Modern Marine Insurance Laws - Essay Example

MARINE INSURANCE s Full Full [Day Month Year] TABLE OF CONTENTS Abstract ……………………………………………………………………………..3 Introduction of Marine Insurance……………………………………………………4 Beginnings of Marine Insurance……………………………………………………..4 Modern Marine Insurance Laws……………………………………………………..5 Functions of Marine Insurance………………………………………………………6 Who is Insured ………………………………………………………………………7 What are the Risks…………………………………………………………………….7 – 8 Indemnity……………………………………………………………………………..8 Drawbacks…………………………………………………………………………….9 Conclusion…………………………………………………………………………….9 References…………………………………………………………………………….10 - 11 . Abstract This paper is about how the marine insurance industry began and about its decisive shaping time. It explains the beginnings and it evolution from that time to the present time. It shows the advantages or marine insurance as a safeguard against crippling losses which could literally destroy a person’s lifetime of hard work and achievement. It also covers the methods of compensation, who and what can be insured and how most of the laws applicable to general insurance generally evolved through marine insurance, which was the pioneer in the insurance industry. It also shows other inherent factors and precedents that led to the laws made for marine insurance during middle ages, most of which are prevalent even today. Marine Insurance Introduction of marine insurance: People obtain insurance coverage to cover any eventualities that could result in losses both to property and to life and limb. For a small monthly or yearly payment (premium) Insurance companies compensate people to the amount that they are insured for or covered for. Marine insurance is obtained to cover the loss or damage of cargo, of the ships that transport the cargo, terminals that handle the cargo and any transport which is used to transfer the cargo by sea from one location to another or from one country to another. Insurance of cargo is another subdivision of marine insurance. Onshore and offshore property that is open to the elements, container handling terminals, ports, oil rigs and pipelines, Hull, Marine Fatality or victim and Marine Liability all are covered under marine insurance (Kyriaki, 2007). Beginnings of Insurance: Marine insurance was the initial type of insurance, that was started in the early days of Greek finance and Roman maritime, and unconnected and independent contracts were later undertaken in Genoa and several other Italian cities in the fourteenth which then were extended to other countries and cities in Northern Europe. Premiums were charged with the type of risks involved with storms and the danger of pirates. The contemporary beginnings of marine insurance laws and regulations were according to the “law merchant” the organization of commercial law that was used by merchants throughout Europe during the middle age in Europe. It developed gradually comparable to “common law” or more commonly referred to as case law that were recorded on precedents, or through earlier decisions made by courts through law courts of justice, and not by legislation or by any government order. The “common law system” is a system of laws that acts on the principles that it would not be fair to treat similar cases in a different manner than has been previously judged or approved. This precedent sets the guiding principles for further decisions (Kyriaki, 2007). The common law serves as arbitrator when two or more parties cannot agree on a decision. However, if there has been no previous judgment for a particular case, the judges have the authority and are duty bound to create a precedent for guiding future courts. Common law was imposed through trial courts along sea routes, and was recognized as the international law for trade and commerce. Modern Insurance Laws: The contemporary beginnings of marine insurance in English law were also the law merchants. In 1601, a separate and extraordinary chamber of guarantees or assurance that was distinct from other Courts was established by Lord Mansfield, who was the Lord Chief Justice in the middle of the eighteenth century initiated marine insurance with the combination of law merchant and ordinary law principles. This was also the beginning of Lloyd’s of London, which was started in competition with other insurance companies, and developed one of the simplest levels of organizational hierarchy in a entangled or complex body which acted as a basis for others that included experts such as shipbrokers, and maritime or admiralty which controls and has authority over maritime written or verbal inquiries and legal or moral acts of crime. During the 19th century Lloyd’s and the Institute of London Underwriters which was a consortium of London created and consistent distinct section of documents, especially legal documents, that is usually separately numbered (clauses) to regularize marine insurance. These are now used and are a standard part of marine insurance all over the world. These clauses enable parties to independently write contracts among themselves. Traditional insurance was the outcome of marine insurance and “reinsurance” (Rosio, 2010). Functions of Insurance: The general meaning of insurance is “a safeguard against financial losses or setbacks” that could happen accidently, or due to some unforeseen circumstances beyond ordinary human control. Literally anything and everything can be insured be it property, life, professional assets like the voice of a singer, the legs of a professional sportsman or anything that a person can think of, that is valuable and which is the major component for the person’ livelihood. The main reason that people insure themselves, their properties or cargoes or any other things is to be protected from any risks that may occur in the future, and in case of accidents and improbability. Obtaining insurance coverage cannot prevent accidents from happening, but keeps the person from financial losses by compensating what was lost