Hull Insurance doc

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HULL INSURANCE Sr. no. Topic Pg.No. 1 Origin 2 Introduction 3 Hull Proposal Forms 4 Hull Ratings 5 Hull Clauses 6 Hull Tariffs 7 Hull Claims 8 Case study 9 Conclusion

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Transcript of Hull Insurance doc

HULL INSURANCE

Sr. no.

Topic Pg.No.

1 Origin

2 Introduction

3 Hull Proposal Forms

4 Hull Ratings

5 Hull Clauses

6 Hull Tariffs

7 Hull Claims

8 Case study

9 Conclusion

OBJECTIVES

Ship-owners’ and steamer companies, whether big or small are very much concerned and aware about the security of their ongoing vessels, fishing vessels sailing vessels trawlers, barges etc. from the perils at sea which are increasing at a high rate day by day. The nature of sea, ease of connectivity and lack of true control- creates an environment where mishaps happen at a very faster rate. As such any discussion of Business at Sea is made: it quickly becomes a discussion of security.

The securitization of Ocean Going Vessels is a serious issue to tackle with, in a process of building a self-reliant country, where the technology to restrict and eradicate the mishaps at sea will be one of its most valuable asset, due to which high value of monetary losses are incurred by a country every year, thus reducing its GDP. In shorts the main objectives of this Hull Insurance are:

To understand what exactly Hull Insurance is, and it is apart from various other forms and Policies of General /Marin Insurance.

To understand the various risks are involved at sea and types of policies available to minimize the monetary risks associated with it, at the time of mishap.

To understand the various kinds of Claims Procedure to be implemented at times of mishaps.

To know the various kinds of clauses to be dealt on like Voyage or for vessels used for Fishing purposes or for Oil digging.

METHODOLOGY

Research is systematic quest of knowledge. The means and techniques and frames of reference by which a researcher approaches and carries out enquiry, is known as ‘Methodology’.

For the project primary and secondary sources used. Thus a library research is don and a literature review is taken up. A literature review is an attempt to identify and to locate materials about specific topic of research. It helps researcher to get an insight in the given topic. Here various books, magazines are been referred.

Tools used for data collection are the website and Library research.

Chapter 1

ORIGIN

Origins of marine insurance are very ancient. Marine insurance as a technique for providing protection against the perils of seas had its origin in the “bottomry bonds” which were issued by the Mediterranean merchants as early as the fourth century B.C. A “bottomry bonds” was an advance of money on a ship during the period of voyage. The loan was repayable with the agreed rate of interest on arrival of the ship safely at the destination. If the ship was lost during the voyage, the obligation to repay the loan was extinguished. The interests payable constitute a form of premium for the risk of total loss. Similar loans were granted on the security of cargo and were called “respondentia bonds”

References to similar practices were also found in “Manab Dharma Shastra” (codes of Manu) which contained rules for marine contracts which were observed by traders from Broach and Surat who set sail in Indian-built sailing vessels with merchandise to Lanka, Misr (Egypt) and Urban (Greece).

Another fore-runner of marine insurance was the practice of general Average (GA) whereby losses voluntarily incurred to save the common venture were shared by the GA act. This practice dates backs to 916 B.C. When the Rhodians practiced it in their Mediterranean trade.

The objects and functions marine insurance were aptly described in the preamble to the Elizabethan Act of 1601 in such lucid and expressive language, as follows:

“….By means of which policy of assurance it cometh to pass that upon the loss or perishing of any ship there followeth not the undoing of any man, but the loss alighteth rather easily upon many men than heavily upon few, and rather than upon them that adventure not, than those that do adventure, whereby all merchants, especially the younger sort, are allowed to venture more willingly and freely.”

Banking and Insurance have long been described as “twin pillars” of commerce. Marine insurance occupies an important position in overseas commerce. Since it affords protections against fortuitous losses, it enables all those engaged in overseas trade to venture their capital more freely than would otherwise be possible and thus greatly to expand their scope of their operations. It is also an important invisible export in the overseas trade of many countries.

MARINE INSURANCE MARKET IN INDIA

Prior to nationalization of General insurance business, the marine insurance market in India was composed of private companies, both Indian and foreign. Foreign companies operated either as their branches of parent company abroad or through agents. Besides the private companies, the Government controlled companies also transacted general insurance business. Prior to nationalization in 1973, general insurance business in India was transacted by 107 companies. (63 domestic and 44 foreign companies) operating in the country. These were amalgamated and reconstituted into four companies, as follows-

-The National Insurance Co. Ltd. With head office in Calcutta.

-The India Assurance Co. Ltd. With head office in Mumbai.

-The Oriental Insurance Co. Ltd. With head office in Delhi.

-The United India Insurance Co. Ltd. With head office in Chennai.

The General Insurance Corporation of India (GIC) was incorporated in November, 1972 as a holding company and the above four companies were designated as its subsidiaries from 1st January, 1973.

All the four companies operate on all-India basis in competition with one another through three tier marketing network of Regional, Divisional and Branch Offices spread throughout the country. Apart from other the classes of general insurance, both Marine Cargo and Hull insurance are written freely, but subject to Tariffs and guidelines where applicable. Business generated in the Marine department- both Cargo and Hull- accounts roughly 20% of the total gross premium income of the Indian market.

The Tariff Advisory Committee (TAC), formed under the Provisions of the Insurance Act, 1938 is empowered to lay down rules, regulations, rates, terms and conditions for transaction of marine insurance business in India. TAC administers through four Regional Committees in Mumbai, Calcutta, Chennai and Ahemdabad. The tariffs extend to the whole on

India and binding on all insurers. Any breach of the tariff is a breach of Insurance Act, 1938.

There are Hull Insurance Tariffs covering following types of vessels:-

-Fishing vessels and Trawlers

-Sailing vessels

-Inland vessels

-Dredgers

-Tariff for builders’ risks on vessels under construction.

The premium rates, terms and conditions of insurance are regulated by the respective sections of the Marine Hull tariffs.

Chapter 2

INTRODUCTION TO

HULL INSURANCE

Meaning

Ship-owners resort to marine insurance for protection of their ships, freight, disbursements and other interests against marine perils. Heavy capital values are locked up in ships, the loss of which could prove financially crippling to the strongest steamer companies.

Hull Insurance refers to the insurance of Hull and machinery and other interests, of oceangoing vessels, fishing vessels, sailing vessels. Trawlers, barges etc. Subsidiary interests are generally freight and disbursements. Hull insurance for vessels when they are under construction are called “construction/builder’s risks “insurance. Also, there are certain special types of hull covers like charterer’s liability risks, ship repairer’s liability risks, etc. Recent developments of hull insurance are insurance of Oil Drilling Rigs and Offshore Oil Platforms as well as allied construction risks.

In India, War Risks insurance of marine hulls is governed by the Government War Risks Insurance scheme. This is a voluntary scheme applicable to all ships registered under the Merchant Shipping Act, 1958 and includes such ships under construction and mechanized sailing vessels. Policies are issued by any of the Indian Insurance companies and every policy is fully reinsured with the government at the original rate of premium. The rate of premium for each year is fixed in advance by the government and the premium for each year is fixed in advance by the government and the premium is payable in four quarterly installments in advance of each quarter. There is no stamp duty.

Broadly, the insurance covers the following:

A. Loss/damage to the insured ship arising from:a) Capture, seizure, arrest, restraint or detainment, also from consequence of

hostilities or warlike operations, whether there is a declaration of war or not.

b) Civil war, revolution, insurrection or civil strike.c) Mines, torpedoes, bombs or other engines of war.

B. Loss/damage to the insured ship directly caused by:Strikes, locked- out workmen or persons taking part in political or labour disturbances, riots and civil commotions and malicious damage – so far as the same are not covered by other insurance.

C. Liabilities and expenses of the assured on account of:a) Life salvage, loss of life, personal injury and illness, and hospital,

medical funeral and other expenses resulting there from, putting in to port to land sick or injured crewmen, loss of crew’s effects and wages during unemployment consequent on shipwreck, cost of removal of wreck, when such liability/expense arises from the operation of the insured perils.

b) Liability of the assured for payments under National Maritime Board and Maritime Union of India agreements in respect of crew member who are captured or detained.

