Marine Insurance
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Marine Insurance
A contract of marine insurance is an agreement whereby the insurer
undertakes to indemnify the insured, in the manner and to the extent thereby
agreed, against transit losses, that is to say losses incidental to transit.
Marine
Cargo Hull
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A. Cargo insurance: which provides insurance cover in respect of loss of or
damage to goods during transit by rail, road, sea or air.
Thus cargo insurance concerns the following:
(i) Export and import shipments by ocean-going vessels of all types,
(ii) Coastal shipments by steamers, sailing vessels, mechanized boats, etc.,
(iii) Shipments by inland vessels or country craft, and
(iv) Consignments by rail, road, or air and articles sent by post
B. Hull insurance which is concerned with the insurance of ships (hull,
machinery, etc.).
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Who is responsible for affecting insurance on the goods, which are the
subject of sale?
Most contracts of sale require that the goods must be covered, either by
the seller or the buyer, against loss or damage.
It depends on the terms of the sale contract.
A contract of sale involves mainly a seller and a buyer, apart from other
associated parties like carriers, banks, clearing agents, etc.
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Subject Matter of Marine Insurance
1. Hull Insurance:
Hull refers to the ocean-going vessels (ships trawlers etc.) as well as its
machinery. The hull insurance also covers the construction risk when the
vessel is under construction. A vessel is exposed to many dangers or risks at
sea during the voyage. An insurance effected to indemnify the insured for such
losses is known as Hull insurance.
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2. Cargo Insurance:
Cargo refers to the goods and commodities carried in the ship from one
place to another.
Cargo insurance covers the shipper of the goods if the goods are damaged or
lost. The cargo policy covers the risks associated with the transshipment of
goods. The policy can be written to cover a single shipment.
If regular shipments are made, an open cargo policy can be used that
insures the goods automatically when a shipment is made.
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3. Freight Insurance:
Freight refers to the fee received for the carriage of goods in the ship.
Usually the ship owner and the freight receiver are the same person.
Freight can be received in two ways- in advance or after the goods reach
the destination. In the former case, freight is secure. In the latter the marine
laws say that the freight is payable only when the goods reach the destination
port safely.
Hence if the ship is destroyed on the way the ship owner will loose the freight
along with the ship. That is why, the ship owners purchase freight insurance
policy along with the hull policy.
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4. Liability Insurance:
It is usually written as a separate contract that provides comprehensive
liability insurance for property damage or bodily injury to third parties.
It is also known as protection and indemnity insurance which protects the
ship owner for damage caused by the ship to docks, cargo, illness or injury
to the passengers or crew, and fines and penalties.
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Types of Marine Insurance
(a) Special Declaration Policy
This is a form of floating policy issued to clients whose annual estimated
dispatches (i.e. turnover) by rail / road / inland waterways exceed Rs 2 crores.
Declaration of dispatches shall be made at periodical intervals and premium is
adjusted on expiry of the policy based on the total declared amount.
When the policy is issued sum insured should be based on previous year’s
turnover or in case of fresh proposals, on a fair estimate of annual dispatches.
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(b) Special Storage Risks Insurance
This insurance is granted in conjunction with an open policy or a special
declaration policy.
The purpose of this policy is to cover goods lying at the Railway premises
or carrier’s godowns after termination of transit cover under open or
special declaration policies but pending clearance by the consignees.
The cover terminates when delivery is taken by the consignee or payment
is received by the consignor, whichever is earlier.
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(c) Annual Policy
This policy, issued for 12 months, covers goods belonging to the insured,
which are not under contract of sale, and which are in transit by rail / road
from specified depots / processing units to other specified depots / processing
units
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(d) “Duty” Insurance
Cargo imported into India is subject to payment of Customs Duty, as per the
Customs Act.
This duty can be included in the value of the cargo insured under a Marine
Cargo Policy, or a separate policy can be issued in which case the Duty
Insurance Clause is incorporated in the policy.
Warranty provides that the claim under the Duty Policy would be payable
only if the claim under the cargo policy is payable.
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(e) Voyage Policy:
Under the policy, the subject matter is insured against risk in respect of a
particular voyage from a port of departure to the port of destination, e.g.
Mumbai to New York.
The risk starts from the departure of ship from the port and it ends on its arrival
at the port of destination.
This policy is not suitable for hull insurance as a ship usually does not operate
over a particular route only. The policy is used mostly in case of cargo
insurance
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(f) Time Policy: It is one under which the insurance is affected for a specified
period of time, usually not exceeded twelve months. Time policies are generally
used in connection with the insurance of ship. Thus if the voyage is not
completed with in the specified period, the risk shall be covered until the voyage
is completed or till the arrival of the ship at the port of call.
