ANALYSIS OF INSURANCE CONTRACT DISPUTE SETTLEMENT:
A CASE STUDY OF ORIENTAL SHIPPING AND TRADING JOINT STOCK COMPANY
AND PETROLIMEX INSURANCE CORPORATION
I.
Intro
The insurance industry plays a vital role in the global economy, helping to manage risk and provide
financial protection to individuals and businesses. As risks become more complex, insurance contracts
have become an indispensable tool to ensure financial security against losses due to natural disasters,
accidents or economic disruptions. However, the complex nature of insurance contracts and
differences in interpretation between parties often lead to disputes. These conflicts not only disrupt the
claims process but also affect confidence in the insurance industry and the performance of businesses.
Understanding how to resolve these disputes is essential for both insurers and insureds to navigate the
complexities of contract enforcement, coverage and liability.
In the context of increasing economic, social and environmental changes and challenges, research and
analysis of issues related to insurance contract disputes is extremely necessary. This not only helps the
parties involved to be more aware of their roles and responsibilities, but also contributes to perfecting
the legal system, improving service quality and strengthening consumer confidence in the insurance
industry.
One of the prominent issues in insurance contract disputes is the difference between the agreed
insurance value and the actual value of the property when an incident occurs. This raises an important
question: When should the compensation value be based on the agreed amount in the contract, and
when should it be adjusted according to the actual condition of the property? The answer is not only
related to the law but also reflects how the insurance industry operates to balance the interests of both
parties.
In this study, the authors analyze the insurance contract dispute between Phuong Dong Maritime
Trading and Transport Joint Stock Company and Petrolimex Insurance Corporation (PJICO). The case
revolves around the hull insurance of Ngoc Son, in which the insurance company and the insured have
opposing views on the compensation value when the ship encounters an incident. This case not only
clarifies how the parties apply the contract terms but also reflects the shortcomings in the practice of
marine insurance.
By analyzing the legal aspects, negotiation strategies and dispute outcomes, the study provides
insights into how to resolve disputes in insurance contracts. More importantly, it draws practical
lessons to help businesses and individuals improve their ability to negotiate contracts, protect their
rights and optimize the insurance claims process in the future.
II.
Theoretical framework
2.1. Concept and object of Insurance
2.1.1. Concept of Insurance
Insurance is a risk transfer mechanism where one party, the insured, pays premiums to another party,
the insurer, to compensate for potential future losses (JoAnne et al., 2018). In essence, insurance is a
form of risk sharing between multiple parties. Insurance companies collect premiums from a large
group of participants and use this fund to pay out to those who are unfortunate enough to encounter
risks. This helps individuals and businesses minimize the negative impact of unexpected events, such
as accidents, natural disasters, or property loss. This concept is crucial in managing the
unpredictability of life and the vulnerabilities associated with property ownership.
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Understanding Risk
+ Life risks: These include the risk of death, disability (temporary or permanent), and
illness that can result in significant medical expenses. The loss of a breadwinner not
only affects the mental health of a family but also results in a significant loss of
income, which can put a family's financial stability in jeopardy.
+ Property Risk: Property can be threatened by a variety of hazards such as fire, theft,
natural disasters (such as floods and earthquakes), and man-made incidents. Such
events can result in a total or partial loss of property, affecting the income and assets
of an individual or business.
- Mechanism of Insurance
The two parties work together based on the insurance contract. An insurance contract is a legally
binding contract that specifies the terms of insurance, including the sum insured (the amount payable
in the event of a claim), exclusions and the claims process.
+ Risk Assessment & Premium Collection: The insurer evaluates risks (Factors like
age, health, occupation (for life insurance) or asset value, location, and usage (for
property insurance) are considered) and sets a premium, which the insured pays
periodically.
+ Risk Pooling – Premiums from many policyholders create a fund used to compensate
those who suffer covered losses.
+ Claim Filing & Verification – When a loss occurs, the insured files a claim, and the
insurer assesses its validity.
+ Compensation & Payout – If the claim is valid, the insurer compensates the insured
according to the policy terms.
Key principles include indemnity (compensation matches actual loss), utmost good faith (honest
disclosure), and subrogation (insurer recovers loss from responsible third parties).
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Types of Insurance: Basically, there are 4 types of insurance:
+ Life insurance: is insurance for the case of the insured person living or dying, with
many different operations.
+ Health insurance: is insurance for medical examination and treatment costs, can be
compulsory or voluntary.
+ Non-life insurance: is insurance for other risks such as accidents, vehicles, travel, etc.
+ Compulsory insurance: is insurance that the law requires participation in, such as
social insurance, health insurance, unemployment insurance, etc.
In short, for marine insurance, an important area in the transportation industry, the subject of
insurance can be:
- Hull Insurance: Protects the ship from damage due to collision, stranding or fire.
- Cargo Insurance: Protects goods transported at sea from loss or damage.
- Protection & Indemnity (P&I): Protects the ship owner from claims from third parties.
2.1.2. Object of Insurance
- Risk Management and Protection: Insurance helps individuals and businesses manage risks by
covering potential financial losses due to accidents, disasters, health issues, or liability claims.
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Economic Stability: Insurance contributes to economic growth by reducing uncertainty,
facilitating investment, and providing financial security, which encourages economic
activities.
Encouraging Savings and Investments: Certain types of insurance, such as life insurance,
promote disciplined savings and long-term financial planning, ensuring financial security for
dependents.
