ASSIGNMENT 1

RISK MANAGEMENT&INSURANCE SERVICES

Topic: Marine Insurance

SUBMITTED BY

AMULIYA VS

MBA-S4

ROLL NO. : 5
Marine Insurance

INTRODUCTION

This is the oldest branch of Insurance and is closely linked to the practice of Bottomry
which has been referred to in the ancient records of Babylonians and the code of Hammurabi
way back in B.C.2250. Manufacturers of goods advanced their material to traders who gave them
receipts for the materials and a rate of interest was agreed upon. If the trader was robbed during
the journey, he would be freed from the debt but if he came back, he would pay both the value of
the materials and the interest. Marine insurance is an agreement (contract) by which the
insurance company (also known as underwriter) agrees to indemnify the owner of a ship or cargo
against risks, which are incidental to marine adventures. It also includes insurance of the risk of
loss of freight due on the cargo. Marine insurance that covers the risk of loss of cargo by storm
known as cargo insurance. The owner of the ship may insure it against loss on account of perils
of the sea. When the ship is the subject matter of insurance, it is known as hull insurance.
Further, where freight is payable by the owner of cargo on safe delivery at the port of
destination, the shipping company may insure the risk of loss of freight if the cargo is damaged
or lost. Such a marine insurance is known as freight insurance. All marine insurance contracts
are contracts of indemnity.

Marine insurancecovers the loss or damage of ships, cargo, terminals, and any transport or cargo
by which property is transferred, acquired, or held between the points of origin and final
destination. Cargo insurance—discussed here—is a sub-branch of marine insurance, though
Marine also includes Onshore and Offshore exposed property (container terminals, ports,oil
platforms, pipelines); Hull; Marine Casualty; and Marine Liability.Maritime insurance was the
earliest well-developed kind ofinsurance, with origins in the Greek and Roman maritime loan.
Separate marine insurance contracts were developed in Genoa and other Italian cities in the
fourteenth century and spread to northern Europe. Premiums varied with intuitive estimates of
the variable risk from seasons and pirates.
Marine Insurance -MEANING

Marine insurance is concerned with overseas trade. International trade involves transportation of
goods from one country to another country by ships. There are many dangers during the
transshipment. The persons who are importing the goods will like to ensure the safe arrival of
their goods. The shipping company wants the safety of the ship. So marine insurance insures the
coverage of all types of risks which occur during the transit. Marine insurance may be called a
contract whereby the insurer undertakes to indemnify the insured in a manner and to the extent
thereby agreed upon against marine losses.
Marine insurance has two branches:

1. Ocean Marine Insurance.

2. Inland Marine Insurance.

Ocean marine insurance covers the perils of the sea whereas inland marine insurance is related to
the inland risks on the land.

Marine insurance is one of the oldest forms of insurance. It has developed with the expansion of
trade. It was started during the middle ages in Italy and then in England. The sending of goods by
the sea involves many perils; so it was necessary to get the goods insured. In modern times
marine insurance business is well organized and is carried on scientific lines.

Why Marine Insurance?

Any insurance is designed to manage risks in the event of unfortunate incidents like accidents,
damage to the property and environment or loss of life. When it comes to Ships, the stakes are
higher as all factors are involved in the operation, i.e. risk of losing valuable cargo or expansive
ships, the risk of damage to the environment due to oil pollution and risk of losing precious lives
of seafarers due to accidents.

