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Insurance cover - Procedure for cargo ship

Various insurance policy

A ship is insured against various risks by the Owner taking out different insurance policies. Insurance claims will be handled by the owner. In order that the Company can prosecute a claim accurately and successfully, the Master must send full details and documentation relating to any accidents or incidents resulting in damage to the ship, property, cargo or personal injury. Reference is to be made to the Nautical Institute publication, “The Mariner’s Role in Collecting Evidence.”

The handling of a claim can be a complex and lengthy process. It is therefore important that any documentation and correspondence on board concerning claims is filed carefully and is handed over during change of command.

It should be noted that insurance premiums amount to a very large proportion of the ship’s running costs. Whilst the owner insures his ship against certain risks and may present a claim which will recuperate at least part of his losses, the effect of submitting many claims will have the effect of increasing the insurance premiums for the next year. It is therefore in everyone’s interest to ensure that risks are not taken, that the ship operates safely and that accidents and incidents are avoided.




Hull & Machinery

In cases of hull and machinery damage, the Company on receipt of information will discuss with owners and will decide whether or not a claim is worth pursuing. A major factor in the decision will be the amount of deductible in question.

If it is decided that a claim will be made, then the Company will advise the H&M underwriters via their insurance broker. The underwriters will then in turn instruct a surveyor to attend the ship in order to ascertain the nature, cause and extent of damage. Wherever possible a representative from the Company will also attend the vessel and work in close association with the surveyor. Where the claim is expected to be very large such as in a major casualty, the surveyor appointed is likely to be a Salvage Association surveyor.

On the successful completion of the claim, the underwriters will pay the owners for the cost of repairs less the agreed deductible. Repairs maybe delayed until an agreement has been made with the underwriters concerning the value of the claim in question.


P&I Claims

A claim will be initiated by the Company in accordance with the Club rules and regulations upon receipt of all relevant information and documentation from the vessel. Depending upon the nature of the claim, the services of a surveyor or Club correspondent may be employed.

It is important to note that Owners must first pay the costs of any claim themselves and will only recuperate their loss, minus any deductible, once a claim has been compiled and accepted by the Club. It must be stressed that in order for the Owners to bring about a successful claim, every aspect of the incident must be correctly and fully documented.


Cargo Claims

When a cargo loss or damage is discovered by the cargo owner, he will immediately inform his insurer and arrange a survey report. If the cargo owner’s underwriter considers that the claim is worth pursuing against the ship owner he will then make a written claim accordingly. The ship owner will then in turn attempt to recuperate his losses on his P&I insurance.

It is worth noting that in many cases the ship’s staff are not aware of a potential cargo claim until the information comes back to them from the Company. This may be due to the fact that no damage was indeed noted at the time of the cargo operation and the ship was not advised. However there have been some cases where cargo damage has been seen by the ship’s staff but as no person from the shore has made any protest, the damage is not communicated to the Company.

It may be many months before the Owner is advised of a claim against him and to try and mitigate the losses after such a time is almost impossible. It is therefore very important that if cargo damage is discovered, or even suspected, the Master must advise the management company by completing the cargo damage report who in turn will arrange for a P&I correspondent to attend. This may cost the Company survey fees but will be considerably less than the cost to the owner or the P&I Club for a damaged cargo claim.


Cash On Board (COB) Insurance

Managed vessels are normally insured against the loss or theft of (or damage to) Company funds carried on board. In the event of a loss or theft, the Master must:
  1. Notify the relevant Ships office.
  2. Advise local police (when in port).
  3. Obtain a police statement regarding the incident (when in port). If this statement is not in English, a translation should be obtained from the port agent.
  4. Obtain supporting statements from relevant crewmembers and/or any witnesses.
  5. Make a record in the Deck Log Book (submit to Ships office with Incident Report.
The Master should maintain a record of company funds held on board in the vessel's safe. Appropriate safety measures should be taken including cash to master requests. Masters are reminded that only Company funds are covered and under no circumstances should other funds be retained in the ships safe.



Deductibles

Whilst insurance, be it Hull and Machinery or Protection and Indemnity, exists to cover the Owner against losses, the Owner must agree to paying a proportion of the eventual claim. This is called a deductible. It is therefore important that every reasonable precaution is taken to avoid any damage or losses which may lead to an eventual claim by being vigilant and employing correct working practices and procedures.


Seaworthiness

The vessel must be in a seaworthy condition at all times including the beginning of every voyage and at the start of each stage of the voyage. To be seaworthy a ship must be:-
  1. properly crewed, fuelled, provisioned,
  2. have all equipment in working order,
  3. be equipped with up-to-date and corrected navigational charts,
  4. be structurally and mechanically sound, and
  5. have all certificates valid for the duration of the voyage.
The ship must also be fit and safe in all respects to receive the cargo and be ready to encounter any ordinary perils such as weather and high seas that can be expected for the voyage. Failure to maintain your ship in seaworthy condition not only places the crew, the ship, cargo and environment in possible danger but may affect the insurance of the vessel in the event of a casualty.