as the result of the any accident or disaster. Insurance means sharing the risk of your losses with someone else. In case a person who is insured for life does not meet with any accident or uncertainty, insurance coverage is a type of retirement fund, or money that can be used for other purposes after the maturity of the policy. Insurance safeguards against the uncertainties’ in life (Sampath, 2010). Functions of Marine Insurance: The Marine Insurance acts issues a standard policy which is called the “SG Form”. The terms of the policies have been used for the last two centuries of legal standards, so they are very detailed and comprehensive. Before 1991, the wording of the policies was pretty antiquated, so the London traders re-wrote a new standard policy in contemporary language which was called the MAR 91 form. Because marine insurance policies are usually issued on a contribution basis, all participating underwriters share the liability on proportionate sharing basis, meaning that each agent is responsible for compensating his share of the payments when a claim is lodged. If for some reason one under writer cannot pay his share of the claim, under the law the liability cannot be transferred onto the other underwriters. Marine insurance is divided between the ships and the cargo. The insurance coverage of the ship or vessel is normally known as “Hull and Machinery” (H&M). A more specific form normally used in reinsurance called (TLO) covers the total loss of the vessel and the cargo collectively, but does not cover partial losses. Insurance cover is usually issued on either a “voyage” basis which essential provide compensation for losses between the sea port written in the policy or “time” basis which provides insurance cover for a specific period of time, usually one year and that is more generally used (Kyriaki, 2007). Who is insured? A marine policy is normally only liable to compensate for three quarters of the insured obligations under the law. The normal responsibilities cover running into or colliding with some other ship, colliding with some equipment or fixed object in the harbor such as the edge of a wharf or any other fixed construction, or the removal of a wreck which could be blocking the sea port. During the 19th century, many ship-owners gathered to form “mutual underwriting clubs” which are also called “Protection and Indemnity Clubs”. These clubs are still operating and their policies are followed for other marine and non-marine policies such as those related to oil pollution or the risk of nuclear accidents (Kyriaki, 2007). What are the risks? Since concept of liability is not the same all over the globe, insurers take a significant amount of care to manage liabilities in respect of “actual total loss” and “constructive total loss”. These two terms are implemented to assess proof when a vessel or its cargo has to be compensated for losses arising out of claims. The real total loss occurs where the reimbursement or the cost of repairs is equal to or more than value of the property. The constructive total loss formula is applicable where the cost of the repairs is added to the cost of recovery equals or is more than the value of the repairs (Rosio, 2010). Compensation: Compensation is given to claimants on the assessment of the damages or losses suffered, which sometime becomes difficult to assess in cases of losses at sea, or in the case of thefts. This is where marine insurance is not the same as conventional insurance where the claimant has to prove his/her loss. Marine insurance was actual insurance of “an adventure” with the insurers being partners of part owners of the vessel or cargo, and not just the monetary average aspects of the claim or the losses. Indemnity: The terms average has two distinct meanings. One occurs in case of fractional loss or urgent situation such as a ship in a severe storm might have thrown overboard certain cargo to stay afloat. General average makes all parties who are participants in the venture to totally compensate for the losses caused to the cargo or vessel. “Particular average” applied to only selected cargo and not all cargo. Where some cargo has not been adequately insured, than to assess its worth, averages will be applicable to the amount that is to be compensated. This is determined by a “marine adjuster” who is an expert for the assessment and issuing the general average statement for payments to be made (Rosio, 2010). Drawbacks: Drawbacks occur for cargo that is perishable due to any reason, such as rise and fall of temperature, or will deteriorate of be damaged due to lengthy storage such as eggs, chocolates, wine beer etc. Conclusions: Marine Insurance is more beneficial that its drawbacks. Marine insurance has facilitated and has been pivotal in the growth of international trade, and even internal trade where boats, trawlers or other vessels are commonly used. Overall it provides security in uncertain situations. References Boat Insurance in the UK, UK Marine Insurance, Marine Insurance UK. (May 26 2010 ) Economy Watch   Kyriaki, Noussia (2007). The Principle of Indemnity in Marine Insurance Contracts: A comparative approach. Karan, C. (December 6, 2010) What is Marine Insurance: Marine Sight Marine Cargo Insurance (2012), Insurance Plan Reviews; Rosio, Carl Christian. (2010). Warranties In Marine Insurance: An unpleasant necessity? Jurisdisk Publications Roover, Florence Edler de (November, 1945). The Journal of Economic History: Published by the Economic History Association. Sampath (October 24, 2010). Marine Insurance Clauses - some insight of F.P.A and the clauses incorporating Free of Particular Average. UNCTAD Model Clauses on Marine Hull and Cargo Insurance: ( 1989) United Nations Conference on Trade and Agreement Wyvern International Insurance Brokers: Guide to Cargo Insurance: Adapted from the American Institute of Marine Underwriters Wise Geek (20120) Clear answers for common questions: What is marine insurance? Read More