Fleet Management Limited

MARINE INSURANCE & CLAIMS A PERSPECTIVE FOR ONBOARD STAFF & THEIR ROLE
Rajesh K. Nanda Deputy General Manager Business & Insurance Dept.

Purpose of Insurance

To meet various additional expenses faced by a Ship owner, as a result of an accident, which may have caused damage to own vessel, personnel, property, environment It helps to maintain Ship owners cash flow in spite of having had to incur expenses for repairs and during the period where there are no earnings It is also a requirement for the vessel before being able to be Mortgaged for obtaining a term loan

Categories of Insurance
Compulsory:

Hull & Machinery War Risks Protection and Indemnity

Owners preference: Loss of Hire Freight Demurrage & Defense Cash on board Strike cover

Deductible

DEDUCTIBLE may be defined as the level below which a claim on the insurer cannot be made In other words, it is the damage that would have to be absorbed by a Ship owner before he could place a claim for recovery of expenses from his Insurers Once an insurance claim is processed, the insurer would deduct this pre-agreed amount before reimbursing the balance amount

Deductible levels

For H&M incidents, this usually ranges from around US$ 50,000 to US$ 125,000 and in some cases, as high as around US$ 300,000 for new / expensive ships There may be an additional machinery deductible (AMD) ranging from US$ 25,000 to US$ 100,000 for older vessels as well as vessels with an established susceptibility to machinery damages based on its history For P&I risks, the deductibles shall vary according to nature of claims such as cargo damages, crew matters, property damages, collision, pollution etc.

Function of deductibles
Understanding the deductible is important as it would determine whether or not an incident/damage repair is likely to translate itself as an insurance claim
1.

It may be considered as a tool that enables a Ship owner to assume a certain level of risk as per his preference This would help him during negotiations with Clubs or Underwriters based on the risk profile that he can afford, a higher deductible may be opted resulting in a premium saving that may more than offset the increase in the event of a claim The deductible eradicates all claims that are below the level, thereby preventing each and every damage incident from practically resulting in a claim

2.

3.

Compulsory Insurance - Hull

Hull & Machinery: Covers cost of repairing damages to the vessel arising from certain maritime perils as well as full financial compensation up to its insured value in the event of a constructive total loss (CTL) War Risks: Provides coverage for damage to a vessel that arises out of a war or war-like operation and similar political risks, that are excluded under ordinary H&M policy

Compulsory Insurance P&I

Protection & Indemnity: Mainly covers Ship owner's liabilities arising from operating the vessel Includes cargo damages, crew injury/illnesses, injury to passengers, stevedores Also, fines & expenses resulting from an accidental pollution, customs fines, liabilities arising from damage to property, collision damage to other ships etc.

Hull & Machinery policy

These are standard conditions, which qualify as policy wordings The insurance policy may be placed on any one among the following plans: English - ITC Hulls 1.10.83 USA - AIHC Hulls 2.6.77 Norwegian Plan of 1996 General Swedish Hull Conditions 1987/1994 Japanese Hull Conditions 1990

H&M/WR policy placement

There is almost always an insurance broker involved, who issues the cover notes on his letter head. The placement may be shared by a no. of Underwriters from various markets and providing varying capacities to place the risk. The conditions, period of insurance, list of assureds, deductible levels and any additional clauses or warranties are reflected on the policy cover note

Exclusions under ITC 1.10.83

Want of due diligence Wear and tear Errors in design Willful misconduct Delay Time bar War Strikes Malicious acts Nuclear weapons

Warranty
An insurer can deny a claim in the event that a warranty among the conditions are not met Following warranties are to be met usually: Class Maintenance: The relevant Classification Society would have to issue a certificate as evidence that the vessel remained within Class at the time of damage Warranty for compliance to ISM code: In case there is a causal connection between breach of ISM code and the casualty.

Breach of Warranty voyages

Notifications are required prior to breaching the following so as to ensure that vessel is appropriately held covered by payment of an additional premium as required: Institute Warranty Limits (IWL): H&M policies warrant that the vessel shall not trade outside these limits. Trading outside such limits without advance notification to H&M underwriters would result in breach of insurance cover. War risk trading warranty: Only world-wide trading areas are held covered under the basic War Risk insurance policy and advance notification needs to be provided before trading into JWC listed areas for ensuring coverage during the breach.

General Average (GA)

General Average: When there is more than one interested party involved in an insured peril, usually cargo insurers and/or Time Charterers, then any reasonable or extraordinary costs incurred for joint benefit shall be apportioned in accordance with the value of their assets. Following requirements need to be met for qualifying as GA Common maritime adventure Peril affecting whole adventure Voluntary or intentional loss Extraordinary measure Reasonable in circumstances

General Average - examples

GA events

Non-GA events

Jettison Extinguishing water Beaching Engines used to refloat Salvage Voluntary

Washed overboard Fire Grounding Engines whilst afloat Ordinary towage Accidental

Protection & Indemnity

P&I is an insurance cover in respect of third party liabilities that results from owning and operating ships world-wide. The risks typically covered by P&I Clubs are mutual risks

P&I Club / Mutual

There are 13 P&I Clubs under the International Group Agreement which operates as a mutual and these Clubs, provides collective self insurance to its Members. The Club is formed by a common interest group wishing to pool their risks together They pay an annual premium to gain entry into the Club, necessarily meaning various liability coverage The surplus between premiums and claims is maintained as a reserve, the level of which reflects its financial strength to a certain extent. Should there be a danger of depletion in this reserve owing to a high level of claims, it affects all its Members as they would then be obliged a request to pay supplementary premiums.

