C42 PRINCIPLES AND PRACTICE OF MARINE

INSURANCE
SUMMARY NOTES
2001

STUDY 1

Functions of Marine Insurance:

1 Spread of Risk: Share the losses of a few among the many. Indemnity: If a loss
occurs, the Insured will be put back into the same financial position as just prior to the
loss. The Insured must not profit from the loss. Most policies are on an actual cash
value (ACV) basis (the value of an equivalent piece of property of the same age and
condition and subject to the same wear and tear as the property that was lost or
destroyed).
2 Aid to Security: Removes uncertainty of a potential financial loss; individuals &
businesses are more free to expand without need to set aside reserves for future
losses.
3 Aid to Credit: Loans are not advanced unless item financed is insured; insurance
protects creditors’ investments.
4 Source of Employment.
5 Source of Capital: Shareholders’ capital and premiums generated by Insureds are
invested in the Canadian economy. Marine Insurance is a necessity to International
Trade financing; 1/3 of Canada’s gross national product is exported.
6 Loss Prevention: The industry contributes to the prevention of losses (mostly
through research, education, and improved regulations).

Documents of Title to Goods in Transit:

1 Bill of Exchange: Draft or order drawn up by seller on the buyer, requiring buyer to
pay the sum stated either on sight (immediately on presentation) or within agreed
number of days after presentation of the draft and necessary documents.
2 Bill of Lading: Evidence of contract of affreightment (carriage) between owner of
goods and carrier and receipt given by carrier to owner.
3 Export Invoice: Document showing quantity, quality, type and value of the goods.
4 Policy of Marine Insurance: Protects goods in transit from loss or damage.

Lloyd’s Insurance Market:

HISTORY OF LLOYD’S
Process of Insuring a Risk at Lloyd’s:

Lloyd’s Brokers: Act in interest of customer, paid commission by Insurer. Brokers

approach underwriters and describe the risks and insurance requirements, and try to
obtain the best possible price. The broker must be able to find coverage of the whole
risk by signing up syndicates at the original agreed price. Brokers also advise clients
on loss prevention. Syndicates of Members of Lloyd’s: range in size, each syndicate
represented by an underwriter.
Unlimited Liability: Every individual member of Lloyd’s has proved wealth and
trades individually with unlimited liability.

Original Slip: Drawn up by the broker; contains details of the risk, insurable interests
of the applicant. This is the basis of the contract and is initialed (or stamped) by
Insurer. The Slip is evidence that the underwriter has accepted insurance and that he
has agreed to sign a policy based on the terms & conditions of the Slip.

The Lead: This is the first underwriter to initial the slip, where more than 1
underwriter used; other underwriters initial the slip, ‘following the lead', until 100%
of the risk is covered.

Lloyd’s Underwriters Association: Association of underwriters who meet for

consultation on matters affecting the interest of underwriters of Lloyd’s.

Intelligence System of Lloyd’s: Various publications issued by Lloyd’s which are

indispensable to any marine underwriter:
1 Lloyd’s Register of Shipping: Annual publication with monthly updates; contains
details of virtually all vessels afloat (name, number, flag, nationality, registered
owners, managers, tonnage, type of vessel/engine/auxiliary machinery).
2 Confidential Index: Published twice a year; contains record of ownership of all
vessels worldwide.
3 Confidential Ports Record: Lists information on all world ports of significant size
(name, country, Lloyd’s agent, approaches to ports, methods of loading/unloading,
craft risk, theft & pilferage risk, climate, customs details, fire risk, port congestion,
salvage & repair facilities).
4 Daily Shipping Index: Lists information on almost all vessels engaged in ocean
trade (name, flag, current voyage, date last sailing, date last report, recent casualty,
Lloyd’s casualty reports).
5 Casualty Report Service (Weekly Casualty Reports): Lloyd’s sends subscribers
casualty slips with information of all occurrences which are likely to affect
underwriting decisions.
6 Lloyd’s Survey Handbook: Contains information on treatment or survey of damaged
goods and the susceptibility of certain commodities to loss/damage.

Institute of London Underwriters (ILU):

HISTORY OF ILU

International Union of Marine Insurance: Formed in 1874 to provide union between

marine markets in Europe. Now over 30 countries are represented. Purposes of union
are to advance marine insurance and protect those involved in the business.

Canadian Board of Marine Underwriters (American Institute of Marine Underwriters,

Association of Marine Underwriters of British Columbia): Organization with
voluntary membership; purposes are to promote marine insurance, protect interests of
members, advise on technical matters.

American Hull Insurance Syndicate: Formed in 1920 to insure US ships, based in

New York; mutual association that sets rates and accepts business up to $40 million
per vessel, now throughout North America.
STUDY 2

Insurance Accounts:
1 Three-Year Method (Run-Off or Throw-Back Record) used in British marine
insurance market and in other areas by some companies. Each year’s marine account
remains open for 3 years. In the accounting record, a loss is placed against the year of
the premium which paid for it. This allows for extensive and ongoing claims to be
settled better.
2 One-Year Method (Earned Premiums, Incurred Losses): Used in other markets; a
percentage of the annual premium is reserved to cover outstanding losses.
Payment of Premiums: If insurance is effected through a broker, the broker is
responsible to the underwriters for the payment of premium. Insured can sue broker if
broker fails to pass on premium to Insurer. Lloyd’s policies acknowledge receipt of
premium, other companies’ policies do not, and instead provide for cancellation in the
event of non-payment of premium.
3 Broker’s Lien: For the protection of the broker (broker still liable to underwriter
even though he may be unable to collect premium from Insured), broker may retain
the policy until Insured pays the premium and other outstanding accounts. As long as
the Broker’s Lien is in place, no claims may be collected on the policy and the policy
cannot be used as security.
4 Deductions: Rate of brokerage (commission) for marine insurance in Canada is 10-
15% ocean cargo, 15% commercial hull, 20% yachts.

Cover Note: After insurance placed, the broker (or underwriter if no broker used)
sends his client a Cover Note to inform him of the insurance policy’s existence and its
terms and conditions. The Cover Note does not take the place of a policy, but is of
use to the Insured to sue the broker if he fails to carry out instructions.

Closing the Insurance:

1 Britain:
i Lloyd’s Policies: Prepared by broker; policy and Bureau slip lodged, checked, and
executed with Lloyd’s Policy Signing Office; policy impressed with seal of Policy
Office and collected by broker. Each syndicate’s line proportion insured is shown;
each subscription is a separate contract.
ii Companies’ Policies: Combined policy form used (since 1939) for all subscribing
companies; prepared by broker; policy passed to Institute of London Underwriters for
checking & signing.
2 Canada: Subscription Policies (Joint Policies) used for large risks so that many
companies can participate. Each underwriter accepts a proportion of the risk and each
signs the policy.
3 USA: Like Canada, but signing of Subscription Policy by American Hull Insurance
Syndicate.

Marine Adventure: For perils covered by marine contract--includes perils of the sea
and is extended to include land risks incidental to the sea voyage and losses on inland
waterways. The adventure must be lawful; there must be a ship, goods or other
movables exposed to marine perils, or where the earning of freight/commission/profit
endangered by marine perils. Marine Adventure also occurs where liability to a third
party may be incurred by some person with interest or responsibility for the ship or
goods.

4 Basic Principles of Marine Insurance:

1. Insurable Interest: The Insured must have financial interest in the object of
insurance. A person has insurable interest in property when he will be financially
prejudiced by its loss or damage and when he will financially benefit from its
continued existence. Every person has an insurable interest who is interested in a
marine adventure. A person also has insurable interest in his potential responsibility
(legal liability) to pay damages to others for injuries he causes to them or damage he
does to their property. In order to recover for a loss, an Insured must have insurable
interest at the time of loss (not necessary to have insurable interest at the time of
effecting insurance). Without the rule of Insurable Interest, a person could insure a
vessel with the hope it would sink and collect the insurance (called Wagering or
Gaming). The Gambling Policies Act (1909) provides for the criminal punishment of
persons involved in illegal wagering in marine insurance. Policy Proof of Interest
(P.P.I.) or Honour policies are used and in the event of a claim the policy is taken as
sufficient proof of insurable interest. Insurers must be careful to establish the
probability of insurable interest before issuing P.P.I. policies. Kinds of Insurable
Interest:
i Defeasible Interest: Interest ceases after beginning of Marine Adventure for reasons
other than marine perils. If risk ceases, no return of premium.
ii Contingent Interest: Interest acquired during the Marine Adventure due to a
contingency.
iii Partial Interest: Interest in the property insured does not have to be 100%--a person
may insure up to the value of his share of the property.
iv Reinsurance: Interest is acquired in the property insured by the insurance company
and they may reinsure to protect their interest.
v Bottomry: Interest acquired by loan raised by captain of vessel on ship/cargo when
money urgently needed for prosecution of voyage, not repayable if venture lost.
vi Respondentia: Interest acquired by advance secured on cargo repayable only if
cargo saved, even if ship lost.
vii Master’s and Seamen’s Wages: Individuals have interest in their own wages.
viii Advance Freight: Freight is the remuneration payable to a shipowner for carriage
of goods or for the hire of his ship or cargo space. Unless freight is wholly or partly
pre-paid, it remains at the risk of the shipowner, who has insurable interest in it.
ix Insurance Premiums: The Insured has insurable interest for the premium he has
paid on the policy.
x Quantum of Interest: Insurable interest from insured property that is mortgaged;
only applies to property given as security for loan. Mortgagor (borrower) retains full
insurable interest as he must repay mortgagee (lender) in event of loss; mortgagee has
insurable interest to extent of the loan.

