Module 2

Marine insurance is a type of insurance policy that provides coverage for losses or damage to ships,
cargo, and other property related to maritime activities.

Marine Insurance is the oldest form of Insurance; it originated in 1347 and was legally regulated in 1369
and was developed in England in late 1600’s when England became an important port of Trade.

Marine insurance was the earliest form of insurance, with origins in the Greek and Roman marine loan. It
was the oldest risk hedging instruments our ancestors used to mitigate risk in medieval times

Marine insurance refers to a contract of indemnity. It is an assurance that the goods dispatched from the
country of origin to the land of destination are insured. Marine insurance covers the loss/damage of ships,
cargo, terminals, and includes any other means of transport by which goods are transferred, acquired, or
held between the points of origin and the final destination.

Despite what the name implies, marine insurance applies to all modes of transportation of goods like rail,
road and air. For instance, when goods are shipped by air, the insurance is known as the contract of
marine cargo insurance.

Marine Insurance Act 1963: The The Marine Insurance in India is regulated by Marine Insurance Act,
1963 which is based on Marine Insurance Act, 1906 of United Kingdom.

The term originates from the fact that goods intended for international trade were traditionally transported
by sea. Despite what the name implies, marine insurance is applicable to all modes of transportation of
goods. When the goods are sent by air, their insurance is also known as marine cargo insurance.

Principles of Marine Insurance

Principle of Good faith - Parties demand absolute trust on the part of both; the insurer and the
guaranteed.

Principle of Proximate Cause - The proximate cause is not adjacent in time; also, it is inefficient.
Nevertheless, it is the definitive and adequate cause of loss.

Principle of Insurable Interest - Any object presented as a marine risk and the assured covering the
insurance of goods - both should have legal relevance. Also, a series is devoted called 'Incoterms' to
respectfully assign the insurance of goods to each party.

Principle of Indemnity - The insurance extended to the parties will only be applicable up to the loss. The
parties can't buy insurance to gain profits. If they do, they won't get more than the actual loss.

Principle of Contribution - Sometimes, the risk coverage for goods has more than one insurer. In such
cases, the amount has to be fairly distributed amongst the insurers.

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What Does Marine Insurance Cover? Scope and Nature

The scope of marine insurance can vary widely, but it generally covers several key areas:

 Cargo insurance: this is the most common form of marine insurance, covering loss or
damage to goods while in transit by sea and also often extending to include air, road, or rail
transport connected to the marine journey. Coverage can vary from “All Risks” to more
limited forms, such as “With Average” (WA), which usually covers specific listed perils.
 Hull & machinery insurance: hull insurance covers physical damage to the ship or vessel
itself, including its machinery and equipment. This coverage is essential for shipowners,
protecting against hazards such as collision, fire, piracy, and weather-related damages.
 Liability insurance: also known as Protection & Indemnity (P&I), liability insurance
provides coverage for the shipowner’s legal liabilities arising from the operation of the ship,
such as damage to cargo (not covered under cargo insurance), injury, or death of crew
members or passengers, and environmental pollution.
 Freight insurance: the shipper or carrier is protected against the loss of freight revenue that
would not be earned due to lost or damaged cargo. It is particularly relevant for shipping
companies and charterers.
 War risk insurance: given the unique risks posed by armed conflicts, war risk insurance
offers coverage against damage or loss caused by war-related perils, including strikes, riots,
civil commotions, and terrorist acts that are typically excluded from standard policies.
 Loss of hire insurance: this type of insurance provides compensation to the shipowner for
loss of income when a vessel cannot be operated due to covered damage or peril, ensuring
financial stability during repair or recovery periods.

Types of Marine Insurance policies

Floating policy: Large exporters may opt for an open policy, also known as a blanket policy, instead of
taking insurance separately for each shipment. An open policy is a one-time insurance that provides
insurance cover against all shipments made during the agreed period, often a year.

Voyage policy: A specific policy can be taken for a single lot or consignment only. The exporter needs to
purchase insurance cover every time a shipment is sent overseas. The drawback is that extra effort and
time is involved each time an exporter sends a consignment.

Time policy: Time policy is generally issued for a year’s period. One can issue for more than a year or
they may extend to complete a specific voyage. But it is normally for a fixed period. Also under marine
insurance in India, time policy can be issued only once a year.

