Eve de Coning

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MARINE INSURANCEMARL16

• Eve de Coning
• Research fellow PhD
• Scandinavian Institute of Maritime Law
• October 2007

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LECTURE OUTLINEWednesday 17 October

• LECTURE 1 INTRODUCTION
• Marine insurance an overview
• Types of marine insurance
• Sources of law

• LECTURE 2 CONTENT
• 4. The marine insurance contract
• 5. Duties imposed on the parties

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1. Marine insurance an overview

• Definition
• a) no definition of the concept insurance
• b) certain characteristics
• i. transfer of risk
• ii. uncertain event
• iii. spreads the loss
• iv. premium
• 2. Marine insurance
• a) insurance of vessels
• b) insurance of cargo
• c) (liability insurance)

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1. Marine insurance an overview (cont.)

• 3. Medieaval roots
• a) origin of all insurance
• b) Roman Law integral to the maritime loan
• c) 1227 AD Pope Gregory IXs papal see
  prohibition on maritime loans
• d) North Italians (Lombardy) indemnity and
  subrogation
• e) Lombard street
• 4. Common roots ?
• Marine insurance is a law not peculiar to one,
  but common to all commercial nations. Whence it
  is derived but from natural reasons, existing in
  all men, and reaching the same results in all
  countries alike.
• Emerigons 1783
• 5. Marine insurance market
• a) UK
• b) Scandinavian and French
• c) similar (not uniform!) law and different
  practices
• d) attempt at unification by the CMI Singapore,
  2001 now abandoned

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2. Types of marine insurance

• Shipowner insurances
• a) Hull insurance (HM insurance) NMIP part two
• - property damage insurance
• - liability insurance in cases of collision or
  striking
• b) Total loss insurances NMIP chapter 14
• - hull interest insurance
• - freight interest insurance
• c) War insurance NMIP chapter 15
• - war perils (2-9) and, if vessel temporarily
  seized, marine perils (15-1 read with 3-19
  and 2-8)
• d) Loss of hire insurance NMIP chapter 16
• - loss of hire during off hire
• - all types of contracts of affreightment
• - compensates lack of income

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2. Types of marine insurance (cont.)

• 2. Protection and Indemnity (PI) Insurance
  (international rules)
• - mutual insurance
• - organised in clubs or mutual associations
• - the largest clubs are in the International
  Group
• 3. Cargo Insurance
• - covers total loss, shortage and damage to
  cargo CICG 6
• - includes also measures to avert or minimise
  loss CISG 6
• - salvage charges
• - general average contributions
• - litigation charges etc
• - does not include general economic loss or
  third party liability.

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3. Sources of law

• Legislation
• a) Until 1930 The Maritime Code (MC)
• b) From 1930 The Insurance Contract Act (ICA)
• - limited relevance
• - marine insurance plans more important
• c) Currently
• i. The Inurance Contract Act of 16 June 1989
  no. 69
• - mainly non-mandatory application to marine
  insurance (ICA 1-3 litra (c) and litra (e))
• - but if mandatory, the insurance conditions
  take account of ICA
• ii. ICA suplemented by
• - plans
• - rules
• - conditions

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3. Sources of law (cont.)

• 2. Marine insurance plans
• - most important legal source in Norway
• - an agreed document
• - currently two plans
• a) Norwegian Marine Insurance Plan (NMIP 1996
  version 2007)
• b) Conditions relating to Insurance for the
  Carriage of Goods (CICG 1995 version 2004)
• 3. PI - rules
• - each club has own rules that the shipowner
  contracts to
• - no uniformity, but great similarity

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3. Sources of law (cont.)

