MARINE INSURANCE

RISKS

Prepared by: Ms. Norazimah Mazlan

INTRODUCTIONMarine insurance policies can be divided to:•All Risk Policies (e.g. Institute Cargo Clauses (A))•Named Risk Policies(e.g. Institute Cargo Clauses (B) & (C).

Since most marine policies in practice are named risk policies, it is necessary to ascertain the scope of marine risks which are likely to be insured against in most marine policies.

1. PERILS OF THE SEASchedule 1 Rule 7 MIA 1906:The term “perils of the seas” refers only to fortuitous accidents or casualties of the seas. It does not include the ordinary action of the winds and waves.

2 elements need to be fulfilled1.1. Fortuitous accidentsIn order to claim under perils of the sea, the accident

must be accidental, fortuitous and unexpected.

It must not be something which is inevitable (unavoidable). E.g high tide and low tide.

The Xanto• The term perils of the sea does not cover every

accident or casualty which may happen to the subject matter of the insurance on the sea.

• It does not protect against the natural and inevitable action of the winds and waves.

• There must be some casualty, which could not be foreseen.

1.2. of the seas• A peril must be “of the sea”.

• The extraordinary accidents must not merely occurring “on the sea” but must be associated with the sea. (E.g. collision, groundings.)

• Rats and vermin are not perils of the seas. Even though the loss caused by rats and vermin occurred on the sea, it is not associated with the sea because the same thing would have happpened occur on land.

• This was because the damage was not caused by the sea, but simply occurred while the vessel was at sea and had nothing to do with the sea conditions.

• Other example: the damage to the donkey engine which is not due to the sea condition is not a peril of the sea.

StormsCanada Rice Mills Ltd. v. Union Marine & General Insurance Co. Ltd. [1941] AC 55• an unexpected storm was held to be a

peril of the sea

Unexpected Ice berg Popham v. St Petersberg Insurance Co. (1904) 10 Com. Cas. 31. • Ice berg encountered by the vessel at an

unexpected time of the year was also regarded as a perils of the sea.

Icing Sea• The annual icing over of particular seas in winter

preventing any chance of passage is part of the ordinary course of things. Thus, it is not perils of the seas.

Ingress of sea water

Mountain v WhittleA loss caused by the entrance of sea water is not

necessarily a loss by perils of the seas.There must be some special circumstances

such as heavy waves causing the entrance of the sea water to make it peril of the seas.

CollisionA collision at sea between two vessels is a peril of the sea.

The XanthoCargo on board the Xantho was damaged in a collision with the Voluta, which could have been due to the fault of either. Held: The cause of loss was “perils of the sea”.

• Negligence of crew during management or navigation is covered under perils of the seas. E.g. negligent acts which allow entry of seawater would amount to perils of the seas.

• Not every negligent act at sea constitutes a peril of the seas.

Thames & Mersey v. Hamilton (1887) 12 App. Cas. 384• Held: damage to the engine resulting from a valve

left closed as a result of negligence of the crew was not a perils of the sea.

• This was because the damage was not caused by the sea, but simply occurred while the vessel was at sea and had nothing to do with the sea conditions.

Negligence of crew during management or navigation

What is excluded from the definition?

• ordinary action of winds and waves (e.g. high tide and low tide)

• deliberate damage /wilful misconduct of any person

e.g. Scuttling – wilful and deliberate throwing away of a ship.

• damage caused by wear and tear.

Burden of Proof

• The burden is on the shoulders of the assured to show that the loss is attributable to “perils of the sea”.

Fire

The Buckeye State (1941) 39 F. Supp 344Fire is caused by ignition or combustion, and it

includes the idea of visible heat or light.

Heating is not includedFact of the case: A cargo of grain was damaged since the light bulbs in the hold were left on, and this caused the heating of the cargo. Held: The cause of the loss was over-heating, not a fire.

Tempus Shipping Co Ltd v Dreyfus & Co LtdMere heating which has not arrived at the stage

of ignition is not within the definition of fire.

Once ignition has occurred, recovery is not confined to damage inflicted by flames.

Subject to the terms of the policy, it may include :• smoke damage • damage caused while fighting against the fire• damage caused while attempting to save the subject matter insured or preventing the spread of fire.

• Different from perils of the sea, the element of fortuity is immaterial. The loss by fire is covered either the fire started accidently or deliberately.

The perils of the sea does not distinguish between reasons for the fire. It makes no difference if the fire:• caused by a common acccident• caused by lightning• caused by negligent• deliberate fire by a stranger• deliberate fire by master or a member of the crew or a

stranger.

Fire started by the assured is excluded (e.g. arson). It is considered wilful misconduct which is an excluded peril.

Theft

• r 9 of the Rules for Construction, MIA 1906:

“Thieves” does not cover clandestine theft or a theft committed by any one of the ship’s company, whether crew or passengers.

Theft is not to be interpreted in the strict sense of the criminal law.

Two elements need to be fulfilled:

1.Theft must be violent

• The theft must be of violent nature either to person or property.

• Clandestine or secret theft is not covered under this definition.

Andreas LemosWhile the vessel was at anchor, thieves boarded the

vessel and stole equipment on the vessel. When they were challenged by armed members of the crew, the thieves drew knives and then jumped into the sea.

Held: This is a clandestine theft because the theft was complete before threat occurred.

2.Committed by persons from outside the vessel

The word thieves did not include persons in the service of the ship.

Persons from outside the vessel: stevedores who were employed to load the ship. Pilots

Is it possible to cover yourself against clandestine theft?

Yes, by applying this additional clause.

Institute Theft, Pilferage and Non-delivery Clause:• “In consideration of an additional premium, it is

hereby agreed that this insurance covers loss or damage to the subject matter caused by theft or pilferage…”

Piracy

• International law definition of piracy is rather narrow.

r 8, Schedule 1 of MIA:• The term “pirates” includes passengers who

mutiny and rioters who attack ship from the shore

3 elements need to be fulfilled1. Piracy is robbery for personal gain • Robbery committed for other reasons, i.e. political,

does not amount to piracy.

2. Violence is an essential element for piracy• Force must be used or there must be threat to use

force before the robbery takes place. (violence on crew)

• 3. Piracy could be committed either by outsiders or passengers• Outsiders- the most common form of piracy• Passengers- who use force or threaten to use

force for personal gain

PERILS EXCLUDED

• Section 55(2) MIA 1906Wilful misconduct of the assured (Deliberate acts done with the intent to cause loss)

Delay

Ordinary wear and tear (damage due to or sustained during ordinary usage)

Inherent vice (loss arising due to nature of the cargo without the intervention of any fortuitous external accident or casualty )

Contractual Exclusions• E.g. war risks are excluded from marine

policies- Clause 24.1 of Institute Hull Clauses 1995 states:“In no case shall this insurance cover liability or expense caused by war, civil war, revolution, rebellion, insurrection, or civil strife arising therefrom, or any hostile act by or against a belligerent power