How is P&I different from H&M

While P&I offers a cover for various liabilities arising from owning or operating a vessel, H&M offers coverage for only the material damages to own vessel. H&M underwriters offer a limited cover up to vessels insured value, where as P&I Club cover is virtually unlimited with a high upper limit. H&M insurance cover is bought on fixed premium basis, where as P&I Clubs operate on the mutual principle by pooling the premiums as well as liabilities, thereby obtaining a very wide range of cover very competitively.

Liabilities covered under P&I

Damage to cargo incl. shortage, loss of quality etc. Personal injury or illness or loss of life of crew members Personal injury to or loss of life of stevedores Pollution risks clean up costs, fines etc. Property damages to Fixed and Floating Objects (FFO) Collision liabilities or RDC Stowaways Contractual liabilities Wreck liabilities

Damage to cargo

Damage to cargo is the most frequent type of liability that confronts a ship owner, naturally because the primary function of the vessel is carriage of cargo from one port to another. Cargo damages are often usually have the highest work. caused by very minor exposure to costs and errors but associated

It is only necessary to establish that damages are likely to have occurred while on board, in order for the Ship owner to be liable.

Personal Injuries

Any incident that involves injuries/illnesses and/or disability/loss of life of crew-members, stevedores, pilot or passengers results in Ship owners becoming liable to pay medical expenses as well as compensation. The injured person could decide to sue the ship and her owners, demanding huge sums of money as compensation. These cases are often under-estimated, particularly in case of stevedores at US ports, where a liability claim arising out of a seemingly small incident may runs into US$ 3-4 million.

Pollution Liabilities

There has been a huge increase in exposure of Ship owners to liability claims arising due to pollution, in particular involving oil whether from cargo or bunkers. By far, this is the single largest liability that may arise out of Ship owning as the costs of clean-up, fines as well as legal expenses to protect own interests are huge. Such liabilities are usually imposed by the Civil Liability Conventions or domestic regulations such as OPA 90. The cover comes with a limit of US$ 1,000,000,000 in respect of oil pollution for each accident or occurrence. This limit also embraces indirect claims e.g., those arising from collision liabilities.

Property damages / FFO

The P&I rules offer coverage for property damages caused by contact between an entered ship and property belonging to other entities for e.g.: buoys, cranes, lock gates, docks, shore installations and so on. The Club cover also extends to damage caused to other ships by an entered ship without any actual contact, as in the case of damages to a moored vessel due to wash waves from excessive speed.

Running Down Clause / RDC

These are also referred to as Collision Liabilities, arising out of loss or damage to another ship or its cargo as a result of collision Ship owners have the option of placing the risk partially under H&M either 1/4ths or 3/4ths or full, in which case the remaining cover shall be held under P&I However, under H&M, these liabilities are covered only up to the insured value of vessel In the event that liabilities arising from a collision exceeds the hull insured value, the excess liabilities are held automatically covered under P&I rules

Stowaways

Stowaways continue to be a problem in many areas of the world, in spite of stringent ISPS regulations The problem is increasing as ever in certain areas, particularly Africa, South America, Caribbean Islands etc. The costs escalate depending up on the port where they are disembarked, and their country of domicile The vessels schedule is affected in the event of deviation, and various Charterers, local authorities may have to be involved in costly and time consuming repatriation process Numerous problems are encountered that includes local immigration regulations, lack of consular representation, requirement of adequate security escort during repatriation

Other liabilities

Contractual liabilities arising out of any indemnities provided by Ship owners for securing services of a third party such as floating crane etc., could be held covered under P&I cover as long as the Clubs are informed in advance and there are no unreasonable clauses agreed by the owner. Liabilities in respect of raising, removal, destruction, lighting or marking of vessels wreck shall also be recovered, though any residual value subsequent to wreck removal operation shall be deducted from cost of operation.

Other liabilities (cont)

The P&I rules also have a provision for paying any contribution to General Average, special charges or salvage that the Ship owner is unable to recover from cargo interests. Any reasonably incurred expenses for Salvage under SCOPIC, towards measures taken to limit pollution from a vessel in distress Various Customs fines etc. levied on the vessel may be reimbursed by the Club subject to its discretion

What is NOT covered under P&I

Claims arising out of stevedore damages or guaranty claims Off-hire costs or lost earnings Costs arising from any criminal acts of crew members Operational pollution Loss Prevention initiatives of a Member though it may reduce the claims (expected to act as prudently uninsured) Any claims arising out of delivery of cargo that is not in accordance with documentation even though the LoI wordings may have been recommended by the Club Failure of holds/tanks for engaging in trade because it is not a mutual risk and results in loss of own earnings Crew wages during period of vessels arrest

Thank You