UNIVERSITY OF CHITTAGONG

Assignment On:
Marine Insurance
Course Title: Risk Management and Insurance
Course Code: FCC -305

Submitted to:
Mohammad Alauddin
Assistant Professor
Department of
Marketing
University of Chittagong

Submitted by:
Group – 2
BBA (5th Semester)
Department of
Marketing
University of Chittagong

Date of submission: 21 May, 2022

 GROUP MEMBERS
Name ID Number

Ahasanul Arafin 19304040

Sheikh Ahmed Raiyan 19304013

Imtius Ahmed Tuhin 19304031

Md. Abu Owakid Chowdhury 19304032

Md. Nayeem Uddin 19304046

Sultana Akter Brishty 19304055

Md. Rakibul Islam 19304056

Shamima Akter 19304057

Md. Abdur Rahman 19304063

Mahmuda Zannat 19304071

Mohammad Ataher Sayed 19304105

Tanjil Ahmad Siddiqi 19304107

 What is Marine Insurance?

⇨According Collins-Dictionary: Marine insurance is insurance that covers damage to

shipping and cargo.

⇨Section 3 of the Marine Insurance Act, 1963 defines Marine Insurance as "A contract of
marine insurance is an agreement between the insurer and insured to carry the losses of
Marine Transactions".

⇨Marine insurance covers the loss or damage of ships, cargo, terminals, and any transport
related to trades through sea.

Why Should Marine Insurance Be Done?

1) It can foster sound marine commerce by guarding the uncertainty:

Probable loss of products and ships caused by waterway uncertainties like piracy,
thunder storm, wave etc. could be minimized by opening a proper marine policy in
order to accelerate the potentialities of marine commerce.

2) It is helpful for empowering the domestic economy:

A lot of domestic business tradings are occurring through the river and sea these
days. So, effective marine insurance policy can influence the peoples to be more
invested in fostering the country's businesses by providing guaranteed money
against marine losses by providing the assurance of guaranteed payments of money
to the sufferer.

3) It works as the "Convincing" factor to empower people to be in sea jobs:

Marine insurance can convince the people to be involved in waterway transactions

more by ensuring security against marine risks.

4) It convinces domestic businesses to be involved in international trades:

More international trades are undertaken in waterways as marine insurances are

providing much effective securities in import and export exchanges.
What are Perils of Marine Insurance?

There are two kinds of uncertainties which could happen by the act of nature and by the
human himself. And, these perils are:

⇨Natural Perils:

1) Storms and thunder strokes: Gigantic storms and lightning of thunders can easily
make the cargo or shop carrying billion dollars worth materials to be drowned on to
water.

2) Waves and sudden Ice Blocks: Long waves and unobserved ice blocks hiding down
of the water can destroy the ship wholly.

3) Shrinking mountains: Also, ships or cargos could be hit by shrinking mountains by

standing as the physical barrier along in the water.

4) Heavy Rainfall: Every year, dozens of ships carrying the goods of trade get blasted
because of heavy rainfall as rainfall is a very common peril for waterways around the
world.

⇨Un-natural Perils:

1) Pirate's Robbery: Piracy in ships or cargo can cause a substantial amount of losses
for businesses as these pirates almost take away everything, even the entire ship and
its peoples.

2) Jettisons: Sometimes, cargo officials intentionally throw away goods or other things
from cargo intentionally to make it lighter in order to reduce the probability of
drowning down into the water and it can cause financial losses in trade.

3) Collisions and fire: “Collision” means any accident involving two or more ships if
they ride unplanned which causes loss or damage to the ship and carrying goods.
"Fire" can easily break out in a ship because of the ignorance of the ship pilot and
other workers.

4) Enemies and groundings: Grounding occurs when any ship got impacted against
seabed or any other waterway side. Enemies can cause damages as well by burning
the ship with fire or sending pirates to take away everything contained in that ship.
 Subject Matter of Marine Insurance

1. CARGO INSURANCE

⇨Cargo insurance is the method used in protecting shipments from physical damage or theft.
In fact, insuring cargo ensures that the value of goods are protected against potential losses
which may occur during air, sea or land transportation.

