Marine Insurance

Marine Insurance
Prof Mahesh Kumar

Amity Business School
profmaheshkumar@rediffmail.com
History
Historically marine insurance were of two
types:
a) Bottomary loan which was a transaction
protecting an owner from financial loss if his
ship was destroyed. Premiums were calculated
on the basis of intuition instead of
mathematical estimates.
b) Respondentia loans were comparable to
bottomary loans. The difference being a
merchant would take a loan using cargo as a
collateral. The money lender for a premium in
addition to the regular interest charged, agreed
to forgive the loan if the cargo was lost.
History
 The Indian Marine Insurance Act came into
operation on August 1, 1963 and is a
comprehensive document containing all
regulations of marine insurance business in India.
 Prior to this Act, the insurance business was
conducted on the basis of the principles of
General Contract Act and English Marine
Insurance Law.
 Marine insurance includes two types of insurance
i.e. Cargo insurance and hull insurance.
History
 The cargo insurance includes the goods in
transit from the place insured to the sea and
from sea to the exporter.
 The hull insurance is concerned with body, the
machinery and technical know-how, stores tools
etc of the ship.
 Marine Insurance covers the loss or damage of
ships, cargo, terminals and any transport or
property by which cargo is transferred, acquired
or held between the points of origin and final
destination.
 Marine Insurance has been made mandatory in
export-import business.
Advantage to Business
 Marine insurance also provides liquidity to the
exporter as he can discount his bills with local
banker without waiting for the bills being by
the overseas importer which is usually after
they receive the goods which may take
months in ocean transit.
Definition of Marine Insurance Business
 A contract of marine insurance is defined by the
Marine Insurance Act 1963 as an ‘agreement
whereby the insurer undertakes to indemnify the
assured, in the manner and to the extent thereby
agreed losses incidental to marine adventure. It
may cover loss or damage to vessels, cargo or
freight.’
 Sec 2 (C & F) of the Marine Insurance Act, 1963
defines marine insurance and includes the
movables exposed to maritime perils. Movables
mean movable tangible property, which includes
money, valuable securities and documents etc.
Types of Marine Insurance
There are four types / classes of marine insurance:
a) Hull Insurance: covers physical damage to the ship
or vessel. In addition it contains a collision liability
clause that covers the owner’s liability if the ship
collides with another vessel or damages its cargo.
b) Cargo Insurance: covers the shipper of goods if
the goods are damaged or lost. 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. The open cargo policy has no
expiration date and remains in force till it is
cancelled.
Types of Marine Insurance
c) Protection and Indemnity (P&I) insurance: is
usually written as a separate contract that
provides comprehensive liability insurance for
property damage or bodily injury to third
parties. P&I insurance protects the ship owner
for damage caused by ship to piers, docks and
harbor installations, damage to ship’s cargo,
illness or injury to the passenger or crew and
fines and penalties.
d) Freight Insurance: indemnifies the ship owner
from the loss of earnings if the goods are
damaged or lost and are not delivered.
Insurable Property
 Insurable property means any ship, goods or
other movables exposed to maritime perils.
 Insurable property must be stated in the policy
with reasonable certainty.
Marine Adventure
 There is a marine adventure, when-
1. Any insurable property is exposed to marine perils.
2. The earning of freight, passage money, commission,
profit or other pecuniary benefit or security for any
advances, loans or disbursements is endangered by
the exposure of insurable property to maritime
perils.
3. The owner of or other person interested in or
responsible for insurable property by reason of
maritime perils may insure any liability to the third
party.
Voyage
 Voyage is the journey that the vessel undertakes.
 The ship could carry on the voyage in the specified
route which is mentioned in the policy.
 Change of voyage is permitted only in a few
specified circumstances.
Maritime Perils / Perils of the Sea
 Maritime Perils are also called ‘Perils of the Sea.’
 It means the perils consequent on or incidental to
the navigation through the sea for example- fire,
war perils, rovers, thieves, captures, seizures,
jettisons, barratry and other perils.
 The term ‘Perils of the Sea’ refers only to fortuitous
accidents or casualties of the seas and does not
include the ordinary action of winds and waves.
