Marine insurance law - Universitetet i oslo...2 Overview o The main types of marine insurance o The...

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Marine insurance law

Trine-Lise WilhelmsenScandinavian Institute of

Maritime Law

Marine insurance day 1

o 10:15-11:45: Lectureo 11:45-12:30: Luncho 12:30-14:00: Lectureo 14:15-15:00: Discussion in groups of the

test cases 15 15 16 00 Pl di i o 15:15-16:00: Plenary discussion

03.02.2011 Marine insurance 2

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Overview

o The main types of marine insuranceo The legal sources in marine insurance (in

general)o The insurance contract (NMIP)o Insurable interest, insurable value and

the sum insured (NMIP)the sum insured (NMIP)o Scope of cover (NMIP)

Spring 2010 Marine insurance 3

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 Three main insurances: ll o Hull insurance

o Loss of incomeo Liability

o The main difference:o What interests are insuredo What interests are insuredo Calculation of compensation


1.1.1 Hull insurance

o Damage to/loss of propertyo Element of liabilityo Element of loss of incomeo Divided into two:

o Hull insuranceH ll i i l l l d o Hull interest insurance: only total loss and liability


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Hull and hull interest


Insurable interest = full market valueInsurable value hull = assessed = potential ”rest value”Rest value = hull interest insurance, but max 25 %

Hull and hull interest Difference between full marked value and assessed hull value is covered by Hull interest

Full market value = 12,5

Assessed hull value hull insurance

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Hull interest


= 10

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1.1.2 Loss of income

o The covered interest: income derived from the ship: the ship:

o Different types:o Loss of hire: only if the ship is damaged o Freight interest: only if the ship is a total losso Strike: only cover of expenses


Freight interest

Hull and hull interest covers full market value, which reflects the future


Hull and hull interest covers full market value, which reflects the future income of the ship.But: not loss because - a long term contract expires or - Ship is taken out of predertermined form of employment

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Freight interest Loss of long time charterparti/ employment = 2,5 M, covered

f i h i

Total loss interest, hull and freight risk Assessed hull value

= 10 M covered by h ll i

Exceding market value = 2,5 M covered by hull interest

By freight interest


hull insurer

1.1.3 Liability insurances

o Covering ship-owners’ third party liabilityliability

o Main liability insurance: P&I insuranceo Hull/hull interest insurance cover part

of the collision liability


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Liability, hull and P&I Liability – full market value (10 M – 12,5 M = 2,5 M

d d & i

Collision Liability =20 Mill

Hull value = 10 M covered by hull i

Exceding market value = 2,5 M covered by hull interest

covered under PI&I insurance


insurer

1.2 Insurance of goods under transport

o Covers cargo under transport from A to B ( ll ll t b )B (normally seller to buyer)

o Casualty (damage and loss) insuranceo Includes owner’s profito But not

L f i i lo Loss of income in generalo Owner’s liability


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1.3 Some other distinctions of relevance

o Marine/civil risks vs war risks/ l ll k h o Marine/civil insurance covers all risks that

are not specifically excludedo Special exclusion for war riskso War insurance covers war and similar risks

specificially defined (named perils)o Distinction used in all marine insuranceo But concept of war risk varies


1.3 Some other distinctions of relevance

o Primary insurance – coverage for costs of saving actsof saving actso Primary insurance: coverage of casualties

o Caused by risks insured against o According to the principles of indemnity in the

insurance contracto Costs of saving acts: covers g

o Expences incurred to avoid/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


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 iti lmaritime law

o Attempts of harmonization o UNCTAD 1974-1986 o CMI 1997-2005

o Conclusion: Harmonization difficulto Conclusion: Harmonization difficulto Reason: Competition on conditionso “Wish list” for the English marketSpring 2010 Marine insurance 19

2.1.2 The English insurance market

o The UK Marine Insurance Act (MIA)h l l f k o The legislative framework in most common

law countrieso The Institute Time Clauses Hulls

(ITCH) o Used in most common law countries o Used n most common law countr es o Used in several civil law countries

o IHC


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2.1.3 The Nordic marketo Each country still has their own set of

conditions conditions. o The conditions are inspired by NMIP

o Many similar solutionso Different structure and legal framework

o But: From 2010 most Nordic markets use the Norwegian Marine Insurance Plan (NMIP)Norwegian Marine Insurance Plan (NMIP)

o A Nordic Marine Insurance Plan is planned from 2013


2.2 The Norwegian legal picture

o Insurance Contract Act (ICA) 1989o The Norwegian Marine Insurance Plan

(NMIP) 1996o The Norwegian Cargo Clauses (CICG)

