Form and Contents of Marine Insurance Policies

Form And Contents Of Marine Insurance Policies

1. What Insurances Must Be Made By A Policy

A contract must be embodied in a policy

Section 22 MIA provides as follows:

Subject to the provisions of any statute, a contract of marine insurance is inadmissible in evidence unless it is embodied in a marine policy in accordance with this Act. The policy may be executed and issued either at the time when the contract is concluded, or afterwards.

This applies to all marine policies except those covered by Marine & Aviation (War Risk) Insurance Act 1952.

Usually the contract is evidenced by a slip and followed by a formal written policy on a later date.

In Swan & Cleland’s Graving dock & Slipway co v Maritime Insurance Co and Eide UK Ltd v Lowndes Lambert Group Ltd it was held that the claimant neednot produce the policy to prove his case.

2. Statutory Requisite Of A Policy

Section 23 MIA provides as follows :-

A marine policy must specify—

(1) The name of the assured, or of some person who effects the insurance on his behalf. [(2) to (5) of this section was repealed by the Finance Act 1959]

Section 24 MIA provides as follows:-

(1) A marine policy must be signed by or on behalf of the insurer, provided that in the case of a corporation the corporate seal may be sufficient, but nothing in this section shall be construed as requiring the subscription of a corporation to be under seal.

(2) Where a policy is subscribed by or on behalf of two or more insurers, each subscription, unless the contrary be expressed, constitutes a distinct contract with the assured.

Section 26 MIA provides as follows:-

(1) The subject-matter insured must be designated in a marine policy with reasonable certainty.

(2) The nature and extent of the interest of the assured in the subject-matter insured need not be specified in the policy.

(3) Where the policy designates the subject-matter insured in general terms, it shall be construed to apply to the interest intended by the assured to be covered.

(4) In the application of this section regard shall be had to any usage regulating the designation of the subject-matter insured.

3. The Course Of Business

This is a two stage process beginning with the broker obtaining subscription from the underwriters on a slip which summarises the risk. Each scratching done on the slip by the underwriter will be a binding contract insurance between the assured and the underwriter. Once the scratching is complete, the second stage will be done when the formal written policy is be done on a later date and time.

This was changed in 2007 when the Market Reform Contract (MRC) was introduced to finalise the contract of insurance with just one step where the insurance policy is filled by the broker and completed win one stage as the underwriters will scratch on the MRC straight away to bind themselves to the marine insurance contract.

4. The Slip Procedure

The slip will contain information such as the name of the vessel, description of the insured, the voyage period for which the insurance is to be given, the valuation and amount to be insured and the standard clauses to be incorporated, set out any special terms or warranties as required.

Then the subscription of the slip will start with the scratching process. This process will usually be done by affixing the name of the syndicate the underwriter is attached to and signing off on the said slip.

The scratching also indicates the amount and percentage of cover given by the underwriter.

Once this is complete the broker will prepare the policy and get the same executed by the parties in accordance to the slip.

The execution is formerly done at the Lloyd’s Policy Signing Office (LPSO) until 2001. Since then it is signed at the Xchanging Insure Services (XIS). This new body is owned by Lloyd’s and the International Underwriting Association to act as Lloyd’s signing bureau.

5. Contractual Effect Of A Slip

In the case of Ionides v Pacific Fire and Marine Insurance Co it was held that the slip is in practice and according to the understanding of those engaged in marine insurance, the complete and final contract between the parties, fixing the terms of the contract and the premium of the policy, and neither party without the assent of the other deviate from the terms agreed on without a breach of faith for which he would suffer severely in his credit and future business.

The slip acts as containing the an offer and the act of scratching the slip by the underwriters is acceptance which gives rise to separate binding contract between the parties (Morrison v Universal Marine Insurance CoEagle Star Ins Co Ltd v Spratt and American Airlines Inc v Hope).

The duty of utmost good faith attaches to the slip so that it may be set aside if the scratch has been induced by misrepresentation or non-disclosure (Abraham v Mediterranean Insurance and Reinsurance Co) and as is the case with any other contract earlier drafted wordings of the slip are inadmissible as an aid to its construction (Brotherton v Aseguradora Colseguros SA).

6. Whether The Slip Is A Policy

After Sections 7 and 9 of the Stamp Act 1891 were repealed, the slip can be a basis for a claim.

7. Significance Of Slip Once Policy Is Issued

In the case of HIH Casualty v New Hampshire Insurance the Court held that it is inadmissible to consider the terms of previous contract or that the parole evidence rule has the same effect although there was a presumption that the policy was to replace the ship. The slip may be used as a reference point against the policy if the presumption that the policy has replaced the slip can be rebutted.

