In some trades it is the custom for the buyer to purchase goods on C.I.F. terms and then to take out, in addition to the insurance purchased with the goods (which we shall call the “primary” insurance) further cargo insurance on a so-called “increased value” basis. In such circumstances difficulties have arisen as to how the two sets of insurers, who we shall call the “primary” insurers and the “increased value” insurers, should share the benefits of any recovery.
Under section 79 of the Marine Insurance Act 1906, where insurers pay a claim they become subrogated “from the time of the casualty causing the loss”. If the casualty occurred the day before the increased value policy declaration was made, and the primary insurer’s rights had therefore (a precise sum) even before the increased value policy was taken out. This seems no answer to this point which, it is submitted, may apply even if both insurances contain a provision, such as Clause 14 of the Institute Cargo Clauses, that results in the pro rata apportionment of recoveries, as discussed below. It may be said that the pro rata provision cannot bite where the second policy is taken out after the loss as the vesting of the rights of subrogation are, by section 79 of the 1906 Act, retrospective to the casualty.
However, the presence of such a clause in both policies would have enabled the matter to have been worked out on “business like lines”.
This provision is materially unchanged and now appears as Clause 14 of the revised Institute Cargo Clauses in the following terms:
“Increased Value
“If any Increased Value insurance is effected by the Assured on the subject-matter insured under this insurance the agreed value of the subject-matter insured shall be deemed to be increased to the total amount insured under this insurance and all Increased Value insurances covering the loss, and liability under this insurance shall be in such proportion as the sum insured under this insurance bears to such total amount insured.
In the event of claim the Assured shall provide the Insurers with evidence of the amounts insured under all other insurances”.
Where this insurance is on Increased Value the following clause shall apply:
The agreed value of the subject-matter insured shall be deemed to be equal to the total amount insured under the primary insurance and all Increased Value insurances covering the loss and effected on the subject-matter insured by the Assured, and liability under this insurance shall be in such proportion as the sum insured under this insurance bears to such total amount insured. In the event of claim the Assured shall provide the Insurers with evidence of the amounts insured under all other insurances”
The effect of this clause, which is based on the Clause that appeared in certain specialized Institute Trade Clauses, is to oblige the assured to provide the full values to his insurers where he has taken out increased value insurance. The insurers will then share any claims pro rata if the increased value clause appears in both policies. This is far more likely now that the increased value clause appears in the standard Institute Clauses rather than merely in certain Institute Trade Clauses. This serves to resolve the issue on “business like lines”. So far as recoveries are concerned, where there are increased value insurers, and both insurers have this clause in their policies, it will entitle the increased value insurers to share rateably in any subrogated cargo claims against third parties and oblige the primary insurers to do so. Where the clause only appears in the increased value policy, the increased value clause will still be of no effect and the primary insurers under a valued policy will be entitled to the recovery up to the amount of the agreed value of the goods. Where the clause appears only in the primary insurance, but not in the increased value insurance, which is less likely, it would seem that the increased value insurers can share pro rata as the primary insurers have agreed to give up their sole rights to the recovery allowing the increased value insurers to be subrogated to the assured’s rights. In those relatively rare cases where the second policy is taken out after the casualty, whether that policy be a primary policy or, more likely, the increased value policy, it would appear that the primary insurers are entitled to the recovery up to the agreed amount of the goods even if the increased value clause is in both policies.
Takis Kalogerakos
Marine Underwriter
A client who is a manufacturer of equipments, has taken out a policy for the invoice on Incoterms CIF for exports to a dealer. Therefore the manufacturer already has a policy with X as the sum insured.Let us say the invoice price is X. The buyer who is a dealer of the equipments sells it to a customer in his country at Y price.As per the L/C terms of the customer of this dealer, the dealer has to provide insurance policy with Y as the sum insured. Will any insurer be willing to issue such a policy and if so what are the issues in Insurable interest and difficulties or issues in claims settlement/
Dear Narayanan, good question, is the so said “the spiral valuation” simply at all stages of the increased of value can be covered as an “excess value” over and above the initial invoice value. What should be taken into consideration is, that the excess value cannot be higher than the Market value. Thus the Underwriter can deny paying any increased values above the market value.
Thanks for your visit
Respectfully Takis Kalogerakos