Marine Insurance

DEVIATION UNDER THE MARINE INSURANCE ACT & UNDER WHAT CIRCUMSTANCES MAY IT BE EXCUSED?

A voyage policy generally defines the port of call for the vessel. If the vessel deviates without a lawful excuse, then the underwriters are discharged from their liability from the time of the deviation & it is immaterial that the ship may have regained her route before any loss occurs. There is deviation whenever

a) The route designated by the policy is departed from
b) If no route has been designated, the customary route is departed from
c) Where the ports of discharge are not named and if named are not mentioned in any particular order. The vessel must go to them in strict geographical order & a failure to do amounts of deviation.

Any deviation leads to the policy being null & void. However under the marine insurance act 1963, deviation or delay is justified & excused when

a) Authorized by any special term of the policy
b) Where caused by circumstances beyond the control of the master & the employer
c) Reasonably necessary in order to comply with an express or implied condition
d) Reasonably necessary for the safety of the ship or subject matter insured
e) For the purpose of saving the human life or for aiding the ship in distress where the human life may be in danger
f) Reasonably necessary for the purpose of obtaining the medical or surgical aid
g) Caused by the barratrous acts of the master or the crew when barratry be one of the perils insured against

UNSEAWORTHINESS & PERILS

Under the marine insurance act 1963, there is a provision of implied warranty of seaworthiness of a ship in a VOYAGE POLICY. There is a warranty that the ship shall be seaworthy at the commencement of the voyage. If the policy starts while the ship is in port, it also means that the ship be fit to encounter the ordinary perils of the port where a policy relates to a voyage to be performed in stages during which the ship may require the further preparation or equipment to be fitted to encounter the perils of that (adventure) stage. Then there is an implied warranty that the ship shall be seaworthy at each stage. This is commonly referred to as The Doctrine of the stages.

Time Policy – A ship is deemed seaworthy when she is fit in every respect to encounter the ordinary perils of the seas of the adventure insured in a time policy.

There is no implied warranty that the ship shall be seaworthy at any stage of the voyage. However, if the assured knowingly causes a ship in the unseaworthy state to proceed to sea. Then insurer is not liable to any loss arising due to unseaworthiness.

Perils: This includes maritime perils normally encountered at sea & means that the assured will be indemnified if the subject matter insured suffer damage or loss due to
a) Perils of the sea & navigable water’s
b) Violent theft by persons from outside the vessel
c) Jettison
d) Piracy
e) Breakdown or accident of nuclear reactors or installation
f) Damage due to aircraft or from objects falling from an aircraft.
g) Bursting of boilers, breaking of shaft or any latent defect in the ship’s hull or machinery
h) Negligence of the master, officers or crew or pilots
i) Negligence of the repairers or charters provided they are not the assured party
j) Barratry of the masters, officers or crew

The underwriters are not liable if the damage or loss is due to the lack of due diligence of the assured, owners & managers. The master, officers & crew are not considered as owners even if they have a share in the vessel.

WARRANTY??

WHAT ARE IMPLIED & EXPRESS WARRANTIES IN A CONTRACT OF MARINE INSURANCE? STATE IMPLIED WARRANTIES & GIVE TWO EXAMPLES OF EXPRESS WARRANTIES?

The marine insurance underwriter is covered by the principle of Utmost faith. However, in certain cases it may not be possible to prove non-disclosure of facts & for these reasons warranties are used. With respect to marine insurance the term warranty takes the meaning of a promissory warranty i.e a warranty by which the assured undertakes that certain things shall be done or not done or affirms or denies the existence of a particular state of facts. A warranty must be complied with & if not done the insurer is discharged from his liability from the time of the breach of the warranty. Unless the policy otherwise provides, or the breach is excused.

A warranty may be implied or express & the two examples of implied warranties are
a) In the case of a voyage policy it is implied that the ship is seaworthy at the time of the commencement of the voyage.
b) In every marine policy is implied that the adventure is lawful.

