Marine Insurance Policy Conditions

The old form of policy is even used today. In order to make the standard policy suitable for the different types of contracts, suitable conditions are added to the policy.

The conditions are inserted in the policy in the form of clauses. The clauses took the standard from with special meanings. They may be pertaining to Hull, Cargo and Freight.

Hull Clauses

These clauses are mainly framed with the insurances on vessels and are incorporated in hull policies. The clauses may be pertaining to losses resulting from collision, standing, general average, etc. ‘All risks policy’ may be issued or certain risks may be excluded from the policy by inserting suitable clauses.

‘Inland or Port Risks Clauses’ may be incorporated in the policy to determine the extent of loss. These clauses are known as ‘Institute Time Clauses’.

Cargo Clauses

These clauses are used in the insurance of goods and are incorporated in cargo policies. The clauses describe the nature, extent; and scope of the insurance and define comprehensive conditions and restrictions. The additional marine perils against which cover may be sought or which are excluded from the policies are inserted through special clauses.

Terms and conditions of Cargo insurance are specially incorporated in the policies. ‘With Average (W.A.) or With Particular Average, (W.P.A.),’ ‘Exposed during transit’, etc. are the important clauses of cargo insurance.

The underwriting of cargo-risks depends upon the nature of goods, the susceptibility of the goods, intentions of the insurer and insured and willingness of the assured to pay extra premium. This clause is known as ‘Institute Cargo Clause.’

Freight Clauses

The clauses are framed in connection with the loss of freight due to maritime perils which may be insured for a period or for a voyage.

A person which paid the freight in advance and the person who will receive the freight on competition of voyage are restricted in covering the risk.

The General Average (G.A.), Particular Average (P.A.) etc. are used in the freight clauses. The clauses are known as ‘Institute Freight Clauses’.

The clauses to be incorporated in the policy are generally taken from Llyod’s Association.

Lloyd’s Form of Policy

BE IT KNOWN THAT …………. as well in ……… own name as for and in the name and names of all and every other person or persons to whom the same doth, may or shall appertain, in part or in all doth make assurance and cause, and them, and every of them, to be insured lost or not lost, at and from.

Upon any kind of goods and merchandise, and also upon the body, tackle, appeared, ordinances munition, artillery, boat, and other furniture, of and in the good ship or vessel called the.

Whereof is master under God, for this present voyager or whosoever else shall go for master in the said ship, or by whatsoever other name or names the said ship, or the master thereof, is or shall be named or called, beginning the adventure upon the said goods and merchandises from the loading thereof abroad the said ship.

Upon the said ship and so, shall continue and endure, during her abroad there.

Upon the said ship, & c. And further, until the said ship, with all he ordinance, tackle, apparel, and goods and merchandises whatsoever shall be arrived at.

Upon the said ship, & c, until she hath moored at anchor twenty-four hours in good safety; and upon the goods and merchandisers, until the same be there discharged and safely landed.

And it shall be lawful for the said ship, & c, in this voyage, to proceed and said to and touch and stay at any ports or places whatsoever without prejudice to this insurance.

The said ship, & c., goods and merchandises, & c., for so much as concerns, the assured by agreement between, the assured and assurers in this policy, are and shall be valued at.

Touching the adventures and perils which we the assurers are contented to bear and do take upon us in this voyage. They are of the seas, men of war……….

……….. And it is agreed by us the insurers, that this writing or a policy of assurance shall be of as much force and effect as the surest writing or policies of assurance heretofore made in Lombard Street, or in the Royal Exchange, or elsewhere in London.

Description of the Clauses

The usual clauses which are or may be incorporated in a marine policy are :

1. Assignment Clause

The clause of assignment is as below ………. as well as in his/their own name as for in the name and names of all and every other person or persons to whom the same doth may or shall appertain, in part or in all doth make assurance ………. and cause ………. and them and every of them, to be insured ………..

This clause makes it clear that the marine policy is freely assignable unless this is expressly prohibited. The policy can be assigned to anyone who may acquire an insurable interest in the subject matter as soon as the assured parts with his interest.

Cargo policy is freely assignable and no notice ,thereof is essential to be given to the underwriter. But, in case of hull insurance the policy cannot be assigned freely and the consent of underwriter is essential because the degree of risk of the subject matter is materially changed when the management and ownership of the vessel is changed.

Since the owner of cargo has no control over the cargo in transit, blank endorsement may be permitted. But in hull insurance, specific endorsement of an assignment is essential.

It is interesting to note that marine policy can be assigned even after it takes place, but the assignee does not get a better title than the assignor.

