Insurance

Chapter 8 SB

Why?

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The insurer/ insurance company

(promises to pay)
a sum of money the insurance premium

The insured/ policy holder

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 Insurance
-an arrangement by which one party (the insurer or insurance company) promises to pay -another party (the insured or policy holder) -a sum of money if something, which causes the insured to suffer a financial loss, happens. -In return for the acceptance of such payment for losses, -the insurer charges the insured what is known as the insurance premium.
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 Contract of Insurance - A contract made or entered by and between the assured (insured) and the insurer. It is known as the contract of indemnity where the insurer agrees to pay indemnity to the insured. Cover Note (Memorandum of Insurance) -details of the insurance -list of the insurers or reinsurers known as security list; -signature of the broker
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 Policy
-a document which embodies a contract of insurance

Indemnity
-making good of a loss or damage - putting the insured back to the financial position he enjoyed just before the loss

Peril
-a possible cause of a personal or property loss. Perils are natural, man-made or economic.
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WARRANTY
(Undertaking of the insured to do or not to do something)

(1) Express Warranty: stated, printed or written in an insurance policy -warranted not to sail to the north of 70 degrees North Latitude (2) Implied Warranty: not stated anywhere but is binding as if it were written in a policy - Seaworthiness of the vessel(beginning of the voyage) - legality of the voyage(only in lawful trade or business)
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Insurable Interest
The legal relation between the assured(insured) and the subject matter insured Legal relation = relation recognized by the law Legal relation: -blood relation -marriage -business relation
(especially employment and partnership)
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Insurable Interest
A person has an interest in the goods or property, which are to be insured. Essential Features:
physical object exposed to marine peril the insured must have some legal relationship to that object

In order to recover under his policy, the Insured must be interested at the time of the loss.
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Insurable Interest (contd)

A buyer whether goods are sold FOB/CIF Seller - sellers property until payment is made Carriers- their liability to cargo owner A charterer liability to ship owner and shipper The Insurer in the risk he has written

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Insurable Interest (contd)

Commission to agents and brokerage fees (some ship broking companies as a matter of routine insure the brokerage under all their charter fixtures.) A broker (professional Indemnity Insurance, a claim against him or his principal )

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Insurable Interest (contd)

The legal relation between the assured(insured) and the subject matter insured Legal relation=relation recognized by the law Legal relation: -blood relation -marriage -business relation (especially employment and partnership)
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Types of Policies For Cargo

1. Facultative Insurance
(one policy for one shipment)

-the placing of a specific or named risk -a particular sending or shipment

(far too time-consuming for every consignment to be insured)

Facultative (a form of reinsurance in which the reinsurer has 2. Open Contracts no obligation to accept a particular risk nor the insurer to -more advantageous to the insured (exporter), if the reinsurer, terms and conditions being negotiated for each cost of insurance can be standardized. reinsurance) Three types of open contracts:
Floating policies Open covers and School of Logistics and SCM Open policies

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Floating Policies
To replace facultative insurance by insurance which covers a certain total value of goods Each shipment is declared on special forms and -the amount outstanding(balance) on the policy is reduced by the amount of that shipment. One problem: -policies will not be issued for each individual shipment, -certificates of insurance will be issued instead.
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 If a seller is on CIF terms, make sure the contract allows him to present a certificate rather than a policy Disadvantage: -premium deposit = total value of the policy

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Open Covers
Automatic cover available for a period -For a period of one year or longer -Or on a permanent basis unless cancelled by either party Insurers agrees to cover all sendings and -Premium rates are fixed. Great flexibility and stability of pricing to the exporter
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Open Covers: Contd

A limit per bottom

(the value of goods to be sent on any one ship) or

Limit in location
(the value of goods to be in one place before shipment)

Institute clauses On occasions, Issued in conjunction with floating policies

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Open Policies
A type of open cover Not necessarily relate to a time period but will remain in force until cancellation. Very individualistic, to meet all the demands of modern multi-modal transport Advantageous to the broker and insurer

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Open Policies: Contd

Advantages: -a continuous automatic cover in force -the cost of insurance is known in advance when computing CIF -insurers are arranged to give better terms to an exporter arranging an annual policy -the insured may well be in a better position to negotiate some form of commercial settlement (claims) because of regular dealings
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The Assessing of a Risk

The considerations in deciding to accept a risk Cargo and packing (full descriptioncontainerized , cartons, drums, crates, or bales) Method of Shipment (door to door, groupage consignment, single or multiple drop, chartered shipment, transhipment)
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The Assessing of a Risk

