Marine insurance claims: management, compensation and special features

For all players in the maritime worldClaims represent the dreaded moment when the risks inherent in the sea materialise. It is also the moment when the insurance contract is put to the test: the promised protection must become a tangible reality in the form of compensation. But the path between the occurrence of a harmful event and the actual settlement by the insurer is often complex in maritime matters. It involves specific procedures, technical expertise and the application of specific rules. rules that are sometimes very old and original. In this context, marine insurance plays a crucial role in ensuring the continuity of maritime operations. It offers a wide range of protection against a multitude of risks, including property loss, civil liability and commercial disruption. Ultimately, the strength of the insurance contract and the insurer's ability to respond promptly can make the difference between the survival and bankruptcy of a marine business. The challenges of marine insurance are not limited to simply covering losses, but also encompass risk management and strategic foresight. By anticipating the different scenarios that can arise at sea, companies can better prepare themselves and adjust their operations accordingly. A good understanding of the issues involved in marine insurance is therefore essential if you are to navigate serenely in such an unpredictable environment.

What is the precise definition of a claim covered by marine insurance? What are the key stages in managing a claim, from declaration to damage assessment? How is compensation calculated and paid out? And what are the special features of maritime law, such as general average and abandonment? This article takes you to the heart of marine insurance claims management. Understanding the essential elements of the insurance contract, such as the specific clauses relating to marine claims, is fundamental to navigating this complex field. In addition, claims management requires close cooperation between the parties involved, to ensure that losses are assessed fairly and promptly. Finally, a thorough understanding of the rights and obligations of each party is essential to ensure efficient and fair compensation.

When do we talk about a marine insurance claim?

For an event to trigger themarine insuranceIn order to be covered, three conditions must be met: there must be an insured event, the damage must be covered, and there must be no applicable grounds for exclusion.

Condition 1: An event covered by the policy The insurance only applies if the damage results from an event covered by the policy. This could be "fortune of the sea (shipwreck, running aground, collision, storm...) or of a "force majeure" eventas stipulated in article L. 172-11 of the French Insurance Code. The policy may also cover other specific events listed (fire, theft, piracy, war risks if cover has been taken out, etc.). The event must be accidental and unforeseen in nature.

Condition 2: Damage covered by the policy The event must have caused material damage or financial loss falling within the scope of the cover taken out. The extent of the damage covered will depend on the type of cover chosen: an "all risks" policy will offer broader cover than a "Free of Particular Average except..." (FAP except) policy, which only covers particular damage (damage affecting the insured item only) if it is the result of an accident. (FAP sauf) policy, which only covers special damage (damage affecting only the insured property) if it results from certain events listed exhaustively or exceeds a certain excess.

Condition 3: The absence of an applicable exclusion ground Even if the event and the damage appear to fall within the scope of the cover, the insurer may refuse to pay compensation if the cause of the loss is excluded by law or the contract. The main legal exclusions are listed below:

• La intentional or inexcusable fault on the part of the insured party (article L. 172-13) or the wilful misconduct by the captain (article L. 173-5).
• Le known inherent vice of the vessel or goods (article L. 172-18, L. 173-4).
• Damage resulting fromfines, confiscations, contraband or prohibited trade (article L. 172-18). Some policies may also exclude damage caused by a lack of reasonable care on the part of the insured to prevent the loss (article L. 172-13). Similarly, exceptional risks such as war or piracy are excluded unless expressly covered (article L. 172-16).

It is only if these three conditions are met that we can truly speak of a claim for which the insurer is liable.

Claims management: a controlled process

When a claim occurs, a precise process is put in place, involving obligations for the policyholder and the intervention of experts.

