Marine Insurance

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 Insurance Definition
Insurance is a contract whereby, in
return for the payment of premium by
the insured, the insurers pay the
financial losses suffered by the insured
as a result of the occurrence of
unforeseen events.

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 Insurance Terminology
• Insurer
• Insured
• Subject Matter to be insured (Cargo insurance- (i)
Special, (ii) Reporting(open cargo policy over a long
period of time) and (iii) Floating) Hull insurance (ship
insurance for a trip/voyage), Freight Insurance.
• Premium
• Risks covered(theft, loss, or damage to your cargo)
• Insured value (maximum amount an insurance company
will pay if an insured asset is deemed a total loss)
• Period of insurance(period of time within which
insurance protection is granted)
• Policy (Document detailing the terms and conditions of
a contract of insurance)
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BS/ Marine Insurance 4
 Marine Insurance
• A contract of marine insurance is a contract whereby the
insurer undertakes to indemnify(guarantee) the assured
(insured), in manner and to the extent agreed, against
marine losses, that is to say (in other words), the losses
incident (occurred ) to marine adventure.
Marine Insurance Act, 1963
• A contract is made between insurance
companies and insured against a certain
amount of premium to protect from the risk of
waterways is known as Marine Insurance
• A typical marine insurance policy covers against the
losses caused to:
• Cargo present on the vessel
• Hull or the vessel itself
• Some damages take place on account of
unavoidable disasters and some take place due to
negligence.
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 Principles of Insurance

• Utmost Good Faith

• Insurable Interest
• Proximate Cause
• Indemnity
• Subrogation
• Contribution

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 Utmost Good Faith
 The marine contract is based on utmost good faith
between on the part of two parties.
 Insured should give full information about the subject
matter (object) to the insurer.
 He should not withhold any information. This principle is
based on the insured than on the underwriter.
 Insurance underwriters evaluate the risk and exposures
of potential clients. They decide how much coverage the
client should receive, how much they should pay for it, or
whether even to accept the risk and insure them.
 The party should act in good faith otherwise, the other
party may cancel the contract
 Good faith - Let the buyer beware
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 Insurable interest
 The insured should have an interest in the subject matter when
it is to be insured which means insurable interest.
 In the case of ships: The owner of the ship or any individual who has
purchased the ship on a charter basis can insure the ship to its total
value.
 In the case of cargo: The owner of the shipment can buy a marine
cargo policy up to the full value of the consignment.
 For an insured to be compensated by the insurer insurable interest
should exist:
 At the time of proposing insurance
 Before the loss
 He should have reasonable expectation of acquiring such
insurable interest.
 He should get the compensation amount of the loss or
damage of goods.
 The insured must get an insurable interest at the time of loss
or damage otherwise, he will not be able to claim
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compensation
 Cause Proxima

 The word is derived from Latin which means

nearest or proximate cause.
 This principle helps to decide the actual cause of
loss when number of causes have contributed to
the loss.
 To fix the responsibility of the insurer, the
immediate cause should be determined. The
remote cause of loss is not important in
determining the liability.

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 Indemnity
 The principle indemnify means that the insured will be
compensated only to the extent of loss suffered.
 There is an exception to the principle of indemnity in
marine insurance.
 Owing to difficulties in determining the actual value of
the property at the time of loss, both of insured and
insurer agree on the value of the property when the
policy is first issued.
 At the time of taking policy, the money value of the
subject matter is decided.

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 Subrogation
 Subrogation means substituting of one creditor(the
person who lends money) for another.
 In insurance contracts, except personal accident, health,
and life, subrogation is applied to recover the loss from
the errant party in marine insurance.
 When the loss is insured, and the insurer pays the
amount of loss, the party receiving the insurance benefit
must forfeit the right to pursue the errant party.
 The purpose behind subrogation is that the insurer
should not get more than the damages incurred to him.
 After paying for the loss, the insurer has the right to be
compensated from the third party liable to compensate
the insured.

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 Contribution
 The principle holding that two or more insurers each
liable for a covered loss should participate in the
payment of that loss.
 Many insurance policies stipulate the formula under
which contribution among multiple insurers will take
place. Two standard methods are Contribution by
limits and Contribution by equal shares.
 In other words, the insurance law contribution clause
describes as to how much the issuer(insurance
Company) must pay if there is insurance in more than
one company on a given loss.
 Contribution clauses help to limit the liability of the
insurers.

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 Assignment
• Transfer by the holder of a insurance policy (the
assignor) of the benefits or proceeds of the policy to a
lender (the assignee), as a collateral for a loan.
• In the event of the death of the assignor, the assignee
is paid first and the balance (if any) is paid to the
policy's beneficiary.

• Section 52 of the Marine Insurance Act allows

the assignment unless it is prohibited under
the terms of the policy.

