TYPES OF MARINE LOSSES

2 Types of Marine Losses: Total Loss and Partial Loss

Marine losses may be divided into the following categories:

1. TOTAL LOSS : There is an actual total loss where the subject matter insured is
destroyed or so damaged as to cease to be a thing of the kind insured or where the
assured is irretrievably deprived thereof.

Losses are deemed to be total or complete when the subject- matter is fully
destroyed or lost or ceases to be a thing of its kind.

It should be distinguished from partial loss where only part of the property insured
is lost or destroyed.

In case of total loss, the insured stands to lose to the extent of the value of the
property provided the policy amount was to that limit.

Total loss can be further classified into Actual Loss and Constructive Loss

A. ACTUAL LOSS : There is an Actual Total Loss where the subject matter
of Insurance is completely destroyed or so damaged as to cease to be a thing of the
kind insured, or where the Insured is irretrievably deprived of it or where the
property is posted missing

Actual Total Loss in Marine Insurance may occur when;

(i) The insured cargo is physically destroyed such that there is no possibility of
salvage or recovery of the goods.

(ii) The insured cargo is damaged that it ceases to be a thing or description

insured. E.g. cement bag turns into concrete due to sea-water contact.

(iii) The cargo is irretrievably lost. For example, when the ship sinks, the cargo
can be retrieved only after a long time and the salvaged goods cannot be of any
value to the insured.

(iv) where a ship has not reported for several weeks.

The actual total loss occurs in the following cases:

1. The subject-matter is destroyed, e.g., a ship is entirely destroyed by fire.

2. The subject-matter is so damaged as to cease to be a thing of the kind

insured.Here, the subject- matter is not totally destroyed but damaged to
such an extent as the result of the mishap; it is no longer of the same specie
as originally insured.

The examples of such losses arefoodstuff badly damaged by sea water

became unfit for human consumption, hides became valueless as hides due
to admission of water.

These damaged foodstuffs or hides may be used as manure. Since the

characters of the subject-matters are changed and have lost their shapes, they
are all actual total loss.

3. The insured is irretrievably deprived of the ownership of goods even they

are in physical existence as in the case of capture by enemy, stealth by thief
or fraudulent disposal by the captain or crew.

4. The subject-matter is lost. For example, where a ship is missing for a very
longtime and no news of her is received after the lapse of a reasonable time.
 An actual total loss is presumed unless there is some other proof to show
against it.

In case of actual total loss, notice of abandonment of property need not be given. In
such total losses, the insurer is entitled to all rights and remedies in respect of
damaged properties. In no case, amount over the insured value or insurable value is
recoverable in a total loss form the insurers.

If the property is under-insured, the insured can recover only up to the amount of
insurance. If it is over insured he is not over-benefited but only the actual loss will
be indemnified.

Where the subject-matter had ceased to be of the kind insured, the assured will be
given the fill amount of total loss provided there was insurance up to that amount,
and the insurer will subrogate all rights and remedies in respect of property.

Any amount realized by the sale of the material will go to the insurer.

Constructive Total Loss (CTL)

In marine Insurance a Constructive Total Loss occurs where an assured is
deprived of possession of his ship or goods by a peril insured against and where the
subject matter of Insurance is reasonably abandoned by the Insured on account of
its Actual Total Loss appearing unavoidable because it could not be preserved from
Actual Total Loss without expenditure that would exceed its value after the
expense had been incurred.
After a valid abandonment, the insurer is entitled to take over the interest of the
assured in whatever remains of the insured property, including all proprietary
rights in it, e.g.:
the right to any freight in the course of being earned when the casualty
occurred;
the right to take over the ship or goods;
the right to dispose of the ship or goods as he thinks fit and retain all the
proceeds (even if more than the claim paid).

Where the subject-matter is not actually lost in the above manner, but is
reasonably abandoned when its actual total joss is unavoidable or when it
 cannot be preserved from total loss without involving expenditure which would
exceed the value of the subject-matter.

For example,

The cost of repair and replacement was estimated to be $50,000, whereas the
ship was estimated to be $40,000, the ship may be abandoned and will be taken
as constructive total loss.

But if the value of ship was more than $50,000 it would not be constructive
total loss. Here it is assumed that retention of the subject-matter would involve
financial loss to the insured.

The constructive total loss will be where;

The subject-matter insured is reasonably abandoned on account of its actual

total loss appearing to be unavoidable;
The subject-matter could not be preserved from actual total loss without an
expenditure which would exceed its repaired and recovered value.

The insured is not compelled to abandon his interest, where the goods are
abandoned, the insurer will have to pay the full insured value.

Where awe is constructive total loss, the assured may either treat the loss as a
partial loss or abandon the subject-matter insured to the insurer and treat the
loss as if it was an actual total loss.

Difference between actual and constructive total loss

Actual total loss is related with the physical impossibility and the constructive total
loss is related with the commercial impossibility.

For example,

If the hides are so damaged that it is impossible to prevent the hides from the
destruction and it may become a mass of putrefied matter, the case is of an actual
total lass.

But if it was possible to restore the hides to their original condition, though the cost
of so doing would exceed their value at destination, the damaged hides can be
claimed as constructive total loss because the completion of the adventure has
became commercially impossible.

Partial loss (Average)

Any loss other than a total loss is a partial loss. Partial loss is there where only part
of the property insured is lost or destroyed or damaged partial losses, in
contradiction from total losses, include;

1. Particular average losses, i.e., damage, or total loss of a part,

2. General average losses (general average) le., the sacrifice expenditure, etc.,
done for common safety of subject-matter insured,

3. Particular or special charges, i.e., expenses incurred in special

circumstances, and

4. Salvage charges.

Particular average loss

Particular average loss is a partial loss of the subject-matter insured caused by a
peril insured and is not a general average loss.

The general average loss or expense is voluntarily done for the common safety of
all the parties insured.

But, the particular average loss is fortuitous or accidental. It cannot be partially

shifted to others but will be borne by the persons directly affected. The particular
average loss must fulfill the following conditions:

1. Particular average loss is a partial loss or damage to any particular interest

caused to (hat interest only by a peril insured against.

2. The loss should be accidental and not intentional.

3. The loss should be of the particular subject-matter only.

4. It should be the loss of a part of the subject-matter or damage thereto or

both. The distinguishing feature in this matter is that where the properties
insured are all of the same description, kind and quality and they are valued
 as a whole in the policy, the total loss of a part of this whole is a particular
loss, but where the properties insured are not all of the same description,
kind and quality and they are separately valued in the policy, the loss of an
apportion-able part of the interest is a total loss.

In case of total loss of a part of recoverable either as a total loss or as a particular

average loss, the basis of settlement will be on the total loss of the whole lot or the
insurer will be liable to pay in proportion according to the insured or insurable
value of the whole interest.

Particular average on cargo

The particular average loss may be either the damage or depreciation of a
particular interest or a total loss of its part.

If the property is insured under one value for the whole and is all the same kind,
quality or description, a total loss of part will be recovered as a particular average
loss.

In case where goods are delivered in a damaged condition or where the value is
depreciated, the resulting particular average loss will be adjusted upon the basis of
comparison between the gross sound value and damaged value.

The process of valuation is as follows:

1. The gross sound value of the goods damaged is found out. This is the value
for which the goods would have been sold if the goods had reached the port
of destination in sound condition.

2. After calculating the above value, the gross damaged value of the goods
damaged or depreciated is found out on the basis of market price at that
time.

3. Deduct the gross damaged value from the gross sound value. The difference
is the measure of the actual damage or depreciation.

4. The ratio of the damage or depreciation is calculated by dividing the amount

of damage or depreciation by the gross sound value.
 5. Apply the above ratio to the value (insured or insurable value as the case
may be) of the damaged or depreciated goods which will give the amount of
particular average loss.

6. Of the amount thus arrived at, the insurer is liable for that proportion which
his sum insured bears to the value (insured or insurable).

General Average (Loss) - (GA)

General average is an ancient form of spreading the risk of sea transport and
existed long before marine insurance. General average means general loss, as
opposed to a particular loss under marine insurance. A general average act is
defined in Rule A of the York Antwerp Rules 1994 and Marine Insurance Act as
follows:
There is a general average act when, and only when, any extraordinary
sacrifice or expenditure is intentionally and reasonably made or incurred for the
common safety for the purpose of preserving from peril the property involved in a
common maritime adventure.
The five component parts of a general average loss are therefore:
a) an extraordinary sacrifice or expenditure,
b) which is intentionally
c) and reasonably made
d) against a peril,
e) in order to benefit the common venture.
General average is a loss caused by or directly consequential on a general average
act which includes a general average expenditure as well as a general average
sacrifices.

The general average loss will be there where the loss is caused by an extraordinary
sacrifice or expenditure voluntarily and reasonably made or incurred in time of
peril for the purpose of preserving the property imperiled in common adventure.

The following elements are involved in general average.

The loss must be extra ordinary in nature. The sacrifice or expenditure must not be
related to the performance of routine work.

A state of affairs may compel the master to do something beyond his ordinary duty
for the preservation of the subject-matter.
 1. The whole adventure must be imperiled. The peril should be something
more than the ordinary perils of the sea. It should be imminent and real.

2. The general average act must be voluntary and intentional (accidental loss or
damage is excluded).

3. The loss, expenses or sacrifice must be incurred or made reasonably and

prudently. The master of the ship is proper person to decide the
reasonableness of a particular circumstance.

4. The sacrifice, loss or expenditure should be made for the preservation of the
whole adventure. It should be made for the common safety.

5. If the sacrifice proved abortive, it will be allowed as the total loss.

Therefore, to call it general average, it must be successful at least in part.

6. In absence of contrary provision, the insurer is not liable for any general
average loss or contribution where the loss was not incurred for the purpose
of avoiding, or in connection with the avoidance of a peril insured against.

7. The loss must be direct result of a general average act. Indirect losses such
as demurrage and market losses are not allowed as general average.

8. General average must not be due to some fault on the part of the person
whose interest has been sacrificed.

The adjustment of general average losses is entrusted to an average adjuster.

Particular charges
Where the policy contains a sue and labor clause, the engagement thereby
entered into is deemed to be supplementary to the contract of insurance and the
assured may recover from the insurer any expenses properly incurred pursuant to
the clause.

The clause requires the insurers to pay any expenses properly incurred by the
assured or his agents in preventing or minimizing loss or damage to the subject-
matter by an insured peril. The essential features of the clause are as below:
The expenses must be incurred for the benefit of the subject matter insured. The
expenses incurred for the common benefit will be a part of general average.

The expenses must be reasonable and be incurred by the assured, his factors, his
servants or assigns and this provision effectively excludes salvage charges.

They are recoverable only when incurred to avert or minimize a loss from a peril
covered by the policy.

Salvage loss
Where actual total loss occurred, and die subject-matter is so damaged as to cease
to be a thing of the kind insured or when they have been sold before reaching the
destination, there is a constructive total loss. The usual form of settlement is that
the net sale proceeds will be paid to the assured.

The net sale proceeds are calculated by deducting expenses of the sale from the
amount realized by die sale.

The insured will recover from the insurer the total loss less the net amount of sale.
This amount received from the insurer is called a salvage loss.

How Notice of Abandonment is used in Marine Trade and Insurance

The notice of abandonment is essentially given to die insurer to claim the loss as
constructive total loss.

If he fails to do so, the loss can only be treated as a partial loss. The notice can be
given orally or in writing. The notice should be unconditional and absolute.

The insurer may either elect to accept or decline the proposal.

But, when the insurer elects to object the notice, the insured should at once
commence legal action against the insurer to claim the loss under constructive
total loss.

In brief, the notice of abandonment involves the following:

1. Subject to the contrary provision, where the insurer elects to abandon the
subject-matter insured to die insurer, he must give notice of abandonment if
the insured tails to furnish the notice, die loss can be treated as a partial loss.

2. The notice can be given in writing or orally, ft may be given in any terms
which indicate the intention of the assured to abandon his insured interest in
the subject-matter insured unconditionally to the insurer.
 3. Notice of abandonment must be given with reasonable diligence after the
receipt of reliable information of loss, but where the information is of a
doubtful character, the insured is liable to furnish the required information.

4. If notice of abandonment is properly given, the rights of the assured are not
prejudiced by the fact that the insurer refuses to accept the abandonment.

5. The acceptance of abandonment may be either express or implied from the

conduct of the insurer. The mere silence of the insurer is not an acceptance.