However, where the assured has parted with his interest in the subject, matter insured and has not, before or at time of so doing, expressly or impliedly agreed to assign the policy and subsequent assignment of the policy is inoperative.

2. Lost or Not Lost Clause

The clause is as …….. to be insured, lost or not lost. The policy was taken in good faith. The meaning of the clause is that the insurer insures the subject matter irrespective of the fact that it has already been lost or not lost before the issue of the policy.

It is taken in such a case where a merchant receives information of the shipment of his cargo very late after the sailing of the steamer and, therefore, when he submits the risk to the underwriter and effects insurance it was not known whether the subject matter to be insured was lost or was not lost.

So, to provide full protection to shipment, the words, ‘Lost or not Lost’ are inserted. It means that the insurer undertakes to indemnify the insured whether the subject matter before the date of issue of the policy was already lost or not.

In this case, it is assumed that the assured and the underwriters are ignorant about the safety or otherwise of the subject matter. The policy terminates if it is proves later on that one of the two parties was aware of the subject matter at the time of loss.

The introduction of this clause has a retrospective effect to provide for any loss which have occurred during the period from the date of shipment to the date of issue of policy. This clause was mostly prevalent in olden times when the media of communication were not developed so much. Now, the clause has lost must of its importance.

3. At and From Clause

This clause is applicable in voyage policies insuring hull, and freight. It determines the time when the actual risk commences. As soon as the ship will arrive at the port, the risk will commence.

It means that the policy covers the subject matter while it is lying at the port of departure and from the time the ship sails when the policy contains From only instead of ‘At and Form’. From means the risk commences from the time of departure of the ship and not previous to that.

In case of cargo policy this clause is amended as the risk may commence boom the ‘time the cargo is loaded on the vessel. In voyage policy, if the ship is not at that place when the contract is concluded, the risk commences as soon as the ship arrives there is good safety.

If the place of departure is specified by the policy, and the ship sails from other place than the specified one, the risk does not attach.

Termination of Risk

The wordings of policy in this case are as follows:

“And upon the goods and merchandises until the same be there discharged and safely landed.”

When the ship arrives the port of destination, the goods must be landed within a reasonable time and if they are not landed the risk ceases. The risk of landing within the reasonable time is permitted in most of the cases. But, where it is allowed with standard policy, clauses such as craft, lighters, etc. are inserted to the policy.

4. Warehouse to Warehouse Clause

Generally, underwriters are responsible for the risk commencing from the time of loading to the time of unloading the cargo. But, in certain cases the risks are beyond these two limits, i.e., departing and destination.

So, in order to cover the inland risks from the original place of departure to the port of sailing and from the port of discharge to the place of final destination are insured under ‘Warehouse to warehouse clause’.

Under this policy, the risk commences from the specified place and continues to the specified place of destination named in the policy.

Thus, the risk of land, craft transport and transshipment are also covered under a single marine insurance policy. Sometimes, time-limit is also inserted in the policy and extra cost is required from the insured to cover the remaining voyage. But, where goods are wilfully detained, the underwriter shall cease his liability.

The clause as appeared in the Institute Cargo clause is as follows:

“The risks covered by this policy attach from the time the goods leave the Warehouse and/or Store at the place named in the policy for the commencement of the transit and continue during the ordinary course of transit, including customary transshipment, if any, until the goods are discharged oversite from the overseas vessel at the final port.

Thereafter the risks are continued whilst the goods are in transit and/or awaiting transit until delivered to final warehouse at the destination named in the policy or until the expiry of 15 days (30 days if the destination to which the goods are insured is outside the limits of the port) whichever shall first occur.

The time limit referred to above to be from midnight of the day on which the discharge over side of the goods hereby insured for the overseas vessel is completed.

Transshipment, if any other than as above, and/or delay in excess of the above time limits arising from circumstances beyond the control of the assured, held covered at a premium to be arranged.

5. Deviation Touch and Clauses

The ship should not deviate from the course of the voyage described in the policy or where the course is not a specifically designated one, from the customary course. Any departure from the specified course or a customary course amounts to deviation. A deviation is different from change of voyage. In the latter case, the destination agreed upon is changed, while in the former case the destination is the same as agreed, but the course thereto is deviated from.

In the change of voyage the underwriter’s liability comes to an end from the time the intention or decision to change the voyage is taken, but in deviation mere intention to deviation is not material; there should be an actual deviation to avoid the policy.

Once deviation has taken, place the risk ceases to attach for the rest of the voyage even though loss has occurred after the vessel had reverted to the proper course.

