01. Marine Hull Insurance in India - Is It on a Funeral Voyage

Marine Hull Insurance In India (Is it on a Funeral Voyage?)

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THE CASE OF THE VERY LARGE OIL/ORE CARRIER “ARUN”

An Overview of the “Funeral Voyage” of Marine Hull Insurance in India.

By

A.W.J. (Tony Fernandez)

Average Adjuster, Risk Management Consultant, Mediator & Learning Facilitator Formerly Visiting Professor of Insurance & Maritime Law – University of Mumbai Honorary Member International Institute of Marine Surveying United Kingdom

Foreign Associate Member of the Association of Average Adjusters of the United States

CREATIVE MARINE INSURANCE CONSULTANTS PVT. LTD. (Erstwhile TONY FERNANDEZ AVERAGE ADJUSTERS PVT. LTD)

405, Vyapar Bhavan, 49, P. D’mello Road, Carnac Bunder, Mumbai – 400009 Office Tel. No. : (+91 22) 2373 3818 Cell No. : (+91) 93211 92110 or (+91) 98921 92110

Email: [email protected]

mailto:[email protected]


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Satyameva Jayate (Truth Alone Triumphs)

The Self is the sun shining in the sky, The wind blowing in space; he is the fire At the altar and in the home the guest;

He dwells in human beings, in gods, in truth, And in the vast firmament; he is the fish

Born in water, the plant growing in earth, The river flowing down the mountain.

For this Self is supreme! (Katha Upanishad II.2.2)

“An error does not become truth by reason of multiplied propagation, nor does truth become error because nobody sees it.”

Mahatma Gandhi Ji

“Learn thoroughly whatever is to be learnt; Then, let the conduct be worthy of his learning.”

Thirukural 391

“Even if you are a minority of one, the truth is the truth.” Mahatma Gandhi Ji

“Most of them follow nothing but conjecture, and conjecture is no substitute for the truth. God is fully aware of everything they do.”

(Quarn 10:36)

“And you will know the truth, and the truth will make you free.” (Bible – John 8:32)

“Change is vital, improvement the logical form of change.” James Cash Penney

http://thinkexist.com/quotation/even_if_you_are_a_minority_of_one-the_truth_is/216587.html


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1. INTRODUCTION

1.1 The title may seem odd. Is it ever possible that Marine Hull Insurance, which dates back to ancient times in the great maritime Country, will be demolished? Is the question, whether Marine Hull Insurance in India is on a “Funeral Voyage” relevant?

1.2 From the very day that the Marine Hull Tariff in India was jettisoned in the name of a “level

playing field”, to bring in “competition” for the good of the Shipowner Assured, the very opposite of what was intended is being achieved slowly but surely! The phenomenon may rightly be called the “Lord Shiva Effect” – demolition and destruction, prior to rising like the Phoenix from the ashes. When will demolition be complete? The day is not far off!

1.3 With Tariff Rates for Marine Hull Insurance dropping by 90% in a period of about five

years, the portfolio has become unviable from an economic point of view. Two Insurance Companies have closed their books on Marine Hull Insurance and one has decided to go slow in writing Marine Hull business. What does one do when loss ratios exceed hundreds of percent? Simple – turn down valid claims with the assistance of a few unprofessional insurance intermediaries. When “underwriting” descends to the depth of “undertaking”, the future Hull & Machinery Policies would have a simple warranty, “It is warranted that any Claim would only be paid, (with interest) when and only when the Supreme Court of India gives its Judgment on the Claim.”

1.4 The above may sound sarcastic and insinuating. However, the reader may decided for

himself or herself, whether or not the Case of Very Large Oil / Ore Carriers VLOO “ARUN”, (hereinafter referred to as “Vessel”), is a cause for concern of all those connected with Marine Hull Insurance – Shipowners, Insurers and other Insurance Intermediaries.

1.5 Briefly, the Vessel was purchased by M/s. Priya Blue Industries Pvt. Ltd., a Ship-breaking

Company, (hereinafter referred to as “Assured”) for scrapping at Alang, Gujarat. The Vessel was insured for the “funeral voyage” (a term used to describe a the last voyage of a ship for demolition), by The New India Assurance Company Ltd., (hereinafter referred to as “Insurer”), under a voyage policy on Total Loss Only terms for a sum insured of Rs. 25,70,00,000/- (Rupees Twenty Five Crores Seventy Lakhs Only) for a Premium of Rs. 1,14,280/- (Rupees One Lakh Fourteen Thousand Two Hundred Eighty Only).

1.6 On 09-Jun-97, the Vessel commenced its funeral voyage but before she could reach the

designated plot for beaching, ran aground on a rock, broke her back and became an actual total loss.

