Gujarat Maritime University

Gandhinagar, Gujarat (India)

PROJECT TITLE:
Principle of Marine Insurance
SUBJECT:
Marine Insurance & Risk Management

For MBA Shipping and Logistics

Sem – III: Batch 2021-23

Submitted by:
Satyam Mishra

Submitted to:
Mrs. Roshna Jerome

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 Declaration:
I ‘Satyam Mishra’ hereby declare that the report of the project work on ‘Marine Insurance &
Risk Management’ is based my own work carried out during my study under the supervision
of Mrs Roshna Jerome. I assert that the Research and Information gathered by the Company is
outcome of the project work.
I further declare that to the best of my knowledge and belief that the project report does not
contain any part of any work which has been submitted for the award of any other
degree/diploma/certificate in this University or any other University.

Date: 7th December, 2022

SATYAM MISHRA
(MBA in Shipping & logistics)
Batch:2021-23

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 Table of Content:

S.no Topics Page Number

1 Declaration 2

2 Table of Content 3

3 Introduction 4

4 About the Project 5-12

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Introduction:
Marine Insurance is a Contract whereby the insurer undertakes to compensate, in manner & to
extent that thereby agreed against marine losses, i.e., the losses incident to marine adventure.
Once the Goods are moved out to from the warehouse of the seller, they are no more in the
custody of buyer or seller. They are rather in the hands of a third party called carrier. During
the Transit the Loss can arise from Fire, explosion, Breakage, accident, theft, pilferage (the
action of stealing) & non-delivery. Exposure to these risks & the facts that the goods are in
possession of a third party enhance the chances of loss. The Person who are Importing the
goods will like to ensure the safe arrivals of their goods. The Shipping Company wants the
safety of the ships.

In Short, we can say that Marine Insurance is a safe heaven for Shipping Corporations &
transporters because it helps to reduce the aspects of financial loss due to loss of Important
cargo. It also helps to bring together the transporting companies & the receiving parties, the
duty, dedication & straightforwardness of the Insurance Companies.
Claims under marine policies must be supported by certain documents which vary according
to the type of loss as also the circumstances of the claim & mode of carriage. The Documents
required for any claim under as:
 Intimation to the Insurance company: As soon as loss discovered then it is the duty of
policyholder to inform the insurance company to enable it to assess to loss.
 Policy: The Original policy or certificate of insurance is to be submitted to the company.
 Bill of Lading: It is a document which serves as evidence that the goods were shipped.

There are Certain Exceptions despite all this such as Loss Caused by willful misconduct of the
Insured which means the loss caused by intentionally to achieve a wrongful purpose,
knowingly without legal and in disregard of a known or obvious risk; ordinary leakage,
ordinary loss in weight, or volume or ordinary wear & tear. These are ‘normal trade’ losses
which are inevitable & not accidental in nature; Loss caused by delay even though delay be
caused by insured risk & Strikes, riots, lock-out, civil commotions & terrorism can be covered
on payment of extra premium.

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Principles of Marine Insurance:
There are Certain Principles which is covered by cargo insurance. These Principles helps us to
know in a better way that how the things work and who can be liable for what. The principles
are divided into 4 parts:
i. Principle of Utmost Good Faiths
ii. Principle of Insurable Interest
iii. Principle of Indemnity
iv. Principle of Causa Proxima
Here, in my project I will cover the two of them in brief. Principle of Utmost Good Faiths &
Principle of Insurable Interest.

 Principle of Insurable Interest:

 “Insurable Interest can be defined according to Section 7 of Marine Insurance Act,
1963. It says that every person has an Insurable Interest who interested in marine adventure
or 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.”
Interpretation: The Section states that every person who is Interested in marine adventure
is consider to have Insurable Interest in it. In Particular, a person is Interested in marine
adventure where he stands in any legal relation to the adventure or to any insurable property
at risk in consequence of which he may be benefited by the safety or due arrival of insurable
property or may be prejudiced by its loss, damage or detention or may incur liability
in respect thereof.

