An Introduction to

Marine Insurance

Philip Roche
Partner
Transport, Energy and Trade
September 2008
An Introduction to Marine Insurance

Today:

• Introduction
• Basic principles
• The Standard Shipowner Insurances
• Future issues
Introduction
• Nature of Marine Insurance
• Marine Risk
• The parties:
– Owners
– Operators
– Banks
– Charterers
– Cargo interests
– Crew
Something to Confuse

• Conditions and Warranties

– General English Law Position

– Marine Insurance Position

Risks

• Loss
– Total
– Constructive Total
• Abandonment
• Arranged/compromised
– Partial Loss
• What proportion of loss is partial loss?
• Deductibles
Risks

• Perils of / on the Sea

– Stranding / Sinking / Collision / Heavy weather
– Fire / Theft / Jettison / Barratry

• Extraneous Risks
– Bursting boilers / breaking shafts / bad bunkers
– Rusting / chipping / staining
– Non-delivery / sweat
Risks

• Fortuity vs Certainty

• Inherent Vice

• Delay
Risks

• Political

– War

– Strikes / Civil commotion

– Terrorism / Piracy
Risks
• Salvage, Sue and Labour

• General Average

Ship - 300 Drachma

Cargo A - 300 Drachma
Cargo B - 300 Drachma
Total Value 900 Drachma
General Average

• Ship Aground
• Cargo A thrown overboard

Ship - 300 Dr
Cargo A - Nil
Cargo B - 300 Dr
Total 600 Dr
General Average
Ship 300 Dr
Cargo A Nil
Cargo B 300 Dr
Total 600 Dr

• Ship and Cargo B – pay Cargo A 100 Dr each – so

Ship 200 Dr
Cargo A 200 Dr
Cargo B 200 Dr
Total 600 Dr
Fundamental Characteristics of
Marine Insurance contracts

• Marine Insurance Act 1906

• Utmost Good faith

• Insurable Interest
• Proximate Cause
• Mitigation
Utmost Good Faith

• S17 MIA - A contract of marine insurance is a

contract based upon the utmost good faith and, if
utmost good faith be not observed by either party,
the contract may be avoided by the other party
Utmost Good Faith

• S18(1) - …the assured must disclose to the insurer,

before the contract is concluded, every material
circumstance which is known to the assured and the
assured is deemed to know every circumstance
which, in the ordinary course of business, ought to
be known by him. If the assured fails to make such
disclosure, the insurer may avoid the contract
• S20(1) – Every material representation made by the
assured…must be true. If it is not true, the insurer
may avoid the contract
Utmost Good Faith
• Materiality
• Circumstances requiring disclosure
– Physical hazard
– Moral hazard
– Other circumstances
• Misleading or inaccurate circumstances
Utmost Good Faith

• Circumstances not requiring disclosure:

– Diminution of risk
– Within insurer’s actual or presumed knowledge
Insurable interest

• Contract of indemnity
• S5 MIA
– legal or equitable relation to the marine
adventure
– whereby assured benefits from safe or due
arrival of the property
– or is prejudiced by its loss, damage or detention
• S6 MIA – assured must have an insurable interest at
the time of loss
Proximate cause

• S55(1) MIA …the insurer is liable for any loss

proximately caused by a peril insured against
but…he is not liable for any loss which is not
proximately caused by a peril insured against.
Seaworthiness

• Section 39 MIA 1906

– implied warranty at the commencement of the
voyage
– reasonably fit in all respects
• The Eurysthenes
– turning a blind eye
The Main Types of Marine Insurance

• Hull and Machinery

– Increased Value
• Cargo
• P&I
• War
• Mortgagees Interest Insurance
Hull and Machinery
• Institute Time Clauses (Hulls) ITC(H) 1995
• International Hull Clauses 2003

• All Risks
• Total Loss Only
• Named Perils Only

• Burden of Proof
Perils (I)

Total loss/partial loss

• marine perils
• fire/explosion
• Violent theft/jettison/piracy/
• Contact with land conveyance, dock or harbour
• Earthquake/volcanic eruption/lightning
• Accidents in loading/shifting cargo
Perils - (II)

• Machinery breakdown or damage / latent defect

• Negligence of master, officers crew or pilots
• Negligence of repairers or charterers
• Barratry
• Contact with aircraft, helicopters or objects therefrom
Hull Machinery - Cover

• Salvage – charges and contributions

• Collision liability (RDC) 3/4ths or 4/4ths
• Expenses
Hull and Machinery – Scope of Cover

What is not covered:

• Wear and tear / Corrosion

• Losses due to unseaworthiness
• Losses due to negligence
• Scuttling and losses due to fraud
• War risks
Marine Perils

• Marine adventure - MIA 1906

• Assured indemnified for losses incident to a marine
adventure
• Maritime perils include perils incidental to
navigation
• The Helen - blockade - a marine peril
The Marine Policy (1)