Principles of Marine Insurance

The principles of all types of insurance are generally the same and they have been discussed
earlier, in detail. Some of the principles related to marine insurance are given as under:
 I. Utmost good faith:
The marine contract is based on utmost good faith on the part of the parties. The burden of this
principle is more on the insured than on the underwriter. The insured should give full
information about the subject to the insured. He should not withhold any information. If a party
does act in good faith, the other party is at liberty to cancel the contract.
II. Insurable Interest:
Insurable interest means that the insured should have interest in the subject when it is to be
insured. He should be benefited by the safe arrival of commodities and he should be prejudiced
by loss or damage of goods. The insured may not have an insurable interest at the time of
acquiring a marine insurance policy, but he should have a reasonable, expectation of acquiring
such interest. The insured must have insurable interest at the time of loss or damage, otherwise
he will not be able to claim compensation.
III. Indemnity:
This principle means that the insured will be compensated only to the extent of loss suffered. He
will not be allowed to earn profit from marine insurance. The underwriter provides to
compensate the insured in cash and not to replace the cargo or the ship. The money value of the
subject-matter is decided at the time of taking up the policy. Sometimes the value is calculated at
the time of loss also.
IV. Cause Proxima:
This is a Latin word which means the nearest or proximate cause. It helps is deciding the actual
cause of loss when a number of causes have contributed to the loss. The immediate cause of loss
should be determined to fix the responsibility of the insurer. The remote cause for a loss is not
important in determining the liability. If the proximate cause is insured against, the insurer will
indemnify the loss.
Types of marine insurance

The types of marine insurance are described below-

1. Hull insurance: Hull insurance is an insurance contract which subject matter is based on
vessels. Insurance of vessel and its equipment’s are included under hull insurance. There are a
number of classifications of vessels such as ocean steamers, sailing vessels, builders, risks, fleet
policies etc.
2. Cargo insurance: when the goods or cargo transported from the port of departure to the port
of destination, from the subject matter of insurance, it is called as cargo insurance. These are
used for the insurance of goods and are incorporated in cargo policies. The clauses of this policy
describe the nature, extent and define the comprehensive condition and restrictions. Terms and
conditions of cargo insurance are specially incorporated in the policies. Generally exporters of
the goods take this cargo insurance policy.

3. Freight insurance: The function of this type of freight insurance is quite clear: It covers your
commercial shipment or personal property in case of accidents when transferred by vessel, truck,
train or airplane and accidents can and do take place. During the nationwide transport or
international shipping your cargo is apparent to possible damages & losses: piracy, tough
weather, acts of God or other unexpected situations. It was designed to safeguard the cargo
owner's fiscal interests while the cargo is in transit from the seller to the buyer. It is a very vital,
but often left out aspect of the international transaction or a simple household goods move. It
seems that people admittedly understand the grounds for insuring their personal residency,
automobile and other valuables but tend to consider unnecessary when it comes to insuring cargo
shipment. Freight insurance offers and provides protection to merchant vessels‟ corporations
which stand a chance of losing money in the form of freight in case the cargo is lost due to the
ship meeting with an accident. This type of marine insurance solves the problem of companies
losing money because of a few unprecedented events and accidents occurring.

4. Marine liability insurance: Liability insurance is a part of the general insurance system of
risk financing to protect the purchaser (the "insured") from the risks of liabilities imposed by
lawsuits and similar claims. It protects the insured in the event he or she is sued for claims that
come within the coverage of the insurance policy. Originally, individuals or companies that
faced a common peril formed a group and created a self-help fund out of which to pay
compensation should any member incur loss (in other words, a mutual insurance arrangement).
The modern system relies on dedicated carriers, usually for-profit; to offer protection against
specified perils in consideration of a premium. Liability insurance is designed to offer specific
protection against third party insurance claims, i.e., payment is not typically made to the insured,
but rather to someone suffering loss who is not a party to the insurance contract. In general,
damage caused intentionally as well as contractual liability are not covered under liability
insurance policies. Sometimes for the lack of sincerity of the captain and staff the ship may fall
in loss. To protect these types of perils when the shipping authority takes a policy then it would
be called marine liability insurance. The marine liability insurance policy may include liability
hazards such as collision or running down.

In addition to these types of marine insurance, there are also various types of marine insurance
policies which are offered to the clients by insurance companies so as to provide the clients with
flexibility while choosing a marine insurance policy. The availability of a wide array of marine
insurance policies gives a client a wide arena to choose from, thus enabling him to get the best
deal for his ship and cargo.

