Module 01 - P&I Distance Learning programme Module 01 History of Marine Insurance Marine Insurance - A Historical Background Marine Insurance

is the oldest branch of insurance. The historians have traced the practice of marine insurance to the period as back as 9th century B.C. when the Rhodian shipowners and cargo owners shared the losses what we call General Average to-day (This has been explained in a later chapter). Sometime in the 4th century B. C bottomry and Respondentia, bonds were used in the form of insurance by the Mediterranean merchants. A bottomry loan was an advance of money on a ship for a particular voyage. The loan was repayable only if the ship arrived at the destination safely. If the ship was lost during the voyage, there was no obligation to repay the loan. The interest which included the premium was collected in advance. Similar loans were granted on cargo. They were known as Respondentia Bonds. The precise time and place of the origin of marine insurance in the modern form is not known, but it is believed that it was practised by the Lombard and Venetian traders in the Mediterranean some time in the 14th century A.D. It is certain that it was brought to London by the Lombard merchants and the name Policy came from the Italian word polizza (a written and folded document). In those days, the insurance business was done by individuals and not by corporations. The proposal was presented at a common meeting place of traders. Those willing to accept part of the risk, signed their names at the bottom and indicated the amount of risk accepted. From this practice comes the term Underwriter referring to the person who assessed the risk and entered his name under the assessed risk. Lloyds Coffee shop Lloyds coffee shop by the side of River Thames in London was a meeting place of traders, shipowners and underwriters. This was sometime in the 17th century. The owner of the coffee shop Edward Lloyd brought together underwriters and started an organization of underwriters under the name of Lloyds. Later this became a great organization of insurance underwriters. Members of Lloyds are wealthy individuals and their liability is unlimited, unlike the joint stock company with limited liabilities. Lloyds Ship and Goods policy In 1779, Lloyds underwriters introduced a standard policy form called S.G. Policy (Ship and Goods policy) for covering ships and cargo. Later in 1912, Institute Clauses were introduced by Institute of London Underwriters in association with Lloyds. S.G. Policy together with Institute clauses became the insurance coverage for ships and cargo. Since the wording of S.G. Policy was originally written in 1779, it was archaic and that gave rise to numerous court cases for interpretation of the coverage. Finally, this led to enactment of Marine Insurance Act 1906. S. G. Policy was in use for more than 200 years until 1982. The Insurance Market brought out simplified format of the policy and Institute Clauses for Cargo insurance and Marine Hull insurance (insurance of the ships) in 1982 and 1983 respectively. In India the Marine Insurance Act of 1963 is on the same lines as the U.K. act.

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Module 01 - P&I Distance Learning programme Marine cargo insurance is aimed at removing, as far as possible, the financial burden of the risks of loss or damage associated with the transportation of goods between exporters and importers, and placing it with specialist insurance underwriters. These underwriters are skilled in assessing risks, and they manage reserve funds (made up of premiums paid by others) out of which those who suffer losses can be compensated. The terms and services relating to marine insurance are the same worldwide (with the exception of the USA) and are generally explained below. Institute of London Underwriters (ILU): History of ILU International Union of Marine Insurance: Formed in 1874 to provide union between marine markets in Europe. Now over 30 countries are represented. Purposes of union are to advance marine insurance and protect those involved in the business. Canadian Board of Marine Underwriters (American Institute of Marine Underwriters, Association of Marine Underwriters of British Columbia): Organization with voluntary membership; purposes are to promote marine insurance, protect interests of members, advise on technical matters. American Hull Insurance Syndicate: Formed in 1920 to insure US ships, based in New York; mutual association that sets rates and accepts business up to $40 million per vessel, now throughout North America.

Insurance business in India Insurance business started developing in India towards the later part of the 19th century. By the year 1885, nearly 50 foreign offices commenced business in India. Most of them were British Companies. After Indias becoming independent in 1947, many Indian companies started operating in the market and they competed with the foreign companies. From 1st January 1973, General (non-life) insurance business was nationalised in India. At that time 106 General Insurance Companies were operating. They were merged into 4 nationalised Insurance companies namely

National Insurance Co. Ltd. with Head office at Kolkata New India Assurance Co. Ltd. with Head office at Mumbai Oriental Insurance Co. Ltd. with Head office at New Delhi United India Insurance Co. Ltd. with Head Office at Chennai

These companies became the subsidiaries of General Insurance Corporation of India with its controlling office at Mumbai. From 1973 to 1999, General Insurance Business was entirely transacted by the Nationalised Insurance Companies with their network of Divisional and Branch offices all over the country. In 1999, Government of India established Insurance Regulatory and Development Authority (IRDA) to regulate and supervise insurance business in India. IRDA is authorised to issue licence to private insurers to transact insurance business if they comply with certain requirements. After the establishment of IRDA,

