Marine or Maritime Insurance is the oldest form of insurance. It is a variant of insurance for which the subjects are boats or ships, and particularly the cargos the ships carry. Although most countries of the world have their own laws relating to insurance, an online article entitled Marine Insurance Facts (anon, n.d.) published by United Marine Insurance of Australia notes that in most cases insurance of commercially-operated ships comes under the jurisdiction of “Admiralty Law”, described in a Guide to Admiralty Law (anon, n.d.) published on the HG.org website.
Marine Adventure
In marine insurance terminology, the term “marine adventure”, as defined by the English Marine Insurance Act 1906, is any situation where insurable property may be exposed to maritime perils, which are those hazards or dangers consequent on, or incidental to oceanic navigation. English Marine Insurance Act 1906 - An Act to codify the Law relating to Marine Insurance (anon, n.d.) published on the Lex Mercatoria website, states that these “perils” include: “fire, war, perils, pirates, rovers, thieves, captures, seizures, restraints, and detainment's of princes and peoples, jettisons, barratry, and any other perils”.
Although meanings of most of the listed perils may be obvious, it may be useful to provide some clarification to fully understand the terms used. An article entitled Get complete information on Marine Perils by Kavita Singh (n.d.) was the major source of the following:
Fire: Refers to not only damage directly caused by fire or smoke, but also by water used to put out a fire. Additional risks may be damage from spontaneous combustion or from lightning, explosion, or fires caused by crew negligence;
War (enemies): Refers to damage that may be caused by enemy ships in times of war, and/or to hostile acts caused by any people of the enemy country;
Pirates, rovers, thieves: A peril less likely in modern times (although Somalia is an example). “Thieves” excludes theft by ship’s crew or passengers;
Captures, seizures, restraints: Captures and seizures are generally associated with war situations. Restraint refers to instances where a country’s government may prohibit free access to a port;Detainments: Describe where losses may result from a ship being stopped from leaving a port for some reason (e.g. by police action or due to quarantine regulations). The reference to “princes” is believed to have political origins;Jettisons: This is voluntarily discarding ship’s cargo or equipment for safety reasons or to reduce a peril. Accidental cargo or equipment is excluded;
Barratry: This term is defined as wilful criminal or other wrongful acts committed by the ship’s master and/or crew, which causes loss or damage to the vessel and/or its cargo. Examples are selling the ship or cargo without the owner’s consent or even setting fire to the ship.
Insurable Interest
Under the provisions of the 1906 Act, every person “interested” in a marine adventure has an insurable interest. The Lex Mercatoria website, defines such a person as where:
he stands in any legal or equitable relation to the adventure or to any insurable property at risk therein, in consequence of which he may benefit by the safety or due arrival of insurable property, or may be prejudiced by its loss, or by damage thereto, or by the detention thereof, or may incur liability in respect thereof.
The Act also stipulates that anyone claiming an insurable interest cannot acquire that interest after a loss covered has occurred. He/she need not have an insurable interest at the time the applicable insurance policy was effected, but must have it when the loss occurs. An insurable interest can be partial, when the insurable interest is shared with others.
Proof of Insurable Interest
According to Export Practice and Management (Branch, 2006, p.260), although someone with an insurable interest does not need to provide proof of that interest when effecting the insurance, he/she must – at the time of making a claim on a marine insurance policy – be able to provide proof of that interest.
Hull Insurance
According to the website of global insurance broker Willis, Hull and Machinery Insurance (anon, n.d.) is taken out by ship-owners or charterers to insure vessels, excluding cargo, but usually including the ship’s machinery. The policies normally cover contingencies such as mechanical breakdowns, fire, maritime assistance, repair and salvage. It is also common for that insurance to be extended to protect against third-party claims, by obtaining protection and indemnity insurance, which typically covers third-party claims that might arise from collisions – either with another ship or with a fixed object such as the dock or harbour.