Types of Risks/ Perils covered by the
Marine Insurance Policy
1) Sinking, stranding and grounding of ship/vessel/boat
or craft.
2) Collision or contact of vessels, ships, boats with
internal and external objects.
3) Discharge of cargo at a port of distress.
4) Average general sacrifice.
5) Volcanic eruption or lightning or fire or explosion.
6) Loss of goods or packages containing goods or
articles, dropping of packets or package during
loading or unloading while on board or off the broad.
7) Loss caused by delay, wrongful delivery, malicious damage.
8) War, sea pirates, other perils like cyclones, typhoons,
spirals.
9) Strikes, riots, lockout, civil commotions & terrorism.
10) Theft, pilferage, breakage & leakage.
11) Loss caused by heating due to the closure of ventilators to
prevent the entry of sea waters.
12) Loss caused by rats i.e. a hole made in the bottom of the
ship, through which sea water enters the ship and damages
the cargo.
 Marine insurance apart from indemnifying the assured
against the maritime perils also includes liability of the third
party incurred by the owner of the ship or other person
interested in the property assured on happening of the
maritime event.
 Thus marine insurance includes:
1) Insurance of vessels (hull) of any description. (Hull
insurance is concerned with body, the machinery &
technical know how, stores tools etc. It also includes
ships, mechanized boats etc and consignments
transported by rail and road.)
2) Insurance of cargo in vessels ( Cargo insurance
includes goods in transit from the place of insured
to the sea and from the sea to the exporter.
3) Freight paid or received by the assured.
4) Insurance of third party liability
4) Insurance of transactions which are incidental to

the marine adventure or marine transport or
transport of cargo from go down to the vessel.
5) Insurance also includes all perils and risks
incidental to money, documents, securities &
other valuable goods in the ship.
6) Other incidental activities concerned with building,
launching of ship or transport of stores concerned.
Summary
 Marine insurance is a contract:
• The contract is made to indemnify the assured for
the marine losses and other losses incidental to
marine adventure.
• The parties to the contract agree about the manner
and the extent of indemnification in the event of
loss.
• The subject matter of the agreement or the
contract of marine insurance includes: cargoes,
vessels of any description, freights and other
interest in relation to such vessels, cargoes.
Summary
• Property of whatever description can be assured
for any transit by land or water or by both.
• May exclude or include warehouse risks or similar
risks in addition or as incidental to transit.
• Any other risks customarily included among the
risks assured against marine insurance policies.
Marine Policy
 The document containing the contract of
insurance is known as the ‘Marine Policy’ or ‘Sea
Policy’.
 The clauses are framed in relation to risk covered,
risk excluded and other terms and conditions of
the insurance.
Contents of Marine Policy
1. Name of the insured.
2. Policy Number
3. Sum Assured
4. The subject matter insured and the perils covered
5. Place where claims were payable
6. Streamer (or) other conveyance.
7. Stamp duty (as per the provisions of the Indian Stamp Act 1879)
8. Voyage or Journey
9. Number or date of bill of lading or Registered Port or Air freight
receipt. (as the case may be)
10. Place of issue of policy and date.
11. Signature of authorized person signing on behalf of the insurers.
Essentials Elements or Principles of Marine
Insurance
1. Fundamentals of general contract
2. Insurable interest
3. Utmost Good Faith
4. Indemnity
5. Subrogation
6. Contribution
7. Warranties
8. Causa proxima
9. Assignment & Nomination of a policy
Features of A General Contract
 A marine policy must fulfill all the essentials of
a valid contract namely
1. Offer and Acceptance
2. Consideration
3. Capacity
4. Legal Purpose
Insurable Interest
 According to Marine Insurance Act 1963, ‘every person
has an insurable interest who is interested in a marine
adventure’. The following persons have insurable
interest in Marine Insurance.
1. Owner of the Ship
2. Owner of the Cargo
3. Creditor who has advanced money on a ship or cargo to
the extent of his interest in such ship or cargo
4. Mortgager
5. Mortgagee
6. Master and crew – for wages
7. Bottomry bond hold
8. Person who pays advance freight is recoverable on loss
Insurable Interest
9. Shipper and their Agents
10. Persons contingent interest such as the buyer,
though the goods may be at seller’s risk and
though he may have right to reject the goods,
but has paid.
