Marine Insurance

Marine insurance is the oldest form of insurance. In India till 1963 marine
insurance was governed by the provisions of the British Act and the contract act.
The law relating to marine insurance has been codified by the marine insurance
Act, 1963 which came into force on 1st August 1963. The Act contains 91 sections
and a schedule containing a form of marine insurance policy and the rules of
construction. A contract of marine insurance is an agreement whereby the insurer
undertakes to indemnify the assured, in the manner and to the extent, agreed
against losses incidental to marine adventure. There is Marine adventure when any
insurable property is exposed to marine peril i.e. perils consequent to navigation of
the sea. Thus Marine Insurance is a type of insurance that covers cargo losses or
damages caused to ships, cargo vessels, terminals and any transport in which goods
are transferred or acquired between different parts of origin and their final
destination. If there any damages or loss happened, the Marine Insurance plays
comes to rescue, protecting the interest of shipping corporations and transporters
by providing them with insurance coverage according to the size of the ship and
routes taken.

General Principles of Marine Insurance

The fundamental principles of Marine Insurance are drawn from the Marine
Insurance Act, 1963. The contract of Marine Insurance is based on the fundamental
principles:
• Indemnity
• Insurable Interest
• Utmost Good Faith
• Proximate Cause
• Subrogation
• Contribution

1. Principle of Indemnity - (Section 67- 78 of The Marine Insurance Act 1963)

The Marine Insurance policy holder would be compensated only to the extent of
loss. It means, the person should not buy MI get the profits. In any case policy
holder will not get more than the actual loss. He will not be allowed to make a
profit out of any damage to his property by taking an insurance policy. Upon
the total loss of entire cargo by an insured peril the sum insured is paid in full
and if part of cargo is a total loss, the appropriate portion of the insured value is
paid.

2. Insurable Interest - (Sec 6 - 17 of The Marine Insurance Act 1963)

No person can enter into a valid contract of insurance unless he has insurable
interest in the subject matter of insurance. Every person has an insurable
interest in a marine adventure. There must be a physical object exposed to
marine peril and that the insured must have some legal relationship to the object
in consequence of which he benefits by its preservation and in case of loss or
damage of it he may incur liability. Both a contingent and defeasible interest are
insurable, a partial interest is also insurable.
In the case law LUCENA V. CRAWFORD, 1806, it is held that ‘Interest does
not necessarily imply a right to the whole or part of a thing, to be interested in
the preservation of a thing, is to be circumstanced with respect to it as to have
benefit from its existence, prejudice from its destruction’.

3. Utmost Good Faith - (Section 19 - 23 of The Marine Insurance Act 1963)

A contract of Marine Insurance is a contract based upon the utmost good faith
and if the utmost good faith be not observed by either party the contract may be
avoided by the other part. It is based on the principle of Uberrimae Fidei
contract. i.e., there must be utmost good faith on the part of both the insurer and
assured. In Marine Insurance it is the duty of proposer to disclose clearly and
accurately all the material fact related to risk. Whether non-disclosure is
intentional or not, the effect is same and the policy may be avoided, although
deliberate and material non-disclosure would usually amount to fraud and
render the policy void.

4. Proximate Cause (Section 35 of The Marine Insurance Act 1963)

When there are several causes for a loss the Doctrine of causa proxima applies.
at the time of loss, the Marine Insurance policy holder would consider the
proximate or nearest cause, which would assist in analysing the genuine cause
of loss. If the the proximate cause is insured, the marine insurance co. has to
fix the claim and the insured will get compensation for the loss, otherwise, he
will not be compensated. If one of the cause contributing is an excepted peril
the loss is not covered at all, unless the consequences of the insured peril can
be separated from those of the uninsured peril, in which event the former, but
not the latter, is cover.

