UNIVERSITY OF MUMBAI
RAYAT SHIKHSHAN SANSTHA’S KARMAVEER BHAURAO PATIL COLLEGE VASHI, NAVI MUMBAI COLLEGE CODE-33
PROJECT REPORT ON “MARINE INSURANCE”
SUBMITED BY AKSHAY DATTATRAY SOLE PROJECT GUIDE PROF. LATIKA DAS
IN PARTIAL FULFILMENT FOR THE COURSE OF BANKING AND INSURANCE (BBI) T.Y.B.BI (SEMESTER-6) ACADEMIC YEAR 2014-2015
ACKNOWLEDGMENT
I, AKSHAY SOLE would take this opportunity to thank the University of Mumbai for providing me an opportunity to study on a project on Banking. This has been a huge learning experience for me. With great pleasure I take this opportunity to acknowledge people who have made this project work possible. First of all I would sincerely like to express my gratitude towards my project guide Prof. LATIKA DAS for having shown so much flexibility, guidance as well as supporting me in all possible ways whenever I needed help. I am thankful for the motivation provided by my project guide throughout and helped me to understand the topic in a very effective and easy manner. I would like to thank Principal Dr. V. S. Shivankar , and the coordinator of the course Prof. C. D. Bhosale for his indirect support throughout. I acknowledge my indebtedness and express my great appreciation to all people behind this work.
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AKSHAY.D.SOLE
DECLARATION
I am AKSHAY SOLE student of KARMAVEER BHAURAO PATIL COLLEGE, studying in T.Y.BBI (semester-6) hereby declare that I have completed this project on “ MARINE INSURANCE ” and has not been submitted to any other university or institution for the award of any degree, diploma etc. The information is submitted to me is true and original to the best of my knowledge.
Date: ………… Place: Vashi, Navi Mumbai
…………....... (AKSHAY SOLE)
RAYAT SHIKSHAN SANTHA’S KARMAVEER BHAURAO PATIL COLLEGE VASHI, NAVI MUMBAI – 400703
CERTIFICATE
This is to certify that AKSHAY.D.SOLE student of B.B.I semester VI has completed his project on “ MARINE INSURANCE ” and has submitted a satisfactory report under the guidance of PROF. LATIKA DAS in the partial fulfillment B.B.I Course of University Of Mumbai in the academic year 2014-2015
……………….
……………….
..……………
Project guide
Principal
Coordinator
………………. (University Examiner)
INDEX Sr. No. 1.
2.
Contents
Introduction to the study 1.1 Introduction 1.2 Objectives 1.3 Nature and scope 1.4 History 1.5 Marine insurance market 1.6 Sources of data collection Marine Insurance 2.1 Types of marine insurance 2.2 Insurable Property 2.3 Marine adventure 2.4 Voyage
3.
Risk in Marine Insurance
4.
3.1 Maritime perils / perils of the sea 3.2Types of risks / Perils covered by marine insurance policy Marine Policy 4.1 Marine Policy 4.2 Contents of marine policy 4.3 Essential elements or principal of marine insurance 4.4 Features of general contract
5.
Insurable Interest 5.1 Insurable Interest
Pg. No
5.2 Utmost Good faith 5.3 Contract of indemnity 5.4 principal of subrogation 5.5 Principal of contribution / Double Insurance 6.
Warranties and Clauses 6.1 Warranties 6.2 Proximate clause 6.3 Assignment of policy 6.4 Re-insurance 6.5 Calculation of rates of premium 6.6 Clauses incorporated in a marine policy
7.
Marine Insurance Policy and losses 7.1 Types of marine insurance policy 7.2 Marine losses 7.3 Types of marine losses 7.4 Partial loss 7.5 York Antwerp Rules 7.6 Claim Documents
Chapter 1 : Introduction to the study 1.7 1.8 1.9 1.10 1.11 1.12
Introduction Objectives Nature and scope History Marine insurance market Sources of data collection
1.1 Introduction
Insurance connected with the risks of transportation of goods, is one of the oldest and most important forms of insurance. The value of goods shipped by the business firms each year cost billions of rupees.
These goods are exposed to damage or loss from numerous perils associated with transportation. These goods can be protected by marine insurance contracts.
It is an important element of the general insurance industry. it essentially provides cover for the losses suffered due to marine perils. in India, the marine insurance is regulated by:
The Indian ‘maritime insurance act, 1963’. which is based on the original ‘marine insurance act, 1906 of U.K.
1.2 Objectives
To study different types of marine insurance plans / policies To find whether traders are aware about the marine insurance plans and policies To analyze satisfaction level of trades regarding marine insurance
1.3 Nature and scope
The nature and scope of marine insurance is determined by reference to section 6 of the definition of “ marine adventure “ and “ marine perils “. It is contract of indemnity but the extent of indemnity is determined by the contract . It relates to losses incidental to a marine adventure or to the building , repairing or launching of a ship . A marine adventure is any situation where the insured property is exposed to maritime perils . Maritime perils are perils consequent on or incidental to navigation .
