Marine insurance
Encyclopedia
Marine insurance covers the loss or damage of ships, cargo, terminals, and any transport or cargo by which property is transferred, acquired, or held between the points of origin and final destination.
Cargo insurance—discussed here—is a sub-branch of marine insurance, though Marine also includes Onshore and Offshore exposed property (container terminals, ports, oil platform
s, pipelines); Hull; Marine Casualty; and Marine Liability.
, with origins in the Greek and Roman maritime loan. Separate marine insurance contracts were developed in Genoa
and other Italian cities in the fourteenth century and spread to northern Europe. Premiums varied with intuitive estimates of the variable risk from seasons and pirates.
The modern origins of marine insurance law in English law were in the law merchant, with the establishment in England
in 1601 of a specialized chamber of assurance separate from the other Courts. Lord Mansfield
, Lord Chief Justice in the mid-eighteenth century, began the merging of law merchant and common law
principles. The establishment of Lloyd's of London
, competitor insurance companies, a developing infrastructure of specialists (such as shipbrokers
, admiralty
lawyers, and bankers), and the growth of the British Empire
gave English law a prominence in this area which it largely maintains and forms the basis of almost all modern practice. The growth of the London insurance market led to the standardization of policies and judicial precedent
further developed marine insurance law. In 1906 the Marine Insurance Act was passed which codified the previous common law; it is both an extremely thorough and concise piece of work. Although the title of the Act refers to marine insurance, the general principles have been applied to all non-life insurance.
In the 19th century, Lloyd's and the Institute of London Underwriters (a grouping of London company insurers) developed between them standardized clauses for the use of marine insurance, and these have been maintained since. These are known as the Institute Clauses because the Institute covered the cost of their publication.
Within the overall guidance of the Marine Insurance Act and the Institute Clauses parties retain a considerable freedom to contract between themselves.
Marine insurance is the oldest type of insurance. Out of it grew non-marine insurance and reinsurance
. It traditionally formed the majority of business underwritten at Lloyd's. Nowadays, Marine insurance is often grouped with Aviation and Transit (i.e. cargo) risks, and in this form is known by the acronym 'MAT'.
Because marine insurance is typically underwritten on a subscription basis, the MAR form begins: We, the Underwriters, agree to bind ourselves each for his own part and not one for another [...]. In legal terms, liability under the policy is several and not joint
; i.e. The underwriters are all liable together, but only for their share or proportion of the risk. If one underwriter should default, the remainder are not liable to pick his share of the claim.
Typically, marine insurance is split between the vessels and the cargo. Insurance of the vessels is generally known as 'Hull and Machinery' (H&M). A more restricted form of cover is 'Total Loss Only' (TLO), generally used as a reinsurance, which only covers the total loss of the vessel and not any partial loss.
Cover may be on either a 'voyage' or 'time' basis. The 'voyage' basis covers transit between the ports set out in the policy; the 'time' basis covers a period of time, typically one year, and is more common.
In the 19th century, shipowners banded together in mutual underwriting clubs
known as Protection and Indemnity Clubs (P&I), to insure the remaining one-quarter liability amongst themselves. These Clubs are still in existence today and have become the model for other specialized and noncommercial marine and non-marine mutuals, for example in relation to oil pollution and nuclear risks.
Clubs work on the basis of agreeing to accept a shipowner as a member and levying an initial 'call' (premium). With the fund accumulated, reinsurance will be purchased; however, if the loss experience is unfavourable one or more 'supplementary calls' may be made. Clubs also typically try to build up reserves, but this puts them at odds with their mutual status.
Because liability regimes vary throughout the world, insurers are usually careful to limit or exclude American Jones Act liability.
These two terms are used to differentiate the degree of proof where a vessel or cargo has been lost. An actual total loss refers to the situation where the position is clear and a constructive total loss refers to the situation where a loss is inferred. In practice, a constructive total loss might also be used to describe a loss where the cost of repair is not economic; i.e. a 'write-off'.
The different terms refer to the difficulties of proving a loss where there might be no evidence of such a loss. In this respect, marine insurance differs from non-marine insurance, where the insured is required to prove his loss. Traditionally, in law, marine insurance was seen as an insurance of 'the adventure', with insurers having a stake and an interest in the vessel and/ or the cargo rather than, simply, an interest in the financial consequences of the subject-matter's survival.