2. Indemnity: If a loss occurs, the Insured will be put back into the same financial
position as just prior to the loss. The Insured must not profit from the loss. Most
policies are on an actual cash value (ACV) basis (the value of an equivalent piece of
property of the same age and condition and subject to the same wear and tear as the
property that was lost or destroyed). Exceptions:
i Valued Contracts: Insures property for an amount which is agreed to by the Insurer
and the Insured at the time the contract is made; in the event of a total loss a definite
amount will be paid. Valued policies are used for insuring items that are difficult to
valuate after a loss. Also, Contracts of Compensation (Life Insurance).
ii Replacement Cost Contracts: The property damaged will be assessed on the basis of
the cost at the time of the loss, destruction or damage, of repairing or replacing
(whichever is less) with like kind and quality, without any deduction for
depreciation. Extra premium is charged for this type of insurance.

3. Utmost Good Faith (Uberrima Fides): Required from both parties. Insurer must
deal with all claims fairly and expeditiously and be able to pay for potential
claims. Only Insured knows all the facts; he is required to give full information of
every material fact in respect to the risk; policy voidable if Insured has not given full
and correct information, by:
i Nondisclosure: Failure to inform the Insurer of a material fact. Includes failure on
the Insured’s part to find out all material facts of the risk.
ii Misrepresentation: Incorrect statement about a material fact.

4. Subrogation: The right of an Insurer, after paying a loss, to assume the rights of the
Insured to recover this loss from the responsible party.

Warranty: Promise by Insured as part of contract that a specified state of affairs will
continue to exist for duration of policy; breach of warranty makes policy voidable
from time of breach. Warranty may be express or implied; 2 implied warranties:
i Seaworthiness: Vessel must be seaworthy at commencement of voyage and at start
of each stage of the voyage if conducted in stages. Vessel must be reasonably fit in all
respects to encounter ordinary perils of the insured voyage. After a loss, the onus is
on the Insurer to prove vessel was unseaworthy.
ii Legality: Voyage must be lawful and, so far as the Insured can control, carried out
in lawful manner.

Void Contract: Treated as if it never existed; cannot confer rights on anyone and has
no legal effect.
Voidable Contract: Can be affirmed or rejected at the option of the aggrieved party.

Types of Policies:
1 Time Policy: Insures property for a period of time.
2 Voyage Policy: Insures property from 1 place to another, may include a date limit.
3 Mixed Policy: Covers both a voyage and period of time of voyage and in port after
arrival.
4 Construction Policy (Building Risk): Insures vessel while in course of construction,
not for period of time.
5 Floating Policy: Cargo policy that insures a number of shipments to be declared. In
Canada & US, this policy is continuous and covers all shipments to a limit of liability
for any 1 loss.

STUDY 3

The S.G. (Ship: Goods) Policy Form: Standard marine policy form used by Lloyd’s;
Voyage type of policy; S.G. Policy adopted by Lloyd’s in 1779, little change
since. Although form is full or archaic terms, the policy has proven itself reliable in
courts and Lloyd’s is reluctant to make changes. The policy is brought up to date by
adding printed institute clauses to it. These clauses drawn up by Technical and
Clauses Committee of the Institute of London Underwriters, printed by Witherby &
Co., and used by whole marine insurance market.

Interpretation of Policy: Any ambiguity in the wording is construed ‘against the

offeror’ (Contra Proferentum). Use the following rules to determine the meaning and
importance of phrases in the policy:
1 Clauses printed in margin take precedence over clauses in body of text.
2 Printed/stamped clauses impressed on or attached to policy take precedence over
clauses printed in margin.
3 Typewritten wording takes precedence over all other wording except wording added
by hand.
4 Handwritten wording takes precedence over all other wording.
5 Overriding paramount clauses are printed in heavy type or italics or indicated as
such by the wording; these clauses take precedence over clauses printed in ordinary
type in body of text.

Policy Wording: Marine Insurance Act (M.I.A. 1st schedule) forms the basis of all
marine policies. Meanings of clauses & phrases:
1 Assignment Clause: Policy may be used by any person as a principle or agent or
assignee or any person who acquires at least partial interest.
2 Lost or Not Lost: Insurance accepted after the beginning of the adventure, or even
after a loss, is operative provided no breach of utmost good faith by Insured.
3 Commencement & Termination of Risk:

COVERAGE TYPE COMMENCES TERMINATES

Voyage Basis, “at and from” specified When vessel “hath moored at
HULL place within reasonable time (unless anchor 24 hours in good safety”
delay known to Insurer or waived) at port of destination
GOODS When goods loaded on board vessel When goods safely landed
FREIGHT (insured at
or from specified Pro rata as goods shipped End of voyage
place)
CHARTERED When vessel is at specified place for
End of voyage
FREIGHT start of voyage

4 Different Voyage: Vessel must sail from specified port of departure for the specified
port of destination, otherwise no coverage.
5 Change of Voyage: If the destination is voluntarily changed after beginning the
voyage, coverage ceases when the decision to make the change occurs.
6 Deviation: If the vessel leaves the stated or customary course of the voyage with the
intention of returning to that course and completing the voyage, no coverage after
vessel changes course.
7 Unreasonable Delay: No coverage as soon as delay becomes unreasonable.
8 Over Carriage: If goods are not discharged at destination and carried on homeward
voyage, no coverage after vessel leaves from destination with goods on board.
9 Excuses for Deviation/Delay: Coverage will not cease in the following cases, but
immediately after the cause of deviation ceases, vessel must resume course:
10 Authorized: Change agreed to by Insurer in Deviation Clause.
11 Beyond Control: Change is beyond the control of the Insured and caused by
insured peril.
12 Comply: Delay needed to meet conditions of policy, e.g., to make vessel
seaworthy.
13 Deemed Necessary: Change needed to save voyage.
14 To save human life: Change needed to prevent death of some person.
15 Deviation or delay for humanitarian purposes: Change needed for some
humanitarian cause.
16 Barratry: Wrongful act of master/crew to detriment of owner.
Insured Perils:
17 Perils of the Seas: Fortuitous accidents and casualties of maritime nature. Includes
things that may happen at sea, not things which must happen (like ordinary action of
wind and waves), so wear & tear is excluded. Egs., Stranding, foundering, collision
or contact, heavy weather damage.
18 Fire: Loss by fire is covered unless caused by inherent vice of insured
property. Damage from Lightning or Explosion not covered but fire caused by
lightning/explosion covered.
19 Men-of War and Enemies: Common War Perils.
20 Pirates and Rovers: Loss due to pirates including mutiny & riot.
21 Thieves: Loss/damage by assailing & violent thieves (not including crew or
passengers) who overcome guard of goods on voyage.
22 Jettison: Loss/damage due to throwing cargo/gear overboard at time of peril for
safety of adventure (not including cargo jettisoned because of inherent vice).
23 Letters of Mart and Countermart: Permission granted by State to attack foreign
enemy’s merchant shipping.
24 Surprisals (Taking at Sea): Loss/damage from actual or attempted capture, seizure,
stoppage by enemy.
25 Arrests, Restraint, and Detainment: Loss/damage from political or executive acts
with or without force.
26 Barratry: Loss/damage caused by wrongful act willfully committed by master or
crew to detriment of owner or charterer.
27 All Other Perils: Subject to rule of Ejusdem Generis (of a like kind).

The Attestation: Final clause of policy followed by signature of Insurers.

Assignment of Interest: Transfer of interest in the property.

Assignment of Policy: Transfer of beneficial rights under policy. Marine policy freely
transferable before or after loss to any person (except enemies or where policy
prohibits assignment) with beneficial interest in the property. This is necessary as
goods may change hands many times during a voyage. Assignee makes claim on
policy in own name with the same rights as original assignor.

STUDY 4

Proximate Cause: Immediate and effective cause of loss. Not necessarily the last
event before the loss. Coverage exists only if the proximate cause is an insured
peril. Scott v. Shepherd (1771), squib case, definition of proximate cause. Also,
Pawsey v. Scottish Union and National (1907).
Remote Cause: A cause other than the proximate cause.
Immediate Cause: Last event before the loss.

Included and Excluded Losses:

1 Willful Misconduct: Loss/damage by willful misconduct of Insured never
recoverable, although cause may be an insured peril (e.g., Insured deliberately set fire
to own vessel). However, other parties will not be prejudiced by this exclusion.
2 Negligence: Blyth v. Birmingham Water Works Co. (1856): “the omission to do
something which a reasonable man would do guided by those considerations which
ordinarily regulate the conduct of human affairs, would do, or the doing something
which a prudent and reasonable man would not do”. Loss/damage due to negligence
is covered as long as not willful act of Insured.
3 Delay: Loss/damage caused by delay not covered unless specifically included by
policy.
4 Wear & Tear: Loss/damage from wear & tear, ordinary leakage & breakage,
inherent vice, and vermin not covered unless specifically included by policy.
5 Injury to Machinery: Loss/damage to machinery caused by insured peril covered;
caused by defect in machinery itself not covered.
6 Sympathetic Damage: Damaged cargo taints other cargo; covered only if original
damage from insured peril and no intervening cause.
7 Sentimental Damage: Fear of damage--not covered; cargo that has suffered a
casualty will sell at a lower price even though not damaged as buyers fear it may have
been damaged.