1.4 HISTORY OF MARINE INSURANCE
Marine insurance as we know it today, can be described as mother of all insurances it is believed to have originated in England owing to the frequent movement of ships over high seas for commerce and trade. In India, marine insurance has been in vogue for several centuries. Prior to the development of marine insurance, the people across the world had a system of pooling their contributions so that if any one of them suffers loss during voyage. He would be compensated from the pool. Today marine insurance has assumed a vast dimension due to ever expanding trade across the globe. It involves large shipping companies that require protection not only for their costly fleet against the perils of the sea, but also to the cargo being carried in each of these ships. The value of each ship and the cargo carried therein, may be costing millions of rupees to the owners.
Historically marine insurance were of two types:
a) Bottomary loan :Which was a transaction protecting an owner from financial loss if his ship was destroyed. Premiums were calculated on the basis of intuition instead of mathematical estimates.
b) Respondentia loans:were comparable to bottomary loans. The difference being a merchant would take a loan using cargo as collateral. The money lender for a premium in addition to the regular interest charged, agreed to forgive the loan if the cargo was lost.
The Indian Marine Insurance Act came into operation on August 1, 1963 and is a comprehensive document containing all regulations of marine insurance business in India.
Prior to this Act, the insurance business was conducted on the basis of the principles of General Contract Act and English Marine Insurance Law.
Marine insurance includes two types of insurance i.e. Cargo insurance and hull insurance.
The cargo insurance includes the goods in transit from the place insured to the sea and from sea to the exporter.
The hull insurance is concerned with body, the machinery and technical knowhow, stores tools etc. of the ship.
Marine Insurance covers the loss or damage of ships, cargo, terminals and any transport or property by which cargo is transferred, acquired or held between the points of origin and final destination.
Marine Insurance has been made mandatory in export-import business.
World’s biggest Passenger-ship ‘MS Freedom of the Seas’ 4300 passenger Capacity Inside
World’s biggest Passenger-ship
1.5 Marine Insurance Market
Lloyd’s, a corporate established in London, is the biggest center for marine insurance in the world Lloyd’s was a coffee house frequented by the tradesmen, ship- owners and others The coffee house became the meeting ground for: brokers, insurers and ship owners for negotiating their business.
LLOYD’S COFFEE HOUSE
At the coffee house they would discuss various aspects of the shipping business including cargo and ship insurance and Ultimately it started transacting marine insurance in a big way when the British ocean liner ‘Titanic’ which sank in 1912, during her maiden voyage was insured by Lloyd’s who paid an insurance claim of one million us $.
TITANIC CRASH
Marine Insurance in India
There is evidence that the marine insurance was present in some form or the other in India since a very long time. In earlier days travelers by sea were particularly afraid of losing their vessels and merchandise because of piracy on the open seas.
Subject Matter of Marine Insurance
the insurance in the current scenario, however is, much more then, what was envisaged earlier it is now required to protect the interest of: the owner of the ship owner of the cargo The person interested in freight for liabilities and in respect of Fines imposed for various reasons.
in case the ship carrying the cargo sinks: the ship will be lost along with:
the cargo the income that the cargo would have generated would also be lost it may also damage third party property Third party injuries or death.
Classification of Marine Insurance
based on the facts stated earlier, marine insurance can be classified into four broader categories i.e.:
hull insurance cargo insurance freight insurance and liability insurance
however our endeavor would be limited to discussing the ‘Marine cargo insurance’ only.
TYPES OF ‘HULL’
Cargo Insurance
‘Cargo’ refers to:
the goods and commodities carried during transit by: rail, road, sea or air from one place to another.
the ‘cargo’ transported by sea is subject to manifold risks such as: loss or damage at the port and Loss or damage during the voyage.
WORLD’S BIGGEST CARGO LINERS
‘Marine cargo insurance’ provides the insurance cover in respect of: Loss of or damage to cargo during transit by: Rail, road, sea or air. Thus ‘marine cargo insurance’ covers the following:
export and import shipments by ocean transshipments shipment by inland vessels consignments sent by rail, road, air & Articles sent by post.
WORLD’S BIGGEST PLANE ‘AIRBUS A380’ - 555 Passengers
‘marine cargo insurance’ covers the shipper of the goods, if the good are damaged or lost during transit
the ‘cargo’ policy covers the risks associated with the transshipment of goods
the policy could be issued to cover a single shipment or
if regular shipments are made: An ‘open policy’ can be issued which insures the goods/ cargo automatically whenever a shipment is made.
Definition of Marine Insurance
Marine insurance is a contract under which the insurer undertakes to indemnify the insured:
in the manner and to the extent thereby agreed Against marine losses, incidental to marine adventures.
It may be defined as a form of insurance covering loss or damage to:
‘Vessels’ or to ‘cargo’ during transportation.
1.6 Sources of data collection
Primary Data : The primary data are those, which are collected afresh and the first time and thus happen to be original in character. The primary data collected through well-designed and structured questionnaires based on the objectives.
Secondary Data :Any data, which have been gathered earlier for some other purpose, are secondary data in the hands of researcher or by someone else, especially for the purpose of the study is known as primary data. The data collected for this project has been taken from the both primary and secondary source.
