Associate Exam Module A2 (2 ½ hours) Hull and Cargo Claims

Transcription

1 Associate Exam Module A2 (2 ½ hours) Hull and Cargo Claims Syllabus, Bibliography, Summaries of Law Cases and Specimen Paper (Module 2 paper set in April 2008 equivalent to current Module A2) (Sept. 2018) Syllabus Questions will be based (unless otherwise specified) on the Institute Time Clauses Hulls (ITCH) and the Institute Cargo Clauses 2009 (ICC). Candidates will not be expected to reproduce the wording of these Clauses verbatim but should be familiar with the key words and phrases used in the Clauses, and be aware of their practical implications. This Module concentrates on the following clauses but Candidates should be prepared to answer occasional questions relating to clauses not specified below: HULL CLAIMS 1) ITCH 1/10/83: Termination of the policy (Clause 4) Classification etc. Change of flag, management etc. Insured perils (Clause 6) Named perils Application of the due diligence proviso. Collision Clause (Clause 8) Extent of coverage/exclusions *Single and cross liability *Treatment of costs *Treatment of recoveries (*Candidates will be expected to undertake simple calculations to demonstrate their understanding of the principles involved) 1

2 Sistership (Clause 9) Principles and determination of quantum Notice of Claim (Clause 10) Notice in the event of accident Tenders Deductibles (Clause 12) Application of deductible clause Special Committee report guidelines Sue and Labour (Clause 13) Duty of Assured Clause Extent of coverage Effect of under-insurance S & L in Total Loss claims New for Old (Clause 14) Deductions Wages and Maintenance (Clause 16) When excluded/allowed Unrepaired damage (Clause 18) Measure of indemnity (18.1) Constructive Total Loss (Clause 19) When established (19.2) Exclusions (Clauses 23 26) 2) General Average Outline the four types of losses excluded Candidates are required to show an understanding of the basic principles of General Average as set out in the York Antwerp Rules 1994 and be prepared to carry out simple calculations applying these principles. Candidates are not expected to have a detailed knowledge of General Average or the York Antwerp Rules but should be familiar with the key words and phrases used. The basic principles to be considered are: Definitions Rule A Included/excluded losses Rule C Remedies/defences Rule D Substituted expenses Rule F 2

3 Examples of General Average sacrifices of Ship and cargo Examples of expenditure for the Common Safety Examples of expenses allowable at a port of refuge Contributory values of Ship and Cargo Apportionment of a General Average 3) Calculation of claims Candidates should be familiar with the relevant Rules of Practice and be able to carry out simple calculations relating to the following aspects of hull claims: 4) Miscellaneous Removal expenses (D1) Dry-docking and tank cleaning costs (D5 & 6) Treatment of overtime and temporary repairs; vessel in liner service. Candidates should be able to show a general understanding of the following topics: CARGO CLAIMS Institute Additional Perils Clause (areas of extra coverage compared to ITCH) Increased Value and Excess Liability Policies (purpose and effect of those policies) Loss of Hire Insurance (nature of coverage and basis of recovery) P&I Insurance (main areas of cover provided by the International Group Protection and Indemnity Clubs) Lloyds Open Form (main features of this type of salvage contract) General Average Absorption Clauses 1) Institute Cargo Clauses A, B & C The questions are based on the ICC 2009, which are now the most commonly used cargo clauses. Candidates may expect to see answer the questions involving at least the following under the A Clauses: Risks Covered (Clauses 1, 2 and 3) Exclusions (Clauses 4-7) Transit Clause (Clause 8) Termination of Contract of carriage (Clause 9) Insurable Interest (Clause 11) Forwarding Charges (Clause 12) Increased Value (Clause 14) Minimising losses (Clauses 16 and17) Candidates should be aware of the differences in cover provided by ICC A, B and C. 3

4 2) Adjustment of Cargo Claims Candidates will be expected to carry out simple calculations of a cargo claim stated on: a) Depreciation basis b) Salvage loss basis 3) Miscellaneous Meaning and operation of open covers Documentation of claims (Summarise the documents that an Assured would be requested to provide when submitting a claim and describe the purpose of each) 4

5 Bibliography (Common to Modules A1 and A2) It should be noted that some of the leading text-books have not been revised for some time and may not therefore deal with the latest clauses or case-law. Nonetheless they all offer useful guidance regarding the basic principles. Candidates will find relevant material in any of the following:- Introduction to Hull Claims (2014, download from Association of Average Adjusters website, Subscribers section) Chalmers, Marine Insurance Act 1906 (10th edition, 1993) Templeman, Marine Insurance (5th edition, 1981) Goodacre, Marine Insurance Claims (3rd edition, 1996) Susan Hodges, Cases and Materials on Marine Insurance Law (1st edition, 1999) Hudson, Marine Insurance Clauses (5th edition, 2012). Study material can also be found on the websites of average adjusters and solicitors. 5