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Module 01 - P&I Distance Learning programme some private insurers have entered insurance market in India and they are competing with the Nationalised insurance companies. The buyers of insurance are expected to benefit from the competition. All of us buy some form of insurance for some losses; compare these with the marine liability Application of Indian contract act 1872 Insurance contract is as much a commercial contract as any other commercial contract for buying and selling goods or services. Therefore, like any other commercial contract, it is also governed by the law of contract - namely Indian Contract Act 1872. Under this law the agreement between the parties can be enforced in the court of law as a legal contract only if it has the following essential elements Proposal and acceptance There has to be a proposal by one party to enter into a contract and it must be accepted by another party. Only when the proposal is accepted it becomes a contract, provided the other essential elements are also present. Consideration All commercial contracts have give and take element. Both the parties to the contract have to give something to the other party in order to take something from him. This give and take element is known as consideration in the law of contract. Unless the element of consideration is present, the contract is not valid in law. In insurance business, the insured pays the premium that is the consideration from the insured. As against that the insurer promises protection against financial loss arising from certain events during the agreed period - this is the consideration from the insurer. In India, as per the provisions of Insurance Act 1938, the insurance protection can commence only on payment of premium in full. However, in case of insurance of ships, the payment of premium can be made by instalments not exceeding 4 in number Agreement between the parties Both parties should agree to the same thing in the same sense. In law this is known as principle of consensus ad idem (agreement for contract). If either of the parties or both of them are under wrong impression about something relating to the contract, there is no agreement between the parties and therefore there is no valid contract. For example, the proposer wants to insure the ship called MV CROWN PRINCE I, but the insurer thinks, it is the proposal for insuring the ship MV CROWN PRINCE and accepts the proposal. There is no agreement between the parties and there is no valid contract. Capacity of the parties to contract Under the Indian Contract Act, every person is competent to contract, who is: i) Of the age of majority (one who has completed 18 years of age) ii) Of sound mind iii) Not disqualified from contracting by any law to which he is subject.

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Module 01 - P&I Distance Learning programme This means the person who is a minor (less than 18 years of age), or who is of unsound mind or who has been declared insolvent under the law of insolvency is not competent to enter into a contract. A company can enter into any contract that is permitted by its constitution called Memorandum of Association and Articles of Association. Unless all the parties are competent to contract as per the provisions of Indian Contract Act, the contract is not valid. Legality The object of the contract must be lawful. For example if the intention of the parties is to commit fraud or to carryout an illegal trade such as smuggling, such a contract cannot be valid in law. No insurance policy can be issued for providing insurance cover for any unlawful activity. Unenforceable contract Insurance policies need to be stamped in accordance with the provisions of Indian Stamp Act. The un-stamped policies cannot be enforced in the court of law. It s important to understand that insurance is a contract and it starts with a proposal made by the insured and ends as a contract when the insurers provides him with a policy Basic Principles of Marine Insurance Insurable interest In legal terminology, the shipment of a consignment of goods is called an adventure or venture. A person may only buy insurance in a marine venture if there is an insurable interest - i.e. that the person stands to benefit, or expects to benefit from the safe and due arrival of the insured goods and will be adversely affected by its loss or any damage caused to it. Different persons may have an insurable interest in the goods at risk at any one time, e.g. the exporter or a buyer or a bank which is advancing funds to the exporter under, say, a letter of credit. Unlike other branches of insurance, the assured need not have an insurable interest at the time of effecting the insurance, but in order to recover under the policy, the person must be 'interested' at the time of the loss. However, there must at least be an expectation of acquiring an interest when entering a contract with the insurers. In an export transaction, it is either the buyer's or the seller's responsibility to arrange insurance cover for the goods in transit. The arrangements made will vary with the agreed trade terms (INCO terms) and will reflect the passing of the insurable interest from one party to another. It is not necessary, however, for each party to take out separate insurance cover - one party should always take out the cover on a warehouse-to-warehouse basis, and, in certain circumstances, will cede or assign the policy to the next party. The interest of an exporter who is selling on an f.o.b. basis, for example, is transferred when the goods pass the ship's rail; the risk moves from the seller to the buyer, and the buyer becomes the person who acquires an insurable interest and should therefore arrange marine insurance for the voyage.

