“the practice of sharing among many persons,risks of life or property that would otherwise be suffered by only a few.”
Definitionof marine cargo insurance“the insurant enters with an insurance companyand/or an underwriter into a contract of insurance in which the insurancecompany of an insurance premium and the insurance company will, according tothe terms indicated in the insurance contract, indemnify the insurant of anyloss that occurs within the scope of coverage”.
Parties involved in an insurance practice
theinsurant / insured/assured –The party that procures insurance –Can be the exporter or importerdepending on the Incoterms adopted in the transaction
theinsurer–The party undertaking to indemnifythe insurant against losses or damages– Can be the insurance company /underwriter•In China, PICC is usually theinsurer
theclaimant–The insurant may not necessarily bethe claimant –Depending on: who has the insurableinterest of the goods when the goods are damaged or lost
Fundamental principles
TheInsurable Interest Principle(可保利益原则)
Definition: The financialinterest of aperson in the subject matter insured •Forms of insurable interest:
–Ownershipof the goods
–Chargeof insurance
–Freight
A policy without insurable interestis invalid
Proof of insurable interest isrequired at the time of making a claim, not at the time of effecting aninsurance
The Utmost Good Faith Principle(最大诚信原则)
Bothparties be faithful and honest in entering into the insurance contract
MarineInsurance Act 1906:
–If the Utmost Good Faith Principleis not observed by either party, the other party may avoid the contract
Avoidance of the contract
–Thereis no fraud and the Contract is valid: serve as evidence in a court of law
–Usuallyoccurs when an insurer refuses to pay a claim, the insured has the right tochallenge the insurer‘’s right to avoid the contract
Avoid contract
–hasno legal value
–cannotserve as evidence in a court of law
The Indemnity Principle(赔偿原则)
Definition
–In the event of loss of or damageto the subject matter resulting from an insured peril, he or she is placed inthe same position (not in a better or worse position than) that he or sheenjoyed immediately before the loss occurred
Meansof effecting indemnity
–In theory: by replacing the shipsor goods lost or damaged
–In practice: by paying an amount ofmoney equal to the value of the goods lost or damaged
Extentof indemnity: total indemnification be limited to
–the insurance amount: 110% of theinsured value
–the actual loss suffered
–the insurable interest of theclaimant
TheProximate Principle ( 近因原则)
–employedin the judgment of causation between accidents and losses
–refers to the major and/or effective (not necessary the first or the last, butthe dominant) cause that has led to the accident.
–The insurer shall only beresponsible for the loss resulted from the dominant cause
How to decide the proximate cause
–Incase of only one cause•within insurance coverage: theinsurer shall indemnify•beyond insurance coverage: the insurer shall not be responsible for the loss
–Incase of two or more than two causes If all causes are within the insurancecoverage, the insurer hold responsible for the loss.
If the former cause is within the scope of insurance coverage and the latter oneis out of the scope of insurance coverage, provided there is a direct chain ofcausation between them, the former cause is regarded as the proximate cause andthe insurer shall be held responsible for the loss or damage.
If the former cause is within theexclusion of the coverage and there is a direct chain of causation between theformer and latter cause, the proximate cause is considered out of the scope ofinsurance coverage and the insurer need not be held responsible for the loss ordamage.
TheSubrogation Principle (代位求偿原则)
Definition–When the loss of the propertyinsured is caused by a third party, the insurer is automatically entitledto compensation from the third partyafter indemnification has been made to the insurant.
The right of subrogation is exercised either in the name of the insurer or that ofthe insured.
Theamount recovered–The amount recovered shall belimited to the amount of the claim paid under the insurance. If the insurer may recover morethan the amount paid by him as a claim, he must pass the surplus proceeds tothe insured.
The Share Principle(分摊原则)
Definition–Underthe circumstance of double insurance, all the insurers shall jointly bear theloss on the subject matter and share the loss according to their respectiveinsurance proportion.
Double insurance–theinsured has the risks covered by two different insurance companies upon theidentical interest in the identical subject matter.
Each insurer is normally only liable,–incase of total loss, to pay the insured to the extent of the sum written againsthis own name (the amount of his subscription) – incase of partial loss, some proportion of that sum.
Marine Risks and Losses
Two types of risks
–Perils of the sea
Natural calamities
–Causedby force majeure events such as heavy weather ,lightening, Tsunami, earthquake,volcanic eruption, thunderbolt , etc.
Unexpected accidents /fortuitous accidents
–Caused by accidents such as fire, explosion, vessel being stranded , grounded, sunk orcapsized, collision, missing, etc.
–External risks/extraneous risks
General risks
–Causedby common factors such as theft, fresh water rain, shortage, leakage, clash andbreakage, odor, heating and sweating, hook damage, rust, breakage of packing,etc.
Special risks
–Causedby military factors, political factors, government regulations such as war,striking, confiscation, etc.
Marine Losses
Two types of losses
–Total Loss : loss of the entire value of thesubject matter
Actualtotal loss–cargohas been totally lost or has been damaged to the extent that it has lost itsoriginal usage
Constructivetotal loss–cargois not totally lost, but the actual total loss shall be unavoidable or therestoration fees together with other miscellaneous expenses will exceed theanticipated amount of profit.
–Partial Loss: a partial damage to or the totalloss of part of the insured cargo.
Particularaverage–Apartial loss of the subject matter insured caused directly by a peril insuredagainst, –Noother cargo sacrificed to save the voyage–Theowner who suffered the damage refer to the insurance company provided hispolicy covers the specific loss.
Generalaverage–Apartial & deliberate sacrifice of the ship, freight, or cargo, oradditional expenses incurred to rescue a ship and its cargo from impedingdanger or for the common safety of the adventure under a peril of the sea orsome other hazards
