Marine Insurance

Kazi Murad Hossain

Assistant Professor, Law Discipline,
Khulna University, Khulna.
 Basic of insurance
• an arrangement by which a company or the state undertakes to provide a
guarantee of compensation for specified loss, damage, illness, or death in
return for payment of a specified premium.
• Insurance is a contract, represented by a policy, in which an individual or
entity receives financial protection or reimbursement against losses from
an insurance company. The company pools clients' risks to make payments
more affordable for the insured
 Few basic legal principles

• When a company insures an individual entity, there are basic legal

requirements and regulations. Several commonly cited legal principles of
insurance include:
• Indemnity– the insurance company indemnifies or compensates, the
insured in the case of certain losses only up to the insured's interest.
 Legal Principles
• Insurable interest– the insured typically must directly suffer from the loss.
• Insurable interest must exist whether property insurance or insurance on a person is
involved.
• The concept requires that the insured have a "stake" in the loss or damage to the life
or property insured. What that "stake" is will be determined by the kind of
insurance involved and the nature of the property ownership or relationship
between the persons.
• The requirement of an insurable interest is what distinguishes insurance
from gambling
 Legal Principles
• Utmost good faith – (Uberrima fides) the insured and the insurer are bound by a good faith bond of
honesty and fairness. Material facts must be disclosed.
• Contribution – insurers which have similar obligations to the insured contribute in the indemnification,
according to some method.
• Subrogation – the insurance company acquires legal rights to pursue recoveries on behalf of the
insured; for example, the insurer may sue those liable for the insured's loss. The Insurers can waive their
subrogation rights by using the special clauses.
• Causa proxima, or proximate cause – the cause of loss (the peril) must be covered under the
insuring agreement of the policy, and the dominant cause must not be excluded.
• Mitigation – In case of any loss or casualty, the asset owner must attempt to keep loss to a minimum, as
if the asset was not insured.
 Exclusions

• Policies typically include a number of exclusions, including typically:

• Nuclear exclusion clause, excluding damage caused by nuclear and radiation
accidents
• War exclusion clause, excluding damage from acts of war or terrorism[20][21]
 Classification
• Life Insurance
• General Insurance
• Fire Insurance
• Air Insurance
• Marine Insurance
• Car Insurance
• Property Insurance etc.
 What is Marine Insurance?
• The word marine insurance is often poorly understood.
• It is often thought that Marine Insurance covers your goods only when they
are on the vessel at sea, hence the name marine insurance.
 Marine insurance definition
• Marine insurance definition refers to the insurance of goods dispatched from
the country of origin to the country of destination.
• The term originates from the fact that goods intended for international trade
were traditionally transported by sea.
• Despite what the name implies, marine insurance is applicable to all modes
of transportation of goods. When the goods are sent by air, their insurance
is also known as marine cargo insurance.
 Marine insurance definition
• Insurance is often compulsory in many export trade contracts.
• It can be the obligation of the exporter or the importer to pay the insurance
cost on the shipment, depending on the terms of the contract.
• However, the need for insurance goes beyond contractual obligations, and
there are several valid arguments for buying it before dispatching the export
cargo.
 Goods should only be insured for transit by
one of the following three parties:
• The Forwarding Agent
• The Exporter
• The Importer
 What does marine insurance cover?
• Marine insurance covers goods from the moment they leave the sellers
warehouse until they arrive at the buyers warehouse.
• In other words, the cover is from warehouse to warehouse, not just port of
loading to port of discharge.
 Multi Modality
• Marine insurance is “multi modal” meaning it insures transport on many
different forms of transport. Here is an example of multi modtality.
• If the goods are stolen or damaged as it transits on any of these modes of
transport the customer can make a claim as the policy is multi-modality.
 Duration of marine insurance
• Like any form of insurance such as home or car insurance, cargo insurance
has a termination date, a date the marine insurance ends.
• Normally marine insurance ends 60 days after the goods arrive at the port of
final destination.
• The importer (buyer) has 60 days to clear the consignment through customs
at the port of final destination and arrange transport to the final warehouse.
 Duration of marine insurance
• The 60 day clause is very important to remember if you are importing goods
into a port where custom clearance takes a very long time or where the dock
authorities cannot move the cargo off the dock side quickly, due to lack of
labour force or slow moving cranes.

• In this case, the seller under a CIF CIP contract would arrange for the 60
day clause to be changed to a 90 day clause or the amount of days needed.
This change could result in a slight increase in the insurance premium.
 Duration of marine insurance
• Again if you think it will take longer than 30 days to clear customs and
deliver to the warehouse of final destination arrange for the thirty days to be
changed accordingly.
 Types of Marine Insurance

• Freight Insurance
• Liability Insurance
• Hull Insurance
• Marine Cargo Insurance
 POPULAR MARINE INSURANCE
COMPRISES:
1. Hull Insurance

