Topic 12 Marine Insurance Flashcards
01
Give a brief description of the following clauses in a typical hull insurance policy:
a) Duty of the assured (sue and labour) (5) 248
b) Termination clause (5) 247
c) Breach of warranty clause (5)
d) Tenders clause (5) 248
a) Duty of the Insured (Sue and Labour)
It is a principle of insurance generally that the insured person must, at all times, act as if uninsured, taking reasonable care to prevent or at least minimise loss or damage to the subject of the insurance. In a marine hull insurance policy, the implied duty is reinforced by the Duty of the Assured (Sue and Labour) clause. This clause provides that the insured has a duty to take all reasonable steps to avert or minimise any loss for which a claim would be payable under the policy.
b) Termination
This clause provides that insurance will automatically terminate:
• Change of Classification Society,
• Suspension, discontinuance, withdrawal or expiry of Class,
• Overdue Class surveys UNLESS extension given by Class,
• Change of Owner,
• Change of Flag,
• Transfer to new Management,
• Bareboat Charter.
c) Breach of Warranty
This clause provides that vessel is ‘held covered’ in the event of a breach of warranty so long as the underwriters are given immediate notice of the breach and the policy is amended; and any additional premium required is paid.
Under this clause, a vessel may.
• change their area of operation, or
• offer salvage / towage services.
d)10) Notice of Claim and Tenders
In the event of accident whereby loss or damage may result, notice must be given to the Underwriters prior to survey, so that a surveyor may be appointed to represent the Underwriters should they so desire. The Underwriters are entitled to decide the port to which the vessel will proceed for docking or repair, and have a right of veto concerning a place of repair or a repairing firm. The Underwriters may also take tenders or may require further tenders to be taken for the repair of the vessel. In the event of failure to comply with the conditions of this clause, a deduction of 15% can be made from the claim.
Q2
In the context of a marine insurance hull policy, explain the nature and purpose of the following clauses:
a) Duty of the Assured (Sue and Labour) (10)
b) Breach of Warranty. (10)
a) Duty of the Insured (Sue and Labour)
It is a principle of insurance generally that the insured person must, at all times, act as if uninsured, taking reasonable care to prevent or at least minimise loss or damage to the subject of the insurance. In a marine hull insurance policy, the implied duty is reinforced by the Duty of the Assured (Sue and Labour) clause. This clause provides that the insured has a duty to take all reasonable steps to avert or minimise any loss for which a claim would be payable under the policy. To encourage such measures the underwriters promise to reimburse the insured person for any expenses or losses incurred in discharging this duty (including salvage and towage costs). Such payments will be made in addition to any other claims under the policy and regardless of whether or not the measures taken prove to be actually successful in preventing or minimising a loss.
b) 2) Breach of Warranty
This clause provides that vessel is ‘held covered’ in the event of a breach of warranty so long as the underwriters are given immediate notice of the breach and the policy is amended; and any additional premium required is paid.
Under this clause, a vessel may:
• change their area of operation, or
• offer salvage / towage services.
03
As part of the contract, marine insurance policies contain warranties either expressed or implied:
a) Explain what is meant by a Warranty in this context and the possible consequences of non-compliance. (10)
b) In the above context explain the significance to the yacht owner and the master of a Breach of Warranty clause in such policies. (10)
Breach of Warranty
This clause provides that vessel is ‘held covered’ in the event of a breach of warranty so long as the underwriters are given immediate notice of the breach and the policy is amended; and any additional premium required is paid.
Under this clause, a vessel may:
• change their area of operation, or
• offer salvage / towage services.
What is the meaning of the word ‘Warranty’ in the context of Marine Insurance? 245
Must be exactly complied with
The Marine Insurance Act defines a warranty as a “promissory warranty by which an assured undertakes that some particular thing shall or shall not be done, or that some condition shall be fulfilled, or whereby he affirms or negates the existence of a particular state of facts”.
As defined above it is a condition which must be exactly complied with, whether it be material to the risk or not. If it be not complied with, then the insurer is discharged from liability as from the date of the breach of the warranty.
Implied warranty
Seaworthiness & legality
Q5
What is the difference between Implied and Express warranties? Provide at least two examples of each in the context of Marine Insurance.
Implied Warranty
Implied warranties are not written in the policy, but are implied by law to exist in the contract. They must be strictly complied with in the same way as express warranties.
There are two major implied warranties in marine insurance policies, covering
Seaworthiness and legality.
Express Warranty
An express warranty must be written into the policy or contained in some document incorporated by reference into the policy. For example:
• Method of payment
• Navigational limits
• List of perils insured against
07
According to the Marine Insurance Act 1906, can you insure someone else’s yacht?