Supporting Business Continuity: Businesses use insurance to protect against operational risks,
ensuring they can recover and continue operations after unexpected losses like property
damage or legal liabilities.
Legal and Regulatory Compliance: Many industries require insurance as a legal obligation,
such as workers' compensation, vehicle insurance, and professional liability coverage.
2.2. Concept and scope of hull insurance
2.2.1. Concept of hull insurance
Hull insurance is insurance for losses to the hull, machinery and equipment of the ship caused by the
perils of the sea/river, or by unexpected accidents such as sinking, fire, stranding, collision, boiler
explosion, shaft breakage, ... Hull insurance is the most important type of property insurance for ships.
2.2.2. Hull insurance coverage
a. Included losses
The Institute of London Underwriters's Hulls (I.T.C. version - 11/01/1995) is often considered a
unified standard insurance clause and is widely applied in international trade. The Institute of London
Underwriters' Hulls (I.T.C.) is applied by many countries, including Vietnam. The hull insurer is
responsible for compensating for losses (total actual or total estimated), repair costs, and reasonable
costs incurred by the insured when the insured object (hull) is at risk in the following cases:
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Risks due to fire, lightning, storms, whirlwinds, and other natural disasters.
The ship is stranded, collides with another ship or fixed or floating objects (including ice).
Capsize or sinking of the vessel.
Accidents during loading, unloading, refuelling.
Explosion on board, explosion of boiler, broken shaft, hidden defect in the hull of the engine,
boiler.
● Damage caused by negligence of the master, officers, crew or pilot; negligence of repairers,
provided the repairs are not insured.
● Expenses for general average contribution.
● Damage caused by measures taken to save the vessel and extinguish fires.
● Missing vessel.
● Necessary and reasonable expenses incurred to save the vessel, to mitigate the damage (if the
damage is covered under the insurance conditions).
b. Excluded losses
A characteristic of insurance is that in order to be compensated, the loss must be caused by an insured
risk. Insured risks are risks that are random, unexpected, and unforeseeable. Uninsured risks are risks
that are natural, certain to occur, or caused by the fault of the insured. According to this hull insurance
clause, the insurer will not be liable for compensation for losses that occur:
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Intentional acts or serious negligence of the insured, the insured or their representative.
The ship is not seaworthy (the ship is not safe or not adapted to sea, lacks necessary
equipment, lacks crew in both quantity and quality, does not have enough valid documents missing documents or expired documents, improperly stowed).
The ship, parts or equipment are too old, or are naturally worn out.
Icebreaking (except for icebreaking by specialized vessels).
The insured, or the insured or their representative, knows that the ship is carrying explosive or
flammable substances and objects but fails to notify the insurer.
War risks (all military actions, military measures and the consequences of such actions or
measures); damage or destruction of the ship by mines, bombs and other weapons of war,
piracy, civil war, popular uprising, strike, lock-up, arrest, detention, confinement or
destruction of the ship.
Loss of freight, ship lying in wait (including the cost of wages, maintenance of sailors and
crew while waiting for repairs).
2.2.3. The role of hull insurance
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Physical damage insurance
Physical damage insurance is the most important function of hull insurance, helping to protect ship
owners against losses to the structure of the ship, machinery and related equipment. This type of
insurance usually covers losses due to collision with other ships, stranding, fire, explosion, machinery
failure or natural disasters such as storms and tsunamis. If the ship is damaged, the insurance will pay
for the cost of repairing or replacing the affected parts.
In the event of a total loss, that is, the ship is completely destroyed or missing, the insurance will
compensate according to the agreed value in the contract or the market value at the time of the
incident. This helps ship owners avoid the risk of bankruptcy or incurring a large financial burden
when the ship cannot operate, helping shipping businesses maintain operations even when
encountering unexpected incidents.
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Protection against liability
In addition to protecting physical assets, hull insurance also helps shipowners minimize risks related
to liability when the ship causes damage to third parties. When a ship collides with another ship,
damages cargo, pollutes the environment, or injures crew members, shipowners can face huge
compensation lawsuits.
Liability insurance in a hull insurance policy is often accompanied by P&I (Protection & Indemnity)
Insurance, providing comprehensive protection against claims related to casualties of crew,
passengers, oil pollution, and third party liability.
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Extended Coverage Options
Hull insurance can be extended to meet the specific needs of the shipowner, especially when the ship
operates in high-risk areas. Some extended cover options include war insurance, piracy insurance,
political risk insurance and strike insurance.
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War insurance protects the shipowner against losses caused by armed conflict,
terrorism or other hostile acts.
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Piracy insurance is an important option for ships operating in areas with a high risk of
attack, such as the Strait of Malacca or the Gulf of Guinea.
- Strike insurance helps to cover losses when the ship is stranded due to strikes at port
or other labor conflicts.
Coverage of freight and income
Another important function of hull insurance is to protect the shipowner's source of income. When a
vessel is damaged and cannot continue to operate, the shipowner may lose revenue from the contract
of carriage, seriously affecting cash flow and the ability to maintain business operations.
Loss of Hire Insurance helps to compensate for the loss of income while the vessel is onshore for
repairs. Compensation is usually calculated based on the number of days the vessel is out of service
and the average daily revenue the vessel can earn.
In addition, some insurance contracts may include cargo insurance, which protects the goods being
transported if they are lost during the vessel's breakdown.