(g) Mixed Policies: It is one under which insurance contract is entered into for a
certain time period and for a certain voyage or voyages, e.g., Kolkata to New York,
for a period of one year. Mixed Policies are generally issued to ships operating on
particular routes. It is a mixture of voyage and time policies.
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(h) Open policy:
An open policy is issued for a period of 12 months and all consignments
cleared during the period are covered by the insurer.
This form of insurance Policy is suitable for big companies that have regular
shipments.
It saves them the tedious and expensive process of acquiring an insurance
policy for each shipment.
The rates are fixed in advance, without taking the total value of the cargo being
shipped into consideration.
The assured has to declare the nature of each shipment, and the cover is
provided to all the shipments.
The assured also deposits a premium for the estimated value of the
consignment during the policy period
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(i) Block Policy:
This policy covers other risks also in addition to marine risks.
When goods are to be transported by ship to the place of destination, a
single policy known as block policy may be taken to cover all risks.
E.g. when the goods are dispatched by rail or road transport for shipment, a
single policy may cover all the risks from the point of origin to the point of
destination
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Procedure to Insure Under Marine Insurance
(A) Submission of form
(B) Quotation from the Insurance Company
(C) Payment of Premium
(D) Issue of cover note/Policy
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(A) Submission of form
The form will have the following information:
(1) Name of the shipper or consignor (the insured).
(2) Full description of goods to be insured: The nature of the commodity to be
insured is important for rating and underwriting.
Different types of commodities are susceptible for different types of damage
during transit- sugar, cement, etc. are easily damaged by sea water; cotton is liable
to catch fire; liquid cargoes are susceptible to the risk of leakage and crockery,
glassware to breakage; electronic items are exposed to the risk of theft
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(3) Method and type of packing:
The possibility of loss or damage depends on type of packaging.
Generally, goods are packed in bales or bags, cases or bundles, crates,
drums or barrels, loose packing, paper or cardboard cartons, or in bulk etc.
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(4) Voyage and Mode of Transit: Information will be required
the name of the place from where transit will commence and the name of
the place where it is to terminate.
mode of conveyance to be used in transporting goods, (i.e.) whether by rail,
lorry, air, etc., or a combination of two or more of these. The name of the
vessel is to be given when an overseas voyage is involved. In land transit by
rail, lorry or air, the number of the consignment note and the date thereof
should be furnished. The postal receipt number and date thereof is required
in case of goods sent by registered post.
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If a voyage is likely to involve a trans-shipment it enhances the risk. This
fact should be informed while seeking insurance. Trans-shipment means
the change of carrier during the voyage.
(5) Risk Cover required: The risks against which insurance cover is required
should be stated. The details of risks are discussed subsequently in this
chapter.
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(B) Quotation by insurance company
Based on the information provided as above the insurance company will quote
the premium rate. The rates of premium depends upon:
(a) Nature of commodity.
(b) Method of packing.
(c) The Vessel.
(d) Type of insurance policy
(C) Payment of premium
On accepting the premium rates, the concerned person will make the payment
to the insurance company. The payment can be made on the consignment
basis
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(D) Issue of cover note /Policy document
(i) Cover Note
A cover note is a document granting cover provisionally pending the issue of
a regular policy.
It happens frequently that all the details required for the purpose of issuing a
policy are not available. For instance, the name of the steamer, the number
and date of the railway receipt, the number of packages involved in transit,
etc., may not be known
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(ii) Marine Policy
This is a document which is an evidence of the contract of marine
insurance.
It contains the individual details such as name of the insured, details of goods
etc.
The policy makes specific reference to the risks covered. A policy covering a
single shipment or consignment is known as specific policy.
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(iii) Open Policy
An open policy is also known as ‘floating policy’.
It is worded in general terms and is issued to take care of all “shipments”
coming within its scope.
It is issued for a substantial amount to cover shipments or sending during a
particular period of time.
Declarations are made under the open policy and these go to reduce the
sum insured.
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(iv) Open Cover
An open cover is particularly useful for large export and import firms-making
numerous regular shipments who would otherwise find it very inconvenient to
obtain insurance cover separately for each and every shipment.
It is also possible that through an oversight on the part of the insured a
particular shipment may remain uncovered and should a loss arises in respect
of such shipment; it would fall on the insured themselves to be borne by them.
In order to overcome such a disadvantage, a permanent form of insurance
protection by means of an open cover is taken by big firms having regular
shipments.
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Important features of an open policy/ open cover.
(a) Limit per bottom or per conveyance: The limit per bottom means that the
value of a single shipment declared under the open cover should not
exceed the stipulated amount.
