Background:
Ocean Marine Insurance is the oldest form of insurance, probably dating to the Middle
Ages. The organization of Marine Insurance took great steps forward with the formation and
development of an insurance market on Lombard Street in London, England and subsequently--
since 1769--Lloyds of London. Today, Lloyds still plays a prominent role in Marine
Insurance. The first American insurer was Insurance Company of North America (now
CNA, one of the companies that writes insurance for David G. Sayles
Insurance Services), formed in 1794. CNA has operated continuously since that time, and
remains an important market for marine as well as other forms of property and casualty
insurance.
Because of its long tradition, marine policies tend to be the most traditionally worded
policies in the insurance industry, and to have the longest tradition of case law legal
decisions covering the various terms and clauses of the policies. While care should be
taken with any insurance to clarify any definitions provided in the policies, this is
especially true in marine coverages, where the defined terms may have long histories.
To see visually the areas of coverage available under the Ocean Marine policy forms, see View. This picture covers three of the four common policy
forms--cargo, hull and yacht--and who knows where that ship is going?
| Shipping Terms: In 1990 the
International Shipping Industry agreed on a number of terms, which will be honored by
various governments internationally, that allow transfer of ownership and control of goods
in shipment at various stages of the shipping process. These are called the Incoterms, and are presented graphically on the linked page. If
you are buying or selling internationally you should be familiar with these options, which
can improve or jeopardize your transaction! |
The Marine Cargo Policy
Ocean Marine Insurance is designed to cover various hazards related to the movement of
goods. The first and obvious protection that can be provided is for the cargoes
themselves. This protection can be provided to the seller/shipper or to the buyer. Where
ownership of and responsibility for the cargo are assumed is crucial in determining what
coverage is needed. This used to be a simpler exercise than at present--as a limited
number of shipping terms existed, e.g. FOB, CIF etc.
In 1990 the International Shipping Agency agreed on an expanded set of terms, which allow
transfer of ownership and responsibility at various points along the transit route,
including at customs borders. We have set the various terms out in graphical format in Incoterms.
Risks are unavoidable in the shipment of goods. Goods are loaded and
transshipped. Travel
on the ocean provides its own set of perils. These risks require that the shipper take
reasonable steps to ensure the safety of his goods while in transit, for instance with
proper packaging and/or containerizing, and shipping on a vessel appropriate for the goods
in question.
Goods are generally handled many times during shipment, and Marine Insurance is designed
to provide coverage throughout this process. Goods are first loaded at the origination
point onto a land vehicle (truck or train, for instance). They are held in a port prior to
loading onto a ship. They may be unloaded at an intermediate port, and held for
transshipment on a second vessel. Upon arrival in the destination country, they must be
cleared through customs, then loaded onto land carriers for transfer to the buyer's
premises. (There may also be transfers between land transports on either the buyer's or
the seller's end--during which time the goods are under the control of warehouse depot
operators, and additional trucking or rail companies).
The marine policy may be scripted to meet a variety of situations and desired coverages.
Generally, the policy covers perils of the
sea, fire, assailing
thieves, jettison, barratry of the master, explosion, defects in the ship that cause damage, and
other perils.
Exclusions in the policy are important, and should be reviewed with a qualified risk
manager, such as your insurance agent. These typically include damage due to dampness,
breakage, delay or loss of market, acts of war,
confiscation,
etc., strikes, riots or civil commotions.
| Further Reading: The books on the linked page provide fuller information than we can
provide in this space. We have provided brief reviews of some of them. (We haven't checked
their availability at Amazon.com, although we do have a link if you want to
investigate further). |
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Check This Out:
A Company goes "Global" |
Widget, Inc. is moving to international sales. Going international
sounds good—after all, the world is becoming one big economy. Let's just hope Widget
Inc. remembers to expand its domestic insurance coverage to encompass the new foreign
exposure.
For instance, the products coverage in a standard Commercial General Liability policy
(CGL) must be extended to protect against the product injuring a person or damaging
property outside the CGL's territorial coverage--normally, the United States, its
territories and possessions and Canada, along with transportation between these locations.
The CGL does provide limited worldwide coverage for the occasional product that ships
out of the country. For example, if someone buys your suntan lotion in the United States
and gets a rash from it on a trip to Jamaica, the CGL will offer coverage--but not if a
suit is first brought outside the CGL's territorial coverage. This is good protection for
most firms — but not for Widget since it's planning to export. That's when Export
Insurance comes in handy. If Widget, Inc. is sending employees out of the United States,
endorsements to its Workers' Compensation and CGL policies are in order, too. The Broad
Form endorsement to the CGL provides for employees' acts while traveling on business
outside the CGL policy's territory--among other valuable extensions of protection
coverage. The Foreign Compensation endorsement to the Workers' Comp policy includes
coverage for endemic diseases and repatriations. (A repatriation may call for expensive
jet service to bring an injured employee back to the States.) If international operations
are in your firm's future, contact our agency for some expert advice. |
Cargo War Risk Policy
The Cargo War Risk Policy is designed to provide coverage where the standard cargo
policy ends, in times or places of war or similar (excluded) upheaval. The War
Risk Policy
covers almost all of the war risk perils excluded under the former policy. It is generally
written at the same time as the Standard Cargo Policy. There are several significant
differences in coverage, however. The War Risk Policy may exclude coverage while the
covered goods are within specific geographic areas (typically areas deemed to be extremely
dangerous--this happened briefly under Lloyds of London policies and others in the Red Sea
during the Gulf War crisis). The War Risk Policy may be cancelled on very short
notice--typically 48 hours (versus the 30 days notice of the Standard Cargo
Policy). The
policy also sharply curtails coverage when not on board ship--prior to loading, when being transshipped or after offloading in the country of final destination.
Hull Insurance
The basic Marine Policy is used to cover either the shipowner or the shipper (or
buyer) of goods. When coverage is for goods it is termed a Cargo Policy; when the ship is
covered, it is termed Hull Insurance. The shipowner is provided legal liability protection
to others, for instance in the event of a collision.
The Hull Policy can be written for each voyage of a ship, or for a specified time period,
typically one year. When written on a time period basis, an implied warranty of
seaworthiness is applied to the vessel. This warranty does not adhere to the time basis
coverage; it is deemed to present a potential hardship to the shipowner, since the ship
may be at sea or at a port where suitable repairs might not be available, when coverage
begins.
Yacht Policy
The Yacht Policy covers pleasure craft, such as yachts, motorboats and sailboats. It is
written to cover both the property (boat, and contents) and its liability for collisions
or injuries.
There are two Yacht Hull Policies. The Limited Hull Policy will only cover the specified
perils of fire, lightning and theft. The Full Marine Policy additionally covers explosions,
perils of the sea, theft, collision and conversion.
The Yacht Policy can also be written as all-risk coverage, in some cases. Like homeowners'
all-risk policies, all hazards are covered unless specifically excluded. The perils
generally excluded are wear and tear, gradual deterioration, or inherent vice, marine
borers, vermin, loss caused by ice or freezing while afloat, loss to sails while racing,
and petty theft or mysterious disappearance losses.
| Other Sources: If you have a question on a specific term not
mentioned here, try our Dictionary of Insurance Terms. Or
call your agent--or us!--who can give the most definitive answer for your specific
situation. |
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