⇨Caused by war, strikes, , fire, explosion, damage impact by any rail /road vehicle, storm,
flood, earth-quake, accidental physical loss or damage.

2. FREIGHT INSURANCE

⇨Freight insurance is the additional protection that covers cargoes or goods in case of loss
or damage.

⇨Freight is insurable on a time basis. Shipowners usually insure a certain amount on freight
for a power of I2 months, Additional policies on voyage basis are issued if the freight at risk
on any one voyage exceeds the amount insured for time. A loss of freight to the carrier who
may be à shipowner can only arise when the freight is payable at destination.

3. HULL INSURANCE

⇨It is concerned with the insurance or coverage of hull and machinery of ocean-going and
other vessels like tankers, fishing and sailing vessels.

SUBDIVISIONS OF HULL INSURANCE :

(1)General Cargo vessels- Includes CONTAINER SHIPS

(2) Dry Bulk Carriers – Bulk Cargo carries iron ore, coal etc.

(3) Liquid Bulk Carriers - any cargo carried in closed tanks and pumped into the carrying
vessel. This would include: Hazardous chemicals in liquid form. Petroleum.
(4)Passenger Vessels - usually defined as a ship or cruise carrying peoples on international
voyages

4. LIABILITY INSURANCE

⇨Provides protection against claims resulting from injuries and damage to people and/or
property. It should be clear here that the marine perils insurance covers not only the ocean but
also the inland perils"

Elements of Marine Insurance Contract:

• Features of general contract:

Knowing the features of a valid contract is an important part of entering into any agreement.
A contract must have an offer and acceptance. There must be an intention to create a legal
relationship between two parties.

• Insurable Interest:

It establishes that an insurance has an insurable interest that may benefit from the safety in
marine journey or effect by its loss or damage.

• Utmost good faith:

The insurance contract is based on the principle of utmost good faith. It means the insurance
holder and the insurance company should always be truthful and accurate while giving
information that can affect the insurance contract.

• Doctrine of Indemnity:

Marine insurance is an indemnity policy under which an insurer agrees to compensate for loss
or damage in consideration of the timely.

• Doctrine of subrogation:

The doctrine means that the assured shall not get more amount than the actual loss or damage
caused. In marine insurance, the right of subrogation arises only after the payment of the loss
or damage amount. The assured shall assist the insurer in every possible manner to receive
money from the third party.

• Warranties:

A warranty means that assured shall abide by and shall fulfill certain condition as covered in
contract. If in case any of the warranty is breached, contracts shall stand terminated.

Warranties are of two types:

1. Expressed warranties: It is expressly included in the marine insurance contract.

2. Implied warranties: It is not covered in the contract but it is assumed to be binding on the
parties.

Types of policy

Floating policy:

A policy in marine insurance covering loss of or damage to specified goods irrespective of

the ship in which they are concerned. It is also known as blanket policy, instead of taking
insurance separately for each shipment. The exporter may need to declare the details of all
shipments made during the period, type of goods, modes of transport, destinations etc.

Voyage policy:

A specific policy can be taken for a single lot or consignment only. The exporter needs to
purchase insurance cover every time a shipment is sent overseas. The drawback is that extra
effort and time is involved each time an exporters sends a consignment with open policies.
On the other hand shipments are insured automatically.

Time policy:

Time policy in marine insurance is generally issued for a years period. One can issue for
more than a year or they may extend to complete a specific voyage. But it is normally for a
fixed period.

Mixed policy:

Mixed policy is a mixture of two policies i.e. voyage policy and time policy. It covers the
risk during a period of time within which several voyages be completed.
Named policy:

The name of the ship is mentioned in the insurance documents, that‟s why it is called named
policy. Named policy is one of the most popular policy in marine insurance policy.

