Marine Insurance Case Study: Assessment of Claim Denial

This case study examines a marine insurance claim denial for the vessel 'Solid'. The vessel was insured under a one-year policy but suffered damage after striking a rock. The insurer denied the claim, prompting an analysis of the situation based on key marine insurance principles. These principles include utmost good faith, insurable interest, indemnity, causa proxima, and loss minimization. The case reveals issues such as undisclosed damages, a forged Safe Manning Certificate, and unqualified crew members, all of which contributed to the insurer's decision. The analysis applies these principles to justify the claim denial, highlighting the importance of adhering to insurance terms and conditions, disclosing all material facts, and taking reasonable steps to prevent losses. The study concludes that the insurer's denial of the claim was justified based on the policyholder's breaches of good faith and failure to meet the requirements of the insurance contract.

Marine Insurance

INTRODUCTION
Marine insurance generally covers entire loss or damages of cargo, hull, ships and other
transports that are used for transferring the properties from one place to final destination
(Thomas, 2015). Hereby, when goods are transported by courier, shipping insurance is used. The
present report is based on a case study, where a 'solid' vessel was insured for a year, under some
specified terms of insurance. After stroking with a rock, some parts of it has been damaged but
during investigation of claim, insurer has denied liabilities for the same. Therefore, the reasons
and rightness for doing so is going to critically assessed under this project.
MAIN BODY
The word insurance refers to a process that gives 'protection against future loss. It varies
with type of objects like life insurance, general insurance and more. Marine insurance comes
under the category of general insurance that aid ship owners, transporters and other associated
ones, to get claim for damages (Boat Insurance Claim Problems That You Should Be
Aware of, 2019).Transporter are having many options for selecting most efficient way through
various plans and polices . It indicates that marine insurance covering not only cargo but also the
other transports as well, such as hull, vessel and more (Merkin and et. al., 2014). In the present
case, in order to assess reasons for fair claim or denied for giving the same, some basic principles
that can be applied under marine insurance include – Principles of Utmost Good Faith; Insurable
Interest; Indemnity; Cause Proxima; Loss Minimisation. Before to apply, any principle to
provide justification behind why claims for insurance for a vessel is denied, the case study and
issues is explained below –
Identification of issue
The vessel “Solid” has been insured on 1st day of September under the one-year policy
and incorporated with International Hull Clauses 2003 (Lurvink, 2019). This clause is mainly
apply in London on marine policies issues where as per the insuring clause 2, insurers are only
liable to pay for any claim if certain loss or damage has not resulted from want of due diligence
by owners or policyholders (Akhtar, 2018). It also covers the three-forth collision liability, which
is subjected for a maximum recovery i.e. near about 25 percent of insured value of vessel. With
respect to present vessel 'Solid', it has stroked with rock and suffered a huge during the period of
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insurance (Lee, 2018). Therefore, when policyholders claim to insurance company to get
maximum risk coverage, then insurers have made a proper investigation to measure how much
they are liable to provide the same. In this regard, during investigation, insurers have
investigated that number of incidences have happened in given period of insurance year. It has
been identified that there was no ingress of water and inspection by divers was also not
performed when vessel run a ground or refloated at high tide. Along with this, after eight months
of insurance, extensive bottom damage has occurred that notify by insurers (Sakai, 2018). Given
vessel also took towage services on sistership, where insurers have notified that policymakers
didn't provide any information to them. This kind of fact has been discovered during another
claim for damage that occurred in engine room due to fire explosion (Chen, 2018). Similarly, a
damage to the propeller and rudder mechanism etc. has happened within same year of insurance.
In concern with present damage where vessel has suddenly stroked with rock, so the main reason
behind same was due to outnumbered and unqualified crew members. Along with this, owners
have also presented a forged Safe Manning Certificate (Rani, 2018). So, concerning on these
issues where damage has occurred, insurers have denied the owners of present vessel 'Solid'
against claim.
Basic Principles in Marine Insurance -
Principle of Utmost Good Faith – this principle sates that all the material facts should
be disclosed to the other party. Material facts means all those facts which can influence the
judgement of the other party (Davey, 2019). If the party hides any of the material facts then
company which had provided marine insurance is having all the right to reject or cancel that
particular application For example : XYZ Company is making plan to buy marine insurance
policy so as per this principal it become necessary to disclose all material information about its
present position and state. If the organization hides any of the material facts, the marine
insurance company is having all the rights to cancel the application and it can also stop payment
for that insurance policy. In this regard, as per above facts about vessel 'Solid', as its owners hide
about severe damages and also present forged Safe Mining Certificate so, as per the principle of
Utmost Good Faith, insurers have right to decline its claim for last damage.
