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Marine Insurance
Thursday, July 1, 1993
Getting to the bottom of it

Travelling and trading between countries dates back to the earliest recorded history and, for both the traders and the ship owners, protection from loss became necessary. The earliest form of marine insurance originated over 3 000 years ago and insurance was known as a Bottomry Bond when a ship’s hull was referred to as a bottom. This was an advance on the security of the vessel which was refunded with interest if the ship completed the voyage without damage
The next development in marine insurance was recorded in Italy in the twelfth century when the practice of offering compensation for the loss of ships and cargo at sea became established. Within 200 years the Lombardy merchants from northern Italy had started a similar practice in the City of London in the street which became known as Lombard Street. By the end of the sixteenth century, policy wordings became standard and familiar to the shipping community. Courts were established to settle disputes. These special shipping courts were governed by international trading laws that differed from English law as practised in the city of London.
By the end of the seventeenth century there was a group of merchants in London who individually were prepared to accept part of the risk of a ship and its cargo in return for a premium paid by the ship owner or trader. It was from this simple beginning that the corporation of Lloyd’s of London was ultimately developed.
In 1720, in return for a substantial sum of money, King George I granted a monopoly to two organisations to transact marine insurance. One was the London Assurance (now part of the Sun Alliance & London Group) and the other, the Royal Exchange Assurance (now part the Guardian Royal Exchange Group). The Act forbade other companies from transacting marine insurance. But the prohibition did not extend to individuals and, as a result, Lloyd’s grew rapidly as a centre of insurance. The monopoly continued until 1824 when the Alliance Marine Insurance Company succeeded in its application to transact marine business.
For more than 300 years the special London marine courts arbitrated over marine issues until the Marine Insurance Act was passed in 1906. Today the Act forms the basis of the law relating to marine insurance throughout the world.
Policy cover
Marine insurance can be divided into three areas: hull, cargo and freight; and the risks against which they may be insured are perils of the sea including fire, theft and collision. While hull and cargo are self-explanatory, freight may not be. Freight is the sum of money paid for transporting goods or for the hire of a ship. When goods are lost due to perils of the sea, freight or part of it may also be lost, hence the reason for it being insured.
Cargo is usually insured on a warehouse (of departure) to warehouse (of arrival) basis and frequently on “all risks” terms.
The following are various forms of policy:
• time policy - applies for a fixed period of not more than 12 months; v’ voyage policy - operative for the period of the voyage;
• mixed policy - covers the subject matter for the voyage and a period of time thereafter as, for example, while in port;
• building risks policy - covers the construction of marine vessels;
• open cover - by far the most common form of policy for insuring cargo. Its purpose is to establish an automatic facility anticipating future needs. Broad definitions of the quality of vessels, basis of valuation and limits are incorporated together with a rating structure. Certificates are often issued for individual sending and declarations are made to the insurers regarding shipments so that the appropriate premium may be charged; and, finally,
• small craft insurance - the increasing leisure use of small boats brought about the introduction of this policy. It is comprehensive in style and covers a wide range of perils including liability insurance.
Marine Liabilities
The custom is to provide insurance for three-quarters of the ship owner’s liability for collisions at sea under the marine policy. The remaining quarter and all other forms of marine liability are catered for by associations known as Protection and Indemnity clubs (P and I clubs) set up for the purpose by ship owners.

Copyright © Insurance Times and Investments® Vol:6.7 1st July, 1993
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