Marine Open Cover Policy - Coursework Example

INSTITUTE OF MARITIME BUSINESS MANAGEMENT Singapore 18h Intake Marine Insurance (MM 2323) Assignment Student: Student ID: Lecturer: Word Count: 1575 Abstract Marine Open Cover policy provides comprehensive device for effectively handing marine risks especially when the shipper has more consignments within a time frame. Marine open cover provides more convenience to the exporter by arranging insurance for more than five shipments and this remains effective until the agreement is cancelled by either party. This paper describes marine open cover and explains its advantages to the trader. Table of contents Abstract i Table of contents ii Introduction: The floating policy Marine Insurance Act 1906 Section 29 1 What is the marine open cover 2 Advantages of a marine open cover 3 Requirements to observe in the operation of marine open cover contract 4 Conclusion on impact of failure to effect marine open cover contract 5 References 6 Introduction: The floating policy Marine Insurance Act 1906 Section 29 Marine insurance is of major two types, voyage and time policies. Mostly, cargoes are insured on voyage basis since the insured is guaranteed of the insurance coverage once his goods start the journey and ends when they arrive the destination. According to the Marine Insurance Act 1906, section 29, a floating policy is highly useful when there are several consignments of cargoes and they are sent over a period of time. In the case of floating policy, the insurer doesn’t have all the details like vessel’s name, date of the shipment, value of the consignment etc (Carr and Stone, 2009, p. 437). Floating policy is a cargo policy with a sum being insured is sufficient to accommodate a large number of shipments for a single assured. It is an insurance contract in which insurance terms are described generally and it leaves for other details such as name of ship and date of shipping etc. A certificate will be issued for each different shipment (Kouladis, 2006, p. 247). Whenever goods are shipped according to a floating policy, a certificate is issued in respect of the goods being shipped for the evidence of insurance. As and when the amounts allocated get exhausted, the cover itself ceases and assured may sometime find that the cargo is not fully covered. Floating policy is significantly effective and practically convenient for those traders who have regular sending of consignments as this helps the trader set all details in general terms. Floating policy is agreed upon for a specific period of time or on the basis of open-always terms (marine-insurance-uk.net, 2012). In order to issue a further floating policy, the assured needs to remain under the cover. To overcome this inconvenience, insurance companies have started providing cover where a further floating policy was not taken out, and this arrangement is termed as issuing open cover. Open cover is almost similar to a floating policy in the way the insurer agrees to insure the goods, but the difference is that open cover is not a policy but an arrangement by which an insurer undertakes to issue policies as and when required by the assured (Carr and Stone, 2009, p. 437). What is the marine open cover A marine open cover is a special insurance arrangement that provides continuous coverage for more than five shipments based on a condition that the insured must declare either monthly or quarterly shipments coming within the scope of the open cover. This special insurance policy is arranged to a customer who has more shipments within a month. A marine open cover is an agreement between the insurer and insured by which the insurance company agrees to indemnify all the goods in transit falling within that agreement for an indefinite period until the agreement is cancelled by any of insurer or insured (ICNZ, 1998). General description of the goods, countries or regions from where the goods can be insured, maximum amounts that can be payable under the policy and the conditions for valuing the policy etc will be clearly specified in the marine open cover policy. Soyer (2005, p. 74) defined an open cover as an agreement by which an underwriter undertakes to insure all shipments or interests of the assured for certain voyages or trades, either for a specified premium or for specific rate to be arranged. All the water-going vessels that fall within the marine open cover contract are automatically covered by the policy. The assured needs to declare the details of each shipment through a declaration form at the end of each month or at the end of the specific period. The marine open cover will remain as effective until it is cancelled and this is for an open amount up to the maximum limit of indemnity. The insurance company insures the person or agency as the insured for the voyages and consignments of the insurable interests. This begins on or after the effective date on conditions of insurance, provided that all the consignments are shipped or for account of the insured. In marine open cover, the insured is required to declare promptly every consignment to which the open cover is applicable. The insurance company will be eligible to accept the declarations only up to the limit of indemnity stated in the schedule. According to the basic principle of indemnity, the insurer will compensate only the actual value of the loss to the property so that either of the party will not make profit from the policy. If an international mistake leads to an incorrect declaration or there is a failure in declaring the consignment, the insured must take measures to correct it as soon as the insured is aware of it (Associated Marine, 2009, p. 4). Advantages of a marine open cover Following are some of the major advantages that a manufacturer of domestic electric appliances can enjoy by choosing marine open cover. 