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Fundamentals of MARINE INSURANCE  by

Marine Surveyors  dubai

Risk V/s Rewards
MARINE INSURANCE – Definition as per Act
„A contract of marine insurance is a contract whereby the insurer undertakes to indemnify the assured, in manner and to the extent thereby agreed, against marine losses, that is to say, losses incident to marine adventure.‟
„The Marine Insurance Act, 1906Defination as per “Arnauld” – The Marine Insurance Bible
“ One Party, for a stipulated sum, undertakes to indemnify the other against loss arising from certain sea perils to which its ship, merchandise or the other interests may be extended during a certain Voyage or a certain time”
– each phrase is worth an explanation. THE PRINCIPLES OF MARINE INSURANCE
The Marine Insurance Act, 1906
This act came into force on 1st January 1907. It did make any new law but only codified the existing legal decisions which had been recorded up to that time. Marine insurance contracts are based o the principles laid down in this Act. PRIMARY & SECONDARY RISK
Primary: Perils of the sea, theft, damages, fire & disappearance”.
Secondary: Best explained by a case..

“ A policy on a cargo of Logs covering risk of craft, was effected by B who then sold part of the Logs “ex-ship, cash against Documents”. The Logs were lost in transit from ship to the shore. The buyer of part of the logs acquired no interest under the policy” Why ? Secondary risk: Log case explained
Underwriters had taken the risk on the cargo of logs up to the time the cargo was discharged (ie: passing ships rails). The buyer of the logs could not claim under this policy because the underwriter had not covered the risk from discharge (ie: Ex-Ship) to the Shore. THE PRINCIPLES OF MARINE INSURANCE
Five basic principles of Marine Insurance
Insurable interest
Utmost Good Faith
Proximate Cause

marine surveyors dubai

Insurable interest:
As per MIA 1906, (section 5, sub 1), any person who is interested in a marine adventure has an insurable interest. It is defined as one‟s financial interest in the property, the subject matter of the insurance, insofar that if the property is uninsured and either damaged or destroyed the owner would have to find the necessary funds out of his own pocket to have it repaired or replaced. THE PRINCIPLES OF MARINE INSURANCE
Utmost Good Faith:
All contracts of insurance are contracts „Uberrimae fidei i.e. of the utmost good faith‟.
A contract of marine insurance is a contract based upon the utmost good faith, and if the utmost good faith be not observed by either party, the contract may be voided by the other party.

Marine Insurance Act 1906Utmost Good faith: Piper Vs Royal Exchange
“ Mr Piper bought a yacht in Denmark “as is” for delivery in England. Ie: under sale contract the contract the Seller was obliged to deliver in England.
Mr. Piper took out a cruising policy commencing with the voyage from Denmark. On the way the yacht ran aground & Suffered damage.
Underwriters paid out and Mr Piper then made a claim under the sale contract because the yacht had not been delivered „as she lay‟. Good FaithTHE PRINCIPLES OF MARINE INSURANCE Indemnity: is “PROTECTION AGAINST LOSS‟‟
The purpose of principle is to place the assured in the same position after being for a claim as if no loss had occurred.
The „measure of indemnity‟ is the maximum amount which the insurer must pay in respect of a claim under the policy. For „unvalued‟ policy the maximum amount is the insurable value and for „valued‟ policy it is the insured value. THE PRINCIPLES OF MARINE INSURANCE Subrogation:
The principle of subrogation is that, once a claim has been paid the insurer is entitled to place himself in the position of the assured to the extent of acquiring all the assured‟s right‟s and remedies in respect of the loss against any third parties who may be concerned. Warranties
A warranty is a promise made by the assured that a particular condition shall be fulfilled, or a particular thing shall be done or otherwise, or confirm / negates the the existence of a particular state of facts. A warranty must be taken literally and must be exactly complied with by the assured. Any non compliance will lead to a breach of warranty and the insurer will be discharged from all liabilities under the policy from the date of such breach. Statutory Exclusions:
Willful misconduct of the assured.
Wear and tear.
Ordinary leakage and breakage.
Inherent Vice.
Rats or vermin.
Injury to machinery.
Excluded Perils:
Sentimental loss – This is a market loss and never recoverable under a marine policy
Sympathetic Damage – is when one cargo damages another cargo in the same vicinity. If the damage to the first is caused by an insured peril then the resultant damage to the second cargo is considered to be by the same peril and is recoverable as a loss by that peril.

