What is insurance?

the primary function of

insurance is risk transference and
distribution. By effecting insurance, the insured
transfers the risk of economic losses to the
insurer, who in turn redistributes the risk through
investment and reinsurance arrangements

Insurance in broad terms may be described as a

method of sharing financial losses of few from
a common fund who are equally exposed to
the same loss.
Marine insurance refers to insurance that covers
the loss or damage of ships, cargo, terminals
and any transport or cargo through which
property is transferred, held or acquired.
The object is to indemnify the insured against
losses incident to marine adventure.
 Ship Owner Hull and
Machinery
Insurance

Liabliity Freight Freight

Insurance

SHIP
Carg
o

Cargo Cargo Insurance

Owner

Liability Insurance
 FIXED
PREMIUM

HULL &
MACHINER
Y
INSURANC LIABILITY FREIGHT
E
P&I
CARGO

MUTUAL
INSURANCE
Different types of Marine Insurances
Hull Insurance: Hull insurance mainly caters to
the torso and hull of the vessel along with all the
articles and pieces of furniture on the ship. This
type of marine insurance is mostly taken out by
the owner of the ship to avoid any loss to the
vessel in case of any mishaps occurring.

Machinery Insurance: All the essential

machinery are covered under this insurance and
in case of any operational damages, claims can
be compensated (post-survey and approval by
the surveyor).

The above two insurances also come as one

under Hull & Machinery (H&M) Insurance. The
H&M insurance can also be extended to cover
war risk covers and strike cover (strike in port
may lead to delay and increase in costs)

Protection & Indemnity (P&I)

Insurance: This insurance is provided by
the P&I club, which is ship owners mutual
insurance covering the liabilities to the third
party and risks which are not covered elsewhere
in standard H & M and other policies.

Protection: Risks that are connected with

ownership of the vessel. E.g. Crew related
claims.
Indemnity: Risks that are related to the hiring
of the ship. E.g. Cargo-related claims.

Liability Insurance: Liability insurance is that

type of marine insurance where compensation is
sought to be provided to any liability occurring
on account of a ship crashing or colliding and on
account of any other induced attacks.

Freight, Demurrage and Defense (FD&D)

Insurance: Often referred to as “FD&D” or
simply “Defense,” this insurance provides claims
for handling assistance and legal costs for a
wide range of disputes which are not covered
under H&M or P&I insurance.

Freight Insurance: Freight insurance offers

and provides protection to merchant vessels’
corporations which stand a chance of losing
money in the form of freight in case the
cargo is lost due to the ship meeting with
an accident. This type of marine insurance
solves the problem of companies losing money
because of a few unprecedented events and
accidents occurring.

Marine Cargo Insurance: Cargo insurance

caters specifically to the marine cargo carried by
ship and also pertains to the belongings of a
ship’s voyages. It protects the cargo owner
against damage or loss of cargo due to ship
accident or due to delay in the voyage or
unloading. Marine cargo insurance has third-
party liability covering the damage to the port,
ship or other transport forms (rail or truck)
resulted from the dangerous cargo carried by
them

The time limit for claims that are right to

compensation may vary depending upon the
content of the policy, and action is to be brought
within that period from the date when the
damage occurred.

For Newly built ships, the shipowner is under

contract with the shipyard to take out insurance
cover for a period (usually one year) from the
date of yard delivery.

In addition to these types of marine insurance,

there are also various types of marine insurance
policies which are offered to the clients by
insurance companies so as to provide the clients
with flexibility while choosing a
marine insurance policy.

The availability of a wide array of marine

insurance policies gives a client a wide arena to
choose from, thus enabling him to get the best
deal for his ship and cargo.
Types Of Marine Insurance Policies
The different types of marine insurance policies
are detailed below:

 Voyage Policy: A voyage policy is that kind

of marine insurance policy which is valid for
a particular voyage.
 Time Policy: A marine insurance policy
which is valid for a specified time period –
generally valid for a year – is classified as a
time policy.
 Mixed Policy: A marine insurance policy
which offers a client the benefit of both time
and voyage policy is recognized as a mixed
policy.
 Open (or) Unvalued Policy: In this type of
marine insurance policy, the value of the
cargo and consignment is not put down in the
policy beforehand. Therefore reimbursement
is done only after the loss of the cargo and
consignment is inspected and valued.
 Valued Policy: A valued marine insurance
policy is the opposite of an open marine
insurance policy. In this type of policy, the
value of the cargo and consignment is
ascertained and is mentioned in the policy
document beforehand thus making clear
about the value of the reimbursements in
case of any loss to the cargo and
consignment.
 Port Risk Policy: This kind of marine
insurance policy is taken out in order to
ensure the safety of the ship while it is
stationed in a port.
 Wager Policy: A wager policy is one where
there are no fixed terms for reimbursements
mentioned. If the insurance company finds
the damages worth the claim then the
reimbursements are provided, else there is
no compensation offered. Also, it has to be
noted that a wager policy is not a written
 insurance policy and as such is not valid in a
court of law.
 Floating Policy: A marine insurance policy
where only the amount of claim is specified
and all other details are omitted till the time
the ship embarks on its journey, is known as
a floating policy. For clients who undertake
frequent trips of cargo transportation
through waters, this is the most ideal and
feasible marine insurance policy.
 Single Vessel Policy: This policy is suitable
for small shipowner having only one ship or
having one ship in different fleets. It covers
the risk of one vessel of the insured.

 Fleet Policy: In this policy, several ships

belonging to one owner are insured under
the same policy.
 Block Policy: This policy also comes under
maritime insurance to protects the cargo
owner against damage or loss of cargo in all
modes of transport through which his/her
cargo is carried i.e. covering all the risks of
rail, road, and sea transport.
PERILS
This insurance covers total loss (actual or constructive)
of the subject-matter insured caused by
 perils of the seas rivers lakes or other navigable
waters
 fire, explosion
 violent theft by persons from outside the vessel
 jettison
 piracy
 breakdown of or accident to nuclear Installations
or reactors
 contact with aircraft or similar objects, or objects
falling therefrom, land conveyance, dock or
harbour equipment or installation
 earthquake, volcanic eruption or lightning.
This insurance covers total loss (actual or constructive)
of the subject-matter insured caused by
 accidents in loading discharging or shifting cargo
or fuel
 bursting of boilers breakage of shafts or any latent
defect in the machinery or hull
 negligence of Master Officers Crew or Pilots
 negligence of repairers or charterers provided
such repairers or charterers are not an Assured
hereunder
 barratry of Master Officers or Crew, provided such
loss or damage has not resulted from want of due
diligence by the Assured, Owners or Managers.
Master Officers Crew or Pilots not to be considered
Owners within the meaning of this Clause 6 should
they hold shares in the vessel.
Marine Insurance doesn’t offer any coverage in
the following cases:

 Loss or damage due to willful act of negligence

and misconduct
 Loss or damage due to delay
 Loss or damage due to improper packing
 Financial default or insolvency of owners,
charterers, managers, or operators of the vessel
 Loss or damage due to wire, strike, riot, and civil
commotion
 Loss or damage arising from the use of nuclear
fission, weapon, or any other radioactive force
 1/4th of collision damage
 Removal of wreck
 Contamination due to radioactive rays
 Attack or damage from biological, biochemical,
chemical, or electromagnetic weapons
INSTITUTE TIME CLAUSES - (INSTITUTE VOYAGE CLAUSES
HULLS HULLS
1. NAVIGATION 1. NAVIGATION
2. CONTINUATION 2. CHANGE OF VOYAGE
3. BREACH OF WARRANTY 3. CLASSIFICATION
4. TERMINATION 4. PERILS
5. ASSIGNMENT 5. POLLUTION HAZARD
6. PERILS 6. 3/4THS COLLISION LIABILITY
7. POLLUTION HAZARD 7. SISTERSHIP
8. 3/4THS COLLISION LIABILITY 8. GENERAL AVERAGE AND
9. SISTERSHIP SALVAGE
10. NOTICE OF CLAIM 9. DUTY OF ASSURED (SUE
11. GENERAL AVERAGE AND AND LABOUR)
SALVAGE 10. DEDUCTIBLE
12. DEDUCTIBLE (Franchise) 11. NOTICE OF CLAIM AND
13. DUTY OF ASSURED (SUE TENDERS
AND LABOUR) 12. NEW FOR OLD
14. NEW FOR OLD 13. BOTTOM TREATMENT
15. AGENCY COMMISSION 14. WAGES AND MAINTENANCE
16. CONSTRUCTIVE TOTAL LOSS 15. AGENCY COMMISSION
17. FREIGHT WAIVER 16. UNREPAIRED DAMAGE
18. DISBURSEMENTS 17. CONSTRUCTIVE TOTAL
WARRANTY LOSS
19. RETURNS FOR LAY-UP AND 18. FREIGHT WAIVER
CANCELLATION 19. ASSIGNMENT
20. WAR EXCLUSION 20. DISBURSEMENTS
21. STRIKES EXCLUSION WARRANTY
22. MALICIOUS ACTS 21. WAR EXCLUSION
EXCLUSION 22. STRIKES EXCLUSION
23. NUCLEAR EXCLUSION 23. MALICIOUS ACTS
EXCLUSION
24. RADIOACTIVE
CONTAMINATION EXCLUSION
CLAUSE
 RISKS Institute Cargo Clauses
(Proximate Cause) A B C
Stranding, Grounding, Sinking or Capsizing Yes Yes* Yes*