6. Where notice of abandonment is accepted die abandonment is irrevocable.

7. Notice of abandonment is unnecessary where there is no possibility of

benefit to the insurer if notice was given to him.

8. Notice of abandonment may be waived by the insurer.

Effect of Abandonment

1. In case of valid abandonment the insurer is entitled to take over the interest
of the assured in, whatever may remain of die subject-matter insured.

2. At the time of abandonment of ship, die insurer is entitled of any freight in

course of being earned.

In case of constructive total loss, the insurer have a right, after the settlement of the
claim in full, to take over the property or whatever may remain of it where the
insurers elect to take over the remainders of the wreck, the cost of removing the
wreck is borne by the insurers.

But, in case insurers elect not to take over the destroyed party, it becomes die
liability of the ship-owners to remove the wreck and incur necessary expenditure
for die same.

The constructive total loss in the case of vessels is distinguished from the
constructive total loss in cargo or freight.

In case of cargo, the constructive total loss will be there where the assured is
deprived of the goods by insured perils.
In case of damage to the goods there is a constructive total loss where the cost of
reconditioning the goods and forwarding the goods to the destination would exceed
their value an arrival.

Hull policy covers total and partial losses and partial losses are paid in full
irrespective of the insured amount, the insured amount merely serves as the
maximum limit.

II. Entitlement to General Average

1) Ordering the general average act

The general average act was usually ordered by the master or other crew-
member in authority over the vessel. In the United Kingdom, however, the act
may be considered of general average even where it is ordered by a stranger
to the common adventure (e.g. a local port authority), provided that it is
necessary for the common safety. Originally, in the United States, only the
shipowner, master or someone acting under his authority could order a
general average act; now, third parties are entitled to do so as well, provided
that their orders are subsequently "endorsed" by the master. In France, on the
other hand, the master alone may order the act. The York/Antwerp Rules do
not, however, restrict the power to decide upon a general average act to the
master alone. It is the usual practice today that the shipowner orders the act,
directly or through agents.

