INSURANCE LAW – RESEARCH PAPER

MARINE POLICIES AND RISKS IN INDIA

M.ARUN PRAKASH
(BA0160010)

Tamil Nadu National Law University

Tiruchirappalli

November 2020

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 MARINE POLICIES AND RISKS IN INDIA

INTRODUCTION
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In the present era, business has no boundaries i.e. all sorts of product and services are
available across the border. But, the farer the goods are, the greater is the risk exposed
to it. The globalization has made maritime insurance the spine of international trades.
Insurances provide security to individuals and communities and businesses alike, it
also facilitates commerce and trade by mitigating the loss incurred in such trades. In
India, the marine insurance laws are governed by Marine Insurance Act 1963 and
further regulated by what is called “incoterms” which are the clauses of the
International Commercial Contracts and Institute of London Underwriters (ILU).

It would be difficult to manage the expansion of maritime without the facilitation of

maritime insurance for long distance trade. This type of trading would have been
more risky and costly. “In a marine insurance contract, an insurer ‘underwriter’ agrees
to assume some portion of the maritime risks on a vessel or cargo, or both, in
exchange for a premium. The risks covered may include a variety of risks at sea or in
port, for a particular voyage or for a period of time.”1

Marine insurance was authenticated as an insurance contract from time immemorial.

It showed the attributes“of insurance in the terms of risk transfer because of any
inevitable event or occasion in lieu of payment of any premium. “

HISTORICAL EVOLUTION IN INDIA

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In olden times dating back to several centuries marine insurances had been utilised as
a means and method to secure the interests of the owners of the ship and cargo to ease
the impediments that overseas trade presented. “Marine insurance had facilitated the
development of long-distance trade and as such has influenced economic growth and
progress of, in particular, seafaring nations in the early modern period.”2

1
Christopher Kingston, Marine Insurance in Britain and America, 1720-1844: A
Comparative Institutional Analysis, http://www.ehs.org.uk/dotAsset/332686ee-2db9-
4f09-abc6- cb900150d473.pdf
2
Sabine Christa Go, Marine Insurance in the Netherlands 1600-1870 A comparative
institutional approach,UBVU(Nov02,2020),
http://dare.ubvu.vu.nl/bitstream/handle/1871/15525/8950.pdf?sequence=5
Since independence, shipping across India underwent a considerable expansion. Prior
to legislation, marine law decisions were decided complying with the English court
rulings on contracts which had based itself with the common law and general rules of
contract. The interpretation of the rules contained in the general marine policies
serves as a essence of marine insurance. “In India, insurance has a deep-rooted
history. It finds mention in the writings of Manu (Manusmrithi), Yagnavalkya
(Dharmasastra) and Kautilya (Arthasastra). The writings talk in terms of pooling of
resources that could be re-distributed in times of calamities such as fire, floods,
epidemics and famine. This was probably a pre-cursor to modern day insurance.
Ancient Indian history has preserved the earliest traces of insurance in the form of
marine trade loans and carriers’ contracts. Insurance in India has evolved over time
heavily drawing from other countries, England particularly.”3

“The Oriental Life Insurance Company was set up in Calcutta in the year 1818 which
was identified with life insurance business in India. The company anyway fizzled in
1834. In 1829, the Madras Equitable started executing life insurance business in the
Madras Presidency4.”The codified law regarding the marine insurance was introduced
by the British Insurance Act in 1870. Following which, the Indian Mercantile
Insurance Ltd was established in 1907 to execute all classes of general insurances as
their principal company. In India, the Marine Insurance Act, 1963 was introduced
following the changes that the sector underwent in the preceding years, the state of
which in the country had required an efficient system for smooth functioning 5. The
Act expressly intended to systematize the law regarding marine insurance.

MARINE INSURANCE - ESSENTIALS AND LEGAL PROVISIONS

“Marine insurance is a contract to which the general principles of contract law are not
applicable. The general or basic principle which is followed by the contract of marine
insurance is the contract of ‘indemnity”.“The promise of indemnity gives the right of
action for unliquidated damages in case of non-payment as required by section 24 of
the Indian Act6. Thus according to Section 3 of 1963 Act7, a contract of marine

3
M.Venkatesh, A Study of “Trend Analysis in Insurance Sector in India”, 2, IJES, 1,
1 (2013)
4
Addya Mishra, Marine Insurance and its legal aspects in India: Perils of the Sea,IJLLJS: Vol 1 Issue
8.
5
Ibid.
6
Bank of England v Vaglino Brothers, (1891) AC.107, 144 H.L
7
Indian Marine Insurance Act, 1963
insurance is “a contract where the insurer undertakes to indemnify the insured, the
losses incurred in the sea voyage. “

“The formal instrument embodying the contract of marine insurance is called““the

policy”; and “the slip” or “covering note”, “is the informal memorandum that is
drawn up when the contract is entered into. The person who is indemnified is “the
assured” and the other party is styled “the insurer” or “the underwriter”. “Loss” is
interpreted to be inclusive of damages, detriments and actual loss of property caused
due to the maritime perils.”8

The Section 25 of 1963 Act9 prescribes the essential constituents of a marine policy:

a) The name of the assured or some other individual for his sake.
b) The sea voyage or time span or both if protected by the insurance.
c) The subject matter and the risk against which the asuured had taken the
insurance policy.
d) Insurer’s name.
e) And the sum and total amount assured.

