Marine Insurance

Marine Insurance
• Marine insurance policy is a contract of indemnity whereby the
insurer undertaken to indemnity the insured against the marine
losses according to policy conditions.
• 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. The term originated when parties began to ship
goods via sea.
Types of Marine insurance Policy
• Types of Marine insurance Policy:
There are different types of policies are used in marine insurance.
They are:
1. Voyage Policies: The policy is issued to cover a particular voyage
from one port to another and from one place to another The policy
mentions the port of departure and the port of destination between
which the risks are generally undertaken. For example- London to
Chittagong
Time Policies: Under this policy, the subject matter is insured for a
definite period of time. For example- 1st January 2002 to 1st January
2003. This policy is generally taken for one year although it may be for
less than one year.
Mixed Policies: In this policy, the elements of voyage policy and of
time policy are combined under this policy. For example-24 hours after
arrival.
Types of Marine insurance Policy
• Floating Policies: This policy is taken for a round lump-sum
which is attached to each shipment with each declaration the
amount will be reduced till it is exhausted. When the insured
sum is said to be “Closed” and policy is fully declared or runoff.
• Blanket Policies: The policy is taken to cover losses within the
particular time and place, if the actual coverage of risk is less
than the total amount of insurance. The premium related to the
excess amount is returned to the insured.On the other hand, if
the amounts of shipments are greater than the insured sum,
additional premium is charged over excess protection.
Types of Marine insurance Policy
• Valued Policy: Under this policy, the value of loss to be
compensated is fixed. The value of the subject-matter is agreed
between the insurer and the insured at the time of taking the
insurance. The insured value is not necessarily the actual value.
• Unvalued Policy: When the value of policy is not determined at
the time of commencement of risk, then it is called the insurable
value or unvalued or valuable policy.
Marine insurance has two categories
• 1. Ocean marine insurance
• 2. Inland marine insurance
Ocean marine insurance covers perils of the
sea and includes the coverage of following -
• i. The Vessel- This is called hull insurance. It covers damage to the ship and its
equipment including furniture, machinery, fuel, tools etc. vessels may include
steamers, sailing vessels, builders etc.
• ii. The Cargo- This is called cargo insurance and includes goods that are being
carried in the ships. It also covers damage to the personal belongings of the crew
and passengers.
• iii. The freight- This is called freight insurance. If the goods or the vessel is
damaged, the passengers may not be willing to pay the freight of the ship. This
results in loss the owners of the ship. Marine insurance covers such losses as well.
• iv. Liability coverage- This is called liability insurance. This includes losses to the
third parties for instance, loss caused to another ship due to collisions. The
insurance company undertakes to indemnify such losses which the insured may
suffer on account of some damage to the third party. Liability insurance also
covers any costs relating to medical bills, legal expenses etc.
Inland marine
• Inland marine insurance covers the risks of land.
• There are certain properties which cannot be covered under general
property insurance because these tools and equipment are not
housed at a specific location and travel to various job sites.
• This includes basically any property that involves some type of
transportation. Such property is covered under inland marine
insurance.
Special Inland marine insurance includes the
following-
• - Builder’s Risk- Insurance of structure and material during new
construction projects and renovations.
• - Exhibition coverage- Insurance of valuable items requiring
exhibitions and displays.
• - Installation floater- Insurance covers to materials when they are
loaded to vehicles till they reach the destination for installation.
• - Motor truck Cargo coverage- This covers the goods of customers
while transporting and delivering them by the respective companies.
Features of Marine Insurance
• 1. Marine insurance is a non- life contract between the insured and the
insurance company.
• 2. Consideration in the form of payment of premium is a preliminary to a
valid contract of marine insurance.
• 3. Marine insurance covers any loss or damage to the ship, cargo, freight
and even third-party liability.
• 4. Insurance can be for a single journey or for a number of voyages but for
a specific period of time.
• 5. Marine insurance covers only sea perils and perils incidental to sea.
• 6. However, inland marine insurance covers risks of land transportation.
Types of risks covered under Marine Insurance
Marine insurance covers the following types of risks
• 1) Sinking of vessel.
• 2) Collision of vessel.
• 3) Discharge of cargo at the port
• 4) Damage due to volcanic eruption or fire and other natural disasters like
cyclones and earthquakes.
• 5) Average general sacrifice
• 6) War
• 7) Sea piracy and theft
• 8) Loss cause by rats, for instance holes made by rats through which water
enters the ship.
