Chapter 8.1 Insurance

7/31/2019 Chapter 8.1 Insurance

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InsuranceChapter 8

SB


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Why?

School of Logistics and SCM 2Naing Oo


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The insurer/

insurance company

(promises to pay)

The insured/

policy holder

a sum of moneythe insurance premium



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Insurance-an arrangement by which one party (the insurer orinsurance company) promises to pay

-another party (the insured or policy holder)

-a sum of money if something, which causes the insured to

suffer a financial loss, happens.

-In return for the acceptance of such payment for losses,

-the insurer charges the insured what is known as the

insurance premium.



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Contract of Insurance

- A contract made orentered by and between

the assured (insured) andthe insurer. It is known asthe contract of indemnitywhere the insurer agrees topay indemnity to the

insured. Cover Note (Memorandum

of Insurance)

-details of the insurance

-list of the insurers orreinsurers known assecurity list;

-signature of the broker



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Policy

-a document which embodiesa contract of insurance

Indemnity

-making good of a loss ordamage

- putting the insured back tothe financial position heenjoyed just before the loss

Peril

-a possible cause of a personalor property loss. Perils arenatural, man-made oreconomic.



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WARRANTY

(Undertaking of the insured to do or not to do something)

(1) Express Warranty: stated, printed or written in an

insurance policy-warranted not to sail to the north of 70 degrees NorthLatitude

(2) Implied Warranty: not stated anywhere but is binding as

if it were written in a policy- Seaworthiness of the vessel(beginning of the voyage)

- legality of the voyage(only in lawful trade or business)



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Insurable Interest

The legal relation between the assured(insured)and the subject matter insured

Legal relation = relation recognized by the law

Legal relation:

-blood relation

-marriage

-business relation

(especially employment and partnership)



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A person has an interest in the goods or property,

which are to be insured.

Essential Features:

physical object exposed to marine peril

the insured must have some legal relationship to

that object

In order to recover under his policy, the Insured

must be interested at the time of the loss.

Insurable Interest



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A buyer whether goods are sold FOB/CIF

Seller - sellers property until payment is made

Carriers- their liability to cargo owner A charterer liability to ship owner and shipper

The Insurer in the risk he has written

Insurable Interest (contd)



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Commission to agents and brokerage fees

(some ship broking companies as a matter of

routine insure the brokerage under all their

charter fixtures.)

A broker (professional Indemnity Insurance,

a claim against him or his principal )




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The legal relation between theassured(insured) and the subject matterinsured

Legal relation=relation recognized by the law Legal relation:

-blood relation

-marriage-business relation

(especially employment and partnership)




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Types of Policies For Cargo1. Facultative Insurance

(one policy for one shipment)

-the placing of a specific or named risk

-a particular sending or shipment

(far too time-consuming for every consignment to be insured)

Facultative (a form of reinsurance in which the reinsurer hasno obligation to accept a particular risk nor the insurer to

reinsurer, terms and conditions being negotiated for each

reinsurance)

2. Open Contracts

-more advantageous to the insured (exporter), if the

cost of insurance can be standardized. Three types of open contracts:

Floating policies

Open covers and

Open policiesSchool of Logistics and SCM 13Naing Oo


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Floating Policies

To replace facultative insurance by insurancewhich covers a certain total value of goods

Each shipment is declared on special forms and

-the amount outstanding(balance) on the policy isreduced by the amount of that shipment.

One problem:

-policies will not be issued for each individual

shipment,

-certificates of insurance will be issued instead.



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If a seller is on CIF terms, make sure thecontract allows him to present a certificate

rather than a policy

Disadvantage:-premium deposit = total value of the policy



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Open Covers

Automatic cover available for a period

-For a period of one year or longer

-Or on a permanent basis unless cancelled by

either party

Insurers agrees to cover all sendings and

-Premium rates are fixed. Great flexibility and stability of pricing to the

exporter



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Open Covers: Contd

A limit per bottom

(the value of goods to be sent on any one ship) or

Limit in location

(the value of goods to be in one place before shipment)

Institute clauses

On occasions, Issued in conjunction with

floating policies



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Open Policies

A type of open cover

Not necessarily relate to a time period but will

remain in force until cancellation.

