Marine

We recently published a guide to the different types of marine insurance. We explored various different insurance products, and what they cover. In this post we will provide an overview of the different types of losses in marine insurance, to help you further understand the role marine insurance can play in protecting your business.

Different Types of Marine Loss

In this post, we’ll cover the following types of marine losses:

• Actual total loss
• Constructive total loss
• Particular average loss
• General average loss

Actual Total Loss

Actual total loss (ATL) is a situation where a ship, or its cargo, has been completely lost or destroyed. Or, the ship or cargo has been so severely damaged that repairs or salvage is no longer economically feasible.

How do ATL Claims Work? ATL claims are usually quite straightforward. If you experience total loss of your ship or cargo, you make a claim on your policy, and your insurer will then take ownership of your ship’s wreckage, or your lost, damaged, or stolen cargo. You will then be entitled to a settlement that is equal to the ship’s or the cargo’s full value, as specified in your policy wording.

Constructive Total Loss

Constructive total loss (CTL) is a situation where a ship, or a cargo, is significantly damaged to the point that the cost of repair or recovery would exceed the insured item’s value.

Typically, a marine insurance policy will specify a percentage of insured value that will trigger a CTL situation, usually around 75%. So, if the cost of repairs or recovery exceeds this percentage, it would automatically trigger a CTL situation.

How do CTL Claims Work? CTL claims are generally more complicated than ATL claims. When you make a claim for a CTL situation, you have the option to let your insurer take ownership of your insured property. Your insurer may then sell this property as salvage and use the proceeds to offset your settlement. If you prefer, you can retain ownership of your insured property, but you may receive a smaller settlement as a result.

Read our full guide to constructive total loss in marine insurance.

Particular Average Loss

Particular average loss is a type of partial loss. It is cover for when some, but not all, of your cargo is damaged or lost as a result of an incident. The term refers to losses as a result of a specific cause (hence, “particular”).

How do Particular Average Loss Claims Work? In a particular average loss claim, only the owner of the damage property is entitled to compensation. The amount of compensation received is based on the extent of damage or loss suffered as a proportion of its full value.

General Average Loss

General average is a principal in marine insurance outlining that all stakeholders proportionately share any losses resulting from incidents at sea. Specifically, the general average principal applies to situations where crew members voluntarily sacrifice part of a ship’s cargo in order to save the whole. For example, through deliberately throwing cargo overboard to prevent a ship from sinking, or intentionally taking on some water to extinguish a fire.

What’s the Difference between General Average Loss and Particular Average Loss?

A key difference between particular average loss and general average loss is that, in a particular average loss situation, only one policyholder will receive compensation. On the other hand, in a general average loss situation, the compensation will be distributed equally among numerous stakeholders.

Read our full guide to general average in marine insurance.

Get Comprehensive Marine Insurance From James Hallam

James Hallam is an independent Lloyd’s broker, and we have partnered with Everard Marine and Commercial Insurance to deliver tailored marine insurance packages.

As we deal with a wide range of niche insurance providers, we can arrange the cover you need, whether you are looking to cover a single vessel or an entire marine trade supply chain.

Find out more about our specialist marine insurance services.

Marine insurance policies cover businesses for various different kinds of losses. In this post we will explain what constructive total loss is, and how it differs from other types of loss.

What is Constructive Total Loss?

In the marine industry, insurers will consider constructive total loss (CTL) following significant damage to ships or cargo. Specifically, they will consider CTL when the cost of repair would be greater than the ship or cargo’s insured value.

Most marine insurance policies will specify a percentage of insured value that will trigger a CTL situation. This is usually around 75% of the insured value of the ship or cargo. If the cost of repairs or recovery exceeds this percentage, it can automatically trigger a CTL situation.

In a CTL situation, the insurer may offer a settlement that is equal to the cargo’s value, having subtracted certain charges. If the ship or cargo owner does not want to accept this settlement, they may instead retain the damaged cargo along with a lower settlement.

When Will Marine Insurers Consider Constructive Total Loss?

