LO4 - 2d Insurance H&M-P&I

Marine Insurance
There is no legal obligation in English Law to insure ships, goods

or freight!
All marine insurance contracts agreed in the UK are governed by the

Marine Insurance Act 1906 amended by Marine Insurance Act 2012
and 2015
Marine Insurance
Principles of Insurance
Indemnity
Principle of Indemnity is that the insurer will indemnify the assured
for loss, and restore him to the position he was in immediately
before the loss occurred.
• Should be no possibility of being better off after (potential fraud)
• Cannot claim multiple policies on the same risk (double
insurance)
• Cannot claim against another party after claim is settled, eg
cargo owner after receiving payment from insurer.
Insurable interest
• Must be a physical object exposed to peril
• Assured must
• have some legal relationship
• stand to benefit by its preservation
• must stand to lose by its loss or damage
Marine Insurance
Principles of Insurance
Utmost good faith
Assured must disclose to the insurer before the contract is
concluded, every material circumstance which is known to the
assured and which would influence the insurer’s judgement in
fixing the premium or whether they would accept the risk.
For example a shipowner must disclose that his ship has failed a
special survey.
Doctrine of proximate cause

Insurer is not liable for any loss which is not proximately (directly)
caused by a peril insured against.
For example if a ship is scuttled (deliberately sunk) and seawater
entering the ship sinks her, owner may claim that the peril of seas was
the cause of his loss, but the insurer would not be liable since scuttling
is a wilful misconduct of the assured.
Warranties
A possible ‘restriction’ on operation to remain in
insurance, possibly to remain ‘in class’ with a particular class
society.
The assured (insured party) will promise to ensure that

something shall or shall not be done.
• Express Warranty – written in the contract clauses

• Implied Warranty – unwritten but implied in law.
LLOYDS of LONDON
How the Lloyd's market works - YouTube

History – very old video…
https://www.youtube.com/watch?v=uFt4CWZ4q5k (10 mins)
Lloyd's Extraordinary History – YouTube
LLOYDS of LONDON
Not a company, a society of individuals and corporate
members with strict rules, ie it is a commercial insurance
market place
• Underwriters – professional risk assessors for syndicates
• Brokers – Intermediaries between Lloyd’s and the public
• Syndicates – members grouped in joint ventures
• Managing Agents – supervise syndicates, employ
underwriters and administrative work.
Areas:
• Marine 17%
• Aviation 7%
• Motor 16%
• Non-transport 59%.
Market value at end 2019 – approx. £53 Bn
Capital provided by about 3000 individual members and 900
corporate members.
Policy Types
Voyage Policy (Cargo Policy)
Port to port, ship must be within the ports mentioned.
Time Policy (H&M Policy)
For a period of time, mainly 12 months, usually expiring at noon or

midnight GMT.
Policies can also be either valued or unvalued.

Hull & Machinery Insurance
Can cover:
• Actual or Constructive Total Loss

Total (Actual) Loss
Constructive
Total Loss
Constructive Total Loss https://www.youtube.co
m/watch?v=ftcTLxHA6ys
Can cover:
• Actual or Constructive Total Loss

• Particular Average
• Hull, Machinery or Equipment
• ‘Third party’ collision insurance - ¾ liability
• Liability under General Average
• Liability under Salvage
These are available on the London Insurance Market

under H&M Insurance.
file:///C:/Users/customer/Downloads/hull-and-machinery-terms-conditions-2018.pdf
Warranty (Insurance Law):
A possible ‘restriction’ on operation to remain in insurance,

possibly to remain ‘in class’ with a particular class society.
The assured (insured party) will promise to ensure something will or
will not be done.
Deductible (Insurance Law):
Similar to an excess in car insurance.

