MARINE INSURANCE
Marine Insurance refers to where the insurer compensates the insured when the latter suffers
from financial loss from marine perils against the premium paid by the insured to the insurer.
It covers the loss of ship or the vessel as well as the goods or cargos which are being transported
by land, air or water. Marine Insurance is the oldest form of Insurance; it originated in 1347 in
the form of Bottomry and was legally regulated in 1369. Under bottomry policy the ship is
protected from financial loss of his ship was destroyed. It had its origin in Roman and Greek
Time and was developed in England in late 1600’s when England became an important port of
Trade. Lloyd’s Coffee House in England was where the standardization of clauses of took place
and laid the foundation of Maritime Insurance Market and giving it a legal identity. With
globalization and liberalization in today’s time and movement of goods across nations, the
importance of Marine Insurance has increased manifold. It provides protection to the various
members and intermediaries involved in export and import of goods. The Marine Insurance in
India is regulated by Marine Insurance Act, 1963 which is based on Marine Insurance Act,
1906 of United Kingdom.
Section 3 of Marine Insurance Act 1963 defines Marine Insurance as “A contract of marine
insurance is an agreement whereby the insurer undertakes to indemnify the assured, in the
manner and to the extent thereby agreed, against marine losses, that is to say, the losses
incidental to marine adventure.”
A contract of marine insurance may, by its express terms, or by usage of trade, be extended so
as to protect the assured against losses on inland waters or on any land risk, which may be
incidental to any sea voyage.
They are various types of sale of contract between the buyer and the seller in case of trade. It
depends on the nature of the sale contract, who is responsible for the purchasing the Insurance
contract. The various types of sales contract are:
Free on Board (F.O.B): It refers to when the seller of the goods is responsible for the goods till
they are boarded on the vessel on seller’s port and thereafter the responsibility lies with the
buyer for shipping the goods to his place. The buyer will be the insured here.
Cost Insurance and Freight (C.I.F): In this the invoice generated by the buyer includes freight
charges i.e. shipping goods to the buyer’s port as well as insurance cost for goods in transit.
The seller here does not have responsibility to transport goods from buyer’s country port to the
buyer’s address. The seller will be the insured here.
Cost and Freight (C.F): In this, the invoice includes freight charges and no insurance cost. The
Marine Insurance is purchased by the buyer in this case.
Free on Rail (F.O.R): This is similar as free on board but the difference is that it is applicable
for internal trade only and not international trade.
Scope of Marine insurance
Marine Insurance covers the following:
1. Cargo insurance: The word cargo refers to goods and merchandise which are in transit by
sea, road, rail or air. While in transit, there is risk of goods (raw materials, finished goods,
equipment’s, wares) being damaged and thus the need for marine cargo insurance to indemnify
the shippers against the financial loss caused due to damage to the cargo. It includes:
Inland Transport by country craft
Import and export of goods by ocean through all type of vessels
Consignments by air, rail or road
Goods send by Post
Trans shipments
The coverage provided under this policy is defined by the Institute of London Underwriters
and are standardized in the International market into three clauses which are:
Clause A: All risk Institute Cargo
Clause B: Basic Cover Institute Cargo
Clause C: Fire and Lightening Institute Cargo It has coverage of loss or damage caused by war,
strikes, riots, capture, fire, storms, earthquake, accident, lightening and any other which is
specified in the policy.
2. Hull marine insurance: In this type of marine insurance, the subject matter is the vessel and
its equipment. The insurer compensates the insured in case the latter suffers financial loss due
to damage or destruction of the vessel or its equipment. It covers various types of vessels such
as jetties, trawlers, sailing vessels, dredgers, and port crafts, ocean steamers, off shore vessels
and even ship builders and repairers. The policy covers risk caused due to fire, collision,
sinking, overturning, crew negligence, earthquake, floods, piracy and violent thefts. It does not
cover risks due to radioactive damage, war, terrorist’s activities, deliberate damage and
insolvency of the ship owner.
3. Freight insurance: It provides protection to vessel owner in case of non-payment of freight
charges due to loss of the cargo. The freight charges are paid to ship owners for transporting
the goods and merchandise safely. In case of payment of freight charges on delivery, the vessel
owner faces the risk in the event cargo is damaged. Thus, here the vessel owner has insurable
interest and purchases freight insurance to cover the risk. It is done on a time basis, certain
freight amount of freight is insured for a 12 month period.
4. Liability insurance: It is an Insurance policy provided to the insured to cover his liabilities
against the third-party contingent to marine accidents or adventures. It will cover accidental
loss of property of the third person as well as the fatal or non-fatal injury to the third party. It
can be of two forms:
Cross Liabilities: Where both the vessels are to be blamed for the accident and are required to
pay each other for the damages caused by them to the other.
Single Liabilities: It is only a liability on the part of the vessel under lesser damages to that
with the greater.
Types of Marine Insurance policies
The various types of marine Insurance policies being offered by the Insurance Companies and
some of them are explained below:
1. Voyage policy: It refers to policy issued for a specific passage from departure location to the
destination location. It is applicable where subject matter is the cargo. Here, the risk arises
when the ship leaves the departure port and covers the cargo even when it is located at
intermediate places. Ex. A voyage policy from Bombay port to Hong Kong port.
