Marine insurance principles and practices

Marine Insurance

The concept of Marine insurance is something that has been developing at a fast rate of late. (Marine Insurance: Barlow, Lyde and Gilbert) What exactly is insurance and how long has the concept been recognized? Insurance can be defined as a form of provision of a safety net for the distribution of risks. This is generally made in the form of a financial provision that is meant to protect against losses that may occur due to certain unavoidable reasons. Insurance works like this: a person who wishes to insure an object or possession or belonging of his will pay a certain amount of money that has already been fixed by the insurance agent in order to offer the security of the money to distribute the risks when the insurer happens, by misfortune, to lose his possession or damage it because of an unavoidable reason. The insurer, by the very fact that he has accepted risks, agrees that he will pay the amount of the insurance protection that would cover all the various losses that would have occurred.

Insurance can also be described as a form of securing the promise of indemnity by the payment of a specified sum of money as well as by fulfilling other obligation as required by the insurance company. The principle of insuring a person's valuable possession has been in existence from the time of the Romans, when a sum of money would be paid for the burial of a dead soldier, and so on. To a certain extent, this form of insurance actually resembles the welfare societies of today's world wherein a sum of money is paid to a person when he has no other means of income, when he happens to also deserve it. When the Romans performed burial rites for the dead soldiers, they were in fact accepting a sum of money from them when they were still very much alive, in return for the service. This can be seen for the act of insurance it really was. Records exist of the sums of money that were paid by Demosthenes for marine loans as insurance to the ancient Greeks; records exist too of the idea of insurance among the ancient Chinese people of 2,500 years ago. (History of Insurance)

Though recorded instances of insurance in the ancient ages are present, there are no records of insurance through the ages, and even if there was some form of insurance in some countries in some centuries, this insurance was never of large proportions; they were all paltry sums of money paid for insurance of small possessions. The Insurance of today is a large proposition, wherein huge amounts of money are paid by the insurer to the company in order to minimize his risks when he is in possession of something of great value. Insurance is now divided into four categories: 1.Marine insurance, 2. Fire insurance, 3. Life insurance, and 4. Casualty insurance. Among these, it is marine insurance that is the oldest form of insurance, as it dates back to more than seven centuries ago. Marine insurance seems to have been utilized as a form of safety in the Mediterranean in those days. Records of fire insurance have been dated as far back as the Great London Fire of 1666, and it was at this time that it was established. (History of Insurance)

Life insurance was not discovered or established until the year 1760 when an insurance company was formed for this purpose. This company, surprisingly, was based on certain principles that insurance companies still follow today. The last form of insurance, namely, casualty insurance, was formed in the nineteenth century, when the first steam railway system was established. A lot of accidents were caused due to this new mode of transport, and this gave rise to the need fro insurance. This insurance can also be referred to as accident insurance. Whatever may be the form of insurance; they were all based on the basic theory of probabilities. This is the theory that states that all events, though they may not be fixed, will occur with approximate regularity. These events, because of their regularity of occurrence, lead to the fact that a law can be based on them. In other words, the law can be based on the conclusions that can be drawn from the very fact that these events will keep happening with regularity over a fixed period of time.

It was the famous 'Game of Points' that led to the theory of probabilities being discovered. This was the incident that led to it: two noblemen were engaged in the Game of Points. When the two people had to stop their game before it was concluded, and with both noblemen in possession of their own stakes and absolutely unwilling to divide them, the famous Frenchman, Pascal was called upon to divide the stakes that was of the amount of $64, each of the two noblemen having paid $32 each. It would not be until one of the players was able to score three points that he would be able to stake the claim to the stakes, and one of the players had a credit of two points in his account, and the other had one. When Pascal was called upon to give them a solution to the problem, the Frenchman decided to offer them a solution based on probabilities and possibilities. This is what he said: if it was that one of the players had played another hand at the stakes, one of two things would have happened. Either the player who had two points to his credit would have gained another point and therefore be in possession of a total number of three points, or the player who had one point would have been able to add another point to his credit, and would have therefore had the same number of pints as the other player. (History of Insurance)

If this had happened, each player would have been able to retain his own individual stakes. Since the odds of either of the two noblemen winning were equal, and the person with two points would not lose his stakes if he happened to play another round, the other $32 should be divided into two parts. Thus the player with one point to his credit would retain the sum of $16, and the other player would also receive $16. If this was not acceptable by the two players, then the whole stake must be divided into proportions of 48 and 16. This solution offered by Pascal was a great boon to gamblers of the time who felt that this was the best method to decide on the outcome for a game that could not be played until its conclusion. The theory of probabilities had come into existence, and this became the basis for the entire business of insurance. However, it must be emphasized that though insurance has been compared to the game of gambling, the innate principles of insurance are entirely different. While on one hand gambling is based on pure chances, and on completely unknown factors, insurance is based on all the different dimensions of the problem being considered. (History of Insurance)

Marine insurance has been acknowledged as one of the oldest forms of insurance in the world. It is a system that is completely based on indemnity. The primary and also sole purpose of marine insurance is to repair or make whole the loss that has been suffered by the person who has insured. This form of insurance was practiced in the Mediterranean, and the Rhodians and the Hanseatic League were among the first few people to insure their marine belongings. In the UK, however, marine insurance started as a business in London in the famous coffee house belonging to Edward Lloyd, in London. To this day, the name of Lloyds is generally associated with insurance and marine insurance in particular. What happened at the coffee house was this. The Edward Lloyd was a meeting place for marine merchants. These people would gather there to discuss different aspects of their voyages. (Marine Insurance)

It soon became an established custom for one merchant to take up a portion of the risks of the other merchant when he was about to set forth on his sea voyage. For example, a merchant who was setting out to the West Indies with a cargo costing 10,000 pounds, would request his friends to put up a sum of money, at a premium, to take up a portion of the risk, like being lost at sea, for example, that the ship was about to undertake. The amounts for this undertaking, at the outset, were very small, maybe about 100 pounds, never more than that. The person putting up his money would sign a document stating that this was the sum of money that he was paying for the risk that he was undertaking. This was, interestingly, how the term 'underwriter' came into existence. The person signing the document would put his signature at the bottom of the page to testify to the risk that he was covering. An underwriter, to this day, is the person who undertakes the insurance risk of the company. (Marine Insurance)

