A Case Study About Valued Policy Insurance Through a Dispute Case
A vessel carried 5,500 tons of construction materials from Tuticorin (India) to Male and Foammulah (Maldives).
The ship arrived Male on August 9, 2016 partially unloaded and left Male on August 12, 2016. On August 13, 2016, while the ship was looking for a safe anchorage at Foammulah, it ran aground on coral reefs and rocks near the coast. In the evening of September 5, 2016 the ship's workers began to throw goods into the sea to lighten the ship; by the morning of September 9, 2016, the ship had disposed of nearly 3,000 tons of cargo and on September 14, 2016, the number of goods left on board was 1,882 tons. In the afternoon of September 15, 2016, the rescue tugboat, with the support of ship’s main engine, successfully free the ship, the ship tilted to the right of 8 degrees. After adjusting the tilt, the tugboat pulled the ship to a safe position 0.30S-073.40E but the ship was badly damaged.
On September 23, 2016, the ship owner announced to abandon the ship. On October 1, 2016, the ship was towed out of Maldives waters to a position about 90 nautical miles from Foammulah Island, 4,000 meters deep and sank at this location on the same day. The ship-owner bought hull insurance with a sum insured of USD 2.8 million and a vessel value of USD 2.8 million. Therefore, for a total loss, the ship-owner claimed USD2.8 million from the insurance company, but the insurance company argued that this was not valued policy (from the ship owner’s point of view) but value insurance. Therefore, the compensation is only accepted according to the results of price determination at the time of loss (August 13, 2016) - much lower than USD2.8 million. Since it was impossible to negotiate, the ship owner sued the insurance company in court.
Summary of the ship owner’s point of view
The ship owner thinks that the insured is the ship including the hull, machinery and equipment on board, the insured value is USD 2.8 million, the insurance amount is also USD 2.8 million. The ship-owner and the insurance company agreed to define this case as an estimated total loss. The ship-owner disagrees with the amount of compensation offered by the insurance company under the appraisal deed on the grounds that this is “valued policy” as prescribed at point c, Clause 2, Article 228 of the Vietnam Maritime Code 2005: “A valued policy is an insurance policy in which the insurer agrees in advance the value of the insured subject stated in the policy, in accordance with the insured value, and is used in the settlement of a claim for total loss or partial loss compensation”. In addition, the ship owner also asked the insurance company to pay interest on the amount of USD 2.8 million from the date they should have been entitled to this amount until the date of the judgment.
Summary of the insurance company's point of view
The insurance company invokes Article 46 of the Law on Insurance Business 2000: "1. The amount of compensation payable by the insurer to the insured is determined on the basis of the market price of the insured property at the time and place where the loss occurs and the actual extent of damage, unless otherwise agreed in the insurance contract. The cost of determining the market price and the extent of the damage shall be borne by the insurer. 2. The amount of compensation paid by the insurance company to the insured must not exceed the sum insured, unless otherwise agreed in the insurance contract" to refuse to indemnify the full sum insured (is also the value of ship insurance - USD 2.8 million) and considering that this is over-value insurance, it only accepts compensation according to the results of the ship's appraisal.
Summary of the Court and the Procuracy’s point of view
Based on the results of studying the case file, through examination, questioning, answering and debate at the court hearing on October 19, 2018; The Court stated: “[… ] the insured value is the actual value of the insured subject. Therefore, the sum insured [...] must be based on the actual value of the vessel at the time of the insured event” (page 12 of the Judgment).
The Procuratorate held that “[…] the two parties signed an insurance contract that exceeded the value of the insured property […]” (page 10 of the Judgment) - often called over-value insurance - so it was necessary to determine price to obtain the amount of compensation according to the assessment certificate requested by the Court.
Therefore, on October 23, 2018, the first-instance judgment was issued from the point of view of not recognizing this as valued policy as argued by the ship owner (plaintiff) and only accepting compensation as the opinion of the insurance company (defendant) according to the results of the valuation that the Court has solicited with the value of the ship at the time of the loss (August 13, 2016) is 41,541,429,000 VND (equivalent to USD 1,779,000 at the exchange rate of 1 USD = 23,351 VND) and the value of spare parts and supplies on board is 5,283,065,575 VND (equivalent to USD 226,246) and the amount of interest is 8,593,418,541 VND (equivalent to USD 368,010).
Article 2.1 of the Insurance Contract states: “This insurance contract is governed by and regulated by the Vietnam Maritime Code. Where the Vietnam Maritime Code has not yet provided for, the International Maritime Insurance Laws and Practices shall apply". Thus, the Vietnam Maritime Code 2005 (in force at the time of loss) is applied and if there is any shortage, international insurance laws and practices shall be applied.
The hull insurance certificate clearly states: “Vessel Value: USD 2,800,000, Sum Insured: USD 2,800,000” and there is no agreement on re-valuation upon settlement indemnify.
Therefore, based on Point c, Clause 2, Article 228 of the Vietnam Maritime Code 2005: “A valued policy is an insurance policy in which the insurer agrees in advance to the value of the subject-matter insured stated in the policy insurance, in accordance with the insured value and used in the settlement of a total loss or partial loss claim”, the insurance service in this case is valued policy and the insurance company must pay $2.8 million.
The judgment is 15 pages long, the writer only commented briefly on the nature of the incident and hoped to have the opportunity to discuss and clarify more. It is known that on November 2, 2018, the ship-owner submitted an appeal against the judgment of the first-instance Court for appellate trial.
Summarize and synthesize by Lawyer Ngo Khac Le (Vietnam Logistics Association -- VLA) – Vietnamese-English translation by www.vantage-logistics.com.vn