Marine Insurance (Marine Insurance Act 1906 & Institute Cargo Clauses (A), (B), (C))

Definition:
- Sec. 1: 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.
- Sec. 3(2), ‘marine adventure’: Where any ship goods or other movables
(‘insurable property’) are exposed to maritime perils.
- ‘Maritime perils’: Perils consequent on, or incidental to, the navigation
of the sea (non-exhaustive list)
- Sec. 2(1): A contract of marine insurance may be extended so as to protect the
assured against mixed land and sea risks.
Principles of Marine Insurance Law
Contract of utmost good faith (uberrimae fidei): The insurer and the assured are placed under
an obligation to disclose information likely to affect the judgment of the other.
- The requirement of utmost good faith in insurance contracts is an exception to the
general principles of English Contract Law.
- This is because the insurer relies solely on information provided by the assured to
decide whether or not to provide insurance cover and for fixing the premium.
- Carter v Boehm: Good faith forbids either party, by concealing what he privately
knows, to draw the other party into a bargain owing to his ignorance of that fact, and
his believing the contrary.

- Sec. 17: 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 party.

- Sec. 18(1): The assured must disclose to the insurer, before the contract is concluded,
every material circumstance which is known to him.
- Sec. 18(2): A circumstance is material if it influences the judgment of a prudent insurer
in fixing the premium, or determining whether he will take the risk.

- Container Transport International Inc. and Reliance Group Inc. v Oceaunus Mutual
Underwriting Association (Bermuda) Ltd. as upheld by the HOL in Pan Atlantic v Pine
Top: A circumstance is material if it would have had an effect on the mind of a prudent
insurer in assessing the risk. It may also be material even though a full and accurate
disclosure would not have had a decisive effect on the insurer’s decision. However, in
order to avoid the contract for non-disclosure, the undisclosed material
circumstance must have induced the insurer into making the contract. If the
misrepresentation or non-disclosure of a material fact did not in fact induce the
making of the contract, the insurer is not entitled to rely on it as a ground for avoiding
the contract.
Insurable interest: Every person interested in a marine adventure has an insurable interest.
- Sec. 5(2): 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 by damage thereto, or by the detention
thereof, or may incur liability in respect thereof.
- E.g: Where the buyer has insured his goods, he has an insurable interest
(Sec. 7(2)); the master or any member of the crew of a ship has an insurable
interest in respect of his wages (Sec. 11)

- Sec. 6(1): The assured must be interested in the subject-matter insured at the time
of the loss though he need not be interested when the insurance is effected.
- Sec. 6(2): Where the assured has no interest at the time of the loss, he cannot acquire
interest by any act or election after he is aware of the loss.

- Similarly, under Cl 11. 1, ICC: In order to recover under this insurance, the assured
must have an insurable interest in the subject-matter insured at the time of the loss.

- Sec. 16: The insurable value of the subject-matter insured must be ascertained in
accordance with the provision.
- 1) Insurance on ship: The value, at the commencement of the risk, of the ship.
- 2) Insurance on freight: The gross amount of the freight at the risk of the
assured, plus the charges of insurance.
- 3) Insurance on goods or merchandise: The prime cost of the property insured,
plus the expenses of and incidental to shipping and the charges of insurance
upon the whole.
- 4) Insurance on any other subject-matter: The amount at the risk of the
assured when the policy attaches, plus the charges of insurance.

- Where there is doubt as to whether the assured’s interest falls within the ambit of
Sec. 5, insurers may issue policy proof of interest (ppi) policies.
- ppi policy: The policy is taken to be sufficient proof of the assured’s interest
and the assured does not have to prove the nature of his interest in the
subject-matter. However, such policies are considered as wagering or gaming
contracts under Sec. 4(2), and thus, void under Sec. 4(1).
- The policy is binding in honour only and cannot be legally enforced.
- If the insurer decides not to pay the insured on the policy, the insured cannot
enforce it in court.
- Where an insurer has paid out on a ppi policy, he cannot then claim under the
doctrine of subrogation.
- John Edwards Co Ltd v Motor Union Insurance Co: Rights of subrogation could
arise only where there is a contract of indemnity and such rights do not exist
based on a document which is stricken with sterility.
Subrogation and double insurance
Once the insurer settles the assured’s claim, he is subrogated to all the rights and remedies
of the assured in relation to the subject-matter.
- The insurer takes the place of the insured and can exercise any rights and remedies
the insured has in respect of the loss for which the insurer has paid out.
- Simpson v Thompson: Where one person has agreed to indemnify the other, he will,
on making good the indemnity, be entitled to succeed to all the ways and means by
which the person indemnified might have protected himself against or reimbursed
him for the loss.
Under the doctrine, the insurer will be entitled to recover only what he has paid out.
- Yorkshire Insurance v Nisbet Shipping: A ship insured by the plaintiffs sank as a result
of a collision. The insurers paid out the insured sum of £72,000 to the assured. The
shipowners (assured) were successful in their proceedings against the tortfeasors in
Canada and received damages that produced a sum of £127,000 as a result of
devaluation. The shipowners returned the sum of £72,000 to the insurers and retained
the balance. The insurers brought an action against the assured for the balance.
Held: The assured could retain the balance as the insurer was not entitled to it.