Section 21 MIA provides as follows:-

A contract of marine insurance is deemed to be concluded when the proposal of the assured is accepted by the insurer, whether the policy be then issued or not; and, for the purpose of showing when the proposal was accepted, reference may be made to the slip or covering note or other customary memorandum of the contract.

8. Rectification Of Policy By reference To A Slip

In Charterbrook Ltd v Persimmons Homes Ltd the court held that (1) there was a previous common intention as to what was intended to be in the policy together with some outward expression of the accord; (2) the common intention continued up to the date that the parties entered into a binding contract; (3) there was clear evidence that the instrument as executed did not accurately represent the true agreement of the parties at the time of its execution; and (4) the instrument would, if rectified accurately represent the true agreement on the parties at the time.

9. Subscription To Marine Contracts (MRC)

Alliance Insurance Co Egypt v Aigion Insurance Co SA (Niz) – binding contract had been made once the reinsurers had signified acceptance and there is no need for the slip to be scratched and the terms could be altered later.

Also decided the same in Crane v Hannover.

10. Extent Of Liability

Each subscribing underwriter enters into a separate contract by scratching the slip / MRC. Accordingly, the extent of liability is towards the amount of the subscription to the slip / MRC.

An underwriter is not liable to pay the claims of other subscribers.

If an underwriter scratches an endorsement to the original slip / MRC, that scratching is binding on him even though other underwriters haven’t scratched their endorsements and they remain subject to the original terms.

11. Amendments Following Subscription

No party to a scratched slip has the unilateral right to alter its terms (General Reinsurance Corp v FF Patria (Fennia))

12. Corrections And Alterations In The Policy

Any alteration in the risk or the terms agreed after the issuance of the policy, the particulars of this are either added to the original slip or a new slip is prepared.

Can also add a memorandum of any alteration to the back or face of the policy

13. Alterations Made Without Consent

Previously the policy might be avoided as against any party who introduce alterations without his consent after he had entered into it.

This was made obsolete after the case of Fennia mentioned above

14. Interest And Wager Policies

The contract embodied by the policy must be a contract of indemnity and not a wager.

Wager policy occurs when the insured has no insurable interest in the subject matter.

15. Valued And Unvalued Policies

Section 27 MIA provides as follows:-

(1)A policy may be either valued or unvalued.

(2) A valued policy is a policy which specifies the agreed value of the subject-matter insured.

(3) Subject to the provisions of this Act, and in the absence of fraud, the value fixed by the policy is, as between the insurer and assured, conclusive of the insurable value of the subject intended to be insured, whether the loss be total or partial.

(4) Unless the policy otherwise provides, the value fixed by the policy is not conclusive for the purpose of determining whether there has been a constructive total loss.

Section 28 MIA provides as follows:-

An unvalued policy is a policy which does not specify the value of the subject-matter insured, but, subject to the limit of the sum insured, leaves the insurable value to be subsequently ascertained, in the manner herein-before specified.

16. Voyage, Time, Named And Floating Policies

Voyage and time policies are defined by Section 25 MIA:-

(1)Where the contract is to insure the subject-matter “at and from,” or from one place to another or others, the policy is called a “voyage policy,” and where the contract is to insure the subject-matter for a definite period of time the policy is called a “time policy.” A contract for both voyage and time may be included in the same policy.

In the Eurythenes it was held that the policy was a time policy.

A named policy covers a risk attached to the vessel specifically named therein from one port to another

A floating policy is defined by Section 29 MIA :-

(1) A floating policy is a policy which describes the insurance in general terms, and leaves the name of the ship or ships and other particulars to be defined by subsequent declaration.

(2) The subsequent declaration or declarations may be made by indorsement on the policy, or in other customary manner.

(3) Unless the policy otherwise provides, the declarations must be made in the order of dispatch or shipment. They must, in the case of goods, comprise all consignments within the terms of the policy, and the value of the goods or other property must be honestly stated, but an omission or erroneous declaration may be rectified even after loss or arrival, provided the omission or declaration was made in good faith.

(4) Unless the policy otherwise provides, where a declaration of value is not made until after notice of loss or arrival, the policy must be treated as an unvalued policy as regards the subject-matter of that declaration.

This policy keeps terms general and specific terms to be inserted into the policy (e.g. name of ship, name of port) until much later through a subsequent declaration.

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