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 “According to Section 8 , it specifies that when Interest must attach, the assured must be
interested in the subject-matter insured at the time of the loss, though he need not be
interested when the insurance is 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. Where the assured has no interest at the time of
the loss, he cannot acquire interest by any act or election after he is aware of the loss.”
Interpretation: This Section States that the Insured must be interested in subject matter at
time of loss. It is not necessary that the insured be interested when the insurance is affected.
However, when the parties are not aware about the existence or loss of goods they are
permitted under a clause “lost or not lost”. This type of policy is valid & assured can be
recover even if he acquires interest in goods after they have been lost.

 “According to Section 9- A defeasible interest is insurable, as also is a contingent interest.

Where the buyer of goods has insured them, he has an insurable interest, notwithstanding
that he might, at his election, have rejected the goods, or have treated them as at the seller’s
risk, by reason of the latter’s delay in making delivery or otherwise.”
Interpretation: This Section states a seller of goods has an insurable interest in the goods
up to the time that the risk in the goods passes to the buyer. This is called a defeasible
interest which is also called as contingent interest. For E.g.- Mr A send the goods to Mr B
on CIF (Cost, Insurance & Freight) Basis its means that the Insurance is to be arranged by
Mr A. If any Loss arises during transit, Mr A is entitled to get the compensation from the
Insurance company.

 “According to Section 16 of Marine Insurance Act 1963, there is a Quantum of

interest. —Where the subject-matter insured is mortgaged, the mortgagor has an insurable
interest in the full value thereof, and the mortgagee has an insurable interest in respect of
any sum due or to become due under the mortgage. A mortgagee, consignee, or other
person having an interest in the subject-matter insured may insure on behalf and for the
benefit of other persons interested as well as for his own benefit. The owner of insurable
property has an insurable interest in respect of the full value thereof, notwithstanding that
some third person may have agreed, or be liable to indemnify him in case of loss.”
Interpretation: The mortgagee has always an insurable composite interest in the policy as
a co-assured. The deliberate destruction of the insured subject matter, or other act of wilful
misconduct, by one co-assured will not preclude recovery by other co-assureds if they were
not themselves privy to the wilful misconduct and as long also that the loss constitutes an
insured peril (Composite Policy). The upshot, there is no clear-cut test which may be
applied to determine the existence of an insurable interest. The Courts examine the
assured’s relationship with the subject-matter of the insurance.

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 The Insurable Interest in Marine Insurance can be of the following forms:
i. According to Ownership:
The Owner has Insurable Interest up to full value o the subject matter. The Owners are of
different types according to 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 full price of cargo. If he has paid the freight in
advance, he can take policy for the full price of goods plus the amount of freight plus the
expense of insurance.
c.) In Case of Freight:
The Receiver of the Freight can Insure up to 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, &
may re-insure in respect to it.

iii.Insurable Interest in other cases:

In this case all those underwriters are included who have insurable Interest in the salary & own
liabilities. For Example- the master or any member of crew of a ship has Insurable Interest in
respect of his wages. The Lender of Money o bottom or respondent has insurable interest in
respect of loan.

Case Law in Regards to Insurable Interest (Macura vs Northern Assurance Co Ltd):

 Facts of the case:
i. The Appellant Mr. Macura formerly owned a wood bequest in Northern Ireland despite this
he offered the lumber to a Canadian possessing concern consenting to acknowledge
instalment in portions of the organizat ion.

ii. He got 42,000£ as an offer, which spoke to an instalment of £27,000 in regard

of the wood passed on and £15,000 to repay him for the cost of cutting up lumber
previously cut off Separated from the 42,000 portions which were held by the
appealing part y or his candidates, no offers were give n. The appealing party were
addit ionally a lender of the organizat ion to the degree of a further £ 19,000. The
organizat ion had pract ically no benefit s separated from their permit to enter on
the lit igant’s domain to cut lumber.

iii. The appealing part y took out fire protect ion on the lumber staying on his
bequest in his own name and the name of his bank to which he owed an enormous
over-draft. Present ly subsequent ly truly ext ensive harm was brought about by fire
and the lit igant looked to recuperate.

 Main Issue Arises: Whether Mr Macaura had an insurable int erest ?