In regard to voyage policy & with regards to the warranty of the seaworthiness it is implied that if the sea is in port, then the ship is seaworthy to face the perils of the port. In the case of a time policy, it is not implied that the ship be seaworthy at any stage of the voyage. However, if the assured be knowingly sent an unseaworthy ship to a sea, then the insurer is not liable to any loss attributable to unseaworthiness. In case of goods, it is implied that the vessel is seaworthy to carry the goods. However, the goods are not insured for loss or damage due to “Inherent Vice of the Goods”

Express warranties have to be directly written into the policy or incorporated by reference in the policy. A policy may contain a clause “Warranty Not North Of 70 Deg North” & if the said vessel proceeds north of 70 deg north then the warranty has been breached & the policy is null & void. Unless the breach is excused if the owner wants the vessel to proceed north of 70 deg north he shall inform the insurer who may waive the warranty for an additional premium. Another example of an express warranty is “Warranted Neutral” clause. This is used in war situation & means that the said ship shall carry all the necessary documents to prove her neutrality when in war area.

A breach of warranty may be excused:

a) Due to change of circumstances so that the warranty is no longer applicable to the policy
b) When the breach of warranty is excused by the underwriter in such cases the assured may be required to pay an additional premium.

CONSTRUCTIVE TOTAL LOSS, PARTICULAR CHARGE, BARRATRY, INSTITUTE CLAUSE, SISTER SHIP CLAUSE

A) Constructive total loss: There is constructive total loss when the ship matter insured is abandoned when it becomes apparent that the total loss is unavoidable or when it cannot be preserved from total loss without an expenditure which will exceed its value after the expenditure has been incurred there is a constructive total loss.
a) When the assured is deprived of the subject matter by the peril insured against or that the cost of recovery of the subject matter will exceed its value after recovery
b) In the case of a damaged ship if the cost of repairs exceeds the value of the ship after the repairs have been carried out
c) In the case of damaged goods where the cost of repairing & forwarding the goods to their destination will exceed their value on arrival.

B) Particular Charge: When the subject matter insured in danger of being damaged or lost it is the duty of the assured to take all possible measures including expenditure to limit the loss or damage. The insurer agrees to contribute towards all such expenditure provide it is made particularly to save the subject matter it is reasonable & made by the assured, owner or agent. Such charges under the Sue &
labor clause are called particular charges.

C)Barratry: This means any wrong act done wilfully by the master or any of the crew against the owner and includes

a) Any wilful act of violence to the ship and her cargo
b) Any wrongful misappropriation of the ship or its cargo
c) Any wilful act which exposes the ship or her cargo to damage or confiscation.

D) Institute clauses: These are self-contained clauses made by the technical & clauses committee of the institute of London underwriters. They are attached to the Marine Policy & which set is attached depends on the subject matter to be insured & the risks to be covered. Some of the institute clauses are:

a) Institute time clause (hull)
b) Institute voyage clause (hull)
c) Institute war & strike clauses (hull- time)
d) Institute cargo clauses (A)
e) Institute cargo clauses (B)
f) Institute cargo clause
g) Institute war clauses (cargo)
h) Institute strike clauses (cargo)

The institute time clauses (hull) have 27 sub clauses 7 in them are included clauses which are paramount & state that the insurance does not cover damage or loss due to war strike & damage due to nuclear reasons.

E) Sister ship clause: Sistership clause is a provision in the hull policy which is beneficial to the Assured. In the event of a collision between two vessels owned by the same Assured, the sistership clause confers on the Assured the same rights as if the two vessels were separately owned and separately insured.

ACTUAL TOTAL LOSS, PRESUMED TOTAL LOSS, CONSTRUCTIVE TOTAL LOSS, PARTIAL LOSS.

a) Actual total loss: Where the subject matter is destroyed or so damaged that it does not resemble a thing of the kind insured or where the assured is irretrievably deprived of it.

b) Presumed total loss: Where the ship which had been insured goes missing & after a reasonable length of time, there is no news of her, an actual total loss is presumed.

c)Constructive total loss: Is said to occur if the subject matter insured is abandoned. When its apparent that its total loss is unavoidable or if it cannot be saved from an actual total loss without an expenditure, the amount of which would exceed its value after the expenditure been incurred in particular. There is a
constructive total loss whenever

1. The assured is deprived of the subject matter assured by a peril insured against & it is unlikely that the subject matter can be recovered or the cost of recovering the subject matter would exceed its value after recovery
2. The ship insured is so damaged that the cost of repairing the ship will exceed the value the ship after repairs.
3. The goods damaged have to be repaired & forwarded to their destination & the expense involved exceeds the value of goods on arrival at their destination. In the case of a total constructive loss the assured may treat it as a partial loss or abandon the subject matter insured to the insurer & clain it as an total loss.

d) Partial Loss (Particular Average)
MIA 1906 defines particular average as a partial loss proximately caused by a peril insured against and which is not a General Average loss.