Sources of secondary data are
Internet Magazines Publications newspapers
Chapter 2 :-
Marine Insurance 2.1 Types of marine insurance 2.2 Insurable Property 2.3 Marine adventure 2.4 Voyage
2.1 Types of Marine Insurance There are four types / classes of marine insurance: a)
Hull Insurance: Covers physical damage to the ship or vessel. In addition it contains a collision liability clause that covers the owner's liability if the ship collides with another vessel or damages its cargo.
b)
Cargo Insurance: Covers the shipper of goods if the goods are damaged or lost. The policy can be written to cover a single shipment. If regular shipments are made, an open cargo policy can be used that insures the goods automatically when a shipment is made. The open cargo policy has no expiration date and remains in force till it is cancelled.
c)
Protection and Indemnity (P&I) insurance:
Is usually written as a separate contract that provides comprehensive liability insurance for property damage or bodily injury to third parties. P&I insurance protects the ship owner for damage caused by ship to piers, docks and harbor installations, damage to ship's cargo, illness or injury to the passenger or crew and fines and penalties.
d)
Freight Insurance: Indemnifies the ship owner from the loss of earnings if the goods are damaged or lost and are not delivered.
2.2 Insurable Property
Insurable property means any ship, goods or other movables exposed to maritime perils.
Insurable property must be stated in the policy with reasonable certainty.
2.3 Marine Adventure There is a marine adventure, when-
1. Any insurable property is exposed to marine perils.
2. The earning of freight, passage money, commission, profit or other pecuniary benefit or security for any advances, loans or disbursements is endangered by the exposure of insurable property to maritime perils.
3. The owner of or other person interested in or responsible for insurable property by reason of maritime perils may insure any liability to the third party.
2.4 Voyage Voyage is the journey that the vessel undertakes. The ship could carry on the voyage in the specified route which is mentioned in the policy. Change of voyage is permitted only in a few specified circumstances.
Chapter 3 :-
Risk in Marine Insurance 3.1 Maritime perils / perils of the sea 3.2 Types of Risks / perils covered by marine insurance policy
3.1 Maritime perils / perils of the sea Maritime Perils are also called 'Perils of the Sea.'
It means the perils consequent on or incidental to the navigation through the sea for example- fire, war perils, rovers, thieves, captures, seizures, jettisons, barratry and other perils.
The term 'Perils of the Sea' refers only to fortuitous accidents or casualties of the seas and does not include the ordinary action of winds and waves.
‘ Wilhelm Gustloff ’ SINKING, the biggest Maritime disaster in the history. About 9,400 persons were killed in this disaster in 1945
3.2 Types of Risks / perils covered by marine insurance policy
1) Sinking, stranding and grounding of ship/vessel/boat or craft. 2) Collision or contact of vessels, ships, boats with internal and external objects. 3) Discharge of cargo at a port of distress. 4) Average general sacrifice. 5) Volcanic eruption or lightning or fire or explosion. 6) Loss of goods or packages containing goods or articles, dropping of packets or package during loading or unloading while on board or off the broad. 7) Loss caused by delay, wrongful delivery, malicious damage. 8) War, sea pirates, other perils like cyclones, typhoons, spirals. 9) Strikes, riots, lockout, civil commotions & terrorism. 10) Theft, pilferage, breakage & leakage. 11) Loss caused by heating due to the closure of ventilators to prevent the entry of sea waters. 12) Loss caused by rats i.e. a hole made in the bottom of the ship, through which sea water enters the ship and damages the cargo.
Marine insurance apart from indemnifying the assured against the maritime perils also includes liability of the third party incurred by the owner of the ship or other person interested in the property assured on happening of the maritime event.
Thus marine insurance includes:
1) Insurance of vessels (hull) of any description. (Hull insurance is concerned with body, the machinery & technical knowhow, stores tools etc. It also includes ships, mechanized boats etc and consignments transported by rail and road.) 2) Insurance of cargo in vessels ( Cargo insurance includes goods in transit from the place of insured to the sea and from the sea to the exporter. 3) Freight paid or received by the assured. 4) Insurance of third party liability 5) Insurance of transactions which are incidental to the marine adventure or marine transport or transport of cargo from go down to the vessel. 6) Insurance also includes all perils and risks incidental to money, documents, securities & other valuable goods in the ship. 7) Other incidental activities concerned with building, launching of ship or transport of stores concerned.
Chapter 4 :-
Marine Policy 4.1 Marine Policy 4.2 Contents of marine policy 4.3 Essential elements or principal of marine insurance 4.4 Features of a general contract
4.1 Marine Policy
The document containing the contract of insurance is known as the 'Marine Policy' or 'Sea Policy'. The clauses are framed in relation to risk covered, risk excluded and other terms and conditions of the insurance.
4.2 Contents of marine policy
1.
Name of the insured.
2.
Policy Number
3.
Sum Assured
4.
The subject matter insured and the perils covered
5.
Place where claims were payable
6.
Streamer (or) other conveyance.
7.
Stamp duty (as per the provisions of the Indian Stamp Act 1879)
8.
Voyage or Journey
9. Number or date of bill of lading or Registered Port or Air freight receipt. (as the case may be) 10. Place of issue of policy and date. 11. Signature of authorized person signing on behalf of the insurers.