6 Summaries of relevant Law Cases (Common to Modules A1 and A2) Quebec Marine Insurance v Commercial Maritime [1870] A vessel was insured on a voyage policy from Montreal to Halifax. After leaving Montreal the boiler, which had been defective prior to the start of the voyage, broke down, requiring the vessel to seek shelter and repair it. After repairing the boiler the vessel sailed but was lost during heavy weather. Insurers declined the claim since the vessel had originally sailed in an unseaworthy condition due to the defective boiler, thus breaching the implied warranty of seaworthiness in a voyage policy. The Privy Council agreed that insurers were not liable, even though the breach (the defective boiler) had been put right at the time of the Total Loss. Dudgeon v Pembroke [1877] The assured took out a time policy on an iron steamship while she was in dry-dock at Millwall undergoing an extensive overhaul. The vessel made a ballast passage to Gothenburg, during which she was noted to be making some water. On the return loaded passage to London she encountered heavy weather and became water-logged, eventually grounding and becoming a total loss. It was admitted that the vessel was unseaworthy but it was also found that the Assured was not privy to this unseaworthiness. The House of Lords held that the Assured were entitled to recover for a loss by sea perils (heavy weather) because a long course of decisions in the courts of this country have established that causa proxima non remota spectator is the maxim by which these contracts of insurance are to be construed and that any loss caused immediately by the perils of the sea is within the policy, though it would not have occurred but for the concurrent actions of some other cause which is not within it. Hamilton v Pandorf [1887] This was a contract of affreightment case in which the bill of lading included an exceptions clause in respect of dangers and accidents of the seas. Rats had gnawed through a lead pipe on the ship allowing sea-water to enter and damage the cargo. It was held that the exception clause would apply because the action of the rats was only the remote cause, the immediate cause being the ingress of seawater as the ship rolled. Reischer v Borwick [1894] A paddle-steamer tug was insured against collision damage but not in respect of perils of the seas etc. The tug collided with a floating object causing damage to the condenser and allowing ingress of water into the vessel. Whilst proceeding under tow to the nearest dock, a temporary repair failed and the vessel had to be beached and she became a total loss. Insurers argued that they were only liable for the initial collision damage. The Court of Appeal held that the initial collision was the proximate cause of the total loss, the tug being continuously in danger from the time the condenser was broken, and the Assured s claim should succeed. 6

7 Thomas v Tyne & Wear [1917] Vessel insured under a time policy was sent to sea in an unseaworthy state in two respects: firstly insufficient crew, secondly unfitness of the hull; the assured was privy to (aware of) the first but not the second. The vessel was lost due to the unfitness of the hull. It was held that the insured was able to recover because the exclusion on MIA 39(5) only operates if the loss was attributable to the particular unseaworthiness to which the Assured was privy. The Ikaria [1918] During the First World War a vessel was lying off Le Havre when she was hit by a torpedo. She had sustained severe damage but the crew were able to bring her into the port alongside a quay. However a gale caused the vessel to range heavily against the quay and she was ordered by the authorities to move to the outer harbour. As a result of the continuing bad weather and touching bottom at low tide because she was down by the head, the vessel became a total loss. Shipowners claimed for a loss by sea perils under their hull policy but their insurers argued that the war risks exclusion should apply. The House of Lords agreed that the total loss was a result of war perils, since at all times the vessel was still in the grip of the casualty that originated with the torpedo attack. The proximate cause is not necessarily proximate in time and the real test is to consider which cause is proximate in efficiency. British and Foreign v Gaunt [1921] A shipment of wool was sent from Chile to England on all risks terms from the sheeps back to the warehouse in Europe. On arrival it was found to have sustained water damage at some time while en route to the loading port, but Insurers declined the claim because the Assured were unable to specify exactly how and when the damage had occurred. The House of Lords allowed the claim saying that under an all risks policy the Assured was only obliged to show that some fortuity had occurred (and that no exclusions applied) and he is not bound to go further and prove the exact nature of the accident which occasioned his loss. Samuel (P) & Co. Ltd v Dumas [1923] A vessel was scuttled by the master and crew with the connivance of the owner. A claim was put forward by the innocent mortgagee but it was held that he was unable to recover because scuttling of the vessel, with the owner s connivance, was not a peril of the sea. There was no fortuity involved in a deliberate act to sink a vessel. Wadsworth Lighterage v Sea Insurance [1929] A wooden barge was insured against total loss including damage by collision, standing or sinking. The barge had spent 50 years carrying coal on the River Mersey and sank at her moorings on a calm night. It was held that the loss was due to ordinary wear and tear and therefore excluded by Section 55 of the MIA. The sinking had occurred because a very old barge which had been bumping about in the Mersey for a long time had come to the end of its tether. The loss was therefore due to the general debility of the barge rather than any fortuity. 7