Mixed policy: Mixed policy is a mixture of two policies i.e Voyage policy and Time policy.

Named policy: Named policy is one of the most popular policies in marine insurance policy. The name of
the ship is mentioned in the insurance document, stating the policy issued is in the name of the ship.

Port Risk policy: It is a policy taken to ensure the safety of the ship when it is stationed in a port.

Fleet policy: Several ships belonging to the company/owner are covered under one policy. Where it has
the advantage of covering even the old ships. Also the policy is a time based policy.

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Single Vessel policy: In single vessel policy only one vessel is covered under marine insurance policy.

Difference between Fire Insurance & Marine Insurance

Fire insurance is an insurance that covers the risk of fire. The subject matter is any physical asset or
property. The moral responsibility is an important condition here. There is no expected profit margin in
terms of fire insurance. The insurable interest must be present before taking the policy and also at the time
of loss.

Whereas, Marine insurance is one that encompasses risks associated with the sea. The subject matter is
the ship, freight or cargo. It does not consist of any clause related to the moral responsibility of the cargo
owner or the ship. 10 to 15% profit margin is expected in terms of marine insurance. Also in marine
insurance the insurable interest must be only at the time of loss.

Marine Insurance Act 1906, Section 17, provides that: "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".

Insured perils

The insurer is liable to indemnify an insured in respect of only losses which result from perils insured
against. The onus of proof under a policy of Marine insurance is upon the insured to establish that the loss
was proximate, caused by an insured peril.

Marine Perils means the perils consequent on”, or incidental to the navigation of the sea, that is to say,
perils of the seas, fire, war perils (enemies), pirates, rovers, thieves, captures, seizures, restraints and
detainment of princes and peoples, jettisons, barratry and other perils, either of the like kind or which may
be designated by the policy.”

The perils we cover under marine Insurance are Marine Perils (Perils of Sea). Under the perils of the sea,
the ordinary action of the winds and waves, ordinary wear, and tear to the vessel, the inherent risk of the
cargo is not included. Perils of the sea refer to fortuitous accidents or casualties of the sea.

Jettison:Jettison means voluntary throwing away of the cargo or part of a vessel’s equipment for the
lightening or relieving the ship for common safety. The aim of the intentional throwing away of the goods
or property is to relieve the vessel from some imminent [Link] accidental falling of things does not
constitute jettison.

Barratry:includes every wrongful act wilfully committed by the master or crew the prejudice of the
owner. The act of barratry must be committed without the knowledge of the owner.

The theft, the setting fire to ship, fraudulent selling of vessel and cargo without the connivance of the
ship-owner are the various examples of the barratry. The insurer, if barratry insured, is liable for losses
arising out of barratry.

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Proximate cause

Proximate cause is concerned with how the actual loss or damage happened to the insured party and
whether it is a result of an insured peril. It looks for what is the reason behind the loss, is that is an insured
peril or not. The doctrine of proximate cause is one of the ’six principles of insurance. The principle of
proximate cause has been established to enable a claims manager to decide whether a claim is payable or
not and if payable, then to what extent.

Warranties

A marine insurance warranty is an assurance of coverage by the insurer. It documents the ideal operating
conditions under which the insurer promises to extend insurance coverage. If the insured does not abide
by the terms of the marine insurance policy, the insurer reserves the right to deny all or some coverages.

Warranties are the statement according to which insured person promises to do or not to do a particular
thing or to fulfill or not to fulfill a certain condition, and it is not merely a condition but statement of fact.
They 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.

Warranties are of two types; Express Warranties, and Implied Warranties.

Express warranties are those warranties which are expressly included or incorporated in the policy by
reference.

Implied Warranties are not mentioned in the policy at all but are tacitly understood by the parties to the
contract and are fully binding.

In marine insurance, implied warranties are very important. They are

Seaworthiness of Ship The warranty implies that the ship should be seaworthy at the commencement of
the voyage. This warranty implies only to voyage policies, though such policies may be of a ship, cargo,
freight or any other interest.

A ship is seaworthy when the ship is suitably constructed, properly equipped, officered and manned,
sufficiently fueled and provisioned, documented and capable of withstanding the ordinary strain and
stress of the voyage.