The prerequisites for compensation: the policyholder's active role Policyholders cannot remain passive after a loss. They have several important obligations:

• Declaring a claim to the insurer as soon as it becomes aware of them. Deadlines are often set in the policy, and failure to meet them may, in some cases, result in forfeiture of cover.
• Provide all information and documents necessary for the insurer to assess the loss and establish liability (sea report, invoices, title deeds, etc.).
• Take all precautionary measures to limit further damage and contribute to the salvage of insured property (article L. 172-23 of the Insurance Code). The costs incurred to this end are generally covered by the insurer, even if they are incurred unsuccessfully.
• Maintaining recourse against third parties who may be liable for the damage (other ship in the event of collision, previous carrier, etc.). Once the insurer has paid compensation, it can exercise these remedies in its place (subrogation).

The insured must act diligently and in good faith. Article L. 172-28 of the Insurance Code, which is qualified as a public policy, severely punishes bad faith: "A policyholder who has made an inaccurate claim declaration in bad faith shall forfeit the benefit of the insurance..

Ascertaining and assessing damage: the involvement of experts Unlike some simple land-based claims, the assessment of marine damage often requires highly specialised technical expertise. Two key figures are involved:

• The damage commissioners Experts: These are independent experts appointed either by the insurers' committees or by mutual agreement between the insured and the insurer. Their task is to establish the physical damage, investigate its causes and estimate its cost. Their reports (often called "dispatches" when they calculate the apportionment of general average contributions) form the basis for assessing the claim, even if they are not formally binding on a judge or arbitrator in the event of a dispute.
• The committees of insurers Insurers' associations: Professional bodies grouping together the insurers in a particular area (e.g. a port). Their role is to coordinate, appoint damage surveyors, monitor expert appraisals and validate settlement proposals.

Compensation arrangements: how does the insurer pay?

The ultimate aim of insurance is to put the policyholder back in the financial position he would have been in had the loss not occurred, without enabling him to make a profit. This is the principle of compensation. In marine insurance, this principle is applied in different ways.

The classic "damage" settlement The term "damage" in maritime law refers to both material damage to the ship or the cargoand certain exceptional expenses incurred during the expedition. There are two types of damage:

• Specific damage Damage or expense that only affects the vessel. or the cargo, and which is not incurred voluntarily in the common interest of the shipment. For example: a hull damaged by a collision, cargo wetted by accidental water ingress. In hull insurance, the insurer reimburses the cost of repairs required to restore the vessel to a seaworthy condition, excluding indirect losses such as loss of earnings due to immobilisation (unemployment) (article L. 173-11). For goods, compensation corresponds to the loss of value suffered.
• General average This is one of the most original and ancient institutions of maritime law. It covers the situation where the master, in order to save the entire shipment (ship, freight and cargo) from imminent danger (grounding, fire, etc.), decides to voluntarily sacrifice part of the cargo (by throwing it overboard) or incur extraordinary expenses (towing costs to get out of a grounding, costs of unloading/reloading in a port of refuge, etc.). These sacrifices and expenses, made in the common interest, are then shared out proportionally between all the interests saved (value of the ship, freight and goods that have arrived safely in port). The marine insurer covers the contribution to general average which is attributable to the goods it insures (ship or goods) (articles L. 172-11, L. 172-26). The complex rules for calculation and apportionment are often defined by the York and Antwerp Rules, a set of international rules adopted in practice.

A radical option in the event of a major loss: abandonment In certain situations where the damage is so extensive that repairing or recovering the insured property would be economically absurd or technically impossible, maritime law offers the insured a special option: the neglect.

The insured must transfer ownership of the insured property (or what remains of it) to the insurer, in exchange for payment by the latter of the the entire sum insuredThe insurer must pay the claim as if there had been a total loss (article L. 172-27). This is a sort of "forced sale" of the damaged property to the insurer.

Abandonment is only possible in the following circumstances limited number of cases by law and policy :

• Total loss of the vessel or the goods.
• Absolute unseaworthiness of the vessel that cannot be repaired.
• For the ship : inability to repair where it is and move it, or cost of repairs reaching three quarters of the approved value (article L. 173-13).
• For the goods : loss or deterioration reaching three quarters of the valueor sale en route due to damage (article L. 173-21).
• No news of the vessel for more than three months (articles L. 173-13 and L. 173-20).

