MARINE INSURANCE

• Marine Insurance contract – whereby the insurer undertakes to indemnify the

assured in the manner and extent thereby agreed, against marine losses, ie,
losses incidental to a marine adventure – Section 3 Marine Insurance Act, 1963
• Lloyd v. Fleming (1872) – a policy of marine insurance is a contract of
indemnity against all losses occurring to the subject-matter of the policy from
certain perils during the adventure.
• Marine insurance – initially only concerned with risk incidental to a sea
voyage, has been expanded, and it covers a wide variety of risks which are
incidental to or connected directly or remotely with a sea voyage.
• In modern times, normal insurance of goods include a ‘transit’ clause, which
covers the goods from the warehouse of the manufacturer or wholesale seller to
that of the consignee or buyer.

2
 MARINE ADVENTURE

• In marine insurance, what is insured is not the property exposed to peril, but only the
risk or adventures of the assured.
• For example, in a case of constructive total loss, the subject matter of the contract, ie, the
goods insured, may well be there safe, but still the assured may recover their cost if the
cost of recovery are proved to exceed the cost of goods .
• S. Chinnaswamy Nadir v. Home Insurance Co. Madras (1981) – where cargo was
damaged by sea water, on the sea becoming rough, it was held the insurer is liable to
indemnify the cargo owner.
• Thus, what is insured is the risk of adventure, ie, the pecuniary interest of the assured in
the subject matter, or in respect of the property exposed to the peril, but not the
subject-matter itself.

3
• There is marine adventure where:
• i. Any insurable property is exposed to maritime peril;
• ii. The earning or acquisition of any freight, passage, money, commission, profit, or
other pecuniary benefit, or the security for any advances, loan, or disbursements, is
endangered by the exposure of insurable property to maritime perils;
• iii. Any liability to a third party may be incurred by the owner of, or other persons
interested in or responsible for insurable property by reason of maritime perils.
• (Section 2(d))

4
• In marine insurance generally, broker contacts the parties and takes the particulars on a slip
of paper.
• Broker takes them to different insurance companies, and the insurance company which is
willing to insure makes a mark or initials of the officer on the ‘slip’.
• Citizens and The Queen Insurance Cos v. Parsons (1880): Privy Council laid down that the
slip contains the heads of the contract.
• Slip – an informal note or memorandum which is drawn up at the time when the contract is
entered into. It contains all the heads noted in the contract, and is itself a contract of
insurance.
• Issuance of a policy is only a formality of recording the concluded contract in a proper form,
and it relates back to the date of issuing the ‘slip proper’.

5
• Indian practice – issue cover notes which are similar to slips. But cover note is NOT a
policy.
• Section 7 of Stamp Act – contract of sea insurance should be expressed in a sea policy,
and duly stamped. Cover notes – not stamped, it is admissible only to prove the
agreement. Cannot be used for any purpose, apart from compelling delivery of a policy
in accordance to its terms.

6
 MARINE INSURANCE ACT, 1963
• Section 24: Contract must be embodied in policy
A contract of marine insurance shall not be admitted in evidence unless it is embodied in a marine
policy in accordance with this Act. The policy may be executed and issued either at the time when the
contract is concluded, or afterwards.
• Section 25: What policy must specify
A marine policy must specify— (1) the name of the assured, or of some person who effects the
insurance on his behalf; (2) the subject-matter insured and the risk insured against; (3) the voyage, or
period of time, or both, as the case may be, covered by the insurance; (4) the sum or sums insured; (5)
the name or names of the insurer or insurers.
Policy must be signed by the insurer itself.

7
CLASSIFICATION OF MARINE POLICIES

Valued Unvalued Floating

Policy Policy Policy

Time Voyage
Policy Policy

8
 VALUED POLICY
• Section 29:
• (1) A policy may be either valued or unvalued.
• (2) A valued policy is a policy which specifies the agreed value of the subject-matter
insured.
• (3) Subject to the provisions of this Act, and in the absence of fraud, the value fixed by the
policy is, as between the insurer and assured, conclusive of the insurable value of the
subject intended to be insured, whether the loss be total or partial.
• (4) Unless the policy otherwise provides, the value fixed by the policy is not conclusive for
the purpose of determining whether there has been a constructive total loss.

