CHAPTER 13 – OCEAN MARINE INSURANCE

3. Free Alongside (F.A.S.) ‑ these agreements requires the Seller to deposit the goods alongside a named vessel or on a designated dock. The Seller will be responsible for the property until it is delivered. At delivery, the Buyer's risk begins. 

4.  Cost and Freight Named Point of Designation (C.A.F.) ‑ With these agreements, the Seller includes in the price the cost of transportation to the designated point, but not the cost of insurance, which is arranged by the Buyer. The Seller is responsible for the goods only until they are delivered to the ocean carrier.

 

5.  Cost, Insurance and Freight ‑ with this agreement the selling price includes the cost of the book, the shipping charges and the cost of the Marine Insurance. Since the seller provides and pays for the Marine Insurance, the goods are at the sellers risk until delivered to the carrier. The seller must also purchase War Risk Insurance but this insurance is paid for by the Buyer.

 

QUESTION OF GENERAL AVERAGE

 

When a ship is in danger, the Captain must make difficult choices in order to save the ship. Often it will become necessary to throw overboard some of the cargo or deliberately damage the ship's machinery or equipment. When these losses occur, we are discussing General Average.

 

General Average basically means the voluntary sacrifice of the goods of some of the owners benefits whose cargo is on the ship and the shipowner whose vessel may be saved by taking these drastic steps. If the Captain tries to save the ship by putting increased strain on the engines or cuts away masts, then a General Average situation exists. Also, huge expenses created to safeguard the ship (such as towing, salvage, and special port dockage) would be considered General Average.

 

Keep in mind that laws vary according to countries and sometimes states but there are 4 Basic Agreements when it comes to General Average:

 

1.  None of any persons interested in the venture can have contributed to the loss.

 

2.  There must be peril to all the interests involved which would include cargo, hull and freight.

 

3. Sacrifice must be voluntary and all special expenses incurred must be reasonable.

 

4.  The efforts must result in the preservation of part of the venture. If the sacrifice proves to be useless and the entire project is lost, there is no General Average.

 

Every country has laws that will apportion and share among all those who benefited by the sacrifice (thus, averaging out).

 

Keep in mind that no special agreement is necessary to make a party liable for General Average Losses. The idea of General Average has been deeply rooted in the Marine Law of every country and contribution in General Average is required whether one party is insured or not.

 

 

Under the Basic Form of Contract agreed to by a shipowner, the shipowner is not entitled to receive freight charges unless the voyage is completed according to plan.

 

MARINE INSURANCE

 

The Marine Policy, which is used to insure cargo owners and ship-owners, is essentially the same. The Cargo Policy will be discussed first.

 

STANDARD MARINE POLICIES

 

It is important to remember that there is no regulation of marine rates or insurance forms. Each underwriter will negotiate the contract they feel suitable for that particular situation. Since Marine Insurance has been present in the marketplace for centuries, there can, at times, be some confusion over terminology in the language used. The positive aspect of such a situation is that just about every phase has been subject to many court interpretations thus making the application of the policy quite understandable in this day and age.

 

The Marine Cargo Policy ‑ What Is Covered? ‑ These policies may be written to cover any type of movement of legal goods. The property to be insured is simply written as to cover AGoods and Merchandise@. Exceptions to the AGoods and Merchandise@ definition would be the following:

» poultry

» game

» refrigerated meats

» frozen foods

» livestock

» bouillon

» any other property the underwriter decides to exclude from coverage

The Marine Policy may also be written to cover import duties and freight charges. Freight may also be insured by the shipowner who could lose all profit if the voyage is not completed for some reason.

 

The Marine Policy, whether it covers a cargo or a vessel, will also include General Average charges for which the insured is liable.

 

Sue and Labor Coverage ‑ As discussed previously, the insured is obligated to take all possible means to preserve the property from any further loss and to seek its recovery. The policy will reimburse the insured for any expenses incurred in the fulfillment of such duties.

 

Sue and Labor expenses often reach huge figures. As one can imagine a wide variety of expenses could be needed to help save the ship and its cargo. Also, expenses may rise if the preservation of property requires that the vessel is forced to put in at a port of refuge and the Captain forced to purchase extra supplies for livestock on board, etc. This expense would be covered under the Sue and Labor Clause.

 

Recall that the Captain of the vessel acts as the agent of the cargo owner and has the authority to take all reasonable means and also incur any necessary expense to protect the property while in transit. All Sue and Labor expenses are payable under the policy when they are incurred to protect and preserve the property from an insured peril. All Sue and Labor charges are payable in addition to any amount used under the policy for a total loss.

 

Hazards That Are Covered ‑ Generally policies will cover 9 perils.

 

1.   Perils of the Sea ‑ typical perils of the sea would be sinking, stranding, collision with other vessels, heavy weather, damage by seawater, etc. Of course, perils of the sea must be caused  by the uncontrollable action of the sea and not caused by any negligence of the Captain or crew.

