Definition and Kinds of MARINE CARGO INSURANCE

1 OVERVIEW OF MARINE INSURANCE 1.1 Definition of marine insurance Marine Insurance covers the loss or damage of ships, cargo, terminals, and any transport or property by which cargo is transferred, acquired, or held between the points of origin and final destination 1.2 Types of risks in marine insurance 1.2.1 Base on the causes − Act of god, vile weather, thunderstorm and lightening, tsunami, earthquake, flood, volcanic eruption,etc − Perils of the sea: Ship strike upon the rocks, ship sinking, ship collision, colliding with icebergor other objects − Risks caused by political actions: War, SRCC (Strikes, Riots, Civil, commotions) − Risks causes by particular actions of people: Thieves, robbers − Risks causes by other sources 1.2.2 Base on the insurance technique a) Insured common perils: The risks that are normally insured in original insurance clause 1) 2) 3) 4) 5) 6) b) − − c) − − Main risks Stranding Sinking Fire or explosion Collision Jettison Missing 1) 2) 3) 4) 5) 6) 7) Auxiliary risks Theft Leakage Breakage Dampness Heating Hooking Rusting Relative excluded Perils: Risks that are not included in standard insurance clauses War SRCC Absolutele Excluded Perils: Risks that are not insured in any circumstances: Loss, damage or expense attributable to wilful misconduct of the assured Ordinary leakage, ordinary loss in weight or volume, or odinary wear and tear of the subject – matter insured − Loss, damage or expense cause by insufficiency or unsuitability of packing or preparation of the subject – matter insured − Loss, damage or expense caused by inherent vice or nature of the subject matter insured − Loss, damage or expense proximately caused by delay, even though the delay be caused by a risk insured again − Loss, damage or expense arising frokm insolvency or financial default of the owners, managers, charters or operators of the vessel − Loss, damage or expense arising from the use of any weapon of war employing atomic or nuclear fission and/or fusion or other like reaction or radioactive force or matter 1.3 Types of losses and damage in marine insurance 1.3.1 Total loss Actual total loss Means the whole lot of the consignment has been lost or damaged or found valueless upon arrival at the port of destination Actual total loss Found in the case where the actual loss of the insured good is unavoidable, or the ship or consignment has to ba abandone because the cost of the recovery would exceed the value of the ship and the consignment in sound condition upon the arrival of the port of destination 1.3.2 Partial loss: Means that the loss or damage dine to the goods is only partial − Particular average( Ton that rieng) :losses of each insured interest individually due to acts of god or perils of the sea − Insurer’s liability: Compensate for both of the losses and reasonable costs caused by particular average MARINE CARGO INSURANCE 2.1 The essential roles of Marine cargo insurance • Coverage for limited carrier liability The carriers, by law, are not responsible for many common causes of loss that occur in transit (for example, acts of God, general average, etc.) And, even if they are liable, carriers’ liability in the event of a loss is limited – either by contract in the bill of lading or by law In most cases, you will only recover cents on the dollar from the carrier • Cargo insurance is important in international trade Businesses need cargo insurance to reduce risk in importing and exporting Cargo insurance is covered under risk policy or floating policies • 80% of international cargo transportation is carried out by sea Again the overwhelming amount of sea transportation is handled via containers Any voyage of cargo ship not only has a long distances and takes a few month to completed, but also has a lot of risks (ex: Fire, Lightning, Explosion, Riot, strikes, malicious damage, storm, etc…) 2.2 The conditions of marine cargo insurance 2.2.1 The conditions of marine cargo insurance of UK a) ICC 1963 − − − − b) Free of particular average ( FPA) With particular average (WA) All risk (AR) War risk (WR) ICC 1982 ( ICC 2009 ) Change main conditions FPA => INSTITUTE CARGO CLAUSES C WA => INSTITUTE CARGO CLAUSES B AR => INSTITUTE CARGO CLAUSES A There has been some updating of the language used in the clauses In particular: The terms ‘goods’ and ‘cargo’ have been replaced by ‘subject matter insured’ - The term ‘underwriters’ has been replaced by ‘insurers’ - The marginal side headings in the 1982 Clauses have been replaced by sub-headings The Strikes and War Clauses have been amended in line with the A Clauses and we have only shown below the Risks Covered Clauses of each for ease of reference 2.2.2 The conditions of marine cargo insurance of Vietnam a) QTCB 1965 b) QTC 1990 c) QTC 2004 2.3 The scope of