CAIB 3 Chapter 4 Instructor Slides PDF

What are the 5 Insuring Agreements under the S.P.F. No. 4 Standard Garage Automobile Policy (/5)  S.P.F. No. 4 Standard Garage Automobile Policy Analyzing Policy Coverages There are 5 insuring agreements Section A Third Party Liability Section B...

What are the 5 Insuring Agreements under the S.P.F. No. 4 Standard Garage Automobile Policy (/5)  S.P.F. No. 4 Standard Garage Automobile Policy Analyzing Policy Coverages There are 5 insuring agreements Section A Third Party Liability Section B Accident Benefits Section C Loss of or Damage to Owned Automobile Section D Uninsured Motorist Coverage Section E Legal Liability for Damaged to a Customers Vehicle.  Chapter 4 Ocean Marine and Aviation Insurance Section 1 Marine Insurance  Learning Topics Ocean Marine Cargo Insurance Marine Cargo Insurance Underwriting Cargo Insurance  Ocean Marine Cargo Insurance Most commercial insurance policies exclude the following property: ○ Property while waterborne, except on a regular ferry or railway car transfer in connection with land transportation. If goods are transported over ocean an ocean marine cargo policy is required.  Determining Insurable Interest Only those who have insurable interest in the property can insure them. Sellers, buyers, carriers and financial institutions have insurable interest in property shipped. Two main documents which show insurable interest: ○ 1) Terms of Sale / Contract and 2) A Bill of Lading 1) Terms of Sale / Contract It is hard to determine who is the owner of cargo lost, damaged or destroyed. Review terms of contract to see if buyer or seller or both have insurable interest. The agent needs to focus on the following: ○ INCOTERM under which goods are being shipped. ○ The method of payment for the goods.  Determining Insurable Interest INCOTERM Under Which Goods are Being Shipped INCOTERMS address the question of “who owns the goods damaged.” They identify the following: ○ The point in transfer at which the seller has fulfilled its obligations. ○ Which of buyer or seller is responsible for carriage from one point to another. ○ Which of the buyer or the seller is responsible for insurance.  The Method of Payment for Goods Term of sale / contract will advise how the goods are paid. If goods are bought from a loan or credit the following parties will have interest in them: ○ Financial Institutions. If the loan is not paid the above institutions will have ownership of the good. They normally require insurance on the good(s).  The Method of Payment for Goods If goods are bought from a loan or credit the following parties will have interest in them: ○ Sellers Even if the title is transferred to a buyer the seller may still have insurable interest in the goods. (Example: item purchased on credit) Goods can be purchased in international commence by the following ways: 1) Cash in Advance ○ Used when buyer is not known to the seller. ○ The Sellers insurable interest ceases the moment payment is made. 2) Open Account ○ This is a charge account where buyer arranges settlement with seller for payment on intervals (Ex: monthly). ○ Until goods are fully paid the seller will have insurable interest in them.  The Method of Payment for Goods ○ Sellers Goods can be purchased in international commence by the following ways: 3) Draft ○ Payment is made by draft 30, 60 or 90 days after. ○ Seller has insurable interest until fully paid. 4) Letter of Credit ○ Most common method of payment for exports. ○ Seller agrees to provide buyer the goods pending a letter of credit. ○ If terms are okay the buyers bank will speak to sellers bank and arrange for transfer of monies. ○ Seller will have insurable interest in good until buyers bank honors the letter of credit and pays.  Bills of Lading The above document is issued by a carrier responsible for transporting the goods. They serve the following functions: ○ A contract of carriage between the ship-owner and the shipper. ○ A receipt for the goods. ○ Document of title to the goods.  