MARINE INSURANCE

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, on the payment of premium by the
assured to the insurer. Insurer provides risk cover to the ship-owners or the cargo-owners against
loss or damage that the ship or cargo may suffer in transit due to accidents and mishaps in the
nature of a financial indemnity. The insurance company undertakes to make good the loss to the
maximum value as agreed with the insured perils or risks. Loss is payable only when it has been
proximately caused by the insured peril. The marine insurance is governed by the national legal
regimes. In India, Marine Insurance Act, 1963, regulates various aspects of marine insurance.
Historical Development: Marine Insurance is not of recent origin. Its existence can be traced
back to several centuries. Questions concerning it have naturally been coming up for a number of
years and the law concerning it had taken a definite shape much prior to 1906 when the English
Marine Insurance Act was passed with a view to codify that law.
Contrary to popular belief, Lloyds’ of London was not the first group of people to offer insurance for
maritime commerce. The first form of marine insurance dates back to the year 3000 BC when
Chinese merchants dispersed their shipments amongst several vessels so as to abridge the possibility
of damage to the product(s). The earliest account of insurance came in the form of ‘bottomry’, a
monetary payment that protects traders from debt if merchandise is lost or damaged. Finally, in
1688, Lloyd's of London, named after Edward Lloyd, began the risky business of insurance
underwriting. From a Coffee house in London, it has now grown to become the largest marine
insurance underwriters in the world. The law relating to marine insurance was codified in
England by the Marine Insurance Act of 1906, and this Act came into force on January 1, 1907.
This was proposed and initiated in an attempt to clarify and set forth the regulations and policy
variables associated with marine insurance agreements. This enactment purported to codify only
those principles of the law which related exclusively to marine insurance and expressly enacted
that the rules of the common law, including the law merchant, save in so far as they were
inconsistent with the express provisions of the Act, were to continue to apply to contracts of
marine insurance.
MEANING OF MARINE INSURANCE: A contract of marine insurance is an agreement
whereby the insurer undertakes to indemnify the insured, in the manner and to the extent thereby
agreed, against transit losses, that is to say losses incidental to transit. A contract of marine
insurance may by its express terms or by usage of trade be extended so as to protect the insured
against losses on inland waters or any land risk which may be incidental to any sea voyage. In
simple words the marine insurance includes:
A. Cargo insurance which provides insurance cover in respect of loss of or damage to goods
during transit by rail, road, sea or air. Thus cargo insurance concerns the following:
(i) export and import shipments by ocean-going vessels of all types,
(ii) coastal shipments by steamers, sailing vessels, mechanized boats, etc.,
(iii) shipments by inland vessels or country craft, and
(iv) Consignments by rail, road, or air and articles sent by post.
B. Hull insurance which is concerned with the insurance of ships (hull, machinery,etc.).
Marine Insurance: Definition
A contract or policy of marine insurance is an arrangement whereby one person called insurer or
underwriter, agrees, according to specific terms of contract, to indemnify another person, called
assured, for the losses incurred in connection with property, such as ship, goods or other
movables, in maritime transport.
Section 3 of the Marine Insurance Act, 1963, defines ‘marine insurance’ as follows:
A contract of marine insurance is an agreement whereby the insurer undertakes to indemnify the
assured, in the manner and to the extent thereby agreed, against marine losses, that is to say, the
losses incidental to marine adventure.
The Marine Adventure:
The subject of the marine insurance is strictly speaking different from the subject matter of
insurance. In a contract of marine insurance, what is insured is not the property exposed to peril
but only the risk or adventure of the assured? From this it can be seen that what is really insured
is the risk of adventure that is the pecuniary interest of the assured in the subject matter in or in
respect of the property exposed to the peril and not the subject-matter itself. Section 2(d) of the
Marine Insurance Act specifies there is marine adventure where:
i) Any ship, goods or other movable properties are exposed to maritime perils;
ii) The earning or acquisition of any freight, passage money, commission, loan or
disbursements, is endangered by the exposure of the properties.
iii) Any liability to a third party may be incurred by the owner of, or other person
interested in or responsible for such property by reason of maritime perils.
Section 7 - Insurable interest defined.—(1) Subject to the provisions of this Act, every person has
an insurable interest who is interested in a 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.