2 Types of Loss:

1. Total Loss: Limit of insurance applies; 2 Types:

i Actual Total Loss: Loss/damage to entire property (physical total loss); Can occur 3
ways:

 All property is destroyed.

 Loss of Specie: All property so damaged as to cease to be a thing of the kind insured
(cement damaged by water, becoming concrete).
 Insured irretrievable deprived of all property, even though not destroyed.
ii Constructive Total Loss: Cost to repair/replace exceeds policy limit (commercial
total loss). Insured may claim for a partial loss or abandon the property and claim a
total loss. Property must be reasonably abandoned because actual total loss appears
inevitable or to prevent total loss requires an expenditure exceeding the saved
value. It is a condition precedent to a claim that the Insured unconditionally abandons
his interest to the Insurer. Insurer is entitled to take over the property if desired.
2. Partial Loss: Loss is less than total amount of insurance; loss/damage to some of
property.
i Particular Average: ‘Average’ means partial loss. ‘Free from Particular Average’
(F.P.A.) means partial loss not covered. ‘With Average’ (W.A.) means partial losses
covered. ‘The Memorandum’ is a restrictive clause in the policy that excludes
coverage for Particular Average losses to certain types of goods (usually
perishables). ‘The Memorandum’ may exclude goods under certain conditions or
losses to certain goods unless a stated minimum loss is reached (minimum percentage
called the Franchise). Franchise percentages are 5% for certain named goods (sugar,
tobacco, hemp, flax, hides, skins), 3% for ship, freight, and other goods. Once
Franchise amount reached, policy pays for total loss (not just amount in excess of
Franchise).
ii Particular Charges: Expenses incurred by or on behalf of the Insured for the safety
or preservation of the property insured, excluding General Average and salvage
charges. Not included in Particular Average to reach Franchise amount. Particular
Charges can be incurred during the voyage or at destination.
iii Sue and Labour Charges: Incurred short of destination. Insured incurs charges
while protecting property insured from loss/damage. Paid in full in addition to
amount of loss. Encourages Insured to take all possible steps to protect
property. Essential Features:

 Insured peril must have occurred; charges incurred to avert or minimize loss covered by
policy.
 Charges must be incurred short of destination.
 Charges must be incurred for benefit of property insured.
 Charges must be reasonable.
 Charges must be incurred only by the Insured, his factors, servants or assigns (excludes
salvage).
 Charges must be incurred only in connection with insured peril (charges incurred to
reduce partial losses not recoverable on an F.P.A. policy).
 Extra Charges: Expenses of proving a claim, such as survey fees, auction or sale charges;
paid by Insurer only if claim paid; not included in Particular Average to reach Franchise
amount. Survey carried out on instructions of Insurer paid regardless of claim.
The Overdue Market:
1 Process of posting a ship ‘missing’ at Lloyd’s: If after reasonable time no news
received of overdue vessel, interested party applies to Lloyd’s for public
inquiry. Lloyd’s establishes when vessel last seen/heard. After reasonable time,
Lloyd’s posts ship missing--total loss claims then due for collection.
2 Reinsurance can be arranged from Lloyd’s and other companies on vessels that are
overdue or have met with casualty. Rates depend on conditions & situation of vessel,
weather, and possibilities of salvage. Reinsurance effected on conditions “to pay as
original” or “total loss only”. Rare now.
Transshipment: If a vessel is unable to complete a voyage because of an insured peril,
goods are still covered for shipment aboard any other vessel.

The Waiver Clause: Neither party will be prejudiced by any steps taken to preserve
the property, whether successful or otherwise.

STUDY 5

Measure of Indemnity: Amount of $ Insurer liable for following a loss; depends on

type of loss and type (valued or unvalued) of policy. If more than one Insurer, each
pays ratable proportion of measure of indemnity. If Insured is underinsured, he pays
proportion of loss himself.
1. Total Loss:
Claims for actual or constructive total loss treated the same:
i Valued: Sum fixed by policy.
ii Unvalued: Insurable value calculated as:
iii Ship: Value of ship at commencement of voyage, including outfit, provisions,
stores, advanced wages and other disbursements to make ship fit for voyage, plus
charges of insurance on the whole.
iv Freight: Value of gross amount of freight of Insured, plus charges of insurance.
v Goods: Value of prime cost of property insured plus expenses of shipping and
insurance.
vi Other Property: Value is amount at risk to Insured when policy attaches, plus
charges of insurance.
Claims documents for Total Loss of Ship:
vii Insurance Policy.
viii Protest: Statement sworn by master giving details of casualty.
ix Certified List: List of all P.P.I. insurances from shipowner to ensure that
disbursements warranty not broken.
x Evidence: That any special warranty in policy complied with.
Claims Documents for Total Loss of Cargo:
xi Insurance Policy.
xii Protest.
xiii Invoices which confirm value, quantity & quality of cargo.
ixx Bills of Lading: Evidence of shipment of cargo and terms of carriage.
xx Letter of Subrogation: Insured authorizes Insurer to use Insured’s name in
proceedings.

2. Partial Loss of Ship: Measure of Indemnity is the reasonable cost of repairs less
customary deductions, not exceeding sum insured for any one casualty. Successive
losses do not reduce the sum insured.
i Deductions ‘New for Old’: Depreciation applied when new components utilized.
ii Partially Repaired & Unrepaired Damage: If ship not completely repaired, Insured
recovers cost of repairs plus allowance for depreciation due to incomplete repair.
iii Temporary Repairs: If it is possible to only effect temporary repairs, Insurer liable
for temporary repair and subsequent permanent repair, up to insured limit.
iv Overtime: Overtime wages for repairs covered where necessary for vessel to keep
scheduled voyage dates.
v Expenses of Removal: Cost of taking vessel to a port of repair or original port if
vessel can not be repaired at present location is covered.
vi Dry-Docking Expenses: Covered as part of repair.
Claims Documents for Particular Average on Ship:
vii Insurance Policy.
viii Reports of the shipowner’s, underwriters’, and classification society’s surveyors.
ix Repair specifications.
x Details of tenders (if taken).
xi Receipts for all repairs & disbursements.
xii Average adjustment details.

3. Partial Loss of Freight: From failure to deliver part of cargo from insured peril
where voyage terminated short of destination or part of cargo destroyed short of
destination. Measure of indemnity is amount of freight lost up to total freight insured
with 100% co-insurance.
Claims Documents for Particular Average on Freight:
i Insurance Policy.
ii Protest.
iii Manifest & Freight Accounts.

4. Partial Loss of Cargo:

1 Apportionment of Valuation: Different species of goods may be insured under one
policy; apportionment of insured value based on invoice values of various goods.
2 Apportionable Part: If different goods are insured under one policy, Insured can
claim total loss of an apportionable part (loss of a whole species of goods) of cargo,
even if policy warranted free from particular average.
3 Damage Claims: Partial loss of cargo occurs where goods delivered at destination,
damaged by deterioration or diminution, or with marks obliterated. The difference
between the estimated arrived sound value and the actual arrived damaged value is the
amount of the loss to the cargo owner. Settlement is based on the percentage of
depreciation of the insured value.
4 Gross Values: Wholesale price on the day after freight, landing charges & duty
paid. Gross Proceeds: Price of goods obtained at sale, all charges of sale paid by
seller.
5 Net Values: Destination charges same for sound or damaged cargo; Net Values
Clause (no longer in use) permits coverage for this expense in event of partial loss.
6 Bonded Values: Where goods customarily sold in bond (like alcohol), bonded price
considered gross value.
Average Clauses, Cargo:
7 The Memorandum.
8 Series: As shipments can be very large they are broken down into ‘series’ for
franchise purposes so that amount of self-insurance reduced.
9 Running Landing Numbers: Commodities are grouped in series in the order that
they are landed.
10 Average Each Package: Extension of series practice; commodities insured on basis
of an average payable on each package separately or on the whole.
11 Average Irrespective of Percentage: Memorandum percentage does not apply; all
particular average claims paid in full.
12 Salvage Loss: If cargo badly damaged short of destination, Lloyd’s agent at
intermediate port may agree to sell at best price. Settlement based on difference
between insured value and net proceeds of sale.
13 Average Each Package: Extension of the series concept; certain commodities
insured on term of average payable on each package separately or on the whole.
14 Average Irrespective of Percentage: All particular average claims paid in full--no
Franchise.
15 Salvage Loss: If cargo damaged short of destination, Lloyd’s agent at intermediate
port may agree to sell goods at best price; settlement based on difference between
insured value & net proceeds of sale.
Claims Documents for Particular Average on Cargo:
16 Insurance Policy.
17 Invoice showing cost and charges.
18 Bill of Lading.
19 Survey Report of approved surveyor showing cause of loss/damage, values, etc.
20 Account Sales and Landing Account may be required.
21 Letter acknowledging or repudiating liability from carrier for liability cases.