Bills of Lading Bills of Lading – A Discussion of Primary Functions (3 Primary Functions) 1) A contract of carriage between the ship-owner and the shipper. ○ Represents contractual undertaking between the shipper and the carrier. ○ It also serves to establish the liability of the carrier for the goods they are transporting. ○ The contract also includes: The route the goods will be shipped. Description of the person receiving the goods Straight Bill of Lading Order Bill of Lading  Bills of Lading 1) A contract of carriage between the ship-owner and the shipper. ○ Straight Bill of Lading The goods are delivered to the named consignee only. Used when: Goods are paid for by the consignee If there is an arrangement for credit between shipper and consignee When shipper and consignee represent same interest ○ Order Bill of Lading Usual for oversea shipments. The carrier is instructed to deliver property to the order of named consignee. They deliver goods to persons who can accept on owners behalf.  Bills of Lading 1) A contract of carriage between the ship-owner and the shipper. ○ Description of how goods are valued while shipped by the carrier company Released Bill of Lading No specific value is declared by the shipper. Value provided may be an approximate amount (Example: $1,000) Valued Bill of Lading Issued by the carrier and indicates value of goods as declared by the shipper  Bills of Lading 1) A contract of carriage between the ship-owner and the shipper ○ Other Conditions On Deck Bill of Lading Confirms to shipper that the goods are stowed on deck. Shipper is not labile unless grossly negligent. Optional Stowage Bill of Lading Gives the carrier the right to stow cargo where they see fit.  Bills of Lading 2) A receipt for the goods ○ Received for Shipment Bill of Lading (Dock Receipt) Issued to show goods were received by the carrier for shipment. ○ Clean Bill of Lading The carrier declares no indications of problems with condition of cargo. Used for produce and fruit shipments. ○ Count Bill of Lading Shows actual number of units being shipped. ○ On Board Bill of Lading Confirms the receipt of goods and confirmation of loading onto the vessel.  Bills of Lading 3) Document of title to the goods ○ Documents will indicate the consignee entitled to receive the goods Carrier’s Responsibility for Loss to Cargo of Others Limited by Law. The carrier is not responsible for loss or damage to cargo for the following causes of loss. ○ Fire, unless caused by the fault of the carrier. ○ Perils, dangers and accidents of the sea or other navigable waters. ○ Act of God ○ Act of War ○ Act of Public Enemies ○ Strikes, riots and civil commotion.  Types of Cargo Policies Cargo insurance can be purchased by two ways. 1) Individual Policy or Certificate ○ Individual policy is a completed certificate confirming that coverage is in place. ○ Used mostly for single shipments or if goods are sent on an irregular basis. 2) Open Policy ○ This is a contract prepared covering specified goods on agreed conditions. ○ It meets the needs of the shipper and consignees.  Types of Cargo Policies 2) Open Policy ○ Following are characteristics of open policies: Sums insured are not stated Can be extended to insure goods of every description shipped anywhere in the world. Can be issued with no expiry date. Term is usually 1 year Premiums rate stated on the policy.  Types of Cargo Policies “Valuation Clause” Limits Amount of Insurance that can be Purchased 1) Value of the cargo ○ Basic invoice cost of goods provides a starting point for amount of insurance needed. 2) Shipping costs or freight ○ Shipments involve freights which is the “money payable either for the hire of a vessel or for the conveyance of cargo from one port to another.” ○ Value of cargo when reaches customer is increased as factor of cost to ship the item. ○ Cost of freight is normally built into the cost of the product when sold.  Types of Cargo Policies “Valuation Clause” Limits Amount of Insurance that can be Purchased 3) Other Expenses ○ Could include packing costs, insurance premiums or miscellaneous fees. 4) Duties and Taxes ○ All duties and taxes are levied at the point of entry. 5) Plus ten (10) percent ○ Allowed to be added to known costs to ensure increase in value of goods.  Types of Cargo Policies “Percentage of Insured Value Lost” Forms Basis of Settlement Settlement is based on the percentage of loss with respect to the goods. If goods values at $100,000 and 40% were lost then we would pay $40,000. Amount of Insurance $100,000 Value of Cargo at time of loss $75,000 % of insured value lost 20% Amount of actual loss $15,000 ($75,000 * 20%) Amount paid $20,000 ($100,000 * 20%)  Types of Cargo Policies Advantages of Adjusting Losses on Percentage of Insured Value Lost Basis When total loss amount paid is the limit of insurance. For partial losses we pay out the market value of goods immediately prior to loss. The adjuster is not required to know pricing of goods in the event of a total loss.  