A Law Dictionary Containing Definitions of the Terms and Phrases essay
Marine insurance provides ship owners with a wide range of benefits. According to Xia Chen (2001), “the availability of marine insurance helps spread the risks of maritime misadventure faced by ship owners”(p. 17). The term “marine insurance” stands for the form of insurance that covers ship owners and ship personnel, in terms of covering not only different types of losses or damages to ships, cargo, vessels, etc., but also defining ship owners’ liabilities regarding their activities. According to the Marine Insurance Act of 1906, the contract of marine insurance is defined as “the contract whereby the insurer undertakes to indemnify the assured, in a manner and to the extent thereby agreed, against marine losses, that is to say, the losses incident to marine adventure” (Dunt, 2013, p. 9). An insurance company is obliged to pay claims, which may arise from losses or damages covered by the terms of the insurance contract or policy (Dunt, 2013; Merkin, 2013.). The Marine Insurance Act of 1906 is considered to be one of the major legal documents that are in marine insurance practice.
The case that will be discussed in this paper involves the Ship Owner (or the Assured) whose duty is to take the appropriate steps in the legal procedure, claiming under the marine insurance policy. A vessel is badly damaged by fire (an insured peril) and the Ship Owner (the Assured) estimates that the cost of repairs will exceed the value of the vessel upon completion of the repairs. In this case, marine insurance policy can help to provide protection to the Assured against liability for negligent loss or damage. During the accident, the property has not been salved because it has been reported that the vessel needs basic repair. If a vessel is badly damaged by fire, or grounding, or collision, “no one would suggest that the ship has to be fully repaired to be “salved”( Rose, 2013). As a rule, if a vessel is badly damaged, including her cargo, the cost of repair often exceeds the value of the vessel, or market value. In this case, the damage to the vessel can be treated as total loss, and the insurers will have to pay out accordingly, covering all expenses.
An insured peril stands for a proximate cause of a loss. According to S. Chatterjee (2004), “this principle states that the cause of a loss, in order to be compensated, must be the one against which one is actually insured” (p. 155). Fire is one of the proximate causes of a loss, which must be covered by the marine insurance policy, but the loss may be irrecoverable. According to Francis Rose (2013), an insured peril “does not per se determine, whether there has been a loss for which the assured is entitled to recover, and if so which type of loss”(p. 445). Therefore, it is very important to identify the type of a recoverable loss. According to the Marine Insurance Act of 1906, in the case discussed in this paper, the classification of the loss can be defined as a total loss as the vessel is badly damaged by fire and the cost of repairs will exceed the value of the vessel upon completion of the repairs. Francis Rose (2013) states that “losses can be truly total in the physical sense, for matter does not cease to exist and it is increasingly possible to reconstitute it, even in cases of apparent destruction”( p. 446). In some cases, total loss is unavoidable because of the severe circumstances (Merkin, 2013). Taking into consideration the above mentioned facts, it is possible to conclude that in the case discussed in this paper the loss appeares to be a total loss.
The overview of the options opened to the Ship Owner (the Assured)
in the case under study
In the case under study, the Ship Owner is the Assured. According to marine insurance policy, if the Assured experiences a loss, he is obliged to file a claim for compensation (Merkin, 2013). As a rule, the Assured has a number of rights, based on the terms of the marine insurance policy. Under the Marine Insurance Act of 1906, section 78 (4), the Assured should “take such measures as may be reasonable for the purpose of averting or minimizing the loss”(Dunt, 2013, p. 309). Thus, there are several options open to the Assured in the case discussed in this paper.
To start with, one of the options open to the Assured is claiming for a total loss. The Assured faces two possibilities concerning the state of the vessel. If there is a possibility for restoration of the vessel, it is a constructive total loss. However, if there is no possibility for restoration, the Assured is entitled to claim for an actual total loss. In the case under study, the Assured has an opportunity to make repairs of the damaged vessel. According to the existing Marine Insurance Laws, a constructive loss can be defined as the loss “where the vessel remains in specie, and is susceptible of repairs or recovery, but at an expense, according to the rule of the English common law, exceeding its value when restored, or, according to the terms of the policy, where injury is equivalent to the 50% of the agreed value in the policy” (Black, 1910, p. 1162). The Ship Owner of the damaged vessel enjoys the rights of the Assured; therefore, he is entitled to seek to make claim in full in the Insuring Company’s liquidation for a total loss from fire of the insured property. This fact means that his claim is legal and is made under the Marine Insurance Act of 1906, provided the loss by fire is one of the numerous risks covered by the marine insurance policy.