D. Liability of the assured for breach of outstanding contracts of carriage and extra expenses incurred in consequence of detention or diversion of ship, all resulting from compliance with government orders.

a) A limit is placed on the amount payable in respect of risks mentioned under above items (3) and arising from a single event, based on the GRT of the insured ship.

b) The entered value of a ship for war risk insurance shall be the aggregate H and M, Freight, Disbursements and Increases Value insurance of the ship insured, for marine risks.

c) All premiums are credited to the war risks (Marine Hulls) Reinsurance Fund. All payments towards claim and expenses are from that Fund.

d) All casualties must be referred to the insurers promptly and claims will be affected only after such approval becomes available.

Risks Covered:

a) Loss/Damage to the subject-matter insured caused by strikers, locked out workmen or persons taking part in labour disturbances, riots or civil commotions.

b) Destruction/damage to subject-matter insured caused by persons acting maliciously.

Exclusions:

Loss/damage/ expenses arising from:

-requisition or pre-emption.

-capture, seizure, arrest, restraint, detainment or confiscation by government authority.

-Arrest, restraint or detainment under quarantine regulations or by reason of infringement of any Customs regulations.

-Frustration of insured voyage caused by arrests, restraints or detainments.

-Hostilities, war-like operations, civil wars, revolutions, rebellions, insurrections or civil strife arising there from.

Cancellation:

Either by insurers or by the insured giving 48 hours notice.

Vessels are broadly categorized into following 2 groups:

a) Mechanically self-propelled vessels of steel construction classed with Lloyd’s Register of shipping or any other internationally recognized classification society including Indian Register of Shipping. These vessels may be liners or tramps carrying cargo and or passengers employed in home or foreign trade.

b) Smaller crafts, generally of local origin, built of steel, wood or fiber-glass which is not subject to classification. Normally such crafts are used in inland waters, coastal ports or within port areas. GIC, in consultation – with TAC, has introduced a scheme necessitating classification of coastal crafts like barges, trawlers and tugs by IRS, and certain incentives in rating are offered for such vessels so classified by IRS. Acceptance of these risks is governed by Hull Tariff in India.

Chapter 3

HULL PROPOSAL FORMS

Contents of proposal Form

A. Technical details of the vessels:

-Type of vessel, e.g. tanker, general cargo, dry bulk, dredger, passenger liner container vessel, fishing vessel/trawler, etc.

-Construction of vessel (steel, wood, composite or fiberglass)

-Name of builders and place built

-Age of vessel (year built)

-Tonnage (GRT and DWT)

GRT means “Gross Register Tonnage” GRT is the volume of the interior of the vessel including all spaces which are permanently closed in (but excluding the double bottom) expressed in tons of 100 cubic feet.

DWT means “Deadweight Tonnage” Deadweight means the capacity in tons of the cargo required to load a ship to her load line level.

-Dimensions (to verify the tonnage information) i.e. length, breadth, draught etc.

-Whether the vessel is equipped with (a) Twin Screws, (b) Double Bottom and (c) Collision Bulkhead.

-Method of propulsion and particulars of engine/Machinery (main, auxiliary or refrigeration).

-Particulars of fire extinguishing equipment.

B. Other details of Vessel:

-Valuation of the vessel.

-If entered with a classification Society for hull and machinery, which the dates of survey related to each aspect, have been complied with in order to maintain Class. When war the vessel last surveyed and by whom:

-Is the vessel registered under the Merchant Shipping Act or by competent authority?

-Port of Registry and Registration Certificate number.

-Flag (to ascertain if the vessel is registered in a Flag of Convenience – F.O.C. - country)

C. Trade related details:

-Trade the vessel is engaged in and whether as liner or tramp.

-Trading warranties and navigational limits.

-Nature of cargo usually carried.

- Whether single ship- “singleton” – or fleet or part thereof.

-Record of ownership and quality of management.

-Whether the vessel is mortgaged for any loan, and if so, details and arrears of repayment, if any.

-If laid up in monsoon, place and period.

D. Insurance related details

-Conditions of insurance required and the size of deductible.

-Period of insurance for time policy and details of voyage for a voyage policy

-Claims experience of last 5 years (premium and claims paid and outstanding statistics.)

-previous insurance history and whether cover was declined at any time by any insurer.

-Whether the vessel is covered against Protection and Indemnity (P&I) risks.

Supporting Documents

Normally, along with the Proposal Form, following supporting documents are called for:

a) Registration / License Certificate of the vessel.

b) Valuation Certificate on Hull and Machinery and accessories.

c) Pre- insurance Survey Report, when required by underwriters.

d) Form ‘B’ when rate is to be fixed by Tariff Advisory committee (TAC). Additional queries need to be answered if the vessel is not listed in Lloyd’s Register of Shipping.

e) In case of Fishing and Sailing vessels, details of arrears of loan payments to the Bank/Financier and also confirmation that there is no default.

Specimen of a Proposal Form

Agency _________ Branch ___________ Inspector ___________ Policy No. _________

Proposal Form for Insurance of Hull-Motor Launches, Dredgers, Trawlers, Tugs Barges, Sailing/Fishing Vessels, etc.

Proposer(s) (Owner’s) Name:

Address

Name of

Vessel

Type of

Vessel

Gross Regd.

Tonnage

Registered Length

Registered Breadth

Registered Depth

Draft

Name of Builders

Place where Build

Material of which built

If built of wood, state

whether Copper

Sheathed or not

Year in which Built

Year of purchase

Price paid by

Proposed

Present Estimated Value of Amount proposed

for Insurance

Rs.

Hull Machinery Accessories

Port of Registry

Name of Registration

Authority

Number of Registration Certificate

By whom where & when was the vessel last surveyed

If rebuilt state when and give details of reconstruction carried out

If exact year of built is not known particularly for old Vessels give approximate age of vessel.

1. Is the vessels classed with a recognized classification society? If so state symbols allotted.

2. a. Is the vessel licensed or approved by any local authority? If so, please give full particulars.

2.b. Date up to which current license is valid.

3. Is the vessel equipped with

(a) Windlass?(b)Rubbing Bands?(c) Fire Fighting Appliances? (State

type)(d)Twin Screw? (e) Double Bottom?(f) Collision Bulk Head?4. Is the vessel covered in Forward, Aft and Round Sides

5. State the cruising speed of the vessel.

Particulars of Engine / Machinery:

Maker’s Name

Type of Engine and

year of Manufacture

Fuel used and

capacity of fuel tank

Is Reverse

Gear provided

No. of Propeller

s

Horse Power

No. of Cylinde

rs

Type of

Engine

Casing

Particulars relating to employment of the vessel:

1. For what purpose is the vessel used? If the vessel is trading give full particulars of the trade engaged in

2. For what geographical limits is insurance required? N.B As the insurance of the vessel will be

restricted to the above geographical limits, it is important to state your requirements clearly.

3. Will the vessel be laid up during the South West or North East Monsoon?

If so, please state.

(a) Where she will be laid up(b)Period for which she will laid

up4. Does the vessel ever undertake any tow?

If so, please attach from used by you laying down conditions on which towage is accepted ;

Particulars of Master and Crew:

1. (a) Is the vessel in charge of a qualified master

(b) State his qualifications

(c) How long has he been in your employ?

(d) Will he live aboard the vessel?

(a)

(b)

(c)

(d)

2. What is the total number of crew on board the vessel?

General1. (a) What accidents have

happened during the past (a)

three years to any vessels owned by you?(b) If any, which of them are occurred in connection with the vessel herein proposed.

(b)

2. Has any Company or Insurer in respect of any of the risks to which this proposal applied

(a) Declined to accept your insurance?

(b) Refused to renew your insurance?

(c) Increased the premium on renewal?

(a)

(b)

(c)

3. Is the vessel at present insured with any other insurers

4. State the risks against which you wish to insure your vessel

5. (a) State whether any Bank or other financing authority is interested. If so give details of loan granted.

(b) Also confirm that you will assign the policy in their favor

(c) Also indicate details of loan repayment and confirm repayment is regularly done. If not state reasons for default in repayment of loan.

6. State amount of your paid-up Capital

For what period or voyage is the Insurance required?

From__________

To __________

I/We, the undersigned, hereby declare that the above statements and particulars are true and complete and further declare that I/We have not with-held any information which is calculated to influence the decision of the Company in accepting this Insurance and agree that this declaration

shall be the basis of the contract between me/us and THE NEW INDIA ASSURANCE COMPANY LIMITED.

Dated at ____________this ________day ________of _________20 ____.

Proposer’s Signature

Note

1. The liability of the company does not commence until the acceptance of the proposal has been formally intimated by the Company and full premium paid.