Overturning or Derailment of Land Conveyance Yes Yes* Yes*

Collision of Ship or Craft with another Ship or Craft Yes Yes* Yes*

Contact of Ship, Craft or Conveyance with anything

other than Ship or Craft (excludes Water but not Yes Yes* Yes*
Ice)

Discharge of Cargo at Port of Distress Yes Yes* Yes*

Fire or Explosion Yes Yes* Yes*

Earthquake, Volcanic Eruption or Lightning Yes Yes* No

Malicious Damage Yes No** No**

Theft/Pilferage Yes No No

General Average Sacrifice Yes Yes Yes

Jettison Yes Yes Yes

Washing Overboard (deck cargo) Yes Yes No

War Risks (except Piracy) No No No

Takings at Sea (except War Risks) Yes No No

Seawater entering Ship, Craft, Hold, Conveyance

Yes Yes No
Container Lift Van or Place of Storage

River or Lake Water entering same Yes Yes No

Loss overboard during Loading/Discharge (total n/a Yes No

loss only)

Any risks of physical loss or damage not specified Yes No No

Institute Cargo
RISKS
Clauses
(Proximate Cause) A B C

* Common Clause 1.1 of the B and C Clauses requires the loss or

damage to be reasonably attributable to the cause of damage

** Can be bought back

Clauses A are sometimes referred to as "Full Cover," Clauses B

are sometimes referred to as "With Particular Average," and
Clauses C as "Free of Particular Average." For a definition of
"Particular Average" CLICK HERE.
 Marine
Insurance
Contract

Insurer Insured

Premiu
m

Losses
Indemnif incidental to
y maritime
adventure

A Marine Insurance is entirely based on

conditions inserted in the policy as clauses.
A contract of marine insurance is a contract whereby
the insurer undertakes to indemnify the assured, in
manner and to the extent thereby agreed, against
marine losses, that is to say, the losses incident to
marine adventure.

Limit of liability of the insurer

Liability up to the sum insured by any one casualty.

Definitions
Insured (assured, policyholder),
Insurer (underwriter, assurer, insurance company),
Subject-matter insured (Insured property)
Lawful marine adventure: one where any ship, goods
or other movables are exposed to maritime perils; the
earning or acquisition of any freight etc., any third
party liability etc.
Perils of the seas: fortuitous accidents or casualties of
the sea (heavy weather, sinking, stranding, collision,
contact), not including the ordinary actions of the
winds and waves.
A contract of marine insurance may cover mixed
sea and land or sea and inland waters risks.
Total loss:
Actual total loss: definition, a missing ship (after the
lapse of a reasonable time).
Constructive total loss: reasonable abandonment (as
the total loss appears to be unavoidable); the
occurrence of damage which renders the vessel
beyond economic repair.
There is a constructive total loss when:

 The insured is deprived of the possession of his

ship by the peril it is insured against.
 The insured is unlikely to recover the ship.
 The cost of recovering the ship would exceed its
value when recovered.
 In the case of damage to a ship, where it is
damaged to the extent that the cost of repairing
the damage would exceed the value of the ship
when repaired.
Abandonment: the insured must give notice;
otherwise the loss can only be treated as a partial loss.
However, in most cases the underwriters would not
accept the notice.
WAIVER CLAUSE
Clause in a marine insurance policy stating that no
acts of the insurer or insured in recovering, saving or
preserving the property insured, shall be considered a
dismissal from or acceptance of abandonment.
Particular average loss: it is a partial loss caused by
a peril insured against. Particular charges are not
included (recoverable under the supplementary
contract in the “sue and labour” clause), unless they
are inherently related to the loss. In other words, with
the exception of general average and particular
charges, all partial losses (including salvage charges)
are particular average losses.

