Marine Insurance

#DEFINITION: Marine insurance refers to a contract of indemnity. It is an

assurance that the goods dispatched from the country of origin to the land of destination
are insured. Marine insurance covers the loss/damage of ships, cargo, terminals, and
includes any other means of transport by which goods are transferred, acquired, or held
between the points of origin and the final destination.
#Subject matter of Marine insurance
Hull Insurance
covers loss of or damage to a vessel or its machinery or equipment. Hull insurance mainly
caters to the torso and hull of the vessel along with all the articles and pieces of furniture
on the ship. Marine hull insurance is basically the insurance of all types of vessels
including (Motor tankers, Bulk Carrier, Combo Vessels, Yachts, pleasure boats etc), and
covers loss to Hull i.e., the structure of Ship and Machinery well. Regarding Calculations,
premium several things are taken into account i.e., year of Built; Nature of Vessel, Useful
life of the vessel, Trade routes etc.
Marine Cargo insurance covers loss of or damage to the goods carried in a vessel
whether on domestic or international journeys. Marine cargo policy refers to the insurance
of goods dispatched from the country of origin to the country of destination. In
calculations of the premium, we consider the number of things, which includes the Nature
of Cargo, Delivery route, Mode and Delivery method whether by air, by sea or by road
etc.
Freight Insurance
In freight insurance, for example, if the goods are damaged in transit, the operator would
lose freight receivables & so the insurance will be provided on compensation for loss of
freight. Money paid for the transportation of goods. Freight insurance is a common
coverage in marine insurance, purchased by the owners of transporting vessels.
Liability Insurance
Marine Liability insurance is where compensation is bought to provide any liability
occurring on account of a ship crashing or colliding. Marine Liability Insurance provides
cover for: Loss of or damage to any other vessel or property caused by insured vessel.
Death, personal injury or illness to the third party. Removal of wreck. Loss of or damage
to any vessel or craft in your care, custody or control.
#Elements of Marine insurance Contract
 Features of General Contract,
 Insurable Interest,
 Utmost Good Faith,
 The doctrine of Indemnity,
  Subrogation,
 Warranties,
 Proximate cause,
 Assignment and nomination of the policy
#Warranties Under Marine Insurance:
A warranty is something by which the insured undertakes that some things shall or
shall not be done during the tenure of the policy. The policyholders affirm or negate
the existence of particular facts.
Warranties are like statements according to which an insured promise to do or not to
do some particular things. It is to be kept in mind, warranty is a statement of fact
and not merely a condition. Warranties are strongly insisted upon and therefore,
irrespective of the fact that the warranty was important or not, the contract becomes
null and void in case warranties are broken.
warranties can be divided into two parts:
1.Express Warranties: These are stated in express terms in the policy document.
2.Implied Warranties: Though these are not stated in the policy document, they are
mutually understood by the insurance parties and therefore, they are as binding as
express warranties.

#Following are said to be implied warranties and are very crucial:

A. Seaworthiness of ship: It means that ships which will be used for transportation
should be suitably equipped, constructed and capable of withstanding ordinary stress at
the voyage. It should be able to do the following:
 To decide worthiness of the ship is very subjective and may vary with any
particular vessel at different periods of time and places, like, a ship may be
seaworthy for summer but may not be suitable for winter.
 Apart from the physical condition, the seaworthiness of the ship also includes
adequacy of equipment’s, expertise of crew members and the consignment
 The ship must be cargo worthiness which means it must be reasonably fit to carry
the insured cargo. Warranty of seaworthiness doesn’t apply to cargo which means,
there is no warranty that the cargo should be seaworthy. Cargo owner is not
expected to be well acquainted with the shipping business.
 A ship should be seaworthy at the commencement port of the voyage also at
different stages if the voyage is to be completed in different stages.
B. No change in the destination of the voyage If the destination of the voyage is
changed intentionally after the inception of the risk, it is known as the change in the
voyage. If this happens, the marine insurance company is no more responsible for
covering the new voyage.