Section 19 of the act enumerates that an insurance contract is based on utmost good
faith10. “The notion of utmost good faith as uberrimae fidie, the cardinal principle
governing the marine insurance contract, is a well-established doctrine derived from
the celebrated case of Carter v. Boehm11, decided long before the inception of the Act.
With the codification of the law, the principle found expression in Sections 19-22.”12

“Under the Admiralty offences (Colonial) Act, 1849, the Court of Sessions of Greater
Mumbai convicted 17 pirates who pirated a cargo vessel flying the Japanese flag in
the Indian Ocean. Upon receipt of information regarding the piracy of their vessel
from the Japanese owners of the vessel, two vessels of the Indian Coast Guard
intercepted the pirated vessel and apprehended the 17 pirates and escorted the vessel
to the Mumbai port. On arrival at Mumbai, all the 17 pirates of Indonesian origin

8
Gaurangi Patil, Reeling Back In History To Understanding Marine Insurance/
Protection & Indemnity Clubs (P&I), BRUS (Nov 02, 2020, 11:08 AM),
http://www.brus.in/publications/shipping/MI.pdf
9
Indian Marine Insurance Act, 1963.
10
Ibid.
11
(1766) 97 ER 1162
12
Indian Marine Insurance Act 1963
were arrested and charged. The prosecution was successful in getting a conviction of
the pirates inter alia under the provisions of the aforesaid act. This was the first time
in relation to piracy in the world that the pirates were not only arrested but were also
successfully convicted.”13

RISKS NOT COVERED UNDER MARINE INSURANCE

Marine insurance evidently contributed to the expansion of trade in the age of sail in
the wake of the risky nature of maritime commerce, and this demanded for the
institutions related to marine risks that are of increasingly complex nature.

Risks covered by the Marine Insurance are:

i. Total loss – It is the sort of loss that deems the property not safeworthy to be
safeguarded by insurance. Total loss is of two kinds:“Actual total loss, where the
item or the subject-matter protected is wrecked or harmed such that it stops to be
a thing of that sort safeguarded and constructive total loss is the place where in
the item or the subject-matter guaranteed is deserted because of the total loss
giving off an impression of being unavoidable.14 “

ii. Particular average is type of partial loss wherein the loss is to be borne by the
maritime property which had suffered the loss.15

iii. “General average is a partial loss or average, the loss of which is borne by both
the maritime property that suffered the loss and the other maritime properties in
the same sea voyage safety.16 “
The partial loss of maritime property is called as average in maritime insurance law.

Risks that are specifically excluded from the Insurance Contract:

The insurer is liable for the perils, hazards and property only when proximately
caused against peril, hazard and property insured against. it is the underlying rule for
determining the liability of the insurer. In Reisher v Borwich17, a tug had been insured
against a collision and damge resulting thereof but not perils of the sea and the
13
V. Subramanian (Kumar), Shipping/Maritime Law in India, PAND INDIA (Nov.
03, 2020, 18:13 PM), http://www.pandiindia.com/ShippingMaritimeLaw.htm
14
Supra note 4
15
Dr. Nicholas Kouladis, Principles of Law relating to International Trade, Springer
publications(USA).
16
Ibid.
17
(1894) 2 QB 548, CA.
insured in the case could recover total loss where it recognized the cause proximate in
effect (broken pipes) as the grounds for ascertining the proximate cause. The
mandatory term that every marine insurance policy includes is “perils of the sea”.
There are no statutory definitions for this term in either The Marine Insurance Act,
1906 of the English law or the like Indian law The Marine Insurance Act, 1963. But
section 2(e) does define “maritime perils” as perils consequent to or incidental to, the
navigation of the sea. New India Insurance Co v. Andhra Fisherman Co-op Society
Ltd18 held perils of the sea to include:

“sinking of the ship, damage to the ship and cargo due to the dashing of waves,
dashing of the ship on the ship, fire or explosion on the ship, spoilage of cargo due to
sea water and destruction of the ship and cargo by the crew or captain of the ship,
piracy and such other risks, and donot include the ordinary action of wind and sea”.19

Delayed Arrival:

The proximate cause rule applies here too. Profit and market losses owing to the delay
in arrival and deterioration thereof are excluded and while ascertaining these the term
“risk” is to be examined carefully as against the policy of insurance.