2. If space is found insufficient, please attach separate sheets for details.

3. Premium will be quoted on application.

4. Insurance is the subject matter of solicitation.

PROHIBITION OF REBATE -- Section 41 of the Insurance Act 1938

No person shall allow or offer to allow, either directly or indirectly, as an inducement to any person to take out or renew or continue an insurance in respect of any kind of risk relating to lives or property in India, any rebate of the whole part of the commission payable or any rebate of the premium shown on the policy nor shall any person taking out or renewing or continuing a policy accept any rebate, except such rebates as may be allowed in accordance with the published prospectuses or tables of the Insurer.Any person making default in complying with the provisions of this section shall be punishable with fine which may extend to Five Hundred Rupees.FOR OFFICE USE –

MARKETING / DEVELOPMENT OFFICER'S REPORTThe Proposer is known to me/my agent / Broker for___years and I recommend acceptance of this proposal.

Name and Code No. Signature of Dev. Officer / A/AO-D

ACCEPTED BY DATE & TIME RATE REMARKS

CODES - OFFICE /DEV. OFFICER / AGENT /BROKER-

COLLECTION / SCROLL NO POLICY NO.

.

Chapter 4

HULL RATINGS

As a guide to determine an appropriate rate for a hull risk generally, following principal factors need to be taken into account:

A) Management and ownership with their corresponding claims experience.

B) Consideration of the type, trade, age, tonnage, all aspects of machinery, whether main, auxiliary or refrigerating.

C) The valuation of the vessels.D) If entered with a Classification Society for Hull and Machinery that

dates of survey related to each aspect have been carried out to maintain Class.

E) Conditions of insurance being offered.F) Prevailing repair costs.G) Underwriting experience of similar risk.

In calculating the rate of premium to be charged, the hull underwriter will, when considering any risk, take account of the following aspects:

A) Total lossB) Particular Average. i.e. accidental partial lossC) General average contributionD) Collision liabilitiesE) Salvage charges, sue and labour charges.

In calculating rates to be charged, the hull risk is divided into two parts as under:

A) The ‘Total Loss’ element of the risk.B) ‘Average Loss’ element (that is. Other total loss element often risk,

often termed “ex T.L.”)

Accordingly, it is customary to agree a separate rate for each part of the risk and to combine these to arrive at the overall rate that will appear in the policy. The Total Loss rate is rate percent applied to insured value of the vessel and is thus conditioned mainly by the value factor of the ship.

The “ex T.L.” element of the risk is mainly determined by the size of the ship. It is fixed as a certain amount, says Rs. 30/- multiplied by the Deadweight Tonnage (DWT) of the vessel or the Gross Register Tonnage (GRT). Dead weight means the capacity in tones of the cargo required to load a ship to her load line level. Deadweight tonnage represents a vessel’s carrying capacity and therefore it gives a more reliable indication of the size and earning potential of a general cargo vessel, tankers & bulk carriers. GRT is the volume of the interior of the vessel. With cruise/passenger vessels the GRT is more likely to be used for calculation. Since the purpose of these vessels is to transport people, the vessel is devoted to the cabin services and social accommodation: as this varies greatly, the GRT is the most consistent feature to be use in case of cruise/ passenger liners. Both the premiums are combined and the resultant premium, divided by insured value, is then expressed as rate percent in that insured value, and that single rate ( called the “slip rate”) will be quoted to the client.

Following example will illustrate how the rates are applied and premium calculated:

Line – National Shipping Line

Vessel – M.V. “RATNA”

Year Built – 1987

GRT – 10,000

Insured Value – Rs. 15, 00, 00,000

Type – General Cargo Carrier

Trading - Worldwide

Total Loss Rate – 0.75%

Ex. T.L. Rate – Rs.40/- per GRT

Deductible – Rs. 4, 00,000

Calculation of premium:

A. Total Premium @ 0.75%On Rs. 15,00,00,00,000 Rs. 11, 25,000

B. Ex. T.L. premium @ Rs.40/- per GRTi.e. 40 x 10,000 Rs. 4, 00,000Total premium i.e. ‘A’ +’B’“Slip Rate” is expressed as: 15, 25,000 x 100 ÷ 1500, 00,000 = 1.017

Rating Renewals

The Joint Hull Committee in London, compromising underwriters from Lloyd’s and member companies of the ILU (Institute of London Underwriters), is responsible for the structure of the Joint Hull Formula, which is a basis recommended for rating renewal insurances in respect of ships insured in the London market. Figures for hull renewals are prepared in accordance with Joint Hull Understandings (JHU)

In India, rating of ocean-going vessels in a fleet on renewal is done by T.A.C.

Based on Indian Hull Understanding, which is more or less molded on the London Joint Hull Understanding Formula. Rating of new attachments on Fleet is also done by T.A.C. premium and claims record for four completed years plus current year are taken as the basis in fixing renewal rate. Renewal rates of premium are based on claims experience (good or bad) as per a formula.

Chapter 5

HULL CLAUSES

Institute Time Clauses (1.10.83)

Institute Time Clauses- Hulls (ITC-Hulls) provide the widest cover for the hull and machinery interests. In other words, they cover hull and machinery “on full conditions”

There are 26 clauses compromising the set of ITC- Hulls (1.10.83) and the study will now will be made of the more important clauses , of ITC-Hulls (1.10.83) version although the Joint Hull Committee in London has issued a revised version of ITC- Hulls clauses dated 1.11.95. However, these latest clauses have yet to be universally adopted.

PERILS COVERED

Clause No.6 specifies the perils in two groups 6.1 and 6.2

6.1 This insurance covers damages/loss to the subject matter insured caused by:

- Perils of the seas, rivers, lakes or other navigable waters.

- Fire, explosion.

- Violent theft by persons from outside the vessel.

- Jettison.

- Piracy.

- Breakdown of or accident to nuclear installations or reactors.

- Contact with aircraft or similar objects or objects falling there from, land conveyance, dock or harbor equipment or installation.

- Earthquake, volcanic eruption or lightening.

6.2 This insurance covers loss/damage to the subject matter insured caused by:

- Accidents in loading, discharging or shifting cargo or fuel.

- Bursting of boilers, breakages of shafts or any latent defect in the machinery or hull.

- Negligence of master, Officers, Crew or Pilots.

-Negligence of repairers or charters provided they are not the Assured hereunder.

- Barratry of masters, officers or Crew.

Provided such loss/damage has net resulted from want of due diligence by the Assured, Owners or Managers.

The perils contained in the first section ( i.e. 6.1) of the clause are perils ever which the Assured may have some control and for is upon the insures if they wish to avoid a claim on the grounds of the assured’s want of “due diligence”.

POLLUTION HAZARD (Clause No.7)

These clauses provides cover if the vessel is damaged or destroyed by a government authority to avoid or mitigate pollution, for example, a badly damaged tanker leaking oil and polluting the environment, is deliberately

set on fire. The act of the government must flow directly from the casualty who is covered by the insurance, and the assured must have used his best endeavors to prevent pollution.

GENERAL AVERAGE AND SALVAGE (Clause 11)

This clause provides that general average and/or salvage will be paid if the less was incurred to avoid, or in connection with the avoidance of, an insured perils.

DUTY OF THE ASSURED (SUE & LABOUR) – (Clause No.13)

A sue and labour charge is an expense incurred by the assured, their servants or agents, with the intention of preventing or minimizing any less or damage that would be recoverable under the policy. The Hull and Machinery (H & M) policy pays sue and labour charges in addition to any claim under the policy, even in addition to a total loss.

COLLISION LIABILITY (Clause No.8)

This clause cover legal liability the assured may incur by way of damages paid to the owners of the either ship or cargo thereon, owing to a collision caused by the negligence of the insured vessel.

The insurers provide this supplementary cover to the assured (in addition to the insurance on the vessel itself) to the extent of 3/4th of such liability. In no case shall the total liability of insurers exceed 3/4th of the Sum Insured, any one collision.

The insurers will also pay 3/4th of the legal Costs incurred by the assured, with the insurer’s consent, in contesting liability or taking proceedings to limit liability.

Exclusions:

There is no liability under this clause in respect of:

- Removal or disposal of obstructions, wrecks, cargos or any other thing whatsoever.

- Any property, other than vessels or property thereon.- Argo or other property on, or the engagements of the insured vessel.- Loss of life, personal injury or illness.- Pollution or contamination of any property other than the slip or goods on

board it, which the insured ship has been in collision.