The expense required to be paid by the assured before any
claims will be paid. [Not applicable to Constructive or Actual Total
Losses]
The more claims, the higher the deductible (and potential premium)
in following years.
Other notable H&M Clauses
• Perils - Fire, explosion, piracy, earthquake, bursting of

pressure vessels, negligence of master crew pilot, latent
defects in machinery or hull, accidents, etc
• General average and salvage - Vessel’s proportion
• Sister ships - Collision between two sister ships can be
treated as though they had different owners
• Sue and labour - Cost incurred in preventing or minimising
a loss, will be paid by insurer, eg anchor recovery
• Navigation provisions – When sailing without pilot,
attending a distress, limited towage liability, no cargo
transfer at sea, etc
• Navigating limits - institute warranty limits
• Classification & ISM - must be classed and must have
SMC.
• Exclusions - war, strikes, radioactive contamination,
chemical, biological attack, etc
• Helicopter engagement - no risk covered if not complying
with ‘ICS Guide to helicopter/ ship operations’
P&I Insurance
1720 - Two companies provided hull insurance:
• Royal Exchange Assurance
• London Assurance.
Discontented shipowners in London came together to create mutual

insurance within their group.
The most famous being Lloyd’s Coffee House. This basic concept
created the first P&I Club.
1855, the first mutual protection society was formed.
Today they exist in, among other places, the:

• UK
• USA
• Japan
• Scandinavia.
Over 90% of world shipping has entered into P&I clubs.

P&I Clubs
The Clubs are associations of shipowners and charterers, owned and controlled
by the insured shipowner or charterer ‘Members’. They operate on a non-profit
making mutual basis, that is to say the Members pool their resources together
in order to meet losses suffered by each individual Member.
The basic principle is that the contributions ("mutual premium") paid by the
Membership in relation to any one year should be sufficient to meet all the
claims, reinsurance and administrative expenses of the Club for that year.
If there is a shortfall because claims are high, the Members may pay a pro-rata
"additional call" and if there is a surplus, a return may be made to the
Membership, or the surplus transferred to reserve to meet losses on other
years.
The mutual system is therefore very different to most other forms of insurance,
because the aim of the P&I Club in accepting business is not to make a profit for
shareholders.
Protection & Indemnity Clubs
International Group of P&I Clubs with Insurance for the maritime industry - YouTube
The International Group of P&I Clubs (igpandi.org)

P&I Clubs
List of IGPANDI Clubs
American Steamship Owners Mutual Protection and Indemnity Association, Inc
http://www.american-club.com/
The Britannia Steam Ship Insurance Association ltd http://www.britanniapandi.com/
Gard P&I Ltd http://www.gard.no/
The Japan Ship Owners' Mutual Protection & Indemnity Association
https://www.piclub.or.jp/
The London Steam-Ship Owners' Mutual Insurance Association Ltd
http://www.londonpandi.com/
The North of England Protecting & Indemnity Association Ltd http://www.nepia.com/
The Shipowners' Mutual Protection & Indemnity Association
http://www.shipownersclub.com/
Skuld http://www.skuld.com/
The Standard Club Ltd http://www.standard-club.com/
The Steamship Mutual Underwriting Association (Bermuda) Ltd
http://www.steamshipmutual.com/
The Swedish Club http://www.swedishclub.com/
United Kingdom Mutual Steam Ship Assurance Association Ltd
http://www.ukpandi.com/
The West of England Ship Owners Mutual Insurance Association
http://www.westpandi.com/
Exercise (5 mins)
Identify a P&I Club and note 2 - 3 recent topics that are likely to
be relevant to your forthcoming oral exam, ie published either
as guidance, articles or news, which relate to navigation, cargo,
environmental protection or safety.
In general, P&I Clubs cover the losses arising from most incidents
at sea, with the following exceptions:
• Hull damage
• cancellation of contract and loss of hire
• towage by the insured vessel or towage of an insured vessel
• wilful misconduct
• refugees
Documents normally found
on board:
•Certificate of entry
•Handbook of club rules
•List of club correspondents
•Loss prevention bulletins,
circulars, posters, dvds
The risks covered usually include:
1. Death and personal injury of
• Seamen
• Passengers
• Third parties
2. Stowaways or persons saved at sea
3. Collisions
4. Groundings
5. Damage to fixed and floating objects
6. Pollution
7. Wreck removal
8. Towage operations
9. Cargo.
Includes the legal and other costs associated with dealing with
these claims.
When to call a P&I Club
correspondent…
1. Oil spill
2. Collision
3. Contact damage with quay/other ship
4. Stowaways
5. Cargo damage
6. B/L problems
7. Discovery of drugs onboard
8. Dispute regarding NOR of ship to load
9. Problematic cargo
10. Crew member hospitalisation
Summary of Risks Covered
• Liability to Persons other than • Indemnities and Contracts for
Seamen other Services
• Injury and Death - Seamen • Wreck Removal
• Illness - Seamen • Cargo
• Wages and Shipwreck • Irrecoverable General Average
Unemployment Indemnity Contributions
• Repatriation and Substitutes • Ship’s Proportion of General
• Diversion Average
• Spouses and Children • Property other than Cargo on
• Stowaways, Deserters and board an Entered Ship
Refugees • Fines
• Life Salvage • Confiscation
• Effects of Seamen and Others • Official Inquiries
• Quarantine • Special Direction of the Committee
• Collision with Other Vessels • Sue and Labour and Legal Costs
• Pollution (special compensation) • Omnibus Rule
• Towage • Special Cover for Salvors
Third Party Cover
• Cargo claims - short delivery, loss or damage to cargo
• Crew claims - medical expenses, repatriation, compensation for death
and injury, etc
• Collision liabilities - 1/4th
• Fixed and floating objects: damage to dock, buoys, etc
• Third party injury and death claim: passenger, stevedore injury/ death
• Fines for Innocent breaches of regulations
• Diversions
• Landing Refugees, Sick Persons
• Contractual Liabilities including Customary Towage
• Ship’s proportion of General Average
• Salvor’s expenses under Lloyd’s Open Form
• Oil pollution liability (CLC)
• Special compensation or compensation under SCOPIC clause.
• Expenses incurred in landing refugees, sick persons and stowaways,
fines, unrecoverable general average contributions, wreck removal
costs, etc
• Freight, demurrage and defence cover (FD&D cover) - indemnifies
members for legal costs incurred in connection with FD&D dispute, but
not the actual sum itself.
Not Covered:
• Bogus Bill of lading
• Delivery of cargo without B/L
• Clean bill issued for damaged cargo
• Deck cargo carried on terms of under deck loading
• Arrest or detention of a ship
• Failure to arrive or late arrival at loading port
Fines Normally Covered:

• Customs fines
• Immigration fines
• Fines for failure to produce proper documentation on board.
• Fines for breach of regulations relating to construction, alteration of
ship.
• Fines incurred as a result of the conduct of the crew.
• Fines imposed for failure to maintain safe working conditions.
INSURANCE RELATED QUESTIONS
1. Describe the cover normally given to a shipowner, on the

London insurance market.
2. What cover does P&I Clubs provide?
3. What is a warranty in marine insurance?
4. What is a deductible in marine insurance?
1. Describe the cover normally given to a shipowner, on the

London insurance market.
H&M, ie:
1. Actual or Constructive Total Loss
2. Particular Average
3. Hull, Machinery or Equipment
4. ‘Third party’ collision insurance - ¾ liability
5. Liability under General Average
6. Liability under Salvage
2. What cover does P&I Clubs provide?
Most except:
1. Hull damage
2. cancellation of contract and loss of hire
3. towage by the insured vessel or towage of an insured vessel
4. wilful misconduct
5. refugees
3. What is a warranty in marine insurance?

‘Restriction’ on operation to remain in insurance.
4. What is a deductible in marine insurance?

Expense to be paid by the assured before any claims will be paid.
Except total (actual) loss or constructive total loss

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Marine Insurance

There is no legal obligation in English Law to insure ships, goods

All marine insurance contracts agreed in the UK are governed by the

Doctrine of proximate cause

The assured (insured party) will promise to ensure that

• Express Warranty – written in the contract clauses

How the Lloyd's market works - YouTube

Voyage Policy (Cargo Policy)

Port to port, ship must be within the ports mentioned.

Time Policy (H&M Policy)

For a period of time, mainly 12 months, usually expiring at noon or

Policies can also be either valued or unvalued.

• Actual or Constructive Total Loss

• Actual or Constructive Total Loss

These are available on the London Insurance Market

A possible ‘restriction’ on operation to remain in insurance,

Deductible (Insurance Law):

Similar to an excess in car insurance.

• Perils - Fire, explosion, piracy, earthquake, bursting of

Discontented shipowners in London came together to create mutual

1855, the first mutual protection society was formed.

Today they exist in, among other places, the:

Over 90% of world shipping has entered into P&I clubs.

The International Group of P&I Clubs (igpandi.org)

Fines Normally Covered:

1. Describe the cover normally given to a shipowner, on the

1. Describe the cover normally given to a shipowner, on the

3. What is a warranty in marine insurance?

4. What is a deductible in marine insurance?

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