Marine insurance law

Trine-Lise Wilhelmsen Scandinavian Institute of Maritime Law

Overview
o o o o The main types of marine insurance The legal sources The insurance contract Insurable interest, insurable value and the sum insured o Scope of cover

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Overview
o o o o o Duties of disclosure and due care Measures to avert or minimize loss Practical question to be solved Practical question, discussion General approach: Common rules for ship and cargo

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1. The main types of marine insurance

o Insurance related to ships o Insurance of goods under transport o Some other distinctions

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1.1 Insurance related to ships

o Casualty insurance
o Damage to/loss of property o Element of liability o Element of loss of income o Divided into two:
o Hull insurance o Hull interest insurance

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1.1 Insurance related to ships cont.

o Loss of income
o Covering income derived from property: o Loss of hire, freight interest, strike

o Liability insurance
o Covering ship-owners third party liability o Main liability insurance: P&I insurance o Overlaps with hull/hull interest insurance covering part of the collision liability

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1.2 Insurance of cargo under transport

o Covers cargo under transport from A to B (seller to buyer) o Casualty (damage and loss) insurance o Includes owners profit o But not
o loss of income in general o owners liability
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1.3 Some other distinctions of relevance.

o Marine/civil risks vs war risks
o Marine/civil insurance covers all risks that are not excluded o Special exclusion for war risks o War insurance covers war and similar perils as defined o Distinction used in all marine insurance

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1.3 Some other distinctions of relevance.

o Primary insurance coverage for costs of saving acts
o Primary insurance: coverage of casualties
o Caused by perils insured o According to the principles of indemnity in the contract.

o Saving acts: covers

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

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2. The legal sources in marine insurance

o The international legal picture o The Norwegian legal picture

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2.1 The international legal picture

o No international convention o The English marine insurance market o The Scandinavian marine insurance market

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2.1.1 No international convention

o Contrary to many other areas of maritime law o Has been attempts of harmonization in UNCTAD o A new attempt recently by CMI and NIFS o The situation today
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2.1.2 The English insurance market

o The English MIA = the legislative framework in most common law countries o English ITCH clauses used in
o even more common law countries o and in some civil law countries

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2.1.3 The Scandinavian market

o Each country has their own set of conditions o During the last century much inspired by the Norwegian Marine Insurance Plan o Many similar solutions o But different structure and legal framework

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2.2 The Norwegian legal picture

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

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2.2.1 FAL (ICA) 1989

o Starting point: Mandatory, 1-3 o But exception for
o insurance of ships that should be registered, 1-3 (c) o Insurance of international transport of cargo, 1-3 (e)

o However: Cargo insurance follows ICA with certain exceptions

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2.2.2 Norwegian marine insurance Plan 1996 (NMIP)

o Standard contract (Agreed document) o Developed over 125 years o Most of the interested parties have participated in the construction o This approach contrary to ITCH/other conditions
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2.2.2 Norwegian marine insurance Plan 1996 (NMIP)

o Covers most of the insurances for the shipowner o But: not P&I insurance o Extensive preparatory documents (Commentary) o Little relationship with the ICA

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2.2.3 Norwegian Cargo Clauses (CICG)

o Conditions relating to insurance for the carriage of goods o Many of the same characteristics as NMIP o But
o Less extensive commentaries o A stronger connection to the ICA

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2.2.4 The P&I Conditions

o Traditionally: Part of the NMIP o Today: Skuld and Gard (Norway), Swedish club (Sweden) o Part of international network o Cover: Protection and Indemnity + other types of cover

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3. The insurance contract

o The parties to the insurance contract o The formation of a marine insurance contract o Jurisdiction and choice of law

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3.1. The parties to the insurance contract

o o o o o o o Definitions, NMIP 1-1 The insurer/company Coinsurance /claims leader (NMIP ch 9) Reinsurance The assured The person effecting the insurance Insurance of third party interest
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The parties to the contract

Insurer

Insurance contract

Right to compensation

Person effecting the insurance

The assured

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Insurance of third party interest