These excluded liabilities, apart from the engagements of the insured vessels, are customarily covered, together with the remaining one-fourth of the collision liabilities and costs by entry in a Protection and Indemnity (P. & I.) Association. This clause is a supplementary agreement to the policy and any claim there under recoverable in addition to a total loss.

SISTERSHIP (Clause No.9)

This clause provides that if the insured vessel is in collision with or receives salvage services from a vessel under common ownership or management, the assureds’ rights under the policy are assured as if the other vessel was of separate ownership.

DEDUCTIBLE (Clause No.12)

An amount specified in the Deductible clause is deducted from the total amount of claim caused by an insured peril arising out of each separate accident or occurrence. The deductible is an “excess” and only the balance amount, is payable. If the amount of the claim is less than the deductible, nothing is payable.The deductible applies to all claims in respect of damage to the ship, collision liability claims, and GA and salvage charges and sue and labour charges. The deductible shall not apply to claim for total loss, actual or constructive, of the vessel. However, when sue and labour expenses are incurred but a total loss result despite attempts to save the vessel, the deductible is not applied to sue and labour charges/ nor to any expense of service in the nature of salvage.

NOTICE OF CLAIM AND TENDERS (Clause No.10)

In the event of an accident the assured must give the notice to insurers and also if the vessel is abroad to the nearest Lloyd’s agent so that insurers can arrange for a survey.Under the clause, the insurer may go to a place of repair or repairing firm or may decide to which port or firm the repair is entrusted.Insurer are also given the right to take tenders and when they exercise this right, the assured is entitled to an allowance at the rate of 30% per annum on the insured value for time lost between the dispatch of invitations to tender and the acceptance of a tender. Failure to comply with conditions of this Clause is penalized by a deduction of 15% from the ascertained claim.

NAVIGATION (Clause No.1)

The clause allows the vessel to assist or tow vessels in distress or to be towed when it is customary or to the first safe port when in need of assistance. Otherwise, it is warranted that the vessel shall not be towed, or shall not undertake towage or salvage services under previously arranged by the insured.

BREACH OF WARRANTY (Clause no.3)

The Assured is held covered in the event of a breach of warranty as to cargo, trade, and locality, towage, or salvage service. ‘Held covered” means cover can be arranged, subject to due notice and payment of additional premium.

DISBURSMENTS WARRANTY (Clause No.21)

The object of this express warranty is to restrict the amount of ancillary insurances which a ship-owner may affect on limited conditions as

additional cover to the amount insured on hull and machinery subject to ITC-Hulls.The measures of indemnity for partial losses under ITC-Hulls is the reasonable cost of repairs. Under –insurance does not affect the amount recoverable, subject only to the sum insured being sufficient to cover the 1055. The rate of premium payable for insurance on “full conditions” (under which repair costs are payable in full up to the insured value) is higher than that for “limited conditions”, such as Total Loss Only.Unless a restriction is imposed, a ship-owner may insure his vessel an “full conditions’ for a sum considerably less than its true value and the balance under the “Limited conditions”, thereby obtaining almost complete insurance cover at low cost. Further, the lower the value insured on hull and machinery, the easier it is for the assured to prove a CTL.The disbursements Warranty was therefore farmed to prevent this abuse and to ensure an adequate sum insured on H & M policy.For example, the clause provides that sum insured under Disbursements insurance cannot exceed 25% of the sum insured under H & M policy. Disbursements are ship-owner’s costs in fitting out and provisioning the vessels and other items of a nebulous or indescribable nature but which are very real in case of loss. Similarly, the clause allows freight to be insured for time only up to 35% of the Hull & Machinery value less any amount covered on disbursements.

TERMINATION (Clause No.4)

Unless the insurers agree to the contrary in writing, the insurance shall terminate automatically if any of the following occur during the policy period.

a) Change of Classification Society.b) Change, suspension, discontinuance, withdrawal or expiry of Class of the

vessel. If the is at sea, such automatic termination shall be deferred until arrival at her next port of call.

c) Change, voluntary or otherwise, in the –Ownership or flag – Transfer to new management, etc.

When the Termination Clause operates, a pro-rata daily net return of premium is allowed.Assignment of policy is made subject to underwriter’s agreement. (Clause no.5) Returns of lay-up and cancellation (Clause no.22) provides for pro-rata return of premium.

a) When the policy is cancelled for reasons other than sale or transfer or b) When the vessel is laid up in port.

However, no return of premium is allowed if the vessel is a total loss during the period of insurance. Therefore, settlement of returns is postponed until after the expiry of the insurance.

Clauses 23 to 26 exclude war, strikes, malicious acts and nuclear risks.

Institute Voyage Clauses (1.10.83)

Institute Time Clauses- Hulls are used a vessel is insured for a period of 12 months. In case the insurance is for a particular voyage, then Institute Voyage Clauses- Hulls are incorporated in the policy. These differ from ITC –Hulls in the inclusion of “Change of Voyage Clause” (No.2) and the omission of Termination Clause, Breach of Warranty Clause, etc.

The “Change of Voyage Clause” is held covered situation in case of deviation or change of voyage or any breach of warranty as to towage or salvage services, provided notice be given to the insurers immediately after receipt or advices and any amended terms of cover and cover additional premium required by them to be agreed.

Limited covers

The ITC-Hulls provide the widest cover on hull and machinery interests. Covers with ‘limited conditions’ are available. Some examples are:

a) ITC-Hulls –Total loss, General Average and ¾ collision liability (including Salvage, Salvage charges and sue and labour).

b) ITC-Hulls- Total Loss only (including Salvage, Salvage charges and sue and labour).

c) ITC-Hulls-Disbursements (Total loss only).

Insurance of freight

Freight is the remuneration received by the ship-owner for carriage of goods from one port to another. The M I Act 1963 refers to freight as follows:

“The term ‘freight’ includes the profit derivable by the ship-owner from the employment of his ship to carry his own goods or movables as well as freight payable by a third party, but does not include passage money.”

The ship-owner may also receive remuneration by hiring his vessel out to those of others. Such arrangements to carry cargo or hire a vessel for time or voyage are embodied in contracts of affreightment, such as bills of lading, time charters and voyage charters.

Loss of freight

Where freight is paid in advance, it is not returnable whatever subsequently happens to the cargo. Therefore, pre-paid freight is at the risk of the owner of the goods and is included in the value of goods insured under a cargo policy.

A loss of freight to the carrier (who may be ship-owner or charter) can run the risk of not receiving it by reason of the loss of ship and/ or damage or loss of cargo.

The ship-owner obviously has insurable interest and so he can insure such freight. The form of policy used for insurance of freight is the Hull form with the Institute Time Clauses- Freight or Institute Voyage Clauses- Freight attached to it.

Time and Voyage Freight Clauses compared

The Institute Time Clauses- Freight and Institute Voyage Clauses- Freight is identical except that the following clauses, which do not apply to voyage insurances, are omitted from the Institute Voyage Clauses-Freight:-

- Continuation Clause.- Termination Clause.- Returns for Lay-up and Cancellation.

The perils covered under both the Freight Clauses are the same as those covered under the Perils Clause of Institute Time Clauses- Hulls and Institute Voyage Clauses- Hulls.

Valued and Unvalued Policies

Freight policies may be issued on valued basis or unvalued basis. In practice, unvalued policies are issued. Section18 (2) of the MIA, 1963 provides that the insurable value of freight is the GROSS AMOUNT of freight at risk of the assured plus the charges if insurance. The gross amount includes the expenses of earning the freight.The “Measure of Indemnity Clause” of the Time and Voyage Clauses provides, inter---, that” the amount recoverable under this insurance for

any claim for loss of freight shall not exceed the Gross Freight actually lost.”This clause may be explained with the following examples: Example 1.Valued policy for sumInsured on freight Rs.10, 00,000Gross freight at risk Rs.8, 00,000Loss of freight by insured perils Rs. 1, 00,000Claim on Policy (equal to 1/8th of gross freight at risk)I.e. 1/8th of Rs.8, 00,000 Rs.1, 00,000Because of the provisions of this clause limiting the claim to be the proportion of the GROSS FREIGHT actually lost, the insured is entitled to only Rs.1,25,000 (1/8th of Rs.10,00,000). This explains why valued policies are not used for freight insurances.

