Marine insurance plays a vital role in the maritime trade, ensuring the safety of maritime

ventures.

According to the Marine Insurance Act, Section (1) marine insurance may be defined as the
process in which a contract is entered, whereby the insurer undertakes to indemnify the
assured, In manner and to the extent thereby agreed, against marine losses, that is to say,
the losses incident to a marine adventure.

The terms premium, claims, duty of care and insurable interest refer to some of the most
fundamental elements and principles in marine insurance. Throughout the course of this
research paper there will be a thorough examination and discussion of these terms, and
their roles and functions in marine insurance.
5. What is premium in relation to marine insurance?

The premium in relation to marine insurance is defined as the payment of a certain sum
wherein after, the underwriter agrees to provide indemnity against loss or damage, caused
by certain sea perils, in as much as some of the risks inured against are not sea perils.
(Templeman, 1912). The payment of a premium in marine insurance is a standard
requirement, as it is states in the Marine Insurance Act, Section (52) “unless otherwise
agreed, the duty of the assured or his agent to pay the premium, and the duty of the insurer
to issue the policy to the agent are concurrent conditions and the insurer is not bound to
issue the policy until the payment or tender of the premium.”

Dominion Insurance Ltd vs. Westpac Banking Corporation (1998), the plaintiff was the
owner of the insured vessel and the bank who held the mortgage on the vessel and was
named payee on the policy. The defendant was the insurer. The plaintiff had insured the
vessel with the defendant since October 1990. There had been 3 renewals of the coverage
in October 1991, 1992 and 1993. The vessel was damaged beyond repair in March 1994.
The insurer defendant denied Coverage on the basis that no insurance premiums had been
received since the October 1993 renewal.

The fact that no premiums have been paid does not affect the existence of the contract.
The court looked at the Renewal notices and at the history of dealings between the parties.
As to the Renewal notices, while they demanded payment, there was no clear statement
that coverage would be canceled if payment was not received. As to the dealings between
the parties, the court found that previous claims had been paid as credit for owing
premiums so clearly in the past it had been the practice to renew without the payment of
premiums.

It is vitally important that an insurer return the premium when required to do so. This is so
because many breaches of the express or implied terms of the policy ( I.e. non-disclosure
or misrepresentation) have the effect of giving the insurer the right to elect to void the
contract rather than voiding the contract ab initio. The return of the premium is evidence
that the insurer elects to treat the insurance contract as void. An insurer who fails to return
the premium will be held to have waived its right to treat the contract as voided.
 In the case Neepawa Yacht Ltd. V Laurentian P & C Insurance Co. 1994, the issue
was whether an insurer was entitled to deny coverage for a $250 fire loss, on the grounds of
disclosure of non-disclosure of material facts by the assured. The court held that the
assured’s failure to disclose the prior losses, notwithstanding their small size, entitled the
insurer to avoid the contract of insurance.

Additionally, the whole of the premium received by the underwriter would be

returnable by him, if the risk insured had never had an inception, and therefore, the
consideration for the payment of the premium totally failed. In such a case the return of the
premium is usually a return for cancelment of the policy. (Templeman, 1912). Partial
returns of premiums are frequently stipulated for marine policies, especially in the in the
case of insurance of hulls of vessels for periods of time. (Templeman, 1912).

6. Explain the Meaning of Insurable Interest

One of the main fundamental principles of marine insurance is that the assured must have
an insurable interest in the subject matter of the insurance. The assured has such an
interest if he has an equitable relationship to the marine venture or to the any insurable
property at risk in such a venture, so that the assured may either benefit by the safety or
due arrival of such property or may be prejudiced by its loss, damage or detention or may
incur liability arising from such occurrences. (Williams, 2013). Notwithstanding, that there
must be a legally recognized relationship between the assured and the subject matter of
insurance, which would give them the right to affect insurance on it.(Office of the
Commissioner of Insurance, 2013) Therefore a thief in possession of stolen goods does not
have the right to insure them, as the relationship must be a legal one. The Marine
Insurance Act, section (7) requires that the assured have an insurable interest in the
subject matter of the marine insurance contract. This requirement is for the purpose of
preventing the contract from being a gaming or wagering contract.
An appropriate example of an insurable interest is the ownership of a vessel or cargo. , who
has a right to insure. However, it must not be inferred that it is only the owner of property,
either entirely or in part, who has a right to insure. Shippers, agents and other actor in the
shipping business, have an insurable interest in property, in respect of which they are in a
position to exercise a valid lien for money advanced. (Templeman, 1912). A mortgage of a
ship also has an insurable interest in the ship since, pending repayment of the loan by the
mortgager, the ship is a source of security for the mortgagee who will, therefore, benefit by
its continued well being and will be prejudied if its lost or damaged. (Office of the
Commissioner of Insurance, 2013) The mortgagee of the vessel has an insurable interest to
the extent of his mortgage; a trustee or hailee as regards property entrusted to his care;
agents or brokers, having authority from their principals to insure; and an underwriter, in
respect of risks which have been underwritten by him, which he may, himself, wish to re-
insure. (Templeman, 1912).