The different types of marine insurance policies are detailed below:

Voyage Policy: A voyage policy is that kind of marine insurance policy which is valid for a
particular voyage.

Time Policy: A marine insurance policy which is valid for a specified time period – generally
valid for a year – is classified as a time policy.

Mixed Policy: A marine insurance policy which offers a client the benefit of both time and
voyage policy is recognized as a mixed policy.

Open (or) Un-valued Policy: In this type of marine insurance policy, the value of the cargo and
consignment is not put down in the policy beforehand. Therefore reimbursement is done only
after the loss to the cargo and consignment is inspected and valued.

Valued Policy: A valued marine insurance policy is the opposite of an open marine insurance
policy. In this type of policy, the value of the cargo and consignment is ascertained and is
mentioned in the policy document beforehand thus making clear about the value of the
reimbursements in case of any loss to the cargo and consignment.

Port Risk Policy: This kind of marine insurance policy is taken out in order to ensure the safety
of the ship while it is stationed in a port.

Wager Policy: A wager policy is one where there are no fixed terms of reimbursements
mentioned. If the insurance company finds the damages worth the claim then the reimbursements
are provided, else there is no compensation offered. Also, it has to be noted that a wager policy is
not a written insurance policy and as such is not valid in a court of law.

Floating Policy: A marine insurance policy where only the amount of claim is specified and all
other details are omitted till the time the ship embarks on its journey, is known as floating policy.
For clients who undertake frequent trips of cargo transportation through waters, this is the most
ideal and feasible marine insurance policy.

Marine Insurance is an area which involves a lot of thought, straightforward and complex
dealings in order to achieve the common ground of payment and receiving. But as much as
complex the field is, it is nonetheless interesting and intriguing because it caters to a lot of people
and offers a wide range of services and policies to facilitate easy and uncomplicated business
transactions. Therefore, in the interest of the clients and the insurance providers, it is beneficial
and relevant to have the right kind of marine insurance. It resolves problems not just in the short
run, but also in the long run as well.

FEATURES OF MARINE INSURANCE

1) Offer & Acceptance:
It is a prerequisite to any contract. Similarly the goods under marine (transit) insurance will be
insured after the offer is accepted by the insurance company. Example: A proposal submitted to
the insurance company along with premium on 1/4/2011 but the insurance company accepted the
proposal on 15/4/2011. The risk is covered from 15/4/2011 and any loss prior to this date will not
be covered under marine insurance.
2) Payment of premium:
An owner must ensure that the premium is paid well in advance so that the risk can be covered.
If the payment is made through cheque and it is dishonored then the coverage of risk will not
exist. It is as per section 64VB of Insurance Act 1938- Payment of premium in advance.(Details
under insurance legislation Module).
3) Contract of Indemnity:
Marine insurance is contract of indemnity and the insurance company is liable only to the extent
of actual loss suffered. If there is no loss there is no liability even if there is operation of insured
peril. Example: If the property under marine (transit) insurance is insured for Rs 20 lakhs and
during transit it is damaged to the extent of Rs 10 lakhs then the insurance company will not pay
more than Rs 10 lakhs.
4) Utmost good faith:

The owner of goods to be transported must disclose all the relevant information to the insurance
company while insuring their goods. The marine policy shall be voidable at the option of the
insurer in the event of misrepresentation, miss-description or non-disclosure of any material
information. Example: The nature of goods must be disclosed i.e. whether the goods are
hazardous in nature or not, as premium rate will be higher for hazardous goods.

5) Insurable Interest:

The marine insurance will be valid if the person is having insurable interest at the time of loss.
The insurable interest will depend upon the nature of sales contract. Example: Mr. A sends the
goods to Mr. B on FOB ( Free on Board) basis which means the insurance is to be arranged by
Mr. B. And if any loss arises during transit then Mr. B is entitled to get the compensation from
the insurance company. Example: Mr. A sends the goods to Mr. B on CIF (Cost, Insurance and
Freight) basis which means the insurance is to be arranged by Mr. A. And if any loss arises
during transit then Mr. A is entitled to get the compensation from the insurance company.

