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Marine Insurance Marine Insurance Document Transcript

  • 1 Marine Insurance SUBJECT- INNOVATIONS TOPIC- MARINE INSURANCE
  • 2 Marine Insurance Acknowledgement We are very thankful to everyone who supported us, for we have completed our project successfully and moreover on time. We thank the group members for their contribution towards this project. We also thank our classmates and friends for all the help they have offered. We are equally grateful to our teacher Prof. Renu Tiwari; she gave us moral support and guided us in different matters regarding the topic. She had been very kind and patient while suggesting us the outlines of this project and correcting our doubts’. We thank her for her overall support. Last but not the least, we would like to thank our parents who helped us a lot in gathering different information, collecting data and guiding us from time to time in making this project despite of their busy schedules ,they gave us different ideas in making this project unique. Thanking you. Felicia Nazareth, John Marc Dsouza (8136-8144) Class- SYBBI
  • 3 Marine Insurance Index SR NO PARTICULARS PAGE NO. 1. Introduction 6 2. Types of Marine Insurance 8 3. Marine Insurance Act 10 4. Marine Insurance Contract 12 5. Marine Cargo Policy 21 6. Marine Hull Policy 25 7. Conclusion 28 9. References 30
  • 4 Marine Insurance INTRODUCTION Marine insurance plays a very important role in the field of overseas commerce and internal trade of a country. It is closely linked with Banking and Shipping. Banks generally finance the goods which are transported by ships or by other means of transport in the case of internal trade and Marine Insurance protect such goods against loss or damage. Without such protection the entire trade structure is bound to suffer. Marine insurance covers the loss or damage of ships, cargo, terminals, and any transport or cargo by which property is transferred, acquired, or held between the points of origin and final destination. This insurance usually covers all risks rather than individual risks such as theft/robbery, wetting of the goods or fire. The traffic and transport liability insurance sold by marine insurers covers the liability of the freight or carrier forwarder towards the transported goods. History Maritime insurance was the earliest well-developed kind of insurance, with origins in the Greek and Roman maritime loan. Separate marine insurance contracts were developed in Genoa and other Italian cities in the fourteenth century and spread to northern Europe. Premiums varied with intuitive estimates of the variable risk from seasons and pirates Modern marine insurance law originated in the Lex mercatoria (law merchant). In 1601, a specialized chamber of assurance separate from the other Courts was established in England. By the end of the seventeenth century, London's growing importance as a centre for trade was increasing demand for marine insurance. In the late 1680s, Edward Lloyd opened a coffee house on Tower Street in London. It soon became a popular haunt for ship owners, merchants, and ships' captains, and thereby a reliable source of the latest shipping news. Lloyd's Coffee House was the first marine insurance company. In the 19th century, Lloyd's and the Institute of London Underwriters (a grouping of London company insurers) developed between them standardized clauses for the use of marine insurance, and these have been maintained since. These are known as the Institute Clauses because the Institute covered the cost of their publication. Out of marine insurance, grew non-marine insurance and reinsurance. Marine insurance traditionally formed the majority of business underwritten at Lloyd's. Nowadays, Marine insurance is often grouped with Aviation and Transit (cargo) risks. Nature and scope of marine insurance The nature and scope of marine insurance is determined by reference to s. 6 of the Marine Insurance Act and by the definitions of “marine adventure” and “maritime perils”. It is a contract of indemnity but the extent of the indemnity is determined by the contract. It relates to losses incidental to a marine adventure or to the building, repairing or launching of a ship. A marine adventure is any situation where the insured property is exposed to maritime perils. Maritime perils are perils consequent on or incidental to navigation.
  • 5 Marine Insurance Marine insurance is an agreement by which the insurer agrees to indemnify the owner of the ship, cargo, freight and liability. So we can say that the areas or scope of marine insurance are based on the above subject matter. All risks relating to Vessels, Floating Dry Docks, Jetties and Ship owners‟ Interestsincluding Hull &Machinery (H&M), Freight, Disbursements, Increased Value, Premium Reducing, Excess Liabilities, Protection and Indemnity (P&I) Liabilities, Charterers'Liabilities, Charterers' Freight, Charterers' Hire and/or Disbursements, General AverageDisbursements, Ship Repairers' Liabilities, Shipbuilding Risks,ShipbreakingRisks andother allied interests of whatsoever nature required to be insured in India.