The procedure is formal The insured must notify the insurer of his decision to relinquish the property by registered letter or extrajudicial document, within a specific time limit (often set by the policy), indicating all insurance policies taken out on the property (articles R. 172-4, R. 172-5). The surrender must be pure and simple It can be neither partial nor conditional (article L. 172-27). The insurer may accept the transfer of ownership, or refuse it (if, for example, it considers that managing the wreck would be too costly), but even if the transfer is refused, it is still obliged to pay the full sum insured if the conditions for relinquishment are met.

Specific legal points relating to compensation

Managing a maritime claim often raises specific legal issues:

• Subrogation of the insurer Once it has compensated the insured, the insurer is "subrogated" to the latter's rights and actions against third parties responsible for the loss. It may therefore seek to recover the sums paid from the party at fault. To exercise this right of recourse, the insurer must be able to prove that the compensation has actually been paid and that the insurance contract exists (established case law, e.g. Aix-en-Provence, 15 May 2014, DMF 2014. 813).
• Direct action by the injured third party In liability insurance, the victim of damage caused by an insured vessel may, under certain conditions, bring an action directly against the insurer of the liable party to obtain compensation, without having to go through the liable insured party (article L. 173-23). The law applicable to this direct action is determined by the rules of private international law (often the law of the place where the damage occurred or the law of the insurance contract, see Civ. 1ère, 18 Dec. 2024, no. 21-23.252).
• Limitation of the shipowner's liability International and French maritime law (Transport Code, Article L. 5121-3) allows shipowners to limit their liability to a certain amount (calculated according to the tonnage of the ship) for certain types of maritime claims. The liability insurer may avail itself of this limitation in the same way as its insured (Law 2016 for the blue economy). However, case law (Com. 11 Dec. 2012, no. 11-24.703; Civ. 1ère, 8 Nov. 2017, no. 16-24.656) specifies that the insurer may only invoke this benefit if the shipowner has actually set up a limitation fund to the competent court.
• The rights of preferential creditors Subrogation in rem: In the event of the loss of a vessel, creditors with a maritime mortgage have their rights transferred to the insurance indemnity owed by the insurer to the owner (subrogation in rem). They can therefore claim payment directly from the insurer (Com. 24 Apr. 2007, no. 05-21.857).
• The prescription Actions arising from the marine insurance contract are barred by the following statutes of limitation two years (article L. 172-31). However, other time limits may apply: for example, an action for compensation for collision damage is time-barred after two years from the date of the incident, but this time limit may be interrupted or modified by an admission of liability, or subject to the complex rules of the 2008 reform of the limitation period if the action was brought before that date (see Com. 28 March 2018, no. 16-24.506).

Managing a marine claim is a technical process that requires rigour and expertise. By understanding how it works, policyholders can better assert their rights and work effectively with insurers and adjusters.

If you are faced with a maritime claim or if you wish to anticipate the management of possible incidents, our firm can provide you with its expertise to best defend your interests. Do not hesitate to contact our firm to discuss your options.

Sources

• Insurance Code (Title VII Book I, in particular articles L.172-11, L.172-13, L.172-16, L.172-18, L.172-23, L.172-26, L.172-27, L.172-28, L.172-31, L.173-5, L.173-11, L.173-13, L.173-20, L.173-21, L.173-23, R.172-4, R.172-5)
• Transport Code (Article L.5121-3 on limitation of liability)
• Case law cited (Aix-en-Provence Court of Appeal 15 May 2014; Court of Cassation, Commercial Division, 24 April 2007, 11 December 2012, 28 March 2018; Court of Cassation, First Civil Division, 8 November 2017, 18 December 2024)