- AG v Glen Line Ltd: The vessel was seized due to the outbreak of war. The insurers paid
for total loss and the vessel was abandoned to the insurers. Once hostilities ceased,
the vessel was sold for an amount greater than that paid to the shipowner (assured)
by the insurers. The shipowners also received compensation from the German
government for the loss of profits suffered as a result of the vessel being seized.
Held: Profits made on the sale of the subject matter belonged to the insurers as they
had acquired proprietary rights upon abandonment of the vessel. However, the
insurers had no right to the compensation paid to the shipowners for the loss of
profits, which was not related to the loss of the vessel itself.
The doctrine also helps ensure that the insured is not overcompensated in that he does not
make a profit out of his loss.
Double insurance: Where a cargo is insured with two insurers, e.g: insured by the shipper and
the consignee.
- Sec. 32(1): Where two or more policies are effected by or on behalf of the assured on
the same adventure and interest or any part thereof, and the sums insured exceed the
indemnity, the assured is said to be over-insured by double insurance.
- In the event of loss, the assured cannot opt to recover the loss twice.
- Where one of the insurers pays out on the loss, he is entitled to look to the other
insurer for contribution.
- Sec. 32(2)(d): Where the assured receives any sum in excess of the indemnity,
he is deemed to hold such sum in trust for the insurers, according to their right
of contribution among themselves.
Assignment
A marine insurance policy must be assignable so that the buyer is covered in the event of loss
or damage to the goods due to perils of the voyage.
Sec. 50(1): A marine policy is assignable unless it contains terms expressly prohibiting
assignment. It may be assigned either before or after loss.
Sec. 50(3): A marine policy may be assigned by indorsement thereon or in other customary
manner.
- Mere delivery of the policy to the purported assignee is insufficient to establish
assignment.
- Baker v Adams: An intention to transfer the rights under the policy must also be
shown.
- A policy can be assigned before or after the loss. However, an assignment after the
loss is possible only as long as the implied or express agreement to assign is made
when the assignor has an interest in the subject-matter (Sec. 51).
North of England Pure Oil Cake Co. v Archangel Maritime Bank and Insurance Co Ltd: The
original assured assigned the policy after the loss of the cargo and the plaintiffs tried to
recover their loss from the insurers. However, there was no agreement to assign the policy to
the plaintiffs nor could an intention to assign be inferred. Held: The defendants were not
liable for the loss of the cargo as the interest of the assured had ceased on delivery of the
goods to the plaintiffs and the assignment had taken place after the loss.

Types of policies
Voyage policy and time policy (Sec. 25(1)):
Voyage policy is a policy for a particular voyage, where the subject-matter is insured for a
voyage, e.g: from one country to another.
- Where the contract is to insure the subject-matter “at and from,” or from one place
to another or others.
- Commonly used in international sale transactions.
Time policy is a policy that insures the subject-matter for a fixed time, e.g: for two years.
- Where the contract is to insure the subject-matter for a definite period of time the
policy is called a “time policy.”
A contract for both voyage and time may be included in the same policy (mixed policy).
- Where the policy covers a particular voyage and runs for a specified period.
Valued policy and unvalued policy
Sec. 27(2), ‘valued policy’: a policy which specifies the agreed value of the subject-matter
insured.
The agreed value does not necessarily reflect the actual value of the goods.
- It may be far less than the actual value of the goods or far greater than the actual value
of the goods.
- Valued policies are more preferable as the buyer can include the anticipated profits
with the value of the goods in the agreed value.
- Where the agreed value is in excess of the actual value, disclosure to the insurer is
required, as failure to do so would be regarded as a non-disclosure of material fact,
which may result in the avoidance of the contract.
Sec. 28, ‘unvalued policy’: A policy which does not specify the value of the subject-matter
insured, but, subject to the limit of the sum insured, leaves the insurable value to be
subsequently ascertained, in the manner specified.
- The insurable value of the subject-matter must be calculated by applying the rules set
out under Sec. 16.
- Sec. 16(3): In insurance on goods or merchandise, the insurable value is the prime cost
of the property insured, plus the expenses of and incidental to shipping and the
charges of insurance upon the whole.
- Prime cost: The true value of the goods at the commencement of the risk.
- Berger and Light Diffusers Pty Ltd v Pollock: The true value is not necessarily
the original cost, but the commercial value of the goods. The onus is on the
insured to provide evidence to establish the insurable value of the goods.
- Williams v Atlantic Insurance: The plaintiff may fail entirely in his case if, on the
evidence as a whole, the court cannot ascertain what the true value of was.
- In an unvalued policy, the profit margin will not be included, which has thus resulted
in the uncommon usage of such policies.
Floating policy and open cover
Sec. 29, ‘floating policy’: A policy which describes the insurance in general terms, and leaves
the name of the ship or ships and other particulars to be defined by subsequent declaration.
- Useful where several consignments are sent over a certain period and the insurer does
not have all the details.
- The name of the ship, date of shipment and value of shipment will be declared by the
assured once the goods are shipped.
- There may be a contractual clause of when the assured should declare the
ships to the insurer. Such clauses are read strictly, thus a breach would cause
the assured to lose his right to recover for losses under the policy.

