Marine Hull Claims

Seminar at HOTEL WESTEND on February 10, 2005

By Leena B. Mody

Fellow Member of Association of Average Adjusters, UK J B Boda & Co. Pvt. Ltd.

INTRODUCTION
It is a truism known to all of us that without claims, we would have no business. It is the occurrence of claims that gives meaning to our business and it is largely in our response to claims and the way in which we deal with them that our efficiency is judged

MARINE HULL CLAIMS

L. B. MODY - J. B. BODA & CO. PVT. LTD.

PERILS
6. PERILS
6.1 This insurance covers loss of or damage to the subject matter insured caused by -

6.1.1
6.1.2 6.1.3 6.1.4 6.1.5
MARINE HULL CLAIMS

perils of the seas, rivers, lakes or other navigable waters fire, explosion violent theft by persons from outside the vessel jettison piracy
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PERILS.....
6. PERILS (Contd/-)
6.1.6
6.1.7

6.1.8

breakdown of or accident to nuclear installations or reactors contact with aircraft or similar objects, or objects falling therefrom, land conveyance, dock or harbour equipment or installation earthquake, volcanic eruption or lightning

MARINE HULL CLAIMS

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PERILS.....
6. PERILS (Contd/-)
6.2 This insurance covers loss of or damage to the subject matter insured caused by accidents in loading, discharging or shifting cargo or fuel bursting of boilers, breakage of shafts or any latent defect in the machinery or hull negligence of Master, Officers, Crew or Pilots
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6.2.1

6.2.2
6.2.3

MARINE HULL CLAIMS

PERILS.....
6. PERILS (Contd/-)
6.2.4 negligence of repairers or charterers provided such repairers or charterers are not an Assured hereunder barratry of Master, Officers or Crew

6.2.5

provided such loss or damage has not resulted from want of due diligence by the Assured, Owners or Managers

MARINE HULL CLAIMS

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ADDITIONAL PERILS CLAUSE

1. 1.1 In consideration of an additional premium this insurance is extended to cover the cost of repairing or replacing 1.1.1 any boiler, which burst or shaft which breaks 1.1.2 any defective part which has caused loss or damage to the vessel covered by Clause 6.2.2 of the Institute Time Clauses - Hulls 1/10/83 1.2 loss of or damage to the vessel caused by any accident or by negligence, incompetence or error of judgement of any person whatsoever.
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MARINE HULL CLAIMS

ADDITIONAL PERILS CLAUSE.....

2.

Except as provided in 1.1.1 and 1.1.2 nothing in these Additional Perils Clauses shall allow any claim for the cost of repairing or replacing any part found to be defective as a result of a fault or error in design or construction and which has not caused loss of or damage to the vessel.

3.

This clause provides for due diligence proviso as in ITC Hulls 1/10/83.

MARINE HULL CLAIMS

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BURDEN OF PROOF
Once the Assured has made out a prima facie case that loss or damage has occurred as a result of peril insured against, the burden of proof then shifts to the Underwriters to prove that the loss or damage resulted from a peril not insured against. Alternatively, the Underwriters have to prove that the loss or damage is excluded by the exception clause or there is a breach of warranty or the loss falls within the ambit of excluded losses as mentioned in Section 55(2) of MIA 1906.
MARINE HULL CLAIMS L. B. MODY - J. B. BODA & CO. PVT. LTD.

BREACH OF WARRANTY
Breach of a policy warranty will enable Underwriters to avoid the policy from the date of the breach, irrespective of whether the breach was causative of loss (Section 33 of MIA-1906). Warranties may be express (as stated in policy e.g. Trading Warranties) or may be implied (as provided in Marine Insurance Act e.g. Warranty for

Seaworthiness).
MARINE HULL CLAIMS L. B. MODY - J. B. BODA & CO. PVT. LTD.

TYPES OF MARINE LOSSES

Total Loss Actual Total Loss Vessel badly damaged so as to cease to be a thing of the kind insured i.e. loss of specie Irretrievably deprived of the vessel e.g. sinking in mid sea with no possibility of salvage. Constructive Total Loss Actual Total Loss appears unavoidable The vessel is so badly damaged that the cost of recovering and repairing the ship would exceed the value when repaired. e.g. stranding on the rocks where the cost of refloating & repairing exceeds the value of the vessel when repaired. Partial Loss Particular Average Accidental or fortuitous loss General Average Any extra ordinary sacrifice or expenses intentionally and reasonably made or incurred for common safety for the purpose of preserving the property involved in common maritime adventure. e.g. jettison of cargo to lighten a grounded vessel, loss/damage to ship/cargo in extinguishing fire onboard a ship.
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e.g. collision, fire, grounding, heavy weather like cyclone, typhoon, gale, etc., machinery defect, latent defect, accidental loss in loading/discharging.