(b) Basis of Valuation : The ‘Basis’ normally adopted is the prime cost of the
goods, freight and other charges incidental to shipment, cost of insurance, plus
10% to cover profits, (the percentage to cover profits may be
sometimes higher by prior agreement with the clients).
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(c) Location Clause
The location clause limits the liability of the insurers at any one time or
place before shipment.
Generally, this is the same limit as the limit per bottom or conveyance
specified in the cover, but sometimes it may be agreed at an amount
(d) Rate
A schedule of agreed rates is attached to each open cover.
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(e) Terms
There may be different terms applying to different commodities covered under
the open cover, and they are clearly stipulated.
(f) Declaration Clause
The insured is made responsible to declare each and every shipment coming
within the scope of the open cover. An unscrupulous insured may omit a few
declarations to save premium, especially when he knows that shipment has
arrived safely.
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(g) Cancellation Clause
This clause provides for cancellation of the contract with a certain period of
notice, e.g., a month’s notice on either side. In case of War risks, the period of
notice is much shorter.
(h) Certificate of Insurance
A certificate of insurance is issued to satisfy the requirements of the insured or
the banks in respect of each declaration made under an open cover and / or open
policy. The certificate, which is substituted for specific policy, is a simple
document containing particulars of the shipment or sending.
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Clauses in a Marine Policy
Policies are constructed in general, ordinary and popular sense, and, specific
clauses are added to them according to terms and conditions of the contract.
1. Valuation Clause. This clause states the value of the subject matter insured
as agreed upon between both the parties.
2. Sue and Labour clause. This clause authorizes the insured to take all
possible steps to avert or minimize the loss or to protect the subject matter
insured in case of danger. The insurer is liable to pay the expenses, if any,
incurred by the insured for this purpose
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3. Waiver Clause.
This clause is an extension of Sue and Labour clause.The clause states that
any act of the insured or the insurer to protect, recover or preserve the subject
matter of insurance shall not be taken to mean that the insured wants to forgo
the compensation, nor will it mean that the insurer accepts the act as
abandonment of the policy.
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4. Touch and Stay Clause.
This clause requires the ship to touch and stay at such ports and in such
order as specified in the policy.
Any departure from the route mentioned in the policy or the ordinary trade
route followed will be considered as deviation unless such departure is
essential to save the ship or the lives on board in an emergency
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5. Warehouse to warehouse clause.
This clause is inserted to cover the risks to goods from the time they are
dispatched from the consignor’s warehouse until their delivery at the
consignee’s warehouse at the port of destination.
6. In charge Clause.
This clause covers the loss or damage caused to the ship or machinery by the
negligence of the master of the ship as well as by explosives or latent defect in
the machinery or the hull.
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7. Lost or Not Lost Clause.
Clause states that the insurer will pay even if the loss insured against has
occurred prior to the effecting of the insurance, provided the insurer had no
knowledge of such loss and does not commit any fraud. This clause covers the
risks between the issue of the policy and the shipment of the goods.
8. Running down Clause.
This clause covers the risk arising out of collision between two ships. The
insurer is liable to pay compensation to the owner of the damaged ship. This
clause is used in hull insurance.
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9. Free of Capture and Seizure Clause.
This clause relieves the insurer from the liability of making compensation for
the capture and seizure of the vessel by enemy countries. The insured can
insure such abnormal risks by taking an extra ‘war risks’ policy.
10. Continuation Clause.
This clause authorizes the vessel to continue and complete her voyage even if
the time of the policy has expired. This clause is used in a time policy. The
insured has to give prior notice for this and deposit a monthly prorate premium.
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11. Barratry Clause.
This clause covers losses sustained by the ship owner or the cargo owner due
to willful conduct of the master or crew of the ship.
12. Jettison Clause.
Jettison means throwing overboard a part of the ship’s cargo so as to reduce
her weight or to save other goods. This clause covers the loss arising out of
such throwing of goods. The owner of jettisoned goods is compensated by all
interested parties.
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13. At and From Clause.
This clause covers the subject matter while it is lying at the port of departure
and until it reaches the port of destination.
It is used in voyage policies.
If the policy consists of the word ‘from’ only instead of ‘at and from’, the risk
is covered only from the time of departure of the ship.
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Procedure of Claim Settlement
As the risk coverages are different for import/export and inland (with in India)
consignments, the procedure of claim settlement is explained separately
I. For Import / Export consignments
Claims Documents: Claims under marine policies have to be supported by
certain documents which vary according to the type of loss as also the
circumstances of the claim and the mode of carriage.