• ITC Hulls ‘95

24 War exclusion
In no case shall this insurance cover loss damage
liability
and expense caused by:
24.1 loss, damage, liability or expense caused by
war, civil war, revolution, rebellion, insurrection or
civil strike arising therefrom, or any hostile act by or
against a belligerent power”
The Marine Policy (2)

• ITC Hulls ’95

24.2 capture seizure arrest restraint or detainment

(barratry and piracy excepted) and the
consequences thereof or any attempt thereat
24.3 derelict mines torpedoes bombs or other
derelict weapons of war
The Marine Policy (3)

• Strikes exclusion clause (cl 25)

• Malicious acts exclusion clause (cl 26)

• Nuclear exclusion clause (cl 27)

 The War Risk Policy (1)

Institute War and Strikes Clauses (Hull/Time) ’95

1 Perils
Subject always to the exclusions hereinafter
referred to, this insurance covers loss or damage
to the vessel caused by:
1.1 war, civil war, revolution, rebellion,
insurrection or civil strike arising therefrom,
or any hostile act by or against a belligerent
power”
The War Risk Policy (2)

• 1.2 capture seizure arrest restraint or detainment

and the consequences thereof or any attempt
thereat

• 1.3 derelict mines torpedoes bombs or other

derelict weapons of war
The War and Strikes Policy (3)

1.4 strikers, locked out workmen or persons taking

part in labour disturbances

1.5 any terrorist or any person acting maliciously or

from a political motive

1.6 confiscation or expropriation

Definitions
War
Capture
Civil War
Seizure
Revolution
Arrest / Restraint
/Detainment
Rebellion / Insurrection
Requisition
Terrorism
P & I Insurance

• Originally set up as mutual insurance by ship owners

to cover risks that could not be insured by what is
now recognised as H & M cover.

• Pollution, personal injury, collision liability to the

extent not covered by H & M (RDC Cover), damage
to docks etc.
Coverage - Collision
• Standard Hull and
Machinery Policy - ITC
(Hulls)
–only 3/4’s liability for
collision
–3/4’s “Running Down
Clause”
• 1/4 self insured to
encourage shipowner to
be careful!
Collision
• RDC (running down
clause) specifically
excludes
• Removal or disposal of
obstructions including
–wrecks
–cargo
–any other thing
Liabilities in respect of Seamen

• Death
• Personal Injury
• Illness compensation
• Damages
• Compensation for lost
personal effects and
wages
• Repatriation
Liabilities in respect of
Supernumeraries
• For temporary “crew
members”, e.g.
–Welders
undertaking repairs
at sea
–supercargoes
Liabilities in respect of
Passengers
• As for crewmen but
including
–Loss of or damage
to baggage
–Accompanied
vehicles
Fines • Fine for oil pollution
• Fine for mistake in the
preparation of customs
documentation
• Clubs DO NOT provide
cover for any losses,
fines arising from non-
compliance with
statutory requirements
e.g.
–SOLAS
–ISM
Stowaways

• Expenses
• Deviation expenses
• Security guards
• Immigration fines
• C/P disputes
Damage to Property

• Fixed and floating

objects (“FFO”)
–eg.
• Buoys
• piers
• dolphins
• fenders
• lightships
Pollution

• P&I Club is insurer for

all claims for pollution
damage
• Pollution insurance is
compulsory for all
ships in USA but only
tankers in rest of world
• Claimants have direct
right of action against
insurer
Cargo
• Most common are area
of claims
–Loss of Cargo
–Shortage of Cargo
–Damage to cargo
• wetting
• fire
• breakage
• contamination
Salvage

• Article 14 of Lloyds
Open Form
–special
compensation
–SCOPIC
• General Average
–where cannot
recover cargo GA
contribution due to
contract of carriage
breached
Sue and Labour, Omnibus
Risks Incidental to Shipowning
• Umbrella coverage - catch all
• Sue and labour
• unusual or borderline claims, the omnibus rule
• if fail, members may refer their claim to:
–The Managers of the Association
–The Association Board of Directors
–London arbitration
Cargo

Institute Cargo Clause A - ICC(A) - full cover

Institute Cargo Clause B - ICC(B) - restricted cover

Institute Cargo Clause C - ICC(C) - most restricted

cover
“Risks Covered” – All Risks

• All risks cover clause covers all losses likely to be

suffered in a marine casualty subject to exceptions
provided in Clauses 4, 5, 6, and 7.

• Inevitable loss or damage is not covered.