11. Trustee
12. Bailee
13. Insurer- he can reinsure
14. Assignee of bill of lading
Utmost Good Faith
 The insured must disclose all those relevant
facts to the insurer which are likely to affect
his willingness to undertake the risk.
 If either party does not disclose full facts, the
other party can avoid the contract at any time.
Contract of Indemnity
 Under this contract, the underwriter agrees to
indemnify the insured against losses by sea
risk to the extent of the amount insured.
 The insured can recover only the actual loss
suffered and nothing more.
Principle of Subrogation
 According to this principle after meeting the
loss agreed, the insurer steps into the shoes of
the insured and becomes entitled to all rights
and remedies available to the insured against
the insured property or third persons.
Principle of Contribution/Double Insurance
 The doctrine of contribution applies to marine
insurance.
 If the subject has been insured with more than one
insurer, each insurer has to pay only the ratable
proportion of loss subject to the maximum loss.
 The principle supports the concept that the insured
cannot recover amounts on the same property for the
same peril from more than one insurer.
Thus, according to Sc 34, the pre requisites of double
insurance/contribution are:
a) There must be two or more policies.
b) The policies must relate to the same adventure and
interest or any part thereof.
c) The sums insured must exceed the indemnity allowed
by this Act
Warranties
 According to Marine Insurance Act, a warranty
means a stipulation or term, the breach of
which entitles the insurers to avoid the policy
altogether and this is so even though the
breach arises through circumstances beyond
the control of the warrantor.
 Warranties can be expressed (written) or
implied.
Express Warranties
 The expressly stated written warranties and
may be like
1. The ship is safe on a particular day
2. The ship & goods are neutral and continue to
be so
3. The ship will proceed to its destination without
any deviation
4. The ship will sail on or before a certain date
Implied Warranties
 There are certain warranties which are implied
in every contract of marine insurance unless
excluded expressly. These are:
1. Warranty of sea worthiness
2. Warranty of non deviation from path
3. Warranty as to the legality of the voyage
4. Proper documentation related to the ship
Implied Warranties
Warranty of Sea Worthiness
 The ship must be sound as regards her hull.
 The gear must be sufficient and must be fully
equipped, officered and manned
 Ship must not be overloaded
 If the voyage is to be performed in stages, the
ship must be sea worthy at the
commencement of each stage.
 Sea worthiness also includes cargo worthiness
i.e. must be fit to carry the cargo
Implied Warranties
Warranty of Non Deviation
 In the case of voyage policy, where, a voyage
is contemplated between two given ports,
there is an implied warranty of non deviation
on the part of the insured except in cases
where it is excusable by the law.
 The insurer is discharged from the liability as
from the time of deviation.
 The intention to deviate is immaterial.
Implied Warranties
Warranty of Non Deviation
 What is a Deviation?
1. When the course of the voyage specially designated in
the policy, is departed from or
2. Where the course of the voyage was not specially
designated by the policy, but the usual & customary
course is departed from or
3. Where several ports of discharge were specified by the
policy, but the ship did not process to them in the order
designated by the policy or
4. Where the policy did not specify the ports of discharge
but the ship (which should have) did not proceed to them
in geographical order.
Implied Warranties
Warranty of Non Deviation- Deviations that can be excused
 Destination or delay is excused (justified) under the following
circumstances when
1. It is authorized by the contract (or)
2. It is caused by circumstances beyond the control of the master
and his employer (or)
3. It is caused by the barratrously conduct of the master or crew if
barratry were one of the perils insured against (or)
4. It is necessary in order to comply with an express or implied
warranty (or)
5. It is necessary to arrange medical or surgical aid for any person
on board the ship (or)
6. It is very necessary for the safety of the ship and subject
matter insured (or)
7. It is necessary to avoid being captured or destroyed by the
enemy of the Government.
Implied Warranties
Legality of Voyage
 This is an implied warranty on the part of the
insured that the adventure insures is a lawful
one, and that, so far as the assured can
control the matter, the adventure shall be
carried out in a lawful manner.
