Marine Cargo Loss Payment (Partial Loss)

Index Measure of Indemnity Cases Study Second-Hand Machinery Replacement Clause (Applying to Second-Hand Machinery)

Measure of Indemnity May be valued or unvalued policy but normally a valued policy Valued as the same as Amount Insured Valued PolicyUnvalued Policy Insurable Value (MIA 1906) Agreed when insurance contract signed Prime cost + shipping expense + insurance cost to be subsequently ascertained, subject to sum insured (CL. 16) Measure of Indemnity (MIA 1906) Total Loss: Sum fixed by the policy (CL. 68) Total Loss of Part: Agreed value × Insurable value of the part lost / Insurable value of whole (CL. 71) Partial Loss: Agreed value × (Gross sound value - damaged value at the place of arrival) / Gross sound value at place of arrival (CL. 71) Total Loss: Insurable value but subject to sum insured (CL. 68) Total loss of Part: Insurable value of the part lost (CL. 71) Partial Loss: Insurable value × (Gross sound value - damaged value at the place of arrival) / Gross sound value at place of arrival) (CL. 71) Under Insurance / Co-Insurance (CL. 81)

Valued PolicyUnvalued Policy Insurable Value ( ) ( CL. 50) ( CL. 135) ( CL. 73 Fire) ( CL. 138) ( CL. 77 Fire)

Case Study (For General Cargos) Case I Interest Insured: 3 cartons of US$100, 100 pcs/per carton Valued / Sum Insured: 110% of invoice value (=US$33,000) Arrival in Shortage Condition: 25 pcs shortage Gross Sound Value at Arrival = US$36,000 Gross Damaged Value at Arrival = US$33,000 Claim Payment: 1. US$33,000 × (US$36,000 – US$33,000) = US$2,750 or US$36, US$100 × 25 pcs × 110% = US$2,750

Case Study (For New Machinery) Case I Interest Insured: A set of Machinery Value: US$1,000,000 Valued / Sum Insured: US$1,100,000 Arrival in Damaged Condition (Partial Loss) Gross Sound Value at Arrival: US$1,200,000 Gross Damage Value at Arrival: US$900,000 Repairing / replacement Cost for Damaged Parts: US$200,000 Loss Payment: Case I Normally Insurers will pay US$200,000 for the repairing / replacement cost only. Actually client can ask for settlement in accordance with CL. 71 US$1,100,000 × (US$1,200,000 – US$900,000) = US$275,000 US$1,200,000

Second-Hand Machinery Replacement Clause (Applying to Second-Hand Machinery) In the event of loss of or damage to any part or parts of an insured interest caused by a peril covered by the Policy, the amount recoverable hereunder shall not exceed such proportion of the cost of replacement or repair of such part or parts as the insured value bears to the value of a new machine, plus additional charges for forwarding and refitting the new parts, if incurred, but excluding duty unless the full duty is included in the amount insured, in which case loss, if any, sustained by payment of additional duty shall also be recoverable. Provided always that in no case shall the liability of Underwriters exceed the insured value of the complete machine.

Loss Payment Formula (For Second-Hand Machinery) × + =

Case Study (for Second-Hand Machinery) Case I Subject Matter Insured: a set of Second-Hand Machinery Original Purchase Price US$1,000,000 Book Value US$500,000 Sum Insured: US$500,000 Value as Sum Insured as Specified in the Policy Arrival at Damaged Condition Repairing Cost: US$600,000 – including US$200,000 for forwarding & refitting charges Value of New Machine: US$450,000 Value on Arrival: Sound Value: US$150,000 Damaged Value: US$20,000 {

Case Study (for Second-Hand Machinery) Insurers Insist to Pay: US$450,000 × US$500,000 = US$225,000 US$1,000,000 On the Grounds:1. 50% Depreciation 2. Subject Sum Insured Limit Client may ask: 1.C.T.L. (loss amount US$600,000 exceeds Value at Arrival US$150,000) & abandon the salvage to Insurers (US$500,000 – US$20,000). or 2.ask for partial loss & in accordance with Second-Hand Machinery Replacement Clause US$400,000 × US$500,000 + US$200,000 US$450,000 = US$600,000 (instead of US$644,445) but max payment of US$500,000, assured can also keep the salvage. * Subject no fraud involved.

Case Study (for Second-Hand Machinery) Case II All as above but value of new machine: US$1,500,000 value at arrive:US$750,000 (sound value) US$200,000 (damaged value) Insurers Agree to pay US$500,000 as constructive total loss which accepted by client & Insurers keep the salvage of US$200,000 (Net payment US$300,000) Correct calculation as stipulated by Second-Hand Machinery Replaced Clause US$400,000 × US$500,000 + US$200,000 US$1,500,000 = US$333,333 & insured keeps the salvage If no Second-Hand Machinery Clauses applied but subject to MIA 1906 Insurers shall pay US$500,000 × (US$750,000 – US$200,000) US$750,000 = US$366,666 & insured keeps the salvage

Case Study (for Second-Hand Machinery) Case III All as case I above but vale of new machine US$1,000,000 – but sound value at arrival US$500,000 & damaged value at arrival US$150,000 Insurers agree to pay US$600,000 × US$500,000 = US$300,000 US$1,000,000 Client can ask 1.C.T.L. (US$600,000 > US$500,000) Insurers pay US$500,000 & keep the salvage of US$150,000 (Net payment US$350,000). or 2.ask for partial loss & keep the salvage US$400,000 × US$500,000 + US$200,000 = US$400,000 US$1,000,000 If no Second-Hand Machinery Clause involved: US$500,000 × US$500,000 – US$150,000 = US$350,000 US$500,000