Marine insurance

Marine Insurance covers the loss or damage of ships, cargo, terminals, and any transport or property by which cargo is transferred, acquired, or held between the points of origin and final destination.

Cargo insurance--discussed here--is a sub-branch of marine insurance, though Marine also includes Onshore and Offshore exposed property (container terminals, ports, oil platforms, pipelines); Hull; Marine Casualty; and Marine Liability.

Origins of Formal Marine Insurance

The modern origins of marine insurance law were in the law merchant, with the establishment in England in 1601 of a specialised chamber of assurance separate from the other Courts. Lord Mansfield, Lord Chief Justice in the mid-eighteenth century, began the merging of law merchant and common law principles. The establishment of Lloyd's of London, competitor insurance companies, a developing infrastructure of specialists (such as shipbrokers, admiralty lawyers, and bankers), and the growth of the British Empire gave English law a prominence in this area which it largely maintains and forms the basis of almost all modern practice. The growth of the London insurance market led to the standardisation of policies and judicial precedent further developed marine insurance law. In 1906 the Marine Insurance Act was passed which codified the previous common law; it is both an extremely thorough and concise piece of work. Although the title of the Act refers to marine insurance, the general principles have been applied to all non-life insurance.

In the 19th. century, Lloyd's and the Institute of London Underwriters (a grouping of London company insurers) developed between them standardised clauses for the use of marine insurance, and these have been maintained since. These are known as the Institute Clauses because the Institute covered the cost of their publication.

Within the overall guidance of the Marine Insurance Act and the Institute Clauses parties retain a considerable freedom to contract between themselves.

Marine insurance is the oldest type of insurance. Out of it grew non-marine insurance and reinsurance. It traditionally formed the majority of business underwritten at Lloyd's. Nowadays, Marine insurance is often grouped with Aviation and Transit (ie. cargo) risks, and in this form is known by the acronym 'MAT'.

Practice

The Marine Insurance Act includes, as a schedule, a standard policy (known as the 'SG form'), which parties were at liberty to use if they wished. Because each term in the policy had been tested through at least two centuries of judicial precedent, the policy was extremely thorough. However, it was also expressed in rather archaic terms. In 1991, the London market produced a new standard policy wording known as the MAR 91 form and using the Institute Clauses. The MAR form is simply a general statement of insurance; the Institute Clauses are used to set out the detail of the insurance cover. In practice, the policy document usually consists of the MAR form used as a cover, with the Clauses stapled to the inside. Typically each clause will be stamped, with the stamp overlapping both onto the inside cover and to other clauses; this practice is used to avoid the substitution or removal of clauses.

Because marine insurance is typically underwritten on a subscription basis, the MAR form begins: We, the Underwriters, agree to bind ourselves each for his own part and not one for another [...]. In legal terms, liability under the policy is several and not joint; ie. The underwriters are all liable together, but only for their share or proportion of the risk. If one underwriter should default, the remainder are not liable to pick his share of the claim.

Typically, marine insurance is split between the vessels and the cargo. Insurance of the vessels is generally known as 'Hull and Machinery' (H&M). A more restricted form of cover is 'Total Loss Only' (TLO), generally used as a reinsurance, which only covers the total loss of the vessel and not any partial loss.

Cover may be on either a 'voyage' or 'time' basis. The 'voyage' basis covers transit between the ports set out in the policy; the 'time' basis covers a period of time, typically one year, and is more common.

Protection and indemnity

A marine policy typically covered only three-quarter of the insured's liabilities towards third parties. The typical liabilities arise in respect of collision with another ship, known as 'running down' (collision with a fixed object is an 'allision'), and wreck removal (a wreck may serve to block a harbour, for example).

In the 19th century, shipowners banded together in mutual underwriting clubs known as Protection and Indemnity Clubs (P&I), to insure the remaining one-quarter liability amongst themselves. These Clubs are still in existence today and have become the model for other specialised and uncommercial marine and non-marine mutuals, for example in relation to oil pollution and nuclear risks.

Clubs work on the basis of agreeing to accept a shipowner as a member and levying an initial 'call' (premium). With the fund accumulated, reinsurance will be purchased; however, if the loss experience is unfavourable one or more 'supplementary calls' may be made. Clubs also typically try to build up reserves, but this puts them at odds with their mutual status.

Because liability regimes vary throughout the world, insurers are usually careful to limit or exclude American Jones Act liability.

Actual Total Loss and Constructive Total Loss

These two terms are used to differentiate the degree of proof where a vessel or cargo has been lost.

An Actual Total Loss refers to the situation where the position is clear and a Constructive Total Loss refers to the situation where a loss is inferred. In practice, a Constructive Total Loss might also be used to describe a loss where the cost of repair is not economic; ie a 'write-off'.

The different terms refer to the difficulties of proving a loss where there might be no evidence of such a loss. In this respect, marine insurance differs from non-marine insurance, where the insured is required to prove his loss. Traditionally, in law, marine insurance was seen as an insurance of 'the adventure', with insurers having a stake and an interest in the vessel and/ or the cargo rather than, simply, an interest in the financial consequences of the subject-matter's survival.