Very individualistic, to meet all the demands

of modern multi-modal transport

Advantageous to the broker and insurer



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Open Policies: Contd

Advantages:

-a continuous automatic cover in force

-the cost of insurance is known in advance when

computing CIF

-insurers are arranged to give better terms to an

exporter arranging an annual policy

-the insured may well be in a better position to

negotiate some form of commercial settlement

(claims) because of regular dealings



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The Assessing of a Risk

The considerations in deciding to accept a risk

Cargo and packing

(full descriptioncontainerized , cartons,drums, crates, or bales)

Method of Shipment

(door to door, groupage consignment, singleor multiple drop, chartered shipment,

transhipment)



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Voyage

(the length of the voyage, ultimate

destination, high degree of war risk, onward

transmission, storage) Basic of Valuation

(Valued policy, the agreed value as the basis

for a claim of total or partial loss)

(Unvalued policy would require proof of value

in the event of a claim)

The Assessing of a Risk



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Conditions of Insurance

Majority of marine policies are specifically

drafted for the individual risk

Three new clauses:

-Institute Cargo Clauses (A), (B), (C)

-designed to stand on their own and to be

read and interpreted as such.

-S.G= Ship and Goods



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Institute Cargo Clauses (C)

Covers;

Fire, explosion;

Vessels or craft being stranded, grounded,

sunk or capsized;

Overturning or derailment of land

conveyances;

Collision or contact;

Discharge of cargo at a port of distress;

General average sacrifice and jettison



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Institute Cargo Clauses (C)

Excludes;

Deliberate damage by the wrongful act of any

person or persons i.e. malicious damage

(can be included in the new Malicious Clause

,if additional premium is paid. )



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Institute Cargo Clauses (B)

In addition to the cover by the Cclauses

Earthquake, volcanic eruption or lightening,washing overboard, entry of sea, lake or river

water into a vessel, craft, hold conveyance, liftvan or place of storage, plus total loss ofpackages lost overboard or droppedoverboard during loading or unloading

B Clause also carries the Deliberate DamageExclusion



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Institute Cargo Clauses (A)

Dealing with dry cargoes

Paramount Clause Against All Risks of loss of

or damage to the subject matter insured

Exclusions: the risks of inherent vice and delay

-ordinary leakage, ordinary losses in weight or

volume, ordinary wear and tear



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Conditions Common to Institute Cargo

Clauses (A)(B),(C)

1) Clause 4.3 Packing

-excludes claims resulting from insufficiency or

unsuitability of the packing or preparation of the

subject matter..

2) Clause 4.6 Insolvency

-excludes loss or damage arising from insolvency

or financial default of the owners, managers,charterers, or operators of a vessel being used.

(not guarantee the performance of third parties)



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Institute War Clauses

For loss or damage to the insured interest

caused by hostilities, warlike operations, civilwar, revolution, rebellion, insurrection, etc.

Only attaches as the interest insured is

loaded the overseas vessel and terminatesonce it has been discharged

Does not attach whist the goods are travelling

on land Excludes loss or damage from the use of any

atomic/nuclear weaponry


I tit t St ik Ri t d Ci il


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Institute Strikes, Riots and Civil

Commotions Clauses

Under the standard cargo policies, provision is

made for cargo to continue during the strike

extended period

Covers physical loss or damage to the propertyinsured directly caused by strikes, locked-out

workmen or persons taking part in labor

disturbances, riots, civil commotions and bypersons acting maliciously



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Claims Procedure

1. Communicate to Insurers at the earliest

opportunity

2. If exceed 250, survey report is required

conducted by Lioyds Agents (inspection,

recommendations)

3. A written claim should be. made immediately on

the carrier/shipowner



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4. The delivery docket/consignment note

should be claused (not clean=dirty)

accordingly.

5. Insurers require documents:

a) Insurance Certificate

b) Commercial Invoice

c) Bill of Lading or Consignment Note

d) Delivery Receipt

Claims Procedure (contd)



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d) Correspondence with carriers/ ship owners

e) Repair Estimates

f) Surveyors Report

- settled in the currency expressed on the

insurance policy/ certificate

- the surveyors fees / expences

Claims Procedure



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Ocean Losses

OceanLosses

Total Loss

Actual Total Loss

Constructive Total Loss

Partial Loss

General Average

Particular Average



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Total lossa) Actual Total Loss :The insured subject matter is

totally and irretrievably lost.

b) Constructive Total Loss It is estimated that theactual total loss of cargo is inevitable or the cost of

salvage or recovery could have exceeded the value

of the cargo.



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Partial loss

a) General Averageb) Particular Average

The Principle of Average



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This term refers to accidental loss of or

damage to specific items where only the

claimant's cargo (or ship) is involved.

A claim under the policy of insurance would

naturally follow such an incident.

Particular Average



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General Average

A general average loss may occur, for example, when:

a) part of the cargo is sacrificed to save the entire venture

b) part of the vessel is sacrificed to save the entire venture

c) a ship and cargo are saved by unloading and reloading astranded vessel

d) water used to extinguish a fire, damages cargo

(damage by fire would not be general average)

e) cargo is lost due to it being used as fuel because no otheris available, this may only be applicable if the action isundertaken to save the whole venture.



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Chapter 8.1 Insurance