Faculty- Maritime Law

9/15/2020
Contents
1. Insurable Interest in Insurance- An Introduction..........................................................................................3
2. The Marine Setting And Insurance Law.......................................................................................................3
3. How Insurable Interest is Applicable in Indian Maritime Law.....................................................................6
4. Statutory Provisions in Marine Insurance Act,1963.....................................................................................7
 Insurable Interest......................................................................................................................................7
 Attachment of Interest..............................................................................................................................8
 Rights of Assignee..................................................................................................................................10
5. CIF, CIP and Transfer of Insurable Interest................................................................................................11
6. Insurable interest cannot be acquired after a loss and in case of P.P.I Policies...........................................12
8. Valuation of Insurance................................................................................................................................14
9. Real World Scenarios on Insurable Interest and Assignment.....................................................................15
10. Latest Judgements Related To Maritime Insurable Interest....................................................................16
11. Conclusion..............................................................................................................................................17
 1. Insurable Interest in Insurance- An Introduction

The concept of insurable interest seems often to resemble obscenity; it is recognizable but difficult to
define. In short it can be said that, "Every interest in property, or any relation thereto, or liability in
respect thereof, of such a nature that a contemplated peril might directly damnify the insured, is an
insurable interest” as laid down in many U.S legislations.

An insurable interest is a requisite for a valid contract of insurance, “and indeed has been termed "the
very warp and woof of the enforceability of insurance contracts." 1

Public policy condemns as wagers insurance contracts which lack insurable interest in the policyholder.
Given the fact that insurance is based on a theory of indemnity, such a policy is sound. Although banned
in Spain as early as 14842, wagering policies were apparently enforced in English courts until the
"abuses and frauds that sprang from the ill-judged toleration" 3 led to a statute voiding such policies 4.
Such policies were enforced in New York until the adoption of the Revised Statutes in 1830. An insured
need not have a legal or equitable title to a property to have an insurable interest therein, but rather an
expectation of benefit from a property's continued existence, provided however that the expectation has
a legal right as its basis. Without such a basis, an expectation, "however likely or morally certain of
realization it may be,"' will not afford an insurable interest.

2. The Marine Setting And Insurance Law

The general rule requiring insurable interest also prevails in the maritime setting. It is said to be an
elementary principle of marine insurance law that "insurance cannot be created against injury to
property in which the insured has no insurable interest . . .”5

1
Harnett and Thornton, Insurable Interest in Property: A Socio-Economic Reevaluation. 48 Col. L. R. 1162 (1948).
2
Barcelona Ordinance of 1484.
3
Duer, The Law and Practice of Marine Insurance, p. 93.
4
19 George II. c. 37, (1746). "it hath been found by experience, that the making assurances, interest or no interest, or
without further proof of interest then the policy, hath been productive of many pernicious practices, whereby great
numbers of ships, with their cargoes, have either been fraudulently lost or destroyed, or taken by the enemy in time of
war ......”
5
Chase v. Hammond Lumber Co. et al., 79 F. 2d 716, 717 (CA9, 1935).
 The English Marine Insurance Act of 19066 defines insurance interest in the following manner.

(1) Subject to the provisions of this Act, every person has an insurable interest who is interested in
marine adventure.

(2) In particular a person is interested in a marine adventure where he stands in any legal or equitable
relation to the adventure or to any insurable property at risk therein, in consequence of which he may
benefit by the safety or due arrival of insurable property, or may be prejudiced by its loss, or by damage
thereto, or by the detention thereof, or may incur liability in respect thereof.

