Maritime Insurance

Question 1

The non cargo claims

The non cargo claims include the payment for the use of the Savior and Pugwash. Since the two vessels helped the Flying Dustman in salvaging the vessel, the owners of the vessels demand some remuneration for the salvaging operations. A non cargo claim is the expenses of the government that has jurisdiction on the Bunkham bay. O has to pay the procedures that will be done to clean the bay and other expenses needed to repair the damages on the environment. Goods and passenger cargoes claim a legal and a financial niche in transnational trade. They represent a bundle of interests different in kind and character from those of the ship owners, probably because vast numbers of people had no rights of any kind and the trade in both were common. Protection from hazards of the sea was not always a ship owner’s responsibility, and losses were thought to be inevitable accidents (Miller 1996). In modern times these legal interests are characterized as first party: goods and passengers and the ship itself which account for freights and passage money, and third party: the legal liability when damage or loss occurs to these interests (Miller 1996).

Over time on the one hand, a general non land-based maritime law of specific application evolves to organize the affairs of ship owners, the rights of crew members, the rights and priorities of suppliers of necessaries to the ship both on the credit and personality of the ship and /or on the authority of the ship’s master, the claim of port authorities and warehousers and wharfingers and, more important, the management of damages in disasters at sea which were common. The duties of passengers as well as duties owed to them, the rights of cargo owners and financial backers arose out of the maturation and eventual safety of sea travel. Four types of contractual arrangement are commonly used. Under a voyage charter, the ship owner contracts to carry a specific cargo in a specific ship for a negotiated price per ton. A variant on the same theme is the contract of affreightment, in which the ship owner contracts to carry regular tonnages of cargo for an agreed price per ton. The time charter is an agreement between owner and charterer to hire the ship, complete with crew, for a fee per day, month or year. Finally the bare boat charter hires out the ship without crew or any operational responsibilities (Stopford 1997). A voyage charter provides transport for a specific cargo from port A to port B for a fixed price per ton. If the voyage is not completed within the terms of charter-party then there will be a claim. For example, if lay time is specified at seven days and the time counted in port is ten days, the owner submits a claim for three days demurrage to the charterer. Conversely, if the ship spends only five days in port, the charterer will submit a claim for two days dispatch to the owner. The rates for demurrage and dispatch are stated in dollars per day in the charter-party. The calculation of demurrage and dispatch does not normally present problems, but cases do arise where the charterer disputes the owner’s right to demurrage (Stopford 1997). It is important for owners of a vessel to pay for the claims whether it is for a good or a non good. Paying the claims relates to the owners willingness to have a good relationship with other people involved in vessels and/or shipping. Paying the claim reduces the tension in the environment.

If Horatio had sold the vessel to a separately registered company

Shipping involves many complexities due to various things. If before sending the Black Pig to Liverpool, Horatio had sold the vessel to a separately registered company the result would be almost the same. The accident that happened with the Flying dustman was not deliberate and cannot be prevented even if another company owned the vessel. The probable change would only be on whom those involved would go to ask for compensation or remunerations on what happened. Should Horatio sold the vessel to a separately registered company, the burden on paying for the damages would fall on the separately registered company rather than Horatio since the transfer occurs before the sale of the Black Pig. The legal distinction between the risks of land carriage and the perils of early sea voyages, without adequate ocean charts, low-level ship technology, unpredictable weather, unwilling or underfed sailors, unstable political climates and, until the Romans abolished the practice, piracy, which had been lawful and widely engaged in maritime commercial activity, made shipping a risky and quasi-legal business, and was not quickly grasped or provided for in English common law (Banister 1995).

The different needs and culture from carriage rules by land are illustrated by the difference between highwaymen and roving pirates. Though both were outlawed, one could serve a public purpose. The concept of individual carriage liability or common carriage of either passengers or cargo is not well documented but is distinctly formulated. It was common practice for centuries for vessels to carry both goods and passengers, there being no scheduled passenger service before the invention of the steamship in the nineteenth century. The potential of loss of life at sea and the ultimate responsibility for it were still to be developed concepts for which even the common law had no provision. Human cargo carriage were probably not considered goods unless they were slaves and left open the question of who was the insurer of life and limb under these circumstances (Banister 1995). While continuation of these inadequate rides for the years intervening from imperial rule to medieval times cannot be proved or assumed, one finds early seventeenth century marine insurance policies did not give general or explicit coverage to passengers, captain or crew when issuing policies covering voyages, even if the policy recited all losses and damages which may happen to the scheduled and particularized effects. Though international shipping and trade have, by their nature, a measure of independent sovereignty, ships and their cargoes and passengers could owe an allegiance to one or more enemy states, and conflicts of control had to occur (Hilling 1996).Ships had to traverse often-disputed territorial waters before then proceeding to the high seas. Full rights of innocent passage upon the high seas had to await a recent international treaty. For some time in history, the seas were not an open highway outside of the jurisdiction of nation states. The policy of ship owner liability for goods carried by him found easier expression in unscheduled services. Merchants normally traveled with the cargo shipped. Ostensibly they exercised joint control over their goods until landing. It was only when this partial and joint control could not be exercised that a rule was needed (Hilling 1996).