1.7 The incident was intimated by the Assured to the Insurer who appointed M/s. Transocean

Marine and General Survey Agencies (hereinafter referred to as “First Surveyor”) to survey and report on the loss. The First Surveyor in their Report dated 24-Jun-97, concluded:


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1.8 The Insurers then appointed M/s. J.B. Boda Offshore Surveyors & Adjusters Pvt. Ltd., (hereinafter referred to as “Second Surveyor”) to also survey and report on the loss. The Second Surveyor in their Preliminary Report dated 14-Jul-97, concluded:

1.9 The Second Surveyor in their Final Report dated 28-Jul-97, concluded:

1.10 In accordance with Marine Hull Law and Practice, the Assured appointed M/s. Tony Fernandez Average Adjusters Pvt. Ltd., (hereinafter referred to as “Average Adjuster”), as the Average Adjuster. The Assured informed Insurers of such appointment and the Insurer confirmed the appointment of the Average Adjuster in their letter of 05-Aug-97.

1.11 In the Statement of Adjustment the Average Adjuster confirmed that there was liability

under the Policy of Insurance and recommended the claim to be settled for Rs. 13,69,00,000/- that is, net of the sale proceeds of the Vessel in a public auction. The basis for preparing the Statement of Adjustment was the Survey Reports both of both the First Surveyor and the Second Surveyor in addition to other claim documents.

1.12 The Insurers referred to the matter to another Surveyor, (apparently unofficially), since he

was not officially appointed for the Claim. This Surveyor, on an un-numbered, and un-signed letterhead of his firm, gave the Insurer a Note tilted “Points To Ponder” wherein he recommended repudiation of the Claim on grounds which have no basis in law. The Insurers apparently took his advice and repudiated the Claim, discarding the opinion of two Surveyor appointed by them and further, ignoring the Statement of Adjustment of the Average Adjuster, whose appointment the Insurer had approved.


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2. APPEAL TO THE NATIONAL CONSUMER DISPUTE REDRESSAL COMMISSION 2.1 The Assured filed a Petition (Original Petition No. 129 of 1998) before the National

Consumer Dispute Redressal Commission (hereinafter referred to as “National Commission”) for non-payment of his legitimate claim under the Policy of Insurance.

2.2 A Two Member Bench of the National Commission comprising Hon’ble Mr. Justice M.B.

Shah, as President and Mrs. Rajyalakshmi Rao, Member, heard arguments of the Counsel of the both the Petitioner Assured and the Respondent Insurer including considering documentary evidence and evidence of the witnesses.

2.3 The evidence included the Examination-in-Chiefs and Cross Examinations of witnesses

from both sides including the Assured, Insurer, Surveyors and the Average Adjuster. For reasons best known to the Insurer and their Legal Advisors, they decided not to examine the Surveyor who had given his “Points To Ponder” Note on the basis of which Insurers decided to repudiate liability.

2.4 The Insurer Respondent’s Counsel gave reasons for which the Claim was repudiated but

were unable to provide any objective documentary nor other evidence to substantiate their reasons and arguments. On the contrary, the Insurer Respondent’s witnesses in Cross-Examination, gave replies that supported the contention of the Assured.

2.5 The National Commission gave their Order dated 19-May-05 (that is about eight years after the Petition was filed by the Assured), the introduction of which states as follows:-

2.6 The National Commission in their Order dated 19-May-05, under the Caption “Findings”, states as follows:-


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2.7 The National Commission Order concluded as follows:-

2.8 It is to be noted that the amount of the Claim in the Judgment of the National Commission, is

identical to what the Average Adjuster had recommended in the Statement of Adjustment.


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3 APPEAL TO THE SUPREME COURT

3.1 The Insurer decided to challenge the Order of the National Commission Order 19-May-05, and accordingly filed a Civil Appeal No. 3714 of 2005 in the Supreme Court of India, while the Assured also filed a Civil Appeal No. 2116 of 2006 in the Supreme Court of India, apparently not satisfied that the National Commission had not order the amount claimed by him but only that recommended by the Average Adjuster.

3.2 A Two Judge Bench of the Supreme Court of India comprising of Judge B. Sudershan Reddy and Judge Surinder Singh Nijjar heard the both the Appeals together and gave their Judgement dated 09-Mar-11, and concluded as follows, with reference to the Appeal of the Insurer:-


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3.3 With reference to the Appeal of the Assured the Two Judge Bench of the Supreme Court of

India comprising of Judge B. Sudershan Reddy and Judge Surinder Singh Nijjar heard the gave their Judgement dated 09-Mar-11, and with reference to the Appeal of the Assured, stated:-

3.4 The Two Judge Bench of the Supreme Court of India comprising of Judge B. Sudershan Reddy and Judge Surinder Singh Nijjar heard concluded their Judgment dated 09-Mar-11, wherein both Appeals were dismissed by stating in five simple words:

3.5 It is to be noted, that the Two Judge Bench of the Supreme Court of India upheld the National Commission’s Order both in terms of liability under the Policy and also with regard to the quantum of liability. The Commission’s Order was based amongst other things, on the Average Adjuster’s Statement of Adjustment, which disallowed claims pertaining to Sue & Labour of the Assured, which were not substantiated. Both the National Commission as well as the Supreme Court of India upheld the Statement of Adjustment on aspects of liability and as well as the quantum thereof.