• 9) Jettison
MARINE INSURANCE POLICY:
CONDITIONS/CLAUSES (Type of Insurance)
• 1. Hull Insurance
• 2. Cargo Insurance
• 3. Freight Insurance
• Hull Clauses- These clauses cover conditions imposed in relation to
losses caused to ship on account of collision, standing or general
average.
• Cargo Clauses- These clauses cover conditions and restrictions
imposed in relation to losses caused to cargo or goods. These clauses
give the description of the nature, extent and the scope of the cargo
insurance..
• Freight clauses- The clauses give conditions with reference to the loss
of freight due to perils which may be insured for a period for a voyage
 Types of Marine Insurance
• Hull Insurance: Insurance of
vessels and its equipments are
included under hull insurance.
There are a number of
classifications of vessels such as
ocean steamers, sailing vessels,
builders, and so on.
• These clauses cover conditions
imposed in relation to losses caused to
ship on account of collision, standing
or general average.
• Marine Hull insurance encompasses both tangible and intangible subject matters.
• Any of the following will be the subject matter:
• SUBJECT MATTER - By an Express Condition in the Contract, the shipowner may
pass on the insurance obligation to the ship’s Manager and insurable interest in
such case shall vest with the Manager.
• Hull & Machinery of Ocean-going ships, Inland vessels, e.g. barges, tugs,
Passenger launches; Dredgers; Sailing Vessels; Fishing Vessels & Trawlers, etc.
• Construction and Shipbuilding risks;
• Shipbreaking risks;
• Freight and Disbursement;
• Liabilities : Charterer’s liability, Ship Repairer’s liability;
• Oil Drilling Rigs, offshore platforms and Construction risks;
• War Risks
 Cargo Insurance
• The primary benefit of cargo insurance is that you
minimize your financial loss even if your shipment is
damaged or lost. The small investment (a.k.a. the
premium) you pay provides peace of mind as your goods
leave your warehouse.
• It also includes these advantages for your business:
• Your cash flow is protected from unforeseen stoppages
• Profits are still generated if coverage includes it
• Efficient procedure of claims because of professional
service
• Simplified reporting of losses
Freight Insurance
• Freight insurance can also be taken for
goods during shipment. It helps
in mitigating the risks related to the
shipping process and helps you ship your
goods in a secure manner. You can buy
freight insurance directly from the shipper
or an insurance provider. There are various
types of cargo insurance in India.
Other Conditions/Clauses in a Marine
• i. Valuation Clause- In this clause both the parties decide the amount
to be payable at the time of loss. Compensation cannot exceed the
amount already stated in the policy.
• ii. ‘At and From’ Clause- This clause decides the timings when the risk
is considered to commence and be covered under the insurance
policy. According to this clause the coverage of risk starts ‘at’ the port
where it is lying for departure and ‘from’ the time it leaves the port. If
insurance policy states, ‘at and from Bombay’, it means the risk is
covered when the ship is at Bombay port and also when it leaves this
port. This clause is applicable to to Hull and Freight Insurance
• Deviation or Change of Voyage- This clause restricts any deviation of
route to be followed by the ship from the original route as decided
and mentioned in the policy. The policy gives the port of departure,
the port of destination as well as the route to be followed within the
two points. In case of any deviation, the insurance company does not
remain liable for indemnification of the loss. Even if the ship changes
its original route and then follows same route later on, it will be taken
as deviation and the insurer will be relieved from his liability.
• Inchmaree clause- This clause was inserted after a famous case
involving a ship named ‘Inchmare’ in 1857. This clause covers any
damage caused by the negligence of the master or a crew member.
The damage caused to the cargo in loading and unloading is also
covered under this clause. This clause also indemnifies the loss
caused by explosives or any latent defect in the machinery or the hull
• Sue and Labor Clause- This clause has been put to encourage the act of
saving the subject matter from loss or damage. If the insured spends any
money in his efforts to save the subject matter from an impending loss, he
can recover the same from the insurance company.
• Memorandum Clause- This clause is in favor of the insurer. This clause
protects the insurer from indemnifying small losses on the perishable
goods insured in the policy. Under this clause the insurer is not liable for
partial losses. In certain goods this loss is allowed up to 50%. However, if
there is a general loss, the insurer will be liable to pay the loss.
