Marine Insurance

DEFINITION
 Insurance against risks connected with navigation, to which a ship,
cargo, freightage, profits, or other insurable interest in movable property,
may be exposed during a certain voyage or fixed period of time. (Act. No.
2427, Sec. 92)

 Also called Transportation Insurance

Major divisions of transportation insurance

1. Ocean marine insurance
- One of the oldest written forms of insurance and has to do primarily
with the insurance of sea perils.

Scope
Provide protection for:
a. Ships or hulls
b. Goods or cargoes
c. Earnings such as freight, passage money, commissions, or
profits;
d. Liability (known as “protection and indemnity insurance”)
incurred by the owner or any party interested in or responsible
for the insured property by reason of marine perils.
e.
2. Inland marine insurance
- A comparatively recent origin and covers primarily the land or over
the land transportation perils of property shipped by railroads, motor
trucks, airplanes, and other means of transportation.

- It also covers risks of lake, river, or other inland waterway

transportation and other waterborne perils outside of those risks that
fall within the ocean marine category.

What is the risk insured against in marine insurance?

General Rule: Only perils of the sea is insured against.
Exception: Unless perils of the ship are covered by an all-risks policy.

What does “perils of the ship” mean?

It is a loss which, in the ordinary course of events, results from:
1. The natural and inevitable action of the sea
2. The ordinary wear and tear of the ship
3. The negligent failure of the ship’s owner to provide the vessel with proper
equipment to convey the cargo under ordinary conditions.

What does the phrase “perils of the sea or perils of navigation” mean?
It includes only those casualties due to the unusual violence or extraordinary
action of wind and wave, or to other extraordinary causes connected with
navigation.

What is an “all risks” marine insurance policy?

General Rule: It is that which insures against all causes of conceivable loss or
damage.
Exception:
1. As otherwise excluded in the policy; or
2. Due to fraud or intentional misconduct on the part of the insured. (Choa
Tiek v. CA, G.R. No. 84507, Mar. 15, 1990) This type of policy grants greater
protection than that afforded by the “perils clause.”

Coverage of marine insurance

(Sec. 101) Marine insurance includes:
1. Insurance against loss or damage to:
a. Vessels, goods, freight, cargo, merchandise, profits, money, valuable papers,
bottomry and respondentia, and interest in respect to all risks or perils of
navigation;
b. Persons or property in connection with marine insurance;
c. Precious stones, jewels, jewelry and precious metals whether in the course of
transportation or otherwise; and
d. Bridges, tunnels, piers, docks and other aids to navigation and
transportation (Sec. 99)
Note: Cargo can be the subject of marine insurance, and once it is entered into,
the implied warranty of seaworthiness immediately attaches to whoever is
insuring the cargo, whether he be the ship owner or not. (Roque v. IAC, G.R.
No. L-‐66935, Nov. 11, 1985)

2. “Marine protection and Indemnity insurance” which means insurance

against, or against legal liability of the insured for loss, damage, or
expense incident to ownership, operation, chartering, maintenance, use,
repair, or construction of any vessel, craft or instrumentality in use of
ocean or inland waterways, including liability of the insured for personal
injury, illness or death or for loss of or damage to the property of another
person. (Sec. 99) Measure of indemnity:
a. Valued policy – the parties are bound by the valuation, if the insured had
some interest at risk and there is no fraud (Sec. 158)
Sec. 158. A valuation in a policy of marine insurance is conclusive
between the parties thereto in the adjustment of either a partial or
total loss, if the insured has some interest at risk, and there is no
fraud on his part; except that when a thing has been hypothecated
by bottomry or respondentia, before its insurance, and without the
knowledge of the person actually procuring the insurance, he may
show the real value. But a valuation fraudulent in fact, entitles the
insurer to rescind the contract.
- The object of valuation in a policy is to fix in advance the value of the
property and thus avoid the necessity of proving its actual value in case
of loss.
b. Open policy – the following rules shall apply in estimating a loss:
i. value of the ship-‐ value at the beginning of the risk
ii. value of the cargo-‐ actual cost when laden on board or market value at the
time and place of lading
iii. value of freightage-‐ gross freightage exclusive of primage
iv. cost of insurance – in each case to be added to the estimated value (Sec.
163)
What vessels are contemplated in marine insurance?
Those used, or at least, intended for navigation. E.g., one for shipping,
chartering, voyage and the like. Vessels which are used as museums or those
that are stationary are not entitled to be insured under this a marine
insurance.

