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III IC-67 practice questions

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Question 1Marine Insurance

Under a standard marine cargo policy, which term describes the insurer's right to take over the insured's rights of recovery against a third party after paying a claim?

  1. Abandonment
  2. Subrogation Correct answer.
  3. Contribution
  4. Salvage charge

Explanation

Subrogation is the insurer's right, acquired on payment of a loss, to step into the insured's shoes and pursue third parties responsible for the damage. It prevents the insured from recovering twice and lets the insurer recoup outlay from the party at fault.

Question 2Marine Insurance

In hull and machinery insurance, which peril is typically treated as a separate additional cover rather than a standard named peril?

  1. War and strikes Correct answer.
  2. Negligence of the master
  3. Heavy weather
  4. Contact with floating ice

Explanation

Standard hull perils cover marine accidents such as heavy weather, grounding, collision and negligence of the master or crew. War and strikes risks are excluded from the marine perils and must be added by separate war and strikes clauses because they are governed by distinct rating and cancellation terms.

Question 3Marine Insurance

A cargo owner ships goods under a policy incorporating the Institute Cargo Clauses (C). Which loss would be recoverable?

  1. Breakage caused by careless handling during loading
  2. Water damage from condensation in the container
  3. Theft of part of the consignment from a warehouse
  4. Total loss following the vessel sinking Correct answer.

Explanation

Clauses (C) provide a restricted list of perils, principally major casualties such as sinking, stranding, collision, fire and discharge at a port of distress. A total loss caused by the vessel sinking falls squarely within those named perils, whereas the other events are not listed.

Question 4Marine Insurance

What does the principle of utmost good faith require of a marine insurance applicant at the placing stage?

  1. To warrant that all cargo is packed to a specified standard
  2. To pay the premium before the policy attaches
  3. To disclose every material circumstance known to them and not misrepresent facts Correct answer.
  4. To appoint a claims surveyor in advance

Explanation

Utmost good faith obliges the proposer to make a fair presentation of the risk, disclosing material circumstances and avoiding misrepresentation. The insurer relies on that disclosure to assess and rate the risk, and breach can allow the insurer to avoid the policy.

Question 5Marine Insurance

A vessel is insured for an agreed value of USD 10,000,000 and suffers a partial damage repair cost of USD 400,000. Under a valued hull policy, how is the claim normally settled?

  1. The full repair cost is paid up to the insured value, subject to deductible Correct answer.
  2. The full repair cost is paid without deduction
  3. The claim is reduced by the ratio of insured value to market value
  4. Only half the repair cost is paid because the loss is partial

Explanation

In a valued policy the agreed value is conclusive between the parties, so partial damage is settled by paying the reasonable cost of repairs up to the insured value, less any deductible. There is no averaging against market value once the value has been agreed.

Question 6Marine Insurance

Which document evidences the contract of carriage and is often required by insurers and banks when a cargo claim is pursued against the carrier?

  1. Notice of abandonment
  2. Bill of lading Correct answer.
  3. Letter of undertaking
  4. Certificate of registry

Explanation

The bill of lading is both a receipt for the goods and evidence of the contract of carriage, and it identifies the carrier and terms governing the voyage. Insurers use it to establish the carrier's liability and to support subrogated recovery.

Question 7Marine Insurance

A hull policy contains a sue and labour clause. What does this clause entitle the insured to recover?

  1. A refund of premium for a voyage not undertaken
  2. Reasonable expenses incurred to avert or minimise a loss covered by the policy Correct answer.
  3. The full insured value whenever the vessel is detained
  4. Legal costs of suing the carrier for cargo damage

Explanation

The sue and labour clause covers expenses the insured properly incurs to avert or minimise a loss that would otherwise fall on the insurer. Such expenses are usually recoverable in addition to the sum insured, encouraging the insured to act to save the property.

Question 8Marine Insurance

When is a constructive total loss of a vessel generally deemed to exist?

