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Marine insurance law
Trine-Lise WilhelmsenScandinavian Institute of
Maritime Law
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Spring 07 Marine insurance 2
Overview o The main types of marine insuranceo The legal sources o The insurance contracto Insurable interest, insurable value
and the sum insuredo Scope of cover
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Spring 07 Marine insurance 3
Overview o Duties of disclosure and due careo Measures to avert or minimize loss o Practical question to be solvedo Practical question, discussion o General approach: Common rules
for ship and cargo
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1. The main types of marine insurance
o Insurance related to shipso Insurance of goods under
transporto Some other distinctions
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1.1 Insurance related to ships
o Casualty insuranceo Damage to/loss of propertyo Element of liabilityo Element of loss of incomeo Divided into two:
oHull insuranceoHull interest insurance
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1.1 Insurance related to ships cont.
o Loss of incomeo Covering income derived from property: o Loss of hire, freight interest, strike
o Liability insuranceo Covering ship-owners third party liabilityo Main liability insurance: P&I insuranceo Overlaps with hull/hull interest insurance
covering part of the collision liability
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1.2 Insurance of cargo under transport
o Covers cargo under transport from A to B (seller to buyer)
o Casualty (damage and loss) insuranceo Includes owners profit o But not
o loss of income in generalo owners liability
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1.3 Some other distinctions of
relevance.o Marine/civil risks vs war risks
o Marine/civil insurance covers all risks that are not excluded
o Special exclusion for war riskso War insurance covers war and similar
perils as definedo Distinction used in all marine
insurance
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1.3 Some other distinctions of
relevance.o Primary insurance – coverage for costs
of saving actso Primary insurance: coverage of casualties
o Caused by perils insured o According to the principles of indemnity in the
contract.
o Saving acts: covers o expenses incurred to avert/minimize losseso according to ordinary tort principles
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2. The legal sources in marine insurance
o The international legal pictureo The Norwegian legal picture
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2.1 The international legal picture
o No international conventiono The English marine insurance
marketo The Scandinavian marine
insurance market
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2.1.1 No international convention
o Contrary to many other areas of maritime law
o Has been attempts of harmonization in UNCTAD
o A new attempt recently by CMI and NIFS
o The situation today
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2.1.2 The English insurance market
o The English MIA = the legislative framework in most common law countries
o English ITCH clauses used in o even more common law countries o and in some civil law countries
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2.1.3 The Scandinavian market
o Each country has their own set of conditions
o During the last century much inspired by the Norwegian Marine Insurance Plan
o Many similar solutionso But different structure and legal
framework
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2.2 The Norwegian legal picture
o FAL (ICA) 1989o The Norwegian Marine Insurance
Plano The Norwegian Cargo Clauses o The P&I Conditions
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2.2.1 FAL (ICA) 1989o Starting point: Mandatory, § 1-3o But exception for
o insurance of ships that should be registered, § 1-3 (c)
o Insurance of international transport of cargo, § 1-3 (e)
o However: Cargo insurance follows ICA with certain exceptions
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2.2.2 Norwegian marine insurance Plan 1996
(NMIP)o Standard contract (Agreed
document)o Developed over 125 yearso Most of the interested parties have
participated in the constructiono This approach contrary to
ITCH/other conditions
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2.2.2 Norwegian marine insurance Plan 1996
(NMIP)o Covers most of the insurances for
the shipownero But: not P&I insuranceo Extensive preparatory documents
(Commentary)o Little relationship with the ICA
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2.2.3 Norwegian Cargo Clauses (CICG)
o Conditions relating to insurance for the carriage of goods
o Many of the same characteristics as NMIP
o Buto Less extensive commentarieso A stronger connection to the ICA
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2.2.4 The P&I Conditions
o Traditionally: Part of the NMIPo Today: Skuld and Gard (Norway),
Swedish club (Sweden)o Part of international network o Cover: Protection and Indemnity +
other types of cover
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3. The insurance contract
o The parties to the insurance contract
o The formation of a marine insurance contract
o Jurisdiction and choice of law
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3.1. The parties to the insurance contract
o Definitions, NMIP § 1-1o The insurer/company o Coinsurance /claims leader (NMIP ch 9)o Reinsuranceo The assuredo The person effecting the insuranceo Insurance of third party interest
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The parties to the contract
Insurer
Person effecting the insurance
The assured
Insurance contract Right to compensation
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Insurance of third party interest
Insurer
Person effecting the insurance
The assured
Insurance contract Right to
Compensation
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Insurance of third party interest, NMIP
Insurer
Person effecting Insurance
Assured
Insurance contract
Right to compensation
Co-insured, Ch. 7 and 8
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Insurance of third party interest, CICG
Company
Seller Seller
Insurance contract
Right to compensation
Buyer
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Co insurance → Partial insurance with more than one insurer
Ship 600 mill NOK
Insurer A200 mill NOK
Insurer B200 mill NOK
Insurer C200 mill NOK
1/3
1/3
1/3
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Reinsurance→ The insurer reinsures the risk undertaken under
the direct insurance contract.
