INTERNATIONAL TRANSPORT LOSS.doc.doc

INTERNATIONAL TRANSPORT LOSS

INTERNATIONAL TRANSPORT LOSS1 DEFINITION

Loss is damage, fee or scarification of the subject-matter insured caused by international transport risks.

Loss is a general concept and can be classified into 2 following types:

 “Dynamic” loss:Dynamic” loss:” loss: the loss of commodities caused by the external impacts and influenced the value of

objects Ex: The impact of science and technology makes electronic appliances become outdated, or a decrease in the

price of commodities for some reasons is also considered as the "dynamic” loss “Dynamic” loss is not insured  "Static" lossStatic” loss:"Static" loss loss: the loss caused by damage, loss or sacrifice of objects "Static" loss is usually insured and can

be one of the followings:

 Loss of the objects.

 Income loss caused by the loss of the use of the objects.

 Loss on costs (foreign exchange arising from the material loss of objects).

 Responsibility loss for others Ex: There was a collision between ship A and ship B, ship A was wrong completely, so ship A would be responsible for a compensation for ship B Responsibility loss is also insured.

Distinguishing Loss from Damage

Loss is a risk that can’t be seen and can’t be touched For example, we delivered 10 packages, but only 8

packages arrived at the port, so 2 missing packages were considered as loss that we can’t determine by eyes or by hands.

Damage is a risk that we can see or touch For example, when the commodities arrived at the port, they were broken or scratched already we can realize these losses obviously.

2 TYPES OF LOSS

* According to the rate of damage:

 Partial loss: the commodities carriage is lost or damaged partially  Total loss: the commodities carriage is lost or damaged totally.

* According to the relations and benefits between The Insurers:

Partic” loss:ular average loss: involving one trader only

General average loss: caused by intentional actions of people to protect the whole vessel, involving every ones on the journey.

2.1 Partial loss

Partial loss is the loss of a part of the commodities or the actual value of insured commodity was decreased The inspectors are responsible for determining the causes and the rate of loss When commodities have partial loss, the

loss is compensated or not depends on the conditions in the insurance contract which The Insured has selected.

Types of partial loss:

 Reduction in a part of the commodities’ value For ex, flour was wet or mouldy and sour, so it just can be used as food for cattle

 Reduction in quantity, such as: a lack of some delivered packages…

 Reduction in volume, such as: alcohol, gasoline, and oil contained in the tank leaked out  Reduction in weight, such as: rice or wheat was spilled because of broken packages…

2.2 Total Loss

A total loss can be an Actual Total Loss or a Constructive Total Loss.

2.2.1 Ac” loss:tual Total Loss

The insured commodities may be totally lost, totally deformed or cannot be given back to The Insured The

Actual Loss includes of the following cases:

 The insured commodities may be totally lost in a shipwreck or a fire For example, the ship is totally sunk or destroyed by fire.

 The insured commodities may be damaged so that it may not have the quality as at first In other words, the

insured commodities might have lost their commercial value or their uses; it is also called “Loss of Specie” Forexample, tea after the risks, although they may not be lost, but after making them, we c” loss:an’t drink!

 The subject-matter insured may be totally destroyed.

 The loss of the subject-matter insured may be irredeemable For example, the ship are pirated or

confined…Although the ship and the commodities may not be damaged but The Insured might have lost these

 When a ship is never heard from, and is announc” loss:ed missing for a c” loss:ertain period of time.

In the c” loss:ase of Ac” loss:tual Total Loss, no notic” loss:e of abandonment needs to be given.2.2.2 Construc” loss:tive Loss

Constructive Loss is the risks which damage most of the commodities and to save the remaining parts of commodities, the owner has to pay for the commodities restoration cost and the vessel salvation cost (these costs are definite) that he can temporarily estimate In fact, when these costs add up with the damaged commodities, they may exceed the value of the damaged commodities.

As a result, the owner needs to evaluate the situation of them before saving the commodities If he realizes that wholly damaged commodities cost plus the expense are approximately the same or exceed the value of the

insurance contract, he must inform The Insurer and ask him to compensate the Constructive Total Loss.