  1. When the master declares the vessel unseaworthy
  2. When the vessel is detained by port authorities for a week
  3. When the vessel has been missing for twenty-four hours
  4. When the vessel is damaged beyond the cost of repair exceeding its insured or repaired value Correct answer.

Explanation

A constructive total loss arises where the vessel is so damaged that the cost of recovery and repair would exceed its value when repaired, or where it cannot be recovered at reasonable cost. The insured may then abandon the vessel and claim a total loss.

Question 9Marine Insurance

Two marine policies cover the same hull interest on the same voyage. One insurer pays the full loss. What principle allows it to recover a proportionate share from the other insurer?

  1. Utmost good faith
  2. Indemnity
  3. Contribution Correct answer.
  4. Subrogation

Explanation

Contribution governs the apportionment of a loss among insurers who cover the same interest against the same peril, so each bears its rateable share. The paying insurer can call on the others to contribute, preventing one insurer bearing the whole burden.

Question 10Marine Insurance

Which clause in a cargo policy limits recovery to the proportion of the insured value that the sound value of the goods bears to the arrived value?

  1. The collision clause
  2. The average clause Correct answer.
  3. The warehouse to warehouse clause
  4. The running down clause

Explanation

The average clause applies where the insured value is less than the insurable value, scaling the claim down in proportion so the insured is treated as a coinsurer for the shortfall. It prevents underinsurance from producing a full indemnity.

Question 11Marine Insurance

A charterer's liability policy responds to which type of exposure?

  1. Loss of hire suffered by the vessel owner
  2. The owner's liability for collision damage to another ship
  3. Liability arising from the charterer's contractual and operational obligations under the charter Correct answer.
  4. Physical damage to cargo owned by the charterer

Explanation

Charterers' liability cover protects the charterer against liabilities it incurs under the charter party, such as cargo claims, port fines, and injury claims, where those fall on the charterer. It is distinct from cover for the vessel's own physical damage or the owner's hull liabilities.

Question 12Marine Insurance

What is the effect of a 'held covered' provision in a marine policy?

  1. It converts a valued policy into an unvalued policy
  2. It guarantees the premium will not be increased
  3. It suspends cover until the insured gives notice
  4. It provides provisional cover for a stated event pending agreement of terms and premium Correct answer.

Explanation

A held covered clause preserves cover for a specified deviation or change of risk, subject to the insured giving prompt notice and the parties agreeing suitable additional terms and premium. Without it, the change would discharge the insurer from liability.

Question 13Marine Insurance

Which body of rules governs the general average adjustment of a maritime venture?

  1. The Hague-Visby Rules
  2. The Rotterdam Rules
  3. The York-Antwerp Rules Correct answer.
  4. The Hamburg Rules

Explanation

The York-Antwerp Rules set out the principles and practice for adjusting general average, including which sacrifices and expenditures are allowable. The other instruments govern the carrier's obligations and liability for cargo, not general average adjustment.

Question 14Marine Insurance

In a general average act, cargo is jettisoned to save the ship and remaining cargo. How is the loss borne?

  1. It is paid by the port authority
  2. It is shared proportionately by all parties whose property was saved Correct answer.
  3. It is borne entirely by the owner of the jettisoned cargo
  4. It is borne entirely by the shipowner

Explanation

General average requires a voluntary and extraordinary sacrifice made for the common safety, and the resulting loss is shared by the ship, cargo and freight in proportion to their saved values. The party whose cargo was sacrificed is therefore compensated by contributions from the others.

Question 15Marine Insurance

What is a 'general average bond' used for?

  1. To guarantee the seaworthiness of the vessel
  2. To insure the cargo against total loss
  3. To secure a cargo receiver's contribution before the cargo is released Correct answer.
  4. To record the vessel's tonnage for rating

Explanation

When general average is declared, the shipowner may require cargo interests to sign an average bond, often with an insurer's guarantee, before delivering the cargo. This secures payment of the cargo's share of the general average contribution once the adjustment is complete.

Question 16Marine Insurance

A P&I club typically provides cover for which of the following?