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Regulatory and financial compliance
Hull insurance also plays an important role in helping shipowners comply with regulations and meet
the requirements of financial institutions. Many countries require ships to have insurance before they
are licensed to operate, especially international vessels.
Besides, if the shipowner borrows money from a bank or financial institution to purchase a ship, the
loan contract often requires that the ship be fully insured to protect the lender's interests. In the event
of a loss, the insurance compensation can be used to repay the loan, helping to minimize financial
risks and ensure the shipowner's ability to repay the debt.
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Risk assessment and management
Hull insurance not only helps to compensate for damage after an accident, but also plays an important
role in assessing and minimizing risks. Before issuing insurance, insurance companies often require
the ship to be periodically inspected to ensure good technical condition, helping to reduce the risk of
accidents.
In addition, insurance companies may also require the shipowner to implement safety measures,
including crew training, upgrading positioning and monitoring systems, or using modern rescue
equipment. These measures help to improve safety standards in the shipping industry, while
minimizing losses and financial risks for both ship owners and insurance companies.
2.3. Insurance premiums and insurance premium compensation
2.3.1. Insurance premiums and insured value
Insurance premiums are specific amounts that an individual or business pays periodically to obtain
and maintain their insurance policy and coverage. Insurance premiums are applied to each type of
ship, age of ship, group of ships, route of operation of the ship, level of equipment synchronization,...
Insurance premiums may vary depending on the annual loss situation of the fleet.
Insurance premiums include compensation for total loss; compensation for partial loss including
temporary, official and pending repair costs; surcharges including management costs, loss prevention
costs,... So Hull insurance premium = Total loss compensation + Partial loss compensation + Other
surcharges.
The higher the risk involved for an individual or business, the higher the insurance premium will be.
Insurance premiums can be paid in monthly, semi-annual or annual installments. In some cases, the
customer can also choose to pay the full amount in advance for the entire policy period before the
insurance coverage begins.
The hull insurance value is the actual value of the ship when the insurance begins. The hull insurance
value is calculated based on the actual value of the hull, engine, and other equipment of the ship,
including: the value recorded on the fixed assets book; the price of buying and selling the ship on the
market; it can also include the salary advance for the crew and the cost of preparing for the trip.
Hull insurance is a type of property insurance, so the insurance amount is determined according to the
relationship of the insurance contract, it is a certain amount of money representing part or all of the
insurance value. The insurance amount is the basis for determining the insurance compensation
amount for each loss, which is the insurance compensation limit. The insurance value stated in the
insurance certificate is the highest value that the insurer accepts to compensate for each loss.
2.3.2. Insurance premium compensation
a. Compensation for partial loss
As defined by Insuranceopedia, partial loss refers to any loss or damage to insured property that does
not result in total destruction or irreparable damage, meaning that it does not prevent the property
from performing its function nor does the damage exceed the insurance policy's coverage limit
(Insuranceopedia, 2024). In the case of a partial loss, the insurer will reimburse the cost of repairs
necessary to restore the property to a similar condition as before the loss occurred.
Partial loss compensation is usually applied in two main cases: partial loss of the vessel and general
average. In the case of a partial loss, only a part of the vessel such as the engine system, hull or
marine equipment is damaged. On average, a portion of the property may be sacrificed to save the
ship or cargo, and the cost will be shared among the parties involved. For example, if a ship
encounters a severe storm and is forced to drop cargo overboard to lighten its load to avoid capsizing,
the cost of the loss of cargo may be compensated under the general average principle.
An important point in the compensation of partial loss is depreciation and deductibles. If the
shipowner replaces new parts during the repair process, the insurer may deduct a portion of the
depreciation value before calculating the compensation amount. In addition, the insurance contract
may stipulate a deductible, meaning that the shipowner must bear a portion of the cost before the
insurer will pay the remainder.
b. Compensation for total loss
A total loss occurs when the ship is so severely damaged that it cannot be repaired or the cost of repair
exceeds the insured value of the ship. Since the basic purpose of insurance is to restore the claimant to
their pre-loss condition, the policyholder will be compensated with an amount equal to the value of
the insured property, depending on the insurance limit and the validity of the claim.
Total loss is divided into actual total loss and constructive total loss. Actual total loss occurs when the
vessel is completely destroyed, missing or cannot be recovered. For example, if a cargo ship is
completely burned due to a fuel tank explosion, the insurance will pay the entire value of the ship to
the shipowner. Conversely, constructive total loss occurs when the ship survives but the cost of repair
is too high compared to the insured value. For example, if a container ship runs aground and most of
the hull is broken, if the estimated cost of repair exceeds 80% of the insured value of the ship, the
insurance company may declare this a constructive total loss and pay the entire insured amount.
One of the important factors in total loss compensation is how to determine the indemnity value. The
indemnity value can be based on the agreed value or the market value at the time of the loss. In the
case of agreed value, the insurance company will compensate according to the price agreed in the
contract, regardless of the actual value of the vessel at that time.
2.4. Recovery of assets after compensation
After the insurance company has paid compensation for the loss of the vessel, the process of recovery
of assets takes place to determine the fate of the vessel and related assets. The way in which assets are
recovered after compensation depends on the extent of the loss and the terms of the insurance
contract:
If the vessel is only partially lost, the insurance company will compensate for the cost of repairs to
enable the vessel to continue operating. The shipowner will use this compensation to repair damaged
parts, ensuring that the vessel meets full maritime safety standards before returning to service.