4.3 Essential elements or principal of marine Insurance
1. Fundamentals of general contract 2. Insurable interest 3. Utmost Good Faith 4. Indemnity 5. Subrogation 6. Contribution 7. Warranties 8. Cause proximal 9. Assignment & Nomination of a policy
4.4 Features of a general contract A marine policy must fulfill all the essentials of a valid contract namely
1. Offer and Acceptance
2. Consideration
3. Capacity
4. Legal Purpose
Chapter 5 :-
Insurable Interest 5.1 Insurable Interest 5.2 Utmost Good faith 5.3 Contract of indemnity 5.4 principal of subrogation 5.5 Principal of contribution / Double Insurance
5.1 Insurable Interest
According to Marine Insurance Act 1963, 'every person has an insurable interest who is interested in a marine adventure'. The following persons have insurable interest in Marine Insurance.
1. Owner of the Ship 2. Owner of the Cargo 3. Creditor who has advanced money on a ship or cargo to the extent of his interest in such ship or cargo 4. Mortgager 5. Mortgagee 6. Master and crew - for wages 7. Bottomry bond hold 8. Person who pays advance freight is recoverable on loss 9. Shipper and their Agents 10. Persons contingent interest such as the buyer, though the goods may be at seller's risk and though he may have right to reject the goods, but has paid. 11. Trustee 12. Bailee 13. Insurer- he can reinsure 14. Assignee of bill of lading
5.2 Utmost Good faith
The insured must disclose all those relevant facts to the insurer which are likely to affect his willingness to undertake the risk.
If either party does not disclose full facts, the other party can avoid the contract at any time.
5.3 Contract of indemnity Under this contract, the underwriter agrees to indemnify the insured against losses by sea risk to the extent of the amount insured.
The insured can recover only the actual loss suffered and nothing more.
5.4 principal of subrogation According to this principle after meeting the loss agreed, the insurer steps into the shoes of the insured and becomes entitled to all rights and remedies available to the insured against the insured property or third persons.
5.5 Principal of contribution / Double Insurance
The doctrine of contribution applies to marine insurance. If the subject has been insured with more than one insurer, each insurer has to pay only the ratable proportion of loss subject to the maximum loss. The principle supports the concept that the insured cannot recover amounts on the same property for the same peril from more than one insurer. Thus, according to Section 34, the pre requisites of double insurance/contribution are: a) There must be two or more policies. b) The policies must relate to the same adventure and interest or any part thereof.
c) The sums insured must exceed the indemnity allowed by this Act
Chapter 6 : Warranties and Clauses 6.1 Warranties
6.2 Proximate clause 6.3 Assignment of policy 6.4 Re-insurance 6.5 Calculation of rates of premium 6.6 Clauses incorporated in a marine policy
6.1 Warranties According to Marine Insurance Act, a warranty means a stipulation or term, the breach of which entitles the insurers to avoid the policy altogether and this is so even though the breach arises through circumstances beyond the control of the warrantor.
Warranties can be expressed (written) or implied.
Express Warranties
The expressly stated written warranties and may be like 1. The ship is safe on a particular day 2. The ship & goods are neutral and continue to be so 3. The ship will proceed to its destination without any deviation 4. The ship will sail on or before a certain date
Implied warranties
There are certain warranties which are implied in every contract of marine insurance unless excluded expressly. These are: 1. Warranty of sea worthiness 2. Warranty of non-deviation from path 3. Warranty as to the legality of the voyage 4. Proper documentation related to the ship
Warranty of Sea Worthiness
The ship must be sound as regards her hull. The gear must be sufficient and must be fully equipped, officered and manned Ship must not be overloaded If the voyage is to be performed in stages, the ship must be sea worthy at the commencement of each stage. Sea worthiness also includes cargo worthiness i.e. must be fit to carry the cargo
Warranty of Non Deviation
In the case of voyage policy, where, a voyage is contemplated between two given ports, there is an implied warranty of non-deviation on the part of the insured except in cases where it is excusable by the law.
The insurer is discharged from the liability as from the time of deviation.
The intention to deviate is immaterial.
Warranty of Non Deviation
What is a Deviation? 1. When the course of the voyage specially designated in the policy, is departed from or 2. Where the course of the voyage was not specially designated by the policy, but the usual & customary course is departed from or
3. Where several ports of discharge were specified by the policy, but the ship did not process to them in the order designated by the policy or
4. Where the policy did not specify the ports of discharge but the ship (which should have) did not proceed to them in geographical order.
Warranty of Non Deviation- Deviations that can be excused
Destination or delay is excused (justified) under the following circumstances when 1.
It is authorized by the contract (or)
2. It is caused by circumstances beyond the control of the master and his employer (or) 3. It is caused by the barratrously conduct of the master or crew if barratry were one of the perils insured against (or) 4.
It is necessary in order to comply with an express or implied warranty (or)
5. It is necessary to arrange medical or surgical aid for any person on board the ship (or) 6.
It is very necessary for the safety of the ship and subject matter insured (or)
7. It is necessary to avoid being captured or destroyed by the enemy of the Government.
Legality of Voyage
This is an implied warranty on the part of the insured that the adventure insures is a lawful one, and that, so far as the assured can control the matter, the adventure shall be carried out in a lawful manner.