Marine insurers will only consider CTL if the circumstances leading to the loss meet certain criteria, including:

• The ship carrying the cargo is stranded or grounded. If it cannot take to sea again, or if the cost of doing so would be prohibitively expensive, the insurer may consider a CTL settlement.
• A natural disaster, such as a hurricane or a cyclone, damages the cargo beyond repair.
• A man-made disaster, such as a collision with another ship due to human error, leads to significant damages that would cost more to repair than the amount insured.

What is Actual Total Loss in Marine Insurance?

CTL applies to situations where cargo is significantly damaged, but it remains, in theory, repairable or recoverable. Another type of loss – actual total loss (ATL) – applies to situations where the cargo is so severely damaged that repair or recovery is simply not possible.

Examples of ATL situations include natural or man-made disasters that result in irreparable damages, such as fires, flood, hurricanes, explosions, or collisions. If the ship is hijacked, or the cargo is stolen, it may also constitute an ATL situation, as it may become impossible to recover the cargo.

In an ATL situation, the policyholder is entitled to receive a settlement that is equal to the ship’s or the cargo’s full value.

What’s the Difference Between Constructive Total Loss and Actual Total Loss in Marine Insurance?

If you experience significant losses as part of your marine business, depending on the specific circumstances of your case, your insurer can either declare it as a CTL or an ATL. Broadly speaking, they will declare it a CTL if the cost of repairs or recovery is prohibitively high, and an ATL when repairs or recovery is essentially impossible.

For example, if a ship is stranded, and it would cost too much to recover it, the insurer will declare it as a CTL situation. But if the ship sinks, or if it is damaged in such a way that it is no longer seaworthy, the insurer will declare it to be an ATL situation.

Another key difference between the two situations is who takes ownership of the wreckage. In an ATL situation, the insurer will take ownership of any wreckage or insured cargo. Yet in a CTL situation, the policyholder has the option of retaining ownership in exchange for a reduced settlement.

Claiming For Loss on Your Marine Insurance Policy

Claiming for ATL is relatively straightforward. You need to file a claim with your marine insurance company, who will then work to confirm your loss, and pay you the full value of the lost or damaged property as a specified in your policy wording. As part of this, you may need to provide proof of ownership, along with evidence of the property’s value.

Claiming for CTL can be a bit more complicated. Upon making a claim, you have the option to surrender your ownership of the property to your insurer, who can then sell the property as salvage, using the proceeds as part of your settlement. Alternatively, you can choose to retain ownership of the property so as to salvage it yourself, on the understanding that your insurer can deduct this salvage value from your settlement.

If you are facing a CTL situation, be sure to check your policy wording, and to talk to your insurers, before you make a claim, so as to be sure of your rights and responsibilities.

Worried About Losses at Sea? We Are Here to Help

If you are worried about your rights and responsibilities following significant losses, then we are here to help. We are an independent Lloyd’s broker with a dedicated team of experienced insurance professionals who are committed to protecting your marine business.

We have partnered with Everard Marine and Commercial Insurance, which has given us a deep understanding of every aspect of the maritime industry, and the various insurance implications.

Find out more about our specialist marine insurance services.

There are three different types of institute cargo clauses in marine insurance: A, B, and C.

This post will explain what each clause entails, before exploring some of the key differences between them, to help you decide what sort of cover is right for you.

What Are Institute Cargo Clauses?

In a marine insurance policy, institute cargo clauses specify what is covered, and what is not covered, if a shipment is damaged or lost.

How Do Cargo Clauses Differ?

The different institute cargo clauses essentially outline just how much cover the policy provides. Clause A policies offer the most comprehensive cover, while Clause C policies are a lot more restrictive.

What Are The Different Institute Cargo Clauses?

In short:

• Clause A – The most extensive cover. This policy will provide cover for almost all potential risks, and any exclusions will be made clear in the policy wording. Clause A policies come with the highest premiums among the three clauses.
• Clause B – Intermediate cover for a moderate premium.
• Clause C – Highly restricted cover for the lowest premiums among the three clauses.

Institute Cargo Clause A

This is the broadest possible cover for your shipment. A Clause A policy may also be referred to as an “all risks” policy, as it will cover your cargo, its container, and your vessel for the majority of the risks you may face at sea. Any exclusions to the cover will be clearly outlined in the policy.