  • 6 Marine Insurance TYPES OF MARINE INSURANCE The subject of Marine Insurance is very wide and encompassing, which is why there is a definite categorization of various types of marine insurance and different types of marine insurance policies. As per the needs, requirements and specifications of the transporter, an appropriate type or types of marine insurance can be narrowed down and selected to be put into operation. The types of marine insurance available for the benefit of a client are many and all of them are feasible in their own way. Depending on the nature and scope of a client‟s business, he can opt for the best marine insurance plan and enjoy the advantage of having marine insurance. The types of marine insurance are described below- 1. Hull insurance: Hull insurance is an insurance contract which subject matter is based on vessels. Insurance of vessel and its equipment‟s are included under hull insurance. There are a number of classifications of vessels such as ocean steamers, sailing vessels, builders, risks, fleet policies etc. 2. Cargo insurance: when the goods or cargo transported from the port of departure to the port of destination, from the subject matter of insurance, it is called as cargo insurance. These are used for the insurance of goods and are incorporated in cargo policies. The clauses of this policy describe the nature, extent and define the comprehensive condition and restrictions. Terms and conditions of cargo insurance are specially incorporated in the policies. Generally exporters of the goods take this cargo insurance policy. 3. Freight insurance: The function of this type of freight insurance is quite clear: It covers your commercial shipment or personal property in case of accidents when transferred by vessel, truck, train or airplane and accidents can and do take place. During the nationwide transport or international shipping your cargo is apparent to possible damages & losses: piracy, tough weather, acts of God or other unexpected situations. It was designed to safeguard the cargo owner's fiscal interests while the cargo is in transit from the seller to the buyer. It is a very vital, but often left out aspect of the international transaction or a simple household goods move. It seems that people admittedly understand the grounds for insuring their personal residency, automobile and other valuables but tend to consider unnecessary when it comes to insuring cargo shipment. Freight insurance offers and provides protection to merchant vessels‟ corporations which stand a chance of losing money in the form of freight in case the cargo is lost due to the ship meeting with an accident. This type of marine insurance solves the problem of companies losing money because of a few unprecedented events and accidents occurring. 4. Marine liability insurance:Liability insurance is a part of the general insurance system of risk financing to protect the purchaser (the "insured") from the risks of liabilities imposed by lawsuits and similar claims. It protects the insured in the event he or she is sued for claims that come within the coverage of the insurance policy. Originally, individuals or companies that faced a common peril formed a group and created a self-help fund out of which to pay compensation should any member incur loss (in other words, a mutual insurance arrangement). The modern system relies on dedicated carriers, usually for-profit; to offer protection against specified perils in consideration of a premium. Liability insurance is designed to offer specific protection against third party insurance claims, i.e., payment is not typically made to the insured, but rather to someone suffering loss who is not a party to the insurance contract. In general, damage caused intentionally as well as contractual liability are not covered under liability insurance policies. Sometimes for the lack of sincerity of the captain and
  • 7 Marine Insurance staff the ship may fall in loss. To protect these types of perils when the shipping authority takes a policy then it would be called marine liability insurance. The marine liability insurance policy may include liability hazards such as collision or running down. In addition to these types of marine insurance, there are also various types of marine insurance policies which are offered to the clients by insurance companies so as to provide the clients with flexibility while choosing a marine insurance policy. The availability of a wide array of marine insurance policies gives a client a wide arena to choose from, thus enabling him to get the best deal for his ship and cargo. The different types of marine insurance policies are detailed below: Voyage Policy: A voyage policy is that kind of marine insurance policy which is valid for a particular voyage. Time Policy: A marine insurance policy which is valid for a specified time period – generally valid for a year – is classified as a time policy. Mixed Policy: A marine insurance policy which offers a client the benefit of both time and voyage policy is recognized as a mixed policy. Open (or) Un-valued Policy: In this type of marine insurance policy, the value of the cargo and consignment is not put down in the policy beforehand. Therefore reimbursement is done only after the loss to the cargo and consignment is inspected and valued. Valued Policy: A valued marine insurance policy is the opposite of an open marine insurance policy. In this type of policy, the value of the cargo and consignment is ascertained and is mentioned in the policy document beforehand thus making clear about the value of the reimbursements in case of any loss to the cargo and consignment. Port Risk Policy: This kind of marine insurance policy is taken out in order to ensure the safety of the ship while it is stationed in a port. 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. Floating Policy: A marine insurance policy where only the amount of claim is specified and all other details are omitted till the time the ship embarks on its journey, is known as floating policy. For clients who undertake frequent trips of cargo transportation through waters, this is the most ideal and feasible marine insurance policy. Marine Insurance is an area which involves a lot of thought, straightforward and complex dealings in order to achieve the common ground of payment and receiving. But as much as complex the field is, it is nonetheless interesting and intriguing because it caters to a lot of people and offers a wide range of services and policies to facilitate easy and uncomplicated business transactions. Therefore, in the interest of the clients and the insurance providers, it is beneficial and relevant to have the right kind of marine insurance. It resolves problems not just in the short run, but also in the long run as well.
  • 8 Marine Insurance MARINE INSURANCE ACT Marine insurance is an important component of international trade and commerce and subject to international regulations in every stage of operations. It is governed by the Marine Insurance Act 1963 in India and guided by the various clauses formulated by the Institute of London Underwriters (ILU) and the international commercial terms known as „Incoterms‟. This paper analyses the legal aspects the marine insurance in India and provides an overview and analysis of the Marine Insurance Act, 1963.The need to insure property against the economic consequences of its loss or damage has become a fundamental feature of modern society. Insurance underpins key aspects of society by providing security and protection to individuals, communities and businesses. It facilitates trade and commerce; generates employment; provides risk sharing; encourages innovation by allowing individuals and businesses toengage in more risky business activities, thereby fostering higher levels of economic activity; and mobilizes domestic savings through the collection of premiums by insurance companies which can help build a country‟s financial market. In the context of globalization, maritime transport is the backbone of international trade with over 80 per cent of world merchandise trade by volume being carried by sea. Marine transport involves risks related with the “perils of the sea”. In this respect, marine insurance is a mechanism that helps to mitigate the risks of financial loss to the property such as ship, goods or other movables, in maritime transport. Insurance is, thus, a necessary component of doing business on an international basis and plays an important role in the international trade. Its purpose is to enable ship-owner, the buyer and seller of the goods to operate their businesses, while relieving themselves, at least partly, of the burdensome financial consequences of their property‟s being lost or damaged as a result of various risks of the high seas.Thus, marine insurance adds the necessary element of financial security so that the risk of an accident happening during the transport is not an inhibiting factor in the conduct of international trade. In this sense, marine insurance is an aid to the conduct of seaborne international trade. Therefore, developing an efficient and competitive insurance market is of key importance for developing countries like India as they integrate into the world economy. This paper analyses the legal aspects the marine insurance in India. In this regard, it provides an overview and analysis of the Marine Insurance Act, 1963. Insurance law in India had its origins in British law with the establishment of a British firm, the Oriental Life Insurance Company in 1818 in Calcutta, followed by the Bombay Life Assurance Company in 1823, the Madras Equitable Life Insurance Society in 1829 and the Oriental Life Assurance Company in 1874. The first general insurance company Triton Insurance Company Ltd. was promoted in 1850 by British nationals in Calcutta. The first general insurance company established by an Indian was Indian Mercantile Insurance Company Ltd. in Bombay in 1907. The first legislation in India to regulate the life insurance business was in 1912 with the passing of the Indian Life Assurance Companies Act, 1912.Other classes of non-life insurance business were left out of the scope of the Act of 1912, as such non-life insurance was still in rudimentary form and regulating them was not considered necessary. Eventually, with the growth of fire, accident and marine insurance, the need was felt to bring such kinds of insurance within the purview of the regulations. While there were a number of attempts to introduce such legislation over the years, law on non-life insurance was finally enacted in 1938 with the passing of the Insurance Act, 1938.