Insurable Value
Section 18. Measure of insurable value.—Subject to any express provision or valuation in the
policy, the insurable value of the subject-matter insured must be ascertained as follows:— (1) In
insurance on ship, the insurable value is the value, at the commencement of the risk, of the ship,
including her outfit, provisions, and stores for the officers and crew, money advanced for
seamen’s wages, and other disbursements (if any) incurred to make the ship fit for the voyage or
adventure contemplated by the policy, plus the charges of insurance upon the whole. The
insurable value, in the case of a steamship, includes also the machinery, boilers, and coals and
engine stores if owned by the assured; in the case of a ship driven by power other than steam
includes also the machinery and fuels and engine stores, if owned by the assured; and in the case
of a ship engaged in a special trade, includes also the ordinary fittings requisite for that trade. (2)
In insurance on freight, whether paid in advance or otherwise, the insurable value is the gross
amount of the freight at the risk of the assured, plus the charges of insurance. (3) In insurance on
goods or merchandise, the insurable value is the prime cost of the property insured, plus the
expenses of and incidental to shipping and the charges of insurance upon the whole. (4) In
insurance on any other subject-matter, the insurable value is the amount at the risk of the assured
when the policy attaches, plus the charges of insurance.
WARRANTIES (SECTION 35-43)
35. Nature of warranty.—(1) A warranty, in the following sections relating to warranties, means a
promissory warranty, that is to say a warranty by which the assured undertakes that some particular thing
shall or shall not be done, or that some condition shall be fulfilled, or whereby he affirms or negatives the
existence of a particular state of facts. (2) A warranty may be express or implied. (3) A warranty, as
above defined, is a condition which must be exactly complied with, whether it be material to the risk or
not. If it be not so complied with, then, subject to any express provision in the policy, the insurer is
discharged from liability as from the date of the breach of warranty, but without prejudice to any liability
incurred by him before that date.
36. When breach of warranty excused.—(1) Non-compliance with a warranty is excused when, by
reason of a change of circumstances, the warranty ceases to be applicable to the circumstances of the
contract, or when compliance with the warranty is rendered unlawful by any subsequent law. (2) Where a
warranty is broken, the assured cannot avail himself of the defence that the breach has been remedied,
and the warranty complied with before loss. (3) A breach of warranty may be waived by the insurer.
37. Express warranties.—(1) An express warranty may be in any form of words from which the
intention to warrant is to be inferred. (2) An express warranty must be included in, or written upon, the
policy, or must be contained in some document incorporated by reference into the policy. (3) An express
warranty does not exclude implied warranty, unless it be inconsistent therewith.

CONDITION
44. Implied condition as to commencement of risk.—(1) Where the subject-matter is insured by a
voyage policy “at and from” or “from” a particular place, it is not necessary that the ship should be at that
place when the contract is concluded, but there is an implied condition that the adventure shall be
commenced within a reasonable time, and that if the adventure be not so commenced the insurer may
avoid the contract. (2) The implied condition may be negatived by showing that the delay was caused by
circumstances known to the insurer before the contract was concluded, or by showing that he waived the
condition.

Insured Risks: Perils of the Sea

An insurer underwrites or subscribe to a risk in return for the payment of ‘premium’ by the
assured. The premium is considered compensation for running risks of the insured property and is
normally retained whether or not the insured property is lost or not. The size of the premium
depends upon the insurer’s estimation of degree of the risk that the insured property will incur a
loss and on amount of indemnity he will have to pay. Generally, the insurers spread their
potential liabilities in a relatively small amount over a number of risks in order to benefit from
the probability that only a limited percentage will experience losses by ‘law of averages.’

The word “risk” being in this context to refer to the risk of loss occurring in connection with
insured property, and the risk of loss can include not only actual property in return for the
payment of premium by the assured losses but also financial losses, such as those resulting from
the loss of freight, passage money, commission or profit as well as certain types of liabilities
incurred to third parties (Sections 2[d]{ii}.)

The specification of insurance contract usually stipulates certain limitations as to the type of
occurrences that may cause losses for which the insurer will pay indemnity. Such occurrences are
called “insured risks” or “insured perils”.

