounding in terms of oil pollution and wreck removal?
oil pollution: There is a legal framework based on international conventions and national legislation that requires shipowners to have in place access to funds to cover the costs of liability (clean-up costs and compensation) for their ships causing oil spills.