(1) In marine insurance, in the case of a partial loss, or emergency repairs to the vessel, average may be declared. This covers situations, where, for example, a ship in a storm might have to jettison certain cargo to protect the ship and the remaining cargo. 'General Average
' requires all parties concerned in the venture (Hull/Cargo/Freight/Bunkers) to contribute to compensate the losses caused to those whose cargo has been lost or damaged. 'Particular Average' is levied on a group of cargo owners and not all of the cargo owners.
(2) In the situation where an insured has under-insured, i.e. insured an item for less than it is worth, average will apply to reduce the amount payable. There are different ways of calculating average, but generally the same proportion of under-insurance will be applied to any payout due.
An average adjuster is a marine claims specialist responsible for adjusting and providing the general average statement. He is usually appointed by the shipowner or insurer.
and to remove small claims, which are disproportionately expensive to handle. The equivalent term to 'excess' in marine insurance is 'deductible' or 'retention'.
A co-insurance, which is typically applied in non-proportional treaty reinsurance, is an excess expressed as a proportion of a claim, e.g. 5%, and applied to the entirety of a claim.
A franchise is a deductible below which nothing is payable and beyond which the entire amount of the sum insured is payable. It is typically used in reinsurance arbitrage
arrangements.
, and so were unenforceable in law. Policies were typically marked P.P.I. (Policy is Proof of Interest). Their use continued into the 1970s before they were banned by Lloyd's, the main market, by which time, they had become nothing more than crude bets.
A 'tonner' was simply a 'policy' setting out the global gross tonnage loss for a year. If that loss was reached or exceeded, the policy paid out. A 'chinaman' applied the same principle but in reverse: thus, if the limit was not reached, the policy paid out.
Links:
Description of cover: http://www.dtgruelle.com/articles/nuinsabc.html
Institute Cargo Clauses: http://www.allcovered.net/AC-OM-MAIN-Cargo_Clauses.html
Pleasurecraft & Commercial marine
policy summaries: http://www.navandgen.co.uk/navandgen/existingcustomers/viewdocuments/summaryofcover.htm
and warranty
. In English law, a condition typically describes a part of the contract that is fundamental to the performance of that contract, and, if breached, the non-breaching party is entitled not only to claim damages but to terminate the contract on the basis that it has been repudiated by the party in breach. By contrast, a warranty is not fundamental to the performance of the contract and breach of a warranty, whilst giving rise to a claim for damages, does not entitle the non-breaching party to terminate the contract. The meaning of these terms is reversed in insurance law. Indeed, a warranty if not strictly complied with will automatically discharge the insurer from further liability under the contract of insurance. The assured has no defense to his breach, unless he can prove that the insurer,by his conduct has waived his right to invoke the breach, possibility provided in section 34(3) of the Marine Insurance Act 1906 (MIA). Furthermore in the absence of express warranties the MIA will imply them, notably a warranty to provide a seaworthy vessel at the commencement of the voyage in a voyage policy (section 39(1)) and a warranty of legality of the insured voyage (section 41). .
' refers to the practice of rendering aid to a vessel in distress. Apart from the consideration that the sea is traditionally 'a place of safety', with sailors honour-bound to render assistance as required, it is obviously in underwriters' interests to encourage assistance to vessels in danger of being wrecked. A policy will usually include a 'sue and labour' clause which will cover the reasonable costs incurred by a shipowner in his avoiding a greater loss.
At sea, a ship in distress will typically agree to 'Lloyd's Open Form' with any potential salvor. The Lloyd's Open Form is the standard contract, although other forms exist. The Lloyd's Open Form is headed 'No cure - no pay'; the intention being that if the attempted salvage is unsuccessful, no award will be made. However, this principle has been weakened in recent years, and awards are now permitted in cases where, although the ship might have sunk, pollution has been avoided or mitigated. In other circumstances the "salvor" may invoke the SCOPIC terms (most recent and commonly used rendition is SCOPIC 2000) in contrast to the LOF (Lloyd's Open Form) these terms mean that the salvor will be paid even if the salvage attempt is unsuccessful. The amount the salvor receives is limited to cover the costs of the salavage attempt and 15% above it. One of the main negative factors in invoking SCOPIC (on the salvors behalf) is if the salvage attempt is successful the amount at which the salvor can claim under article 13 of LOF is discounted.