Marine surveyor dubai about marine insurance.Major marine insurance markets exist in the UK, Continent of Europe, the USA and Japan. Markets in other countries tend to cater solely for their own nations for e.g., in certain countries, business people are required to insure with their national insurance companies. THE MARINE INSURANCE MARKET Insurance companies – UK and overseas:
Marine Insurance forms a section of their total business interest.
The underwriter being a salaried employee has no individual liability. However, the company would be liable to the extent of it‟s paid up share capital. Most of these companies have bureau at the „Institute of London Underwriters‟ (ILU) and nearby.
ILU has a „Policy Signing Office‟ and „Claims Payable Abroad Service‟ and represents the interest of the Insurance companies in the London Marine Insurance market.
THE MARINE INSURANCE MARKET ILU is responsible for the formation and running of various committees such as the
Technical & Clauses Committee.
Joint Hull committee.
Joint Cargo Committee.
Types of contracts
CIF (Carriage, Insurance & Freight)

– Seller provides the ship that carries the goods.
– CIF seller has the duty to provide the CIF buyer with valid and proper documents to recover the business value of the goods if they are lost or damaged by an insured peril.
FOB (Free on Board)

-The buyer has to bring a ship to load.
-FOB buyers are the ones who then sell on to their buyers as CIF sellers. THE MARINE INSURANCE MARKET
Insurance brokers:
There are two set of brokers, I.e. Lloyd‟s and the General Insurance brokers, handling business in their respective setup. The function and responsibilities are more or less the same.

The broker utilizes the whole insurance market available to him to place the risk and is not biased towards the Lloyd‟s or the Insurance companies. In several cases the risks are shared amongst the two. In case of assured rejecting any underwriter, the broker is required, given a reasonable time, to replace them with a more acceptable choice.
The Practice of Marine Insurance
is the broker‟s remuneration that he/ she is entitled to deduct from the premium before passing the premium on to the underwriter.
The Interaction of Marine Policies: “Heads of Insurance”
Freight, Demurrage and Defense (FDD)
Hull & Machinery (H & M)
Loss Of Earnings
Protection & Indemnity
THE MARINE INSURANCE MARKET (P & I) Protection and Indemnity associations (P&I):
More commonly known as P&I Clubs are mutual associations operated on behalf of its members by a board of directors elected from the members.
P & I policy DOES NOT insure the cargo or the ship. …Pg: 29 & 31THE MARINE INSURANCE MARKET
P&I Clubs came into being at the beginning of the 19th century. Originally they were hull underwriting associations formed by shipowners to
Counter the monopoly enjoyed by the London Assurance and Royal Exchange Assurance.
Cover the new liabilities that were imposed upon the ship owners. -( Pg 34)
Traditionally, all clubs have fixed year of entry for all ships registered, expiring on the 20th February, irrespective of when in the policy year the vessel was entered.
The Institute of London Underwriters (ILU) The ILU , invariably called the „Institute‟, is an organization representing the interest of the insurance companies in the London marine market.
It administers a „ Policy signing Office‟ which checks the policies submitted by brokers and signs and seals them on behalf of its member companies.
It also runs a „Claim Payable Abroad Service‟.
The Institute of London Underwriters (ILU)
The Institute is also responsible for the formation and maintenance of committees to deliberate and decide on matters affecting the whole market., namely
The Technical and Clauses Committee.
The Joint Hull Committee.
The Joint Cargo Committee
Lloyd’s Underwriters Association (LUA) All Lloyd‟s marine underwriters are members of the LUA. The committee, elected from amongst the membership, meets regularly to discuss both technical and practical matters regarding marine insurance and advises members accordingly.
LUA members serve on various joint committees
The Salvage Association The association‟s main role is to arrange survey‟s of damaged ships and cargoes. This is a non profit making organization, formed in 1856 and subsequently incorporated by Royal charter in 1867. The Association of Average Adjusters This association , formed in 1873, represents the Average Adjusters.
What‟s Average Adjusting ??? The Association of Average Adjusters
The main responsibilities of an average adjuster are
General Average adjustment. What‟s that ?
The adjustment of claims of both marine hull and cargo policies.
Dealing with claims against third parties.
Apportionment of recoveries from third parties.
Arbitration of disputes arising in connection with the above.
British Insurance & Investment Brokers Association (BIIBA) British Insurance Brokers Association (BIBA) was formed in 1978, by amalgamation of the
The Corporation of Insurance Brokers (CIB).
Lloyd‟s Insurance Brokers Association (LIBA).
Association of Insurance Brokers (AIB).
Federation of Insurance Brokers (FIB).
British Insurance & Investment Brokers Association (BIIBA)
Its objective is to raise the standards of insurance broking in the UK and to take such united action as may be necessary to protect their interest.
In 1988 the association was extended to include the investment brokers and the title was amended to BIIBA.
The Practice of Marine Insurance
The Rate
Payment of Premiums
Return Premiums and Losses
Deferred Premiums
Additional Premiums
Held Covered
Return Premiums
The Practice of Marine Insurance: THE SHIP
Time and Voyage Insurance
A marine Insurance policy, as per MIA 1906 section 25, may be effected to cover the subject matter insured
For a period of time – Time Policy or
From one place to another – Voyage Policy or
for both
The Practice of Marine Insurance
Different Voyage
Change of Voyage
Delay in the Prosecutions of the voyages
Excuses for Deviation and Delay
The Practice of Marine Insurance
Facultative Cargo Insurance
The Open & Floating Policy (pg 16)
Additional Clauses
“warehouse to warehouse” “War Clauses”
“Cargo inspectionClauses”

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