Basic principles of Marine Insurance
- indemnity, subrogation;
- insurable interest i.e. ownership;
- utmost good faith;
- the doctrine of proximate cause.
Types of Marine Insurance covers are required by Shipowners and Ship managers
A ship owner or a ship manager acting on behalf of a shipowner may require the following insurance covers against:
- actual or total loss of his ship’s hull, machinery and equipment (H & M cover);
- accidental (particular average) damage to his ship’s hull, machinery and equipment (H& M cover);
- liability to owners of other vessels (and their cargoes) with which the ship collides(collision liability);
- liabilities for general average charges;
- liabilities for damage done by his ship to a third party’s properties;
- liabilities for other third party risks, e.g. cargo claims, personal injuries, pollution, wreck removal costs, etc. (called P & I risks);
- liabilities for oil pollution claims;
- loss of earnings due to strikes;
- loss of earnings due to the operation of war risks;
- loss of freight;
- loss of charter hire (e.g. When a vessel goes “off hire” after sustaining damage);
- increased value, disbursements and excess liabilities (an additional source of recovery over and above the hull and machinery insured value in case of a total loss); and employer’s liabilities to workers.
Ship owners may need additional special insurance when the vessel is deviated from the intended course e.g. ” ship owners’ liability insurance (SOL)” if he loses his defences to liabilities under The Hague or Hague-Visby Rules. There are no statutory requirements for ships or cargo to be insured, but if they are not insured they need to be self-insured. IMO guidelines on Shipowners responsibilities in respect of Maritime Claims recommends Shipowners to place on board the Certificate of Entry of the P & I Club.
What kind of insurance covers are there for Time and Voyage Charterers?
The normal insurance covers for Time and Voyage Charterers are:
- legal costs and expenses arising out of disputes related to hiring, freight, dead freight and passage money, general and particular average, demurrage or despatch, detention, breach of the charter party, bill of lading etc., the proper loading etc. of cargo, quality of bunkers supplied;
- loss of or damage to the vessel;
- loss of or damage to cargo;
- oil pollution other than that arising from a tanker in US territorial waters;
- loss of or damage to third party property;
- death or personal injury claims;
- damage to fixed property (e.g. wharf or dock); wreck clearance costs;
- the proportion of general average or salvage charges not covered by any other insurance;
- liability arising out of breach of or deviation under a bill of lading (e.g. cargo earned on deck against underdeck bill of lading);
- physical loss of charterers bunkers;
- loss of freight at risk;
- oil pollution arising from a tanker in US territorial waters; and
- stowaway costs.
What is an Actual Total Loss?
Actual Total Loss means when the subject matter is destroyed or so damaged as to cease to be the thing of the kind insured or the assured is irretrievably deprived of the subject matter insured.
When a ship concerned is missing and after a lapse of a reasonable time, no news of her has been received, an actual total loss can be presumed. An actual total loss can occur in four ways:
- where property insured is actually destroyed e.g. a ship is wrecked or burnt out or where the goods are totally crushed in the collapse of a stow of cargo;
- where goods change their characteristic in such a manner that they are no more the thing of the kind that was insured;
- where the assured is irretrievably deprived of his property i.e. the ship is sunk in deep waters;
- where the insured property is reported as missing in the Lloyd’s e.g. where a ship has not reported for several weeks.
What is a Constructive Total Loss?
A constructive total loss is where the subject-matter insured is reasonably abandoned on account of:
- its actual total loss appearing to be unavoidable; or
- because it could not be prevented from actual total loss without an expenditure which will exceed its insured value.
- where an assured is deprived of Possession of his ship or goods by a peril insured against and it is unlikely he can recover them or the cost of recovering exceeds the insured value. In the case of goods, the cost of repairing the damage and despatches to destination exceed their value.
A Constructive total loss is where a ship is in danger of breaking or under war risk, she is entrapped by war wrecked vessel. A Constructive total loss is also where the ship is grounded and so damaged that the retrieval and repairing cost will exceed the insured value. When an owner claims a constructive total loss, he must abandon the property to the insurer.
