16.1 Introduction

16.1.1 A ship mortgage provides no more security than the value of the mortgaged ship. That will fluctuate with market changes and will reduce as the ship ages. These are commercial risks that are unlikely to be insurable competitively1 and which a commercial lender may mitigate by taking other security or guarantees from third parties or through the terms of the loan itself, including, for example, by requiring the mortgagor to ensure that the outstanding loan amount does not rise above an agreed percentage of the ship's market value. If the ship is physically lost or damaged or exposed to liabilities to third parties, the mortgage value may be reduced or extinguished altogether. Shipowners protect themselves against such liabilities through marine insurance. For their part, mortgagees will either join those policies as co-assureds or, more commonly, require the owner to assign their benefit to them. Although such rights are separate to, and distinct from, ship mortgage security and indeed do not confer security in its strict legal sense,2 they form a vital part of a ship mortgagee's usual bundle of rights that any ship financier will regard as necessary for its overall ‘security package’. Indeed, where a ship is the mortgagor's main asset, as will be the case with a one-ship company, the mortgage will be, in the words of one textbook writer, ‘meaningful only if some form of insurance exists in the lender's favour’.3 Further, mortgagees may take out separate insurance cover against excluded risks or to obtain further benefits not insured by their mortgagors. The most common of these are mortgagees’ interest insurance (‘MI insurance’ or ‘MII’) and mortgagees’ additional perils (pollution) insurance (‘MAPP’).4 Accordingly, it is appropriate for a book on ship mortgages to consider the interest of mortgagees in their mortgagors’ marine insurances, how those interests are usually protected and of what further insurance protections mortgagees may avail themselves. That said, this chapter will not provide a full overview