9
• Lord Mansfeld: The effect of valuation was merely to fix the insurable value of the subject
matter of the policy .
• In valuing subject-matter of the insured, there may be just valuation or over-valuation or
under-valuation.
• If valuation is just and bona-fide, it is a valued policy, and is deemed conclusive as between
the parties.
• Thames Mersey Insurance Co. v. Gunford (1911) – held that a valued policy is not a
wagering policy just because the value is excessive. In order that it may become a wagering
policy, it must be proved that the over-valuation is not only gross over-valuation, but was
also fraudulently done.

10
 UNVALUED POLICY
• Open policy.
• Section 30:
• An unvalued policy is 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 hereinbefore explained.
• In insurance of freight, whether paid in advance or otherwise, the insurable value is the
gross amount of freight at the risk of the assured, plus the charges of the insurance.

11
 FLOATING POLICY

• Section 31:
• (1) A floating policy is a policy which describes the insurance in general terms, and leaves
the name or names of the ship or ships and other particulars to be defined by subsequent
declaration.
• (2) The subsequent declaration or declarations may be made by endorsement on the
policy, or in other customary manner.
• (3) Unless the policy otherwise provides, the declarations must be made in the order of
dispatch or shipment. They must, in the case of goods, comprise all consignments within
the terms of the policy, and the value of the goods or other property must be honestly
stated, but an omission or erroneous declaration may be rectified even after loss or arrival,
provided the omission or declaration was made in good faith.
• (4) Unless the policy otherwise provides, where a declaration of value is not made until
after notice of loss or arrival, the policy must be treated as an unvalued policy as regards
the subject-matter of that declaration. 12
• Generally taken by carriers, warehousemen, etc to cover their limited interests in
goods they carry or are in their possession.
• Policies are taken in general terms and the particulars are filled by subsequent
declarations.

13
 TIME POLICY
• Section 27, Act, 1963: Where the contract is to insure the subject-matter for a definite period
of time, the policy is called a “time policy”.
• The period should not exceed 1 year, though it may contain one or several voyages.
• Compania Maritime San Basullia v. Oceans Mutual Understanding Association (1976):
Plaintiff insured his ship from February 17 afternoon till Feb. 20, 1972, and continued
thereafter from year to year, until determined. The policy was terminable by the insured on 7
days’ notice at any time, and by the insured on at least 2 months’ notice ending with the end
of a policy year. It was held that it was a ‘time policy’, as it was for a ‘definite period of time’,
and the fact that it continued thereafter did not make it any less a time policy, though it could
be terminated by either party on notice, and is renewed automatically.

14
• In a time policy, the contract is treated as an indivisible contract. Therefore, from
the minute the policy attaches, the assured is entitled to indemnity for any loss that
occurs during that period, and the insurer is entitled to full premium. m

15
 VOYAGE POLICY
• Section 27, Act, 1963: Where the contract is to insure the subject-matter at and from,
or from one place to another or others, the policy is called a “voyage policy”. A
contract for both voyage and time may be included in the same policy.
• Risk commences at the port of departure (terminus quo) and ends at the port of
destination (terminus ad quem).
• Voyage insured is one and indivisible. Thus, underwriter would be responsible for any
loss in the course of or duration of the voyage.

16
 PPI POLICIES
• Before 1909 – there were policies called PPI policies.
• Also called wager policies.
• This policy is one where either the insured has strictly no insurable interest at stake,
or else that the insurer is willing to dispense with any proof of insurance.
• ‘PPI’ – Policy Proof of Interest, also called Interest or No Interest policies.

17
• In simple words the marine insurance includes:
• A. Cargo insurance which provides insurance cover in respect of loss of or damage to
goods during transit by rail, road, sea or air. Thus cargo insurance concerns the following :
(i) export and import shipments by ocean-going vessels of all types,
(ii) coastal shipments by steamers, sailing vessels, mechanized boats, etc.,
(iii) shipments by inland vessels or country craft, and
(iv) Consignments by rail, road, or air and articles sent by post.
• B. Hull insurance which is concerned with the insurance of ships (hull, machinery, etc.).
This is a highly technical subject.

