CHAPTER 7- INSURANCE & CLAIMS

JLB40103- ELEMENTS OF SHIPPING

By

Rayner W S Tan (CMILT,UK) (MLogM)

Senior Lecturer

UniKL Mitec

For your info,…

• This is a BASIC learning / understanding on Marine Insurance purposes.

• To master in this field, further training by experts in Insurance field are needed, is a long process.

In actual Shipping industry practices,..

• Most of Liners / Ship=owner / Shipping Co. are well equipped with all clause, to avoid claims and protecting interest.

• E.g.: FCL status of Bill of Lading – have stated “Shipper Load & Count”.

• Claim limitation stated.

Marine Insurance

• Codified in the UK Marine Insurance Act 1906 (“MIA”)

• Institute Cargo Clauses (A), (B) & (C)

• Institute Time Clauses – Hulls

• Valued Policy, Unvalued Policy & Open Cover

MARINE CARGO INSURANCE

Codified in the UK Marine Insurance Act 1906 (“MIA”)

• Institute Cargo Clauses (A), (B) & (C)

• Valued Policy, Unvalued Policy & Open Cover

Institute Cargo Clause (ICC) (ICC)A

• “all risks "cover

• highest premium

• Cl. 1: covers all risks or loss or damage to cargo

• Exclusions: Cl. 4-Cl. 7 e.g.. Ordinary wear & tear

ICC (B)

• mid-range cover

• Cl. 1: covers specific perils e.g.: fire/jettison

• Exclusions: Cl. 4 - Cl.7 e.g. Inherent vice

Why Insure ?

• Common practice in the commercial world • Protection against financial losses

resulting from damage, pilferage, theft and non receipt of entire or part of a consignment.

• Protection against financial claims that can be made against the owner of goods on board a vessel in case of a “ declared general average” (the goods themselves being undamaged).

CONTRACT OF INSURANCE

In between the insured and insurer

INSURED:- Party effecting insurance,

(Individual, Company, Firm,

Corporate body etc., with

legal status)

INSURER:- Party granting the protection

under an insurance policy.

Policy:- Is the evidence of contract

Fire On Board

CASUALTY AT WHARFTSIDE

What is “Particular Average” and

“General Average”?

• Particular average means damages sustained by goods only, or by the ship only.

• General average means the loss and the expenditure, voluntarily incurred, to prevent the entire loss of a vessel and her cargo on board. ▫ Example: Fire on board, heavy weather disabling

the ship – All the expenses resulting from the event will be shared between the owner of the ship and owners of the cargo.

▫ Assessment done by “Average Adjuster”

Definition of General Average

• Modern definition of ‘general average’ is ‘all loss which arises in consequence of extraordinary sacrifices made or expenses incurred for the preservation of the ship and cargo losses within general average, and must be borne proportionately by all who are interested’.

What to Insure?

• Value of insurance calculate as below: ▫ Cost of goods + freight and shipping cost ▫ PLUS an uplift of 10% to cover administrative

expenses and increases in price of goods have to be re-ordered.

• Insurance Value= (Value of goods + Cost of Transport) x 1.10

• Additional risks is vary from commodity, they are not same for iron pipes and vehicles for instance.

• Insured at maximum extend – if buyer negotiating a floating policy where all usual risks and special coverage are included.

• If coverage is arranged case by case, the request coverage should specify what is required; normally all risks, war, strike and civil commotions.

How To Insure?

• Through Supplier

▫ Contract placed CIF (Cost Insurance Freight) , relieves buyer of the task of making insurance arrangement.

▫ Disadvantage:

Supplier obliged only buy the cheapest insurance coverage.

Consignee – no continuity or standardization in procedure. Insurance contract is placed with a different company by someone acting on behalf of the buyer only.

How To Insure?

• Self Insurance

▫ When buyer decides not to insures outside and choose to bear risks of transportation.

▫ Common practices- small consignment with low value.

▫ The overall risks should be limited, so there are no disastrous consequences in case of loss.

▫ This type usually gives problem in yearly budget as settlement of claims can drag for years.

How To Insure?

• Floating Policy With An Insurance Company

▫ Adopted by many commercial firms with regular flow shipment.

▫ Floating (an open) policy is the results of negotiation between parties.

▫ The larger amount of business for the insurer, the better the terms they are prepared to offer.

▫ Consignee benefits with dealing with the same insurance agent., under same terms with standardization of reporting claims.

Insurance Documents

• Insurance Certificates- ▫ A furtherance of the policy to cover consignment in

transit, to describe them, the journeys, the amount covered, agents to contact destination and other details that relevant to the insurance.

▫ Insurance certificates signed by insurance underwriters.

▫ Original certificates normally required in the set of documents presented to a bank for transaction covered by letter of credit.

▫ When not required for bank purposes and to cut administrative work – certificates change to simpler notice where only agent to contact at the destination need to be added. This usually arranged by agreement between the holder of a long term agreement and insurance company.

Insurance Documents

• Survey Report ▫ Documents established by insurance

company’s agent at destination when consignment received in bad order.

▫ Since its expensive – should be requested when it is expected loss or damage will exceed the figure considered reasonable by the underwriters or when a survey report registered by the insurer.

▫ Basis of settlement of an insurance claim and can be accompanied by an estimate of repair approved by the surveyor.

Making a Shipping Claims

Insurance Claims

• Documents required to Process Claims: ▫ 1- Survey report or Senior Officer’s report,

according to the extend of damages. ▫ 2- Estimates and/or invoices for the cost of

repairs, goods which have to be procured and send for local purchase of replacement parts, whenever possible, approved by the surveyor to facilitate settlement.

▫ 3- Copy of the invoice for the original shipment.

▫ 4-Copy of claim letters to the responsible party and response(s) and

▫ 5-Short landing certificates or certificates of loss when entire cargo is missing.

DEFINE YOUR CLAIM

• Who are you claiming against ?

• Under which contract are you claiming ?

• What is the breach ?

CLAIMS PROCESS AND STRATEGIES

MITIGATING LOSS

IS THE PROXIMATE

CAUSE AN INSURED

PERIL or EXCEPTED

UNDER POLICY ?

INCIDENT CAUSING LOSS

CLAIMS PROCESS

CLAIMS INVESTIGATION

CLAIMS APPROVAL

or REJECTION

CLAIMS SUBMISSION

MARINE CARGO INSURANCE

• The contract of marine insurance is a special (insurance) contract of indemnity which protects against physical and other losses to moveable property and associated interests, as well as against liabilities occurring or arising during the course of a sea voyage.

• S. 1 of MIA 1906: A contract of marine insurance is a contract whereby the insurer undertakes to indemnify the assured, in manner and to the extent thereby agreed, against marine losses, that is to say, the losses incident to marine adventure.

WHO CAN INSURE?

• Insurable interest – S5 MIA • (1) Subject to the provisions of this Act, every

person has an insurable interest who is interested in a marine adventure.

• (2) In particular a person is interested in a marine adventure where he stands in any legal or equitable relation to the adventure or to any insurable property at risk therein, in consequence of which he may benefit by the safety or due arrival of insurable property, or may be prejudiced by its loss, or by damage thereto, or by the detention thereof, or may incur liability in respect thereof.

Marine Cargo Insurance

( Compensates Cargo Owner)

Marine Hull Insurance

( Compensates ship-owner)

The End, Thank you students.