This warranty implies that the ship will not be used for undertaking any illegal voyage e.g. smuggling, trading with enemy etc.
Proper Documentation of the Ship
Whenever there is an express warranty that the ship shall be neutral (especially in the case of war time adventure) there is an implied warranty that the ship carries all the papers necessary to prove the neutrality.
6.2 Proximate clause According to the Marine Insurance Act, the insurer is liable for any loss proximately caused by a peril insured against. Insurer is not liable for any loss which is not proximately caused by a peril insured against.
6.3 Assignment of policy
A marine insurance policy is assignable unless it contains terms expressly prohibiting assignment. It may be assigned either before or after loss. A marine policy may be assigned by endorsement thereon or in any other customary manner.
6.4 Re-insurance
According to Marine Insurance Act, the insurer under a contract of marine insurance has an insurable interest in his risk and may reinsure the subject matter fully or partly as per his requirement. This is called Reinsurance or Insurance of Insurance.
In reinsurance, unless the policy provides otherwise, the original assured has no right or interest in respect of such reinsurance.
6.5 Calculation of rates of premium
Calculation of rates of premium depends on:
1.
Description of goods : Full description of the goods to be insured must be given.
• The nature of commodity is very important for rating and underwriting.
• Different types of commodities are subject to different types of risk.
Ex: Commodities like cement sugar, etc. are easily damaged by sea water; cotton or some chemicals may easily catch fire; liquids can get leaked and crockery and glassware are susceptible to breakage.
2. Method and Manner of Packaging : The possibility of loss or damage depends very much on the type of packing.
Generally goods are required to be packed in commodity friendly bales, bags, bundles, crates, drums, barrels, loose packing, carton etc.
3.
Voyage and Mode of Transit : The name of the place from where, transit will commence and the name of the place where it will terminate has to be stated.
Mode of conveyance to be used in transporting goods by rail, lorry or by air etc. should be given.
The name of the vessel is to be given in case if overseas travel.
Postal receipt number and date thereof is required in case of goods sent by registered post.
If the voyage is to involve trans-shipment, it must be clearly stated.
4. Cover Required : The risk against which cover requires should be fully described.
5. Name of the vessel : The correct name of the vessel is necessary, to know the details of the age, tonnage classification (tanker, bulk carrier, container ships, fishing fleet, war vessels) ownership etc.
• Shipments through old vessels or smaller vessels will lead to charge of a higher rate of premium. • Shipments made by first class vessels attract normal rates of premiums and the vessels are approved by authorities like the Indian Registrar of Shipping. • If the vessel used for the voyage is tramp vessel i.e. a vessel which does not follow a fixed schedule and carries cargoes whenever available. The vessels have to be approved by GIC and if not approved, then will attract a very high premium.
While there is no tariff rate on premium and insurers can charge any rate depending upon the nature of goods , the distance, the mode of trans-shipment, type of package, the voyage route and the past claims experience. Extended covers like SRCC ( Strikes, Riots and Civil Commotion) and war risks are governed by special regulations and the premium collected is credited to the Central Government. Shipping vessels are listed according to their age and draught weight. Full details of every shipping vessel built anywhere in the world is available in 'Lloyds Register' (issued by Lloyds of London). Minimum standards are fixed. Any vessel falling short of these standards will attract loading premium. Premiums can be paid on monthly, quarterly, half yearly or yearly basis.
6.6 Clauses incorporated in a marine policy
The following are the important clauses: a. Assignment Clause: This clause makes it clear that the marine policy is assignable unless it contains terms expressly prohibiting assignment.
Marine policy may be assigned either before or after the loss. Assignment may be through endorsement or in other customary manner. Where the assured has parted with or lost his interest in the subject matter insured, any subsequent assignment is inoperative. The assignee who has acquired the beneficial interest in the policy is entitled to see thereon in his own name.
b. Transit Clause or Warehouse to Warehouse Clause :
Transit clause provides with respect to goods, for the risk to attach 'from the loading thereof aboard the said ship' and for the insurance to continue until the goods are discharged and safely landed at the port of discharge. Warehouse to Warehouse clause helps to provide protection for the entire period of transit. The period of cover extends from the time the goods leave the exporter's warehouse until they are delivered to the importer warehouse at the named destination or to any other warehouse whether prior to or at the named destination, which the assured elect to use either for storage or for allocation or distribution or on expiry of 60 days after discharge from the overseas vessel at the final port of discharge whichever occurs first.
c. Change of Voyage Clause (or) Deviation Clause
According to Marine Insurance Act, where there is a change in voyage, unless the policy otherwise provides, the insurer is discharged from liability as from the time of the change.
Through this clause, the policy does provide otherwise (that means permits deviation) and the event is held covered.
d. Touch and Stay Clause The liberty to 'touch and stay' at any port or place whatsoever does not authorize the ship to depart from the course of her voyage from the port of departure to the port of destination.
e.
Inchmaree Clause or Negligence Clause
This clause extend the underwriter liability to cover risks of a kind, which are not included within the ordinary meaning of maritime perils. It provides for the insurance to cover loss or damage to hull or machinery directly caused by: i. Accident in loading or shifting cargo or fuel explosion on ship board and or elsewhere ii.