  1. Hull damage from heavy weather
  2. Loss of freight on an abandoned voyage
  3. Crew injury claims and wreck removal liabilities Correct answer.
  4. Cargo loss caused by perils of the sea

Explanation

Protection and indemnity cover addresses third-party liabilities such as injury to crew and others, pollution, wreck removal and cargo liability. Physical damage to the ship itself and cargo losses of the insured are handled under hull and cargo policies.

Question 17Marine Insurance

Which of the following best describes a 'time policy' in marine insurance?

  1. Cover for a defined period, commonly twelve months Correct answer.
  2. Cover that attaches only when the vessel is in port
  3. Cover limited to a single cargo parcel
  4. Cover for a single named voyage

Explanation

A time policy insures the subject matter for a stated period regardless of the voyages undertaken within it, which is the usual basis for hull and machinery cover. A voyage policy, by contrast, attaches to a defined adventure from one place to another.

Question 18Marine Insurance

An insured fails to give prompt notice of a claim as required by the policy and the insurer is prejudiced. What is the usual consequence?

  1. The insured must pay double premium
  2. The insurer may be entitled to decline or reduce the claim for breach of the condition Correct answer.
  3. The policy is automatically void from inception
  4. The insurer must still pay in full without inquiry

Explanation

Claims notification is a condition of the policy, and breach that prejudices the insurer's ability to investigate can entitle the insurer to decline or reduce the claim. Automatic avoidance from inception is not the usual remedy for a claims condition.

Question 19Marine Insurance

What is the purpose of a 'classification clause' in a cargo policy?

  1. To determine the currency of the claim payment
  2. To classify the cargo by commodity type
  3. To require carriage on vessels of an approved class and condition Correct answer.
  4. To set the deductible applicable to each claim

Explanation

The classification clause obliges the insured to ship on vessels meeting specified class and age standards, preserving the rating assumption that the cargo travels on seaworthy, well-found ships. Carriage on substandard vessels can lead to additional premium or loss of cover.

Question 20Marine Insurance

A vessel deviates from the insured voyage to rescue persons in distress. Under a standard marine policy, what is the effect on cover?

  1. Cover is suspended until the vessel returns to route
  2. Cover is reduced by half for the remainder of the voyage
  3. Cover is preserved because deviation to save life is permitted Correct answer.
  4. Cover terminates immediately on any deviation

Explanation

Marine policies generally preserve cover for a deviation reasonably necessary to save human life or to comply with the perils insured. Unjustified deviation, by contrast, can discharge the insurer from liability for losses occurring after the deviation.

Question 21Marine Insurance

Which statement correctly describes 'freight' as an insurable interest?

  1. The earning or expected earning from the carriage of goods by sea Correct answer.
  2. The physical cargo carried on board
  3. The crew wages paid during a voyage
  4. The hull of the vessel

Explanation

Freight is the remuneration earned for carrying goods, and the party entitled to it has an insurable interest that can be covered against loss of the voyage. It is distinct from the cargo itself and from the ship.

Question 22Marine Insurance

An insurer suspects the insured vessel was deliberately cast away to claim the insured value. Which defence is most directly engaged?

  1. Constructive total loss
  2. General average sacrifice
  3. Wilful misconduct of the insured Correct answer.
  4. Innocent deviation

Explanation

Deliberately scuttling a vessel to recover the insured value is wilful misconduct by the insured, and marine policies exclude loss caused by the insured's own wilful act. The insurer may decline the claim and seek to prove the intentional loss.

Question 23Marine Insurance

What does the 'warehouse to warehouse' clause extend in a cargo policy?

  1. The warranty of seaworthiness of the vessel
  2. The liability of the carrier for the goods
  3. The storage period after the voyage ends indefinitely
  4. The transit period during which cover attaches, from origin warehouse to destination warehouse Correct answer.

Explanation

The warehouse to warehouse clause extends cover across the ordinary course of transit, attaching at the shipper's warehouse and terminating on delivery at the consignee's warehouse or on expiry of the stated period. It addresses the transit period, not the carrier's liability.

