CLASSES OF INSURANCE

MARINE INSURANCE
Law 139 Insurance Law

GILBERT R. HUFANA
Professor
 Marine Insurance
• Insurance against risks connected with
navigation to which a ship, cargo, freightage,
profits or other insurable interest in movable
property, may be exposed during a certain
voyage or a fixed period of time.
• Also includes the following:
– Aircraft
– Goods while being assembled, packed crated, baled
compressed, or similarly prepared for shipment,
hence, not yet in the course of transportation
– Precious stones, jewels , jewelry or precious metals
– Bridges, tunnels & other instrumentalities of transpo
 Property Covered
• A marine policy may cover any property or
interest enumerated in Sec. 99, IC which may
cover property exposed to risk of marine
navigation or not
 Risks insured Against
• Insurer is liable for all losses proximately caused
by the perils covered by the marine policy.
– May not only cover “Perils of the Sea” but may also
cover fire, enemies, pirates, thieves, jettison,
suprisals, takings at sea, arrests, restraints and
detainments of all kings, princess, and people
– All other losses and misfortunes that have or shall
come to the hurt, detriment or damage of goods and
merchandise, ship, etc. or any part thereof
 Perils of the Sea
• Embraces those casualty due to the violent action of
the winds or waves
• Includes shipwreck, foundering, standing, collision,
and every specie of damage done to the ship or
goods at sea by the violent action of the winds and
waves
– Ex. Rusting of a cargo steel pipes in the course of a voyage
is a peril of the sea
• Includes not only “arrests” caused by political acts of
a seizing state but also by ordinary legal processes
such as a lawsuit on ownership/possession
 Perils of the Ship
• Losses or damages resulting from:
– Natural/inevitable action of the sea
– Ordinary wear and tear of a ship
– Negligent failure of the ship’s owner to provide the
vessel with proper equipment to convey the cargo
under ordinary conditions
• Marine policy usually covers perils of the sea
only and not perils of the ship. If the perils of the
ship are not expressly included in the policy, the
insurer is not liable for a loss caused by a peril of
the ship.
 Inchmaree Clause
• Provision in the policy that the insurance shall
cover loss or damage to the hull or machinery
through the negligence of the master, charters,
mariners, engineers or pilots or through
explosions, bursting of boilers, breakage of
shafts, or through any latent defect in the hull or
machinery not resulting from want of due
diligence.
 All Risks Clause
• Covering any loss other than a willful and
fraudulent act of the insured
• Creates a special type of insurance which
extends coverage to risks not usually
contemplated and avoids putting upon the
insured the burden of establishing that the loss
was due to the peril falling within the policy’s
coverage
 Barratry
• A willful act of the master or crew in pursuance
of some fraudulent or unlawful purpose, without
the consent of the owner, and to the prejudice of
his interest
• Ex. Burning of the ship, violating of revenue
laws, unlawfully selling the cargo
• “Taking at sea, arrests, restraint and detainment
of all kings, princess and people”
– Extraordinary acts of a sovereign authority in times of
war, or under other unusual international conditions
like blockades and embargos
 Insurable Interest
• Of the Ship owner
– Chartered by one who covenants to pay the ship
owner the vessel’s value incase of loss
– Ship owner has mortgaged the vessel to another
• Of the Charterer
– To the extent that he is liable to be damnified by its
loss
 Loan on Bottomry/
Respondentia
• Loan on Bottomry
– Loan which is payable only if the vessel given
as a security arrives safely at port from the
contemplated voyage
• Loan on Respondentia
– Loan which is payable only upon the safe arrival in a
port of the goods given as a security
 Insurable Interest of
Shipowner
• Where a vessel is hypothecated by way of
bottomry, the owner has an insurable interest
only in the excess of the vessel’s value over the
amount of the bottomry loan.
• This is so because when the bottomed vessel is
lost, the owner need not pay the loan and is
therefore benefited to the extent of the amount
of the loan obtained and the loss he actually
suffers is only the difference between the actual
value of the vessel and the bottomry loan.