Bursting of boilers
iii.
Negligence of master, officers
iv.
Negligence of repairs provided such repairs are not assured hereunder
v.
Contact with aircraft
vi. Contact with any land conveyance, dock or harbor equipment’s or installations vii. Earthquake, volcanic eruption or lightning
f. Running Down Clause :
This clause provides a supplementary contract whereby the assured is given some protection against third party damages.
It provides that if the insured vessel collide with another vessel, the underwriter agree to pay three quarters of the amount of damage to which the assured becomes liable.
g. Sue and Labor Clause :
This clause provides that liability shall not be exceeding the proportion that the amount insured bears to the value of the vessels.
In absence of this provision, underwriters would be liable for the full amount of
sue and labor charges even when there was under insurance. h. Reinsurance Clause :
There are various reasons why an underwriter may deem it prudent to reinsure part or all of a risk for which he has accepted liability.
• E.g. He may find that his commitment on any one vessel or in any locality have become too burdensome.
• Declarations under open covers or floating policies and acceptances by his agents in other markets give him an accumulated liability considerably in excess of his usual retention
• He may have accepted a line on 'all-risks’ terms and then desire to reinsure in respect to total loss only.
i.
Memorandum Clause :
This clause is meant to provide a minimum limit to the underwriter's liability regarding claims for particular average by exempting him from such claims. j.
Continuation Clause :
This clause refers that the vessel shall continue to be covered even after the completion of voyage under the policy at a pro rata premium to her port of destination. k. Perils of the Sea Clause :
The term 'perils of the sea' refers to fortuitous accidents and casualties of the sea. It does not include ordinary action of the winds and waves.
L.
Warrior Clause :
This is supplementary to ' Sue and Labor' clause. In this clause, either party to the contract may take such steps, or incur such expenses, as are contemplated under the sue and labor clause, to minimize a loss without prejudice in the light of the assured on the one hand and the underwriter on the other
m. All Risk Clause :
This clause provides that the insurance is against all risks of loss or damage to
the subject matter insures and the claims are payable irrespective of percentage of loss. n. General Average Clause :
The general average clause refer to the losses that must be partly borne by someone other than the owner of the goods that were damaged or lost.
General average losses may be total or partial, whereas particular average losses, by definition are always partial.
n. General Average Clause :
Ex: Suppose that a certain cargo of lumber wrapped in a large bundle is stored on deck. To lighten the ship during heavy storm that is threatening the safety of the voyage, the captain orders the limber worth Rs.50000 to be jettisoned. The action of the captain is successful in saving the ship and all other interests. Such a sacrifice is termed as general average, and the interests that were saved would be required to share a pro-
rata part of the loss. Thus is the ship and freight interests were valued at Rs.1000000 and other cargo interests at Rs.950000, the ship owner would pay one half (100/200) of the value of the lumber. The other cargo interests would share 95/200 of the loss and the owner of the lumber would bear 5/200 of the loss
All marine policies provide coverage for general average claims that may be made against the insured.
o.
Foreign General Average Clause :
This clause means that the arrangement in case of General Average Claim which may arise under the policy, the average settlement made in foreign country will be adopted as the basis for settlement.
p.
Free of Capture and Seizure (FCS) :
This clause is generally inserted in times of war. It means that insurer/ underwriter will not be liable for loss or claim arising from seizure of ship as a price of war. In times of war, this clause is inserted unless the insured pays the underwriters additional premium for war risks. In ocean marine policy, losses from pirates, assailing thieves or overtly dishonest actions by the ship's master or crew (barratry) are considered burglary and robbery protection on land and are not losses from war. Typically pilferage is not covered.
q. Free of Particular Average Clause (FPA) :
This clause restricts the liability of the insurer/underwriter. Insurer is liable only for total loss and not for particular average or partial loss
Particular average means partial loss to an interest that must be borne entirely by that interest. The free-of-particular average clause provides that no partial loss will be paid to single cargo interest unless the loss is caused by certain perils such as stranding, sinking, burning or collision.
Chapter 7 : Marine Insurance Policy and losses 7.1 Types of marine insurance policy 7.2 Marine losses 7.3 Types of marine losses 7.4 Partial loss 7.5 York Antwerp Rules 7.6 Claim Documents
7.1 Types of marine insurance policy
1. Bottomry Bond
It is a bond representing loan raised by the master of the ship so as to meet certain urgent expenses like repairing a ship or for security of ship or cargo.
It is repayable after a certain agreed number of days after the arrival of the ship as specified in the bond.
If the vessel is lost before the arrival at destination, the lender losses his money.
2. Respondentia Bond :
Like Bottomry Bond, Respondentia Bond also represents a monetary loan borrowed by the master of a ship to meet certain urgent expenses. The loan is raised on the security of CARGO ON LY . The loan is to be repaid within a certain period after the arrival of the cargo at the destination as specified in the Respondentia Bond. If the cargo is lost on its way, the lender losses his money. Marine policies are known by different names according to their manner of execution and the nature of risks covered. Following are the various kinds of marine insurance policies as contained in the Marine Insurance Act, 1963. 1. Voyage Policy : As the name suggests this policy covers a voyage. This is a policy in which the limits of the risk are determined by place of particular voyage e.g. Chennai to Singapore , Chennai to London Such policies are always used for goods insurance, sometimes for freight insurance but only rarely nowadays for hull insurance. 2.