 This warranty implies that the ship will not be
used for undertaking any illegal voyage e.g.
smuggling, trading with enemy etc.
Implied Warranties
Proper Documentation of the Ship
 Whenever there is an express warranty that
the ship shall be neutral (especially in the case
of war time adventure) there is an implied
warranty that the ship carries all the papers
necessary to prove the neutrality.
Proximate Cause
 According to the Marine Insurance Act, the
insurer is liable for any loss proximately
caused by a peril insured against.
 Insurer is not liable for any loss which is not
proximately caused by a peril insured against.
Assignment Of Policy
 A marine insurance policy is assignable unless
it contains terms expressly prohibiting
assignment.
 It may be assigned either before or after loss.
 A marine policy may be assigned by
endorsement thereon or in any other
customary manner.
Reinsurance
 According to Marine Insurance Act, the insurer
under a contract of marine insurance has an
insurable interest in his risk and may reinsure
the subject matter fully or partly as per his
requirement. This is called Reinsurance or
Insurance of Insurance.
 In reinsurance, unless the policy provides
otherwise, the original assured has no right or
interest in respect of such reinsurance.
Calculation of Rates of Premium
Calculation of rates of premium depends on:
1. Description of goods: Full description of the
goods to be insured must be given.
• The nature of commodity is very important for rating
and underwriting.
• Different types of commodities are subject to
different types of risk.
Ex: Commodities like cement sugar, etc are easily
damaged by sea water; cotton or some chemicals
may easily catch fire; liquids can get leaked and
crockery and glassware are susceptible to breakage.
2. Method and Manner of Packaging: The
possibility of loss or damage depends very
much on the type of packing.
 Generally goods are required to be packed in
commodity friendly bales, bags, bundles,
crates, drums, barrels, loose packing, carton
etc.
3. Voyage and Mode of Transit: The name of the place
from where, transit will commence and the name of
the place where it will terminate has to be stated.
 Mode of conveyance to be used in transporting
goods by rail, lorry or by air etc. should be given.
 The name of the vessel is to be given in case if
overseas travel.
 Postal receipt number and date thereof is required in
case of goods sent by registered post.
 If the voyage is to involve trans-shipment, it must
be clearly stated.
4. Cover Required: The risk against which cover requires should be
fully described.
5. Name of the vessel: The correct name of the vessel is necessary,
to know the details of the age, tonnage classification (tanker,
bulk carrier, container ships, fishing fleet, war vessels)
ownership etc.
• Shipments through old vessels or smaller vessels will lead to charge
of a higher rate of premium.
• Shipments made by first class vessels attract normal rates of
premiums and the vessels are approved by authorities like the Indian
Registrar of Shipping.
• If the vessel used for the voyage is tramp vessel i.e. a vessel which
does not follow a fixed schedule and carries cargoes whenever
available. The vessels have to be approved by GIC and if not
approved, then will attract a very high premium.
 While there is no tariff rate on premium and insurers can
charge any rate depending upon the nature of goods , the
distance, the mode of trans-shipment, type of package, the
voyage route and the past claims experience. Extended
covers like SRCC ( Strikes, Riots and Civil Commotion) and
war risks are governed by special regulations and the
premium collected is credited to the Central Government.
 Shipping vessels are listed according to their age and
draught weight. Full details of every shipping vessel built
anywhere in the world is available in ‘Lloyds Register’ (issued
by Lloyds of London). Minimum standards are fixed. Any
vessel falling short of these standards will attract loading
premium.
 Premiums can be paid on monthly, quarterly, half yearly or
yearly basis.
Clauses Incorporated In A Marine Policy
The following are the important clauses:
a. Assignment Clause: This clause makes it clear that the
marine policy is assignable unless it contains terms
expressly prohibiting assignment.
 Marine policy may be assigned either before or after the
loss.
 Assignment my be through endorsement or in other
customary manner.
 Where the assured has parted with or lost his interest in
the subject matter insured, any subsequent assignment
is inoperative.
