marine insurance

  Definition :
Marine insurance covers the loss or damage of ships, cargo, terminals, and any transport or cargo by which property is transferred, acquired, or held between the points of origin and final destination..

Cargo insurance — discussed here — is a sub-branch of marine insurance, though Marine also includes Onshore and Offshore exposed property (container terminals, ports, oil platforms, pipelines); Hull; Marine Casualty; and Marine Liability.

 

Warranties and conditions

A peculiarity of marine insurance, and insurance law generally, is the use of the terms condition and warranty. In English law, a condition typically describes a part of the contract that is fundamental to the performance of that contract, and, if breached, the non-breaching party is entitled not only to claim damages but to terminate the contract on the basis that it has been repudiated by the party in breach. By contrast, a warranty is not fundamental to the performance of the contract and breach of a warranty, while giving rise to a claim for damages, does not entitle the non-breaching party to terminate the contract. The meaning of these terms is reversed in insurance law. Indeed, a warranty if not strictly complied with will automatically discharge the insurer from further liability under the contract of insurance. The assured has no defense to his breach, unless he can prove that the insurer,by his conduct has waived his right to invoke the breach, possibility provided in section 34(3) of the Marine Insurance Act 1906 (MIA). Furthermore in the absence of express warranties the MIA will imply them, notably a warranty to provide a seaworthy vessel at the commencement of the voyage in a voyage policy (section 39(1)) and a warranty of legality of the insured voyage (section 41).

Salvage and prizes

The term "salvage" refers to the practice of rendering aid to a vessel in distress. Apart from the consideration that the sea is traditionally "a place of safety", with sailors honour-bound to render assistance as required, it is obviously in underwriters' interests to encourage assistance to vessels in danger of being wrecked. A policy will usually include a "sue and labour" clause which will cover the reasonable costs incurred by a shipowner in his avoiding a greater loss.

At sea, a ship in distress will typically agree to "Lloyd's Open Form" with any potential salvor. The Lloyd's Open Form is the standard contract, although other forms exist. The Lloyd's Open Form is headed "No cure — no pay"; the intention being that if the attempted salvage is unsuccessful, no award will be made. However, this principle has been weakened in recent years, and awards are now permitted in cases where, although the ship might have sunk, pollution has been avoided or mitigated. In other circumstances the "salvor" may invoke the SCOPIC terms (most recent and commonly used rendition is SCOPIC 2000) in contrast to the LOF (Lloyd's Open Form) these terms mean that the salvor will be paid even if the salvage attempt is unsuccessful. The amount the salvor receives is limited to cover the costs of the salvage attempt and 15% above it. One of the main negative factors in invoking SCOPIC (on the salvors behalf) is if the salvage attempt is successful the amount at which the salvor can claim under article 13 of LOF is discounted.

The Lloyd's Open Form, once agreed, allows salvage attempts to begin immediately. The extent of any award is determined later; although the standard wording refers to the Chairman of Lloyd's arbitrating any award, in practice the role of arbitrator is passed to specialist admiralty ocs.

A ship captured in war is referred to as a prize, and the captors entitled to prize money Again, this risk is covered by standard policies.

  

Specialist policies

Various types of specialist policy exist, including:

Newbuilding risks: This covers the risk of damage to the hull while it is under construction.

Yacht Insurance: Insurance of pleasure craft is generally known as "yacht insurance" and includes liability coverage. Smaller vessels, such as yachts and fishing vessels, are typically underwritten on a "binding authority" or "lineslip" basis.

War risks: Usual Hull insurance does not cover the risks of a vessel sailing into a war zone. A typical example is the risk to a tanker sailing in the Persian wulf during the gulf war. War risks cover protects, at an additional premium, against the danger of loss in a war zone. The war risks areas are established by the London-based Joint War Committee, which has recently moved to include the malacca as a war risks area due to piracy. If an attack is classified as a "riot" then it would be covered by war risk insurers.^[2]

Increased Value (IV): Increased Value cover protects the shipowner against any difference between the insured value of the vessel and the market value of the vessel.

Overdue insurance: This is a form of insurance now largely obsolete due to advances in communications. It was an early form of reinsurance and was bought by an insurer when a ship was late at arriving at her destination port and there was a risk that she might have been lost (but, equally, might simply have been delayed). The overdue insurance of the titanic was famously underwritten on the doorstep of Lloyd's.

Cargo insurance: Cargo insurance is underwritten on the Institute Cargo Clauses, with coverage on an A, B, or C basis, A having the widest cover and C the most restricted. Valuable cargo is known as specie. Institute Clauses also exist for the insurance of specific types of cargo, such as frozen food, frozen meat, and particular commodities such as bulk oil, coal and jute. Often these insurance conditions are developed for a specific group as is the case with the Institute FOSFA Trades Clauses which have been agreed with The Federation of Oils, Seeds and Fats Associations and Institute Commodity Trades Clauses which are used for the insurance of shipments of cocoa, coffee, cotton, fats and oils, hides and skins, metals, oil seeds, refined sugar, and tea and have been agreed with the The Federation of Commodity Associations.