‘Perils of the Sea’ is one of the most important concepts of marine insurance as every marine
insurance policy mandatorily includes loss due to ‘perils of the sea’. But, at the same time it is
one of the most difficult concepts to define and understand.
Even though some principles have been evolved for determining whether a particular incident is
caused by a ‘peril of the sea’ or not, it is impossible to come out with a common solution for the
same. It has to be evaluated on the facts and circumstances of a given case. It is beyond human
comprehension to predetermine all the incidents that may take place on a ship while at sea. In
certain cases one of the factors of the loss may be the sea but it may not be the proximate cause of
loss. In such case, the loss would not be covered under ‘loss by the perils of the sea.’ There are
different notion regarding this term worldwide but in a comprehensive way it covers almost
everything which happens on voyage.
Like the English Act the Marine Insurance Act, 1963 does not define the term ‘perils of the sea’,
it only defines ‘maritime perils’. Section 2 (e) of the Act, 1963 defines ‘maritime perils’ as perils
consequent on, or incidental to, the navigation of the sea that is to say, perils of the sea, fire, war
perils, pirates, rovers, thieves, captures, seizures, restraints and detainments of princes and
peoples, jettisons, barratry and any other perils which are either of the like kind or may be
designated by the policy. While determining whether a particular loss is caused by perils of the
sea or not, Indian Courts rely heavily on the English cases.
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 1/4/2019
but the insurance company accepted the proposal on 15/4/2019. The risk is covered from
15/4/2019 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 dishonoured
then the coverage of risk will not exist. It is as per section 64VB of Insurance Act 1938-
Payment of premium in advance.
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, mis-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.

Classification of a Contract of Marine Insurance:

Marine insurance is an agreement by which the insurer agrees to indemnify the owner of the ship,
cargo, freight and liability. So we can say that the areas or scope of marine insurance are based on
the above subject matter. As has already been mentioned that every lawful marine adventure may
be the subject matter of a contract of marine insurance, thus, marine insurance may be effected in
relation to all such interests which are exposed to maritime perils. The more popular types of
marine insurance are as follows:
1. Hull insurance: This pertains to insurance of ocean going steamers and other vessels.
“Hull” refers to the body or frame of the ship. Hull insurance provides the cover for the
hull and machinery as well as in respect of materials and outfit and stores and provisions
for the officers and crew. In addition cover for liabilities is included. It is effected
generally by the owner of the ship. Hull insurance is an insurance contract which subject
matter is based on vessels. Insurance of vessel and its equipments 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.
Cargo Insurance is that where the owners of cargo, which is to be transported by sea,
usually cover their financial exposure against loss of, or damage to cargo for declared
value. Cargo insurance is provided byte Syndicates at Lloyd’s but more commonly by
professional insurance companies around the world. They keep records of their losses and
use this information to help them calculate premiums for insurance of certain types of
cargo in varying kinds of marine transportation, i.e. in bulk, packaged, containerized,
refrigerated, chilled, in tanks etc. The cargo insurer will compensate the owner of the
cargo for any loss or damage to the cargo Thereafter they may claim compensation for
their loss from the carriers of the cargo. 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: Freight insurance provides protection against the loss of freight. In many
cases, the owner of goods is bound to pay freight, under the terms of the contract, only when
the goods are safely delivered at the port of destination. If the ship is lost on the way or the
cargo is damaged or stolen, the shipping company loses the freight. Freight insurance is taken
to guard against such risk. The clauses of freight insurance are framed in connection with the
loss of freight due to maritime perils which may be insured for a voyage.
4. Marine liability insurance: Liability insurance is one in which the insurer undertakes to
indemnify against the loss which the insured may suffer on account of liability to a third
party caused by collision of the ship and other similar hazards. 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.
Contents of an Insurance Policy
Section 24 says that contract must be embodied in policy. A contract of marine insurance shall
not be admitted in evidence unless it is embodied in a marine policy in accordance with this Act.
The policy may be executed and issued either at the time when the contract is concluded, or
afterwards. According to section 25 of the Act, 1963 a marine insurance policy must specify:
i. The name of the insured, or of some person who effects the insurance on behalf of the
insured;
ii. The subject-matter insured and the risk insured against losses;
iii. The voyage or period of time or both, as the case may, covered by the insurance;
iv. The sum or sums insured; and
v. The name or names of the insurer or insurers.
Marine policies are generally either “specific-voyage” policies or “declaration” policies for either
imports, exports, indigenous transits of raw material or finished goods, customs duty, transits
from anywhere to anywhere in the world and to and from job works. While for a specific policy,
the cover is issued from commencement to landing at the final destination, the other policies are
generally continuous policies issued on an annual basis or for a specified period of time for an
agreed value of transits based on the insured’s estimate of goods movement for the specified
period. It is mandatory for all transits in the agreed period to be declared.
Types of Marine Policies
1. Voyage Policy: When a marine insurance policy embodies the contract to insure the subject-
matter at and from, or from one place to another or others, the policy is called a “voyage policy”
(Section 27[1]). In a voyage policy, the subject matter is insured for a particular voyage
irrespective of the time involved in it. In this case the risk attaches only when the ship starts
on the voyage. These policies are issued to firms that require coverage for a specific voyage.
It is suitable for those firms who seldom require marine cargo policies in the course of their
trade. These policies are issued on a "from and to" basis and the cover commences once the
goods leave the place of origin named in the policy and terminates on delivery at the place of
destination. Sometimes these policies are also issued in terms of duration of the voyage, in
which case the cover commences on the date and time specified for the same in the policy.
This is a policy in which the subject matter is insured for a particular voyage irrespective of
the time involved in it. In a voyage policy the contract is to insure the subject-matter at and
from, or from one place to another. A Voyage policy covers the risks that may arise during a
journey from specific place to another.
2. Time Policy: Time policy is an insurance policy embodying a contract in which the subject
matter is insured for a definite period of time (Section 27[1]). The ship may pursue any
course it likes, the policy would cover all the risks from perils of the sea for the stated period
of time. A time policy cannot be for a period exceeding one year because it will be invalid,
but it may contain a ‘continuation clause’ (Section 27[2]). But it may contain a 'continuation
clause'. The 'continuation clause' means that if the voyage is not completed within the
specified period, the risk shall be covered until the voyage is completed, or till the arrival of
the ship at the port of call. The time limit for time policy is one year and anything beyond that
period is unlawful. However the policy holder can opt for both the policies together.
3. Mixed Policy: Mixed insurance policy is a combination of voyage and time policies and
covers the risk during particular voyage for a specified period of time. A contract for both