2
2)Carriers actionable fault precludes entitlement
A claimant (ship or cargo) is not entitled to obtain contribution from the
other parties to the common venture (cargo or the ship) simply because his
"sacrifice or expenditure" falls within the terms of Rule A of the York/Antwerp
Rules, or simply because a voluntary and reasonable act successfully benefited the
common venture in the face of a common danger.
Something more is required - the carrier must not have been at fault in law.
In other words, at common law a carrier is not entitled to obtain contribution in
general average from cargo, if the peril which necessitates the extraordinary
sacrifice or expenditure arises as a result of his actionable fault or negligence in
law, or of that of his employees.
The Hague Rules and the Hague/Visby Rules are virtually silent with respect
to general average, except for a short passage in art. 5: Nothing in these rules shall
beheld to prevent the insertion in a bill of lading of any lawful provision regarding
general average..
What does lawful provision mean? Lawful must necessarily mean any
provision, which is not prohibited by law and this would certainly include a
prohibition of the Hague and Hague/Visby Rules. Art. 3(8) of the Rules outlines
what is prohibited:
Any clause, covenant, or agreement in a contract of carriage relieving the carrier
or the ship from liability for loss or damage to, or in connection with, goods arising
from negligence, fault, or failure in the duties and obligations provided in this
Article or lessening such liability otherwise than as provided in this Convention,
shall be null and void and of no effect....
This provision invalidates any clause in a bill of lading, which gives the
carrier the right to contribution in general average from cargo, notwithstanding the
carrier's liability under the Rules. This was the general finding in Louis Dreyfus,
although that was a pre-Hague Rules, charterparty case.
One may therefore conclude, that if the carrier's fault is not actionable under
the Hague or Hague/Visby Rules, the carrier will be entitled to obtain contribution
in general average from cargo. Conversely, if the carriers fault is actionable (e.g. if
the carrier has failed to exercise due diligence to make the ship seaworthy before
and at the beginning of the voyage, where the Hague or Hague/Visby Rules apply,
and that actionable fault has caused the loss or damage), no contribution in general
average may be collected from cargo. Such is the law in the United Kingdom and
British Commonwealth countries generally.
Under American law, however, contrary to English law, the mere fact that
the negligent carrier is immunized from liability for the loss or damage sustained
by cargo by one or more provisions of the Carriage of Goods by Sea Act (COGSA)
does not permit him to claim a general average contribution from cargo. If the
carrier at fault is to recover from cargo in general average, the carrier's bill of
lading must include a Jason clause, which has evolved into the New Jason
clause since the enactment of COGSA in 1936. In the United States, under a
three-pronged burden of proof, the shipowner seeking a general average
contribution from cargo must first prove that the general average act occurred, after
which cargo, seeking to avoid the liability to contribute, must prove that the ship
was unseaworthy and that the unseaworthiness caused the loss or damage. The
shipowner may nevertheless succeed in claiming the G.A. contribution if it proves
that it exercised due diligence to make the vessel seaworthy prior to the voyage.
 Where the loss or damage results from some other cause that is not actionable under
COGSA, notably an error in the management or navigation of the ship, cargo must contribute in
general average, as the Jason or New Jason clause requires. The Hamburg Rules, at art. 24, are
an improvement over the Hague and Hague/Visby Rules in respect of general average. Firstly,
art. 24(1) confirms that the Rules do not prevent the adjustment of general average under the
contract of carriage or national laws. Secondly, art. 24(2) makes clear that a general average
adjustment does not affect the rights of the cargo owner to refuse contribution in general average
or the liability of the carrier who is responsible for the cargo loss or damage under the Rules to
indemnify the cargo owner in respect of any such contribution. A third major change in general
average emerges from art. 5(1) of the Hamburg Rules. This article provides:
The carrier is liable for loss resulting from loss of or damage to the goods, as well as
from delay in delivery, if the occurrence which caused the loss, damage or delay took place while
the goods were in his charge as defined in art. 4, unless the carrier proves that he, his servants or
agents took all measures that could reasonably be required to avoid the occurrence and its
consequences.
The effect of art. 5(1) of Hamburg is to abolish the defence of error in navigation and
management of the ship, found in art. 4(2)(a) of the Hague and Hague/Visby Rules. The
elimination of that defence would greatly alter general average practice, as it is known today.
Since the end of the 19th century, general average sacrifices have included numerous claims of
carriers, not merely for the cutting away of the mast or anchors as the
result of a peril, but also where the carrier has been at fault. Exonerating ocean carriers for the
fault of their servants is not an ancient phenomenon but emerged in the last 100 years. This
principle permits an ocean carrier to escape liability for the negligence of his servants in the
navigation and management of the ship. No carrier in any other modern mode of carriage (by
truck, rail or air) is given this right, nor is any other profession given such relief for the faults of
its servants (lawyers, doctors, taxi owners, or even average adjusters).
The adoption of art. 5(1) of the Hamburg Rules would put ocean carriers in step with the
rest of the worlds carriers and the law of responsibility in general. General average would apply
to perils of the sea, fire, etc., as it did in the past, but no longer to the negligence of the carrier or
his servants. Cargo interests, incidentally, cannot claim general average when their servants are
at fault.
3) Success of the general average act Rule A
Traditionally, at least in common law jurisdictions, no allowance was made in general
average for sacrifices or expenditures, unless they actually succeeded in securing the safety of
the property involved in the common maritime adventure. Rule A of the York/Antwerp Rules,
does not, however, specify that success is a criterion of general average. It refers merely to the
extraordinary sacrifice or expenditure being intentionally and reasonably made or incurred for
the common safety for the purpose of preserving from peril the property involved in a common
maritime adventure. Such is also the position in France, where even if the act has no useful
result, it is still held to be a general average act as long as it was performed in the common
interest. Nevertheless, no general average contributions are payable if both ship and cargo are
totally lost before arrival at their destination.
4) Causal connection Rule C
In order to uphold a claim for general average, there must be a causal connection between
the loss and the general average act. Rule C specifies that Only such losses, damages or
expenses which are the direct consequence of the general average act shall be allowed as general
average.
5) Burden of proof Rule E
Rule E puts the burden of proving that the loss or expense is allowable as general average
on the party claiming contribution as follows: The onus of proof is upon the party claiming in
general average to show that the loss or expense claimed is properly allowable as general
average.
6) Adjustment and rights of the parties - Rule D
Originally, Rule D of the York/Antwerp Rules 1950 was the source of considerable
puzzlement. Rule D seemed to suggest that carriers could enforce contribution in general average
although they were liable under the law or the Hague Rules for loss or damage to cargo. Rather
Rule "D" had two distinct parts:
a) the purpose of the first part of Rule D is to ensure that the adjustment of general average is
carried out as quickly as possible without regard to fault and enforcement. (That fault, which
has never been defined in the York/Antwerp Rules, must be determined elsewhere);
b) The second part of Rule D is to the effect that despite the carrying out of a general average
adjustment, the party claimed upon retains all his rights, remedies and defences under law. (Rule
D cannot overcome the carrier's obligations under the Hague Rules, because of the conjunction
of arts. 5 and 3(8) of the Hague Rules.)
This was confirmed by new Rule D, as amended in 1974, which now reads as follows:
Rights to contribution in general average shall not be affected, though the event which
gave rise to the sacrifice or expenditure may have been due to the fault of one of the parties to
the adventure, but this shall not prejudice any remedies or defences which may be open against
or to that party in respect of such fault.
7) Application of the Rules
Prior to 1994, Rule B provided that general average sacrifices and expenditures would be
borne by the different contributing interests on the basis hereinafter provided. In the 1994
revision, Rule B was transferred to become the second paragraph of Rule A, in order to permit a
new Rule B to be inserted, dealing with towage.
III. Specific Matters Addressed by the Lettered Rules
1) Five general principles
The five basic principles of general average are found in Rule A. There must be an
extraordinary sacrifice or expenditure, which is intentionally and reasonably made against a peril
in order to benefit the common venture.
Apart from the foregoing principles, the lettered rules also address a number of issues of
a more particular nature, which might more logically have been the object of numbered rules.
Because these questions are covered by lettered rules, the Interpretation Rule makes the
provisions concerned subject to the numbered rules.
2) Delay
Loss or damage sustained by the ship or cargo through delay, whether on the voyage or
subsequently, such as demurrage and any indirect loss whatsoever, such as loss of market, is not
admitted in general average.
3) Pollution
By an amendment to Rule C made at Sydney in 1994, no general average allowance is
made for losses, damages or expenses incurred in respect of damage to the environment or in
consequence of the escape or release of pollutant substances from the property involved in the
common adventure. This provision is, however, subject to several overriding numbered rules.
4) Towage
Rule B of the York/Antwerp Rules 1994 provides that there is a common maritime
adventure when one or more vessels are towing or pushing another vessel or vessels, provided
that they are all involved in commercial activities and not in a salvage operation (first para.). The
Rules apply to measures taken to preserve the vessels and cargoes, if any, from a "common peril"
(second para.).
The third paragraph of the new Rule B adds an important qualification:
A vessel is not in common peril with another vessel or vessels if by simply
disconnecting from the other vessel or vessels she is in safety; but if the disconnection is itself a
general average act the common maritime adventure continues.
5) Substituted expenses Rule F
A general average situation may be addressed, in some cases, by methods looked upon as
an alternative to the course of action usually followed in similar situations. For example, a
damaged vessel may be towed to its destination with its cargo aboard, which avoids incurring, at
the port of refuge, the costs of discharge, storage, permanent repairs and reloading (all of which
expenditures would be allowed in general average if the usual course of action were followed).
Recourse to the alternative method therefore benefits all parties to the common venture, while
entailing some extra, "substituted expenses". Rule F provides for the allowance in general
average of "substituted expenses" as follows:
Any additional expense incurred in place of another expense which would have been
allowable as general average shall be deemed to be general average and so allowed without
regard to the saving, if any, to other interests, but only up to the amount of the general average
expense avoided.
IV. Artificial General Average
1) Definition of artificial general average
Artificial general average is the granting of a claim for general average even when one of
the five basic principles of general average found in Rule A of the York/Antwerp Rules of 1994
is not present.
2) The evolution of general average
Claims for general average were originally for jettison o f cargo, cutting away of the mast or
cutting of anchor cables or any acts carried out for the common safety in order to avoid imminent shipwreck caused
by a peril of the sea. The need for an imminent peril was stressed in many early American decisions on general
average.
Even today in France, the sacrifice or expenditure, to be allowed in general average, must be made or
incurred pour le salut commun et pressant des intrts engags dans une expdition maritime (for the common
and urgent safety of the interests involved in a maritime adventure).
The first general average rules were agreed upon in 1860 as the Glasgow Rules. These were followed by
the York Rules of 1864 and the York/Antwerp Rules of 1877, subsequently revised in 1890, 1924, 1950 and 1974.
3) Expansion of general average since 1890
In 1890, the expenses for which the carrier could claim were expanded by Rule X(b) to include the cost of
discharging cargo, at a port of loading, call or refuge, when the discharge was necessary for the common safety or
to permit repairs necessary for the safe prosecution of the voyage. In 1924, Rule X(b) was expanded to include
costs of handling on board, as well as actual discharge, and the rule was made applicable to fuel
and stores, as well as cargo. Expenses of entering a port of refuge, where necessary for the common safety, as well
as charges for leaving such a port, were also allowed in 1890 by Rule X(a). Under Rule XI(b), as drafted in 1950,
where the ship's detention in a port of refuge was necessary for the common safety or to permit repairs necessary
for the safe prosecution of the voyage, wages and maintenance of the crew during that extra period of detention
were eligible general average expenditures as well. The expansion of general average is also reflected in Rule XII,
which, for the first time in 1890, permitted in general average, loss of or damage to cargo incurred in the act of
discharging, storing, reloading and stowing, where the cost of those measures respectively was admitted as general
average. Previously, the rule had been that no allowance for cargo loss or damage during discharge at a port of
refuge was permitted, where such discharge was done in the manner customary at that port. In 1924, the allowance
was extended to include damage to or loss of fuel or stores, as well as damage or loss sustained in handling. Under
the York/Antwerp Rules 1994, the words caused in the act of have been replaced by sustained in consequence
of, a further, albeit slight, widening of the provision's scope. Significantly, peril is not a requirement of the
application of Rule XII.
4) The creation of artificial general average
The creation of artificial general average was part of the slow evolution favouring shipowners. If peril
was an essential ingredient of general average, it was reduced in importance in 1890 and 1950 by the "safe
prosecution" rule of Rules X(b) and XI(b) and the absence as well of the peril requirement in these two rules and
in Rules X(a) and XII. In 1924, the York/Antwerp Rules for the first time included lettered Rules A, B, C, D, E and
F (which enunciated general principles) as well as the numbered Rules (which referred to particular cases and
circumstances).
For the purposes of Rule A, as drafted in 1924, peril did not have to be immediate, provided that it was
real and not imaginary, substantial and not merely slight or nugatory. Potential, as opposed to only imminent,
danger therefore qualified. The next step was the adoption in 1950 of the Interpretation Rule, giving the numbered
rules precedence over the lettered rules. The lettered rules were to be applied only where the numbered rules did not
fully cover a particular case. The Interpretation Rule of 1950 read:
In the adjustment of general average the following lettered and numbered Rules shall apply to the
exclusion of any Law and Practice inconsistent therewith. Except as provided by the numbered rules, general
average shall be adjusted according to the lettered Rules.
The Interpretation Rule has been amended by the York/Antwerp Rules 1994, to provide that the Rule
Paramount (requiring any sacrifice or expenditure to be reasonably made or incurred), as well as the numbered rules,
take precedence over the lettered rules in cases of conflict between them. In general, however, the numbered rules
continue to override the lettered rules to the extent of any inconsistency between them. The words lettered and
numbered after following in the first paragraph have also been deleted, although their deletion does not affect the
meaning of the Rule.
Thus, detail was placed before principle. In consequence, general average may now be declared whether or
not, as normally required under Rule A, there is a) an extraordinary sacrifice or expenditure made for the common
safety or b) a peril, unless the numbered rule under which the claim is made so stipulates. The element of
reasonableness is the only Rule A requirement which overrides the numbered rules, thanks to the enactment of the
Rule Paramount, and the concordance amendment made to the Interpretation Rule, in 1994.
Because there is no specific peril requirement in Rules X(b) and XI(b), claims may be made for general
average expenses at the port of discharge, even when there is no peril. This is general average by agreement, or
artificial general average. Non-separation agreements, whereby cargo owners are permitted to have their cargoes
forwarded from the port of refuge to the original port of destination aboard other vessels while the original vessel is
