Chapter: Marine Insurance Marine Insurance • Marine Insurance – A contract between insurers and insured whereby the insurer undertakes to indemnify the insured in a manner & to the interest thereby agreed, against marine losses incident to marine adventure.
– Covers the loss or damage of ships, cargo, terminals, and
any transport or property by which cargo is transferred, acquired, or held between the points of origin and final destination. Marine Threats – The risk of the Sea Risk on the Sea • Stranding • Fire • Sinking • Theft • Collision • Jettison • Extraordinary heavy weather
Inessential Risks (bursting of boilers, breakage of shafts, breakage or leakage of cargo, fresh-water damage to cargo, etc) Branches of Marine Insurance 1. Hull Insurance – Insurance of vessels & its equipments.
2. Cargo Insurance – Covers indemnity against loss or damage to merchandise caused by fire or explosion, sinking, capsizing, jettison etc. during transit by ship.
3. Liability insurance Death or injury to passengers, damage to docks, oil pollution, fine or other penalties, any other public liabilities, etc. Branches of Marine Insurance 4. Freight insurance – Insurance for indemnifying the policyholder against loss of the freight money if the ship-owner cannot complete his contract of carriage because of unavoidable peril.
5. Off-shore insurance – Covers the loss or damage to exploration rigs and oil production platform in the sea. – Also covers drill-ships, drilling contraptions, pipelines, other associated hardwires, liabilities of third parties (pollution), consequential losses (loss of earnings, cost caused by blowout or similar mishaps.) Marine Insurance Contract • Features of Fire Insurance Contract – Nature of general contract • Agreement (offer and acceptance) • Legal consideration • Competent to make contract • Common intention • Legal Object. – Nature of special contract • Insurable interest • Utmost good faith • Indemnity • Subrogation • Proximate cause • Warranties Principle of Insurable Interest • Insurable Interest – Two important questions 1. Who is entitled to insure goods? – Under C.I.F (Cost, Insurance & Freight) Contract, the seller arranges insurance and entitled to receive the premium and other expenses from the buyer.
– Under F.O.B (Free on Board) contract, it is the duty of
the seller to deliver the goods on board the ship at his expense & once the goods are on board the ship, then the buyer has to arrange insurance of the goods. Principle of Insurable Interest • Insurable Interest (cont’d) – Two important questions 2. Who is entitled to receive the claim? – First of all, the Acts says that the insured must have insurable interest in the goods. He may not have this interest at the time of policy is taken out, but he must have this interest at the time of the loss.
– Usually it is the buyer (the consignee) who recovers
the claim, but he can do so only if he has acquired the ‘property’ (that is the ownership) in the goods or the goods were at his risk & he had insured the risk. Principle of Insurable Interest • Insurable Interest
Calculation of Insurable Value
• In case of insurance value of the ship + money advanced on a ship for officers' and crew's wages + other expenses incurred to make the ship fit for the marine adventure + the Insurance premium • In case of insurance Gross amount of freight + Insurance on freight premium • In case of insurance Prime cost of the goods + Shipping on goods or charges + Insurance premium merchandises Principle of Utmost Good Faith & Indemnity • Utmost Good Faith – A contract of marine insurance is based on the principle of utmost good-faith, which means that the proposer has a legal duty to disclose all material facts relating to the proposed insurance. • Indemnity – The contract of marine insurance is of indemnity – The basis of indemnity is always cash basis as underwriter cannot replace the lost ship or cargos & the basis may be either insured (if the value of the subject-matter is determined at the time of taking the policy) or insurable value. – Exceptions • Profits allowed: • Insured value (agreed value) Principle of Subrogation • Subrogation – A contract of marine insurance is based on the principle of subrogation. • The rights & remedies, which pass from the insured to the insurers, arise under a variety of situations, some examples of which are: – Recovery of loss of or damage to cargo from the carriers e.g., ship-owners. – Recovery from bailees e.g., port trust authority. – Recovery from third party e.g., recovery of compensation for hull (ship) received in collision caused by negligence of the other vessel. – Recovery of general average contributions in respect of property sacrificed. Principle of Proximate Cause • Doctrine of Proximate Cause – According to Marine Insurance Act, unless the policy otherwise provides the insurer is liable for any loss proximately caused by a peril insured against.