It should be noticed that these risks must occur and damage the commodities when they are on shipping, notwhen they had reached the destination port Because if the commodities had reached the destination port, it means

that the Insured didn’t give the notice of abandonment and the loss is only considered the partial loss, so theInsurer just have to compensate the exact loss which had occurred But in fact, if the loss was too badly, the Insurer

must compensate fully.

The Insured made a notice of abandonment in papers and informed the Insurer about the commodities’ losssituation If the Insurer realizes that the situation isn’t serious, the ship is still able to arrive to the destination port

safely while the cost doesn’t exceed the insurance value, he may not accept this abandonment In this case, the loss

is just considered the partial loss But if the Insurer realizes that the situation is serious, the Insurance Company

will appoint their men to come to the scene or delegate the Insurance agency to come there If the cost for this traveland the cost of commodities loss exceed the insurance value, the insurance company will accept the abandonment.

All the silence of the Insurer don’t mean he accept or decline the abandonment So in cases the owner doesn’treceive the feedback from the Insurer, he must be back to the duty for the commodities loss That means he must

conduct the task of limiting the loss with the anticipated cost.

In this case, the Insurer will have to compensate the owner not only the commodities loss but also the cost of

limiting the lost and other relevant cost Whether these costs exceed the insurance value or not, the owner still has

the right to ask the Insurer to compensate fully including the surpassing value because they gave the notice ofabandonment but the Insurer doesn’t accept that.

When the abandonment is accepted by the Insurer, the owner cannot change his mind although he knowsthat the commodities can be sold with a higher price after being compensated by the Insurer.

Whenever loss occurs, the Insured can choose one of these options:

 Not abandon the c” loss:ommodities:

In this case, the loss will be considered partial loss and the Insurer will compensate the loss due to the

condition in the insurance contract.

 Abandon the c” loss:ommodities:

In this case, there are also 2 ways

- Abandon without a notice to the Insurer :

When the commodities reach the destination port, the loss is only considered the partial loss, and theInsurer just has to compensate the exact loss which had occurred But in fact, if the loss was too badly, the Insurer

usually compensate fully.

- Abandon with a notice to the Insurer :

When the Insurer receives the notice from the commodities’ owner, he must have to answer whether if heaccepts the abandonment or not In this case, the Insurer has to consider the situation and calculate all relevant

costs quickly

The Insurer will refuse the abandonment if he realizes that the situation isn’t serious or the cost doesn’t

exceed the insurance value The ship is still able to arrive to the destination port safely And the loss is justconsidered the partial loss

The Insurer will accept the abandonment if he realizes that the situation is serious Then, the Insurance

Company will appoint their men to come to the scene or delegate the Insurance agency to come there Or if the cost

for this travel and the cost of commodities loss exceed the insurance value, the Insurer will also accept the

abandonment And the loss is considered total loss and the owner will be compensated 100%.

When the abandonment is accepted by the Insurer, the owner cannot change his mind although he knowsthat the commodities can be sold with a higher price after being compensated by the Insurer.

All the silence of the Insurer don’t mean he accept or decline the abandonment So in cases the ownerdoesn’t receive the feedback from the Insurer, he must be back to the duty for the commodities loss That means hemust conduct the task of limiting the loss with the anticipated cost In this case, the Insurer will have to compensate

the owner not only the commodities loss but also the cost of limiting the lost and other relevant cost Whether these

costs exceed the insurance value or not, the owner still has the right to ask the Insurer to compensate fullyincluding the surpassing value because they have already given the notice of abandonment but the Insurer doesn’t

answer that.

Attention: When a constructive loss took place, the causes must be proved so The Insurer will accept

compensation.

In general, in case of constructive loss, The Insurer needs to calculate the expenses quickly, accurately in

order to announce acceptance or refusal timely Because the longer it takes, the graver the loss is And The Insurer

has to pay all the ultimately consequence.

Princ” loss:iples of Abandonment, ac” loss:c” loss:ording to The English Marine Insuranc” loss:e Law 1906:

 Notice of abandonment may be given in writing, or by word of mouth, or partly in writing and partly byword of mouth, and may be given in any terms which indicate the intention of the assured to abandon his insuredinterest in the insured commodities unconditionally to the insurer.

 Notice of abandonment must be given with reasonable diligence after the receipt of reliable informationof the loss, but where the information is of a doubtful character the assured is entitled to a reasonable time to makeinquiry.

