What is marine insurance?

The 1963 Act defines marine insurance as an agreement whereby the insurer undertakes to indemnify the assured in a manner and to the extent as pre-determined between the parties against the losses incidental to marine adventure. So, any loss or damage of ships, cargo, terminals, and any transport or cargo whose property is transferred, acquired, or held between the points of origin and final destination. The Act is broadly outlined along the lines of the Maritime Act of UK, 1906.

Marine insurance is for vessels (hull and machinery) as well as cargo. Cargo insurance is a branch of marine insurance that also includes onshore/offshore exposed property (container terminals, ports, oil platforms, pipelines) hull, marine casualty, and marine liability.

What are the laws governing marine insurance?

1. Marine Insurance Act, 1963 in India
2. Various clauses formulated by the Institute of London underwriters (ILU)
3. International Commercial Terms (INCOTERMS) developed by International Chambers of Commerce, Paris.

What does marine adventure include?

Marine adventure is defined in Section 2(d) to mean any adventure where-

1. any insurable property is exposed to maritime perils;
2. the earnings or acquisition of any freight, passage money, commission, profit or other pecuniary benefits, or the security for any advances, loans, or disbursements is endangered by the exposure of the insurable property to maritime perils;
3. any liability to a third party may be incurred by the owner of, or another person interested in or responsible for, insurable property by reason of maritime perils.

What do maritime perils mean?

Section 2(e) defines maritime perils as a peril that is consequent or incidental to the navigation of the sea which includes perils of the seas, fire, war perils, pirates, rovers, thieves, captures, seizures, restraints, and detainments of princes and peoples jettisons, barratry and any other perils which are either of the like-kind or may be designated by the policy.

What is maritime insurance for?

• Section 4 of the Act provides that contracts for marine insurance by express terms or by way of the usage of trade extend to protect the assured against losses on inland waters or on any land risk which may be incidental to any sea voyage. The Act can also apply where the ship in course of building or launching of a ship or any adventure of the kind of marine adventure is covered by a policy in the form of a marine policy. Further, Section 5 provides that every lawful maritime adventure under the Act may be the subject of a contract of maritime insurance.
• A defeasible interest is insurable. It is an interest that may terminate during the currency of a voyage or transit for reasons other than maritime perils.
• A contingent interest is insurable. A contingent interest can be in the nature of a carrier/bailee who may become liable to the bailor for the loss of goods by the perils insured against.

Who can get insured?

A person with insurable interest can get assured.

What is insurable interest?

• Section 7 of the Act defines insurable interest as every person who has an insurable interest is one who is interested in a maritime adventure. Such a person is interested in the adventure by way of legal or equitable relations. He is interested in the safe arrival of insurable property and may be prejudiced by its loss. It is necessary that such a person has an interest in the subject matter at the time of the loss though he may not be interested when the insurance is effected as per Section 8 of the Act.
• A partial interest of any nature is insurable.
• Bottomry- the lender of money on bottomry or respondentia has an insurable interest in respect of the loan.
• Master’s and seamen’s wages- the master or any member of the crew of a ship has an insurable interest in respect of his wages.
• In the case of advance freight, the person who advances the freight has an insurable interest, in so far as such freight is not repayable in case of loss.
• Where the subject matter is mortgaged then the mortgagor has an insurable interest.

In the case of Contship Container Lines Ltd. v. DK Lall & Ors., the insurance company had contended that since the transaction between the exporter and the purchaser in Spain was on FOB (free on board) basis the exporter had no insurable interest in the goods once the same was delivered to the carrier. It’s because in a FOB transaction the property in goods stands transferred to the purchaser as soon as goods are entrusted to the carrier or at least when the same cross the customs barrier for shipment, i.e. all risks relating to such goods are that of the purchaser alone. So the question before the Apex Court was whether a seller of goods on FOB basis be said to be ‘interested in marine adventure’? However, the Court didn’t delve into the question and instead noted that the Claimant had wrongly mentioned that it was on CIF (cost insurance and freight basis) while in reality it was sent on FOB basis and hence it was considered as a breach of good faith (section 19 of the Act) and Court upheld the rejection of claim.

What are the types of marine insurance?