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 Judgement:
i. The House of Lords ruled that insurers were not responsible under the contract because Mr.
Macaura had no insurable interest in the timber because his relationship was with the
corporation rather than the commodities. In this case, the application to lift the corporate veil
was submitted by the corporation’s owner, who claimed to hold the greatest percentage of
shares.
ii. The Court, however, decided that the corporator, even if he owns all the shares, is not the
corporation and that neither he nor any of the company’s creditors have any legal or equitable
property in the business’s assets.
iii. It was held in the lower courts, last ly in the Place of Masters, that he had no
insurable enthusiasm for the wood, because, as Ruler Sumner communicated it,
“His connect ion was to the organizat ion, not to its products.” Master Wren cover
succinct ly summarized the grounds whereupon the choice rested when he
stated: “The corporator, regardless of whether he holds all the offers, isn’t the
Partnership, and neit her he nor any bank of the organizat ion has any property
legit imate or fair in the advantages of the company.”

2. Principle of Utmost Good Faiths:

 In an ordinary commercial contract, the doctrine of utmost good faith mandates parties to
bargain fairly and honestly without misleading one another. This doctrine serves as the
basis of trust in a contractual agreement, where both parties believe that the transaction is
truthful and ethical. In the insurance, this doctrine of utmost good faith is a law that
mandates the insurer and the insured to disclose all the facts needed in a policy.

 The doctrine bars any the parties from withholding any information that is essential to the
contract. While the insured must provide all details including health history and other
contingencies, the insurer must disclose all the details of the policy, including the terms
and conditions. This doctrine first originated in the case between Carter and Boehm, before
it was developed in common law and subsequently added in the Marine Insurance Act 1906.

 Violations of the doctrine of good faith in a contract often has legal consequences
depending upon the nature or degree of the violation. The injured party can take legal
actions against the other party that provides inaccurate information. This can lead to
contract damages. Also, the contract is voidable by the injured party. The same conduct
may constitute criminal fraud.

 “According to Section 19 of Marine Insurance Act 1963- A contract of marine insurance

is a contract based upon the utmost good faith, and if the utmost good faith be not observed
by either party, the contract may be avoided by the other party. “
Interpretation: It is governed by the principle that the parties to the contract of insurance
owe one another the duty to disclose all facts which are material to the risk to enable them
reach a decision on whether to enter the contract and if so, on what terms. The requirement
of the utmost good faith imposes on the parties a higher stand and of probity than is required
in ordinary contracts of a commercial nature.

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 “According to Section 20- Subject to the provisions of this section, the assured must
disclose to the insurer, before the contract is concluded, every material circumstance which,
is known to the assured, and the assured is deemed to know every circumstance which, in
the ordinary course of business, ought to be known to him. If the assured fails to make such
disclosure, the insurer may avoid the contract.
i. Every circumstance is material which would influence the judgment of a prudent
insurer in fixing the premium, or determining whether he will take the risk.
ii. In the absence of inquiry the following circumstances need not be disclosed name:
(a) any circumstance which diminishes the risk
(b) any circumstance which is known or presumed to be known to the insurer. The insurer is
presumed to know matters of common notoriety or knowledge, and matters which an insurer
in the ordinary course of his business as such ought to know;
(c) any circumstance as to which information is waived by the insurer;
(d) any circumstance which it is superfluous to disclose by reason of any express or implied
warranty.
(4) Whether any circumstance, which is not disclosed, be material or not is, in each case,
a question of fact.
(5) The term "circumstance" includes any communication made to, or information
received by, the assured.”
Interpretation: As a result, the potential parties to it are bound to volunteer to each other
before the contract is concluded information which is material. The principle of utmost good
faith is the basis of all insurance transactions and this doctrine distinguished insurance from
other types of contracts. Strictly, the insured must manifest utmost good faith in all his dealings
with the insurer.

 According to Section 21- Disclosure by agent effecting insurance.

Subject to the provisions of the preceding section as to circumstances which need not be
disclosed, where an insurance is affected for the assured by an agent, the agent must disclose
to the insurer--
(a) every material circumstance which is known to himself, and an agent to insure is deemed
to know every circumstance which in the ordinary course of business ought to be known by, or
to have been communicated to, him; and
(b) every material circumstance which the assured is bound to disclose, unless it comes to his
knowledge too late to communicate it to the agent.
Interpretation: This duty is of three-fold firstly, to disclose all material facts, secondly not to
misrepresent material facts and thirdly, not to make fraudulent claims. The insured must
therefore volunteer and disclose all material facts relating to the subject matter of the insurance
within his actual or presumed knowledge at the time of making the contract. This means the
insured is bound to disclose what he knows or what he can ascertain by diligent enquiries. This
is known as the duty of disclosure or non-concealment.

