Marine insurance law TrineLise Wilhelmsen Scandinavian Institute of

Marine insurance law Trine-Lise Wilhelmsen Scandinavian Institute of Maritime Law Spring 07 Marine insurance 1

Overview o o The main types of marine insurance The legal sources The insurance contract Insurable interest, insurable value and the sum insured o Scope of cover Spring 07 Marine insurance 2

Overview o o o Duties of disclosure and due care Measures to avert or minimize loss Practical question to be solved Practical question, discussion General approach: Common rules for ship and cargo Spring 07 Marine insurance 3

1. The main types of marine insurance o Insurance related to ships o Insurance of goods under transport o Some other distinctions Spring 07 Marine insurance 4

1. 1 Insurance related to ships o Casualty insurance o Damage to/loss of property o Element of liability o Element of loss of income o Divided into two: o Hull insurance o Hull interest insurance Spring 07 Marine insurance 5

1. 1 Insurance related to ships cont. o Loss of income o Covering income derived from property: o Loss of hire, freight interest, strike o Liability insurance o Covering ship-owners third party liability o Main liability insurance: P&I insurance o Overlaps with hull/hull interest insurance covering part of the collision liability Spring 07 Marine insurance 6

1. 2 Insurance of cargo under transport o Covers cargo under transport from A to B (seller to buyer) o Casualty (damage and loss) insurance o Includes owners profit o But not o loss of income in general o owners liability Spring 07 Marine insurance 7

1. 3 Some other distinctions of relevance. o Marine/civil risks vs war risks o Marine/civil insurance covers all risks that are not excluded o Special exclusion for war risks o War insurance covers war and similar perils as defined o Distinction used in all marine insurance Spring 07 Marine insurance 8

1. 3 Some other distinctions of relevance. o Primary insurance – coverage for costs of saving acts o Primary insurance: coverage of casualties o Caused by perils insured o According to the principles of indemnity in the contract. o Saving acts: covers o expenses incurred to avert/minimize losses o according to ordinary tort principles Spring 07 Marine insurance 9

2. The legal sources in marine insurance o The international legal picture o The Norwegian legal picture Spring 07 Marine insurance 10

2. 1 The international legal picture o No international convention o The English marine insurance market o The Scandinavian marine insurance market Spring 07 Marine insurance 11

2. 1. 1 No international convention o Contrary to many other areas of maritime law o Has been attempts of harmonization in UNCTAD o A new attempt recently by CMI and NIFS o The situation today Spring 07 Marine insurance 12

2. 1. 2 The English insurance market o The English MIA = the legislative framework in most common law countries o English ITCH clauses used in o even more common law countries o and in some civil law countries Spring 07 Marine insurance 13

2. 1. 3 The Scandinavian market o Each country has their own set of conditions o During the last century much inspired by the Norwegian Marine Insurance Plan o Many similar solutions o But different structure and legal framework Spring 07 Marine insurance 14

2. 2 The Norwegian legal picture o o FAL (ICA) 1989 The Norwegian Marine Insurance Plan The Norwegian Cargo Clauses The P&I Conditions Spring 07 Marine insurance 15

2. 2. 1 FAL (ICA) 1989 o Starting point: Mandatory, § 1 -3 o But exception for o insurance of ships that should be registered, § 1 -3 (c) o Insurance of international transport of cargo, § 1 -3 (e) o However: Cargo insurance follows ICA with certain exceptions Spring 07 Marine insurance 16

2. 2. 2 Norwegian marine insurance Plan 1996 (NMIP) o Standard contract (Agreed document) o Developed over 125 years o Most of the interested parties have participated in the construction o This approach contrary to ITCH/other conditions Spring 07 Marine insurance 17

2. 2. 2 Norwegian marine insurance Plan 1996 (NMIP) o Covers most of the insurances for the shipowner o But: not P&I insurance o Extensive preparatory documents (Commentary) o Little relationship with the ICA Spring 07 Marine insurance 18

2. 2. 3 Norwegian Cargo Clauses (CICG) o Conditions relating to insurance for the carriage of goods o Many of the same characteristics as NMIP o But o Less extensive commentaries o A stronger connection to the ICA Spring 07 Marine insurance 19

2. 2. 4 The P&I Conditions o Traditionally: Part of the NMIP o Today: Skuld and Gard (Norway), Swedish club (Sweden) o Part of international network o Cover: Protection and Indemnity + other types of cover Spring 07 Marine insurance 20

3. The insurance contract o The parties to the insurance contract o The formation of a marine insurance contract o Jurisdiction and choice of law Spring 07 Marine insurance 21

3. 1. The parties to the insurance contract o o o o Definitions, NMIP § 1 -1 The insurer/company Coinsurance /claims leader (NMIP ch 9) Reinsurance The assured The person effecting the insurance Insurance of third party interest Spring 07 Marine insurance 22