Essential elements of General Average Act
- there must be a sacrifice or expenditure;
- the sacrifice or expenditure must be extraordinary;
- the sacrifice or expenditure must be intentionally made or incurred;
- the sacrifice or expenditure must be reasonably made or incurred;
- the sacrifice or expenditure must be made for the common safety;
- the sacrifice or expenditure must be made for the purpose of preserving the property from peril.
Examples of sacrifices that may be allowed in a general average are:
- cargo jettisoned to refloat a grounded vessel or to prevent the capsizing of a dangerously listed vessel;
- machinery damage sustained during refloating operations.
Examples of expenditures that may be allowed in a general average are:
- costs of salvage expenditure including salver’s reward;
- costs of entering a port, staying in and leaving a port of refuge;
- costs of cargo discharge or any other operations including dry docking etc.
What do you understand by sacrifices Extraordinarily, Intentionally and Reasonably made?
- Extraordinary nature of sacrifice and expenditure is not an ordinary or everyday loss or expense incurred in running a ship and carrying cargoes. Loss of anchor to prevent grounding is not extraordinary, whereas losing an anchor laid out as ground tackle during a refloating operation may be allowed. Similarly, damage to the engine due overworking in trying to prevent grounding is not extraordinary, whereas damage to the engine during a refloating operation may be allowed. A wide variety of costs, however, small including extra taxi fares for superintendents can be recovered in general average expenditure.
- Intentionally made expenditure are those of C02 cylinders discharged to put off a fire on board or wetting damage was done due to flooding of a hold. The cost of damage done by the fire itself is not covered under the general average act. Beaching a leaking ship to prevent sinking is intentional and covered by general average. The cost of refloating an accidentally grounded ship is intentional and allowed.
- Reasonable expenditure can be that of the amount of cargo required to be jettisoned. Excess cargo jettisoned is not reasonable and may not be allowed under general average. Similarly, expenditure in a port of refuge over and above reasonable costs may not be allowed.
What is General Average Loss under marine insurance?
The principle of general average can be said as that which has been sacrificed for the benefit of all shall be made good by the contribution of all.
The objective of general average is to ensure that the owner of the ship or cargo who has incurred an expenditure or suffered a sacrifice of his property in order to save the vessel or the cargo from a perilous position receives a contribution to his loss from all those who have benefited from the action.
The general average loss is a partial loss incurred through a deliberate act performed with the intention of preserving all the property involved in a voyage from a danger which threatens them all. General average losses are equitably shared by all the parties to the ” common maritime adventure “, each party contributing in proportion to his share of the total values involved. In theory, therefore, any expense, no matter how small, by a shipowner resulting in saving the ship or cargo on board can be a general average act.
However, in practice, general average is not declared every time since it involves lots of calculations, contributions, collection and a huge amount of time, effort and expense.
What constitutes Common Maritime Adventure?
A common maritime adventure is a voyage where several parties have some financial interest, as opposed to ballast voyage of a non-chartered liner vessel, where the only party involved is the shipowner. The parties to the common maritime adventure could include:
- the shipowner;
- each consignee of cargo;
- if the ship on time charter, owner of bunkers on board;
- the recipient of freight (shipowner or time charterers);
- the owner of any equipment on hire e.g. welding machine or diving equipment etc.
What documents and information is required to make a claim?
- deck and engine room log books covering the casualty and repair period;
- Master’s and/or Chief engineer’s detailed report as appropriate;
- relevant letter of protest;
- underwriter’s surveyor’s report;
- class surveyor’s report;
- owner’s superintendent’s report;
- receipted accounts for repair and/or any spare parts supplied by owners, in connection with repairs duly endorsed by underwriter’s surveyor as being fair and reasonable;
- accounts covering any dry-docking and general expenses relating to the repairs endorsed as above;
- port disbursements;
- fuel and engine room spares consumed together with the cost of replacements;
- accounts for owners’ repairs effected concurrently with damage repairs copies of faxes, email and telexes sent and details of long-distance calls made in connection with the casualty together with their costs;
- any accounts rendered by surveyors etc., with dates of payment where made
There are similar documents and information required for repairs and after a collision. In the case of collision, steps taken to establish liabilities for the collision and eventual settlement in the apportionment of blame including the copy of claim for attempted recovery. Efforts to limit liabilities and costs thereof are taken into consideration.