insurance & survey

INSURANCE & SURVEY

“ ONE CANNOT TEACH OTHER

PERSON ANYTHING; ONE CAN ONLY

HELP PERSONS FIND WISDOM

WITHIN THEMSELVES.”

- GALELIO

Presented by T.S.Shrinivaasan, Mar-Tech Insurance Surveyors & Loss Assessors Pvt.

Ltd.,

• Insurance is defined as a co-operative device to spread theloss caused by a particular riskover a number of persons whoare exposed to it and whoagree to insure themselvesagainst that risk.

• Mow bray and Blancharddefine as a social device foreliminating or reducing thecost to society of certain typesof risk.

• In other words, Insurance is aco-operation form ofdistributing a certain risk overa group of persons who areexposed to it.


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What is Insurance ?

• Insurance may defined as a contract between two parties whereby one party (Insurer) agrees to protect the other party (the Insured) against a loss, when it takes place through the risk insured or pay a fixed amount on the happening of a certain event, in exchange of a fixed sum (premium).

• What is risk ? Risk is a chance or possibility of danger, loss, injury etc.


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What is Insurance ?

• The Chartered Insurance Institute, states the following categories of risk.

• Financial risks which means that the risk must have financial measurement.

• Pure risks which means that the risk must be real and not related to gambling or wagering.

• Particular risks which means that these risks are not widespread in their effect, for example such as earthquake risk for the region prone to it.


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Types of Risks

INSURANCE

LIFE NON-LIFE

MARINE FIRE MOTOR ENGINEERING MISCELLANEOUS


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Types of Insurance


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What is Marine Insurance ?• Marine Insurance is a contract, whereby the Insurer

undertakes to indemnify the Insured, in manner and to the extent thereby agreed against Marine Losses , that is to say, Losses incident to Marine Adventure.

-- Marine Insurance Act 1906 (UK)- Sec.1

Presented by T.S.SHRINIVAASAN of MAR-TECH Insurance Surveyors & Loss Assessors

Pvt. Ltd.,

– PRIMARY PRINCIPLES• PRINCIPLE OF CO-OPERATION

• PRINCIPLE OF PROBABILITY

– LEGAL PRINCIPLES• INSURABLE INTEREST

• UTMOST GOOD FAITH

• INDEMNITY

• SUBROGATION

• CONTRIBUTION

• CAUSA PROXIMA

• WARRANTIES


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Principles of Insurance

• We have already seen Insurance is based on co-operative endeavor. The risk of an individual is to be shared by many so as to reduce the share of an individual.

• To illustrate the point, suppose 10000 persons have insurance policy and they all pay a small amount called premium, which is to be collected in a pool by the Insurance Company. In the event of damage or loss, claims are settled by Insurance Company.

• Thus Insurance is basically based on the principle of co-operation.


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PRINCIPLE OF CO-OPERATION

• To illustrate this principle, suppose a coin is thrown into air. What are the chances of getting head. It is 50% and similarly getting tail is 50%. James Bernally called this “Theory of Large Numbers”

• Insurance companies collect the data of previous happenings or loss statistics and form an idea for the future likely events. They prepare the mortality tables (for life) and loss tables (for other property insurances) and fix premium.

Presented by T.S.Shrinivaasan of MAR-TECH Insurance Surveyors & Loss Assessors Pvt.

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PRINCIPLE OF PROBABILITY

• M.I.A SEC 5 says “ every person has an insurable interest who is interested in a marine adventure. It further states that i) there must be a physical object exposed to marine perils and ii) the assured must have some legal relationship to that object in consequence of which he benefits by its preservation and is prejudice by its loss or damage thereto or incurs liability in respect thereof.


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PRINCIPLE OF INSURABLE INTEREST

• In Life Insurance : It must exist at the time of taking insurance.

• In Marine Insurance: It must exist at the time of loss.

• In Fire Insurance: It must exist both at the time of effecting as well as at the time of loss.


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INSURABLE INTEREST

Some examples:• Owner of a Ship.• Owner of the cargo.• A creditor who has advanced money on the security of

Ship or cargo.• The mortgagor and the mortgagee.• The Master and Crew have insurable interest for their

wages.• In case of Advanced Freight, the person advancing the

freight has Insurable Interest, if such Freight is not repayable in case of loss.