On declaration of the values, the amount of cover available on the policy will be reduced by
that amount, and when the declared values add up to the original amount, the policy will be
run off or written off.
- Sec. 29(4): Where the assured declares the values after the loss, the policy will be
treated as an unvalued policy.
- Thus, the value of the goods will be calculated according to Sec. 16(3).
Once the amount in a floating policy is exhausted, cover ceases immediately and the assured
may find some cargo not covered.
- A further floating policy is then required for the assured to remain under cover.
In order to lessen the inconvenience, insurers would provide cover where a further floating
policy was not taken out (open cover).
- In an open cover, insurers agree to insure the goods of the assured, but it is not
regarded as a policy. Instead it is merely an arrangement where the insurer undertakes
to issue policies, floating or specific, when required by the assured.
- Open cover is preferable because of its flexibility in use.
Deviation
A vessel is expected to proceed on the voyage on the usual or customary course, or the course
specifically designated for the voyage.
Sec. 46(1): Where a ship, without lawful excuse, deviates from the voyage contemplated by
the policy, the insurer is discharged from liability as from the time of deviation, and it is
immaterial that the ship may have regained her route before any loss occurs.
Sec. 49(1): Deviation or delay in prosecuting the voyage contemplated by the policy is excused
by:
- (a) Where authorised by any special term in the policy;
- (b) Where caused by circumstances beyond the control of the master and his
employer;
- (c) Where reasonably necessary in order to comply with an express or implied
warranty;
- (d) Where reasonably necessary for the safety of the ship or subject-matter insured;
- (e) For the purpose of saving human life, or aiding a ship in distress where human life
may be in danger; or
- (f) Where reasonably necessary for the purpose of obtaining medical or surgical aid
for any person on board the ship;
- (g) Where caused by the barratrous conduct of the master or crew, if barratry beone
of the perils insured against.
Sec. 49(2): When the cause excusing the deviation or delay ceases to operate, the ship must
resume her course, and prosecute her voyage, with reasonable dispatch.
Insurance contracts often specify that cover does not cease on deviation.
- Cl 8.3, ICC: Insurance shall remain in force during delay beyond the control of the
assured, any deviation, forced discharge, reshipment or transhipment and during any
variation of the adventure arising from the exercise of a liberty granted to shipowners
or charterers under the contract of carriage.
- Where such events occur, the insured has no obligation to give notice to the insurer,
and no extra premium is payable.
Deviation must be distinguished from a voluntary change of destination:
- Cl 10, ICC: Where destination is changed by the assured, the insurers must be notified
promptly for rates and terms to be agreed. If a loss occurs prior to such agreement,
cover may be provided by only if cover would have available at a reasonable
commercial market rate on reasonable market terms.
- Thus, for the goods to be covered in the event of a change of destination, the insured
is under an obligation to give prompt notice.
Types of losses
Total loss
Sec. 56(2), ‘total loss’: Can be an actual total loss or a constructive total loss.
Sec. 79: Where the insurer pays for total loss, he becomes entitled to take over the interest
of the assured in whatever may remain of the subject-matter.
Actual total loss
Sec. 57(1): Where the subject-matter insured is destroyed, (e.g: by fire) or so damaged as to
cease to be a thing of the kind insured (e.g: food no longer fit for human consumption), or
where the assured is irretrievably deprived thereof (e.g: where a vessel is capture and there
is no likelihood of it being returned), there is an actual total loss.
Sec. 58: Where the ship concerned in the adventure is missing, and after the lapse of a
reasonable time no news of her has been received, an actual total loss may be presumed.
Constructive total loss
Sec. 60(1): Where the subject-matter insured is reasonably abandoned on account of its
actual total loss appearing to be unavoidable, or where the cost of preserving the subject-
matter insured from actual total loss would far exceed the value of the subject matter.
Sec. 60(2)(i): Where the assured is deprived of the goods, there is constructive total loss if it
is unlikely that he can recover the goods, or the cost of recovering the goods would exceed
their value when recovered.
- Pollurian SS Co Ltd v Young: ‘Unlikely’ denotes the unlikelihood that it could be
recovered within a reasonable time.
Sec. 60(2)(iii): Where there is damage to the cargo, there is constructive total loss if the cost
of making good the damage and forwarding it to its destination exceeds its value on arrival.
Cl 13, ICC although worded differently carries the same effect in that the constructive total
loss is determined in terms of the value of the goods on arrival.

Partial loss
Sec. 56(1): A loss that is not a total loss.
Sec. 56(5): An obliteration (extinction) of marks due to a peril which renders the goods
unidentifiable will not give rise to a claim for total loss, but only to a claim for partial loss.