If a vessel is declared a total loss, the insurance company has the right to take possession of the wreck
if the contract terms provide for it. In this case, the insurer may choose one of the following options:
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Sell the wreck for scrap: If the ship is severely damaged and cannot be salvaged, the insurer
may sell the wreck to recycling plants to recover part of the claim.
Sell the ship to a third party for repair: In some cases, the insurer may sell the ship to a third
party for a lower price, and the buyer may repair it for reuse. This usually happens when the
damage is not too severe and there is still a possibility of recovery.
Recovery of valuable components and machinery: If some of the equipment or machinery on
the ship is still usable, the insurer may sell it piecemeal to minimize the financial loss.
Some insurance contracts stipulate that if the shipowner decides to retain a total loss ship for repair or
reuse, they will have to repay a portion of the claim to the insurer. This ensures that the insurer does
not have to bear the entire financial burden if the vessel is still in use.
After receiving compensation, the shipowner may have to settle a number of financial obligations
before the recovery process can be completed. One of the most important obligations is to pay off any
mortgage loans if the vessel is used as collateral. In the event of a total loss, the insurance company’s
compensation will be used to pay off the remaining loan before the shipowner receives the remaining
funds. In addition, any additional costs such as mooring, storage or customs inspection fees may also
be deducted from the compensation.
2.5. Termination
Termination of hull insurance is the process of ending the insurance contract before or after the
contract expires. Termination of hull insurance occurs when the contract expires, the vessel is a total
loss and is fully compensated, or due to a breach of contract such as failure to pay the insurance
premium on time or providing false information. In addition, the shipowner can request to cancel the
contract if there is no longer a need for insurance, or the contract can be declared void due to fraud.
When the insurance is terminated, the vessel is no longer protected against maritime risks, affecting
transportation operations and financial obligations if the vessel is mortgaged.
III. Analysis of the dispute situation:
3.1.Overview of the two companies:
3.1.1.Phuong Dong Marine Transport and Trading Joint Stock Company
(Phuong Dong Company):
Phuong Dong Shipping and Trading Joint Stock Company(OSTC) is one of the leading
enterprises in Vietnam's maritime transport industry. The company was originally
known as Bac Waterway Transport Company, under the Vietnam Inland Waterway
Administration. Founded in 1993, OSTC specializes in providing cargo transportation
services via sea, river, and road, along with ship leasing and brokerage services, ship
buying, selling, repairs, and maritime training. OSTC owns a modern fleet of vessels
and a team of experienced experts and technicians, offering efficient and safe
transport solutions. The company's headquarters is located in Hanoi, with services
catering to both domestic and international cargo transportation needs.
3.1.2.Petrolimex Insurance Joint Stock Company (PJICO):
Petrolimex Insurance Company, also known as Petrolimex Insurance
Corporation (PJICO), was established in 1993 and is one of the largest insurance
companies in Vietnam, under the Vietnam National Petroleum Group (Petrolimex).
PJICO specializes in providing a wide range of insurance services, including non-life
insurance such as motor vehicle insurance, property insurance, fire and explosion
insurance, accident insurance, cargo insurance, and other types of insurance. Since its
inception, PJICO has focused on offering non-life insurance products (such as
property insurance, motor vehicle insurance, fire insurance, etc.) to meet the financial
protection needs of customers amid the rapidly developing economy of Vietnam. Over
more than 30 years of operation, PJICO has expanded its network and services
nationwide, building a strong reputation and position in the insurance industry,
offering insurance services not only to businesses but also to individuals.
3.2. Overview of the dispute:
3.2.1. The situation leading to the dispute:
On June 29, 2016, Phuong Dong Shipping and Trading Joint Stock Companyand
Petrolimex Dong Nai Insurance Company, a subsidiary of Petrolimex Insurance
Corporation (PJICO), signed the Hull Insurance Contract P16/DNI/HHA/2101/0005 (hereinafter referred to as the Hull Insurance Contract P-
16/0005) for the Ngoc Son vessel with an insured amount of 2,800,000 USD. The
total insurance premium was 14,000 USD, which Phuong Dong Company paid fully
on time according to the terms of the contract. Petrolimex issued the Hull Insurance
Certificate P-16/DNI/HHA/2101/0005, clearly stating the vessel's value as 2,800,000
USD.
On August 13, 2016, the NS vessel ran aground in the area of Foammulah Island,
Maldives. Phuong Dong Company reported the incident, gathered necessary
documentation, and filed a full claim in accordance with the contract, requesting
compensation of 2,800,000 USD, which was the insured amount and vessel value
accepted by Petrolimex.
On November 28, 2017, Petrolimex issued Document No. 100/P/DNA/HHA/2017,
agreeing to settle the compensation for the vessel's value at 1,750,000 USD; the value
of spare parts and materials stored on the vessel purchased by the shipowner was
156,531.41 USD and 1,582,900,621 VND, but they refused to cover the fuel supplied
by the shipowner, valued at 38,343.44 USD, which they argued was not in accordance
with the terms of the contract and the spirit of the agreement. Due to disagreements
over the extent of the damage, Phuong Dong Company filed a lawsuit against
Petrolimex at the Dong Da District People's Court.
In court, Phuong Dong Company demanded compensation for the full amount of
2,800,000 USD according to the Hull Insurance Contract and an interest rate of 10%
per year (12,056,000,000 VND) due to Petrolimex’s delayed payment.
