PGI Marine Insurance 2 — Questions and Answers
Question 1: Under the Institute Hull Clauses, what is the meaning of 'Total Loss Only' (TLO) cover?
- The policy covers only losses where the cargo is fully destroyed by fire
- The policy pays only in the event of actual or constructive total loss of the vessel (Correct answer)
- The policy covers total loss of freight but not the vessel
- The policy applies only on the final voyage before a vessel is scrapped
Correct answer: The policy pays only in the event of actual or constructive total loss of the vessel
TLO cover responds only when there is an actual total loss (vessel physically destroyed) or a constructive total loss (cost of repair exceeds the insured value), excluding partial losses.
Question 2: What does 'constructive total loss' (CTL) mean in marine hull insurance?
- The vessel is completely destroyed with no salvage value remaining
- The cost of recovering or repairing the vessel would exceed its insured value (Correct answer)
- The vessel is lost and its location is completely unknown after 30 days
- The vessel is confiscated by a foreign government permanently
Correct answer: The cost of recovering or repairing the vessel would exceed its insured value
A constructive total loss occurs when the vessel is not physically destroyed but repair or recovery costs would exceed the insured value, making it economically unviable to repair.
Question 3: What is the purpose of the 'deductible' (franchise) in a marine cargo insurance policy?
- To limit the insurer's liability to large losses only, with the insured bearing small losses (Correct answer)
- To increase the premium payable by high-risk cargo owners
- To restrict coverage to losses occurring within Singapore territorial waters
- To allow the insurer to share risk with a reinsurer
Correct answer: To limit the insurer's liability to large losses only, with the insured bearing small losses
A deductible (or franchise) means the insured bears losses up to a specified amount, filtering out small claims and encouraging the insured to take care of cargo.
Question 4: Institute Cargo Clauses (C) provides the NARROWEST cargo cover. Which of the following perils is covered under Clauses (C)?
- Theft or pilferage of cargo
- Loss due to washing overboard (Correct answer)
- Damage caused by condensation inside the container
- Loss arising from delay in delivery
Correct answer: Loss due to washing overboard
ICC (C) covers named perils including washing overboard, stranding, sinking, collision, fire, explosion, and discharge of cargo at a port of distress, but excludes theft and many other risks.
Question 5: In Singapore, the Maritime and Port Authority (MPA) primarily regulates which aspect relevant to marine insurance?
- Marine insurance premium rates and policy wording
- The registration, safety, and seaworthiness standards of vessels (Correct answer)
- The licensing of marine insurance brokers
- The settlement of general average disputes
Correct answer: The registration, safety, and seaworthiness standards of vessels
MPA regulates vessel registration, port safety, and seaworthiness standards in Singapore, which directly affect insurability and underwriting of marine risks.
Question 6: What is 'freight insurance' in the context of marine insurance?
- Insurance covering the physical cargo loaded on a vessel
- Insurance protecting the shipowner's or charterer's expected income from carrying cargo (Correct answer)
- Insurance covering the vessel's hull and machinery
- Insurance against legal liability for pollution caused by vessels
Correct answer: Insurance protecting the shipowner's or charterer's expected income from carrying cargo
Freight insurance protects the shipowner or charterer against loss of freight (earnings) that would result if the cargo is lost or the voyage cannot be completed.
Question 7: What is a 'war risk' exclusion in standard marine cargo policies, and how is it typically addressed?
- War risks are automatically included in all Institute Cargo Clauses at no extra cost
- War risks are excluded from standard cargo clauses but can be reinstated by purchasing a separate war risk extension (Correct answer)
- War risks are covered under the Institute Cargo Clauses (A) up to a sublimit of 50% of the sum insured
- War risks are uninsurable in Singapore under MAS regulations
Correct answer: War risks are excluded from standard cargo clauses but can be reinstated by purchasing a separate war risk extension
Standard Institute Cargo Clauses exclude war risks, but insureds can purchase separate coverage under the Institute War Clauses (Cargo) for an additional premium.
PGI Marine Insurance 2
Under the Institute Hull Clauses, what is the meaning of 'Total Loss Only' (TLO) cover?