  • 9 Marine Insurance The general insurance business was nationalized in 1973, through the introduction of the General Insurance Business (Nationalisation) Act, 1972. Under the provisions of the GIC Act, the shares of the existing Indian general insurance companies and undertakings of other existing insurers were transferred to the General Insurance Corporation (“GIC”) to secure the development of the general insurance business in India and for the regulation and control of such business. The GIC was established by the Central Government in accordance with the provisions of the Companies Act, 1956 in November 1972 and it commenced business on January 1, 1973. Prior to 1973, there were a hundred and seven companies, including foreign companies, offering general insurance in India. These companies were amalgamated and grouped into four subsidiary companies of GIC viz. the National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd., and the United India Assurance Company Ltd. GIC undertakes mainly re-insurance business apart from aviation insurance. The bulk of the general insurance business of fire, marine, motor and miscellaneous insurance business is under taken by the four subsidiaries. From 1991 onwards, the Indian Government introduced various reforms in the financial sector paving the way for the liberalization of the Indian economy. Consequently, in 1993, the Government of India set up an eight-member committee chaired by Mr. R. N. Malhotra, to review the prevailing structure of regulation and supervision of the insurance sector. The Committee submitted its report in January 1994. Two of the key recommendations of the Committee included the privatization of the insurance sector by permitting the entry of private players to enter the business of life and general insurance and the establishment of an Insurance Regulatory Authority. Subsequently, the recommendations of the Malhotra Committee were implemented by the Indian government by allowing private investments in the insurance sector and establishing a regulatory body through the enactment of the Insurance Regulatory and Development Act, 1999 with the aim “to provide for the establishment of an Authority, to protect the interests of the policy holders, to regulate, promote and ensure orderly growth of the insurance industry and to amend the Insurance Act, 1938, the Life Insurance Corporation Act, 1956 and the General Insurance Business (Nationalization) Act, 1972”. At present, the principal legislation regulating the insurance business in India is the Insurance Act, 1938, as amended over the years, and regulates both life insurance and general insurance. General insurance has been defined to include “fire insurance business”, “marine insurance business” and “miscellaneous insurance business”. Some other existing legislations in the field are – the Life Insurance Corporation Act, 1956, the Marine Insurance Act, 1963, the General Insurance Business (GIB) (Nationalization) Act, 1972 and the Insurance Regulatory and Development Authority (IRDA) Act, 1999. The provisions of the Indian Contract Act, 1872 are applicable to the contracts of marine insurance. Similarly, the provisions of the Companies Act, 1956 are applicable to the companies carrying on insurance business. Marine insurance business is mostly international and subject to law and international regulations in every stage of operations. It is governed by the Marine Insurance Act, 1963, in India and guided by the various clauses formulated by the Institute of London Underwriters (ILU) and the International Commercial Terms, known as „Incoterms‟ developed by ICC (International Chamber of Commerce). Marine Insurance Act, 1963, is designed to regulate the transaction of marine insurance businesses of hull, cargo and freight. They have also, in addition, to fulfil the provisions of section 64VB of the Insurance Act 1938 on payment of premium in advance of risk commencement (Sections 64VB (1) and 64VB (5) of the Insurance Act 1938). The voyages undertaken are subjected to specific Institute of London Underwriters (ILU) clauses, defining inception and termination of insurance covers, and the perils insured against.
  • 10 Marine Insurance MARINE INSURANCE CONTRACT A contract or policy of marine insurance is an arrangement whereby one person called insurer or underwriter, agrees, according to specific terms of contract, to indemnify another person, called assured, for the losses incurred in connection with property, such as ship, goods or other movables, in maritime transport. Section 3 of the Marine Insurance Act, 1963, defines „marine insurance‟ as follows: 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. “Marine adventure” includes any adventure where any insurable property is exposed to maritime perils i.e. perils consequent to navigation of the sea. It also includes the earnings or acquisition of any freight, passage money, commission, profit or other pecuniary benefit, or the security for any advances, loans, or disbursements is endangered by the exposure of insurable property to maritime perils (ibid., sections 2(e) Marine adventure also includes any liability to a third party may be incurred by the owner of, or other person interested in or responsible for, insurable property by reason of maritime perils. A contract of marine insurance may, by its express terms, or by usage of trade, is 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 8 main Elements of Marine Insurance Contract The marine insurance has the following essential features which are also called fundamental principles of marine insurance, (1) Features of General Contract, (2) Insurable Interest, (3) Utmost Good Faith, (4) Doctrine of Indemnity, (5) Subrogation, (6) Warranties, (7) Proximate cause, (8) Assignment and nomination of the policy. (9) Return of premium. 1. Features of General Contract: (a) Proposal: The broker will prepare a slip upon receipt of instructions to insure from ship owner, merchant or other proposers. Proposal forms, so common in other branches of insurances, are unknown in the marine insurance and only the 'slip' so called 'the original slip' is used for the proposal. The original slip is accompanied with other material information which the broker deems necessary for the purpose. The brokers are expert and well versed in marine insurance law and practice. The various kinds of marine proposals are altogether too diverse, so elaborate rating schedules are not possible and the proposals are considered on individual merits. (b) Acceptance: The original slip is presented to the Lloyd's Underwriters or other insurers or to the Lead of the insures, who initial the slip and the proposal is formally accepted. But the contract cannot be legally enforced until a policy is issued.
