MARINE HULL- AN OVERVIEW

Marine Hull is a specialized branch in General Insurance. This branch covers lot of products based on well developed clauses and international practices. This article gives an overview of some of the Marine Hull Products for the beginners who to understand the available covers in this branch.

Marine Hull insurance covers nearly everything that floats and moves, starting with rowing boat to huge ocean going ultra large super tankers and it includes all oceangoing vessels, bulk carriers (dry or liquid), pleasure crafts, all types of inland & coastal vessels, sailing vessels, port crafts, yachts, dredgers, trawlers, fishing vessels, Trawlers, fish factories (designed to ply in high seas), floating dry docks, jetties & pontoons (with or without cranes) & wharfs.

This branch of insurance provides specialized risk coverage for Ship owners interests including hull and machinery, freight, disbursements & increased value (ship-owners expenses incurred in fittings and provisions not included in hull valuation), premium reducing (Premiums of insurance), Returns of Premium ( for lay up or whilst under repair) excess liabilities, Protection and Indemnity (P&I) liabilities, Charterers’ liabilities, Charterers’ freight, Charterer’s hire and disbursements, General Average disbursements, breach of voyage or warranty cover, Construction risk of Ship builder and risks of Ship repairer & those engaged in ship breaking. Insurance for voyages from a place of Port to breakup yard of another port and laid up vessels whilst awaiting breakup within the shelter and protected waters is also available in this branch.

It also takes care of the risks associated with Energy and oil industries to cover onshore or offshore constructions & erections risks and risk of operators producing oil from the ocean beds; Comprehensive port package cover for port or terminal authorities & operators and private jetty owners.
Marine Hull Insurance Product covers loss or damage to hull and machinery. The hull is the structure of the vessel. Machinery is the equipment that generates the power to move the vessel and control the lighting and temperature system such as boiler, engine, cooler and electricity generator. Just as a motor insurance policy is taken to cover the vehicles plying on the road, similarly a marine hull policy is taken to cover the vessels.

According to United Marine Underwriters, it is the closest maritime equivalent to comprehensive and collision  HYPERLINK "http://www.ehow.com/cars/"automobile insurance.
Marine Hull Products aim to secure the risk that the ship-owners may assume on each venture and protect against losses that may occur to the vessel and her equipment during the enterprise.

 Hull & MACHINERY INSURANCE: 

The Policy covers the hull, machinery and equipment & stores on the board but it does not cover the risk of cargo for which coverage is available in Marine Cargo products. The Product however covers Ship’s proportion of general average, salvage charges, sue and labour expenses and ship owner’s liability towards other vessels arising from collisions. Only 3/4th of the collision liability is covered in H&M Policy and rest may be covered with P&I Clubs. The Marine Hull product is intended to provide the insured towards loss or damage as per Institute Time Clauses. These are the main clauses attached to Marine Hull policies and covers for a specific period usually 12 months. As the nature and degree of risks which the Insurer run vary according to the kind of vessel, there exist 3 main categories in the Time Clauses.

Institute Time Clauses (Hull)
Institute Time Clauses (FPA)
Institute Time Clauses (Total Loss Only)

Institute Time Clauses (Hull) Provides the maximum coverage offered by hull insurers. The  policy covers perils of the seas, rivers, lakes or other navigable waters  loss/damage to the property insured caused by :

Fire, explosion
Stranding, sinking etc.
Overturning, derailment ( of land conveyance )
Violent theft by persons outside the vessel.
Collision
General average sacrifice, sacrifice, salvage charges
Jettisons
Piracy
Breakdown of or accident to nuclear installations or reactors
Contact with aircraft or similar objects, or objects falling therefrom, land conveyance , dock or harbour equipment or installation.
Earthquake volcanic eruption or lightning.
Crew Negligence.
Other Losses & Expenses that may be covered are Pollution Hazard, 3/4th Collision Liability, General Average and Salvage, Sue and Labour, Constructive Total Loss. The policy however does not cover when there is deliberate destruction/damage, radioactive contamination, biological/biochemical/chemical, electromagnetic weapons.

The sum assured Marine Hull covers depend on various factors as it is an agreed value policy. Premiums to be paid on this policy are depended on the following factors:

Type of vessel, trading limits, age, tonnage, technical aspects of machinery features (wooden construction, No of engines, double bottom, built according to class)
Management and ownership considerations
Past claims experience
Valuation of vessel
Type of cover required
Size of the deductible
Size of fleet

Trade Warranties- In time policies trading limits are expressed. Fishing vessels are allowed to ply only up to 100 N.M. Fishing Vessels should also be laid up during adverse weather conditions.

Breach of Warranties
Other Institute Time Clauses (FPA)

The coverage of these clauses are similar to that of Hulls Clauses but exclude coverage on machinery damages in all respects. Where the vessel exceeds 15 years of age insurers prefer to give this coverage only. Past experience of insurers shows that older vessels suffer serious casualties due to machinery damage. Prudent underwriting suggests that if machinery damage is excluded due to limitation of this clause even old vessels can be covered with ease by the insurers.

Institute Time Clauses Hulls (Total Loss Only)

As the name suggested, this clause only covers in the event of it becoming a total loss by arrangement, actual, compromised or constructive total loss.  The insurers provide this cover usually at a low rate and this cover is extended to very old vessel  or on accommodation only for big fleets or vessel owners.

