Marine hull insurance
This relates to insurances of ships, yachts and other vessels against physical damage.
If the contract insures a specified vessel registered in an EEA member state or in Switzerland, the risk is located in the country in which the vessel is registered. Some countries where Lloyd’s is not licensed (such as India or Malaysia) also define a local risk as including vessels registered in the territory, and prohibit an insured from insuring such a risk with an unlicensed insurer.
If the contract insures a specified vessel registered in a licensed territory other than an EEA member state or Switzerland, the location of risk is determined by the country where the insured is situated.
Anguilla and the Cayman Islands are exceptions from this general approach. Both countries treat an insured vessel as a local risk if it is “ordinarily based” in the relevant country.
Many ships are registered under a "flag of convenience", such as those of Liberia or Panama. The insurance laws of Liberia and Panama do not make a vessel registered in either place a local risk, unless the vessel is exclusively involved in trade within the territorial waters of either country. Although Lloyd's is not a licensed insurer in either Liberia or Panama Lloyd's underwriters can therefore insure vessels registered in Liberia and Panama, engaged in international voyages.
Time charterer’s interest policies
Time charterer’s interest policies, where the charterer has no possession or control over the vessel, are miscellaneous financial loss insurances, not marine hull policies. As with other miscellaneous financial loss insurances, the location of risk is determined by reference to where the insured is situated.
Bareboat charters
The insurance of a “bareboat charter” is marine hull insurance. The location of risk is determined by reference to the rules of marine hull policies set out above.
Marine liability insurance
If a marine liability contract insures a specified vessel, the location of risk is determined as for marine hull contracts (see above).
If the contract does not relate to a specific vessel (e.g. some charterers’ liability policies), the location of risk is determined by where the insured is situated.
Minimum deposit premium – shipping fleet policies
If the circumstances of the risk are unclear, for example the nature of the registration of vessels covered by a contract, the location of risk should be assessed on a reasonable basis and a determination made accordingly. The location of risk should be amended subsequently if further details come to light, permitting a more accurate assessment.
Builder’s risk insurance (vessels under construction)
The location of a construction risk should be assessed in two stages:
- The location of risk for the land-based element, prior to launch, is based on physical location – as for property.
- Once the vessel is registered, if the registration is in an EEA member state or Switzerland, the risk is located in the country of registration. If the registration is not in an EEA member state or Switzerland, the risk is located where the insured is situated.
Mortgagees’ interest insurance (MII) and mortgagees addition perils (MAP)
MII and MAP policies are normally written as marine risks at Lloyd’s but similar cover may be provided by other insurers as a miscellaneous financial loss risk. How the risk is written has a direct impact on its location and therefore its regulatory and tax treatment:
- Marine risks: The location of risk is determined as for marine hull insurance (see above).
- Miscellaneous financial loss: The location of risk is determined by reference to the establishment of the business most closely associated with the risk.
Global contracts
A Global contract is a contract insuring risks located in more than one country.
A ships hull and marine liability insurance contract is a global contract if:
- It insures more than one vessel and those vessels are registered in more than one country, if those countries include EEA member states or Switzerland.
- If the insured is defined to include subsidiary or associated companies, each of those companies is an “insured” under the contract.
When identifying the location of risk for a contract covering a single corporate entity its branch structure and other types of establishment associated with the risk should be considered even if they are not specifically referred to in the contract. “Establishments” are discussed in detail here.
Premium apportionment
A global contract may give rise to regulatory and tax exposures in different jurisdictions. Compliance with these requirements requires the overall premium to be apportioned between the countries in which risks are located. Guidance on premium apportionment is provided here.