It is very important that the Marine Insurance Policy may govern various types of risks faced by a ship, cargo, etc., including fire, theft, bad weather conditions, equipment failures, and other risks. Actually, the Marine Insurance Policy covers fire as one of the major risks or perils mentioned in the marine insurance policy against which the underwriters are entitled to indemnify the Assured. The Ship Owner, as the Assured, should keep in mind that in case the vessel is destroyed or damaged by fire, “it is of no consequence whether this is occasioned by a common accident, or by lightning, or by an act done in duty to the State” as mentioned by the Court in the case Gordon vs. Rimmington (1807) 1 Camp 123 (Hodges, 2013, p. 66). Under the Marine Insurance Act of 1906, section 55 (2) (a), fire is considered to be one of the perils insured. Thus, in the case under study, the loss caused by fire will be a recoverable loss. The Assured is entitled to claim for a total loss because there is a clause in the marine insurance policy that the Ship Owner must be protected from any types of risks covered, including fire.
Moreover, under the Marine Insurance Act of 1906, section 1, a marine insurance policy or contract can be defined as “a contract whereby the Insurer undertakes to indemnify the Assured against various types of marine losses” (Merkin, 2013, p.56). It becomes clear that the Ship Owner holds an interest in coverage. He should realize that opening a marine insurance policy is a necessity for successful business operations. Marine insurance coverage refers to various types of losses, including the losses caused by collision, stranding, heavy weather conditions, fire, theft, etc. Anyway, the Ship Owner should be focused on the knowledge of the marine insurance policy terms. There are several options of coverage included in the marine insurance policy. Coverage with particular average provides the Assured with an opportunity to get a broader form of marine insurance coverage, which is aimed at protecting the Assured from various partial types of damage by sea perils. For example, if the vessel has stranded, or the vessel sunk, or the vessel has been on fire or the vessel was damaged in collision, the percentage requirement will be waived and losses from sea perils will be recoverable in full (Hinkelman, 2010). Coverage free from particular average ensures protection for various partial losses, which result from the various types of sea perils and total losses, but only “if the vessel has stranded, sunk, burnt, been on fire or been in collision” (Hinkelman, 2010, p. 306). In this case, the Assured will never get full insurance coverage. The Assured should realize that the more types of risks are covered in the marine insurance policy, the higher the percentage interest in getting premium compensation. As a matter of fact, the Assured should be aware of the fact that the type of coverage, titled as “All Risk” coverage, guarantees the greatest and the most advantageous marine insurance coverage. The Ship Owner is entitled to make a decision whether to repair his vessel or not to repair the vessel as the losses are sustained. As a rule, the Assured is indemnified for the reasonable depreciation that often arises in case of any unrepaired damage.
Additionally, if the Assured experiences a constructive total loss, he is entitled to treat the loss as partial loss. In this case, another option is open to the Ship Owner. He may leave his vessel to the Insurer, treating the loss as an actual total loss and claiming the proper compensation under the marine insurance policy.
The procedure followed in claiming under the marine insurance policy
The procedure which should be followed in claiming under the marine insurance policy gives explanation of both the Ship Owner’s position and that of his underwriters. The appropriate information should be collected regarding the contracting parties, the terms of the policy, the proximate cause of loss, etc. The Ship Owner may claim for a loss by fire, but his claim may be disallowed (Hodges, 2013).
There are several steps in the procedure for claiming compensation under the marine insurance policy. First, the Assured must notice to the Insurer, or Insuring Company. Second, the Assured must report to the police department if the damage has been caused by fire. Third, the Assured must submit the claim. As a rule, this procedure is done in writing within 35 days of the loss. Fourth, the Assured must provide the appropriate evidence for the claim. This procedure requires submission of the documents that can be used as evidence for the claim, including the origin of the loss, the major causes of fire, etc. The truth of his claim must be certified by the declaration on oath. Fifth, the Assured must settle the claim. The Ship Owner’s claim must be reviewed by the underwriters and settled provided the circumstances of the loss are covered by the marine insurance policy terms. The proper compensation must be paid for the losses. If the underwriters refuse to settle the claim, their decision must be appealed to the court. Sixth, the Assured in entitled to get the compensation for the loss caused by fire (Merkin, 2013; Hodges, 2013).
Conclusion
Marine insurance coverage is crucial for the Ship Owner as it provides protection of individual interests in different situations, guarantees financial support in the case of loss. The case discussed in this paper is a good example of the benefits of having a marine insurance policy. The Ship Owner experiences a loss. He must claim the insurance policy to cover all ship repair expenses. The Assured has an option to claim for a total loss because the ship is badly damaged by fire and the Ship Owner estimates that the cost of repairs will exceed the value of his vessel when the repairs have been completed.
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