The Lloyd's Open Form, once agreed, allows salvage attempts to begin immediately. The extent of any award is determined later; although the standard wording refers to the Chairman of Lloyd's arbitrating any award, in practice the role of arbitrator is passed to specialist admiralty QC
s.
A ship captured in war is referred to as a prize, and the captors entitled to prize money
. Again this risk is covered by standard policies.
Schedule 1 of the Act contains a list of definitions; schedule 2 contains the model policy wording.
Cargo insurance—discussed here—is a sub-branch of marine insurance, though Marine also includes Onshore and Offshore exposed property (container terminals, ports, oil platform
Oil platform
An oil platform, also referred to as an offshore platform or, somewhat incorrectly, oil rig, is a lаrge structure with facilities to drill wells, to extract and process oil and natural gas, and to temporarily store product until it can be brought to shore for refining and marketing...
s, pipelines); Hull; Marine Casualty; and Marine Liability.
Origins of formal marine insurance
Maritime insurance was the earliest well-developed kind of insuranceInsurance
In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the...
, with origins in the Greek and Roman maritime loan. Separate marine insurance contracts were developed in Genoa
Genoa
Genoa |Ligurian]] Zena ; Latin and, archaically, English Genua) is a city and an important seaport in northern Italy, the capital of the Province of Genoa and of the region of Liguria....
and other Italian cities in the fourteenth century and spread to northern Europe. Premiums varied with intuitive estimates of the variable risk from seasons and pirates.
The modern origins of marine insurance law in English law were in the law merchant, with the establishment in England
England
England is a country that is part of the United Kingdom. It shares land borders with Scotland to the north and Wales to the west; the Irish Sea is to the north west, the Celtic Sea to the south west, with the North Sea to the east and the English Channel to the south separating it from continental...
in 1601 of a specialized chamber of assurance separate from the other Courts. Lord Mansfield
William Murray, 1st Earl of Mansfield
William Murray, 1st Earl of Mansfield, SL, PC was a British barrister, politician and judge noted for his reform of English law. Born to Scottish nobility, he was educated in Perth, Scotland before moving to London at the age of 13 to take up a place at Westminster School...
, Lord Chief Justice in the mid-eighteenth century, began the merging of law merchant and common law
Common law
Common law is law developed by judges through decisions of courts and similar tribunals rather than through legislative statutes or executive branch action...
principles. The establishment of Lloyd's of London
Lloyd's of London
Lloyd's, also known as Lloyd's of London, is a British insurance and reinsurance market. It serves as a partially mutualised marketplace where multiple financial backers, underwriters, or members, whether individuals or corporations, come together to pool and spread risk...
, competitor insurance companies, a developing infrastructure of specialists (such as shipbrokers
Shipbroking
Shipbroking is a financial service, which forms part of the global shipping industry. Shipbrokers are specialist intermediaries/negotiators between shipowners and charterers who use ships to transport cargo, or between buyers and sellers of ships.Some brokerage firms have developed into large...
, admiralty
Admiralty law
Admiralty law is a distinct body of law which governs maritime questions and offenses. It is a body of both domestic law governing maritime activities, and private international law governing the relationships between private entities which operate vessels on the oceans...
lawyers, and bankers), and the growth of the British Empire
British Empire
The British Empire comprised the dominions, colonies, protectorates, mandates and other territories ruled or administered by the United Kingdom. It originated with the overseas colonies and trading posts established by England in the late 16th and early 17th centuries. At its height, it was the...
gave English law a prominence in this area which it largely maintains and forms the basis of almost all modern practice. The growth of the London insurance market led to the standardization of policies and judicial precedent
Precedent
In common law legal systems, a precedent or authority is a principle or rule established in a legal case that a court or other judicial body may apply when deciding subsequent cases with similar issues or facts...
further developed marine insurance law. In 1906 the Marine Insurance Act was passed which codified the previous common law; it is both an extremely thorough and concise piece of work. Although the title of the Act refers to marine insurance, the general principles have been applied to all non-life insurance.
In the 19th century, Lloyd's and the Institute of London Underwriters (a grouping of London company insurers) developed between them standardized clauses for the use of marine insurance, and these have been maintained since. These are known as the Institute Clauses because the Institute covered the cost of their publication.