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Case Law in Regards to Principle of Utmost Good Faith (Life Insurance Corporation of
India vs Asha Goel):
Facts of the Case:
i. The Respondent Smt. Asha Goel who is the wife of the Late Naval Kishore Goel was an
employee of M/s Digvijay Wollen Mills Limited at Jamnagar as a Labour Office.
ii. He submitted a proposal for a life insurance policy at Meerut in the State of U.P. on 29th
May, 1979 which was accepted and the policy bearing No.48264637 for a sum of Rs.1,00,000
(Rs. One lakh) was issued by the Corporation in his favor.
iii. The insured passed away on 12th December, 1980 at the age of 46 leaving behind his wife,
a daughter, and a son. The cause of death was certified as acute Myocardial Infarction and
Cardiac arrest.
iv. The respondent No.1 being nominee of the deceased under the policy informed the
Divisional Manager, Meerut City, about the death of her husband, submitted the claim along
with other papers as instructed by the Divisional Manager and requested for consideration of
her claim and for making payment.
v. The Divisional Manager by his letter dated 8th June, 1981 repudiated any liability under the
policy and refused to make any payment on the ground that the deceased had withheld correct
information regarding his health at the time of effecting the insurance with the Corporation.
The Divisional Manager drew the attention of the claimant that at the time of submitting the
proposal for insurance on May 29, 1979, the deceased had stated his usual state of health as
good; that he had not consulted a medical practitioner within the last five years for any ailment
requiring treatment for more than a week; and had answered the question if remained absent
from place of your work on ground of health during the last five years in the negative.
According to the Divisional Manager, the answers given by the deceased as aforementioned
were false.
Judgment:
I. The learned single Judge after examining the question of maintainability of the writ
petition from different angles, held that in view of the provisions of the Life Insurance
Corporation Act, 1956 and the relevant provisions of the Insurance Act, 1928 which are
applicable to the Corporation liability of the Corporation under a policy of life insurance
is a statutory liability and hence a writ petition can lie under Article 226 of the
Constitution.

ii. The learned Judge also considering the question on the assumption that the liability of the
Corporation under the policy is not a statutory liability but a contractual liability, held that even
then a writ petition under Article 226 of the Constitution can lie against the Corporation for
enforcement of such liability. On these findings the learned single Judge rejected the objection
of the Corporation against maintainability of the writ petition.

iii. Then the learned judge further considered the objection raised on behalf of the Corporation
that the case involves disputed questions of fact for determination of which it will be necessary
to record evidence and writ jurisdiction of the High Court under Article 226 of the
Constitution should not be exercised in such a case. He was not inclined to hold that the
matter involves disputed questions of fact just because the Corporation produced a document
which is inconsistent with those produced by the writ petitioner.

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iv.The learned Judge did not feel satisfied that this is a fit case in which the Corporation should
be granted liberty to lead evidence before the High Court. Examining the matter on merits the
learned single Judge referred to the provisions of section 45 of the Insurance Act, 1938 which
imposes certain restrictions on the scope of repudiation of a claim by the insurer and held that
the Corporation has not brought on record satisfactory evidence to establish any of the
conditions envisaged in the second part of section 45.

V. The learned Judge refused to draw a conclusion that the deceased was having heart ailment
in 1976 for which he had taken 13 days sick leave and held that much importance cannot be
attached to the leave records in the matter. On such findings, the learned Single Judge rejected
the case of the Corporation on merit. The operative portion of the judgment reads as
follows: In the result, the Life Insurance Corporation of India and the Respondent No.3 are
hereby directed to pay to the petitioner an amount of Rs.1,00,000/- (One Lakh) arising out
of Life Insurance Policy of her husband deceased Naval Kishore Goel, bearing
No.48264637, together with all the benefits accruing therefrom with interest at the rate of 15%
from the date of the death of the petitioners husband within a month. The LIC is also directed
to pay cost of Rs.2,000/- to the Asha Goel.

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