Thus, a right of property in a thing is not always indispensable to an insurable interest. Injury from its
loss or benefit from its preservation to accrue to the assured may be sufficient, and a contingent interest
thus arising may be made the subject of a policy." 7

The truth of the statement that, "In the law of marine insurance, insurable interests are multiform and
very numerous,"8 cannot be doubted. The very nature and complexity of the maritime industry and the
wide array of persons who have some contact with a given maritime enterprise mandates the conclusion.
Not only a quantified property interest in the thing insured is adequate, but also any "reasonable
expectation of legitimate profit or advantage to spring there from.” 9

Thus, it has been said in general that "The agent, factor, bailee, carrier, trustee, consignee, mortgagee
and every other lien holder, may insure to the extent of his own interest in that to which the interest
relates.... ".10 Likewise, interests which are possessory 11, inchoate12 or contingent,' equitable’13, and
defeasible14 have all been held adequate to accord insurable interest within the maritime realm.

It was held early15, and apparently accepted without serious question since, that an insurable interest
must be a pecuniary one, although the Marine Insurance Act definition would not seem to mandate such
a conclusion. Such a position is consistent with the mercantile nature of the subject, but may be subject

6
Marine Insurance Act, 1906. 6 Edw. 7, c. 41.
7
Hooper v. Robinson, 98 U.S. 528 (1879). See also Gilmore and Black, Admiralty, 2nd Ed., p. 60.
8
Hooper v. Robinson, supra.
9
International Marine Ins. Co. v. Winsmore, 16 A. 516 (Pa., 1889).
10
Hooper v. Robinson, 98 U.S. 528 (1879).
11
The Gulnare, 42 F. 861 (CCA, La.)
12
Hancox v. Fishing Ins. Co., 11 Fed. Cases No. 6013 (C.C. Mass.)
13
Riggs v. Commercial Mutual Ins. Co., 125 N.Y. 7, reh. 51 N.Y. Super. 466.
14
French v. Hope Ins. Co., 16 Pick. 397 (Mass.).
15
Warder v. Horton, 4 Binn. (Pa.) 529
to the same arguments which precipitated changes in the law of standing 16, mental distress17, and
aesthetic sensibilities18. Given then that, in the maritime realm, an insurable interest is necessary, and
that the scope of qualifying interests is wide, an analysis of the types of interests which have given rise
to litigation is instructive.

In principle marine insurance is a contract of indemnity, however, in practice it by no means results

always in a complete indemnity.19

In Richards v. Forest Land, Timber and Railways Co. Ltd., 20 it was observed, “The Act is merely
dealing with a particular branch of the law of contracts- namely, those of marine insurance. Subject to
various imperative provisions or prohibitions and general rules of the common law, the parties are free
to make their own contracts and to exclude or vary the statutory terms. The object both of the legislature
and of the courts has been to give effect to the idea of indemnity, which is the basic principle of
insurance, and to apply it to the diverse complications of fact and law in respect of which it has to
operate. In this way, the law merchant has solved or sought to solve, the manifold problems which have
been presented by insurances of maritime adventures.”

Thus, whilst the overriding principle of insurance is that of indemnification for losses sustained, the
courts accept the fact that, because there must be an element of freedom for the parties to the insurance
to contract on whatever terms they deem fit, in many instances, the indemnity is unlikely to be perfect.21

This is largely attributable to the fact that both the common law and the enactment18endorse the fact
that the value fixed by the police is conclusive of the insurable value of the subject matter insured. This
allows the parties the freedom to set the value of the subject matter insured at whatever figure they so
wish. Provided that any over valuation is not so excessive as to offend the cardinal principle of the duty

16
Association of Data Processing Service Organizations v. Camp, 397 U.S. 150 (1970).
17
See Prosser on Torts, 3rd Ed., §11.
18
See Bockrath, Aesthetics and Condemnation Awards: Problems in Preserving the Aesthetic Environment Through Eminent
Domain. Natural Resources Lawyer VII:4 (1974).
19
British & Foreign Marine Insurance Co., (1921) 1 A.C. 188, 214 H.L. (per Lord Sumner); Maurice v. Goldsbrough, (1939)
A.C. 452, 466-7 P.C. (per Lord Wright)

