Various Clauses of Insurance Contract

The old form of policy is even used today, In order to make the standard policy suitable for the different types of contracts, suitable conditions are added to the policy.

Use conditions are inserted in the policy in the form of clauses. The clauses took the standard form with special meanings. They may be pertaining to Hull, Cargo and Freight.

Hull Clauses

These clauses are mainly framed wife the insurances on vessels and are incorporated in hull policies. The clauses may be pertaining to losses resulting from collision, standing, general average, etc.

‘All risks policy’ may be issued or certain risks may be excluded from the policy by inserting suitable clauses. ‘Inland or Port Risk Clauses’ may be incorporated in fee policy to determine the extent of loss. These clauses are known as ‘Institute Time Clauses’.

Cargo Clauses

These clauses are used in the insurance of goods and are incorporated in cargo policies. Use clauses describe the nature, extent; and scope of the insurance and define comprehensive conditions and restrictions.

The additional marine perils against which cover may be sought or which are excluded from the policies are inserted through special clauses. Terms and conditions of Cargo insurance are specially incorporated in the policies.

‘With Average (W.A.) or With Particular Average, ‘Exposed during transit’, etc., are the important clauses of cargo insurance.

The underwriting of cargo-risks depends upon the nature of goods, the susceptibility of the goods, intentions of the insurer and insured and willingness of the assured to pay extra premium. This clause is known as ‘institute Cargo Clause’.

Freight Clauses

The clauses are framed in connection with the loss of freight due to maritime perils which may be insured for a period or for a voyage. A person who paid the freight in advance and the person who will receive the freight on completion of voyage are interested in covering the risk.

The General Average. (GA.), Particular Average (P.A.) etc. are used in the freight clauses.The clauses are known as Institute Freight Clauses’.

The clauses to be incorporated in the policy are generally taken from Lloyd’s Association. There are various clauses which are suitably inserted according to the nature and type of policies. Hull, cargo and freight policies have different standard clauses.

In case of hull insurance, the clauses provide that if the insured vessel at the expiration of the policy is at sea, or at a port of refuge. Generally the ship may be covered until arrival at port of destination. In case of cargo policies with Average,

Free of particular Average, or All Risks are generally used. There are standard clauses which are invariably used in marine insurance.

Firstly, policies are constructed in plain, ordinary and popular sense, and, later on, specific clauses are added to them according to terms and conditions of the contract. Clauses attached to the policy would override the printed wording in the policy.

DESCRIPTION OF THE MARINE CLAUSES

The usual clauses which are or may be incorporated in a marine policy are:

  1. Assignment clause,
  2. Lost or not lost,
  3. At and from clause,
  4. Warehouse to warehouse clause,
  5. Deviation, touch and stay clause,
  6. Inchmaree clause,
  7. Running down clause,
  8. Sue and Labor clause,
  9. Reinsurance clause,
  10. Memorandum clause,
  11. Continuation clause.

Let’s get an idea regarding them;

Assignment Clause

“The clause of assignment is as below …. as well as in his/their own name as for and in the name and names of all and every other person or persons to whom the same doth may or shall appertain, in part or in-all doth make assurance… and cause… and them and every of them, to be insured ….”

This clause makes it clear that the marine policy is freely assignable unless this is expressly prohibited. The policy can be assigned to anyone who may acquire an insurable interest in the subject- matter as soon as the assured parts with his interest.

Cargo policy is freely assignable and no notice, thereof is essential to be given to the underwriter.

But, in case of hull insurance die policy cannot be assigned freely and the consent of underwriter is essential because the degree of risk of the subject- matter is materially changed when the management and ownership of the vessel is changed.

Since the owner of cargo has no control over the cargo in transit, blank endorsement may be permitted. But in hull insurance, specific endorsement of an assignment is essential.

It is interesting to note that marine policy can be assigned even after h takes place, but the assignee does not get a better title than the assignor.

However, where the assured has parted with his interest in the subject, matter insured and has not, before or at time of so doing, expressly or impliedly agreed to assign the policy and subsequent assignment of the policy is inoperative.

Lost or Not Lost Clause

The clause is as to be insured, lost or not lost. The policy was taken in good faith. The meaning of the clause is that the insurer insures the subject-matter irrespective of the fact that it has already been lost or not lost before the issue of the policy.

It is taken in such a case where a merchant receives information of the shipment of his cargo very late after the sailing of the steamer and, therefore, when he submits the risk to the underwriter and effects insurance it was not known whether the subject- matter to be insured was lost or was not lost.

So, to provide full protection to shipment, the words, ‘Lost or not Lost’ are inserted. It means that the insurer undertakes to indemnify the insured whether the subject matter before the date of issue of the policy was already lost or not.

In this case, it is assumed that the assured and the underwriters are ignorant about the safety or otherwise of the subject- matter.

