Hans Jacob Bull Scandinavian Institute of Maritime Law

Marine insurance law

Hans Jacob BullScandinavian Institute of

Maritime Law

Spring 07 Marine insurance 2

Overviewo The main types of marine insuranceo The legal sourceso The insurance contracto Insurable interest, insurable value

and the sum insuredo Scope of cover

o


1. The main types of marine insurance

o Insurance related to shipso Insurance of goods under transporto Some other distinctions


1.1 Insurance related to ships

o Insurances related to the ship itselfo Damage to/loss of propertyo Element of liabilityo Element of loss of incomeo Divided into two:

o Hull insuranceo Hull interest insurance


1.1 Insurance related to ships cont.

o Insurances related to loss of incomeo Covering income derived from property: o Loss of hire, freight interest, strike

o Insurances related to shipowner’s liabilityo Covering ship-owners third party liabilityo Main liability insurance: P&I insuranceo Overlaps with hull/hull interest insurance

covering part of the collision liability


1.2 Insurance of cargo under transport

o Covers cargo under transport from A to B (seller to buyer)

o Casualty (damage and loss) insuranceo Includes owner’s profit o But not

o loss of income in generalo owner’s liability


1.3 Some other distinctions of relevance.

o Marine/civil risks vs war riskso Marine/civil insurance covers all risks

that are not excludedo Special exclusion for war riskso War insurance covers war and similar

perils as definedo Distinction used in all marine insurance


1.3 Some other distinctions of relevance.

o Primary insurance – coverage for costs of saving actso Primary insurance: coverage of casualties

o Caused by perils insured o According to the principles of indemnity in the

contract.o Saving acts: covers

o expenses incurred to avert/minimize losseso according to ordinary tort principles


2. The legal sources in marine insurance

o The international legal pictureo The Norwegian legal picture


2.1 The international legal picture

o No international conventiono The English marine insurance marketo The Scandinavian marine insurance

market


2.1.1 No international convention

o Contrary to many other areas of maritime law

o Has been attempts of harmonization in UNCTAD

o A new attempt recently by CMI and NIFS

o The situation today


2.1.2 The English insurance market

o The English MIA = the legislative framework in most common law countries

o English ITCH clauses used in o even more common law countries o and in some civil law countries


2.1.3 The Scandinavian market

o Each country has their own set of conditions

o During the last century much inspired by the Norwegian Marine Insurance Plan

o Many similar solutions, but different structure and legal framework

o A Scandinavian Marine Insurance Plan?


2.2 The Norwegian legal picture

o FAL (ICA) 1989o The Norwegian Marine Insurance Plano The Norwegian Cargo Clauses o The P&I Conditions


2.2.1 FAL (ICA) 1989o Starting point: Mandatory, § 1-3o But exception for

o insurance of ships that should be registered, §1-3 (c)

o Insurance of international transport of cargo, § 1-3 (e)

o However: Cargo insurance follows ICA with certain exceptions


2.2.2 Norwegian marine insurance Plan 1996 (NMIP)

o Standard contract (Agreed document)

o Developed over 125 yearso Most of the interested parties have

participated in the constructiono This approach contrary to

ITCH/other conditions


2.2.2 Norwegian marine insurance Plan 1996 (NMIP)

o Covers most of the insurances for the shipowner

o But: not P&I insuranceo Extensive preparatory documents

(Commentary)o Little relationship with the ICA


2.2.3 Norwegian Cargo Clauses (CICG)

o Conditions relating to insurance for the carriage of goods

o Many of the same characteristics as NMIP

o Buto Less extensive commentarieso A stronger connection to the ICA


2.2.4 The P&I Conditionso Previously: Part of the NMIPo Today: Skuld and Gard (Norway),

Swedish club (Sweden)o Part of international network o Cover: Protection and Indemnity +

other types of cover


3. The insurance contract

o The parties to the insurance contracto The formation of a marine insurance

contracto Jurisdiction and choice of law


3.1. The parties to the insurance contract

o Definitions, NMIP § 1-1o The insurer/company o Co-insurance /claims leader (NMIP ch 9)o Reinsuranceo The assuredo The person effecting the insuranceo Insurance of third party interest


The parties to the contract

Insurer

Person effectingthe insurance The assured

Insurance contract Right to compensation


Insurance of third party interest, NMIP

Insurer

Person effectingInsurance Assured

Insurancecontract

Right to compensation

Co-insured, Ch. 7 and 8


Co-insurance→ Partial insurance with more than one insurer

Ship600 mill NOK

Insurer A200 mill NOK

Insurer B200 mill NOK

Insurer C200 mill NOK

1/3

1/3

1/3


Reinsurance→ The insurer reinsures the risk undertaken under the

direct insurance contract.