Example 2.Valued policy for sumInsured on freight Rs.8, 00,000Gross freight at risk Rs.10, 00,000Loss of freight by insured perils Rs.2, 00,000The claim is adjusted as follows:Insurable value of frightRs. 10, 00,000 pays 1/5th Rs.2, 00,000Therefore, sum insured of Rs. 8, 00,000 pays in proportion:8/10 of Rs.2, 00,000 i.e. Rs.1, 60,000This is a case of under- insurance. If amount insured was Rs. 10, 00,000 the loss would have been recovered in full.

Partial Loss of FreightPartial loss may occur, for example, when there is a non-delivery of part of the goods on which freight is payable on delivery. The Franchise Clause of Institute Freight Clause provides that loss is not covered if the amount of loss falls below 3% of insurable amount.The 3% limit does not apply.

a) To general average loss (This is beyond the control of the ship-owner)

b) When the partial loss is caused by the sinking, stranding or collision with another vessel. (This is so because the object of the franchise is to be eliminated small and frequent claims)

Total Loss of Freight

A total of freight can occur when the cargo being carried is totally lost, say by fire, and the ship-owner consequently does not receive the freight due to him under the contract. The same situation would arise if the ship and the cargo were totally destroyed, say, by sinking in heavy weather.

Clause 15 (Total Loss) of the Institute Freight Clauses provides:

In the event of total loss (actual or constructive) of the vessel named herein, the amount insured shall be paid in full, whether the vessel by fully or partly loaded or in ballast, chartered or unchartered.

An insurable interest in freight arises as soon as the contract of affreightment is concluded, the fulfillment of which may be prevented by maritime perils. The whole amount insured by the freight policy becomes payable in the event of TL or CTL of the vessel, whether the vessel is chartered or not or whether she is fully or only partly loaded at the time of the loss. Thus it is possible for ship-owner to arrange his main policy on hull and machinery on full conditions (ITC Hulls) for a lower sum insured and additionally Total Loss only insurance on freight at a lower rate of premium. Therefore, the disbursements warranty of ITC-Hulls restricts such sum insured to 25% of sum insured on H & M insurance.

Loss of Time Clause

This clause reads as follows:

“This insurance does not cover any claim consequent on loss of time, whether arising from a peril of the sea or otherwise”. This clause effectively excludes losses proximately caused by delay. If a vessel is damaged and can be repaired, no claim can arise on the ground that the vessel cannot be repaired in time to earn the freight.

Institute Fishing Vessel Clauses (20.07.87)

The tariff provides for insurance of Fishing Vessel subject to Institute Fishing Vessels Clauses (20.07.87). The cover provided by these Clauses bears a close resemblance to the ITC-Hulls (1.10.83), but with some major differences.

Examples:

a) Fishing Gear (Clause No.15): no claim is payable for loss/damage to fishing gear unless(i) caused by fire, lightening or violent theft by persons from outside

the Vessel(ii) totally lost following total loss of vessel by insured perils.

b) Collision Liability (Clause No. 18): Unlike the similar clause in ITC-Hulls, this covers 4/4 months Collision Liability.

c) Protection and Indemnity (Clause no.20): Various Protection and Indemnity risks are covered under this clause. There is no P & I Clause in ITC-Hulls.

Chapter 6

HULL TARIFFS

In India, insurance of ships and ship owing interests are governed by tariffs. The Tariffs indicate in detail the rates of premium for various types of covers, additional premium (A.P.) for extra and for breach of trading and other warranties, fleet and other discounts for favorable features and Agency Commission and Owners; discounts, as applicable.

Currently, there are hull Tariffs which govern the insurance of:

a) Fishing Vesselsb) Sailing Vesselsc) Inland Vesselsd) Dredgerse) Jetties, Pontoons, Wharves etc.f) Builders’ Risksg) Ship Repairers’ liabilities (SRL)h) Charterers’ liability (CRL)

Risks to be referred to TAC for rating

(a) All interests relating to ship-owners, that is, insurance of hull and machinery, freight, disbursements, etc.

(b) Charterers’ liabilities, Charterers’ Freight, Hire and/or Disbursements and ship-owners’ liabilities.

(c) Indian ship-owners’ interests in foreign vessels bare-boat chartered by them.

(d) Cases where vessels are dry-docked with cargo on board.

Tariff for Fishing Vessels

This tariff is applicable to all Fishing Vessels/ Trawlers (mechanized or non-mechanized ) valued up to Rs.100Lakhs and engaged in fishing operations only (including towage) and plying up to 100 nautical miles (NM) in sea from shore (1NM=1.852 Km)

Conditions of Insurance

Fishing Vessels can be covered on anyone of the following terms at rates of premium indicated in the

Tariff:

(a) Institute Fishing Vessels Clause (IFVC) 20.7.87 but limited to pay only TUCTL (including Salvage, salvage charges and sue and labour).

(b) IFVC, 20.7.87 with P & I risks (Clause 20) deleted.(c) IFVC, 20.7.87

All policies subject to the warranty: “Warranted Vessel to comply with local laws and regulations with regard to registration and licensing.”

No cover shall be granted on Fish Catch on board the Fishing Vessels/ Trawlers.

Fishing nets whilst on shore under repair or whilst stored in godowns can be covered against perils like Fire, Theft and Burglary in other departments concerned and no cover shall be granted under Marine Hull Policy.

Whilst vessels are laid-up for repair or painting, cover for fishing nets on board the Vessel shall continue subject to the relevant insurance covering the Vessel.

However, when the net is not on the Vessel, the sum interested of the Vessel shall not be reduced. During such items, If the Vessel becomes a total loss, claims will be paid subject to deduction for the net. It is therefore essential that the value of the fishing net’ (s) should be agreed subject to the “Premium Installment Clause” with quarterly installments of 40:30:15:15, Stamp Duty payable with the first installment.

Adverse Weather Warranty:

All fishing Vessels/ Trawlers shall contain the following warranty:

a) Warranted Vessel, when not employed, shall be safely anchored or moored or secured.b) Warranted the Vessel shall not employed during adverse weather conditions notified by the concerned Port Authorities and/or Directors of Fisheries.c) (i) Warranted during adverse weather Vessel shall remain in safe waters properly moored, and(ii) If already at sea, shall return forthwith as soon as they becomes aware of the adverse weather warnings; and(iii) Vessel shall be manned adequately at all times except in harbour, sheltered/ safe waters, when it should be secured properly and adequate watch and warp maintained throughout the period it remains therein.

Deductible:- The deductible for vessels valued up to Rs.100 Lakhs is 0.50% of their respective sums insured or 10% of the assessed loss, whichever is higher.

Tariff for sailing Vessels

Insurance of Sailing Vessels (commonly known as, “country crafts”) is governed by this Tariff. The Sailing Vessel may be mechanized or non-mechanized, valued up to Rs.50 lakhs and employed for the cargo and operations connected therewith.

Conditions of InsuranceSailing Vessels can be covered on the following terms at rates of premium indicated in the Tariff:a) As per ITC-Hulls-Total Loss Only (including Salvage, Salvage Charges and sue and labour).b) Wider conditions incorporating the P & I liabilities risks of ITC-Hulls-Port Risks (20.7.87). Deductible 33 1/3 % assessed loss or Rs.1, 000 , whichever is higher, each claim.c) Subject to ITC0Hulls with deductible as above.

Note:- Salvage Charges and Sue & Labour expenses shall be subject to te deductible stipulated above.

Tariff for Inland Vessels

Inland Vessels are all types of such as Barges, Pontoons, Flats, Floating Cranes, Launches, Passenger Vessels, Tugs and Port Crafts employed in Inland Waters.

Conditions of Insurance

Insurances on H & M interests shall be granted subject to one the following sets of conditions:

(a) Insured subject to ITC-Hulls TLO (including Salvage, Salvage charges and sue and labour) dated 1.10.83. Subject to deductible of one-fourth of sum insured or Rs.800 or Rs.10 per GRT, whichever is the highest, all claims other than TL/CTL, and each occurrence.(b) Insured subject to ITC-Hulls (1.10.83) with same deductible terms as above.(c) Insured subject to ITC-Hulls (1.10.83) with 3/4th collision Liability Clause amended to 4/4ths and same deductible as above.(d) Insured subject to ITC-Hulls- Port Risks (20.7.87) and same deductible terms as above. Inland waters are all sheltered and protected waters such as harbour waters, back waters, sea water within a radius of 12NM from the entrance to harbour/ port, river, waters, canal waters, lake waters, and the like.