 Whenever having the idea to abandonment and leave the commodities for the Insurer, the owner has toconsider that if the Insurer accepts the abandonment, a part of the abandoned commodities’ value still can be saved.But in fact, if they don’t have any value left and cannot bring in any benefit, the owner doesn’t have to give thenotice of abandonment In this situation, he just has to prove and ask the Insurer to compensate 100%.

 Summary

1.According to the rules of notice of abandonment, if the insured decides to abandon the commodities, he must give notice of abandonment to the insurer If not, the loss can only be considered as a partial loss

2.Notice of abandonment may be given in writing, in speaking, or both It must indicate (that) the insured abandons his ownership in the subject-matter insured without any conditions to the insurer

3.Notice of abandonment must be given with reasonable diligence after receiving reliable information of the loss, but if the information is unreliable, the insured has a period of time to make inquiry.

4. When the insured wants to abandon the commodities, he has to consider whether the abandonedcommodities have any value left or not If the abandoned commodities don’t have any value left and cannot bringany benefit, the owner doesn’t need to give the notice of abandonment In this situation, the owner just has to provethis and ask the Insurer to compensate 100%.

5 When the notice of abandonment is given properly, the interests of the insured are guaranteed.

6.The acceptance of an abandonment may be express clearly from the insurer The silence of the insurer after notice cannot be considered as an acceptance.

7.When the notice of abandonment is accepted, the abandonment is irrevocable The acceptance of the notice conclusively admits liability for the loss and the sufficiency of the notice

8 Notice of abandonment may be waived by the insurer

9.When an insurer has re-insured his risk to another insurer, no notice of abandonment need to be issued by him.

2.3 Particular Average Loss

Particular average loss is a partial loss of the insured commodities, caused by a peril insured against, and which is not a general average loss.

If The Insurer is in charge of the particular average loss, The Insurer must compensate (in case the owner

bought insurance).

If both the carrier and The Insurer are in charge of the particular average loss (the owner bought insurance),The Insurer will compensate for the owner and then on behalf of the owner will ask for compensation from the

According to the English Marine Insurance Act 1906, in all cases the commodities with particular average loss must have a direct or reasonable cause.

Expenses incurred by or on behalf of the assured for the safety or preservation of the subject-matter insured, other than general average and salvage charges, are called particular charges Particular charges are not included in particular average.

Ex: In a voyage, a hold storing coal was fired The fire also burned the hold storing clothes of another owner

and did a damage of 30% Both fire cases happened accidentally The sudden risk caused the damage was

determined to be particular average loss In principle, this fire risk is the responsibility of The Insurer if bothowners bought insurance However, if the investigation proved that the coal was fired because of its nature, TheInsurer doesn’t have to compensate due to its exclusion So The Insurer is only responsible for compensating the

damaged clothes

Ac” loss:c” loss:ording to the Marine Insuranc” loss:e Ac” loss:t 1906:

 Buying insurance with FPA (free partic” loss:ular average) condition which exclude particular average loss

insurance, The Insured can’t ask for compensation of a partial loss, except for loss caused by a sacrifice for generalaverage loss (if in the voyage there are grounding, sinking, collision or fire, The Insurer must compensate)

 In case the insurance exclude particular average loss, The Insurer must be responsible for the rescued

cost, particular cost and other cost according to the Suing and Laboring Clause to avoid an insured loss  Except for other requirements in the policy

 In order to determine the rate, we must base on real loss that the insured service incurred Particular cost and other defined cost to prove that the loss must be excluded.

2.4 General Average Loss

G.A losses are expenses and damages incurred as the result of damage to a ship and its cargo and taking direct action to prevent initial or further damage to the ship and its cargo.

General average applies when something happened and threatened the voyage The accident has also required payment of extraordinary costs (or material sacrifice intentionally and reasonably made) in trying to avoid the common risks: collision, sinking, fire or grounding The amount of the sacrifices and expenditures are divided equally amongst the parties (including the ship-owner and cargo-owners) whose commodities have been preserved; it applies no matter of any one’s fault in carrying out the contract of carriage.