In Marine Insurance a party who requests insurance coverage need not have an insurable
interest at the time that the insurance is affected, but must have such an interest by the
time that the loss occurs.(Williams, 2013). Therefore the prospective buyer of a ship or
cargo can conclude a contract of insurance and can recover under it if the relevant loss or
damage occurs after the buyer has assumed ownership in due course. Having an Insurable
interest is important as an insurance agreement is void without it. (Office of the
Commissioner of Insurance, 2013).

As was previously stated, for an insurable interest to exist there must be some person,
property, liability or legal right example the right to repayment by the debtor capable of
being insured; That person, etc. must the subject matter of the insurance (that is to say,
claim payment is made contingent on a mishap to such person). The Proposer must have
the legally recognized relationship to the subject matter of insurance, so that financial loss
may not result to him if the insured event happens. Notwithstanding that insurable interest
is sometimes legally presumed without the need to show financial relationship. For
example, any person is regarded as having an insurable interest in the life of their spouse.
(Office of the Commissioner of Insurance, 2013)

However, a financial relationship alone is not sufficient to give rise to insurable interest. For
instance, a creditor is legally recognized to have insurable interest in the life of his debtor, it
not allowed insure the debtor’s property despite his financial relationship to it, unless the
property has been mortgaged to him. In the case of life insurance, insurable interest is only
needed at policy inception. (Office of the Commissioner of Insurance, 2013).

In the case of Lorcom Thirteen (Pty) Ltd v Zurich Insurance Company South Africa the
correct approach to the question of insurable interest under South African law was
assessed in the Western Cape High Court.

The case concerned the MFV Buccaneer, a fishing vessel lost at sea in 2008.
Underwriters repudiated the claim under the policy for lack of an insurable interest. The
focal point of the repudiation was that the insured, Lorcom, had no direct ownership
interest in the subject matter. At the time of the loss, the vessel was owned by Gansbaai
Fishing Wholesalers (GWS), a wholly owned subsidiary of Lorcom.

A further relevant feature of the case was that at the time of the loss, Lorcom was in the
process of being sold to a third party, subject to the condition that when the final
installment had been paid, ownership of the vessel would be transferred from GWS to
Lorcom. As a result, there was an expectation that Lorcom would become the registered
owner at some point in the future.

Against this background, Lorcom asserted that its insurable interest was premised on four
points: It was the sole shareholder of the company which owned the vessel; It was to be
vested with ownership of the vessel at a later date In terms of the sale agreement; It had
the right of use of the vessel at the material time; and It held the fishing permit for the
vessel.

The conclusion reached by the judge was that it is questionable whether there is a self-
standing requirement that the insured must have an insurable interest in the asset. He
preferred the view that ’insurable interest’ is really an element of a broader inquiry into
whether the insured’s interest in taking out the policy is an acceptable one whichh removes
the contract from the ambit of gambling.
This case sends a warning to insurers writing business in South Africa not to assume that
insurable interest is a self-standing requirement of South African insurance law, and to be
wary of adopting an overly strict or technical approach when taking a view on whether a
policy is enforceable in any given case.

7. When do claims occur?

Definition for the term ‘Claim’ is defined as the request by the insured for indemnity or
policy benefit under his insurance. Alternatively, claims made by a third party against the
insured of a liability policy. It is also used to refer to an insured’s act of asking for payments
of benefits under his policy.

A claim arises when the insured is to be indemnified which entails the provision of an exact
financial compensation, no more no less, for an insured loss to the insured. (Office of the
Commissioner of Insurance, 2013) It is common for property insurance policies to specify
that the insurer may settle a loss by any one of four methods namely cash payment, repair,
replacement and reinstatement. However, both marine and non-property policies place no
particular emphasis on this issue hence the insurer is obliged to settle a valid claim by
payment of cash. (Office of the Commissioner of Insurance, 2013). As can be seen in
section 86(2) of the Marine Insurance Act, ‘an insured’…may claim payment from the
insurers in any order unless the marine policy under which the claim is made provides
otherwise, but may not receive more than the indemnity allowed by this Act.

