Marine Insurance covers the loss or damage of ships, cargo, terminals, and any transport or property by which cargo 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 platforms, pipelines); Hull; Marine Casualty; and Marine Liability.

Origins of Formal Marine Insurance

The modern origins of marine insurance law were in the law merchant, with the establishment in England in 1601 of a specialised 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 standardisation 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. The Law Merchant is a legal system used by merchants in 13th century England. ... Motto (French) God and my right Anthem No official anthem - the  United Kingdom anthem God Save the Queen is commonly used England() – on the European continent() – in the United Kingdom() Capital (and largest city) London (de facto) Official languages English (de facto) Unified  -  by Athelstan 927 AD  Area  -  Total 130... Events February 8 - Robert Devereux, 2nd Earl of Essex, rebels against Elizabeth I of England - revolt is quickly crushed February 25 - Robert Devereux beheaded Jesuit Matteo Ricci arrives in China Bad harvest in Russia due to rainy summer Dutch troops drive Portuguese from Málaga Battle of Kinsale, Ireland Births... William Murray, 1st Earl of Mansfield (March 2, 1705 - March 20, 1793), was a British judge and politician who reached high office in the House of Lords. ... The Lord Chief Justice of England and Wales is the second-highest judge of the Courts of England and Wales, after the Lord Chancellor, and the presiding judge of Criminal Division of the Court of Appeal, and of the Queens Bench Division of the High Court. ... This article concerns the common-law legal system, as contrasted with the civil law legal system; for other meanings of the term, within the field of law, see common law (disambiguation). ... It has been suggested that this article or section be merged with Council of Lloyds. ... -1... Admiralty law (also referred to as maritime law) is a distinct body of law which governs maritime questions and offenses. ... The British Empire in 1897, marked in pink, the traditional colour for Imperial British dominions on maps. ... In law, a precedent or authority is a legal case establishing a principle or rule that a court may need to adopt when deciding subsequent cases with similar issues or facts. ... 1906 (MCMVI) was a common year starting on Monday (see link for calendar). ... In law, codification is the process of collecting and restating the law of a jurisdiction in certain areas, usually by subject, forming the legal code. ...

In the 19th. century, Lloyd's and the Institute of London Underwriters (a grouping of London company insurers) developed between them standardised 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 (ie. cargo) risks, and in this form is known by the acronym 'MAT'. Reinsurance is a means by which an insurance company can protect itself against the risk of losses with other insurance companies. ...

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; ie. 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. Joint and several liability is a common law rule of liability, whereby a plaintiff may recover the entirety of the damages from any of negligent defendants independent of their individual share of the liability. ...

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 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 specialised and uncommercial marine and non-marine mutuals, for example in relation to oil pollution and nuclear risks. Alternative meaning: Nineteenth Century (periodical) (18th century — 19th century — 20th century — more centuries) As a means of recording the passage of time, the 19th century was that century which lasted from 1801-1900 in the sense of the Gregorian calendar. ... Mutual insurance is a type of insurance where those protected by the insurance (policyholders) also own the organization. ... Protection and indemnity insurance, commonly known as P&I, is marine insurance against third party liabilities and expenses arising from owning ships or operating ships as principals. ...

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 thoughout the world, insurers are usually careful to limit or exclude American Jones Act liability. For the 1916 law the concerned the Philippines, see Jones Act (Philippine Islands) The Merchant Marine Act of 1920 (commonly known as the Jones Act) is a United States Federal statute that requires U.S.-flagged vessels to be built in the United States, owned by U.S. citizens, and...

Actual Total Loss and Constructive Total Loss

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; ie 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.

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' requires all cargo owners 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. (The law of) General average is a legal principal 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 fleet to save the whole in an emergency. ...

(2) In the situation where an insured has under-insured, ie. 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 hazard and to remove small claims, which are disproportionately expensive to handle. The equivalent term to 'excess' in marine insurance is 'deductible' or 'retention'. This section is studied by Argagui monopoli In law and economics, moral hazard is the name given to the risk that one party to a contract can change their behaviour to the detriment of the other party once the contract has been concluded. ...

A co-insurance, which is typically applied in non-proportional reinsurance, is an excess expressed as a proportion of a claim, e.g. 5%, and applied to the entirety of a claim. Reinsurance is a means by which an insurance company can protect itself against the risk of losses with other insurance companies. ...

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. In economics and finance, arbitrage is the practice of taking advantage of a price differential between two or more markets: a combination of matching deals are struck that capitalize upon the imbalance, the profit being the difference between the market prices. ...

Tonners and Chinamen

These are both obsolete forms of early reinsurance. Both are technically unlawful, as not having insurable interest, 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. In relation to insurance, the law prevents people taking out an insurance contract on someone elses life (or someone elses property) unless they have an insurable interest in that life. ...