responsibility of the insurer (according to QTC 2004) 2.3.1 The risks/ loss insured a) The risks/loss insured by the type C of QTC 2004 • Loss of or damage to the subject-matter insured reasonably attributable to − fire or explosion − vessel or craft being stranded grounded sunk or capsized − overturning or derailment of land conveyance − collision or contact of vessel craft or conveyance with any external object other than water − discharge of cargo at a port of distress • Loss of or damage to the subject-matter insured caused by − general average sacrifice − jettison b) The risks/loss insured by the type B of QTC 2004 All the above plus: • Loss of or damage to the subject-matter insured caused by − general average sacrifice − jettison or washing overboard − entry of sea lake or river water into vessel craft hold conveyance container or place of storage • Total loss of any package lost overboard or dropped whilst loading on to, or unloading from, vessel or craft c) The risks/loss insured by the type A of QTC 2004 All risks are covered Please remember that “All risks” are not “All Risks” in that there has to have been a happening Something has to have happened which is NOT EXPECTED d) The risks are excluded In no case shall this insurance cover: − Loss damage or expense attributable to wilful misconduct of the Assured − Ordinary leakage, ordinary loss in weight or volume, or ordinary wear and tear of the subject-matter insured − Loss damage or expense caused by insufficiency or unsuitability of packing or preparation of the subject-matter insured (for the purpose of this Clause 4.3 "packing" shall be deemed to include stowage in a container or liftvan but only when such stowage is carried out prior to attachment of this insurance or by the Assured or their servants) − Loss damage or expense caused by inherent vice or nature of the subject-matter insured − Loss damage or expense proximately caused by delay, even though the delay be caused by a risk insured against (except expenses payable under Clause above) − Loss damage or expense arising from insolvency or financial default of the owners managers charterers or operators of the vessel − Loss damage or expense arising from the use of any weapon of war employing atomic or nuclear fission and/or fusion or other like reaction or radioactive force or matter 2.3.2 The space and time of insurance liability From the time the goods leave the warehouse -> port of destination THE CONTRACT OF MARINE CARGO INSURANCE 3.1 Definition According to Dr David Bland, Insurance is a contract whereby one party (called an insurance company) with collection of a sum of money (called as a premium), commits to pay to the other party (called as the insured), a sum of money or in kind equivalent to that amount when an incident that goes against the insured's interest occurs Therefore, the marine insurance contract is the insurance contract for marine risks, whereby the insurer commits to compensate the insured for maritime losses under the insurance liability in the manner and condition agreed in the contract 3.2 The properties • As a Contract of Indemnity because when losses occur, the insurer is responsible for compensating the insured • Be a contract of good faith When signing an insurance contract, the Marine Insurance Act 1906 states: when signing and implementing a marine insurance contract, if a party is not the most honest, the other party has right to cancel insurance contract Specifically: − After signing the insurance contract with the loss of the goods, if the buyer does not have insurance benefits, the insurer has the right to refuse compensation even if the loss is caused by an insurance risk in the effective period of insurance − The insurance contract is invalid when at the time of signing the contract, the subject of insurance does not exist − At the time of entering into the insurance contract, if the goods are lost in this insurance period, if the buyer knows the insurance event has occurred, the insurance contract is void, if the buyer knows that the event has occurred, the insurance contract remains in effect • Be a negociable document The insurance policies or insurance certificates may be transferred to another person after the insured or its authorized representative signs on the back of the insurance policies or certificates For example: selling at CIF price, the seller after buying insurance for the goods will endorse the transfer insurance bill of lading to the buyer 3.3 The main contents of the contract ( the insured person, the insurance value, the insurace fee, the insurance amount • The policy holder In the marine insurance contract, the policy holders are organizations and individuals that have the right to own the insured consignment and are entitled to receive compensation from the insurer when