Question 24Marine Insurance

A hull policy includes a 'notice of abandonment' requirement. What is the insured required to do when tendering abandonment?

  1. Cancel the policy immediately
  2. Physically deliver the vessel to the insurer's office
  3. Give prompt notice to insurers of the intention to abandon the vessel as a total loss Correct answer.
  4. Sell the wreck and remit the proceeds

Explanation

Where a constructive total loss is claimed, the insured must give prompt notice of abandonment so the insurer can decide whether to accept the abandonment and take over the property. Acceptance is not obligatory, and the notice preserves the insured's rights.

Question 25Marine Insurance

Which of the following is a duty of the assured under a marine policy when a loss occurs?

  1. To change the vessel's flag
  2. To increase the insured value immediately
  3. To renew the classification certificate before claiming
  4. To take reasonable steps to avert or minimise the loss Correct answer.

Explanation

The assured is expected to act as a prudent uninsured would, taking reasonable measures to avert or minimise the loss, and such costs are typically recoverable under the sue and labour clause. Failing to mitigate can reduce the claim.

Question 26Marine Insurance

Under a marine cargo policy, what does the term 'particular average' refer to?

  1. The total loss of the vessel and cargo together
  2. A partial loss that affects only the insured's own cargo and is not shared with other interests Correct answer.
  3. A loss caused by delay even when the cargo is undamaged
  4. A loss intentionally incurred to save the whole adventure and shared by all parties

Explanation

Particular average is a partial loss borne solely by the owner of the damaged property, such as cargo harmed by seawater. It is contrasted with general average, where a sacrifice is made for the common safety and shared by all interests. The term does not refer to total loss or to delay.

Question 27Marine Insurance

In marine insurance, what is the function of a 'perils of the seas' clause?

  1. It covers losses caused by fortuitous accidents of navigation such as storms, collisions and grounding Correct answer.
  2. It covers losses caused by the insolvency of the shipowner
  3. It covers ordinary wear and tear of the vessel during normal trading
  4. It covers losses arising from the crew's deliberate misconduct

Explanation

Perils of the seas refers to fortuitous accidents or casualties of navigation, not ordinary action of wind and waves. The clause therefore responds to unexpected events such as grounding, collision or severe weather. Wear and tear and deliberate misconduct are excluded.

Question 28Marine Insurance

Which of the following best describes the principle of 'utmost good faith' in marine insurance?

  1. Both parties must disclose all material facts and refrain from misrepresentation Correct answer.
  2. The insurer must always pay claims within thirty days
  3. The assured must inspect the vessel before every voyage
  4. The broker must guarantee the seaworthiness of the vessel

Explanation

Utmost good faith requires each party to disclose material facts and not to mislead the other. In marine insurance this duty is traditionally strict because the insurer relies on the assured for information about the risk. It does not impose time limits, inspection duties or a guarantee of seaworthiness.

Question 29Marine Insurance

What is the purpose of a 'duty of fair presentation' of the risk when a marine policy is placed?

  1. To ensure the assured receives a discount on the premium
  2. To transfer all liability for the vessel's condition to the broker
  3. To allow the insurer to cancel cover at any time without notice
  4. To enable the insurer to assess and rate the risk accurately before accepting it Correct answer.

Explanation

The duty of fair presentation requires the assured to give the insurer sufficient information to evaluate the risk. This allows the insurer to decide whether to accept the risk and on what terms. It does not give a right of arbitrary cancellation, transfer liability to the broker or guarantee a discount.

Question 30Marine Insurance

A cargo policy includes a 'both to blame' collision clause. What does this clause address?

  1. It allows the insurer to recover the cargo owner's share of liability to the other vessel when both ships are at fault Correct answer.
  2. It excludes all liability for collisions caused by navigational error
  3. It limits the insurer's liability to the value of the cargo at destination
  4. It requires the cargo owner to pay half of the salvage award

Explanation

The both to blame collision clause responds when cargo is carried under a contract that makes the carrier liable to the other vessel for the cargo's share of collision damages. It allows the insurer to indemnify the carrier for that liability, subject to the clause's terms. It does not concern salvage contributions or a general exclusion for navigation error.