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 Gulf during the Gulf War. 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 Straits as a war risks area due to piracy [1].

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 specie.

Links: Description of cover: [2] Map of the Persian Gulf. ... Combatants UN Coalition Republic of Iraq Commanders Norman Schwarzkopf, Peter de la Billière, Khalid bin Sultan, Saleh Al-Muhaya, Mohamed Hussein Tantawi Saddam Hussein Strength 883,863 360,000 Casualties 378 dead, 1,000 wounded see section below The Gulf War or the Persian Gulf War (16 January 1991... This wide-angle map of south-east Asia shows that the Strait is the most direct route from the Indian Ocean to the Pacific. ... The flag of 18th-century pirate Calico Jack Piracy is a robbery committed at sea, or sometimes on the shore, by an agent without a commission from a sovereign nation. ... For other uses, see Titanic. ... A commodity metal, historically gold and silver, backing money or currency. ...

Institute Cargo Clauses: [3]

Warranties and Conditions

A peculiarity of marine insurance, and insurance law generally, is the use of the terms condition 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, breaches the contract as a whole. By contrast, a warranty is not fundamental to the performance of the contract and breach of a warranty will not lead to a breach of the contract. The meaning of these terms is reversed in insurance law. Thus, the Marine Insurance Act 1906 refers to implied warranties, one of the most important of which is that the vessel is seaworthy.^[1] This is a disambiguation page — a navigational aid which lists other pages that might otherwise share the same title. ... In commercial and consumer transactions, a warranty is an obligation that an article or service sold is as factually stated or legally implied by the seller, and that often provides for a specific remedy such as repair or replacement in the event the article or service fails to meet the...

Salvage and Prizes

The term 'salvage' 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. It has been suggested that Treasure hunting (marine) be merged into this article or section. ...

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 envoke 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 only. One of the main negative factors in envoking 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 QCs. Cherie Booth QC wearing her ceremonial robes (including full-bottomed wig) as Queens Counsel at the Bar of England and Wales. ...

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. Generally, prize money is a monetary prize that is given to the winner of a competition. ...

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 fides (as opposed to caveat emptor); 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.50: a policy may be assigned. 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 subrogation; ie. the rights of the insurer to stand in the shoes of an indemnified 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. In relation to insurance, the law prevents people taking out an insurance contract on someone elses life (or someone elses property) unless they have an insurable interest in that life. ... This article or section is in need of attention from an expert on the subject. ... Caveat emptor is Latin for Let the buyer beware. Generally Caveat Emptor was the property law doctrine that controlled the sale of real property after the date of closing. Under the doctrine of Caveat Emptor, the buyer could not recover from the seller for defects on the property that rendered... An assignment is a term used with similar meanings in the law of contracts and in the law of real estate. ... Subrogation is the legal technique under the common law by which one party, commonly an insurer (I-X) of another party (X), steps into Xs shoes, so as to have the benefit of Xs rights and remedies against a third party such as a defendant (D). ... Indemnity is a legal exemption from the penalties or liabilities incurred by any course of action. ... It has been suggested that Treasure hunting (marine) be merged into this article or section. ...

See also

• Classification society
• Legal definitions of wreckage
• Inland marine insurance

A Classification Society is an organisation that establish and apply technical standards in relation to the design, construction and survey of marine related contructions including ships and offshore structures. ... The Receiver of Wreck is an official of the British government whose main task is to process incoming reports of wreck in order to give the legitimate owner the opportunity to retrieve their property ensure that law-abiding finders of wreck receive an appropriate reward This involves researching ownership, liaising... This article or section does not adequately cite its references or sources. ...

External links

• Transport Information Service: www.tis-gdv.de - Specialist information from German marine underwriters on various aspects of the transport sector
• UK case relating to legal definitions (The No. 1 Dae Bu)
• Boat Dealer Insurance What to watch out for

Reference

1. ^ see also: Bank of Nova Scotia v. Hellenic Mutual War Risks Association (Bermuda) Ltd. ('The Good Luck') [1991] 2 WLR 1279 and at 1294-5

Bibliography

• Birds, J. Birds' Modern Insurance Law. Sweet & Maxwell, 2004. (ISBN 0-421-87800-2)

• Donaldson, Ellis, Wilson (Editor), Cooke (Editor), Lowndes and Rudolf: Law of General Average and the York-Antwerp Rules. Sweet & Maxwell, 1990. (ISBN 0-420-46930-3)

• Wilson, DJ, Donaldson (1997). Lowndes and Rudolf: General Average and the York-Antwerp Rules. British Shipping Law Library: Sweet & Maxwell. ISBN 0-421-56450-4.