Key Issues in Marine Trade

KEY ISSUES IN MARINE
INSURANCE FOR GLOBAL

COMPANIES
April 28, 2014
John M. Sylvester
Michael T. Fitzgerald
Thomas M. Exl
Recording of this session via any media type is

strictly prohibited.
Page 1
Introduction and Overview
What is Marine Insurance?
Historical Development of Marine Insurance
Market
Key Considerations for Risk Managers
Types of Marine Coverage and Policies
Considerations in Underwriting Marine Insurance
The Law of Marine Insurance

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Page 2
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
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Page 3
Marine adventure
English Marine Insurance
where any goods in shipment are exposed
Act of 1906:
to maritime perils (e.g., perils of the sea,
fire, war, pirates, jettisons, barratry)
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
Page 4
Marine Insurance Markets
English Market began with Lloyds of London in
the 1600s
Lloyds is not an insurer; it is a facility for the

selling of insurance by underwriting syndicates
at Lloyds
Historically, the capital for Lloyds syndicates

was provided by individual investors
Names
Now, the capital is provided by corporations

5 doing business asstrictly
syndicates
prohibited.
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Lloyds began in 1688 at Edward Lloyds
coffeehouse in London
Lloyds Coffee House was located near the

Tower Wharf and Customs House in London,
so it was frequented by shipowners,
captains, and merchants
At Lloyds Coffee House, various merchants

entered into a side business of underwriting
the risk of a ships safe passage to its
6 destination, with
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By 1696, the Lloyds News and, later,
Lloyds List began publication containing
the most authoritative daily journal of
shipping intelligence
Over the years, Lloyds 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 developed in the
7 market, and the law
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From modest beginnings in the 1600s,
Lloyds 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 Lloyds
Underwriters, but also London-based
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Marine Insurance today is underwritten
by:
o Underwriters at Lloyds
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
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o P&I (protection & indemnity) Clubs
Page 9
Key Considerations for
Risk
Managers

Page 10
From Danger to Opportunity
Every business and every production has
risks. You cant get around it. (Lee
Iacocca)
The only strategy that is guaranteed to
fail is not taking risks. (Mark Zuckerberg)

Page 11
Plenty of Risks to Choose
From
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
Page 12
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?

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Manage Your Risks
YOUR AIM MUST BE A CONTROLLED
ENVIRONMENT.
Put a risk policy in place
o Risk analysis
o Limits
o Authorities
o Operations procedure
o Monitoring
o Reporting
Page 14
Risk Management Through
a Commercial Contract
Clearly define the objectives and
responsibilities of the parties
Use INCOTERMS
General Terms and Conditions are useful to
fill the gaps
Does the contract meet all insurance and
banking requirements?
PLEASE NOTE THAT A CHARTER PARTY AND
A BILL OF LADING ARE ALSO CONTRACTS
Page 15
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
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Page 16
How to Approach the
Insurance Markets
Choose your broker wisely
o Presence in your markets
o Familiar with your line of business and risks
involved
o Proactive claims-handling department
o Transparent broker compensation

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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.
Page 18
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.
vetting procedures for vessels/terminals; use of
independent inspectors
In cooperation with insurers/broker get an Emergency
Procedure in place
Renewals should not be negotiated at the last minute
Page 19
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 brokers/insurers 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, Recording
etc.) of this session via any media type is
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Page 20
Claims Handling
Pre-contract disclosures
Policy wording
Claim notification/documentation
Appointment of loss adjustor
Close contact with people involved within
company
FULL COOPERATION WITH BROKERS/INSURERS
CLAIMS DEPARTMENT IS KEY
Page 21
Types of Marine Coverage
and Policies

Page 22
Lines of Marine Insurance
Cargo Insurance
Marine Liabilities
o (e.g. Charterers Legal Liability)
Hull & Machinery Insurance
Protection & Indemnity (P&I) Insurance