Question 31Marine Insurance

What is the effect of a 'waiver of subrogation' clause in a marine hull policy?

  1. The assured gives up the right to claim for partial losses
  2. The insurer gives up its right to pursue recovery against a specified party after paying a claim Correct answer.
  3. The assured must waive all rights to general average contributions
  4. The insurer is released from liability for any pre-existing damage

Explanation

A waiver of subrogation prevents the insurer from exercising rights of recovery against a named party, often a charterer or affiliated company. It is agreed at placement and does not remove the assured's right to claim. It has no effect on general average rights or pre-existing damage.

Question 32Marine Insurance

Which of the following losses would typically be covered under a marine cargo policy's 'warehouse to warehouse' clause?

  1. Damage occurring after the goods are sold and delivered to the final buyer's retail store
  2. Loss caused by the shipper's inadequate packing of the goods
  3. Damage occurring while the goods are stored in the exporter's warehouse before loading Correct answer.
  4. Damage caused by the inherent vice of the goods during the sea voyage

Explanation

The warehouse to warehouse clause extends cover from the moment goods leave the consignor's warehouse until they reach the consignee's warehouse. It therefore includes pre-loading storage at the origin warehouse, subject to policy terms. It does not extend to post-delivery retail storage, inherent vice or inadequate packing.

Question 33Marine Insurance

Under a time policy, what is the significance of the 'continuation clause'?

  1. It extends cover at a pro rata premium if the voyage is not completed when the policy period ends Correct answer.
  2. It automatically renews the policy for another twelve months
  3. It excludes cover for any voyage that begins after the policy expiry date
  4. It allows the insurer to cancel cover immediately on non-payment of premium

Explanation

A continuation clause protects the assured when a voyage is in progress at the expiry of a time policy. It continues cover for the completion of the voyage, usually at a pro rata premium. It does not automatically renew the policy or allow immediate cancellation.

Question 34Marine Insurance

What is the purpose of a 'sue and labour' clause in a marine policy?

  1. To limit the insurer's liability to the insured value of the vessel
  2. To encourage the assured to take reasonable steps to avert or minimise a loss and to recover those costs Correct answer.
  3. To allow the insurer to sue the assured for non-payment of premium
  4. To require the assured to sue third parties before claiming on the policy

Explanation

The sue and labour clause encourages the assured to act to avert or diminish a loss and allows recovery of expenses reasonably incurred for that purpose. These expenses are usually recoverable in addition to the sum insured. It is not a premium recovery or third-party litigation provision.

Question 35Marine Insurance

A vessel is insured under a hull policy with a '3/4 collision liability' clause. What does this clause cover?

  1. Three-quarters of the general average contribution due from cargo
  2. Three-quarters of the assured's liability to the other vessel for collision damage, subject to the policy limit Correct answer.
  3. Three-quarters of the salvage award payable to salvors
  4. Three-quarters of the physical damage to the insured vessel's own hull

Explanation

The 3/4 collision liability clause covers the assured's legal liability to the other vessel for collision damage, typically up to three-quarters of that liability. The remaining quarter is often covered by a P&I club. It does not apply to damage to the insured's own hull or to salvage and general average.

Question 36Marine Insurance

In marine insurance, what is a 'constructive total loss'?

  1. A loss where the vessel is abandoned because recovery would cost more than its insured value Correct answer.
  2. A loss where the vessel sinks in deep water and cannot be raised
  3. A loss where the insurer and assured agree to settle at a fixed percentage
  4. A loss where the cargo is damaged but still fit for sale

Explanation

A constructive total loss arises when the subject matter is not an actual total loss but the cost of recovery or repair would exceed its value. The assured may abandon the vessel to the insurer and claim a total loss. It is distinct from an actual total loss and from a partial loss.

Question 37Marine Insurance

What is the role of a 'salvage association' in a marine casualty?