5. Sue and Labour Charges: Measure of Indemnity of such charges if properly

incurred is full payment.
General Average: System for settling marine losses voluntarily incurred for safety of
common adventure; equity principle; developed separately from marine
insurance. From Rhodian Law (900 B.C.), still exists today “Let that which has been
jettisoned on behalf of all be restored by the contribution of all. A collection of the
contribution for jettison shall be made when the ship is saved.” Essential features of a
General Average act:
1 In a time of peril the common adventure must be imperiled; danger must be real and
imminent.
2 Act must be voluntary and intentional, not inevitable (accidental loss/damage
excluded).
3 Act must be reasonably made; prudent sacrifice or fair and reasonable expense.
4 Loss must be extraordinary in nature.
5 Act must be for preservation of whole adventure.
6 Adventure must be saved.
7 Loss must be directly consequential on the general average act.
Losses not allowed by General Average:
8 Losses through delay.
9 Losses not directly consequential on general average act (e.g., damage to cargo
while stored ashore during repairs at a port of refuge.)
10 Where no loss sustained by general average act (e.g., water poured on damaged
goods as goods already damaged by fire).
11 Loss of cargo through wrongful act of shippers.
12 Expenses incurred by shipowner in performing his obligations under contract of
affreightment.
13 Losses attributable to the fault of the shipowner, unless protected by contract of
affreightment.

STUDY 6

Application of General Average to Insurance: Insurer liable for general average loss
for insured peril:

Measure of Indemnity for General Average Contributions: Full amount of

contribution up to insured value.

Direct Liability for Sacrifices: Insured can recover in full from Insurer without
enforcing his right of contribution from other parties liable to contribute. Measure of
Indemnity is the insured value.

Salvage Agreement: Services for salvage must be rendered independently of contract;

most salvors subscribe to

Lloyd’s Standard Form of Salvage Agreement. If property not saved, salvor receives
nothing (no cure, no pay). Measure of Indemnity same as General Average
Contributions. If services successful, salvor receives stated sum or amount
determined by arbitrator. Salvor cannot claim salvage for peril caused by his own
negligence or wrongful acts.
Arbitration: Factors taken into consideration by arbitrator or Admiralty Court in
awarding salvage:
1 Peril to which salved property exposed.
2 Nature of services.
3 Degree of danger, merit of services.
4 State of weather.
5 Value of ship, cargo, etc. exposed to peril.
6 Value of property saved.
7 Measure of success of salvage operations.

Double Insurance: 2+ policies issued on behalf of 1 insurable interest, and total sums
insured exceeds indemnity (over-insurance). Usually, both Insurers pay for 50% of
claim. Can occur in 2 ways:
1 Purposely: Rare; sometimes a bank refuses to accept policy unless provided by
particular Insurers--another policy is required. No return of unearned premium.
2 Inadvertently: Sometimes an agent will purchase coverage and principle already has
coverage. Both Insurers return 50% of unearned premium in event of loss.

Subrogation: After a claim has been settled and paid, the Insurer is entitled to place
himself in the position of the Insured, to the extent of acquiring the Insured’s rights &
remedies in respect of the loss. This prevents Insured from collecting for his loss
twice, and reduces the total cost of the claim. The Insurer will sue a responsible party
in the Insured’s name for the loss/damage up to the amount of the settlement. The
Insured must not relinquish any rights that he may have against other parties.

Returns of Premium: 2 Kinds:

1 For Failure of Consideration: Liability which Insurer agreed to assume has not
attached or commenced, and he is not entitled to keep premium. The period covered
by the policy is indivisible once risk has attached, so no return of premium if policy
void after start of voyage.
2 By Agreement in the Policy: Policy contains agreements to return percentages of
premium in certain circumstances. E.g., To return 4% if packed in tin-lined cases.

STUDY 7

INSTITUTE TIME CLAUSES (I.T.C.)--HULLS (1.10.70): Used for ocean going

vessels; other vessels covered by clauses which closely parallel these
clauses. Provides standard cover for insurance of hulls on a time basis (not voyage
basis). Consists of 24+ clauses, each with the same force & effect except the Running
Down Clause:

# NAME DESCRIPTION
Provides limited coverage for liability for damage and legal costs
from collision (actual contact only) with another ship, with a
maximum indemnity of 3/4 of the insured value. Right of
recovery restricted to liability for:
1 Loss/damage to any other vessel or property on other vessel.
2 Delay/loss of use of other vessel or property on other vessel.
1 Running Down Clause 3 General Average/Salvage of other vessel or property on other
vessel.
Separate contract from marine policy; claims under clause paid in
addition to those recoverable under policy. Deductible still
applies; other restrictions do not. No coverage under clause for
loss of life/BI, loss/damage to insured vessel, removal of wreck,
pollution liability.
Protects shipowner in event of collision between ships in same
2 Sistership Clause ownership, as person cannot sue himself. Arbitrator is appointed
to determine liability and Insurer bound to decision.
Vessel covered during whole policy period, regardless of situation
(except breach of warranty, overriding policy conditions). Vessel
Tow and Assist Clause
must not undertake towage or salvage services under contact, nor
3 (Adventure Clause,
towed except where customary or in need of
Permissions Clause)
assistance. Abnormal loading/discharging at sea not covered
unless previously agreed.
Extension of policy (after expiry of time policy) provided on pro
rata monthly basis with previous notice to Insurer. Useful for
4 Continuation Clause
vessel in distress or damaged--policy continued until extent of
loss determined.
Insured must exactly comply with warranty--or Insurer can avoid
Breach of Warranty
5 contract from time of breach. Breaches of Institute Warranties are
Clause
held covered subject to additional premium.
Coverage on vessel after ownership/management change only if
Change of Ownership
6 prompt notice received and agreed by Insurer; pro rata return of
Clause
premium if cancelled.
Protects shipowner against loss/damage directly caused by
Inchmaree Clause negligence of master or crew (from Inchmaree case in 1887,
(Negligence Clause, Thames & Mersey Marine Insurance Co. v. Hamilton, Fraser &
7 Additional Perils Co.) Cost to replace component with latent damage not covered--
Clause, Latent defects resultant damaged covered. Extended to cover other forms of
Clause) damage by listing additional perils:
Part (a):
 i Accidents in loading, discharging or shifting cargo or fuel
ii Explosions on shipboard or elsewhere
iii Bursting of Boilers, other pressure vessels, by insured peril
iv Breakdown of or accident to nuclear installations or reactors on
shipboard or elsewhere
v Latent Defect
vi Negligence of master, officers, crew or pilots, repairers
Part (b):
vii Contact with aircraft
viii Contact with land conveyance, dock, harbour equipment or
installation
ix Earthquake, volcanic eruption, lightning
Provides for acceptable rules to determine amount of a General
Average loss. Insurer acknowledges adjustments drawn up at
Foreign General
8 place where adventure ends or according to York/Antwerp rules
Average Clause
(except rules XX & XXI--interest on expenditure) where provided
in contract of affreightment.
Measure of indemnity for sue and labour charges is full payment
whether interest fully insured or not (pro rata payment due to
9 Sue and Labour Clause
under-insurance applies only to amount in excess of value of
proceeds) and even in addition to total loss.
Provides for claims paid without deductions for depreciation due
10 New for Old Clause to wear and tear; old components are replaced with new
components (Replacement Cost basis).
Applicable to Negligence For losses under Inchmaree Clause (#7)
11 Deductible Part (a), additional deductible of 10%, not including
total/constructive total loss
A deductible (amount of $ deducted from the claim) applicable in
all cases, even if vessel strands. A space is left blank on the form
for the deductible amount to be inserted. The deductible applies
Average Clause to the aggregate of claims arising from each accident or
12
(Deductible Clause) occurrence. The deductible applies to all claims (including
General Average, Running Down Clause, Sue & Labour Clause)
except total loss claims. Clause specifies apportionment of
deductible for overlapping policies, etc.
Groundings at specified places (Suez, Panama, Manchester Ship
13 Suez Canal Clause Canals; Plate Danube, Demerara Canals; Yenikale Bar) not
considered strandings.
Scraping and Painting Costs for scraping and painting the underwater part of the vessel
14
Clause due to fouling are not covered.
Wages & maintenance of master, officers, crew, other members,
Wages and Maintenance
15 not covered in particular average claims--except while underway
of Crew
on removal of vessel to port of refuge.
 Insurer is required to pay for reasonable depreciation due to
16 Unrepaired Damage unrepaired damage, but not until expiry of policy (or expiry of
continuation of policy).
Valuation Clause, Provides rules to ascertain value of ship to determine if a vessel is
17 (Constructive Total Loss a constructive total loss. Insured value is considered to be the
Provisions) repaired value; salvage values not considered.
Freight Abandonment For constructive total loss of ship, Insurer not entitled to earned
18
Clause freight, whether abandoned or not.
Notice of any accident must be given to Insurer. Insurer has the
right to decide the port which the vessel shall proceed for repairs
and the right to veto any suggested repair firm. Insurer has the
19 Tender Clause right to require the Insured to call for tenders for the
repairs. Allowance of 30% per year for time lost waiting for
acceptance of tender. 15% deductible penalty for failure to
comply with this clause.
Restricts the amount of ancillary insurances which a shipowner
may effect on restrictive conditions as additional cover to the
amount insured on hull & machinery on the policy. Ensures
adequate sum insured and prevents insured from obtaining
insurance at lower cost by utilizing large ancillary
insurances. Clause prescribes types of acceptable ancillary
insurances:
1 Disbursements, Managers’ Commissions, profits or Excess or
Increased Value of Hull & Machinery, up to 10% value.
2 Freight, Chartered freight, Anticipated Freight insured for time,
20 Disbursements Warranty
up to 25%.
3 Freight or hire, for voyage, up to gross freight.
4 Anticipated Freight if vessel sails in ballast not contract, up to
gross freight.
5 Time Charter Hire, Charter Hire for series of voyages, up to
50% gross hire.
6 Premiums, up to total premiums 12 months, reducing monthly.
7 Returns of Premium, up to actual returns.
8 Insurance irrespective of amount against, for excluded risks, as
long as no conflict with policy.
Insurer agrees to return percentage of premium for 30+
consecutive days where vessel laid up in port (covers port risks
only during this time). Based on balance of net premium paid in
21 Returns Clause excess of prescribed retention. Returns shared between Insurers
for overlapping policies. most returns of premium are by
agreement “and arrival”--no return if total loss before policy
expiry.
Marine policy freely assignable unless it contains terms expressly
22 Assignment Clause
prohibiting assignment.
 Free of Capture and
23 Seizure (F.C. & S.) Common war perils excluded.
Clause
24 Additional War Perils Additional war perils and malicious and political acts excluded.
Loss/damages from nuclear weapon or by radioactive material
25 Nuclear Materials
excluded.