• Perils of the Sea Clause- This clause indemnifies losses only in case of
casualties of the sea and does not cover losses arising from the action of
winds or waves.
• All Risks Clause- This clause covers ‘all-risks’ of loss to the subject
matter, irrespective of the percentage.
• FCS Clause- This clause is specifically inserted at the time of war. The
insurer frees himself from the liability of indemnifying losses from
attack of ship as a price of war, unless extra premium is paid by the
insured.
• Lost or Not Lost Clause- This was a very popular clause in times when
the technology was not very advanced. Sometimes when the goods
were sent via sea, the recipient did not receive them. The sender also
did not know where they were lost or not. So in such circumstances
this clause provided cover for the loss of goods.
• Warehouse to Warehouse Clause- This clause covers the risk of loss or
damage to the goods from the warehouse of the sender/consignor to
the warehouse of the receiver. This clause ensures safety of goods till
their receipt and storage.
• Touch and Stay Clause- This clause states that the ship should stop at
only those ports which are mentioned in the policy. If nothing is
mentioned then only those ports should be preferred for staying
which come in the conventional route of the ship otherwise it shall
amount to deviation of the route.
• Running down Clause- This class is applicable to the vessel and covers
losses and damages in case of collision of ships.
• Continuation Clause- This clause is used in time policy where the time of
policy expires during the voyage. Continuation clause allows the insured to
complete the journey by paying a pro rata monthly premium after giving a
prior notice to the insurer.
• Waiver Clause- This clause specifically states that when the insured or the
insurer tries to protect the subject matter against loss or damage, this shall
not mean waiver to the insurance cover from the side of insured and
rejection of compensation from the insurer.
• FGA Clause Foreign General Average clause means that the arrangement in
case of a general average claims, which may arise under the policy, the
average settlement made in a foreign country will be adopted as the basis
for settlement.
• F.P.A. and F.A.A. Clause The F.P.A. (Free of Particular Average) clause is
beneficial for the insurer. FPA clause relieves the insurer from
particular average liability while the F.A.A. (free of all average) clause
relieves the insurer from liability arising from both particular average
and general average.
• Assignment Clause- This clause states that the marine policy is
assignable and may be assigned before or after a loss. The assignee
acquires the beneficial interest in the policy. This gives him the right
to sue thereon in his own name.
PREMIUMS
• According to Section 54 of Marine Insurance Act, 1963, “unless
otherwise agreed, the duty of the assured or his agent to pay the
premium; and the duty of the insurer to issue the policy to the
assured or his agent, is concurrent condition, and the insurer is not
bound to issue the policy until payment or tender of the premium”.
DOUBLE INSURANCE
• According to Section 34 of Marine Insurance Act, 1963,
• (1) “Where two or more policies are effected by or on behalf of the
assured on the same adventure and interest or any part thereof, and
the sums insured exceed the indemnity allowed by this Act, the
assured is said to be over-insured by double insurance”.
• (2) “Where the assured is over-insured by double insurance—
• (a) the assured, unless the policy otherwise provides, may claim
payment from the insurers in such order as he may think fit, provided
that he is not entitled to receive any sum in excess of the indemnity
allowed by this Act;
• (b) Where the policy under which the assured claims is a valued
policy, the assured must give credit as against the valuation, for any
sum received by him under any other policy, without regard to the
actual value of the subject-matter insured;
• (c) Where the policy under which the assured claims is an unvalued
policy he must give credit, as against the full insurable value, for any
sum received by him under any other policy;
• (d) Where the assured receives any sum in excess of the indemnity
allowed by this Act, he is deemed to hold such sum in trust for the
insurers, according to their right of contribution among themselves”.
ASSIGNMENT OF POLICY
• As per Section 52 of Marine Insurance Act 1963,
“A marine policy may be transferred by assignment unless it contains terms
expressly prohibiting assignment. It may be assigned either before or after
loss”.
Also, the Act states that, “Where a marine policy has been assigned so as to
pass the beneficial interest in such policy, the assignee of the policy is
entitled to sue thereon in his own name; and the defendant is entitled to
make any defence arising out of the contract which he would have been
entitled to make if the suit had been brought in the name of the person by or
on behalf of whom the policy was effected.”
A marine insurance policy can be assigned through endorsement or any
other customary mode.
WARRANTIES IN MARINE INSURANCE
• The warranties are of two types
1) Express warranties
2) Implied warranties
Express warranties
• Express warranties refer to those conditions which are written and
explicitly stated in the marine insurance policy.