Principle of Insurable Interest – Insurable Interest means that the insured should have
an interest in the subject matter when it is to be insured (Dhar, 2018). The insured may not have
an insurable interest at the time of acquiring marine policy, but there must exist an insurable
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interest of insured at the time of loss or damage of goods otherwise insured will not be able to
get the claim settled from the insurer. In other words, insurable interests refers to a part of value
of an entity under which the same is purchased for covering the risk of damage or loss. In this
regard, insurers are required to make legal, valid as well as protecting against the intentionally
harmful acts. Under this condition, when insured person or policyholders create damages
intentional way or not subject to any financial loss then does not cover under insurance, then
they cannot purchase any insurance policy for coverage of risks. In this regard, as given
company had already undertaken the towage services on sistership without providing any
information to insurance company, therefore, it considers as a fraudulent activity. Therefore,
claim for current loss or damage, can be denied under such condition by insurers.
Principle of Indemnity – The principal of indemnity means that insured will get the
compensation only to the extend he had suffered the loss (Guirguis, 2018)i.e. in any case insured
is not permitted to take any extra benefit or to make profits by taking extra money from marine
insurance. The marine insurance company will not change that ship or cargo but provides the
compensation in cash of the damaged property which includes the cost of repairing of the insured
ship. Indemnity is based on the percentage of loss i.e. if the loss is 100% then indemnity will also
be 100%, but when the loss is 40% then indemnity will also reduces to 40% of the sum insured
(Woodward, 2019). In simple way, insured person neither get less not more than the actual
amount of any loss sustained. Moreover, indemnity also provide only to those physical objects
that are subjected for some specific terms and conditions. With respect to present case, as
number of times vessel has been damaged within same period of insurance, in this regard, as per
principle of indemnity, any in-repaired damage cannot be claimed. So, denied for claim by
insurers, seems to be justified by applying given principle on marine insurance of vessel 'Solid'.
Principle of Causa Proxima - the meaning of Causa Proxima is “the closest or
proximate cause”. It is sated by this principal that if there are many reasons or causes that are
resulting in that particular loss then the one which is closets or nearest reason for that loss should
be evaluated for fixing the responsibility of insurer. The proximate cause is insured, then marine
insurance company has to set off the claims and it does not requires the remote cause for loss to
determine the liability (Esenyan, 2018). For Example – Mr. A are exporting some goods and
hence willing to take a marine policy to cover his goods. Insurance has been provided to save the
goods from damages mainly created through sea water . During the journey , a hole was caused
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at the bottom of the ship. Through this hole, sea water has entered into the ship and damaged the
goods. In present scenario there are two reasons for mishappening with goods First, was the hole
at the bottom of ship that was caused during the journey and second reason was the seepage of
sea water into the ship. The nearest cause of the damage caused to the goods is the seepage of the
water, the hole in the bottom of the ship being the remote cause (Lee, 2018). hence A must
receive the amount of compensation for his loss which is covered under that policy.
Principle of Loss Minimization – as per this principle it is the responsibility of insured
person to try all best possible ways to reduce the amount of loss caused to insured property. The
insured person must try to adopt most effective way to reduce or minimize the cause or amount
of damage thats can be happened to insured property. Under this principle, it is necessary that
insured must not act irresponsibly or must not neglect during the happening of an event just
because the property is insured (Chen, 2018). In other words, it is the insured's responsibility to
take all the precautions to minimize the loss on the insured property. For Example – ABC
electronics got a contract to export electrical items to the buyers located in UK. To get protection
against various damages, ABC electronics has also purchased the marine insurance policy but it
does not make sense that they could act carelessly. The company would require to take all
precautionary paths to confine the damages.
Argument
As per according to the principal of Utmost good faith within marine insurance policy, there
is no Insurance claim that can be claimed for The vessel “Solid” as they create fake dilution on
the time of filling marine insurance policy document. In addition with this applicant did not
disclose utmost correct information’s. According to doctrine of utmost good faith it is essential
for applicant to disclose all the necessary relevant personal information (Esenyan, 2018). Thus,
the impact of non disclosure of material information lead towards avoidance of contract that has
been made by insured party as the contract of marine insurance is mainly based on good faith.