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(a) Intimation to the Insurance Company: As soon as the loss is discovered
then it is the duty of the policyholder to inform the Insurance Company to
enable it to assess the loss.
(b) Policy: The original policy or certificate of insurance is to be submitted to the
company. This document establishes the claimant’s title and also serves as an
evidence of the subject matter being actually insured.
(c) Bill of Lading: Bill of Lading is a document which serves as evidence that the
goods were actually shipped. It also gives the particulars of cargo
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(d) Invoice:
An invoice evidences the terms of sale. It also contains complete description of
the goods, prices, etc.
The invoice enables the insurers to see that the insured value of the cargo is
not unreasonably in excess of its cost, and that there is no gross over valuation.
The original invoice (or a copy thereof) is required in support of
claim.
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(e) Survey Report:
Survey report shows the cause and extent of loss, and is absolutely
necessary for the settlement of claim.
The findings of the surveyors relate to the nature and extent of loss or
damage, particulars of the sound values and damaged values, etc.
It is normally issued with the remarks “without prejudice,” i.e. without
prejudice to the question of liability under the policy.
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(f) Debit Note: The claimant is expected to send a debit note showing the
amount claimed by him in respect of the loss or damage. This is sometimes
referred to as a claim bill.
(g) Copy of Protest: If the loss or damage to cargo has been caused by a peril of
the sea, the master of the vessel usually makes a protest on arrival at destination
before a Notary Public. Through protest, he informs that he is not responsible for
the loss or damage. Insurers sometimes are required to see the copy of the
protest to satisfy themselves about the actual cause of the loss.
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(h) Letter of Subrogation:
This is a legal document (supplied by insurers) which transfers the rights of the
claimant against a third party to the insurers.
On payment of claim, the insurers may wish to pursue recovery from a carrier or
other third party who, in their opinion, is responsible for the loss. The authority
to do so is derived from this document. It is required to be duly stamped.
Some of the other documents required in support of particular average claims
are Ship survey report lost overboard certificate if cargo is lost during loading
and unloading operation, short landing certificate etc
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(i) Bill of entry:
The other important document is bill of entry issued by the customs
authorities showing therein the amount of duty paid, the date of arrival of
the steamer, etc., account sales showing the proceeds of the sale of the
goods if they have been disposed of; repairs or replacements bills in case of
damages or breakage; and copies of correspondence exchanged between
the carriers and the claimants for compensation in case of liability resting
on the carriers.
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II. Inland Transit Claims (Rail / Road)
In regard to claims relating to inland transit, the documents required to be
submitted to the insurers in support of the claim are:
(a) Original policy or certificate of insurance duly endorsed.
(b) Invoice, in original, or copy thereof.
(c) Certificate of loss or damage (original) issued by carriers.
(d) If goods are totally lost or not delivered, the original railway receipt and / or
non-delivery certificate / consignment note
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(e) Copy of the claim lodged against the railways / road carriers
(f) Letter of Subrogation, duly stamped.
(g) Special Power of Attorney duly stamped (Railway Claims).
(h) Letter of Authority addressed to the railway authorities signed by the
consignors in favour of consignees whenever loss is claimed by consignees.
(i) Letter of Authority addressed to the railway authorities signed by the
consignors in favour of the insurers
(j) Letter of Undertaking from the claimant in case of non-delivery of consignment.
(k) Claim Bill, after adjusting salvage value proposed.
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Risk Coverage under Marine Insurance
The-Institute Cargo Clauses (I.C.C.) is used. These clauses are drafted by the
Institute of London Underwriters (ILU) and are used by insurance companies in
a majority of countries including India.
The important exclusions of risks are:
i. Loss caused by willful misconduct of the insured.
ii. Ordinary leakage, ordinary loss in weight or volume or ordinary wear and
tear. These are normal ‘trade’losses which are inevitable and not accidental in
nature
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iii. Loss caused by ‘inherent vice’ or nature of the subject matter. For
example, perishable commodities like fruits, vegetables, etc. may deteriorate
without any ‘accidental cause’. This is known as ‘inherent vice’.
iv. Loss caused by delay, even though the delay is caused by an insured risk.
v. Deliberate damage by the wrongful act of any person. This is called
‘malicious damage’ and can be covered at extra premium, under (B) and (C)
clauses. Under ‘A’ clause, the risk is automatically covered.
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vi. Loss arising from insolvency or financial default of owners, operators, etc.
of the vessel.
vii. Loss or damage due to inadequate packing.
viii. War and kindred perils. These can be covered on payment of extra
premium.
ix. Strikes, riots, lock-out; civil commotions and terrorism can be covered on
payment of extra premium.
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