Tariff for Dredgers

A Dredger is a craft used to bring up sand, mud, gravel, etc. from the sea, river and canal bottoms in order to open and deepen channels and make navigable. These crafts are fitted with the machinery and appliances for dredging work.

Conditions of Insurance

Insurance on H & M interests may be granted subject to one of the following sets of conditions:

(a) ITC-Hulls-TL Only (including Salvage, Salvage Charges and Sue and Labour)- 1.10.83

(b) ITC-Hulls, 1.10.83(c) ITC-Hulls, 1.10.83 amended to 4/4ths Collision Liability(d) ITC-Hulls-port Risks- 20.7.87

Deductible applicable:- 1/4th of the sum Insured for H & M interests or Rs.1, 500, whichever is higher, all claims other than TL/CTL, each accident or occurrence.

Tariff for Jetties, Pontoons, Wharves, Etc.

This tariff is applicable to all Jetties, Pontoons, Wharves, Etc. in river, canal or sea waters and shall be insured subject to one of the sets of following conditions.

(a) Wider cover: The insurance covers all structural losses or damages to the Jetty, Pontoons, Wharfs, etc. and cranes and other equipment fitted thereon, occasioned by collision with vessels or any floating objects, cyclone, flood, tidal bore, fire, earthquake, explosion of boilers insured under this policy, including Salvage Charges in connection with the insured peril.

(b)Limited cover: TL/CTL of Jetty, Pontoons, Wharfs, cranes and/or boilers fitted thereon occasioned by collision with vessels/floating objects, cyclone, flood, tidal bore, fire, earthquake, including Salvage Charges.The insured must produce a satisfactory Survey Repot every 3 years at their own cost and such surveys are to be conducted by surveyors approved by the underwriters.

Valuation Certificate: Obtained by the assured at his cost, must be produced at the inception of the cover. Thereafter the insured will be at liberty to increase/decrease the sum insured according to the market conditions. Where the insurance is for an amount less than the appropriate value as determined above, the Conditions of Average shall apply.

Tariff for Builders’ Risk Insurance

This Tariff is applicable to all vessels (mechanized or non-mechanized) whilst under construction in any shipyard in India. Insurance of ships under renovation, jumboisation (that is, creating more space), conversion and/or repairs also come under the preview of this Tariff.

Conditions of insurance: As per Institute Clauses Builders’ Risks. Strikes risks may also be covered.

Duration of cover: From (date) - to (date) or until delivery if delivered at an earlier date. Extension of cover beyond the period mentioned in the policy may allowed by charging additional premium as per scale specified in the Tariff.

Basis for rating: Rating shall be done on the basis of full estimated value and/or full estimated period of construction, as under:

(a) Full contract value or full completed value, whichever is greater. Rating on the basis of gradually progressing value shall be permitted.

(b) Contract period or the period from inception of any work in the yards until final delivery, whichever shall be the longer, subject always to the limitation of the Duration of Cover/Risk Clause.

Payment of Premium: Premium is collected on quarterly basis subject to the following:

- Installment payment facility on quarterly basis will be granted only when the period of construction is 12 months or more.

- The first installment will be 5% more than the rest.

Tariff for Ship Repairers’ Liability (SRL)

This insurance covers liabilities of the ship repairers towards vessels repaired by them.

Coverage

Underwriters agree to indemnify the assured foe all sums which the assured shall become liable to pay reason of the liability of the assured as ship repairers for:

(a) Loss/ damage to the vessel/craft which is being worked upon including shifting and moving within port at which the work is being carried out and including trial trips, but not exceeding 100NM from such port.

(b)Loss/damage to machinery or equipment of any vessel/craft whilst such machinery or equipment is removed such vessel or craft and is in the care, custody or control of the assured for the purpose of being worked upon.

(c) Removal of wreck results from negligence of the Assured, his servants, agents or sub-contractors occurring during the period of this insurance. Insurance is subject to a limit of liability anyone accident or series of accidents arising out of one occurrence, including liability for costs and expenses.

Tariffs for Charterers’ Liability Insurance (CRL)

This policy covers the damage sustained by the vessel during the period of charter for which the Charterers are hold legally liable. The policy also covers demurrage if the vessel is delayed to carry out repairs for which the Charterers are held legally liable. Liability to cargo and liability arising out of War risks are excluded.

Chapter 7

HULL CLAIMS

Introduction

There may be a claim under a hull insurance policy when, by the operation of insured perils, any of the following occurs

Total Loss

(a) Actual total loss arises when a ship is destroyed or is so seriously damaged as to cease to be a ship or when the ship-owner is irretrievably deprived of her, for example, the ship may sink in deep water and cannot be salved.

(b)Consecutive Total Loss (CTL) arises:When the ship’s actual total loss appears to be unavoidable;When the ship-owner is deprived, of his ship and her recovery is not likely.When the recovery cost and repair of damage exceed the ship’s insured value.It is essential that notice of abandonment is tendered to the insurance promptly. In the absence of such notice for CTL cannot be maintained.

Partial loss

This includes claims for the following:a) Particular Average (PA): This comprises to the ship caused fortuitously.

Examples are collision damage, contact damage including stranding and grounding, heavy weather damage and fire damage. It does not include damage by the ordinary of the wind and waves, nor gradual deterioration on account of ordinary use.

b) General Average (GA): Since GA embraces loss suffered or expenses incurred by other interests (e.g. cargo, freight) as well as the ship; a ship owner’s claim upon hull underwriters may concern-

-GA sacrifice, being damage to the ship voluntarily sustained for common safety;-GA expenditure, incurred by the ship-owner;-GA contribution, being the amount the ship-owner has to pay towards sacrifices and expenditure incurred by other parties.

Salvage Charges These are charges paid in settlement of a claim by salvors being their remuneration for salving the ship or both the ship and cargo from a position of danger, together with legal costs. In reality all insurances, the amounts so paid will be treated as general average expenditure.

Sue and Labour ChargesThese are changes incurred by the ship-owner or his agents to preserve or attempt to preserve the ship from the consequences of an insured peril or to minimize its effect. These charges are reimbursed by the insurers in addition to any loss recoverable under the insurance- whether total or partial.

Collision LiabilityThis arises when the Ship-owner has paid damages in respect of his legal liability to the other ship or any property on it, arising out of a collision between the insured ship and another vessel.

Amounts RecoverableWidest scope of the cover offered is by ITC-Hulls. Where a claim is admitted under the policy. For a partial loss the amounts payable under the policy, subject to any “deductible” provided therein, are as follows:

Particular Average:

(a) The reasonable cost of repairs effected, but not exceeding the sum insured in respect of anyone casualty. Under ITC-Hulls, there is no deduction “new for old.”

(b) In respect of un-repaired damage, the reasonable depreciation in the value of the ship by reason of damage remaining un-repaired at the expiry of the policy, not exceeding the estimated reasonable cost of repairs and

provided the ship has not become a total loss during the period of the policy.

(c) Where a ship sustains damage by an insured peril and such damage is not repaired and during the currency of the policy the ship is subsequently lost, underwriters are only liable for the total loss and not for un-repaired damage, as the owner has suffered no loss thereby.

(d)Successive losses becomes payable even through the total amount of such losses may exceed the sum insured.

(e) In respect of temporary repairs: when a vessel is lying damaged at a port where repairs are not practicable and temporary repairs have to effected to make her seaworthy to sail to a repair port, they are properly recoverable as part of the reasonable cost of repairs.

General Average:

(a) In respect of sacrifices of the ship, the amount payable is computed in the same way as for Particular Average less the contribution received from other parties.

(b) For GA expenditure incurred by the ship-owner, the amount payable by the hull underwriter is the proportion which falls upon the insured ship-owner.

(c) For GA contribution, the policy will pay the proportion attaching to the ship.

In both these instances, i.e. in case of GA expenditure as well as GA contribution, the claim is subject to the contributory value of the ship being fully insured, and if it is not, the claim will be reduced in proportion to the underinsurance.

Salvage Charges:The amount payable under the policy is computed in the same way as for general average expenditure.

Sue and Labour Charges:The full sum expended subject to the ship being fully insured.

Collision Liability

This is a supplementary cover over and above the insurance on the vessel itself to the extent of 3/4th of such liability but not exceeding 3/4th of the sum insured in the vessel. Legal costs are also payable. Most forms of hull insurance provided that claims for partial loss will be subject to a “deductible”, that is to say a fixed sum which the assured has to bear in respect of each claim to which the “deductible” applies.