Ship:600 mill NOK
Insurer:100 mill NOK
Reinsurer:500 mill NOK
Direct insurance: 100 %
Reinsurance: 500 mill NOK
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3.2 Concluding the Contract
o Starting point: Ordinary contract lawo The use of broker: NMIP § 1-3o “Housekeeping rule”o No sanctionso The purposeo Relationship to the “slip”
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3.2 Concluding the Contract
o Documentso NMIP: Written proof of insurance = policy,
see § 1-2o CICG:
o Insurance certificate, ICA § 2-2 o Insurance document , CICG § 1 nr. 4
o Single shipment = Insurance certificate o Open cover/floating policies = certificate +
document
o Gard 5: Certificate of entry
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3.3. Jurisdiction and choice of law
o NMIP § 1-4, CICG § 59, Gard 90/91o Main rule:
o Norwegian jurisdiction ando Background law
o But: NMIP § 1-4.3: foreign claims leader
o The relationship to the ICA
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4. Insurable interest, insurable value and the
sum insured
o Insurance unrelated to any interesto Insurable value and sum insuredo Underinsurance and overinsuranceo Double insurance o Calculating the insurable valueo The sum insured as limit to the
insurer’s liability
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4.1 Insurance unrelated to any
interesto Insurance unrelated to any interest is
void, NMIP § 2-1, Criminal Enactments Act § 12 (wager insurance)
o MIA sec. 4.1o The relationship with provisions
concerning legal interest:o NL 5-1-2o NMIP § 3-16 concerning illegal activitieso CICG § 18 nr. 4
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4.2 Insurable value and sum insured
o Insurable value, NMIP §2-2, CICG §29 = o Value of the insured interest o at the commencement of the insuranceo Maximum for liability o Not possible in P&I insurance
o Sum insured = the sum the assured has chosen to insure
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4.2 Under insurance o Under-insurance = insurable value
exceeds sum insuredo Regulated in NMIP § 2-4, CICG § 30o Not possible in P&I insuranceo Pro rata reduction in coverage o Not common in hull insurance
except for co insurance
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Under insurance
Insurablevalue:1000
Sum insured:
500
Potential loss
Compensation
500/1000 = 50 %Of each damage
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4.2 Overinsurance
o Over-insurance = sum insured exceeds insurable value
o Regulated in NMIP § 2-5, CICG § 31o Liability limited to the insurable valueo No liability in case of fraudo Not good business
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Over insurance:
Sum insured:
1000
Insurablevalue:
660
Basis for premium
Max. compensation
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4.2 Double insuranceo Double insurance = same interest
insured against same peril under two or more contracts
o NMIP § 2-6, ICA § 6-3 o Main rule: joint liabilityo Exclusion: Subsidiarity, NMIP § 2-
6.2
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4.3. Calculating the insurable value
o ”Open” insurable value, NMIP § 2-2 = full market value when the insurance commences
o Assessed insurable value, NMIP § 2-3 = as agreed between the parties
o CICG § 29: Market value + costs
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4.4 The sum insured as limit to the insurer’s
liabilityo NMIP § 4-18: Three times the sum
insured:o The ”ordinary” sum insured o + the ”collision liability” sumo + the ”costs of measures to avert or
minimize a loss” sum o CICG § 32-33:
o Sum insured for casualties, § 32o + losses according to § 39-43, i.e. salvage
measures etc.