As it is the most comprehensive form of marine insurance, Clause A policies will invariably cost a lot more than Clause B and Clause C policies.

Institute Cargo Clause B

A Clause B policy is a lot more restricted than a Clause A policy. Rather than covering your entire cargo for “all risks”, a Clause B policy provides “named perils” cover. That is, cover for a specific set of risks, which might include loss or damage as a result of fire, explosion, collision, water damage, and so on.

Institute Cargo Clause C

A Clause C policy provides the most limited cover, yet this results in lower premiums. Usually, while Clause A and Clause B policies might cover a broad range of risks, Clause C policies will only cover situations that occur during carriage. This might include loss or damage caused by fires, explosions, collisions, sinkings, and so on.

What Cargo Clause is Right For Me?

It all depends on the nature of the cargo you are shipping, and the shipping route you use.

If you are shipping cargo on a safe shipping route, and the cargo has a relatively low value while carrying no inherent risks (such as risk of fire, explosion, or degradation), then even the basic coverage of a Clause C policy might be sufficient.

Yet if you feel you are likely to face risks that are not covered by a Clause C policy, you will need to instead choose a Clause B or Clause A policy. Clause A will provide the highest possible level of cover, but this will come at a price. If a Clause A policy provides cover that feel surplus to your requirements, then you may be able to get by with the intermediate level of protection provided by a Clause B policy.

Get Comprehensive Maritime Insurance Cover From James Hallam

If you cannot decide what sort of marine insurance policy is right for you, then we are here to help. James Hallam is an independent Lloyd’s broker with a dedicated team of experienced insurance professionals who are committed to protecting your business.

We have partnered with Everard Marine and Commercial Insurance, which has given us a deep understanding of every aspect of the maritime industry, and the various insurance implications.

We specialise in offering tailored marine insurance cover. Talk to us about your requirements, and we will help you decide whether you need a Clause A, Clause B, or Clause C policy.

Find out more about our specialist marine insurance services.

General Average is one of the oldest of all maritime laws, with roots dating as far back as 1000 BC.

In this post we will briefly explain what General Average means in maritime law and explore the Maritime Insurance implications.

What is the General Average Principal?

The General Average principal mandates that all stakeholders proportionately share any losses resulting from situations where crew members voluntarily jettison part of the ship or cargo to save the whole.

Where Does the General Average Principal Come From?

General Average law can trace its roots back to the island of Rhodes. The Rhodian law, established in approximately 1000 BC, outlines certain rules for stakeholders following emergencies at sea.

Certain hazards may force crew members to jettison certain items of cargo, or parts of the ship itself. In these scenarios, it is unreasonable to expect crew members to take the time to carefully choose precisely which items of cargo they voluntarily sacrifice.

General Average Laws Today

In the late 19^th century, maritime companies still respected the General Average principles of mutual benefit and common security. However, different countries followed different systems for calculating losses, expenses, and contributions. These discrepancies inevitably caused some issues.

The York-Antwerp Rules (YAR) were first established in 1877 with the intention of standardising loss calculations and procedures across the world. YAR has undergone numerous amendments over the years, with the most recent revisions having been made in 2016.

Rule A of YAR states that:

“There is a general average act when, and only when, any extraordinary sacrifice or expenditure is intentionally and reasonably made or incurred for the common safety for the purpose of preserving from peril the property involved in a common maritime adventure.”

How Does the General Average Affect Maritime Insurance?

Maritime Insurance policies will usually include some cover for certain expenses associated with General Average principles:

• Jettisoned Cargo – Cover for cargo that crewmembers deliberately throw overboard to prevent the ship from sinking or capsizing during storms. Policies may also include cover for retrieving this cargo.
• Damage to Ship or Cargo – Crewmembers may be forced to take on some water to extinguish a fire. In doing so, they may voluntarily damage some of their cargo so as to save the ship, or the rest of the consignment.
• Docking Expenses – Ships may need to shelter in a port to allow for severe weather to pass, incurring unexpected extra expenses in the process.
• Legal Costs – There are often legal costs associated with General Average situations. Stakeholders may disagree on the value of lost cargo, for example, which could lead to a court case. Stakeholders may also have to appoint General Average Adjusters to assess the shared costs and allocate them accordingly.

