What is Marine Insurance?
Marine insurance, is a type of insurance that covers the losses or the damages caused to the cargo of any ship, or the
ships, cargo vessels, terminals, or any marine transport in which goods are carried from the point of origin to the final
destination.
It also covers the risks faced by various intermediaries.
It provides comprehensive coverage for all the probable risks faced by a vessel at the sea.
The range of perils offered by the sea is very wide, ranging from weather or natural hazards to cross-border conflicts to
pirate attacks.
It not only becomes essential for all the people associated with a particular ship (the shipowner, the cargo owners, the
intermediaries, etc.) to avail a marine insurance policy, the law mandates all the vessels engaged in commercial
transport to have a suitable marine insurance policy to mitigate the potential risks.
The Marine Insurance Act, 1963, which is on the lines of its predecessor, The English Marine Insurance Act, 1906,
regulates the principles and law of marine insurance in India.
Types of Marine Insurance in India
Due to a very wide ambit of marine insurance, different categories of it are classified based on different factors.
Broadly, the classification of marine insurance in India depends on two factors –
1. the coverage area of the insurance policy, and
2. the structure of the insurance contract.
Types of Marine Insurance – based on coverage area
The coverage area of an insurance policy is the geographical area or the protected area in which
the benefits of an insurance policy apply. The following types of marine insurance are classified,
based on the coverage area of the insurance policy –
•Hull & machinery insurance – Hull is the most noticeable part of any ship. It is the watertight
body of a ship or a boat that protects the cargo inside the ship from being damaged. Hull and
Machinery Insurance, therefore, covers the loss or the damage caused to the body of the ship or
any machinery or equipment in it, used for the functioning of the ship. It mostly covers accidents
caused due to collisions, or the damages caused by earthquakes and explosions. This type of
insurance is generally taken by the owners of the ship.
•Marine cargo insurance – Marine cargo insurance is a type of property insurance that covers
the cargo owners against any loss or damage caused to their cargo during its transit. It has
extensive coverage, but also has certain limitations, for instance, the cargo owners lose their
claims if the packaging of the cargo was defective. It also comes with a third-party liability, which
covers the damages caused to the port, or a ship, or a railway track due to the presence of
defective cargo.
•Liability insurance – Liability insurance covers the financial liability of the person who is
insured. It covers primarily the liabilities which arise due to the damages or injuries caused to the
third party, for instance, the death or personal injury caused to any third party traveling in the
ship.
•Freight insurance – Freight insurance covers the liability of the shipping company or the
logistics provider for the damage or loss caused to the shipment during transit due to events
outside the control of the company.
Types of Marine Insurance policies – based on the structure of the contract
A ‘policy is a document that embodies the terms and conditions of the contract of insurance. It
essentially is a written form of agreement between the insurance company and the person
insured. It generally contains the provisions regarding the coverage area, the limitations of
insurance policies, etc. Thus the different types of policies available under marine insurance are –
•Open policy – An open policy, also called a floating policy, provides coverage for an indefinite
number of transit journeys during the subsistence of the policy. This is especially beneficial for
the companies which are involved in high-volume trade, as they are saved from taking an
insurance policy on each transit journey. It covers all the transit journeys of the insured until the
policy is canceled or until the last of the payment is realized, whichever is earlier.
•Voyage policy – A voyage policy works on the same lines as the marine cargo insurance. Under
this policy, the insurance company agrees to cover the losses or damages caused to the cargo
during a specific voyage. It expires when the vessel reaches its destination, irrespective of the
time it takes to reach there. Usually, it is bought by small exporters who ship their goods by sea
only on some occasions.
•Time policy – A time policy, as the name suggests, is issued for a fixed period of time. The
vessel may make any number of voyages during this period. Generally, the insurance company
issues this policy for one year, however, the period may vary depending on the agreement
between both parties.
