MARINE

INSURANCE
 Introduction and Overview
What is Marine Insurance?

Historical Development of Marine Insurance Market

Types of Marine Coverage and Policies

Considerations in Underwriting Marine Insurance

The Law of Marine Insurance

2 1
 Introduction and Overview
• Insurance against the perils of marine commerce
o For example, if a ship sinks in transit, various types of
losses are possible: loss of cargo; loss of profit from sale
of cargo; damage to ship; third-party liability; personal
injury
o Key difference between marine insurance and other types
of insurance is that the “marine adventure” or peril
insured must be specifically maritime in nature

3
“Marine adventure” – English Marine
Insurance Act of 1906:
• where any goods in shipment are exposed to
maritime perils (e.g., perils of the sea, fire, war,
pirates, jettisons)
• where the earning of any pecuniary benefit from
goods in shipment is endangered by exposure to
maritime perils
• where any liability to a third party may be incurred
by the owner of insurable property (or any party
with an interest in the property) by reason of
maritime perils
4
Marine Insurance Markets
• English Market began with Lloyd’s of London in the
1600s

• Lloyd’s is not an insurer; it is a facility for the selling

of insurance by underwriting syndicates at Lloyd’s

• Historically, the capital for Lloyd’s syndicates was

provided by individual investors

• Now, the capital is provided by corporations doing

business as syndicates
5
Marine Insurance Markets
• Lloyd’s began in 1688 at Edward Lloyd’s coffeehouse
in London

• Lloyd’s Coffee House was located near the Tower

Wharf and Customs House in London, so it was
frequented by shipowners, captains, and merchants

• At Lloyd’s Coffee House, various merchants entered

into a side business of underwriting the risk of a
ship’s safe passage to its destination, with its cargo
intact
6
Marine Insurance Markets
• By 1696, the “Lloyd’s News” and, later, “Lloyd’s List”
began publication containing the most authoritative
daily journal of shipping intelligence

• Over the years, Lloyd’s set up reporting stations

around the world to provide information on ship
movements

• Because of the need for buyers and sellers to have

the same information about the risk, the doctrine of
“uberrima fides” (meaning – utmost good faith)
7
developed in the market, and the law
 Utmost good faith
Insurer must not conceal from insurer any
circumstances known to him and which matter.

What is known by due dilligence need not be informed.

What is not known need not be informed.

Nonfulfillment by insurance results into refuting the

8
claim.
Marine Insurance Markets
• From modest beginnings in the 1600s, Lloyd’s has
grown to be one of the largest and most influential
marine insurance markets in the world

• Over time, other chartered London insurance

companies sprang up

• London continues to be a major marine insurance

center, not only for Lloyd’s Underwriters, but also
London-based insurance companies and P&I Clubs
9
Marine Insurance Markets
• Marine Insurance today is underwritten by:

o Underwriters at Lloyd’s
o Insurance companies located in London and throughout
the world
o U.S. insurance companies, most of which belong to the
American Institute of Marine Underwriters
o P&I (“protection & indemnity”) Clubs

10
 Examples of Risks
• Market risk
• Price risk
• Counterparty risks (non-payment, non-performance,
insolvency, valid documentation, taxation issues,
insurance cover)
• Credit risks
• Operational risks
• Geopolitical risks (piracy, terrorism)
• Compliance with laws / sanctions regulations
• Liabilities to third parties
11
 The Risk Review Process
• Forensic review of your business and YOUR risks

• Identify risks you can transfer to counterparties,

insurers and/or banks

• ARE THE REMAINING RISKS ACCEPTABLE AND

MANAGEABLE TO YOU?

12
 Manage Your Risks
• YOUR AIM MUST BE A CONTROLLED ENVIRONMENT.
• Either manage the risks yourself
OR
• Transfer the risk through a contract
OR
• Insure the risk

13
 Risk Management Through a
Commercial Contract
• Clearly define the objectives and responsibilities of
the parties
• Use of INCOTERMS includes contract regarding
schedule of risk liability
• Charterparty and bill of lading are contracts.

14
 What are Incoterms
• Created in 1936 by the International Chamber of
Commerce (ICC)
• Regularly updated, most recently in 2010 but 2000
Rules are still referred to
• Incoterms DO NOT give you a complete contract
of sale
• Incoterms do not deal with the transfer of
ownership of goods
• Incoterms state which party has the obligation to
make carriage or insurance arrangements
• Specify the place of delivery as precisely as possible
15
 Your Relationship With Insurers
• Meet your lead underwriter
• Make sure that the underwriter understands your
business and the risks involved
• UTMOST GOOD FAITH: you must disclose BEFORE
contracting every material circumstance of your
business or transaction that you wish to insure:
corporate structure, goods, conveyances,
geographical regions, limits, etc.