undergoing repairs at the port of refuge, in return for agreeing to pay their respective general average contributions
as if the cargoes had remained aboard, are an attempt to alleviate the difficulties which cargo owners frequently
suffer as a result of the delays in delivery and their liability in G.A. for port of refuge expenses, including those
which are incurred after the peril has ended.
V. The Numbered Rules
The numbered York/Antwerp rules provide the specifics of general average losses, damages and
expenditures. They include detailed norms on the allowances for jettison (Rule I); loss or damage by sacrifices for
the common safety (Rule II); extinguishing shipboard fires (Rule III); cutting away wreck (Rule IV); voluntary
stranding (Rule V); salvage (Rule VI), machinery and boiler damage (Rule VII); lightening a ship ashore and
consequential damage (Rule VIII), use of cargo, ship's materials and stores for fuel (Rule IX); port of refuge
expenses (Rule X); wages and maintenance of crew and other port of refuge expenses (Rule XI); damage to cargo in
discharging, etc. (Rule XII); deductions from repair costs (Rule XIII) and temporary repairs (Rule XIV). The
remaining numbered rules deal with different aspects of general average adjustments (Rules XV to XXII).
VI. General Average Adjustment
1) Declaration, claims and security
The process of adjusting a general average sacrifice or expenditure begins with the "declaration" of general
average, which is ordinarily made by the shipowner through his underwriters.
 General average claims must be submitted in writing to the average adjuster within 12 months of the date
of termination of the common maritime adventure. Failing such notification, the average adjuster may estimate the
allowance or the contributory value on the basis of information available to him. He may do the same where no
evidence is provided in support of a claim or no particulars are given in respect of a contributory interest within 12
months of a request for such material.
Where cargo has been sacrificed, the shipowner must obtain security from other cargo before delivering it.
Such security normally takes the form of a general average bond (often a Lloyd's Average Bond ) or an
undertaking from a cargo underwriter.
2) The adjustment process
Absent any clause on general average in the contract of carriage, general average is ordinarily adjusted at
the place where the voyage terminates, according to the law applicable there. The contract, however, usually
provides that the adjustment is conducted according to the York/Antwerp Rules, unless the parties choose another
mode of adjustment. Rule G of the York/Antwerp Rules 1994 provides in part:
General average shall be adjusted as regards both loss and contribution upon the basis of values at the time
and place when and where the adventure ends.
This rule shall not affect the determination of the place at which the average statement is to be made up.
The value of property sacrificed for the common safety and the corresponding contributory values of the
ship and remaining cargo are measured as at the date of discharge at the port of destination or as of the date on
which the voyage was broken up. The same rule applies to expenditures. More detailed provisions on computing the
value of cargo lost or damaged by sacrifice are given at Rule XVI, on the loss of freight at Rule XV and on the
assessment of damage to the ship, at Rule XVIII. Contributory values are calculated according to Rule XVII. Special
rules also deal with undeclared or wrongfully declared cargo (Rule XIX) and with mails, passengers' luggage,
personal effects and accompanied private motor vehicles (Rule XVII, last para.), as well as with commissions and
interest (Rules XX and XXI).
3) The G.A. statement
A professional average adjuster, usually at the Shipowners request usually carries out the actual
adjustment. The general average is apportioned by multiplying the value of each contributory interest by a fraction,
composed of the value of all the general average expenses, divided by the sum of the contributory values. These
calculations can become very complex, with the result that it can take years, in some cases, for the adjustment to be
completed and a final "general average statement" to be issued by the average adjuster.
The issuance of the general average statement does not, in itself, give rise to a cause of action, however.
The statement is merely: "...an expression of opinion by a professional man as to what are the appropriate sums
payable to one another by the various parties interested in ship and cargo." In consequence, unless the parties have
agreed on the quantum owing, the contributions must be quantified by a court judgement or arbitral award.
4) General average liens
True maritime liens for general average contributions owed by the ship exist under international
conventions and national laws, especially in civilian countries and in the United States. In the United Kingdom and
British Commonwealth, however, there is only a statutory right in rem against the ship for general average. The ship
has a possessory lien for the general average contribution payable by cargo in most jurisdictions.
VII. Contestation of General Average
The principle of general average has been the subject of considerable dissatisfaction in recent years for six
main reasons.
1) Exoneration of carriers for faults of the crew
First, shipowners not only claim when perils of the sea and the forces of nature justify the general average
act, but also when the act is caused by their own negligence or that of their employees, as long as they are not
responsible for that negligence under the applicable law. Under the Hague Rules and the Hague/Visby Rules,
carriers are exempted from liability for their own negligence and for that of their employees, in the navigation and
management of the ship. Consignees usually find this odious, given modern regimes of civil liability, where almost
all carriers, if not all employers, are directly responsible for their own fault and the fault of their employees.
Indeed, under the same Hague Rules and Hague/Visby Rules, the cargo owner/shipper is absolutely
responsible for its own fault and for the fault of its employees for defective goods, insufficient packing, defective
marking, etc. (art. 3(5)). That carriers should be exempted from liability for their own negligence by the conjunction
of Rule D of the York/Antwerp Rules and art. 4(2)(a) of the Hague Rules and the Hague/Visby Rules therefore
causes considerable ill feeling.
Moreover, cargoes today are often more valuable than the ship, with the result that the contribution of cargo
at times seems very high, although this complies with the principle of general average.
2) The Interpretation Rule
The second complaint regarding general average arises from the Interpretation Rule, which gives the
numbered rules precedence over the lettered rules. The result is that four of the five basic principles of general
average enunciated in Rule A have no effect if a lettered rule contradicts any one of them. Thus, a ship need not be
in peril if claims are made under Rules X(b) and XI(b), for example. Similarly, in The Bijela, the House of Lords
allowed substituted expenses, relying on numbered Rule XIV alone, and reversing the majority in the Court of
Appeal, who had relied on Rule F (as well as Rule XIV).
Reasonableness of the general average act is the only sacrosanct Rule A principle. In The Alpha, the Court
noted that Rule VII overcame the reasonably principle of Rule A. This defect was properly corrected in the
York/Antwerp Rules 1994 by the insertion of the Rule Paramount: In no case shall there be any allowances for
sacrifice or expenditure unless reasonably made or incurred (emphasis added). The Interpretation Rule was
amended simultaneously, so as to ensure the primacy of the Rule Paramount, as well as the numbered rules, over the
lettered rules. The other four basic principles of Rule A, however, are without effect, if contradicted by a numbered
rule. Nor are the basic principles of the lettered Rules B to G of first importance. They are all secondary to the
numbered rules.
3) Emergence of marine insurance
The third complaint regarding general average has arisen because of the emergence of insurance and
marine insurance, particularly in the last three hundred years, which has made general average redundant. In fact,
because of the risk involved in general average, all parties now insure against responsibility for general average
contribution.
4) Expense and delay in general average adjustments
A fourth complaint arises from the fact that the general average adjustment is expensive and is often so
time-consuming that it must be commenced before the right in law to contribution has been decided. Considerable
expense can be wasted during this period, while cargo, for its part, is obliged to file a bond or undertaking, during
the adjustment.
5) Contribution collection problems
A fifth problem arises from the fact that in general average the monies are collected after the event, as
opposed to insurance, where the premiums are paid in advance. Many difficulties are encountered in obtaining
general average bonds, while the collecting of contributions from cargo interests is often made difficult in certain
countries, due to exchange control regulations or dishonoured guarantees from state insurance companies.
6) Small general averages
Lastly, unless the general average claim is very large (e.g. adjustments in the bulk and tanker trades),
general average adjusters find adjustments quite unremunerative. As a result, there has been considerable recent
criticism of small general average claims by adjusters themselves.
One response to some of the above difficulties has been for underwriters to include general average
absorption clauses in their marine policies, whereby small general average losses are absorbed by the insurer,
without the insurer or assured exercising any subsequent recourse against any other party for contribution.
Such tinkering with the general average system, however helpful in mitigating some of its practical difficulties,
nevertheless does not, in the long run, resolve the fundamental structural problems inherent in the system itself. No
complete legal and economic study of the benefits and defects of general average has been done, so that general
average continues to exist and function, however questioned it may be.
VIII. The 1994 York/Antwerp Rules
An attempt was made to reform the York/Antwerp Rules at Sydney, Australia, in 1994, but there was
considerable opposition, resulting in some cosmetic changes, but very little real attempt to reform either the
procedure of adjustment or the substantive meaning and balance of the Rules.
1. MARINE INSURANCE MARKET
5.1 History
In 1132, the Danish began to reimburse those who experienced loss at sea. In 1255, insurance premiums were
used for the first time as the Merchant State of Venice pooled these premiums to indemnify loss due to piratry,
spoilage, or pillage. The first marine insurance policy was introduced in 1384 in an attempt to cover bales of fabric
traveling to Savona from Pisa, Italy. Within the next century, merchants from Lombard began the first insurance
practice in London. Finally, in 1688, Lloyd's of London, named after Edward Lloyd, began the risky business of
insurance underwriting and have grown to become the largest marine insurance underwriters in the world. The
Marine Insurance Act of 1906 was then proposed and initiated in an attempt to clarify and set forth the regualtions
and policy variables associated with marine insurance agreements.
 5.2 Indian Marine Underwriters
Under the present Indian law, ships cannot be insured outside the country. As a consequence, Indian ship owners
have to seek permission from the Government every two years to place their protection and indemnity cover (P&I
cover) abroad.
In the case of hull, machinery and war risk, Indian owners have to take insurance cover only from State-owned
insurance companies as per law. To understand the issues involved in its proper perspective, the Shipping Ministry
has set up a small committee comprising Government officials and industry representatives to study and make
recommendations. The recommendations of the committee will be taken up with the Finance Ministry for further
action.
The state-owned insurance companies are:
1. The Oriental Insurance Company Limited, New Delhi
2. The New India Assurance Company Limited, Mumbai
3. National Insurance Company Limited, Kolkotta
4. United India Insurance Company Limited, Chennai
5.3 International Insurance market The major international markets are London, USA,
Scandinavia, Japan and France. The London market is discussed below:
5.3.1 Lloyds of London
Lloyd's began in Edward Lloyd's Thames-side coffee house in London around 1688. The wealthy individuals in
the coffee house would each take a share of a risk, signing their names one beneath the other on the policy together,
with the amount they agreed to cover. For this reason they were known as 'underwriters'. The Society of Lloyd's was
incorporated by Lloyd's Act 1871 which provided the business with a sound legal basis and laid the foundations for
today's market. Lloyd's is a self-regulated market comprised of individual and corporate underwriting members who
accept insurance risks through their participation in competing syndicates. Lloyd's has agents in every important
world port. It also serves as a shipping information agency, publishing Lloyd's List, the oldest daily newspaper in
London, and maintaining a Register of Shipping.
5.3.1.1 Lloyds members
Members of Lloyds of London provide the supporting capital on which the market is built. Corporate
members include investment institutions and international insurance companies. Individual members are known as
Names. These names have unlimited liability.
5.3.1.2 Underwriting syndicates
An insurance syndicate is a group of Lloyds members, corporate or individual, who provide capital to back the
liabilities they insure. Syndicates operate as independent business units within the Lloyds market and are run by
managing agents, who appoint the underwriting team which writes risk on behalf of the syndicate membership.
There were 71 insurance underwriting syndicates operating within the market. Syndicates cover either all or a
portion of the risk and are staffed by underwriters, the insurance professionals on whose expertise and judgement the
market depends.
5.3.1.3 Lloyds brokers
Accredited Lloyds brokers place risk in the Lloyds market on behalf of clients. These brokers use their
specialist knowledge to negotiate competitive terms and conditions for clients. There are over 150 firms of brokers
working at Lloyds, all of whom have a good understanding of the Lloyds market and many of whom specialise in
particular risk categories.
5.3.2 International Underwriters Association (IUA)
The IUA came into existence in 1998, following the merger of the Institute of London Underwriters (ILU)
and the London International Insurance and Reinsurance Market Association (LIRMA). The IUA is the trade and
market association representing the company sector of the London market. The ILU's history in the marine insurance
markets dates back to 1884. LIRMA was formed in 1991 from the merger of previous insurance associations formed
in the 1960's and 1970's to support non-marine insurance business and reinsurance. The IUA has 57 Ordinary
members and 9 Affiliate members. They are mainly based in London or in the rest of Europe . There are also 35
associate members from over 20 countries.
6. Reinsurance
Reinsurance is the insurance of insurance. It is the insurance arranged by an insurer to cover all or part of
the cost of claims that it may incur under contracts of insurance it may have written. Insurers reduce their exposure
to risk by insuring themselves against claims. The practice is known as reinsurance. General Insurance Corporation
(GIC) was designated as the Indian Reinsurer in November 2000 by Act of parliament to function exclusively as
Life and Non-life Reinsurer. The reinsurance regulation of the country aims at maximum retention of insurance
premium within the country. As per existing statute, GIC is entitled for 20% obligatory cessions on risks
underwritten by the non-life insurers in India. The legislation also provides for utilizing GICs capacity before any
risk is offered to the international market. Being the Indian Reinsurer, GCI plays the role of reinsurance facilitator
for the Indian insurance companies.
7. MARINE POLICIES
Under the MIA I963 a marine insurance policy covers the following types of Policies:
1 Time Policy: Insures property for a period of time
2 Voyage Policy: Insures property from one place to another, may include a date limit.
3 Mixed Policy: Covers both a voyage and period of time of voyage and in port after arrival.
4 Construction Policy (Building Risk): Insures vessel while in course of construction, not for period of time.
5 Floating Policy: Cargo policy that insures a number of shipments to be declared
8. OBTAINING MARINE INSURANCE COVER
Marine Insurance can be divided into three sections: Marine Hull insurance, Marine Cargo insurance and P&I
Clubs insurance.
8.1 Marine Hull Insurance
Marine Hull policies are usually time policies, the maximum period of insurance usually being 12 months. It
covers loss/damage suffered to a ship and machinery of vessel. Under marine hull, the hulls, machinery, materials
and financial interests of all ocean-going vessels/ trawlers/ dredgers/ tugs/ salvage vessels/ launches/ ferry/ steamers/
boats/ yachts/ other pleasure craft/ self-propelled barges/ lighter craft/ iron cargo boats and other country craft can be
insured.
Marine hull cover is generally arranged for owners or managers by brokers, who act as agents of assureds. Only
on instructions from the assured, the broker prepares a slip for presentation of the subject matter details to
underwriters. The broker supplements the basic facts on the slip with all material information about the risk as
supplied by assured (under the principle of utmost good faith).
The broker contracts with one or more underwriters to pay an agreed premium for a policy covering loss or
damage, etc.
Unless the insured value of the vessel is small, the broker takes the slip first to an influential lead underwriter,
then to a succession of others, until the risk is 100% covered. Some underwriters may not be interested in covering
