Definitions in Marine Insurance
ABANDONMENT
The cession by the insured to the insurer of the remains of his property, and rights relating to it, when a constructive total loss is claimed.
ACTUAL TOTAL LOSS
There is an actual total loss (a) where the subject-matter of insurance is completely destroyed; (b) where it ceases to be a thing of the kind insured; or (c) where the insured is irretrievably deprived of it.
ASSIGNMENT
1. Transfer of a right.
2. The document making the transfer of a right. The right transferred may be an interest in the subject-matter of insurance, in the contract of insurance, or in policy moneys due to the insured.
AVERAGE
1. The arithmetic mean.
2. In marine insurance, loss or damage.
3. In non-marine property insurance, where average is said to apply and there has been under-insurance, the insured’s claim is reducible in proportion to the under-insurance.
BASIS OF VALUATION
To protect the insurer under an open cover where shipments may be declared and added to the insurance even after a loss a clause in the policy defines the basis to be adopted for their valuation.
BENEFIT OF INSURANCE
Term used, e.g., in a contract of carriage, where some person such as a bailee stipulates that he shall receive the benefit of insurance effected by the owner.
BILL OF LADING
A shipping document containing a description of the goods to be shipped.
CARGO INTEREST
Insurable interest relating to cargo, other than the interest of the cargo owner.
CLASSIFICATION CLAUSE
A clause in a marine cargo policy specifying the minimum standard of the vessels to be used in the carriage if additional premium is to be avoided. Vessels must be fully classed by a recognised classification society but additional premium may be required if a vessel is over a specified age.
CLASSIFICATION SOCIETY
A society formed to inspect ships and to describe and grade them for the information of insurers, e.g., Lloyd’s Register of Shipping. An approved ship is said to be fully classed.
CONSTRUCTIVE TOTAL LOSS
Subject to any express provision in the policy, there is a constructive total loss where the subject-matter insured is reasonably abandoned on account of its actual total loss appearing to be unavoidable, or because it could not be preserved from actual total loss without an expenditure which would exceed its value when the expenditure had been incurred.
In particular, there is a constructive total loss:-
Where the assured is deprived of the possession of his ship or goods by a peril insured against, and (a) it is unlikely that he can recover the ship or goods, as the case may be, or (b) the cost of recovering the ship or goods, as the case may be, would exceed their value when recovered; or in the case of damage to goods, where the cost of repairing the damage and forwarding the goods to their destination would exceed their value on arrival.
CONTRIBUTION
The principle whereby if two or more insurers indemnify the insured in respect of the same subject-matter against the same peril on behalf of the same interest, they share the loss or liability proportionately.
CONTRIBUTORY VALUE
The value of a ship, its cargo and freight, on which general average contributions are based.
COUNTRY DAMAGE
Damage to baled or bagged goods prior to loading on a vessel, caused by the absorption of excessive moisture or deterioration from grit, dust or sand due to inclement weather.
DUTY OF DISCLOSURE
A common law duty on the part of a proposer for insurance to disclose to the insurer all material facts, viz., all facts that would influence a prudent insurer in deciding whether to grant the insurance and, if so, on what terms.
EXCESS/DEDUCTIBLE
That part of any loss which the assured must bear himself.
FRANCHISE
A minimum percentage or amount of loss which must be attained before insurers are liable to meet a claim. Once it is attained the insurers must pay the full amount of the loss.
FREIGHT
By the Marine Insurance Act, 1906, s.90, “freight” includes the profit derivable by a shipowner from the employment of his ship to carry his own goods or moveables, as well as freight payable to a third party, but does not include passage money.
GENERAL AVERAGE
The principle in maritime law that when a sacrifice is made or an expense voluntarily incurred to preserve the rest of a venture the loss or expense should be shared among all the interests involved in proportion to their value.
GENERAL AVERAGE CONTRIBUTION
The payment due from a party in a marine venture to pay for a general average loss. It is in proportion to the value of his interest as compared with the total values of all interests in the venture.
GENERAL AVERAGE DEPOSIT
A deposit which a shipowner requires of a cargo owner as a condition of releasing his lien on cargo that is subject to a general average contribution.
GENERAL AVERAGE GUARANTEE
An insurer’s guarantee that may be accepted by a shipowner in lieu of a general average deposit (q.v.).
INHERENT VICE
A quality in goods that produces damage to them by its own action without the assistance of an outside agency.
INSURABLE INTEREST
Insurance requires for its validity that the insured shall be so related to the subject-matter of the insurance that he will benefit from its survival or will suffer from loss or damage to it or may incur liability in respect of it. In the absence of such an interest, known as an insurable interest, the insurance will be invalid.