Marine Cargo Insurance Policies Institute Cargo Clauses There are three (3) institute cargo clauses: ○ Institute Cargo Clause (A) – All Risks ○ Institute Cargo Clause (B) – Named Perils ○ Institute Cargo Clause (C) – Named Perils.  Marine Cargo Insurance Policies Common Coverage Clauses 1) Transit Clause Original marine policies covered cargo from time it was loaded onto the ship till discharged at port of destination. Provides coverage from time goods leave the shippers location until they arrive at point of destination on the policy declarations page. Coverage is included for losses occurring: ○ After the cargo has been unloaded and in transit under rail, truck, lighters, steamers, aircraft, etc. Coverage ceases after 60 days of unloading to the consignee Coverage is provided for weather delays.  Marine Cargo Insurance Policies 2) Termination of Contract of Carriage Clause Coverage for cargo under above terminated if ○ At a port or place other than the destination named in the policy ○ Delivery of goods under the conditions is provided in the Transit Clause 3) Change of Voyage Clause If destination of cargo is changed by insured, insurer agrees to continue coverage so long as they were notified.  Marine Cargo Insurance Policies 4) Claims Insurable Interest Clause ○ In the event of a claim only those parties who have insurable interest in the cargo will be paid. Lost or Not Lost Provision ○ Coverage will apply even if the property has already been lost at the time the policy is issued provided: The insured did not know it was lost The insured had no reason to suspect there was a loss.  Marine Cargo Insurance Policies Exclusions and Warranties Coverage under the marine cargo policy may be limited by: ○ (1) Policy exclusions ○ (2) Warranties that are either explicitly written in the contract, or that are acknowledged in law as being implied. (1) Exclusions under the policy include: Unseaworthiness and unfitness of the vessel. Strikes, lock-out or labor disruption of employees. War. Discharge over side at final point. After expiry of 15 days counting from midnight of the day of arrival of the overseas vessel at the final point of discharge.  Marine Cargo Insurance Policies (2) Warranties. There are two (2) types of warranties: Express and Implied. (a) Express Warranties ○ This is an agreement whereby the insured stipulated that certain facts relating to the risk are or shall be true or certain acts shall or have been done. ○ They are specifically stated in the policy. (Example: Alarm Warranty)  Marine Cargo Insurance Policies (2) Warranties. (b) Implied Warranties ○ These do not appear in the policy wording though they are implied or understood by the parties to contract. ○ The implied warranties in marine cargo insurance include: Legality, No Delay and No Deviation. Legality Implied that the venture is legal. No Delay: The voyage will start in a reasonable time. No Deviation: Voyage will be direct from point to point with no deviation  Marine Cargo Insurance Policies Claims Settlement Total Losses In marine this means complete loss of the subject matter. There are three types of total losses: ○ Actual total Loss The property is totally lost or so badly damaged there is no value to it. ○ Constructive Total Loss The cost of salvaging the cargo is too high relative to the value saved. ○ Total loss of a part Total loss of one shippers cargo, without total loss to other shipments is a total loss of a part of the shipment.  Marine Cargo Insurance Policies Partial Losses (Average) A partial loss in marine insurance is called average. There are two types of losses: 1) Particular and 2) General ○ 1) Particular Average Involves a partial loss to a specific shipment, other than a general average. ○ 2) General Average Deals with the payment of those losses voluntarily incurred for the safety of the voyage. Example: To avoid capsizing the ship dumps cargo into the ocean to stay afloat.  Selecting Policy Coverages Coverage can be provided for 1) total losses only or 2) total losses with provision to partial losses. 