According to Rule A of the York Antwerp Rules 1974, “General Average” is defined as:

“There is a general average act when, and only when, any extraordinary sacrifice or expenditure is intentionally and reasonably made or incurred for the common safety for the purpose of preserving from peril the property involved in a common maritime adventure.”

Some of you may remember the M/V Hyundai Fortune accident in March 2006. A huge explosion occurred and caused a massive blaze that spread through the stern of the container ship when it was sailing from Singapore through the Gulf of Aden to ports in Europe. After efforts to contain the fire failed, all the 27 crew members abandoned the ship. General average was declared and it appeared that at least one third of the containers were damaged by the blaze. The hull was eventually towed to Oman and the sound containers were offloaded for transport to other ships to Europe.

In case of common casualty such as the above, the shipping company will require the goods owners to pay a General Average Deposit or provide a bond from their bank before picking up their cargoes in the nearest port. If the goods owners took out a marine cargo insurance, the insurance company would take over the case to provide a General Average Guarantee, or otherwise, the goods owners would need to pay the Deposit which may normally be 10% or in some cases (e.g. M/V Hyundai Fortune accident) up to 75% of the invoice value of the goods in cash. In addition, the insurance company would also have to make a General Average Contribution for the insured, the cost of which will be based on the sound value of the cargoes arriving at destination.

To conclude, the above case shows the importance of taking out marine cargo insurance. It is particularly important for SMEs, as their cash flow is usually small. In case of mishaps, not only will they lose their goods, even though their cargoes were saved, they may also need to pay unexpected expenses for a GA Deposit and a GA Contribution, leading them to fall into financial crisis.

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In previous issues, we discussed general areas for consideration in determining a pre-existing condition. In this issue, we are going to discuss two more areas of the same topic.

1. Is the condition a continuation of a previous condition or a separate disability?

   Even for conditions that might be chronic, we have to examine whether two occurrences are the result of the same disability or not.

   For example, if a back problem was treated and then remained free of symptoms for two years without any residual physical abnormality and with no follow-up treatment or monitoring being required, it should not be treated as a pre-existing condition even if it occurs again after the policy becomes effective.

2. Frequency and severity of episodes

   With medical conditions or symptoms that occur as single or infrequent episodes, we should not jump to the conclusion of a pre-existing condition too early.

   For example, a person who had diarrhoea twice just one month before the policy effective date was found to have CA rectum 2 months after the effective date. We cannot establish that the 2 episodes of diarrhoea one month ago resulted from CA rectum and conclude that CA rectum is pre-existing.

   However, if a person with a history of diarrhoea with blood twice occurring one month before the policy effective date was found to have CA rectum 2 months after the effective date, excluding any haemorroids or without other rectal abnormalities being detected, we may say that the 2 episodes of diarrhoea with blood one month ago might be closely related to CA rectum and that the CA rectum may be pre-existing. But the final decision should be based on a doctor's professional observations.

   Conversely speaking, if the diarrhoea had been persistent for 1-2 months before CA rectum was detected, no matter with or without blood, we can suspect that the persistent diarrhoea was related to CA rectum.

As there are so many criteria for determining whether or not a condition is pre-existing, in order to arrive at a fair decision, insurance companies will judge each individual case carefully based on relevant medical reports.

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There are different meanings of “salvage” in different classes of insurance. In property insurance, “salvage” usually means salvaged goods. In marine insurance, “salvage” defines specifically services awarded to a third party to save maritime property from peril at sea.

Take the case of M/V Hyundai Fortune that was severely damaged after an explosion. Salvage service was employed and the hull was towed to the nearest port of refuge, Oman. Of course, salvage charges were incurred. There are two types of salvage – Contract Salvage and Pure Salvage. In short, Contract Salvage involves a contract stating the fixed amount of salvage charges before the commencement of the salvage service. By contrast, Pure Salvage means that salvage is undertaken without making any contract or agreement. Both parties agreed to decide the salvage charges at a later date.

No matter which kind of salvage services were employed, the vessel owner and all cargo owners needed to contribute to the huge salvage charges. Cargo owners had already suffered a financial loss due to the loss of or damage to goods, which contributed to these extra charges and made the situation even worse. Fortunately, these charges could be covered by marine cargo insurance in addition to the loss which, once again, showed the importance of taking out a marine cargo insurance policy.