2004o The Gard and Skuld P&I conditions 2011o The Gard and Skuld P&I conditions 2011


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2.2.1 Insurance Contract Act (ICA) 1989

o Starting point: Mandatory, § 1-3o But:

o Insurance of registered ships, § 1-3 (c)o Insurance of cargo under an international

transport, § 1-3 (e)o In practice: All cargo insurances follow o In practice: All cargo insurances follow

the rules in ICA, with certain exceptions


2.2.2 Norwegian Marine Insurance Plan (NMIP) 1996

o Standard contract (Agreed document)D l d 135 o Developed over 135 years

o Interested parties have participated in the preparation

o An approach different from ITCH/other national conditions


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2.2.2 Norwegian Marine Insurance Plan (NMIP) 1996

o Covers most of the relevant insurances for a shipownerfor a shipowner

o But: P&I insuranceo Extensive preparatory documents

(Commentary)o Updated every third year (new versions)p y y

o Present version NMIP 1996 version 2010o Little relationship with the ICA


2.2.3 Norwegian Cargo Clauses (CICG) 2004

o Conditions relating to insurance for the i f d (CICG) carriage of goods (CICG)

o Many of the same characteristics as NMIP

o But:o Less extensive commentarieso Less extensive commentarieso A stronger tie to the ICA


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2.2.4 The P&I Conditions

o Included in NMIP 1964, but not in NMIP 1996NMIP 1996

o Today: Each P&I club has its own conditions (in Norway: Gard and Skuld, in Sweden: The Swedish Club)

o The most important clubs members of o The most important clubs members of The International Group


3. The insurance contract

o The parties to the insurance contracto The formation of a marine insurance

contracto Jurisdiction and choice of law


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3.1. The parties to the insurance contract

o Definitions, NMIP § 1-1o The insurerso The person effecting the insuranceo The assuredo Coinsurance /claims leader (NMIP ch 9)o Reinsuranceo Insurance of third party interest


The parties to the contract

Insurer

Insurance contract Right to compensation


Person effecting the insurance The assured

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Ploicy holder and the assured

Insurer

Insurance contract Right to

Compensation


Person effecting the insurance The assured

Co insurance → Partial insurance with more than one insurer

Ship 600 mill NOK

Insurer A200 mill NOK

Insurer B200 mill NOK

1/3

1/3

1/3


Insurer C200 mill NOK

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Reinsurance→ The insurer reinsures the risk undertaken under the direct insurance

contract.

Ship:p600 mill NOK

Insurer:100 mill NOK

Direct insurance: 100 %


Reinsurer:500 mill NOK

Reinsurance: 500 mill NOK

Insurance of third party interest, NMIP

Co-insured, Ch 7 and 8

Insurer

Insurance contract

Right to compensation

Ch. 7 and 8


Person effecting Insurance

Assured

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3.2 Concluding the marine insurance contract

o Starting point: Ordinary contract lawo Starting point: Ordinary contract lawo The use of a broker: NMIP § 1-3

o Housekeeping rule, with no sanctionso Purpose: to avoid differences between draft,

contract and contract confirmation o Documents:

o NMIP: Written proof of insurance = policy, § 1-2


Concluding the contract

Draft

IdenticalConfirmation

Confirmation of draft


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3.3. Jurisdiction and choice of law

o NMIP § 1-4o Main rule:

o Norwegian jurisdiction o Norwegian background law

o But: NMIP § 1-4.3: foreign leading insurer;insurer;o Venue of the leading insurero Norwegian background law


4. Insurable interest, insurable value and the sum insured

o Insurance unrelated to any interesto Terminology o Calculationg the insurable valueo The sum insured as limit to the insurer’s

li bili liability


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4.1 Insurance unrelated to any interest

o Insurance unrelated to any interest is id NMIP § 2 1void, NMIP § 2-1

o MIA sec. 4.1o The relationship with provisions

concerning legal interest:o NL 5 1 2o NL 5-1-2o NMIP § 3-16 concerning illegal activities


4.2 Terminology

o Insurable value, NMIP § 2-2 l f h d o Value of the insured interest

o at the commencement of the insuranceo Maximum for liability o Not possible for liability risk

o Sum insured NMIP § 4-18 o Sum insured, NMIP § 4-18, o The sum the assured has chosen to insure