Voyage (the length of the voyage, ultimate destination, high degree of war risk, onward transmission, storage) Basic of Valuation (Valued policy, the agreed value as the basis for a claim of total or partial loss) (Unvalued policy would require proof of value in the event of a claim)
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Conditions of Insurance
Majority of marine policies are specifically drafted for the individual risk Three new clauses: -Institute Cargo Clauses (A), (B), (C) -designed to stand on their own and to be read and interpreted as such. -S.G= Ship and Goods

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Institute Cargo Clauses (C) Covers;

Fire, explosion; Vessels or craft being stranded, grounded, sunk or capsized; Overturning or derailment of land conveyances; Collision or contact; Discharge of cargo at a port of distress; General average sacrifice and jettison
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Institute Cargo Clauses (C)

Excludes; Deliberate damage by the wrongful act of any person or persons i.e. malicious damage (can be included in the new Malicious Clause ,if additional premium is paid. )

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Institute Cargo Clauses (B)

In addition to the cover by the Cclauses Earthquake, volcanic eruption or lightening, washing overboard, entry of sea, lake or river water into a vessel, craft, hold conveyance, lift van or place of storage, plus total loss of packages lost overboard or dropped overboard during loading or unloading B Clause also carries the Deliberate Damage Exclusion
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Institute Cargo Clauses (A)

Dealing with dry cargoes Paramount Clause Against All Risks of loss of or damage to the subject matter insured Exclusions: the risks of inherent vice and delay -ordinary leakage, ordinary losses in weight or volume, ordinary wear and tear

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Conditions Common to Institute Cargo Clauses (A)(B),(C)

1) Clause 4.3 Packing -excludes claims resulting from insufficiency or unsuitability of the packing or preparation of the subject matter.. 2) Clause 4.6 Insolvency -excludes loss or damage arising from insolvency or financial default of the owners, managers, charterers, or operators of a vessel being used. (not guarantee the performance of third parties)
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Conditions Common to Institute Cargo Clauses (A)(B),(C) (contd)

3) Clause 4.7 and Clause 4.8 Atomic Weapons -radioactive contamination exclusion clause -excludes the result of a non-warlike use of an atomic weapon (misuse or accidental misuses) 4) Clause 7.3 Terrorists -excludes damage caused by any terrorist or person acting from political motive -to obtain such cover the Institute Strikes Clauses must be incorporated.
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Institute War Clauses

For loss or damage to the insured interest caused by hostilities, warlike operations, civil war, revolution, rebellion, insurrection, etc. Only attaches as the interest insured is loaded the overseas vessel and terminates once it has been discharged Does not attach whist the goods are travelling on land Excludes loss or damage from the use of any atomic/nuclear weaponry
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Institute Strikes, Riots and Civil Commotions Clauses

Under the standard cargo policies, provision is made for cargo to continue during the strike extended period Covers physical loss or damage to the property insured directly caused by strikes, locked-out workmen or persons taking part in labor disturbances, riots, civil commotions and by persons acting maliciously
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Institute Strikes, Riots and Civil Commotions Clauses (contd)

Excludes loss or damage caused by the passive action of the strikers in withdrawing their labour (loss by not perfoming their routine job by strikers) With perishable commodities, negotiate this additional form of cover (not overlook this)

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Claims Procedure
1. Communicate to Insurers at the earliest opportunity 2. If exceed 250, survey report is required conducted by Lioyds Agents (inspection, recommendations) 3. A written claim should be. made immediately on the carrier/shipowner

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Claims Procedure (contd)

4. The delivery docket/consignment note should be claused (not clean=dirty) accordingly. 5. Insurers require documents: a) Insurance Certificate b) Commercial Invoice c) Bill of Lading or Consignment Note d) Delivery Receipt
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Claims Procedure
d) Correspondence with carriers/ ship owners e) Repair Estimates f) Surveyors Report - settled in the currency expressed on the insurance policy/ certificate - the surveyors fees / expences

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Ocean Losses
Actual Total Loss Total Loss

Constructive Total Loss

Ocean Losses Partial Loss Particular Average
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General Average

 Total loss
a) Actual Total Loss : The insured subject matter is totally and irretrievably lost. b) Constructive Total Loss It is estimated that the actual total loss of cargo is inevitable or the cost of salvage or recovery could have exceeded the value of the cargo.

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The Principle of Average

Partial loss
a) General Average
b) Particular Average

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Particular Average
This term refers to accidental loss of or damage to specific items where only the claimant's cargo (or ship) is involved. A claim under the policy of insurance would naturally follow such an incident.

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General Average
A general average loss may occur, for example, when: a) part of the cargo is sacrificed to save the entire venture b) part of the vessel is sacrificed to save the entire venture c) a ship and cargo are saved by unloading and reloading a stranded vessel d) water used to extinguish a fire, damages cargo (damage by fire would not be general average) e) cargo is lost due to it being used as fuel because no other is available, this may only be applicable if the action is undertaken to save the whole venture.

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Question??