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Mr. Wong’s cargo was found damaged after being shipped from Shanghai to Hong Kong. The survey report showed that damage to the cargo was caused by 2 factors: insufficient packing and rough handling. However, there was difficulty identifying which of the 2 factors had caused the damage.

Question:
Can Mr. Wong claim his loss successfully from a marine cargo insurance policy?

Answer:
According to a decided case (Wayne Tank & Pump Co. Ltd v. Employers Liability Assurance Corp. Ltd), where the loss has multiple proximate causes and as long as only one is specifically excluded by the policy, the exclusion prevails and the insurance company is not liable for the loss.

In Mr. Wong’s case, although rough handling is an insured peril under Institute Cargo Clauses A, insufficient packing is specifically named as an exclusion. Therefore, Mr. Wong’s claim is not recoverable under his cargo insurance policy in accordance with the principle held in Wayne Tank’s case.

In order to minimise the loss and to deliver the cargo to the consignee’s warehouse on time, customers are advised to ensure that their cargoes are sufficiently well packed.

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With today's prosperous economic environment, it is common for traders to do business across countries. Some of you may have experienced a change in voyage due to various reasons. Does marine cargo insurance provide coverage for traders if there is a change in voyage after it starts?

Generally speaking, marine cargo insurance provides flexible coverage for policyholders. According to the "Change of Voyage Clause", once the policyholder is informed about the change, he must provide written notice to the insurance company promptly. If there are changes in the voyage, the insurance company may need to re-assess the risk and the conditions and, as a result, an additional premium may be required for the continuance of cover.

Using the M/V Hyundai Fortune case as an example, after the vessel was towed to the nearest port of refuge, Oman, the sound containers were offloaded for transportation to other ships to Europe. In this case, as the vessel and the route have changed from those stated at the start of the voyage, in order to enjoy marine cargo insurance coverage, cargo owners need to inform the insurance company about the changes as soon as they know about them by written notice so as to obtain the consent of the insurance company.

If the cargo owners do not inform the insurance company once they are advised of any changes, they may not enjoy insurance cover as they have breached the contract mutually agreed by the cargo owners and the insurance company. Therefore, it is important to remind your customers to inform us in writing promptly if there are any changes in the voyage.

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What is the role of a cargo surveyor? Who exactly is the surveyor working for? These and many other questions often arise. The cargo surveyor is an independent party who should remain impartial when overseeing a cargo claim. The roles and responsibilities of a cargo surveyor include, but are not limited to, the following areas:

Verify the condition of cargo
When a buyer purchases goods from a seller, the buyer may employ a cargo surveyor to check if the goods are the same as those mentioned in the contract in terms of size, weight, content, etc. before loading on board of vessel.

Investigate cargo loss or damage
When loss or damage occurs, the cargo surveyor has to use technical skills to establish the cause of loss or damage, assess the degree of damage and provide a full picture of the situation in a survey report which should enable the insurer to properly consider whether the loss or damage is covered by the policy.

Provide technical and professional advice
Buyers will also seek a cargo surveyor’s technical and professional advice for insuring or transporting goods, on matters such as: 

• How to transport large-scale machinery
• The best way to pack goods to ensure proper protection
• How to fulfil the insurance company’s requirements in order to get insured

Estimate the cost of the cargo
When loss or damage occurs to cargo, the cargo surveyor will estimate the cost of the goods and provide a survey report to the claimant, which could be used as a reference for filing claim.

To conclude, in the unfortunate event of claims, if customers provide sufficient information to the cargo surveyor in an efficient manner upon request, this could definitely speed up the claim process.

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Recently, a number of doctors have pointed out that some patients do not have a clear understanding of the benefits their critical illness and medical insurance plans provide. Upon submission of their claim application, these patients often find that part of medical expenses need to be covered from their own pockets. What, in particular, should people be aware of when they sign up for medical insurance?