•Mixed policy – A mixed policy is a combination or a mix of voyage and time policies. The
insurance company, while issuing this policy, agrees to cover the loss or damage to the ship for
a particular voyage till a particular period of time.
•Single vessel policy – A single vessel policy insures only a single ship of the insured.
•Fleet policy – The person insured has an option of either insuring a single ship by a policy, or
of insuring several ships under one policy. If he chooses the latter option, he undertakes a ‘Fleet
Policy’, under which a fleet of ships is insured under a single policy.
•Unvalued policy – Every insurance policy is either an unvalued or a valued policy. Under an
unvalued policy, the insurance company does not assign a value to the thing insured (the vessel
or the cargo), at the time of underwriting the policy. The valuation of the property is done only
after the claim of insurance has been filed. However, for a successful claim, the true value of the
property has to be proved by the insured by way of invoices or estimates, before the valuation.
•Valued policy – In a valued policy, the insured property is given a specific value when the policy
is issued, and before any claims are made. When the claim is made by the insured, a pre-
estimated or the specified amount is given, which does not depend on the amount of loss incurred
by the insured. The depreciation of the property also does not affect the amount of claim, under a
valued policy.
•Block policy – A block policy is an all risks policy. Unless a contrary intention is expressed by the
insurer, it essentially covers all the risks to which the goods are exposed when they are in transit,
bailment, and on the premises of the third party. There are two popular types of block policy
– furrier’s block policy, and jeweler’s block policy since fur and jewelry are two high-value
commodities that are exposed to a greater threat of theft.
•Port-risk policy – A port-risk policy covers ships that are either docked or are undergoing repair
works at the port. It is an all-risk policy that covers all the risks unless otherwise agreed between
the parties. It provides coverage for physical damages to the vessel as well as protection and
indemnity but excludes any liability arising on account of the crew and cargo.
•Named policy – A named policy is one in which the name or names of the ships is mentioned in
the contract of insurance.
•Wager policy – A wager policy protects from loss of the property of which the insured does not
have legal proof of possession. This means, when the insured is not able to prove an insurable
interest in the property, the insurance company may issue a wager policy to him. Under it, the
whole claim of the insured is subject to the discretion of the insurer and the merits of the claim
made. It is not a written policy as it is issued in contravention of the law.
Documents for Marine Insurance Claim
In case of loss to the insured for the subject matter covered under the Marine Insurance Policy, the insured should inform
the Insurance Company of the mishap at the earliest. Then Insurance Company will send officials to do the survey to look
into the mishap and estimate the loss suffered by the insured. The insured has to submit certain documents while filing
the Marine Insurance claim. These are as follows:
1. The original copy of the Insurance Policy Certificate: It is issued by the Insurance Company which mentions the details
of the subject matter covered under policy, policy period and insured’s details.
2. Survey Report: It contains the observation of the surveyor regarding the cause of the event and the extent of the loss
suffered by the insured in terms of goods damaged.
3. Invoice: It shows the terms of sale, shipment details and the value of the cargo for which claim is submitted to the
Insurance Company.
4. Bill of Lading: is a document which contains the details of the shipment- where the cargo is going, name of the vessel,
amount of cargo, how it is to be handled and billed. It acts as a receipt issued by the carrier to the consignor.
5. Claim Bill: It contains the details of the claim amount made by the insured for the loss suffered by him.
6. Copy of Protest: In case the loss is by perils of sea, then the owner of the vessel goes in front of the public authorities at
the destination port to inform them about the loss suffered and protests that he was not responsible for the loss. The copy
of the same is to be submitted to the insurer.
7. Letter of Subrogation: This letter given by the insured authorizes the Insurance Company the right to make claim from
a third party that may be responsible for the damage caused.
8. Bill of Entry: It is a formal document issued by the custom officials that specifies the account sales of the cargo and
the custom duty paid by the importer or the exporter.