MARINE HULL CLAIMS

TOTAL LOSS
Total Loss is further sub-divided into:ACTUAL TOTAL LOSS and CONSTRUCTIVE TOTAL LOSS

MARINE HULL CLAIMS

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ACTUAL TOTAL LOSS

An Actual Total Loss of a ship can take any one of the following three forms: Physical Destruction Loss of Specie

Irretrievable Deprivement

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CONSTRUCTIVE TOTAL LOSS

Where there is Constructive Total Loss

The vessel is so damaged that the cost of recovery and/or repair to the vessel exceeds the repaired value. The Assured may either treat the loss as partial, or abandon the subject matter insured to the Insurer and treat the loss as if it were an Actual Total Loss. The Assured is not obliged to claim for a CTL. If he so elects he can repair upto 100% of the sum insured thereby retaining the vessel. But if he wishes to claim a CTL it is necessary for him to abandon the property to his Underwriters.
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CONSTRUCTIVE TOTAL LOSS.....

Actual Total Loss and Constructive Total

Loss are not subject to the Deductible

Excess. It should be remembered that in

case of CTL, the Insured has an option to

claim as P.A., by repairing the vessel, subject to the deductible applicable under the policy.
MARINE HULL CLAIMS L. B. MODY - J. B. BODA & CO. PVT. LTD.

NOTICE OF ABANDONMENT
The essential reason why Notice of Abandonment must be given, as a condition precedent to a claim for CTL, is that there may be a possibility of the Underwriters obtaining some benefit from such Notice. When an Assured tenders Notice of Abandonment and it is declined, the Assured must enforce his claim by issue of a writ (i.e. instituting of a suit).
MARINE HULL CLAIMS L. B. MODY - J. B. BODA & CO. PVT. LTD.

PARTICULAR AVERAGE
Section 64(1) of the MIA 1906 defines Particular Average as a partial loss of subject matter of insurance caused by a peril insured against, and which is not a General Average loss. In order to recover for Particular Average claim, loss must be Partial and not Total Loss Accidental or fortuitous and not General Average, which is a deliberate loss Loss or damage to Subject matter insured - e.g. loss of hire not covered by a Hull & Machinery policy, and Proximately caused by a peril insured against
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MEASURE OF INDEMNITY
Section 69(1) of the Marine Insurance Act-1906 states that where a ship is damaged, but is not totally lost, the measure of indemnity, subject to any express provision in the policy, is as follows: where the ship has been repaired, the Assured is entitled to the reasonable cost of the repairs where the ship has been only partially repaired, the Assured is entitled to the reasonable cost of such repairs and also to be indemnified for the reasonable depreciation, if any arising from the unrepaired damage
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MEASURE OF INDEMNITY.....
where the ship has not been repaired, and has not been sold in the damaged state during the risk, the Assured is entitled to be indemnified

for the reasonable depreciation arising from the

unrepaired damage, but not exceeding the reasonable cost of repairing such damage

computed as above.

MARINE HULL CLAIMS

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MEASURE OF INDEMNITY.....
In case of Particular Average claims i.e. partial loss or damage to ship, the reasonable cost of repairs is paid by the Underwriters regardless of the fact whether the vessel is fully insured for her market value, but not exceeding the insured value in respect of any one accident. This means that the condition of average which, is applicable in case of under-insurance in other insurances, such as fire is not applicable to Hull policies. This is because Marine Hull policies are agreed value policies.
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REASONABLE COST OF REPAIRS

Does not necessarily mean the lowest
cost of repairs.

The Shipowner is entitled to repair his

vessel in the manner, which a prudent

man would employ if uninsured.

MARINE HULL CLAIMS

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TEMPORARY REPAIRS
It is very difficult to define temporary repairs, but it is usually considered to be provisional reinstatement of the vessel of no lasting value to the Shipowner. The term temporary repairs is usually used for the work which will have to be undone when the permanent repairs are effected.

