Part I

Vuong Thi Bich Nga

Outline of lecture
Introduction
Why insurance?
History of marine insurance
Marine Risks
Loss and damages
General Average- York Antwerp Rules
Case work
Why marine Insurance???
Do you need insurance?
Legal obligation?
Commercial obligation?
Part of the owners risk management?
Risk reduction?

Look at the following pictures……

Follow up question
Which insurance
covers do you need
Who has suffered a loss? to have taken out
Other costs? prior to these
Freight loss? incidents in order
Collision liability? to be protected?
Legal liabilities?
Salvage?
Wreck removal
Oil pollution and clean up costs,
emergency response services
Losses
Who has suffered a loss?
Other costs?
Freight loss?
Collision liability?
Legal liabilities?
Salvage?
Wreck removal
Oil pollution and clean up costs, emergency response
services?
How can you cover your interests, and where? –
this is what we will look into…..

Capital interest
Income interest
Freight interest
Third party interests

Markets:
Scandinavian, English, other
A historical view
 Oldest type of insurance known – history and traditions affect the markets
and covers of today

 MI developed in the Mediterranean, then in England (still the dominant

nation)

 The world of marine insurance has undergone major changes over the past
centuries….

 Risks and liabilities have changed and increased dramatically…..Why and

how?
Characterisics of Marine Insurance
International
•Long traditions
•Brokers based
•High risk profile
•Few providers and few markets
Marine Insurance markets

