Question

Case 6.2 Marine Insurance: Inchmaree Clause
A forty-foot wooden hull fishing vessel sprang an unexpected leak a few days after leaving port. As more water entered the vessel, the engine was flooded, and the vessel eventually sank. Inspection of the vessel during the leak showed that the water was coming from underneath a refrigerated space in the front part of the vessel. In view of its construction style, the bilge underneath the vessel was inaccessible. The underwriter refused to indemnify the insured for the loss of the vessel by claiming that the latter had not exercised diligence to make the vessel seaworthy prior to the developing of the leak (as provided under the Inchmaree Clause). The owner/master of the ship had no knowledge of the leak before the ship started its voyage.
Questions
1. (Case 6.1) Is this actual or constructive total loss? Explain your answer.

2. In case 6.2, do you think the loss is covered under the policy (see International Perspective 6.3)?

INTERNATIONAL PERSPECTIVE 6.1
Attributes of a World-Class Logistics System: Denmark
Denmark holds the world’s top spot in logistics. Its excellence in logistics is attributed to a number of factors:
 Investment in infrastructure: The international airport is within about thirty min- utes of ten international ports and free-trade zones. It provides direct access to European rail and highway network with direct connections to many European cities It has international forwarders and integrators with bonded warehouse facilities. It provides substantial investment for infrastructure maintenance and development (bridges, airport, and seaport). It has an efficient air cargo handling facility. Customs clearance of goods is done before payment of duties, with minimum red tape. In- formation technology helps streamline procedures for exports or imports and links shippers and consumers.
 Human resources: Highly skilled and motivated labor force, twenty-four hour/ seven-day operations and good management-labor relations (walkouts or strikes are virtually nonexistent).
 Business environment: Availability of free trade zones and bonded warehouses, low trade restrictions with a stable economic/political environment.

INTERNATIONAL PERSPECTIVE 6.2
Packing Handicraft Exports: Important Pointers
Prior to packaging: Dust, clean, remove fingerprints, and dry items. Major problems to consider in packaging: Tarnishing, corrosion, staining, decay, break-
age, moisture.
Preventing moisture: Use a drying agent (silica gel) to reduce humidity; reduce surface area of package; dry items; and package materials in packages with a moisture-tight seal.
Preventing damage: Cushion fragile or high-cost handicrafts. Handicrafts exported in large quantities should be palletized when possible.
Heavy items: For heavy handicrafts, use wooden boxes. Small items: Use bulk packaging with separators to protect individual items. Outer packaging: Use corrugated fiber-board and wooden boxes.

INTERNATIONAL PERSPECTIVE 6.3
Typical Clauses in Cargo Insurance Contracts
1. Inchamaree clause: This clause covers any loss or damage to cargo due to the burst- ing of boilers, the breakage of shafts, or any latent defect in the machinery, as well as from negligence of the captain or crew when it is the proximate cause of a loss.
2. Free of particular average clause: This relieves the insurer of liability for partial cargo losses, except for those caused by the stranding, sinking, burning, or collision of the vessel. 3. Thelabelsclause:Inthecaseofdamagetolabels,capsules,orwrappers,theinsurerisnot
liable for more than the cost of the new items and the cost of reconditioning the goods. 4. The delay clause: This relieves the insurer of liability for loss of market due to delay
in the delivery of the cargo. 5. The general average clause: A general average loss occurs when a sacrifice is volun-
tarily made or an expense is incurred in times of imminent peril to preserve the com- mon interest from disaster. Payments of apportioned losses are secured by a general average deposit before goods are released by the carrier. When the actual shipper’s share is established, appropriate adjustments are made and any excess is returned. A general average clause covers the amount of the insured shipper’s contribution.
6. Craft and lighter clause: In this clause, the insurer agrees to provide lighters or other craft to deliver cargo within the harbor limits.
7. Marine extension clause: Under this clause, no time limit is to be imposed on the insurance coverage at the port of discharge while goods are delayed in transit to final destination insofar as the delay is occasioned by circumstances beyond the control of the insured.

8. Shore clause: This covers certain risks to cargo, such as collision, hurricane, floods, and so on, while the goods are on docks, wharves, or elsewhere on shore.
9. Warehouse-to-warehouse clause: This covers cargo while on transit between the initial point of shipment and the point of destination, subject to terms of sale and insurable interest requirement. The policy is effective from the time the goods leave the warehouse/store named in the policy for the commencement of transit to the final warehouse at the point of destination stated in the policy

Answer 1

The loss is a construction loss since inspection shows that the bilge was inaccesible. Any water coming underneath the ship gets redirected to bilge where a water pump is installed to remove water. This is also the reason why ship always leak some water even while standing on shore. Inspection of the vessel during the leak showed that the water was coming from underneath a refrigerated space in the front part of the vessel. Any water unable to drain off deck or through the hull goes down to the ship into the bilge. In case bilge in inaccesible this water may not have been removed from the ship via the bilge pump which led it to sink finally. Since the owner of the ship had no idea of ship leaking at shore or while starting the voyage, this indicates that the quality check parameters were done and then the ship was set for voyage. However the devlopment started after the ship began the sail and hence accounts to construction failure in most probable circumstances.

The inchamaree loss suggests a covers any loss or damage to cargo due to the bursting of boilers, the breakage of shafts, or any latent defect in the machinery, as well as from negligence of the captain or crew when it is the proximate cause of a loss. The inspection suggested that water was coming from the refrigerated space in front part of the ship and the bilge was inaccessible. This can be considered under the machinery defect and claim should be raised in favor of the insured. Free of particular average clause which states that insurer has the liability for partial cargo losses, except for those caused by the stranding, sinking, burning, or collision of the vessel; the claim cannot be put under this clause since the ship sank.