 Insurable Interest of the
Lender on Bottomry
• The lender on bottomry has an insurable interest
in the vessel given as security to the extent of
the loan
 Freightage
• The benefits which may be derived by the owner
from:
– Chartering of his ship
– Its employment for the carriage of his own goods or
those of others
• Insurable Interest – Ship owner may insure expected
freightage if there is risk of not being able to collect the
same by the happening of the peril insured against
• Ship owner has no insurable interest in the freight
whether the vessel is lost or not
 Insurable Interest on
Freightage
• The ship owner’s insurable interest on expected
freightage exists from the time the ship has
broken ground on the chartered voyage
• In case the vessel is employed for the carriage
of goods without a charter party, the ship
owner’s insurable interest on expected
freightage exists when the goods are actaully on
board or there is some contract putting them on
board, and both vessel and goods are ready for
the specified voyage.
 Insurable Interest on
Expected Profits
• One having an interest in the thing from which
profits are expected has insurable interest in the
expected profits.
• The owner of a cargo or merchandise
transported by a vessel has an insurable interest
not only on the merchandise but also on the
expected profits from the future sale of the
merchandise which may be adversely affected
by the perils of the sea.
 Insurable Interest of the
Charterer
• The charterer of a ship has insurable
interest in the ship to the extent that the
charter is liable to be damnified by its loss.
 Concealment
• Rules on concealment in marine insurance are
stricter than that of the ordinary insurance
• To constitute concealment, it is sufficient that the
insured is in possession of the material fact
concealed although he may not be aware of it
• The insured is bound to communicate the
information of the belief or expectation of a third
person in reference to a material fact
• Presumption is there is prior knowledge created if
the information might possibly reach him in the usual
mode of transmission & rate of communication.
 Concealment of certain
matters do not avoid the
•
Policy
Concealment of the following matters does not
avoid the policy but merely exonerates the
insurer from loss resulting from the specific
matter concealed:
– National character of the insured
– Liability of the thing insured to capture & detention
– Liability to seizure from breach of foreign laws of
trade
– Want of necessary documents
– Use of false and simulated papers
 Misrepresentation
• A misrepresentation in marine insurance to
entitle the insurer to rescind the contract must be
intentionally false in any material respect or in
respect of any fact on which the character and
nature of the risk depends
• Eventual falsity of a representation as to
expectation of belief and not of positive facts
does not avoid the policy in the absence of fraud
 Implied Warranties
• The following are implied warranties in marine
insurance:
– The vessel is seaworthy
– The vessel shall not make any improper voyage
deviation from the agreed voyage
– The vessel shall not engage in an illegal venture
– The vessel shall carry the requisite documents to
show its nationality or neutrality and shall not carry
any document which cast reasonable suspicion on
the vessel
• These exist by the mere fact that a contract of
insurance is entered into.
 When Ship is Seaworthy
• A ship is seaworthy when reasonably fit to
perform the service and to encounter the
ordinary perils of the voyage as contemplated by
the parties.
• Seaworthiness is a relative term depending on
the nature of the ship, the voyage, and the
service in which she is at the time engaged
 Warranty of Seaworthiness
• A warranty of seaworthiness extends not only to
the condition of the structure of the ship itself but
to the following:
– That the ship be properly laden or loaded with the
cargo
– That the ship is manned by a competent master and a
sufficient number of competent officers & seaman
– That the ship must have the requisite equipment &
appurtenances such as ballasts, cables & anchors,
cordage & sail, food, water, fuel & lights; and & other
necessary or proper stores & implements for the
voyage
 When is seaworthiness
required
• General Rule: seaworthiness is required only at the
commencement of the risk.