A total loss may be an actual total loss or a constructive total loss. In the case of a total constructive total loss the assured may treat it as a partial loss.

DOCTRINE OF STAGES, TENDERS CLAUSE, DUTY OF ASSURED CLAUSE ( SUE & LABOUR), INSURABLE INTEREST

1. Doctrine of stages: With respect to a voyage policy, it is an implied warranty that ship shall be seaworthy at the commencement of the voyage. Where the voyage is to be performed in stages, during which the ship may require further equipment or preparation to face the ordinary perils of the sea, it is implied that the ship will be seaworthy at the beginning of each stage of voyage. This is called Doctrine of stages.
2. Tender’s clause: This clause was introduced so as to provide the underwriters some control over the cost of repairs for which they are liable. In case of repairs the assured is required to call for tenders. However, this may lead to a delay in the repairs and hence loss of the use of the ship. The tender’s clause allows the underwriters to call for tenders before deciding on the port of repairs as well as the
   name of the firm. To carry out the repairs the underwriter is liable to pay an allowance at the stipulated rate to the assured for any delay caused due to tendering. This allowance is reduced by any amount recovered by the owners (under G.A etc) although rarely used. The tender’s clause has a provision whereby the insurer may deduct 15% of the cost of repairs if the assured does not comply
   with this clause.
3. Duty of assured (sue & labour): Under the marine insurance act it the duty of the assured, his servants and agents to take all reasonable measures, including expenditure to prevent loss or to minimize damage to a subject matter insured such that to minimize the amount recoverable as insurance under the policy. There may be circumstances in which the assured may not be keen to do so & to encourage him to act in such a manner the underwriters agree to contribute with certain provisions towards any expenses properly & reasonably made to save the subject matter. Expenses recoverable in such a manner are called “Particular Charges”.
4. Insurable Interest: The marine insurance act defines insurable interest as:
   >> Every person has an insurable interest who is interested in marine adventure.
   >> In particular a person has an insurable interest if he has any legal or equitable relation to the marine adventure or to any property at risk therein, such that he may benefit by the subject matters safe arrival or may be prejudiced by damage to or loss thereof or detention of the subject matter. The assured must be interested in the subject matter at the time of the loss even if he was not interested in it at the time when the insurance was caused.

NOTICE OF ABANDONMENT WITH REFERENCE TO MARINE INSURANCE? WHEN IT IS GIVEN & WHAT ACTION IS TAKEN BY THE ASSURED?

In the case of constructive total loss, the assured must give notice to abandonment to the insurer & if he fails to do so the loss can only be treated as a partial total loss. The notice may be given in writing or by word or by mouth. But and it must indicate the intention of the assured to abandon all his insured interest in the subject matter. Insured unconditionally to the Insurer, such a notice must only be given after the assured has confirmed the facts and if the information is of a doubtful nature the assured is allowed a reasonably delay to allow him to confirm the facts. The rights of the assured not effected even if the insurer refuses to acknowledge the notice of abandonment provided the notice has been properly
given. Mere silence on the part of the insurer does not indicate acceptance of the notice of abandonment. The abandonment is irrevocable if the notice is accepted by the insurer & this acceptance means that he admits his liability for the loss. It is not necessary to give notice of abandonment if at that time it will not benefit the insurer or when the insurer waives the notice of abandonment.

Once the insurer accepts the notice of abandonment, he is subrogated to all the rights and remedies of the assured with regards to the subject matter insured. He is now entitled to take over the subject matter & in case of vessel is also entitled to any freight in the course of being earned or which is earned subsequent to the notice of abandonment.