C. No delay in the voyage It says that there should be no delay in starting the voyage
without a valid reason. It is necessary that the insured venture must be dispatched within
the reasonable time duration. In case there is a delay, the insurer has all rights to refuse to
give the coverage in the absence of any legal reason.
D. No deviation the liability of the insurer ends in a marine insurance if there is a
deviation in the journey. It can be further explained as the deviation from the specified or
normal route. In case a ship deviates from its fixed passage, the insurer’s liability ends.
This will be immaterial if the ship returns to its original path before the loss. However, the
insurer can forgo the responsibility only if there is an actual deviation and not mere the
intention to deviate.
#Types of Marine Insurance Policies
1. Floating policy When a person ships goods regularly in a particular geographical area,
he will have to purchase a marine policy every time. It involves a lot of time and
formalities. He purchases a policy for a lump sum amount without mentioning the value of
goods and name of the ship etc. When he sends the goods, a declaration is made about the
particulars of goods and the name of the ship. The insurer will make an entry in the policy
and the amount of policy will be reduced to that extent. This policy is called an open or a
floating policy.
2. Voyage policy It covers the risk from the port of departure up to the port of destination.
The policy ends when the ship reaches the port of arrival. This type of policy is purchased
generally for cargo. The risk coverage starts when the ship leaves the port of departure.
3. Time Policy: This policy is issued for a particular period. All the marine perils during
that period are insured. This type of policy is suitable for full insurance. The ship is
insured for a fixed period irrespective of voyages. The policy is generally issued for one
year. Time policies may sometimes be issued for more than a year or they may be
extended beyond a year to enable a ship to complete a voyage. In India, a time policy is
not issued for more than a year.
4. Mixed Policy: This policy is a mixture of time and voyage policies. A ship may be
insured during a particular voyage for a period, e.g., a ship may be insured between
Bombay and London for one year. These policies are issued to ships operating on a
particular route.
5.Valued Policy: Under this policy the value of the policy is decided at the time of
contract. The value is written on the face of the policy. In case of loss, the agreed amount
will be paid. There is no dispute later on for determining the value of compensation. The
value of goods includes cost, freight, insurance charges, some margin of profit and other
incidental expenses. The ships are insured in this manner.
6. Unvalued Policy:When the value of insurance policy is not decided at the time of
taking up a policy, it is called unvalued policy. The amount of loss is ascertained when a
loss occurs. At the time of loss or damage the value of the subject-matter is determined. In
finding out the value of goods, freight, insurance charges and some margin of profit is
allowed to the policy in common use.
7. Block Policy: Sometimes a policy is issued to cover both land and sea risks. If the
goods are sent by rail or by truck to the departure, then it will involve risk on land also.
One single policy can be issued to cover risks from the point of despatch to the point of
ultimate arrival. This policy is called a Block Policy.
8. Wager Policy: This is a policy held by a person who does not have any insurable
interest in the subject insured. He simply bets or gambles with the underwriter. The policy
is not enforced by law. But still underwriters claim under this policy. The wager policy is
also called ‘Honor Policy’ or ‘Policies Proof of Interest’ (P.P.I.).
9. Composite Policy: A policy may be undertaken by more than one underwriter. The
obligation of each underwriter is distinctly fixed. This is called a composite policy.
10. Port Risk policy: It is a policy taken to ensure the safety of the ship when it is
stationed in a port.
11. Fleet policy: A policy may be taken up for one ship or for the whole fleet. If it is taken
for each ship, it is called a single vessel policy. When a company purchases one policy for
all its ships, it is called a fleet policy. The insured has an advantage of covering even old
ships at an average rate of premium. This policy is generally a time policy.
