Hull & Machinery insurance provides physical loss or damage
insurance for not only the hull (or shell) of a ship but also her
propulsion machinery and any equipment used for activities such as
Hull and Machinery insurance usually covers loss or damage
caused by major named perils such as collision, grounding, fire and
explosion, earthquakes (and the tidal waves that might follow
them), as well as general perils of the sea, lakes or rivers -
which must be shown to be extraordinary in nature rather than just
the fact that the sea was a bit rough that day! Some Hull and
Machinery policies also cover loss caused by piracy which is quite
an important issue currently, with the situation in various parts
of the world such as the coasts of East and West Africa as well as
parts of South East Asia.
This type of policy also covers loss or damage to the vessel
caused by accidents in moving cargo or fuel around (such as
capsizing (tipping over) the ship), or arising because a piece of
machinery has broken, or a boiler has burst. Negligence by the
crew, or a repairer, is also covered. However there is a
requirement for the Assured to exercise something known as due
diligence, which means that if there is engine type damage,
insurers will be looking for examples to make sure that the regular
maintenance was up to date and undertaken properly, or that the
crew have been trained properly.
Under this coverage, whilst the damage caused by the piece of
machinery breaking or the boiler bursting is covered, the actual
boiler or piece of machinery is not.
Sometimes ships collide - both with other ships and other
objects, such as navigation buoys. In many cases the ship will be
liable in law for any damage caused to the other ship or object.
The hull and machinery policy, although mainly a physical damage
policy, does provide an element of liability cover so long as the
collision is with another ship.
The cover is for the damages that the insured ship will have to
pay not only to the other ship, but also any property such as cargo
(goods) on the other ship. The cover in some policies however is
limited to 75% of the actual liability of the shipowner. The
original aim of insurers was that by bearing the other 25%
themselves, the shipowners might take more care in the operation of
their ships. What has happened in practice is that the shipowners
have organised other insurance for that 25%.
Most hull and machinery policies will also cover sue and labour
expenses, which are those costs incurred by an insured when trying
to solve a problem for himself - although the loss may in fact be
covered by the insurers. A hull example would be a ship whose
engine breaks down in the middle of the English Channel. The
insured might call for some tugs to come and help tow the ship into
the nearest port -which would be very prudent as a ship without
power is a danger to itself and also other vessels. As this action
has probably reduced or even removed an insurance claim, the
insurers will pay those reasonable tug costs.
Particular to maritime law, and by reference therefore marine
insurance, are the concepts of salvage and general average. Salvage
is the concept of someone voluntarily rescuing you who then earns a
reward. General Average is the concept of all parties (for example
ship and cargo) contributing to the costs or expenses one of them
makes in order to save everyone. An example of this would be if a
ship grounded and damaged her engines trying to refloat herself. By
doing this she has being trying to save the cargo as well, and so
the cargo will pay a share towards the engine repairs.
These obligations exist in law, irrespective of insurance but
the insurers will cover these costs under most insurance
It is possible to buy 100% cover for collisions from your hull
insurers as well as extending the policy to cover collisions with
other objects (known as fixed and floating objects cover).
It is also possible to purchase top up insurances to ensure that
if the ship is completely lost, that the indemnity is adequate to
actually replace the vessel. This type of insurance is known as
Increased Value and is generally capped at 25% of the agreed value
on the main policy to prevent over-insurance.
War and Strikes in particular are actually perils which are
insurable and will often be purchased as an extension to the main
marine cover, which almost but not quite replaces the exclusion
that will be found in the main marine hull policy wordings.
The standard exclusions in a hull and machinery policy are
- War- which also includes damage caused by bumping into a
disused mine or torpedo floating around in the sea
- Strikes- which includes not only damage caused by strikes and
strikers but also terrorist type risks
- Malicious acts -loss or damage caused by people acting
maliciously or from a political motive and either detonating
explosives or using weapons of war
- Nuclear - loss or damage arising from a weapon of war employing
atomic or nuclear reactions
There are many different types of ships in existence, from old
wooden sailing ships to the most modern cruise vessels, but the
basic things that the insurers are considering are the same for all
of them. These points include the ship's age, when and where she
was built, her construction material, what she is used for and
where she is being operated in the world.
Insurers will also look at the regulatory regime the ship is
operating under (known as her Flag) as this will give a good
indicator as the rigour by which the ship is regularly checked for
compliance with International law, and hence the general
operational standards applied.
Obviously insurers will also look at the individual loss record
as well as their previous experience with any particular type of