20
[1941] 3 All ER 62, HL, (per Lord Wright)
21
A policy of assurance is not a perfect contract of indemnity. It must be taken with this qualification, that the parties may
agree beforehand in estimating the value of the subject assured, by way of liquidated damages, as indeed they may in any
other contract to indemnify: Irving v. Manning, (1847) 1 HLC 287, (per Patteson, J.).
to observe utmost good faith, the law of non disclosure of a material fact, and of misrepresentation and
the rule against wager, the courts are obliged to uphold the value fixed in the policy as conclusive.22

3. How Insurable Interest is Applicable in Indian Maritime Law

If an individual wants to insure a property, he/she must have an insurable interest in the property; i.e.
loss or damage to the property should affect the person financially.

Marine insurance is based on the insurable interest in the property. Although it is important to note
that it is not essential for the insured to have an insurable interest at the time of effecting the
insurance. Instead, he/she should have such an interest in due course of time. Otherwise, he will not
become entitled to indemnification.

It is of utmost importance for insurable interest to be present at the time of loss.

There are three variants of insurable interest in marine policies:

1. In the case of ships: The owner of the ship or any individual who has purchased the ship on a
charter basis can insure the ship to its total value.

2. In the case of cargo: The owner of the shipment can buy a marine cargo policy up to the full
value of the consignment. If he has already paid the freight, he can take a policy for the value of
goods plus the amount of freight.

3. In the case of store keeping goods in transit under custody or the owner of the asset
transferring it to another place: Any liability towards the loss of goods can be covered but
policy is nontransferable.

Therefore, insurable interest is one of the fundamental conditions and is legally binding for the
Marine Policy to be valid. It needs to be:

 Definite: No ambiguity whatsoever

 Valuable: An estimated value should be attached to it

22
Indian Marine Insurance Act, 1963, Section 29(3) (= Section 27(3), English Act of 1906)
  Legally Binding: The policy should be legally valid

 Legal Liability: Should involve some kind of a legal liability

4. Statutory Provisions in Marine Insurance Act,1963

 Insurable Interest

Marine Insurance Act, declares void all marine insurance policies where insurable interest does not
apply at time of loss. In the Act, Insurable interest is defined as

Subject to the provisions of this Act, every person has an insurable interest who is interested in a marine
adventure. In particular a person is interested in a marine adventure where he stands in any legal or
equitable relation to the adventure or to any insurable property at risk therein, in consequence of which
he may benefit by the safety or due arrival of insurable property, or may be prejudiced by its loss, or
damage thereto, or by the detention thereof, or may incur liability in respect thereof. 23

The essence of “interest”, is that

a) There should be a physical object exposed to sea perils, and

b) The assured should stand in some relationship, recognized by law, to that object, in consequence of
which he either benefits by its preservation, or is prejudiced by its loss, or mishap thereto.24

c) The insured must bear some relationship to the insured thing whereby she stands to benefit by its
safety or be prejudiced by its loss or by incurring liability. That is to say, insurable interest exists where
insured stands in a legal relationship to the property or otherwise stands to suffer loss as a result of its
destruction.25

The Indian Act does not profess to give an exhaustive definition of “insurable interest”. Nor is it
possible to define the expression “insurable interest” exhaustively, but the general rule is clear that to

23
Indian Marine Insurance Act, 1963, Section7 (= Section 5, English Act of 1906)
24
Chalmers on Marine Insurance Act, 1906, 5th Ed., p. 12.
25
Lucena v. Crauford, (1806) 2 Bos. & P. (N. R.) 269, 321 H.L. (per Lord Eldon); Macaura v. Northern Assurance, (1925) A.C.
619, 627 H.L. (per Lord Buckmaster)
constitute “interest” insurable against a peril, there must be an interest such that the peril would, by its
proximate effect, cause damage to the assured.28

Section 7(2) of Marine Insurance Act 1963 gives us the idea that person has an insurable interest who
benefits safety or due arrival of the property or is prejudiced by its loss, or damage thereto, or by
detention thereof, or may incur liability in respect thereof, and stands in a legal or equitable relationship
to the adventure, or to any insurable property therein.26

 Attachment of Interest

Section 8(I) of the Marine Insurance Act states that the ‘assured’ must be interested in the subject matter
(goods) insured at the time of loss27. Insurance is effected either by shipper/exporter or buyer by virtue
of their ownership of goods or acquiring an interest in the goods respectively. The shipper /exporter has
to take the insurance in case the terms of the sale is on CIF basis and the buyer in cases where the goods
are consigned on C&F or FOB basis.