Port Risk Policy:

It is a policy to ensure the safety of the ship when it is stationed in a port. It insures on an all
risks basis that includes the exposures associated with the ship moving from one dock to
another. It coverage‟s for ships in port for a lengthy stay and those that are under repair .

Marine Insurance Clauses

1. Assignment clause:

This clause makes it clear that the marine policy is freely assignable unless this is expressly
prohibited. The policy can be assigned to anyone who may acquire an insurable interest in the
subject matter as soon as the assured parts with his interest,. It is interesting to note that
marine policy can be assigned even after it takes place, but the assignee does not get a better
title than the assignor.

2. Lost or not lost:

Under this clause, the insurer is liable even if the ship insured is found not to be lost prior to
the contact of insurance, provided the insurer had no knowledge of such loss and does not
commit any fraud. This clause covers the risks between the issue of the policy and the
shipment of the goods.

3. Deviation, touch and stay clause:

This clause requires the ship to touch and stay at such ports and in such order as specified in
the policy. Any departure from the route mentioned in the policy or the ordinary trade route
followed will be considered as deviation unless such departure is essential to save the ship or
the lives on board in an emergency.

4. Inchmaree clause:

This clause covers the loss or damage caused to the ship or machinery by the negligence of
the master of the ship as well as by explosives or latent defect in the machinery or the hull.
5. At and from clause:

This clause covers the subject matter while it is lying at the port of departure and until it
reaches the port of destination. It is used in voyage policies. If the policy consists of the word
"from' only instead of 'at and from', the risk is covered only from the time of departure of the
ship.

6. Warehouse to warehouse clause:

This clause is inserted to cover the risks to goods from the time they are dispatched from the
consignor's warehouse until their delivery at the consignee's warehouse at the port of
destination.

7. Running down clause:

This clause covers the risk arising out of collision between two ships. The insurer is liable to
pay compensation to the owner of the damaged ship. This clause is used in hull insurance.

8. Sue and labour clause:

This clause authorizes the insured to take all possible steps to avert or minimize the loss or to
protect the subject matter insured in case of danger. The insurer is liable to pay the expenses,
if any incurred by the insured for this purpose.

9. Reinsurance clause:

The reinsurance clause is generally added to the original policies. The reinsurer is liable only
for claims for which the original underwriter is liable. If the reinsured has paid a claim for
which he is not legally liable under his policy, the reinsurer is under no obligation to
reimburse him. The reinsurance policy is closely linked with the original insurance and any
alteration in the original policy must be agreed with the reinsurer.

10. Memorandum clause:

This clause is meant to provide a minimum limit to be underwriter's liability regarding claims
for particular average by exempting him from such claims.

11. Continuation clause:

This clause refers that the vessel shall continue to be covered even after completion of
voyage under the policy at a pro rato premium to her port of destination provided previous
notice was not given.
What isn’t covered under Marine Insurance?

Marine Insurance doesn‟t offer any coverage in the following cases:

 Loss or damage due to willful act of negligence and misconduct

 Any 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

The Process of Premium Calculation in Marine Insurance

Major parameters which are involved in the determination of this policy are listed below.

Types of goods

The value and nature of the goods for which the marine insurance is sought for play an
important role in the evaluation of premium amount. If the value of the goods is high or if
there are high chance of goods getting damaged, such as glass, food items etc., the marine
insurance premium is most likely to go up, and vice versa.

Natural forces

Natural forces or natural calamities like floods, high tides, etc. are permanent and
unchanging. However, some are seasonal as well and occur or highlight in particular seasons.
Or there are natural features for instance there are ports that do not have sufficient depth, do
not have good anchorage, and even lack protection from tides. This has a huge impact on the
premium.

The construction and type of vessel

The construction, quality, and fitness of the vessel or vessels involved are of great importance
while determining marine insurance premiums. The insurance provider shows interest to
know about the ownership, material used in the construction of the vessel, its structural
strength, adaptability in carrying different types of cargo, and its age.

