Marine Insurance Introduction.
1. General Practice
Marine insurance in its primary shape was practiced by Greeks long ago who used to go for risk sharing in maritime activities, ships and cargo. Gradually with the development of business, industry and other related offices the marine insurance kept on evolving to meet with the modern trade requirements and in 1680 a small coffee house of Edward Lloyd in Tower street, London become the centre point where the people related to merchant navy used to sit for exchange views evolved a bit modern way of risk sharing. Now the Lloyd's corporation is the premier world marine insurance market.
Lloyds of London with others there after modernize the marine insurance designing a basic marine insurance policy form as well and terms / condition / warranties / clauses etc which further developed in to modern form of most comprehensive insurance structure providing all necessary services to the community concerned making the trade and economy wheel go on and on. The basic concept is derived from the idea of sharing the risk e.g. ship-owners used to raise a joint fund in shape of money out of which any ship owner who suffered an accidental loss used to take help to restore his ship in predamage condition and so on. The marine insurance practice is little different as it is in England and here in Pakistan. In England where from the modern marine insurance was originated a brokerage system is in operation where as in Pakistan we follow Agency system.
In brokerage system like we see in Lloyds of London the brokers are intermediaries registered with the Lloyds who place business on behalf of the proposer by inserting the necessary detail of risk in a slip on which underwriters record their commitments which kept passed on from underwriter to underwriter until the risk is fully covered. The Agents on the other hand usually appointed by the Insurers who procure business for them on commission. Agents are licensed to undertake such business by the Insurance Division of SECP. Another parallel system of forming brokerage houses has also recently been evolved in Pakistan and SECP has introduced the necessary code of conduct as well as rules/regulations for Agents as well as Brokers being operated in Pakistan.
On receipt of a proposal mostly by a phone call or a slip by the Agent or broker a cover note is issued where after on receipt of ship declaration advice a policy is issued for cargo import etc. Payment of premium is essential to attach the risk and according to the premium paramount clause insured is required to pay the stipulated premium and obtain official receipt of the insurance company in that respect.
Marine insurance contract can be defined as, following the Marine Insurance Act 1906 (The act has been amended and revised now) a contract whereby the insurers undertake to indemnify the assured, subject to the terms and conditions of contract in manner and to the extent thereby agreed.
There are few types of marine covers in force and the most common are:-
a. Single Transit Cover:- It is issued when the proposer intends to take cover for supply of good/cargo to any given destination. This cover is granted against specified subject matter for a specific period and voyage indicating the destination, means of conveyance etc. This cover expires immediately on delivery of goods to the consignees/final destination mentioned in the policy. Terms of sale/purchase e.g. FOB, CIF, CF plays an important roll in fixing terms/conditions of marine insurance policy. FOB, CIF, CF stand for free on board, cost insurance and freight and cost and freight.
b. Open Cover:- In big business enterprises where the frequency of shipments (import/export) is high open cover is granted which cover each and every declared shipment in a specified period of time usually for one year. It is not in form of a stamped policy. It is an agreement binding in honor, where by the insurer undertakes to insure all shipments declared by the assured and which come with in the scope of the open cover. Premium is payable on each declaration, against which specific stamped certificate/policy is issued covering each shipment declared. Sum insured is based on a) limit per bottom b) limit per location. Basis of valuation is usually the prime cost of the goods plus expenses to shipping, freight, cost of insurance plus 10%. Insured in this type of cover is bound to declare each and every shipment individually or in batches and obtain a certificate of insurance from the insurer.
c. Floating Policy:- It is also known as open policy which is stamped and issued to clients having substantial turnover and a large number of dispatches can obtain continuous insurance cover under an open policy. It is issued for an amount representing the insured's estimated annual turnover in respect of a series of consignments which may be declared against the open policy. The policy is issued for one year and expires thereon. Limit per bottom and/or limit per location are applied.
2. Utmost Good Faith
Every contract of insurance is a contract that one which requires utmost good faith on the part of both, the insurer and the assured. According to Marine Insurance Act 1963 the principals of utmost good faith are set-in which are, that any circumstances which is with in the knowledge of the person insuring and is likely to influence the insurer in deciding whether he will accept or refuse the risk or influence him in assessing the premium which he will charge, must be fully disclosed to the insurer before the contract is concluded. Disclosure of material facts also deals in this subject.
3. Conditions and Warranties
Every contract of insurance is subject to certain conditions and warranties mentioned and or un-mentioned and/or attached and/or stamped whether implied or express.