Soon the form of marine insurance became extremely popular, and there were many people who entered the field of marine insurance as a profession in itself. This became a great boon to the merchant who could spread out his risks among others. It was thus that the concept of marine insurance came into being. One of the earliest marine insurance companies, the 'Atlantic Mutual Insurance Company', has declared the various aspects and points of the insurance policy that it had undertaken to cover, in the unique charming English of those times. These are, according to that ancient document, fire, and any enemies at sea, the pirates of those days, and thieves of any kind, and rovers. In addition, it declares other risks such as jettisons, arrests, takings at sea, and so on. These were the very real risks of those days, against which merchants had to put up a brave front and carry their cargo across the sea to the other parts of the world.

The Atlantic Mutual Insurance Company promised the insurer that it would pay him the amount against which he had insured his goods, after due consideration, if there were to occur any losses according to the exhaustive list drawn by the company for the purpose of marine insurance. Any form of marine insurance will always comprise of a set of terms and conditions upon which the insured is served, and the liability of the underwriter is dependant on. These are the conditions that are binding on both parties and, though they are not actually expressed in real terms, are referred to as 'warranties'. These are such conditions that are generally taken for granted that they do exist, like for example, that a particular ship is actually sea-worthy, that the voyage to be undertaken would be made without any sort of detours or deviations, and that the entire undertaking is basically of a legitimate nature, with the ship in question in possession of all the papers pertaining to this issue. (Marine Insurance)

Any form of violation on all these aspects of the terms of insurance will result in the insurance becoming null and void, and the insurance company would be able to terminate the insurance. When a marine insurance policy has been undertaken, the terms that occur in the everyday dealings with the company that offers marine insurance are 'general average' and 'particular average'. Interestingly, the term average has evolved from the French word 'aver-age' that actually means 'damage to a ship or to a cargo'. General average refers to the losses that happen when the ship has been on a voyage that has resulted in the sacrifice and loss of cargo or damage to the ship that would have been unavoidable in any case. This was practiced as a normal marine insurance routine whenever a ship undertook a journey, in olden times. Sometimes, a part of the cargo was offered as insurance when the concept of a marine insurance policy was still relatively unknown.

The losses, if any, would be divided among the people who had offered to put up sums of money for the safe travel of the ship in unknown waters. These people were generally the owner of the ship, the owner of the cargo, and the persons who had chartered the ship on its voyage to carry cargo. These three types of people involved in marine insurance were also known as the 'three interests' of the ship, and the names applied to them in terms of insurance are the 'vessel', the 'freight', and the 'shipper'. The losses were divided among these three interests and equally shared by them according to the terms of their interest when there was any loss to the ship, like for example, to the hull, or the mast, or the anchor, or the sails in the course of the journey wherein these items had to be sacrificed for the innate safety of the voyage. An example from a Roman voyage would illustrate this point clearly. If a team of Romans numbering ten in all was to undertake a voyage across the Mediterranean, carrying a cargo of ten sheep each, and a storm were to arise, and it becomes clear to all the members that if they were to survive the storm, a part of the cargo must be compulsorily sacrificed. (Marine Insurance)

Now no one person would want to throw overboard all his cargo of ten sheep. What happens next? A decision must be taken by all the voyagers that would, in effect, result in a lesser amount of loss for all concerned. Therefore the decision would be reached that if one person would throw one of his sheep overboard, then all the others on board would share his loss. Thus it would happen that each person would throw one of his sheep overboard, and therefore ten sheep would be sacrificed at the rate of one each, and there would only be a minimum of loss to all the travelers. Each person on reaching Rome would have for sale nine of the original ten sheep, and thus the one sheep that had been lost would be taken as the contribution to the loss of the cargo by everyone on board the ship, by voluntarily accepting and also acknowledging the fact that this was the amount of cargo that could have possibly been saved under the circumstances.

This, then, is the principle of 'general average' whereby each person, in his own interest, must be willing to share equally the loss that has been suffered as a result of the question of the gaining of benefit for all concerned. In other words, the owner of the ship, and the shippers would have to contribute to the making up of the loss. The 'particular average' of an insurance policy is that which is applicable to the person who, as an individual, has suffered a loss. There is no sacrifice made by anybody in this case, like in the case of general average, and the losses suffered are generally by the interested person. If the previous example of the cargo of sheep traveling to Rome were to be considered, and instead of all persons on board throwing one of their sheep overboard, one person in particular would have been unfortunate enough to have lost all his sheep to the sea when the storm arose, then the loss that had occurred would have to be suffered only by that particular person, and not by all the members of the team of travelers on board the ship. (Marine Insurance)

The loss, therefore, is suffered only by the single individual, and not by all aboard, and is therefore referred to as 'particular average'. The general dangers of any sea voyage against which a person would be able to insure are grouped into four different categories. They are: the general dangers that one would face in the sea, the dangers presented by the very character and the conduct of the person who is in charge of the ship, the dangers that are present in the outside, like for example, pirates, who could loot and plunder an entire cargo of a ship whenever they found occasion to do so, and the last category enlists all those other risks that are general associated with sea voyages and marine travel. The losses that can be suffered by an individual or a company during the process of a sea voyage are grouped under the following categories: total loss of a vessel or ship-constructive or actual, the general average loss, the particular average loss, and the salvage.