Within the overall guidance of the Marine Insurance Act and the Institute Clauses parties retain a considerable freedom to contract between themselves.
Marine insurance is the oldest type of insurance. Out of it grew non-marine insurance and reinsurance
Reinsurance
Reinsurance is insurance that is purchased by an insurance company from another insurance company as a means of risk management...
. It traditionally formed the majority of business underwritten at Lloyd's. Nowadays, Marine insurance is often grouped with Aviation and Transit (i.e. cargo) risks, and in this form is known by the acronym 'MAT'.
Practice
The Marine Insurance Act includes, as a schedule, a standard policy (known as the 'SG form'), which parties were at liberty to use if they wished. Because each term in the policy had been tested through at least two centuries of judicial precedent, the policy was extremely thorough. However, it was also expressed in rather archaic terms. In 1991, the London market produced a new standard policy wording known as the MAR 91 form and using the Institute Clauses. The MAR form is simply a general statement of insurance; the Institute Clauses are used to set out the detail of the insurance cover. In practice, the policy document usually consists of the MAR form used as a cover, with the Clauses stapled to the inside. Typically each clause will be stamped, with the stamp overlapping both onto the inside cover and to other clauses; this practice is used to avoid the substitution or removal of clauses.Because marine insurance is typically underwritten on a subscription basis, the MAR form begins: We, the Underwriters, agree to bind ourselves each for his own part and not one for another [...]. In legal terms, liability under the policy is several and not joint
Joint and several liability
Where two or more persons are liable in respect of the same liability, in most common law legal systems they may either be:* jointly liable, or* severally liable, or* jointly and severally liable.-Joint liability:...
; i.e. The underwriters are all liable together, but only for their share or proportion of the risk. If one underwriter should default, the remainder are not liable to pick his share of the claim.
Typically, marine insurance is split between the vessels and the cargo. Insurance of the vessels is generally known as 'Hull and Machinery' (H&M). A more restricted form of cover is 'Total Loss Only' (TLO), generally used as a reinsurance, which only covers the total loss of the vessel and not any partial loss.
Cover may be on either a 'voyage' or 'time' basis. The 'voyage' basis covers transit between the ports set out in the policy; the 'time' basis covers a period of time, typically one year, and is more common.
Protection and indemnity
A marine policy typically covered only three-quarter of the insured's liabilities towards third parties. The typical liabilities arise in respect of collision with another ship, known as 'running down' (collision with a fixed object is an 'allision'), and wreck removal (a wreck may serve to block a harbour, for example).In the 19th century, shipowners banded together in mutual underwriting clubs
Mutual insurance
A mutual insurance company is an insurance company which has no shareholders but instead is owned entirely by its policyholders. The primary form of financial business set up as a mutual company in the United States has been mutual insurance. Under this idea, what would have been profits are...
known as Protection and Indemnity Clubs (P&I), to insure the remaining one-quarter liability amongst themselves. These Clubs are still in existence today and have become the model for other specialized and noncommercial marine and non-marine mutuals, for example in relation to oil pollution and nuclear risks.
Clubs work on the basis of agreeing to accept a shipowner as a member and levying an initial 'call' (premium). With the fund accumulated, reinsurance will be purchased; however, if the loss experience is unfavourable one or more 'supplementary calls' may be made. Clubs also typically try to build up reserves, but this puts them at odds with their mutual status.
Because liability regimes vary throughout the world, insurers are usually careful to limit or exclude American Jones Act liability.
Actual total loss and constructive total loss
The different terms refer to the difficulties of proving a loss where there might be no evidence of such a loss. In this respect, marine insurance differs from non-marine insurance, where the insured is required to prove his loss. Traditionally, in law, marine insurance was seen as an insurance of 'the adventure', with insurers having a stake and an interest in the vessel and/ or the cargo rather than, simply, an interest in the financial consequences of the subject-matter's survival.
Average
The term 'Average' has two meanings:(1) In marine insurance, in the case of a partial loss, or emergency repairs to the vessel, average may be declared. This covers situations, where, for example, a ship in a storm might have to jettison certain cargo to protect the ship and the remaining cargo. 'General Average
General average
The law of general average is a legal principle of maritime law according to which all parties in a sea venture proportionally share any losses resulting from a voluntary sacrifice of part of the ship or cargo to save the whole in an emergency...