Ordinary and Unavoidable Trade Losses:

Unless exclusively provided by the policy, shrinkage and evaporation in the shipment
are excluded. The ordinary leakage and breakage come within its ambit and unless
exclusively provided by the policy, shrinkage and evaporation in the shipment are
excluded. The case of Miss Jay Jay held the damage caused by the ordinary action of
wind and waves was “ordinary” wear and tear.20

Dangerous Drugs Clause:

The conditions specified in the insurance policy is to be met with for the losses of
opium and other like dangerous drugs in the shipment otherwise to get paid back
otherwise they are not”.21
18
AIR, 2003, A.P. 231
19
D.P Verma, Marine Insurance in India: Policies and Principles, page no 10&11, electronic copy
available at: http://ssrn.com/abstracts=1594993.
20
[1985] 1 Lloyd’s Rep. 264.
21
Risks Not Covered By Marine Insurance, HOW TO IMPORT EXPORT,
http://howtoexportimport.com/RISKS-NOT-COVERED-BY-MARINE-
INSURANCE-487.aspx
Willful Misconduct:

This applies to both the insurer and the insured. Thomson v Hopper22 held “wilful
misconduct” constituted by the unseaworthiness by the insurer and also privity of the
assured, the inaction showing disregard and indifference.

Under conventional conditions, certain products convey simple breakage. Any harm
caused to any effectively weak or delicate dish sets or kindness not be covered under
marine insurance in the event that it has not been packaged appropriately. Likewise
harm caused during the first bundling is rejected. “The term "risk" being in this
setting to allude to the risk of misfortune happening regarding safeguarded property,
and the risk of misfortune be inclusive of not just real property for return for the
installment of premium by the guaranteed losses yet in addition financial losses also,
for example, those subsequent from the loss of cargo, section cash, commission or
benefit just as specific sorts of liabilities brought about to third party.23

“To comprehend the six reasons of barring certain risks from the marine insurance
statement we have to initially comprehend the three significant classes of prohibition.
The classifications being: “

1. Prohibited "perils" wherein the hazard is characterized as any genuine loss

emerging out of any harm that outcomes in a financial loss,

2. Prohibited "hazards" wherein the danger is characterized as something that

expands the opportunity of event of a financial loss,

3. Prohibited "property" wherein the property may incorporate anything tangible or

intangible.

In the wake of understanding the three principle classes of rejection, it turns out to be
anything but difficult to arrange the losses not shrouded in one of the six reasons
expressed underneath:

22
(1856) 6 E&B 937.
23
Legal Aspects Of Marine Insurance In India, LAW TEACHER (Nov15, 2020,
13:05 PM), http://www.lawteacher.net/commercial-law/essays/legal-aspects-of-
marine-insurance-law-essays.php
I. “The rejection classifications in particular the peril, or the hazard or the property
can be canvassed in a superior way somewhere else. For example, any loss of
money is not covered under the commercial property loss since this can be better
covered under any 'crime policy'. “

II. “The damage or the loss might be cataclysmic in nature. The marine insurance
policy as a rule covers the individual debacles, not a network fiasco. “

III. “The loss that has happened may not be incidental or unanticipated in nature. As
per the overall marine policy, any insurable loss is what is either inadvertent or
unexpected in nature. Deliberate acts done to pick up the advantage of insurance
won't be named as insurable. “

IV. “The bearer of the insurance might be happy to give the insurance yet simply
need more data and premiums. The explanation some of the time certain risks are
rejected from the marine insurance is that the insurance bearer might be happy to
have a higher premium of danger insured and the back up plan may not be eager
to do as such. “

V. “The bearer of the insurance needs to control the conceded measure of inclusion.
This happens when the inclusion of a danger is avoided from the policy yet an
extra inclusion is given to cover the danger. It might appear to be befuddling yet
giving the extra inclusion in foreordained sums really decreases the disarray. The
strategy is exceptionally utilized in property and risk inclusion. “

VI. “The loss of the damage is emerging out of any business hazard. In such sort of
avoidances, it includes the business hazard wherein the odds of loss or of no
progressions or addition. Insurance isn't given for any terrible business choice.
Likewise any deliberate deferral or loss of market won't add up to hazard getting
insured. “

CONCLUSION
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“Marine insurance goes about as a system that helps in alleviating hazard caused
during any risky circumstance which as an outcome makes budgetary misfortune ship,
cargo or any merchandise or property while shipping it abroad 24.“The motivation

24
Supra note 12
behind marine insurance is to make sure about the danger of the ship-proprietor, or
the cargo or any versatile property that may experience the ill effects of any money
related shakiness during a journey. There are still issues regarding the underwriters
where the insurers do not want to cover certain dangers during the sea voyage. “These
dangers which are not canvassed in a marine insurance are normally the dangers
which are either the carelessness of the ship-proprietor or the cargo proprietor, or a
bundling shortcoming which is carelessness. The evolution of maritime law in India is
of ongoing past. There are a few legal arrangements that manages different parts of
admiral's office law and certain judgment from different courts have set precedents
for managing office of the chief naval officers. However, the evolution can be
followed back to a few centuries and certain dangers are solely avoided though from
time to time the courts have interpreted that those dangers be covered from the
rundown to secure the underwriter's advantage. In this way barred misfortunes in
marine insurance are a significant viewpoint to remember while managing marine
insurance.
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