Salvage charges: the fundamental difference between

salvage and general average is that in the case of the
former, the salvage service is performed by a person
who intervenes voluntarily, whereas in the latter, it is
performed by a person who is specially hired or
employed by the shipowner, on a quantum meruit
basis, to save the whole adventure from a common
danger.

General average loss: it is caused by a general

average act which is any extraordinary sacrifice or
expenditure voluntarily and reasonably made or
incurred in time of peril for the purposes of preserving
the property imperilled in the common adventure.
Particular charge along with Salvage charge are
terms in marine insurance.

Where the marine insurance policy contains a SUE

AND LABOUR CLAUSE , the assured may recover from
the insurer expenses properly incurred for the
protection of the insured consignment.
  The expenses must be incurred for the benefit of
subject matter insured.
 It excludes salvage charges and the expense
must be incurred by the insured , his employees
or agents.
 They are recoverable only when incurred to
avert or minimise a loss from a peril covered by
the policy.
 Sue and labour charges are a type of particular
charges
 Other related terms in marine insurance are

Extra charges –expenses of providing claim eg-survey

fees. Salvage charges-for voluntarily service to save
hull cargo at sea. Average adjusters-Is an impartial
person who has the knowledge and acts like a
moderator between the insurer, insured and others
concerned about these charges.

Subject
matter
insured
Policy
RIGHTS OF INSURER ON PAYMENT

Subrogation
Total loss: where the insurer pays for a total loss, he
becomes entitled to take over the interest of the
insured in whatever may remain of the subject-matter
insured, and he is thereby subrogated to all the rights
and remedies of the insured.
Partial loss: the insurer acquires no title to the
subject-matter insured, but he is thereupon
subrogated to all rights and remedies of the insured.

Proximate Cause Principle of Insurance

Proximate cause is concerned with how the actual loss
or damage happened to the insured party and whether
it resulted from an insured peril.
It looks for is the reason behind the loss; it is an
insured peril or not.
Proximate cause means the active, efficient cause
that sets in motion a train of events that brings
about a result without the intervention of any
force started and working actively from a new and
independent source.

It is the immediate cause and not the remote cause.

The maxim is, “Causa Proxima no remote spectator.”
Immediate or proximate means Proximate inefficiency
and not necessarily in time. The consideration is what
has brought about the result?
The doctrine of Indemnity in Marine Insurance. A
contract of marine insurance is an agreement whereby
the insurer undertakes to indemnify the assured in the
manner and the extent agreed upon. The contract of
marine insurance is of indemnity. Under no
circumstances, an insured is allowed to make a profit
out of a claim.
The basis of indemnity is always a cash basis as
underwriter cannot replace the lost ship and cargoes
and the basis of indemnification is the value of the
subject-matter.
This value may be either the insured or insurable
value.
If the value of the subject matter is determined at the
time of taking the policy, it is called 'Insured Value'.
The insured value is called agreed value because it has
been agreed between the insurer and the insured at
the time of contract and is binding on both parties to
the contract.
Technically speaking the doctrine of indemnity applies
where the value of subject-matter is determined at the
time of loss.
In other words, where the market price of the loss is
paid, this doctrine has been precisely applied.
Where the value for the goods has not been fixed in the
beginning but is left to be determined the time of loss,
the measurement is based on the insurable value of
the goods.

Exceptions:
There are two exceptions of the doctrine of indemnity
in marine insurance.
1. Profits Allowed:
Actually the doctrine says that the market price of the
loss should be indemnified and no profit should be
permitted, but in marine insurance a certain profit
margin is also permitted.
2. Insured Value :
The doctrine of indemnity is based on the insurable
value, whereas the marine insurance is mostly based
on insured value. The purpose of the valuation is to
predetermine the worth of insured.

INSURABLE INTEREST DEFINED

LEGAL RIGHT TO INSURE IS

THE INSURABLE INTEREST
1. Subject to the provisions of this Act, every person
has an insurable interest who is interested in a marine
adventure.
2. In particular a person is interested in a marine
adventure where he stands in any legal or equitable
relation to the adventure or to any insurable property
at risk therein, in consequence of which he may benefit
by the safety or due arrival of insurable property, or
may be prejudiced by its loss, or damage thereto, or by
the detention thereof, or may incur liability in respect
thereof.