Nationality of the vessel

Insurance providers would ask to know about the nationality of the vessel as this would help
in disclosing its dependency on countries for ocean trade.

Terms and conditions of the policy

Different clauses add to either increase or limit the liabilities of the insurance provider. Some
of the marine insurance policies might cover total loss whereas some might cover partial
losses. Depending on the coverage provided by the marine insurance policy, decides the
premium of the policy.

The Factor to Effect Premium Calculation of Marine Insurance

The premium for marine insurance can be calculated by following the below-mentioned

steps.

● First, determination of the shipment value or the cost of freight.

● Then add 10% for the escalation costs.

● The total value obtained and multiplied by the insurance premium, quoted by

the insurance provider.

● The final value obtained is thus, the amount to be payable as a premium

 Marine Losses

A loss arising in a marine adventure due to perils of the sea is marine loss.

There are two types of marine loss.

1. Total Loss
2. Partial Loss

1) Total loss: Total loss occurs when insured goods are completely or almost completely
destroyed.
There are two types of total loss – 1) Actual Total Loss, 2) Constructive Total Loss

 Actual Total loss - Actual total loss occurs when the subject matter is destroyed or
lost and which cannot be recovered. It is a material and physical loss of the subject-
matter insured.

Actual Total Loss may occur when:

i. The insured cargo is physically destroyed such that there is no possibility of

salvage or recovery of the goods.
ii. The insured cargo is damaged that it ceases to be a thing or description
insured. E.g., cement bag turns into concrete due to sea-water contact.
iii. The cargo is irretrievably lost. For example, when the ship sinks, the cargo can
be retrieved only after a long time and the salvaged goods cannot be of any
value to the insured.
For example: a ship is destroyed by fire or sink, ship is missing for a very long time
etc.

 Constructive Total loss -Constructive total loss occurs when the cost of repair of a
damaged item is more than the current value of the insured property.

The constructive total loss will be where-

i. the subject-matter insured is reasonably abandoned on account of its actual

total loss appearing to be unavoidable;
 ii. the subject-matter could not be preserved from actual total loss without an
expenditure which would exceed its repaired and recovered value.

For example, the cost of repair and replacement of a damaged ship was estimated to
be tk 500000, whereas the ship was estimated to be tk 400000. This ship may be
abandoned and will be taken as constructive total loss.

2) Partial Loss : Partial loss occurs when only a part of insured goods is damaged or
lost.

There are two types of partial loss – 1) Partial Average Loss, 2) General Average Loss

 Particular Average Loss – Particular average loss occurs when a particular subject
matter insured is damaged caused by marine peril. It arises from any type of an
accidental loss.
For example -particular damage to ship due to fire or collision, loss of deck
cargo/equipment due to heavy weather

 General Average Loss -The general average is any extraordinary sacrifice or

expenditure that is intentionally and reasonably made or incurred for the common
safety for the purpose of preserving from peril the property involved in a common
maritime adventure.
For example – throwing cargo overboard, damaging the ship and its machinery to put
off a fire etc.

There are two types of general average loss-

1.General Average Sacrifice –

The general average sacrifices are made for common safety. For example „jettison‟
which means throwing away ship‟s material or equipment of the cargo in order to
lighten the ship .Similarly, the use of cargo fuel, cutting away of sails.

2.General Average Expenditure –

In this case extra expenditures are involved for common safety. If a vessel puts into a
port of call in consequence of a damage which is the subject matter of general
average, then the cost of entering, discharge of cargo for repairs, warehousing, if
 required, reloading the cargo and re leaving the port are treated as general average
expenditure.

Marine Expenses

1) Particular Charges:

Particular charges are expenses incurred by or on behalf of the assured for the safety or
preservation of the subject-matter insured, which are other than general average and
salvage charges. The expenses must be incurred for the benefit of the subject matter
insured. The expenses incurred for the common benefit will be a part of general average.