Legality of Venture This warranty implies that the adventure insured shall be lawful and that so far as
the assured can control the matter, it shall he earned out in the lawful manner of the country. Violation of
foreign laws does not necessarily involve the breach of the warranty. Marine policies cannot be applied to
protect illegal voyages or adventure.

No Change in Voyage When the destination of the voyage is changed intentionally after the beginning of
the risk, this is called a change in the voyage. In the absence of any warranty contrary to this the insurer
quits his responsibility at the time of change in the voyage.

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No Delay in Voyage This warranty applies only to voyage policies. There should not be a delay in the
starting of voyage and laziness or delay during the journey. This is implied condition that venture must
begin within the reasonable time.

Moreover, the insured venture must be dispatched within the reasonable time. If this warranty does not
comply, the insurer may avoid the contract in the absence of any legal reason.

No deviation The liability of the insurer ends in deviation of a 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.

Exceptions to warranties in marine insurance

There are following exceptions to delay and deviation warranties:

[Link] or delay is authorized according to a particular warranty of the policy.

[Link] the delay or deviation was beyond the reasonable approach of the master or crew.

[Link] deviation or delay is exempted for the safety of the ship or insured matter or human lives.

[Link] or delay was due to barratry.

Claim Process

After purchasing the marine insurance, in case there arises a situation when you need to make a claim
under the policy, you can follow the below mentioned steps:

In case of loss or damage to the cargo or the ship, you need to immediately inform the insurance provider

A surveyor will assess the damage or loss mentioned

All the proofs and witnesses need to be submitted along with the duly filled in claim form

For a missing package, the insured must lodge file a monetary claim with the insurance provider and get
an acknowledgement for it

If the provider finds the case fit, it would approve the claim, else it would reject it In case you are not
satisfied with the case, you can approach the court of law.

Losses in Marine Cargo Insurance

Marine cargo insurance covers losses or damage to goods while they are being transported by sea, road,
rail or any other medium. Four types of losses can occur in marine cargo insurance.

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 Total Loss
Total loss occurs when the entire cargo is lost or destroyed during transit. This can happen due to several
reasons, including natural disasters, piracy, and accidents. In such cases, the insurer is liable to pay the
full value of the cargo to the insured.

 Partial Loss
Partial loss occurs when only a part of the cargo is lost or damaged during transit. This can happen due to
several reasons, including mishandling, theft, and fire. In such cases, the insurer is liable to pay for the
value of the damaged or lost goods.

 General Average Loss

General average loss occurs when the entire cargo is at risk of being lost or destroyed, and the captain of
the ship decides to sacrifice a part of the cargo to save the rest. In such cases, the loss is shared by all
parties involved in the voyage, including the cargo owners, shipowners, and insurers.

 Particular Average Loss

Particular average loss occurs when a part of the cargo is lost or damaged due to a particular cause, such
as rough weather or an accident. In such cases, the insurer is liable to pay for the value of the damaged or
lost goods.

Total Loss

A total loss in marine insurance is the case where the cargo and goods are totally damaged or lost. The
goods cannot be brought back to their original state under these marine losses.

There are two categories of total loss in marine insurance:

Actual total loss

Under this loss, the goods are completely lost or damaged beyond recognition. In case the policyholder
does not get the goods, it is also considered a case of total actual loss.

It happens due to complete or irreparable damage to the insured cargo or goods. For example, a storm or
fire sinks a ship, or seawater spoils a cargo of perishable goods.

The insured cargo or goods are in a state the insured business cannot access. For example, pirates or
enemies capture a ship, or thieves steal a shipment of valuable goods.

The vessel transporting the shipment has gone missing, and there are no rational chances of its recovery.
For example, a ship goes missing at sea, and no concerned authority receives any news about it for a long
time.

For instance, if the cargo ship sinks or if it catches fire and the cargo gets destroyed completely, this
would be considered a total actual loss. If the ship cannot be traced and the goods cannot be brought back,
it will also become a case of actual total loss. Thus, the policyholder can claim the total claim amount of
the goods that have been lost.

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However, an important point to remember is that once the claim has been settled fully, the title of the
cargo and the goods will be handed over to the insurer. In case they get any money from the sale of the
goods that had been damaged, the insured will not receive any amount from the sale.