If an individual wants to insure a property, he/she

must have an insurable interest in the property; i.e.
loss or damage to the property should affect the
person financially.

Proximate cause is a key principle of insurance and

is concerned with how the loss or damage actually
occurred and whether it is indeed as a result of an
insured peril. ... The important point to note is that the
proximate cause is the nearest cause and not a remote
cause.
Assured must disclose to the insurer before the
contract is concluded, every material circumstance
which is known to the assured and which would
influence the insurer’s judgement in fixing the
premium or whether or not he would accept the risk.
e.g. shipowner must disclose that his ship has failed
for example a special survey.

Material Facts
• whether the ship was missing at the time the risk was
placed;
• that the ship had gone into port for repairs at the
commencement of the voyage;
Exception :
In the following circumstances, the doctrine of good faith
may not be adhered to:
(i) Facts of common knowledge.
(ii) Facts which are known should be known to the
insurer.
(iii) Facts which are not required by the insurers.
(iv) Facts which the insurer ought reasonably to have
known from the details given to him.
(v) Facts of public knowledge.
2015 Amendments

The obligation of disclosure, set out in the MIA 1906,

will be replaced by a duty to make a “fair
presentation” of the risk.
The duty of fair presentation
Currently, in non-consumer contracts, an insured must
disclose every material circumstance (i.e. every
circumstance that would affect the underwriting
judgement of a prudent insurer) known to them before
the contract is concluded.

This obligation is replaced by a duty to make a fair

presentation of the risk, which requires:

 Disclosure of every material circumstance that the

insured knows or ought to know; or
 Disclosure of sufficient information to put the
prudent insurer on enquiry.
Where such disclosure is made, the presentation will
be fair if:

 Made in a manner that is “reasonably clear and

accessible” to a prudent insurer; and
 The facts as represented are “substantially”
correct and the representations as to expectation
or belief are made in good faith.
There is no obligation on the insured to disclose a
circumstance if it:
  Diminishes the risk
 Is known to the insurer
 Ought be known by the insurer
 Is information which is waived by the insurer
 Is something that the insurer is presumed to know

Warranties
Promises by assured “to do” or “not to do”
“to fulfill” or “not to fulfill”
and it is not merely a condition but statement of
fact.

Warranties are more vigorously insisted upon

than the conditions because the contract comes
to an end if a warranty is broken whether the
warranty was material or not.

In case of condition or representation, the

contract comes to an end only when these were
material or important.
Assured undertakes that some particular thing SHALL
or SHALL NOT be done
Express warranty is written in clauses e.g. institute
warranties say class maintenance or warranty limits.
Implied warranty are not written but implied by law
e.g. seaworthiness at the beginning of voyage, legality-
drug running or going to port under UN embargo.
Shipowner intending to breach any warranty must
inform his underwriters.
Warranties can also be classified as
Affirmative, and Promissory.
Affirmative warranty is the promise which insured
gives to exist or not to exist certain facts.
Promissory warranty is the promise in which
insured promises that he will do or not do a certain
thing up to the period of policy.
WARRANTIES IN MARINE INSURANCE POLICIES
A warranty is the same as a “condition” on any other
type of insurance policy. It is an express or implied
contractual undertaking by the assured (the individual
taking out the policy) that something will or will not be
done.
The assured undertakes that some particular thing
shall or shall not be done or that some condition shall
be fulfilled or he affirms or negates the existence of a
particular state of facts.
 A warranty must be literally complied with,
whether material to the risk or not.
 An express warranty is written into the policy or
contained in some document incorporated in
the policy by reference to it.
 Implied warranties are not written in the policy
but are implied by law to exist in the contract of
insurance. They must be strictly complied with as
express warranties.

 They may have reference specialised procedures

or guidelines to be followed by the assured.
 They may stipulate that the operation of the
covered risk is always to be within the context of
an approved operations manual.
  They may require that the operation be overseen
by a named third party whose professional
competence and judgment is accepted by the
underwriter as proof that it was carried out or
will be carried out to agreed standards.
 They may require that the competent third party
issue a CERTIFICATE OF APPROVAL prior to the
commencement of the operation in order for the
insurance policy to become valid.
 In addition the failure of the assured to abide by-
the conditions of the CERTIFICATE OF
APPROVAL may invalidate the contract of
insurance.

2015 amendments

A breach of warranty will result in the insurance cover

being 'suspended', so that any breach of warranty by
the insured suspends the insurer's liability until the
breach is remedied.
The insurer’s liability for cover is suspended only
from date of breach until the breach is remedied.
Once the breach is remedied, the policy resumes.