Time Policy : This policy is designed to give cover for some specified period of time say for example noon of 1st January 2009 to noon of 1st January 2012
Time policies are usual in case of hull insurance.
3.
Voyage & Time Policy or Mixed Policy : It is a combination of voyage and time policy.
It is a policy which covers the risk during a particular voyage for a specified period. Example A ship may be insured for voyages between Chennai to London for a period of one year.
4.
Valued Policy : This policy specifies agreed value of the subject matter insured, which is not necessarily the actual value. This agreed value is also known as insured value.
Once agreed these values cannot be changed and remains binding on the parties.
5.
Unvalued Policy/ Open Policy : In case of unvalued policy, the value of the subject matter insured is not specified at the time of effecting insurance.
It is taken for a specified amount and the insurable value is ascertained at the time of loss. The insurer is liable to pay only up to actual loss incurred to the policy amount.
6.
Floating Policy : A floating policy describes the insurance in general terms, leaving the name of the ship or ships to be defined by subsequent declarations.
The declaration may be made by endorsement on the policy or in another customary manner. Declaration must be made in the order of shipment unless the policy provides otherwise.
It must comprise all the consignments within the terms of the policy and the values must be stated honestly. Errors and omissions however, may be rectified even after the loss has occurred, if made in good faith. When the total amount declared exhausts for which the policy has been issued, it is said to be 'run off' or 'fully declared'. The assured may then arrange for a new policy to be issued to succeed the one about to lapse, otherwise the cover terminates when the policy is fully declared.
7.
Wagering Policy/ PPI Policy : This policy is issued without there being any insurable interest or policy bearing evidence that the insured is willing to dispense with any proof of interest
If policy contains such words as 'Policy Proof of Interest' (PPI) or 'Interest or No Interest' it is a Wagering or Honor Policy. Under Section 4 of the Marine Insurance Act, such policies are void in Law but such policies continue to be common.
8.
Construction or Builder Risk Policy : This is designed to cover risks incidental to the building of a vessel, usually giving cover from the time of laying the keel until the completion of trials and handing over to the owners.
In the case of very large vessel, the period may extend over several years.
9.
Blanket/ Open Cover Policy : In order to arrange their marine insurance in advance and to be assured to be covered at all times, and also to avoid the effects of possible rapidly fluctuating rates, it is practice of regular importers and exporters to avail 'Blanket Insurance'.
An open cover policy is an agreement between the assured and his underwriter under which the former agrees to declare and the latter to accept, all shipments coming within the scope of the open general cover during some stipulated period of time.
10. Duty Policy : In case of CIF contracts, the exporter would have arranged for insurance only up to CIF value. Customs duty payable if any is the responsibility of the importer and they can separately obtain custom duty policy on 'standalone basis'. 11. Increased Value Policy : If goods imported are damaged in transit and such goods can be procured locally at prices higher than the CIF+ Customs duty, the increase value policy covers such difference in values.
12. Marine Delays : Any loss or damage to the equipment during transit which leads to the delay in completion of the project , commencement of production and thereby loss in profit is covered under this policy and is also known as 'Consequential loss due to marine delays' or simply 'Delay Start Up'.
13. Marine Cum Erection Policy : In standard marine cargo policy, the cover ceases after the goods are delivered at the site of erection. If any damage attributable to
transit risk was found at the time of erection, then marine policy and erection policy bear 50% each of the cost of damage. 14. Port Risk Policy : This is to cover a ship or cargo during a period in port against the risks peculiar to a port as distinguished from voyage risks.
7.2 Marine Losses According to Marine Insurance Act, unless the policy provides otherwise, a. The insurer is liable for any loss proximately caused by a peril insured against
b. The insurer is not liable for any loss attributable to the willful misconduct of the assured but unless the policy otherwise provides, he is liable for any loss proximately caused by a peril insured against even though the loss would not have happened but for the misconduct or negligence of the Master or Crew of the Ship.
c. Unless the policy otherwise provides, the insurer is not liable for ordinary wear and tear, ordinary leakage and breakage, inherent vice or nature of subject matter insured or for any loss proximately caused by rat or vermin or any injury to machinery not caused by maritime perils.
7.3 Types of marine losses
It is said that actual total loss has arisen :
1. When the subject matter insured is destroyed or is so damaged that it ceases to be a thing or a kind insured.
2. When the assured is irretrievably deprived of the subject matter.
3. When the ship concerned in the adventure is missing, and after the lapse of a reasonable time period, still no news of it is received.
In the case of Actual Total Loss, the insurer has to pay either the insured amount or the actual loss whichever is less but the cause of the loss must be one of the perils insured against.
Constructive total loss is said to have occurred : 1.
When the assured is deprived of the possession of ship or goods by a peril insured against and it is unlikely that he can recover the ship or goods as the case may be or the cost of recovering the ship or goods, as the case may be, would exceed their value when recovered
2.
In the case of damage of goods, where cost of repairing the damage and forwarding the goods to their destination would exceed their value.
