Floating Policies & Open Covers

Floating Policies & Open Covers

1. Floating Policies

Section 29 MIA provides as follows:-

(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.

2. Reasons For Naming The Ship And Degree Of Accuracy Required

The main reason to name the ship upon which the cover is effected or the cargo to be covered which is carried on that ship, is to ensure that the underwriters are not misled as to the identity of the same. 

3. Effects of Mistakes

In the case of Ionides v Pacific Fire & Marine Insurance Co it was held that the misrepresentation as to the age of the ship was held to avail the insurance with a good defence to escape liability.

4. When Naming Unnecessary; Insurance Of Goods “On Board Ship Or Ships”

If the goods are not appropriated by a contract of carriage to the insured voyage and are shipped on some other vessel, the policy will not attach and the cargo owner will not be covered. George Kallis (Manufacturers Ltd v Successes Insurance Ltd).

If the cargo owner is not sure whether the goods are carried onboard a named vessel or not, he may insure them by the vessel he thinks is carrying them, and add words to reflect the possibility of them being carried on another ship and such an insurance will not amount to a warranty that the goods will be carried out in the named ship unless shut out (Marine Insurance Co v Grimmer).

A floating policy cannot be made on an interest which it was not intended to cover. (Scott v Globe Marine Insurance Co).

5. Names Should Be Subsequently Declared

The broker will be party to indorse the declaration of the name or names as a memorandum on the policy. (Robinson v Touray).

6. Port Of Loading Unknown. Ship’s Name To Be Declared Before Loss

An insurance on goods “on board ship or ships” will attach on goods loaded at any port within the limits of the voyage insured (Hunter v Leathley).

In Craufurd v Hunter it was held that the this is not a condition precedent to the claimant’s right to recover on the policy. 

Under section 29 MIA, as seen above, it is provided that a claimant can declare or rectify after the loss is known.

In Gledstanes v Royal Exchange Assurance Co it was held that the claimant were entitled to have the policy of March 19 applied. It is always expected that the assured shall declare his interest at the earliest possible opportunity.

7. Changing The Ship

Clauses 8 to 10 of the Institute Cargo Clauses as amended in 2009 will come into play for the change in ship. These clauses will supersede the MIA.

The position in common law is if a change is done without the sanction or for a reason deemed unnecessary, the underwriter will be discharged from his liability due to an alteration of the risk without good reason (Dickson v Devitt).

The position is the reverse should the underwriter consent to the change in ship (Plantamour v Staples). 

Section 59 MIA provides as follows:-

Where, by a peril insured against, the voyage is interrupted at an intermediate port or place, under such circumstances as, apart from any special stipulation in the contract of affreightment, to justify the master in landing and reshipping the goods or other moveables, or in transhipping them, and sending them on to their destination, the liability of the insurer continues, notwithstanding the landing or transhipment.

8. Apportionment Of Losses Between Two Or More Floating Policies

In Henchman v Offley it was held that the assured could in such a case apply either policy to a loss by any ship he pleased that came within the terms of the policy. 

This rule is now read in conjunction with Section 29(3) MIA which obliges the assured to declare a shipment under every policy within whose terms it falls.

9. Open Covers

It is a form of cover that applies to all risks falling within it for a specific period of time, subject to a maximum limit per risk but no overall aggregate. The advantage to the merchant is that he does not run the risk of finding himself uninsured by inadvertently exceeding the aggregate value (Glencore International AG v Ryan (The Beursgracht)).

10. Obligatory Open Covers

This is similar to a floating policy in function but without an aggregate limit on it in.

11. Facultative / Obligatory Open Cover

In this type of cover, a declaration made by the assured attaches the cover to the risk (Citadel Insurance Co v Atlantic Insurance Co SA).

It also covers retrospective declarations after a loss has occurred (Glencore International AG v Ryan (The Beursgracht)). 

12. Facultative Open Covers

This open cover is a mechanism by which a proposal can be put to the insurers. Where a declaration is made, its acceptance can be implied from the conduct of the insurers i.e. by accepting premium or by incurring expenses to investigate a claim without any reservation of rights as to the coverage (Hanwha Non-Life Insurance Co Ltd v Alba Pte Ltg).

13. Risk Must Comply With The Terms Of Open Cover : Classification Of Vessel

This will be seen in clauses 1 and 2 of the Institute Classification Clauses.

If the assured wishes to use an unclassified vessel, then by clause 5 the coverage is conditional on the requirement to give prompt notice under clause 1 (Everbright Commercial Enterprises Pte Ltd v AXA Insurance Singapore Pte Ltd, The Pacifica and  Kam Hing Trading (Hong Kong) Ltd v People’s Insurance co of China).

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