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 Warranties
• A warranty in an insurance policy is a promise by
the insured party that statements affecting the
validity of the contract are true. Most insurance
contracts require the insured to make certain
warranties.
• An insurance contract is written on the principle of
utmost good faith, meaning each party must trust
that the other is being completely truthful.
• For the contract to be valid, you may have to
warrant that an assumption the insurer is making
is true.
• This is the only instance where the term "
insurance warranty" is accurate.
• According to Section 35 (1) of the Marine
Insurance
BS/ Marine Insurance Act, warranty is a promise, that is an 14
 Deductibles
This amount is deducted from the total claim due
to an insured peril and the insurer pays the
remaining part.
The hull part covers the value of the vessel
owned by the insured. If something happens
to the vessel and it’s a covered peril, one
deductible, usually a percentage of the hull
value applies.
No deductible
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applies in the event of a total
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loss though.
 Duty of Assured
 In case of any loss or misfortune it is the duty of
the Assured (insured) and their
agents(representative) to take such measures
as may be reasonable for the purpose of
averting or minimizing a loss.

A standard clause in a maritime insurance

policy which allows the insured to recover from
the insurer any reasonable expenses incurred by
the insured in order to minimize or avert a loss
to the insured property, for which loss to the
insurer would have been liable under the policy.
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 Loss/ Damage

• Partial loss or Particular average

• Total loss

Actual Total Loss

Constructive Total Loss
• General Average

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 Loss/ Damage
Actual Total Loss
• Actual total loss is the loss of a thing or
property which cannot be recovered or
reused because it is totally destroyed.
• Eg: If a ship is destroyed and submerged
in a sea such that it cannot be recovered
or reused. It is said to have been an
actual total loss.
• Subject matter is destroyed/ so
damaged that it ceases to be a thing of
the kind insured
• Subject matter is missing
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•
 Loss/ Damage
Constructive Total Loss

• A constructive total loss is when the cost for repair

of an item (e.g., boat or car) is more than the
current value of that item. It also refers to the
insurance claim that is settled for the full value of
the associated coverage.
• Assured is deprived of goods and their recovery is unlikely or
cost of recovery would exceed the value when recovered.
• The cost of repairing the goods and thereafter forwarding
them to the destination would exceed their value on arrival.
• The cost of removal, sending to the repair facility, and
repairing the ship would exceed its insured value.
• In other words, a total loss or write-off is a situation where
the lost value, repair cost or salvage cost of a damaged
property exceeds its insured value. Such a loss may be an "
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actual total loss" or a "constructive total loss".
 General Average
• A general average means the loss or damage to the
ship or the cargo which is shared by the ship owner
and the cargo owner.
• The new Jason clause simply states that the Cargo
owner has to contribute in the general average even
when the damaging incident is caused by the
negligence of the ship/carrier owner.
• In such case the new Jason clause should be
present in the bill of landing.
• Thus, the new Jason clause protects the ship
owners by having general average in case of
damage caused by the negligence by the shipowner
or the crew.
• Before the adoption of Harter Act in 1893, the shipowners
were not allowed to get any benefit from the cargo owners in
BS/ case
Marine of losses sustained by shipowner’s negligence.
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 Exclusion
• Willful misconduct of the Assured
• Ordinary leakage, ordinary loss in weight/volume, or ordinary
wear and tear of the subject matter insured.
• Insufficient and unsuitability of packing
• Inherent vice or nature of the subject matter
• Delay even though caused by insured perils
• Insolvency or financial default of the ship owners
• Nuclear perils
• Unseaworthiness and unfitness of the vessel/conveyance (if
the Assured is not aware of)
• War and warlike perils and strike perils.
• War perils and strike perils can be covered concurrently by
attaching
• Institute War and Strike Clauses

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 Hull & Machinery Insurance

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• Overview
• Hull & Machinery insurance provides physical
loss or damage insurance for not only the hull
of a ship but also her propulsion machinery
and any equipment used for activities such as
cargo handling.

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 Scope of Cover
 Perils of the sea, rivers and navigable waters
 Fire , lightening and explosion
 Violent theft by persons from outside the vessel
 Jettison
 Piracy
 Accident in loading, discharging, shifting cargo or
fuel
 Bursting of boilers, breakage of shafts
 Negligence of master , officers, crew and pilots
 Negligence of repairers provided they are notthe
insured under the policy
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 of boilers, breakage of shafts
 Scope of Cover
• Liability of ship-owners for loss of life and personal injury
etc. are generally not covered under Marine Hull policies
• Also any damage caused to the cargo due to negligence of
the ship-owner is also not covered.
• So how do the ship owners protect themselves against
these losses???
• For such lossess P& I Club Come to rescue
• The members of the club undertake to share the liability
• P & I Clubs generally provide cover for the following risks
• Damages or compensation for personal injury to any
person, death etc.
• Shipwreck

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 of boilers, breakage of shafts 29
 Scope of Cover

• 1/4th Collision liability (Liability for physical damage to

another vessel, it is not covered under some Marine Hull
Polices)
• Pollution risks

 of boilers, breakage of shafts

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 • Time Policy

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