 

2.   Fire ‑ the policy will cover this risk if there is not inherent vice of the goods. Certain cargo such as coal should not be loaded in a damp condition, which would cause it to be combustible.

 

3.   Jettison ‑ throwing cargo overboard is covered when done to protect property from any further loss. Obviously, if goods have spoiled and are dumped into the ocean, there would be no coverage.

 

4.   Assailing Thieves ‑ petty thievery will not be covered under the policy, while theft that is accompanied by violence would be.

 

5.   Explosion ‑ most policies will cover the risk of explosion whether it is on land or sea.

 

6.   Barratry of the Master ‑ Barratry, which means violation of trust, of the Captain would be covered.

 

7. Latent Defects In Machinery/Hull, Appurtenances ‑ Marine Policies will cover damage caused by bursting of boilers, breakage of shafts or thru any latent defect in the machinery, hull or equipment. Also, if faults and errors in navigation or management of the vessel are made, coverage is also provided.

8. All Other Perils ‑ the policy uses the following clause AAll Other Perils@ which shall come to the hurt, detriment or damage of the goods. It appears that the policy would cover against All‑Risks but this is not the case. The above clause only means perils that are insured against.

 

9.     Optional Hazards That Could Be Added ‑ As we have seen before, there are a number of perils that are excluded, but in reality these perils may be covered thru proper endorsements, there are 4 Basic Exclusions in the Marine Policy:

 

»  dampness and breakage

 

»  delay ‑ loss of market

 

»  Acts of War, confiscation, detainment, revolution

 

»  strikes, riots, civil commotion

 

Coverage Areas ‑ Marine Policies are usually written on a AWarehouse to Warehouse@ Basis. This means that property is covered from the moment it leaves the shipper's property until delivered at the warehouse of the named consignee. Thus, after the goods leave the ship, the coverage on land is limited to 15 days or, if the destination is outside the port, limits it to 30 days.

 

Coverage only applies to the goods while they are in due course of transit. This means that the progress of the goods must be continuous and move in the ordinary course of transit. At times, it is necessary for the shipper to stop the continuous movement in order to relabel, repack or allow buyers or banks to examine. In these cases, the policy may be extended to cover these interruptions.

 

Extension Clauses ‑ the effect of such clauses is to widen the coverage to include delay, reshipment or forced discharge. In reality, these clauses eliminate the continuous movement required, and the 15 or 30 day limit after goods are discharged.

 

On Deck Shipments ‑ this clause means that coverage pertains to Ashipments under deck@ and not for shipments that are carried on the deck of a vessel. Of course, if notice is given to the underwriter these goods could be covered.

 

The vessel transporting the goods must be iron or steel steamers and not sailing vessels.

 

Seaworthiness of the Vessel ‑ is an implied warranty in the policy. This simply means that it is understood that the ship be suitably constructed and properly equipped. Also it must be manned, fueled and properly prepared for the type of voyage it is about to embark on.

 

 

No Deviation Clause ‑ this means that once the risk has begun, there will be no substitution in the voyage or deviation from the agreed upon course. The only deviation considered would be the necessity of changing course due to unusual weather or by circumstances over which the Captain or Shipowner has no control. An acceptable change would be the effort to save human lives or to obtain medical or surgical help for persons on board. Any other change will void the policy.

 

Another important consideration is that since shippers are not in a position to exercise any control over the navigation of the vessel on which goods were placed, then the insurance will not be voided by any deviation since the insured had no knowledge of such changes.

 

Prompt Attachment Implied Warranty ‑ without permission of the company to extend the stated period, it is assumed that the voyage will start within a reasonable time. If this does not occur, then the policy will be voided.

 

COVERAGE AMOUNT

 

Marine Insurance is written on a valued basis. Both the insured and the company will agree on the value of the shipment. This agreement will bond both parties and neither party can contest the value unless it can be proven fraud was involved.

 

Probably the most popular valuation clause is where the policy will agree to value the goods Aat invoice cost plus 10% plus freight@. At times, goods may be subjected to fluctuations in price and the policy may agree to value the goods at the highest market value that was attained during any point of the voyage.

 

Coinsurance ‑ the settlement of losses in the Marine Policy is always based on the agreed valuation of the goods. If partial loss occurs, then the insured's recovery will be measured by the extent of damage to the goods.

 

Particular Average ‑ obviously the definition of average means Aloss that is less than total@. Particular average refers to any loss, which affects only a particular interest, unlike General Average, which affects all interested parties in the voyage, particularly average hones in on specific interests.

 

AVERAGE CLAUSES

 

Marine Policies contain some types of Aaverage@ clauses which will limit recovery on partial losses. Some of the average clauses are:

 

»  Memorandum Clause

 

»  With Average (W.A.)

 

»  Free of Particular Average (F.P.A.) English conditions

 

»  Free of Particular Average (F.P.A.) American conditions

 

»  Abandonment

 

»  Machinery or Manufactured Goods

 

»  Other Insurance