marine insurance law

Marine insurance law

STIAMAK BARUNAWATI SURABAYA 2103

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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

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


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


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


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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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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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

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Bad weather

Breach of Safety rule

GroundingCombination

of causes

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Combination of causes covered under separate insurances

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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


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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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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Development

Fracture

2004 2006

2004 - Policy

2006 - Policy

Defect

2000

”Peril strikes”

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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

marine insurance law

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Transcript of marine insurance law