 Sue and Labour Charges:

 Incurred in terms of duty of the assured clause.
 Expenses reasonably incurred for averting or minimizing the loss.
 Payable irrespective of percentage even in addition to total loss.
 Incurred short of destination.
 Incurred when loss is eminent not short of destination is particular charge as well as
sue and Labor.

2) Salvage Charges:

Expense of recovering property by a salvor. Salvage charges are not provided for
insurance contracts. If the owner and salvor cannot agree on salvage charges, a court
makes a determination based on the value of the salvaged items and the salvors expenses.
Rules governing payment of salvage charges originated in marine insurance but are now
used in other policies, Such as personal automobile insurance.
 Claim and Settlement

When policy has been issued the risk for peril insured against is covered. If loss doesn‟t
occurred, no payment would be paid to the insured.

Evidence

Before admitting claim, relevant evidence with claim is required. In marine insurance, policy
is generally issued on mutual understanding and faith. Value of subject matter, nature of
subject matter, warranties, insurable interest are some matter to be considered.

Notice of Claim

The prompt notice of claim by insured is required. Damage notice must be given by insured
and report signed by him, then liability of any loss is acknowledged. In case of any theft and
pilferage, notice must be given to insurer within 10 days from the date on which the risk is
expired. If ship owner is liable in any loss or damage, he is also entitled to the written notice.

Documents Required for Claim

i. Policy or certificate of insurance : A document that an insured gives to the shipper

responsible for their cargo or any other shipping-related activity
ii. Bill of Lading: A document that serves as a confirmation of the receipt of goods on
the part of the master or owner.
iii. Invoice or bill stating term and condition of sale.
iv. Copy of protest: Everything was done to bring safety the ship and cargo and loss or
damage was not due to lack of diligence on the part of master or crew.
v. Certificate of survey : All ships must be surveyed and verified by officers of the flag
State Administrations or their recognized organizations (ROs)/recognized security
organizations (RSOs)/nominated surveyors so that relevant certificates can be issued
to establish that the ships are designed, constructed, maintained and managed.
vi. Account sale or bill of sales : documents about where goods are sold.
vii. Letter of Subrogation : Subrogation letters are drafted by a third party, typically an
insurance company, as a tool to recover compensation on behalf of a claimant.
 Documents in Different Types of Claims

Total Loss:

 Insurance policy: It furnishes an evidence of the terms and conditions.

 Bill of lading: It is the correspondence of the insurance contract with the voyage and
vessel.
 Copy of the invoice: A copy of the Invoice relating to the goods insured should be
sent. It will help in estimating the correct value of the goods.
 Protest: A copy of protest is required when the total loss is due to the losss of the
vessel or other accident.
 Letter of subrogating: A letter of subrogating is sent if anything remains of the
subject-matter insured after the total loss or if there are rights or remedies regarding
the interest or against third parties.
 Notice of abandonment: If there is a constructive total loss, the notice of
abandonment is given in the manner.

Partial Loss:

 The policy of the certificate,

 The invoice for the whole shipment,
 The bill of lading should be sent to the underwriters
 The copy of the Master‟s protest or an extract from logbook of the ship is to be
presented with the policy if the particular average is recovered in certain
circumstances according to the terms of the policy, e.g., standing of the vessel,
accident heavy weather. Etc.
 A Surveyor’s Report: A surveyor‟s report prepared by some recognized surveyor
should be appended to the above documents when evidence is necessary to show that
the settled franchise has reached.
 Bill of Sale: When there is a sale of the damaged goods the bill of sale is required by
the measure.
 Letter of Subrogation: The letter of subrogation should be duly furnished by the
insured if required by the insurers.
 Cost of Protection: On the proof, the cost of protection is paid by the underwriters
part from the particular average if there was a successful claim. In unsuccessful
claims, insurers are not liable to pay these charges.