any part of the risky while those who are interested will usually write a line only on a small percentage of the
insured value of the ship. Each underwriter indicates acceptance of his share of the risk by writing his signature or
initials against the line on the slip bearing the percentage he accepts on behalf of his syndicate or company.
When the slip is complete, i.e. the risk is 100% covered, the broker prepares details of the cover on a cover note
and sends this to the assured for approval. If the assured approves of the terms, a formal policy is drawn up. Some
time will elapse before the policy can be signed and the contract legally made. In MIA 1963 presentation of the slip
by the broker constitutes an offer, and the writing of each line constitutes acceptance. The contract is concluded
when the underwriter writes his initials or signature on the slip.
Standard clauses for Insurance of Hull Policy
1. International Hull Clauses
2. Institute War and Strikes Clauses
3. Builders' Risks Clauses
 8.2 Interpretation of policy
1. Clauses printed in margin take precedence over clauses in body of text.
2. Printed/stamped clauses impressed on or attached to policy take precedence over clauses printed in
margin.
3. Typewritten wording takes precedence over all other wording except wording added by hand.
4. Handwritten wording takes precedence over all other wording.
5. Overriding paramount clauses are printed in heavy type or italics or indicated as such by the wording;
these clauses take precedence over clauses printed in ordinary type in body of text.
8.3 INTERNATIONAL HULL CLAUSES (01/11/02)
The standard policy used for marine insurance, till 30.09.83, was known as Lloyds S.G.(Ships and Goods)
policy form. This Form is placed at the end of MIA, 1963. In 1983, Institute of London Underwriters came out with
a new set of Standard clauses. They are known as: Institute Time Clauses Hulls 1.10.83. This was revised in 1995
and is known as Institute Time Clauses Hulls 1.11.95.
Joint Hull Committee of Lloyds came out with a new set of policy on 1st November 2002. The traditional
Institute Time Clauses - Hulls has been discarded and the new clauses known as the International Hull Clauses
(01.11.02) (IHC -1.11.02) are being used. Those responsible for the drafting have avoided a major rewrite of the
1983 and 1995 Institute Time Clauses. Instead, they have concentrated on updating the earlier clauses to reflect
current practices and the increased importance of the roles of ISM, flag states and classification societies in
connection with ship safety. They specify the consequences of a failure to comply with policy conditions.
The International Hull Clauses are in 3 parts. Part 1 (Clauses 1 to 33) contains the "Principal Insuring
Conditions".
Part 2 (Clause 34 to 44) Contains Additional Clauses. Clauses 34 to 39 form part of the standard cover.
Clauses 40 to 44 deal with: (i) 4/4ths collision liability; (ii) fixed and floating objects; (iii) returns for lay-up; (iv)
general average absorption; and (v) additional perils otherwise excluded in Part 1. They will only apply to the
insurance where underwriters have expressly so agreed in writing.
Part 3 (Clauses 45 to 53) contains claims provisions setting out the rights and responsibilities of underwriters
and assureds in relation to the handling of claims and are aimed at streamlining the claims process.
Part 1 Principal insuring conditions
1 GENERAL - This insurance is subject to English law and practice.
2 PERILS - This is also known as Inchamaree clause. This insurance covers loss or damage caused by
2.1.1 perils of the seas, rivers, lakes or other navigable waters
2.1.2 fire, explosion
2.1.3 violent theft by persons from outside the vessel
2.1.4 jettison
2.1.5 piracy
2.1.6 contact with land conveyance, dock or harbour equipment or installation
2.1.7 earthquake, volcanic eruption or lightning
2.1.8 accidents in loading, discharging or shifting cargo, fuel, stores or parts
2.1.9 contact with satellites, aircraft, helicopters or similar objects, or objects falling therefrom.
2.2 Also covers loss or damage caused by
2.2.1 bursting of boilers or breakage of shafts but excludes the cost of repairing or replacing the boiler
which bursts or the shaft which breaks
2.2.2 any latent defect in the machinery or hull, but only to the extent that the cost of repairing the loss
or damage caused thereby exceeds the cost that would have been incurred to correct the latent defect
 2.2.3 negligence of Master, Officers, Crew or Pilots
2.2.4 negligence of repairers or charterers provided such repairers or charterers are not an Assured under
this insurance
2.2.5 barratry of Master, Officers or Crew provided that such loss or damage has not resulted from want
of due diligence by the Assured, Owners or Managers.
2.3 Master, Officers, Crew or Pilots shall not be considered Owners should they hold shares in the vessel.
3 LEASED EQUIPMENT - This insurance covers loss of or damage to equipment and apparatus not owned
by the Assured but installed for use on the vessel and for which the Assured has assumed contractual liability
4 PARTS TAKEN OFF -This insurance covers loss of or damage to parts taken off the vessel, where such loss or
damage is caused by a peril insured under this insurance.
5 POLLUTION HAZARD
This insurance covers loss of or damage to the vessel caused by any governmental authority to prevent or
mitigate a pollution hazard or damage to the environment or threat thereof, resulting directly from damage to
the vessel for which the Underwriters are liable under this insurance, provided that such act of governmental
authority has not resulted from want of due diligence by the Assured.
6 3/4THS COLLISION LIABILITY was formerly known as Running Down Clause. The Underwriters
agree to three fourths of any
1. loss or damage to another vessel
2. delay or loss of use of another vessel
3. general average of another vessel
4. salvage or salvage under contract of another vessel
5. when there is a collision with another vessel
7 SISTERSHIP CLAUSE - Protects shipowner in event of collision between ships in same ownership, as person
cannot sue himself. Arbitrator is appointed to determine liability and Insurer bound to decision.
8 GENERAL AVERAGE AND SALVAGE
8.1 This insurance covers the vessel's proportion of salvage, salvage charges and/or general average, reduced in
respect of any under-insurance.
8.2 General average shall be adjusted according to the law and practice obtaining at the place where the
adventure ends, as if the contract of affreightment contained no special terms upon the subject; but where the
contract agrees, it shall be according to the York-Antwerp Rules.
9 DUTY OF THE ASSURED (SUE AND LABOUR)
9.1 In case of any loss or misfortune it is the duty of the Assured and their servants and agents to take such
measures as may be reasonable for the purpose of averting or minimising a loss which would be recoverable
under this insurance.
9.6 The sum recoverable under this Clause 9 shall be in addition to the loss otherwise recoverable under this
insurance but shall in no circumstances exceed the insured value of the vessel.
10 NAVIGATION PROVISIONS
10.1 the vessel shall not sail nor be employed in breach of any provisions of this insurance as to cargo, trade or
locality (including, but not limited to, Clause 34 below)
10.2the vessel may sail or navigate with or without pilots, go on trial trips and assist and tow vessels or craft in
distress, but shall not be towed, except as is customary
10.3 the vessel shall not undertake previously arranged towage or salvage services.
10.4 the vessel shall not be employed in trading operations which entail cargo loading or discharging at
sea from or into another vessel (not being a harbour or inshore craft).
11 BREACH OF NAVIGATION PROVISIONS - In the event of any breach of any of the provisions of Clause 10,
the Underwriters shall not be liable for any loss, damage, liability or expense arising out of or resulting from an
accident or occurrence during the period of breach.
12 CONTINUATION - Should the vessel at the expiration of this insurance be at sea and in distress or missing, she
shall be held covered until arrival at the next port in good safety, or if in port and in distress until the vessel is made
safe, at a pro rata monthly premium, provided that notice be given to the Underwriters as soon as possible.
13 CLASSIFICATION AND ISM
13.1At the inception of and throughout the period of insurance
13.1.1 The vessel shall be classed with a Classification Society as agreed by the Underwriters
13.1.2 There shall be no change, suspension, discontinuance, withdrawal or expiry of the vessels class
with the Classification Society
13.1.3 any recommendations, requirements or restrictions imposed by the vessel's Classification Society which
relate to the vessel's seaworthiness shall be complied with by the dates required by that Society
13.1.4 the Owners shall hold a valid Document of Compliance in respect of the vessel as required
SOLAS 1974
13.1.5 the vessel shall have in force a valid Safety Management Certificate as required by SOLAS 1974
13.2 any breach of any of the provisions of Clause 13.1 above, this insurance shall terminate
automatically
14 MANAGEMENT
14.1 this insurance shall terminate automatically at the time of
14.1.1 any change, voluntary or otherwise, in the ownership or flag of the vessel
14.1.2 transfer of the vessel to new management
14.1.3 charter of the vessel on a bareboat basis
14.1.4 requisition of the vessel for title or use
14.2this insurance shall terminate automatically at the time of the vessel sailing (with or without cargo) with an
intention of being broken up, or being sold for breaking up.
14.3 In the event of termination under Clause 14.1 or Clause 14.2 above, a pro rata daily net return of
premium shall be made
14.4It is the duty of the Assured, Owners and Managers at the inception of and throughout the period of this
insurance to
14.4.1 comply with all statutory requirements of the vessel's flag state relating to construction,
adaptation, condition, fitment, equipment, operation and manning of the vessel
14.4.2 comply with all requirements of the vessel's Classification Society regarding the reporting to the
Classification Society of accidents to and defects in the vessel.
15 DEDUCTIBLE(S) - This clause provides that no claims arising from an insured peril are payable unless the
aggregate of all such claims exceeds an agreed minimum, i.e. the deductible. A deductible is a value or platform,
which must be reached before a claim will be met by the insurer; and a compulsory excess which is deducted from
every claim passing this platform. In return for agreeing to pay the first part of the claim, his premium is reduced.
The deductible will not be applied to a claim for total or constructive total loss.
16 NEW FOR OLD
Claims recoverable under this insurance shall be payable without deduction on the basis of new for old.
17 BOTTOM TREATMENT
The Underwriters shall not be liable in respect of scraping, gritblasting and/or other surface preparation or
painting of the vessel's bottom except that which is be included as part of the reasonable cost of repairs in
respect of bottom plating damaged by a peril insured under this insurance.
18 WAGES AND MAINTENANCE0
Other than in general average, the Underwriters shall not be liable for wages and maintenance of the Master,
Officers and Crew except when incurred solely for the necessary removal of the vessel from one port to another
for the repair of damage covered by the Underwriters, or for trial trips for such repairs.
19 AGENCY COMMISSION
No sum shall be recoverable under this insurance either by way of remuneration of the Assured for time and
trouble taken to obtain and supply information or documents.
20 UNREPAIRED DAMAGE
Claims for unrepaired damage shall be the reasonable depreciation in the market value of the vessel at the time
this insurance terminates arising from such unrepaired damage, but not exceeding the reasonable cost of repairs.
21 CONSTRUCTIVE TOTAL LOSS
21.1 In ascertaining whether the vessel is a constructive total loss, 80% of the insured value of the
vessel shall be taken as the repaired value and nothing in respect of the damaged or break-up value of the vessel or
wreck shall be taken into account.
21.2 No claim for constructive total loss of the vessel based upon the cost of recovery and/or repair of
the vessel shall be recoverable hereunder unless such cost would exceed 80% of the insured value of the
vessel.
22 FREIGHT WAIVER
If a total or constructive total loss of the vessel has been admitted by the Underwriters, they shall make no claim
for freight .
23 ASSIGNMENT Not freely assignable unless dated notice is endorsed in the policy.
24 DISBURSEMENTS WARRANTY
24.1 Additional insurances as follows are permitted by the Underwriters:
Disbursements, Managers' Commissions, Profits or Excess or Increased Value of Hull and Machinery, Freight.
25 CANCELLING RETURNS
If this insurance shall be cancelled by agreement, the Underwriters shall pay a pro rata monthly net return of
premium for each uncommenced month.
26 SEPARATE INSURANCES
If more than one vessel is insured under this insurance, each vessel insured is deemed to be separately insured,
as if a separate policy had been issued in respect of each vessel.
27 SEVERAL LIABILITY
The Underwriters obligations are several and not joint and are limited solely to the extent of their individual
subscriptions.
28 AFFILIATED COMPANIES
In the event of the vessel being chartered by an associated, subsidiary or affiliated company of the Assured, and
in the event of loss of or damage to the vessel by perils insured under this insurance, the Underwriters waive
their rights of subrogation against such charterers, except to the extent that any such charterer has the benefit of
liability cover for such loss or damage.
The following Clauses shall be paramount and shall override anything contained in this insurance inconsistent
therewith.
29 WAR EXCLUSION - Common war perils excluded
30 STRIKES EXCLUSION
31 MALICIOUS ACTS EXCLUSION - Additional war perils (Detonation of explosive and any weapon of war)
and malicious and political acts excluded.
32 RADIOACTIVE CONTAMINATION EXCLUSION - Loss/damages from nuclear weapon or by radioactive
material excluded.
33 CHEMICAL, BIOLOGICAL, BIO-CHEMICAL, ELECTROMAGNETIC WEAPONS AND CYBER ATTACK
EXCLUSION
Part2 Additional clauses (01/11/02)
34 NAVIGATING LIMITS areas vessel cannot enter are specified
35 BERING SEA TRANSIT- conditions for entering Bering Sea are specified
36 RECOMMISSIONING CONDITION
As a condition precedent to the liability of the Underwriters, the vessel shall not sail from lay-up berth under her
own power or navigate following a lay-up period of more than 180 consecutive days unless the Assured has
arranged for the Classification Society or a surveyor agreed by the Underwriters to examine the vessel and has
carried out any repairs or requirements recommended by the Classification Society or such surveyor.
37 HELICOPTER ENGAGEMENT are permitted
38 PREMIUM PAYMENT are detailed
39 CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999
No benefit of this insurance is intended to be conferred on or enforceable by any party other than the Assured,
40 4/4THS COLLISION LIABILITY
If the Underwriters have expressly agreed in writing, then Clause 6 is amended such that the words three
fourths of are deleted on each occasion in which they appear in Clause 6.
41 FIXED AND FLOATING OBJECTS
If the Underwriters have expressly agreed in writing, then Clauses 6 and 7 are amended to read as follows
6.1 The Underwriters agree to indemnify the Assured for three fourths of any sum or sums paid by the Assured
to any other person or persons by reason of the Assured becoming legally liable by way of damages for
6.1.1 loss of or damage to any other vessel or fixed or floating object or property thereon
6.1.2 delay to or loss of use of any such other vessel or fixed or floating object or property thereon
6.1.3 general average of, salvage of, or salvage under contract of, any such other vessel or property
thereon, where such payment by the Assured is in consequence of the insured vessel coming into collision with
any other vessel or striking any fixed or floating object.
6.2 The indemnity provided by this Clause 6 shall be in addition to the indemnity provided by the other terms
and conditions of this insurance and shall be subject to the following provisions
6.2.1 where the insured vessel is in collision with another vessel and both vessels are to blame then,
unless the liability of one or both vessels becomes limited by law, the indemnity under this Clause 6 shall be
calculated on the principle of cross-liabilities as if the respective Owners had been compelled to pay to each
other such proportion of each other's damages as may have been properly allowed in ascertaining the balance or
sum payable by or to the Assured in consequence of the collision
6.2.2 in no case shall the total liability of the Underwriters under Clauses 6.1 and 6.2 exceed their
proportionate part of three fourths of the insured value of the insured vessel in respect of all claims arising out
of one occurrence.
6.3 The Underwriters will also pay three fourths of the legal costs incurred by the Assured or which the
Assured may be compelled to pay in contesting liability or taking proceedings to limit liability, provided always
that their prior written consent to the incurring of such costs shall have been obtained and that the total liability
of the Underwriters under this Clause 6.3 shall not exceed 25% of the insured value of the insured vessel.
EXCLUSIONS
6.4 In no case shall the Underwriters indemnify the Assured under this Clause 6 for any sum which the Assured
shall pay for or in respect of
 6.4.1 removal or disposal of obstructions, wrecks, cargoes or any other thing whatsoever
6.4.2 any real or personal property or thing whatsoever except other vessels or any fixed or floating
object struck by the insured vessel or property on other vessels or any such fixed or floating object
6.4.3 the cargo or other property on, or the engagements of, the insured vessel
6.4.4 loss of life, personal injury or illness
6.4.5 pollution or contamination, or threats thereof, of any real or personal property or thing whatsoever