Seaworthiness of ship :
The warranty implies that the ship should be
seaworthy at the commencement of the voyage, or if
the voyage is carried out in stages at the
commencement of each stage.
This warranty implies only to voyage policies, though
such policies may be of ship, cargo, freight or any
other interest.
There is no implied warranty of seaworthiness in time
policies.
A ship is seaworthy when the ship is
 suitably constructed,
 properly equipped,
 officered and manned,
 sufficiently fuelled and provisioned,
 documented and
 capable of withstanding the ordinary strain and
stress of the voyage.
The seaworthiness will be clearer from the following
points:
1. The standard to judge the seaworthiness is not
fixed. It is a relative term and may vary with any
particular vessel at different periods of the same
voyage.
A ship may be perfectly seaworthy for Trans-
ocean voyage.
A ship may be suitable for summer but may not be
suitable for winter.
There may be different standard for different
ocean, for different cargo, for different destination
and so on.
 2. Seaworthiness does not depend merely on the
condition of the ship, but it includes the suitability
and adequacy of her equipment, adequacy and
experience of the officers and crew.

3. At the commencement of journey, the ship must

be capable of withstanding the ordinary strain and
stress of the sea.

4. Seaworthiness also includes "Cargo-Worthiness".

It means the ship must be reasonably fit and
suitable to carry the kind of cargo insured.
It should be noted that the warranty of
seaworthiness does not apply to cargo.
It applies to the vessel only.
There is no warranty that the cargo should be
seaworthy.
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.
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.
No deviation-The liability of the marine insurer ends
if there is a deviation in the journey i.e., deviation from
the common 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 quit
responsibility only if there is an actual deviation and
not mere the intention to the deviation.
Institute Warranty limits (IWL)
Institute Warranty Limits are trading limits imposed
by the hull insurers on the ship e.g. restricted to areas
free from ice hazards; IWL for short.
These warranties are six in numbers;
first four put a ban on trading to certain icebound
region in far north,
the fifth prohibits trading to certain area in Antartic,
and the sixth prohibits the carriage of Indian coal
between 1st march to 30th June, except to near Asiatic
ports.
Since 1 November 2003, the limits have been referred
to as the International Navigating Limits (INL).
INL define the geographical limits within which
vessels can operate without incurring additional
insurance premium from hull and machinery
underwriters. Until 2003 the limits were referred to as
IWL (Institute Warranties Limits) and the term IWL is
still frequently found in charterparties today. Such
references should be updated to refer to INL as the
revision involved quite significant changes in some
areas.
INL has two types of excluded areas; seasonally or
permanently excluded areas. These areas represent
additional hazards or increased exposure to the vessel,
including ice which can be extremely hazardous to
vessels. Even for ice classed vessels the risk of
damage is high when navigating in ice and operating
outside of INL could lead to damage to the vessel and
delay necessitated by repairs.

DEVIATION" IN MARINE INSURANCE

DEVIATION:- When a ship, without lawful excuse,
deviates from the voyage contemplated by the policy,
the insurer is discharged from the liability as from the
time of deviation and is immaterial that the ship may
have regained her route before any loss occurs.
There is a deviation from the voyage contemplated by
the policy
1) where the course of the voyage is specifically
designated by the policy and that course is
departed from.
2) where the course of the voyage is not specifically
designated by the policy, but the usual and
customary course is departed from.
The intention to deviate is immaterial, there must be a
deviation in fact to discharge the insurer from his
liability under the contract.
So, the effect of deviation is that any loss arising
during or after the deviation will be borne by the ship
owner.
Where several ports of discharge are specified by the
policy, the ship may proceed to all or any one of them,
but, in the absence of any usage or sufficient cause to
the contrary she must proceed to them in the order
designated by the policy. If she does not there is a
deviation.
Where the policy is to "ports of discharge" within a
given area which are not named the ship must, in the
absence of any usage or sufficient cause to the
contrary, proceed to them in their geographical order.
If she does not there is a deviation.
Deviation will be excused in the following
circumstances:- (Justifiable deviation)
1) Where authorized by any special term in the
policy.
2) Where caused by circumstances beyond the
control of the Master and his employer; or
3) Where reasonably necessary in order to comply
with an express or implied warranty; or
4) Where reasonably necessary for the safety of
the ship or subject matter insured; or
5) For the purpose of saving human life or aiding a
ship in distress
6) Where reasonably necessary for the purpose of
obtaining medical or surgical aid for any person on
board the ship; or
7) Where caused by the barratrous conduct of the
Master or crew, if barratry be one of the perils
insured against.
 When the cause excusing the deviation ceases to
operate the ship must resume her course, and
prosecute her voyage with reasonable despatch.

