Lead-in

SECTION 13. INSURANCE

BLOCK 1. CORRESPONDENCE RELATING TO

INSURANCE

LEAD-IN

¨ Why do companies insure their cargoes?

¨ What do companies insure their cargoes against?

¨ What is the major aim of any insurance pool?

¨ What does average stand for?

Insurance has become more and more important as commerce has developed. The idea of insurance is to obtain indemnity in the event of any happening that may cause loss of money; insurance is against risks.

Insurance is the way of spreading, or distributing, risks. If a large number of people pay premiums to a large central “pool”, then the risks of damage or total destruction on the proportionately few occasions when it happens can be covered.

The usual procedure is to insure against all risks. This involves a WA clause (with average clause). The word average as used in insurance means damage. With average means that the insurers pay claims for partial losses, whereas free of particular average (FPA) means that partial losses are not covered by the insurance.

Particular average means partial loss or damage accidentally caused to the ship or to a particular lot of goods. General average means any extraordinary loss, damage or expenditure incurred for the purpose of preventing all the interest imperilled – the ship, the cargo and the freight.

The three main principles of insurance are:

1. Utmost good faith. All the facts concerning quality and value must be truthfully stated. All relevant information must be included.

2. Indemnity. Nobody should be able to make a profit out of the insurance companies. Therefore, insurance company valuers, surveyors and assessors try to place the insured person or institution in the same financial position after the loss as he/ it was before it. Nobody should be encouraged to destroy goods for the insurance money: therefore the insured value must be realistic. So insurance companies “indemnify” clients.

3. Insurable interest. The insured must have a legal connection with the goods he insures. That is, he must be the person who loses if the goods are destroyed or damaged. Nobody should be allowed to insure goods which don’t belong to them.