2. Cargo Insurance

1. HULL INSURANCE
• Concerns the insurance of ships. Hull, machinery etc.
2. CARGO INSURANCE : Plays an important role in domestic trade as well as international trade.
• Provides insurance cover in respect of loss of or damage to goods during transit by –rail, -road -sea -air
 Types Of Marine Policy
• Floating Policy
• Voyage Policy
• Time Policy
• Mixed Policy
• Named Policy
 Types Of Marine Policy
• Port Risk Policy
• Fleet Policy
• Single Vessel Policy
• Blanket Policy
 How Marine Insurance works?
• Marine insurance transfers the liability of the goods from the parties and
intermediaries involved to the insurance company.
• The legal liability of the intermediaries handling the goods is limited to begin
with.
• The exporter, instead of bearing the sole responsibility of the goods, can buy
an insurance policy and get coverage for the exported goods against any
possible loss or damage.
 How Marine Insurance works?
• The carrier of the goods, be it the airline or the shipping company, may bear
the cost of damages and losses to the goods while on board.
• However, the compensation agreed upon is mostly on a ‘per package’ or ‘per
consignment’ basis.
• The coverage so provided may not be sufficient to cover the cost of the
goods shipped.
• Therefore, exporters prefer to ship their products after getting it insured the
same with an insurance company.
 How Marine Insurance works?
• Marine insurance is necessary to meet the contractual obligations of exports.
To align with agreements such as cost insurance and freight (CIF) or carriage
and insurance paid (CIP), the exporter needs to take marine insurance to
protect the buyer’s or their bank’s interest and honor the contractual
obligation. Similarly, in the case of Delivered Duty Unpaid (DDU)
and Delivered Duty Paid (DDP) terms, the seller may not be obligated to
insure the goods, although in practice they generally do.
To avoid insurance claims, ensure the following:

• Packing of goods should be done keeping in mind their safety during loading
and unloading
• Packing should be good enough to withstand natural hazards to the best
extent possible
• Keep in mind the possibility of clumsy handling or theft when packing
goods.
How to choose the correct insurance cover
• As with all forms of insurance, it’s sensible to ask for fully comprehensive,
third party or limited mileage insurance and the premium paid would reflect
the type of insurance required.
• Likewise with marine/air insurance asking for a particular cover and
premium would be in line with the cover requested.
How to choose the correct insurance cover
• For sea freight, there are three types of insurance cover:
• Institute cargo clause A
• Institute cargo clause B
• Institute cargo clause C (Minimum cover referred to in Incoterms 2020 CIF,
CIP)
 Institution Cargo Clause A, B and C
• Clause A, B and C are broken down into:
• Risks Covered
• Excursions
• Duration

• In Clause A, risks covered are all risks, in other words, this is the best cover available
because you are covered for ALL risks except those detailed under exclusions .
 Institution Cargo Clause A, B and C
• In exclusions clause 4.3 covers insufficiency or unsuitability of packing as we
discussed in module one Incoterms 2020 and packing implications.
• In duration clause 8.1.4 covers the 60 day rule.
• Exclusion and duration clauses never change they are the same for all three
clauses A B C.
• The only changes to clause A, B and C are under risk covered.
 In clause B the specific risks covered are:
• Fire or explosion
• Vessel or craft being stranded grounded sunk or capsized
• Overturning or derailment of land conveyance
• Collision or contact of vessel craft or conveyance with any external object
other than water
• Discharge of cargo at a port of distress
 In clause B the specific risks covered are:
• Earthquake volcanic eruption or lightning
• General average sacrifice
• Jettison or washing overboard
• Entry of sea lake or river water into vessel craft hold conveyance container
or place or storage
• Total loss of any package lost overboard or dropped whilst loading on to, or
unloading from, vessel or craft.
 The risks covered In clause C which is referred to
in Incoterms 2010 under CIF CIP and usually called
Minimum cover and are as follows:

• Fire or explosion
• Vessel or craft being stranded grounded, sunk or capsized
• Overturning or derailment of land conveyance
• Collision or contact of vessel craft or conveyance with any external object
other than water
 The risks covered In clause C which is referred to
in Incoterms 2010 under CIF CIP and usually called
Minimum cover and are as follows:
• Discharge of cargo at a port of distress
• Loss or damage to the subject matter insured caused by
• General average sacrifice
• Jettison
 Exclusions
• Loss caused by willful misconduct of the insured.
• Ordinary leakage, ordinary loss in weight or volume or ordinary wear and tear.
• Loss caused by inherent vice or nature of the subject matter.
• Loss caused by delay.
• Loss arising from insolvency or financial default of owners of the vessel.
• Loss or damage due to inadequate packing.
• War, riot, strike, lock-out, civil commotions and terrorism.
 What insurance cover should be chosen?
• When choosing whether goods should be insured under Clause A, B or C, several factors
should be taken into consideration:
• Clause A would be recommended if:
• The goods are high valued
• The goods are desirable, i.e. prone to robbery for example, iPhones, iPads and laptop
computers
• They are being shipped from a port with a high risk of robbery or being delivered to a port
with a high risk of robbery.
• If the answer is yes to all or some of the above then Clause A all risks would be
recommended.
 What insurance cover should be chosen?
• Clause B or C would be recommended if the goods are:
• Second hand goods
• Baulk goods such as robust machines
• Scrap cars
 What are Insurance Premiums?
• Every insurance premium is different and depends on the following factors:
• Description of goods
• Value of goods,
• Packing specifications and if cargo is containerized
• Country and port of export
• Country and port of import
• Possible name of shipping line
• A combination of these factors determines the premium paid.
 How is cargo insured?
• The most practical way to insure cargo is to speak to a freight forwarder and
get them to insure the cargo on your behalf. Most freight forwarders have
their own in house master policy from which they can issue insurance.
• The freight forwarder will use the value of your commercial invoice to your
buyer and add ten per cent. They will then calculate their premium based on
110% of the value of the goods.
 For example, your commercial invoice reads:

Total: £3859.00
The freight forwarder adds 10% or £385.90 to give a total of £4,244.9.
The total of £4,244.9 is the basis for their premium calculation
The reason why an extra 10% is added to the invoice value is that in theory the
additional 10% would cover the loss of the buyers potential profit.
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