The Liner Negligence and Additional Perils Clause: Added to I.T.C. clauses to give
broader cover to liners. Covers replacement of component with latent defect (only if
damage results) as well as resultant damage. Covers burst boilers and broken shafts
regardless of cause.

Shipowners’ liabilities: Insurable liabilities to cargo owners or third parties arise

from:
1 Torts: Wrong or injury not arising out of contract, e.g., collisions.
2 Statutory Powers: Local statutory regulations may make shipowner liable for
damage to harbours, docks, etc., cost of removal of wreck, pollution clean-up.
3 Breach of Contract: Liability may arise from contract of affreightment (e.g.,
unseaworthiness, unreasonable deviation), et al.

Protection and Indemnity Clubs: Associations which provide protection for liabilities
not covered (loss of life, BI) by the marine insurance policy. Covers rest of claim not
covered by the marine policy in some cases (e.g., 25% of liability to 3rd party not
covered by marine policy, covered by P & I club). Shipowner enters vessels at start of
financial year into P & I club based on tonnage; claims are paid by the pool. Heavy
claims during the year may result in additional levy (call). 4 classes of liabilities
covered:
1 Protection: Protects shipowner for claims for loss of life/BI, damage to fixed
objects, penalty from Running Down clause, life salvage.
2 Indemnity: Protects shipowner for indemnity payments to cargo owners for damage
caused by negligence of crew.
3 War Risks
4 Freight War Risks.

Limitation of Liability: Shipowner or other interested person can ask Court to grant an
order limiting his liability for loss/damage without his actual fault or privity to any
property by reason of improper navigation or management of ship. Suits may be filed
in personam (against the shipowner) or in rem (against the ship). Applicable limits
(plus interests and costs):
1 Loss of life/BI alone or together with PD: 3,100 (first 2,100 set aside for Life/BI)
gold francs per ton net vessel weight.
2 Property damage only: 1,000 gold francs per ton net vessel weight.
Collision Liabilities: Damage by collision includes any damage done by ship in
contact with (and by the ship’s wake, or by crowding a ship in a channel, etc.) another
ship, or other objects. Damage includes physical damage to other
ship/cargo/freight/employment, loss of life/BI, damage to all fixed/movable objects,
and infringement of rights on land or water. Causes of Collision:
3 Inevitable Accident: Collision could not have been avoided by ordinary care & skill-
-no liability. E.g., typhoon.
4 Inscrutable Fault: Collision caused by a fault which cannot be proved or attributed
to either ship--no liability.
5 Negligent Navigation: Breach of Regulations for Prevention of Collisions at Sea (or
other duty of reasonable care in the navigation or management of the ship) which
directly leads to damage--shipowner liable for damages caused.
6 Contributory Negligent Navigation: Where each vessel is partially to blame,
damages split between vessels to the degree that they were at fault (Marine
Conventions Act 1911 for most areas) or, rarely, equally divided between the vessels
(Admiralty Rule, Merchant Shipping Act 1894). If 2 ships are responsible for
damages to 3rd ship, 3rd shipowner can recover total amount of damages from either
vessel (Joint & Several Liability). Cross Liability: In collision with 2 vessels where
contributory negligence exists, the Insurer of each vessel pays percentage of loss to
other--but in reality, only the balance passes. Both Insureds’ premium and loss
records are adjusted to reflect the extent to which he was to blame.

Demurrage: Loss of employment of the ship; this is not covered if caused by delay not
from insured peril.

Institute Freight Collision Clause: Insurer liable for freight at risk for liability due to
collision with another ship.

Collision in Wartime: Insurer still liable for collision due to negligent navigation
under Running Down Clause (separate from policy, which excludes war risks) even if
attributable to war perils.

Tug and Tow: For collisions that occur while insured vessel under tow, degree of fault
of all parties must be established; damages may be covered under policy or Running
Down Clause, depending on circumstances; in Canada, most liability usually imposed
on tow vessel by Standard Towing Conditions.

THE CANADIAN BOARD OF MARINE UNDERWRITERS GREAT LAKES

HULL CLAUSES (1.9.71): Attach to the plain form of marine policy for vessels
trading on the Great Lakes. Features:
a) Inserted are Name Insured, Loss Payees, Duration of Risk.
b) Inserted are Agreed Insured Value, Eastern Navigation Limit.
c) Deductible: Amount inserted, applies same as I.T.C.-Hulls. Deductible of $50,000
or 10% of insured value, whichever lesser for damages caused by ice.
d) Premium: Agreed premium inserted; payable by 60 days of attachment or
November 1st, whichever less.
e) Underwriters Surveyor: Name of surveyors who will represent Insurer in event of
claim.
f) Returns of Premium: Allowed for:

 Termination of insurance under change of ownership clause: Pro rata daily net.
 Mutually agreed cancellation: Pro rata monthly net for each uncommenced month.
 Laid-up: Pro rata daily net of navigating rate for each period of 15 consecutive days
March 31 to December 15.
g) Trading Warranty & Season of Navigation: Vessel warranted confined to waters of
the Great Lakes with eastern navigation limit, not engaged in navigation March 31 to
December 15 (except with approval).
h) Winter Moorings: Approved place for winter lay-up.
i) Adventure: Like I.T.C.-Hulls; covered for breach of towage/salvage with immediate
notice to Insurer.
j) Perils: Insured perils listed--same as plain form of policy.
k) Additional Perils (Inchmaree Clause): Additional perils listed, covered for resultant
damage only: Accidents in loading/discharging/handling cargo; accidents in loading
boat onto/off of drydocks; explosions on shipboard or elsewhere; mechanical
breakdown; nuclear perils; contact with aircraft; negligence of charterers/repairers
other than named Insured; negligence of masters, officers, crew, pilots.
l) Claims (General Provisions): Prompt notification of claims required; Insurer may
decide port of refuge for vessel and appoint surveyor. General points:
 Particular Average does not include wages & maintenance of crew, except to remove
vessel to port of repair.
 All claims payable without deductions new for old (no depreciation).
 Claims adjusting using Rules of Practice for the Great Lakes of the Association of
Average Adjusters of Canada.
 Cost of sighting bottom after stranding (reasonably incurred for that purpose) covered.
 Increase in cost of repairs not covered if 15+ months after casualty.
 Cost of scraping/painting vessel bottom not covered.
 15% total claim penalty for failure to comply with claims provisions.
 Loss/damage to equipment/apparatus on board covered up to amount paid for
actual/contractual damage if owned by Insured.
 Fees of Insured, his superintendent or other servant not covered (except reasonable fee
where own supervisor engineer necessary to supervise repairs).
m) General Average & Salvage: Provisions:
 General Average & Salvage payable as provided by contract of affreightment.
 Sister-ship provision for salvage/towage services for vessels of same ownership.
 General Average & Salvage reduced proportionately for under-insurance.
n) Total Loss: Provisions:
 For constructive total loss, cost of recovery & repair has to be demonstrated to exceed
insured value.
 Insured value considered repaired value for constructive total loss; salvage not
considered.
 For total loss of ship, Insurer waives right to freight.
 Insurer not liable for unrepaired damage in addition to total loss during same policy
period.
o) Sue and Labour: Charges covered without deductible but are reduced by under-
insurance.
p) Collision Cause: Like Running Down Clause (I.T.C.-Hulls); not limited to 3/4
coverage. Each vessel responsible for proportion of liability to which it was at fault
(Cross-Liability). Sister-ship provisions same as I.T.C.-Hulls. This clause does not
cover removal/disposal of wrecks; injury to real/personal property;
environmental/pollution liability; loss of life/BI.
q) Change of Ownership: Like I.T.C.-Hulls.
r) Additional Insurances--Disbursements Warranty: Like I.T.C.-Hulls.
s) War, Strikes and Related Exclusions: Excludes loss/damage to property directly
caused by:
 Capture, seizure, arrests, restraints, detainments.
 Taking vessel by requisition or otherwise.
 Mines, bombs, torpedoes not carried on board as cargo.
 Weapon of war with atomic/nuclear/radioactive material.
 Civil war, revolution, rebellion, insurrection or civil strife.
 Strikes, lockouts, political or labour disturbances, civil commotions, riots, martial law,
military power, malicious acts or vandalism.
 Hostilities and warlike operations.
THE AMERICAN INSTITUTE GREAT LAKES HULL CLAUSES (1.7.71): Attach
to the plain form of marine policy for vessels trading on the Great Lakes. Like
Canadian Board Clauses with the following differences:
1) Deductible applies to aggregate of all claims (including General Average, Salvage,
Sue and Labour), not each claim separately.
2) No equivalent to the Inchmaree Clause; no additional deductible for specified
perils.
3) Separate rates for vessel while navigating and while in port.
4) No provision for automatic termination of insurance if premium not paid.
5) For particular average, wages & maintenance of crew covered only for removal and
to test average repairs.
6) Underwriters’ surveyors not named in policy.
7) Season of navigation open to negotiation; not specified.
8) Specified geographical limits of navigation.
9) No provision to use Rules of Practice for the Great Lakes of the Association of
Average Adjusters of Canada.
10) General Average adjusted according to contract of affreightment or York-Antwerp
Rules (1950)
11) No penalty of 15% for failure to comply with claims provisions.
12) No wording regarding the fees of the owner’s superintendent.