• The insurer is not liable for any loss attributable to the
willful misconduct of the assured. • Delay although the delay is caused by a peril insured against. • The insurer is not liable for ordinary wear & tear, ordinary leakage, & breakage, or any loss proximately caused by rats or vermin, or any injury to machinery not proximately caused by maritime perils. Warranties and Assignment • Warranties – Express Warranties – Implied Warranties • Seaworthiness of the ship. • Legality of the venture. • Other implied warranties – No change in voyage – No delay in voyage – No-deviation Marine Insurance Policies • The marine insurance policy is issued only when the contract has been finalized & it would be legal documents of evidence of the contract. a standard marine policy generally contains the following information: – Name of insured agent – Subject-matter insured – Risks insured against – Name of the vessel & its officers – Description of voyage or period of insurance – Amount & term of insurance – Premium. Marine Insurance Policies • Types of Marine Insurance Policies 1. Voyage Policy 2. Time Policy 3. Mixed Policy 4. Valued Policy. 5. Unvalued Policy 6. Floating Policy: 7. Freight Policy 8. Cargo Policy: 9. Currency Policy Marine Insurance Policies • Policy Conditions 1. Hull Clause – These clauses are mainly framed with the insurance on vessel & incorporated in hull policies. – The clause may be pertaining to losses resulting from collision, stranding, general average etc. This clause is also known as ‘Institute Time Clause’. 2. Cargo Clause – These clauses are used in the insurance of goods & are incorporated in cargo policies. – The clauses describe the nature, extent & scope of the insurance & define comprehensive conditions & restrictions. Terms & conditions of cargo insurance are specially incorporated in the policies. This clause is known as ‘Institute Cargo Clause.’ Marine Insurance Policies • Policy Conditions (cont’d) 3. Freight Clause – these clauses are framed in connection with loss of freight due to maritime perils which may be insured for a period of for a voyage. – The General Average (G.A), Particular Average (P.A) etc. are used in freight clause. The clauses are known as ‘Institute Freight Clause.’
Some other important clauses of marine insurance policies
1. Assignment Clause 7. Inchmaree Clause 2. Lost or Not Lost Clause 8. Running Down Clause 3. At & From Clause 9. Sue & Labor Charges 4. Warehouse to Warehouse Clause 10.Reinsurance Clause 5. Deviation Touch & Clause 11.Memorandum Clause 6. Touch & stay Clause 12.Continuation Clause Calculation of Premium in Marine Policies • Calculation of Premium – Premium can be ascertained either by numerical rating system or by judgment method. – The numerical rating system evaluates each & every item & marks are assigned to them according to their merits & degrees of influencing risk. – Since the marine perils are varied, the only numerical rating method cannot be successfully utilized. However, tabulation of statistical experience on many risks can serve the purpose as a basis of supplementary factors for underwriter’s judgments. Calculation of Premium in Marine Policies
Rate Fixation in Marine Rate Fixation in Marine Insurance (For Hull/Ship) Insurance (For Cargo) 1. Management 1. Ownership 2. Natural Forces & 2. Nature of the Cargo Topography 3. Hazard & Customs 3. Construction, Type & 4. Quality & Suitability of Nationality of Vessel the Vessel Used as Carrier 5. Duration of Voyage Claim in Marine Insurance • Payment of Claims – Before admitting claim relevant evidence in connection with policy is required. – In marine insurance, the policy is generally issued on mutual understanding & good-faith of both parties. But, at the time of claim, the insurer should satisfy himself on the information furnished by the insured. – Value of the subject-matter, nature of subject-matter warranties, insurable interests etc. are some of the matters to be considered at the time when claim arises. – For these purposes, the production of certain documents becomes necessary. Claim in Marine Insurance Documents Required For Claim Policy or • Furnishes an evidence of terms & contract certificate of insurance. Bill of lading • determines the scope of the contract of carriage. • Stating terms & conditions of sale. It will Invoice or bill help in estimating the correct value of the goods. • The master of the ship notes ‘protest’ before a counsel or notary public. Copy of protest • The protest states that everything was done to bring to safety the ship & cargo and loss or damage was not due to lack of diligence on the part of the master or crew. Claim in Marine Insurance Documents Required For Claim Certificate of • This is necessary to find out whether the survey necessary franchise is reached or not in case of particular average. Account sales or • Similar documents where goods have been bill of sales sold. The difference between gross sound value and sale proceeds as per account might be accepted as amount of loss. Letter of • It gives the underwriters to sue and recover subrogation compensation from third parties where the same is due.