6) Contribution:

If a person insures his goods with two insurance companies, then in case of marine loss both the
insurance companies will pay the loss to the owner proportionately. Example; Goods worth Rs.
50 lakhs were insured for marine insurance with Insurance Company A and B. In case of loss,
both the insurance companies will contribute equally.

7) Period of marine Insurance:

The period of insurance in the policy is for the normal time taken for a particular transit.
Generally the period of open marine insurance will not exceed one year. It can also be issued for
the single transit and for specific period but not for more than a year.

8) Deliberate Act:
If goods are damaged or loss occurs during transit because of deliberate act of an owner then that
damage or loss will not be covered under the policy.

9) Claims:

To get the compensation under marine insurance the owner must inform the insurance company
immediately so that the insurance company can take necessary steps to determine the loss.

THE MARINE INSURANCE ACTA

Marine insurance is an important component of international trade and commerce and subject to
international regulations in every stage of operations. It is governed by the Marine Insurance Act
1963 in India and guided by the various clauses formulated by the Institute of London
Underwriters (ILU) and the international commercial terms known as „Incoterms‟. This paper
analyses the legal aspects the marine insurance in India and provides an overview and analysis of
the Marine Insurance Act, 1963.The need to insure property against the economic consequences
of its loss or damage has become a fundamental feature of modern society. Insurance underpins
key aspects of society by providing security and protection to individuals, communities and
businesses. It facilitates trade and commerce; generates employment; provides risk sharing;
encourages innovation by allowing individuals and businesses toengage in more risky business
activities, thereby fostering higher levels of economic activity; and mobilizes domestic savings
through the collection of premiums by insurance companies which can help build a country‟s
financial market.

In the context of globalization, maritime transport is the backbone of international trade with
over 80 per cent of world merchandise trade by volume being carried by sea. Marine transport
involves risks related with the “perils of the sea”. In this respect, marine insurance is a
mechanism that helps to mitigate the risks of financial loss to the property such as ship, goods or
other movables, in maritime transport. Insurance is, thus, a necessary component of doing
business on an international basis and plays an important role in the international trade. Its
purpose is to enable ship-owner, the buyer and seller of the goods to operate their businesses,
while relieving themselves, at least partly, of the burdensome financial consequences of their
property’s being lost or damaged as a result of various risks of the high seas.Thus, marine
insurance adds the necessary element of financial security so that the risk of an accident
happening during the transport is not an inhibiting factor in the conduct of international trade. In
this sense, marine insurance is an aid to the conduct of seaborne international trade. Therefore,
developing an efficient and competitive insurance market is of key importance for developing
countries like India as they integrate into the world economy.

This paper analyses the legal aspects the marine insurance in India. In this regard, it provides an
overview and analysis of the Marine Insurance Act, 1963.

Insurance law in India had its origins in British law with the establishment of a British firm, the
Oriental Life Insurance Company in 1818 in Calcutta, followed by the Bombay Life Assurance
Company in 1823, the Madras Equitable Life Insurance Society in 1829 and the Oriental Life
Assurance Company in 1874. The first general insurance company Triton Insurance Company
Ltd. was promoted in 1850 by British nationals in Calcutta. The first general insurance company
established by an Indian was Indian Mercantile Insurance Company Ltd. in Bombay in 1907.
The first legislation in India to regulate the life insurance business was in 1912 with the passing
of the Indian Life Assurance Companies Act, 1912.Other classes of non-life insurance business
were left out of the scope of the Act of 1912, as such non-life insurance was still in rudimentary
form and regulating them was not considered necessary. Eventually, with the growth of fire,
accident and marine insurance, the need was felt to bring such kinds of insurance within the
purview of the regulations. While there were a number of attempts to introduce such legislation
over the years, law on non-life insurance was finally enacted in 1938 with the passing of the
Insurance Act, 1938.

