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Why?
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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 )
Insurable Interest (contd)
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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)
Insurable Interest (contd)
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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
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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
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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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Question??