Why You Need General Average Cover

If you do not have Maritime Insurance and your ship experiences an emergency at sea resulting in a General Average Declaration, then you may struggle to manage the resulting financial obligations:

• Contribution to the value of the cargo jettisoned or damaged.
• Expenses associated with retrieving jettisoned cargo, along with the business interruption, lost sales, and storage fees that may result from the salvage operation.
• Legal expenses that may arise from disagreements over the value of the lost cargo, or the fairness of the shared contributions.

Instances of lost or damaged cargo can be disruptive enough already. If you add the considerable shared financial responsibility that can arise from a General Average Declaration, without adequate cover in place, your maritime business could face a potentially devastating financial loss.

Get Comprehensive Maritime Insurance Cover From James Hallam

James Hallam is an independent Lloyd’s broker with a dedicated team of experienced insurance professionals who are committed to protecting your business.

We have partnered with Everard Marine and Commercial Insurance, which has given us a deep understanding of every aspect of the maritime industry, and the various insurance implications.

We specialise in offering tailored marine insurance cover. As we deal with a wide range of niche insurance providers, we can arrange the cover you need, whether you are looking to cover a single vessel or an entire marine trade supply chain.

Find out more about our specialist marine insurance services.

Marine insurance is designed to protect boats, their crews, and their cargo from the many risks associated with sailing. Marine insurance policies can also provide cover for any legal expenses that may arise from incidents.

In this post we will discuss some of the different types of marine insurance. For a full introduction to how marine insurance works, and what it covers, be sure to check our dedicated marine insurance hub.

Types of Marine Insurance Cover

Freight Insurance

This is specialist cover for marine trade businesses to cover any loss or damage to freight cargo in the event of accidents.

Marine trade businesses can also take out Freight Demurrage and Defence (FD&D) insurance to cover any legal costs that are not covered by other insurance policies.

Hull Insurance

This is cover for a ship’s hull, along with any pieces of equipment or furniture. Hull insurance can cover any repairs or replacements that may be necessary following accidents or incidents.

Ship owners may also choose to take out dedicated machinery insurance to cover damage to any essential machinery used on the ship. Or they can choose a combined Hull & Machinery (H&M) policy.

Liability Insurance

If a ship is involved in a collision, liability insurance covers the crew and any other individuals involved for compensation resulting from their injuries.

Marine Cargo Insurance

This covers the ship’s cargo for loss or damage. Marine cargo insurance can also cover for any losses incurred by delays either in sailing, loading, or unloading.

Most marine cargo insurance policies also cover for third parties, in the event of any loss or damage caused by heavy or otherwise dangerous cargo.

P&I Insurance

P&I stands for protection and indemnity insurance. This provides policyholders with cover for claims made by their crew and passengers for illnesses, injury, and death as a result of collisions or other incidents. In the result of a major incident at sea, P&I insurance can also cover for the salvage and removal of the shipwreck.

Types of Marine Insurance Policy

As well as different types of cover, there is also a range of different types of marine insurance policies:

• Floating Policy – Also known as an open policy, or a blanket policy. It is designed for major exporters. Rather than taking out separate policies for each shipment, they can instead take out a floating policy to cover every shipment they make over an agreed period of time. Periodically, the policyholder will have to declare details of every shipment they made during this period.
• Voyage Policy – A Marine Insurance policy designed to cover a single shipment or consignment.
• Time Policy – A Marine Insurance policy that is issued for a fixed period of time, usually a year. The policy will cover all voyages undertaken during this period, with no need to take out separate policies for each voyage.
• Valued Policy – A policy in which the value of a voyage’s cargo and consignment is specified in the policy wording. This makes it clear how much reimbursement will be due following an incident at sea.
• Unvalued Policy – The opposite of a valued policy, in which the value of the cargo and consignment is not specified in the policy document.
• Single Vessel Policy – A Marine Insurance policy that provides cover for a single vessel.
• Fleet Policy – A Marine Insurance policy that provides cover for multiple ships, usually over a pre-agreed period of time.
• Port Rick Policy – This provides cover for vessels while they are docked in ports. Usually, marine businesses will take out this policy when they expect their vessel to be anchored at port for an extended period of time. The cover usually stops the moment the ship leaves the port.