STUDY 8

The Free of Capture and Seizure Clause (F.C. & S.): Exclusion clause, added to policy
in 1898 to delete war perils. Listed war perils (and other war perils of like kind) are
excluded. Prior to 1918, the deletion of the F.C. & S. Clause was used to reinstate
war perils; now a separate set of War Clauses are added. Deletion of F.C. & S. Clause
merely reinstates coverage of war perils stated in plain form, unless other perils
specifically stated. F.C. & S. Clause contains:
1 Capture: Seizure by an enemy in wartime or by rebels or insurgents at any time.
2 Seizure: Broader term; includes capture, and seizure by neutral or belligerent or
revenue officer of foreign power. Seizure may be unlawful, but covered if adventure
is lawful. Mere capture or seizure does not give rise to a claim, as property may be
returned--there must be a condemnation (destruction or loss of use).
3 Arrests, Restraints and Detainments: Political or executive act, but not including
loss by riot or ordinary judicial process.
4 Consequences of Hostilities or Warlike Operations, whether there be a declaration
of war or not: Vessel not covered if engaged in warlike operations and loss is the
direct result of these actions (carrying war stores or personnel directly engaged in
fighting the enemy).
5 Piracy: Added in 1937 to list of excluded perils.

INSTITUTE WAR CLAUSES--CARGO: Policies (time or voyage) contain the F.C.

& S. Clause to exclude war risks; separate policies are effected for insurance on hulls
to cover war risks:
1 The (War Risks) Waterborne Agreement (1937): Insurers agreed that property (with
the exception of marine policies) should not be covered for war risks. Protection
against war risks needed for overseas trade. The Waterborne Agreement gave
protection for cargo before shipment and for 15 days after discharge for
transshipment. Currently, the protection afforded by this agreement has been
completely reversed. The current Institute War Clauses cover cargo only while in the
overseas vessel, except for damage caused by derelict mines or torpedoes.
2 The Frustration Clause (1921): Frustration of a voyage is the prevention of arrival at
an enemy destination by your own nationals without loss or damage to the insured
interest. The Frustration Clause inserted on all voyage policies covering war risks--
excludes loss due solely to frustration.
3 General Average Clause.
4 Deviation Clause.
5 Reasonable Dispatch Clause.

INSTITUTE STRIKES CLAUSES--CARGO: Plain form (Clause 13) excludes direct

& indirect damages due to all forms of civil strife (strikes, lockouts, riots, etc.) Clause
13 may be deleted and the Institute Strike Clauses added to provide protection for
strikes risks. Includes malicious acts of strikers. Damage caused by delay not
covered. Indirect loss still excluded if caused by:
1 Delay, inherent vice, nature of insured property.
2 Absence, shortage, withholding of labour.

INSTITUTE WAR AND STRIKES CLAUSES--HULLS: The hull war and strikes
clauses have been combined in 1 set; coverage like that for cargo war and strikes
clauses. Also excluded:
1 Loss, damage, or capture from requisition or preemption not covered.
2 Infringement of quarantine or customs regulations.

INCREASED VALUE: Where policy effected on “increased value of cargo” (after

voyage commenced, value of cargo increased), these policies are excess to the
primary policy.

INSTITUTE DANGEROUS DRUGS CLAUSE: Clause added to all cargo

policies. Unless authorized by government, no drugs falling under authority of
International Conventions of Dangerous Drugs (including illegal drugs) are covered.

STUDY 9

INSTITUTE CARGO CLAUSES: 3 sets in general use, each with 14 sub-clauses,

each vary (only) with different way of handling Particular Average.

# NAME DESCRIPTION
Cover attaches from time goods leave warehouse or place of storage
Transit Clause (1963),
named in policy for commencement of transit. Cover continues for
(Incorporating
1 ordinary course of transit and terminates on delivery to destination
Warehouse to
warehouse, to other warehouse for storage or distribution, or 60 days
Warehouse Clause)
after discharge, whichever first.
 Provides special cases for termination of affreightment and
Termination of termination of adventure before delivery. For coverage to continue,
2
Adventure Clause conditions must be beyond control of Insured and prompt notice to
Insurer.
Goods covered in craft while transported to and from vessel. Each
3 Craft Clause
craft is separate insurance.
Change of Voyage Insured held covered subject to extra premium for change in voyage
4
Clause or error/omission in description of property/vessel/voyage.
Particular Average clauses modify the Memorandum and apply to
perils remaining in plain form after F.C. & S. clause has
operated. Particular Average clauses:
1. Free of Particular Average (F.P.A.): Partial loss claims excluded
except for stated perils. Insurer liable for insured value of packages
totally lost in loading, transshipment or discharge. Partial
loss/damage covered if reasonably attributed to fire, explosion,
collision or contact with another vessel, conveyance with external
substance other than water, damage from discharging at port of
distress. Insurer pays particular charges incurred to prevent a total
loss.
2. With Average (W.A.): Partial losses covered; Memorandum
franchise percentages apply to heavy weather damage only (claims
in excess of minimum percentage of loss paid in full).
Extraneous Cargo Risks: No standard set of additional perils exists
for cargo; perils vary according to commodity insured. Additional
perils added:
 Theft, Pilferage and Non-Delivery: Theft arises from thieves
5 Average Clause breaking open cases and abstracting part of the contents or
removing a complete package. Pilferage restricted to
abstraction of contents without breaking-in. Non-delivery
occurs when shipowner fails to deliver whole units of the
goods. Shortage (part of contents of unit missing) not
covered.
 Breakage: Includes types of breakage excluded by plain form
(ordinary breakage from negligence). Part of premium
returned if no claim.
 The Replacement Clause: Covers cost of replacing,
forwarding and refitting any broken part of machinery.
 Leakage: Covers loss of liquid cargo insured in excess of
specified percentage (as normal minor loss, called ullage,
will occur on a voyage).
 Freshwater, Hooks and Oil, and Damage by Other Cargo:
Covers cargo damaged by fresh water, hooks (tools used in
loading/unloading), damage by oil and by contact with other
cargo. Sympathetic damage (damage caused by other cargo
not by marine peril) covered.
  Sweat: Covers damage from “ship’s sweat” (condensation
due to climatic changes and insufficient ventilation) not
covered by marine peril.
 Pickings, Skimming and Cutting Clauses: Insurer agrees to
pay for costs to make goods merchantable (pick damaged
cotton off of bales, damaged coffee is skimmed, etc.)
 Extra Charges: Insurer pays for costs of proving a claim if
claim admitted, including survey fees, sale costs, extra
landing charges, auctioneers’ fees, adjustment fees, etc.
3. All Risks (A.R.): Covers cargo on an all-risks basis (all perils
covered unless specifically excluded); loss must be
fortuitous. Excludes wear and tear, inherent vice, poor packing.
Constructive total loss payable only where cargo reasonably
Constructive Total
6 abandoned as actual total loss appears inevitable or cost of recovery
Loss Clause
exceeds value.
General Average Insurer pays General Average in accordance with York-Antwerp
7
Clause Rules.
As Insured may not have control over vessel, the seaworthiness of
Seaworthiness
8 the vessel is agreed by the Insurer. Insurer retains rights of
Admitted
subrogation against shipowner for unseawothiness.
Insured must take all steps to prevent/minimize a loss and not
9 Bailee Clause
prejudice the subrogation rights of the Insurer.
10 Not to Inure Clause Carriers/bailees may not avoid liability by existence of insurance.
Insurer pays for amount cargo owner liable for in collision with
Both-to-Blame
11 immediate notice so Insurer can defend. Normally, liability split
Collision Clause
50/50 between both vessels if both partly at fault.
Free of Capture and
Excludes loss/damage from war, capture, seizure, and piracy. If
12 Seizure (F.C. & S.)
deleted, the Institute War Clauses attach.
Clause
Free of Strikes, Riots
Excludes loss/damage from strikes, riots, and similar perils. If
and Civil
13 deleted, the Institute Strikes, Riots and Civil Commotions Clauses
Commotions (F.S.R.
attach.
& C.C.) Clause
Reasonable Dispatch Insured must always act with reasonable dispatch (prompt notice) in
14
Clause all circumstances within his control.

