Extra First Class COC Courses (Part “A”)

Subject: A2- Risk Management & Marine Insurance

Student Name and Number: Praveen Kumar, TMI/EFCE/2019/01

ASSESSOR: Dr. B. K. Saxena

Date of Submission: 21.02.2019

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(a) Introduction:
In view of plan to buy a second hand bulk carrier. It is noteworthy to buy suitable marine
insurances on the subject vessel to get indemnity against losses incidental to marine
adventure. In the succeeding sections, scope of marine insurances and all risks covered
therein will be considered.

Main body:
Assume upon the purchase of second hand bulk carrier, there is no assignment of interest of
current marine insurance policies from seller to buyer.
It is therefore, suggested to buy following insurance policies on the subject vessel.
1. Hull & Machinery insurance with Institute Time Clauses- Hulls 1.10.83 for complete
cover based on time or voyage. Complete cover includes both particular average and
total loss. This insurance policy can be purchased from a H&M underwriter
member(s) of the International Underwriting Association of London (IUA).
2. Protection & Indemnity insurance. This insurance policy can be purchased from a
P&I club member of the International Group of P&I Associations (IG).
3. Marine kidnap and Ransom insurance. This insurance policy can be purchased from
the General insurance underwriter. E.g. Swedish Club.

Scope of marine insurance-

1. Ship- The vessel is exposed to loss or damage caused by perils of sea, river, fire,
explosion, theft, piracy, jettison, collision, detainment, earthquake, lightning, barratry
etc. The vessel may be lost or damaged due to negligence of the master, officers,
crew, pilot, charterer, or repairer. The ship owner may be liable to pay general
average (GA) contribution and salvage charges. H&M insurance covers these risks to
a large extent. P&I insurance complements this cover.
2. Freight- The freight may be at the risk of ship owner when payable at the destination
port. Freight insurance covers this risk.
3. Ship owner’s liabilities- The ship owner may be liable to other interests, say cargo,
crew, stevedore during commercial operation of the vessel. The liability may arise
due to damage, injury, death. The liability may also come under Tort. For example,
oil spill, collision, stranding. P&I insurance covers these liabilities.

Risks covered by different insurance policies

1. H&M insurance with ITCH clauses subject to deductibles and exclusions. Additional
covers can be agreed between underwriter and assured at a specified additional
premium if any.

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- Total loss of the insured vessel including actual and constructive total loss. E.g.
capsizing.
- The reasonable cost of repair of damage to the vessel caused by insured perils.
This includes particular average damage. E.g. boiler bursting, shaft breakage.
- Cover for unrepaired damage payable at the end of policy period provided there
is no total loss of the vessel. E.g. buckled frame plate of ship’s side plating and
repair deferred by the class until next dry docking.
- General average contribution made by the vessel.
- Salvage charges incurred by the vessel.
- Sue and labour expenses incurred in connection with an insured peril.
- Collision liability to the extent of 3/4ths of any sum payable by insured vessel to
other vessel and 3/4ths of insured value. Legal liability to the extent of 3/4ths of
such liability.
- Pollution hazard clause cover if the insured vessel is damaged or destroyed by a
government authority following a casualty in order to avoid or mitigate pollution.

2. P&I insurance
- Loss of life, injury, illness of crew, passengers, supernumerary.
- Cargo shortage, loss or damage.
- Damage to property on insured vessel.
- Collision damage to dock, buoys and other fixed and floating objects.
- Wreck removal.
- Pollution.
- Fines and penalties ..
- Crew repatriation and substitution
- Vessel diversion expenses in order to save life, vessel or property thereon.
- Unrecoverable general average contributions of insured vessel.
- MLC cover to assist and meet the vessel owner’s certification requirements under
financial security provisions of Maritime Labour Convention which entered into
force in January 2017.

3. Marine Kidnap and Ransom insurance

- The ransom amount.
- Loss in transit of ransom.
- Fees and expenses of security experts who advise on crisis handling.
- Additional expenses for an independent negotiator, public relations consultant,
interpreter .

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- Travel and accommodation costs of engaged experts and assured.