Temporary repairs when carried out merely to suit Owners business convenience with no benefit being conferred on Underwriters, then same cannot be recovered under the Hull policy.
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UNREPAIRED DAMAGE
Section 69 (2) and (3) deals with indemnity where

damage remains unrepaired and provides that the

Assured in such case is entitled to recover from

the Underwriters reasonable depreciation in the

value of the vessel arising from the existence of the damage but not exceeding the reasonable cost of repairing such damage.
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DRY DOCKING & GENERAL SERVICES

Where the vessel is dry docked for Owners account and repairs are found necessary for which Underwriters are liable and which can only be effected in drydock, or Repairs for which Underwriters are liable and Owners repairs immediately necessary for seaworthiness are carried out concurrently or she is due for ordinary drydocking.

Then the cost of drydock dues and general services is divided equally between the Underwriters and the Assured.
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DRY DOCKING & GENERAL SERVICES.....

However, if the vessel is specially drydocked to

carry out repairs for which Underwriters are liable

and the Owners takes advantage of the vessel being in drydock to carry out class surveys or repairs for his account not immediately

necessary for vessels seaworthiness then the Underwriters charges.

MARINE HULL CLAIMS L. B. MODY - J. B. BODA & CO. PVT. LTD.

are

charged

with

full

drydock

REMOVAL EXPENSES
Removal expenses are generally allowed as per the provisions of Rule D-1 of Rules of Practice of Association of Average Adjusters, U.K. The extent or duration of removal passage is assessed on deviation basis. Thus where i) Cargo is loaded at the repair port - no allowance for removal expenses is made ii) Vessel returns to the original port to load removal expenses on both the passages are allowed iii) In great majority of cases the vessel moves from a discharge port say (A) to a repair port (B) & thereafter to a new loading port (C), in such cases the allowance for removal expenses is calculated as - (A/B + B/C) - A/C
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OVERTIME / AIRFREIGHT
OVERTIME

As regards overtime, this is allowed only if it

results into savings to the Underwriters, otherwise not. AIRFREIGHT Extra cost of airfreight is now generally allowed as part of reasonable cost of repairs.
MARINE HULL CLAIMS L. B. MODY - J. B. BODA & CO. PVT. LTD.

CREDIT FOR OLD MATERIAL

Repairs to the ship, occasioned by insured perils are made good without deduction New for Old. However, where old material is replaced by new, credit shall be given in the Average Adjustment Report for the value of proceeds of the old material, or if there is no credit, the Adjuster shall

insert a note in explanation.

MARINE HULL CLAIMS

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ADJUSTERS FEES
Lastly the Adjusters fees i.e. the cost of Adjustment forms part of reasonable cost of repairs by worldwide custom although strictly speaking it forms part of the cost of proving the claim rather than part of claim itself.
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ITEMS NOT ALLOWED IN P.A.

Wages and Maintenance.

Any betterment or improvement.

Increased damage or increased cost of repairs

brought about because of repairs being deferred

to suit Owners convenience.

MARINE HULL CLAIMS

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COLLISION LIABILITY CLAIMS

When there is a collision, it may be possible that Only one vessel is responsible for collision. Both the vessels are responsible. None of the vessels are responsible. Inevitable accident or accidents arising through force majuere. Inscrutable fault It is impossible to find fault with either vessel.

MARINE HULL CLAIMS

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COLLISION LIABILITY CLAIMS.....

Under the Running Down Clause the Underwriters undertake to indemnify the Assured for three fourths of any sum which he may become liable to pay, and shall pay, by way of damages in respect of collision of the Assureds vessel with any other vessel, but to an amount not exceeding in respect of any one such collision three fourths of the insured value of the vessel.

The clause also makes provision for smaller proportion of the cost i.e. three fourths of legal cost in certain circumstances.
MARINE HULL CLAIMS L. B. MODY - J. B. BODA & CO. PVT. LTD.

COLLISION LIABILITY CLAIMS.....

It should be noted here that the collision

liability

under

Hull

Policy

is

supplementary contract. The most important provision of this

clause is that the indemnity is calculated on the principle of cross liabilities.

MARINE HULL CLAIMS L. B. MODY - J. B. BODA & CO. PVT. LTD.

SUE & LABOUR CLAIMS

In case of any loss or misfortune, it is the duty of the Assured to take such measures as may be reasonable for the purpose of averting or minimising a loss which would be recoverable under the Hull Policy. The Underwriters undertake to indemnify the Assured for expenses incurred for such measures.

This is also a supplementary contract and therefore, is payable in addition to own damage to the vessel.
MARINE HULL CLAIMS L. B. MODY - J. B. BODA & CO. PVT. LTD.

