1 Marine Insurance And International Trade 1
1.1 The Need For Marine Cargo Insurance 3
1.1.1 Responsibility for Arranging Insurance 3
1.1.2 Restrictive Legislation 3
1.1.3 Trade Sanctions 4
1.2 Cargo Classification 5
1.2.1 Cargo Families 5
1.2.2 Examples of Major Commodities 5
1.2.3 Dangerous Goods 18
1.3 The Container Revolution 18
1.3.1 Types of Container 20
1.3.2 Mechanism of Containerisation 20
1.3.3 Impact on Marine Insurance 21
1.3.4 Containerisation and Terms of Sale 22
1.4 Vessels and Classification 23
1.4.1 Types of Vessel 23
1.4.2 Classification 23
1.4.3 Protection & Indemnity Clubs 24
1.4.4 The Ism Code 27
1.4.5 The ISPS Code 27
1.4.6 Vessel Selection 28
1.5 Financing of International Trade 28
1.5.1 Documentary Credit 28
1.5.2 Documentary Collection 29
2 Basic Principles of Marine Cargo Insurance 31
2.1 The Assured 33
2.1.1 Identification of an assured 33
2.1.2 Norwegian market 36
2.1.3 Position of a buyer holding an assigned certificate 37
2.1.4 Assignor and assignee relationship 40
2.1.5 Multiple assureds 41
2.2 Indemnity 41
2.3 Agreed Value – A Detailed Discussion 43
2.3.1 Binding nature of agreed valuation 43
2.3.2 Multi-party transactions and agreed valuation 45
2.3.3 Effect of agreed valuation on total and partial loss claims 47
2.3.4 Corollary to the principle of indemnity 50
2.3.5 Circumstances where indemnity exceeds Sum Insured 57
2.3.6 Payment of Interest on claims 59
2.4 Utmost Good Faith and Disclosure 59
3 Current Trends in Determining Depreciation_63
3.1 Increasing use of salvage loss method rather than PAM 65
3.2 Are Instances of Salvage Sales Decreasing? 67
3.3 Other Methods of Determining Depreciation 68
3.3.1 Commodity-specific methods of computation 72
3.4 Practice in Other Markets 74
3.4.1 Antwerp market 74
3.4.2 Norwegian market regulations 74
3.5 Manuscript wordings currently in vogue and their impact on indemnity 75
3.6 Other modification to MIA 1906 provisions 77
3.6.1 Brand protection clauses 77
3.6.2 Institute Replacement Clause 83
3.6.3 Pair and Set Clause 88
3.6.4 Cutting Clause 89
3.6.5 Debris Removal Clause 91
3.7 Other Commonly Used Clauses 93
3.7.1 Fumigation clause 93
3.7.2 Peak Value Clause 95
3.7.3 Automatic Increased Value Clause 95
4 Insurable Interest_97
4.1 General Introduction 99
4.2 Assignment of interest and policy 101
4.3 Incoterms (International Commercial Terms) 104
4.3.1 Shipment and destination terms 105
4.3.2 Mode of Carriage and Incoterms 106
4.3.3 Marine Cargo Insurance and Incoterms 106
4.3.4 Incoterms in practice – some practical difficulties 114
4.4 The risk vs title dichotomy 120
4.5 Modern Trends in UK and US markets 120
4.5.1 When the assured is the buyer 121
4.5.2 When the assured is the seller 122
4.5.3 Legal validity of warehouse to warehouse cover irrespective of the Terms of Sale 123
4.6 CIF Term and Nature of the Insurance Policy 130
4.7 For Whom It May Concern 132
4.8 Banks and Marine Insurance 136
5 Contingent Insurable Interest_141
5.1 The Origin of Seller’s Interest cover 143
5.1.1 Reasons for rejection of documents 144
5.2 Key Features of Seller’s Interest Covers 144
5.2.1 Assessment of exposure 144
5.2.2 Seller’s Interest and documentary credit system 147
5.2.3 When does cover incept under a Seller’s Interest policy? 147
5.2.4 Cause of rejection of documents/goods by the buyer 152
5.2.5 MIA 1906 requirement of insurable interest on date of loss 153
5.2.6 Additional clauses in Seller’s Interest 153
5.3 Summary 154
5.4 Buyer’s Interest and Difference in Conditions 155
5.5 Specimen wordings 156
6 Marine Open Cover 165
6.1 Open Cover 167
6.1.1 Advantages of an open cover 167
6.1.2 Features of an open cover 167
6.1.3 Limit of liability 171
6.1.4 Declaration (bordereau) 177
6.2 Limits of liability 180
6.2.1 What is a location? 181
6.2.2 Is Location meant for land based accumulation or onboard vessels or both? 183
