THE MAIN SECTIONS OF MARINE INSURANCE

The main sections of marine insurance are hull, cargo, freight, and shipowner’s liability.

(a) Hull. The hull of the vessel, which includes the machinery, can be covered against damage or total loss by storm, stranding, fire, collision, or other perils of the sea. Insurance begins from the laying of the keel, when the insurable interest lies with the shipbuilder. After passing into the hands of the buyer, the insurable interest lies with the shipowner from then on. Some policies are time policies, lasting usually for 12 months, or they may be voyage policies lasting from port of departure to port of arrival without a specific time being agreed.

(b) Cargo. The insurance of cargo is absolutely vital in the import and export trade, since the question of payment for the goods hinges around the existence of a reliable insurance policy. This will be explained in detail in my future posting, and the reader is urged to investigate this aspect of cargo insurance thoroughly. The main point is that the existence of an insurance policy in conjunction with a Bill of Lading means that whoever purchases the goods by purchasing the Bill of Lading also subrogates (inherits the rights to ) the insurance claim that may arise if the goods are lost at sea. He therefore buys with confidence, since his purchase is completely secure. Without the insurance policy no one would be prepared to pay for the goods until they had arrived safely.

Cargo policies refer to the movement of goods exported from or imported to a country. At some point the insurable interest will pass from the seller to the buyer, according to the contract of sale. Usually this will be either an F.O.B contract (Free on Board-the seller to deliver the goods on board the carrying vessel)or a C.I.F contract (Cost, Insurance, Freight- the seller to deliver the goods to the port of destination).

Cargo policies cover all risks including war and strike risks, and are based on the value placed on them by the seller-this means the ordinary invoice price. The holder usually has the right to claim, since, except in rare instances, the property in the cargo vests with the holder of the Bill of Lading , to which the policy and invoice are invoice are attached. It follows that for the whole of the time the marine policy is in effect the cargo is the property of the holder of the Bill of Lading.

Floating policies are a variation of cargo policies. They give cover for a specified sum, say $1 million, and eliminate the necessity of insuring each cargo separately. For instance a cross-Channel ferry would be greatly inconvenienced if underwriting insurance had to be negotiated for every trip. The master simply notifies the value of the cargo before sailing on each voyage, and this is set against the floating policy. As soon as the sums already covered approach the total value of the policy the premium will be renewed to extend the cover for a further period.

Open-cover agreements are sometimes made by which an underwriter agrees automatically to cover any consignment notified to him up to a certain limit at a pre-arranged rate for a particular voyage. Policies are issued after shipments are notified.

(c) Freight. The word ‘freight’ is often used as a synonym for cargo, but it has a different meaning in insurance. Here the word means the charge for carrying cargo. A shipowner often gets the freight in advance, but since he is not legally entitled to it until the cargo is safely delivered, he may face an action for recovery of the freight should the cargo be lost overboard. If it is not recoverable because of a special clause in the contract of carriage it will form part of the insured value of the cargo. If it is payable on delivery, it will be a matter for the shipowner to insure against loss of freight. It follows that in nearly every case there is some party with an insurable interest in the freight. Underwriters are prepared to cover this risk of loss of freight, just as in fire insurance they are prepared to cover not only the risk of a fire itself, but the risk of loss of profits while a building is out of use after the fire. Since ‘freight’ is the reward for carrying, it is the income of the carrier.

(d) Shipowners’ liabilities. These are very numerous: not only cargo, passengers, and crew but other vessels, fixed installations such as piers and wharves, and even beaches are liable to be damaged by the actions of ships and ships’ masters. After the Torrey Canyon disaster near Land’s End, a bond of 3 million pounds was required from the owners to cover claims for detergent used, and loss of business suffered by the authorities and businessmen involved in clearing the beaches of oil from the tanker. These eventualities represent a further heavy burden placed upon shipowners. Insurance relives them of these risks, and enables them more confidently to go about their business on the high seas.