The total loss of a ship will occur when a ship is totally lost at sea, due to many reasons. When a ship is actually 'lost', meaning that nobody is aware of its whereabouts, then it will be considered as a loss after a period of waiting of seven years-as in Lloyd's, after which it can be written off as a total loss to the shipping company. In some cases, the ship may return after seven years, or it may be discovered at the site in which it was originally lost after seven years, but, after it has been declared as being legally lost by the insurance company, it is considered as a total loss to the shippers, and the losses would have to be borne by the insurance company with no questions asked. A ship can also be lost and considered as a total loss when it is destroyed by fire or due to any other reason whereby its whereabouts and what actually happened to it are known by the shipping company as well as the insurance company. The type of loss described above is known as the 'actual' loss of the ship. In some cases where a ship may crash and be shipwrecked, or suffer sever damages as a result of some other sort of accident, and the cost of repairs and re-construction of the damaged ship may become larger than the actual cost of the ship, then the loss can be counted as a 'constructive loss'. (Marine Insurance)

The insurance company states in such cases that, when the total sum of the losses suffered by the ship is counted, the cost of hauling the ship away from the rocks on which it has happened to crash, and the additional costs of repairs must all be added up to arrive at a particular figure. When this figure is larger than the actual cost of the ship, then the loss can be declared as being 'total'. The 'salvage' part of marine insurance actually refers to the rewards offered by the legal system for the services rendered by non-interested parties in the saving of lives and property on the ship when it has undergone an accident or any other form of danger. This amount is usually divided by all the parties who have helped salvage the ship, in the same way that a loss would be divided among those who have contributed to the loss in any way. The loss would be written off under 'general average' while the salvage would be paid up by the insurer. Any insurance statement would describe all the terms and conditions of the policy whereby the benefit would be for both sides. The New York Standard Policy is one that describes in great detail all the various clauses that are contained in the contract. This document served as one of the precursors of the written document of insurance. (Insurance-New York Standard Policy)

The Marine Insurance Act was finally written down in the year 1906 and stated that the insurer was bound by a contract to Marine Insurance and promised that he would undertake to indemnify the assured, against any losses that he would be forced to face at sea, also referred to as 'maritime adventures'. These maritime adventures and perils were also described as the exposure and risks to ships or other movables to any dangers at sea, also called maritime perils. Properties that may be liable to danger and damage at sea were referred to as 'insurable property'. The liability to another third party by the owner of the written contract is clearly stated in the terms and conditions of the contract. The owner of the property was said to be in a relationship with his own goods, whereby he would be benefited from a responsible handling of and the safeguarding of the goods in a manner that no harm would come to them, and if there were any harm or damages suffered by them, it would be his loss. (Marine Insurance: The Beacon Insurance Company.)

It was mainly due to this clause that an owner would display more interest in the goods of which he was the owner, and as long as he would be the owner, he would be responsible for the property. As far as the owner of the ship is concerned, it would be largely in his interest that the ship would be insured, and all valuable parts of the ship like the hull, the mast, the anchor, and so on, would be insured by the owner for his own safety. The part of the Maritime Policy that defines this ownership is referred to as the 'Hull and Machinery' policy. This policy states that when the ship suffers any damage at sea, or on land due to fire, or explosions or due to any sort of contact with harbor installations, and so on. (Marine Insurance: The Beacon Insurance Company) The English Marine Insurance Act was written to codify the Maritime Law of 1906. The Act served as a legally binding contract whereby all the terms and conditions under which a ship owner or a merchant of cargo or nay others who may be involved in the shipping business could seek protection against all dangers from maritime adventures and perils at sea, as stated in the Maritime Insurance Act. It also included certain land related risks. A ship while being built or when being launched could also be insured according to the marine policy.

The English Maritime Act also listed out the perils and maritime adventure that would come under the provisions of the Act. These were: any marine voyage, in other words, any marine adventure would be taken as a subject of the contract relating to the contract of Marine Insurance. When a ship or other movable property was to be exposed to maritime adventure, then the ship or property would be considered as 'insurable property'. Any earnings or charges that may be levied and accessed, any freight or travel charges that may be charged, any security accessed for the disbursement of any loans, etc., would endanger the insured properties to maritime perils and adventures. Any liabilities to a third party would be borne by the owner or other interested parties who may be responsible for the insurable properties being exposed to maritime perils. (English Marine Insurance Act 1906)

The title 'maritime perils' covers a whole range of perils that a person may face on the sea while in the act of navigation of the ship. These, according to the list under the policy, may be any perils of the sea, fire, war, tensions caused by pirates and thieves, and any sort of seizures of properties, and jettisons, and detainments and captures by princes or others of the like, and also barratry. Protection against false contracts was offered by the English Marine Insurance Act, whereby all contracts in the nature of games, since gambling was the most popular game in those days and were absolutely forbidden, and any such contract was considered to be null and void. When an innocent insurer entered into such a contract unwittingly, the terms and conditions of the contract were explained in the policy thus: when the assured is not in possession of an insurable interest as specified by this particular Act, and the person has signed the contract without expectations of acquiring such interests, or when the policy is created with the clause of 'interest or no interest', adding that there was no proof required other than that of the policy in itself, then when the principle of salvage was not provided for, the policy could be effected.

What exactly was meant by 'insurable interest'? The Act defined the person who has an interest in maritime adventure is in possession of 'insurable interest'. An individual may also be in possession of insurable interest when he is interested in any form of maritime adventure wherein he stands in a legal position of interest to the adventure in itself or to the risks inherent in such an adventure, so that when there is a loss, he would have to suffer from the loss, and when there is profit when the ship arrives on time he would only enjoy the benefits, and all this is because of his liability to the maritime adventure. The assured must be interested in the properties insured when a loss happens, though he need not be interested when the insurance is actually achieved, but only when the subject of the insurance is 'lost' or 'not lost' and the assured would be able to recover, though he may not have the interest until after the loss, and unless the assured happened to be aware of the loss at the time of affecting the insurance, and the insurer was not aware of the loss. (English Marine Insurance Act 1906)

Also, when the assured is not interested at the time when the loss has occurred, then he would not be able to, by any means, acquire interest later after he is actually aware of the loss that has happened. Interests are of several different types, the primary one being the defeasible interest or contingent interest. A defeasible interest can also be termed as a contingent interest, since both interests are insurable. For example, when the buyer of the commodity has insured the goods, and he has insured them, notwithstanding the fact that he had rejected them earlier due to certain reasons like the goods not having reached on time, etc., then he is in possession of insurable interest. Sometimes, partial interest can also be an insurable item, and is classified under the term, 'partial interest'. Re-insurance may happen when an insurer has an inherent interest in the risks involved, and would therefore be interested in re-insurance.