For example, suppose you export some electronic goods from India to Canada and have paid ₹1 crore as
their market value. Unfortunately, the ship carrying your goods collides with another ship and sinks in the
Atlantic Ocean. Since you lost your entire shipment of electronic goods, your policy entitles you to a
compensation of ₹1 crore. If salvageable parts of your goods are ever found, the insurance company will
also claim ownership.

Constructive total loss in marine insurance

A constructive total loss is a legal concept that allows you, as an insured, to claim a total loss when the
cost of saving or repairing the subject matter insured is more than its value after the loss. It happens when
one or more of the following conditions are met:

Your insured cargo or goods are not completely destroyed or damaged, but they are in such a condition
that you cannot restore them to their original state without incurring expenses exceeding their value. For
example, a fire or an explosion severely damages a ship, but it can still float.

This is the case when the cargo or goods need to be abandoned because the cost of retrieving them is not
at all viable. This can happen in many situations, such as if the cargo or goods have not been destroyed
completely, but the cost of rebuilding or repairing them is not economically practical. This is common
when the ship is damaged, as the cost of repair is more than the actual value of that ship.

For instance, if the cargo is not damaged, the expenses for retrieving it are not viable. So, in these cases,
the insured surrenders his interest to the insurer and provides them with an abandonment notice. They can
file a claim for total losses. This is the constructive total loss in marine insurance.

For example, suppose you import some furniture from Italy to India and have paid ₹50 lakhs as their
market value. You also take a marine insurance policy to cover the goods for any loss or damage during
transit. Unfortunately, the ship carrying your goods catches fire near Sri Lanka, and most of your
furniture is burned. You can salvage the remaining furniture, but it will cost ₹40 lakhs. Since your
furniture is worth only ₹10 lakhs after the fire, you choose to abandon it to the insurance company and
claim its total value as per your policy.

Partial Loss

A partial loss in marine insurance is the case where the cargo and goods are not completely damaged or
become useless or reducing their value but not completely destroying them.

There are two categories of partial loss in marine insurance:

Particular average loss

This is the loss that is incurred because of perils or involuntary events. To claim the losses, the reason for
the damage must be listed in the inclusions of the marine insurance policy. For instance, if the damage

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occurred because of extreme flooding, then the insured will be provided compensation only if the peril is
covered under the marine insurance policy.

For example, suppose you export some spices from India to China and have paid ₹20 lakhs as their
market value. You also take a marine insurance policy to cover the goods for any loss or damage during
transit. Unfortunately, some of your spices are wet by seawater due to a storm, and their quality has
deteriorated. You sell them in China for ₹15 lakhs instead of ₹20 lakhs. Since you have suffered a partial
loss of ₹5 lakhs, the insurance company will pay you this amount, and you will keep the remaining spices.

General average loss

This is a type of loss that is incurred voluntarily to avoid grave danger. General average loss contains a
sacrifice that is done for the preservation of common interest. This type of loss is generally made to
happen so as to ensure safety from an approaching peril.

For instance, if a ship starts sinking due to an overload, some of the cargo and goods might have to be
thrown out to avoid sinking. However, several aspects need to be taken into account in such cases:

If the peril was actually there and not in fearful imagination.

If the loss was made to happen voluntarily or deliberately.

Once the loss category has been established, the insured can file a claim against the losses and get
compensated.

If a general average loss in marine insurance happens, your insurer will compensate you based on the
contribution rate determined by an average adjuster. This rate is calculated by dividing your interest's
value by the total value of all parties involved in the marine venture. You can still own and possess the
goods insured.

Measure of Indemnity in Marine Insurance

The concept of indemnity lies at the heart of insurance, serving as the fundamental principle that ensures
policyholders are restored to the same financial position they were in before a covered loss occurred. In
essence, indemnity aims to compensate for the actual financial loss suffered, but not to provide a means
for profit. This principle is crucial in maintaining the integrity and fairness of insurance contracts.

The principle of indemnity ensures that when a shipper's goods are damaged or lost at sea, they are
compensated for the actual value of the goods at the time of the loss, not their potential market value.

For example, if a shipment of goods is insured for Rs 50,0000 but is lost at sea, the insured party should
receive Rs 50,0000 to cover the financial loss they incurred. However, if the goods were only worth Rs
40,0000 at the time of the loss, they would receive Rs 40,0000—the actual value—not the insured
amount.

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