The general insurance business was nationalized in 1973, through the introduction of the
General Insurance Business (Nationalisation) Act, 1972. Under the provisions of the GIC Act,
the shares of the existing Indian general insurance companies and undertakings of other existing
insurers were transferred to the General Insurance Corporation (“GIC”) to secure the
development of the general insurance business in India and for the regulation and control of such
business. The GIC was established by the Central Government in accordance with the provisions
of the Companies Act, 1956 in November 1972 and it commenced business on January 1, 1973.
Prior to 1973, there were a hundred and seven companies, including foreign companies, offering
general insurance in India. These companies were amalgamated and grouped into four subsidiary
companies of GIC viz. the National Insurance Company Ltd., the New India Assurance
Company Ltd., the Oriental Insurance Company Ltd., and the United India Assurance Company
Ltd. GIC undertakes mainly re-insurance business apart from aviation insurance. The bulk of the
general insurance business of fire, marine, motor and miscellaneous insurance business is under
taken by the four subsidiaries. From 1991 onwards, the Indian Government introduced various
reforms in the financial sector paving the way for the liberalization of the Indian economy.
Consequently, in 1993, the Government of India set up an eight-member committee chaired by
Mr. R. N. Malhotra, to review the prevailing structure of regulation and supervision of the
insurance sector. The Committee submitted its report in January 1994. Two of the key
recommendations of the Committee included the privatization of the insurance sector by
permitting the entry of private players to enter the business of life and general insurance and the
establishment of an Insurance Regulatory Authority. Subsequently, the recommendations of the
Malhotra Committee were implemented by the Indian government by allowing private
investments in the insurance sector and establishing a regulatory body through the enactment of
the Insurance Regulatory and Development Act, 1999 with the aim “to provide for the
establishment of an Authority, to protect the interests of the policy holders, to regulate, promote
and ensure orderly growth of the insurance industry and to amend the Insurance Act, 1938, the
Life Insurance Corporation Act, 1956 and the General Insurance Business (Nationalization) Act,
1972”.

At present, the principal legislation regulating the insurance business in India is the Insurance
Act, 1938, as amended over the years, and regulates both life insurance and general insurance.
General insurance has been defined to include “fire insurance business”, “marine insurance
business” and “miscellaneous insurance business”. Some other existing legislations in the field
are – the Life Insurance Corporation Act, 1956, the Marine Insurance Act, 1963, the General
Insurance Business (GIB) (Nationalization) Act, 1972 and the Insurance Regulatory and
Development Authority (IRDA) Act, 1999. The provisions of the Indian Contract Act, 1872 are
applicable to the contracts of marine insurance. Similarly, the provisions of the Companies Act,
1956 are applicable to the companies carrying on insurance business.

Marine insurance business is mostly international and subject to law and international regulations
in every stage of operations. It is governed by the Marine Insurance Act, 1963, in India and
guided by the various clauses formulated by the Institute of London Underwriters (ILU) and the
International Commercial Terms, known as „Incoterms‟ developed by ICC (International
Chamber of Commerce).

Marine Insurance Act, 1963, is designed to regulate the transaction of marine insurance
businesses of hull, cargo and freight. They have also, in addition, to fulfil the provisions of
section 64VB of the Insurance Act 1938 on payment of premium in advance of risk
commencement (Sections 64VB (1) and 64VB (5) of the Insurance Act 1938). The voyages
undertaken are subjected to specific Institute of London Underwriters (ILU) clauses, defining
inception and termination of insurance covers, and the perils insured against.

CONCLUSION

Advantages of marine insurance

Marine insurance is obligatory for all yacht and ship owners to obtain, especially where the
vessel is to be used for commercial or transportation purposes and where it will be carrying
passengers, workers, or cargo across international waters. It is important to not only obtain
marine insurance for your vessel or operating business, but to also obtain the most favorable
insurance policy that covers you for a variety of risks.