#Marine Perils
Losses in the marine insurance business are the result of various perils. Marine insurance
policy does not necessarily cover all the risks. “Marine Perils means the perils consequent
on,” or incidental to the navigation of the sea, that is to say, perils of the seas, fire, war
perils (enemies), pirates, rovers, thieves, captures, seizures, restraints, and detainment of
princes and peoples, jettisons, barratry and other perils, either of the like-kind or which
may be designated by the policy.”
1. Perils of Sea
Under the perils of the sea, the ordinary action of the winds and waves, ordinary wear and
tear to the vessel, the inherent risk of the cargo is not included. The underwriter may be
liable for losses caused by Perils of the sea; he is not necessarily liable for perils on the
sea. Perils of the sea refer to fortuitous accidents or casualties of the sea. Suppose the loss
arising out of any of the perils of the sea insured is attributable to the fraud or willful
misconduct of the assured. In that case, the underwriter is acquitted from the liability
under the policy.
2. Fire
In olden times fire was the biggest maritime peril, but recently it has been under control to
a greater extent. Damage resulting from fire and smoke is included under fire-peril. The
water used for extinguishing a fire may cause damage to the insured goods. So, this peril
is also insurable. The damage due to spontaneous combustion may be maritime peril and
be insured against. Damage was done due to the lightning, explosion, and fire originating
from the negligence of the crew are recoverable from underwriters. The losses which are
not included in the standard policy can be covered by having special clauses and paying
an extra premium.
3. Man-of-War
This is the vessel that is authorized by nations for the purpose of defense or attack in the
event of hostilities. Any damage to the goods or ships arising out of collision against a
man-of-war is insurable.
4. Enemies
Tile ships belonging to the foe (enemy) may cause loss to the insured and is re-
underwritten by the marine policy. This policy extends to all the persons of the enemy
country and to their hostile acts provided such acts form part of the enemy’s actions.
5. Pirates, Rovers, Thieves
The perils on account of pirates, rovers, and thieves were common in olden times, but they
have been reduced considerably. These acts are generally committed to pursuing
individual gain by persons beyond the jurisdiction of a state. The ter’ ‘thiev’s’ does not
mean clandestine theft or theft committed by any crew, officers, or passengers.
6.Jettison
Jettison means voluntary throwing away of the cargo or part of vevessel’s equipment for
lightning or relieving the ship for the common safety.
• The aim of intentionally throwing away the goods or property is to relieve the
vessel from some imminent peril.
• The accidental falling of things does not constitute a jettison.
• Own inherent-vice of cargo is also not included in the jettison.
7. Barratry
Barratry includes every wrongful act willfully committed by the master or crew the
prejudice of the owner. The act of barratry must be committed without the knowledge of
the owner.
The theft, then setting fire to ship, fraudulent selling of vessel and cargo without the
connivance of the ship-owner are the various examples of the barratry. The insurer, if
barratry insured, is liable for losses arising out of barratry.
8. Restraints and Detainments
The preventions free use of a port by the government of the country is called restraints. It
may cause interruption and possible loss of voyages involving such ports and sacrifice of
cargo.
The te’m ‘detainme’ts’ covers losses resulting from the detention of a vessel and its cargo
by blockage or possibly quarantine regulation or other interference by the police power of
a nation while a vessel is in port.
It does not cover losses that result merely from delay or interruption of the voyage, or loss
of market or some other remote result.
9. The Free of Capture and Seizure Clause (F.C. & S. Clause)
The policy generally covers war perils. But, to include the perils of the sudden declaration
of war, the war clause or free of capture and seizure clause is added to relieve war perils.
By deletion of this clause, the policy is automatically restored to its original condition and
adequate premiums are charged for the purpose.

10. Explosion
The risk of the explosion has greatly increased. The explosion on board a vessel damaging
hull or cargo or both could be constructed as peril on the sea, and an explosion onshore
might damage a ship or its cargo.
Marine cargo policies were amended to include the risk of explosions not clearly caused
by war perils. In case of hull policies, the explosion ‘on shipboard or elsewhere’ is
covered in the amended “Inchmaree or Negligence clause”.