' requires all parties concerned in the venture (Hull/Cargo/Freight/Bunkers) to contribute to compensate the losses caused to those whose cargo has been lost or damaged. 'Particular Average' is levied on a group of cargo owners and not all of the cargo owners.
(2) In the situation where an insured has under-insured, i.e. insured an item for less than it is worth, average will apply to reduce the amount payable. There are different ways of calculating average, but generally the same proportion of under-insurance will be applied to any payout due.
An average adjuster is a marine claims specialist responsible for adjusting and providing the general average statement. He is usually appointed by the shipowner or insurer.
Excess, deductible, retention, co-insurance, and franchise
An excess is the amount payable by the insured and is usually expressed as the first amount falling due, up to a ceiling, in the event of a loss. An excess may or may not be applied. It may be expressed in either monetary or percentage terms. An excess is typically used to discourage moral hazardMoral hazard
In economic theory, moral hazard refers to a situation in which a party makes a decision about how much risk to take, while another party bears the costs if things go badly, and the party insulated from risk behaves differently from how it would if it were fully exposed to the risk.Moral hazard...
and to remove small claims, which are disproportionately expensive to handle. The equivalent term to 'excess' in marine insurance is 'deductible' or 'retention'.
A co-insurance, which is typically applied in non-proportional treaty reinsurance, is an excess expressed as a proportion of a claim, e.g. 5%, and applied to the entirety of a claim.
A franchise is a deductible below which nothing is payable and beyond which the entire amount of the sum insured is payable. It is typically used in reinsurance arbitrage
Arbitrage
In economics and finance, arbitrage is the practice of taking advantage of a price difference between two or more markets: striking a combination of matching deals that capitalize upon the imbalance, the profit being the difference between the market prices...
arrangements.
Tonners and chinamen
These are both obsolete forms of early reinsurance. Both are technically unlawful, as not having insurable interestInsurable interest
Insurable interest exists when an insured person derives a financial or other kind of benefit from the continuous existence of the insured object...
, and so were unenforceable in law. Policies were typically marked P.P.I. (Policy is Proof of Interest). Their use continued into the 1970s before they were banned by Lloyd's, the main market, by which time, they had become nothing more than crude bets.
A 'tonner' was simply a 'policy' setting out the global gross tonnage loss for a year. If that loss was reached or exceeded, the policy paid out. A 'chinaman' applied the same principle but in reverse: thus, if the limit was not reached, the policy paid out.
Specialist policies
Various types of specialist policy exist, including:- Newbuilding risks: This covers the risk of damage to the hull whilst it is under construction.
- Yacht Insurance: Insurance of pleasure craft is generally known as 'yacht insurance' and includes liability coverage. Smaller vessels, such as yachts and fishing vessels, are typically underwritten on a 'binding authority' or 'lineslip' basis.
- War risks: Usual Hull insurance does not cover the risks of a vessel sailing into a war zone. A typical example is the risk to a tanker sailing in the Persian GulfPersian GulfThe Persian Gulf, in Southwest Asia, is an extension of the Indian Ocean located between Iran and the Arabian Peninsula.The Persian Gulf was the focus of the 1980–1988 Iran-Iraq War, in which each side attacked the other's oil tankers...
during the Gulf WarGulf WarThe Persian Gulf War , commonly referred to as simply the Gulf War, was a war waged by a U.N.-authorized coalition force from 34 nations led by the United States, against Iraq in response to Iraq's invasion and annexation of Kuwait.The war is also known under other names, such as the First Gulf...
. War risks cover protects, at an additional premium, against the danger of loss in a war zone. The war risks areas are established by the London-based Joint War Committee, which has recently moved to include the Malacca StraitsStrait of MalaccaThe Strait of Malacca is a narrow, stretch of water between the Malay Peninsula and the Indonesian island of Sumatra. It is named after the Malacca Sultanate that ruled over the archipelago between 1414 to 1511.-Extent:...
as a war risks area due to piracyPiracyPiracy is an act of robbery or criminal violence at sea. The term can include acts committed on land, in the air, or in other major bodies of water or on a shore. It does not normally include crimes committed against persons traveling on the same vessel as the perpetrator...
http://www.icc-ccs.org/extra/display.php. If an attack is classified as a "riot" then it would be covered by war risk insurers.