63.9%
Europe

22.9% 11.7 2.0%

Asia/Pacific North America Rest of the world
 Marine Risks
risks of the Sea, in the Sea
Based on causes
1. Act of God
2. Accidents
3. Perils of the Sea
4. Political Act
5. Others
Marine Risks (cont)
Based on practice
1, Insurable risks:
2, Extra insurable risks
3, Excluded risks
Insurable risks
1. Stranding: The running of a ship or other
vessel on shore; it is either accidental or
voluntary
- The vessel drives in shallow water
- Taking ground
- Need external force to get out of the ground
(salvage)
Safely taking ground: take advantage of tide
Insurable risks
2. Sinking: the vessel goes down below the
surface of water, go to the bottom
- Below the water
- Taking ground
- Go to the bottom and submerge
Insurable risks
3. Fire: combustion or burning, in which
substances combine chemically with oxygen
from the air and typically give out bright light,
heat, and smoke
- Normal fire: crew members smoke cigarettes
and throw into cargo
- Inherent fire: the cargo itself could make a fire
 4. Collision: a vessel running into another object,
fixed or floating, except water
- Both to blame collision clause: If the Vessel comes into collision
with another ship as a result of the negligence of the other ship and any
act, neglect or default of the Master, Mariner, Pilot or the servants of the
Carrier in the navigation or in the management of the Vessel, the owners
of the cargo carried hereunder will indemnify the Carrier against all loss
or liability to the other or non- carrying ship or her Owners in so far as
such loss or liability represents loss of, or damage to, or any claim
whatsoever of the owners of said cargo, paid or payable by the other or
non-carrying ship or her Owners to the owners of said cargo and set-off,
recouped or recovered by the other or non-carrying ship or her Owners as
part of their claim against the carrying Vessel or Carrier. The foregoing
provisions shall also apply where the Owners, operators or those in
charge of any ship or ships or objects other than, or in addition to, the
colliding ships or objects are at fault in respect of a collision or contact.
Insurable risks
5. Jettison:
- to cast (goods) overboard in order to lighten a vessel
or aircraft or to improve its stability in an emergency.
- to throw off (something) as an obstacle or burden;
discard.
Causing General Average: for the safety of the trip in an
emergency
Insurable Risks
6. Missing: the vessel/cargoes disappear after a period
of time
- French Law: 6 months for short trip, 12 months for
long trip
- UK Law: 3 times of the voyage, no less than 2 months
and exceed 6 months
- Vietnamese Law: 3 times of the voyage, no less than 3
months
Insurable risks
7. Extraneous risks
- Theft, pilferage and / or non-delivery.
- Fresh water and rainwater damage.
- Hook and / or oil damage.
- Heating and sweating.
- Damage by mud, acid and other extraneous substances.
- Breakage.
- Leakage.
- Busting / tearing of bags
- Pirates
Extra insurable risks
1. Strikes
strikers, locked-out workmen, or persons
taking part in labour disturbances, riots or civil
commotions
any terrorist or any person acting from a
political motive.
Extra insurable risks
2. War
- War; civil war; revolution; rebellion; insurrection, or civil
strife arising therefrom, or any hostile act by or against a
belligerent power
- capture seizure arrest restraint or detainment, arising from
risks covered under 1.1 above, and the consequences
thereof or any attempt thereat
- derelict mines torpedoes bombs or other derelict weapons
of war.
Excluded Risks
1. loss damage or expense attributable to wilful
misconduct of the Assured
2. ordinary leakage, ordinary loss in weight or volume,
or ordinary wear and tear of the subject-matter
insured
3. loss damage or expense caused by insufficiency or
unsuitability of packing or preparation of the
subject- matter insured
4. loss damage or expense caused by inherent vice or
nature of the subject-matter insured
Excluded risks
5. loss damage or expense proximately caused by delay,
even though the delay be caused by a risk insured
against
6. loss damage or expense arising from insolvency or
financial default of the owners managers charterers or
operators of the vessel
7. any claim based upon loss of or frustration of the
voyage or adventure
Excluded risks
8. loss damage or expense arising from any hostile use of
any weapon of war employing atomic or nuclear fission
and/or fusion or other like reaction or radioactive force
or matter.
9. unseaworthiness of vessel or craft,
unfitness of vessel craft conveyance container or liftvan
for the safe carriage of the subject-matter insured,
where the Assured or their servants are privy to such
unseaworthiness or unfitness, at the time the subject-
matter insured is loaded therein.
Loss and damage
Results from risks
Loss of 5 cars in the storm in the sea
Thief: loss 1,000 kg of rice
Container: felt into the sea
Damage: the cargo were broken, , got wet, …
PARTIAL LOSS AND TOTAL LOSS
Partial loss/damage:
Total loss/damage: rate of loss/damage
- Actual total loss/damage
- Constructive total loss/damage:
not actually happen
cannot avoid actual total loss/damage
cost to cover: up to insurance value/amount
NOTICE OF ABANDONMENT
Abandonment: abandon all rights and responsibilities
of subject matter insured, transfer SMI to the insured
- NOA: tendered and accepted
- Cannot change
 Average
General Average: as the result of General
Average Action
- General Sacrifice
- For the safety of all the people and cargo/vessel
- By the people
- Cause General Average
- Contributed by the rate of rescure
- Rules: YORK ANTWERP RULES 2004
YORK ANTWERP RULES
Definition of General Average
Part of GA
Contribution to the GA
Steps
1. Identify the Value of GA
2. Identify the Value of Rescure
3. Rate of GA
4. Contribution
5. Financial Control
 CASE STUDY
Hung Vuong Vsl with insurance value of 10mil transported
cargoes of Tocontap (rice, 2 mil in value), and Vinafood 1
(tea, 3 mil in value), Vinafood 2 (coffee, 3 mil in value).
During the trip, the storm came and blew away 500,000usd
of coffee in the sea. The master decided to threw cargo of
Tocontap, loss of 1 mil, for the safety of the whole trip.
Freight of all cargoes that will be collected at destination is
500,000usd. The master also decided to speed up the vsl,
avoiding the storm are. At port of destination, the master
announced GA and asked all the shipper to pay deposit. The
repair cost of machine is 200, 000usd,.
Calculate the contribution to this GA
In the trip from Vietnam to India, the Vessel (V=
12mil) carrying cargoes of Vinafood 1 (1mil), Vinafood
2(2mil) and Namviet (2 mil). Freight to collect is
500,000 USD. In the storm, cargo of Vinafood 2 got
wet, total loss of 300,000USD. The Master decided to
throw cargo of Namviet into the sea, total loss of
500,000 USD, then speed up the engine to be fast
back to the port of destination. He declared GA and
asked consignees to pay GA bond. The contribution of
Vinafood 2 is:
a. 10.500 USD b……………………………………
c. 5500 USD c. No contribution
 