 The assignee who has acquired the beneficial interest in
the policy is entitled to see thereon in his own name.
d. Transit Clause or Warehouse to Warehouse Clause:
 Transit clause provides with respect to goods, for the
risk to attach ‘from the loading thereof aboard the said
ship’ and for the insurance to continue until the goods
are discharged and safely landed at the port of
discharge.
 Warehouse to Warehouse clause helps to provide
protection for the entire period of transit. The period of
cover extends from the time the goods leave the
exporter’s warehouse until they are delivered to the
importer warehouse at the named destination or to any
other warehouse whether prior to or at the named
destination, which the assured elect to use either for
storage or for allocation or distribution or on expiry of
60 days after discharge from the overseas vessel at the
final port of discharge whichever occurs first.
e. Change of Voyage Clause (or) Deviation
Clause
 According to Marine Insurance Act, where
there is a change in voyage, unless the policy
otherwise provides, the insurer is discharged
from liability as from the time of the change.
 Through this clause, the policy does provide
otherwise (that means permits deviation) and
the event is held covered.
e. Touch and Stay Clause
 The liberty to ‘touch and stay’ at any port or
place whatsoever does not authorize the ship
to depart from the course of her voyage from
the port of departure to the port of
destination.
f. Inchmaree Clause or Negligence Clause
 This clause extend the underwriter liability to cover risks of a
kind, which are not included within the ordinary meaning of
maritime perils.
 It provides for the insurance to cover loss or damage to hull
or machinery directly caused by:
i. Accident in loading or shifting cargo or fuel explosion on ship
board and or elsewhere
ii. Bursting of boilers
iii. Negligence of master, officers
iv. Negligence of repairs provided such repairs are not assured
hereunder
v. Contact with aircraft
vi. Contact with any land conveyance, dock or harbor
equipments or installations
vii. Earthquake, volcanic eruption or lightning
g. Running Down Clause:
 This clause provides a supplementary contract
whereby the assured is given some protection
against third party damages.
 It provides that if the insured vessel collide
with another vessel, the underwriter agree to
pay three quarters of the amount of damage
to which the assured becomes liable.
h. Sue and Labor Clause:
 This clause provides that liability shall not be
exceeding the proportion that the amount
insured bears to the value of the vessels.
 In absence of this provision, underwriters
would be liable for the full amount of sue and
labor charges even when there was under
insurance.
i. Reinsurance Clause:
 There are various reasons why an underwriter
may deem it prudent to reinsure part or all of
a risk for which he has accepted liability.
• E.g. He may find that his commitment on any one
vessel or in any locality have become too
burdensome.
• Declarations under open covers or floating policies
and acceptances by his agents in other markets give
him an accumulated liability considerably in excess
of his usual retention
• He may have accepted a line on ‘all risks’ terms and
then desire to reinsure in respect to total loss only.
i. Memorandum Clause:
 This clause is meant to provide a minimum limit to the
underwriter’s liability regarding claims for particular
average by exempting him from such claims.
j) Continuation Clause:
 This clause refers that the vessel shall continue to be
covered even after the completion of voyage under the
policy at a pro rata premium to her port of destination.
k) Perils of the Sea Clause:
 The term ‘perils of the sea’ refers to fortuitous accidents
and casualties of the sea. It does not include ordinary
action of the winds and waves.
l. Warrior Clause:
 This is supplementary to ‘ Sue and Labor’ clause.
 In this clause, either party to the contract may take such
steps, or incur such expenses, as are contemplated under
the sue and labor clause, to minimize a loss without
prejudice in the light of the assured on the one hand and
the underwriter on the other
m) All Risk Clause:
 This clause provides that the insurance is against all risks
of loss or damage to the subject matter insures and the
claims are payable irrespective of percentage of loss.
n. General Average Clause:
 The general average clause refer to the losses
that must be partly borne by someone other
than the owner of the goods that were
damaged or lost.
 General average losses may be total or partial,
whereas particular average losses, by
definition are always partial.
n. General Average Clause:
Ex: Suppose that a certain cargo of lumber wrapped in a
large bundle is stored on deck. To lighten the ship during
heavy storm that is threatening the safety of the voyage,
the captain orders the limber worth Rs.50000 to be
jettisoned. The action of the captain is successful in saving
the ship and all other interests. Such a sacrifice is termed
as general average, and the interests that were saved
would be required to share a pro-rata part of the loss. Thus
is the ship and freight interests were valued at Rs.1000000
and other cargo interests at Rs.950000, the ship owner
would pay one half (100/200) of the value of the lumber.