9. Dock Receipt: It mentions the condition of the cargo while it is loaded and unloaded during the shipment.
Marine Policy Conditions
The Marine Insurance Act 1906 provides the framework on which marine insurance is based and the policy document is
formulated on the base of marine policy conditions. Based upon this framework, the insurers are obliged to issue their
policies.
• Insurance Cargo Clauses (ICC) (C): The clause provides major casualty coverage during the land transit and tend to be
used for cargoes that are not easily damaged, [Link] steel, coal, etc. Subject to the policy exclusions and warranties
the © covers loss or damage to the subject matter insured reasonably attributable to
o Fire or explosion
o Grounding, sinking
o Overturning or derailment
o Collision or contact of vessel
o Discharge of cargo at point of distress
• Insurance Cargo Clause (B): Subject to the policy exclusions and warranties, the (B) clauses provide all the cover under
(C) and also cover loss of damage to the subject matter insured reasonably attributable to:
o Earthquake, volcanic eruption or lightning
o Water damage by entry of sea/ water (excluding rainwater),
o Total loss of package lost overboard
• Institute cargo Clause (A): Subject to the policy exclusions and warranties, the clause “A” provides the widest of all
three covers and generally summed up as ‘all risk’ of loss or damage to the subject matter insured.
What Does Perils of the Sea Mean in Marine Insurance?
The Inchmaree Clause, commonly called the "perils of the sea" clause, is pivotal in cargo insurance policies. This clause
provides coverage for an extensive array of risks and challenges that vessels might confront throughout their journeys.
Understanding the intricacies of the Inchmaree Clause holds paramount importance for shipowners, cargo proprietors,
and insurers alike. It serves as a vital tool in alleviating the financial repercussions that may arise from unexpected
events at sea, offering a comprehensive safeguard against the uncertainties of maritime travel.
Simply put, marine perils meaning is a pre-specified type of hazards and risks that the cargo and ships face during
maritime journeys. Broadly speaking, it covers damages caused by nature's unforeseen and unavoidable forces.
These are events beyond human control and often happen with such power that even the most skilled seafarers cannot
overcome them.
• The provisions outlined in Section 3 of the Marine Insurance Act of 1963 talk about the legal landscape surrounding
marine insurance. It intricately binds insurers to indemnify the insured against losses incurred during the
transportation or shipment of goods by sea, as mutually agreed upon.
• The mandate extends beyond national borders, making marine insurance a requisite for all commercial vessels
engaged in the conveyance of goods, transportation of workers, or carriage of passengers across international waters
within India.
• This legal framework establishes a robust foundation, ensuring that stakeholders, both insurers and insured, adhere to
specified obligations and entitlements in the aspect of marine insurance.
Inclusions Under the Perils of the Sea in Marine Insurance
It is important to note that the "perils of the sea" aren't just the everyday wind and waves. They refer to exceptional
events significantly more powerful and damaging than what is normally encountered at sea.
A marine and cargo insurance policy often includes coverage for these perils, providing financial protection to
shipowners and cargo owners from losses caused by such events.
• Storms and hurricanes: These violent weather systems can generate powerful winds, high waves, and torrential rain,
causing damage to ships, loss of cargo, and even vessel sinking.
• Lightning strikes: While not as common as other perils, lightning can cause fires, explosions, and electrical damage to
ships and equipment.
• Floods and tsunamis: Coastal areas are susceptible to sudden inundation from tidal waves or overflowing rivers,
leading to vessel grounding, cargo damage, and potential loss of life.
• Sinking and Capsizing Perils: The spectre of a ship succumbing to the depths or capsizing under the force of adverse
weather, cargo shifts, or instability presents a looming risk. These events, resulting in total losses, carry significant
financial implications for shipowners, underlining the critical importance of risk mitigation measures.
• General Average Dynamics: In moments of dire emergencies, where both ship and cargo confront a shared threat,
the principle of a general average comes into play.
This entails a proportional contribution from all involved parties to cover the losses incurred in safeguarding the collective
interest, highlighting the collaborative nature of risk management in the maritime domain.