Page 23
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
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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
Page 25
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
Page 26
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 Barratry
o Jettison
Defined as the intentional throwing overboard of the
ships cargo, material, or stores in time of peril, for
the common safety of the ship and her cargo
o Fire, lightning and earthquake
o All Other Like Perils
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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

Page 28
Cargo Insurance
War Risks Perils coverage provided by
separate policy.
o Coverage is only while water borne or airborne (no
coverage for inland transit legs of the voyage)
o 48-hour cancellation provisions
o On Application rates may apply (e.g., shipments to
Iraq or Afghanistan)
SR&CC Coverage provided by endorsement to
the marine cargo policy.
o 48-hour cancellation provisions
o TRIA Terrorism coverage at the assureds direction is
(i) included for an additional premium, or (ii) excluded

Page 29
Cargo Insurance
Unique Coverage Features:
Warehouse-to-Warehouse Coverage
o 1 insurer for all 3 legs of transit
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
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Cargo Insurance
Transportation Carriers
o Ocean vessel; aircraft; tug and barge; truck; rail; and
package parcel delivery service
Carriers Legal Liability

o Cargo owner must name and waive carrier (none)
o Standard Release Bill of Lading/Air Waybill (normal legal
liability)
o Declared Value Bill of Lading/Air Waybill (legal liability is
at an agreed higher amount)
o Insured Bill of Lading/Air Waybill (all risks)

Page 31
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

Page 32
Charterers 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
o Loss or damage to cargo carried by the vessel

Cargo owner is required to have his cargo
underwriters waive rights of subrogation in favor of
the vessel owner
Page 33
Hull Insurance
Basic coverage includes:
o Named perils physical damage to the vessels
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
Page 34
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

Page 35
Considerations in the
Underwriting of Marine
Insurance
General Considerations
o Years in business
o Loss record
o Loss control
o Geographic limits
o Contract review
Considerations for Cargo Insurance
Considerations for Hull and P&I Insurance

Page 36
The Law of Marine
Insurance

Page 37
Key Legal Issues in Marine
Insurance
Choice of Forum
Choice of Law
Insurable Interest
The Doctrine of Uberrima Fides

Page 38
Admiralty Jurisdiction and
Choice of Forum
Admiralty Jurisdiction
o Article III, Section 2 of the Constitution gives
federal courts jurisdiction over all cases of
admiralty and maritime jurisdiction
28 U.S.C. 1333
Marine insurance contracts are within federal courts
admiralty jurisdiction
Saving to suitors clause in 1333

Page 39
Admiralty Jurisdiction and
Choice of Forum
Choice-of-Forum
o Federal Court Admiralty Jurisdiction
o State Court
o Federal Court Another Jurisdictional Ground
(diversity, etc.)

Page 40
Choice of Forum
Issues to Consider
Right to a Jury Trial
o Generally, no right to jury trial in admiralty.
See, e.g., Concordia Co. v. Panek, 115 F.3d 67
(1st Cir. 1997)
o F.R.C.P. 9(h)(1) designation = no jury trial
o Be aware of removal issues and potential to
lose right to a jury trial
Choice of forum can affect the choice-of-
law analysis
Page 41
Choice of Law
Choice-of-Law Problems Arising in Marine
Insurance Disputes
o Marine insurance law not codified
o U.S. courts used to borrow from English law to
fill gaps in federal maritime law related to
marine insurance
o Wilburn Boat Co. v. Firemans Fund Ins. Co.,
348 U.S. 310 (1955) U.S. courts began
looking to state law in the absence of a
controlling federal maritime law precedent
o Since 1955, Marine insurance governed by
42 both federal
Recordingmaritime law
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any media state
is law
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Choice of Law Aftermath
of
Wilburn Boat
Wilburn Boat is a highly criticized case
and the choice-of-law analysis has since
been layered and complex
There are two layers to the choice-of-law
analysis
o Vertical Choice-of-Law Analysis
Maritime vs. State Law
o Horizontal Choice-of-Law Analysis
If state law applies, which state law governs?