  • 11 Marine Insurance The slip is evidence that the underwriter has accepted insurance and that he has agreed subsequently to sign a policy on the terms and conditions indicated on the slip. If the underwriter should refuse to issue or sign a policy, he could not legally be forced to do so. (c) Consideration: The premium is determined on assessment of the proposal and is paid at the time of the contract. The premium is called consideration to the contract. (d) Issue of Policy: Having effected the insurance, the broker will now send his client a cover note advising the terms and conditions, on which the- insurance has been placed. The broker's cover note is merely an insurance memorandum and naturally has no value in enforcing the contract with the underwrites. The policy is prepared, stamped and signed without delay and it will be the legal evidence of the contract. However, after issue of the policy the court has power to order the rectification of the policy to express the intention of the parties to the contract as evidenced by the terms of the slip. 2. Insurable Interest: Section 7, 8 and 9 to 16 provide for insurable interest. An insured person will have insurable interest in the subject-matter where he stands in any legal or equitable relation to the subject-matter in such a way that 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. Since marine insurance is frequently affected before the commercial transactions to which they apply are formally completed it is not essential for the assured to have an insurable interest at the time of effecting insurance, though he should have an expectation of acquiring such an interest. If he fails to acquire insurable interest in due course, he does not become entitled to indemnification. Since the ownership and other interest of the subject matter often change from hands to hands, the requirement of the insurable interest to be present only at the time of loss makes a marine insurance policy freely assignable. Exceptions: There are two exceptions of the rule in marine insurance. 1. Lost or Not Lost: A person can also purchase policy in the subject-matter in which it was known whether the matters were lost not lost. In such cues the assured and the underwriter are ignorant about the safety or otherwise of the goods and complete reliance was placed on the principle of Good Faith. The policy terminated if anyone of the two parties was aware of the fact of loss. In this case, therefore, the insurable interest may not be present at the time of contract because the subject-matter would have been lost. 2. P.P.I. Policies:
  • 12 Marine Insurance The subject-matter can be insured in the usual manner by P.P.I. (Policy Proof of Interest), /. e., interest proof policies. It means that in the event of claim underwriters may dispense with all proof of insurable interest. In this case if the underwriter does not pay the claims, it cannot be enforced in any court of law because P.P.I, policies are equally void and unenforceable. But the underwriters are generally adhering on the terms and pay the amount of claim. The insurable interest in marine insurance can be of the following forms: I. According to Ownership The owner has insurable interest up to the full value of the subject-matter. The owners are of different types according to the subject-matter. (a) In Case of Ships : The ship-owner or any person who has purchased it on charter-basis can insure the ship up to its full price. (b) In Case of Cargo: The cargo-owner can purchase policy up to the full price of the cargo. If he has paid the freight in advance, he can take the policy for the full price of the goods plus amount of freight plus the expense of insurance. (c) In Case of Freight: The receiver of the freight can insure up to the amount of freight to be received by him. II. Insurable Interest in Re-insurance; The underwriter under a contract of marine insurance has an insurable interest in his risk, and may re-insure in respect of it. III. Insurable Interest in other Cases : In this case all those underwriters are included who have insurable interest in the salary and own liabilities. For example, the master or any member of the crew of a ship has insurable interest in respect of his wages. The lender of money on bottom or respondent a has insurable interest in respect of the loan. 3. Utmost Good Faith: Section 19, 20, 21 and 22 of the Marine Insurance Act 1963 explained doctrine of utmost good faith. The doctrine of caveat emptor (let the buyer beware) applies to commercial contracts, but insurance contracts are based upon the legal principle of uberrimae fides (utmost good faith). If this is not observed by either of the parties, the contract can be avoided by the other party. The duty of the utmost good faith applies also to the insurer. He may not urge the proposer to affect an insurance which he knows is not legal or has run off safely.
  • 13 Marine Insurance But the duty of disclosure of material facts rests highly on the insured because he is aware of the material common in other branches of insurance are not used in the marine insurance. Ships and cargoes proposed for insurance may be thousands of miles away, and surveys on underwriters' behalf are usually impracticable. The assured, therefore, must disclose all the material information which may influence the decision of the contract. Any non-disclosure of a material fact enables the underwriter to avoid the contract, irrespective of whether the non-disclosure was intentional or inadvertent. The assured is expected to know every circumstance which in the ordinary course of business ought to be known by him. He cannot rely on his own inefficiency or neglect. The duty of the disclosure of all material facts falls even more heavily on the broker. He must disclose every material fact which the assured ought to disclose and also every material fact which he knows. The broker is expected to know or inquire from the assured all the material facts. Failure in this respect entitles the underwriter to avoid the policy and if negligence can be held against the broker, he may be liable for damages to his client for breach of contract. The contract shall be an initio if the element of fraud exists. Exception: In the following circumstances, the doctrine of good faith may not be adhered to: (i) Facts of common knowledge. (ii) Facts which are known should be known to the insurer. (iii) Facts which are not required by the insurers. (iv) Facts which the insurer ought reasonably to have in furred from the details given to him. (v) Facts of public knowledge. 4. Doctrine of Indemnity: Under Section 3 of the Act at is provided 'A contact of marine insurance is an agreement whereby the insurer undertakes to indemnify the assured in the manner and the extent agreed upon. The contract of marine insurance is of indemnity. Under no circumstances an insured is allowed to make a profit out of a claim. In the absence of the principle of indemnity it was possible to make a profit. The insurer agrees to indemnify the assured only in the manner and only to the extent agreed upon. Marine insurance fails to provide complete indemnity due to large and varied nature of the marine voyage. The basis of indemnity is always a cash basis as underwriter cannot replace the lost ship and cargoes and the basis of indemnification is the value of the subject-matter. This value may be either the insured or insurable value. If the value of the subject matter is determined at the time of taking the policy, it is called 'Insured Value'. When loss arises the indemnity will be measured in the proportion that the assured sum bears to the insured value.
