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Opinion - Understanding marine cargo insurance

2021-03-30  Staff Reporter

Opinion - Understanding marine cargo insurance
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Marine insurance, the earliest form of insurance, is an ancient concept of maritime law. It is important to know something about the history of marine insurance to understand how it operates today. The origin of marine insurance is “veiled in antiquity and lost in obscurity’’. 

It appears that bottomry, an advance of money on the security of a vessel, that is not recoverable if the vessel is subsequently totally lost before arrival, was practised by the Phoenicians. Earlier, a form of bottomry was used by the Babylonians and possibly by the ancient Hindus. 

Bottomry was originally a type of marine insurance, as the lender of money on bottomry made the advance before the adventure was commenced and thereby financed the adventurer. Marine insurance covers the loss or damage of ships, cargo, terminals, and any transport by which the property is transferred, acquired, or held between the points of origin and the destination. 

Cargo insurance is the sub-branch of marine insurance, though marine insurance also includes onshore and offshore exposed property, (container terminals, ports, oil platforms, pipelines), hull. Marine casualty and marine liability. The scope of a marine insurance policy varies and is generally determined by the underlying nature of the risk. 

Marine cargo insurance responds to physical loss or damage to goods imported, exported or transported within Namibia by any professional mode of transportation be it ship, plane, train or truck. Therefore it appeals widely to shippers within international trade and professional hauliers. Marine hull insurance responds to physical loss or damage to the actual watercraft and by extension certain liabilities to passengers or third parties. 

Craft typically insured in the Namibian market includes private pleasure craft and commercial hull such as the fishing fleets located in local waters. Hollard’s Marine Liability products respond to the legal liability needs of ship repairers, shipbuilders, charterers and stevedores. Depending on the kind of insurance requested, exclusions can and do apply. 

Typical exclusions to cargo cover include, amongst others: Loss, damage or expense resulting from deliberate damage or willful misconduct by the assured; ordinary leakage or wear and tear of the insured goods; loss caused by delay; unseaworthiness of a vessel or craft and insufficiency or unsuitability of the packing by the insured. The concept of marine insurance as protection against loss by maritime perils has been traced back to at least 215 B.C. when the Roman government was required by the suppliers of military stores to accept “all risk of loss, arising from the attacks of enemies or storms, to the supplies which they placed in the ships”. 

Even then, it appears that an insurer was plagued by fraudulent claims. The very shipwrecks, which did take place and were truly reported were occasioned by their fraud and not by casualty. They would put a few things of trifling value onboard old and shattered ships, and when they had sunk those ships in the sea, the sailors would escape in boats prepared for the occasion and then falsely pretend that a great deal of merchandise was on board. 

References made around 50 B.C. show that, by that time, certain essential elements of modern marine insurance were already present such as insurable interest; the assumption of the risk by someone other than the owner of the property; and the payment of a premium as a consideration for the indemnities offered. The development of marine insurance is obscure until the 13th century. The real origins of marine insurance, as it is practised today, can be traced to Italy at that time. It was associated with the merchants of the cities of Lombardy (region, Italy) particularly Florence, around 1250 A.D. The oldest existing insurance policy, dated 23 October 1347, was written by Lombard merchants and it insured the ship, Santa Clara, on a voyage from Genoa to Majorca. 

The Lombards immigrated to other countries and, by the 14th century, were practising marine insurance in England, Belgium, and France, as well as in Italy. Contemporaneously with the Lombards, marine insurance was practised by the merchants of the Hansa towns in northern Europe. In the 13th century, these towns formed the Hanseatic League, which would come to control world shipping until the 16th century. Some of the Hansa merchants immigrated to England. 

These merchants eventually monopolized the English overseas trade, especially in wool, while the Lombards controlled banking in England. Both practised marine insurance as well. In the 17th century, there were no insurance companies; the practice was for individuals, who came to be called underwriters because they wrote their names beneath the wording on insurance policies, to guarantee commercial ventures on a personal basis. 

Among the innumerable 17century London coffee houses where underwriters would meet, was one called Lloyd’s coffee house, situated on Tower Street near the Thames. This location attracted the patronage of those interested in and connected with the sea. Lloyd’s was merely a convenient and, apparently congenial place for merchants of common interest to meet, chat, and transact insurance and other business. In 1779, a general meeting of Lloyd’s adopted standards forms of insurance policies. The first major marine insurance companies were established when the “South Sea Bubble” burst in the early 1700s. 

The South Seas Company had been incorporated in 1710 with a charter that gave it a monopoly on trade with the South Seas. The company after realising that its trading opportunities in that area were not sufficient to be very profitable, developed a scheme to convert the entire national debt of England into a single redeemable obligation to the company at a low rate of interest in return for a monopoly on British foreign trade outside Europe. In1991, the London market produced a new standard policy wording known as the MAR 91 forms, using the Institute Clauses. 

The MAR form is simply a general statement of insurance; the Institute Clauses are used to set out the detail of insurance cover. In practice, the policy document usually consists of the MAR form used as a cover, with the Clauses stapled to the inside. The Marine Insurance Act 1906 (8 Edw. 7 c.41) is a UK Act of Parliament regulating marine insurance. The Act applies both to ‘’ship and cargo” marine insurance, and to protection and indemnity insurance (P&I) cover. The Marine Insurance Act 1906 has been highly influential, as it governs not merely English Law, but it also dominates marine insurance worldwide through its wholesale adoption by other jurisdictions.

2021-03-30  Staff Reporter

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