The policy terminates if it is proved later on that one of the two parties was aware of the subject-matter at the time of loss.

The introduction of this clause has a retrospective effect to provide for any loss which has occurred during the period from the date of shipment to the date of issue of policy.

This clause was mostly prevalent in olden times when the media of communication were not developed so much. Now, the clause has lost much of its importance.

At and From Clause

This clause is applicable in voyage policies insuring hull, and freight. It determines the time when the actual risk commences. As soon as the ship will arrive at the port, the risk will commence.

It means that the policy covers the subject-matters while it is lying at the port of departure and from the time the ship sails when the policy contains from only instead of “At and Form”.

From means the risk commences from the time of departure of the ship and not previous to that. In case of cargo policy this clause is amended as the risk may commence boom the ‘time the cargo is loaded on the vessel.

In voyage policy, if the ship is not at that place when the contract is concluded, the risk commences as soon as the ship arrives there in good safety. If the place of departure is specified by the policy, and the ship sails from other place than the specified one, the risk does not attach.

Termination of Risk

The wordings of policy in this case are as follows:

“And upon the goods and merchandises until the same be there discharged and safely landed.” When the ship arrives the port of destination, the goods must be landed within a reasonable time and if they are not landed the risk ceases.

The risk of landing within the reasonable time is permitted in most of the cases. But, where it is allowed with standard policy, clauses such as craft, lighters, etc., are inserted to the policy.

Warehouse to Warehouse Clause

Generally, underwriters are responsible for the risk commencing from the time of loading to the time of unloading the cargo. But, in certain cases the risks are beyond these two limits, i. e., departing and destination.

So, in order to cover the inland risks from the original place of departure to the port of sailing and from the port of discharge to the place of final destination are insured under ‘Warehouse to warehouse clause’.

Under this policy, the risk commences from the specified place and continues to the specified place of destination named in the policy. Thus, the risk of land, craft transport and transshipment are also covered under a single marine insurance policy.

Sometimes, time-limit is also inserted in the policy and extra cost is required from the insured to cover the remaining voyage. But, where goods are willfully detained, the underwriter shall cease his liability.

The clause as appeared in the Institute Cargo clause is as follows:

The risks covered by this policy attach from the time the goods leave the Warehouse and/or Store at the place named in the policy for the commencement of the transit and continue during the ordinary course of transit, including customary transshipment, if any, until the goods are discharged oversize from the overseas vessel at the final port.

Thereafter the risks covered are continued whilst the goods are in transit and/or awaiting transit until delivered to final warehouse at the destination named in the policy or until the expiry of 15 days (30 days if the destination to which the goods are insured is outside the limits of the port) whichever shall first occur. The time limit referred to above to be from midnight of the day on which the discharge oversize of the goods hereby insured from the overseas vessel is completed.

Transshipment, if any other than as above, and/or delay in excess of the above time limits arising from circumstances beyond the control of the assured, held covered at a premium to be arranged.

Deviation Touch and Clauses

The ship should not deviate from the course of the voyage described in the policy or where the course is not a specifically designated one, from the customary course. Any departure from the specified course or a customary course amounts to deviation.

A deviation is different from change of voyage. In the latter case, the destination agreed upon is changed, while in the former case the destination is the same as agreed, but the course thereto is deviated from.

In the change of voyage the underwriter’s liability comes to an end from the time the intention or decision to change the voyage is taken, but in deviation mere intention to deviation is not material; there should be an actual deviation to avoid the policy.

Once deviation has taken place the risk ceases to attach for the rest of the voyage even though loss has occurred after the vessel had reverted to the proper course.

Where the ship deviates without lawful excuse the underwriters are relieved of the liability as from the time of deviation.

The fact that deviation did not increase the risk or that the ship regained her route before any loss occurred, would not amount to non-deviation. This clause applies only to voyage policies. In time policies, this clause does not apply.

Deviation is excused under certain circumstances but it should be noted that the ship must resume her course and prosecute the voyage with reasonable dispatch. Deviation or delay is excused in the following cases:

  1. Where authorized by any special term in the policy. The special term must be incorporated in the policy. Underwriters are usually willing to extend the protection of the policies after charging additional premium.
  2. Where deviation is caused by circumstances beyond the control of the master and his employer.
  3. Where deviation or delay is necessary to comply with an express or implied warranty.
  4. The deviation or delay is necessary for the safety of the ship or subject-matter insured.
  5. For the purpose of saving human life or aiding a ship in distress where human life may be in _ danger. For, and for obtaining medical or surgical aid, deviation or delay is required.
  6. Where deviation is caused by the barratrous conduct of the master or crew, if the barratry be one of the perils insured against.

Touch and Stay

It accords liberty to the vessel to touch and stay at any port, or place whatsoever. In absence of the clause, the liberty to touch and stay at any port or place whatsoever does not authorize die ship to depart from the course of her Voyage from the port of departure to the port of destination.