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Module 01 - P&I Distance Learning programme Utmost good faith In the formation of a contract of marine insurance, the principle of utmost good faith ('uberrima fides' in Latin) must be observed by both the assured and the insurer. Before a contract is concluded, the assured must disclose to the insurer all material circumstances of which s/he is aware which could affect the risk s/he is asking the insurer to bear. A material circumstance is something that will influence the judgement of an underwriter in fixing a particular premium, or in deciding whether he will accept the risk in the first place or on what terms. For example, the dangerous nature of a particular export product must be declared. A marine underwriter does not normally inspect the goods or the conveyance(s) which will be used to transport an exporter's goods, and so s/he must rely on the integrity of the assured to disclose all relevant facts. An exporter, for example, must pack his merchandise in a manner suitable to withstand the risks of transit. If s/he misleads an insurer into believing that the packing of the goods is adequate when, in fact, it is inferior, and subsequent breakages occur, the insurer may refuse a claim from the assured. Any non-disclosure of a material fact entitles the insurer to avoid the contract, irrespective of whether the non-disclosure was intentional or inadvertent. Indemnity The contract of marine insurance is a contract of indemnity, i.e. in the event of the assured experiencing financial loss or having to incur certain expenses arising from loss of, or damage to, the goods caused by any of the perils stated in the insurance contract, the insurer undertakes to compensate the assured for the financial loss s/he has suffered. A corollary of the principle of indemnity is that of subrogation, i.e. underwriters acquire, in terms of common law, any rights which the assured may have against third parties such as carriers. The assured, therefore, may only recover from one source, e.g. the insurer, in respect of loss or damage. Subrogation Subrogation may be defined as the transfer of insureds rights and remedies in respect of loss, to the insurer who has indemnified the insured. The following example explains this concept of subrogation. Let us assume that Mr. A has insured his cargo for Rs.5 lakhs (Agreed Value). The shipowner fails to deliver this cargo at the destination. This is a case of non-delivery of the cargo. If the risk of non-delivery is covered by the cargo policy, Mr. A will get Rs.5 lakhs from the insurance company by way of the claim on cargo insurance policy. However, Mr. A also has a right to claim against the shipowner under the contract of carriage. Having received the value of the lost cargo from the insurance company, Mr. A has to transfer his right against the shipowner to the insurer. This means, in stead of Mr. A, the insurer would be entitled to claim compensation from the shipowner for nondelivery of the cargo because Mr. As rights have been subrogated (transferred) to the insurer. The purpose of subrogation is to ensure that the principle of Indemnity is preserved. In other words in absence of subrogation in the above example Mr. A would receive Rs.5 lakhs from the insurer and a similar amount from the shipowner too. In such a case, he would get more than what he actually lost and this would violate the basic principle of insurance namely indemnity. This is why principle of subrogation is considered as corollary of principle of indemnity.
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Module 01 - P&I Distance Learning programme Subrogation Condition Under the common law, the insurer can exercise the right of subrogation only upon payment of the claim. However, in some property insurance contracts there is a condition called subrogation condition. As per this condition, the insurer may exercise subrogation right even before the payment of the claim. In Marine Insurance Policies, there is no subrogation condition and therefore in marine insurance, the insurer can exercise subrogation only after the payment of the claim. Contribution Contribution may be defined as the right of an insurer who has paid a loss under the policy to recover a proportionate amount from other insurers who are also liable for the same loss.

What legal principles govern marine insurance? Explain each.

Marine liability This is a recent chapter in the history of marine insurance. Traditionally the term Marine Liability (apart from the collision liability covered under "Hull") is used to embrace straightforward professional, legal liabilities of such people as carriers, forwarders, wharfingers, stevedores, ship repairers etc. In other words, cover is provided for a rather well-defined and limited group of professionals all engaged in an occupation closely related to maritime trade, against legal liability claims arising out of the operation of their business and the services that they render. Another group included under Marine Liability is the owners of small vessels such as yachts, speedboats, harbour craft and the like. The reason for this is that small vessels cannot join one of the P&I Clubs which traditionally provide the liability cover not obtainable in the Marine market. Losses What can go wrong? Hopefully nothing! But in the event of a loss, one of two types applies: total loss or partial loss Total loss:

Actual total loss: when the assured's goods are no longer 'a thing of the kind insured' or are irretrievably removed from the assurer's use. Constructive total loss: when the goods are abandoned because the actual loss seems unavoidable, or the cost of recovering the goods would exceed the insured value. Total loss of part: when a part of the consignment is destroyed but the rest arrives safely at its destination. Partial loss:

General average loss General average loss refers to deliberate partial loss incurred because of the voluntary actions of the ship-owner, or the ship's master to save the voyage if it is in danger. The voluntary actions might be, for example:

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Jettisoning cargo in order to lighten the ship which is stranded on a reef. Pumping water into the ship's hold to quench a fire. Having the ship towed to port for repairs because of engine failure.

