Marine Insurance Clauses - some insight of F.P.A and the clauses incorporating 'Free of Particular Average'.

Those in insurance field and those availing insurance coverages would well know that Marine Insurance, the most codified form of Insurance is different from other insurances. Here, there is no printed policy containing terms and conditions but a schedule to which various clauses are attached is in vogue. The changing times and dynamics of market require that the wording defining coverage need to be changed from time to time.

Presently, in Indian market, the Institute Cargo Clauses of 1982 are still used. The clauses differ based on the mode of transportation and for goods transported by sea – Institute Cargo clauses A / B / C are used. These determine the extent of coverage and terms and conditions of coverage. As one would know the Institute Cargo Clauses [ICC] were revised in 1982. The ICC (A) that we use is Cl.252 copyrighted by the Institute of London Underwriters with date as : 1.1.1982. Those following the industry are well aware that after a two year long consultation process, the latest edition of the ICC clauses became available to the Market on 1st January 2009. These clauses are known as ICC 2009.

Prior to introduction to such codified clauses, the policies were drafted by the individual underwriters to suit the risks as they perceived them. The policies would be structured to cover hazards to which the cargo would be exposed during a specified voyage. These were largely determined by the needs of the individual customer and by the experience of the marine underwriter. Then in the course of time evolved a standard document called SG Policy form which covered both ship and goods therein against named perils. The Underwriters thence were attaching additional clauses, conditions and perils which were not expressed in the form.

In 1912 the first Institute Cargo Clauses were developed, (Institute refers to the Institute of London Underwriters) and these were based on clauses in common use at the time. By the 1960s, four sets of basic clauses were in common use, All Risks, W.A. (With average), F.P.A. (Free from particular average) and the Air Cargo Clauses (All Risks). These clauses were still required to be read in conjunction with the SG policy form, to which they were attached.

Then came the revision in 1982 which was adopted by the market effective 1983 and the present revision. The 1982 revision virutually scrapped the SG Policy form and the London Market Technical and Clauses committee designed a plain policy form [known as MAR form]. The 1982 clauses were heralded as fundamentally strong, clear and accurate drafting of the intentions of the Insurers. Nothing would stay perfect for ever and the JCC (Joint Cargo Committee – made up of members of the International Underwriting Association and the Lloyds Market Association) commendably took up the job of reviewing and updating the clauses.

HOW much do you about the restricted coverage for TOTAL LOSS alone in vogue, granted by the Underwriters till 1982 (or actually 1983) and have you read or heard about the Institute Cargo Clauses (F.P.A) or (W.A) ????

TO refresh one’s fundamentals : the term ‘average’ is used in Marine to describe loss or damage. A loss may be either total or partial. The Act defines that any loss other than a total loss, is a partial loss.

The Total loss may be either an Actual total loss (ATL) or a Constructive Total loss (CTL). A particular average loss is a partial loss of the subject matter insured, caused by a peril insured against, and which is not a general average loss. Particular charges are different and these are not included in particular average.

As discussed earlier, the extent of coverage depends on ICC clause to which coverage is subjected to and the breadth of cover provided by the clauses are extended or reduced by:

a) Attaching further Institute clauses

b) By adding non-institute or company clauses which are drafted by individual underwriters reflecting their wisdom

c) By adding words or phrases to the conditions section of the policy schedule

With this lengthy introduction, here is something on the coverage offered by the erstwhile Institute Cargo Clauses (F.P.A) 1/1/63.

It had a total of 14 sets and started with Transit clause incorporating WH to WH clause. The clause read “ this insurance attaches from the time the goods leave the warehouse or place of storage at the place named in the policy for the commencement of transit, continues during the ordinary course of transit and terminates either on delivery

……………………. Whichever shall first occur.

As could be seen, the 1982 set & the present one are in tune with this, though there are some fine revisions in 2009 clause. The insurers in their wisdom have not touched the ’60 days after the completion of discharge at the final port of discharge’ ----- though a lot has changed in the Port and the way the goods are handled, transported and cleared in various countries.

Now coming to the caption “FPA” – this ‘Free of Particular Average’ literally meant that there was no cover for partial losses.

Cl. 5 of Institute Cargo Clause (F.P.A) 1/1/63 reads :-

‘warranted free from Particular average unless the vessel or craft be stranded, sunk or burnt, but not withstanding this warranty the Underwriters are to pay the insured, value of any package or packages which may be totally lost in loading, transshipment or discharge, also for any loss of or damage to the interest insured which may reasonably be attributed to fire, explosion, collision or contact of the vessel and /or craft and /or conveyance with any external substance (ice included) other than water, or to discharge of cargo at a port of distress, also to pay special charges for landing warehousing and forwarding if incurred at an intermediate port of call or refuge, for which the Underwriters would be liable under the standard form of English Marine Policy with the Institute Cargo Clauses (W.A) attached.

This clause shall operate during the whole period covered by the Policy’.

Now anyone reading the present day clauses would understand that Insurance has evolved so much over the years.

Would be too happy to have your feedback on this and some discussions on marine clause and coverages

With regards – S Sampathkumar.