“Risks Covered” – All Risks

• British & Foreign Marine Insurance Co v Gaunt

[1921] 2 AC 41 per Lord Sumner:

“All risks has the same effect as if all insurable

risks were separately enumerated; for example, it
includes the risk that when it happens to be raining
the men who ought to use the tarpaulins to protect
the wool may happen to be neglecting their duty.
This concurrence is fortuitous; it is also the cause
of loss by wetting.”
All Risks

• The assured has the burden of proving that

some fortuitous loss or damage has occurred
during the time that the policy was in effect.
• The assured does not have to show the exact
cause of the loss.
• Financial losses such as loss of profit will not be
recoverable insofar as they are not accompanied
by physical loss or damage.
Mortgagee’s Interest Insurance
MIA 1906 Section 5
Subject to the provisions of this Act, every person
has an insurable interest who is interested in a
marine adventure.
In particular a person is interested in a marine
adventure where he stands in any legal or
equitable relation to the adventure or to any
insurable property at risk therein, in consequence
of which he may be prejudiced by its loss or by
damage thereto, or by the detention thereof, or
may incur liability in respect thereof.
Mortgagee’s Interest Insurance

Mortgagee’s Protection

1. assignment by shipowner of its rights in the

insurance policies with inclusion of a “loss payable
clause” in favour of the mortgagee

2. the mortgagee and owner take out joint policies of

insurance with a “loss payable clause” in favour of
the mortgagee
Mortgagee’s Interest Insurance

The Good Luck - Hobhouse J.

“Typically, this type of policy covers losses which
are not recoverable from the borrower’s insurers
due to some nondisclosure or misrepresentation
by the borrower; or due to some act or omission of
the borrower which is not in itself an insured peril,
as for example some wilful casting away of the
vessel with the privity of the borrower”
Mortgagee’s Interest Insurance
• Indemnity – Clause 1

This insurance will indemnify the Assured for loss resulting

from loss of or damage to or liability of the Mortgaged Vessel
which, in the absence of an Insured Peril set out in Clause
2.1 below, would prima facie be covered by the Owners’
Policies and Club Entries, and not excluded therein, but in
respect of which there is subsequent non-payment … by
any of the underwriters of Owners Policies and Club Entries
as a result of any Insured Peril, provided always that such
Insured Peril occurs or exists without the privity of the
Assured.
IMIC - Clause 2.1 -Perils
“2.1 Insured Perils

2.1.1 Avoidance of the Owners’ Policies and Club Entries ..

on the grounds of misrepresentation or non-disclosure of
any material circumstances, whether such misrepresentation
or non-disclosure arises from the assured thereunder or any
of such assured’s insurance agents or insurance brokers,

2.1.2 breach of any statutory provision or any express or

implied promissory warranty or condition, including
without limitation

2.1.2.1 breach of any implied warranty of seaworthiness or

legality,

2.1.2.2 breach of Section 39(5) of the Marine Insurance Act of

1906,
IMIC - Clause 2.1- Perils

2.1.2.3 breach of trading warranties contained in any of the Owners’

Policies and Club Entries,
2.1.2.4 breach of any warranty or condition in any of the Owners’
Policies and Club Entries in respect of the classification of the
Mortgaged Vessel by a Classification Society or any failure to
comply with the recommendations of such Society to the extent
required by such warranty or condition,
2.1.2.5 breach of any warranty or condition in any of the Owners’
Policies and Club Entries which requires compliance with any
condition survey, structural survey or P&I Club survey
requirements and pursuant to which clauses underwriters deny
a claim,
2.1.2.6 breach of any warranty or condition in any of the Owners’
Policies and club Entries in respect of the ownership, flag,
management or charter on a bareboat basis of the
Mortgaged Vessel,
IMIC - Clause 2.1 - Perils

2.1.3 failure of the assured under the hull and machinery policy or the
owners, managers or superintendents of the vessel or any of
their onshore management to exercise due diligence in respect
of any loss or damage to the Mortgaged Vessel where such
failure to exercise due diligence entitles the underwriters of the
owners’ hull and machinery policy to deny a claim otherwise
recoverable thereunder,
2.1.4 any deliberate or fraudulent, casting away of or damage to the
Mortgaged Vessel,
2.1.5 avoidance of a claim under any of the Owners’ Policies and Club
Entries or of any of the Owners’ Policies and Club Entries by
reason of breach of the duty of good faith in respect of such
claim, or
2.1.6 the operation of any applicable provision in any of the Owners’
Policies and Club Entries which provides for a time limitation on
the presentation of claims,
IMIC - Clause 2.1 - Perils

2.1.7 in the event of the total loss of the Mortgaged Vessel, the final
judgment or award of the courts or arbitration tribunal
agreed to have jurisdiction under the express terms of Owners’
Policies and Club Entries (or in the event of their being no such
express terms, a competent court) following a contested hearing
whereby the Owners’ claim is not recoverable under either
Owners’ hull and machinery or war risks policies on the grounds
that the loss has not been proved to have been proximately
caused by a peril insured under those policies….
 Law Reforms

• the test for materiality in non-disclosure and

misrepresentation would change from that of a
prudent underwriter to that of a "reasonable insured"

• a requirement that insurers can only rely on breach

of warranty where there is a causal link between the
alleged breach and loss.
Our international practice
Asia Europe
Bangkok Amsterdam
Beijing Athens
Hong Kong Brussels
Jakarta* Frankfurt
Shanghai London
Singapore Milan
Munich
Middle East Paris
Bahrain Piraeus
Dubai Prague
Riyadh* Rome
Warsaw
Russia
Moscow

*Associate offices