The extent to which the stricken Flying Dustman should have been refused refuge at Bunkum Bay

The stricken Flying Dustman should have been refused refuge at Bunkum Bay because of the damages it had caused to their waters. But due to assistance of other vessel, those who govern Bunkum Bay had no choice but to allow the stricken vessel to enter the waters. Those who govern the Bunkum Bay has the right to refuse the entry of the flying Dustman since it can be considered as a threat to their environment. The stricken vessel releases chemicals that ruin their territorial waters. Vessel safety investments consist of actions by the operators to improve the safety of vessel service. These investments include hiring more experienced personnel and utilizing newer and larger vessels. Vessel operating conditions describe the environment in which vessel service is provided. These conditions are represented by the phase of vessel service, type of waterway where the accident occurred, and weather/visibility characteristics. Weather characteristics include precipitation and wind speed. Two measures of vessel damage severity were considered: the occurrence of severe vessel damage and real vessel damage cost per gross ton of ship size. The non-seaworthiness variable was assigned a one if the seaworthiness of the vessel was not affected; set equal to two if the seaworthiness of the vessel was affected; and set equal to three if the vessel was a total loss in the accident. Although there is a trend toward worldwide parity in commercial vessel safety standards, significant differences exist among nations in their enforcement of safety standards. The United States has long been a nation with relatively high maritime safety standards (Loeb, Talley & Zlatoper 1994).

Question 2

Marine Insurance Act

Marine insurance is known as the oldest type of insurance. Out of Marine Insurance came the concept of non-marine insurance and reinsurance. Currently Marine insurance is being attributed to the concept of Aviation and Transit risks. Cost-efficiency follows the same pattern because of the reputed existence of markets for tangible property. Resource maximization is another matter. The insurance of remoter-than-tangible interests in insurance was made the subject of a companion act prohibiting gambling in marine insurance. But again this does not settle the matter, as remoter interests are statistically quantifiable and the financial market of freight and commodity options futures and other financial derivatives are ample demonstrations of the functioning and viability of those markets (Clarke 1997). Modern shipping ventures are far more complex than this act contemplates. Ship finance is but one example. Depending upon the country, one finds the selling of bonds which have been guaranteed by various governmental bodies in the United States more generally financing by a syndication of shares by limited small business corporations. None of these interests would be insurable. Bondholders have only a legal claim for payment and shareholders are members of a company which may or may not control the operation of the ship (Clarke 1997).

Goods as cargo may be subject to factor finance where the tangible interest is contained in the receivables invoices. It is submitted that separate insurance coverage is available for receivables and as such their resources have different type of protection, but in some cases it cannot be maintained that factoring and bond holding could not have an insurable stake in marine insurance. There is considerable scope for resource maximization for the insurer under the sections 65-66 of the Marine Insurance Act. It involves two conditions which supplement each other: one is that the insured receives a general average contribution whether or not he has received an apportioned contribution from the other interests on the voyage. Normally his negligence would bar him from receiving a contribution. The other is that if he owns two interests say ship and some cargo both are to be treated as non owned interests. This means that his contribution will not be cancelled out by his cross liability to make a contribution. If the interests are treated as non owned, he receives a contribution for each of them (Virgo 1999). The marine insurance act regulates marine insurance and has 2 important sections. The sections focus on what policies are considered to be void and how should risks be treated. The marine insurance act covers various things that include the loss or damage of ships, cargo, terminals, and any other transport or property used to transfer cargo. Together with Institute clauses, the marine insurance act makes sure that parties are free to engage in a valid and binding contract. The Marine Insurance Act includes a standard policy, which the different parties were given the freedom to use if they had the need for it. The policies are thorough and had been tested before it is used in the marine insurance contracts. Policies can be based on well tested policies in the past. A marine policy usually covers around only a certain part of the insured’s liabilities towards a third party.

