The Marine Insurance - Research Paper Example

Marine Insurance Executive Summary Marine insurance, dating back to the 19th Century is the oldest insurance form introduced by the Lloyd’s of London who would hire individuals to underwrite their voyages and make necessary compensations in the event of losses during maritime adventures. Today, marine insurance is critical in insuring the interest of parties to the cargo, hull, the marine adventure or third party liability. The insurer would then compensate the insured according to the indemnity contract in the event of a loss as a result of the insured risk. This paper introduces marine insurance and points out at the provisions for holding an insurable interest according to the UK Marine Insurance Act 1906. Those with insurable interest in marine insurance includes everyone who would suffer loss in the event of the insured risk occurring. Such include the owner of the consignment under shipping, the seller of the goods, the mortgager and mortgagee among others. The paper will discuss when insurable interest exists according to the Marine Insurance Act 1906 and outline hull and cargo interests which define the types of marine insurance. Table of Content Basics of marine insurance 3 Insurable interest 3 Proof of insurable interest 5 Hull interest 5 Cargo interest 6 Conclusion 7 Works cited 8 Basics of marine insurance Noussia (1) and Giaschi (1) note that at around 215 B.C., the Lloyds of London developed measures to ensure that they are protected against losses incurred during their trades as they ship cargo to West Indies. Merchants would come together and have each of them bear part of the maritime risk such that they would share any losses occurring during such adventures. With time, the strategy shifted to using individuals who did not have any interest in these adventures where they would pay premiums to them and transfer maritime risks to them. In the modern world, commercial insurers bear the cost of compensation by accepting premiums depending on the magnitude of the risk involved. According to the National Archives, marine insurance refers to the insurer undertaking to indemnify the assured against losses occurring during a marine adventure as per their agreement, in manner and extent. This could be extended through its express terms to cover against losses on land or inland waters as a consequence of sea voyage. Insurable interest According to the UK Marine Insurance Act 1906, referred to as the mother of all statues on marine insurance by Birds (5), everyone interested in a maritime adventure has insurable interest. Such persons could have a legal relation to the adventure or could have property therein that could be insured, of which, its safety or due arrival would be of direct benefit. Loss, damage or detention of such property could cause the insured prejudice or cause the insured to incur liability. The people whose interests should be protected include the ship owner, the cargo owner, any creditor who uses the ship or cargo as security, mortgagee and mortgagor, master and crew interested in their wages and those who could incur third party liability. Unlike in other types of insurance, insurable interest in marine insurance must exist at the time of occurrence of loss and need not to be existent at the time of taking the policy according to the National Archives. A defeasible or contingent interest would also be insured even when the buyer of the goods chooses to reject the goods due to delays (Birds 13). The insurer too has interest in the undertaken risk and may choose to re-insure such a risk, over which the assured has no interest or right. The creditor on bottomry or respondentia would acquire insurable interest on the loan advanced. The master or crew members of a ship acquire insurable interest on the payment of their wages. For as long as freight is not repayable when a loss occurs, the person who advances freight would have insurable interest in the freight. The mortgagor would have insurable interest in the value of the mortgage while the mortgagee would have insurable interest on any amount due on the mortgage. The Marine Act 1906 prohibits the assured from transferring own rights under the insurance contract on part or whole assignment of the interest in the subject matter unless with an implied or express agreement with the assignee. Interest transmitted by operation of law would however not be affected according to the National Archives. There are provisions as to how these insurable interests could be valued. The insurable value would be the amount that the assured risks losing when the policy attaches together with insurance charges. For the insurance on the ship, the value would be its value when the risk commences including the value of its outfits, stores and provisions for crew and officers, money advanced to seamen and any other disbursements undertaken for the fitness of the ship during the voyage. This would also include the insurance charges applied. For a steamship, the value would include that of the machinery, engine stores, coal and boilers owned by the assured and any other ordinary fittings required for a special trade. When insuring