INSTITUTE TIME CLAUSES--FREIGHT:

# NAME DESCRIPTION
1 Tow and Assist Clause Same as I.T.C.-Hulls.
 Loss of freight while goods in craft transported to or from
2 Craft Clause
vessel covered.
3 Inchmaree Clause Same as I.T.C.-Hulls.
Memorandum franchise of 3% applies to Particular Average of
4 Average Clause
freight unless damage from vessel sinking, fire, or collision.
Foreign General Average
5 Same as I.T.C.-Hulls.
Clause
Total Loss Clause
For total loss of vessel, total insured amount paid--regardless
6 (Including Valuation
of state of voyage.
Clause)
Measure of indemnity for Particular Average shall not exceed
7 Gross Freight Clause
gross freight actually lost.
8 Time Penalty Clause Effectively eliminates liability for loss of freight due to delay.
9 Sale of Vessel Clause Same as I.T.C.-Hulls.
10 Sister-Ship Clause Same as I.T.C.-Hulls.
11 Breach of Warranty Clause Same as I.T.C.-Hulls.
12 Continuation Clause Same as I.T.C.-Hulls.
13 Returns Clause Same as I.T.C.-Hulls.
14 Assignment Clause Same as I.T.C.-Hulls.
Free of Capture & Seizure
15 Same as I.T.C.-Hulls.
Clause
Arrests, Restraints,
16 Same as I.T.C.-Hulls.
Detainments Exclusions
War and Malicious Damage
17 Same as I.T.C.-Hulls.
Exclusions
18 Nuclear Exclusions Same as I.T.C.-Hulls.

OTHER CLAUSES:
1 Institute Time Clauses, Hulls--Excess.....Particular Average: Like I.T.C.-Hulls, but
provides excess payable on the whole instead of franchise (no separate
valuations). Amount of excess inserted; excess applies only to Particular Average and
to voyage, not each accident.
2 Institute Time Clauses, Hulls--Free of Particular Average Absolutely: Like I.T.C.-
Hulls, but no coverage for Particular Average or General Average damage to
hull. Still covered are partial losses from extinguishing fire, contact during salvage,
General Average of machinery, and General Average contributions.
3 Institute Time Clauses, Hulls--Free of Damage Absolutely: Like I.T.C.-Hulls--Free
of Particular Average Absolutely, but very restricted coverage. Partial losses not
covered. General Average contributions covered.
4 Institute Yacht Clauses: Like I.T.C.-Hulls, but provides comprehensive cover for
pleasure craft. Particular Average covered regardless of percentage. All Risks
coverage (fortuitous losses only) with many stated exclusions.
5 North American Yacht Clauses: Like I.T.C.-Hulls, variable wordings, for pleasure
craft. All Risks coverage (fortuitous losses only) with many stated
exclusions. Navigating limits more restricted than with commercial vessels. In
Northern climates, vessels warranted laid-up for part of the year and freezing damage
excluded. Exclusions regarding speed and racing may exist. Vessel may be
warranted for private pleasure, with extra premium charged for commercial use
(chartering, etc.) Protection and Indemnity added for extra premium. There may be
restrictions regarding water-skiers. Condition surveys are usually required for
effecting insurance.
6 Institute Clauses for Builders’ Risks: Provide coverage to builder for vessel under
construction from first laying of keel until delivery to owner. All Risks coverage, no
franchise, full coverage Running Down clause, Protection and Indemnity
covered. Materials in workshop not covered.
7 Institute Port Risk Clause: Provides coverage to vessel laid-up out of commission;
All-Risks comprehensive coverage like Builders’ Risk. Protection and Indemnity
covered.
8 Excess Liabilities Clause (Hulls): Extra insurance purchased at nominal premium to
cover excess liabilities (excess of General Average or Salvage charges which are
based on ACV, excess of collision liability limited by weight of vessel, etc.)
9 Dual Valuation Clause: Limits the liability for total loss of ship to sum near market
value of vessel, with higher amount for Particular Average--maintaining the franchise
at a reasonable level.

STUDY 10

FLOATING POLICIES: For long term coverage of vessels; no need to separately

insure each voyage. Types of Floating Policies:
1 Ocean Cargo Open Policy: North American policy continuous until cancelled (many
years); covers all shipments imported/exported. Settlement based on Valuation
Clause--cargo is valued, premium included, at invoice price including all charges plus
prepaid, advance, or guaranteed freight, plus an agreed percentage (usually 10-
15%). Percentage increase allows profit for total loss, but prevents under
valuation. There are limits of liability for any 1 shipment and in any 1 location. War,
Strikes, and Riots cover is added by endorsement.
2 London Equivalent Policies: Like above, but continuous until cancelled or for
specified period or until sum insured exhausted by accumulation of values of
shipments, then must be renewed. Open Cover Policy runs 12 months, then must be
renewed. Each shipment covered must be promptly declared so that Marine & War
premiums are assessed.
3 Hull Open or Declaration Policy: Rare, like above, but for hull.

Reinsurance: Insurer cedes part or whole of risk insured to reinsurer. Purposes:

1 Relieve Insurer of excessive liability in any 1 risk or location (spreads the risk,
although in most cases marine policies are on a subscription basis and each
underwriter only accepts percentage of risk desired).
2 To secure foreign business through reciprocal reinsurance (rare in marine
insurance).
3 Insurer may reinsure for Total Loss only or Free of Particular Average only, so that
he is able to accept more business.
4 Change in risk due to seasonal or political conditions.

Reinsurance placed through broker, on original conditions/rates or restricted

conditions/rates. Reinsurance is a separate contract; original Insured has no rights or
interest with respect to reinsurance.

Ex Gratia Payments: If Insurer makes ex gratia (Insurer has no legal liability, but
settlement to maintain good relations) payments to Insured, reinsurer is under no
obligation to reimburse him.

2 Methods of Reinsurance:
1 Proportional: Percentage of risk transferred to reinsurer and reinsurer receives same
percentage of original premium and is responsible for same percentage of each loss.
2 Non-Proportional: Percentage of risk transferred to reinsurer; Insurer pays all of a
loss up to an agreed amount called the priority; reinsurer pays all or part of the loss
which exceeds the priority up to an agreed limit. Reinsurance premium is negotiated.

2 Types of Reinsurance:
1 Treaty: Agreement between Insurer & reinsurer which provides automatic
reinsurance for a whole class of insurance without the Insurer having to submit each
risk to the reinsurer. Less costly, less time-consuming, less flexible.
2 Facultative: Reinsurance placed on an individual policy basis. Both Insurer &
reinsurer have choice of accepting reinsurance agreement for each individual
case. More costly, more time-consuming, more flexible.

4 Methods of Ceding Reinsurance:

1 Flat Line (First Interest): Rare; Insurer cedes all business up to, but not exceeding,
amount accepted by reinsurer.
2 Quota Share: Rare; Insurer cedes fixed proportion (%) of business reinsurer.
3 Excess of Line: Insurer cedes amount of business in excess of fixed retention.
4 Excess of Loss: Insurer retains liability for loss up to an agreed amount in any 1
location; reinsurer for amount in excess of agreed amount up to an agreed limit of
reinsurance.

SUMMARY OF MARINE INSURANCE ACT, 1906:

MARINE INSURANCE:
1 “A contract of marine insurance is a contract whereby the insurer undertakes to
indemnify the assured, in manner and to the extent thereby agreed, against marine
losses, that is to say, the losses incident to marine adventure.”
2 Non-marine risks covered where expressly covered or by usage of trade, and where
incidental to sea voyage or analogous to a marine adventure.
3 Marine adventure must be lawful in this country. Definition of Marine Adventure:
Exists where insurable property (ship, goods, movables) or earnings of vessel (freight,
commission, etc.) exposed to maritime perils, or liability to third party incurred by
reason of maritime perils. Definition of Maritime Perils: Perils consequent on, or
incidental to, navigation of the sea.

INSURABLE INTEREST:
4 Gaming/wagering voids policy. Insured must have (or expect to attain) insurable
interest.
5 Person has insurable interest if he has interest (of a legal or equitable relation) in
marine adventure, such that he will benefit financially from safe passage or be
prejudiced by its loss.
6 Insured must have insurable interest at time of loss.
7 Insurable interest includes defeasible interest and contingent interest.
8 Partial interest of any kind is insurable.
9 Insurer for marine risk has insurable interest and can reinsure.
10 Insurable interest includes lender of money for bottomry or respondentia with
respect to loan.
11 Master & crew have insurable interest with respect to wages..
12 Person providing advance freight has insurable interest for freight not repayable
after loss.
13 Insured has insurable interest in charges of insurance.
14 Mortgagor has insurable interest for full value; mortgagee has interest in sum to
become due under mortgage.
15 Where Insured parts with insured property, no assignment of policy without
agreement.

INSURABLE VALUE:
16
  Ship: Insurable value is value at time of commencement of risk, of ship, outfit, provisions
& stores, advanced wages, & disbursements to make vessel fit, plus insurance charges.
 Freight: Insurable value is gross amount of freight at risk of Insured, plus charges of
insurance.
 Goods/Merchandise: Insurable value is prime cost of property plus expenses of shipping
and charges of insurance.
 Other Property: Insurable value is amount at risk when policy attaches, plus charges of
insurance.
DISCLOSURES & REPRESENTATIONS:
17 Policy voidable if utmost good faith not observed by both parties.
18 Insured must divulge all material risks to Insurer.
19 Broker must divulge to Insurer all material facts known to him and all material
facts Insured is bound to disclose.
20 All material representations of the Insured to Insurer must be true.
21 Marine policy exists when proposal accepted by Insurer, whether policy issued or
not.