Suing and labouring (sue and labour) clause: it

covers the charges properly and reasonably incurred
in pursuance of the insured’s duty to minimize the loss.
The sums payable under the clause are additional to
the policy indemnity. See cl. 16 of ICC(82), cl. 11 of
ITCH(95) and cl. 9 of IVCH(95).

Deductible and franchise: participation of the

insured in the loss, the purpose of which is more care
on the insured’s side and lower premium.
They are not used for total losses. Example:
(1) if the deductible is 10 and the loss is 9, the insurer
does not pay anything: if the loss is 11, the insurer
pays 1, etc.;
(2) if the franchise is 10 and the loss is 9, the insurer
does not pay anything: if the loss is 11, the insurer
pays 11, etc. Thus, the franchise does not really
motivate the insured to minimize or prevent the loss.

Under-insurance: where the insured is underinsured

under an unvalued policy and suffers a partial loss, he
may recover only that proportion of his loss which the
sum insured bears to the insurable value of the
subject-matter. Example: if the value of the subject-
matter insured is 100, the sum insured is 50 and the
actual loss is 30, the insured will recover 15 only. In
the case of total loss the insured will recover 50.
Over-insurance: the sum insured is higher than the
agreed value of property insured, especially vessels
(hull insurance). It is sometimes allowed and used in
practice for insuring old ships which are still in use.

Double insurance:
definition: it is over-insurance where the sums insured
of two or more policies exceed the indemnity allowed,
which is against the principle of indemnity. See s. 32
of MIA 1906; e.g. The Gunford Case [1911] AC 529
(HL);
consequences: each insurer is bound to contribute
rateably to the loss in proportion to the amount for
which he is liable under his contract. “The assured
may, at his unfettered discretion, proceed against any
one or combination of insurers for the whole sum due,
leaving any insurer who pays more than his rateable
proportion of the loss to recover contribution from the
other insurers” (Bennett, p. 425).

PROTECTION AND INDEMNITY INSURANCE (P & I)

 Mutual insurance: one where two or more persons

mutually agree to insure each other against marine
losses. See s. 85 of MIA 1906.

 Origins: P & I insurance came into common use

after the 1835 case of De Vaux v. Salvador 111
Eng.Rep. 845 (K.B.1836): collision liability was not a
“peril of the sea” and thus not covered under the basic
Lloyd's S.G. policy.

 Running Down Clause: it covers only three fourths

of the collision liability.

 P & I clubs (mutual insurance societies): they

were founded to cover the remaining one fourth of the
collision liability; now they also cover other third-party
risks and risks not covered by hull policies;
approximately 25 P & I clubs in the world, a large
majority located in the U.K. (the largest club is U.K.
P& I Club with approx. 5000 vessels insured). 13 Clubs
are members of the International Group of P% I Clubs
(a special pool).

 Problems regarding competition law: the

European Commission adopted two formal decisions
clearing the co-operative arrangements between the
International Group of P&I Clubs (1985, 1999).

 Examples of risks covered: personal injury to or

illness or loss of life of crew members, passengers and
others, loss of personal effects, life salvage, collision
liabilities, pollution, towage contract liabilities, wreck
liabilities, cargo liabilities.

 “Pay to be paid”: the P & I clubs only indemnify

the insured if he has paid the third party claimant, is
up-to-date in his “calls” and has complied with the
other exigencies of club membership; no direct action
in the U.K. and the U.S.

29. MARINE REINSURANCE

 Definition: the insuring of a risk or part of a risk

by the principal insurer (the insurance company, the
ceding company, the cedant, the reinsured) with
another insurer (the reinsurer, the reinsurance
company). The insurer under a contract of marine
insurance has an insurable interest in his risk and may
reinsure in respect of it (s. 9(1) of MIA 1906). In simple
words, reinsurance is “insurance of insurance”.

 Difference between reinsurance and co-insurance:

the latter is effected by a number of insurers and it is
based on the principle of joint and several liability.

 The role of reinsurance: (1) providing capacity, (2)

creating stability and (3) strengthening finances.