8 Berk v Style [1955] A cargo of kieselguhr (material used for filtration) was shipped in bags from Africa to London on all risks terms. On arrival it was found that many of the bags had burst. The claim for the cost of re-bagging etc was rejected by the Court on the basis that the bags had burst because of insufficient strength and this weakness was an inherent vice for which insurers were not liable. Yorkshire Insurance Co. v Nisbet [1961] The Assured s vessel had been in collision with a Canadian naval vessel and became a Total Loss, for which the Hull Insurers paid 72,000. The Assured subsequently obtained a recovery from the Canadian Government which, because of an intervening devaluation of sterling, was equivalent to 127,000. It was held that insurers right of subrogation only entitled them to recover up to the amount they had paid. The Popi M [1985] A vessel insured under a Time Policy was steaming through the Mediterranean in good weather when shell plating in the engine room suddenly opened up, flooding and later sinking the vessel. The owners advanced a number of theories as to what might have caused the sudden shell plating failure, including contact with a submarine. The insurers declined to settle the claim on the basis that the loss was due to ordinary wear and tear on an elderly vessel. The House of Lords reviewed the extensive expert evidence and, finding it inconclusive, rejected the claim, saying it is always open to the Court to conclude that the proximate cause of the Ships loss, even on a balance of probabilities, remains in doubt, with the consequence that the Shipowners have failed to discharge the burden of proof which lay upon them. Miss Jay Jay [1987] A fast motor yacht encountered adverse weather on a passage from France to the U.K. On arrival it was found that the hull had been damaged partly as a result of poor design of internal stiffeners and partly because of the adverse weather. In the High Court it was held that (with regard to Rule of Construction 7) it was not necessary for weather to be exceptionally bad to give rise to a claim arising from perils of the sea. If the action of the sea is the immediate cause of the loss, a claim will still arise even if conditions are within the range that could reasonably be anticipated. In the Court of Appeal it was confirmed that where there are two proximate causes of a loss and one is included (adverse weather) and the other is not expressly excluded by the policy (unseaworthiness due to inadequate stiffeners) the claim will succeed. 8

9 Specimen Paper Associate Examinations, April Module 2 (equivalent to current Module A2) (2½ HOURS) ASSOCIATION OF AVERAGE ADJUSTERS ASSOCIATESHIP EXAMINATIONS, APRIL 2008 MODULE 2 HULL AND CARGO CLAIMS Note: All 16 questions are compulsory. There is a total of 100 marks for this paper. 1. Name three instances where the policy deductible is not applied under Institute Time Clauses (Hulls) 1/10/83, and explain the reason for this. (3 marks) 2. During Policy A, the Chief Engineer is negligent in refitting a main bearing following an overhaul. Two months later, during Policy B, the engine suffers a major breakdown due to that negligent act. Both policies are subject to the Institute Time Clauses (Hulls) 1/10/83. On which policy does the claim fall? Give your reasons. 3. A vessel sustains main engine damage to all 6 cylinders due to lub oil contamination resulting from crew s negligence. The underwriters surveyor approves the repair costs including all the new liners apart from two which are approved for cost only as the surveyor points out that these two liners were already worn and would have required replacement within about 6 months even if the damage had not occurred. What advice would you give to the shipowner concerning his claim under the Institute Time Clauses (Hulls) 1/10/83 concerning these two liners? Explain the reasoning behind your advice. 4. Under Clause 8 of the Institute Time Clauses (Hulls) 1/10/83, underwriters only indemnify the assured when they are legally liable for damages caused as a result of a collision. (a) Why is there a reference to legal liability? (b) Briefly describe the cover provided by this clause. (c) Are there any exclusions to the type of damages that hull underwriters will indemnify and, if so, what are they? 9