  • 14 Marine Insurance In fixing the insured value, the cost of transportation and anticipated profits are added to original value so that in case of loss the insured can recover not only the cost of goods or properties but a certain percentage of profit also. The insured value is called agreed value because it has been agreed between the insurer and the insured at the time of contract and is regarded as sacrosanct and binding on both parties to the contract. In marine insurance, it has been customary for the insurer and the assured to agree on the value of the insured subject-matter at the time of proposal. Having, agreed of the value or basis of valuation, neither party to the contract can raise objection after loss on the ground that the value is too high or too low unless it appears that a fraudulent evaluation has been imposed on either party. Insured value is not justified in fire insurance due to moral hazard as the property remains within the approach of the assured, while the subject- matter is movable from one place to another in case of marine insurance and the assured value is fully justified there. Moreover, in marine insurance, the assured value removes all complications of valuation at the time of loss. Technically speaking the doctrine of indemnity applies where the value of subject-matter is determined at the time of loss. In other words, where the market price of the loss is paid, this doctrine has been precisely applied. Where the value for the goods has not been fixed in the beginning but is left to be determined the time of loss, the measurement is based on the insurable value of the goods. However, in marine insurance insurable value is not common because no profit is allowed in estimating the insurable value. Again if the insurable value happens to be more than the assured sum, the assured would be proportionately uninsured. On the other hand, if it is lower than the assured sum, the underwriter would be liable for a return of premium of the difference. Exceptions: There are two exceptions of the doctrine of indemnity in marine insurance. 1. Profits Allowed: Actually the doctrine says that the market price of the loss should be indemnified and no profit should be permitted, but in marine insurance a certain profit margin is also permitted. 2. Insured Value: The doctrine of indemnity is based on the insurable value, whereas the marine insurance is mostly based on insured value. The purpose of the valuation is to predetermine the worth of insured. 5. Doctrine of Subrogation: Section 79 of the Act explains doctrine of subrogation. The aim of doctrine of subrogation is that the insured should not get more than the actual loss or damage. After payment of the loss, the insurer gets the light to receive compensation or any sum from the third party from whom the assured is legally liable to get the amount of compensation. The main characteristics of subrogation are as follows:
  • 15 Marine Insurance 1. The insurer subrogates all the remedies rights and liabilities of the insured alter payment of the compensation. 2. The insurer has right to pay the amount of loss after reducing the sum received by the insured from the third party. But in marine insurance the right of subrogation arises only after payment has been made, and it is not customary as in fire and accident insurance, to alter this by means of a condition to provide for the exercise of subrogation rights before payment of a claim. At the same time the right of subrogation must be distinguished from abandonment. If property is abandoned to a marine insurer, he is entitled to whatever remains to the property irrespective of value of subrogation. 3. After indemnification, the insurer gets all the rights of the insured on the third parties, but insurer cannot file suit in his own name. Therefore, the insured must assist the insurer for receiving money from the third party. If the insured is revoking from filing suit against the third party, the insurer can receive the amount of compensation from the insured. Section 80 of the Act deals with the right of contribution between two or more insurers where there is over insurances by double insurance. It is corollary of principle indemnity 6. Warranties: A warranty is that by which the assured undertakes that some particular thing shall or shall not be done, or that some conditions shall be fulfilled or whereby he affirms or negatives the existence of a particular state of facts. Warranties are the statement according to which insured person promises to do or not to do a particular thing or to fulfil or not to fulfil a certain condition. It is not merely a condition but statement of fact. Warranties are more vigorously insisted upon than the conditions because the contract comes to an end if a warranty is broken whether the warranty was material or not. In case of condition or representation the contract comes to end only when these were material or important. Warranties are of two types: (1) Express Warranties, and (2) Implied Warranties. 1. Express Warranties: Express warranties are those warranties which are expressly included or incorporated in the policy by reference. 2. Implied Warranties : These are not mentioned in the policy at all but are tacitly understood by the parties to the contract and are as fully binding as express warranties. Warranties can also be classified as (1) Affirmative, and (2) Promissory. Affirmative warranty is the promise which insured gives to exist or not to exist certain facts. Promissory warranty is the promise
  • 16 Marine Insurance in which insured promises that he will do or not do a certain thing up to the period of policy. In marine insurance, implied warranties are very important. These are: 1. Seaworthiness of Ship. 2. Legality of venture. 3. Non-deviation. All these warranties must be literally, complied with as otherwise the underwriter may avoid all liabilities as from the date of the breach. However, there are two exceptions to this rule when a breach of warranty does not affect the underwriter's liability: (1) where owing to a change of circumstances the warranty is no longer applicable. (2) Where compliance would be unlawful owing to the enactment of subsequent law. 1. Seaworthiness of ship : The warranty implies that the ship should be seaworthy at the commencement of the voyage, or if the voyage is carried out in stages at the commencement of each stage. This warranty implies only to voyage policies, though such policies may be of ship, cargo, freight or any other interest. There is no implied warranty of seaworthiness in time policies. A ship is seaworthy when the ship is suitably constructed, properly equipped, officered and manned, sufficiently fuelled and provisioned, documented and capable of withstanding the ordinary strain and stress of the voyage. The seaworthiness will be clearer