5. Principle of Subrogation (Section 79 of The Marine Insurance Act 1963)

Subrogation means to substitute, to put in place of another party as successor to
that party’s rights etc. Under subrogation where the insured is being fully
indemnified, the insurer becomes entitled to be subrogated to all the insured’s
rights and remedies against third parties in respect of the subject matter of the
insurance. In Marine Insurance subrogation applies only after payment of a loss.
The insurer is entitled to recover only up to the amount, which he has paid, in
respect of rights and remedies.

Transport organisation v. Charan spinning mills: Subrogation is inherent which

occurs automatically when the insurer settles the claim under the policy that
remembering the loss suffered by the insured.

6. Contribution (Section 80 of The Marine Insurance Act 1963)

Sometimes one risk may be covered by more than one insurer. In contribution
method, all the insurers are contributing to the loss. If one of the insurers alone
pay insured, then the insurer who paid the actual loss has a right to recover
proportionate amount s from the other insurers.
There are Some conditions related to contribution:
• There must be at least policies of insurance.
• The policy must cover the same interest, same subject matter, same Peril.
• A loss must occur etc.

7. Loss Minimization Principle

It is the important for the policy holder to take all the steps to minimize the
losses. This principle reminds the insured of his duty to take all necessary steps
to minimise the loss, in case of occurrence of the risk insured. The policy holder
should not behave irresponsible during an accident just because the property is
covered under marine insurance.

Types of Marine Insurance

There are four types of Marine Insurance
1. Hull Insurance
2. Cargo Insurance
3. Freight Insurance
4. Liability Insurance
Hull Insurance
It covers the insurance of hull and body of transportation vehicle. Eg.furniture and
fittings, machinery, tools, fuel etc. It is generally affected by the owner of the ship.
Marine Cargo Insurance
Marine cargo policy refers to the insurance of goods dispatched from the country
of origin to the country of destination. Eg. Cargo or goods contained in the ship
and the personal belongings of the crew and passengers.
Freight Insurance
It provides protection against the loss of freight. Thus if the goods are damaged in
transit, the operator would loss freight receivables and so the insurance will be
provided on compensation for loss of freight.
Liability Insurance
Marine liability insurance is where compensation is brought to provide any liability
occurring on account of a ship crashing or colliding.

Assignment

According to Section 3 of The Marine Insurance Act, A contract of Marine

Insurance is an agreement whereby the insurer undertakes indemnity assured , in
the manner and to the extent thereby agreed , against marine losses , that is to say ,
the losses incidental to marine adventure.
According to Section 25, The policy must specify
1. Name of assured (agent)
2. Subject matter
3. Time of period or voyage
4. Sum insured
5. Names of insurers
A contract of Marine Insurance shall not be admitted in evidence unless it is
embodied in marine policy in accordance with Marne IA. The policy must be
signed by insurer or big agent.
Assignment of policy mentioned under Section 52 of the Marine Insurance
Act. Thus:
1. A marine policy may be transferred by assignment unless it contains terms
expressly prohibiting assignment. It may be assigned before or after loss.
2. Marine policy may be assigned by endorsement thereon or in other customary
manner.
3. When an assignment has been made, the assignee of the policy is entitled to sue
in his own name.
According to Sec 53, the assured has no interest in the subject matter insured,
cannot assign the policy or no right to assign the policy .
In the case law UOI v. SRI. SARADA MILLS LTD, it was held that under Section
52 of Marine Insurance Act, an insurance co. can sue in its own name where the
policy has be transferred by assignment.

Reinsurance

It is a system whereby insurers insure their exposure on policies they have written
or are about to write. It is meant for Insurance for Insurance companies. The idea is
that no insurance company has too much exposure to a particularly large event or
disaster. It occurs when multiple insurance companies share risk by purchasing
insurance policies from other insurer to limit their own total loss in case of disaster.
Four reasons for providing Reinsurance are;
1. To limit on a specific risk
2. To stabilize loss experience.
3. To protect themselves and the insured against great dispute.
4. To increase their capacity.
Reinsurance help a company by the following reasons:
1. Transfer of share
2. Additional profits can be earned by purchasing insurance
3. Companies can avoid huge loss by passing risk.
4. The expertise of another insurer can help a company obtaining higher rating and
premium.
Types of Reinsurance
1. Treaty are agreement that cover broad groups of policies such as all of a
primary insurer’s auto business.
2. Facultative – covers specific individuals , generally huge value or hazardous
risks , such as hospital, that would not be accepted under treaty.