1) Total losses ○ Paid only when there is a total loss. 2) Total losses with provision to cover partial losses caused by perils of the sea when they exceed a certain percentage of the insured value. ○ There is no coverage for partial losses caused by perils of the sea unless amount of the loss exceeds the franchise amount. ○ Franchise amount is the percentage of the loss.  Underwriting Cargo Insurance Following factors will be looked at 1) Carriers to be used in transporting the cargo. U/W wants to know the name types of ships and maintenance records of the fleets. They want to know if voyage by sea only or if land transportation will be done. 2) Experience of the ship owner or shipper and if they have done shipments similar in the past. The loss experience, years of sea experience will be important to review. 3) The route the ship will take and the weather conditions at the time of the year.  Underwriting Cargo Insurance 4) The condition of the harbors and current political situation in them. 5) The type of cargo getting shipped. 6) Perils to get insured and amount of the insured’s deductible. 7) Packing methods of the cargo.  Marine Liability Marine Liability Running Down Clause ○ If the loss to the hull of the ship is greater than the amount of the hull coverage carried by the at fault party additional sums will be paid under Protection and Indemnity (P&I) coverage. P & I Coverage also insures the following: ○ Loss of life and injury to third parties ○ Pollution ○ Damage to fixed and floating objects (Example: Docks) ○ Removal of the wreck  Marine Liability Ship Repairers Legal Liability Policy covers shipyards for their liability to an owner during repairs to the vessel. Stevedore’s Legal Liability Coverage is provided for land based operations responsible for loading and unloading vessels. Damage to vessel and cargo can be provided. Charterers Legal Liability Policy covers the risk of a charterer assumes when contracting the use of a vessel either bareboat time or voyage.  Section 2 Aviation Insurance  Learning Topics Insurance Exposures To Loss Associated Aircraft Exposures  Insuring Exposures to Loss Coverage can be purchased on an aircraft (hull), any liabilities that come from the aircraft and the cargo transported by the aircraft. 1) Aircraft (Hull) Insurance Risks are divided into 1 of 3 categories: A) Privately owned aircraft, not used for hire or reward. B) Commercial aircraft (excluding instruction and rental). C) Commercial aircraft (including instruction and rental).  Insuring Exposures to Loss Hull Coverage “A” – All Risks Coverage is provided for loss or damage While the aircraft is on the ground. While the aircraft is or isn’t in motion. While the aircraft is in flight. Hull Coverage “B” – Ground and Taxiing Risks Coverage is provided for loss or damage While the aircraft is on the ground While the aircraft is taxiing. Hull Coverage “C” – Ground Risks Only Coverage for loss or damage while aircraft is on ground and not in motion  Insuring Exposures to Loss An aircraft is deemed “in flight” ○ From the time it is moving in an attempt to take off until the time it has landed. An aircraft is deemed “in motion” ○ If in flight. ○ If moving under its own power, or by momentum generated by its own power. ○ A propeller or rotor on the aircraft is rotating by engine power.  Insuring Exposures to Loss There are three different deductible amounts ○ In motion deducible ○ Moored deductible Applies when the aircraft is operated on floats or an amphibian aircraft. ○ Not in motion deductible  Endorsements Applicable to Hull Coverage Lay-Up Endorsement Endorsements provides a refund when aircraft is not used for extended periods of time. To get the refund: ○ Endorsement must have been purchased at inception date of policy. ○ Reports of lay-ups need to get provided to insure within 90 days from expiry of the policy. Clause is for 30 consecutive days and refund withheld until policy expires. No refund will be issued if insurer paid a claim in excess of policy premium.  Endorsements Applicable to Hull Coverage Detached Undercarriage Endorsement Provides for hull ground risk coverages on wheels, skis, or floats when detached from the airplane.  