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INSURABLE INTEREST

• Utmost Good Faith or ‘Uberrima Fide’ whereby parties to the contract must disclose every material fact known to them.

• Unlike ‘Caveat Emptor’ (let buyer beware) in any other commercial contract, this is very peculiar for Insurance Contracts.

• Disclosing of material facts apply to both the parties.


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PRINCIPLE OF UTMOST GOOD FAITH

• The shipment on deck cargo, which normally carried under deck.

• The shipment is Second hand and not new.


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Examples of Material Facts

• Strictly speaking, all Insurance Policies,except Life Insurance and personal accidentare contract of indemnity.

• The object of this principle is to place theinsured as far as possible in the samefinancial position occupied by him beforethe happening of the event.

• The insured is not allowed to make anyprofit while compensating the loss byInsurer.


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PRINCIPLE OF INDEMNITY

• This principle refers to the rights of the Insurer to stand in place of insured, after the settlement of the claim, having all the rights and remedies against the third party.

• For example, due to negligence of ship’s crew sea water got entry into ship’s holds and bags of sugar got damaged. Insurance company settled the claim to cargo interest, but with the subrogation right, suing the ship owner for recovery. During recovery, if Insurance company gets more than the claim paid, he has right to receive only to the extent of claim settled and excess amount will have to be passed on to the cargo interest.


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PRINCIPLE OF SUBROGATION

• This principle is applied when a subject matter is insured with several insurers and in the even of loss, all insurers have to proportionately bear the loss.

• For example, X insured same property with 3 insurers A. B and C respectively for a sum of 3 Lacs, 2 lacsand 1 lac. During a fire, there was a loss of Rs.15000/- which will be proportionately shared by all three insurance companies as under:-

• A will bear = Rs.15000*3lacs/6lacs = Rs.7500/-• B will bear = Rs.15000*2lacs/6 lacs = Rs.5000/- and• C will bear = Rs.15000*1 lac/6 lacs = Rs.2500/-


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PRINCIPLE OF CONTRIBUTION

• Under Marine Insurance, Insurers are liable for a loss caused by a peril insured against, but there may be several causes may have operated and as per this Principle it is the proximate cause that must be looked into and not the remote cause. ‘Causa proxima non remota spectatur’ ( the proximate cause and the remote cause must be regarded.)


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PRINCIPLE OF CAUSA PROXIMA

• Thames and Mersey Marine Insurance Company v. Hamilton, 1887, a vessel and her machinery were insured against “perils of the sea” and other named “perils”. Owing to an engineer’s negligence a pump on board was damaged.

• It was held that the insurer was not liable for the loss because it was not caused by a peril of the sea or by a peril named in the policy document.


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EXAMPLES OF CAUSA PROXIMA

• In Leyland Shipping v. Norwich Union,. 1918, the insured vessel was torpedoed by a German submarine during the First Word War. The vessel was taken to a port for repairs and berthed in the inner harbour. During the shifting the vessel grounded and eventually sank. The question arose as to what was the proximate cause of the loss. If the loss was a “marine loss” (grounding is a “peril of the sea”) the assured would have been covered. If the reason for the loss was the war risk, this was excluded in the contract and the assured would not be covered.

• It was decided by the court that the dominant reason or cause of the loss was the torpedoing because the vessel was never out of imminent danger from this cause until she sank. Accordingly, the assured’s claim failed.


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• In Pink v. Fleming, 1890, a cargo of oranges and lemons was insured. The vessel did suffer a collision and had to be repaired in a port. During repairs, the cargo had to be discharged and reloaded after repairs. When the cargo arrived at the destination it was damaged because of the handling at the repair port and the delay.

• The direct loss was not the collision but the perishable character of the cargo. The assured failed in his claim.


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• In Etherington & The Lancashire & Yorkshire Accident Insurance Co. 1909 – an Insured held a Policy covering accident but not sickness. He was thrown from his horse while hunting and died after developing pneumonia consequent upon the shock and wetting that he received.