Where the ship deviates without lawful excuse the underwriters are relieved of the liability as from the time of the deviation. The fact the deviation did not increase the risk or that the ship regained her route before any loss occurred, would not amount to non-deviation.

This clause applies only to voyage policies. In time policies, this clause does not apply.

Deviation is excused under certain circumstances but it should be noted that the ship must resume her course and prosecute the voyage with reasonable despatch. Deviation or delay is excused in the following cases:

1. Where authorized by any special term in the policy. The special term must be incorporated in the policy. Underwriters are usually willing to extend the protection of the policies after charging additional premium.

2. Where deviation is caused by circumstances beyond the control of the master and his employer.

3. Where deviation or delay is necessary to comply with an express or implied warranty.

4. The deviation or delay is necessary for the safety of the ship or subject-matter insured.

5. For the purpose of saving human life or aiding a ship in distress where human life may be in danger. For, and for obtaining medical or surgical aid, deviation or delay is required.

6. Where deviation is caused by the barratrous conduct of the master or crew, if the barretry be one of the perils insured against.

Touch and Stay

It accords liberty to the vessel to touch and stay at any port, or place whatsoever. In absence of the clause, the liberty to touch and stay at any port or place whatsoever does not authorize the ship to depart from the course of her voyage from the port of departure to the port destination.

Where several ports are specified, the ship may touch or stay at all or any of them. In the absence of any usage or sufficient cause to the contrary the ship must proceed to the designated ports. Following wordings are incorporated in the standard policy.

“And it shall be lawful for the said ship, etc., in the voyage to proceed and sail to and touch and stay at any ports or places whatsoever without prejudice to this insurance.”

It means that the vessel in course of the voyage must touch and stay at such ports and in such orders as are mentioned in the policy or if no course is mentioned in the policy, the ports must be in the ordinary course of the voyage.

6. Inchmaree Clause

The clause protects the shipowners against losses to be included in claims by the assured. This clause is taken from an illustration of a steamer called ‘Inchmaree’.

The donkey pump of the steamer was damaged due to salt. Claim was covered under the “and all other perils, losses, and misfortunes clause.” The court decided that due to negligent such losses were outside the scope of the insurance and should not be covered by it.

So, now to provide indemnity for the insured for damage to the hull or machinery resulting from the negligence of the master or crew, as well as from explosion or latent defects, a clause was introduced into hull policies which is commonly known as ‘Inchmaree clause’.

This clause is incorporated in cargo policies.

Hague Rules

A Maritime Law Committee of the International Law Association sat at The Hague in 1921 and framed a set of rules regarding the rights and liabilities of cargo-owners and shipowners in connection with Bills of Lading so that no complication may arise in settlement of claims.

7. Running Down Clauses (R.D.C.)

This clause is also called collision clause and is included in hull policies. It provides that the underwriter agrees to take upon the liability of the owner of the ship for damage done by his vessel to another vessel on collision to the extent of three-fourths of such liability.

The underwriter will be responsible only when this clause is added in the policy. The assured himself has to bear one-fourth of the loss so that he may exercise greater care in the navigation of the vessel.

The full protection can be given by deleting the words ‘Three-fourths’ from the clause. IN the case the ship sinks in a collision and is held liable for the damage done to the other vessel, the underwriter may have to pay a total loss and a heavy claim under R.D.C. The amount of damage extends to include damage done to other ship, her cargo and compensation for loss of employment in consequence of the collision.

8. Sue and Labour Clause

This clause reads as follows: “And in case of loss of misfortune it shall be lawful to the assured, their factors, servants and assigns to sue, labor and travel for in and about the defence, safeguards, and recovery of the said goods and merchandises, and ship, or part thereof, without prejudice to this insurance, to the charges whereof we, the assurers, will contribute each one according to the rate and quantity of his sum herein assured.”

Thus, it is the duty of the assured and his agents to act in such a way that they are uninsured and to take such measures as may be reasonable for the purpose of averting or minimizing loss or damage.

This clause requires underwriters to pay any expenses properly incurred by the assured or his agents in preventing or minimising loss or damage to the subject matter. The reasonable expenditure is payable even though it may be, in addition, to total loss.

The essential features of Sue and Labour Charges are:

(i) The expenses must be incurred for the benefit of the subject-matter insured. If occurred for the common benefit they may become a part of general average which is not recoverable under this clause.

(ii) They must be reasonable.

(iii) They may be incurred by ‘the assured, his factors, his servants or assigns’. The clause excludes salvage charges.

(iv) The expenses are incurred to avert or minimize a loss from a peril covered by the policy. Expenses incurred for purpose of averting or diminishing any loss not covered by the policy are not recoverable under this clause.