4. It took 2.5 months for a vessel departing from
Vietnam to German. The vessel transited in Suez after
01 month, then lost track from Suez. How long would
this vessel be considered to be missing under UK
Maritime Law?
. A company in Vietnam imported milk powder from
Australia with price of 200USD/MT CFR Cat Lai,
Incoterms 2010. The storm came suddenly during the
trip and 20% of cargo got wet as result of sea water. In
order to run faster to avoid the storm, the shipmaster
decided to throw cargo into the sea and speeded up the
engine. Then, he declared General Average. At the port
of destination, shipmaster asked shipper to pay bond for
this G/A.
1. Calculate this G/A and contribution of each party.
More information: Insurance value of vessel is $2 mil.
Total cargo is 50,000 packages (50kg/p). Freight is
$28/MT FIO, to collect (I=O=S=T= 1USD/MT).
Repair cost of engine is $80,000.Total cargo of jettison is
5,000 packages.
What are the owners insurable interests
in his vessel?
The capital (asset) interest

Potential legal liabilities

Income interest
 Insurances covering the interests:
Available covers:
Asset capital:
H&M, Hull interest and Builders Risk,
Mortgagee interest insurance
Income Loss:
Loss of Hire, Freight Interest
Third Party Liability:
P&I, H&M
 Insurable interests
Only those having an insurable interest in
the subject matter of insurance may insure
this

The MIA devotes 12 sections to the subject

of insurable interest

A definition is provided in s. 5
 Losses covered
Total Loss
Damage (particular average)
Salvage and GA
Collision
Liabilities
Financial losses
Costs, legal fees, surveys etc
Exact cover to be found in policy and
conditions
The H&M Cover

The three sets of Clauses most commonly used

today are

1) The Norwegian Marine Insurance Plan 1996,

Version 2003 (the Plan),
2) The English Institute Time Clauses Hulls
1/10/83 (ITCH) and 1995
3) The American Institute Hull Clauses (June
2,1977).
The English clauses
The English Clauses have been issued
in newer versions that are not widely
used, but the newest version known as
the International Hull Clauses 1/11/03
(IHC) appears to have won some
support but are not often used…
Norwegian Marine Insurance Plan
Most covers are according to the ”Plan”, (1996 –
version 2007)
Agreed document
•The Commentaries are important
•The goal of the plan is to have a common
regulation of marine insurance.
•Exempted: P&I Insurance
 Hull and Machinery insurance

•Covered in chapters 10-13 in the MIP

•The extent of cover is subject to the agreement
and the policy
•The objects insured are specified in §10.1 in
NMIP or in the policy for ITCH Hull
•Distinguish between the ship, equipment and
spare parts.
Further on the cover :

and MachHull and Machinery insurance (NMIP), covers all

risks subject to the normal exclusions for wear and tear and
similar causes such as lack of maintenance.

ITCH is a ”named perils ”

War risks, intervention by a state power, insolvency and

nuclear perils are excluded from the standard Hull inery
cover.
 The insurance covers:
(a) the ship,

(b) equipment on board and spare parts for the ship and
its equipment, provided that the equipment or spare
parts
belong to the assured or have been borrowed, hired or
purchased with subject to a seller’s lien or similar
reservation,

(c) bunkers and lubrication oil on board.

 The insurance does not cover:

a) supplies, engine and deck accessories and other

articles intended for consumption,
b) boats and equipment used for fishing, whaling,
sealing and similar activities
c) loose objects exclusively intended for securing or
protecting the cargo,
d) loose containers intended for the carriage of cargo.
ITCH, the IHC and the American Conditions:

-Provide cover on a named perils basis (the assured must prove

that the loss or damage was caused by one of the insured perils),
but are usually supplemented by an Additional Perils or Liner
Negligence clause.

With this clause added, the ITCH, the IHC and American Conditions
will cover nearly all losses that might arise in practice and which are
covered by the Plan
ITCH
The ITCH 1.10.83 were the first of the modern
comprehensive forms issued by the UK insurance
market for the insurance of ships, all previous
issues of Institute Time Clauses were designed for
attatchment to the Lloys S.G form

The insurance is subject to English Law and

jurisdiction
ITCH and named perils – Clause
6
Below we will look closely at the named perils.