The policy has to specifically state that the original assured has an interest in the re-insurance; otherwise, he would have no interest in the new insurance. The insurable value of the subject to be insured before the insurance is taken, and this is to be done in the manner specified by the contract. In the insurance of a ship, the entire ship, including the outfit, the money and the provisions aboard, and anything else that would make the ship fit for the maritime adventure it was about to undertake, and all the charges of the insurance on the whole, must all be taken into account while calculating the value of the ship. When the insurance is for the commodities, then the value of the entire commodity - its prime cost must be considered, in addition to the charges of the insurance. In the case of the value of the freight, the gross amount of the freight to the assured is taken into account and the value is calculated accordingly. (English Marine Insurance Act 1906)

The Hull and Machinery Insurance cover is one of the types of marine insurance that is extremely important to ship owners as well as to insurance companies. The 'International Hull Clause' of 1/11/03 is one of the better-known Hull clauses that can be compared and contrasted to other hull clauses like the Institute Time Clauses-Hull of 01/10/83, and the Norwegian Plan of 1996, rewritten in 2003, and the American Institute Hull Clause of 02/06/97. The International Hull Clause is actually a law that is bound by English jurisdiction and is practiced exclusively by English lawyers. Among the listing for the various perils, the general perils of fire and accident are listed, in addition to the perils of latent defects, and staff negligence, and so on. The provision for due diligence is not to be considered as part of the insurance cover for accidents happening due to contact with satellites, and those made due to faulty loading, etc. The insurance for common costs which occur when any losses that are caused by the bursting of boilers and broken shafts etc. are fixed at a 50%. An optional insurance cover of additional costs is offered to repair the broken parts at the remaining 50% of the costs. (Salient Features of International Hull Clauses and other Hull forms) standard coverage is provided for leased equipment wherein the assured does not actually own the equipment but is responsible for it in all ways, and also for any parts of the equipment that have been taken off the ship. Underwriters are to be held liable for any loss or damage that may occur due to the perusal of duty by the government officials. Standard cover is given to those ships that happen to be involved in a collision. The amount specified is 3/4 Th of the insured value in respect to legal liability. The insurance cover provided for legal costs is a 25% of the total insured value, except when it is specifically stated that it is not. The pollution exclusion offered does not apply to the other ship nor does it apply to any articles or properties on the other ship. (Salient Features of International Hull Clauses and other Hull forms)

An option is given by way of a 'fixed and floating' cover, and the 4/4 Th. RDC. When it happens that sister ships collide, or one ship salves the other one, then the liability would be decided by a mutually agreed upon arbitrator. Claims for coverage of vessels are dependent on the general salvage, salvage charges, and the proportion of salvage that has been carried out, and there will no reduction in charges when the ship has been under insured. The assured is responsible for all costs incurred by labor and other costs that have been reasonable in their occurrence. All navigating provisions are not expressed as warranties, and underwriters will no longer be liable when there is a breach. This International Hull Clause covers the voyage to the next port in safety, and the sum to be paid is a pro-rata monthly premium, when the ship is either missing at sea or undergoing some other form of distress at sea.

The ship must hold certificates of class recommendation from the DOC and the SMC as to its sea worthiness, and this must be produced with the written certification of an agreed upon society. The company will pay a constructive total loss when the costs incurred for repairs of the ship happen to exceed more than 80% of the value of the insurance. Freight, however, will not be covered, especially when the underwriter has written the incident as a total loss. Insurance benefits will not cover those perils that are caused by terrorism, or wars or any form of strikes, and also any form of losses that have been caused by radioactivity or nuclear or biological weapons. Navigating limits as specified by the insurance Act must be kept in mind while navigating. For example, the vehicle will not be allowed in certain waters, at certain specified times. The premiums to be paid must be paid within 45 days from the date of application, and if not paid, the underwriter is allowed to cancel the contract by informing the assured.

In a comparison with the International Hull Clauses of 01/11/03, with the Institute Time Clauses-Hulls of 01/10/83, there are quite a few commonalities between the two. The ITC-Hulls is also practiced under English jurisdiction only, just like the IHC. The perils that are mentioned in the contract are the same as the ones written under the IHC, the only addition being that of the contact with satellites being subject to the due diligence provision. The ITC-Hulls does not offer coverage for the leased equipment that are not owned by the assured, and also for parts that have been removed from the ship. The coverage is also not extended to the actions taken by government officials carried out during the course of duty in the protection of the environment. In the case of a collision, the cover offered is 3/4 Th the amount of insured value in respect to the legal liability. In addition, there is no limit to the coverage of legal costs that may occur.

However, no additional coverage is granted by way of optional 4/4th, or even the fixed and floating cover as offered by the IHC. As to the question of sister ships salvaging each other, or colliding with each other, the provisions offered are exactly the same as the IHC. The Norwegian Plan of 1996, revised in 2003, is exclusive for Norwegians, and is practiced only in Norway. The various perils that it covers are the same as the ITC-Hulls and the IHC, and certain additional risks are also mentioned. These are the losses occurring due to piracy and mutiny, and due to contamination. However, time limits are specified for the purpose of rectification of losses caused due to avoidable circumstances, and when these time limits are exceeded, and then the amount will not be paid. Insurance cover is also provided, unlike the case of the ITC-Hulls, to cover equipment that are not actually owned by the assured but rented, and also for equipment that has been taken away from the ship.