9. Reinsurance Clause

The reinsurance clause………”being a reinsurance and subject to the same clauses and conditions as the original policy, and to pay as may be paid thereon.”….is generally added to the original policies. The reinsurer is liable only for claims for which the original underwriter is liable.

If the reassured has paid a claim for which he is not legally liable under his policy, the reinsurer is under no obligation to reimburse him. The cost incurred by the original insurer in contesting liability under the original policy, need not be paid by the reinsurer. The reinsurance policy is closely linked with the original insurance and any alteration in the original policy must be agreed with the reinsurer.

10. Memorandum Clause

The memorandum clause reads as under:

“Corn, fish, salt, fruit, flour and seed are warranted free from average, ……….. and all other goods, also the ship and freight, are warranted free from average,…….”

This clause is meant to provide a minimum limit to be underwriter’s liability regarding claims for particular average by exempting him from such claims.

11. Continuation Clause

The clause refers that the vessel shall continue to be covered even after completion of voyage under the policy at a pro rato premium to her port of destination provided notice was not given.

12. Institute Cargo Calluses

These clauses are used to cover various types of general merchandise involving transit by sea. The risks clauses, general average clause and collision clauses are included in these clauses. These clauses are ICC(A) (B) and (C).

Risks Covered by ICC (A)

This clause includes all risks of loss or damage to the subject-matter insured except by risks specifically excluded, General average and Salvage charges incurred to avoid loss from any cause or causes except those excluded by the policy under Both to Blame collision clause of the contract of affreightment.

Under this clause, the assured has only to show that the insured cargo was lost or damaged under the currency of the insurance. General average is there where any extraordinary sacrifice or expenditure is voluntary and reasonably made or insured at a time of peril for the purpose of preserving the property imperilled in the common adventure.

There is a direct liability on the insurer for general average sacrifice which is treated in the same manner as particular average or partial loss claim.

The Jettison is also included under this clause which relates to cargo or other property known overboard at time of peril to save the adventure from total loss. When ship and cargo belong to different owners, such jettison would constitute a general average sacrifice but where only one interest (ownership) is involved, there would be no claim for general average sacrifice. This clause also covers loss overboard of any sort. When goods are lost or damaged in an accident to the overland conveyance, this clause deemed to be covered. The institute malicious clause is also covered.

Institute Cargo Clauses (B) and (C)

These clauses are identical with only difference of risks clause. The risks covered by these clauses are fire or explosion, vessel or craft being standard, granted sunk or capsized, overturning or derailment of land conveyance, collision on or contract of vessel craft, or conveyance with any external object other than water discharge of cargo at a port of distress, general average sacrifice and jettison.

Additional risks covered under ICC(B) are earthquake volcanic eruption of lightning, washing overload lake or river water into the vessel, craft, gold, conveyance, container, liftkan or place of storage.

Similarly ship loss is also included with relates to total loss of any package lost overboard or dropped during loading or unloading operations of the vessel or craft. These clauses are on the basis of “Named perils with exclusions” while ICC(A) is based on “All risks with exclusion” under the clause of the “Named risks with exclusions” an additional burden on the assured is there because he has not only to show that the loss/damage occurred during the policy period but also that it was due to the operation of one of the named perils. The assured is entitled to indemnity under the policy unless the insurers are able to establish that the loss/damage arose because of the operations of an excluded peril.

13. Institute War Clauses

The risks covered under these clauses are war, civil war, revolution, rebellion, insurrection or civil strife arising there from, or any hostile act by or against or belligerent power. It also includes capture, seizure, arrest, restraint or detainment arising from risks covered under (a) above and the consequences there of any attempt threat, torpedoes, bombs or other derelict weapon of war.

Three clauses also cover general average and salvage charges adjusted or determined according to the contract of affreightment and/or the governing law and practice, incurred to avoid, or in connection with the avoidance of loss from a risk covered.

There is exclusion of frustration which means that the insurance does not generate the completion of the voyage and the arrival of the goods at destination.

14. Increased Value Insurance Clause

Insurance may be arranged to cover increased value of the cargo i.e. that market value of goods at destination port in the date of landing is higher than CIF and duty value of the cargo.

The assured is the holder or assignee of the import license or is the actual user who has purchased goods from a recognized Export House. This policy is not assignable. No claim shall be paid for increased value until the claim under the CIF value insurance policy is payable and proof of liability for loss under that policy shall be furnished to the company.

This policy is not valid if effected after arrival of the vessel at destination. Insurance is not on agreed value basis. The claim payable together with CIF value, duty policy and increased value policies shall not exceed the specified proportion of the market value of the goods at destination.