Many insurance policies offer protection for critical illnesses, but generally many insureds tend to overlook that, after receiving claims for critical illness benefit, the remaining benefit left in the policy may be insufficient to cover future expenses. This normally happens as the insured fails to realise that critical illness cover usually serves as a rider on top of the basic policy in which the insured is eligible to one total lump sum benefit only. Once the insured is diagnosed with critical illness, claim amounts will be deducted from the total lump sum. This claim amount may actually take up a significant portion of the total lump sum, leaving an insufficient amount to cover future claims. The table below shows an illustration:

Background information:
The insured is diagnosed with a critical illness and hospitalisation charges are HK$360,000. The amount of critical illness benefit entitled is HK$500,000.

As illustrated above, many insureds would only consider the maximum amount of coverage when they sign up for a policy, overlooking the relationship between critical illness and other benefits. The HK$1,000,000 maximum limit of Company B looks sufficient at first glance. However, after deduction of claims payment, the remaining amount for life insurance will become considerably less.

Therefore, we would recommend the insured to purchase insurance plans providing separate benefits for critical illness and hospitalisation benefits. In the unfortunate event that the insured is diagnosed with a critical illness, he will be eligible to receive a lump sum critical illnesses benefit, as well as a hospitalisation benefit. Most importantly, the amount of critical illnesses benefit will not be deducted from the hospitalisation benefits, thus helping the insured to manage the medical expenses without disruption to their wealth management planning.

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Ms. Ho was admitted to hospital with lower back pain last month and was diagnosed with a prolapsed intervertebral disc which required a surgical operation to be performed. Unluckily, Ms. Ho's abdominal aorta wall was punctured during the operation and she went into shock with internal bleeding. As a matter of urgency, she was transferred to another hospital to undergo a repair operation on her blood vessel.

Ms. Ho admitted that her operation for treatment of a prolapsed intervertebral disc was a pre-existing condition which should be excluded from the policy. When she was discharged from hospital, she only submitted a claim to her medical insurance company for reimbursement of medical expenses incurred during the second operation.

However, the insurance company rejected her claim. Why was Ms. Ho's second hospitalisation not covered by her medical insurance policy?

Ms. Ho thought that her emergency confinement for the second operation, the aim of which was to remedy the blood vessel puncture that occurred during the first operation, was entirely unforeseen and unexpected. As a result, she believed that her insurance company should reimburse her medical expenses incurred for the second operation.

The second operation for remedying the puncture was caused by a potential operation risk arising from the first operation for her prolapsed intervertebral disc. If the first operation had not taken place, the second operation would not have been necessary. As the proximate cause of the second operation was related to the first operation and the first operation was excluded from Ms. Ho's medical policy, her insurance company was not liable for Ms. Ho's hospitalisation claim.

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Two weeks ago, Mr. Wong's 4 year-old daughter was admitted to hospital for 4 days with gastroenteritis. He submitted a claim to his insurance company for reimbursement of hospital expenses from his medical policy covering his daughter. The insurance company quickly settled his claim but did not reimburse the cost of meals ordered during hospitalisation.

Mr. Wong knew that the benefit limit of Room and Board was HK$1,500 per day. The room charge for his daughter was HK$1,000 per day and the food ordered was around HK$450 per day. The food ordered was for meals and drinks for Mr. and Mrs. Wong and relatives who visited his daughter. Notwithstanding, Mr. Wong wondered why the cost of meals was not paid as his policy covered Room and Board.

The term “Room and Board” has been used for over 20 years in the medical insurance industry. In the past, hospitals in Hong Kong would provide meals to patients and the cost was included in the room charge. But nowadays, people prefer to eat their own food or order food themselves and, as a result, with the exception of The Canossa, most hospitals no longer provide meals. Therefore, the Room and Board Benefit in most medical insurance policies refers to benefit covering daily room charges as billed by a hospital for the cost of accommodation, meals and general nursing care.

In any event, even if an insurance company does cover extra meals ordered, it only covers food consumed by the patient. If the cost of food ordered is unreasonably high for the patient, insurance companies will investigate and will only pay for food consumed by the patient. In the case above, the patient was a 4 year-old suffering from gastroenteritis and it therefore appeared unlikely that she could eat enough food to justify a claim for HK$450 per day. Therefore, after investigation, as the food was not for the patient, the insurance company rejected this part of the claim.

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