PJICO maintained its stance, requesting the court to accept the vessel’s insured value
as 1,779,000 USD, based on the court-appointed valuation, and the value of materials
provided for the vessel as 156,531.41 USD and 1,582,900,621 VND. PJICO agreed to
refund the excess insurance premium for the over insured amount, calculated as
(2,800,000 USD - 1,779,000 USD) x 0.5% = 5,105 USD, equivalent to 119,206,855
VND. PJICO rejected Phuong Dong Company’s claim for interest.
3.2.2.The parties involved in the dispute:
Phuong Dong Marine Transport:
Phuong Dong Marine Transport signed the Hull Insurance Contract for the Ngoc
Son vessel with the insurance policy number P-16/DNI/HHA/2101/0005 (hereinafter
referred to as the Hull Insurance Contract P-16/0005) for an insured amount of
2,800,000 USD. The total insurance premium was 14,000 USD, which Phuong Dong
Company paid in full, on time, according to the terms of the contract.
+ Role: Owner and operator of ships, insured to protect their assets and business
operations.
+ Benefits (the objective or interest that the parties wish to protect or achieve in the
context of the dispute) : Receive regular and full compensation when incidents occur,
ensuring uninterrupted business operations.
Petrolimex Insurance Corporation (PJICO):
Petrolimex Insurance Corporation agreed to sign the contract and issued the Hull
Insurance Certificate P-16/DNI/HHA/2101/0005 (hereinafter referred to as the Hull
Insurance Certificate P-16/0005), specifying the vessel’s insured value as 2,800,000
USD.
+ Role: Insurance service provider, committed to regular liability according to the terms
agreed in the contract.
+ Benefits: Ensure contractual terms, manage risks and avoid unreasonable claims.
Parties with relevant rights and obligations:
Phuong Dong Company took out loans from Agribank and VDB, with the Ngoc Son
vessel being used as collateral. To ensure compliance with the repayment obligations
outlined in the Loan Agreement and Mortgage Agreement, the NS vessel must be
insured under both the P&I (Protection & Indemnity) and Hull insurance policies
for the entire duration of its operation and repayment period, with VDB and Agribank
as the beneficiaries.
Phuong Dong Company, previously known as NOSCO, is a joint-stock company in
which Vinalines holds 49% of the shares. As part of the domestic shipbuilding
program, which includes 32 vessels, Vinalines provided a loan guarantee for the
construction of the Ngoc Son vessel by Phuong Dong Company at VDB.
3.2.3. The causes leading to the dispute:
a. Underlying causes:
The dispute between Phuong Dong Marine Transport and Trading Joint Stock
Company and Petrolimex Insurance Corporation (PJICO) arises from a conflict over
the assessment of damages and the compensation amount under the insurance
contract. Phuong Dong Company requested full compensation of the insured value of
2,800,000 USD for the grounded vessel, while PJICO only agreed to partially
compensate with 1,750,000 USD and refused to cover expenses related to fuel.
Additionally, PJICO agreed to refund the insurance premium for the excess amount,
while Phuong Dong Company demanded full compensation and sought interest due to
the delay in payment. These disagreements led Phuong Dong Company to file a
lawsuit against PJICO to resolve the dispute.
b. Detailed causes:
Differences in Determining the Insurance Value:
Phuong Dong Company requested full compensation of the vessel's insured value of
2,800,000 USD, while PJICO only agreed to partially compensate with a vessel value
of 1,750,000 USD, which is lower than the amount agreed upon in the contract.
Disagreement on Compensation for Additional Costs:
PJICO refused to compensate for the costs related to the fuel that the shipowner
supplied to the vessel, which was a significant part of Phuong Dong Company's claim.
This created a disagreement regarding the scope of damages and the responsibility for
compensation.
Interest on Delayed Payment:
PJICO only agreed to refund the insurance premium for the excess amount (the
difference between the insured value and the amount PJICO agreed to compensate),
while Phuong Dong Company demanded full compensation as per the contract and
sought interest due to the delay in payment. PJICO rejected this claim for interest.
IV. Analysis of the Situation and Court Decision Based on Legal Grounds
1. Delineation of Parties' Responsibilities
- Responsibilities of Oriental Shipping And Trading Joint Stock Company
PJICO has issued Amendment Certificate No.E-16/DNI/HHA/2101/0005-01 dated July 5,
2016, which specifies the beneficiary rights for the Ngoc Son ship as follows:
In the event of a total loss occurring to the Ngoc Son ship within the scope of insurance
liability, PJICO will pay the entire compensation amount to the beneficiaries, which are a
branch of the Transaction Office and Vietnam Development Bank branch in Hai Phong.
Therefore, as the insured party, Phuong Dong Company has the right to claim compensation
when incidents occur with the Ngoc Son vessel. They have correctly followed the procedures
for reporting the incident and filing a claim as per the insurance contract. However, with this
right comes several key responsibilities:
● Providing sufficient evidence: Even though the company has followed incident
reporting procedures, they must also ensure complete documentation, including
surveys, repair estimates, and proof of total loss.
● Avoiding policy breach: Phương Đông must ensure that there were no violations of
insurance conditions (e.g., failure to maintain the vessel, unapproved modifications,
or non-disclosure of previous damage) that could give PJICO grounds to deny the
claim.
● Pursuing legal action if necessary: If PJICO delays or refuses payment without valid
justification, Phương Đông has the responsibility to protect its legal rights, including
pursuing arbitration or litigation.