- Increased Value (IV): Increased Value cover protects the shipowner against any difference between the insured value of the vessel and the market value of the vessel.
- Overdue insurance: This is a form of insurance now largely obsolete due to advances in communications. It was an early form of reinsurance and was bought by an insurer when a ship was late at arriving at her destination port and there was a risk that she might have been lost (but, equally, might simply have been delayed). The overdue insurance of the Titanic was famously underwritten on the doorstep of Lloyd's.
- Cargo insurance: Cargo insurance is underwritten on the Institute Cargo Clauses, with coverage on an A, B, or C basis, A having the widest cover and C the most restricted. Valuable cargo is known as specieMoneyMoney is any object or record that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context. The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, occasionally in the past,...
.
Links:
Description of cover: http://www.dtgruelle.com/articles/nuinsabc.html
Institute Cargo Clauses: http://www.allcovered.net/AC-OM-MAIN-Cargo_Clauses.html
Pleasurecraft & Commercial marine
policy summaries: http://www.navandgen.co.uk/navandgen/existingcustomers/viewdocuments/summaryofcover.htm
Warranties and conditions
A peculiarity of marine insurance, and insurance law generally, is the use of the terms conditionCondition
-Logic:* Logical conditional* Necessary and sufficient condition, condition of another means that the former statement is true if and only if the latter is true-Computer programming:* Conditions, a generalization of exceptions in exception-handling...
and warranty
Warranty
In business and legal transactions, a warranty is an assurance by one party to the other party that specific facts or conditions are true or will happen; the other party is permitted to rely on that assurance and seek some type of remedy if it is not true or followed.In real estate transactions, a...
. In English law, a condition typically describes a part of the contract that is fundamental to the performance of that contract, and, if breached, the non-breaching party is entitled not only to claim damages but to terminate the contract on the basis that it has been repudiated by the party in breach. By contrast, a warranty is not fundamental to the performance of the contract and breach of a warranty, whilst giving rise to a claim for damages, does not entitle the non-breaching party to terminate the contract. The meaning of these terms is reversed in insurance law. Indeed, a warranty if not strictly complied with will automatically discharge the insurer from further liability under the contract of insurance. The assured has no defense to his breach, unless he can prove that the insurer,by his conduct has waived his right to invoke the breach, possibility provided in section 34(3) of the Marine Insurance Act 1906 (MIA). Furthermore in the absence of express warranties the MIA will imply them, notably a warranty to provide a seaworthy vessel at the commencement of the voyage in a voyage policy (section 39(1)) and a warranty of legality of the insured voyage (section 41). .
Salvage and prizes
The term 'salvageMarine salvage
Marine salvage is the process of rescuing a ship, its cargo, or other property from peril. Salvage encompasses rescue towing, refloating a sunken or grounded vessel, or patching or repairing a ship...
' refers to the practice of rendering aid to a vessel in distress. Apart from the consideration that the sea is traditionally 'a place of safety', with sailors honour-bound to render assistance as required, it is obviously in underwriters' interests to encourage assistance to vessels in danger of being wrecked. A policy will usually include a 'sue and labour' clause which will cover the reasonable costs incurred by a shipowner in his avoiding a greater loss.
At sea, a ship in distress will typically agree to 'Lloyd's Open Form' with any potential salvor. The Lloyd's Open Form is the standard contract, although other forms exist. The Lloyd's Open Form is headed 'No cure - no pay'; the intention being that if the attempted salvage is unsuccessful, no award will be made. However, this principle has been weakened in recent years, and awards are now permitted in cases where, although the ship might have sunk, pollution has been avoided or mitigated. In other circumstances the "salvor" may invoke the SCOPIC terms (most recent and commonly used rendition is SCOPIC 2000) in contrast to the LOF (Lloyd's Open Form) these terms mean that the salvor will be paid even if the salvage attempt is unsuccessful. The amount the salvor receives is limited to cover the costs of the salavage attempt and 15% above it. One of the main negative factors in invoking SCOPIC (on the salvors behalf) is if the salvage attempt is successful the amount at which the salvor can claim under article 13 of LOF is discounted.