The other cargo interests would share 95/200 of the loss
and the owner of the lumber would bear 5/200 of the loss
 All marine policies provide coverage for general average
claims that may be made against the insured.
o. Foreign General Average Clause:
 This clause means that the arrangement in case of General
Average Claim which may arise under the policy, the average
settlement made in foreign country will be adopted as the
basis for settlement.
p. Free of Capture and Seizure (FCS):
 This clause is generally inserted in times of war.
 It means that insurer/ underwriter will not be liable for loss or
claim arising from seizure of ship as a price of war.
 In times of war, this clause is inserted unless the insured pays
the underwriters additional premium for war risks.
 In ocean marine policy, losses from pirates, assailing thieves
or overtly dishonest actions by the ship’s master or crew
(barratry) are considered burglary and robbery protection on
land and are not losses from war. Typically pilferage is not
covered.
q. Free of Particular Average Clause (FPA):
 This clause restricts the liability of the
insurer/underwriter.
 Insurer is liable only for total loss and not for particular
average or partial loss
 Particular average means partial loss to an interest that
must be borne entirely by that interest.
 The free-of-particular average clause provides that no
partial loss will be paid to single cargo interest unless
the loss is caused by certain perils such as stranding,
sinking, burning or collision.
b. Lost or Not Loss Clause:
c. At or From Clause
Types of Marine Insurance Policies
1. Bottomry Bond
 It is a bond representing loan raised by the
master of the ship so as to meet certain
urgent expenses like repairing a ship or for
security of ship or cargo.
 It is repayable after a certain agreed number
of days after the arrival of the ship as specified
in the bond.
 If the vessel is lost before the arrival at
destination, the lender losses his money.
2. Respondentia Bond:
 Like Bottomry Bond, Respondentia Bond also represents
a monetary loan borrowed by the master of a ship to
meet certain urgent expenses.
 The loan is raised on the security of CARGO ONLY.
 The loan is to be repaid within a certain period after the
arrival of the cargo at the destination as specified in the
Respondentia Bond.
 If the cargo is lost on its way, the lender losses his
money.
 Marine policies are known by different names
according to their manner of execution and the
nature of risks covered.
 Following are the various kinds of marine
insurance policies as contained in the Marine
Insurance Act, 1963.
1. Voyage Policy: As the name suggests this
policy covers a voyage.
 This is a policy in which the limits of the risk are
determined by place of particular voyage e.g.
Chennai to Singapore , Chennai to London
 Such policies are always used for goods insurance,
sometimes for freight insurance but only rarely
nowadays for hull insurance.
2. Time Policy: This policy is designed to give
cover for some specified period of time say for
example noon of 1st January 2009 to noon of 1st
January 2012
 Time policies are usual in case of hull insurance.
2. Voyage & Time Policy or Mixed Policy: It is a
combination of voyage and time policy.
 It is a policy which covers the risk during a particular
voyage for a specified period. Example A ship may
be insured for voyages between Chennai to London
for a period of one year
4. Valued Policy: This policy specifies agreed value of the
subject matter insured, which is not necessarily the
actual value. This agreed value is also known as insured
value.
 Once agreed these values cannot be changed and
remains binding on the parties.
5. Unvalued Policy/ Open Policy: In case of unvalued policy,
the value of the subject matter insured is not specified at
the time of effecting insurance.
 It is taken for a specified amount and the insurable value is
ascertained at the time of loss.
 The insurer is liable to pay only up to actual loss incurred
to the policy amount.
6. Floating Policy: A floating policy describes the insurance in
general terms, leaving the name of the ship or ships to be
defined by subsequent declarations.
 The declaration may be made by endorsement on the policy or
in another customary manner.
 Declaration must be made in the order of shipment unless the
policy provides otherwise.
 It must comprise all the consignments within the terms of the
policy and the values must be stated honestly.
 Errors and omissions however, may be rectified even after the
loss has occurred, if made in good faith.