from the following points: 1. The standard to judge the seaworthiness is not fixed. It is a relative term and may vary with any particular vessel at different periods of the same voyage. A ship may be perfectly seaworthy for Trans-ocean voyage. A ship may be suitable for summer but may not be suitable for winter. There may be different standard for different ocean, for different cargo, for different destination and so on. 2. Seaworthiness does not depend merely on the condition of the ship, but it includes the suitability and adequacy of her equipment, adequacy and experience of the officers and crew. 3. At the commencement of journey, the ship must be capable of withstanding the ordinary strain and stress of the sea. 4. Seaworthiness also includes "Cargo-Worthiness". It means the ship must be reasonably fit and suitable to carry the kind of cargo insured. It should be noted that the warranty of seaworthiness does not apply to cargo. It applies to the vessel only. There is no warranty that the cargo should be seaworthy. It cannot be expected from the cargo-owner to be well-versed in the matter of shipping and overseas trade. So, it is admitted in seaworthiness clause that the cargo would be seaworthy of the vessel and would not be raised as defense to any claim for loss by insured perils. It should be noted that the ship should be seaworthy at the port of commencement of voyage or at the different stages if voyage is to be completed in stages. 2. Legality of Venture;
  • 17 Marine Insurance This warranty implies that the adventure insured shall be lawful and that so far as the assured can control the matter it shall be carried out in a lawful manner of the country. Violation of foreign laws does not necessarily involve breach of the warranty. There is no implied warranty as to the nationality of a ship. The implied warranty of legality applies total policies, voyage or time. Marine policies cannot be applied to protect illegal voyages or adventure. The assured can have no right to claim a loss if the venture was illegal. The example of illegal venture may be trading with an enemy, violating national laws, smuggling, breach of blockade and similar ventures prohibited by law. Illegality must not be confused with the illegal conduct of the third party e.g., barratry, theft, pirates, rovers. The waiver of this warranty is not permitted as it is against public policy. 3. Other Implied Warranties: There are other warranties which must be complied in marine insurance. (a) No Change in Voyage : When the destination of voyage is changed intentionally after the beginning of the risk, this is called change in voyage. In absence of any warranty contrary to this one, the insurer quits his responsibility at the time of change in voyage. The time of change of voyage is determined when there is determination or intention to change the voyage. (b) No Delay in Voyage: This warranty applies only to voyage policies. There should not be delay in starting of voyage and laziness or delay during the course of journey. This is implied condition that venture must start within the reasonable time. Moreover, the insured venture must be dispatched within the reasonable time. If this warranty is not complied, the insurer may avoid the contract in absence of any legal reason. (c) Non deviation: The liability of the insurer ends in deviation of journey. Deviation means removal from the common route or given path. When the ship deviates from the fixed passage without any legal reason, the insurer quits his responsibility. This would be immaterial that the ship returned to her original route before loss. The insurer can quit his responsibility only when there is actual deviation and not mere intention to deviation. Exceptions: There are following exceptions of delay and deviation warranties: 1. Deviation or delay is authorised according to a particular warranty of the policy. 2. When the delay or deviation was beyond the reasonable approach of the master or crew. 3. The deviation or delay is exempted for the safety of ship or insured matter or human lives.
  • 18 Marine Insurance 4. Deviation or delay was due to barratry. 7. Proximate Cause: According to Section 55 (1) Marine Insurance Act,' Subject to the provisions of the Act and unless the policy otherwise provides the insurer is liable for any loss proximately caused by a peril insured against, but subject to as aforesaid he is not liable for any loss which is not proximately caused by a peril insured against.' Section 55 (2) enumerates the losses which are not payable are (i) misconduct of the assured (ii) delay although the delay be caused by a peril insured against (iii) ordinary wear and tear, ordinary leakage and breakage inherent vice or nature of the subject matter insured, or any loss proximately caused by rates or vermin or any injury to machinery not proximately caused by maritime perils 1. The insurer is not liable for any loss attributable to the wilful misconduct of the assured, but, unless the policy otherwise provides, he is liable for any loss proximately caused by a peril insured against. 2. The insurer will not be liable for any loss caused by delay unless otherwise provided. 3. The insurer is not liable for ordinary wear and tear, ordinary leakage and breakage, inherent vice or nature of 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. Dover says "The cause proximate of a loss is the cause of the loss, proximate to the loss, not necessarily in time, but in efficiency. While remote causes may be disregarded in determining the cause of a loss, the doctrine must be interpreted with good sense." So as to uphold and not defeat the intention of the parties to the contract. Thus the proximate cause is the actual cause of the loss. There must be direct and non-intervening cause. The insurer will be liable for any loss proximately caused by peril insured against. 8. Assignment: A marine policy is assignable unless it contains terms expressly prohibiting assignment. It may be assigned either before or after loss. A marine policy may be assigned by endorsement thereon or on other customary manner. A marine policy is freely assignable unless assignment is express prohibited. A marine policy is not an incident of sale. So, if there is intention to assign a policy when interest passes, there must be an agreement to this effect. Sections 53 of the Marine Insurance Act, 1963 states, Where the assured has parted with or lost his interest in the subject-matter insured and has not, before or at time of so doing, expressly or impliedly agreed to assign the policy, any subsequent assignment of the policy is inoperative. ' Section 17 of the Act states, "Where the asserted assigns or otherwise parts with his interest in the subject-matter insured, he does not thereby transfer to the assignee his rights under the contracts of insurance.