• It was held by the court that the death was due to accident.


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EXAMPLE OF CAUSA PROXIMA

• A Warranty is a promise by the Insured to the underwriter that something shall or shall not be done or certain of affairs does or does not arise.

• A warranty must be literally complied with. As otherwise Insurer may avoid all liability from the date of breach.

• A warranty is in effect a safety valve of Insurer.


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WARRANTIES

WARRANTIES

EXPRESS WARRANTIES

IMPLIED WARRANTIES


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TYPES OF WARRANTIES

• These are clearly expressed or stated in the Policy, which must be complied with. For example:

• Warranted packed in new gunny bags.

• Warranted in new drums.

• Warranted professionally packed.

• Warranted sailing within seven days.

• Warranted shipped under deck.

• Warranted surveyed before shipment.


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EXPRESSED WARRANTIES

• These are not expressed but implied and taken for granted. For example.

• Sea worthiness of the vessel at the commencement of voyage.

• Legality of the adventure.

• In the Voyage Policy on Goods, there is no Implied Warranty that the goods insured are seaworthy.


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IMPLIED WARRANTIES

• COVERS THREE MAIN INTERESTS in a marine venture

Hull – it represents the ship;

Cargo – it is the goods being transported by the vessel; and

Freight – is the profit or earnings of the ship at the end of a marine venture.

• Marine insurance policy covers not only sea voyage but also purely inland transits through any mode like rail, road, multimodal, air or even by post


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Practice of Marine Insurance

Marine Insurance Coverage

• FORTUITOUS - sea accidents or casualties caused without willful intervention of human (an element of chance or ill luck)

• INSURED PERILS Fire, Pirates and Thieves, Stranding

Barratry - act willfully committed by master and crew against owner or charterer of ship. It is an act of gross misconduct committed by a master or crew of a vessel which damages the vessel or its cargo.

Jettison –throwing of cargo overboard due to either a deliberate act or at the wake of grave danger

Taking at sea –when vessel is captured by enemy or others Foundering at Sea –ship has been reported lost after a stipulated time Collision –ship collides with another ship or with other objects, causing

damage UNINSURED PERILS

Wear and Tear, Leakage, Breakage of goods, Inherent Vice, Loss by Rats and Vermin

PRESENTED BY T.S.SHRINIVAASAN OF MAR-TECH INSURANCE SURVEYORS & LOSS

ASSESSORS PVT. LTD.,

Types of Losses

• TYPES OF LOSSES– TOTAL LOSS

• ACTUAL TOTAL LOSS

• CONSTRUCTIVE TOTAL LOSS

– PARTIAL LOSS• PARTCULAR CHARGES

• SUE & LABOUR CHARGES

• EXTRA CHARGES

• SALVAGE CHARGES

– GENERAL AVERAGE LOSS


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MARINE CLAIMS

• Insurance Product as you all know is intangible in nature.

• What is intangible ?

• Product Marketing Vs Service Marketing

• Say for eg. When you sell a computer, you can give a demonstration.

• Unfortunately this is lacking in Service Marketing.

• How difficult is Service Marketing ??

PRESENTED BY T.S.SHRINIVAASAN MAR-TECH SUREYORS PVT. LTD.


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MARINE CLAIMS

• Quality of an Insurance Product can be evaluated only during claims management.

• As against , Product Marketing Tangible nature to some extent can be felt only during claims handling by an Insurer.

• Hence an efficient management Claims Management is over emphasized.

PRESENTED BY T.S.SHRINIVAASAN MAR-TECH SUREYORS PVT. LTD.


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Marine Claims – Major Areas

• Chronology

• Nature of packing

• Nature of Damage/Loss

• Cause of Damage/Loss

• Claim against parties responsible for damage/loss

• Exclusions

• ICC Clauses ‘A’, ‘B’, AND ‘C’

• DocumentsPRESENTED BY T.S.SHRINIVAASAN MAR-TECH

SUREYORS PVT. LTD.


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Marine Claims -Chronology

• Commencement of journey

• Date arrived at place of destination

• Date of Delivery

• Date of notification of loss

• Date survey held

PRESENTED BY T.S.SHRINIVAASAN 34

Marine Claims- Nature of Packing

• Packing plays vital role in Claims Handling.