In the event of a collision, the cover provided is 4/4th of the insured value in respect of legal liability, unlike the ITC-Hulls and the IHC, both of which provide a 3/4th of coverage for the same eventuality. The FFO coverage, however, is the same as that provided by the ITC-Hulls and the IHC. When sister ships happen to collide, the insurance provided will be liable to the insurer, especially when the salvage has been done by a third party. The American Institute Hull Clauses of 02/06/77 is another Hull Contract that can be compared and contrasted to the other three. First and foremost, the area in which it can be practiced is not specified in the contract, unlike as in the other three cases. The perils listed are similar to the three others, except that piracy is excluded. In addition, the costs paid do not cover those for damages caused due to burst boilers, etc. The coverage given under equipment not owned by the assured is similar to that of the IHC, while the coverage given for parts that have been carried away from the ship does not exist at all.

In the same manner, coverage is not offered to government actions take to prevent damage to the environment. In the event of a collision, the coverage offered is 4/4th of the insured value in respect of legal liability. Additional costs are covered when they occur, for the purpose of covering additional costs. The pollution exemption does not extend to the other vehicle involved in the collision, and there is no fixed and floating coverage offered. When two sister ships happen to collide with each other, then the liability will have to be agreed upon by a mutual arbitrator or by a minimum of three arbitrators. The comparison and contrast between four different Hull Clauses and Forms reveals that all four may be basically the same, but there are certain inherent differences that make each one unique and original in their perusal of the clauses that make up the entire contract.

While the IHC seems to be quite strict in its dealings, the AIHC seems to be more lenient, but certain coverage clauses under the IHC and the ITC-Hulls and also the Norwegian Plan do not exist under the AIHC. For example, the IHC offers coverage for any parts that have been taken away from the ship, while the AIHC does not consider this issue. The most important difference between all the four is that while the IHC and the ITC-Hulls offer 3/4th coverage of insured value for the liability that arises on an incident of a collision between two ships, the Norwegian Plan as well as the AIHC offer 4/4 of the insured value when there is a legal liability when there is a collision. Both plans offer coverage for any legal costs that may arise when the collision has taken place. The underwriter in terms of value of money generally agrees upon this legal cost.

While the IHC and the ITC-Hulls offer coverage for legal costs, the amount to be paid for the insurer in the IHC plan is limited to 25% of the total insured value, the ITC-Hulls gives legal costs no cut off point; the costs to be paid towards legal costs are unlimited. While the Norwegian Plan does not mention legal costs, the AIHC pays the agreed upon legal costs. The issue of 'pollution exclusion' remains the same in all four cases, wherein the pollution exclusion neither applies to the other vessel that has been involved in the collision, nor does it apply to any property on the other ship. While the IHC and the Norwegian Plan provide optional cover for the 4/4 and the Fixed and Floating issues, the ITC-Hulls and the AIHC offer no additional options for the FFO. When sister ships happen to collide, or one ship happens to salve the other, then the liability to be paid is usually determined by an agreed upon mutual arbitrator, in the case of the IHC, and the case of the ITC-Hulls is exactly the same as the IHC. (A Commentary on the International Hull Clauses and other Hull forms)

In the Norwegian Plan, however, the insurer is held to be liable when a third party has conducted the salvaging of the ship. In the AIHC, the liability issue when sister ships happen to collide with each other, or one sister ship salvages the other, has to be decided by a mutually agreed upon arbitrator, and if this were found to be not possible, then a team of three arbitrators would have to be engaged to decide the amount of liability. It can thereby be seen that though almost all salient features of all four contracts may be the same, there are some differences that make them stand apart from each other in the payment of liabilities and the coverage of certain issues. (A Commentary on the International Hull Clauses and other Hull forms)

When Lloyd insurance company came into existence, there were at that time two other marine insurance companies in the UK that were allowed to practice. These were the London Assurance and the Royal Exchange Insurance, and as the years flew past, so did the number of insurance companies that wanted to have dealings in maritime insurance. The problem faced here was that the insurance companies wanted their own set of rules, while the shipping companies wanted theirs. Therefore, there were a lot more clauses than was actually necessary in existence and all these clauses were attached to the famous SG Form. After a meeting held in April 1883, it was decided that there needed to be a particular phraseology to be adopted while writing these clause so that everyone who read it would understand it. In the year 1884 the underwriters Guild was created and the ILU stated that a few clauses therein were to be adopted for steamers.

It was not until the year 1888 that a set of Institute of Time Clauses was written. With the passage of time several newer versions were created, and the latest one was the Hull clause dated 1/11/95. The ones before them were dated 1/10/52, then 22/7/59, and then it was 1/10/69, then 1/10/70, and then 1/10/83. The last one was 1/11/95. It was in 1969 that there was a major new change in the clauses, and this was that the attainable 'voyage franchise' shifted over to the concept of 'each accident' deductible. When this happened, the Americans also adapted the same method in their clauses-AIHC of 18/01/70. It was finally in the year 1983 that a unified document was written after getting rid of the age-old SG Form.

The same format as the earlier Institute Time Clauses was used in the writing of the brand new set of clauses in the year 1995, and though it never attained the popularity of the older one, it was a job well done. It was now referred to as the International Hull Clauses. The very first version of the International Hull Clauses was brought out in the year 2002, after a joint meeting held by the Joint Hull Committee (JHC) and the Association of Average Adjusters. The latest set of clauses of the International Hull Committee was written in the year 2003, and it is generally hoped that the HIS of 2003 will continue unchanged for a long time to come. (A Commentary on the International Hull Clauses and other Hull forms)

What is the main purpose of providing a special Hull and Machinery Cover Insurance to a ship owner? What are the provisions under the Hull and Machinery Cover? The H&M Cover has been created for the primary reason of providing the owner of the ship with the status quo of that ship that has set out on a maritime adventure. The ability of the ship in its operations is an important part of the cover being provided. Since the ship owner is aware of all the perils involved in a maritime adventure, the Hull and Machinery Cover is taken by him in order to protect against losses. The three sets of clauses that are generally used are the Norwegian Marine Insurance Plan of 1996-Version of 2003, the English Institute Time Clauses Hulls of 1983, and the American Institute Hull Clauses of 1977. Among these three clauses, the Norwegian Marine Insurance Plan, also referred to the 'Plan', is the set that is followed by the ship owners as well as the Insurance Companies, and the other two are generally not agreed upon as the set to be followed. (Hull and Machinery Cover)