In other words: What dangers are you covered

against?

We will first look at When you are covered

Clause 1 - Navigation
The clause makes it clear the vessel is covered at
all times, including while sailing or navigating
with or without pilots, undertaking trial trips and
rendering assistance to other vessels or crafts in
distress.

Note that it is warranted it shall not be towed

unless to a safe place

Customary towage is OK
Clause 2 - continuation
Self explanatory…..
Clause 4 - Termination
The cover may be terminated subject the events in clause
4

Change of class and ownership represents major changes

and will lead to termination of insurance policy
Clause 6 – Perils insured against
Note that the English cover is on a ”named Perils basis”.

The loss must be proximately caused by the peril insured

against

Although attempted over the years, nobody has come up

with a complete definition of the expression ”perils of the
sea”. Must be an element of fortuity.

Also losses incurred by exinguishing fires are covered

Further on clause 6
Violent theft – must be somebody outside the vessel.
Violence against a person is not neccessary, it is sufficient
if the thieves have perpetrated violence towards property
during the act.

Jettison – normally cargo subject to such, but if the vessel

is damaged as a result of such, it is covered by this
provision
Further on clause 6
Piracy – includes persons plundering indiscriminately for
their own ends and not persons simply operating, albeit
illegally, and criminally, against the property of a
particular state for a particular end. Includes also
passengers who mutiny and rioters who attack the ship
from ashore

Nuclear – contamination on a vessel by material escaping

from an installation f.inst
Further on clause 6…
Contact with aircraft etc….this is relatively self explanatory

Earthquake etc…..f.inst a vessel covered in dust after a

volcanic eruption

Loading, discharging etc..Note that it is only loss or

damage caused by the accidents in the operation that is
covered and not damage suffered by the vessel in
consequence of the nature of the cargo loaded
Further on clause 6….
Bursting of boilers…Only consequential losses covered and
not the cost of repairing or replacing the latent defect
itself

Negligence of Master, Crew etc..Defined as ”the omission

to to something which a reasonable man, guided by those
considerations which ordinarily regulate the conduct of
human affairs would do, or doing something which a
prudent and reasonable man would not do.
Further on clause 6
Barratry – includes not only every type of fraud and
malfaesance deliberately committed by the master
and crew for the reason of benefitting themselves but
also every wilful act on the part of the master and
crew of illegaticity, corruption or criminal negligence,
whereby the shipowner or charterers are prejudiced
 The exception for want of
due diligence…
Whether due diligence has been observed is
a matter of fact

Note also that the exclusion only applies to

the perils set out in Clause 6.2 and does not
apply to claims that can be brought within
the perils enumerated in 6.1
Types of losses covered:
Particular Average (damage)

Total loss

Collision
Total loss:
An actual total loss is when the vessel is lost or
beyond repair
According to MIP, there is a
constructive total loss if the repair cost
exceeds 80% of the value of the vessel
ITCH has a 100% rule
Also, abandoned and missing vessels
Particular Average/ Damage

•Main rule – The vessel must be repaired

•(Different under English cover)
•Liability arises as and when the repair costs are incurred
•The ship shall be restored to the same condition as it was
before the damage occurred. Advantages may lead to
reduction in compensation
•”New for old”
Collision cover:

The Plan covers 4/4ths collision liability and liability

which is a result of striking fixed and floating objects
(RDC - Running Down Clause and FFO -Fixed and
Floating Objects)

The ITCH and IHC covers 3/4ths RDC but not FFO (IHC
have an optional 4/4ths RDC and FFO cover).

The American Conditions cover 4/4ths collision liability

but not FFO.
Payment of claims:

Under the Plan (§ 12-2) the assured cannot claim compensation for
unrepaired damage unless ownership of the vessel has passed from
the assured (normally by sale). The main rule is to have repair costs
covered when repairs occur.