THE POLICY:
22 Contract of marine insurance is not admissible in court unless it is a marine policy
in accordance with this Act.
23 Policy must specify Insured’s name, or name of person effecting insurance.
24 Policy must be signed on behalf of Insurer. A policy subscribed to by several
Insurers is a separate contract with each, unless otherwise stated.
25 Voyage policy: Insures property from 1 place to another. Time policy: Insures
property for a definite period of time. Mixed policy: Combines both voyage & time.
26 Property insured must be designated in a marine policy with reasonable certainty.
27 Policy may be valued or unvalued. Valued policy has a pre-agreed value of
property insured.
28 Unvalued property relies on valuation after loss in prescribed manner.
29 Floating policy: Open cover for a number of ships possible, with declarations made
with respect to ships insured, values, notice of arrival, etc.
30 Policy may be in the form of the First Schedule of this Act (Lloyd’s S. G. policy).
31 Where insurance effected at a premium to be arranged, and no arrangement made,
reasonable premium payable (also applies to additional premium arrangements).

DOUBLE INSURANCE:
32 In case of double insurance, Insured can claim against policies in any order, but
only up to indemnity.

WARRANTIES, ETC.
33 Warranty is a promise by Insured to maintain certain conditions will be
maintained. Warranty can be express or implied. Warranties must be exactly
complied with, whether material or not; failing this, Insurer can void policy from time
of breach.
34 Breach of warranty excused where warranty ceases to be applicable to
circumstances of contract or where compliance rendered unlawful. Repair of
warranty before loss does not reinstate coverage. Breach of warranty may be waived
by Insurer.
35 Express warranty: No standard wording, incorporated in (or referred to by) policy.
36 Where property implied neutral, implied condition that property neutral at start of
voyage and Insured must try to maintain neutral character throughout voyage.
37 No implied warranty regarding nationality of ship.
38 Where property warranted “well” or “in good safety”, it is sufficient that property
be safe at any time during a particular day.
39 Implied warranty of seaworthiness:

 Voyage basis: Ship must be seaworthy at commencement and at each stage of voyage. In
port, ship must be reasonably fit for perils of port.
 Time Basis: Seaworthiness not implied at any stage of voyage, but policy voidable where
Insured knowingly sends ship to sea in unseaworthy condition.
40 No implied warranty of seaworthiness on goods. In voyage policy on goods, also
implied warranty that ship is fit to carry goods.
41 Implied Warranty of lawfulness of adventure at commencement and throughout
policy to control of Insured.

THE VOYAGE:
42 Implied condition that risk will commence within reasonable time, unless delay
known or waived by Insurer.
43 If place of departure stated, risk does not attach if vessel sails from other place.
44 If place of departure stated, risk does not attach if vessel sails for other place.
45 Change of voyage if destination voluntarily changed after commencement;
coverage ceases from time of determination to change voyage, unless otherwise
provided.
46 Coverage ceases for deviation of voyage from time of deviation.
47 Deviation of voyage exists if vessel does not proceed to designated ports of
discharge in order stated in policy (or if no order stated, their geographical order).
48 Voyage policy voidable (from time delay became unreasonable) if voyage not
prosecuted with reasonable dispatch.
49 Excuses for deviation or delay (after cause ceases, ship must resume course and
proceed with reasonable dispatch):

 Authorized by special term in policy.

 Caused beyond control of master & employer.
 Reasonably necessary to comply with warranty.
  Reasonably necessary for safety of ship/goods.
 For purpose of saving human life/aiding ship in distress.
 Reasonably necessary to obtain medical help for person on board.
 Caused by barratrous (if barratry covered) conduct of master/crew.
ASSIGNMENT OF POLICY:
50 Marine policy assignable before or after loss unless terms expressly prohibit
assignment.
51 Assignment can not take place after Insured has parted with interest.

THE PREMIUM:
52 Insurer not bound to issue policy until premium paid.
53 Broker liable to Insurer for premium. Insurer liable to Insured for claims and
return premiums. Broker has Broker’s Lien on policy for premium & charges, and
General Lien for balance of insurance account.
54 Receipt in policy conclusive (except for fraud) between Insurer & Insured only.

LOSS & ABANDONMENT:

55 Types of losses not covered:

 Loss/damage attributable to willful act of Insured.

 Loss/damage not proximately caused by insured peril.
 Wear & tear, inherent vice, vermin, etc.
56 Total loss of part is partial loss, unless part apportionable. Total loss actual or
constructive. Partial loss due to obliteration of marks.
57 Actual total loss by loss of specie and where Insured irretrievably deprived of
use. Notice of abandonment not needed for actual total loss.
58 Missing ship may be presumed actual total loss after reasonable time.
59 Transshipment covered.
60 Constructive total loss where property reasonably abandoned because actual total
loss appears inevitable or prevention would require expenditure greater than
property’s value.
61 For Constructive Total Loss, Insured may treat as partial loss or abandon property
for total loss.
62 Notice of abandonment must be prompt & unconditional.
63 After abandonment, Insurer entitled to take over interest.

PARTIAL LOSSES (Including Salvage, General Average, Particular Charges)

64 Defines charges of particular average.
65 Defines charges for salvage.
66 Defines charges for general average.

MEASURE OF INDEMNITY:
67 Unvalued: Up to insured value. Valued: Up to full extent of fixed value. Each
Insurer responsible for proportion of loss for subscription.
68 Measure of indemnity for total loss.
69 Measure of indemnity for partial loss of ship.
70 Measure of indemnity for partial loss of freight.
71 Measure of indemnity for goods & other property.
72 Apportionment of valuation for goods of different specie.
73 Measure of indemnity for general average.
74 Measure of indemnity for liability.
75 Measure of indemnity for loss not falling under above rules settled by rules as far
as applicable.
76 Provision of warranted ‘Free from Particular Average’.
77 Payment of loss does not reduce the amount of insurance. Provisions for
settlements of successive losses.
78 Provisions of the Suing & Labouring clause.

RIGHTS OF INSURER ON PAYMENT:

79 For total loss, Insurer entitled to take over interest in property.
80 For double insurance, each Insurer pays ratable portion.
81 Insured self-insured for excess amount due to underinsurance.

RETURN OF PREMIUM:
82 Paid premium declared returnable may be recovered by Insured from
Insurer. Unpaid premium declared returnable may be retained by Insured or Agent.
83 Conditions of return of premium from happening of event.
84 Particulars of return of premium in different circumstances.

MUTUAL INSURANCE:
85 Provisions where 2+ persons mutually agree to insure each other.

SUPPLEMENTAL:
86 Where marine insurance effected on behalf of other person, other person may ratify
contract, even after loss.
87 For legal changes, policy may be changed by express agreement or usage.
88 Definition of “reasonable” for reasonable time, etc., is a question of fact.
89 Where there is a duly stamped policy, reference may be made to slip/covering
note.
90 Definitions of “Act”, “Freight”, “Movables”, “Policy”.
91 Policy must follow Stamp Act (1891) & amendments, Companies Act (1862) &
amendments, provisions of any statute not expressly repealed by Marine Insurance
Act, Common Law as applicable.
92 Allows for repealment by Second Schedule.
93&94 Act effective Jan. 1907. Act named Marine Insurance Act, 1906.
Rules for Construction of Policy:
1 Where property insured “lost or not lost” and loss occurred before contract
concluded, risk attaches unless Insured was aware of loss & Insurer wasn’t.
2 Where property insured “from” particular place, risk doesn’t attach until ship starts
on voyage insured.
3 a) Where ship insured “at and from” particular place, and ship is at that place in
good safety, risk attaches immediately.
b) If ship not at particular place, risk attaches as soon as ship arrives there in good
safety.
c) Where chartered freight insured “at and from” particular place & ship is there in
good safety, risk attaches immediately.
d) Where other than chartered freight insured “at and from” particular place, risk
attaches pro rata as goods shipped.
4 Where goods insured “from the loading thereof,” risk does not attach until goods on
board, not covered while in transit from shore.
5 Where goods insured until “safely landed,” goods must be landed in customary
manner & within reasonable time at port of discharge.
6 Policy giving permission to touch and stay “at any port whatsoever” does not
authorize ship to deviate from voyage.
7 Term “perils of the seas” refers only to fortuitous accidents or casualties of the seas;
does not include ordinary action of wind & waves.
8 Term “pirates” includes passengers who mutiny & rioters who attack ship by shore.
9 Term “thieves” does not cover clandestine theft or theft committed by ship’s
company.
10 Term “arrests, &c., of kings, princes and people” refers to political or executive
acts; does not include riot or ordinary judicial process.
11 Term “barratry” includes every wrongful act willfully committed by master/crew
to prejudice of owner or charterer.
12 Term “all other perils” includes only perils similar in kind to perils specifically
mentioned in policy.
13 Term “average unless general” means a partial loss other than general average, not
including particular charges.
14 Where ship stranded, excepted losses (not caused by stranding) covered if risk
attached & property on board.
15 Term “ship” includes hull, materials & outfit, stores & provisions for officers &
crew, ordinary fittings for special trade; also, for steamship, includes machinery,
boilers, coals, engine stores.
16 Term “freight” includes profit by shipowner from employment of ship to carry
own goods as well as freight to third party, does not include passage money.
17 Term “goods” means goods in nature of merchandise (not personal effects, or
provisions/stores for use on board). Deck cargo & living animals insured specifically,
not as goods--unless otherwise stated.