The affect of breach of condition and warranty is slightly different on the contract as already explained while discussion this subject in fire insurance department. Warranty is defined in MIA 1963 under section 35-43 and according to this a warranty is a promise by the assured to the underwriter that something shall or shall not be done or that a certain state of affairs does or does not exist. A warranty is in effect a "safety valve" for insurers by which they can ensure that, in addition to all disclosures and true representations, the risk is exactly the one they intended to accept.
EXPRESS WARRANTIES are those which are appearing on the policy or are incorporated therein by reference. IMPLIED WARRANTIES are not expressed but are equally important and binding.
4. Insurable Value
With reference to above the marine insurance is divided in to two categories.
Valued Policy is one which specifies the agreed value of the subject matter insured. Insurable value usually based on prime value of goods + cost + insurance + freight and + 10% to cover additional expenses. It also depends on the nature of sale contract like FOB, CF or CIF etc. Assured clarify his intention before taking insurance cover as to the agreed insurable value.
An Unvalued Policy is one which does not specify the value of the subject matter insured, but subject to the limit of the sum insured leaving aside the insurable value to be subsequently ascertained. The sum insured shown on the policy becomes only a limit of indemnity.
5. Institute Cargo Clauses
Previously 3 cargo clauses were in force called as "all risk", "FPA, "WA" which have been obscured now and have been replaced by ICC -A, ICC-B and ICC-C. Similarly the old Marine policy form has also been replaced by the newer version. These changes in Pakistan came in to force in 1982-83 since then a new form of policy with newly designed institute cargo clauses came in to operation.
The Policy form has become so simplified that it plays a roll of engine where as all sort of coverage, exclusions, warranties, clauses, conditions are attached to it as carrier. Here the institute refers to Institute of London Underwriters, ILU and all such work is done by their technical committees. For inland transits where the shipment are made with in the country by rail or road and rail road risk clause is present which is designed by technical committee of Insurance Association of Pakistan.
In each of the set of clauses AB and C the provisions are grouped under the main headings of risks covered, exclusions, duration, claims, benefit of insurance, minimizing losses, avoidance of delay and law/practice. ICC-C provides a basic standard cargo cover against major causalities whilst ICC-B provides a wider intermediate form of cover and ICCA provides the broadest cover on an "all risks" with exceptions basis.
For detail all the 3 sets of clauses may be gone through. For quick reference a comparison chart of all these 3 set of clauses is attached with this study material.
Subject to the risks included and excluded by the clauses, the following types of loss are recoverable under all three sets of clauses.
Particular Average:- Particular average means partial loss of the subject matter insured proximately caused by an insured peril.
General Average Sacrifice:- This occurs when the insured goods are partly or totally sacrificed in a general average act, provided the general average act does not arise from any of the exclusions expressed in the relevant ICC.
Actual Total Loss:- Actual total loss occurs in the circumstances where
a. The goods are completely destroyed.
b. The assureds are irretrievably deprived thereof.
c. The goods are no longer a thing he was insured against (loss of specie)
d. The goods are on a ship that has been posted as missing.
Constructive Total Loss:- When the goods are not an actual total loss but it is impractical, because of the operation of an insured risk, for the assured to continue the voyage and deliver the goods to their intended destination, the assured may prefer to abandon the goods or what may remain of them to the underwriter and claim a constructive total loss.
Besides the above subject to the inclusions and exclusions the "expenses incurred by the assured, general average and salvage contributions, collision liability, fire, explosion, vessels tranded, overturning and derailment of land conveyance and many more as specified in the relevant ICC.
6. Delay Deviation and Frustration Clause
This clause refers to the avoidance of liability by the insurer in case of claim based upon loss of or frustration of the insured voyage or adventure caused by arrests, restraints or detainment of kings, princess, people, usurpers of power. The frustration clause therefore exclude claim based on frustration of the adventure. It does not exclude a claim for loss of goods themselves caused by the peril insured against.
7. Institure Time Clauses (Hull)
The widest cover for hulls is provided by the institute time clauses. Hulls the revised version of which was introduced in the London market with effect from 1983. There are more than two dozen clauses in institute time clauses which deals in hull insurance and the most prominent are:-
General average and salvage, new for old, war exclusion, strikes exclusion, nuclear exclusions, deductibles, CTL, duty of assured, 3/4th collision liability, notice of claim, breach of warranty, continuation, termination etc. Clauses may be obtained which requires detail study.
8. General Average Clause
According to this clause general average and salvage charges adjustment would be made according to the stipulation/rules/regulations in force e.g. York Antwerp rules etc.
9. General Average
General average loss is the direct result of general average act which refers to an extraordinary sacrifice or expenditure intentionally and reasonably made or incurred to save or preserve the property involved in the common adventure.