an insurance event occurs The insured is usually an importer Unlike other insurance operations, the policy holder not necessarily have insurance benefits when conducting the insurance, however, they must have a reasonable estimate of the benefits In case the exporter is a participant in the insurance, together with the shipment they must transfer the benefits of the insurance contract to the importer through the endorsement of the insurance application sent to the importer (according to Clause 3, Article 226 of the Vietnamese Maritime Act 2005) Obligations of the policy holder: - Buy the insurance for goods as soon as possible - Notify all information about the insured, about the change or increase of risks to the insurer - Pay the full premium on time - In the case of loss: + Notify the insurer and request an assessment + Apply the measures to prevent and limit the losses + Make necessary documents and reserve the right to appeal against a third person + Notify the insurance company about general loss procedures like Average Bond, Average Guarantee • Insurance value: According to Clause 2, Article 232 of the Vietnamese Maritime Act 2005, the insurable value of goods is the value of the goods on the bill at the place of loading or the market price at the place and time of loading plus the premium, freight and may include estimated interest Thus, according to the above provisions, the insurable value of goods is determined on the basis of the value of goods at the port of destination in the process of transport • Insurance amount: Under Article 41 of the insurance business law, the insurance amount is the amount that the buyer requires to insure the asset According to Article 233 of the Vietnamese Maritime Act 2005, when signing an insurance contract, the insured must declare the insurance amount for the insured subject (called as the insurance amount) Both of these terms are semantically similar because it is likely that the insurance amount is the amount that the buyer declares according to its insurance needs In principle, the insurer only accepts a copy of the insurance policy with the maximum insurance amount equal to the insurance value, in order to avoid the fraud and profiteering in insurance relations With an insurance contract with the insurance amount equal to the value of the goods, it is called as full insurance However, for many different reasons such as: because the buyer only wants to guarantee a part of the value of goods, due to fluctuating commodity prices during the term of insurance or due to inaccurate commodity valuation, may lead to the following cases: − The insurance amount of the contract is lower than the value of the insured goods In this case, it is called under insurance and the insured will collect the loss in the uninsured value − The insurance amount exceeds the value of insured goods This is called as over insurance In the insurance of imported and exported goods, the insurer can accept the insurance amount of the contract larger than the insurance value, but the insurance amount is only accepted when it is considered a possible interest of sales (estimated profits) and it is no greater than 10% of the value of the insured goods, the excess will not be valid • Insurance fees: Insurance fees are the amount that the buyer must contribute to the insurance company by the time and in the manner agreed by the parties in the insurance contract (Clause 11 of Article of the Insurance Business Law) In insurance for exported and imported goods transported by the sea ways, the insurance amount is determined by the rate of insurance multiplied by the insurance amount of the contract Actually, based on the agreements in the insurance contract, the insurance fees can be paid in Vietnamese or foreign currency THE MARINE CARGO INSURANCE DEAL • The sales contract between: − The seller – the exporter: Korea EnE Co., Ltd − The buyer – the importer: Hai Binh Import Export trading joint stock company • The insurance contract between: − The applicant: Korea EnE − The insurer: AIG Korea − Commodity: 4.1 The seller The sales contract importing goods from Korea, Incoterms 2010 CIF Haiphong Port, so the seller – the exporter was responsible for the insuring contract After negotiated and then signed the sales contract with Hai Binh Import Export trading joint stock company, Korea EnE Company carried out the operation of buying insurance for goods 4.2 The Insurer – AIG Korea Inc − Address: the 27th floor, Two IFC, 10 Gukjegeumyung-ro, Youngdeungpo-gu, Seoul, Korea − Website: https://www.aig.co.kr − Tel: 02-2260-6800 - Fax: 1544-0060 AIG Korea Inc provides property and casualty insurance products to commercial, institutional, and individual customers in Korea and internationally It offers personal accident, property, marine, and commercial/financial