• As per Section 37 of Marine Insurance Act 1963, “An express warranty
must be included in, or written upon, the policy, or must be contained
in some document incorporated by reference into the policy”.
Few examples of express warranties are
i. The ship shall start its journey on the schedule date only.
ii. The ship shall start its journey at the scheduled timings. The time
schedule shall be strictly abided by.
iii. The subject matter covered under insurance is safe on a particular date.
iv. There is prohibition on navigations during certain period and in certain
regions.
v. The ship as well as the cargo shall remain in the neutral state.
vi. An armed guard shall conduct the sailing of the ship.
vii. A fixed number of crew members shall be available.
viii. Warranties against to wage.
ix. Warranties in relation to additional insurance.
Implied warranties:
• Implied warranties are the conditions which are not stated in written
in the policy but are understood by the implication of law. Implied
warranties are binding on both the parties. Implied warranties are of
three types.
• These include –
• Warranty of sea-worthiness- This condition states that the ship
should be fit to travel. It should be suitable in all respects to
undertake the voyage.
• The owner of the ship has to ensure that-
• The ship is not overloaded.
• It is well equipped with adequate fuel and water.
• It has all provisions and materials.
• The captain of the ship is guided well.
• It should have desired number of experience officers and crew
members.
• The ship does not require any repairs.
• The ship has the legal permission to start the voyage.
• Warranty of legality of the voyage- This warranty ensures that all the
legal formalities have been complied with before undertaking the
voyage. These legal formalities may related to the following-
• The object of the voyage is legal. It should not be related to smuggled
goods as arms, ammunition, liquor etc.
• The owner has the legal right to carry the subject matter. The owner
has the license to carry the goods.
• The cargo does not belong to some enemy country.
• The cargo does not belong to the government.
• Warranty of non-deviation- This warranty expects that the ship shall
follow the normal path of voyage and specified in the policy. If
nothing is specified that the normal path has to be followed by the
ship. If the ship deviates from its normal route of travel the insurer is
freed from any liability arising in the event of mishap. However, there
are some exceptions to this warranty.
• When the deviation is in line with some warranty.
• In case of natural calamities like storm and bad weather.
• In order to make the ship seaworthy.
• If change of path is essential to save the ship from sea piracy, sea
dacoits etc.
• To safeguard the life of passengers on the ship or even passengers in
another ship.
CLAIM SETTLEMENT PROCEDURE
• Procedure for claim settlement is divided into two
1. For import-export consignments
2. For inland (within India) consignments
For import-export consignments
• The claim settlement requires that the insurer must be intimated about the
loss immediately. It also requires submission of some documents. These
are discussed as following.
Policy: The original policy as issued by the insurer to the insured is to be
submitted for establishing a valid title of the claimant. This documents also
evidences that the subject matter is insured against specific perils.
Bill of Lading : Bill of lading is a proof that the subject matter was actually
shipped. It gives details of the cargo.
Invoice: Invoice is a proof of terms of sale. It gives description of goods,
prices etc. It ensures correct valuation of the cargo.
Survey Report: This contains the findings of the surveyors. The report
mentions about the nature and extent of loss. It usually mentions the
remarks “without prejudice”.
• Debit note: This is the claim bill which mentions the amount claimed
by the insured for loss and damange.
• Copy of Protest: This is a document which has to be submitted by the
master of the ship who makes a claim that the loss was not caused by
him but was rather the result of some sea peril.
• Letter of subrogation: This document transfers the rights of the
claimant against third party to the insurance company.
For inland (within India) consignments
• For inland consignments following documents are required-
- Original policy or certificate of insurance duly endorsed.
- Invoice.
- Certificate of loss or damage issued by the carriers.
- In case the goods are totally lost and are not delivered, the original
railway receipt and / or nondelivery certificate / consignment note.
- Copy of the claim lodged against the railways / road carriers.
- Letter of Subrogation.
- Special Power of Attorney duly stamped. (Railway Claims).
- Letter of Authority addressed to the railway authorities signed by the
consignors in favor of consignees whenever loss is claimed by
consignees.
- Letter of Authority addressed to the railway authorities signed by the
consignors in favor of the insurers
- Letter of Undertaking from the claimant in case of non-delivery of
consignment.
- Claim Bill, after adjusting proposed salvage value