Insurer

Insurance contract

Right to Compensation

Person effecting the insurance

The assured

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Insurance of third party interest, NMIP

Co-insured, Ch. 7 and 8

Insurer
Insurance contract

Right to compensation

Person effecting Insurance

Assured

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Insurance of third party interest, CICG

Buyer

Company
Insurance contract

Right to compensation

Seller

Seller

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 Partial insurance with more than one insurer

Co insurance

1/3

Insurer A 200 mill NOK

Ship 600 mill NOK

1/3 1/3

Insurer B 200 mill NOK

Insurer C 200 mill NOK

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Reinsurance The insurer reinsures the risk undertaken under the direct insurance contract.
Ship: 600 mill NOK
Direct insurance: 100 %

Insurer: 100 mill NOK

Reinsurance: 500 mill NOK

Reinsurer: 500 mill NOK

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3.2 Concluding the Contract

o o o o o o Starting point: Ordinary contract law The use of broker: NMIP 1-3 Housekeeping rule No sanctions The purpose Relationship to the slip
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3.2 Concluding the Contract

o Documents
o NMIP: Written proof of insurance = policy, see 1-2 o CICG:
o Insurance certificate, ICA 2-2 o Insurance document , CICG 1 nr. 4
o Single shipment = Insurance certificate o Open cover/floating policies = certificate + document

o Gard 5: Certificate of entry

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3.3. Jurisdiction and choice of law

o NMIP 1-4, CICG 59, Gard 90/91 o Main rule:
o Norwegian jurisdiction and o Background law

o But: NMIP 1-4.3: foreign claims leader o The relationship to the ICA
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4. Insurable interest, insurable value and the sum insured

o o o o o o Insurance unrelated to any interest Insurable value and sum insured Underinsurance and overinsurance Double insurance Calculating the insurable value The sum insured as limit to the insurers liability

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4.1 Insurance unrelated to any interest

o Insurance unrelated to any interest is void, NMIP 2-1, Criminal Enactments Act 12 (wager insurance) o MIA sec. 4.1 o The relationship with provisions concerning legal interest:
o NL 5-1-2 o NMIP 3-16 concerning illegal activities o CICG 18 nr. 4

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4.2 Insurable value and sum insured

o Insurable value, NMIP 2-2, CICG 29 =
o Value of the insured interest o at the commencement of the insurance o Maximum for liability o Not possible in P&I insurance

o Sum insured = the sum the assured has chosen to insure

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4.2 Under insurance

o Under-insurance = insurable value exceeds sum insured o Regulated in NMIP 2-4, CICG 30 o Not possible in P&I insurance o Pro rata reduction in coverage o Not common in hull insurance except for co insurance
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Under insurance

Insurable value: 1000 Potential loss Sum insured: 500 Compensation 500/1000 = 50 % Of each damage

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4.2 Overinsurance
o Over-insurance = sum insured exceeds insurable value o Regulated in NMIP 2-5, CICG 31 o Liability limited to the insurable value o No liability in case of fraud o Not good business

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Over insurance:

Sum insured: 1000

Basis for premium

Max. compensation Insurable value: 660

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4.2 Double insurance

o Double insurance = same interest insured against same peril under two or more contracts o NMIP 2-6, ICA 6-3 o Main rule: joint liability o Exclusion: Subsidiarity, NMIP 26.2
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4.3. Calculating the insurable value

o Open insurable value, NMIP 2-2 = full market value when the insurance commences o Assessed insurable value, NMIP 23 = as agreed between the parties o CICG 29: Market value + costs

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o NMIP 4-18: Three times the sum insured:

4.4 The sum insured as limit to the insurers liability

o The ordinary sum insured o + the collision liability sum o + the costs of measures to avert or minimize a loss sum o Sum insured for casualties, 32 o + losses according to 39-43, i.e. salvage measures etc.