Therefore, it is seen that the Hull and Machinery Insurance Cover is based on the Plan that covers numerous risks as listed in its clauses. The wear and tear of a ship, the lack of proper maintenance, and any sort of war risks, interference by any state authority, and nuclear risks if any are all excluded from this Cover. In the case of there being damage inflicted on the ship on account of faulty design or manufacture, these damages are covered under the H&M Insurance Cover, provided that the Classification Society had approved of these parts earlier. The Plan also covers the 4/4th Collision liability, as it does the FFO that is actually the Clause for the liability to the ship striking Fixed and Floating Objects. The H&M Insurance Cover covers almost all the risks that the maritime adventure of a ship would be involved in when it embarks on a voyage across the seas.

This type of Insurance cover is of great advantage to the ship owner, as the Insurance Cover covers all risks, however unusual or amazing they may be. The English Institute Time Clauses Hulls, also known as the ITCH, as well as the IHC and the American Conditions all provide coverage for risks under the 'named perils' basis. This means that the insured must be able to prove that he had named the particular peril in his list of risks under the insurance cover plan. The named perils clause is generally inclusive of or supplemented by the Additional Perils Act and the Liner Negligence Clause. This list covers all the risks that are inherent I any maritime adventure. In this manner, there are several nuances under the H&M Insurance Cover that a ship owner must be aware of. For example, the ITCH covers all the parts of a ship and its machinery, but not the parts that are in the ship, like the provisions or supplies, but the Plan excludes all these items from its coverage. (Hull and Machinery Cover)

The ship owner would do well to buy him additional insurance coverage that would essentially cover all the extraneous items that are not included in the Plan. Sometimes, however, the deductible amount of the damages under the additional coverage plan may be well below the amount specified, and this is the reason that individual assessment must be made for all the items that need to be covered under the Insurance Plan. The duration of the Insurance Plan is generally of 12 months, after which the terms and conditions are to be re-negotiated. Any cover that is taken for new items or equipment on the ship are taken from the moment that the article is 'swung over the railing', that is, when the article is placed on the ship, and not before. These points must be assessed by the ship owner when he is taking the Insurance Cover, for he may end up with losses when he does not know when the cover starts, when it can be denied, when it can be reduced, and so on. (Hull and Machinery Cover)

The English Institute Time Clauses of 1983 stipulates that in the event of collision, there will be a 3/4th liability. Under its last of clauses the ITC mentions that the Underwriter has to indemnify the Assured for a sum of 3/4th of the amount paid by the Assured to any other person or persons on account of the fact that the assured is legally liable for it, and that when there is a loss of the vessel on that ship or on the other ship, and when there is damage to any article on that or on any other ship, then the assured is liable. When there has been a general average of or a salvaging that has occurred, or if there has been a salvage that has occurred under the contract of any other vessel or of any property on the ship, then the assured will have to be paid for act of the insured vessel colliding with any other vessel. Indemnity will be provided to the assured according to the conditions specified in the relevant Clause, as well as in the terms and conditions of the Insurance Policy.

However, the entire episode has to follow certain provisions that have been specified in the list of clauses. They are that, when one vessel collides with another, and both vessels are to be blamed equally, then, unless and until the liability of both of the ships or one of them becomes limited by law due to any reason, then the afore mentioned liability must be calculated based on the idea of 'cross liabilities'. This is a principle whereby the liability is taken to be the amount to be paid by both the owners of the ships, and each pays the other the amount of the damages incurred by the other due to him, that is specified under the clauses. On the other hand the assured may also be paid the amount of damages that have occurred due to the collision of both the ships. Under no circumstances must the underwriter's liability be allowed to exceed to more than their proportionate part of the 3/4th of the insured amount of the vessel, when there is one single collision. Underwrite must also pay the assured an amount of the legal costs that may be incurred by the assured in the event of the collision. This amount will be 3/4th of the costs.

In the case of the costs for the removal of any sort of obstacles or obstructions or any other thing, the costs incurred by the assured will not be paid to the assured. In other words, the costs for the removal or disposal of any articles or cargo from the ship will be excluded from the insured amount specified, and coverage will not be given in such circumstances. In a similar manner, there will be exclusions for such things as the loss of life or any sort of personal injury that any one would have suffered as a result of the collision, and also for any real property on board the ship, and the cargo and the property on the insured vessel, and the contamination or pollution that may have occurred on the ship, except when it has happened on the vessel with which the insured vessel has been involved in a collision. In the event of sister ships, in other words, vessels that are under the same management or belong fully or in part to the same ship owners, and then they are referred to as sister ships.

When these sister ships happen to be involved in a collision, and the insured vessel happens to receive any form of salvage services from its sister ship, then the assured would have the same rights under this Insurance plan as he would have if the other vessel were to belong entirely to the ship owner who was not interested in this particular insured ship. In these cases, the liability to the assured for the collision and for the salvages that have been performed on it will be referred to a sole arbitrator who has been appointed after mutual consent between the Underwriter and the Assured. (Institute Time Clauses) When a claim is to be presented for due consideration after an accident or collision or any other damage has occurred to the insured vessel, notice must be presented to the Underwriters before the survey is to happen, and in case the vessel happens to be abroad, then the nearest Lloyd's Agent has to be informed so that that Company may appoint a surveyor if the underwriter desires.