6.2.3 Does the location clause refer to port of loading or port of discharge
or any port or place during a voyage? 185
6.2.4 Location Limit and overseas buyers 186
6.2.5 Do the limits apply to each party mentioned as assured? 186
6.2.6 Loading and Unloading clause and location limit 186
6.2.7 Limits of liability and condition of average 187
6.2.8 200% Accumulation clause 189
6.3 Example of Limits per Bottom and Location Operating 194
6.4 Certificate System Under an Open Cover 195
6.4.1 Web based certificate generation 199
6.5 Annual Sales Turnover policies 199
6.5.1 How are premiums computed? 200
6.5.2 Annual policies – a critique 201
6.6 Stock Throughput Policies 201
6.6.1 Advantages of a stock throughput policy 201
6.6.2 A Diagrammatic Illustration of a stock throughput policy 203
6.6.3 Challenges in Administering Stock Throughput Covers 205
6.6.4 Process Clause in Stock Throughput Covers 206
6.6.5 Standard exclusions in a stock throughput policy 207
7 Insuring Terms - 1, Institute Cargo Clauses (A), 1.1.82 209
7.1 MAR Policy Form 211
7.2 Institute Cargo Clauses (A) 1982 211
7.2.1 Risks covered 211
7.2.2 Exclusions 214
7.3 Duration of cover 228
7.3.1 Leaving the warehouse 229
7.3.2 Ordinary Course of Transit 235
7.3.3 Termination of Cover 238
7.4 Termination of transit – some further issues 241
7.4.1 Limits of a port town 241
7.4.2 60 days - counting of 242
7.4.3 Discharge ‘overside’ 242
7.4.4 Delivery of whole consignment or each portion thereof? 242
7.4.5 Delivery to a consignee’s warehouse, but under bond 244
7.4.6 Return of goods for repair 244
7.5 Other Clauses of the ICC (A) 249
7.6 Piracy 260
8 Insuring Terms - 2, The New Institute Cargo
Clauses - A, Cl. 382, 1.1.09 267
8.1 General Changes 269
8.1.1 Removal of side headings 269
8.1.2 Contract (open cover) and cover provided by ICC 269
8.1.3 Modernising the language 270
8.1.4 Defining assured 270
8.1.5 Major Changes 271
8.2 Institute Cargo Clauses 2009 - A detailed analysis 271
8.2.1 RISKS COVERED 271
8.2.2 Exclusions 272
8.3 Duration of Cover 285
8.4 Other Clauses 295
9 Insuring Terms 3 - Frozen Food Clauses_301
9.1 Temperature Controlled Cargoes 303
9.2 Underwriting Considerations 303
9.3 Temperature Recording Devices 305
9.4 Institute Frozen Food Clauses 309
9.4.1 Institute Clauses 309
9.4.2 Institute Clauses amended to include chilled and/or cooled 314
9.4.3 Extension Clauses 315
9.4.4 Manuscript wordings 316
9.4.5 Warranties 320
9.5 Frozen Food Clauses, Some Issues 322
9.6 Frozen Foods AND Perishables Claims 325
10 Other Institute Clauses and Endorsements_329
10.1 Institute Cargo Clauses – (B) and (C) 331
10.1.1 ICC (B) and (C) - 1982 and 2009 versions 331
10.2 (B) and (C) causation 331
10.3 (B) and (C) exclusions 333
10.4 Comparison of ICC (B) with Extended Transport Accident -
B Clauses of Norwegian Market 334
10.5 Institute Classification Clause 341
10.6 Radioactive Contamination Clause 345
10.6.1 Institute Radioactive Contamination Clause, CL 356, 1.10.90 346
10.6.2 Amendment to RACE - Extended RACE Clause 346
10.6.3 Further Amendment – Introduction of Clause 370 346
10.7 Termination of Transit (Terrorism) JC2001/056 348
10.8 ISM Endorsements 349
10.8.1 ISM Code and Marine Cargo Insurance 350
10.8.2 Compliance with ISM – some further explanation 352
10.9 ISPS Endorsements 355
10.9.1 The International Ship AND Port Facility Security (ISPS) Code 355
10.9.2 ISPS endorsements of JCC 356
10.9.3 ISPS – implication for cargo owners 356
11 Construction of a Policy and Extraneous Perils_357
11.1 Rules for underwriting 359
11.2 Some Manuscript Wordings 359
11.2.1 Deck cargoes 359
11.3 Rules of Construction 362
11.3.1 Rules of construction 363
11.3.2 Contra Proferentem 363
11.4 Rules of Proximation 365
11.4.1 What is proximate cause? 365