  1. It sets the general average adjustment for the voyage
  2. It appoints surveyors to investigate the cause and extent of damage and to advise on repairs Correct answer.
  3. It acts as the legal representative of the cargo owners in court
  4. It provides the salvage tugs that attend the casualty

Explanation

A salvage association appoints surveyors to attend casualties, investigate damage and advise on repair or disposal. It does not provide tugs, represent cargo owners in court or perform the general average adjustment. Those functions belong to salvors, lawyers and average adjusters respectively.

Question 38Marine Insurance

Which of the following best describes the 'Institute Cargo Clauses (A)'?

  1. Cover for war and strikes risks only
  2. Cover that excludes all water damage
  3. Cover limited to total loss of the cargo
  4. All risks cover subject to the exclusions listed in the clauses Correct answer.

Explanation

The Institute Cargo Clauses (A) provide all risks cover, meaning all losses are covered unless specifically excluded. They are not limited to total loss or to war and strikes. Water damage is covered unless an exclusion applies.

Question 39Marine Insurance

What is the effect of a 'franchise' in a marine hull policy?

  1. No claim is payable unless the loss exceeds the stated amount or percentage Correct answer.
  2. The insurer pays only the excess over the stated amount
  3. The assured must pay a fixed deductible on every claim
  4. The policy is void if the vessel is laid up for more than thirty days

Explanation

A franchise is a threshold: if the loss is below the stated amount or percentage, no claim is payable at all. If the loss exceeds the franchise, the claim is usually paid in full. This differs from a deductible, which is deducted from every claim.

Question 40Marine Insurance

In a marine insurance claim, what does the principle of 'indemnity' require?

  1. The assured should be restored to the financial position held before the loss, no better and no worse Correct answer.
  2. The assured should be compensated for sentimental value of the vessel
  3. The insurer should pay all claims within a fixed period
  4. The assured should receive the full insured value regardless of the actual loss

Explanation

Indemnity means the assured is compensated for the actual loss suffered, so that they are neither better nor worse off. It prevents profit from insurance and underpins concepts such as subrogation and salvage. It does not guarantee payment of the full insured value or cover sentimental value.

Question 41Marine Insurance

What is the purpose of a 'classification clause' in a marine cargo policy?

  1. To require that the carrying vessel be classed with a recognised classification society and maintained in class Correct answer.
  2. To specify the classification of the port of loading for security purposes
  3. To determine the classification of the claim as partial or total
  4. To classify the cargo according to its hazard for rating purposes

Explanation

A classification clause requires the cargo to be carried on a vessel that is classed with a recognised society and kept in class. This helps the insurer manage the risk of unseaworthy or substandard vessels. It does not classify the cargo, the port or the claim.

Question 42Marine Insurance

A shipowner insures freight under a policy. What insurable interest does the owner have in freight?

  1. The expected earnings from carrying cargo, which may be lost if the voyage is interrupted Correct answer.
  2. The physical cargo carried on board the vessel
  3. The liability to pay port charges at the destination
  4. The hull and machinery of the vessel

Explanation

Freight is an insurable interest because the shipowner may lose expected earnings if the voyage is interrupted or the cargo is not delivered. It is distinct from the cargo itself, the hull and machinery, and port liabilities. Freight policies therefore protect anticipated revenue.

Question 43Marine Insurance

Under a marine policy, what is the effect of a 'deviation' from the insured voyage without lawful excuse?

  1. The policy automatically increases the sum insured
  2. The assured is entitled to a refund of premium for the unexpired period
  3. The insurer may be discharged from liability for losses occurring after the deviation Correct answer.
  4. The deviation has no effect unless the vessel is lost

Explanation

An unjustified deviation from the insured voyage can discharge the insurer from liability for losses occurring after the deviation. This reflects the importance of the voyage description to the risk. A deviation for lawful purposes, such as saving life, does not have this effect.

Question 44Marine Insurance

What is a 'general average sacrifice'?