3.
In case of damage of the ship, where it is so damaged by the peril insured against that the cost of repairing the damage would exceed the value of the ship. Effect of Constructive Total Loss : When there is a constructive total loss, the assured may either treat the loss as a particular loss or abandon the subject matter insured to the insurer and treat the loss as if it were an Actual Total Loss.
Notice of Abandonment :
It is a notice by the assured to the insurer that he abandons all interests in the subject matter of insurer unconditionally to the insurer. As per the Section 62, the rules regarding abandonment are: 1.
A notice of abandonment should be given by the insured to the insurer. If he
fails to do so, the loss can only be treated as a Partial Loss. 2.
The insurer may waive the Notice Of Abandonment.
3.
The notice of abandonment must be unconditional and can be done by expression, writing or both.
4.
5.
Notice of Abandonment must be given written within a reasonable time after the receipt of reliable information of the loss. However in case of doubt, assured is entitled to a reasonable time to make inquiry and then to notify. When the notice of abandonment is properly given, the rights of the assured are not prejudiced by the fact that the insurer refuses to accept the abandonment.
6.
The acceptance of abandonment may be either express or implied from the conduct of the insurer. The mere silence of the insurer after the notice does not amount to an acceptance.
7.
Once the notice of abandonment is accepted, the abandonment is irrevocable. The acceptance of the notice conclusively admits liability for the loss.
Effect of Abandonment : Whenever there is a valid abandonment, the insured is entitled to take over the interest of the assured in whatever may remain in the subject matter insured, and all proprietary rights incidental thereto.
Partial Loss :
Any loss other than total loss is Partial Loss and may be classified into:
a) Particular Average Loss
b) General Average Loss
a) Particular Average Loss :
When the subject matter is partially lost or damaged by a peril insured against, it is called Particular Average Loss.
A Particular Average Loss must fulfill the following conditions:
1. Only a particular subject matter is lost or damaged. 2. The loss should be accidental. 3. It should be caused by peril insured against.
4. The damage should not have suffered for a general benefit.
b) General Average Loss :
Examples of General Average Loss are:
a) Loss caused to cargo due to fire.
b) Money paid to pirates for the purpose of saving the ship and cargo.
c) Expenses incurred due to outside help taken in making the vessel reach its destination. The liability of General Average extends to the owner of the ship, the cargo and the freight.
7.5 York Antwerp Rules As General Average causes many difficulties particularly when adjustments has to be made in foreign courts, an international code has been compiled known as York- Antwerp Rules.
The association for reform and codification of the law of nature meet at Antwerp in 1877, where code of rules were adapted and known as 'York Antwerp Rules'. The rules were further revised in 1890 and 1924.
These rules deal only with certain specific method relating to General Average Loss and further provided that in case of matters not included in the rules, that should be dealt with according to the law and practice of the court of destination.
7.6 Claim Documents Claim under the marine policy have to be supported by certain documents, which vary according to the type of circumstances of the claim and mode of carriage. Typical documents required for Particular Average claim are: a) Original Policy: Certificate of insurance. b) Bill of lading: Evidence that the goods were actually shipped
b) Invoice: Evidence for term of sale. d) Survey Report: Show the cause and extent of the loss. e) Debit Note: Claim bill f)
Copy of Protest: Protest on arrival at destination before public notary.
g) Letter of Subrogation: Legal documents which transfer the right of claimant against third party to the insurer.
Chapter 8 : Conclusion 8.1 Limitation of the study 8.2 Conclusion 8.3 Bibliography
8.1 Limitation of the study
Most of the data is collected from secondary source due to lack of time. The data is not 100% accurate There is possibility of bias Non availability of required data to analyze the performance. The short span of the time provided also one of limitations.
8.2 Conclusion
Today marine insurance has assumed a vast dimension due to ever expanding trade across the globe.
Marine Insurance has been made mandatory in export-import business.
A marine policy fulfills all the essentials of a valid contract namely Offer and Acceptance, Consideration, Capacity, Legal Purpose. Every person has a insurable interest who is interested in marine adventure. A marine policy may be assigned by endorsement thereon or in any other customary manner. The risk against which cover requires should be fully described
8.3 Bibliography
Birds, J. Birds' Modern Insurance Law. Sweet & Maxwell, 2004.
Donaldson, Ellis, Wilson (Editor), Cooke (Editor), Lowndes and Rudolf: Law of General Average and the York-Antwerp Rules. Sweet & Maxwell, 1990.
John, A. H. "The London Assurance Company and the Marine Insurance Market of the Eighteenth Century," Economical New Series, Vol. 25, No. 98 (May 1958), pp. 126–141 in JSTOR
Rover, Florence Edler de. "Early Examples of Marine Insurance," Journal of Economic History Vol. 5, No. 2 (Nov., 1945), pp. 172–200 in JSTOR
Wilson, DJ, Donaldson (1997). Lowndes and Rudolf: General Average and the York-Antwerp Rules. British Shipping Law Library: Sweet & Maxwell.
6.4 Questionnaire
1. Is insurable property necessary stated in the policy
2. What does a term “perils of the sea” refers
3. What are document containing contract of insurance called as