Burden of ProofIn all cases, whether a claim is presented upon a policy of marine insurance or is submitted in general average, the claimant has the burden of providing his claim. This means that the assured must produce evidence to show

(a) That loss/damage was caused by an insured peril; and(b) The extent of the claim.

A claim payable by the insurer is reduced by an amount which may be recovered from some sources, either at the time when the claim is presented or subsequently. Such recoveries can arise:

Under the Principle of AbandonmentThis applies when the insurer has settled a claim for a total loss and has exercised his right to proprietary interest in the subject-matter of insurance.Example: When a ship has been wrecked and the, insurer has paid a constrictive total loss, he is entitled to take over the wreck, and if it can be sold, he may retain the full proceeds of sale irrespective of their relation to the insured value or the amount which the insurer has paid. However, when the insurer decides to exercise his proprietary rights, he is likewise responsible to pay all charges attaching to the property as from the time of the casualty causing the loss.

Under the Principle of SubrogationThese comprise recoveries from third parties on account of their liability for the accident giving rise to the claim under the policy. Some Examples are:-Recovery from the owner of a ship which is in fault for a collision.

-Recovery from a charter who is responsible for having ordered the ship to an unsafe berth where she sustains damage.-Recovery from a repair or dry-dock owner for negligent work.

Procedure of Recoveries in Hull Claims

Ocean-going vessels:

When any ocean-going ship is involved in an accident and has sustained damage, it is essential that the owners and/or their agents should give prompt notice, with such details as are available, to the insurers.In addition, when the vessel is abroad, the master should “notify the nearest Lloyd’s Agent. The purpose of giving notice is to enable the insurers or their agents to appoint a surveyor to attend the vessel and survey the damage. Hull policies contain an express provision regarding notice to insurers ant ITC-Hulls, for example, provides that in the event of non-compliance with the terms of the Notice of Claim &Tenders Clause (No.10), a penalty of 15% is to be deducted from the ascertained claim. Owners should give notice also to the P & L Association in any case involving loss or damage to cargo and when there is possibility of claim for GA contribution from cargo interests and possible liability claims arising from the accident.If the casualty is serious, the ship-owner will wish to send a marine superintendent and/or an engineer superintendent to the casualty or to port to which the damaged ship is proceeding, in order to obtain their reports on the situation and extent of damage. It is desirable at this stage that the damage sustained by the ship by surveyed jointly and concurrently by the ship owner’sSuperintendent (s) and the surveyor appointed by the insurers.As far as possible they should agree upon

(a) The recommendations for repair.(b) Instructions to be given to the repairers and(c) When the repair accounts are sustained by the shipyard/repairers, these

should be examined critically by both the surveyors to check the level of pricing and negotiate any reduction that may appear necessary and fair.

Adjustment of the claim is recorded by the Average Adjuster in a statement which is carefully prepared after going through all the aspects of the claim, insurance cover, surveyors’ recommendations and other evidences. Claims relating to ocean-going vessels, involve commitments and final disbursements in foreign exchange, particularly under following circumstances:-Guarantees provided on behalf of the assured for Salvage Charges and/or Collision Liability.-Satisfying arbitration awards relating to salvage remunerations-Reimbursement of Collision Liabilities-Legal expenses relating to Salvage Award, Arbitration and Collision Liability.

Fishing Vessels:

On receipt of a claim notice, it necessary to ascertain.-If the loss has taken place within the currency of the policy.-Whether the peril giving rise to the loss, also the loss itself are covered under the policy.-That the ownership of the vessel has not changed without the knowledge of the insurers.-That no premium is due for the period of cover in which the date of the casualty falls, etc.On the basis of the above, if it can be reasonably assumed that there is an admissible claim under the policy, then the procedure is as follows:

(a) A licensed competent of the damaged or its wreck is possible is to be appointed immediately.

(b) Pending inspection by the surveyor, the insured is informed in writing to protect the damaged vessel/wreck and ensure that there is no further aggravation of the loss.

(c) In case of a sunken vessel, wherever practicable the insured should be advised in writing to make reasonable efforts to refloat/salvage the vessel.

(d) In case the vessel is missing, the insured should be advised to make efforts to search for the missing vessel.

(e) A claim for CTL must be preceded by a letter of Abandonment from the insured, which is usually declined by the insurers in writing. However, this does not legally diminish the insured’s claim for CTL once the Letter

of Abandonment has been issued by him and received by the insurer. Notwithstanding this, the insurer must still refuse acceptance of abandonment of wreck till the liabilities attaching to the wreck (Port and other dues, statutory requirement of wreck removal in case of vessels sunk in navigable channels, etc) are fully ascertained.

(f) Since a missing vessel will not be available for inspection, a competent investigator, preferably a tired senior Police Official, both experienced in the ways of investigation and familiar with the concerned locality, may be accepted as reasonably true.

(g)Partial loss claims, if covered under the policy, are to be settled on the basis of surveyor’s findings and recommendations, if found reasonable.

(h)Repair bills, cash memos in support of purchase of parts, etc. and all such documents in support of expenditures are to be verified and certified by the surveyor to be reasonable and admissible for the purpose of adjusting the payable claims.

(i) Whenever possible, the surveyor should be advised to achieve assessments net of salvage. This is because it is difficult and not always economical for the underwrites to get involved in salvage disposal. However, where this is not possible, arrangements should be made to take over the salvage from the insured before settlement of the claims, and the same should be disposed of at the price available.

(j) Where applicable, the surveyor should ensure that, statutory rules and regulations have been fully complied with and he must repot thereon.

(k) The documents required for the settlement of Fishing Vessels Hull claims are as follows:-Surveyor and/or Investigation Report.-Registration Certificate, if any, issued by the concerned authorities.- Weather Report for the relevant date and time from the competent authority in case adverse weather conditions are involved.- Affidavits and/or statements by the Owner, Tindal or ‘ any member of the crew, if made to any of the authorities.- Certificate of cancellation of registration of vessel in respect of Total Loss claims.

Sailing Vessels:

The preliminary and subsequent to be followed on receipt of claim intimation with regard to Sailing Vessels is same as that above for Fishing Vessels. The documents required for settlement of Sailing Vessels Hull Claims are as follows:

(a) A certified copy of the Tindal’s Note of Protest or declarations made before a Notary Public, a Magistrate or any Customs/port Authorities nearest to the foreign waters, the Note of Protest or declarations made before a foreign Notary Public or Magistrate or similar authorities, will have to be produced in support of the claim.

(b) Casualty Form No.6, issued by the Mercantile Marine Dept., when the vessel is totally lost. Alternatively, a Certificate issued by the Mercantile Marine Dept. confirming the total loss of the vessel.

(c) Survey Report from a competent surveyor showing details of the loss, circumstances giving rise to the loss and signed statements of owners, crew, etc. regarding the loss, and assessment of the loss. An Investigator may be appointed whenever necessary to ascertain whether or not reported loss of the vessel is substantially true in view of the circumstantial evidences.

(d) In the event of partial losses, claims for salvage charges or sue and labour charges, original repair bills, cash memos and similar documents, duty verified and certified by the surveyor.

(e) In the event of TL/CTL being admitted, the original insurance policy duly discharged, by the insured.

(f) A certified copy of the Meteorological Department’s report on the weather conditions at the time of the casualty, and particulars about weather signal provided during 24 hours before the casualty.

(g) Sometimes the owners and/or the crew of the affected vessel rendering rescue / salvage services file affidavits are filed, certified copies thereof are to be obtained before settlement of the claim.

(h) In addition, following documents may be, called for, if required:(1) Certificate of Inspection- SVIC-III(2) Certificate of Inspection- SVRC.(3) Free Board Certificate before commencement of voyage.(4) Cargo manifest.

(5) Load Line Certificate.(6) Port Clearance Certificate.(7) Certificate of cancellation of Registration of vessel in case of Total Loss claims.

Inland Vessels, Fixed Jetties, and Pontoons:

The procedure to be followed for settlement of claims, both partial and total, under this group will be the same as indicated for Sailing and Fishing Vessels. However, considering the fact that very large vessels involving substantial sums insured may have to be considered under this group, the processing of claims, including appointment of Surveyors, Adjuster, furnishing of guarantees, etc. are to be viewed at times in the same dimension as in the case of ocean-going vessels. Verifying the actual load against the DWT is very important.Since Jetties and Pontoons are fixed structures, it is advisable to process such claims as “Engineering claims”

Specimen of Hull Claim Form

ISSUANCE OF THIS FORM IS NOT BE TAKEN AS ADMISSION OF LIABILITY

I. Name of the Insured and Address:

II. Name of the Assignee, if any:

III. Particulars of the Insured Vessel :

a. Name b. GRT

c. Registration No. d. Place of Registration

e. Classified as f. Construction

g. Year Built h. Engine No.