1. It can provide coverage on ‘voyage basis’ or ‘time basis’. Voyage basis is when it covers transit between two ports and time basis is when it covers a period of time of voyage. A time policy should not be more than 1 year.
2. Insurance can be-
   1. Hull insurance
   2. Cargo insurance
   3. Freight insurance
   4. Liability insurance

What are the guiding principles of marine insurance?

1. Section 19 of the Act provides that insurance is uberrimae fidei, i.e., made in utmost good faith and if the utmost good faith is not observed by either party then the contract may be avoided by the other party. In United India Insurance Company Ltd. V. M.K.J. Corporation (1996 (6) SCC 428)the Apex Court declared good faith as the very essence of a contract of insurance.
2. Before the conclusion of the contract, the assured must disclose to the insurer every material circumstance which in the ordinary course of business is in his knowledge. In case of failure to disclose such material circumstances then the insurer may avoid the contract.
3. What is material circumstance? It is a question of fact. Every circumstance is material which would influence the judgment of a prudent insurer in fixing the premium or determining whether he will take the risk. Circumstance also includes any communication made or received by the assured.
4. In absence of an inquiry the assured is not supposed to disclose the following things to insurer
   1. Any circumstance which diminishes the risk.
   2. Any circumstance which is known or presumed to be known to the insurer.
   3. Any circumstance as to which information is waived by the insurer;
   4. Any circumstance which it is superfluous to disclose by reason of any express or implied warranty.
5. Every representation made by the assured or his agent to insurer during the negotiation for the contract and before the contract is concluded must be true or the insurer may avoid the contract. A representation may be withdrawn or corrected before the contract is concluded.

What is the measure of insurable value?

1. Subject to any express provision or valuation in the policy, the following policies are deemed to include value as follows:
2. In insurance on ship, the insurable value is the value, at the commencement of the risk, of the ship, including her outfit, provisions, and stores for the officers and crew, money advanced for seamen’s wages, and other disbursements (if any) incurred to make the ship fit for the voyage or adventure contemplated by the policy, plus the charges of insurance upon the whole.
3. insurable value, in the case of a steamship, includes also the machinery, boilers, and coals and engine stores if owned by the assured; in the case of a ship driven by power other than steam includes also the machinery and fuels and engine stores, if owned by the assured; and in the case of a ship engaged in a special trade, includes also the ordinary fittings requisite for that trade.
4. In insurance on freight, whether paid in advance or otherwise, the insurable value is the gross amount of the freight at the risk of the assured, plus the charges of insurance.
5. In insurance on goods or merchandise, the insurable value is the prime cost of the property insured, plus the expenses of and incidental to shipping and the charges of insurance upon the whole
6. In insurance on any other subject-matter, the insurable value is the amount at the risk of the assured when the policy attaches, plus the charges of insurance.

When is a marine insurance contract concluded?

Section 23 of the Act provides that contract is deemed to be concluded when the proposal of the assured is accepted by the insurer whether the policy be then issued or not. To show when the proposal was accepted reference may be made to the slip, covering note or other customary memorandum of the contract, although it be unstamped.

What is double insurance and is it allowed under the Act?

Section 34 of the Act defines double insurance when the assured gets two or more policies on the same adventure and interest or any part thereof and the sums insured exceed the indemnity allowed by the Act, then the assured is said to be over insured by double insurance.

In such a case the assured may claim payment from the insurers in any order as he deems fit however he is not entitled to receive any sum in excess of the indemnity allowed by this Act. He should also inform the other insurer of the money already received from the other policy. In case the assured has received an excess amount then he must hold it in trust for the insurers.

Further, Section 80 of the Act provides for right to contribution- where if the assured is over insured then each insurer is bound to contribute ratably to the loss in proportion to the amount for which he is liable under his contract. If an insurer pays more than he is liable to pay, then he can initiate a suit for contribution against the other insurers. (M/s Jalpac India Ltd. v. United India Insurance Company Limited).

Conclusion

It is important for the party undertaking business in marine shipping to have marine insurance to safeguard interest against any loss or damage of ships, cargo, terminals and any transport or cargo in which property is transferred, acquired or held between the points of origin and final destination. However, it is also crucial to understand the implication of the provisions in the Marine Insurance Act which is applicable beyond the terms of the contract between the insurer and assured so that the party at the time of claim is not rendered remedy-less. A series of articles on this topic will give a holistic view to the readers of the implications.