The structure of marine insurance
Marine insurance is the way to cover vessels or cargoes in case of loss or damage from the port of origin until the destination. Marine insurance is a kind of insurance developed in maritime sector. The first types of marine insurance contracts were born in Genoa and other countries of Italy around the XVI century.
During the 19th century Lloyd’s London and the Institute of London have developed standard clauses to use in marine insurance also called the Institute Clauses. Marine insurance is often grouped with Aviation and Transit risks, and known with the acronym MAT. The Marine Insurance Act includes a standard policy called SG. In 1991, the London market produced a new kind of standard policy called Mar 91 with the Institute Clauses. The MAR 91 form is a general statement of insurance; the Institute Clauses are used to set out the detail of the insurance cover.
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Lloyd’s of London is composed from names that are making their own wealth at risk to underwrite insurance cover. They provide cover for vessels, platforms and aircraft. Hull and Machinery policy is a kind of limited cover in case of explosion, fire contact with land conveyances, aircraft, salvage, general average, constructive total loss, total loss, partial collision liability and with additional premium limited cover for bursting of boilers and braking of shafts. All forms of hull cover have to be decided from an insurance broker.
Protection and indemnity association provide a cover to loss of life, pollution and the risk of cargo for ship-owners.
In other forms of insurance to cover vessels can be included war risk Strike and Freight defense. The underwriters are all liable together, but only for their proportion of the risk. If one underwriter should default, the others are not responsible to pick his share of the claim. Cover could be based for voyages and time.
Definition of a P&I club
This is an association of ship-owners who are together to insure each other on a mutual non- profit-making basis, for their third-party liabilities.
The P&L club is formed from ship-owners which are competitors in the business but they understood that it was more advantageous to cooperate together for insurance purposes. Currently the members of P&L are international and different languages culture religion won’t divided their cooperation because they are sharing the same risks and liabilities. In other words they are different people but with the same status and same objectives. Moreover would be better if all the members of the P&L club have the same type of ship, same size, age, cargoes, involved in the same trade, with the same crew. Every ship-owner should have common characteristics to avoid unfair situations. For example a ship owner with a big tanker should pay more than a ship owner with a small bulk cargo. Every member of P&I club shouldn’t unfairly pay the other ship-owners. Since the P&L is a no profit club the members want to ensure each other and try to achieve together optimum efficiency in the management of their money. The typical marine policy will cover just three-quarter of the insured’s liability towards third parties. For this reason in the 19th some ship-owner created an underwriting clubs called P&L to insure with all the members of the club the remaining part that the typical marine policy doesn’t cover. These Clubs are still in existence
Actual total loss and constructive total loss
ALT (actual total loss) occurs where a ship owner has been irretrievably denied access to the property insured. Total loss happens when the vessel is completely damaged and the costs of repairing are higher than the insured value. In this case the Ship-owners will issue a notice of abandonment to Insurers. Insurers will take what is left of the ship and then dispose of the vessel in the best way possible.
In the situation of partial loss or emergency repair of a vessel such as in case of storm or when they have to leave a part of cargo to protect the ship and the remain of the other cargo, a common law undertaking in the UK, may be declared. General Average requires all parties concerned in the venture as cargo, freight hull and bunkers, to contribute to compensate the losses or damages. Average adjusters are people specialized in marine claims and responsible to provide the general average statement involved from the insurers or ship-owners.
Types of Policies
The major types of marine insurance policies are
- Time policy
The time policy is used for a specific period of time usually for12 months. This policy is most suitable for hull insurance.
- Voyage policy
With the voyage policy the vessel will be insured just for a specific voyage for example from Karachi to Port Saied. The voyage policy has reasonable time. The ship will be also insured 24h after the arrival.
When the cargo has an open cover it will be covered for a voyage in a specific period of time. If there will be some modification about ports, places and destination the insurers are not still responsible of the voyage. Moreover in case of deviation the ship may be covered with an additional premium.
- Mixed policy
This is a mix between the Time policy and Voyage policy. In other words the vessel will be covered for a particular voyage and specific period of time.
- Floating policy
Floating policy is taken for the habitual suppliers of goods. It covers several shipments which are declared afterwards along with other particulars. This policy is most suited to exporter in order to avoid trouble of taking out a separate policy for every shipment.
- Valued policy
This policy will cover the cost of goods and shipping charges plus 10% to 15% margin for anticipated profit. This value could be more than the real value of the goods.
- Unvalued policy
Where the value of the subject matter of insurance is not declared but left to be ascertained and proved later it is called unvalued policy.
- Builder’s risk
This policy is valid for more than one year and it will be cover the ship during the construction until the trial voyage.
- Blanket policy
This policy shows all the cargoes insured, with specific ports, destinations, voyages ,places and it will cover all the risks accordingly. Under this policy the maximum limit of the required amount to protect the vessel will be estimated.
- Port risk policy
This policy will cover the vessel in a specific port for a determined period of time
- Wager policy
This is called also “gambling policy” because the policy has not legal effects on the insurers and it cannot be taken to a court of law.
- Special hazards policy
This policy is used to cover specific risks such as war or piratery.
- Composite policy
This type of policy is bought from more than one person. When there is not freud each of them will be paid separately in case of loss.
- Block policy
This kind of policy is usually used from gold’s buyers. It will cover all the risks to loss or damage of the gold from the port of delivery until the destination.
- Fleet Policy
This policy will cover more than one ship which is member of the same ownership or management. Each ship will have a separate insurance.
New Building risks: The policy is used to cover the risks of damage the vessel during the construction.
War risks: Usual Hull insurance doesn’t cover the risks of the ship in war zones. The vessel could be protected in war zone paying an additional premium. The areas with war risks are decided by the London-based Joint War Committee which has recently included the Malacca Straits.
Increased Value (IV):
This policy will cover the ship-owner in case of difference between the insured value of the vessel and the market value of the vessel.
This is a form of old insurance and it is currently obsolete. It was used by the insurer in case the vessel was late to arrive at the port of destination or lost.
A – All Risks
Another type of insurance policy is A-ALL Risks which doesn’t mean that it will cover all the losses but just the ones by fortuitous condition. The requirement that the cause of loss be “fortuitous” excludes: inherent defects, intentionally caused losses ordinary wear and tear and naturally occurring losses.
The term Inherent Vice refers to a loss arising from “qualities inherent” in the goods insured. The application of Inherent Vice is a strong possibility in certain cargoes, for example hydroscopic cargo, fruits and vegetables, wine, cocoa and coffee beans, iron and steel products, wood products, fish meal, leather goods, hides and skins, flour, soybeans, plantains, potatoes, pistachio nuts, walnuts, rubber, rugs, carpet backing, others. As Inherent Vice is an exception to liability, the burden of proof is on the insurer to support the declination of any cargo claim.
An insurer does not agree to insure against damage that is bound to happen or inevitable as a result of the natural tendency of the cargo to deteriorate or sustain damage without an external fortuitous accident triggering the damage.
The “Inherent Vice” exclusion can also apply to a loss which, due to manner in which the cargo is shipped, is regarded as inevitable. A good example is given by cargoes that are susceptible to high and low temperatures. Fresh eggs, chocolate, cocoa cake, wine, beer that are shipped in regular ocean containers during certain times of year when weather conditions are expected to be hot or cold, and without the use of a heated and insulated container ,are bound to sustain losses.
Damage that occurs in the course of ordinary handling and transportation of cargoes, without the intervention of a fortuity, can be due to Inherent Vice and would be exuded from coverage.
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