In hull insurance terminology, the loss may be either “actual total loss” or “constructive total loss”. The former is where a ship is totally destroyed or lost at sea for example, whereas constructive total loss refers to incidents where it seems unlikely that the insured vessel can be recovered or repaired at an economical cost; i.e. that those costs would exceed the value following repairs. If desired, cover can also be extended for:
a) Freight interest, i.e. to compensate the policyholder for anticipated future loss of revenue in the event of total loss of the vessel;
b) Loss of hire insurance. This is available to those having an insurable interest in a ship that earns revenue by being chartered by others;
c) War and political risks. Normally excluded from hull & machinery cover unless specifically added.
The Richards Hogg Lindley & Charles Taylor Consulting group publish a Guide to Hull Claims (anon, 2003), which provides comprehensive information on hull insurance.
Cargo Insurance
Branch states that for cargo insurance, the most usual types of insurable interest are:
1. The ownership of the cargo;
2. Payment of the insurance premium;
3. The freight costs – those (usually) pre-paid costs incurred in transporting the goods / cargo from the premises of the consignor to the destination, i.e. the premises of the consignee. In such cases the sum insured would be the total of the insurance premium plus the value of the goods (cargo) plus the freight costs.
An insurable interest can also be defeasible or contingent. A defeasible interest is one that could be terminated or annulled, and a contingent interest is one where the insured interest is contingent upon other prevailing circumstances or other events. There may be instances where the cargo cannot be discharged at the anticipated port, so has to be landed at another port, incurring forwarding costs for it to be transported to its intended destination. That risk and the associated insurable interest can be covered by insuring specifically against such circumstances.
Integration of Research
The research undertaken for this paper has shown that Marine Insurance – because of its specialized nature – is in various ways different to other types of insurance such as Life Insurance and Fire Insurance. An article entitled Difference between life, fire & Marine Insurance (anon, n.d.) published on the nilum Hub Pages.
Conclusions
Research for this paper has revealed that Marine Insurance – the oldest form of insurance – by its nature has very specific aspects that are not shared with other types of insurance like Fire and Life.
Insurable interest – an important issue – is considered differently, too. Because ownership of the insured goods can and often does change over the course of a voyage, the insurable interest can change, too. So, although a policy needs to exist at the start of a voyage, those having an insurable interest at the time of a possible loss may not be the one(s) with an insurable interest at the outset. However, should there be a claim on the policy, it is essential that the person making the claim has a provable insurable interest when the loss occurs.
It is also noteworthy that there are distinctions between hull insurance and cargo insurance, especially that those with the associated insurable interests are likely to be different individuals/organizations.
References
Branch, Alan, E. Export Practice and Management. (2006). Thomson Learning.
ISBN-13: 978-1-84480-081-0. Print.
Differences between life, fire & Marine Insurance. Hub Pages. Retrieved from http://nilum.hubpages.com/hub/Difference-between-life-fire-Marine-Insurance
English Marine Insurance Act 1906 – An Act to codify the Law relating to Marine Insurance. (December 21, 1906). Lex Mercatoria.org. Retrieved from http://www.jus.uio.no/lm/england.marine.insurance.act.1906/landscape.pdf
Guide to Admiralty Law. HG.org. Retrieved from http://www.hg.org/admiralty-law.html
Guide To Hull Claims. (2003). Richards Hogg Lindley and the Charles Taylor Consulting group. Retrieved from http://www.rhlg.com/pdfs/GuidetoHullClaims0703.pdf
Hull and Machinery Insurance. Willis. Retrieved from http://www.willis.com/documents/publications/Industries/Marine/Marine_Hull_Info.pdf
Marine Insurance Facts. United Marine Insurance of Australia. Retrieved from http://www.unitedmarineinsurance.com.au/marine_insurance_facts.php
Marine Insurances. Hub Pages. Retrieved from http://nilum.hubpages.com/hub/Marine-Insurances
Singh, Kavita. Get complete information on Marine Perils. Retrieved from http://www.preservearticles.com/2012040730014/get-complete-information-on-marine-perils.html