These contributions are levied pro rata on all the parties who have an interest in the safety of the voyage. These include the owner and/or the charterer of the vessel, the master and crew, and each owner of cargo on board. Particular average loss Particular average loss refers to a fortuitous partial loss which affects a particular cargo owner only, such as the owner of a crate which was dropped during the loading of the vessel. A claim for a particular average loss is based on the proportion of the invoiced value which has been lost. This proportion is applied to the insured value in order to arrive at the amount of compensation payable. War Risks Coverage Originally S.G. Policy covered war risks but they were withdrawn in 1899 by way of introducing Free of Capture and Seizure Clause (F.C & S Clause) in the policy, since the insurers in London market considered war risks as highly catastrophic. However after the First World War, because of the pressing demand from the shipowners and cargo owners the London market started giving war risks cover by attaching Institute War Clauses to S.G. Policy. However, this war risk cover is limited only to Water borne maritime property, namely the ship and the cargo. In other words, there is no war risks cover for the cargo before it is loaded on an over seas vessel and after it is discharged at the final port. The war risk cover is limited to only that duration when the cargo is on board the vessel. Students are referred to a PDF file Guide to Hull claims reproduced in the resources under H&M

How would you define loss and when it would need an insurance cover?

Hull and Machinery Insurance Anything that floats and moves, from rowing boats to ultra-large ocean-going tankers, is defined as Hull. In terms of carrying capacity, usually expressed in Dead Weight Tons (DWT), this may cover a wide range, starting at a few hundred kilos and going as high as the deadweight of the largest of the ultra-large crude oil carries (ULCC) ever built. The reference to "hull" i.e. the ship's outer skin needs to be understood in the historical context of marine insurance. Initially, when agreeing to insure a vessel, the ship and its masts were only covered, rather than for the whole package including stores, nets, ropes, equipment, bunkers etc. To make this intention clear, the object covered was referred to as the "hull".

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Module 01 - P&I Distance Learning programme Today the term has been widened to "Hull and Machinery" (H+M). The term Hull is also quite commonly deemed to embrace two other major groups of vessel owners' interests: "Disbursements and Collision Liability". Disbursements includes the ship's stores, bunker fuels and freight-earnings capacity up to an agreed maximum of 25% of the total value for Hull and Machinery. The second, "Running down Collision" liability (RDC), provides cover to the ship-owner for of liability to other ships in the event of collision. A further important part of Hull business is construction and conversion of ships. These involve risks encountered in the actual building of ships, commencing the day the keel is laid up to the day the ship is delivered. Standard H &M Insurance policy The standard marine insurance policy contains the following information:

An agreement by the insurer to provide insurance cover in return for the payment of the premium. Name(s) of the insurer(s). Policy number. Name of the assured. Subject matter insured. Value to be covered. This should also include, for example, freight charges, import duty, anticipated profit on the consignment, etc. Premium amount. Description of the voyage. Name or description of the vessel or other conveyance. Scope of insurance cover, e.g. 'all risks including war and strikes'. Claims procedure including details of where claims will be paid and in which currency.

Risk factors The risk factors associated with Hull insurance are wide-ranging and include:

The age or year of construction/refitting of the vessel as indicative of its condition and risk susceptibility. Type of the vessel such as bulk carrier, tanker, gas carrier, ferry, tug etc. Tonnage. Larger ships may be more stable in rough seas, but are at the same time more susceptible to metal fatigue when wave-oscillation is particularly adverse. Construction. Some materials are obviously preferable to others when it comes to certain jobs. The ship-owner decides the flag of registry and this has a bearing on risk. The Owners decision may be determined by such factors as lower taxes levied by some countries or less stringent regulations and even lesser application of the same. The credibility of the ship's ownership and the way they maintain their ships also plays a part in assessing this risk.
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The type of product carried has an influence on the longevity of the ship. Trading limits, such as coastal trade, river trade, North Atlantic, South Pacific, Cape Horn, typhoon areas, ice conditions etc all play a part in assessing risk. Propulsion. Tough not so important now propulsion by sails, diesel engines, turbines, has an influence on reliability, manoeuvrability and therefore risk. Socio-economic environment. This is probably the most difficult of all risk factors to assess adequately, as it involves the human element, also known as moral hazard. These may also include the training and manning aspects required by the flag administration or preferred by the Owner.

Insurance cover for ships The insurance coverage for ships has been standardized by the insurance market in the United Kingdom. This standardized coverage is known as Institute Clauses because Institute of London Underwriters (The Association of Insurance Companies of London) in association with Lloyds of London (one of the largest organisations of insurance underwriters) has standardized this coverage, which has been adopted by the insurers in most of the countries. The coverage for insurance of Ships is: a) For a period of time (for 12 months). They are known as Institute Time Clauses - Hulls (I.T.C - Hulls) and b) For a particular voyage (say from London to Mumbai). They are known as Institute Voyage Clauses - Hulls (IVC - Hulls). There are also coverages specially meant for Fishing Vessels, Yachts, Vessels which are laid-up or operating within the port areas, ships when they are being built. These coverages are known as follows. Coverage for a) b) Fishing vessel - Institute fishing vessels clauses Yacht - Institute Yacht Clauses

c) Vessels which are laid-up or operating within the port area - Institute Time Clauses Hulls - Port risks. d) Ships when they are being built are covered under the Institute Clauses for Builders Risks. Institute Time Clauses - Hulls (ITC - Hulls) ITC - Hulls provide the widest cover for hull (body of the ship) and machinery. This coverage has been revised a few times. The last revision was done on 1st November 1995. However, many insurers (including those in India) still use the previous ITC Hulls which were revised on 1st October 1983. Some salient features of this coverage are as follows ITC - Hulls (1-10-1983) This insurance covers loss of or damage to Hull and/or machinery of the vessel caused by