The main problem with insurable interest concerns the time at which the interest must attach; as a
general rule, the assured must, at the time of loss, have an insurable interest in the subject matter
insured. In contracts of international sale of goods, it is not always easy to ascertain at any given time
whether the property has in fact passed from seller to buyer.

The existence of “interest” is a condition to effective insurance. It is often a difficult question to

determine the exact moment when under a contract of sale, the risk passes from seller to buyer. Prima
facie, the risk passes when the property passes; but under the terms of the contract they may pass at
different times. When the buyer insures goods, the question is whether, on the true construction of the
contract, the risk has passed to him at the time the loss occurs.

Thus, the law recognizes certain exceptions to the general rule that the assured must have an insurable
interest at the time of the loss. First, if the policy offers cover on a ‘lost or not lost’ basis, then the

26
Seagrave v. Union Marine, (1866) L.R. 1 C.P. 305, 320 (per Willes J.).
27
Section 6 of the English Act.
assured is according to the proviso to section 8(1) permitted to recover under the policy even though the
loss was sustained before the insurance was effected.

This exception operates to protect an assured who might have purchased goods without knowing
whether or not they have already been lost at sea. Secondly, an assignee of a policy can acquire an
interest in the subject matter insured even though the policy was assigned to him only after the loss,
provided of course, that the assignor himself had, at the time of assignment, an interest to assign.28

Moreover, a defeasible or contingent interest (section 9 of the 1963 Act), partial interest (section 10),
Bottomry (section 12)29, masters and seamen’s wages (section 13)30, Advance freight(section 14)31 and
charges of interes32t are all cases of insurable interest.

With reference to assignment of interest, Section 17 of the Indian Act 33 provides: - “Where the assured
assigns or otherwise parts with his interest in the subject matter insured, he does not thereby transfer to
the assignee his rights under the contract of insurance, unless there be an express or implied agreement
with the assignee to that effect.

But the provisions of this section do not affect a transmission of interest by operation of law.”

Where a cargo of tallow was insured “warehouse to warehouse” by purchasers and the cargo was
delivered short for transit and the missing quantity was never in transit and never became the property of
the purchasers, they were held to have no insurable interest and the underwriters were held not liable for
the missing quantity.34

S. 10 also state that any partial interest of any nature is also insurable.

Similarly S.12 of the Marine Insurance Act stipulates that lender of money on bottomry or respondentia
has an insurable interest. Whereas, as per S. 8(1), insurable Interest should exist at the time of the loss.
This is subject to lost or not lost proviso.

28
Hodges, Susan, CASES AND MATERIALS ON MARINE INSURANCE LAW, Cavendish Publishing Limited, p. 39.
29
The lender of money on bottomry or respondentia has an insurable interest in respect of the loan
30
The master or any member of the crew of a ship has an insurable interest in respect of his wages.
31
In the case of advance freight, the person advancing the freight has an insurable interest, in so far as such freight is not
repayable in case of loss.
32
The assured has an insurable interest in the charges of any insurance that he may affect.
33
Section 15 of the English Act
34
Halsbury’s Laws of England, 3rd Ed., Vol. 22, p. 100 f.n. (f); Plata v. Lancashire Hamburg-Amerika Linier, (1957) 2 Lloyds
Rep. 347
At this juncture, it will be suitable to refer to the English Marine Insurance Act, 1906. A loss, whether of
ship or goods, may well occur before the contract of insurance was concluded, or before an Assured
acquires his/her interest in the subject-matter insured. In the days when communication technology was
undeveloped, it was not always possible, at any given time, for any person on shore to obtain
information as regards the whereabouts or safety of his/her property at sea. A buyer, for example, may
have purchased goods, which, unbeknown to both him/her and the seller, had already been lost at sea. In
such an event, the buyer would have acquired his/her interest only after the loss of the goods. And if
he/she were to take out a standard Policy on goods, he/she would not be able to claim for the loss by
reason of Section 6(1) of M.I.A. (1906). To overcome this difficulty, a “lost or not lost” Policy, which is
recognized by the proviso to the said section, could be effected:

“Provided that where the subject-matter is insured, “lost or not lost”, the assured may recover although
he may not have acquired his interest until after the loss unless at the time of effecting the contract of
insurance the assured was aware of the loss, and the insurer was not”.

An Assured of a “lost or not lost” Policy is allowed to recover for a loss even though he/she may not
have acquired his/her interest in the subject-matter insured until after the loss. The only condition which
would bar him/her from recovery is if, at the time of effecting the contract of insurance, he/she was
aware of the loss and the Insurer was not.

Needless to say, if only the Assured was aware of the loss, and the Insurer was not, the Assured would
have committed not only a breach of the duty to observe utmost good faith, but also the duty to disclose
all material facts. On either ground, the Insurer is entitled to avoid the contract.

A Policy of Insurance may be assigned before and even after a loss.

 Rights of Assignee

Section 51 of M.I.A. (1906) provides that:

“…an assured who has parted with or lost his interest in the subject matter insured, and has not, before
or at the time of so doing, expressly or impliedly agreed to assign the policy, any subsequent assignment
of the policy is inoperative”.

It is significant to note that an assignee can acquire no better right than the assignor. Thus, the Policy is
of benefit to the assignee only if the assignor has an insurable interest in the subject-matter insured at the
time of loss. The Policy may be assigned after a loss, but the assignor must have an insurable interest at
the time of loss.

If assured has no interest at the time of the loss, he cannot acquire any interest by any act or election
after he is aware of the loss. For lost or not lost, both the assured and the insurers must be in a state of
ignorance, otherwise the contract would be vitiated by fraud. This applies to “subject matter of
insurance” that is both to ship and goods, but only if the policy contains this proviso.

5. CIF, CIP and Transfer of Insurable Interest

When the exporter delivers the goods, the insurable interest in such goods transfers at the point and time
where the risk shifts from the exporter to the importer, as determined by the international commercial
terms used.

For example, the point and time where the risk shifts in: CIF (Cost, Insurance and Freight to the
named port of destination) --- the point the risk shifts is on board the ship at the named port of loading,
as such the insurable interest transfers from the exporter to the importer at the time the goods pass over
the ship's rail.

CIP (Carriage and Insurance Paid To the named place of destination) --- the point the risk shifts is
at the depot in the country of shipment, as such the insurable interest transfers from the exporter to the
importer at the time the goods are loaded on truck or container, rail car, or airplane (or goods placed in
the custody of an air carrier) at the named point of departure.

The time the insurable interest transfers from the exporter to the importer is, technically, the time the
exporter endorses the specific policy or the insurance certificate to the importer, as the case may be. The
insurance certificate bears the open policy number of the exporter and, like in a specific policy, the
claim agent at port of destination and that claim payable at destination is also indicated. The importer
relies on the specific policy or the insurance certificate and the supporting claims documents as proof
that the goods have been insured and that he/she has the insurable interest in the goods when filing for
insurance claims against loss or damage.