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5. Scope of cover o Terminologyo Perils insured against in marine
insuranceo Causation
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Losses covered
Damage
Total loss
Collision liability
Loss of time
Etc
Perils insured
Heavy weather
Theft
Leakage
Fire
Etc
Causation
Terminologi
The casualty
Causation
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5.2. Perils insured against
o The main distinction: Marine insurance and war risk insurance
o NMIP § 2-8 and § 2-9o CICG § 3 to § 5 and § 18 nr. 6o Gard 58 o General distinction in international
marine insurance
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5.2. Perils insured against
o Marine risks o The all risks principle, NMIP § 2-8 / CICG § 3o Exceptions:
o CICG § 4 and 5: Limited cover o War perils, § 2-8 letter a), CICG § 18 nr. 3 and 6o Intervention by state power, NMIP § 2-8 b), CICG
§ 18 nr. 7 and 18o RACE II, NMIP § 2-8 d) and CICG § nr. 10 and 11. o NMIP: Insolvency, letter c)
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5.2. Perils insured against
o War insuranceo Named perils principle, NMIP § 2-9,
CICG Special clauses for Strikes, sabotage, acts of terrorism, etc
o NMIP: Common exceptions, see aboveo The relationship between the two
branches
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5.3 Causationo The problemo General insurance lawo NSPL/CICG: The main ruleo Combination of war and marine
perilso Combination of perils over different
insurance periods
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5.3.1 The problemo Presumption:
o Two causes are necessary to result in a loss, o none of them are sufficient.
o Combination of perils in different situationso Covered and uncovered perilso Perils covered under different brancheso Perils occurring in different insurance periods
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Presumption: Two necessary causes
Ship collides Collisiondamage
The ship sinks
Mine Two sufficient causes
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Combination of covered and uncovered causes
Marine insurance
Bad weather
Breach of Safety rule
GroundingCombination
of causes
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Combination of causes covered under separate insurances
Marine insurance
Failure of navigation
Darkening of lighthouse
GroundingCombination
of causes
War insurance
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Causes in different periods
Casualty
Fracture
2004 2005
Bad weather
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5.3.2 General insurance law
o The main rule: The dominant cause ruleo Legal basis: ND 1916.76 jfr. 1916.209
Skotfoso The content o Anglo American solution: Causa proximao P& I insurance: Gard 90: ordinary
insurance law
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Rt 1916.209 Skotfos
Marine insurance
Failure of navigation
Darkening oflighthouse
War insurance
The ship runs agroundCombination
of causes
Liability
”Dominant cause”= the most important
Not relevant cause
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5.4.3 NMIP/CICG The main rule
o NMIP §2-13/CICG § 20o Apportionment principle, not the
dominant cause ruleo Special Norwegian principleo Only applied in marine insuranceo Combination of covered and
uncovered perils
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NMIP § 2-13/CICG § 20:
Covered risk
Uncovered Risk
70 %
30 %
Uncovered 30 %
Coverage 70 %
Casualty
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5.4.4 Combination of war and marine perils
o NMIP § 2-14o Reinstates the dominant cause
rule as a main ruleo If neither cause is dominant, equal
division
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5.4.5 Combination of perils in different periods
o NMIP § 2-11o Starting point: When the peril
strikeso Exception for unknown defect or
damage
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The insurer is liable for loss occurred when the interest insured is struck by an insured peril during the insurance period.A defect or damage which is unknown at the inception or on expiry of an insurance, shall be deemed to be a marine peril which strikes the ship at the time the casualty or damage to other parts occurs, or at such earlier time as the defect or the first damage became known.
NMIP § 2-11
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Incidence of loss, NMIP § 2-11, 1:
31.12.2005Renewal
2005 - policy
TimeCasualty
Peril strikes
No liability for the 2006 insurer
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Incidence of loss, NMIP § 2-11, 2:
Development
Fracture
20042006
2004 - policy2006 - Policy
Viz:-Primary damage attributed to the point in time when the peril struck-Consequential damage covered when development occurs
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Incidence of loss, NMIP § 2-11, 2:
Development
Fracture
2004 2006
2004 - Policy
2006 - Policy
Defect
2000
”Peril strikes”
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Incidence of loss, NMIP § 2-11, 2:
Development
Fracture
2004 2006
2004 - Policy
2006 - Policy
Defect
2000
”Peril strikes”
But: deemed to be a marine peril which strikes at the time of the extension