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Module 01 - P&I Distance Learning programme a. perils of seas, rivers, lakes or other navigable waters (mainly the risks of stranding, collision, heavy weather, sinking) b. fire, explosion c. violent theft by persons from outside the vessel d. jettison e. piracy f. breakdown of or accident to nuclear installations or reactors g. Contact with aircraft or similar objects or objects falling there from, land conveyance, dock or harbour equipment or installation h. earthquake, volcanic eruption or lightning This insurance also covers loss of or damage to hull and/or machinery of the vessel caused by the following perils (risks) provided such loss or damage has not resulted from want of due diligence by the insured, owners or managers of the vessel a. accidents in loading, discharging or shifting cargo or fuel b. bursting of boilers, breakage of shafts or any latent defect in the machinery or hull c. negligence of Master, Officers, crew or Pilots d. Negligence of repairers or charterers provided they are not the assured thereunder e. barratry of Master, Officers or Crew These are the losses which are considered preventable by the owners or managers of the vessel if they exercise due diligence and therefore due diligence provision as mentioned above has been imposed in these cases. However the onus (burden) is on the insurers to prove want of due diligence if they wish to avoid a claim on that ground. Master, Officers, Crew or pilot are not considered as owners within the meaning of this clause should they hold shares in the vessel. Institute clauses have evolved over time and have become part of the insurance legal terminology. The clauses have been revised to cater to the needs of time and shall continue to be revised. Pollution Hazard This H&M insurance covers loss of damage to the vessel caused by any act of governmental authority acting under the powers vested in it to prevent or mitigate a pollution hazard, or threat thereof, resulting directly from damage to the vessel for which the insurers are liable under this insurance, provided such act of governmental authority has not resulted from want of due diligence by the insured, prevent or mitigate such hazard or threat. Example: A badly damaged tanker leaking oil and polluting environment, is deliberately set on fire by governmental authority for minimizing pollution.

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Module 01 - P&I Distance Learning programme Collision Liability This H&M insurance covers legal liability of the insured by way of damages payable to the owners of the other ship and cargo thereon; owing to a collision caused by negligence of the insured vessel. The insurers liability under the policy does not exceed 3/4th of the legal liability incurred by the insured or 3/4th of the sum insured under the policy, whichever is less including the legal costs. Exclusions: As regards the insurance cover for collision liability, the insured is not covered for his liability in respect of the following: a. Removal or disposal of obstructions, wrecks, cargoes or any other thing whatsoever. b. Any property except other vessel or property on other vessel. c. the cargo or the other property on the insured vessel d. Loss of life, personal injury or illness. e. Pollution or contamination of any property or thing (except other vessel with which the insured vessel is in collision or property on such other vessel) These excluded liabilities and the remaining 1/4th liability are covered by Protection and Indemnity (P&I) Associations. General Average and Salvage Charges General Average arises when some expenditure is incurred or sacrifice made for the purpose of common safety of the maritime adventure, (the ship, cargo and the freight to be earned on arrival at the destination). All the parties who benefit from the General Average Act (which may be in the form of expenditure incurred or sacrifice made) are required to contribute towards such loss. This contribution is called General Average Contribution. For example when the ship is in danger of sinking and the salvage operators save the ship, their charges will be considered as General Average expenditure and all the parties (the shipowner, the cargo owners and may be freight owners) who benefit from this are required to contribute towards such General Average expenditure. When the insured shipowner is required to contribute toward General Average, insurers reimburse him for his share of contribution. However, no claim for General Average will be allowed where the loss was not incurred to avoid a peril insured against. In the above example, sinking is a peril of the seas which is an insured peril. In the above example, if the ship was sailing without any cargo, there can be no contribution from cargo owners and freight owners and therefore the insured shipowner can claim the loss as Salvage charges and not as General Average Contribution. This clause covers both General Average and Salvage Charges. Sue and Labour Charges As per one of the conditions of this insurance, it is the duty of the insureds, their servants and agents to take such measures as may be reasonable for the purpose of
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Module 01 - P&I Distance Learning programme averting or minimizing a loss which would be recoverable under this insurance. If the insured incurs expenses for averting or minimizing such a loss, the insurers reimburse the insured the amount so spent. Such expenses are called Sue & Labour Charges. For example, if the ship is deviated for averting a loss which would be recoverable under this insurance, the expenses arising from such deviation may be considered as sue & labour charges and in that case, the insurers will reimburse the insured shipowner with the amount so spent. Collision liability insurance and Sue and Labour Charges insurance are in addition to the insurance for the ship. In other words collision liability claim and Sue and Labour charges claim are payable by the insurer in addition to total Loss claim for the loss of ship if it occurs. The coverage of ITC - Hulls which is explained above has the widest coverage and therefore insurers call it full conditions coverage. The following coverages are known as Limited Conditions coverages because they are lesser than those under ITC-Hulls.