HOW IS HULL & MACHINERY INSURANCE EXECUTED IN THE INTERNATIONAL MARKET?
EXPLAIN THE PROCEDURES THAT WOULD GENERALLY BE REQUIRED TO BE FOLLOWED BY A MASTER AT A PORT OF REFUGE?

“At Lloyds, insurance is done only through a broker approved by the Lloyds counsel. The broker writes the details of the hull & machinery on a slip & then approaches a lead underwriter to obtain a ‘Lead’. If the underwriter is willing to underwrite only a portion of the risk, he will set down the percentage & then initial it. The broker then approaches other underwriters until 100% of risk has been covered. The broker then passes on this Slip to the policy signing office which prepares the policy & also the transaction advice for accounting entries. In some cases, the broker may send a cover note to the person seeking insurance to inform him of the details under which the insurance has been affected and only after
obtaining the GO AHEAD from the client will the policy be prepared.

Putting into a port of refuge for repairs constitute a justifiable deviation & hence the insurance & other contractual rights remain unaffected. The master must inform the owner of his decision & the reasons for selecting a particular port. In case the owners appoint an agent or already have an agent at that port the master must inform the agent of the vessel damage & his ETA so that the agent may make the appropriate arrangements.

On arrival at the port the master must obtain port clearance in the normal way & he should also note port protest with the right to extend it. The underwriters should also be informed as per the term of the tender’s clause.

If cargo has been damaged or has to be shifted to facilitate repairs the master should cause a hatch survey to be carried out by a registered cargo surveyor. When the surveyor has given his report, the master in consultation with the owner and the underwriters should call for tenders for the repair. The tender selected will to a large extend depend on the underwriter. It is important that a demurrage clause be inserted in the contract for repairs.

The repairs will be carried out under the supervision of the surveyor who will issue an interim certificate of class to the ship if he is a satisfied with the repair.

The vessel may then continue in class copies of all relevant documents should be sent to the owner. The vessel may continue on her voyage.

MARINE INSURANCE. WHAT ARE THE FUNDAMENTALS OF MARINE INSURANCE?

A contract of marine insurance is an agreement whereby the insurer agrees indemnify the assured in the manner & extent thereby agreed against marine losses i.e losses incidental to the marine adventure.

The fundamentals of the marine insurance are:

1. Insurable interest: Every person who has an equitable or legal relation to a marine adventure or to any property involved in the marine adventure such that he will benefit by the subject matters safe arrival or may be prejudiced or become liable due to its loss or by damage to the subject matter is deemed to have an insurable interest in the marine adventure. The assurer must be interested in the subject matter that the time of the loss.
2. Disclosure- Principle of good faith: A contract of marine insurance is a contract based on utmost good faith. The person affecting the insurance must inform the insurer of all detail circumstances so that he may be able to decide the premium or whether he want to cover the risk. However, he need not inform the insurer of any facts which diminish the risk or which the insurer is supposed to know by virtue of his trade. If the assured fails to make such disclosure, the insurer may avoid the
   contract.
3. Principle of indemnity: The sum which the assured can recover from the insurer in case of loss of or damage to the subject matter insured is called the measure of indemnity. In case of an unvalued policy, it the full extent of the insurable value & in case of a valued policy it is the sum fixed by the policy.
4. Principle of subrogation: By the principle of subrogation the insurer takes over the rights & remedies of the assured in the subject matter to the extent the assured has been indemnified from the time of the incident causing the causality or loss after the assured has been paid as per the terms of the policy. The principle of subrogation applies in the case of the total loss & partial loss.
5. Proximate clause: The marine insurance act states that the insurer is not liable for any loss which is not proximately caused by the peril insured against. This means it is the proximate cause & not the remote cause which is taken into account.

GENERAL AVERAGE & THE ROLE OF AVERAGE ADJUSTERS IN GENERAL AVERAGE ADJUSTMENTS?

The basic principle of general average is that a person whose property has been lost or damaged for general benefit should have his loss made good by all those who have benefitted to provide a standard set of rules we have the “The York Antwerp Rules 1974”. However, unless these are specially incorporated in a contract of affreightment local rules will apply in the case of general average. As per rule “A” of the York Antwerp rules 1974. There is a general average act when & only when, any extraordinary sacrifice or expenditure is intentionally & reasonably made or incurred for the common safety for the purpose of preserving from peril. The property involved in a common marine adventure.