10 5. A shipowner is successful in a recovery against a harbour authority for a grounding incident for which hull underwriters settled the claim as presented. The recovery obtained, excluding interest, from the harbour authority amounted to US$ 900,000. Hull underwriters paid a claim for US$ 850,000 after the policy deductible of US$ 250,000 had been taken into consideration. (a) Is there any assistance given in the Institute Time Clauses (Hulls) 1/10/83 with regard to recoveries? (b) What part of the recovery of US$ 900,000 would the hull underwriters expect to receive, if any? (3 marks) (c) If the amount recovered from the harbour authority amounted to US$1,200,000 would this effect the recovery position of the Shipowners? (3 marks) bags of coffee, each with a shipped weight of 50kg and 51kg gross, are insured subject to the Institute Cargo Clauses (A) for US$ 500,000 so valued. During the course of the voyage: (a) 4 bags are lost overboard during discharge and are not recovered. What is the claim on the policy? (b) 24 bags are delivered damaged by seawater and the damage is assessed by the surveyor and agreed at 20%. The survey fee is US$ 200. What is the claim on the policy? 7. During the course of a loaded voyage from Mumbai to Antwerp a vessel sustains damage to her bottom shell plating The repairs require drydocking but the owners defer them until the vessel s next routine drydocking in Dubai some 9 months later. The cost of entering and leaving the drydock is US$ 10,000 The vessel is in drydock for 4 days and the dues per day are US$ 5,000 The cost of repairs to the bottom shell plating is US$ 50,000 Owners repairs effected at the same time cost US$ 15,000 The repairs to the bottom damage require 4 days in drydock if effected alone. The Owners repairs require 3 days in drydock if effected alone. The vessel is insured subject to ITC (Hulls) 1/10/83, deductible US$ 35,000. State the claim on the policy. (8 marks) 8. A vessel grounds whilst in ballast; various sue and labour expenses are incurred but she is later found to be a Constructive Total Loss and is sold for scrap for a net amount of 10

11 US$ 1,000,000. The vessel is insured for US$ 10,000,000 but her sound value at the hour of the incident is US$ 12,000,000. State the claim under the Institute Time Clauses (Hulls) 1/10/83 for the Sue and Labour expenses of US$ 2,000,000. (5 marks) 9. A loaded vessel grounds and refloats with tug assistance after working her main engine. The following losses/damages are incurred (US$): Ship grounding damage 500,000 Ship refloating damage 100,000 Port of refuge expenses 20,000 Loss of part cargo due to 100,000 delay at port of refuge Salvage under contract 300,000 1,020,000 The sound market value of the ship is US$ 10,000,000 and the arrived value of the cargo at destination is US$ 800,000. State the claim on the hull policy (the vessel is fully insured) subject to Institute Time Clauses (Hulls) 1/10/83, deductible US$ 75,000. (8 marks) 10. Clause 6 of the Institute Time Clauses (Hulls) 1/10/83 includes cover for loss of or damage to the subject matter insured caused by, inter alia: bursting of boilers breakage of shafts or any latent defect in the machinery or hull. Explain the term latent defect in the context of the clause. (5 marks) 11. During a period in a loading port in the UK the registered owner of a ship and his technical manager carry out a routine inspection of the vessel accompanied by the chief engineer. Some three weeks after the commencement of the following voyage there was a failure of the main boiler due to poor quality boiler water resulting from a complete lack of the appropriate chemicals on board. A claim for the cost of renewing the boiler is presented to underwriters under policies subject to the Institute Time Clauses (Hulls) 1/10/83 on the grounds of engineer s negligence. In considering the claim what clarification would you seek as to the circumstances of the loss, and why? (5 marks) 12. The crew refuse to sail a ship from her loading port due to their being owed three months wages by the Shipowners. Fearing a protracted dispute, a shipper arranged for his parcels of cargo to be discharged, stored and forwarded to destination in another vessel. 11

12 The extra costs so incurred amounted to US$ 75,000, and this sum was debited to cargo receivers who claimed from underwriters under policies subject to the Institute Cargo Clauses (A). Explain whether these costs are payable under the policy. 13. The Institute Cargo Clauses (C) provide restricted cover for five specific types of incident. Identify four of them. 14. Vessels A and B are in collision and, following negotiations between the two sides, the respective claims and degrees of liability are amicably agreed as follows: Vessel A (30% to blame) Vessel B (70% to blame) PA damage US$ 400,000 US$ 120,000 Loss of Use US$ 250,000 US$ 60,000 Cargo damage US$ 160,000 - Show the settlement between the parties, with neither vessel limiting its liability at law. (5 marks) 15. Summarise briefly the nature of the cover you might expect to find in the following types of policy: (a) Increased value. (b) Loss of Hire. (c) Protection and Indemnity. 16. Under Clause 8 of the Institute Cargo Clauses (the Transit Clause ) state two ways in which cover will normally terminate. (3 marks)