Analyse the pollution, Collision, Salvage and sue and labour charges and determine whether they are protection or indemnities?

The hull and machinery insurances also has rules and they are stated in the following manner ITC - Hulls - Total Loss, GA and 3/4 Collision Liability Under this cover insurers pay for the total loss of the ship if it is caused by an insured peril but they do not pay for partial loss. For example if the ship needs repairs arising from a collision, insurers will not pay the claim for repairs but if the ship becomes a total loss due to collision, the insurers will pay the total loss claim. Besides this, insurers also pay for General Average, Salvage charges, sue and labour charges and 3/4 collision liability. ITC - Hulls - Total Loss Only (including Salvage charges and Sue and Labour) Under this coverage, insurers pay for the total loss but they do not pay for the partial loss and they also do not pay for General Average and 3/4th collision liability. Besides insuring the ship, the shipowner may opt for any of the following coverages: a) ITC - Hulls - Disbursements and increased value (Total Loss Only, This insurance covers the value of disbursements such as fuel, stores and provisions for the crew etc. in the event of total loss of the ship caused by an insured peril. In ITC Hulls, (full conditions) which covers the ship, there is a clause called Disbursement Warranty. Under this clause it is a condition that insurance of disbursements should not exceed 25% of the insured value of the ship. b) ITC - Hulls - Excess Liabilities Sometimes the insured may not be able to recover the following claims in full from the insurer because of Under Insurance (when the insured value of the ship is less than its full value), for example:

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Module 01 - P&I Distance Learning programme a. General Average, Salvage, Salvage Charges b. Sue and Labour Charges c. 3/4th collision liability If the insured anticipates this to happen, he can buy additional insurance for covering the shortfall in the claim amount resulting from under insurance. Institute Voyage Clauses - Hulls (1-10-1983) As the name suggests, this insurance is meant for covering the ship for a specific voyage (say from London to Mumbai). The main difference between this cover and ITC - Hulls is the duration of cover. Under ITC - Hulls the duration of cover is normally 12 months. Example: From 12 noon 1st January 2001 to 12 noon 1st January 2002. There are provisions in ITC - Hulls whereby this duration is extended or reduced under certain circumstances. In a voyage policy the duration of cover may be described in two ways depending on what the insured needs. It may be either From or At and from. For example: when it is described as From London to Mumbai, the insurers are on risk from the time the ship starts sailing from London. When the duration is described as At and From London to Mumbai, if the ship is already in good safety at London port at the time of concluding the insurance contract, the risk attaches immediately. If the ship has not arrived at London port at the time of concluding the insurance contract, the risk attaches as soon as she arrives there in good safety. The risk ceases on arrival at the port named in the policy (in the above example it is Mumbai). Whether the ship has arrived or not is a question of fact; but the rule is that until a ship of that tonnage and kind anchors or berths, she has not arrived. The coverage of Institute Voyage Clauses - Hulls (IVC - Hulls) are the same as those of ITC - Hulls. However some of the clauses of ITC - Hulls are not relevant to voyage cover and therefore they do not figure in IVC - Hulls. For voyage insurance also there is a Limited conditions cover called Institute Voyage clause - Hulls - Total Loss, General Average and 3/4th Collision Liability (including salvage, salvage charges and sue and labour). Covering war, strike, terrorist acts, malicious act ITC - Hulls, and IVC - Hulls insurances exclude war, strike terrorist acts and malicious acts risks but it is possible for the insured to cover these risks if he asks insurers to cover them. In such a case the insurers would charge some additional premium and cover these risks by attaching Institute war and strike clauses. ITC - Hulls and IVC - Hulls insurances also exclude nuclear risks. There is no insurance available for covering nuclear risks even for additional premium, because insurers consider these risks as extremely catastrophic. ITC - HULLS (1ST November 1995) The ITC - Hulls coverage was revised on 1st November 1995, but this coverage has not been adopted by many insurers. The following important changes have been made in this coverage.

