UNIT V
Marine Insurance -scope and nature types of Marine policies - Insurable Interest disclosure and representation-Insured perils-proximate cause voyage -warranties - subrogation -contribution under insurance.
Marine Insurance :
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 .
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.
Insurance is often compulsory in many export trade contracts. It can be the obligation of the exporter or the importer to pay the insurance cost on the shipment, depending on the terms of the contract.
Marine Insurance is a type of insurance that covers cargo losses or damage caused to ships, cargo vessels, terminals, and any transport in which goods are transferred or acquired between different points of origin and their final
destination. Providing protection against transport-related losses, this voyage policy provides a haven for shipping companies and couriers because it protects them from costly potential losses while transporting goods by water.
Despite following laws and safety regulations, transporters can’t control natural occurrences that might disrupt the cargo or vessel. Things like weather hazards,
encounters with pirates, and cross border conflicts are very common in water transportation and the damages associated with these situations can cause a significant financial hardship for ship owners. This is where a marine insurance policy comes to the rescue, protecting the interests of shipping corporations and transporters by providing them with insurance coverage needed to defend
against possible losses.
Another great feature of marine insurance is that transporters can choose coverage options applicable to their specific trade. Coverage requirements can differ, so shipping businesses can choose an insurance plan that is customized.
Different policies are available to provide coverage according to the size of the ship and routes taken. policies are well-defined contracts and marine insurance has strict policy
requirements. Insurer requirement
Principles of Marine Insurance
1.Principle of Utmost Good Faith.
2.Principle of Insurable Interest 3.Principle of Indemnity. ...
4.Principle of Cause Proxima. ...
5.Principle of Loss Minimization.
Types of Marine Insurance:
Hull Insurance
Cargo Insurance
Liability Insurance
Freight Insurance
Hull Insurance – offers protection for physical damages to the boat or vessel along with its operating equipment, including machinery. This policy is applicable for all water vessels and limited to commercial-based ocean crafts. Barges, tugboats, oil rigs located offshore, floating equipment, and other similar installations can benefit from this type of insurance.
Cargo Insurance – provides coverage for physical damage to cargo that is conveyed or travelled as part of the shipment process. Depending on the chosen coverage, some policies offer theft protection or coverage for other forms of losses besides physical damage.
Marine Liability Insurance – also called P&I or protection and indemnity, this coverage offers protection for third-party liabilities that owners and corporations are exposed to during water operations. It includes coverage for injuries,
illnesses, or even loss of life caused by vessel operation. Medical expenditures, damage to other vessels and cargo, collision incidents, and related expenses as a result of quarantine may also be covered.
Freight Insurance :In freight insurance, if the goods are damaged in transit, the operator would lose freight receivables & so the insurance will be provided on compensation for loss of freight
Types of Marine Insurance policies:
1. 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. The exporter may need to declare periodically (say, once a month) the detail of all shipments made during the period, type of goods, modes of transport, destinations, etc.
2.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. With open policies, on the other hand, shipments are insured automatically.
3.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.
4.Mixed policy: Mixed policy is a mixture of two policies i.e Voyage policy and Time policy.
5.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.
6.Port Risk policy: It is a policy taken to ensure the safety of the ship when it is stationed in a port.
7.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.
8.Single Vessel policy: In single vessel policy only one vessel is covered under marine insurance policy.
9.Blanket policy: In this policy, the owner has to pay the maximum protection amount at the time of buying the 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.
Insurable interest :
Insurable interest is a type of investment that protects anything subject to a financial loss. A person or entity has an insurable interest in an item, event or action when the damage or loss of the object would cause a financial loss or other hardships. To have an insurable interest a person or entity would take out an insurance policy protecting the person, item, or event in question. The
insurance policy would mitigate the risk of loss if something happens to the asset
—like becoming damaged or lost.
Insurable interest is an essential requirement for issuing an insurance policy that makes the entity or event legal, valid and protected against intentionally harmful acts. People not subject to financial loss do not have an insurable interest.
Therefore a person or entity cannot purchase an insurance policy to cover themselves if they are not actually subject to the risk of financial loss.
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. Disclosure by assured-If the assured fails to make such disclosure, the insurer may avoid the contract.
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". It is the duty of parties to help each other to come to a right conclusion .It is the duty of the assured not only to be honest and straightforward but also to
make a full disclosure of all material facts. A failure to disclose, however, innocently, entitles the insurer to avoid this contract ab initio and, upon avoidance, it is deemed never to have existed.
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 peril.The 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.
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
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 1.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.
2.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.
3.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.
4.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.
5.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:
1.Deviation or delay is authorized according to a particular warranty of the policy.
2.When the delay or deviation was beyond the reasonable approach of the master or crew.
3.The deviation or delay is exempted for the safety of the ship or insured matter or human lives.
4.Deviation or delay was due to barratry.
Types of Marine Losses 1.Particular average losses.
2.General average losses.
3.Particular charges.
4.Salvage charges.
Types of General average Marine Losses:
Actual Total Loss: Actual total loss occurs under these following situations: (a) The subject-matter is completely destroyed.
Constructive Total Loss: This occurs when the ship is abandoned for certain reasons. It is not commercially viable to retrieve the ship or cargo.
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
Documents Required for Claim Process
To make the claims under marine insurance and be able to reap the benefits, the correct documents should be submitted. In case of any lapse, there is a chance of the risk being rejected. Some of the documents are:
Duly filled in claim form
Original insurance certificate with the policy number Copy of Billing Lading
Survey report or missing certificate
Original invoice, packing list, shipping specification Copies of correspondence exchanged
Subrogation
Subrogation in insurance is used to describe a legal right the insurance company holds to legally pursue a third-party responsible for the damages caused to the insured. when an insurance company pays you the amount you claimed in a situation where the third party was responsible for the damage in question, you subrogate your rights to the insurance company. This means you give the insurance company the legal right to sue the person who caused the accident to recover the money paid to you for the damages.
contribution
The principle of contribution is implemented when multiple insurance policies are covering the same property or loss, the total payment for actual loss is
proportionally divided among all insurance companies.