The Marine Hull polices also provides covers against all risks related to freight, disbursement, premium reducing, excess liabilities, shipbuilding and ship breaking risks, protection and indemnity liability etc.
There are situations in which Time Clauses are not appropriate in Marine Hull Products and for such case Institute Voyage Clauses are the basis of covering those risks. This insurance covers risks during a voyage from one port or place to another or a round voyage. Such voyage insurance is affected generally against delivery voyage of a new vessel to buyer from the shipyard or a voyage of a vessel to be repaired at shipyard. The period of coverage is usually less than a year and the scope of coverage is almost identical that of time policy. There are the FPA and Total Loss cover in Institute Voyage Clauses.

Builders’ Risk Insurance

Builders Risk covers risk of a vessel whilst it is under construction. During that period, it is exposed to risks such as fire, tidal wave, capsize or failure in launch. It is also exposed to collision, and sinking on a trial trip. The builder’s risk insurance effected by shipyards provides cover against all such risks. The insured value is the contract price or the estimated completed value of the vessel if there is no contract price. The period of insurance should be from the time of inception of the construction to the time of delivery. Hence, the period can well exceed 12 months. The insured value is equal to the contract price or the estimated complete value of the ship if there is no contract price.

Hull War And Strike Risks Insurance

War and strike risks are usually excluded from the cover of ordinary marine insurance policies in any market throughout the world. This insurance covers exclusions under Article 11 of the Institute Time Clauses. It can only be effected on vessels which are insured against ordinary marine risks. The rate of premium fluctuates frequently reflecting the climate of world politics at the time of inception of the risk. Insurers generally grant War Risks at rates, terms, conditions and warranties provided for under the Hull War Risks Insurance Scheme of Government of India. For risks not covered under the said schemes, Insurers may provide cover at London Market Rates.

Terrorism Insurance

Terrorism cover is an excluded risk world-wide. There will be no consideration for acceptance if this coverage is required.

Loss of Time Insurance

This insurance indemnifies a ship-owner for loss of anticipated profits or operating costs where the insured vessel is forced to be out of commission in consequence of damage caused by maritime accident. The period of insurance is one year and the insurable value is calculated based on the estimated operating costs, estimated chartering to be earned & estimated gross income of freight. The loss of time is covered on the basis of the number of days required for the completion of the repairs, counting from the day following the day of the accident. The Insurer’s liability per any one accident is limited to certain number of days up to 180 days throughout the year.

Loss of Charter Hire Insurance

This insurance is for the ship owners. If the Vessel given on charter is laid up for repairers following a casualty covered under the terms of H & M Policy this policy covers loss of hire suffered by the ship-owner.  This policy ensures a stable financial year to the ship owners. During the period of insurance is the vessel is damaged due to accident then the vessel will not be allowed to earn any hire. The hire will be stopped for stated number of days and the insurance will pay the sum for each 24 hours after the expiration of the said days.

Insurance of Freight:

The earnings of a vessel normally known as freight for time can be covered up to 25% of the hull value provided no additional insurances on disbursements are placed. This covers indemnity for loss of freight (not exceeding gross freight lost). Freight for specific voyage or anticipated freight when a vessel is in ballast may also be insured provided the total freight insurance does not exceed 25% of hull value.

Oil Energy Upstream Insurance:

Energy exploration & upstream insurance is a specialized branch of Marine Hull that provides cover for both offshore and onshore insurance cover right from exploration (Energy Exploration and Development Insurance), drilling (Oil & Gas Drilling Tools Floater Form) construction and installation of production equipments. The covers are available for Jack up rigs, drilling rigs, semi submersibles etc for exploratory drilling (London Standard Drilling Barge Form - All Risks to floating drilling units and equipment , London Standard Platform Drilling Rig Form - rigs offshore in general);

 London Market Offshore Mobile Unit Form) Builders risk for offshore constructions (WELCAR 2001 wordings both for physical damage and for liabilities),

Production and Operational covers for Well head Platform and Process Platforms (London Standard Platform Form - fixed production platform),Control of Well (Blowout, Redrilling and Extra Expenses, Seepage and Pollution, Clean up and contamination risk).

PORT PACKAGE POLICIES for  Port Authorities , Port or Terminal operators & Private Jetty Owners covers Physical Damage, Third Party Liability, Business Interruption, Terrorism, Wreck Removal &  Hull & Machine Cover for Vessels.

PORT RISK COVER is available to Vessels employed in sheltered and protected waters such as Harbour Waters, Back Waters, Sea Waters within the radius of 12 N.M. from prominent point of a port as designated by Port or Custom Authorities, River water, Canal water, Lake water and like.

PROTECTION AND INDMNITY COVERS are not covered in respect of Ocean going Vessels other than those operating in the coastal waters of India or insured subject to the Institute Fishing Vessel Clauses, Institute Yacht Clauses, and Institute Time Clauses Hulls- Port Risks with or without limited navigation. These may however be covered on Inland Vessels like Barges, Launches, Tugs etc.

P&I Cover are provided by the P&I Clubs that are basically mutual clubs formed by its members. In India no such club exists. This cover relates to Statutory Oblig

ations and responsibilities of Masters, Officers and Crew as per the Merchant Shipping Act and other Statutes concerned with employees, Contractual liabilities related to bill of lading (cargo owners) and Third Party liabilities relating to loss of life and personal injury to members of crew, passengers, dockworkers and others.  It also covers 1/4th collision liability excluded from the H& M Cover and other liabilities like Oil Pollution cover.

Vinay Verma
(The writer is Manager in Oriental Insurance Company )