• UK market
• Statute Chalmers Marine Insurance Act of 1906
• Major standard insurance policies are prepared by
  the International Underwriting Association (IUA)
  of London
• These prepare the Institute Clauses
• a) Institute Time Clauses Hulls
• b) Institute Voyage Clauses Hulls
• c) Institute Cargo Clauses (A)
• d) Institute Cargo Clauses (B)
• e) Institute Cargo Clauses (C)
• f) Institute Time Clauses (freight)
• g) Institute Voyage Clauses (freight)

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4. The marine insurance contracta) Parties

• The parties to the insurance contract
• a) person effecting the insurance NMIP 1-1
  litra (b)
• b) assured NMIP 1-1 litra (c)
• c) co-assured NMIP chapters 7 and 8, CICG 9
• d) insurer NMIP 1-1 litra (a) or company
  CICG/ICA
• e) co-insurer and claims leader NMIP chapter
  9

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4. The marine insurance contractb) Formation

• The insurance contract
• a) ordinary contract law applies
• - if broker NMIP 1-3 provides particular
  rules
• b) documentation
• - shipowner insurance
• a) insurance policy NMIP 1-2
• - passivity is approval NMIP 1-2
• - cargo insurance
• a) single shipment
• insurance certificate ICA 2-2 insurance
  document in terms of CICG 1 no. 4
• b) multiple shipments, ie period insurance
• period (open cover and floating) insurance
  certificate (CICG annex 4 and 5) and single
  shipment insurance certificate (ie insurance
  document) will be issued

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4. The marine insurance contractc) Interest
insured

• Insurable interest
• a) economic interest
• b) terminology abandoned by ICA and CICG, but
  retained by NMIP
• c) lawful?
• Insurable value
• a) the value of the interest at the inception of
  the insurance NMIP 2-2 and CICG 29
• b) cargo insurance includes certain expenses
  and 10 profit CICG 29
• c) shipowner insurance assessment NMIP 2-3
• Sum insured
• a) the elected sum insured in terms of which
  premiums are paid
• b) over and under insurance

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4. The marine insurance contractd) Cover

• 1. Perils insured
• - starting point all risk NMIP 2-8 and CICG
  3
• - also named peril CICG 4 and 5
• - h/e exceptions
• - war risks NMIP 2-8 litra (a) and CICG 18
  no. 6
• - intervention by a State power NMIP 2-8 litra
  (b) and CICG 18 no. 7
• - nuclear/radioactive contamination RACE II
  clause
• NMIP 2-8 litra (d) and CICG 18 nos. 3 and
  11

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4. The marine insurance contractd) Cover (cont.)

• 2. Causation
• - peril struck principle NMIP 2-11 and CICG
  7
• - multiple causes
• - dominant cause?
• - apportionment principle NMIP 2-13 and
  CICG 20
• - exceptions
• - dominant cause when marine and war peril
  NMIP 2-14
• - nuclear contamination entire loss
  attributed this peril NMIP 2-13 and CICG 20
• - multiple insurance periods
• - apportionment principle? ND 1950.458 NSC
  HEKTOR
• - Anti-Hektor clause NMIP 2-11

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5. Duties imposed on the parties overview

• Imposed on who?
• - both person effecting insurance/assured and
  insurer, but mainly former
• - problem of identification
• Duties imposed NMIP chapter 3
• a) Rules of disclosure
• - disclosure information material to the
  evaluation of risk
• - disclose information of significance to the
  alteration of risk
• b) Central duties of care
• - avoid causing damage
• - uphold safety regulations (NB! no-longer
  seaworthiness)
• - notify of and avert/minimise loss

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5. Duties imposed on the parties Identification

• Imputation or attribution of conduct
• Four scenarios
• a) person effecting insurance and his
  representatives
• - not regulated in ICA, NMIP or CICG
• - contract law principles identification of
  representative, ie broker
• b) assured and his representatives
• NMIP
• - act of persons with authority and management
  functions in areas of material importance for
  the insurance NMIP 3-36
• - not fault of Master or crew in service as
  seamen NMIP 3-36
• - exception
• - breach of safety regulations in contract
  is attributed to assured NMIP 3-25

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5. Duties imposed on the parties identification
(cont.)