LOCATION CLAUSE
A clause in an open cover limiting the insurers’ liability on property in one location prior to shipment.
OPEN COVER
A contract for cargo insurance to cover all shipments from time to time as declared, a policy being issued in respect of each. The arrangement is subject to cancellation on notice by either party.
OVERAGE
Additional premium payable on a marine insurance open cover or policy when the insured goods are carried on a vessel which does not come within the scope of the Institute Classification Clause (q.v.), usually because it is too old.
PARTICULAR AVERAGE
In marine insurance, partial loss of or damage to the subject-matter of insurance.
PERIL
A possible cause of loss, such as fire.
PROXIMATE CAUSE
Every event is the outcome of a chain (or net) of previous events, but in the words of Bacon “It were infinite for the law to consider the causes of causes, and their impulsions one of another; therefore it contenteth itself with the immediate cause”. This immediate or effective cause, not necessarily that closest in time to the event, is termed the proximate cause.
RECOVERY
Money received by an insurer in respect of a loss, thus reducing the loss, by way of subrogation, salvage or reinsurance.
REPLACEMENT CLAUSE
A clause found in a marine cargo policy on machinery which provides that in the event of damage the insurer’s liability shall be limited to the cost of replacing and fitting any damaged part.
SALVAGE CHARGES
Charges recoverable under maritime law by a salvor independently of contracts.
SALVAGE LOSS
Where goods insured under a marine policy are damaged and as a result of the damage are sold short of destination for less than their insured value there is said to be a salvage loss. The insurer must pay the difference between the insured value and the proceeds, after deduction of sale charges and survey fee, of the sale.
SUBROGATION
The right of one such as an insurer, who has indemnified another in respect of a loss, to be put in the place of that other person with regard to all his other means of recouping the loss.
SUE AND LABOUR CLAUSE
A clause in a marine insurance policy whereby the insurer accepts liability for charges incurred by the insured in seeking to preserve his property from loss or to minimise a loss that would be covered by the policy. The insured is said to sue and labour for the protection of his property.
TO PAY AS CARGO
A provision in a marine policy effected to supplement a cargo policy, as where a buyer wishes to cover himself for a higher value than that fixed in the seller’s policy. When issuing the supplementary policy the insurers agree that where a loss is shown to be recoverable under the original policy they will not contest the higher value.
TOTAL LOSS
1. A loss of the subject-matter of insurance such that it is totally lost, destroyed or damaged beyond economic repair.
2. A loss that gives rise to payment of the full sum insured.
TRANSIT CLAUSE
A clause in marine and aviation cargo policies providing that the cover attaches from the departure from the place of storage at a place named in the policy until the cargo arrives at a place of storage at a named destination or at some alternative place.
UTMOST GOOD FAITH
Insurance contracts are one of a limited class that requires the parties (insurer and insured) to exercise the utmost good faith in their dealings with each other. Specifically the proposer of an insurance must disclose all material facts which would influence a prudent insurer in deciding whether to accept the insurance and if so on what terms.
WAIVER CLAUSE
A clause in a marine insurance policy which preserves the respective rights of the insurer and the insured if either takes action to preserve the insured property from loss. The clause provides that any such action shall not be construed as a waiver or acceptance of abandonment.
WARRANTY
In a contract of insurance, either
(a) a promissory undertaking by the insured that some particular thing shall or shall not be done, or that some condition shall be fulfilled or that a particular state of facts is affirmed or negative. It must be exactly complied with. A breach entitles the insurer to deny liability; or
(b) a requirement by the insurer as to some limitation of cover, e.g. “Warranted free of capture and seizure”.
WATERBORNE AGREEMENT
An agreement by marine insurers not to insure goods against war risk except when on board an ocean-going vessel with a time limit after arrival of port of destination.
WITHOUT BENEFIT SALVAGE
By the Marine Insurance Act 1906 (s.4), a marine policy effected “without benefit of salvage to the insurer” is deemed to be a gaming or wagering contract. The issuing or effecting of such a policy is a criminal offence under the Marine Insurance (Gambling Policies) Act 1909.
WITHOUT PREJUDICE
Term used in discussion and correspondence. Where there is a dispute or negotiations for a settlement and terms are offered “without prejudice” an offer so made or a letter so marked and subsequent letters in an unbroken chain cannot be admitted in evidence without the consent of both parties concerned.
These definitions are provided for guidance purposes only.
Takis Kalogerakos
Marine Underwriter
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