To learn about obtaining marine insurance, please click on the following link to view our Marine
Insurance service page.

Benefits of obtaining marine insurance

The risks faced by boats at sea are numerous and as such, the liabilities imposed on vessel
owners can be financially crippling. The risks of injury or death to passengers and seamen are
also high as weather conditions and vessel damage while at sea, can be temperamental and
difficult to foresee. It is therefore imperative for boat owners to be covered with the most
appropriate form of marine insurance.

By obtaining a favorable insurance policy, cargo ships can ensure limited liability with regard to
damage or loss of expensive goods carried by the ship. Many ships transporting goods will be
expected to travel long distances and therefore the risks of loss or damage can be relatively high.
A comprehensive marine insurance plan will ensure vessel operatives are protected and liability
is limited should the cargo be damaged in transit.

Marine insurance can be a complex industry to understand; it is suggested that vessel owners
seek the professional assistance of a yacht broker or professional consultancy firm that specialize
in guiding individuals in obtaining favorable marine insurance policies.

Comprehensive marine insurance is vital in order to protect the vessel, cargo, onboard
equipment, crew and passengers from harm. Marine insurance will also ensure the necessary
compensations are in place for the injured parties where passengers, crew or cargo are affected
while in transit.

The primary advantage of having a comprehensive and appropriate marine insurance plan is to
ensure complete protection and limited liability against the following;

- Theft or hijack of vessel

- Theft of on board cargo

- Mistakes in transportation (inappropriate handling)

- Accident while in convey (sinking or overturning)

- Variations in temperature causing complications

- Compensation for illness, injury or death of persons on board the vessel

- Collision

- Pollution risks

- Cargo liabilities

- Labor and legal costs

Unlike many other forms of transportation vehicles; marine transport is subject to a broad range
of risks that are out of the control of the vessel operator. It is therefore essential for all ship and
yacht owners to have the appropriate insurance in place.
Importance of Marine Insurance

In the commercial age of today marine insurance has become most important insurance in the
field of insurance. The importance of marine insurance is describe below in detail.

1. Importance of Marine Insurance For The Individual

A person has to import goods from another country which is located on the other side of sea for
his business. While carrying goods from other side of sea businessman may have to face dacoits
or goods may be damaged because of sinking of ship into the water. So businessman has to
experience economic loss. By the result of loss person may be discouraged to engage in business.
But when one insures his/her property in marine insurance does not have to face with economic
problem because marine insurance provides compensation to the insured against the loss of
property.

2. Importance Of marine Insurance for Ship-owner

Expensive ship may be destroyed due to different types of risks on the marine venture.
Shipowner may have to experience with larger amounts of loss due to the destruction of the ship.
Marine insurance provides compensation of loss to the ship owner . So, marine insurance is
important insurance for ship-owner.

3. Importance of Marine Insurance for Freight

Freight insurance is also included under the marine insurance. Freight refers to the revenue that a
cargo ship earns or the money which is paid to the ship owner for transportation of goods from
one part to another. If businessman does not pay freight of his goods to the ship-owner, ship-
owner may have to experience economic loss. If such types of loss occur insurance company
indemnifies the ship owner to marine insurance. So marine insurance is very important for the
freight.

4. Importance of Marine Insurance for Cargo Owner

A businessman wants to be secured for his goods. Especially countries which are located on the
other side of sea, businessman may have to use marine venture. Marine insurance keeps them
away from worry and fear or all responsibility of cargo owner is transferred to the hand of
insurance company that provides compensation to the cargo owner if loss occurs.

5. Importance of Marine Insurance For The Government

International trade has been increased due to the marine insurance. As international trade
increases government also can receive economic profit. Government increases revenue by
including extra income tax. So marine insurance is important for the government also.