IV. Particulars of the Tindal & Crew Members

Tindal Name & Address

Tindal’s Father Name & Address

Crew Members Name & Address

1. 2.

3. 4.

5. 6.

V. Policy Particulars

No. Issuing Office

Period of Cover Terms

Sum Insured Rs.

VI. Detailed particulars of the casualty giving to this claim indulging place (Anchor-bearing) Time, Date and the cause of the casualty:

VII. Actions taken to save the vessel from imperilment:

VIII. Actual loss / damage suffered:

IX. Human lives lost /saved – How and by whom?

X. Has the casualty been reported to the authorities – Port Officer / Police / Notary Public? If so, give particulars:

XI. Was the vessel seaworthy in all respects before commencement of the ill fated voyage or immediately before the casualty?

XII. (a) When was the vessel last repaired ?

(b) What was the repair work carried out?

XIII. Particulars of loss minimization efforts and expenses incurred, if any:

XIV. Estimated Loss :

The above particulars are true to the best of my knowledge. I/We further declare that no other person has any interest in the said properly, as Owner Mortgagee, Trustee of otherwise, and that it is not otherwise insured against with this or any other Office, except as above stated.

Place:

Date:

Signature of Insured.

Chapter 8

CASE STUDY

1)The capsizing of the Costa Concordia has raised many questions about the safety of modern cruise ships.

How crash happened?

At least 11 people died after the Costa Concordia cruise ship ran aground with more than 4,000 passengers and crew on 13 January, only hours after leaving the Italian port of Civitavecchia. The maps and graphics below reveal details about the vessel and its ill-fated journey.

At 9:30pm (2030 GMT), two and a half hours after leaving the port of Civitavecchia, the Costa Concordia hit a rocky outcrop as it sailed past the island of Giglio.

INSURANCE OF COSTA CONCORDIA

(Reuters) - The wrecked cruiseliner Costa Concordia could turn out to be the biggest insured loss in maritime history, analysts and industry experts said on Monday, with some suggesting insurers and mutual societies could end up shouldering $1 billion in losses.

The Costa, a multistory liner carrying over 4,000 passengers and crew, ran aground and capsized off Italy's west coast at the weekend, killing at least five and injuring dozens.

In the complex world of maritime insurance, there will be two issues to contend with: the clubs of cruise ship companies that insure each other for personal injuries, shipwrecks and environmental damage; and the consortium of insurers who underwrite the ship itself.

The ship is insured for 405 million euros ($513 million) by insurers including XL, RSA and Generali, industry sources said.

An RSA spokesperson said the company's exposure to the disaster was below 10 million euros, while a spokesperson for Generali said the impact on the company would be small.

XL's team at the Lloyd's of London insurance market has been working on the disaster since the weekend but has yet to come to any firm conclusions on cost or liability issues, according to a person familiar with the matter.

The insurance claim against the stricken Costa Concordia could run to as high as $1 billion as it "bounces around the reinsurance industry for 10 years", underwriters claimed.

While it is too early to tell exactly how much of a bill insurance companies will cop to cover damage to the ship, personal injury and loss of life, analysts have estimated claims could reach anywhere from $500 million up to $1 billion.

A lot will come down to whether the ship, built for about $570 million, can be salvaged and repaired or is written off as a "total loss".

"Even if that's not the case, the claim will still bounce around the reinsurance industry for 10 years as insurers seek to recover their exposure," a Sydney underwriter said.

"After that comes the recoveries."

The recoveries are what money is recovered by the sale of salvaged and damaged parts of the 114,500-tonne ship with its 6000 sq m fitness centre, five jacuzzis, 13 bars and six Wartsila diesel engines.

2) Hull Insurance – Perils of the Sea – Wear and Tear – Vermin

566935 B.C. Ltd d.b.a West Coast Resorts v Allianz Insurance Co. of Canada, 2006 BCCA 469

The issue in this case was whether the sinking of a barge was due to perils of the sea. The barge had been built in 1933 and had been used as a floating sport fishing lodge since 1995. She had been laid up for the winter in September 1999 and sank in March 2000. At the time of her sinking ordinary wear and tear had opened her seams allowing the continuous ingress of substantial amounts of sea water and requiring continual pumping to keep her afloat. A PVC “diaper” had been previously fitted to control the ingress of water but this was in shreds at the time she was laid up in September of 1999. After the barge was raised it was discovered that the pump which had been keeping her afloat was

working properly. The Plaintiff, the assured, alleged that the shore power to the pump must have been interrupted and that the loss was, accordingly, fortuitous and due to a peril of the sea. The Defendant underwriters alleged that the cause of the sinking was a failure in the planking of the barge due to worm infestation which allowed water to enter at a rate that overwhelmed the pump. The trial Judge agreed with the underwriters and held that the cause of the sinking was chronic leakage and the failure of a plank. As a consequence, the trial Judge held the loss was caused by ordinary wear and tear or the actions of vermin, excluded perils, and not by a peril of the sea and the case was dismissed. An appeal by the Plaintiff was dismissed by the British Columbia Court of Appeal. The British Columbia Court of Appeal noted that Anglo-Canadian law required that for a loss to be considered a peril of the sea, the actual entry of sea water must have been caused by a fortuity. Here, the fortuity alleged by the Plaintiff, the failure of the pump, was not such an antecedent fortuity and the loss was therefore not caused by a peril of the sea. It is important to note that in reaching this conclusion the British Columbia Court of Appeal referred to the leading decision of the Supreme Court of Canada in C.C.R. Fishing Ltd. v British Reserve Insurance Co., [1990] 1 S.C.R. 814, wherein it was held that where several factors combine to cause a loss, the loss will be considered to be caused by a peril of the sea if one of the causes was fortuitous. The British Columbia Court of Appeal read this case as requiring that the competing causes which combine to produce the loss must all have been operative in relation to allowing the ingress of water. The CCR Fishing case was held not to be applicable as the failure of the pump, even if a fortuity, did not cause the entry of seawater into the vessel.

Chapter 9

CONCLUSION

Hull insurance refers to the insurance of Hull and machinery and other interests , of oceangoing vessels, fishing vessels, sailing vessels, trawlers, barges etc. Hull Insurance covers Loss/damage to the insured ship arising from or caused by Civil war, revolution, insurrection or civil strike /mines, torpedoes, bombs or other engines of war, Strikes, Locked-out workmen or persons taking part in political or labour disturbances, riots and civil commotions and malicious damage.Proposal Form is required to taking out the policy to safeguard the monetary interests of the ship-owners. Proposal Form includes, Technical details of the vessel, Trade related details, and other documents like Registration / License Certificate on Hull, Pre-insurance Survey Report, Details of arrears of loan payments to the Bank/ Financier and also confirmation that there is no default, Etc.Rating is a guide to determine an appropriate rate for a hull risk. The joint hull Committee in London, comprising underwriters from Lloyd’s and member companies of the ILU (Institute of London Underwriters), in accordance of the joint Hull Formula.(ITC-Hulls) provide the widest cover for hull and machinery interests. In other words, they cover hull and machinery “on full conditions”. It covers perils the seas, rivers. Lakes or other navigable waters, fire, explosion, Violent theft by persons from outside the vessel, Piracy, Accidents in loading, discharging or shifting cargo or fuel, Bursting of boilers, breakage of shafts or any latent defect in the machinery or hull, Negligence of Master, Officers, Crew or Pilots.In India, insurance of ships and ship owing interests are governed by tariffs. The tariffs indicate in detail the rates of premium for various types of covers, additional premium (A.P.) for extra risks and for breach of trading and other warranties, fleet and other discounts for favorable features and Agency Commission and Owners; Discounts, as applicable. There may be a claim under a hull insurance policy when, by the operation of insured perils a mishap takes place. There are certain procedures which are to be followed in claiming the recoveries.

WEBLIOGRAPHY

-www.google.com-www.indiainfoline.com-www.orientalinsurance.com-www.aig.com

BIBLIOGRAPHY

-Insurance Institute of India- IC-67-Outlook