18
 TYPES OF MARINE CONTRACTS
• Most contracts of sale require that the goods must be covered, either by the seller or
the buyer, against loss or damage.
• Who is responsible for affecting insurance on the goods, which are the subject of
sale? It depends on the terms of the sale contract.
• The principal types of sale contracts, so far as Marine insurance is directly concerned,
are as follows:

19
TYPE OF CONTRACT RESPONSIBILITY FOR
INSURANCE
Free on Board The seller is responsible till the goods
(F.O.B. Contract) are placed on board the steamer. The
buyer is responsible thereafter. He can
get the insurance done wherever he
likes.
Free on Rail The provisions are the same as above.
(F.O.R. Contract) It is mainly relevant to internal
transactions.
Cost and Freight Here also, the buyer’s responsibility
(C&F Contract) normally attaches once the goods are
placed on board. He has to take care of
the insurance from that point onwards.
Cost, Insurance & Freight In this case, the seller is responsible for
(C.I.F. Contract) arranging the insurance upto
destination. He includes the premium
charge as part of the cost of goods in
the sale invoice.

20
 VOYAGE
• Sections 44-51 of Marine Insurance Act, 1963
• Section 44: (1) Where the subject-matter is insured by a voyage policy ‘at and from’ or
‘from’ a particular place, it is not necessary that the ship should be at that place when the
contract is concluded, but there is an implied condition that the adventure shall be
commenced within a reasonable time, and that if the adventure be not so commenced the
insurer may avoid the contract.
• (2) The implied condition may be negatived by showing that the delay was caused by
circumstances known to the insurer before the contract was concluded, or by showing that
he waived the condition.

21
• If a ship is insured ‘at and from’ a port which she did not reach, the insurance commences as
soon as she reaches that port in such a condition that she can reasonably be regarded as in a state
of good safety.
• But if she arrives in such a damaged condition that she cannot lie there safely until repaired, the
policy does not attach on such arrival.
• If the damage is so slight that it does not render her unsafe to lie in the port unrepaired, the
policy attaches on arrival at the port.
• If the damage occurs after her arrival and while in port, the insurer is liable.

22
• If two separate policies are effected with two different insurers – one for an onward voyage, and
another for a return voyage, the policy for an onward journey not only covers the onward
journey till the ship reaches her destination, but extends over a period varying from 24 hours to
30 days, and the policy on the return journey, if describes as ‘at and from’, commences the
moment she arrives at the port of destination in ‘good and safe’ condition.
• Therefore, the ship, at her safe arrival at the destination, is covered by both the policies, inward
and onward, and difficulty would arise as to which insurer would be liable, if damage is caused
at that time.
• To avoid this – clause: “the risk is not to commence before the expiry of the previous policy”.

23
 WHERE RISK DOES NOT ATTACH
• Sections 45, 46 of Marine Insurance Act, 1963:
• Section 45: Alteration of port of departure
• Where the place of departure is specified by the policy, and the ship instead of sailing
from that place sails from any other place, the risk does not attach.
• Section 46: Sailing for different destination
• Where the destination is specified in the policy, and the ship, instead of sailing for that
destination, sails for any other destination, the risk does not attach.

24
 CHANGE OF VOYAGE
• Section 47: Change of voyage.
• (1) Where, after the commencement of the risk, the destination of the ship is
voluntarily changed from the destination contemplated by the policy, there is said to be
a change of voyage.
• (2) Unless the policy otherwise provides, where there is a change of voyage, the
insurer is discharged from liability as from the time of change, that is to say, as from
the time when the determination to change it is manifested; and it is immaterial that the
ship may not in fact have left the course of voyage contemplated by the policy when
the loss occurs.

25
 DEVIATION

• Section 48: Deviation

• (1) Where a ship, without lawful excuse, deviates from the voyage contemplated by the
policy, the insured 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.
• (2) There is a deviation from the voyage contemplated by the policy— (a) where the course
of the voyage is specifically designated by the policy, and that course is departed from; or
(b) where the course of the voyage is not specifically designated by the policy, but the
usual and customary course is departed from.
• (3) The intention to deviate is immaterial; there must be a deviation in fact to discharge the
insurer from his liability under the contract.