- Responsibilities of PJICO
As the insurer, PJICO has the obligation to compensate the insured when an incident occurs
within the scope of insurance based on the actual value of the ship at the time of the damage,
not the value agreed upon in the contract. PJICO is responsible for conducting the appraisal
of the insured asset's value and paying for the appraisal costs. According to the provisions of
Article 29 of the Law on Insurance Business regarding the time limit for paying insurance
money or compensation: When an insured event occurs, the insurance company must pay the
insurance money or compensation within the time limit agreed upon in the Insurance
Contract (Vietnam National Assembly, 2022). Therefore, PJICO is also responsible for
paying interest accrued due to delayed insurance payments at the interest rate prescribed by
law. Since the insurance payout is designated for VietNam Development Bank and the
Transaction Office branch, PJICO must ensure the correct amount is transferred without
errors or misallocations.
2. Analysis of Parties' Arguments => File Thuyết trình + Slide thì là trong này, còn ở dưới
chỉ là word
- Oriental Shipping And Trading Joint Stock Company
Phuong Dong company has presented a series of compelling arguments to support their
appeal. Their primary contention revolves around the nature of the insurance contract, which
they assert is a valued policy. Vessel Ngoc Son was covered under two (02) consecutive
annual insurance contracts with PJICO. In both insurance policies, PJICO fixed and
guaranteed the insured value of vessel Ngoc Son at 2,800,000 USD, with a constant premium
rate for both years, which is consistent with the characteristics of a valued policy as stipulated
by law and maritime insurance practices. Phuong Dong’s claim for 100% of the insured value
of vessel Ngoc Son, amounting to 2,800,000 USD as stated in the insurance certificate, is
lawful and has a legal basis.
This type of policy, according to Phuong Dong, establishes a predetermined compensation
amount that remains fixed regardless of any changes in the asset's actual value. The accident
of the vessel Ngoc Son has been determined by PJICO and Phuong Dong as a total loss.
Regarding compensation in the case of a total loss, Phuong Dong cites relevant provisions
from both Vietnamese maritime law and international maritime insurance law to emphasize
the legal validity of such agreements:
+ Article 254 of the Maritime Code stipulates that an actual total loss is a loss due to a
sea vessel or goods being completely destroyed, damaged beyond repair, or missing
along with the vessel; in this case, the insured may claim from the insurer full
compensation without having to declare the abandonment of the insured object
(Vietnam National Assembly, 2015).
+ Section 68 of the British Marine Insurance Act 1906 stipulates that in the event of a
total loss, if the policy is a valued policy, then the amount of compensation is the
amount of insurance agreed upon in the policy (Legislation.gov.uk, 2024).
Building on this foundation, Phuong Dong demands full compensation based on the preagreed insured value of 2,800,000 USD. They argue that under the terms of a valued policy,
the insured party is entitled to claim the full agreed amount, irrespective of the asset's market
value at the time of loss. Phuong Dong further contends that any market value assessment of
the ship is unnecessary and irrelevant in the context of a valued policy, as the compensation
amount has been predetermined by mutual agreement.
Phuong Dong also accuses PJICO of breaching the insurance contract by failing to provide
timely compensation and delaying the claims process. They present evidence of having
submitted complete claim documentation to PJICO, which allegedly failed to process the
claim within the stipulated time frame. Given these perceived breaches, Phuong Dong is not
only seeking full compensation but also requesting the court to award interest on the delayed
payment. They argue that PJICO's delay in processing the claim has caused significant
financial harm, which should be remedied through the payment of interest calculated from the
date of complete claim submission.
PJICO, as the insurer, is obligated to adhere to the principle of utmost good faith (Uberrimae
Fidei) throughout the claims settlement process. However, Phuong Dong argues that PJICO
has violated this principle by delaying payment and attempting to reduce the compensation
amount instead of fully honoring its contractual obligations. Previously, PJICO had
repeatedly confirmed the insured value of the Ngoc Son vessel at USD 2,800,000 in
consecutive insurance contracts without any dispute. However, upon the occurrence of the
loss, PJICO sought to reassess the vessel’s value to lower the compensation amount,
contradicting its prior commitments. This not only causes financial harm to Phuong Dong but
also demonstrates an inconsistency in the application of contract terms, violating the
principles of transparency and fairness in insurance.
- Petrolimex Insurance Joint Stock Corporation
PJICO asserts that according to the insurance contract terms, Phuong Dong has failed to
furnish all necessary documents to complete the claim file. Furthermore, PJICO contends that
while they conducted a valuation of the ship's actual value and communicated the results to
Phuong Dong, the latter disagreed with the assessment and refused to provide additional
requested documentation.
PJICO argues that marine insurance follows the principle of indemnity, meaning
compensation should reflect the actual value of the vessel at the time of loss, not necessarily
the pre-agreed insured value. They contend that Phuong Dong’s demand for full
compensation without considering the ship’s real market value is unjustified. PJICO asserts
that their valuation was conducted by independent experts, in compliance with industry
standards and Vietnamese law, ensuring that the compensation accurately reflects the vessel’s
true worth at the time of the incident. PJICO warns that awarding full compensation based on
an outdated insured value rather than the actual value at the time of loss would result in
unjust enrichment for Phuong Dong, contradicting fundamental insurance principles and
setting a dangerous precedent for the maritime insurance industry.
