A Comparative Analysis in Relation to Marine Insurance Cover.

Leonidas Villagran

London is recognized as the worldwide leader for the marine insurance market. The development began in the 18th century when by means of “The Bubble Act” it was forbidden to corporations and societies to run the marine insurance business unless they were authorised by Act of the Parliament or Royal Charter, This measure created a virtual monopoly for two companies.

Anyway, there was no provision in the law that prohibited individuals to carry on this business. The opportunity was taken by entrepreneurs at the old coffee house of Edward Lloyd. Lloyd’s was created as the marine insurance location by individuals and it “became recognised as the place for obtaining marine insurance”. In the early 19th century Lloyd’s of London was already the dominant marine insurance market worldwide. (Gurses, 2015).

Individual underwriters used forms to specify coverage and exclusions in the contract of marine insurance. On 1779 Lloyd’s issued the SG form of policy which was later included in the Marine Insurance Act 1905 as First Schedule which could be used as standard.

The Institute Clauses begun to appear in the 19th century. They took this name because they were promoted by the Institute of London Underwriters ILU along with Lloyd’s.

Since the creation of the Institute Clauses they were updated in order to maintain competitiveness in the insurance market, to clarify concepts and also as a response to case law. In the eighties a new set of standard clauses were developed.

The tradition of the London Market was and continues today to insure vessels against specific named perils.

Three types of Hull clauses are available in the London market: The Institute Hull Clauses ITC, Voyage and Time (editions 1983 and 1995), and the International Hull Clauses IHC, edition 2003. (Gurses, 2015)The application of the clauses is not compulsory and they are now published in the IUA Clauses Document Library website. IUA is the International Underwriting Association of London, an entity that superseded the ILU due to a merger with the London International Insurance and Reinsurance Market Association (LIRMA).

The Nordic Association of Marine Insurers (CEFOR) initially promoted by Norwegian companies which previous name was “The Central Union of Marine Underwriters “is the current leading organization for the development of standard rules in the Nordic marine insurance market.

The first Norwegian standard insurance conditions known as the “Norwegian Marine insurance Plan” appeared in 1871 with the auspices of Det Norske Veritas DNV. It is known that for all the plans but the first have been developed under agreement basis with the market participants. On 2001 DNV transfers his intellectual property rights regarding the Plan to CEFOR. The Plan had its last version on 2010. Further, CEFOR promoted the enactment of the Nordic Plan. (Lund, 2011)

On 2010 the Ship-owners’ Associations of Denmark, Finland, Norway and Sweden signed an agreement with Cefor in order to develop a Nordic Marine Insurance Plan. The Plan was approved and available on 2013 and the result was “The Nordic Marine Insurance Plan of 2013 based on the Norwegian Marine Insurance Plan of 1996, Version 2010”. According to the agreement the plan is to be updated every 3 years, therefore the 2016 version is available. The clauses are also not compulsory. The difference with the London market is that the Nordic Plan is the result of a formal agreement by ship-owners and insurers. (Hammer, 2014) (Cefor, The Nordic Plan, 2016). The Plan is considered to be “unique as compared with other non-Nordic market conditions”. (Lund, 2011)

The main difference with the London market is that the Nordic Plan states as standard the all-risks principle. Once a loss is justified it is the insurer who has the burden of proof that an exception should apply. “The all risks principle is at the heart of the Plan” (Nordic Association of Marine Insurers, 2013)

Insurance Implications
As an example if a vessel enters in a collision with a ferry and makes contact with a berth ramp and the incident generates damages to the colliding vessel’s hull, her cargo and the collided vessel as well the ramp, there will be different considerations for the owners of the vessel and the owners of the cargo in both London and Nordic markets.