In the trade terms DDU and DDP, the exporter is responsible for the risks up to the delivery of goods to
the final point at destination (the project site or importer's premises usually), as such the insurable
interest in the goods does not transfer from the exporter to the importer in the shipment. Some countries
may require that the import and/or export shipments be insured with their national insurance companies

6. Insurable interest cannot be acquired after a loss and in case of P.P.I Policies

 In FOB shipments, buyer acquires interest only after goods are shipped on board the ocean going
vessel. Hence seller has an insurable interest till such time the goods are loaded on the vessel & also a
contingent insurable interest thereon.

 Change of voyage: Insurer is discharged of liability, if there is a voluntary change of destination.  If

such a change takes place before the commencement of the risk, risk does not attach. For change of
voyage, policies have a held covered proviso. Insurer is not on risk even though the course where the
loss occurs is common, where there is a change of voyage. The cover ceases from the time a decision is
taken for change of voyage. As far as deviation is covered, destination is the same but the route is
different. In this case, the insurer is discharged of liability from the time of deviation. It is
immaterial that the ship may have regained the course and loss takes subsequent to it. Not the intention,
but the actual deviation point is the key. (S 46(1) ).

 Delay in voyage: Insurers may avoid liability if voyage is not commenced within reasonable time (S
48).

 In the old S G Form, policy contained cover after arrival at destination port until vessel had moored at
anchor 24 hours in good safety. The key is moored in good safety. Case of Shaw Vs. Felton (1801):
vessel reached port of destination after have been seriously damaged by perils of the seas, and only by
lashing her to a hulk & by strenuous exertions was she kept afloat until those on board could be landed.
When efforts were made to move the vessel, she sank. It was held that she never moored in good safety.
 Another case, Lidget Vs. Secretan (1870): A Vessel was insured from London to Calcutta, & for 30
days after arrival in addition to 24 hours in good safety. On entering River Hooghly, she struck a bank &
damaged her steering gear. Her after compartment was filled with water requiring constant pumping to
keep her afloat. She arrived in this condition on 28th October, was duly moored and discharged her
cargo. On 12th November, she was taken from her moorings to dry dock for repairs & whilst there, was
gutted in a fire on 5th December. Fire occurred after 23 days after she had been kept in dry dock but 38
days after she had moored in Calcutta. The question was, whether the 30 days had expired prior to the
loss. Court concluded that though the vessel had arrived damaged at Calcutta, she was moored in good
safety for the requisite 24 hours & in as much as 30 days had expired from expiry of 24 hours; the policy
had expired before the fire. 

 The transit clause of the war clause states that risk attaches after loading in the vessel, and terminates on
unloading from the vessel, or on expiry of 15 days of arrival at destination port, 15 days being reckoned
from midnight of arrival date.

P.P.I. Policies: The subject-matter can be insured in the usual manner by P.P.I. (Policy Proof of
Interest), e., interest proof policies. It means that in the event of claim underwriters may dispense with
all proof of insurable interest. In this case if the underwriter does not pay the claims, it cannot be
enforced in any court of law because P.P.I, policies are equally void and unenforceable. But the
underwriters are generally adhering on the terms and pay the amount of claim.

7. Forms of Insurable Interest

The insurable interest in marine insurance can be of the following forms:

I. According to Ownership-The owner has insurable interest up to the full value of the subject-matter.
The owners are of different types according to the subject-matter.

(a) In Case of Ships : The ship-owner or any person who has purchased it on charter-basis can insure the
ship up to its full price.

(b) In Case of Cargo: The cargo-owner can purchase policy up to the full price of the cargo. If he has
paid the freight in advance, he can take the policy for the full price of the goods plus amount of freight
plus the expense of insurance. With an open cargo policy, the exporter knows that his insurable interest
in a specific transaction is protected. This explains why his overseas selling is facilitated by arranging
insurance protection ―for account of who is my concern.‖-i.e.,for the benefit of both parties to the sales
contract.

(c) In Case of Freight: The receiver of the freight can insure up to the amount of freight to be received
by him.

II. Insurable Interest in Re-insurance; The underwriter under a contract of marine insurance has an
insurable interest in his risk, and may reinsure in respect of it.