11. Strikes, Riots, and Civil Commotion Clause
The marine insurance on cargo is extended to cover from warehouse to warehouse or
otherwise insures the goods on shore prior to shipment and after discharge; the danger of
underwriters being held liable for losses, resulting from the unlawful acts of strikers from
riots or civil commotions is materially enhanced. The insurers are unwilling to assume
liability for losses due to unlawful acts.
12. All Other Perils
The loss occurred by the saltwater of the sea, action of worms on timber, cattle dying due
to wanting of fodder as a result of lengthy voyage constitute sea perils. Other damages
may be due to oil, sweat, and heat, which are insured under other perils.
#Various Conditions/ Clauses covered under the marine insurance policy:
Policy conditions are the provisions in an insurance policy that often require the insured
to comply with certain requirements to obtain coverage under the policy.
 Valuation Clause;
 'At' and 'From' Clause;
 Sue and Labor Clause;
 Warehouse to Warehouse Clause;
 Change of voyage;
  Touch and Stay Clause;
 Inchmaree Clause;
 Jettison.
1. Valuation Clause: The valuation clause is a provision in some insurance policies that
specify the amount of money the policyholder will receive from the insurance provider if a
covered hazard event occurs. This clause stipulates a fixed amount to be paid in the event
of a loss for an insured property. Several types of valuation clauses can be written,
including replacement cost, actual cash value, stated amount, and agreed value.

2. Assignment of Policy:
When and how policy is assignable- according to Section 52 of Insurance Act-
(i) a Marine Policy may be transferred by assignment unless it contains terms expressly
prohibiting assignment. It may be assigned either before or after loss.
(ii) where a marine policy has been assigned so as to pass the beneficial interest in such
policy, the assignee of the policy is entitled to sue thereon in his own name; and the
defendant is entitled to make any defense arising out of the contract which he would have
been entitled to make if the suit had been brought in the name of the person by all on
behalf of whom the policywas effected.
(iii) a marine policy may be assigned by endorsement thereon or in other customary
manner.
3. Touch and Stay Clause:
The ship should go and stay only at those ports which are mentioned in the policy. In case
the ports are not mentioned, then the ship should take the customary route and stay at the
port coming on that route only. If the ship goes to any other port, it will amount to
deviation. The calling at ports must be for justifiable reasons.
4. Memorandum Clause:
Sometimes perishable goods are the subject-matter of insurance. The memorandum clause
is used to save the insurer from paying small losses of perishable goods. Under this clause
the insurer is not liable for partial losses. In certain commodities this loss is allowed up to
50%. However, if there is a general loss or the ship is stranded, the insurer will be liable to
pay the loss.
5. Sue and Labor Clause:
The sue and labor clause requires the ship owner to make every attempt to reduce or save
the exposed interests from loss. Under the terms of the clause, the insurer pays for any
necessary costs incurred in carrying out the requirement. If the insured spends some
money in an attempt to save the goods from an impending loss, he can recover this
amount from the insurer. The act of saving the subject-matter on minimizing loss does not
amount to deviation and the contract will not be void.
6. Inchmaree/Negligence Clause:
Under this clause any loss caused by the negligence of the master or a crew member is
also covered. The damage caused to the cargo in loading and unloading operations is also
recoverable. This clause was inserted after a famous case involving a ship named
‘Inchmare’ in 1857. This ship was damaged by the negligence of the crew and the insured
could not get the claim for damages because it was not covered under the ‘perils of the
sea’. Later on, underwriters included this clause in Marine Insurance.
7.Jettison:
It means throwing off certain cargo in order to lighten the load on a ship in emergency
situations. It is necessitated to avoid a marine peril. The jettisoning must be done
deliberately. The load to be thrown off is left to the master of the ship. The loss caused by
jettisoning is covered under general clause.

