Though Marine Cargo Policies are in principle devised on an agreed valued basis, in policies covering especially second-hand Machinery under Marine Policies, under Insurance or sum Insured average is quite applicable. A novel example is presented in this context pointing out where the sum insured average is applicable in Marine Cargo Claims.

Ex. No. 1: Nagarjuna Power Generating Co. at Hyderabad, (Diesel oil fuel-based for drive force of promoter or called as a turbine) imported from Argentina a piece of second-hand complete machinery and accessories such as turbine, alternator, booster transformer, excitor, control panels, cables, etc., make of Shodko, make of the year 1969 for production of 60 MW Power.

M/s, Smith & Scot Valuers Company of New York (US) furnished valuation report of the said second-hand power equipment to said power generating company for not only the purpose of sanction of foreign Exchange from Reserve Bank of India but also for payment of customs duty. In the valuation report the value of the second machinery of 60 MW was stated to be Rs. 2 crores and after application of M & S Indices to the then purchase invoices of 1969 from shodko of said equipment, the present cost of such machinery was valued at Rs.5 crores.

Ultimately RBI sanctioned the company foreign exchange in dollars equivalent for Rs.2 crores in Indian currency and the insured covered the said machinery under Institute Marine Cargo Clauses A (i.e. all Risks policy) Policy for a lump sum amount Rs.2 crores sum insured. During Voyage from Argentina to Bombay Port and Road Transport from Bombay Port to Hyderabad, a loss of Rs.20 lacs of equipment or machinery took place on account of non-delivery of certain parts of the entire equipment of 60MW power plant.

Insured after producing non-delivery certificates and shortages endorsed by customs officials of Bombay port, under the bill of entry claimed for an amount of Rs.20 lacs to insurers along with purchase bills of material or parts renewed in place of short landed parts of the said machinery. The machinery was covered under the Marine Institute Cargo Clause.

Important points of the claim :

1) Under the Cargo Clauses A Policy, non-delivery is a peril covered under the Policy.

2) The second-hand machinery of 60 MW of ShodKo make in 1969 was insured under Marine Institute Cargo Clauses A Policy for an amount of Rs.2 crores by insured.

3) Since second-hand parts are outdated of Make of 1969 of ShodKo  Make, insured reinstated short landed parts with equivalent compatible parts of other makes in place of short landed parts available at present in the market (New Parts) for Rs.20 lacs.

4) The valuers of second-hand machinery stated in their report, that the entire equipment now under Marine Institute Cargo Clauses A policy when new if available in the market stated as the entire equipment price as Rs.5 crores as per M & S indices.

5) Salvage value is NIL under short landed equipment.

When second-hand equipment of make of 1969 is insured for an amount of Rs.2 crores as its second-hand value and if the same equipment (when new) present value as Rs.5 crores by valuation certificate by valuers certainly under insurance is applicable in the present case on the basis as stated below.

Value of THE EQUATION :

New 60 MW power station equipment at present is: Rs.5 crores

Sum Insured against 2nd hand equipment: Rs. 2 crores

Renewal charges of new parts at present values in :

Place of short landed second parts

Of 60 MW Equipment under transit loss: Rs.20 lacs

Under SI of Rs.2 crores under the policy, the following amount is payable to the insured?  

The amount payable to insured is = 2 crores X 20 lacs 5 crores = 4 x 20 = Rs.8 lacs (only)

Now after detailed examination of the above example, it is quite justified, that Marine Cargo Policies are also subject to sum insured average in peculiar cases as stated above, beyond any second thought on the subject matter. Another example where average arises on account of other than the sum insured.

Ex. No.2: Bindu Solvents of Hyderabad producing palm oil covered their outgoing output of the factory under-declaration marine inland transit policy (A) all risks. On 03-01-2005 a consignment is dispatched by consignors i.e. Bindu solvents through a tanker bearing under the R.C., the registered unladen weight of the tanker is 6.5 tons and registered laden weight of the tanker is 16 tons as per registration certificate of RTO Hyderabad.

The weighting of tanker bill was registered at the weighbridge of the factory as the total weight of tanker before leaving the said factory premises as 22 tons towards the tanker weight as well as palm oil weight filled in the tanker. The said tanker while going to Bombay from Hyderabad, overturned near BHEL of Ramachandrapuram on the national highway. Due to the overturning of the said tanker, palm oil up to an extent of 3.5 tons drained out (considered as a loss). The price mentioned under the invoice for a ton of palm oil is @Rs.35,000/- Find out the amount payable to the insured.

SOLUTION :

Estimated and confined loss out of drained out 3.5 tons of palm oil from the tanker after its being overturned accidentally.

= 3.5 tons (Qty. drained out) X Rs.35,000/-

 (invoice rate per ton)

= Rs.1,22,500/- (Salvage is Nil).

The tanker is registered for a laden weight of 16 tons. The average load aspect arises here as the tanker is carrying 22 tons of laden weight despite tanker’s permit by RTO Hyderabad for 16 tons at the occurrence of the overturning of the tanker. As overturning of the carrier under the subject marine policy is a covered peril under the policy terms and conditions, the claim of insured is admissible under the subject policy.

Here, how much insured is to be payable under the policy arose out of 22 tonnes laden weight was being carried by tanker at the time of its being overturned instead of 16 tons of laden weight supposed to be carried by tanker as per MV Act 1939 as per registration certificate of Tanker by RTO Hyderabad. First, the loss of 3.5 tons of palm oil is to be brought in proportion to the laden weight of 16 tons as per the registration certificate of a tanker by RTO Hyderabad.

A loss of Rs.1,22,500/- arose out of the laden weight of 22 tons being carried out by the carrier at the time of loss occurrence.

What should be the loss, had the tanker permitted laden weight of 16 tons being carried out at the time of loss occurrence. Here the average load aspect under marine cargo claims arises under inland transit insurance.

The amount payable to insured is

: 1,22,500 x 16= Rs.89,091/- 22

An amount of Rs.89,091/- is to be payable to insured, under the policy as it is quite apparent that an average up to an extent of 27.3% is applicable in the present claim.

Further, if it is proved that overloading of tanker (overloading is a breach of warranty, not the condition) contributed to the accident of tanker with proper evidence, then the claim of insured falls under non-standard category and insured is entitled to only 75% of above-derived loss of Rs.89,093 which comes to Rs.66,820/-.

 

                                   By Mr.B. Suresh Babu, Hyderabad, Published in The Insurance Times, June 2006