Explain the position of the law in order to support your statement. P243
No
Insurable Interest
Before anyone may legally enter into a marine insurance contract, he must have an insurable interest in the property at risk. Essential features of insurable interest include:
•the subject matter must be a physical object exposed to peril; and
• any assured must have some legal relationship to the subject matter insured, and must stand to benefit from its preservation or lose by its loss or damage.
The simplest form of insurable interest is ownership of the subject matter insured.
Where the assured has no insurable interest or no expectation of acquiring one, the policy is deemed to be a “gaming or wagering contract” and is therefore illegal.
You may thus not insure someone else’s yacht, as you have no insurable interest in it.
Explain the difference between Voyage and Time Policies.
Voyage - port to port
Time - Definite period of time
What is a deductible and why may insurance companies demand it?
Deductible
A deductible is the amount of money you will pay in an insurance claim before the insurance coverage kicks in and the company starts paying you. When you have a deductible, you have to come up with the amount of money for your deductible before a claim gets paid in many circumstances. Deductibles discourage small / frivolous claims and are an incentive for the insured party to exercise extra care. A deductible does not apply in the case of a Total Constructive Loss.
a) Describe the organisations known as P&I clubs.249
b) What types of risks do they insure? (10)
P&I CLUBS
A Protection and Indemnity (P&I) Club is a mutual insurance association that provides risk pooling, information and representation for its members (shipowners). P&I Clubs are non-profit making companies, who aim to provide cover in areas that the rest of the insurance market is reluctant to cover. Unlike a marine insurance company, which reports to its shareholders, a P&l club reports only to its members (shipowners).
RISKS COVERED BY P&I CLUBS
• Cargo claims (short delivery, loss or damage);
• Crew claims (medical expenses, repatriation, subsistence expenses, compensation for death or injury);
• Collision liabilities (to the extent not covered in H&M policy: ¼);
• “Fixed and floating objects” (damage to docks, wharves and buoys);
• Third party injury and death claims (from stevedores, crew members and passengers);
• Oil pollution liability (and pollution by other substances);
• Special Compensation payable in accordance with Article 14 of the Salvage
Convention and the SCOPIC Clause;
• Miscellaneous claims (fines for innocent breaches of regulations, diversion and other expenses incurred in landing refugees, sick persons, and stowaways, contractual liabilities, salvor’s expenses under Lloyd’s Open Form, and wreck removal).
As a master of a yacht, you are considering offering assistance to another ship in difficulties. Discuss in general terms and in order of importance the factors which should be considered and which should influence your decision. (20) 253 - 254
Life at risk/ distress
Safety of own vessel
Loss of income?
Breach of Warranty
This clause provides that vessel is ‘held covered’ in the event of a breach of warranty so long as the underwriters are given immediate notice of the breach and the policy is amended; and any additional premium required is paid.
Under this clause, a vessel may:
• change their area of operation, or
• offer salvage / towage services.
Q12
a) Explain the meaning of the word warranty in relation to a marine insurance policy.
(4)
b) What is the difference between an implied warranty and an express warranty?
Give an example of each. (6)
c) Describe the function of a P&I Club and give examples of the type of risks that may be insured with them. (8)
d) State the percentage of cover held by the P&I Club. (2)
a)
The Marine Insurance Act defines a warranty as a “promissory warranty by which an assured undertakes that some particular thing shall or shall not be done, or that some condition shall be fulfilled, or whereby he affirms or negates the existence of a particular state of facts”.
b)Express Warranty
An express warranty must be written into the policy
• Method of payment
• Navigational limits
Implied Warranty
Implied warranties are not written in the policy, but are implied by law to exist in the contract.
• Seaworthiness and legality.
RISKS COVERED BY P&I CLUBS
Protection and Indemnity (P & I) cover includes the following liabilities:
• Cargo claims (short delivery, loss or damage);
• Crew claims (medical expenses, repatriation, subsistence expenses, compensation for death or injury);
• Collision liabilities (to the extent not covered in H&M policy: ¼);
• “Fixed and floating objects” (damage to docks, wharves and buoys);
• Third party injury and death claims (from stevedores, crew members and passengers);
• Oil pollution liability (and pollution by other substances);
• Special Compensation payable in accordance with Article 14 of the Salvage
Convention and the SCOPIC Clause;
• Miscellaneous claims (fines for innocent breaches of regulations, diversion and other expenses incurred in landing refugees, sick persons, and stowaways, contractual liabilities, salvor’s expenses under Lloyd’s Open Form, and wreck removal).
d) 25% for collision not covered by H&M
a) Following a collision whilst berthing, the master of the other vessel sends a letter inviting you to a damage survey with the words “without prejudice” in the heading. State the meaning of “without prejudice” in this case. (5)
Without prejudice means No legal action will be taken from the survey.
You would not enter the survey without a member of your P&I club present