• CICG
• - based on persons position (at management
  level) and function (responsible for transport
  of insured goods) CICG 10
• c) assured and the person effecting insurance
• NMIP
• - regardless of whether conduct by person
  effecting insurance or representative NMIP
  3-38
• CICG
• - similar to NMIP, but also includes previous
  owner CICG 10
• - exceptions CICG 11 no. 3
• d) between co-assured
• NMIP
• - no identification, unless overall
  decision-making authority NMIP 3-37
• CICG
• - not covered in CICG 10 and 11, however
  ICA 7-3

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5. Duties imposed on the parties a) Rules of
disclosurei. Duty of disclosure

• When contract is being concluded
• 2. Information about risk
• a) active duty NMIP 3-1
• b) passive duty CICG 12
• Not information about new circumstances, however
  notification duty if aware of incorrect or
  incomplete information
• Sanctions depends on blame (fraudulent,
  blameworthy and innocent conduct)

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5. Duties imposed on the parties a) Rules of
disclosureii. Alteration of risk

• Change in circumstances which alters risk after
  insurance effected
• NMIP 3-8 to 3-21, ICA 4-5 and 4-6
• General rules NMIP 3-8 to 3-11
• Specific rules
• a) loss of class or change of classification
  society NMIP 3-14
• b) excluded trading area NMIP 3-15
• c) illegal purpose NMIP 3-16

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5. Duties imposed on the partiesb) Central
duties of carei. Avoid causing damage

• Covered in NMIP 3-32 to 3-35 and ICA 4-9
• Compensation depends on assureds level of fault
• a) intentional conduct (eg scuttling) no
  compensation NMIP 3-32 and ICA 4-9
• b) grossly negligent conduct reduced
  compensation NMIP 3-33 and ICA 4-9
• c) ordinary negligent conduct full compensation
  NMIP (by implication) and ICA 4-9
• - unless breach of safety regulation

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5. Duties imposed on the partiesb) Central
duties of careii. Uphold safety regulations

• A rule concerning measures for the prevention of
  loss
• Which safety regulations?
• a) NMIP 3-22 to 3-27
• - issued by public authority,
• - stipulated in insurance contract,
• - prescribed by the insurer, or
• - issued by the classification society
  (including periodic surveys)
• b) CICG 21 - 24
• - domestic trade safety regulations in 22 -
  24 and insurance certificate
• - international trade also those issued by
  public authority
• c) PI Insurance
• - often stipulated specific safety regulations

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5. Duties imposed on the partiesb) Central
duties of careii. Uphold safety regulations
(cont.)

• 3. Consequence upon breach
• NMIP 3-25
• a) insurer is not liable
• b) unless
• - no causation, or
• - no culpable conduct
• CICG 21
• International trade NMIP
• (Domestic trade ICA 4-8 special rules)

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5. Duties imposed on the partiesb) Central
duties of careiii. Notify of and avert/minimise
loss

• Loss is imminent or has occured
• Duties
• a) inform the insurer NMIP 3-29 and CICG 25
• b) reasonable measures to avert or minimise loss
  NMIP 3-30 and CICG 25
• Breach
• a) Intention or gross negligence compensate
  damage which would have happened regardless NMIP
  3-31 and CICG 26
• b) Domestic transport discretionary evaluation
  ICA 4-10

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Further reference

• The international maritime committee Comite
  Maritime International (CMI)
• www.comitemaritime.org
• The Australian Law Reform Commissions report on
  marine insurance
• ALRC 91 Review of the Marine Insurance Act 1909
  (Cth) (2001)
• Available at http//www.alrc.gov.au/inquiries/titl
  e/alrc91/index.htm
• Marine insurance in an international context,
  see
• Wilhelmsen Duty of Disclosure, Duty of Good
  Faith, Alteration of Risk and Warranties An
  analysis of the Replies to the CMI Questionnaire
  CMI Yearbook 2000 at 332
• Available at http//www.comitemaritime.org/singapo
  re/marinsurance/wilhemsen.pdf