10. General Average Contribution When a general average act occurs in respect of the adventure involving the insured goods the assured will be required to contribute towards a fun to make good the loss. General average clause addresses this issue which may be gone through.
11. Survey Report
Whenever a claim intimation regarding marine loss is received a Govt, license holder surveyor is assigned a job to conduct necessary survey and submit the survey report for the consideration of underwriters on risk.
Surveyors are professionally experienced and trained to deal with all sort of claims in detail in order to assess the extent of loss, to determine the cause, place of loss as well as suggests measure to minimize the loss and to suggest the disposal of salvage for that matter. Surveyor is also supposed to identify the subject matter of insurance, the insurable interest at the time of loss, as well as observe the fulfillment of policy terms/conditions, warranties etc.
He also takes look at the requirement laid down in bailer's clause and assure/guide to serve necessary notice of claim to 3rd parties.
Survey report is equipped with all sort of physical and documentary evidence of loss as well as lab test reports if necessary. The main attachments of any survey report would consist the invoice, packing list, bill of lading, truck/railway receipts, AWB, proforma invoice, joint inspection statement, store receipt against delivery of goods, photographs showing the damage, Bill of entry, any survey report against survey conducted prior to destination, documents exchanged to describe any 3rd party liability, weight slips, ship out-turn report, port survey evidence etc.
The survey report contains all information necessary to process the claim at claims departments of insurers. The most important information relate to the contents of insurance policy, certificate, invoice, bill of lading, bill of entry, weight slips, port or ship survey, joint survey, IGM, Police report, fire brigade report in case of fire, master protest if necessary, ship out turn report, truck or rail receipts or airway bill if shipped by air, receipt record at final warehouse, joint inspection report at final warehouse, lab test report e.g. silver nitrate test, salvage offer, treatment of goods to minimize the loss and so on. The survey report also describes the country damage which refers to the damage sustained before the good left the seller's warehouse. Surveyors further describe the cause of shortage whether it is due to theft pilferage during before or after transit or it is due to short supply by the supplier.
He further makes comments on the losses occurred due to inherent vice of the subject matter like loss in weight.
It is recommended that a marine survey report form may be studied for detail.
12. Marine Cargo Claims A claim upon a policy of marine insurance may arise upon the happening as the result of insured peril of any of the following:-
a. Total loss, actual or constructive.
b. Particular average i.e. partial losses.
c. General average losses.
d. Expenses like sue and labor, salvage charges etc.
All the above terms have already been defined in above paragraphs and need not to be redefined. Measure of indemnity for actual total loss is the insured value under the policy.
Claims against constructive total losses are subject to give notice by the assured to show his attention to abandon the subject matter and acceptance of notice by the insurers. The measure of indemnity in CTL is the sum insured less any proceeds of sale which are due to the insurers.
Particular average is partial loss or partial damage caused fortuitously by a peril insured against and thus does not include damage voluntarily incurred, such as general average damage.
The measure of indemnity for particular average to cargo varies according to whether it forms part of the cargo or of cargo arriving damaged at destination. Where part of the goods are totally lost, the amount payable under the insurance is such proportion of the insured value as the insurable value of the part lost bears to the insurable value of the whole.
Where the whole or any part of the goods insured is delivered damaged at destination, the measure of indemnity is such proportion of the sum fixed by the policy in the case of valued policy or of the insurable value in the case of an unvalued policy, as the difference between the gross sound and damaged values at the place of arrival bears to the gross sound value.
General average loss: - When there is a general average act on a voyage, all interests at risk namely ship, cargo and freight which have been saved from loss by GA measures are liable to contribute ratably to make good the sacrifice and expenditure. These values are known as contributing values and the sum necessary to reimburse the interest which have suffered the GA loss is called "amount made good" or allowance.
13. Cargo Loss Recovery from 3rd Parties
Underwriters are able, by their rights of subrogation, to affect many recoveries in respect of claims for loss or damage to cargo insured by them, from carriers, and other bailees, who may be primarily liable for such loss or damage to goods.
MARINE INSURANCE ACT 2017
Islamic republic of Pakistan is among those few countries in the World having introduced its independent Marine Insurance Act bill in National Assembly for enactment in 2016. The title of the bill was "MARINE INSURANCE ACT 2016".
Its progressive stage passed when it was revised as "MARINE INSURANCE ACT 2017"and put on table of NA for completion of necessary legal process. The new bill bearing title "MARINE INSURANCE ACT 2017 was finally passed by National Assembly in 2017. It is available for downloading, although not available as list of NA or Senate Acts.