A. Actual total Loss is defined in the Marine Insurance Act. This provides: Where the
subject-matter insured is destroyed, or so damaged as to cease to be a thing of the kind
insured, or where the assured is irretrievably deprived thereof, there is an actual total loss.
Actual total loss occurs under these following situations:
(a) The subject-matter is completely destroyed.
(b) The goods are so damaged that they cease to be a thing of the kind which were
insured.
(c) The insured is deprived of the subject-matter.
(d) The insured is irretrievably (not to be recover) deprived of the ownership.(Captured by
enemy)
(e) The subject matter is lost and no news of her is received within a reasonable time.
B. Constructive Total Loss
A loss in which the item insured is not totally destroyed but is so severely damaged that it
is not financially worth repairing. The Marine Insurance Act defines a constructive total
loss as one in which ‘the subject matter insured is reasonably abandoned on account of its
actual total loss appearing to be unavoidable, or because it could not be preserved from
actual total loss without an expenditure which would exceed its value when the
expenditure had been incurred.
Notice of Abandonment
Abandonment is to surrender a claim to or interest in a property or asset. The notice of
abandonment is essentially given to the insurer to claim the loss as a constructive total
loss. If he fails to do so, the loss can only be treated as a partial loss. The notice can be
given orally or in writing, and the notice should be unconditional and absolute.
Rules regarding notice of abandonment-
 The insured needs to give such notice in writing or in oral or in such other form
which clearly expresses his intention of leaving his interest in the insured object to
the insurer.
 The assured must exercise reasonable care before giving the notice of abandonment.
In case an enquiry regarding the nature of the loss or the threat of loss is to be
carried out, the assured must give the notice only after such notice when the truth
has surfaced.
 If the assured has given proper notice of abandonment, the refusal of the same on
the part of the insurer would not affect the rights of the assured flowing from
abandonment. The acceptance of the insurer does not have to express, it could be
implied too. However, his silence would not imply acceptance.
 The acceptance of the notice by the insurer makes the abandonment of the insured
object/property irrevocable. Before acceptance, the assured is free to revoke his
notice of abandonment which once final would lead him to bequeath all his interests
in the insured subject matter
While it is true that without giving the notice of abandonment, the constructive total loss
cannot be treated as an actual total loss but only partial, there are certain circumstances
that do not require sending the notice. These are as follows-
 When the insurer has waived the notice of abandonment
 When by the time the assured received the information about the constructive total
loss, it is too late for any possibility of accrual of any profit(benefit) to the insurer;
the assurer is not bound to send the latter a notice of abandonment.
 The insurer does not need to give any notice of abandonment to the insurer if the
latter has re-insured his risk.
B. Partial Loss:
Any loss other than a total loss is a partial loss. The partial loss is there where only part of
the property insured is lost or destroyed or damaged partial losses, in contradiction from
total losses, include;
 Particular average losses;
 General average losses ;
 Particular or special charges; and
 Salvage charges.
1. Particular average loss
Particular average is partial loss or damage to a ship or its cargo that affects only the ship
owner or one cargo owner. Particular average losses are those borne by the owners of the
ship or cargo due to direct damage to their property. Particular average loss caused due to
insured perils.
Case-1: A certain ship was carrying a cargo worth Tk. 1 (one) crore when suddenly, due
to mechanical issues, it started overheating. The captain immediately informed the
shipowner who tried to find out all possible ways to safeguard the goods. Finally, the
cargo owner decided to sell the cargo at a lower value in the intermediate port before
cargo reached the destination port. The goods fetched Tk. 5 (five) lakh in sales. However,
the cargo owner could earn about Tk.9 (lakh) with sale of goods in the market.
In this case, the cargo owner had to incur losses due to selling the goods urgently. The
cargo owner had a cargo insurance policy and contacted the insurer who considered it as a
particular damage and decided to settle the claim. As the cargo owner had to sell goods
suddenly, they incurred losses. The insurer considered it as a part of particular average
loss.