- Legal liability to cover settlement, award, fees brought by the representative of any
insured person as a result of kidnap.

Conclusion:
It is therefore, suggested to buy foregoing insurance policies in order to get indemnity
against loss, damage, liability by reason of exposure of the vessel to insured marine perils.

(b) Introduction:
Insurance is a contractual agreement between the insurer and the insured, wherein the risk
of loss of the subject matter insured is transferred to the insurer, when the loss occurs out of
the cause indicated in the contract, on the payment of the consideration called premium.

As per Marine Insurance Act, 1963, Section 3,

A contract of marine insurance is an agreement whereby the insurer undertakes to indemnify
the assured, in the manner and to the extent thereby agreed, against marine losses, i.e. to
say losses incidental to marine adventure.

Main body:
Differences between marine insurance and other general insurance
1. Regulatory act: Marine insurance is regulated by Marine Insurance act, 1963 as
amended. Whereas other insurances are regulated by Insurance act, 1938 as
amended in 2015.
2. Insurable interest: In marine insurance the insurable interest should be present at
the time of loss and need not be present when the insurance is concluded.
Whereas in other insurances, the insurable interest must be present at the time of
taking the policy as well as at the time of loss.
3. Insurable property: In marine insurance the insurable property is ship, cargo,
freight. In other general insurance, the insurable property is movable or
immovable tangible assets other than ship. E.g. house, car etc.
4. Insured perils: In marine insurance the insurable property is exposed to marine
perils, i.e. perils of sea, river, fire, pirates, jettison, collision, stranding, barratry
etc. It can nevertheless be extended to cover additional inland water and land
risks. Whereas in other insurances, the insured perils include inland water, land
risks and not perils of sea.

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Conclusion:
It is therefore said that marine insurance is different from other insurances on the of basis
above comparisons.

(c) Introduction:
Marine insurance is based on some principles. Two of these principles are utmost good faith
and proximate cause. Marine insurance policy comes with some clauses, say Institute Time
Clauses Hulls or International Hull Clauses. These clauses include warranties and
deductibles.

Main body:
1. Utmost good faith-
As per Marine Insurance Act 1963, section 17, A contract of marine insurance is a contract
based upon the utmost good faith and if the utmost good faith be not observed by either
party, the contract may be avoided by the other party. It signifies that the proposer owner or
agent must inform all material facts regarding the subject matter to the insured. The material
facts are facts, information pertaining to the subject matter which would influence the
judgment of insurer in deciding whether to accept the risk, at what premium and for what
terms and conditions.

2. Proximate cause-
As per Marine Insurance Act 1963,
Unless the policy otherwise provides, the insurer is liable for any loss proximately caused by
a peril insured against but he is not liable for any loss which is not proximately caused by a
peril insured against. E.g. a ship insured with war exclusion, suffers damage on voyage
caused by bombing between two naval ships. Here the proximate cause of damage is
bombing and the underwriter is protected from liability by war exclusion.

3. Warranties-
Marine Insurance Act defines warranties as promissory by which the assured undertakes
that some particular thing shall or shall not be done, or that some condition shall be fulfilled,
or whereby he affirms or negates the existence of material facts. Warranty may be express
or implied. E.g. warranty as to cargo, trade, locality of the vessel insured. Any breach of
warranty would discharge the insurer from his liability to compensation from the date of
breach of warranty, unless there are provisions in contrary to that.

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4. Deductibles-
Deductibles are the limits of sum applied before a claim is recoverable except claims for total
loss and associate sue and labour charges. A claim must arise out of a separate accident or
occurrence. The claim is payable by the insured to the extent of sum in excess of deductible.

Conclusion:
The above descriptions clarify the meaning of terms utmost good faith, proximate cause,
warranties and deductibles.

References:
1. B. K. Saxena & S. G. Deshpande, “A2- Risk Management & Marine Insurance Notes”, January
2018, Tolani Maritime Institute.
2. Institute Time Clauses – Hulls 1.10.83.
3. International Hull Clauses (01/11/03).
4. India Marine Insurance Act 1963.