Ship:600 mill NOK

Insurer:600 mill NOK

Reinsurer:500 mill NOK

Direct insurance: 100 %

Reinsurance: 500 mill NOK


3.2 Concluding the Contract

o Starting point: Ordinary contract lawo The use of broker: NMIP § 1-3o “Housekeeping rule”o No sanctionso The purposeo Relationship to the “slip”o Documents

o NMIP: Written proof of insurance = policy, see § 1-2


3.3. Jurisdiction and choice of law

o NMIP § 1-4o Main rule:

o Norwegian jurisdictiono Norwegian background law

o But: NMIP § 1-4.3: foreign claims leader


4. Insurable interest, insurable value and the sum

insured

o Insurance unrelated to any interesto Insurable value and sum insuredo Underinsurance and overinsuranceo Double insurance o Calculating the insurable valueo The sum insured as limit to the insurer’s

liability


4.1 Insurance unrelated to any interest

o Insurance unrelated to any interest is void, NMIP § 2-1, Criminal Enactments Act § 12 (wager insurance)

o The relationship with provisions concerning legal interest:o NL 5-1-2o NMIP § 3-16 concerning illegal activities


4.2 Insurable value and sum insured

o Insurable value, NMIP §2-2, = o Value of the insured interest o At the commencement of the insuranceo Maximum for liability o Not possible in P&I insurance

o Sum insured = the sum for which the assured has chosen to insure his interest


4.2 Under insurance o Under-insurance = insurable value

exceeds sum insuredo Regulated in NMIP § 2-4, CICG § 30o Not possible in P&I insuranceo Pro rata reduction in coverage o Not common in hull insurance except

for co-insurance


Under insurance

Insurablevalue:1000

Sum insured:

500

Potentialloss

Compensation

500/1000 = 50 %of each damage


4.2 Overinsurance

o Over-insurance = sum insured exceeds insurable value

o Regulated in NMIP § 2-5o Liability limited to the insurable valueo No liability in case of fraudo Not good business


Over insurance:

Sum insured:

1000

Insurablevalue:

660

Basis for premium

Max. compensation


4.2 Double insuranceo Double insurance = same interest

insured against same peril under two or more contracts

o NMIP § 2-6o Main rule: joint liabilityo Exclusion: Subsidiarity, NMIP § 2-

6.2


4.3. Calculating the insurable value

o ”Open” insurable value, NMIP § 2-2 = full market value when the insurance commences

o Assessed insurable value, NMIP § 2-3 = as agreed between the parties


4.4 The sum insured as limit to the insurer’s

liabilityo NMIP § 4-18: Three times the sum

insured:o The ”ordinary” sum insured o + The ”collision liability” sumo + The ”costs of measures to avert or

minimize a loss” sum o


5. Scope of cover o Terminologyo Perils insured against in marine

insuranceo Causation


Losses covered

Damage

Total loss

Collision liability

Loss of time

Etc

Perils insured

Heavy weather

Theft

Leakage

Fire

Etc

Causation

Terminology

Thecasualty

Causation


5.2. Perils insured against

o The main distinction in national and international marine insurance: Marine insurance and war risk insurance

o NMIP § 2-8 and § 2-9



o Marine risks o The all risks principle, NMIP § 2-8 o Exceptions:

o War perils, § 2-8 letter a)o Intervention by state power, NMIP § 2-8 b)o RACE II, NMIP § 2-8 d) o Insolvency, NMIP § 2-8 c)



o War insuranceo Named perils principle, NMIP § 2-9 o Exceptions:

o RACE II, NMIP § 2-9.2 b)o Insolvency, NMIP § 2-9.2 a)

o The relationship between the two branches


5.3 Causationo The problemo General insurance lawo NMIP: The main ruleo Combination of war and marine perilso Combination of perils over different

insurance periods


5.3.1 The problemo Presumption:

o Two causes are necessary to result in a loss, o None of them are sufficient.

o Combination of perils in different situationso Covered and uncovered perilso Perils covered under different brancheso Perils occurring in different insurance periods


Combination of covered and uncovered causes

Marineinsurance

Bad weather

Breach ofSafety rule

GroundingCombination

of causes


Combination of causes covered under separate insurances

Marineinsurance

Failureof navigation

Darkening oflighthouse

GroundingCombination

of causes

Warinsurance


Causes in different periods

Casualty

Fracture

2004 2005

Badweather


5.3.2 General insurancelaw

o The main rule: The dominant causerule

o Legal basis: ND 1916.76 jfr. 1916.209 NSC Skotfos

o The contento Anglo-American solution: Causa

proxima


Rt 1916.209 Skotfos

Marineinsurance

Failure ofnavigation

Darkening oflighthouse

Warinsurance

The shipruns agroundCombination

of causes

Liability

”Dominant cause”= the most important

Not relevant cause


5.4.3 NMIP The main rule

o NMIP §2-13o Apportionment principle, not the

dominant cause ruleo Special Norwegian principleo Only applied in marine insuranceo Combination of covered and

uncovered perils


NMIP § 2-13/CICG § 20:

Covered risk

UncoveredRisk

70 %

30 %

Non-coverage 30 %

Coverage 70 %

Casualty


5.4.4 Combination of war and marine perils

o NMIP § 2-14o Reinstates the dominant cause rule

as a main ruleo If neither cause is dominant, equal

division


5.4.5 Combination of perils in different periods

o NMIP § 2-11o Starting point: When the peril

strikeso Exception for unknown defect or

damage


The insurer is liable for loss occurred when the interest insured is struck by an insured peril during the insurance period.A defect or damage which is unknown at the inception or on expiry of an insurance, shall be deemed to be a marine peril which strikes the ship at the time the casualty or damage to other parts occurs, or at such earlier time as the defect or the first damage became known.

NMIP § 2-11


Incidence of loss, NMIP § 2-11, 1:

31.12.2005Renewal

2005 - policy

TimeCasualty

Peril strikes

No liability for the 2006 insurer


Incidence of loss, NMIP § 2-11, 2:

Develop-ment

Fracture

20042006

2004 - policy 2006 - Policy

Viz:-Primary damage attributed to the point in time when the peril struck-Consequential damage covered when development occurs

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