The parties to the contract Insurer Insurance contract Right to compensation Person effecting the insurance Spring 07 The assured Marine insurance 23

Insurance of third party interest Insurer Insurance contract Right to Compensation Person effecting the insurance Spring 07 The assured Marine insurance 24

Insurance of third party interest, NMIP Co-insured, Ch. 7 and 8 Insurer Right to compensation Insurance contract Person effecting Insurance Spring 07 Assured Marine insurance 25

Insurance of third party interest, CICG Buyer Company Right to compensation Insurance contract Seller Spring 07 Seller Marine insurance 26

Co insurance → Partial insurance with more than one insurer 1/3 Ship 600 mill NOK 1/3 Insurer A 200 mill NOK Insurer B 200 mill NOK Insurer C 200 mill NOK Spring 07 Marine insurance 27

Reinsurance → The insurer reinsures the risk undertaken under the direct insurance contract. Ship: 600 mill NOK Direct insurance: 100 % Insurer: 100 mill NOK Reinsurance: 500 mill NOK Reinsurer: 500 mill NOK Spring 07 Marine insurance 28

3. 2 Concluding the Contract o o o Starting point: Ordinary contract law The use of broker: NMIP § 1 -3 “Housekeeping rule” No sanctions The purpose Relationship to the “slip” Spring 07 Marine insurance 29

3. 2 Concluding the Contract o Documents o NMIP: Written proof of insurance = policy, see § 1 -2 o CICG: o Insurance certificate, ICA § 2 -2 o Insurance document , CICG § 1 nr. 4 o Single shipment = Insurance certificate o Open cover/floating policies = certificate + document o Gard 5: Certificate of entry Spring 07 Marine insurance 30

3. 3. Jurisdiction and choice of law o NMIP § 1 -4, CICG § 59, Gard 90/91 o Main rule: o Norwegian jurisdiction and o Background law o But: NMIP § 1 -4. 3: foreign claims leader o The relationship to the ICA Spring 07 Marine insurance 31

4. Insurable interest, insurable value and the sum insured o o o Insurance unrelated to any interest Insurable value and sum insured Underinsurance and overinsurance Double insurance Calculating the insurable value The sum insured as limit to the insurer’s liability Spring 07 Marine insurance 32

4. 1 Insurance unrelated to any interest o Insurance unrelated to any interest is void, NMIP § 2 -1, Criminal Enactments Act § 12 (wager insurance) o MIA sec. 4. 1 o The relationship with provisions concerning legal interest: o NL 5 -1 -2 o NMIP § 3 -16 concerning illegal activities o CICG § 18 nr. 4 Spring 07 Marine insurance 33

4. 2 Insurable value and sum insured o Insurable value, NMIP § 2 -2, CICG § 29 = o Value of the insured interest o at the commencement of the insurance o Maximum for liability o Not possible in P&I insurance o Sum insured = the sum the assured has chosen to insure Spring 07 Marine insurance 34

4. 2 Under insurance o Under-insurance = insurable value exceeds sum insured o Regulated in NMIP § 2 -4, CICG § 30 o Not possible in P&I insurance o Pro rata reduction in coverage o Not common in hull insurance except for co insurance Spring 07 Marine insurance 35

Under insurance Insurable value: 1000 Potential loss Sum insured: 500 Spring 07 Marine insurance Compensation 500/1000 = 50 % Of each damage 36

4. 2 Overinsurance o Over-insurance = sum insured exceeds insurable value o Regulated in NMIP § 2 -5, CICG § 31 o Liability limited to the insurable value o No liability in case of fraud o Not good business Spring 07 Marine insurance 37

Over insurance: Sum insured: 1000 Basis for premium Max. compensation Spring 07 Insurable value: 660 Marine insurance 38

4. 2 Double insurance o Double insurance = same interest insured against same peril under two or more contracts o NMIP § 2 -6, ICA § 6 -3 o Main rule: joint liability o Exclusion: Subsidiarity, NMIP § 2 -6. 2 Spring 07 Marine insurance 39

4. 3. Calculating the insurable value o ”Open” insurable value, NMIP § 2 -2 = full market value when the insurance commences o Assessed insurable value, NMIP § 2 -3 = as agreed between the parties o CICG § 29: Market value + costs Spring 07 Marine insurance 40

4. 4 The sum insured as limit to the insurer’s liability o NMIP § 4 -18: Three times the sum insured: o o The ”ordinary” sum insured o + the ”collision liability” sum o + the ”costs of measures to avert or minimize a loss” sum CICG § 32 -33: o Sum insured for casualties, § 32 o + losses according to § 39 -43, i. e. salvage measures etc. Spring 07 Marine insurance 41

5. Scope of cover o Terminology o Perils insured against in marine insurance o Causation Spring 07 Marine insurance 42

Terminologi Perils insured Losses covered Heavy weather Damage The casualty Theft Leakage Collision liability Fire Loss of time Etc Causation Spring 07 Total loss Causation Marine insurance 43