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4.2 Terminologyo Under-insurance

o insurable value exceeds sum insured o = insurable value exceeds sum insured o NMIP § 2-4

o Over-insurance o = sum insured exceeds insurable valueo NMIP § 2-5

o Double insurance o = same interest insured against same peril

under two or more contracts, NMIP § 2-6


Under insurance, NMIP § 2-4

Insurablevalue:1000

Sum

Potential loss

Compensation


insured:500

Compensation

500/1000 = 50 %Of each damage

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Over insurance, NMIP § 2-5

Sum insured:

1000

Insurablevalue:

Basis for premium

Max. compensation


660compensation

4.3. Calculating the insurable value

o ”Open” insurable value F ll k l h h o Full market value when the insurance commences, NMIP § 2-2

o Not common in hull insurance for ocean going ships

o Reason: Must cover mortgage amount o Assessed insurable value, NMIP § 2-3 =

as agreed between the parties


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4.4 The sum insured as limit to the insurer’s liability

o NMIP § 4-18: Three times the sum i dinsured:o The ”ordinary” sum insured o The ”collision liability” sumo The ”costs of measures to avert or

minimize a loss” sum


5. Scope of cover

o Terminologyo Perils insured against in marine

insuranceo The losses coveredo Causation


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Losses coveredPerils insured

Terminologi

Damage

Total loss

Collision liability

Loss of time

Heavy weather

Theft

Leakage

Fire

The casualty


EtcEtc

CausationCausation

5.2. Perils insured against o Marine insurance

o All risks principle: NMIP § 2 8o All risks principle: NMIP § 2-8o Exceptions:

o War perils, NMIP § 2-8 (a)o Intervention by state power, § 2-8 (b)o Insolvency, § 2-8 (c)o RACE II, § 2-8 (d), ( )


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5.2. Perils insured against

o War insurance, NMIP § 2-9d l l o Named perils principle:

o War or warlike conditionso Capture/confiscation etco Riots, strikes, sabotage, terrorism etco Piracy and mutiny

C i bo Common exceptions, see aboveo The relationship between the two branches


5.3 Causation

o The problemo General insurance lawo NMIP: The main ruleo Combination of war and marine perilso Combination of perils over different

i i dinsurance periods


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5.3.1 The problem

o Presumption:T l i l 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 branches

o Perils occurring in different insurance period


Presumption: Two necessary causes

Mine

Grounding


Two sufficient causes

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Combination of covered and uncovered causes

Marineiinsurance

Bad weather

Breach of

GroundingCombination

of causes


Safety rule

Combination of causes covered under separate insurances

Marineinsurance

Failure of navigation

Darkening of

GroundingCombinati

on of causes


lighthouse

War insurance

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Causes in different periods

2004 2005


Fracture in

propellor

5.3.2 General insurance law

o The main rule: The dominant cause ruleo Legal basis: ND 1916.76, cfr, ND

1916.209 NSC SKOTFOSo Anglo-American solution: Causa proxima


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Rt 1916.1117 Skotfos

War riskStranding

Marine insurance 57

Marine risk

Rt 1916.209 Skotfos

Marineinsurance Liability

Failure of navigation

Darkening of

The ship runs agroundCombination

of causes

”Dominant cause”= the most important

N t l t


lighthouse

War insurance

Not relevant cause

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5.3.3 NMIP: The main rule

o NMIP §2-13 o Apportionment principle, not the

dominant cause ruleo Special Norwegian principleo Only applied in marine insurance

C bi i f d d d o Combination of covered and uncovered perils


NMIP § 2-13

Coverage 70 %Covered risk

Uncovered

70 %

30 %

Coverage 70 %

Casualty


Uncovered Risk

Uncovered 30 %

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5.3.4 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


5.3.5 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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NMIP § 2-11The insurer is liable for loss occurred when the interest insured is struck by an insured peril during the insurance periodperil 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 h d f h f d b the defect or the first damage became

known.


Incidence of loss, NMIP § 2-11, 1:

Peril strikes

31.12.2007Renewal Time

Casualty


2007 - policy No liability for the 2008 insurer

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D l2009

2010

Development

Fracture

2009 - policy 2010 - Policy


Viz:-Primary damage attributed to the point in time when the peril struck

-Consequential damage covered when development occurs


2009 20102005

Development

Fracture

2009 - Policy

Defect


2010 - Policy”Peril strikes”

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2009 20102005

Development

Fracture

2009 - Policy

Defect

”Peril strikes”


2010 - PolicyBut: deemed to be a marine peril which strikes at the time of the extension

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