26
• Mere intention to deviate is not sufficient, but there should be a deviation in fact to
discharge the insurer from liability.
• Reardon Smith Lives Ltd. v. Black Sea and Baltic General Insurance Co. Ltd. (1939):
• A vessel to sail from Poti in Black Sea to Sparrow’s Point in U.S. sailed to
Constanza, which is not on the direct geographical route, to take oil fuel, and was
stranded there. Evidence showed that about a quarter of oil burning vessels
proceeded from the Black Sea port bunker at Constanza. Held that there was no
deviation.

27
 EXEMPTIONS FOR DEVIATIONS OR DELAYS
❑ If authorized by a special term in the policy – ‘deviation and/or change of voyage clause’;
❑ If caused by circumstances beyond the control of the Master or Employer – eg: when vessel
is blown off track and thereby deviates in voyage;
❑ If it is reasonably necessary for the safety of the ship or the subject matter insured;
❑ If it is for the purposes of saving human life, or aiding a ship in distress where human life is
in danger;
❑ If it is reasonably necessary for obtaining medical or surgical aid for any person on board the
ship;
❑ If it is due to barratrous conduct of Master or Crew or if Barratry is one of the perils insured
against.

28
PERILS OF SEA
• Everything that happens to a ship in the course of a voyage by the immediate act of God,
without intervention of human agency. Includes only fortuitous accidents or casualties of
the sea.
• Even in Act of God, it does not refer to natural and ordinary course of action of winds and
waves.

30
 Perils of Sea v. Maritime Perils
• All perils of sea are maritime perils but not vice versa.
• Maritime perils – wider in scope.
• Includes perils of sea, fire, war perils, pirates, thieves, captures, seizures,
restrains, detainments, etc.

31
 PERILS OF SEA - EXAMPLES

• 1. FOUNDERING AT SEA: If ship is missing, and after a reasonable time, no news has
been received.
• 2. SHIPWRECK: Loss by peril of sea, when it happens as ship striking against a rock or
driven to the shore by the violence of winds.
• 3. STRANDING: Happens when a ship by accident gets out of the ordinary course of
voyage, and gets stuck in shallow regions of sand, and gets injury.
• 4. COLLISION: Ship striking against another ship or any other subject-matter. Collision
clause in marine policies – underwriter liable.

32
 EXCLUDED LOSSES – NOT PERILS
OF SEA
• 1. WEAR AND TEAR
• Natural decay and deterioration which invariably happens to a ship, due to actions
of winds and waves.
• Rehesa Shipping Co., SA v. Edmands, The Poppi M. (1985) – Ship sank in good
weather and calm sea, due to water entering through a hole in the shell plating that
had been run-down, and thereby flooding the engine room. However, here the Court
determined that the true cause of the loss was doubtful.

33
• 2. SPRINGING A LEAK
• Not a peril of sea, unless it is due to an accident.
• 3. BREAKAGE OF GOODS DURING VOYAGE DUE TO MOVEMENT OF THE
SHIP
• Not a peril of sea, but if it is due to violent action of waves – it is a peril of the sea.
• 4. INHERENT VICE
• Insurer shall not be liable for any loss caused to defect in goods.
• Eg: if fruits become rotten or wine becomes bad due to inherent decomposition.
• Death of animals due to natural causes is also not a peril of sea.

34
• 5. LOSS BY RATS AND VERMIN
• 6. LOSS BY DELAY
• Insurer is not liable for damage caused by delay, even if the delay results from a peril
insured against – English Marine Insurance Act, Section 55(2)(b)
• Current position?

35
 OTHER PERILS INSURED IN MARINE
INSURANCE POLICY

• 1. LOSS BY FIRE
• If fire is caused on board the ship, and if the goods or ship is damaged, the insurance
company will be liable. But it will not include a loss caused by explosion of a steam nor a
fire caused by inherent vice of the subject matter insured.
• 2. LOSS BY CAPTURE, SEIZURE OR TAKING AT SEA
• Capture includes both by an enemy, as well as by revenue and statutory authorities.
• Current position?