The particular average loss must fulfill the following conditions:
 The particular average loss is a partial loss or damage to any particular interest
caused to (hat interest only by a peril insured against.
 The loss should be accidental and not intentional.
 The loss should be of the particular subject matter only.
 It should be the loss of a part of the subject matter or damage to that or both. The
distinguishing feature in this matter is that the properties insured are all of the same
description, kind, and quality. They are valued as a whole in the policy; the total
loss of a part of this whole is a particular loss, but where the properties insured are
not all of the same description, kind, and quality. They are separately valued in the
policy, the loss of an apportionable part of the interest is a total loss.

B. General Average Losses: General Average Losses — maritime partial losses sustained
from voluntary sacrifice, such as jettisoning part of the cargo, to save the ship or crew, or
from extraordinary expenses incurred by one of the parties for everyone's benefit, such as
the cost to tow a disabled vessel. All participants (vessel and cargo owner) contribute to
offset the losses incurred.
Common mishaps where a general average can be declared include:
 Ship fire
 Storm at sea
 Mechanical breakdown
 Vessel running aground
Common general average acts resulting in loss of property and additional expenses
include:
 Jettison, discharge, storage and re-loading of cargo
 Loss of/damage to cargo due to the use of water/fire extinguishers
 Towing of a ship that has had a mechanical breakdown
 Use of salvage services (any assistance received by a vessel or any other property in
danger)
 Calling at a port of refuge
Case Studies
Ever Given: One of the most recent disruptions to global trade was the six-day blockage
of the Suez Canal by the megaship Ever Given in March. The ship’s Japanese owner,
Shoei Kisen Kaisha, declared a general average on April 1. With 18,300 containers of
cargo involved, this is expected to be one of the most complicated general average claims.
The ship owner is facing a $900-million compensation claim from Egyptian authorities
over loss of income from transit fees, damage to the canal caused by salvage efforts, and
equipment and labour costs.
Hanjin Aqua: On December 4, 2015, the Hanjin Aqua ran aground in shallow waters off
Indonesia while trying to avoid colliding with a passenger vessel. A salvage team
managed to refloat the ship a month later by discharging some of the containers. Carrier
Hapag-Lloyd said salvage security had been fixed at 27% of the cargo value and general
average deposit at 5%.
‍ orthern Jupiter: Ocean Network Express (ONE) declared a general average after a main
N
engine fire on board the Northern Jupiter on January 4, 2020, which was en route from
Singapore to Malaysia.
#Settlement of a marine insurance claim
1. Notice to the Insurer – Informing the marine cargo insurance about the loss or damage
is the first step that needs to be taken by the policyholder. In case, the policyholder is
unable to inform the insurance company, someone on his behalf can do so.

2. Proper Care – As per the marine cargo insurance, it is imperative for the policyholder
to take all the steps to curtail the losses or damages. The policyholder should act as if the
goods are uninsured. Just because one has a marine cargo insurance, he/she can’t act
carelessly.

3. Survey and Claim – As per the marine insurance, if at the time of taking the goods
delivery, any package shows signs of outward damages, the policyholder or his agents
must call for a detailed survey by the ship surveyors and also lodge the monetary claim
with the shipping company.
4. Missing Packages – In case any of the packages are missing, it is mandatory for the
policyholder to file the police report immediately and also obtain a proper
acknowledgement. The insurer can ask you to submit the police report if the claim is
related to theft.
5. Claim Duration –
It is always advised to file a marine insurance claim on an immediate basis because the
claim process will be much easier, however, any delay could also make the claim process
difficult. In a marine cargo insurance, the time limit for filing the marine insurance claim
is one year from the date of goods discharge, which can further change as per the situation
and the conditions specified by the insurer.
6. Documents-
 Copy of the insurance policy or document;
 Copy of billing lading;
 Survey report ;
 Original invoice list together with shipping specification;
 Copy of protest;
 Letter of subrogation;
Claim bill.