 When the total amount declared exhausts for which the policy
has been issued, it is said to be ‘run off’ or ‘fully declared’.
 The assured may then arrange for a new policy to be issued to
succeed the one about to lapse, otherwise the cover
terminates when the policy is fully declared.
7. Wagering Policy/ PPI Policy: This policy is
issued without there being any insurable
interest or policy bearing evidence that the
insured is willing to dispense with any proof of
interest
 If policy contains such words as ‘Policy Proof of
Interest’ (PPI) or ‘Interest or No Interest’ it is
a Wagering or Honour Policy.
 Under Sc 4 of the Marine Insurance Act, such
policies are void in Law but such policies
continue to be common.
8. Construction or Builder Risk Policy: This is designed to
cover risks incidental to the building of a vessel, usually
giving cover from the time of laying the keel until the
completion of trials and handing over to the owners.
 In the case of very large vessel, the period may extend
over several years.
9. Blanket/ Open Cover Policy: In order to arrange their
marine insurance in advance and to be assured to be
covered at all times, and also to avoid the effects of
possible rapidly fluctuating rates, it is practice of regular
importers and exporters to avail ‘Blanket Insurance’.
 An open cover policy is an agreement between the assured
and his underwriter under which the former agrees to
declare and the latter to accept, all shipments coming
within the scope of the open general cover during some
stipulated period of time.
10. Duty Policy : In case of CIF contracts, the
exporter would have arranged for insurance
only up to CIF value. Customs duty payable if
any is the responsibility of the importer and
they can separately obtain custom duty policy
on ‘standalone basis’.
11. Increased Value Policy: If goods imported are
damaged in transit and such goods can be
procured locally at prices higher than the CIF+
Customs duty, the increase value policy covers
such difference in values.
Variants: Marine Insurance
Products
12. Marine Delays: Any loss or damage to the
equipment during transit which leads to the delay
in completion of the project , commencement of
production and thereby loss in profit is covered
under this policy and is also known as
‘Consequential loss due to marine delays’ or
simply ‘Delay Start Up’.
13. Marine Cum Erection Policy: In standard marine
cargo policy, the cover ceases after the goods are
delivered at the site of erection. If any damage
attributable to transit risk was found at the time
of erection, then marine policy and erection policy
bear 50% each of the cost of damage.
14. Port Risk Policy: This is to cover a ship or
cargo during a period in port against the risks
peculiar to a port as distinguished from voyage
risks.
Marine Losses
 According to Marine Insurance Act, unless the policy
provides otherwise,
a. The insurer is liable for any loss proximately caused by
a peril insured against
b. The insurer is not liable for any loss attributable to the
willful misconduct of the assured but unless the policy
otherwise provides, he is liable for any loss proximately
caused by a peril insured against even though the loss
would not have happened but for the misconduct or
negligence of the Master or Crew of the Ship.
c. Unless the policy otherwise provides, the insurer is not
liable for ordinary wear and tear, ordinary leakage and
breakage, inherent vice or nature of subject matter
insured or for any loss proximately caused by rat or
vermin or any injury to machinery not caused by
maritime perils.
Types of Marine Losses
Marine Losses
Total Loss Partial Loss
Constructive Total Particular General Average

Actual Loss
Loss Average Loss Loss
 It is said that actual total loss has arisen :
1. When the subject matter insured is destroyed or is so
damaged that it ceases to be a thing or a kind insured.
2. When the assured is irretrievably deprived of the
subject matter.
3. When the ship concerned in the adventure is missing,
and after the lapse of a reasonable time period, still no
news of it is received.
 In the case of Actual Total Loss, the insurer has to pay
either the insured amount or the actual loss whichever
is less but the cause of the loss must be one of the
perils insured against.
 Constructive total loss is said to have occurred :
1. When the assured is deprived of the possession of ship or
goods by a peril insured against and it is unlikely that he can
recover the ship or goods as the case may be or the cost of
recovering the ship or goods, as the case may be, would
exceed their value when recovered
2. In the case of damage of goods, where cost of repairing the
damage and forwarding the goods to their destination would
exceed their value.