  • 19 Marine Insurance MARINE CARGO POLICY This policy covers goods, freight and other interests against loss or damage to goodswhilst being transported by rail, road, sea and/or air. Different policies are available depending on the type of coverage required rangingfrom an ALL RISK cover to a restricted FIRE RISK ONLY cover.This policy is freely assignable and is basically an agreed value policy. Transportation of goods can be broadly classified into three categories: i. Inland Transport ii. Import iii. Export The types of policies issued to cover these transits are For Inland Transit a.Specific Policy -For covering a specific single transit b.Open Policy -For covering transit of regular consignments over the same route.The policy can be taken for an amount equivalent to three months despatches and premium paid inadvance. As each consignment is despatched, a declaration giving details of the despatch including GR/RR No. is to be sent to the insurer and the sum insured gets reduced by the amount of the declared despatch. The sum insured can be increased any number of times during the policy period of one year; but care should be taken to ensure that adequate sum insured is available to cover the consignment to be despatched. c. Special Declaration Policy -For covering inland transit of goods wherein the valueof goods transported during one year exceeds Rs.2 crores.Although the premium for theestimated annual turnover [i.e. theestimated value of goods likely to be transported duringthe year] has to be paid inadvance, attractivediscounts in premium are available. d.Multi-Transit Policy -For covering multiple transits of the same consignment including intermediate storage andprocessing. Fore.g. covering goods from raw material supplier‟s warehouse to finaldistributor‟sgodown of final product For Import/Export a.Specific Policy -For covering a specific import/export consignment. b.Open cover -
  • 20 Marine Insurance This policy which is issued for a policy period of one year indicatesthe rates, terms and conditions agreed upon by the insured and insurer to cover theconsignments to be imported orexported. Adeclaration is to be made to the insurancecompany as and when a consignment is to be sent along with the premium at the agreedrate.Theinsurance co. will then issue a certificate covering the declared consignment. c.Custom duty cover -This policy covers loss of custom duty paid in case goodsarrive in damagedcondition.Thispolicy can be taken even if the overseas transit has beencovered by an insurance companyabroad, butit has to be taken before the goods arrive inIndia. Add on covers Inland transit policies can be extended to cover the following perils on payment ofadditional premium: i.SRCC-Strike, riot and civil commotion (including terrorist act) ii.FOB-Where the inland transit is required to be extended to cover the goods till they are loaded on board thevessel,this extension can be taken. Export /Import policies can be extended to cover War and /or SRCC perils onpayment of an additional premium. Who can take the policy? The contract of sale would determine who buys the policy. The most commoncontracts are: •FOB (Free on Board) •C & F (Cost & Freight) •CIF (Cost, Insurance & Freight) In FOB AND C&F contracts, the buyer is responsible for insurance. Whereas in CIF contracts the seller is responsible for insurance from his own premises to that of thepurchaser. How to select the sum insured? The sum insured or value of the policy would depend upon the type of contract. Usually, in addition to the contract value 10/15% is added to take care of incidental cost. How to claim? The following steps should be taken by the insured in event of a loss or damage to goods insured: i. Take immediate steps to minimise loss. ii. Inform nearest office of the insurance company or claim settling agent mentioned on the policy. iii. In case of damage to goods whilst on ship or port, arrange for joint ship survey or port survey. iv. Lodge monetary claim with carrier within stipulated time period.
  • 21 Marine Insurance v. Submit duly assigned insurance policy/certificate along with the original invoice and other documents required to substantiate the claim such as: a. Bill of Lading / AWB/GR b. Packing list c. Copies of correspondence exchanged with carriers. d. Copy of notice served on carriers along with acknowledgment/receipt. e. Shortage/Damage Certificate issued by carriers. vi. Survey fees are to be paid to the surveyor appointed by the insurance company. These fees will be reimbursed along with the claim if the claim is otherwise admissible. vii. Survey report submitted by Surveyor Key Documents required for settlement of Marine Cargo Insurance Claim. A. Claim form containing the following information. a. Date, time, cause and circumstance of the loss. b. Details of damaged property. c. Amount of loss claimed. d. Sound value of the goods at the time of Loss. e. Other insurance, if any. B. Letter lodging monetary claim with carrier within stipulated time period. C. Payment details of premium amount paid D. Insurance policy/certificate along with the original invoice. E. Bill of Lading / AWB/R R/L R. F. Stores Receipt Note G. Packing list. H. Copies of correspondence exchanged with carriers. I. Copy of notice served on carriers along with acknowledgment/receipt. J. Shortage/Damage Certificate issued by carriers. K. Survey Report is very important where claim amount is over Rs.20,000/- as per provisions of the Insurance Act.1938. L. Discharge voucher.
  • 22 Marine Insurance M. Letter of Undertaking where applicable. Waiver of requirement of any claim documents can be made on the merit of each claim case by the claim sanctioning authority with the approval of the Head of the Department.
  • 23 Marine Insurance MARINE HULL POLICY What is covered?  Alltypes of Ocean-going vessels  All type of Coastal/Inland vessels  Yard and pleasure Crafts  Port Crafts  Shipbuilding- construction of vessel  Ship Repairers' Liabilities  Charterers Liabilities  Breaches of warranties / voyage cover  Freight- at -Risks insurance for voyages  Dredgers  Fishing vessels / Trawlers  Sailing Vessels  Jetties (with or without cranes), fixed pontoons/Pontoons Jetties, wharves etc.  Ship breaking SCOPE OF INSURANCE COVER: All risks relating to Vessels, Floating Dry Docks, Jetties and Ship owners‟ Interests including Hull & Machinery (H&M), Freight, Disbursements, Increased Value, Premium Reducing, Excess Liabilities, Protection and Indemnity (P&I) Liabilities, Charterers' Liabilities, Charterers' Freight, Charterers' Hire and/or Disbursements, General Average Disbursements, Ship Repairers' Liabilities, Shipbuilding Risks, Shipbreaking Risks and other allied interests of whatsoever nature required to be insured in India. Perils / Risks (A) The policy covers perils of the seas, rivers, lakes or other navigable waters loss/damage to the property insured caused by :  Fire, explosion  Stranding, sinking etc.  Overturning, derailment ( of land conveyance )  Violent theft by persons outside the vessel.  Collision
  • 24 Marine Insurance  General average sacrifice, sacrifice, salvage charges  Jettisons  Piracy  Breakdown of or accident to nuclear installations or reactors  Contact with aircraft or similar objects, or objects falling there from, land conveyance, dock or harbour equipment or installation.  Earthquake volcanic eruption or lightning.  Crew Negligence. Exclusions The policy does not cover loss/ damage due to :  Deliberate damage/destruction of the vessel by wrongful act of any person  Use of any weapon of war employing atomic/ nuclear fission and or fusion.  Radioactive Contamination, Chemical, Biochemical, Biological, Electromagnetic Weapons.  Insolvency or financial default of the vessel owner /operators /charterers  War / civil war, Strike, Riot or Civil Commotion  Anyterrorist or person/s acting with political motive CLAIM INTIMATION AND STEPS TO BE TAKEN BY OWNERS: In the event of casualty likely to give rise to a claim - Immediate notice to policy issuing office. - Giving brief details as to name of vessel, place of occurrence, date & time of casualty, circumstances leading to incident. - Seek appointment of surveyor to inspect and assess loss. - In case of theft please notify police. - In case of fire assistance of fire brigade to extinguish fire. - Appointment of adjuster in case of Oceangoing Vessels where necessary. - All steps to minimise loss as prudent uninsured. DOCUMENTS ESSENTIAL : Key Documents required for settlement of Marine Hull Insurance Claim. A. Claim form containing the following information.