16
 Operating An Insurance Policy
• Strictly comply with the policy terms -- e.g., warranties that
some particular thing shall or shall not be done

• Keep insurers closely informed about changes to your

organization and business

• Make sure that the policy is amended to reflect changes

• Protect yourself through proactive measure, e.g. use of
independent inspectors

• In cooperation with insurers/broker get an Emergency

Procedure in place
17
 In Case of An Accident
• Follow the Emergency Procedure
• Take all necessary measures to protect people from
injury or death
• Protect property from further loss
• Alert your broker’s/insurer’s claims department
• Duty to mitigate loss (experts on the scene)
• DO NOT ACKNOWLEDGE LIABILITY
• Start collecting evidence (witness statements,
photographs, survey reports, retention of samples,
18
etc.)
 Claims Handling
• Pre-contract disclosures
• Policy wording
• Claim notification/documentation
• Appointment of loss adjustor
• Close contact with people involved within company

19
 Types of Marine Coverage and
Policies

20
 Tyoes of Marine Insurance
• Cargo Insurance

• Hull & Machinery Insurance

• Protection & Indemnity (P&I) Insurance

21
 Unlocking Cargo Terms/Phrases
Definitions and/or Translations
• Average – Loss
• Collision – 2 vessels running into each other
• Franchise – Threshold
• General – Shared
• Particular – Partial or Individual
• Warranty i. Exclusions, e.g. Paramount; ii. Coverage
requirements, e.g., loading survey

22
 Unlocking Cargo Terms/Phrases
Definitions and/or Translations
• Average Warranty – Insuring Terms/Coverage
o FPA – Free of Particular Average Total loss only
o WA – With Average – Total and Partial losses
o WA 3% – loss /no loss 3% Franchise Threshold
o All Risks – covered unless specifically excluded

• General Average – Shared Loss

• Irrespective of percentage – perils added and includes total
and partial losses
• Sue and Labor – Act to avoid/minimize loss
23
 Cargo Insurance
• Provides coverage for cargo in transit (with
incidental storage)
• Ocean Cargo Insurance/Certificates are an integral
part of international trade
• Who requires marine cargo insurance?
o Anyone engaged in the movement of goods
o Buyers, sellers, importers, exporters, manufacturers, and
banks

• The Terms of Sale impact who purchases insurance

24
 Cargo Insurance
Principal areas of coverage
o Perils of the Sea
– Most important coverage of marine insurance policies
– A broad term covering specific types of losses, including:
Stranding; Sinking; Grounding; Collisions with other vessels;
Heavy Weather; Ice
o Assailing Thieves
o Jettison
– Defined as the intentional throwing overboard of the ship’s cargo,
material, or stores in time of peril, for the common safety of the
ship and her cargo
o Fire, lightning and earthquake

25
Exclusions
 Cargo Insurance
• All Risks
o Shipments of goods insured sufficiently packed to
withstand the voyage covered by the policy are insured
against all risks of physical loss or damage from any
external cause.
• Paramount Warranties/Paramount Exclusions
o Free of Capture and Seizure (FC&S) (War Perils)
o Strikes, Riots, and Civil Commotion (SR&CC)
o Radioactive Contamination Exclusion (RACE)
o Chemical, Biological, Biochemical, and Electronic
Exclusion (CBE)
o Delay and Inherent Vice
26
 Cargo Insurance
Unique Coverage Features:

• General Average and Salvage Charges (GA)

• Seaworthiness (Airworthiness)
o Vessel being in sound condition and well maintained
o Vessel being properly manned (number of and qualification of crew)

• Sue and Labor

o Assured required to take steps to prevent or minimize loss

27
 Cargo Insurance
• Carriers’ Legal Liability – Defenses and Exemptions
for loss or damage due to:
o Acts of God
o Acts of government
o Riots and labor disturbances
o Improper or insufficient packing or stowage
o Inherent vice of the cargo

28
 Charterer’s Legal Liability
• Cargo owner charters a vessel. Under the Charter
Party Agreement, the Cargo Owner is responsible
for:
o Safe berth at the designated
– Port(s) of loading
– Port(s) of offloading

29
 Hull Insurance
• Basic coverage includes:
o Named perils physical damage to the vessel’s hull and her
machinery
o General Average and Salvage Charges
o Collision Liability
o Sue and Labor

• Warranty of Seaworthiness
• Amount Insured is Agreed Value
• Coverage applies to Named/Scheduled Vessel or
Vessels
30
 Protection & Indemnity
Insurance (P&I)
• P&I Insurance Policies
o Cover claims for damage or compensation for a large
number of categories of loss, including:
– Injury to or loss of life of crew members
– Removal of wreck of the named vessel
– Damage to fixed or floating objects or property (other than
vessels)
– Liability for loss or damage to cargo

31
 Key Legal Issues in Marine
Insurance
• Choice of Forum

• Choice of Law

• Insurable Interest

• The Doctrine of Uberrima Fides

32
 Insurable Interest
• an insurable interest means that the policy holder
(or the beneficiary) must stand to suffer a direct
financial loss if the event (against which the
insurance cover was bought) does occur.
• A tenant may not necessarily have a direct insurable
interest in the rented property but the landlord may.
• An insurable interest in the subject matter insured
must exist at time of loss, not at contracting.

33
 Misrepresentations, Nondisclosure,
and Uberrima Fides
• Marine insurance is a contract “uberrima fides” – requiring
the “utmost good faith” by both parties
o In practice, operates against the insured alone

• The insured is bound to disclose every fact within his

knowledge that is material to the risk
o This is true even if the insurer does not inquire
o Failure to disclose can void the policy ab initio or even after the
risk has attached
o Doctrine operates regardless of insured’s intent

34
 Misrepresentations, Nondisclosure,
and Uberrima Fides
• This policy is not only harsh, it is broad because of
the definition of “materiality”
o Fact considered “material” if the existence of the fact would
affect the decision of a prudent insurer to underwrite the risk
or even charge a different premium
• Traditional rule undeniably harsh, but insurers’
arguments in favor of rule have less force in today’s
world
• Nondisclosure cannot void coverage if it related to a
matter of common or public knowledge
35