Loss or Damages to the Colliding Vessel
If the colliding vessel is insured in the London market under standard Institute Hull Clauses or the International Hull Clauses the partial loss sustained by the vessel is covered in consideration that a collision is a peril of the sea. Basically collision is to be considered as a contact with another ship. (Donner, Liljedahl, & Mukherjee, 2015)

It is noted that the vessel also hit the berth ramp and the damages to the hull of the vessel may come from this particular incident. According to English law this is not to be considered as a collision due that this is not a contact with another ship but the loss is covered according to standard hull clauses and the International Hull Clauses as “contact with land conveyance, dock or harbour equipment or installation”.

Therefore every loss to the vessel insured which is consequence of a collision or contact with a dock installation is covered.

But, the insurer will verify specific warranties and its compliance, and the compliance of conditions for any held covered clauses included in the policy.

The insurer in the London market will also verify causation to determine the proximate cause of the loss which according to English law is the near in efficiency and not in time . If the ‘causa proxima’ deals with willful misconduct of the insured then it is most likely that there will not be recovery.

If the incident is a result of “bursting of boilers breakage of shafts or any latent defect in the machinery or hull”, “negligence of repairers or charterers provided such repairers or charterers are not an Assured”, “barratry of Master Officers or Crew” then the Inchmaree clause takes effect and the loss will be recovered.

The 50% of the costs of repairing or replacement of such boilers or latent defects are covered under the International Hull Clauses, but an optional clause named “additional perils” is included with a cover of 100% of such costs.

In the case of the conditions set in the Nordic Plan the “All risks” principle operates. Clause 2-8 of the current version of the Nordic Plan states that “an insurance against marine perils covers all perils to which the interest may be exposed”. The Clause determines some exceptions to this rule which are related to war perils, intervention of a State power, insolvency, and perils related to the RACE II Clause, which consist of nuclear and radioactive matters not used for peaceful activities, and chemical, biological or electromagnetic weapons.

The assured under the Nordic Plan may appear prima face as duly covered, but this could change if negligence from the assured is reported in which “results in a breach of safety regulations and there is causation with the loss or damage; and also under certain conditions when there is an alteration of risk” (Joiner, Willumsem, & Faerden, 2015)

Shipowners would have insured the vessel under freight risks with the Institute Time Clauses – Freight or Institute Voyage Clauses – Freight. These clauses have the same regime as the Institute Hull Clauses. Therefore when a standard peril insured in Hull appears and produces a loss it is most likely that the loss in freight is covered. If this is the case then the assured will be indemnified.

In respect of Loss of Hire insurance it is known that Norway is the prominent market with the Norwegian Plan conditions (currently the Nordic Plan). The London market restricted the issuance of this coverage in the eighties, anyway it is possible to be written as part of the package. The London market Loss of Hire clauses are based in ABS conditions. (Silver, 2012)

According to the Nordic Plan Chapter 16 the Loss of Hire calculation of the loss of time is to be stipulated in days, hours and minutes. (different with London rules which is calculated in days). Clause 16-13 (Loss of time after completion of repairs) says that the insured will be indemnified until the vessel is able to continue the voyage or activity under to the contract of affreightment in force at the time of the casualty. If the vessel is engaged in liner activities then is when is able to resume its activity. If the vessel has a contract of affreightment valid prior to the casualty then the insured will be indemnified “while the ships sails to the first port of loading” in relation of such contract of affreightment.

If the collision generates loss or damage to the collided vessel or property in said vessel and liability takes place it is to consider that according to English Law this is not a peril of the sea but the London market standard Institute Hull clauses include what is known as “the running down clause” (RDC) or the “collision liability clause” which provides coverage for liability in a collision to any other vessel in ¾ of the loss and no more than 75% of the value of the insured vessel.

Legal costs in “contesting liability or taking proceedings to limit liability” are also covered in RDC with the three fourths basis provided that these costs are previously authorized. The International Hull Clauses states that the underwriters´ liability should not exceed 25% of the insured value of the insured vessel unless otherwise agreed by writing.

It is most possible that the owners obtained P&I cover for the any remaining loss or damage not covered by the H&M policy.