The Underwriter can also decide on the port to which the vessel is to be taken after the accident in order to affect repairs or for docking. The Underwriter also has a right to veto any suggestions of a place of repair or even of a particular repair workshop that he doesn't approve of. He can receive tenders, however, from different sources, for the undertaking of repairs of the damaged vessel. A claim for damages caused by bad or heavy weather must be supported by the fact that the damages occurred during a single sea voyage undertaken by the insured ship from one port to another. When this is proved, then this will be taken as one single accident. When the reason given for damages is heavy weather and the period of the heavy weather is not as specified in the Insurance clause, then the deductible that will be applied to the claim will be the proportion of the deductible that the number of days of the heavy weather mentioned in the claim falls within the number of days as mentioned within the period for claiming insurance, during a single marine adventure. The term 'heavy weather' will include that of any sort of contact with floating ice on the sea. (Institute Time clauses-Hulls)

The Newsletter of the Firm, Harvey Ashby Ltd., Average adjusters and Claim Consultants wrote in their letter of 2002/2003 that the International Hull Clauses was revised in the year 2002, and a joint committee appointed by the Joint Hull Committee undertook this revision. Changes were made in the original document wherever necessary according to the need of the day, like for example, the Underwriter philosophy had changed, as had the laws, and the basic need for modernization was also present. These were some of the reforms areas that had to be considered when the revisions were to take place. One reason was that the language of the document had to be modernized, since it had been written in the old form of English. The modern international measures of safety had not even been considered to date, and these were to be included n the clauses.

All the different changes in the laws governing the coverage were to be considered and to be revised, as was the new and latest concept of remaining ahead of the competition in all areas of operation. All previous claims handling procedures were to be amended and made to appear better and more efficient in a manner that would satisfy the client. These are the revisions that were affected by the team of individuals and companies over a period of six months. As planned and suggested, it was decided that the Perils Clause would be given more importance than it had been given previously, and therefore it was placed on the very first page of the Clauses. There were also some sensible changes and revisions made to this clause. For example, the clause detailing contact with falling or aerial devices or any other similar objects causing damage was shifted from 2.2 to 2.1 where the due diligence proviso was not applicable.

The due diligence was also changed from its original clause wherein it was declared that a superintendent or any other onshore relatives or managers of the assured were among those people to whom due diligence could be applied. These people were all excluded from this proviso in the new version, and this brought a sense of The Nukila of 1997 wherein the Court of Appeals made a decision regarding the coverage of 'latent defects' and the damages caused by these latent defects. What is a 'latent defect'? It is a defect that would not be discovered by a skilled and extremely careful person when examining the vessel for any defects prior to insurance. The particular defect in question should have been present at the time of the Policy, and not occur thereafter. Latent defects have been termed as a vice, and unless otherwise specified, are excluded from the statute.

Section 55(2) - of the Marine Insurance Act of the year 1906 states that the insurer will not be liable for the ordinary wear and tear of a ship, and also for 'inherent vice', unless specifically stated by the policy. It is a fact that the insurers of the Hulls of a ship have been stating that they are willing to take up the coverage of any damages that may be caused due to latent defects in the ship, and any damages that may occur in the Hull and other parts of the machinery of the vessel. Both the 1983 and the 1995 versions of the ITC have stated in clauses 6.2.2 that they are specifically providing cover for damage to the vessel caused by any latent defects in the machinery as well as in the hull of the ship. The practice therefore was to accept claims of damages due to latent defects, but to exclude the payment of the costs of repairing or replacing the defective parts that have caused the damage, as in the case of the Scindia Steamships vs. London Assurance of 1936.

In the case of The Nukila of 1997, it was decided that if the damage was caused during the period of coverage due to certain latent defects, and it was agreed that it would be covered by the policy, then it would become a difficult task to resist claims for the coverage of the costs of repairs or replacement of the damaged parts. The insurer is not responsible to guarantee and give his word of honor to the fact there are no latent defects in the vessel, or even to undertake the repair of the latent defects during the course of the policy, and Underwriters are definite about the fact that damages due to latent defects must be covered by a good insurance policy. The costs of the repairs and the replacement of damaged parts like on the Hull and I the machinery, however, are to be excluded from the coverage. The revised policy also includes a new clause in its listing, and this is the optional Additional Perils Clause (clause 44) which must be attested to by an Underwriter at the time of the inception of the insurance policy. These additional Perils are the coverage of 'leased equipment' wherein the equipment on board does not belong to the ship owner but has been leased from someone else, and the 'parts taken off' that are the parts of the ship that are not present in the ship at the time of the incident. Another change from the original clause is in the issue of constructive loss.

When the earlier set of clauses underlined the necessity of the amount of funds spent for repair being less than that of the actual amount that the ship has been insured for, the new revised clause -clause 21 it is now necessary to prove that the costs of recovery and repairs would exceed 80% of the total value of the insurance. The coverage of general average has also been revised in the newly written set of clauses. Some ship owners consider the control of the hazards of pollution is a duty of the Pollution Control Body, and that ship owners have nothing to do with the issue. However, the general rule of the YAR-York-Antwerp Rules, is that allowance in general average must be precluded and any losses accrued by the damages to the environment or due to the escape of any pollutants to the air must be taken as part of the risks of the maritime adventure.

As far as the issue of the coverage for losses that occur due to collision of the ship with another ship is concerned, the old policy that mentions 3/4th coverage is still maintained. The Collision Liability Clause that mentions this is Clause number 6. Clauses number 40 and 41 mention optional extensions to both 4/4ths and also to the fixed and floating objects provision that maintains that any collisions with such objects will be eligible for insurance costs. However, the new clause mentions that a new sub-limit has been introduced to take care of legal costs associated with the collision, and this amount would be of the value of 25% of the insured value of the ship. (Averagium)

What is the logic being followed by Insurance Companies in utilizing the 3/4 and 1/4th covers in cases of collisions? Is the system being followed by the U.S.A. In offering 4/4th cover well than that of UK in following the 3/4th cover? The 3/4th collision liability provides coverage for any type of boat or ship or commercial vessel, whether it is a ferry or a tugboat or a workboat or a container ship. The London Institute Clauses offers protection for all these boats and states that it will cover any sort of losses or damages that may be suffered by the boat as per the list of risks mentioned in the policy. These are referred to as 3/4th collision liabilities. These clauses mention extensions in the cases of any bodily injury to the persons on board the vessel at the time of the collision, and a cover of 1/4th liability in such cases that will be deemed as extensions. (Commercial Hull)