voyage and time may be included in the same policy (Section 27[1]).
4. Valued Policy: A marine insurance policy may be either valued or unvalued (Section 29[1]).
A valued policy is a policy which specifies the agreed value of the subject-matter insured
between the insurer and the insured and it is specified in the policy itself (Section 29[2]). The
value fixed by the policy is, as between the insurer and assured, conclusive of the insurable
value of the subject intended to be insured, whether the loss be total or partial (Section 29[3]).
However, unless expressly stated, the value fixed by the policy is not conclusive for the
purpose of determining whether there has been a constructive total loss (Section 29[4]).
5. Open or Un-Valued Policy: An unvalued marine insurance policy is a policy which does not
specify the value of the subject-matter insured (Section 30). Subject to the limit of the sum
assured, it leaves the value of the loss to be subsequently ascertained, in the manner explained in
the policy itself (Section 30). It means that the method of ascertaining the value of the loss has
been agreed upon between the insured and insurer beforehand in case of an unvalued policy.
6. Floating Policy: A floating policy is a policy which describes the insurance contract in
general terms, and leaves the name or names of the ship or ships and other particulars to be
defined by subsequent declaration (Section 31[1]). The subsequent declaration or declarations
may be made by endorsement on the policy, or in other customary manner (Section 31[2]).
Unless the policy otherwise provides, the declarations must be made in the order of dispatch
or shipment. They must, in the case of goods, comprise all consignments within the terms of
the policy, and the value of the goods or other property must be honestly stated. An omission
or erroneous declaration may be rectified even after loss or arrival, provided the omission or
declaration was made in good faith (Section 31[3]). If a declaration of value is not made until
after notice of loss or arrival, the policy is generally treated as an unvalued policy as regards
the subject-matter of that declaration (Section 31[4]). Such policies are very useful to
merchants who regularly despatch goods through ships.
THE VOYAGE:
Implied condition as to commencement of risk
As per Section 44 where the subject-matter is insured by a voyage policy "at and from" or "from" a
particular place, it is not necessary that the ship should be at that place when the contract is
concluded, but there is an implied condition that the adventure shall be commenced within a
reasonable time, and that if the adventure be not so commenced the insurer may avoid the contract.
The implied condition may be negatived by showing that the delay was caused by circumstances
known to the insurer before the contract was concluded, or by showing that he waived the condition.
Alteration of port of departure
As per Section 45 where the place of departure is specified by the policy, and the ship instead of
sailing from that place sails from any other place, the risk does not attach.
Sailing for different destination
As per Section 46 where the destination is specified in the policy, and the ship, instead of sailing
for that destination, sails for any other destination, the risk does not attach.
Change of voyage
As per Section 47 where, after the commencement of the risk, the destination of the ship is
voluntarily changed from the destination contemplated by the policy, there is said to be a change
of voyage. Unless the policy otherwise provides, where there is a change of voyage, the insurer is
discharged from liability as from the time of change, that is to say, as from the time when the
determination to change it is manifested; and it is immaterial that the ship may not in fact have
left the course of voyage contemplated by the policy when the loss occurs.
Deviation:
As per Section 48 where a ship, without lawful excuse, deviates from the voyage contemplated
by the policy, the insured in discharged from liability as from the time of deviation, and it is
immaterial that the ship may have regained her route before any loss occurs. There is a deviation
from the voyage contemplated by the policy-
(a) Where the course of the voyage is specifically designated by the policy, and that course is
departed from; or
(b) Where the course of the voyage is not specifically designated by the policy, but the usual
and customary course is departed from.
The intention to deviate is immaterial; there must be a deviation in fact to discharge the insurer
from his liability under the contract.
Several ports of discharge
As per Section 49 where several ports of discharge are specifies by the policy, the ship may
proceed to all or any of them, but, in the absence of any usage or sufficient cause to the contrary,
she must proceed to them, or such of them as she goes to, in the order designated by the policy. If
she does not there is a deviation. Where the policy is to "ports of discharge", within a given area,
which are not named, the ship must, in the absence of any usage or sufficient cause to the
contrary, proceed to them, or such of them as she goes to, in their geographical order. If she does
not there is a deviation.
Delay in voyage
As per Section 50 in the case of a voyage policy, the adventure insured must be prosecuted
throughout its course with reasonable despatch, and, if without lawful excuse it is not so prosecuted,
the insurer is discharged from liability as from the time when the delay became unreasonable.
Lawful Excuse for deviation or delay
As per Section 51 deviation or delay in prosecuting the voyage contemplated by the policy is
excused-
i. where authorised by any special term in the policy; or
ii. where caused by circumstances beyond the control of the master and his employer; or
iii. where reasonably necessary in order to comply with an express or implied warranty; or
iv. where reasonably necessary for the safety of the ship or subject-matter insured; or
v. for the purpose of saving human life or aiding a ship in distress where human life may be
in danger; or
vi. where reasonably necessary for the purpose of obtaining medical or surgical aid for any
person on board the ship; or
vii. Where caused by the barratrous conduct of the master or crew, if barratry be one of the
