Since ancient times, specifically Rhodes in the seventh century BC, ship-owners have sought to insure their ships or other sea-going vessels from the perils of the sea. H&M
(Hull and Machinery) Insurance developed out of this need. Originally it was referred to as bottomry, or insuring the bottom (hull) of the vessel; a concept very familiar to the Romans and which was further developed through the Middle Ages. As ocean-going trade increased during the late eighteenth century, H&M became better defined in terms of what damages and losses were and were not covered and in what circumstances. Other types of marine insurance, like General Average (GA) and Protection and Indemnity (P&I), developed in tandem with H&M. Today, it would be
unthinkable for any ship-owner to take a vessel out of port without adequate insurance cover
against almost any eventuality. H&M Insurance covers the base and superstructure of the ship and any integral machinery on board
which is crucial to enabling the ship to fulfil its purpose.
It sounds fairly simple doesn’t it? The challenges for ship-owners however is in ensuring that insurance is comprehensive and covers all that
they need to remove the risk of them suffering what, in business terms, would constitute a devastating loss. It is
vital that they understand what H&M Insurance does cover, and where, in the event of loss or damage, recompense for what is
not covered can be found. Basically, coverage under H&M policies is fairly standard until additional clauses are added. As with most types of insurance policy an excess is payable, the cost of which the insured
must bear. A standard H&M insurance contract excludes liability for damage done to another vessel and its cargo and expenses covered under suing and labouring charges, about which, more later. Getting to grips with these concepts isn’t difficult if you consider that P&I
(protection and indemnity) evolved to cover the ship owner's liability to others and
it excludes most of the damage to their own vessels; whereas H&M covers loss or damage to their own interest. H&M is distinguished by whether it is brown water cover, for vessels operating on or close to inland or coastal waterways, e.g. Tug boats, barges and other commercial carriers; or blue water cover for international, ocean going ships. Some H&M policies also include navigational clauses which stipulate where, or more commonly where not, the vessel can go for the insurance to remain valid.
The Perils of the Sea
The perils a vessel can face are usually categorised as those that can occur on the sea, in rivers, lakes or other navigable waters. Specific perils include, fire and explosion, violent theft, piracy, jettison and a range of circumstances where objects (like an aircraft or part of an on-shore crane) can fall from the sky and cause damage. Natural disasters, like earthquakes and volcanic eruption are not usually covered.
What is covered under H&M
Considering what is covered under an H&M policy is where things get tricky. Typical cover includes loss or damage to the ship or vessel caused by collision or loading or discharging cargo, shifting cargo, bursting boilers or broken shafts, negligence of the crew or negligence on the part of repairers or charterers. Whilst this does sound comprehensive let us suppose that a fire damages a ship’s engine and that is covered under the H&M Insurance. What about other considerations,
such as the ship having to get back to port? This might mean incurring the expenses of discharging cargo and paying for another vessel to take it
onboard. The damaged vessel is likely to have to be towed and that too will incur charges. Whilst in dry-dock undergoing repair what
further expense is the ship-owner likely to become liable for? For all these reasons, ship-owners pay additional premiums to add relevant coverage clauses to their standard H&M Insurance. In addition to those things set out above, these clauses might include losses caused by wear and tear, insects or marine life.
Not all H&M policies cover the cost of partial repair and additional considerations may need to be made. Loss or damage could be occasioned by a component which has become defective during the voyage. H&M policies will not
usually provide indemnity when the component causing the damage or loss
is found to have been defective in construction or design. Loss or
damage could also be caused by incompetence on the part of someone
connected with the vessel. For these reasons ship-owners need to
consider the following clauses which are usually optional additions to a
Liability for other vessels or cargoes following collision.
Clauses can allow for paying for damage to other vessels following collision. Some policies pay in full; others pay only a share, usually ¾ with the remaining ¼ covered by a P&I association.
Vessel's proportion of General Average or salvage.
relates to cargo loss where all parties to the adventure agree to pay a share in compensation to the owner of the lost cargo when that loss or damage was essential in saving further, more extensive damage or even the destruction of the vessel. Ship-owners may seek to include a clause in their H&M Insurance that covers their GA sacrifice in the event of GA being declared. Hull insurers may settle such a claim prior to GA adjustment and then seek compensation from any culpable third party in relation to the costs that are covered under the H&M policy.
Suing and Labouring Charges.
In the face of peril, ship-owners are expected to take all reasonable steps to minimise loss. Suing and labouring clauses are supplementary to most H&M policies and provide for circumstances where underwriters agree to cover any costs incurred by ship-owners taking action to prevent greater damage, which if it had occurred, the underwriters would have been liable to cover.
Insurance against recovery from other parties.
This provides cover where a third party has failed to properly carry out a repair. It can also include damage cause by a vessel docking in an unsafe berth on the advice of a third party.
Following serious motor vehicle accidents it is not uncommon for the insurer to declare
a write off. The marine equivalent to this is abandonment. In circumstances where the insurer covers total loss, from the point at which abandonment is declared, they become liable for the cost of recovery and any further cost. They also of course become entitled to any benefits from the later sale of the damaged vessel as salvage.
This is another general principle of insurance. The insurer pays out on the policy and then they, acting on behalf of the insured or sometimes
as the insured themselves, seek compensation from a third party. Subrogation provides for the insurer to be reimbursed from any compensation paid up to the costs they have already covered, less costs incurred in pursuing that recovery.
Loss of Charter Hire
This provides coverage where the ship-owners are unable to hire out their vessel or continue to persue their trade due to damage.
In conclusion, whilst getting compensated through insurance for the loss of a ship or damage to it should be straightforward, on closer inspection and as is the case with other insurance practices, it isn't. In ensuring that H&M plus any necessary additional clauses, P&I and G&A all work together to provide the most comprehensive insurance cover a ship-owner might
need, the advice of specialist marine insurers is strongly recommended.