the freight, the value insured would encompass the freight’s gross amount the assured risks plus insurance charges. Merchandise insurance would have its insurable value being the cost of the insured property, shipping expenses and the accompanying insurance charges. Proof of insurable interest Proof of possession of insurable interest automatically qualifies one to take the appropriate insurance cover. One proves to have insurable interest in a maritime adventure if with the occurrence of the insured risk, the person stands to make quantifiable loss. The Marine Insurance Act 1906 bars the assured from acquiring interest by election or any act after the knowledge of the occurrence of the loss when the assured had no interest at the time the loss occurred. Hull interest A hull refers to the body of ship which reduces wave resistance (Rao et al. 12). Hull interest encompasses the interest on the hull or any machinery such as refrigerating machinery. This interest would be covered when the vessel operates between ports, on anchorage or at the docks on construction. Other than the owner’s interest on the hull, the cover could extend to cover the owner’s liability, the freight and the repairers. Various parties to a maritime adventures posses varied insurable interests. If the ownership of the ship is shared, even the part owner has insurable interest in the ship. However, a shareholder would have no insurable interest in a ship owned by a company (Nieh & Jiang 17). Examples of hull interest include, first, that of the mortgagee and secondly, that from charterer. The mortgagee has insurable interest in the ship up to the extent of the loan plus the accompanying charges. Charterers pay the required money prior to hiring a vessel and would therefore have insurable interest to the extent of the amount paid for the charterer freight. The charterer’s interest could also include the hiring of the vessel under time or voyage charterparty. Examples of claims herein include total ship loss, explosions and fires and groundings. Cargo interest Marine cargo insurance covers damage or loss of cargo while in transit by air, sea, road or rail (Rao et al. 13). It would therefore cover import and export shipments via the ocean, shipment by inland vessels, posted articles and consignments sent by road, air or rail. Cargo refers to anything loaded onto the vessel for transportation other than the passengers. Owners of such cargo transported by sea would cover their exposure to financial loss up to a declared value (Naess 6). Just as there are many parties holding hull interest, there would also be many others with cargo interests. The owner interest and seller interest are examples of cargo interest. The owner of goods would have interest in them for as long as ownership of the goods exists. This would apply even when the goods are on loan and the extent would be the sum paid for the goods. For non-refundable freight paid in advance, the owner of cargo would have insurable interest in the freight. The insurance premium paid for such goods become a loss in the event of loss of such goods hence the owner of the cargo would have interest in the premium. On the second example, the seller of the goods stands to lose profits in the event of a loss hence has insurable interest in the anticipated profits. The person who sold the cargo has insurable interest in the goods until when title shifts to the buyer causing a termination of the seller’s interest. Delayed delivery could cause the buyer to revert back to the seller hence giving the seller consignment interest. Conclusion Marine insurance, the oldest form of insurance was introduced by the Lloyd’s of London in 215 B.C. and has revolutionized maritime adventures with commercial insurers in the modern world insuring parties with insurable interest against risks associated with maritime adventures. The owner of goods, the owner of the hull, the mortgagor, the seller and the crew all have insurable interests on marine adventures and will exist only on the occurrence of a risk, defining the uniqueness of marine insurance. While hull interest encompasses interest on the vessel, cargo interest is concerned with the goods under shipping. Being a contract of indemnity, the assured under marine insurance contract would be compensated as per the insurance agreement. The Marine Act 1906 codifies the law pertaining to marine insurance, including that on insurable interest. Works Cited Birds, J. Insurance Law in the United Kingdom, USA: Aspen Publishers Inc., 2011. Giaschi, C. J. Marine Insurance. Web. 18 April 2012 Naess, T. An Introduction to P&I Insurance for Mariners, 3rd ed., New York, NY: Skuld, 2009. National Archives. Marine Insurance Act 1906. 2012. Web. 18 April 2012 Nieh, C. & Jiang, S. “Against Marine Risk: Margins Determination of Ocean Marine Insurance.” Journal of Marine Science and Technology 14.1 (2006): 15 – 24. Noussia, K. P. “Insurable Interest in Marine Insurance Contracts: Modern Commercial Needs Versus Tradition.” Journal of Maritime Law and Commerce 39.1(2008). Rao, C. S., et al. “Coverage Against Maritime Disasters.” Insurance Regulatory and Development Authority Journal VI.4 (2008). Read More