Thus, it is essential for assured to do not indulge in miss interpretation as this may further lead
towards contract avoidance and shared fails to make any kind of further disclosure (Woodward,
2019). As per according to this act solid vessel is not possible to claim any further damages as
there is breach of the duty of good faith.
While according to principle of insurable interest act it is required to be interest within
subject matter insurance in the time of loss. Further according to the marine insurance act each
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and every individual is required to have insurable interest those who are interested within Marine
adventure (Lee, 2018). In this Marine adventure stands for any equitable or legal relation in
context with insurable property at risk. In addition with this, in the principle of maximisation
insurer is required to measure and control losses. With this in the case of certain even it is the
responsibility of insured to effectively protect their property in order to avoid any kind of other
losses which is not sustain in the present case scenario. Thus, as per the above mentioned
discussion it has been effectively analysed that the vessel “Solid” is not claim to get any kind of
further insurance coverage (Esenyan, 2018). In addition with this, the decision of denial
liabilities for same is justified according to the investigation of claim as per according to the
principles are not been effectively accomplished which acts as a main reason to avoid or denied
insurance for the vessel “Solid”. According to the investigation it has been noticed that, there is
no information are provided by policy maker which is required to be effectively provided as per
according to the one of the principles in marine insurance (Guirguis, 2018). In addition with thus,
the major reason for stroked with rock is identified as an unqualified and outnumber crew
members. In addition with this, it has also been discovered that owners are also presented with
forged Safe Manning Certificate. All these factors effectively lead towards damage. Thus, it has
been identified that all the major basic principles that are covered in marine insurance such as
principle of utmost good faith, principle of insurable interest, principle of indemnity, principle of
Causa Proxima, principle of loss minimization have been breached and denied (Lurvink, 2019).
Thus, this is the main reason for failed claim. Thus, it becomes essential for claim owner to
effectively evaluate their policies as well as circumstances as the whole situation is going to be
evaluated by insurance company. In order to claim compensation insurance is required to provide
all the related documents as if company find any kind of anomalies in their claim this can further
lead towards legal denial of compensation (Sakai, 2018). Documentation is required to be
accomplished as in the present case study this factor is one of the missing item that lead towards
loss of claim (Rani, 2018). In addition with this in the present case study insurance is required to
abide all the rules and regulation as to claim amount in order to further protect them from any
kind of intoxication.
As per according to the above mentioned report, it has been identified that in order claim
insurance amount it is important for insurer to effectively evaluate that all kind of documentation
is fulfil by them as denial of this can lead towards failed claim. In addition with this report
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covers, principles of marine insurance that further aid insurance company to effectively evaluate
each and every necessary related factor for insurance claim that has been claimed by insurer.
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REFERENCES
Books and Journals
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1778). Slavery & Abolition, pp.1-22.
Akhtar, M. H. (2018). Performance analysis of Takaful and conventional insurance companies in
Saudi Arabia. Benchmarking: An International Journal. 25(2). pp.677-695.
Lee, C. Y. (2018). The relationship between insurer solvency and reinsurance: evidence from the
Taiwan property-liability insurance industry. International Journal of Financial
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Rani, M. (2018). The Choice of Law Issues in Marine Insurance Disputes Resolution in
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Davey, J. (2019). Proportionality, fair presentation of the risk & the hypothetical bargain: The
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Dhar, P. (2018). Growth of life insurance business in India: A study. International Journal of
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Guirguis, M. (2018). The UK Insurance Market. Available at SSRN 3253122.
Woodward, J. (2019). Acts of Intervention: How Contracts of Liability Insurance Are Regulated
to Protect Third Party Claimants in Australian Law. IUP Law Review. 9(2).
Esenyan, A. (2018). The Clash of the Acts: FEMA's Implementation of the National Flood
Insurance Program and Its Collision with the Endangered Species Act and the National
Environmental Policy Act. Penn St. L. Rev., 123, p.499.
Online
Boat Insurance Claim Problems That You Should Be Aware of. 2019. [Online]. Available
through.<https://www.fishmadpro.com/boat-insurance-claim-problems/>
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