VIII. MARINE INSURANCE

Question 1

True or False. Marine insurance covers loss or damage to property, and even persons, in connection with all risks or perils of navigation. Marine insurance also includes “marine protection and indemnity insurance” against liability incidental to ownership, operation, maintenance or construction of vessels and facilities therefore.

Answer 1

True.

Question 2

Any extraordinary or accidental expense incurred during the voyage for the preservation of the vessel, cargo, or both and all damages to the vessel and the cargo from the time it is loaded and the voyage commenced until it ends and the cargo is unloaded.

Answer 2

Average

Question 3

It is the intentional casting overboard of any part of a venture exposed to peril, whether it be of the cargo, or of the ship’s furniture or tackle, in the hope of saving the rest of the venture.

Answer 3

Jettison.

Question 4

It is a principle of customary law, independent of contract, whereby when it is decided by the master of a vessel, acting for all the interests concerned, to sacrifice any part of a venture exposed to a common and imminent peril in order to save the rest, the interest so saved are compelled to contribute pro rata to the owner of the interests sacrificed.

Answer 4

General average

Question 5

What are the requisites for a general average?

Answer 5

The requisites for a general average are:

1. There must be a common danger (both the ship and the cargo, after having been loaded, are subject to the same danger, whether during voyage, or in port of loading or unloading(;
2. For the common safety part of the vessel or of the cargo or both is sacrificed deliberately;
3. That from the expenses or damages caused follows the successful saving of the vessel and cargo;
4. That the expenses or damages should have been incurred or inflicted after taking proper legal steps and authority.

Question 6

Are insurers liable for general average?

Answer 6

Yes. Sec. 138. Where ti has been agreed that an insurance upon a particular thing, or class of things, shall be free from particular average, a marine insurer is not liable for any particular average loss not depriving the insured of the possession, at the port of destination, of the whole of such thing, or class of things, even though it becomes entirely worthless; but such insurer is liable for his proportion of all general average loss assessed upon the thing insured.

Question 7

What are particular averages?

Answer 7

Particular averages include all damages and expenses caused to the vessel or to her cargo that have not inured to the common benefit and profit of all the persons interested in the vessel and her cargo.

Question 8

What is covered by the phrase “perils of the sea”?

Answer 8

The phrase “perils of the sea” covers only those casualties due to unusual violence or extraordinary action of wind and wave, or to other extraordinary causes connected with navigation. It does not include losses resulting from ordinary wear and tear, or other damage incident to the voyage, which would fall under the category of perils of the ship.

Question 9

The ship owner has insurable interest in two thing: ??

Answer 9

The owner of a ship has an insurable interest in two things: (1) the vessel in all cases; and (2) the expected freightage in some situations.

Question 10

When is a ship hypothecated by bottomry?

Answer 10

A ship is hypothecated by bottomry when the owner secures a loan against his interest in the vessel and is payable only when the vessel has completed its voyage.

Question 11

What is the insurable interest of the ship owner when the ship is hypothecated by bottomry?

Answer 11

When a ship is hyothecated by bottomry, the insurable interest of the ship-owner is only the value of the ship not secured by bottomry.

Sec. 103. The insurable interest of the owner of the ship hypothecated by bottomry is only the excess of its value over the amount secured by bottomry.

Question 12

What is “freightage”?

Answer 12

Freightage in marine insurance, according to Sec. 104 of the IC signifies all the benefits derived by the owner either from (1) the chartering of the ship; or (2) its employment for the carriage of his own goods or those of others.

Question 13

Does the Charterer of a ship have insurable interest over the ship?

Answer 13

Yes but only to the extent that he is liable to be damnified by its loss. Sec. 108. provides that the charterer of a ship has an insurable interest in it, to the extent that he is liable to be damnified by its loss.

Question 14

What are the two types of charter parties?

Answer 14

The two types of charter parties are:

1. Bareboat or demise charter - where the whole vessel itself is leased out, and the charterer must provide his own crew and supplies for the voyage. This has powerful implications on the liability of the charterer for loss or damage because he is essentially in charge of the vessel;
2. Contract of affreightment - wherein the owner of the vessel only leases part or all of its space to haul the goods of others. It is a contract of special service to be rendered by the owner who retains possession, command and navigation of the ship, the charterer or freightere merely having use of the space in the vessel in return of the payment of the charter hire or freight.

Question 15

Sec. 112. A concealment in a marine insurance, in respect t o any of the following matters, does not vitiate the entire contract, bu merely […]:

(a) The […] of the insured;
(b) The […] to capture and detention;
(c) The […] from breach of foreign laws of trade;
(d) The […]; and
(e) The […].

Answer 15

Sec. 112. A concealment in a marine insurance, in respect t o any of the following matters, does not vitiate the entire contract, bu merely exonerates the insurer from a loss resulting from the risk concealed:

(a) The national character of the insured;
(b) The liability of the thing insured to capture and detention;
(c) The liability to seizure from breach of foreign laws of trade;
(d) The want of necessary documents; and
(e) The use of false and simulated papers.

Question 16

What is the remedy of the insurer for any misrepresentation of a material fact in a marine insurance?

Answer 16

Sec. 113. If a representation by a person insured by a contract of marine insurance is intentionally false in any material respect, or in respect of any fact on which the character and nature of the risk depends, the insurer may rescind the entire contract.