Aviation Liability Insurance 2) Liability Insurance Public Liability / Property Damage Liability limits are based on the aircrafts business/pleasure type and maximum permissible take-off weight. When maximum weight exceeds 2,268 kg (5,000 pounds) minimum liability is $300,000/seat.  Aviation Liability Insurance 2) Liability Insurance a) Liability Coverage “F” – Bodily Injury and Property Damage to Third Parties. Insurer pays all amounts legally liable to pay to a person, other than a passenger, for bodily injury or property damage arising from use, ownership or maintenance of the aircraft. Coverage is extended to include damaged to a leased hanger $25,000 coverage provided for the following emergency situations: ○ Foaming of runway before an emergency landing. ○ Provision of fire, crash control and rescue services. ○ Provision of search and rescue services.  Aviation Liability Insurance 2) Liability Insurance b) Liability Coverage “G” – Bodily Injury to Passengers. Insurer pays all amounts legally liable to pay to a passenger, for bodily injury arising from use, ownership or maintenance of the aircraft. Emergency first aid and defense costs are also included.  Aviation Liability Insurance Exclusion Under Policy: 1) War, Seizure or Hijacking. 2) Unapproved Pilot ○ Unless: Pilot is being tested by a pilot employed by Transport Canada. Aircraft is being operated by a pilot providing an approved pilot with upgrading instruction. When not in flights, the aircraft may be started and operated by a person who is competent to control the aircraft and qualified to do so.  Aviation Terms and Conditions A) Territory Coverage is restricted to: ○ Canada, Continental USA excluding Alaska, French Islands of St, Pierre and Miquelon, Republic of Mexico or Bahama Islands. ○ Other areas where planes fly need an endorsement for coverage. B) Cancellation Insurer is required to provide at least 10 day notice of cancellation to the insured. Policy is cancelled via pro-rata cancellation unless a claim occurred exceeding policy premium.  Underwriting Aviation Insurance Underwriting the Risk Brokers generally do not have binding authority on aviation policies. Information underwriter wants to review on the pilot include: ○ Class of license and endorsements. ○ Total hours as pilot in command. ○ Record of all accidents in the previous five year period.  Aviation Cargo Insurance 3) Cargo Insurance Liability of air carrier limited by law. ○ If negligent in causing damage to the cargo they may be required to pay. Valuation: ○ Uses the same valuation system as marine cargo insurance. Coverages ○ Provided on an all risks basis. ○ Coverage is limited to 30 days after unloading.  Aviation Cargo Insurance 3) Cargo Insurance Exclusions ○ Coverage is excluded for loss or damage due to act of war or strikes. ○ Can purchase above coverage for an additional premium. Rating ○ There are no standard rates for coverage to cargo. ○ The underwriter will use their discretion for the rates.  Associated Aircraft Exposures Liability of firms for injury or damage caused by aircraft not owned by them can be insured under the following policies: A) Non-Owned Liability: ○ Coverage is designed to insured legal liability of businesses that do not own aircraft though whose employees may fly them for business purposes. ○ These aircrafts may be rented or borrowed. B) Contingent Liability ○ Coverage is provided for businesses which do not own an aircraft though may charter, rent or borrow one. ○ No coverage is employee or owner of a business fly's the units.  Associated Aircraft Exposures Hangarkeepers Liability ○ Covers liability of insureds arising out of loss or damage to aircraft and their parts that are in their care, custody and control. Cargo Liability ○ Intended to insure legal liability of the carrier for loss or damage to goods belonging to others in their care, custody and control.  Key Terms Bill of Lading Agreed Value Freight Actual total Loss Constructive Total Loss Particular Average General Average  Your Assignment Please refer to your IGO assignment in your student portal and use information from the Chapter 4 slides to answer the question. You can submit your IGO activity to your facilitator or ask questions in class. For an explanation of the slide information and an answer to the activity, please check out the “IGO Answers” videos in your student portal. Please ask questions if you need to! State and explain the 3 types of total loss under a Marine Policy? (/6)