11.4.2 Phraseology of Institute Cargo Clauses 366
11.4.3 Concurrent Causation 366
11.5 Burden of Proof 368
11.5.1 Manuscript clauses 369
11.6 Need for Careful Drafting of Policies 369
11.6.1 Mechanical, Electrical and/or Electronic Derangement (MEED) Clause 369
11.6.2 Rust, oxidation, discolouration and/or corrosion 371
11.6.3 Country Damage 372
11.6.4 Shortage risks 374
11.7 Extraneous Perils 375
11.7.1 What are extraneous perils? 375
11.7.2 Interpretation of extraneous perils 376
11.7.3 Non-Delivery 381
11.8 Deductibles 383
11.8.1 Expression of a deductible 383
11.8.2 Each and every loss 384
11.8.3 Major casualty, sue and labour, salvage charges and General Average 384
11.8.4 Meaning of ‘each’ and ‘whole’ in ‘each and whole shipment value’ 384
11.8.5 Deductible and ‘ordinary loss’ 385
11.8.6 A series of losses detected after a time 386
11.8.7 Deductible contrasted with a co-insurance clause 387
11.8.9 Co-mingling warranty, multiple B/Ls covered under separate
certificates issued off open covers 388
11.9 Warranties 390
12 Physical Loss or Damage to Cargo 393
12.1 Changing Trends 395
12.1.1 ‘Fear of loss’ as opposed to ‘physical’ loss 397
12.2 Widening of cover 400
12.2.1 Control of Damaged Goods 400
12.3 Manufacturer’s Guarantee or Warranty 407
12.3.1 Does the policy valuation include the warranty? 407
12.3.2 Does the policy valuation exclude the warranty? 408
12.3.3 Possible Solutions 409
12.3.4 Examples of satisfactory resolution of claims 411
12.3.5 The French Marine Cargo Insurance Policy 414
12.3.6 The Norwegian Marine Cargo Insurance Policy 414
12.4 Guaranteed Outturn Covers 414
12.4.1 Recovery of Shortage/Leakage under ICC (A) terms 416
12.4.2 Recovery of Shortage/Leakage under ICC (A) including
“leakage/shortage howsoever caused or arising” 417
12.4.3 Example of re-adjustment of claim under ICC (A) terms 418
12.4.4 Guaranteed Outturn Cover 419
12.5 Packing 420
12.5.1 Is packing material part of the subject-matter insured? 421
12.5.2 Damage to packing material leading to rejection of the goods 425
12.5.3 Packing exclusion clause in Institute Cargo Clauses 426
12.6 Treatment of delay in marine insurance policies 426
12.6.1 French cargo conditions 428
12.6.2 German cargo conditions 428
12.6.3 Norwegian cargo conditions 428
12.6.4 Russian cargo conditions 429
12.6.5 Swiss cargo conditions 429
12.6.6 Wider covers including delay 429
13 Physical Loss or Damage to Cargo - Ot her Claims Issues_431
13.1 Concealed Damage or Delayed Discovery of Loss 433
13.2 Shortage from ‘Seal Intact’ Containers 434
13.2.1 Fraudulent Bill of Lading Clause 438
13.3 Sweat Damage 439
13.3.1 Cause of sweat 440
13.3.2 Is sweat damage covered in ICC (A)? 441
13.3.3 Pattern of wetness and cause of loss 443
13.3.4 Sweat/condensation in Norwegian Cargo Clauses 445
13.4 Odour Claims 445
13.5 Vermin Damage 446
13.6 Pollution Hazard Clause 447
13.7 General Average (GA) 449
13.7.1 Definition 449
13.7.2 Elements of the GA Act 449
13.7.3 Distinction between General Average (GA) and Particular Average (PA) 449
13.7.4 Contributory values 449
13.7.5 GA and Cargo Insurance 450
13.7.6 Examples of GA 450
13.7.7 GA Security 451
13.8 Salvage 456
13.9 Nature of LOF (and other forms of salvage) - Liability under Clause 2 or 16 of ICC? 457
13.10 Exchange Rates in Marine Cargo Insurance 464
13.10.1 Exchange rate for claims calculation 464
14 Cargo Loss Prevention - Including Some Current Trends_467
14.1 Loss/Damage from Container Shipments 470
14.1.1 Principal causes of loss 470
14.1.2 Loss prevention steps for container movements 472
14.1.3 Loss prevention: moisture/condensation/sweat 476
14.1.4 Some Case Studies 477
14.1.5 Origin of Sweat 482
14.2 Damage Detection Devices 485
14.3 Dry Bulk Cargoes 488
14.3.1 Principal causes of loss 488
14.4 Project Cargo 493
14.5 Difficult destination 496
Annexes