  1. An intentional and reasonable sacrifice of property made to save the adventure from a common peril Correct answer.
  2. A loss that is borne entirely by the owner of the sacrificed property
  3. A loss caused by the negligence of the crew in navigation
  4. An accidental loss of cargo overboard during heavy weather

Explanation

A general average sacrifice is an intentional and reasonable act, such as jettisoning cargo, to save the ship and remaining cargo from a common peril. The loss is shared among the parties saved. Accidental losses and crew negligence are not general average sacrifices.

Question 45Marine Insurance

What is the role of an 'average adjuster' in marine insurance?

  1. To set the premium rate for the following year
  2. To survey the damage to the hull and recommend repairs
  3. To prepare the general average adjustment and apportion contributions among the parties Correct answer.
  4. To act as the insurer's lawyer in a collision dispute

Explanation

An average adjuster is a specialist who prepares the general average adjustment and apportions contributions among ship, cargo and freight. The adjuster may also advise on particular average claims but does not survey damage, act as lawyer or set premiums. Those roles belong to surveyors, lawyers and underwriters.

Question 46Marine Insurance

A hull policy contains a 'notice of abandonment' clause. What must the assured do to claim a constructive total loss?

  1. Give notice of abandonment to the insurer within a reasonable time after learning of the loss Correct answer.
  2. Wait until the insurer declares the vessel a total loss
  3. Repair the vessel first and then claim the repair cost
  4. Sell the wreck immediately and claim the net proceeds

Explanation

To claim a constructive total loss, the assured must give notice of abandonment to the insurer within a reasonable time. This allows the insurer to decide whether to accept the abandonment. Selling the wreck or repairing first may prejudice the claim.

Question 47Marine Insurance

What is the effect of a 'held covered' clause in a marine policy?

  1. It provides temporary cover for a specified event, subject to the assured notifying the insurer and paying an additional premium Correct answer.
  2. It guarantees that the policy will never be cancelled
  3. It removes the need to disclose material facts to the insurer
  4. It automatically extends cover to any new vessel acquired by the assured

Explanation

A held covered clause provides temporary cover for a specified event, such as deviation or change of voyage, provided the assured notifies the insurer and pays any additional premium. It does not guarantee non-cancellation, automatically cover new vessels or remove the duty of disclosure.

Question 48Marine Insurance

In marine insurance, what is a 'warranty'?

  1. A condition precedent to the payment of premium
  2. A representation made during the negotiation of the policy
  3. A statement in the policy describing the insured voyage
  4. A promise by the assured that a particular state of affairs exists or will be fulfilled, breach of which discharges the insurer Correct answer.

Explanation

A warranty is a promise by the assured that something is or will be done, such as a warranty of seaworthiness or that the vessel will not enter certain waters. Breach of a warranty discharges the insurer from liability, subject to any statutory reform. It is not merely a description or a representation.

Question 49Marine Insurance

What is the purpose of a 'P&I club' in marine insurance?

  1. To act as a classification society for the vessel
  2. To provide cargo cover for shippers
  3. To provide mutual indemnity cover for third-party liabilities such as crew injury and pollution Correct answer.
  4. To insure the hull and machinery of the vessel

Explanation

A P&I club is a mutual association that provides indemnity cover for third-party liabilities, including crew injury, pollution and wreck removal. It does not insure hull and machinery or cargo, and it is not a classification society. Those functions belong to hull underwriters, cargo insurers and class societies.

Question 50Marine Insurance

A marine policy states that the insured value of the vessel is agreed at USD 5,000,000. What is this valuation called and what effect does it have on a total loss claim?

  1. An agreed value; it fixes the measure of indemnity for a total loss, subject to proof of insurable interest. Correct answer.
  2. A deductible value; it caps the insurer's liability at the stated sum less any franchise.
  3. A provisional value; it is adjusted to market value before settlement.
  4. An open value; the indemnity is limited to the market value at the date of loss.

Explanation

A valued policy fixes the agreed value of the subject matter, and that agreed value is conclusive between the parties as to the measure of indemnity for a total loss, subject to proof of insurable interest. An open or unvalued policy instead leaves the value to be proved, usually by reference to market value at the time and place of loss.