2. Time policy: As the name implies, the subject matter is covered for a specific period of time
which is usually one year. In the case where time has to be extended more than one year, a
Continuation clause is to be added in the contract. It is applicable in case of hull insurance
where the vessel is insured while it is navigating or it is being constructed. The vessel can
follow any course it wants. They are standard clauses with respect to freight and premium
which are added on to this policy. Ex. A time policy from 1st Jan, 2016 to 1st Jan,2017 .
3. Mixed policy: It is hybrid of Voyage and Time policy where the insurance policy covers risk
during a particular voyage for a specified time period. It is more applicable in case of cargos.
4. Unvalued policy: It refers to that policy where the value of the subject matter is not
mentioned in the contract. The compensation is paid after ascertaining the value of the loss,
where the method to determine the loss is already pre decided and mentioned in the contract.
The value so determined after loss is known as Insurable value or valuable. This policy is also
known as open policy.
5. Valued policy: It is reverse of the unvalued policy, here the worth of the subject matter is
ascertained and thus the value of loss to be indemnified is pre decided between the insured and
the insurer while making the contract and it does not change. The value here is refer as insured
value or agreed value and it may not be the actual value to be indemnified.
6. Floating policy: This policy is useful for those who have frequent cargos to transport or are
involved in large scale trade activities. In this policy only the general terms and policy coverage
amount are specified and other details such as ship name can be subsequently declared. The
declaration is made when the order is dispatched on the vessel. The sum insured is based on
previous year turnover or by estimating annual turnover in case of new proposal.
7. Single vessel policy: This policy is for one ship only. A company may have separate policy
for each of its ship.
8. Fleet or single policy: Here one policy covers fleet of ship; it is preferred by shipping
companies owning multiple ships.
9. Named policy: This policy is specific in nature where the name of the vessel and the claim
amount is clearly stated.
10. Special declaration policy: This policy is issued to those organizations which have a large
annual turnover i.e. 3 crores or more. The coverage amount shall be on the previous year
turnover.
11. Annual policy: As the name suggests it is a policy having duration for one year and cover
goods belonging to the insured or held in trust by him.
12. Wager Policy: A wager policy is one where there are no fixed terms of 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.
13. 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.
Documents for Marine Insurance Claim
In case of loss to the insured for the subject matter covered under the Marine Insurance Policy,
the insured should inform the Insurance Company of the mishap at the earliest. Then Insurance
Company will send officials to do the survey to look into the mishap and estimate the loss
suffered by the insured. The insured has to submit certain documents while filing the Marine
Insurance claim. These are as follows:
1. The original copy of the Insurance Policy Certificate: It is issued by the Insurance Company
which mentions the details of the subject matter covered under policy, policy period and
insured’s details
2. Survey Report: It contains the observation of the surveyor regarding the cause of the event
and the extent of the loss suffered by the insured in terms of goods damaged.
3. Invoice: It shows the terms of sale, shipment details and the value of the cargo for which
claim is submitted to the Insurance Company.
4. Bill of Lading: is a document which contains the details of the shipment- where the cargo is
going, name of the vessel, amount of cargo, how it is to be handled and billed. It acts as a
receipt issued by the carrier to the consignor.
5. Claim Bill: It contains the details of the claim amount made by the insured for the loss
suffered by him.
6. Copy of Protest: In case the loss is by perils of sea, then the owner of the vessel goes in front
of the public authorities at the destination port to inform them about the loss suffered and
protests that he was not responsible for the loss. The copy of the same is to be submitted to the
insurer.
7. Letter of Subrogation: This letter given by the insured authorizes the Insurance Company
the right to make claim from a third party that may be responsible for the damage caused.
8. Bill of Entry: It is a formal document issued by the custom officials that specifies the account
sales of the cargo and the custom duty paid by the importer or the exporter.
9. Dock Receipt: It mentions the condition of the cargo while it is loaded and unloaded during
the shipment.
Marine Policy Conditions
The Marine Insurance Act 1906 provides the framework on which marine insurance is based
and the policy document is formulated on the base of marine policy conditions. Based upon
this framework, the insurers are obliged to issue their policies.
• Insurance Cargo Clauses (ICC) (C): The clause provides major casualty coverage
during the land transit and tend to be used for cargoes that are not easily damaged, e.g.
scrap steel, coal, etc. Subject to the policy exclusions and warranties the © covers loss
or damage to the subject matter insured reasonably attributable to
o Fire or explosion
o Grounding, sinking
o Overturning or derailment
o Collision or contact of vessel
o Discharge of cargo at point of distress
• Insurance Cargo Clause (B): Subject to the policy exclusions and warranties, the (B)
clauses provide all the cover under (C) and also cover loss of damage to the subject
matter insured reasonably attributable to:
o Earthquake, volcanic eruption or lightning
o Water damage by entry of sea/ water (excluding rainwater),
o Total loss of package lost overboard
• Institute cargo Clause (A): Subject to the policy exclusions and warranties, the clause
“A” provides the widest of all three covers and generally summed up as ‘all risk’ of
loss or damage to the subject matter insured.