In India, insurance for ships and hulls and machinery is achieved through authorized dealers who pay towards membership with the Overseas Protection and Indemnity Clubs (P&I Clubs) on behalf of the Shipping Companies of India who have the stamp of the approval of the Government of India under the General Insurance Business Act of 1972. According to the clauses mentioned in the marine insurance policies if India, when an Indian ship is involved in any sort of collision with a foreign ship, then the P&I Clubs are responsible for providing the guarantee for the settlement of the claims made by the foreign ship owners. The GIC provides counter guarantees if any are required to the P&I Clubs in the case of a 3/4th collision liability that will be borne by them, as they are insurers. When a ship of Indian origin happens to get stranded or wrecked in the middle of the sea, then the insurer can contract independent salvers, and the GIC will provide a 100% of counter-guarantee for any of such overseas claims that may arise from the settling brokers and bankers who would be in fact entitled to a salvage security with no limits whatsoever. (Exchange Control Manual)

The Insurance Firm of Hill Taylor Dickinson has conducted an in-depth analysis of the International Hull Clauses and the Institute Time Clauses, and the basic differences between the older version and the newly rewritten version of the clauses of marine insurance. In this document or rather, booklet, the International Law Firm of Hill Taylor Dickinson mentions that in the International Hull Clauses, the cover provided if for 3/4th of the sum that has been paid by the assured in his claim for damages incurred in the collision between two ships at sea whereby damages have been accrued by both the ships, and losses have been acquired by the other ship as well as some properties on the other ship. When there is any form of delay caused to the ship or any form of loss to the other ship as well, and 3/4th will be paid to the general average of the salvage of the ship.

An additional indemnity clause is added to the clause 6 of the IHC whereby when both the vessels are to be blamed, then the issue of payment is to be settled by a policy of cross-liabilities. The liability of the underwriter, however, is to be cut off at 3/4th of the amount of the insured value of the ship when the claim is based on one collision only. Underwriters must also undertake to pay three fourth of the amount of the legal costs in cases of contesting or limited liability wherein the underwriter has happened to have given his prior consent to paying a 25% of the insured value of the insured ship, and where the liability is limited to the 25% of costs. When the issue of removal of obstructions or of the shipwreck itself arises, the coverage is not offered to the assured, and nor is coverage offered to any sort of bodily harm or injury to the person of the assured, nor is it offered to cover any pollution that may have occurred due to the collision. (International Hull Clauses)

In an analysis of the Marine Insurance Laws of Canada, it was found that the Marine Insurance Act of 1993 rules the marine insurance in Canada, and this act is very similar to the English Act since it has been based on and modeled on the English Act of Insurance. The basic Law that the Canada Insurance Act is practiced under is the Constitution Act until the year 1983, when it was generally used by the numerous and varied provinces of Canada under the heading 'Property and Civil Rights'. This was the main reason that the marine insurance laws are generally based on provincial marine insurance acts, and this prevented broader and more general acts to be applied to these policies. One example of this phenomenon is that of the marine insurance contracts passed in British Columbia being governed not only by the Insurance Marine Act, but also by certain specific sections of the Insurance act of British Columbia.

The Federal Marine Insurance Act of Canada does not, surprisingly, stipulate a time period for the insurance claim to end. This fact has resulted in a whole lot of confusion in Canada as to when the statutory limitation would get exhausted. Section 49 of the Federal Court Act states that the limits prescribed by the Federal Court describing the limit must be followed, but this in itself is quite unclear, and the time period is generally taken as a 6-year period within which to settle or renew the insurance contract. (Admiralty Law.com) When there is a breach of warranty whereby the insurer tries to avoid the policy that specifies this clause, the insurer will not always be able to follow this breach of the issue. When he does so, however, he is entitled to the breach of warranty when the particular loss happened during the currency of the breach, and if the breach happened to become material to the loss that had occurred. The policy of coverage offered in the 'all risks covered' clause does not actually offer protection against all the risks involved, as some Canadians would tend to assume.

In fact, the risks covered would be those of accidents or casualties or any other such misfortunes that occur when the ship is sailing. The 'inherent vice' or the 'wear and tear' or any form of 'deterioration' that is covered by the English insurance is not provided in the Canadian Insurance Act. The actual meaning of the terms 'accident' or 'occurrence' has been clearly described by the Canadian Insurance Act. These are as follows: an accident can be described as an unlooked for or a totally unexpected happening that happens. The term also includes negligence. These then are the insurance clauses that exist in Canada. Whereas they are sometimes quite different from the English Clauses, most of the basic principles are the same as those followed by the English Insurance Policies. (Canadian Law of Marine Insurance, FAQs)

Under the American Insurance policies, the clause that is described as the 'Loss to Property by Collision and Other Causes', the terms are explained as follows: in the case of the loss of a vessel or damage to a vessel that has been caused by collision with any other ship at sea with the insured vessel, then the liability that occurs will not be covered under the four fourths clause. Any claims for damages that are presented to the Underwriter as belonging to the several categories of claims as listed in the clauses will be susceptible to the deductions and any other special conditions as described under the policies. Even otherwise, in the case of the different liabilities that might arise from the event of a collision, unknown and without the specific permission of the Assurer, be settled or adjusted in any manner, will exempt the liability of the Assurer from the responsibility of settling the claims.

The various classes of claims that are grouped under the Collision Clause of the Protection and Indemnity Policy of the U.S.A. are as follows: loss or damage due to a collision, liability for either the raising or the lifting or the removal of the other ship that has been wrecked by the insured one, the damages and losses of the cargo of the other ship, any damage that may have been caused to the pier or the stage or any other structure, or to the wharf or the harbor because of the collision of the insured ship with another vessel are all covered under the Protection and Indemnity Policy of the U.S.A. The Collision Clause also includes coverage that will pay for the damages of the cargo of the insured vessel that have been caused by the other vessel, when the other vessel includes the insured vessel in the counter-claim that it would put forth against the insured. This is valid and legal under the American Law.