  • 25 Marine Insurance a. Date, time, cause and circumstance of the loss. b. Details of damaged/loss vessel. c. Amount of loss claimed. d. Other insurance, if any. B. Certified copy of note of protest by master. C. Payment details of premium amount paid. D. Insured's report on occurrence. E. Survey Report is very important where claim amount is over Rs.20,000/- as per provisions of the Insurance Act.1938. F. Original Repair Bill, cash memo, Invoices. G. Weather Report by Meteorological Dept if available. H. Affidavits filed by rescue vessels. I. Certificate of survey for inland vessels. J. Registry certificate. K. Notarized statements of master of the vessel. L. Log Book extracts (Engine &Deck) M. Crew list with details of competency certificates. N. Copy of Claim bill with supporting documents. O. V.R.C. cancellation certificate P. Death certificate of crew for P.A. claim Q. Post mortem report of crew for P.A. claim R. Disability Certificate from Doctor of crew for P.A. claim S. Legal heir Certificate of crew for P.A. claim T. Letter of Undertaking where applicable. Waiver of requirement of any claim documents can be made on the merit of each claim case by the claim sanctioning authority with the approval of the Head of the Department.
  • 26 Marine Insurance CONCLUSION Advantages of marine insurance Marine insurance is obligatory for all yacht and ship owners to obtain, especially where the vessel is to be used for commercial or transportation purposes and where it will be carrying passengers, workers, or cargo across international waters. It is important to not only obtain marine insurance for your vessel or operating business, but to also obtain the most favorable insurance policy that covers you for a variety of risks. To learn about obtaining marine insurance, please click on the following link to view our Marine Insurance service page. Benefits of obtaining marine insurance The risks faced by boats at sea are numerous and as such, the liabilities imposed on vessel owners can be financially crippling. The risks of injury or death to passengers and seamen are also high as weather conditions and vessel damage while at sea, can be temperamental and difficult to foresee. It is therefore imperative for boat owners to be covered with the most appropriate form of marine insurance. By obtaining a favorable insurance policy, cargo ships can ensure limited liability with regard to damage or loss of expensive goods carried by the ship. Many ships transporting goods will be expected to travel long distances and therefore the risks of loss or damage can be relatively high. A comprehensive marine insurance plan will ensure vessel operatives are protected and liability is limited should the cargo be damaged in transit. Marine insurance can be a complex industry to understand; it is suggested that vessel owners seek the professional assistance of a yacht broker or professional consultancy firm that specialize in guiding individuals in obtaining favorable marine insurance policies. Comprehensive marine insurance is vital in order to protect the vessel, cargo, onboard equipment, crew and passengers from harm. Marine insurance will also ensure the necessary compensations are in place for the injured parties where passengers, crew or cargo are affected while in transit. The primary advantage of having a comprehensive and appropriate marine insurance plan is to ensure complete protection and limited liability against the following; - Theft or hijack of vessel - Theft of on board cargo - Mistakes in transportation (inappropriate handling) - Accident while in convey (sinking or overturning) - Variations in temperature causing complications - Compensation for illness, injury or death of persons on board the vessel - Collision
  • 27 Marine Insurance - Pollution risks - Cargo liabilities - Labor and legal costs Unlike many other forms of transportation vehicles; marine transport is subject to a broad range of risks that are out of the control of the vessel operator. It is therefore essential for all ship and yacht owners to have the appropriate insurance in place. Importance of Marine Insurance In the commercial age of today marine insurance has become most important insurance in the field of insurance. The importance of marine insurance is describe below in detail. 1. Importance Of Marine Insurance For The Individual A person has to import goods from another country which is located on the other side of sea for his business. While carrying goods from other side of sea businessman may have to face dacoits or goods may be damaged because of sinking of ship into the water. So businessman has to experience economic loss. By the result of loss person may be discouraged to engage in business. But when one insures his/her property in marine insurance does not have to face with economic problem because marine insurance provides compensation to the insured against the loss of property. 2. Importance Of marine Insurance for Ship-owner Expensive ship may be destroyed due to different types of risks on the marine venture. Shipowner may have to experience with larger amounts of loss due to the destruction of the ship. Marine insurance provides compensation of loss to the ship owner . So, marine insurance is important insurance for ship-owner. 3. Importance of Marine Insurance for Freight Freight insurance is also included under the marine insurance. Freight refers to the revenue that a cargo ship earns or the money which is paid to the ship owner for transportation of goods from one part to another. If businessman does not pay freight of his goods to the ship-owner, ship-owner may have to experience economic loss. If such types of loss occur insurance company indemnifies the ship owner to marine insurance. So marine insurance is very important for the freight. 4. Importance of Marine Insurance for Cargo Owner A businessman wants to be secured for his goods. Especially countries which are located on the other side of sea, businessman may have to use marine venture. Marine insurance keeps them away from worry and fear or all responsibility of cargo owner is transferred to the hand of insurance company that provides compensation to the cargo owner if loss occurs. 5. Importance of Marine Insurance For The Government International trade has been increased due to the marine insurance. As international trade increases government also can receive economic profit. Government increases revenue by including extra income tax. So marine insurance is important for the government also.
  • 28 Marine Insurance REFERENCES Wikipedia http://howtoexportimport.com/TYPES-OF-MARINE-INSURANCE-POLICIES-486.aspx www.slideshare.net/anon27/types-of-marine-insurance-contracts mgif.maharashtra.gov.in/SITE/PDF/Products/MarineInsurance.pdf http://www.marineinsight.com/marine/different-types-of-marine-insurance-marine-insurance-policies/ www.admiraltylaw.com/UBC%20Law332/marine_insurance-outline.pdf THE END Thank You ***********