Question 17

Does the falsity of a representation as to expectation avoid a contract of marine insurance?

Answer 17

No. Sec. 114 provides “The eventual falsity of a representation as to expectation does not, in the absence of fraud, avoid a contract of insurance.”

Question 18

What are the implied warranties in a marine insurance contract, as provided by the Insurance Code?

Answer 18

In the Code are three implied warranties: seaworthiness of the vessel, improper deviation, and proper documentation.

Note: A fourth warranty can be considered and that is not to engage in an illegal venture, such as carrying out illegal trade or contraband.

Question 19

What is the implied warranty of seaworthiness?

Answer 19

The implied warranty of seaworthiness provides that the ship is warranted to be seaworthy. According to Sec. 116, “A ship is seaworthy when reasonably fit to perform the service and to encounter the ordinary perils of the voyage contemplated by the parties on the policy.” As provided by Sec. 118, it extends not only to the condition of the structure of the ship, but requires that the ship be (1) properly lade; (2) provided with a competent master, and a sufficient number of competent officers and seamen; and (3) provided with the requisite appurtenances and equipment.

Question 20

When is the seaworthiness of a ship deemed complied with?

Answer 20

Sec. 117. An implied warranty of seaworthiness is complied with if the ship be seaworthy at the time of the commencement of the risk, except in the following cases:

(a) When the insurance is made for a specified length of time, the implied warranty is not complied with unless the ship be seaworthy at the commencement of every voyage it undertakes during that time;
(b) When the insurance is upon the cargo which, by the terms of the policy, description of the voyage, or established custom of the trade, is to be transhipped at an intermediate port, the implied warranty is not complied with unless each vessel upon which the cargo is shipped, or transhipped, be seaworthy at the commencement of each particular voyage.

Question 21

Will the insurer be liable if the ship started out as seaworthy but eventually became unseaworthy in the course of the voyage?

Answer 21

It depends. If the ship starts out as seaworthy but becomes unseaworthy at some time during the voyage, any unreasonable delay in repairing the defect exonerates the insurer on ship or shipowner’s interest from any liability for loss arising therefrom.

Sec. 120. When the ship becomes unseaworthy during the voyage to which an insurance relates, an unreasonable delay in repairing the defect exonerates the insurer on ship or shipowner’s interest from liability from any loss arising therefrom.

Question 22

What is deviation?

Answer 22

Deviation occurs if the voyage insured is not followed. Deviation occurs in any of three ways: (1) a departure from the course of the voyage insured, as expressed in the preceding paragraph, (2) an unreasonable delay in pursuing the voyage, or (3) the commencement of an entirely different voyage. [Sec. 125]

Question 23

When is a deviation proper?

Answer 23

Sec. 126. A deviation is proper:

(a) When caused by circumstances over which neither the master nor the owner of the ship has any control;
(b) When necessary to comply with a warranty, or to avoid a peril, whether or not the peril is insured against;
(c) When made in good faith, and upon reasonable grounds of belief in its necessity to avoid a peril; or
(d) When made in good faith, for the purposes of saving human life or relieving another vessel in distress.

Question 24

Sec. 122. Where the nationality or neutrality of a ship or cargo is expressly warranted, it is […] to show such nationality or neutrality and that it will not carry any documents which cast reasonable suspicion thereon.

Answer 24

Sec. 122. Where the nationality or neutrality of a ship or cargo is expressly warranted, it is implied that the ship will carry the requisite documents to show such nationality or neutrality and that it will not carry any documents which cast reasonable suspicion thereon.

Question 25

Type of loss when the things insured are wholly lost or destroyed, or when they are so greatly damaged as to be worthless.

Answer 25

Total loss

Question 26

When does an actual total loss occur?

Answer 26

Sec. 132. An actual loss is caused by:

(a) total destruction of the thing insured;
(b) The irretrievable loss of the thing by sinking, or by being broken up;
(c) Any damage to the thing which renders it valueless to the owner for the purpose for which he held it; and
(d) Any other event which effectively deprives the owner of the possession, at the port of destination, of the thing insured.

Question 27

When is there a presumption of actual total loss?

Answer 27

Sec. 134. An actuall loss may be presumed from the continued absence of a ship without being heard of. The length of time which is sufficient to raise this presumption depends on the circumstances of the case.

Question 28

When is there a constructive total loss?

Answer 28

There is a constructive total loss when the loss gives to a person a right to abandon under Sec. 141.

Sec. 141. A person insured by a contract of marine insurance may abandon the thing insured, or any particular portion thereof separately valued by the policy, or otherwise separately insured, and recover for a total loss thereof, when the cause of the loss is a peril insured against:

(a) If more than three-fourths (¾) thereof in value is actually lost, or would have to be expended to recover it from the peril;
(b) If it is injured to such an extent as to reduce its value more than three-fourths (¾);
(c) If the thing insured is a ship, and the contemplated voyage cannot be lawfully performed without incurring either an expense to the insured of more than three-fourths (¾) the value of the thing abandoned or a risk which a prudent man would not take under the circumstances; or
(d) If the thing insured, being cargo or freightage, and the voyage cannot be performed, nor another ship procured by the master, within a reasonable time and with reasonable diligence, to forward the cargo, without incurring the like expense or risk mentioned in the preceding subparagraph. But freightage cannot in any case be abandoned unless the ship is also abandoned.