(except other vessels with which the insured vessel is in collision or property on such other vessels) or damage
to the environment, or threat thereof, save that this exclusion shall not exclude any sum which the Assured shall
pay for or in respect of salvage remuneration in which the skill and efforts of the salvors in preventing or
minimising damage to the environment as is referred to in Article 13 paragraph 1(b) of the International
Convention on Salvage, 1989 have been taken into account.
7 Should the insured vessel come into collision with another vessel or fixed or floating object belonging
wholly or in part to the same owners or under the same management or receive salvage services from another
vessel belonging wholly or in part to the same owners or under the same management, the assured shall have
the same rights under this insurance as they would have were the other vessel or the fixed or floating object
entirely the property of owners not interested in the insured vessel; but in such cases the liability for the
collision or the amount payable for the services rendered shall be referred to a sole arbitrator to be agreed upon
between the underwriters and the assured.
42 RETURNS FOR LAY-UP
42.1 If the Underwriters have expressly agreed in writing, such percentage of the net premium as
agreed by the Underwriters shall be returned for each period of 30 consecutive days the vessel may be laid up,
not under repair, in a port or in a lay-up area provided such port or lay-up area is approved by the underwriters.
42.2 The vessel shall not be considered to be under repair when work is undertaken in respect of
ordinary wear and tear of the vessel and/or following recommendations in the vessel's Classification Society
survey, but any repairs following loss of or damage to the vessel or involving structural alterations, whether
covered by this insurance or otherwise, shall be considered as under repair.
42.3 PROVIDED ALWAYS THAT
42.3.1 a total loss of the vessel, whether by perils insured under this insurance or otherwise, has not
occurred during the period of this insurance or any extension thereof
42.3.2 a return of premium shall not be allowed when the vessel is lying in exposed or unprotected
waters, or in a port or lay-up area not approved by the Underwriters
42.3.3 loading or discharging operations or the presence of cargo on board shall not debar a return of
premium but no return shall be allowed for any period during which the vessel is being used for the storage of
cargo or for lightering purposes
42.3.4 in the event of any return of premium recoverable under this Clause 42 being based on 30
consecutive days which fall on successive insurances effected for the same Assured, this insurance shall only be
liable for an amount calculated at pro rata of the agreed percentage net for the number of days which come
within the period of this insurance and to which a return is actually applicable. Such overlapping period shall
run, at the option of the Assured, either from the first day on which the vessel is laid up or the first day of a
period of 30 consecutive days as provided under Clause 42.1 above.
43 GENERAL AVERAGE ABSORPTION
43.1 If the Underwriters have expressly agreed in writing and subject to the provisions of Clause 8, the
Assured shall have the option of claiming the total general average in full (excluding only commission and
interest) from the Underwriters without recourse to any other contributing interests, up to the amount expressly
agreed by the Underwriters.
43.2 In such cases the Assured shall not claim general average from the other contributing interests,
against whom the Underwriters specifically waive any rights of subrogation in relation to general average
contributions.
 43.3 Any claim under this Clause, including the fees of any average adjuster, shall not exceed the
amount expressly agreed by the Underwriters and shall, for the avoidance of doubt, be subject to the application
of the deductible(s) in Clause 15.
44 ADDITIONAL PERILS
44.1 If the Underwriters have expressly agreed in writing, this insurance covers
44.1.1 the cost of repairing or replacing any boiler which bursts or shaft which breaks, where such
bursting or breakage has caused loss of or damage to the subject matter insured covered by Clause 2.2.1
44.1.2 the cost that would have been incurred to correct the latent defect where such latent defect has
caused loss of or damage to the subject-matter insured covered by Clause 2.2.2
44.1.3 loss of or damage to the vessel caused by any accident or by negligence, incompetence or error of
judgment of any person whatsoever.
44.2 The cover provided in Clause 44.1 is subject to the proviso that such loss or damage has not
resulted from want of due diligence by the Assured, Owners or Managers. Master, Officers, Crew or Pilots shall
not be considered Owners within the meaning of this Clause 44.2 should they hold shares in the vessel.
Part 3 Claims provisions (01/11/02)
45 LEADING UNDERWRITER(S)
This clause authorises the leading underwriters designated in the slip or policy to deal with a range of claims
related matters on behalf of all underwriters subscribing to the insurance. These include the appointment of
surveyors, experts, average adjusters and lawyers; the provision of security; and all payments or settlements to
an assured
46 NOTICE OF CLAIMS
This clause obliges the assured to notify leading underwriters as soon as possible of any accident or occurrence
which may result in a claim. It further provides that, in the absence of agreement to the contrary, underwriters
are discharged from liability for the claim if it was not notified within 180 days of the assured becoming aware
of the accident or occurrence.
47 TENDER PROVISIONS
47.1 The Leading Underwriter(s) shall be entitled to decide the port to which the vessel shall proceed
for docking or repair (the actual additional expense of the voyage arising from compliance with the Leading
Underwriter(s)' requirements being refunded to the Assured) and shall have a right of veto concerning a place of
repair or a repairing firm.
47.2 The Leading Underwriter(s) may also take tenders or may require further tenders to be taken for
the repair of the vessel. Where such a tender has been taken and a tender is accepted with the approval of the
Leading Underwriter(s), an allowance shall be made at the rate of 30% per annum on the insured value for the
time lost between the despatch of the invitations to tender required by the Underwriters and the acceptance of a
tender to the extent that such time is lost solely as the result of tenders having been taken and provided that the
tender is accepted without delay after receipt of the Leading Underwriter(s)' approval.
47.3 Due credit shall be given against the allowance in Clause 47.2 for any amounts recovered in
respect of fuel, stores, wages and maintenance of the Master, Officers and Crew or any member thereof,
including amounts allowed in general average, and for any amounts recovered from third parties in respect of
damages for detention and/or loss of profit and/or running expenses, for the period covered by the tender
allowance or any part thereof.
47.4 Where a part of the cost of the repair of damage other than a fixed deductible is not recoverable
from the Underwriters the allowance shall be reduced by a similar proportion. If the Assured fails to comply
with this Clause 47, a deduction of 15% shall be made from the amount of the ascertained net claim.
48 DUTIES OF THE ASSURED
This clause imposes obligations on the assured both to provide leading underwriters with documents and
information reasonably required to consider a claim and to assist in the investigation of a claim by co-operating
 in arranging surveys of the insured vessel, the inspection of Class records and the interview of ship personnel
and other witnesses.
The clause further provides that the assured shall not at any stage (whether proceedings be commenced or not)
knowingly or recklessly: (i) mislead or attempt to mislead underwriters in the proper consideration of a claim or
the settlement thereof by relying in the presentation or maintenance of such claim on any evidence which is
false; or (ii) conceal any circumstance or matter which might be material to the underwriters' proper
consideration of a claim or a defence to it. The clause makes it clear that any breach of these "good faith"
obligations will discharge underwriters from any liability to the assured in respect of the claim.
49 DUTIES OF UNDERWRITERS IN RELATION TO CLAIMS
49.1 The Leading Underwriter(s) may, at their sole discretion, upon the notification of an accident or
occurrence which may result in a claim under this insurance
49.1.1 instruct a surveyor who shall report to the Leading Underwriter(s) concerning the cause and extent
of damage, the necessary repairs and the fair and reasonable cost thereof and any other matter which the
Leading Underwriter(s) or the surveyor consider relevant
49.1.2 confirm the appointment of an independent average adjuster to assist the Assured in the
preparation of the claim. If not already agreed, the Assured shall propose the average adjuster to be appointed
who may be a Fellow of the Association of Average Adjusters of the United Kingdom or any other average
adjuster mutually acceptable to the Assured and the Leading Underwriter(s).
49.2 Where such appointments are made, the Underwriters shall be responsible for payment of
reasonable fees directly to the surveyor and the average adjuster irrespective of whether a claim ultimately
arises under this insurance. However, the Underwriters' liability for the fees of the appointed average adjuster
shall cease no later than at such time as the Underwriters pay, settle or communicate their intention to deny the
claim under this insurance or when it becomes apparent that any claim is unlikely to exceed the relevant
deductible(s) in Clause 15.
49.3 The making of such appointments is not an admission by the Underwriters that the accident,
occurrence or resulting claim is covered under this insurance or a waiver of any rights or defences that the
Underwriters may have under this insurance or at law.
49.4 The reports of the surveyor shall, subject to no conflict of interest being identified by the Leading
Underwriter(s), be released without delay to the Assured and the appointed average adjuster.
49.5 The Leading Underwriter(s) shall be entitled to request the appointed average adjuster to provide
status reports at any stage.
49.6 The Leading Underwriter(s) shall give prompt consideration to the making of a payment on
account upon the recommendation of the appointed average adjuster or, if no adjuster is appointed, upon the
request of the Assured supported by appropriate documentation.
49.7 The Leading Underwriter(s) shall make a decision in respect of any claim within 28 days of
receipt by them of the appointed average adjuster's final adjustment or, if no adjuster is appointed, a fully
documented claim presentation sufficient to enable the Underwriters to determine their liability in relation to
coverage and quantum. If the Leading Underwriter(s) request additional documentation or information to make
a decision, they shall make a decision within a reasonable time after receipt of the additional documents or
information requested, or a satisfactory explanation as to why such documents and information are not
available.
50 PROVISION OF SECURITY
This clause requires underwriters to "give due consideration" to assisting the assured by providing security in
respect of a third party claim in order to prevent the arrest of the insured vessel or to secure its release.
51 PAYMENT OF CLAIMS
Claims payable under the insurance shall, subject to the terms of any assignment, be paid to the loss payee or, if
no loss payee has been agreed, to the Assured or as they may direct in writing. Such payment, whether in
account or otherwise, when made shall be a complete discharge of the Underwriters' obligations under this
insurance in respect of the amount so paid.
52 RECOVERIES
Third party recoveries are covered by this clause . This requires the assured to make an early assessment of
the recovery potential and to take appropriate steps to protect the position, including the obtaining of security and, if
necessary, the commencement of proceedings. In return, underwriters agree to pay their proportion of the costs
incurred, taking into account any uninsured losses included in the claim.
53 DISPUTE RESOLUTION
This provides for the resolution of any dispute by mediation or other form of alternative dispute resolution.
Subject to the overriding provisions of Clause 1.3, disputes between the Assured and the Underwriters may, if not
settled amicably by negotiation, be referred at the request of the Assured or the Underwriters to mediation or other
form of alternative dispute resolution and, in default of agreement as to the procedure to be adopted, any such
mediation or other form of alternative dispute resolution shall be in accordance with the current CEDR solve model
procedures.
8.4 Hull insurance claims
Following any case of hull damage, e.g. due to collision or grounding, the shipowner/managers insurance
department will normally immediately inform the H&M Lead Underwriter via the broker. As per Clause 49 of IHC
-1.11.02, the Lead Underwriter will instruct a surveyor to ascertain the nature, cause and extent of damage.
8.4.1 Documents and information required from the ship
In addition to copies of the relevant insurance policies (which will be supplied by owners), the documents and
information listed below may be required to accompany a claim lodged by owners against underwriters. If an
adjustment is prepared, the adjuster will extract the required information from the documents and incorporate it in
the adjustment. But underwriters are in any case entitled to see the original documents and vouchers if they wish.
Certain items forwarded will require the endorsement of the underwriters surveyor as being fair and reasonable. The
endorsement may be obtained either by the owners. superintendent at the time of survey or repair, or later through
correspondence between the average adjuster and the surveyor.
General documents and information required include:
deck and engine room log books covering the casualty and the repair period;
masters and/or chief engineers detailed report (as appropriate);
relevant letters of protest;
protests and extended protests;
underwriters surveyors report;
class surveyors report;
owners superintendents report;
receipted accounts for repairs and/or any spare parts supplied by owners, in connection with repairs,
endorsed by underwriters surveyor as being fair and reasonable;
accounts covering any drydocking and general expenses relating to the repairs, endorsed as above;
accounts for all incidental disbursements at the port of repair, e.g. for port charges, watchmen,
communications expenses, agency fees, etc.,;
details of fuel and engine room stores consumed during the repair period, together with the cost of
replacement;
accounts for owners repairs effected concurrently with damage repairs;
copies of faxes and telexes sent and details of long-distance calls made in connection with the casualty,
together with their costs.
any accounts rendered by surveyors, etc., with dates of payment where made.
Information required when the vessel has been removed for repairs includes:
 the reason for the removal;
deck and engine room log extracts covering the removal passage of details of:
the last port prior to the repair port, and the first port thereafter;
details of the dates of arrival/departure at the relevant ports;
details of whether a new cargo or charter was booked on the removal to the repair port, together with
information concerning any freight earned thereon;
details of any new cargo booked to be loaded following completion of repairs;
accounts for the outward port charges at the last port prior to the repair port, the inward and outward
port charges at the repair port, and, if the vessel returns to the port from which she originally moved,
the inward port charges at that port;
portage bill showing the wages of the officers and crew during the removal to the repair port, and also
for the return passage if the vessel returns to her original port; the cost of maintenance for the offricers
and crew should also be stated;
details of fuel and stores used during the removal period, and the cost of their replacement;
accounts in respect of any temporary repairs effected solely to enable the vessel to move to the repair
port.
Information required after a collision includes:
details of steps taken to establish liability for the collision and the eventual settlement made between
the two parties;
if a recovery has been attempted against the colliding vessel, a detailed copy of the claim put forward
and all the items allowed from the claim put forward and all the items allowed from the claim by the
owners of the colliding vessel together with accounts covering legal costs;
a detailed copy of any claim received from the other vessel, together with details of which items
included in the claim have been agreed;
details of efforts to limit liability.
9. RISKS NOT COVERED BY H&M POLICY
1. Damage due to war, hostile acts, capture, seizure, arrest, strikes, etc are excluded from H&M policy. The
shipowner may obtain cover for these risks by taking insurance under Institute War and Strikes Clauses.
2. Third party liabilities including oil pollution, which arise in connection with the operation of a vessel . This
is done by becoming a member of P&I Club and taking suitable insurance cover.
Insured Value: Agreed Value vs. Actual Cash Value (ACV)
With Agreed Value Coverage, the shipowner will be paid the insured value of the boat in the event of a total
loss. The insurance company will not depreciate the value at the time of the loss. In the event of a total loss with
Actual Cash Value Coverage, the shipowner will receive the insured value of the boat or the actual cash value
(depreciated value), whichever is less. For example, if you a shipowner has insured for $30,000,000 and has a total
loss, the depreciated value of the ship may only be $25,000,000. In case of Agreed Value Coverage, he will receive
$30,000,000 and in the case of Actual Cash Value Coverage, the insurance company will pay the lesser amount i.e.
$25,000,000. Normally, Marine Insurance for Hull and Machineries is on Agreed Value Coverage.