In relation to liability which arises from contact with any other object, as the ramp of the berth, the English market standard clauses do not consider cover while this liability may be covered by the P&I Clubs. But, the International Hull Clauses include an alternative to ammend the relevant clause to allow the “Fixed and floating objects” clause (FFO) to be introduced in the H&M policy. This has to be “expressly agreed in writing”

Further, The International Hull Clauses include another alternative clause which allows the liability to be 4/4 by deleting the words “three fourths of” in every part of the collision liability clause.In this case the total liability limit of the underwriter will be “the insured value of the insured vessel in respect of any one collision”.

Additional cover in the optional clause refers to liability resulting from “delay to or loss of use of any such other vessel or fixed or floating object or property thereon”, by which it is possible to extend the cover for the loss of profit produced to the owners of the ro-ro ferry and the ramp of the berth.

By virtue of the Freight Collision Clause the insured is covered of any liability on freights and legal costs related in a ¾ basis which limit is the 75% of the total amount insured.
The cargo in the insured vessel is expressly excluded as liability of the insurer in the policy, as stated in the standard Institute Hull Clauses and the International Hull Clauses. Third party liabilities are normally covered by P&I Clubs.

In terms of the Nordic Plan Clause 4-13 it is stated that the main rule is that “the insurer is not liable for the assured’s liability to third parties”, unless otherwise provided or agreed.

Clause 13-1 includes the Collision and Striking Liability Clause, therefore the insurer is to indemnify the assured for loss which results of liability to the assured “due to collision or striking by the ship, its accessories, equipment or cargo, or by a tug used by the ship.” Similar to the London market there is no cover in regard of cargo on board. P&I Clubs are to supply this cover. The maximum liability of the insurer is set up to the amount equivalent to the sum insured from any one casualty. Litigation cost and costs in measures to avert and minimise the loss are also to be recovered. In this last case there is no deductible.

The Cargo
The cargo in the London market is to be insured under Cargo Institute Clauses. Currently there are available (A),(B) and (C) versions, which are also known as “All Risks”, “WA” (With Average), and FPA (Warranted Free of Particular Average), respectively. The current version was issued in 2009 being the last version issued in 1982 which is the most used at this moment. Changes are not fundamental. (Donner, Liljedahl, & Mukherjee, 2015)

Version (A) provides cover for all risks. Version (B) and (C) at subclause1.1.4 provides cover when the loss or damage to the subject-matter insured is reasonable attributable to collision among other perils. Versions (B) at subclause 1.2.3 also provides cover for loss or damage caused by “entry of sea, lake or river water into vessel, craft, hold, conveyance, container, or place of storage”.

In case of version (A) the assured will be indemnified due to the All Risk cover. In case of the versions (B) and (C) the loss appears to be “reasonable attributable” to the collision without consideration of the proximate cause.Therefore the assured in any of the Institute Cargo Clauses should be indemnified as long as there are no exclusions to be applied.
Underwriters in both markets will verify that the assured complied with the condition of averting or minimising the loss and preserving the subrogation rights.

In relation to the Nordic market Norwegian Cargo Clauses are available (Conditions relating to Insurance for the Carriage of Goods of 1995, version 2004) which are based in the Norwegian Insurance Plan for the Carriage of Goods of 1967 in which DNV was also involved. On 1985 these clauses were amended by initiative of Cefor with the intention to adapt them to the English Institute Cargo Clauses. Similarly to the London market, Norwegian Cargo clauses have three options. The A (All Risks), B (Extended Transport Accident) and C (Transport Accident). Further updates have been executed. Anyway, Norwegian conditions remain similar to the English conditions. As “A Clauses” are related to all risks then loss or damage to the cargo produced by a collision is duly covered. Both B and C Clauses also provide cover for collision and strike with any object. This is the same for cargo insurance conditions in Sweden and Finland. (Donner, Liljedahl, & Mukherjee, 2015).

It is the conclusion that either under London or Nordic market cargo conditions the assured will be indemnified for damage or loss to the cargo which was a result of a collision. In both markets the insurable interest will be considered.

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