The Lloyd's Open Form, once agreed, allows salvage attempts to begin immediately. The extent of any award is determined later; although the standard wording refers to the Chairman of Lloyd's arbitrating any award, in practice the role of arbitrator is passed to specialist admiralty QC
Queen's Counsel
Queen's Counsel , known as King's Counsel during the reign of a male sovereign, are lawyers appointed by letters patent to be one of Her [or His] Majesty's Counsel learned in the law...
s.
A ship captured in war is referred to as a prize, and the captors entitled to prize money
Prize money
Prize money has a distinct meaning in warfare, especially naval warfare, where it was a monetary reward paid out to the crew of a ship for capturing an enemy vessel...
. Again this risk is covered by standard policies.
Marine Insurance Act, 1906
The most important sections of this Act include:- s.4: a policy without insurable interest is void.
- s.17: imposes a duty on the insured of uberrimae fidesUberrima fidesUberrima fides is a Latin phrase meaning "utmost good faith" . It is the name of a legal doctrine which governs insurance contracts. This means that all parties to an insurance contract must deal in good faith, making a full declaration of all material facts in the insurance proposal...
(as opposed to caveat emptorCaveat emptorCaveat emptor is Latin for "Let the buyer beware". Generally, caveat emptor is the property law doctrine that controls the sale of real property after the date of closing.- Explanation :...
); ie. that questions must be answered honestly and the risk not misrepresented.
- s.18: the proposer of the insurer has a duty to disclose all material facts relevant to the acceptance and rating of the risk. Failure to do so is known as non-disclosure or concealment (there are minor differences in the two terms) and renders the insurance voidable by the insurer.
- s.33(3): If [a warranty] be not [exactly] complied with, then, subject to any express provision in the policy, the insurer is discharged from liability as from the date of the breach of warranty, but without prejudice to any liability incurred by him before that date.
- s.34(2): where a warranty has been broken, it is no defence to the insured that the breach has been remedied, and the warranty complied with, prior to the loss.
- s.34(3): a breach of warranty may be waived (ie. ignored) by the insurer.
- s.39(1): implied warranty that the vessel must be seaworthy at the start of her voyage and for the purpose of it (voyage policy only).
- s.39(5): no warranty that a vessel shall be seaworthy during the policy period (time policy). However if the assured knowingly allows an unseaworthy vessel to set sail the insurer is not liable for losses caused by unseasworthiness.
- s.50: a policy may be assignedAssignment (law)An assignment is a term used with similar meanings in the law of contracts and in the law of real estate. In both instances, it encompasses the transfer of rights held by one party—the assignor—to another party—the assignee...
. Typically, a shipowner might assign the benefit of a policy to the ship-mortgagor.
- ss.60-63: deals with the issues of a constructive total loss. The insured can, by notice, claim for a constructive total loss with the insurer becoming entitled to the ship or cargo if it should later turn up. (By contrast an actual total loss describes the physical destruction of a vessel or cargo.)
- s.79: deals with subrogationSubrogationSubrogation in its most common usage refers to circumstances in which an insurance company tries to recoup expenses for a claim it paid out when another party should have been responsible for paying at least a portion of that claim....
; ie. the rights of the insurer to stand in the shoes of an indemnifiedIndemnityAn indemnity is a sum paid by A to B by way of compensation for a particular loss suffered by B. The indemnitor may or may not be responsible for the loss suffered by the indemnitee...
insured and recover salvage for his own benefit.
Schedule 1 of the Act contains a list of definitions; schedule 2 contains the model policy wording.
See also
8History of insuranceHistory of insurance
History of insurance refers to the development of a modern business in insurance against risks, especially regarding ships, cargo, and buildings , death , automobile accidents , and the cost of medical treatment...
- Classification societyClassification societyA classification society is a non-governmental organization that establishes and maintains technical standards for the construction and operation of ships and offshore structures...
- Legal definitions of wreckageReceiver of WreckThe Receiver of Wreck is an official who administers law dealing with wreck and salvage in some countries having a British administrative heritage.-Countries having a Receiver of Wreck:...
- Inland marine insuranceInland marine insuranceInland marine insurance indemnifies loss to moving or movable property and is an outgrowth of ocean marine insurance. Historically, ocean marine insurance held the transporter responsible for property loss before, during, and after the completion of the voyage...
- SalvageSale, Inc.
External links
- UK case relating to legal definitions (The No. 1 Dae Bu)
- Frequently Asked Questions relating to Boat Insurance Insurance FAQs