• Exception: required at the commencement of each
portion of the voyage with reference to the said
portion
• If the ship is seaworthy at the start of the voyage,
unseaworthiness during the voyage does not avoid
the policy
• However, unreasonable delay in repairing the defect
causing unseaworthiness during the voyage
exonerates the insurer on ship or shipowner’s
interest from liability from any loss arising therefrom
 The Voyage
• Voyage is described in the policy
– The beginning and ending is stated in the policy
– The course of the voyage must be the course of
sailing fixed by mercantile usage between those
places
• Voyage is not fixed by the policy
– The course of voyage must be that which to a master
of ordinary skill and direction, is the most natural,
direct and advantageous
 Deviation
• The departure from the course of the voyage
insured
– Departure from the course of sailing fixed by
mercantile usage
– Departure from the most natural, direct and
advantageous course if no course has been fixed by
mercantile usage
• Unreasonable delay in pursuing the voyage
• The commencement of an entirely different
voyage
 Proper Deviation
• A proper deviation does not vitiate the marine
policy
• A deviation is proper:
– Caused by circumstances over which neither the master
nor the owner of the ship has nay control
– Necessary to comply with a warranty or to avoid a peril
– Made in good faith and upon a reasonable grounds of
belief in its necessity to avoid a peril
– Made in good faith for the purpose of saving human life
or relieving another vessel in distress
• A deviation is improper if not one of the
enumeration above, it absolves the insurer
 Loss
• Total or partial
• Total Loss – maybe actual or constructive
• Actual total loss is caused by:
– A total destruction of the thing insured
– Irretrievable loss of the thing by sinking or being
broken up
– Any damage to the thing which renders it valueless to
the owner for the purpose for which he held it
– Any other event which effectively deprives the owner
of the possession, at the port of destination of the
thing insured
 Actual Total Loss
• May be presumed from the continued absence of
the ship without being heard of
• The length of time which is sufficient to raise such
presumption depends upon the circumstances of
the case
• Where the cargo by the process of decomposition
or other chemical agency no longer remains the
same kind of thing before, an actual total loss has
been suffered.
• No notice of abandonment is required to be entitled
to payment in case of actual total loss
 Constructive Total Loss
• Also known as technical total loss
• One which gives the insured the right to
abandon the thing insured by relinquishing to the
insurer his interest in such thing, entitling him to
recover from a total loss
• In turn, the insurer acquires all the rights over
the thing insured – he can salvage it, repair it,
sell it and recover from those who caused its
loss
 General Average
• Includes all damages and expenses which are
deliberately caused in order to save the vessel, its
cargo or both at the same time, for real and known
risk
• Gives rise to the right of the owner to contribution
from those benefited thereby or if he is insured, he
has the alternative of seeking indemnity from his
insurer subrogating the latter to his right of
contribution
• A general average is never allowed unless the
loss or damage has been incurred for the
“common safety” of both vessel and cargo.
(Compagnie de Commerce v. Hamburg Amerika 36 Phil 590)
 Particular Average
• Any partial loss caused by the peril insured
against which is not a general average
• Insurer is liable for a particular average unless
the policy excludes it
• Ex. The damage and expenses suffered by the
vessel during the voyage; or the damage
suffered by the cargo during the voyage
 Abandonment
• The right given by the law to the insured in case of
constructive total loss to relinquish to the insurer his
interest in the thing insured
• Can be exercised by the insured:
– if the peril insured against causes a loss of more than ¾
of the value of the thing insured or where its value is
reduced by more than ¾
– When the voyage cannot be lawfully performed without
incurring an expense of more than ¾ of the value of the
ship
– If the thing insured is a cargo or freightage & the voyage
cannot be performed within a reasonable time/diligence
 Rules on Abandonment
• It cannot be partial or conditional, it should be
total and absolute
• It must be made within a reasonable time after
receipt of reliable information of the loss
– To enable the insurer to act promptly to save, if
possible, some part of the property
• Abandonment is ineffective:
– where the information relied upon proves to be
incorrect
– The thing insured was so far restored when the
abandonment was made that there was in fact no
total loss
 Rules on Abandonment
• Oral or written
– If oral, a written notice must be submitted w/in 7 days
from such oral notice
• Notice of abandonment must be explicit & must
specify the particular cause or ground for
abandonment
• Abandonment transfers to the insurer the
insured’s interests in the thing with all the
chances of recovery & indemnity
 Rules on Abandonment
• Notwithstanding the lack of abandonment, the
thing insured is transferred to the insurer as if
there had been a formal abandonment when the
insurer pays for a loss as if it were an actual total
loss
• Acceptance of abandonment may be express or
implied
– Acceptance is conclusive upon the parties
– Loss is admitted
– Sufficiency of abandonment is likewise admitted
– Irrevocable
END OF LECTURE