1- Marine open cover policy guarantees insurance coverage for shipping at prearranged rates based on some specific conditions. 2- Losses are provided of certain coverage regardless they occur before or after details of shipments have been passed to the insurance company. 3- There are flexible policies that are tailored to give greater convenience to customer’s individual needs. 4- Insurance coverage and protection is guaranteed from the time that goods are at risk 5- The marine open cover policy remains effective until it is cancelled by either party to the contract. 6- Cost of insurance is usually lower that in the case of separate policies are arranged. A customer gets open coverage for more than 5 shipments and therefore he enjoys monetary benefits as well. 7- The electrical applicant doesn’t require to arrange separate insurance policies for separate shipment and he doesn’t have to approach reinsurance or more insurance agencies. 8- Exporters gain more convenience to offer insurance in the costs of goods when negotiating sales, and 9- The insured can make payment of premium according to his flexible and business convenience such as annually, monthly or quarterly (ICNZ, 1998, P. 6). Requirements to observe in the operation of marine open cover contract As required in the case of other polices, marine open cover policy requires both the insurer and insured to meet all the fundamental legal requirements. They are, utmost good faith, indemnity, insurable interest etc. Utmost good faith states that the insured must disclose all the material facts known to him in relation to the water-going vessel and its contents to the insurer while fills in the proposal form (Merkin and Stuart-Smith, 2004, p. 52) Insurer is also required to reveal all the facts related to the policy to the insured. If any of them or both failed to adhere to these, either of the party has legal right to cancel the contract. Indemnity principle states that an insurance company will compensate the loss or damages exactly according to the actual loss of the property, and thus the company will not allow others to make profits out of policy. According to the insurable interest, an assured can take insurance for a property in which he has insurable interest as he would feel financial losses when the property faces damage or loss. Premium for the marine open cover will be assessed and charged on each declared consignment at the rate that is specifically mentioned in the schedule. In the case of institute’s war clause or institute’s strike clause become applicable, the insured will have to pay an additional premium for war risks and for strike contingencies. While the insured comes with a recoverable claim, the insurance company has the option of settling the payment by repairing or by reinstatement or by replacing the lost or damaged interest. When the insurer makes a payment under the option of Goods and Service Tax, the insurer will reduce the amounts of the payment by the total amounts of input tax that the insured is credited by. Marine open cover provides coverage to a variety of risks, but the most common are Institute Cargo Clauses that cover losses or damages to goods in transit. In addition to this, war risks and physical losses or damages of goods or water-going vessels due to strikes, wars, riots and other contingencies can also be covered by. There are some exclusion to the losses and damages that can be covered. They are:1- damage or risks occurred due to the wilful misconduct of the trader, and 2- ordinary leakage, loss in weight, wear and tear of goods etc. Conclusion on impact of failure to effect marine open cover contract Marine open cover is a special arrangement that an assured is able to ensure maximum insurance coverage for more shipments based on monthly or quarterly shipments within the scope. Marine open cover policy is highly convenient for those traders who have more shipments within a month. Failure to effect marine open cover gives overburden and high expenses for the insured. If the insured fails to gain an effective open cover arrangement, he doesn’t get automatic protection until the consignments leave from the warehouse and the shipper is required to arrange individual placing of insurance for each shipment. In open cover policy term, the shipper has prior knowledge about the rate of premium that will be charged. Apart from all these, using open cover policy can help the trader create and maintain a long term business relation between the shipper and insurance company. References Associated Marine, 2009, Marine Open Cover policy wording, Associated Marine Carr, I and Stone, P, 2009, International Trade Law, illustrated edition, Taylor & Francis ICNZ, 1998, Marine Cargo Open Policy Handbook, ICNZ Kouladis, N, 2006, Principles of Law Relating to International Trade, Springer Marine-insurance-uk.net, 2012, About Marine Cargo Insurance, Retrieved from http://www.marine-insurance-uk.net/duration.htm Merkin, R.M and Stuart-Smith, J,2004, The law of motor insurance, Sweet & Maxwell Soyer, B, 2005, Warranties in Marine Insurance, Second illustrated edition, Routledge Read More