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Module 01 - P&I Distance Learning programme CLASSIFICATION CLAUSE (Clause No.4) This is new clause This new clause imposes upon the insured, owners and Managers, two very clear duties which must be strictly adhered to. One is to be under a recognised class at all times. The consequences of non-compliance are cessation of cover as warranties, PERILS (RISK COVERED) Clause No.6, which describes the risks covered, as follows PERILS Cover for perils of the seas rivers lakes or other navigable waters include loss of or damage to the subject-matter such as: Fire, explosion Violent theft by persons from outside the Vessel Jettison Piracy Contact with land conveyance, dock or harbour equipment or installation Earthquake volcanic eruption or lightning Accidents in loading discharging or shifting cargo or fuel. This covers loss of or damage to the subject-matter insured caused by Bursting of boilers, breakage of shafts or any latent defect in the machinery or hull Negligence of Master, Officers Crew or Pilots Negligence of repairers or charterers provided such repairers or charterers are not Assured hereunder Barratry of Master Officers or Crew Contact with aircraft, helicopters or similar objects, or objects falling there from provided that such loss or damage has not resulted from want of due diligence by the Assured, Owners, Managers or Superintendents or any of their onshore management. Master Officers Crew or Pilots not to be considered Owners within the meaning of this Clause 6 should they hold shares in the vessel.

If we compare this coverage with that of ITC - Hulls 1983, we find the following changes a. Breakdown of accident to nuclear installations or reactors - This peril is covered by 1983 clauses but it is not covered by 1995 clauses. b. The perils of contact with aircraft has been taken under due diligence provision, and the term helicopters has been added c. The peril of accident in loading, discharging or shifting of cargo or fuel has been retained but due diligence provision does not apply to this peril. d. Besides Assured, Owners and Managers, the due diligence provision applies to Superintendents or any of their onshore management.

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Module 01 - P&I Distance Learning programme

The Marine Insurance act defines maritime perils as follows: Maritime perils" means the perils consequent on, or incidental to, the navigation of the sea, that is to say, perils of the seas, fire, war, perils, pirates, rovers, thieves, captures, seizures, restraints, and detainment's of princes and peoples, jettisons, barratry, and any other perils, either of the like kind or which may be designated by the policy. Insurance of Cargoes Cargo is defined as anything that is loaded onto any type or form of vehicle for being transported from A to B, provided the "thing" is not a human being. Risk factors An infinitely variable combination of risk factors such as mode of transportation, type of goods, packing, size/weight/value, voyage route & duration, season and socioeconomic environment, would make up the risk covered by a marine policy in terms of cargo. Cargo conditions Although the policy form is an important part of the contract of insurance, it would be useless if it were taken on its own, i.e. without the special conditions provided by the clauses attached to it. There are a bundle of different clauses in use today. For example, there are special trade clauses for shipments of coal, oil, rubber, timber, frozen food and meat, as well as a variety of special extension clauses. The (UK) Marine Insurance Act of 1906 provides the basis for marine insurance contracts and, within the legal parameters laid down in this Act, the Institute of London Underwriters have approved numerous 'clauses' defining the risks covered, circumstances excluded, etc. to be incorporated into insurance policies. Some of these have broad application and are therefore in everyday use. Others are specific to certain trades and classes of goods. The tenets of the Marine Insurance Act, and the Institute Clauses, have been widely adopted amongst trading nations, including South Africa. The standard policy document represents only the skeleton of a marine insurance contract. It is the clauses, which are incorporated by attachment to the policy, that are the essence of the contract, but the policy may contain, by agreement, specific wordings which extend or restrict the basic cover by imposing, for example, warranties, special conditions, a franchise or an excess. The main clauses are:

Institute Cargo Clauses which consist of: Institute Cargo Clauses (A) Institute Cargo Clauses (B) Institute Cargo Clauses (C) Institute Cargo Clauses (Air) Institute War Clauses Institute Strikes Clauses Institute Trade Clauses
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Module 01 - P&I Distance Learning programme (These are given in the resources) Non-Marine Insurances Fire insurance The need for Fire Insurance was felt after the Great Fire of London in 1666 when major part of London city was destroyed by fire. A London builder Dr. Nicholas Barbon started the Fire Office in 1680. Other offices soon followed but their operations were confined to the insurance of buildings. In 1708, an office was established to insure goods and merchandise. These offices owned their own fire brigades and issued fire marks which were fixed to buildings to indicate that they were being insured by a particular office. Eventually fire insurance policies covered other risks such as lightning, explosion, cyclone, subsidence and landslide, earthquake, man-made risks such as riot, strike, malicious damage, terrorist damage etc. Some of these risks are packaged in one policy along with fire risks and they are known as allied perils some other risks can be covered as additional risks by paying additional premium, they are called special perils. Miscellaneous Accident Insurances Besides marine insurances (insurances of ships and cargo) and fire insurances, other General (non-life) insurances are known as Miscellaneous Accident Insurances. The need for these insurances arose because of Industrial Revolution in the 19th century. The risks of accidental injuries and death and the risks of loss of or damage to property increased tremendously during the period of Industrial Revolution giving rise to demand for insurances covering those risks. The following are major classes of business which came under the category of Miscellaneous Accident Insurances. Motor Insurance The first motor vehicle was introduced in the U.K. In 1894 and thereafter there was tremendous increase in road transport giving rise to increase in road accidents. The first motor insurance policy was introduced in 1898 by Law Accident Insurance Society Ltd. In 1930, the Road Traffic Act was passed to introduce compulsory insurance of third Party liabilities arising from road accidents. This compulsory insurance covered the legal liability of the motor vehicle owner/driver in respect of accidental injury/death of a third party (one who is not a party to the insurance contract) arising from the use of motor vehicle in a public place. However, the insurance covering accidental loss of or damage to the motor vehicle is not compulsory, but the vehicle owners do buy this insurance to safeguard their financial interest in the motor vehicle. Insurances developed in 19th / 20th century Other insurances which were developed towards the end of 19th century and beginning of 20th century are as follows: Boiler insurance covers Property damage and liability towards third party caused by boiler explosion in factories was covered under this insurance.