perils insured against.
When the cause excusing the deviation or delay ceases to operate, the ship must resume her
course, and prosecute her voyage, with reasonable despatch.
LOSS AND ABANDONMENT:
Excluded Losses or the Losses not regarded as ‘Perils of the Sea’: As per Section 55 of the
Act excluded Losses or the Losses not regarded as ‘Perils of the Sea’ are as follows:
Wilful misconduct of the assured: the insurer is not liable for any loss attributable to the
wilful misconduct of the assured, but, unless the policy otherwise provides.
Wear and Tear: This term is used to denote the natural decay and deterioration, which
invariably happens to a ship or any portion of the ship due to the action of the winds and
waves. In the case of a ship it means a decay of the body of the ship and its appurtenances,
eg. Splitting of a sail, breakage of anchor, rope or cable and in case of cargo of perishable
nature like fruits.
Springing a Leak: If a ship develops a leak; it is not a peril of the sea unless it is due to an
accident.
Breakage of Goods: If the Goods are broken or damaged during the voyage due to
movement of the ship it is not a peril of the sea; but if it is due to violent action of waves
and consequent labouring of the ship, it is a peril of the sea.
Inherent Vice: The insurer will not be liable for any loss caused due to the defect in the
goods, e.g. if the fruits become rotten or wine becomes bad due to inherent decomposition.
Partial and total loss
As per Section 56 a loss may be either total or partial. Any loss other than a total loss, as
hereinafter defined, is a partial loss. A total loss may be either an actual total loss, or a
constructive total loss. Unless a different intention appears from the terms of the policy, an
insurance against total loss includes a constructive, as well as an actual, total loss. Where the
assured brings a suit for a total loss and the evidence proves only a partial loss, he may, unless the
policy otherwise provides, recover for a partial loss. Where goods reach their destination in
specie, but by reason of obliteration of marks, or otherwise, they are incapable of identification,
the loss, if any, is partial and not total.
Actual total loss
As per Section 57 where the subject-matter insured is destroyed, or so damaged as to cease to be
a thing of the kind insured, or where the assured is irretrievably deprived thereof, there is an
actual total loss. In the case of an actual total loss no notice of abandonment need be given.
Constructive total loss
As per Section 60 Subject to any express provision in the policy, there is a constructive total loss
where the subject-matter insured is reasonably abandoned on account of its actual total loss
appearing to be unavoidable, or because it could not be preserved from actual total loss without
an expenditure which would exceed its value when the expenditure had been incurred. In
particular, there is a constructive total loss-
i. Where the assured is deprived of the possession of his ship or goods by a peril insured
against, and
a) it is unlikely that he can recover the ship or goods, as the case may be, or
b) the cost of recovering the ship or goods, as the case may be, would exceed their value
when recovered; or
ii. In the case of damage to a ship, where she is so damaged by a peril insured against that the
cost of repairing the damage would exceed the value of the ship when repaired.
In estimating the cost of repairs, no deduction is to be made in respect of general average
contributions to those repairs payable by other interests, but account is to be taken of the expense
of future salvage operations and of any future general average contributions to which the ship
would be liable if repaired; or
iii. In the case of damage to goods, where the cost of repairing the damage and forwarding the
goods to their destination would exceed their value on arrival.
Effect of constructive total loss
As per Section 61 where there is a constructive total loss the assured may either treat the loss as a
partial 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
As per Section 62, subject to the provisions of this section, where the assured elects to abandon
the subject-matter insured to the insurer, he must give notice of abandonment. If he fails to do so
the loss can only be treated as a partial loss. Notice of abandonment may be given in writing, or
by word of mouth, or party in writing and party by word of mouth, and may be given in any terms
which indicate the intention of the assured to abandon his insured interest in the subject-matter
insured unconditionally to the insurer. Notice of abandonment must be given with reasonable
diligence after the receipt of reliable information of the loss, but where the information is of a
doubtful character the assured is entitled to a reasonable time to make enquiry. Where 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. The acceptance of an abandonment may be either
express or implied from the conduct of the insurer. The mere silence of the insurer after notice is
not an acceptance. Where notice of abandonment is accepted the abandonment is irrevocable. The
acceptance of the notice conclusively admits liability for the loss and the sufficiency of the
notice. Notice of abandonment is unnecessary where at the time when the assured receives
information of the loss, there would be no possibility of benefit to the insurer if notice were given
to him. Notice of abandonment may be waived by the insurer. Where an insurer has reinsured his
risk, no notice of abandonment need be given by him.
Effect of abandonment
As per Section 63 where there is a valid abandonment the insurer is entitled to take over the
interest of the assured in whatever may remain of the subject-matter insured, and all proprietary
rights incidental thereto. Upon the abandonment of a ship, the insurer thereof is entitled to any
freight in course of being earned, and which is earned by her subsequent to the casualty causing
the loss, less the expenses of earning it incurred after the casualty; and, where the ship is carrying
the owner's goods, the insurer is entitled to a reasonable remuneration for the carriage of them
subsequent to the casualty causing the loss.

THESE NOTES ARE ONLY FOR REFERENCE. IT IS SUGGESTED TO GO THROUGH THE

CLASS NOTES AND BOOKS ALSO.