Treaty and facultative reinsurance can be structured on a proportional or non-

proportional basis depending on the arrangement which losses are apportioned
between the two insurers. The company which taking the risk is the ceding
company and the amount reinsured is the cession. Reinsurance transaction is
relationship of utmost good faith between the partners i.e. between reinsurer and
reassured .
Case Laws
• Friend Bros V. Sea Board Surety Co: Reinsurance is an agreement to indemnify
the assured, partially or fully against the risk assumed by it in a policy issued to
a third party.
• Bethke V Cosmopolitan Life Insurance Co: Reinsurance is a contract which one
insurer makes with another to protect the 1st insurer from risk already assumed.

DAMAGES

Sections 55 to 66 of the Marine Insurance Act, 1963 provides the principles related
to loss and abandonment as applicable to marine insurances.

Section 55, losses have been divided into two categories-

1. Total loss
2. Partial loss

1. Total loss: Total loss means a complete loss or destruction of the subject matter
in the policy. The loss is deemed to be total or complete when the subject
matter is fully destroyed or lost or ceases to be thing of the kind. The total loss
can be further categorized as follows
a. Actual Loss: Section 57 (1) define actual loss, when cargo is destroyed to
such an extent that there’s no possibility of recovering goods.
b. Constructive Loss: Section 60 (1) provides that a constructive total loss,
when the subject matter is damaged to such an extent that its cost of
repairing and reconditioning is more than its total value.

2. Partial loss: Section 56 of the Act defines partial loss as any loss other than a
total loss. Sections 64-66 deal with various components of a partial loss,
namely, average general loss, particular average loss, and salvage charges.
a. General average loss: Section 66 of the MIA defines general average loss as
any loss caused by a general average act, which is any wilful momentous
expense or sacrifice carried out by the assured to prevent the insured object
from being damaged by a peril insured against. The person carrying out such
a general average act has the right to ask for contributions from other
persons who have any interest in the insured object. Then, the assured can
claim for indemnification from the insurer for such part of the money or
sacrifice which is attributable to him after contribution. However, the insurer
cannot be compelled to indemnify the assured for a general average loss if
the general average act was not incurred for the purpose of preventing any
damage or prospective damage to the insured object. All the aforementioned
provisions, however, are dependent upon the terms of the marine insurance
policy.
b. Particular average loss: Any loss which is not a general average loss falls
under the category of particular average loss.
c. Salvage charge: Salvage charges mean the charges incurred by a salvor. The
salvor is a third party who tries to save the property in the time perils. The
salvor can recover such charge either as a general average loss or a particular
average loss, depending upon the circumstances in which the salvage charge
was sustained.

Key International Conventions and Obligations

Several international conventions play a crucial role in marine insurance, particularly in defining the obligations and
rights of parties involved. These include:
1. International Convention on Civil Liability for Oil Pollution Damage (CLC):
o Addresses liability for oil pollution damage caused by ships and provides for compulsory
insurance to cover such liabilities.
2. International Convention on the Establishment of an International Fund for Compensation for Oil
Pollution Damage (Fund Convention):
o Complements the CLC by establishing a fund to compensate for oil pollution damage when
liabilities exceed the insurance coverage.
3. Hague-Visby Rules:
o Regulate the liability of carriers for loss or damage to cargo during international carriage by sea.
They set minimum standards for carrier liability and insurance.
4. Hamburg Rules:
o Provide a modern framework for carrier liability in international cargo transport, including
provisions on damages and insurance.
5. Rotterdam Rules:
o Cover the carriage of goods by sea and other modes of transport, aiming to modernize and
harmonize rules on liability and insurance.