III. Insurable Interest in other Cases: In this case all those underwriters are included who have insurable
interest in the salary and own liabilities. For example, the master or any member of the crew of a ship
has insurable interest in respect of his wages. The lender of money on bottom or respondent has
insurable interest in respect of the loan.

8. Valuation of Insurance

The insurable value of the subject matter insured is relevant in determining the measure of indemnity in
the case of an unvalued policy, and in the case of a valued policy when the valuation is not conclusive or
has to be apportioned.35

A clear delimitation of insurable value is necessary

a) To fix the measure of indemnity in the case of an unvalued policy,

b) To fix the measure of indemnity in the few cases in which a valued policy can be opened up, and

c) To furnish an approximate standard for fixing the value in a valued policy.

According to modern practice, unvalued policies are very rare, being practically confined to goods and
in a few instances to freights payable on arrival. Other interests are almost invariably insured by valued
policies. As regards goods, a voyage policy on goods is an insurance of the adventure, as well as an
insurance on the goods themselves.36

35
Halsbury’s Laws of England, 3rd Ed., Vol. 22, p. 127.
36
British & Foreign Marine Insurance Co. v. Sanday, (1916) 1 A.C. 650, 672 H.L. (per Lord Wrenbury).
 9. Real World Scenarios on Insurable Interest and Assignment

TNY is a merchandise company that exports luxury goods worth millions of dollars every year via sea-
route for its buyers in Europe.

Most of the consignments are CIF (cost, insurance & freight) and TNY bears all the expense till the
goods reach the buyer. However, some consignments are FOB where the buyer pays insurance expenses
(usually a trader who’ll sell the goods further).

Till the time the goods or merchandise safely reaches the buyer, the insurable interest lies with the
merchandise company TNY. However, once the buyers receive the good, the insurable interest is
transferred to the buyer.The transfer of insurable interest takes place once TNY receives a confirmation
from the buyer that the goods have been received and in pristine condition. Any damage afterward can
be claimed by the buyer from the insurer (if insured afterward).

Cochin Shipping Co. Ltd. owns and operates multiple medium capacity ships and seeking to improve
its operations by augmenting its capacity. It recently acquired three high capacity cargo vessels, which
will be financed in the ratio of 3:7 by the company and banks.

The deal involves three banks (one for each ship), NSDB ltd., PBFC ltd. and SBA Ltd. with one for each
ship being acquired by the firm. All banks require the ships to be insured, which can be achieved in any
of the following three options:

 The shipper buys the insurance and bears the cost, repays the loan to Financier in case the ship is
lost (damaged beyond repair).

 The shipper and financier insure their respective shares separately.

 The shipper gets the insurance and assigns the policy to financier, at the time of claim; shipper
will receive the sum insured after the financier’s claim has been satisfied.

Such insurance will allow the financiers to recover the loan easily in case the ships are lost to the sea and
not operationally fit anymore, due to a mishap. Also, the Shipping co. will not have to repay the loan
after losing the operational capability, get back to business without losing steam.
 10. Latest Judgements Related To Maritime Insurable Interest

 Peacock Plywood (P) Ltd. Vs. Oriental Insurance Co. Ltd. [2006(12)SCC673]

The Court held that where the policy contained a wider term of risk coverage, the decision in Bihar
Supply Syndicate (supra) will not apply. In Peacock Plywood, the extended warranty clause in the
insurance policy specifically extended the coverage to include the risks of theft, pilferage and non-
delivery. In view of it, this Court held that a claim by way of constructive total loss on account of a ship
being stranded on sea on account of its unseaworthiness was maintainable, although the goods
themselves were not damaged. In that case when the ship carrying the goods got stranded at a port due to
its unseaworthiness, the assured took steps to recover the value of the cargo with a view to minimize its
total loss due to non delivery, but found that the cost of recovering and getting the cargo back to the
destination port would be more than the value of the goods. Therefore the assured effected sale of the
insured goods at the port where ship was stranded. Insurer was found liable to pay the insured value of
the goods (less the amount actually recovered by such sale.