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Module 01 - P&I Distance Learning programme Liability insurance. As the number of industrial accidents grew, there was demand for Employers Liability insurances. This covers: The liability of the employers towards their employees in respect of injuries or death arising from and during the course of employment. Personal Accident Insurances were introduced providing benefits in the event of injury to or death of the insured resulting from accident. Risks of burglary in business premises and private dwellings. Money in safe and Money-in-transit

The Burglary insurances cover

With the growth of manufacturing industry, commerce and transportation industry, number and types of risks increased in the middle of 20th century and this gave scope for introduction of many new insurance covers. The following are some examples Engineering Insurances Machinery breakdown insurance, Contractors All Risks Insurance, Erection-All-Risk Insurance. Lift insurance. Electronic Equipment Insurance, Computer insurance etc. accidental loss of or damage to the aircraft, liability of the Airlines in respect of accidental injury to or death of the passengers, loss of or damage to their luggage, Loss of or damage to air cargo. Legal liability of the owner or occupier of the premises towards members of public for accidental injury or death caused to them while on the premises. Legal liability of the manufacturer or seller of the product towards the consumers for loss injury or death caused by the use of the product. Of the doctors, solicitors, lawyers, architects, engineers etc. towards their clients, arising from professional negligence. Insurance covering loss of profits because of Machinery breakdown in the factories

Aviation Insurance covers

Liability Insurances or Public Liability insurance covers

Product liability insurance covers

Professional Indemnity insurance covers liability

Pecuniary loss insurances such as

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Module 01 - P&I Distance Learning programme Fidelity Guarantee insurance cover Financial loss caused to the employer arising from employees dishonesty.

The above list of Miscellaneous Accident Insurances is not exhaustive. Other new types of insurance covers are added to this list as an when demand for them arises with the changes in technology and economic scenario. Contingent Strike Insurance, Marine Strike Insurance and Contingent Business Interruption Insurance All businesses devote substantial resources to planning, budgeting, logistics and marketing, to ensure the best results. However there are elements totally outside the control of a company's executives that can have a major influence on profitability. Unexpected events, often in apparently unrelated areas, can cause serious knock-on effects which in turn have the potential to wreck even the most carefully prepared business plans and consequently the effect on a companys balance sheet can be disastrous. Strikes or industrial action taken by an independent third party can directly or indirectly affect the operation of an Assureds business, supply chain, market place or contract. Whether a strike has the effect of interrupting or halting the supply of raw materials or components, essential services such as gas, electricity, water, telephone, post or transport, or reduces the capability of the Assured to meet their contractual obligations, the effect on the Assureds balance sheet can be protected. The third parties whose strike action could affect the Assureds business, whether a supplier or a customer, must be nominated and named in the Policy. Summary In this module we gave a brief history of development of Marine Insurance and the conditions under which it is applicable. As you must have noticed as all things British traditional aspects has a lot of importance in Marine Insurance and some of the wordings given in the Institute clauses is an example. Development of insurance of cargoes and its extension to P&I as liability is also explained Any insurance is bought because there is a risk attached. These risks are many and every owner of a property must take into consideration as to which risks he can manage and which he must insure. This module also gives a brief explanation of the other insurance contracts other than Marine. Some of these are familiar to us and we are dealing with day to day, at least to the extent of paying a premium and buying insurance for a stated value. At the base of any insurance cover is a contract and both the insured and the insurer are bound by that contract which in a legal sense is bound by the Indian Contracts act in India and similar legislations elsewhere. Contracts are not new to us as right from the time a seafarer signs on the Articles of Agreements he is under some form of contract or the other. The ships also ply under charter party agreements which are also a form of a contract. Basic principles of a contract are proposal and acceptance. Consideration i.e payment, agreement on terms, capacity to contract or in other word

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Module 01 - P&I Distance Learning programme authority to make a contract, its legality and ensuring that the contract is enforceable are in all contracts The modules give a summary of ITC Hull conditions for information only. Their full examination and applications is not the subject of study in this course. However it may be noted that except for the concept of mutuality a number of these conditions are applicable in P&I also.

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