Under ITCH (Cl. 18) and IHC (Cl. 20) the assured may claim for
unrepaired damage at the termination of the policy (but not in the
event of a subsequent total loss sustained during the policy period).
How is the H&M premium assessed?
Place of building
The following factors Maintenance
will be assessed: Nationality Age of vessel
Loss records (5 years) / Flag
Classification society Experience with the
Management owner in question
Crew The market as such
Other factors
Trading area
Cover for third party:

If the interest covered by the insurance is mortgaged, the

Plan provides cover also for the mortgagee’s interest –
in other words the mortgagee is automatically co-insured (§
7-1),
which is not the case regarding other third parties.

Under ITCH and IHC the mortgagee has to require the

mortgagor shipowner to assign the hull policies in his favour.
This is frequently achieved by endorsements on the
shipowners’ policies noting the interest of the mortgagee.
Note!!!

It is important to be aware of the nuances and exclusions

from Hull and Machinery cover as well as to be aware of
cover options and requirements.
Causes of Loss Covered
1. Heavy weather, lightning, barratry of the
masters and mariners & assailing thieves
2. Fire or explosion
3. Vessel being stranded, sunk or burnt
4. Collision or contact of vessel with any external
objects including ice except water
5. Jettison
6. Bursting of boilers, latent defect in the
machinery or hull
7. Faults or errors in the navigation or
management of the vessel
8. Discharge of cargo at a port of refuge or
distress
70
Total Loss Hull Interest Cover

Hull Interest insurance is a cover against actual total loss,

constructive total loss or compromised total loss.

A total loss could leave the shipowner in a position where the hull
value would be inadequate to cover the costs and expenses
necessary to replace the lost vessel or ordering a new vessel.

The Hull Interest cover allows the shipowner to have an

expectation of returning to status quo in the event of a total loss,
even taking into consideration the total capital value of the ship.
The standard English Hull and Machinery conditions have
a warranty limiting how much the assured is permitted to insure
under a Hull Interest insurance (Increased Value/Disbursements
insurance).

If the assured wants to insure more than 25 percent of the Hull and
Machinery value of the vessel, there is a requirement to get a specific
agreement from the Hull and Machinery insurers.

Under the Norwegian Plan, if Hull Interest insurance has been effected
for more than 25 percent of the insurable value under the Hull and
Machinery insurance, the excess part of the Hull Interest insurance is
void.
Unless otherwise mentioned, the cover under the Hull
Interest also includes excess liabilities.

This means that insurers will cover collision/striking liability

up to the sum insured in excess of the indemnity under the
Hull and Machinery policy.

The excess liability is not covered by the Freight Interest

policy
Freight Interest insurance covers the (lost) anticipated future (long
term) income for the shipowner in the event of a total loss,
thus providing cover which is excluded by a Loss of Hire policy.

Under the Norwegian Plan the assured can take out Freight
Interest insurance for an additional 25 percent of the Hull and
Machinery value.
Under English conditions, the assured can take out a separate
Freight Interest insurance for up to 25 percent of the Hull and
Machinery value, however, that is less the amount that has been
taken out in respect of the Hull Interest insurance, i.e. the assured
is allowed to take out only 25 percent of the Hull and Machinery
value in total as additional insurances.
War cover

Important cover in a not

so peaceful world…..
The purpose of the War cover
The purpose of the War cover is to provide the shipowner with
insurance against war perils during situations of war or war-like
conditions.

The perils and losses covered

War perils are usually excluded under the standard Hull and
Machinery conditions, so it is necessary for an assured to buy
cover separately against war risks. Obviously, there has to be an
assessment as to whether such war risks insurance is necessary at
all.
Standard war cover is available on English terms and the
Norwegian Plan.
 The war cover:

•Hull interest
•Freight Interest
•Loss of Hire
•Owner’s Liability (P&I)

Loss of Hire War cover is often added to the marine

loss of hire policy.
Two areas worth noting when taking out war
insurance are:

•the trading area

•the possibility of termination
Loss of hire policy:

The Loss of Hire cover primarily protects the shipowner against

losses where the ship is wholly or partially deprived of income
as a result of the vessel being out of operation whilst repairing
damage that is recoverable under the Hull and Machinery policy.

