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    3 3 H&M Policy Exclusions

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    bhupendra singh
    The document discusses various exclusions and additional coverage options for Hull & Machinery (H&M) marine insurance policies. It outlines risks that are not covered under standard H&M policies, such as increased value, disbursements, excess liabilities, protection and indemnity risks, loss of charter hire, loss of freight, and war risks. It also describes how vessel owners can split total vessel value between Hull & Machinery, Hull Interest, and Freight Interest components to better structure their coverage.

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    3 3 H&M Policy Exclusions

    Uploaded by

    bhupendra singh
    66 views3 pages
    The document discusses various exclusions and additional coverage options for Hull & Machinery (H&M) marine insurance policies. It outlines risks that are not covered under standard H&M policies, such as increased value, disbursements, excess liabilities, protection and indemnity risks, loss of charter hire, loss of freight, and war risks. It also describes how vessel owners can split total vessel value between Hull & Machinery, Hull Interest, and Freight Interest components to better structure their coverage.

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    The document discusses various exclusions and additional coverage options for Hull & Machinery (H&M) marine insurance policies. It outlines risks that are not covered under standard H&M policies, such as increased value, disbursements, excess liabilities, protection and indemnity risks, loss of charter hire, loss of freight, and war risks. It also describes how vessel owners can split total vessel value between Hull & Machinery, Hull Interest, and Freight Interest components to better structure their coverage.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    66 views3 pages

    3 3 H&M Policy Exclusions

    Uploaded by

    bhupendra singh
    The document discusses various exclusions and additional coverage options for Hull & Machinery (H&M) marine insurance policies. It outlines risks that are not covered under standard H&M policies, such as increased value, disbursements, excess liabilities, protection and indemnity risks, loss of charter hire, loss of freight, and war risks. It also describes how vessel owners can split total vessel value between Hull & Machinery, Hull Interest, and Freight Interest components to better structure their coverage.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 3

    Marine Insurance

    H&M Policies Exclusions


    and Law
    H&M Policies - Exclusions

    The following risks are not covered by H&M Policies:

    Increased Value, Disbursements and Excess Liabilities


    These are covered in separate policies designed to provide an additional source of recovery
    over and above the H&M value in event of a total loss. They also give cover on any balance
    owing of GA, salvage, sue and labor, and collision liabilities which are not recoverable under
    the H&M policy because of under-insurance.

    Protection and Indemnity Risks


    These are insured with a protection and indemnity association.

    Loss of Charter Hire


    This may occur if a time-chartered ship is placed off-hire or is unable to trade because of
    damage sustained due to an insured peril. Loss of hire policies is obtainable from Lloyds or
    other insurance markets.

    Loss of Freight Cover


    This is also available under a separate policy to which the Institute Time Clauses - Freight are
    usually attached.

    War Risks Cover


    It is a supplementary insurance against the operation of war risks that are generally excluded
    from H&M policies. They contain standard clauses such as the Institute Time Clauses, Hulls
    Clauses, and also many P&I policies.

    The London Underwriters Association decides on the operation of a war zone in any particular
    area from time to time. Once that is decided, normal cover in that area is suspended and
    additional premiums are required for ships entering that zone. Some underwriters specialize
    in giving war risk covers for an additional premium. Institute War and Strikes Clauses are
    available for use in Lloyd’s or Company policies. The P&I clubs also offer war risks cover

    1
    Marine Insurance
    H&M Policies Exclusions
    and Law
    under their own terms. Owners usually arrange for their ships to be held covered for war
    risks on a permanent worldwide basis, but should consult their broker when a vessel is
    going to enter a war zone.

    Variations in Hull & Machinery (H&M) Cover


    To accommodate the rules concerning CTL in the Norwegian Marine Insurance Plan and, to
    reduce the total premium cost, shipowners usually split the total value of the vessel into
    Hull & Machinery, Hull Interest, and Freight Interest. These components either apply to a
    Partial Loss, or come into being during a Total Loss.

    The total value US$ 30.000.000 (100%)

    Hull & Machinery US$ 20.000.000

    Hull Interest US$ 5.000.000 (25%)

    Freight Interest US$ 5.000.000 (25%)

    However, if a shipowner decides to split the insurance values as above, there may be
    problems in relation to Constructive Total Loss (CTL). According to NMIP §11-3, section 2,
    the vessel is condemnable if the casualty damage is so extensive that the cost of repairing
    the ship will amount to at least 80% of the insurable value, or of the value of the ship after
    repairs, if the latter is higher than the insurable value.

    The vessel in the above example will only be a Constructive Total Loss if the repair cost
    amounts to at least US$ 24.000.000 (80% of the total value). If there is a major casualty
    with an estimated repair cost of US$ 23.000.000 the insured is only entitled to recover
    repair costs up to an amount of US$ 20.000.000, which leaves him US$ 3.000.000 short
    to cover the full repair cost. One alternative would be to drop the repairs and negotiate a
    compromised total loss with both Hull & Machinery and Hull/Freight Interest underwriters.

    This will however reduce the total payment in case of a total loss below than that initially
    anticipated.

    2
    Marine Insurance
    H&M Policies Exclusions
    and Law
    To overcome this, many owners split the total value as follows, by incorporating Freight
    Interest. This helps to insure future freight earnings and costs relating to replacement, etc:

    The total value US$ 30.000.000 (100%)

    Hull & Machinery US$ 24.000.000 (80%)

    Hull Interest US$ 6.000.000 (20%)

    Freight Interest US$ 6.000.000 (20%)

    The maximum insurable amount under IV in the above example would in this respect be US$
    6.000.000 each. The total sum insured would therefore be US$ 36.000.000.

    In times when the value of the vessels are changing, due to conversion / upgrading or
    general market changes, it is important to ensure maintaining a correct sum insured on the
    different covers. If the value of the vessel increases more than 25% there may be a “gap”
    in your cover. It is also sometimes a requirement from the mortgagee to insure at a higher
    value than the actual value

    Note:

    A maximum of 25% of the value applicable to hull insurance can be covered under each
    interest without any special agreement with the underwriters.

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