OIL POLLUTION LIABILITIES

In 1992, IMO adopted a protocol to amend International Convention on Civil Liability for Oil Pollution
Damage, 1969 (CLC 69). The Protocol (CLC 92) came into force internationally in 1996. CLC 92 provides higher
limit of compensation and a wider scope of application than CLC 69. Under CLC 92, the limit of compensation has
been raised from about 14 million special drawing rights (SDR) (USD 19 million) (in CLC 69) to about 59.7 million
SDR (USD 82 million). (1 SDR= USD 1.37 in March, 2003). CLC 92 requires ships carrying more than 2000 tons
of oil cargo to maintain insurance against oil pollution damage up to CLC 92 limits. All these liabilities are insured
by the Clubs, although with a limit in respect of oil pollution claims which presently stand at US$300m each entered
ship, each accident or occurrence.
The International Convention on the Establishment for an International Fund for Compensation for Oil
Pollution Damage, 1971 is known as Fund Convention. It has a protocol adopted in 1992, which came into effect in
19966. It has two purposes:
1. To provide additional compensation to that given under the CLC to victims of pollution
2. To provide some relief to the shipowners liability for pollution. It requires the importers of oil to make
payments into a pollution fund known as the International Oil Pollution Compensation Fund (IOPC Fund),
from which relief payments can be made.
In the wake of the Erika casualty, the IMO Legal Committee, in late 2000, increased the compensation for oil
pollution and damage under CLC 92 and (IOPC Fund) by 50%. The maximum shipowner liability under CLC was
thus increased to approximately USD 112.5 million and the maximum amount available under the IOPC Fund rose
to approximately USD 250 million. These changes come into force in November 2003.
If a ship is a tanker carrying a cargo of more than 2,000 tons of persistent oil in bulk, than one has to make sure
that they have a CLC (International Civil Liability Convention for Oil Pollution) certificate on board.
For trade to the United States, one has to make sure their ship complies with the special US Coast Guard
regulations for US waters and in particular the OPA 90 (Oil Pollution Act, 1990) and COFR (Certificate of Financial
Responsibility) requirements.

P&I INSURANCE
Shipowners insure against loss of or damage to their ships with hull underwriters. They look to the P&I Clubs
for insurance against their liabilities to others. P&I stands for Protection and Indemnity. Shipowners take P&I
insurance cover in respect of third party liabilities and expenses arising from owning ships or operating ships as
principals. An insurance mutual, a Club, provides collective self insurance to its members. The membership is
comprised of a common interest group who wish to pool their risks together in order to obtain "at cost" insurance
cover.

List of P&I Clubs

There is no Indian P&I Club. There are 13 P&I Clubs belonging to The International Group Clubs.
Together, these Clubs insure over 90% of the world's blue-water tonnage. List of members of International Group
Clubs is given below:
1. American Steamship Owners Mutual Protection and Indemnity Association
2. Assuranceforeningen Gard (Gjensidig)
3. Assuranceforeningen Skuld (Gjensidig)
4. The Brittania Steam Ship Insurance Association Ltd.
5. The Japan Ship Owners Mutual Protection and Indemnity Association
6. The London Steam-Ship Owners Mutual Insurance Association Ltd.
7. The North of England Protecting and Indemnity Association Ltd.
8. The Shipowners Mutual Protection and Indemnity Association (Luxembourg)
9. The Standard Steamship Owners Protection and Indemnity Association Ltd.
10. The Steamship Mutual Underwriting Association Ltd.
11. The United Kingdom Mutual Steam Ship Assurance Association (Bermuda) Ltd.
12. The West of England Ship Owners Mutual Insurance Association (Luxembourg)
13. Sveriges Angfartygs Assurance Forening (The Swedish Club)
P&I Club Insurance cover
P&I Clubs may cover their members exposure to claims for damage or compensation in respect of the
following:
Crew
The member's liability for injury, illness or death, hospital and medical expenses arising from injury, illness or
death, costs of repatriation and maintenance ashore resulting from injury, illness or death, the costs of the funeral or
sending home of the coffin or ashes, and personal effects of a deceased crew member, costs of repatriation incurred
as a result of leave to attend the funeral of a close relative who has died or become seriously ill after the crew
member signed on, wages to serving crew members or, if deceased, their dependants as a result of injury, illness or
death, compensation for loss of employment to serving crew members as a result of being signed off due to a major
casualty to the vessel, which renders the vessel unseaworthy, and costs of providing a substitute crew member
required as a result of the injury, illness or death of a crew member or repatriation.
Personal injury to or loss of life of stevedores
Personal injury to or illness or loss of life of passengers and others
Loss of personal effects
Diversion expenses
The shipowner may suffer losses through having to divert his ship in order to obtain treatment for an
injured or sick person on board or for the purpose of landing stowaways. Although there is no liability here in the
usual sense, the Clubs give cover to the shipowner in respect of the basic running expenses of his ship during the
diversion, including port charges incurred solely for this purpose.
Life salvage
A shipowner may become obliged to pay a life salvage award to a person who has saved or attempted to
save the life of persons on board the salvaged vessel.
One-fourth collision liability
The hull policy usually requires the ship's hull underwriter to pay three-fourths only of the liability of the
insured ship in respect of loss or damage to another ship or her cargo as a result of the collision The remaining one-
fourth of such liability is insured by the shipowners Club.
Oil pollution

Standard Oil Pollution Cover

Standard cover protects the member in respect of liability arising out of the actual or threatened escape or
discharge from the entered vessel of oil or other polluting substance, costs of measures reasonably taken for the
purpose of preventing or minimising pollution or any resulting damage together with any liability for loss or damage
caused by the taking of such measures, costs incurred in order to comply with an order of any government or
authority for the purpose of preventing or minimising actual or threatened pollution, and liability and costs incurred
by the member as a result of his participation in an agreement approved by the Association for the purpose of this
Rule.

Oil pollution cover for U.S.A.

Separate cover has to be taken for actual or threatened oil pollution arising out of an incident to which the
US Oil Pollution Act 1990 (OPA 90) and COFR (Certificate of Financial Responsibility) requirements is applicable.
Additional premium has to be paid for this additional cover.

Liabilities under contracts and indemnities

 Shipowners are often required to give contractual indemnities in order to secure services required by their
ship, for example in order to obtain the services of a floating crane. Cover in respect of any resulting liability can be
obtained from the Clubs in most such situations.
Wreck liabilities
The Clubs give cover for the liability which a shipowner may incur in respect of the raising, removal,
destruction, lighting or marking of the wreck of his ship.
Cargo liabilities
The member's liability for cargo loss, shortage, damage or delay occurring in relation to the carriage of
cargo on the entered vessel.
Cargo's proportion of general average or salvage
Certain expenses of salvors
The Lloyd's Standard Form of Salvage Agreement (2000) provides that in certain circumstances the owner
of an oil tanker may be required to reimburse a contractor who attempts to salve that tanker for his "reasonably
incurred expenses". These expenses, in contrast with ordinary salvage awards made under the Lloyd's Form or under
general maritime law, are not recoverable under hull insurance policies.
Fines
A variety of fines may have to be paid by a shipowner, either directly or because of an obligation to
reimburse his seagoing employees in respect of fines levied on them. Most of these come within the cover of the
Clubs
Legal costs
The Clubs also pay for legal costs and similar expenses which a shipowner may incur in dealing with a
liability insured by his Club. In practice, the defence to the claim against the shipowner is usually conducted by his
Club's managers or correspondents, who engage any lawyers, surveyors and other experts who may be required and
have them paid directly by the Club.
"Omnibus" cover
In recognition of the fact that the list of liabilities to which shipowners are subject is constantly increasing
in unforeseen ways, the Rules of the Clubs give their Directors discretion to pass for payment certain claims that are
not expressly covered by any of the heads of cover set out in their Rules, provided only that they are within the
general scope of the Club cover and are not expressly excluded elsewhere within the Rules. This is a most unusual
provision and is a reminder that the Clubs exist, not as profit making insurance companies, but as organisations for
the benefit of the shipowners, who are their Members.
Selection of cover by shipowners
Member of a Club is not obliged to enter for all the risks set out above but may choose to take cover from
his Club in respect only of certain risks which he perceives as most pressing from his point of view.
Policy year
A year from noon GMT on 20 February to immediately prior to noon GMT on the next following 20
February.
Premium
While other insurance premiums are fixed on the basis of probabilities - or actuary calculations, P&I insurance
premiums are reviewed annually on a per ship and/or fleet basis. Several factors are taken into account in the
process, most importantly the claims record of the vessel, specifically the average loss-ratio (claims as percentage of
premium) over the previous 5 years. The premiums determined by the Association and payable by the member may
include the following,
1. Estimated Total Calls (ETC) or Advance calls - Means the whole of the budgeted premium for the
year, payable in quarterly installments
 2. Supplementary calls - Later in the year, if claims have been heavier than expected, the managers
will ask members for a supplementary call to balance the books. Clubs aim to be accurate in their predictions of
future claims so as not to burden owners with supplementary calls.
3. Overspill calls - one or more overspill calls in respect of an overspill claim
Surplus
If there is a surplus at the final closing of a policy year, the General Meeting may distribute all or part of that surplus
among the members in proportion to the net annual calls paid for that policy year. Refunds are made when income
(calls + investments) exceeds outgoings (claims + expenses).
Reimbursement of Claims Costs by P&I Clubs
Claims costs (claims cost per vessel per incident) are reimbursed under a unique international system:
barring the member's own deductible (negotiated on an individual basis) the first USD 5 million of a claim
are covered by the member's club - known as the club's own retention
the next USD 25 million (figure is reviewed annually) are covered by the Pool to which all the clubs in the
International Group of P&I Associations ("the Group") contribute, according to an agreed formula
claims in excess of USD 30 million are compensated under the Group market reinsurance arrangements.
The total commercial market reinsurance limit is - currently - at USD 2000 million.
cover in excess of USD 2000 million - "the overspill cover", This cover has been fixed at 2,5 % of the 1976
Limitation Convention's Property Fund, or approximately USD 2400 million on top of existing market
reinsurances. This risk is shared mutually by the Pool members.
The system for reimbursement of oil pollution claims has the same bottom features, but the policy is
limited at USD 1,000 million, with no overspill.
It is a beneficial system to the members. There are important cost benefits inherent in the mutual club system:
it is not for profit
for claims under USD 30 mill., which encompasses the overwhelming number of cases, the necessary risk
distribution is secured "in-house" (own retention and Pool), not incurring reinsurance costs unique in-house
services available to members.
P&l club correspondents
P&I clubs retain correspondents at numerous ports worldwide. In some countries the correspondent may be
a firm of insurance specialists acting for more than one club, or alternatively a shipbroking or insurance company,
only occasionally handling P&I business. In the USA a correspondent is often a law firm with maritime law
practitioners.
In all cases correspondents:
are representatives, and not agents, of the club, for legal reasons;
will attend members vessels when so requested by the master or agent in order to protect a members
interests;
are generally well acquainted with the clubs rules and policy, etc.
will report any occurrence likely to result in a claim on the club to the clubs managers, but will generally
be able to anticipate the managers reply and instructions.
may, pending instructions, appoint surveyors to inspect damage, etc.
may, be instructed by the club to offer a Letter of Undertaking in cases of possible liability. In most cases,
e.g. where there has been pollution following a bunkering accident, or jetty damage caused by a ship, this
will avert the need for a bond to be posted to avoid arrest.
When to contact P&I Club
 P&I Clubs issue handbooks containing club rules and lists of correspondents, which are very useful to a
master seeking advice and assistance when in any kind of trouble, e.g. after a pollution incident, a casualty,
medevac, arrest, when under pressure to sign clean Bill of Lading, etc.
In case of personal injury
Any person injured on your ship - crew, stevedores, pilots or passengers for example - may allege that the
ship was unsafe. The injured person could decide to sue the ship and her owners, and demand huge sums of money
as compensation. If an accident does happen, one should see to it that the injured person receives proper medical
attention. Find out exactly what happened and accurately record the accident in detail, with names, addresses and
telephone numbers of all witnesses, in the log book. In the event of an accident, photograph or video the scene of the
accident. In the case of serious accidents immediately inform the ship's owners and P&I Clubs local correspondent.