A contract of marine insurance is of good faith, and it is preserved by disclosing all material facts

As regulated by the marine insurance act, there should be good faith at the marine insurance. Having good faith means that, those involved n the marine insurance should show or explain all aspects of the agreement. Very early specimens of either French, Dutch or Italian contracts of marine insurance are not readily available for examination except by reference to tribunal and court decisions seeking to enforce one or more terms of conditions of the contract. Moreover, there was no uniformly accepted criterion of just what constituted an insurance policy as opposed to a marine contract. The modern definition of insurance involves a pooling of similar risks, which is not mutual protections, with a contract reflecting true risk analysis as a decision process, with a view toward underwriting exposures commonly found in maritime venture (Harris 2000). The acceptance of this exposure for a small sum in comparison with the values exposed called a premium, and owed whatever the outcome of the venture separates insurance from finance, in the first instance, because of the disparity in amount, and from wagers, in the second instance, because the insured does not profit from his own loss (Harris 2000).

It transpires that early marine insurance was a process of both of these tendencies. Its subsequent development takes elements of both wagering and finance and carries forth early terms and conditions of contracts of finance and wagers into the modern contract. In this sense, the contract of bottom is the most illustrative of marine contracts as a developmental tool for construction of the modern policy and to amply demonstrate the real connection of shipping in international trade where it is a part of a cycle of finance and simultaneous transport. There are basically two forms of first-party marine policies: the perils policy and the all-risk coverage. The perils policy is issued by Lloyds as Institute Voyage Clauses and Time Clauses with varying modification for Hulls and Cargo which include freight, location, transit risks and so on. The newest cargo clauses no longer contains the terms of insurance but are thought to be perils policies, major perils only and all risk of physical damage policies (Tolentino 2000). The breadth of coverage offered by the policies is traditional, and by custom, in older forms listed something called perils of the sea which were insured against. For these events and later others, the master of the ship had no responsibility to third parties where he carried their goods. These same casualties did affect his ship. While modern policies now cover the ship separately, this was not so in early marine insurance or in the bottom contract. The third-party interest was retained by self insurance in early policies. Modern policies define the subject matter covered in two ways: the person or things insured (Tolentino 2000).

In many ways, the risk exposure in insurance is both the thing and the person and the promissor in insurance has an obligation toward the things insured and toward the beneficiary (Sin 1997). The security in bottom bonds consists of the ship and its rigging; rigging apart from the ship; the merchandise and cargo; the ship and attached slaves; freight and passage money; furniture of the vessel; valuables carried but not for sale; and, as an extra measure, perhaps all the property of the debtor. Some of these items are stated in the British Marine Insurance Act of 1909 as being the insurable value of the marine risk; the modern steamer included many more as reflected in the Institute of Voyage Clauses No.8. Marine insurance is one of modern society’s most unregulated types of insurance. Insurers have the freedom to offer coverage with terms and conditions which suit them and the market they handle. It follows then that the rates and prices charged relate to their perceived costs and the probability of profit. Modern insurance sets a promise against an act. The action required is the payment of the premium in return for indemnity when a covered loss occurs. The indemnity offered by the insurer is typically set out in policy forms authored by the underwriter in the language of, as people have seen, great antiquity and in some cases of ambiguous and obscure meaning. The policy type and form ought to conform to the individual’s commercial need, but it is not generally tailor-made (Sin 1997). Each person involved in a marine insurance should know the contents of the agreement and what should one expect in the agreement. Each person involved in the marine insurance should be given information on what would break the agreement. The policies in the marine insurance should make sure that it gives a clear indication of what claims will be answered by the insurance, what percent of claims will the insurance cover, and the time period of the insurance. The marine insurance should give a description of what good or non good claims will be covered. The marine insurance should determine the percentage of claims or damages will be covered and what will be the terms of payment that will be done.

References

Banister, D (ed.) 1995, Transport and urban development, E

& FN Spon, London.

Clarke, MA 1997, Policies and perceptions of insurance: An

introduction to insurance law, Clarendon Press, Oxford.

Harris, R 2000, Industrializing English law:

Entrepreneurship and business organization, 1720-1844,

Cambridge University Press, Cambridge, England.

Hilling, D 1996, Transport and developing countries,

Routledge, New York.

Loeb, PD, Talley, WK & Zlatoper, TJ 1994, Causes and

deterrents of transportation accidents: An analysis by