Where several ports are specified, the ship may touch or stay at all or any of them. In the absence of any usage or sufficient cause to the contrary the ship must proceed to the designated ports. Following wordings are incorporated in the standard policy.

“And it shall be lawful for the said ship, etc., in the voyage to proceed and sail to and touch and stay at any ports or places whatsoever without prejudice to this insurance.”

It means that the vessel in course of the voyage must touch and stay at such ports and in such order as are mentioned in the policy or if no course is mentioned in the policy, the ports must be in the ordinary course of the voyage.

Inchmaree Clause

The clause protects the ship-owners against losses to be included in claims by the assured. This clause is taken from an illustration of a steamer called ‘Inchmaree’.The donkey pump of the steamer was damaged due to salt. Claim was covered under the “and all other perils, losses, and misfortunes clause”.

The court decided that due to negligent such losses were outside the scope of the insurance arid should not be covered by it.

So, now to provide indemnity for the insured for damage to the hull or machinery resulting from the negligence of the master or crew, as well as from explosion or latent defects, a clause was introduced into hull policies which is commonly known as ‘Inchmaree clause’. This clause is also incorporated in cargo policies.

Hague Rules

A Maritime Law Committee of the International Law Association sat at The Hague in 1921 and framed a set of rules regarding the rights and liabilities of cargo-owners and ship-owners in connection with Bills of Lading so that no complication may arise in settlement of claims.

Running Down Clauses (R.D.C.)

This clause is also called collision clause and is included in hull policies. It provides that the underwriter agrees to take upon the liability of the owner of the ship for damage done by his vessel to another vessel on collision to the extent of three-fourths of such liability. The underwriter will be responsible only when th is clause is added in the policy.

The assured himself has to bear one-fourth of the loss so that he may exercise greater care in the navigation of the vessel. The full protection can be given by deleting the words ‘Three-fourths’ from the clause. In case the ship sinks in a collision and is held liable for the damage done to the other vessel, the underwriter may have to pay a total loss and a heavy claim under the R.D.C.

The amount of damage extends to include damage done to other ship, her cargo and compensation for loss of employment in consequence of the collision.

Sue and Labor Clause

This clause reads as follows: “And in case of loss of misfortune it shall be lawful to the assured, their factors, servants and assigns to sue, labor and travel for in and about the defense, safeguards, and recovery of the said goods and merchandises, and ship, ete., or part thereof, without prejudice to this insurance, to the charges whereof we, the assurers, will contribute each one according to the rate and quantity of his sum herein assured”.

Thus, it is the duty of the assured and his agents to act in such a way that they are uninsured and to take such measures as may be reasonable for the purpose of averting or minimizing loss or damage.

This clause requires underwriters to pay any expenses properly incurred by the assured or his agents in preventing or minimizing loss or damage to the subject-matter. The reasonable expenditure is payable even though it may be, in addition, to total loss.

The essential features of Sue and Labor Charges are;

  1. The expenses must be incurred for the benefit of the subject-matter insured. If occurred for the common benefit they may become a part of general average which is not recoverable under this clause.
  2. They must be reasonable.
  3. They may be incurred by ‘the assured, his factors, his servants or assigns’. The clause excludes salvage charges.
  4. The expenses are incurred to avert or minimize a loss from a peril covered by the policy. Expenses incurred for purpose of averting or diminishing any loss not covered by the policy are not recoverable under this clause.

Reinsurance Clause

The reinsurance clause…. “being a reinsurance and subject to the same clauses and conditions as the original policy, and to pay as may be paid thereon.”…. is generally added to the original policies. The reinsurer is liable only for claims for which the original underwriter is liable. If the reassured has paid a claim for which he is not legally liable under his policy, the reinsurer is under no obligation to reimburse him. The cost incurred by the original insurer in contesting liability under the original policy, need not be paid by the reinsurer. The reinsurance policy is closely linked with the original insurance and any alteration in the original policy must be agreed with the reinsurer.

Memorandum Clause

The memorandum clause reads as under:

“Com, fish, salt, fruit, flour and seed are warranted free from average, unless general, or the ship be stranded—sugar, tobacco,… are warranted free from average,… and all other goods, also the ship and freight, are warranted free from average.”

This clause is meant to provide a minimum limit to be underwriter’s liability regarding claims for particular average by exempting him from such claims.

Continuation Clause

This clause refers that the vessel shall continue to be covered even after completion of voyage under the policy at a pro-rato premium to her port of destination provided previous notice was not given.

Institute Cargo Clauses

These clauses are used to cover various types of general merchandise involving transit by sea. The risks clauses, general average clause and collision clause are included in these clauses. These clauses are ICC (A) (B) and (C).