CICG 32-33:

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5. Scope of cover
o Terminology o Perils insured against in marine insurance o Causation

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Terminologi
Perils insured
Heavy weather Theft Leakage Fire Etc

Losses covered
Damage

The casualty

Total loss Collision liability Loss of time Etc

Causation

Causation

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5.2. Perils insured against

o The main distinction: Marine insurance and war risk insurance o NMIP 2-8 and 2-9 o CICG 3 to 5 and 18 nr. 6 o Gard 58 o General distinction in international marine insurance
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5.2. Perils insured against

o Marine risks
o The all risks principle, NMIP 2-8 / CICG 3 o Exceptions:
o CICG 4 and 5: Limited cover o War perils, 2-8 letter a), CICG 18 nr. 3 and 6 o Intervention by state power, NMIP 2-8 b), CICG 18 nr. 7 and 18 o RACE II, NMIP 2-8 d) and CICG nr. 10 and 11. o NMIP: Insolvency, letter c)

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5.2. Perils insured against

o War insurance
o Named perils principle, NMIP 2-9, CICG Special clauses for Strikes, sabotage, acts of terrorism, etc o NMIP: Common exceptions, see above o The relationship between the two branches

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5.3 Causation
o o o o o The problem General insurance law NSPL/CICG: The main rule Combination of war and marine perils Combination of perils over different insurance periods

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5.3.1 The problem

o Presumption:
o Two causes are necessary to result in a loss, o none of them are sufficient.

o Combination of perils in different situations

o Covered and uncovered perils o Perils covered under different branches o Perils occurring in different insurance periods

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Presumption: Two necessary causes

Ship collides

Collision damage

The ship sinks

Two sufficient causes

Mine

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Combination of covered and uncovered causes

Marine insurance

Bad weather Grounding Combination of causes Breach of Safety rule

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Combination of causes covered under separate insurances

Marine insurance

Failure of navigation Combination of causes Darkening of lighthouse Grounding

War insurance
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Causes in different periods

2004 Fracture

2005

Casualty

Bad weather

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5.3.2 General insurance law

o The main rule: The dominant cause rule o Legal basis: ND 1916.76 jfr. 1916.209 Skotfos o The content o Anglo American solution: Causa proxima o P& I insurance: Gard 90: ordinary insurance law

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Rt 1916.209 Skotfos
Marine insurance

Liability
Dominant cause = the most important The ship runs aground

Failure of navigation

Combination of causes
Darkening of lighthouse Not relevant cause

War insurance
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5.4.3 NMIP/CICG The main rule

o NMIP 2-13/CICG 20 o Apportionment principle, not the dominant cause rule o Special Norwegian principle o Only applied in marine insurance o Combination of covered and uncovered perils
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NMIP 2-13/CICG 20:

Coverage 70 % Covered risk 70 %

Casualty

Uncovered Risk

30 %

Uncovered 30 %

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5.4.4 Combination of war and marine perils

o NMIP 2-14 o Reinstates the dominant cause rule as a main rule o If neither cause is dominant, equal division

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5.4.5 Combination of perils in different periods

o NMIP 2-11 o Starting point: When the peril strikes o Exception for unknown defect or damage

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NMIP 2-11
The insurer is liable for loss occurred when the interest insured is struck by an insured peril during the insurance period. A defect or damage which is unknown at the inception or on expiry of an insurance, shall be deemed to be a marine peril which strikes the ship at the time the casualty or damage to other parts occurs, or at such earlier time as the defect or the first damage became known.
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Incidence of loss, NMIP 2-11, 1:

Peril strikes 31.12.2005

Renewal Casualty Time

2005 - policy

No liability for the 2006 insurer

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Incidence of loss, NMIP 2-11, 2:

2006 2004

Fracture

Develop ment

2004 - policy

2006 - Policy

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

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Incidence of loss, NMIP 2-11, 2:

2000

2004

2006

Defect

Fracture
Develop ment

2004 - Policy Peril strikes 2006 - Policy

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Incidence of loss, NMIP 2-11, 2:

2000

2004

2006

Defect

Fracture
Develop ment

Peril strikes

2004 - Policy 2006 - Policy

But: deemed to be a marine peril which strikes at the time of the extension

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