36
• 3. LOSS BY ARREST, DETENTION, ETC
• Does not however include loss by a mob in a riot, or arrest by judicial proceedings or
embargo, ie, order of the govt prohibiting a ship or goods from a port.
• 4. WAR RISKS AND FCS CLAUSE
• Standard form of English marine policies include war risks.
• FCS – Free from Capture and Seizure
• Under FCS Clause – loss due to hostilities and war-like operations will be excluded from
ordinary policies. So if parties wish to include these risks – FCS clause shall be deleted,

37
• 5. LOSS CAUSED BY PIRATES AND THIEVES
• English Marine Insurance Act – ‘Pirates’ include passengers who mutiny and rioters who attack
the ship from shore.
• Re Piracy Jure Gentium – actual robbery is not an essential element in the crime of piracy jure
gentium, and a frustrated attempt to commit piratical robbery is equally piracy jure gentium.
• 6. BARRATRY
• Wrongful act caused by the Master or crew to the prejudice of the shipowner, and every kind of
fraud committed by them, with the intention of benefitting themselves at the expense of the
owner. Eg: Master scuttling the ship or fraudulently selling the cargo, fraudulent deviation of
the ship, crew’s wrongful refusal to discharge the cargo, etc.

38
• Inchmaree Clause – Thames and Mersey Inc. Co. v. Hamilton
(1887)

39
LOSS
 INCLUDED AND EXCLUDED LOSSES
• Section 55
• (1) Subject to the provisions of this Act, and unless the policy otherwise provides, the insurer is liable for
any loss proximately caused by a peril insured against, but, subject as aforesaid, he is not liable for any loss
which is not proximately caused by a peril insured against.
• (2) In particular—
• (a) the insurer is not liable for any loss attributable to the willful misconduct of the assured, but, unless the
policy otherwise provides, he is liable for any loss proximately caused by a peril insured against, even
though the loss would not have happened but for the misconduct or negligence of the master or crew;
• (b) unless the policy otherwise provides, the insurer on ship or goods is not liable for any loss proximately
caused by delay, although the delay be caused by a peril insured against;
• (c) unless the policy otherwise provides, the insurer is not liable for ordinary wear and tear, ordinary
leakage and breakage, inherent vice or nature of the subject-matter insured, or for any loss proximately
caused by rats or vermin, or for any injury to machinery not proximately caused by maritime perils.

41
 PARTIAL AND TOTAL LOSS
• Section 56:
• (1) A loss may be either total or partial. Any loss other than a total loss, as hereinafter
defined, is a partial loss.
• (2) A total loss may be either an actual total loss, or a constructive total loss.
• (3) Unless a different intention appears from the terms of the policy, an insurance against
total loss includes a constructive, as well as an actual, total loss.
• (4) Where the assured brings a suit for a total loss and the evidence proves only a partial
loss, he may, unless the policy otherwise provides, recover for a partial loss.
• (5) Where goods reach their destination in specie, but by reason of obliteration of marks, or
otherwise, they are incapable of identification, the loss, if any, is partial and not total.

42
 ACTUAL TOTAL LOSS
• Section 57
• (1) Where the subject-matter insured is destroyed, or so damaged as to cease
to be a thing of the kind insured, or where the assured is irretrievably
deprived thereof, there is an actual total loss.
• (2) In the case of an actual total loss no notice of abandonment need be
given.
• Section 58
• Missing ship.—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.

43
 CONSTRUCTIVE TOTAL LOSS

• Section 60
• (1) Subject to any express provision in the policy, there is a constructive total loss where the
subject-matter insured is reasonably abandoned on account of its actual total loss appearing to be
unavoidable, or because it could not be preserved from actual total loss without an expenditure
which would exceed its value when the expenditure had been incurred.
• (2) In particular, there is a constructive total loss—
• (i) where the assured is deprived of the possession of his ship or goods by a peril insured against,
and
• (a) it is unlikely that he can recover the ship or goods, as the case may be, or
• (b) the cost of recovering the ship or goods, as the case may be, would exceed their value when
recovered; or

44
(ii) in the case of damage to a ship, where she is so damaged by a peril insured
against that the cost of repairing the damage would exceed the value of the ship
when repaired.
In estimating the cost of repairs, no deduction is to be made in respect of general
average contributions to those repairs payable by other interests, but account is to be
taken of the expense of future salvage operations and of any future general average
contributions to which the ship would be liable if required; or
(iii) In the case of damage to goods, where the cost of repairing the damage and
forwarding the goods to their destination would exceed their value on arrival.
Section 61: Where there is a constructive total loss the assured may either treat the
loss as a partial loss, or abandon the subject-matter insured to the insurer and treat
the loss as if it were an actual total loss.

45