 New India Assurance Co. Ltd. vs. Hira Lal Ramesh Chand and ors. and Ratan Chand Deep
Chand and Ors (AIR 2008 SC 2620 )

Complainants are manufacturers of Rugs and Durries, carrying on business at Mirzapur, UP. In
pursuance of orders placed by Atlanta Rugs Inc., Atlanta (for short the `buyer'), M/s. Hira Lal Ramesh
Chand dispatched 17 consignments of rugs and durries of the value of US $ 4,06,096 between 15.3.1995
and 29.6.1995; and M/s. Ratan Chand Deep Chand dispatched 38 consignments of the value of US $
8,87,973 between 23.8.1994 and 4.7.1995.

The consignments were entrusted to M/s Overseas Container Line Inc., a non- vessel owning shipping
Agent represented by its Agent Niranjant Shipping Agency (P) Ltd., for transhipment from Mumbai to
Atlanda (USA). The Bill of Lading issued by Overseas Container in regard to each of the consignment
showed the consignee as "Unto order" and party to be notified as "Atlanta Rugs Inc.".
All the consignments were insured by the consignors, with the New India Assurance Co. Ltd. The
original documents relating to the consignments were forwarded by Niranjan Shipping to the Bankers of
complainant - Punjab National Bank.

The complainants obtained credit facilities from Punjab National Bank by discounting the Bills and
endorsed the Bill of Lading in favour of the said Bank. The said Bank, in turn, forwarded the original
documents of title to its agent Sun Trust Bank (earlier known as Trust Company Bank) Atlanta, for
collection, by endorsing the documents in their favour. The buyer (Atlanta Rugs Inc.) did not make
payment and obtain release of the documents of title. They therefore made efforts to contact the buyer
and the shipping Agent- Overseas Container. They were also not able to locate them. Nor were they able
to find out the whereabouts of the consignments. Therefore they telephonically lodged an oral claim
with the insurer on 2.2.1996 seeking payment of the value of the consignments.

The insurer directed them to get in touch with their Surveyor-cum-Claim Settlement Agent at Atlanda --
M/s. Toplis and Hoarding Inc. They accordingly requested the said Surveyor to inquire and investigate
the matter and issue necessary certificates.

The surveyor submitted their reports to the Insurer, but failed to furnish copies thereof to the
complainants. Their claim was not settled by the Insurer for more than a year in spite of reminders. Such
failure amounted to deficiency in service and consequently the insurer became liable to pay the value of
the consignments and the other amounts claimed, as compensation.

11. Conclusion
The purpose of marine insurance has been to enable the ship owner and the buyer and seller of goods to
operate their respective business while relieving themselves, at least partly, of the burdensome financial
consequences of their property’s being lost or damaged as a result of the various risks of the high seas.
Thus, in other words, marine insurance adds the necessary element of financial security so that the risk
of an accident occurring during the transport is not an inhibiting factor in the conduct of international
trade. The importance of marine insurance, both to assureds, in terms of the security it provides and its
cost element in the overall economics of running a ship or transporting goods, and to countries,
particularly developing countries, in its impact on their balance of payments position, cannot be
overemphasized.
It is well known that in India, until the coming into operation of the Indian Act of 1963, the courts used
to follow the principles of English law and decisions based on such principles as well as the provisions
of the English Act, viz. the Marine Insurance Act, 1906. The Indian law is a direct take- off from its
English counter part, and so, whenever it is not self evident, case law spanning over two centuries is to
be looked into to arrive at the true position. Moreover, the Marine Insurance Act itself being a
codification of previous case law, an appreciation of past authorities is not only an essential requirement
to the understanding of the legal concepts generally, but also of paramount importance when wishing to
gain an insight into the very constitution of the sections within the Act.