Page 43
Choice of Law Aftermath
of
Wilburn
Courts interpret WilburnBoat
Boat differently
o Fifth Circuit is pro-state law
To apply, the federal maritime rule must be
entrenched federal precedent
Notwithstanding entrenched federal precedent, courts
may apply state law if state has substantial interest
o Eleventh Circuit seems to favor application of
federal maritime law
If a maritime rule is well-established or
entrenched, it preempts the state law rule
Choice-of-law provisions in marine policies
are generally enforced
Page 44
Insurable Interest
An insurable interest in the subject matter
insured must exist at time of loss, not at
contracting
An Insurable Interest is defined

differently, in some circumstances, under
state law than it is under maritime law
o This is often true with respect to cases involving the
sale of goods
o Whether a loss is covered can turn on this definition
Page 45
Insurable Interest
Defining Insurable Interest
o English Marine Insurance Act of 1906
Very broad definition, including legal and equitable
relationships to property
o Federal Maritime Law Hooper v. Robinson, 98
U.S. 528 (1878)
In the law of marine insurance, insurable interests
are multiform and very numerous.
Injury from the loss of something or benefit from its
preservation is sufficient to create an insurable
interest
o Uniform Commercial Code
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Insurable Interest
ABB Power T&D Co. v. Gothar
Versicherungsbank VVAG, 939 F. Supp.
1568 (S.D. Fla. 1996)
o Court held that an insurable interest under federal
admiralty law means any pecuniary interest
o Court held that insurable interest is an
entrenched principle that preempts state law
o ABB Power is the only post-Wilburn Boat case
confirming this entrenched principle of maritime
law
Page 47
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 insureds intent

Page 48
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 todays world
Page 49
Misrepresentations,
Nondisclosure, and
Uberrima Fides
Policyholders have had some success and
American courts have circumvented strict
application of the doctrine in various ways
o Certain facts were not material
Steelmet, Inc. v. Cariber Towing Corp., 842 F.2d 1237
(11th Cir. 1988)
o Nondisclosure did not void coverage because it
related to a matter of common or public knowledge
Anne Quinn Corp. v. Am. Mfrs. Mut. Ins. Co., 369 F.
Supp. 1312 (S.D.N.Y. 1973)
o Courts have split on whether the doctrine is an
entrenched federal precedent
Page 50
Take Away Points
Risk Managers should focus on the
particular law applicable to a marine
insurance policy, which may affect:
o Forum for dispute and availability of a jury
trial
o Insurable Interest Issues
o Duties of Disclosure
These considerations can be outcome-
determinative in a coverage dispute
Page 51

Key Issues in Marine Trade

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Key Issues in Marine Trade

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KEY ISSUES IN MARINE

INSURANCE FOR GLOBAL

Recording of this session via any media type is

Historical Development of Marine Insurance

Key Considerations for Risk Managers

Types of Marine Coverage and Policies

Considerations in Underwriting Marine Insurance

The Law of Marine Insurance

Lloyds is not an insurer; it is a facility for the

Historically, the capital for Lloyds syndicates

Now, the capital is provided by corporations

Lloyds Coffee House was located near the

At Lloyds Coffee House, various merchants

Over the years, Lloyds set up reporting

Because of the need for buyers and sellers to

Over time, other chartered London

London continues to be a major marine

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Identify risks you can transfer to

ARE THE REMAINING RISKS ACCEPTABLE

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Hull & Machinery Insurance

Protection & Indemnity (P&I) Insurance

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General Average Shared Loss

The Terms of Sale impact who purchases

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General Average and Salvage Charges (GA)

Sue and Labor

Carriers Legal Liability

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o Loss or damage to cargo carried by the vessel

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The Doctrine of Uberrima Fides

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An Insurable Interest is defined

The insured is bound to disclose every fact within

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Traditional rule undeniably harsh, but

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