In the case of Pimco Shipping Pty Ltd v Moeder, Hermann and Moeher Trading Pty Ltd
(1987). The plaintiff owned and operated a coastal vessel. In 1978 goods carried by the
vessel were damaged in transit and as a result the owner of the goods sued the plaintiff and
was awarded damages. The plaintiff claims that at the time of that shipment the defendant
was the actual owner of the vessel and brought suit on the basis that the defendant
indemnify the plaintiff for damages.
The court held that the indemnity action by the plaintiff is time barred for pursuit, due to the
Sea-Carriage of Goods Act Art. III, r. 6 which provides that suit in respect of loss of or
damage must be brought within one year after delivery of goods or when the goods should
have been delivered. In the original proceeding the owner of the goods was granted default
judgment against the plaintiff here. The second defendant in that case was the company
that had been formed to buy the vessel. However at the time of the loss the present
defendant was the actual owner of the vessel as the corporation had not yet been formed.
The personal defendant should have, but was not added as a third party in the original
action. Because there was no liability on the part of the defendant to the owner of the
goods established within the time limitation period, the plaintiff cannot now seek
indemnification outside of the time period. Indemnity may not be awarded without the
support of liability on the part of the indemnitor to the injured party.

8. Explain why insurance companies own a duty of care to the insured.

8.1 Claims in Tort: Duty of Care

Duty of care is defined as the legal obligation to take reasonable care to avoid causing
harm where possibility of harm is foreseeable. (Investopedia, 2015).

An insurance broker has to exercise due care and diligence in understanding and satisfying
the insurance needs and requirements of his clients by taking all reasonable steps to
ensure that technical representatives and employees who are dealing with the policy
holder or potential policy holder are competent as well as fit and proper persons; the
principle of utmost good faith must be explained to clients making it clear that all answers
and statements given on material documents, such as claim forms and proposal forms, are
clients own responsibility; client must be advised that incorrect answers or information to
material documents may result in the insurance contract being void or claims being
repudiated; explanation of terms of insurance contracts to clients along with advice of any
exclusion clauses; compliance with all guidelines and codes of practice; placing the
interest of the client above all other considerations in providing advice to them or in
arranging contracts of insurance for them; non-disclosure of any information acquired from
any one client except for cases where it is required; making sure that adequate and
accurate disclosure of relevant material information; efficient performance of function.

Tortious liability on the part of an insurance intermediary may, to some extent, depend
upon the degree of knowledge or expertise expected of the individual, which in turn
depends upon the nature of the skills he/she has professed for undertaking on behalf of the
claimant, the activity which led to a loss to the claimant. (Office of the Commissioner of
Insurance, 2013).

However, the claimant must be able to prove that the damage arose as a result of the
negligence of the supplier and in this respect, the supplier is expected to have only that
degree of knowledge that is reasonably prudent and an experienced supplier would
normally have as the sustainability of the bunkers for use in the particular ships machinery.
(Williams, 2013) Therefore if the ships machinery has some special feature or
characteristic which is not communicated to the supplier, the supplier may not be liable for
any damage that has been caused by the supply of unsuitable bunkers since they could not
be expected to be aware of the need for additional care and attention in such
circumstances.

In the case of Kokotu Bread vs. Vero Insurance Ltd. (2012) a Kokotu business premises was
destroyed by fire and Kokotu filed a claim with Vero, who assessed the value of the damage
to be $2,000,000. However, the claim was denied by Vero on the basis that the broker had
misrepresented the volume of flammable material in the walls of the bakery when making
the application. The broker denied having filed the online form in the alleged manner and
Kokuto brought action to the Supreme Court.

The court concluded that the broker failed to discharge its contractual duties to its client,
as well as breaching the duty of care it owed under general law. As a result the insurer was
able to reduce their liability to zero dollars, resulting in a loss to Kokotu. The broker was
ordered to pay the indemnity Kokotu would have received from Vero, had the broker not
acted negligently.
 Additionally, the law of most countries places a duty of care on suppliers of goods to
ensure that the products that they supply do not cause damage or loss when those
products are supplied under contract or not. (Williams, 2013) Therefore if the ships
machinery has been damaged by the bunkers that have been supplied the supplier may
have a liability to the ship owner in Tort.

9. Conclusion

Finally, insurable interest, claims, duty of care, and premium are some fundamental
elements in insurance. Premium is the sum or amount paid periodically to the insurance
company to cover the risk of sea perils. Insurable interest refers to the concept that by
insuring something the owner of the insurance is protecting himself from a real financial
loss and requires the insured item to have reasonable value making it worthy of insurance.
A claim arises after the insured has suffered a financial loss in relation to the insured
possession. A duty of care is a legal obligation to avoid causing harm and arises where
harm is ‘reasonably foreseeable’ if care is not taken. A failure to carry out the duty of care
may result in the insurer being liable to pay damages to the insured who has been injured
or has suffered loss due to breach in the duty of care.