liability coverage to corporate and individual customers AIG Korea Inc was formerly known as Chartis Insurance Korea Inc and changed its name to AIG Korea Inc in April 2013 The company was founded in 1947 and is based in Seoul, South Korea AIG Korea Inc operates as a subsidiary of AIG Asia Pacific Insurance Pte Ltd The AIG story begins in China in 1919, when American Cornelius Vander Starr started an insurance agency in Shanghai The enterprise grew first across China, then across the globe, with every new market and culture AIG officially entered Korea in 1954 and then developed strongly and became the leading insurance group in Korea AIG’s revenue reached 49,52 billion USD and 2,63 billion USD of profit in 2017 4.3 Procedures for requesting and accepting insurance between the two parties 4.3.1 The buyer requests insurance After considered the risks that may be encountered for the goods- the petrol pumps shipped form Korea to Vietnam and under CIF condition, the responsibility to buy insurance belongs to the seller, EnE Korea decided to buy insurance for import and export goods carried by sea Because AIG Korea is reputable long-term insurance company and a regular partner of EnE Korea, the company contacted to AIG and asked for insurance 4.3.2 The Applicant declared Application Form for marine cargo insrurance Korea EnE and AIG negociated and agreed that the insurer – AIG Korea would their Application form for marine cargo insurance to Korea EnE and they must fill all information this form required correctly This form requied: • The policy holder’s information: the company’s name, address, phone number, fax number, bank account and other basic information • The insured cargo’s information: Name of cargo insured, sale contract or commercial invoice number, mean of conveyance, bill of lading, insured value,… • Insurance request: type of insurance, beneficiary, total insured amount, underlying conditions, deductible, claim, method of payment,… • Enclosed documents: sale contract, bill of lading, invoice, letter of credit,… 4.3.3 Accepting insurance request, issuing Insurance policy and signing the insurance Contract After filled in the Application form for marine cargo insurance, Korea EnE have sent it to AIG Basing on the information in the form, AIG would check the information When all information was correct, AIG would draft an insurace Policty and then send to EnE Korea enclosing an insurance contract (according to the form of AIG) to sign After receiving the Insurance policy and insurance contract in accordance with the form of AIG, Korea EnE would sign this contract if they agreed all terms and appendices of this contract The insurance policy is transferable and is a legal evidence for the commitment of AIG Co, Ltd to the Kore EnE in the event of an insurance event The insurance policy and insurance contract are integral parts of a set of the insurance contract After receiving the copies of insurane contract and insurance policy, Korea EnE would check the information and terms written on them to ensure accuracy If the applicant had no complain, AIG would send EnE Korea the original insurance certificate and policy to sign and stamp 4.3.4 Analysis of basic content of documents in the contract cargo insurance The policy holder was Hai Binh Import Export trading joint stock company – the importer The terms were CIF, the seller was responsible for the insuring contract Insured merchandise were 15 single nozzle, standard speed (45liters/minute), 3phase motor, 380V, 400W, 50Hz, hose length meter with sight glass, without nozzle(worth 2.200USD) and single nozzle, standard speed (80 liters / minute), 3-phase motors, 750V, 400W, 50Hz, hose length 7m with sight glass, without nozzle (worth 2,300 USD / set) packed according to Korean standard packing (Carton box) The consignment was delivered by sea transport in journey from Busan port, Korea to Hai Phong port, Vietnam − Insured value: 48.950 USD − Total Insured amount: 48.950 USD It is considered that the journey of goods from South Korea to Vietnam is a long distance and travel time On the other hand, the transit time is at the end of August on which storms often occur Therefore, the seller decided to buy insurance with 100% value of insurance (A = 100% V) − Deductible: 200USD − Premium rate was 0.14% (to Insurance fee: 68,53 USD (calculated by formula: A*R= 48950*0.14%) The primary insurance condition was The Institute Cargo Clauses 1982 Besides, the seller bought insurance for additional risks: breakage and impact during loading and unloading at ports Because the insured machandises were petrol pumps, total value of consignment was not too much and the coverage on a A and B basis are too wide, Korea EnE chose the institute cargo clause on C basis and additional risks that the goods were at higher risk