5. 2. Perils insured against o The main distinction: Marine insurance and war risk insurance o NMIP § 2 -8 and § 2 -9 o CICG § 3 to § 5 and § 18 nr. 6 o Gard 58 o General distinction in international marine insurance Spring 07 Marine insurance 44

5. 2. Perils insured against o Marine risks o The all risks principle, NMIP § 2 -8 / CICG § 3 o Exceptions: o CICG § 4 and 5: Limited cover o War perils, § 2 -8 letter a), CICG § 18 nr. 3 and 6 o Intervention by state power, NMIP § 2 -8 b), CICG § 18 nr. 7 and 18 o RACE II, NMIP § 2 -8 d) and CICG § nr. 10 and 11. o NMIP: Insolvency, letter c) Spring 07 Marine insurance 45

5. 2. Perils insured against o War insurance o Named perils principle, NMIP § 2 -9, CICG Special clauses for Strikes, sabotage, acts of terrorism, etc o NMIP: Common exceptions, see above o The relationship between the two branches Spring 07 Marine insurance 46

5. 3 Causation o o o The problem General insurance law NSPL/CICG: The main rule Combination of war and marine perils Combination of perils over different insurance periods Spring 07 Marine insurance 47

5. 3. 1 The problem o Presumption: o Two causes are necessary to result in a loss, o none of them are sufficient. o Combination of perils in different situations o Covered and uncovered perils o Perils covered under different branches o Perils occurring in different insurance periods Spring 07 Marine insurance 48

Presumption: Two necessary causes Ship collides Two sufficient causes Spring 07 Collision damage The ship sinks Mine Marine insurance 49

Combination of covered and uncovered causes Marine insurance Bad weather Grounding Combination of causes Breach of Safety rule Spring 07 Marine insurance 50

Combination of causes covered under separate insurances Marine insurance Failure of navigation Combination of causes Grounding Darkening of lighthouse War insurance Spring 07 Marine insurance 51

Causes in different periods 2004 2005 Fracture Casualty Bad weather Spring 07 Marine insurance 52

5. 3. 2 General insurance law o The main rule: The dominant cause rule o Legal basis: ND 1916. 76 jfr. 1916. 209 Skotfos o The content o Anglo American solution: Causa proxima o P& I insurance: Gard 90: ordinary insurance law Spring 07 Marine insurance 53

Rt 1916. 209 Skotfos Marine insurance Failure of navigation Liability ”Dominant cause” = the most important The ship runs aground Combination of causes Darkening of lighthouse Not relevant cause War insurance Spring 07 Marine insurance 54

5. 4. 3 NMIP/CICG The main rule o NMIP § 2 -13/CICG § 20 o Apportionment principle, not the dominant cause rule o Special Norwegian principle o Only applied in marine insurance o Combination of covered and uncovered perils Spring 07 Marine insurance 55

NMIP § 2 -13/CICG § 20: Coverage 70 % Covered risk 70 % Casualty Uncovered Risk 30 % Uncovered 30 % Spring 07 Marine insurance 56

5. 4. 4 Combination of war and marine perils o NMIP § 2 -14 o Reinstates the dominant cause rule as a main rule o If neither cause is dominant, equal division Spring 07 Marine insurance 57

5. 4. 5 Combination of perils in different periods o NMIP § 2 -11 o Starting point: When the peril strikes o Exception for unknown defect or damage Spring 07 Marine insurance 58

NMIP § 2 -11 The insurer is liable for loss occurred when the interest insured is struck by an insured peril during the insurance period. A defect or damage which is unknown at the inception or on expiry of an insurance, shall be deemed to be a marine peril which strikes the ship at the time the casualty or damage to other parts occurs, or at such earlier time as the defect or the first damage became known. Spring 07 Marine insurance 59

Incidence of loss, NMIP § 2 -11, 1: Peril strikes 31. 12. 2005 Renewal Time Casualty No liability for the 2006 insurer 2005 - policy Spring 07 Marine insurance 60

Incidence of loss, NMIP § 2 -11, 2: 2006 2004 Develop ment Fracture 2004 - policy 2006 - Policy Viz: -Primary damage attributed to the point in time when the peril struck -Consequential damage covered when development occurs Spring 07 Marine insurance 61

Incidence of loss, NMIP § 2 -11, 2: 2000 Defect 2004 2006 Fracture Develop ment 2004 - Policy 2006 - Policy ”Peril strikes” Spring 07 Marine insurance 62

Incidence of loss, NMIP § 2 -11, 2: 2000 Defect 2004 2006 Fracture Develop ment ”Peril strikes” 2004 - Policy 2006 - Policy But: deemed to be a marine peril which strikes at the time of the extension Spring 07 Marine insurance 63