Common examples of general average acts with resulting commodities loss and expenses include:

 Giving up part of cargo, discharging, storing, and re-loading of cargo; or grounding the ship in order to refloat;

 Loss of or damage to cargo through fire extinguishment;  Employment of lighters to lighten a ship which would sink;

 Towage, over run the engine - if a ship suffers from engine breakdown;  Other saving efforts

G.A includes a general average expenditure as well as a general average sacrifice

- G.A expenditure is the expense which is paid for the third person due to G.A in order to save the ship and cargo like expenses of rescue, expenses of unloading, transferring, expenses of storing and expenses of estimating … - G.A sacrifice is the loss belong to physical things of commodities, cargo, ship … like giving up or throwing some cargo into the sea, some cargo will be wet due to breaking up the fire

Marine insuranc” loss:e protec” loss:tion

The good news is that, if the cargo was protected by marine insurance, general average contributions will be

paid by The Insurers All the cargo-owner has to do in those circumstances is to send the documents to TheInsurer, who will look after all the paper work Once the cargo has been delivered, the average adjusters will gather

together the required information related to the details of the accident, identity of the parties, sacrifice and

expenditure, and the commodities values They will also contact the cargo owner to collect details relating to any

loss or damage since this must be deducted from the contribution Attention: G.A cases have a few essential ingredients

- Firstly, there must be the common adventure; meaning that SHIP, CARGO, FREIGHT must be put in

danger, and any sacrifice must be extraordinary in nature If for example the ships gear is lost while being used for its original intended purpose, the loss is not General Average

- The G.A act must be voluntary and intentional (such as throwing overboard cargo to lighten a

waterlogged ship) The act must also be reasonable For example in jettisoning cargo for the common safety of the adventure, the master of the ship must exercise reasonable care in the selection of commodities to be thrown overboard

- Then, the adventure must be saved, as the essence of G.A is sacrifice by one to save all

The general average is decided by the captain of the ship, acting for all the interests concerned, to sacrifice any part of a cargo when common and unavoidable risks occur in order to save the rest The sacrifice must be voluntary, and for the benefit of all The general average is paid by all parties including ship owners and cargo owners Even though the cargo owners are one of the victims of marine accidents due to cargo delay, loss or damage, they are still liable to make contributions to general average And the G.A may be contributed due to a proportion:

General average contribution proportion formula: c = GA/V

c: General average contribution proportion

GA: General average value

V: net arrived value (not includes Particular average loss)

Calculation of the factor applied to contributory values: $67,500 : $675,000 = 0.1 (ship $300,000 x 0.1 =$30,000) 0,1 is called the contribution proportion.

The differences between GA and PA

General Average Loss (GA) Particular Average Loss (PA) Cause of loss Due to intentional action Due to unpredictable accidents

Relations Involving one trader only Involving every ones on the journey Loss contribution Everyone benefits from the voyage

must contribute

The owner incur totally Responsibility of the insurer Compensate immediately, regardless of

the insurance conditions Depend on the risks in the insuranceconditions

Example (page 386) to compare particular average to general average

On a voyage, there are 4 cargo owners Total value of cargo is 800,000 USD, in which: Owner A: 200,000 USD

Owner B: 300,000 USD Owner C: 100,000 USD Owner D: 200,000 USD

The net value of the ship: 2,000,000 USD

Total value of commodities on board: 2,800,000 USD

Case 1:

The cargo of owner A is fired, the loss is estimated about 150,000 USD This is an unexpected accident So, it is called particular average loss and owner A will incur this loss totally

Then the fire spreads out to the engine room, causes a loss of 50,000 USD This is also particular loss and the ship owner will incur totally

To save the rest of all, the captain considers carefully and decides to use water to extinguish the fire This action is an intentional sacrifice because the captain knows that it will cause damage to other cargo And this action is successful, the ship is saved The final loss is estimated to 260,000 USD This is general average loss And will be paid by all ship owner and cargo owners The contribution proportion is determined by:

C = 260,000 : [2,800,000 – (150,000 + 50,000)] = 10%

All parties (included ship owner and cargo owners) contribute to G.A with an amount of 10% of the value of their cargo After all, the ship owner will recover the damage to the victims.

Case 2:

After extinguishing the fire, the ship cannot go on, the captain must hire another ship to carry it to the destination, and the cost of this is about 20,000 USD It is also considered general average loss And the contribution proportion now is:

(260,000 + 20,000) : [2,800,000 – (150,000 + 50,000)] = 12,5%