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Monday, April 4, 2011

A primer to Marine Hull Insurance - covering the funeral voyage

Marine  insurance covers the loss or damage of ships, cargo, terminals, and any transport or cargo by which property is transferred, acquired, or held between the points of origin and final destination.   Insurance of Cargo i.e., the goods in movement from place to place is most common. 

There is another vast branch – the Hull Insurance which covers almost all that floats and moves – from small catamarans to huge ocean going tankers / bulk cargo ships and passenger cruises.  Besides, this branch offers coverage for non-propelled objects such as floating docks, buoys, transshipment barges and even hotels that float.  It is uniqueness is unparalleled not only because of the variety but also the time of the cover. 

If you ever thought Hull Insurance is all about insuring the object that floats and carries the cargo – then there is lot much to know…

In its most basic form – the subject matter is Hull – the body of the ship as also the machinery – the big marine engines, boiler, cooler, electricity generator,  as also its gears and equipments such as anchors, windlass, cables, and more.  There could be derricks and other on board equipments also. 

Besides these tangible, there is also insurance for disbursements, earnings, Freight etc., called Increased value.  There could be bunker oil, fuel and more.  In a chartered vessel, there is provision for insurance of loss of hire.  Coverage could be sought not only by Owner, Charterer but also by Mortgagee. 

For a vessel that has set sail on water whether it is blue or brown, the coverage could be on a time basis of mostly a year. There could be voyage policies.

The coverage could be taken right from the time of laying up of the keel i.e., the initiation of building of vessel.  This is Builder’s risk which covers risks of loss or damage to vessel from the time of construction, trial till successful handing over at the designated place.  The coverage would be for the entire period of such operation. 

Sadly, the vessel is not going to remain for ever and after some years [depending on the type and its usage], vessels are scrapped and sent to yards where they are broken up.  This sad journey is known as ‘funeral voyage’ – most undertaken on their own power. This voyage as also the  process of breaking up can be covered under an Insurance Policy.

Unlike Cargo Policies, Hull Policies are not freely assignable and in tune with the nature of the risk that is the ship which could be on high seas, the Termination clause under the Institute Time Clauses also makes an interesting reading :

It provides for automatic termination at the time of change of classification society of the vessel or change, suspension, discontinuance, withdrawal or expire of her class (the classification of vessel is so relevant and important]  -

However, such automatic termination, is deferred till the arrival of the vessel at her next port i.e., it shall not cease mid- sea but will not continue beyond the next port of call. 

Also based on the ownership which is a primary criterion, any change voluntary or otherwise in the ownership or flat, transfer to a new management or charter on a bareboat basis or requisition for title or use of the vessel will also terminate the insurance.  Here also such automatic termination will be deferred whilst the vessel continues her planned voyage  until her arrival at final port of discharge if laden with cargo or at port of destination is in ballast. 

Sec V of the erstwhile Marine Hull Tariff provided for Insurance of voyages of vessels from places of a Port to Break-up yard  as also insurance of laid-up vessels whilst awaiting break-up within the sheltered and protected waters of any port in India.    

For a funeral voyage, there would not be any Increased value / disbursements etc., but the basis of valuation would only be the Hull and Machinery sum insured which shall be the sum total of :  the actual purchase price (for the purposes of breakage by the breaking yard or the purchaser) + 10% thereon + actual duty that becomes payable in the country of its entry.  

The  coverage most often is on Institute Voyage clauses (IVC – Hulls) – there is restricted coverage on TLO basis also.  The premium is generally reckoned on the distance to be covered up to specified nautical miles and % over and above the distance.  When the vessel is not on its own power and is on two, there would be loading and the rating parameter would also be dependent upon the GRT of the vessel.  

In Hull Insurance the concept of Owner’s discount in lieu of Agency commission was prevalent in Indian market.  The coverage as determined by the clauses that were attached would further be bound by warranties.  The coverage would be available only till the beaching or the start of break up operations.  Those vessels covered on Time basis were allowed to be shifted within the sheltered and protected waters of the same part.   

Ships are majestic and it would be sad to know that they are sailing for their funeral and an Insurer though earning premium might feel sad on getting such a proposal.  The coverage during the break-up operations, thought covered under Hull section, were primarily one of Fire and allied perils as mostly specified in a Fire Policy.  

Hope this provides some insight to an interesting facet of insurance

Regards – S. Sampathkumar.

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