Get Comprehensive Maritime Insurance Cover From James Hallam

If you are not sure what type of Marine Insurance cover is right for you, give us a call.

We have partnered with Everard Marine and Commercial Insurance, which has given us a deep understanding of every aspect of the maritime industry, and the various insurance implications.

We deal with a wide range of niche insurance providers, we can arrange the cover you need, whether you’re looking to cover a single vessel or an entire marine trade supply chain.

Find out more about our specialist marine insurance services

Ensuring you have the right insurance coverage is crucial. Many marine traders, boat owners and even some insurance brokers may not fully understand the intricacies of their marine insurance policies, particularly when it comes to the marine section.

In this post, we take a look at key components of marine insurance, specifically the basis of cover, helping you to determine whether you are adequately covered or your client has adequate cover under their marine section.

What Types of Marine Cover Is There?

Marine insurance policies typically offer two main types of cover for your boats, vessels, or watercraft: Agreed Value and Market Value. Understanding the differences between these can help you make an informed decision about your coverage.

Agreed Value vs Market Value

Agreed value and market value policies differ on how and when the value of your vessel is made. In brief, agreed value policies set the value of your boat and watercraft at the beginning of your policy, while market value policies set the value of your vessel at the time of the loss.

Next, we look at each type of policy in more detail and the advantages and disadvantages of each.

Agreed Value Cover

Under an Agreed Value policy, the insurer and the insured agree on the value of the vessel at the start of the policy. This agreed value is based on the insured having a financial interest in the amount, supported by evidence provided in the event of a claim.

• Advantages: In the event of a total loss, you receive the agreed amount, which can provide peace of mind knowing exactly what payout to expect.
• Disadvantages: These policies can sometimes be more expensive, as the agreed value might be higher than the current market value over time.
  Your financial interest may be lower than the actual market value of your Vessel.

Market Value Cover

Market Value policies, on the other hand, work similarly to property market value. The payout is based on the vessel’s market value at the time of the loss.

• Advantages: Premiums for market value policies can be lower, as they reflect the depreciating value of the vessel.
• Disadvantages: If the vessel is undervalued, you may not receive enough to replace or repair it fully, and the principle of average may apply. This means if you are underinsured, any claim payment could be reduced in proportion to the amount of underinsurance. Therefore, the question should be asked at the start of a policy or renewal of the insurance contract, “What is the current value of your vessel, and explain the implications of ‘average’.

The Impact of Inflation and Rising Costs

With inflation driving up the costs of goods, services, and labour, ensuring that your insurance cover keeps pace with these increases is vital. If your policy’s sums insured have not been updated to reflect current values, you might find yourself underinsured. This can have significant financial implications, especially in the event of a total loss or major damage. As inflation has soared over the past few years, has the value of your Vessels changed? Could you replace the Vessel in the event of a total loss for the amount noted on the Policy Schedule.

Making Sure You Have Adequate Insurance Cover

To ensure you are adequately covered, consider the following steps:

1. Review and Update Regularly: Regularly review your policy and update the sums insured to reflect current market values and replacement costs.
2. Provide Accurate Information: Ensure all information provided to your insurer is accurate and up-to-date. This includes the value of your vessel and any modifications or additions.
3. Consult with Experts: Engage with insurance brokers or consultants who specialise in marine trades insurance. Their expertise can help you navigate the complexities of your policy and ensure you have the right cover.
4. Obtain an Up to Date Valuation
   In the event that you are unsure of the Value of your Vessel(s), it is always a good idea to obtain an up to date valuation from a marine professional.

Having the correct marine insurance cover is your financial safeguard. Whether you choose Agreed Value or Market Value cover, understanding the nuances of your policy can prevent unpleasant surprises in the event of a claim. As costs rise and the market evolves, regular reviews and updates to your insurance cover are essential to maintaining adequate protection.

Get In Touch to Discuss Your Insurance Requirements

If you are unsure about the adequacy of your marine insurance coverage, now is the time to consult with your broker or a specialist. Ensure your policy is up-to-date and reflective of current values to secure peace of mind and financial security for your marine business.

Call us on 020 3148 9540 or email info@everardinsurance.co.uk