• Stranding: Whether running around or becoming ensnared in shallow waters, the repercussions are profound—ranging
from hull damage and cargo losses to potential environmental hazards. Such stranding scenarios require meticulous
attention and strategic solutions to avert substantial losses.
• Collisions: The constant threat of colliding with other vessels, icebergs, or submerged obstacles looms large during
maritime expeditions. Such incidents pose a substantial risk, inflicting considerable harm to a ship's hull, cargo, or both.
The aftermath often translates into financial setbacks for both shipowners and cargo proprietors.
• Pirate attacks: Though less common in modern times, piracy remains a threat in certain regions, leading to cargo theft,
property damage, and potential injury or loss of life to crew members.
• Loss of anchors and chains: Anchors and chains are crucial for safe mooring and anchoring, but they can detach due to
storms, rough seas, or equipment failure, leaving the vessel vulnerable to drifting or grounding.
• Sudden changes in water depth: Uncharted shallows or unexpected drops in water depth can lead to grounding,
particularly for smaller vessels navigating unfamiliar waters.
Exclusions from the Perils of Sea Under Marine Insurance Plans
While "perils of the sea" can offer significant protection for maritime ventures, it is crucial to understand the exclusions that
limit its coverage. These are events deemed outside the realm of unforeseen and unavoidable natural forces, often
attributed to human actions or inherent qualities of the cargo.
• Inherent vice: Deterioration or spoilage of cargo solely due to its inherent nature, properties, or chemical reactions is not
covered. This includes perishables expiring or unstable materials reacting dangerously.
• Negligence: Damage caused by the captain's or crew's errors in judgement, faulty navigation, or improper operation of
the vessel is generally excluded.
• Wear and tear: Gradual damage or loss of value due to ordinary wear and tear during the voyage is not covered.
• War and related events: Losses caused by war, piracy, strikes, riots, or civil unrest are typically excluded from the perils
of sea coverage.
• Consequential losses: Indirect or financial losses, such as delay in delivery, loss of market, or loss of profits, are often not
covered.
• Infestation and vermin damage: Losses caused by pests like rats or insects attacking the cargo are typically excluded.
Types of Losses in Marine Insurance
1. Total losses in marine insurance: This is the case where the goods are almost completely or completely lost.
2. Partial losses in marine insurance: This is the situation when the insured cargo and goods have been partially
damaged.
Marine Losses — 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: 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.
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.
(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.)
Constructive total loss in marine insurance: When the cargo or goods need to be abandoned because the cost of retrieving
them is not at all viable.
For instance, if the cargo is not damaged, the expenses for retrieving it are not practical. 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.
Marine Losses — Partial Loss
A partial loss in marine insurance is the case where the cargo and goods are not completely damaged or become useless.
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 occurred because of extreme flooding, then the insured will be provided compensation only if
the peril is covered under the marine insurance policy.
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.
Salvage Charges
Salvage charges refer to the costs that are incurred in the process of salvaging or recovering damaged or lost property.
These costs are typically covered by insurance policies and may include expenses such as towing, storage, and repair.
In simpler terms, salvage charges are the expenses that are necessary to recover something that has been damaged or lost.
Example: If a ship sinks and needs to be salvaged, the costs associated with raising the ship and recovering any cargo or
other items on board would be considered salvage charges. These costs might include the fees paid to salvage companies,
the cost of equipment and materials used in the salvage operation, and any other expenses related to the recovery process.
Warranties
• 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;
1. Express Warranties: warranties which are expressly included or incorporated in the policy by reference
2. Implied Warranties: 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
[Link] of Ship: The warranty implies that the ship should be seaworthy at the commencement of the
[Link] 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.
[Link] 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.
[Link] 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.
[Link] 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.
[Link] 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 (fraud or gross negligence of a ship's master or crew at the expense of its owners
or users).