Regarding the interest calculation, PJICO argues that the proposed start date of June 29,
2017, is inappropriate. They maintain that as of this date, the claim file remained incomplete
due to Phuong Dong's disagreement with the valuation results. PJICO emphasizes that
according to the contract, the compensation processing period begins only upon receipt of a
complete and valid claim file, which Phuong Dong has not yet provided.
Moreover, PJICO challenges the accuracy of the interest amount and rate calculated by the
court of first instance, arguing that the applied 10% interest rate does not comply with the
State Bank's regulations, as Article 1 of Decision No. 2868/QD-NHNN dated November 29,
2010, issued by the State Bank of Vietnam, stipulates that “the basic interest rate for
Vietnamese dong is 9.0% per annum” (State Bank of Vietnam, 2010).
PJICO also raises the issue of valuation costs, as pursuant to Clause 2 of Article 161 of the
Civil Procedure Code, a party who does not accept another party's request for an expert
appraisal in a case shall bear the appraisal costs if the appraisal results confirm the basis for
the request. If the appraisal results only partially confirm the request for an appraisal, the
party who did not accept the request shall bear the appraisal costs corresponding to the
portion of the request that has been proven to be valid. Thus, PJICO asserts that Phuong
Dong should bear these expenses as they disagreed with the initial assessment and demanded
a re-evaluation.
3. Court Ruling Thuyết trình + Slide thì ấn vào file này nhé
The appellate court found that Insurance Contract P-16/0005, executed between NOSCO and
PJICO, is a contract entered into between two Vietnamese enterprises based on Vietnamese
law (as expressly stipulated in the contract). The contract does not violate any law and is
therefore valid and binding on all parties to the case. The subject matter of the insurance is
the vessel Ngoc Son, a Vietnamese-flagged vessel, including its hull, machinery, and
equipment.
Pursuant to Articles 232 and 233 of the Maritime Law and Articles 42, 46, and 48 of the
Insurance Business Law, the insured amount stated in the insurance contract shall neither be
less nor greater than the insured value. The insured value is the actual value of the insured
object. Therefore, the insured amount for the vessel Ngoc Son must be based on the actual
value of the vessel at the time of the insured event.
The trial court commissioned IVC Vietnam to appraise vessel Ngoc Son, which was valued
at 1,779,000 USD. The court awarded this amount as compensation, converting it to
41,541,429,000 VND using the State Bank's selling rate on October 19, 2018, which is
consistent with the law. Phuong Dong and PJICO have agreed the insured value of spare parts
and supplies on board to be 156,531.41 USD and 1,582,900,621 VND, respectively. The
equivalent value of the spare parts in Vietnamese Dong is 5,283,065,575 VND.
According to the contract, PJICO was obligated to pay the insurance claim within 30 days of
receiving a complete set of valid claim documents. Phuong Dong submitted all the necessary
documents on November 29, 2016, meaning that PJICO should have made the payment by
December 28, 2016 at the latest. However, PJICO delayed the payment. The trial court erred
in determining the starting point for calculating the default interest. The correct starting date
for the interest calculation is December 29, 2016. With an interest rate of 9% per annum for
22 months on the principal of 46,824,494,575 VND, PJICO is liable to pay Phuong Dong a
total of 7,726,041,598 VND in default interest for the delayed period.
Based on the ruling, the court determined Petrolimex Insurance Joint Stock Corporation must
compensate Oriental Shipping And Trading Joint Stock Company the amount of
54,550,536,173(fifty-four billion five hundred fifty million five hundred thirty-six thousand
one hundred seventy-three) VND, of which the insurance money is 46,824,494,575 (forty-six
billion eight hundred twenty-four million four hundred ninety-four thousand five hundred
seventy-five) VND, and interest is 7,726,041,598 (seven billion seven hundred twenty-six
million forty-one thousand five hundred ninety-eight) VND.
The entire amount that Petrolimex Insurance Joint Stock Corporation must compensate
Oriental Shipping And Trading Joint Stock Company, which is 54,550,536,173 (fifty-four
billion five hundred fifty million five hundred thirty-six thousand one hundred seventy-three)
VND, shall be transferred to the beneficiaries: Vietnam Development Bank - Hai Phong
Branch and Vietnam Bank for Agriculture and Rural Development - Transaction Office, to
the account of Vietnam Development Bank - Hai Phong Branch.
The appellate court acknowledged the voluntary action of Petrolimex Insurance Joint Stock
Corporation to refund the insurance premium to Oriental Shipping And Trading Joint Stock
Company for a total amount of 119,206,855 (one hundred nineteen million two hundred six
thousand eight hundred fifty-five) VND.
The appellate court found that, pursuant to Clause 1 of Article 46 and Clause 1 of Article 48
of the Insurance Business Law, the cost of loss assessment shall be borne by the insurance
company. Based on the stipulated clause, Petrolimex Insurance Joint Stock Corporation must
bear the appraisal cost of 60,000,000 (sixty million) VND (confirmed as already paid by
Petrolimex Company).
V. Discussion and lessons for parties participating in Insurance contracts
5. 1 Discussion from the dispute ( ko cần cho lên slide)
The dispute between Oriental Shipping and Trading Joint Stock Company (Phuong
Dong Company) and Petrolimex Insurance Corporation (PJICO) indicates the
complexities of insurance contract interpretation, particularly in the maritime industry.