In case of damage to cargo

The responsibility for loading, stowing, trimming and discharge operations of cargo are with the deck
department of a ship. The following is being given here for information purpose.

Damage to cargo is the most frequent type of liability that confronts a shipowner. In the case of damage to a
cargo on board, it is vital that all the facts are recorded and documented. An important function of the Bill of Lading
(B/L) is to describe the condition and quantity of the cargo as received on board. If the cargo is discharged in a
different condition, or in a lesser quantity, than that entered on the B/L, the shipowners may be held liable for the
damage or shortfall. Ships officers inspect the cargo as it comes on board. They check for any differences they may
find and record them. They should notify the shipper and charterers that they intend to alter the shipping document
to reflect their observations. Alternatively, they will reject the cargo. The tallying of cargo during loading and
discharge is a useful means to avoid or limit shortfalls. They should record in the log book, inspections of cargo
holds undertaken by the ship's officers or crew during the voyage. They should make sure that cargo is carefully and
safely loaded, stowed, separated, carried and discharged. In Time Charters, applicable to dry cargo vessels, the
responsibility for load, stow, trim and discharge operations are sometimes transferred from the shipowners to the
charterers. Therefore, if they see reason to interfere in the way the charterers, or their supercargo, stow or handle the
cargo, then they should carefully write down their reason for objecting. They should ask the P&I Clubs
correspondent to telefax a copy of their remarks to the ship's owners. In this respect, photographs can be very useful.
The Master always has the final responsibility for the sea and cargo worthiness of the vessel. If he suspects that the
cargo may have been damaged during the voyage, he should inform the owners. The owners should then request
P&I Club to arrange for a surveyor to go to the ship at the destination. Alternatively, the Master may contact the
local P&I Club correspondent. They are instructed to immediately assist the ship in any way. In case of heavy
weather, a copy of any meteorological reports, or warnings should be kept and the conditions properly recorded in
the ship's log. This particularly applies to adverse sea conditions, which may cause damage to the goods on board.
The Master should lodge a sea protest at the first available port of call and a log extract, showing relevant entries, is
attached. Ships officers should co-operate as much as possible with the surveyor appointed on behalf of the owners
at the destination. Also any other factor that may have a bearing on the cargo carried, e.g. ventilation provided to
avoid condensation, should be recorded. In addition, relevant dew-point readings in the cargo spaces and outside
should be recorded.

Damage to fixed or floating object and the running down clause

If the ship, or equipment belonging to the ship is damaged, it is a matter for the owners and their hull
underwriters (insurers). However, if the ship, or the operation of the ship, causes damage to other property, this is
often a matter for the owners and P&I Club. Here are a few examples:

P&I often covers liability for damage to fixed or floating objects. Damage to buoys, shore-side cranes or
other vessels caused by wash from the passage of the ship or from propeller thrust will normally be covered under
the P&I insurance. If the vessel is covered incorporating the 1/4 RDC (or Running Down Clause), the hull
underwriters will only cover 75% of the liability incurred for damage to the other ship and P&I will cover the
remaining 25%. In such a case, the P&I Club will handle the interests of the hull underwriters as well as its own and,
if applicable, issue guarantees in return for a counter security from the hull insurers. Large liabilities arising from
collisions with other vessels (RDC) may involve the P&I policy even if initially covered 100% by the hull policy.
This is because the hull policy has a defined limit and excess amounts fall under the P&I cover. If the vessel is
involved in a collision with another vessel, or with a fixed or floating object, the local P&I Club correspondent
should be called immediately. The facts should be recorded in the log book and the damage photographed. Ship's
owners should be informed and the exact cause of the accident should be established.

Pollution

Oil from the ship which pollutes a harbour, dock or waterway, will have to be cleaned up. Clean-up costs
will be charged to the ship, and fines may be imposed on the ship, the Master, and the Chief Engineer. The ship
could be arrested, and the owners required to establish some form of security acceptable to the port authorities. If the
oil is from the ship, the leakage or overflow should be has stopped. Samples of the oil on the ship should be taken.
The port authorities, the Coast Guard and other relevant authorities should be informed immediately. One should not
try to hide the fact that they have caused pollution. Be accurate when estimating the amount spilt. Reducing the
estimates reported in the hope of avoiding problems does not help. Immediately obtain assistance from the nearest
P&I Clubs correspondent in all oil pollution accidents. Even if the oil is not from your ship, still inform the
authorities. Always try to obtain sealed samples of the floating oil and take samples of the oil on board your ship for
laboratory comparisons. In addition, obtain one set of samples and keep it on board for identification purposes. All
sampling should be taken care of by certified personnel. Record all details of oil pollution accidents in the log book.
Make sure the oil record book is up-to-date.

MARINE CARGO INSURANCE

The insurance of goods in transit from one place to another by any single mode or combined modes of sea,
rail, road, air and inland waterways. Under marine cargo, export and import shipments, including air and registered
post as well as goods in transit by rail/ road/ air/ post can be insured. Coastal shipment by steamers and shipment by
smaller vessels in Indian waters or by country craft and Indian vessels of all types can also be insured. Most goods
shipped are usually insured on a warehouse-to-warehouse basis rather than for the sea voyage only.
Open covers
An open cover is a commonly used form of long-term cargo insurance contract covering all goods
shipments forwarded by an assured during the duration of the open cover. The assured will usually be a regular
exporter or importer. The open cover itself is an original slip, placed in the same way as an individual goods
insurance policy. The period of the open cover is usually fixed at 12 months, with a 30-day notice period for
cancellation by either side, reduced to 7 days when there are war risks. The assured is honour-bound to declare and
insure all his shipments during the term of the open cover (i.e. he cannot choose to insure some and not others) and
the insurer is honour-bound to insure all the assureds shipments, whether a loss occurs before a declaration is made
or not. There is no aggregate limit to the value of all shipments made, but there is a set limit on the amount at risk in
any one vessel, and often on the amount at risk in any one location. The insurer allows the merchant to issue himself
with a certificate of insurance of the open cover for each consignment shipped, as formal policy documents for
each shipment would take time to draw up. The advantage to the insurer of an open cover is that he gets steady
business, while for the merchant it means speed and simplicity in the arrangement of insurance cover. An open
policy is a formal policy issued to give legality to a long-term marine insurance contract such as a cargo open cover.
Without a formal policy document the contract may not be recognised by a, court of law. To satisfy the requirements
of marine insurance law, therefore, an open policy will be issued in which a nominal premium is specified by way of
consideration.
Floating policies
A floating policy operates rather like an open cover, but has a fixed aggregate limit which is gradually reduced as
each shipment is made.
Institute clauses
The Institute Clauses of the Institute of London Underwriters form the basis of the cargo insurance contract
in many countries.
The most common Institute Clauses:
 Institute Cargo Clauses (A) 1/1/82
Institute Cargo Clauses (B) 1/1/82
Institute Cargo Clauses (C) 1/1/82
Institute War Clauses (Cargo) 1/1/82
Institute Strikes Clauses (Cargo) 1/1/82

Institute Cargo Clauses

The imports/ exports as well as coastal shipments are covered under the Institute Cargo Clauses (A) (ICC
A) or the Institute Cargo Clauses (B) (ICC B) or the Institute Cargo Clauses (C) (ICC - C).

Risks covered
ICC C
Gives cover under major risks:
Fire or explosion, vessel or craft stranded, grounded, sunk, capsized, overturning or derailment (of land
conveyance), collision, discharge of cargo at port of distress, jettison, General Average sacrifice.
ICC B
'C' cover plus earthquake, lightning, washing overboard, entry of sea, lake or river into the vessel, total loss of
package in unloading or loading.
ICC A
All risks of loss or damage except those which are specifically excluded plus malicious damage, piracy.
Exclusions
Except for the risks of piracy and malicious damage covered under Policy A, excluded risks are common to all 3
policy types
Willful conduct of the insured.
Ordinary leakage, wear and tear, normal losses in weight or volume of cargo.
Insufficient or unsuitability of packing or preparation of cargo.
Inherent vice or nature of cargo.
Delay, even if delay is an insured risk.
Insolvency or financial default of the owners, managers, charterers or operators of the vessel.
Unseaworthiness of vessel or craft or unfitness of vessel, craft, conveyance container or lift can.
Use of any weapon of war employing atomic or nuclear fission.
War and strike risks (including terrorist damages) are normally excluded.
Cargo Insurance War clauses
Cargo owners have separate insurance cover for risks of war and strikes as they are excluded from above
mentioned cargo cover.
The Institute War Clause
Under the War Clauses, the insurance takes effect only as the interest insured are loaded on an overseas
vessel and terminates either as the interest are discharged from the overseas vessel at final port or place of discharge,
or on expiry of 15 days counting from midnight of the day of arrival of the vessel at the final port or place of
discharge, whichever shall first occur. In other words the goods are covered only while they are on a vessel.
 In the case of transshipment, the overseas vessel arrives at an intermediate port or place to discharge the
interest for on-carriage by another overseas vessel, the insurance terminates on expiry of 15 days counting from
midnight of the day of arrival of the vessel at the intermediate port or place, but reattaches as the interest are loaded
on the on-carrying overseas vessel. During the period of 15 days such insurance remains in force after discharge at
such intermediate port or place of discharge.
The Institute Strike Clause
The Institute Strike Clause gives cover for physical loss or damage directly caused by strikers, riots, civil
commotion and persons acting maliciously.
Cargo claims
You should inspect cargo on arrival for loss or damage on arrival. Failure to do so will result in extra work
to show that you did not cause the loss or damage yourself at a later time. If your cargo arrives in a container, the
external surfaces should be inspected for damage, and also the roof door seals and rust spots for water leaks. Do not
give a clean receipt to the delivering carrier unless you can immediately inspect the cargo and you determine it to be
undamaged. When there is any doubt, you should mark any documentation with "Received in Apparent Good Order
and Condition". Usually, carriers can be held responsible for loss or damage on a per unit basis by insurers after your
claim has been settled. Never accept the carrier's explanation that the cargo was received in a damaged condition.
The carrier will need to provide evidence of their assertion. As soon as you are aware of a potential loss / claim, you
must give notice to all transport operators / third parties involved for any loss or damage. You should contact the
underwriters or their nearest claim settling agent. A surveyor may be required to determine the nature, cause and
extent of loss/damage. Consult the insurance certificate for the name of the survey agent. Act swiftly - the cargo
remains your property. Surveyors do not take control of the cargo. You remain responsible for the safety of the
cargo. Surveyors usually have an expertise in maritime casualties and you are advised to listen to their advice. You
must take all steps to avoid / minimise any further physical or financial loss. Gather evidence (such as photographs,
video, print-outs from your vessel's electronic equipment), note the names of witnesses, draw diagrams and annotate
marine charts. Inform the police in the event of theft or vandalism. In the event of collision or fire, give prompt
notice to the Coast Guard or suitable authority. Send to insurers any communication received from any other person
concerning the claim or damage.
You should not, without insurers written consent:
Incur any expense in making good any loss or damage (other than to minimise the damage).
Negotiate, pay, settle, admit or repudiate any claim to a third party.
Documentation that is usually required when presenting a claim includes:
Bill of Lading / Air Waybill
Commercial Invoice
Insurance Certificate
Copy of notice of claim reported against carrier
Documentation relating to out-turn / receipt of goods
Local Carriers Waybill, where applicable
Copy of temperature records, where available
Copy of instructions to carrier regarding carriage temperature, where applicable
Invoices to confirm salvage / sale price, where applicable
Direct Action Against Insurers
Of considerable importance are the issues of direct action by the victim against the insurer or the guarantor
and the defences available to the latter. Compared to a system where the insurer has to reimburse the liable party for
what he has paid the victim, the direct action provides protection against fraud by the liable party. HNS, CRTD and
CLC all recognise a direct action against the guarantor. Under national law, the practice varies. In transportation
insurance however, the direct action is very common. In motor liability insurance, almost every non common law
country recognises a direct action. It is provided for by a draft EU directive on motor insurance. Both common law
and non common law countries who have implemented the transportation treaties, use a direct action. In the US,
more than fifteen states recognise the direct action in motor insurance. A broad direct action is also in certain
instances recognised under major US environmental liability laws.
The issue of defences available to the insurer is distinct from that of the direct action. The insurer can in
any event invoke the defences which the liable party can invoke against the victim. It is, however, common in this
respect to broaden the victim's right by not allowing the insurer to oppose against the victim all the defences the
insurer might have opposed against the insured himself, on the basis e.g. of the insurance contract or principles of
insurance law.