Time charterparties usually contain off-hire clauses that may be

triggered when the vessel is damaged. The charterer may therefore
be able to put the vessel off-hire, i.e. not pay hire for the time lost.
Such lost hire could be covered under the Loss of Hire cover.
Even if the vessel is not damaged, a loss of hire policy under
the Norwegian Plan also covers loss where the vessel is
wholly or partially deprived of income where the ship has been
stranded, is prevented from leaving a port by physical
obstructions, or loses time as a result of measures taken to
salvage or remove damaged cargo, or as a consequence of an event
that is allowed in General Average.
The Cover
Loss of hire is dealt with separately in chapter 16 of the
Norwegian Plan. In addition to the Plan, two other main sets of
conditions exist, i.e. the A.B. Stewart 1.10.83 wording (English)
and the American SP40B (the Lazard form).

The prerequisite for the liability of the insurer is damage to the

ship that is covered by the Plan, or the vessel’s actual Hull and
Machinery conditions. All three sets of conditions exclude total
loss

If War insurance has not been arranged, the Loss of Hire

insurance against war risks must be agreed separately.
Calculating liability
The loss of hire cover protects the owner from a daily loss of
income during a certain number of days.

The sum insured is calculated by multiplying the number of

indemnity days with the vessel’s stipulated daily income.

The parties must agree upon the following items:

-the deductible period
- the number of days compensated per accident
- the total number of days compensated for all accidents during
the policy period.
-F.inst: 30/60/180
Covers for banks and financial institutions:

MII - Mortgagees Interest Insurance - cover for the assured

(bank/financial institution) for outstanding loans and interest, if
the claim itself is collectible under the hull or P&I policy, but
not paid - due to breach of cover, breach of warranty or owner's
non-disclosure of facts.

MAPI - Mortgagees Additional Perils Insurance (pollution) - this

insurance indemnifies the assured (bank/financial institution) if an
insured peril results in legal liabilities for the owner exceeding the P&I
policy/cover, e.g. confiscation of vessel, priority liens, sequestration of
claim settlements or sale proceeds.
P&I Insurance:
•Owners (or charterers) liability insurance,
also operators

•The insurance is organised in clubs

•The clubs co operate through ”The

International Group”
Further on P&I
• P&I is a mutual insurance
• The vessels or tonnage is entered in the club and become
members
•No shares and no profit
•The Clubs are owned by their members
•Most clubs are based in the UK
It is the owners legal liability that is covered, both in
contract and in tort

•Cargo damage Crew injury

•Passenger injuries and losses

•Collision

•Stranding
•FD&D

•Legal costs

•Fines

•Salvage

•General average
Carriers liability for cargo
Breach of contract
Ad Valorem B/L
Carriage of cargo on deck
Through transit liabilities
Liability as bailee
Liability in excess of 21
days
Comprehensive carriers
liability
Carriers liability for property
May include liability for containers
Cargo handling equipment
Bunkers
Container and container handling liabilities

Revenue and expenses protection

Drug seizure
Freight insurance
Charterers liability

Charterers liability
for pollution

Charterers liability
to hull
Why disasters and claims?
Human errors cause most of them
Why increased payments? Highs steel
prices, frequent smaller claims,
inadequate crew?
Inadequate maintenance?
Inadequate loss prevention routines?
Claims handling
Incident occurs – reported to insurer
Assistance if needed. Tug? Salvage?
Re or co insurers notified
Mitigation of damage
Assessment of damages and surveys
GA?
Tenders obtained
Repairs
Bill set up, sent other insurers
One vessel (30mil) was transporting 200 container of
NamViet (seafood); 100 container of BTM (sofa) and 150
container of SamSung (electronic) in the sea. As the storm
came and blew away 20 container of NamViet; 10
container of Samsung, the Master decided to speed up the
vessel to navigate back to the port of destination. The
repair cost was 500,000USD. When they waited for the
berth to discharge cargo, 20 container of Samsung got fire.
In order to extinguish fire, the firemen pumped water (cost
20,000). Master declared GA
Analyze this GA
Calculate the contribution (container of NamViet:
20,000/cont; BTM: 40,000/cont; Samsung: 80,000/c0n)