4 ARE THERE LESSONS TO LEARN FROM THIS CASE?

4.1 By denying liability on the basis of an un-numbered and unsigned note, on the letterhead of a Surveyor who had no locus standi in the matter (as he was not appointed by either the Insurer or the Assured), the Insurer’s eventual payment (which, as of date is yet to be paid to the Assured), has gone up from Rs. 13.69 Crores to Rs. 30.84 Crores assuming the Claim would be settled by 09-May-11 (due to the interest at 9% per annum, after a period of 13 years and 11 months). The interest component alone works out to Rs. 33,733/- per day or part thereof.

4.2 Benjamin Franklin said, “Being ignorant is not so much a shame as being unwilling to learn”. For those of us who believe in Professionalism and wish to stem the rot that that has adversely affected the Marine Hull Portfolio in India, whether by imprudent underwriting or illogical and illegal claim denials, there has to be self-introspection and humility to learn from our mistakes. Are we prepared to take the challenge to change for the better?


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4.3 In this regard, the biggest sector, which is at risk, is not the insurance industry but the

shipping industry. The day is not far off, when like the two insurance companies other insurance companies in both the private and public sectors may close their Marine Hull Books. That is the day for shipowners to dread – since the Lord Shiva Effect would be complete – complete annihilation prior to risking like the Phoenix from the ashes!

4.4 Do we wish to wait for that day or should there be a proactive approach to learning from mistakes and making a course correction?

5 CONCLUSION 5.1 The purpose of this note is not to point fingers or blame anyone in particular or the

General Insurance Sector in general, but to draw attention to the what lies ahead if no corrective action is immediately taken. Everyone who is committed to a professional approach to Marine Hull Insurance in India – the Regulator IRDA, the Insurance Companies (both Public and Private Sectors), the Shipping Companies (large and small), and Insurance Intermediaries – Insurance Brokers, Risk Management Consultants, Insurance Surveyors, Average Adjusters and Claims Consultants, must consider the Judgement as a “wake-up call” for corrective and preventive action.

5.2 If introspection is made by all us who have a stake in Marine Hull Insurance in India, we

will realise that the twin viruses of IGNORANCE and ARROGANCE are the root causes of the cancer, which is wasting away the Marine Hull Portfolio in India. The only antidotes for two deadly viruses of Ignorance and Arrogance, are according to our ancient Vedas, firstly, “Aajeevan vidyarthi” (Be a Life Long Learner) and “Vidyadhanam sarvadhana pradhanam” (The best gift we can give others is our knowledge).

5.3 As the Insurance Industry sailed from the days of pre-nationalization to nationalization and

continued the voyage into privatization, several gradual changes (all for the worse) that has afflicted the Insurance Industry, with specific reference to Marine Hull Insurance, which is a very specialized branch of Insurance. What were these changes?

5.4 Specialization in Marine Hull Insurance gave way to dilution of expertise and experience

after nationalization due to the concept of “job rotation” in the name of Human Resource Development (HRD), which in the light of what has happened can only mean “Human Resource Dilution”! The “Claims Adjuster” who was the in-house expert of every insurance company that wrote marine hull business is not extinct. Reliance is now being placed by Insurers on insurance intermediaries like Surveyors or Average Adjusters for decision making on claims. There are some responsibilities that cannot be delegated and decision making on claims is one of these. The impact of “vigilance” and the threat of receiving a “memo” just before retirement, (thus stalling the receipt of Provident Fund and Gratuity) has in no small measure added to the fear psychosis of decision makers, especially with regard to insurance claims. Some unscrupulous and unprofessional surveyors have taken advantage of this situation to make themselves judge and jury of marine hull claims.


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5.5 The IRDA has also contributed to the sad state of affairs by not differentiating between marine and non-marine claims when it comes to duties and responsibilities of surveyors, and not even mentioning the role and function of Average Adjusters.

5.5 To all those who have an open mind, the undersigned is willing to share views and analyse

the sad state of affairs of Marine Hull Insurance in India by creating awareness on the challenges ahead of this ancient maritime nation, and paving the way ahead through Professionalism based on Competence and Credibility, by speaking at Conference, that is so urgently required to assess the situation and take immediate corrective and preventive action.

A.W.J. (Tony) Fernandez Average Adjuster, Incident Causation Analyst, Risk Management Consultant, Valuer, Mediator, Mentor & Learning Facilitator

MANAGING DIRECTOR CREATIVE MARINE INSURANCE CONSULTANTS PVT. LTD. (Formerly TONY FERNANDEZ AVERAGE ADJUSTERS PVT. LTD)

405, Vyapar Bhavan, 49, P. D’mello Road, Carnac Bunder, Mumbai – 400009 Office Tel. No. : (+91 22) 2373 3818 Cell No. : (+91) 93211 92110 or (+91) 98921 92110 Email: [email protected]

At Mumbai 22nd April 2011 Enclosures:

1. Annexure “A” An Average Adjuster’s Prayer.

2. Annexure “B” Curriculum Vitae of A.W.J. Fernandez, Average Adjuster.

3. Annexure “C” The Judgement of the National Commission.

4. Annexure “D” The Judgement of the Supreme Court of India.

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01. Marine Hull Insurance in India - Is It on a Funeral Voyage

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