Whether the full insured amount specified in the contract should be paid or if
compensation should be determined by the vessel's actual market worth at the time of
loss was the main point of contention. This disagreement highlights the difficulties
that occur when policyholders and insurers read contractual provisions differently,
particularly when it comes to valued vs unvalued plans.
In addition, it illustrates how valuation disputes, contractual ambiguities, and delayed
claim processing can lead to prolonged legal battles, emphasizing the need for more
clarity and consistency in insurance agreements, thereby drawing valuable lessons for
businesses and insurers in navigating the complexities of marine insurance and
contract enforcement.
5. 2 Lessons for parties participating in Insurance contracts
5.2.1 Lessons for insurance companies
First and foremost, insurance companies must prioritize drafting clear and precise
contracts to avoid ambiguity. It is crucial to explicitly define key terms such as
"total loss", "insured value", "valued policy", and "actual value" to prevent
misunderstandings, disputes, and unexpected losses later on. In this case, primary
legal conflicts in the case between Oriental Shipping and Trading Joint Stock
Company and Petrolimex Insurance Corporation revolved around whether
compensation should be based on the insured value stated in the contract or the actual
market value of the vessel at the time of the loss.
Besides, prompt claims handling is another critical area, helping to reduce the
financial burden for insurers themselves. In the Phuong Dong case, PJICO faced
significant legal consequences due to its failure to process the claim efficiently and
within the required timeframe. The delay in providing compensation led to Phuong
Dong demanding not only the insurance payout but also interest penalties for late
payment. Courts ruled that PJICO was liable for 7,726,041,598 VND in default
interest due to delayed processing, demonstrating how poor claims handling can result
in financial penalties and reputational damage for insurers.
Another critical aspect is conducting thorough and impartial valuations of insured
assets. Insurance firms must make sure that appraisals are carried out impartially,
utilizing accepted evaluation techniques, and be ready to provide legal justification for
their conclusions. This lessens the likelihood of disputes resulting from differences in
asset values between the insured and the insurer.
Lastly, all legal and regulatory standards need also be met by insurance businesses in
order to reduce financial and legal risks. This entails following deadlines for
compensation payments and being aware of the regulatory framework governing
interest rates for late payments. PJICO was held accountable for late compensation
payments in the Phuong Dong case. Insurers can guarantee adherence to industry
standards and prevent needless financial losses by closely adhering to their legal duties.
5.2.2 Lessons for Organizations and Individuals Participating in Insurance
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Policyholders must thoroughly understand their insurance contracts before
signing them. One of the most critical aspects is determining whether the policy
is a "valued policy" or an "actual value policy". A valued policy provides fixed
compensation regardless of the asset’s market value at the time of loss, whereas
an actual value policy based compensation on the market valuation at the time
of the insured event.
In this dispute, Phuong Dong assumed their insurance contract was a valued policy,
meaning they expected the full insured amount of 2,800,000 USD as compensation.
However, PJICO argued that compensation should be based on the vessel’s market
value at the time of loss, which was substantially lower. This misunderstanding led to
prolonged legal battles, significant delays in compensation, and additional financial
burdens on both parties. Understanding these phrases will help insured parties make
better decisions during disputes by letting them know their rights and responsibilities.
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For compensation processing to go well, claims should be submitted on time and
with proper paperwork. Policyholders ought to keep thorough records of every
document they submit, including valuation reports, correspondence with the
insurer, and claim forms. In this disagreement, PJICO contended that Phuong
Dong's incomplete submission of documentation caused delays in the processing
of the claim. By ensuring that all required paperwork is in order, policyholders
can expedite the claim process and strengthen their position in case of disputes.
Awareness of legal protections and relevant regulatory frameworks is an
important factor in successfully managing insurance claims. Understanding
national insurance laws, such as the Vietnamese Maritime Code, and
international regulations, such as the British Marine Insurance Act, provides a
strong legal foundation when disputing insurance company decisions. In the
Phuong Dong case, the company effectively used legal provisions to argue for
full compensation. It cited Article 254 of the Vietnamese Maritime Law, which
establishes that in the event of a total loss, an insured party is entitled to full
compensation based on the insured amount if the policy is valued. By being wellversed in the legal aspects of insurance contracts, policyholders can protect their
financial interests, anticipate potential disputes, and improve their chances of
securing fair compensation.
Finally, organizations need to be ready financially for any issues that may arise,
including legal costs, delayed compensation, and interest-related expenses.
III.
Conclusion
The resolution of insurance contract disputes, as seen in the case between Oriental Shipping and
Trading Joint Stock Company and Petrolimex Insurance Corporation, highlights the complexities and
challenges within the marine insurance sector. This case underscores the critical importance of clearly
defined contract terms, accurate risk valuation, and efficient dispute resolution mechanisms to
maintain fairness and trust between insurers and policyholders.
Moreover, the study reveals that misinterpretation of insurance policies, delays in compensation, and
disagreements over asset valuation are common sources of conflict. Ensuring transparent
communication, timely claim processing, and adherence to legal frameworks can significantly reduce
disputes.
From a broader perspective, this analysis reinforces the role of insurance as a vital financial safeguard
in managing risks. As the global insurance industry evolves, businesses and individuals must enhance
their understanding of policy structures and legal obligations to protect their interests effectively.
Ultimately, a well-regulated and fair insurance system not only benefits stakeholders but also
strengthens the overall stability of the maritime and financial sectors.