From the above it is apparent that for a general average to occur:

1. The sacrifice or expenditure must be of an extraordinary nature.
2. There must be a sacrifice or expenditure.
3. The sacrifice or expenditure must be made intentionally & reasonably for the sole purpose of the common marine adventure.
4. There must be a common adventure i.e more than one person/party must be involved.

General Average Includes:

Act:

1. Voluntary stranding to avoid sinking

2. Port of refuge for repairs – only essential hull & M/C repairs.

Sacrifice

1. Jettison

2. Slipping cable & anchor to avoid immediate peril.

Expenditure

1. Cost of discharging cargo to refloat

2. Cost of tugs for refloating.

Each party contributes according to the value of his interest saved & the main contributing interest are the ship, cargo & the freight at risk.

Contributory values are:

Ship: The ships value at the port where the voyage ends.
Freight: The gross amount at the risk less the expenses of earning it from the instance of the G.A act.
Cargo: The value of the cargo at the port of discharge, less any charges which would not have incurred if the voyage had been a total loss.

The general average charge is generally ascertained at the ships first port of discharge, after the general average act it is the duty of the ship owner to appoint the average adjuster & the ship owner has a common lien on the cargo for general average.

An AVERAGE ADJUSTER is an expert on insurance & general average who assesses what is allowable under general average, The contributory values & the allowances. He acts like an arbitrator to arrive at the average statement.

He requires details such as cargo manifest, B/L’s , signed average bonds & deposit receipts, copies of G.A Bonds, deck & engine logbook copies, copies of protests, original vouchers of expenses, details of master’s & crew wages, details of hull & machinery repairs & surveyor’s report.

Cargo is generally released by signing of a general average bond and/or providing a guarantee. Now a days it is common practice for the insurer to pay up as particular average & they are now subrogated to all rights of the assured being later compensated from the G.A fund.

WARRANTIES, SUE & LABOUR, MEASURE OF INDEMNITY, SUBROGATION

A marine underwriter is protected by the principle of good faith. However, it may not be always possible to prove nondisclosure of facts. Hence warranties are used with respect to marine insurance. The word warranty means the same as the word condition in other contracts. The marine insurance act defines warranty as a promissory warranty i.e a warrant by which the assumed undertakes that something shall or shall not be done or affirms or denies the existence of a particular state of facts.

A warranty may be implied or expressed.

An example of an implied warranty is:

1. In every voyage policy it is implied that the ship shall be seaworthy at the commencement of the voyage.
2. The voyage must be Lawful & as per the contracts & terms.

An example of an expressed warranty is:

1. Warranted not North of 70 Deg North & this means that the policy does not apply if the vessel proceeds North of latitude 70 Deg North.

Sue & Labour: (Duty of assured) When the property insured is in danger of being lost or damaged it is the duty of the assured to take all possible measures to save or minimize the loss to encourage the assured to act in such a manner. The underwriter agrees to contribute with some provisions to charges properly & reasonably made by the assured & his servants to save the property. Expenses recoverable under the sue & labour clause “Particular Charges” & are recoverable only when:

1. They are incurred solely for the property insured.
2. They are reasonable
3. They are incurred by the owner, agents or the owner’s servant.
4. They are incurred to avert or minimize a loss covered by the insurance.

Measure of Indemnity: A particular average loss is a partial loss of the subject matter caused by a peril insured against the particular loss falls directly on the party interested in the subject matter. The measure of indemnity is defined in the marine insurance act in case of partial loss of ship, freight on goods. It indicates the payment to be made to the assured in case of loss or damage to the subject matter.

Subrogation: Means the substituting of one creditor by another. The insurer right to subrogation depends on whether he has paid for the total loss or a partial loss.

Where the payment is for a total loss, the insurer may take over whatever remains of the property & is subrogated to all rights & remedies of the assured. In case of a partial loss the insurer is not entitled to what remains of the subject matter & is subrogated to the rights & remedies of the assured only to the extent the assured has been indemnified. However, it is not necessary that the insured take over the
remains of the subject matter in case of a total loss as he will then also be responsible for all the liabilities of the assured eg removal of wreck which is a hazard to navigation.