SUE & LABOUR CLAIMS.....

We have seen that Collision Liability and Sue and

Labour are separate contracts and are paid in

addition to damage to the vessel. Theoretically therefore, a Hull Policy insures three times the

Sum Insured i.e. P.A. or G.A. or P.A. plus G.A.,

Collision Liability, Sue and Labour. It should however be remembered that the deductible is applicable to the aggregate of all these claims except in case of Total Loss.
MARINE HULL CLAIMS L. B. MODY - J. B. BODA & CO. PVT. LTD.

EXCESS LIABILITY
It is a common practice for Shipowner to take out supplementary insurances on Disbursements including Excess Liabilities, to enable them to claim excess amounts which remains uncovered in respect of the claims for Salvage, General Average, Sue & Labour Charges and Collision Liability either in the event of underinsurance or in case collision liability exceeds three fourths of the insured value.
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GENERAL AVERAGE CLAIMS

Boat worth 100,000 Pays 8,334

Merchant One - 10 barrels worth

Merchant Two - 10 barrels worth Merchant Three receives

10,000 Pays

833

10,000 Pays

833
10,000

MARINE HULL CLAIMS

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GENERAL AVERAGE CLAIMS.....

Boat worth Merchant One - 10 barrels worth Merchant Two - 10 barrels worth 100,000 Pays 7,693

10,000 Pays
10,000 Pays

769
769 769

Merchant Three - 10 barrels worth 10,000 Pays Merchant Three receives

10,000 but pays 769

MARINE HULL CLAIMS

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GENERAL AVERAGE CLAIMS.....

Definition of General Average: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."
MARINE HULL CLAIMS

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GENERAL AVERAGE CLAIMS.....

Essential elements of General Average: Common Maritime Adventure.

Common Safety.
Sacrifice or Expenditure must be Extraordinary. Intentional and Reasonable.
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YORK-ANTWERP RULES The YAR consists of: A Rule of Interpretation. A Rule Paramount. Lettered Rules, and Numbered Rules.
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YORK-ANTWERP RULES.....
The Rule of Interpretation has two provisions. Firstly, it provides that the Rules will apply to the exclusion of any law or practice inconsistent therewith. And secondly, that the Rule Paramount and the numbered rules take precedence over the lettered rules. The Rule Paramount excludes allowances for sacrifices or expenditure unless they were reasonably made or incurred.

MARINE HULL CLAIMS

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YORK-ANTWERP RULES.....
The lettered rules set out the general principles of General Average. As already noted, they include a definition of General Average (Rule A), specific exclusions such as delay, damage to the environment and indirect loss (Rule C), the effect of fault (Rule D), substituted expenses (Rule F), the basis of contribution and a non-separation agreement (Rule G).

The general principles of the lettered rules can be overridden by the specific terms of the numbered rules, twenty-two of them, which are only subject to the Rule Paramount.
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NUMBERED RULES
Rule-I Rule-II Rule-III Rule-IV Rule-V Rule-VI Rule-VII Rule-VIII : : : : : : : : Jettison of Cargo. Loss or Damage by Jettison and Sacrifice for the Common Safety. Extinguishing Fire on Shipboard. Cutting away Wreck. Voluntary Stranding. Salvage Remuneration. Damage to Machinery & Boilers in order to refloat a grounded vessel. Expenses for lightening a Ship when Ashore and Consequent Damage.
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MARINE HULL CLAIMS

NUMBERED RULES.....
Rule-IX Rule-X Rule-XI : : : Cargo, Ships Material & Stores used for Fuel. Expenses at Port of Refuge, etc. Wages & Maintenance of Crew and other expenses bearing up for and in a port of refuge, etc. Damage to Cargo in Discharging, etc. Deduction from Cost of Repairs. Temporary Repairs. Loss of Freight.

Rule-XII Rule-XIII Rule-XIV Rule-XV

MARINE HULL CLAIMS

: : : :

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NUMBERED RULES.....
Rule-XVI : Amount to be made good for Cargo Lost or Damaged by Sacrifice. Contributory Values. Damage to Ship. Undeclared or Wrongfully Declared Cargo. Provision of Funds. Interest on Losses made good in General Average. Treatment of Cash Deposits.
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Rule-XVII : Rule-XVIII : Rule-XIX : Rule-XX Rule-XXI : :

Rule-XXII :
MARINE HULL CLAIMS

THANK YOU !