Seaworthiness is also an important matter concerning the legal protection of the carrier under the Hague-Visby Rules. If the carrier can prove that due diligence was exercised to make the vessel seaworthy at the beginning of the voyage then the carrier can be protected against cargo damage or loss as a result of certain perils and acts that occur during the voyage. However, should it be proved that the vessel was unseaworthy at the start of the voyage, then the carrier loses this protection and may become liable for all losses.


Hull and machinery

This insurance covers the ship and her machinery against damage and/or loss up to an agreed value of the ship and is usually valid for one year between renewals. This policy is contracted through a broker between the Owner and various underwriters, each one being listed at the end of the policy on a “slip” along with a share of risk he has undertaken shown as a percentage. The underwriter who has accepted the highest percentage of risk is known as the lead underwriter.


Institute Time Clauses

These clauses are named standard clauses which are attached to the H&M policy to form the terms and conditions of the contract. Whilst these clauses are made by the Institute of London Underwriters, they are generally used in a similar form throughout other insurance markets. Not all of these clauses will necessarily apply to the vessel insured and indeed additional clauses may be drawn up. However, in general, H&M insurance will cover damage or loss to the ship caused by; International Navigating Conditions

The H&M policy assumes that the vessel trades within certain limits of navigation. These are called the International Navigating Conditions. A vessel maybe allowed to sail beyond these limits, it is therefore important that the Master acquaints himself with the limits laid down in the International Navigating Conditions and advises the Company who must first advise the underwriters that a breach of limits is required. The underwriters will then discuss the added risk and impose an additional premium on the Owners for breaching the limits. If the underwriters are not advised and the ship does breach the limits, the vessel’s H&M policy is void. The geographical areas and the dates on which the limits apply are shown in the Warranty Limit Table. If the Master is any doubt concerning such limits he must contact the Company.

If the vessel is ordered to an area where a breach of International Navigating Conditions will occur, it is important for the Master to report this to the relevant management office as soon as possible stating the expected date and time of entering the excluded area. This will enable the Company to ensure that the proper action is taken to extend the vessel's cover for breach of the same.



Note of Reference

Types of losses - Total or Partial or general average losses
A Loss can be described as being either Total or Partial (Particular Average). A Total Loss may be either an Actual Total Loss (ATL) or a Constructive Total Loss (CTL). An Actual Total Loss is where the vessel is actually destroyed or wrecked or where the owner is irretrievably deprived of his vessel e.g. when a ship is sunk in deep waters where any salvage attempt would be impossible. A Constructive Total Loss is when it appears that the vessel is unlikely to be saved or recovered or when she can only be recovered and repaired at a cost, which exceeds her insured value....

P&I Clubs guideline
The P&I Clubs are correctly called Protection and Indemnity Associations and number around 20 worldwide with the majority being United Kingdom based. The ship owner in taking out insurance with a particular association becomes a member of that Club. The Clubs are mutual in nature, which means that all costs involved in providing cover or paying out a claim to any one member is shared by all members. This is achieved by setting a rating or premium for the owner, known as an “advance call”, and is based on the owner’s history and exposure to risk.

War risks areas -related advisory
There are additional trading restrictions placed on the ship regarding so-called war risk areas. War risk areas do not necessarily mean an area where there is a war and may include hostile environments such as areas where civil commotion or revolution is taking place.

Cargo ship procedure - Deviation clause and port of refuge
A deviation is a departure from the intended voyage or contract of carriage. This can occur either where the course of the voyage is specifically stated and is departed from or where the course of the voyage is not stated but the usual route or customary route is departed from. However it should be noted that deviation does not necessarily mean a physical change in the course and can occur in a simple case of slowing down to receive stores at an intermediate off-port-limits call. ...

Salvage contract -Using The Lloyd’s Open Form for “No-Cure-No-Pay” salvage contract
The Lloyd’s Open Form or “LOF” is the most widely-used “No-Cure-No-Pay” salvage contract. In return for salvage services, the salver receives a proportion of the salved value (the value of the ship, its cargo and bunkers).

The Master’s Responsibility during Salvage Operation
Request for Salvage - The Master shall normally request salvage after consultation with the Company. However he has complete authority to seek salvage assistance without reference to the Company if he considers this necessary.

Requirement of towing arrangement in oil tankers, readyness, & training onboard
All Oil, Chemical and Gas Tankers above 20000 DWT, constructed on or after 1st July, 2002, are equipped with an “Emergency Towing Arrangement (E.T.A.) both Forward And aft to provide the ship with a rapidly deployed towage capacity in an emergency.





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