• Whether the packing is customary or adequate in nature to withstand transit hazards.

• Inadequacy or insufficiency in packing will place an Insurer to repudiate the claim, vide General Exclusion Clause, which we will see later.


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Marine Claims – Nature of damage/loss

• Here again detailed descriptive of nature of damage or loss has to be insisted

• Damage is only a general term.

• Specific damage has to be described, like drum dented/holed and part contents spilt/leaked out.

• Similarly, machinery part dented/bent or broken etc.


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Marine Claims – Cause of Loss/damage

• This forms only opinion of concerned Surveyor.

• There should be logic in arriving at such opinion about cause of loss or damage.

• As surveyor is appointed only after occurrence of loss or damage, Surveyor has to perform like a post mortem.

• Cause of damage and policy exclusions taken in to account to decide about admissibility of claim.


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Marine Claims – Claim against the parties responsible for loss/damage

• Insured must prefer claim against third parties responsible for loss/damage like Transporter or warehouse or port.

• Very many Insured asks, when they insure with Insurance Company, why should they claim against third parties ?

• This monetary claim against third parties will facilitate Insurer to go for recovery.


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Marine Claims - Exclusions

• Willful misconduct.

• Ordinary leakage, loss in weight and volume.

• Insufficiency or unsuitability of packing.

• Ordinary wear and tear

• Inherent vice or nature of subject matter

• Delay, even if caused by an insured peril.

• Weapon of war using atomic or nuclear fission/fusion radio active force or matter


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Marine Claims - Exclusions

• Deliberate damage to or deliberate destruction of subject matter (in B & C clauses)

• Un-seaworthiness or un-fitness of vessel, conveyance, container

• War risks

• Strikes, Lock outs, Civil Commotions


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MARINE CLAIMS- ICC CLAUSES A, B & CSR.

NO.

RISKS A B C

01 FIRE/EXPLOSION

02 STRANDING/SINKING

03 BARRATRY/JETTISON

04 COLLISION

05 THEFT/PILFERAGE/ND x x

06 SHORTAGE x x

07 CONTAMINATION x x

08 HEAVY WEATHER x x


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MARINE CLAIMS-ICC CLAUSES (Contd.)

•

09 SPONTANEOUS

COMBUSTIONx x x

10 WAR/STRIKES/INSTABILI

TY

x x

11 TERRORISM/PIRACY x x x

12 G.A. SACRIFICE

13 EARTHQUAKE/VOLCAN

O/LIGHTNING

x

14 LOB/WASHING OVER

BOARD

x


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MARINE CLAIMS-ICC CLAUSES (Contd.)

SR.

NO.

RISKS COVERED A B C

15 DISCHARGE IN PORT OF

REFUGE/DISTRESS

16 ROUGH

HANDLING(BURSTING OF

BAGS, BREAKAGE,

LEAKAGE,SWEAT,

CONDENSATION, RAIN

WATER, IMPROPER

STOWAGE ETC

x x

PRESENTED BY T.S.SHRINIVAASAN 43

ICC CLAUSES (Contd.)

Marine Claims - Documents

Insurance Policy

Invoice Copy

Damage certificate from carrier

LR/AWB/RR copy with endorsement

Monetary claim on carrier

Carrier’s reply or AD slip

Packing List

Claim Bill


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Surveyor

• Following Surveyors are in the field:

• Marine Surveyor

• Government Surveyor

• Classification Surveyor

• Insurance Surveyor


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Surveyors License & Authorization

• In India, Licenses are given by Govt. only for Insurance Surveyors and issued by IRDA (Insurance Regulatory and Development Authority).

• IRDA prescribed Eligibility Criteria for issuance of license, which are three fold:

• Qualifications

• Training

• Examination.

PRESENTED BY: T.S.SHRINIVAASAN, MAR-TECH INSURANCE SURVEYORS & LOSS

ASSESSORS PVT. LTD.,

insurance & survey

Services

types of insurance

insurance company

principles of insurance

insurance policy

marine insurance act

chartered insurance

certain risk

risk insured