3. In case of damage of the ship, where it is so damaged by the
peril insured against that the cost of repairing the damage
would exceed the value of the ship.
 Effect of Constructive Total Loss: When there is a constructive
total loss, the assured may either treat the loss as a particular
loss or abandon the subject matter insured to the insurer and
treat the loss as if it were an Actual Total Loss.
Notice of Abandonment :
 It is a notice by the assured to the insurer that he abandons
all interests in the subject matter of insurer unconditionally to
the insurer. As per the Sc 62, the rules regarding
abandonment are:
1. A notice of abandonment should be given by the insured to
the insurer. If he fails to do so, the loss can only be treated as
a Partial Loss.
2. The insurer may waive the Notice Of Abandonment.
3. The notice of abandonment must be unconditional and can be
done by expression, writing or both.
4. Notice of Abandonment must be given written within a
reasonable time after the receipt of reliable information of the
loss. However in case of doubt, assured is entitled to a
reasonable time to make inquiry and then to notify.
5. When the notice of abandonment is properly given, the
rights of the assured are not prejudiced by the fact that
the insurer refuses to accept the abandonment.
6. The acceptance of abandonment may be either express
or implied from the conduct of the insurer. The mere
silence of the insurer after the notice does not amount
to an acceptance.
7. Once the notice of abandonment is accepted, the
abandonment is irrevocable. The acceptance of the
notice conclusively admits liability for the loss.
Effect of Abandonment: Whenever there is a valid
abandonment, the insured is entitled to take over the
interest of the assured in whatever may remain in the
subject matter insured, and all proprietary rights
incidental thereto.
Partial Loss
Any loss other than total loss is Partial Loss
and may be classified into:
a) Particular Average Loss
b) General Average Loss
Particular Average Loss
 When the subject matter is partially lost or
damaged by a peril insured against, it is called
Particular Average Loss.
 A Particular Average Loss must fulfill the
following conditions:
1. Only a particular subject matter is lost or
damaged.
2. The loss should be accidental.
3. It should be caused by peril insured against.
4. The damage should not have suffered for a
general benefit.
General Average Loss
 Examples of General Average Loss are:
a) Loss caused to cargo due to fire.
b) Money paid to pirates for the purpose of
saving the ship and cargo.
c) Expenses incurred due to outside help taken in
making the vessel reach its destination.
 The liability of General Average extends to the
owner of the ship, the cargo and the freight.
York Antwerp Rules
 As General Average causes many difficulties particularly
when adjustments has to be made in foreign courts, an
international code has been compiled known as York-
Antwerp Rules.
 The association for reform and codification of the law of
nature meet at Antwerp in 1877, where code of rules
were adapted and known as ‘York Antwerp Rules’. The
rules were further revised in 1890 and 1924.
 These rules deal only with certain specific method
relating to General Average Loss and further provided
that in case of matters not included in the rules, that
should be dealt with according to the law and practice
of the court of destination.
Difference Between General Average
Loss and Particular Average Loss
General Average Loss Particular Average Loss
1. It is incurred for the 1. It is in connection with
benefits of all parties. any of the parties.
2. It is always done 2. It is accidental and
voluntarily and is fortuitous.
reasonably incurred.
3. General Average is 3. It is paid by the insurers.
shared by all those who
are benefited by the
Average Act.
4. It includes expenditure 4. It results from an
and sacrifice along with accident or normal perils
loss. of the sea.
Claim Documents
 Claim under the marine policy have to be supported by
certain documents, which vary according to the type of
circumstances of the claim and mode of carriage.
 Typical documents required for Particular Average claim
are:
a) Original Policy: Certificate of insurance.
b) Bill of lading: Evidence that the goods were actually
shipped
c) Invoice: Evidence for term of sale.
d) Survey Report: Show the cause and extent of the loss.
e) Debit Note: Claim bill
f) Copy of Protest: Protest on arrival at destination before
public notary.
g) Letter of Subrogation: Legal documents which transfer
the right of claimant against third party to the insurer.

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Marine Insurance

Prof Mahesh Kumar

4) Insurance of transactions which are incidental to

Total Loss Partial Loss

Constructive Total Particular General Average

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