INSURABLE INTEREST
 Insurable interest in marine insurance is the thing insured.
Examples of things insured:
- Ship
- Cargo
- Vessel
- Advances of passage money

Who has insurable interest?

 Sec. 107. One who has an interest in the thing from which profits are
expected to proceed has an insurable interest in the profits.

1. In the case of vessel – Owner of the ship (Sec. 102), Lender in bottomry
(Sec. 103), Charterer (Sec. 106)
 2. In the case of cargo – Shipper or the consignee depending upon the
terms of sale.
3. In the case of a vendee/consignee of goods in transit - vendee/consignee
Types of charter parties
Charter party
- A contract by which an entire ship or some principal part thereof is lent by
the owner to another person for a specified time or use.

2 Types of charter parties:

1. Bareboat or demise charter
- A demise of a vessel
- The ship owner turns over full possession and control of his vessel to
the charterer, who then undertakes to provide a crew and victuals
and supplies and fuel for her during the term of the charter.
- The charterer becomes, in effect, the owner for the voyage or service
stipulated, subject to liability for damages caused by negligence.

2. Contract of Affreightment
- The owner of the vessel leases a part or all of its space to haul goods
for others.
- It is a contract of special service to be rendered by the owner of the
vessel who retains the possession, command and navigation of the
ship, the charterer or freighter merely having use of the space in the
vessel in return for the payment of the charter hire or freight.

Types of Contract of Affreightment

1. Voyage charter
2. Time charter

CONCEALMENT
 Concealment in marine insurance is the failure to disclose any material
fact or circumstance which in fact or law is within, or which ought to be
within the knowledge of one party and of which the other has no actual or
presumptive knowledge.

 Under Section 109, to constitute concealment, it is sufficient that the

insured is in possession of the material fact concealed although he may
not be aware of it.

 There is concealment where the insured at the time of application for

insurance did not disclose the opinion of marine experts who inspected
the vessel insured that it was unseaworthy.

Insured is bound to communicate to the insurer:

1. Beliefs or opinions of third persons
2. Expectations of third persons
 Section 111. A person insured by a contract of marine insurance is
presumed to have knowledge, at the time of insuring, of a prior loss,
if the information might possibly have reached him in the usual
mode of transmission and at the usual rate of communication.

REPRESENTATION
General Rule: A representation is material where it would influence the
judgement of a prudent insurer in fixing the premium or in determining
whether he would take the risk, is applicable to marine insurance.

Effects of false representation by insured

1. Intentional – avoids the policy
2. Not intentional – insurer may rescind the contract from the
representation becomes false

IMPLIED WARRANTY
 In marine insurance, a warranty has been defined as a stipulation, either
express or implied, forming part of the policy as to some fact, condition
or circumstance relating to the risk.
 Implied warranties are conditions upon the underwriter’s liability for the
risk assumed upon any marine venture whether of vessel, cargo, or
freight.

Implied warranties
The insurer will not be liable for any loss under his policy in case the vessel:
1. Is unseaworthy at the inception of the insurance (Sec. 115); or
2. Deviates from the agreed voyage (Secs. 125, 126, 127); or
3. Engages in an illegal venture;
4. The ship will carry the requisite documents of nationality or neutrality of
the ship or cargo where such nationality or neutrality is expressly
warranted. (Sec. 122)

VOYAGE AND DEVIATION

Sec. 125. A deviation is a departure from the course of the voyage
insured, mentioned in the last 2 sections, or an unreasonable delay
in pursuing the voyage of the commencement of an entirely different
voyage.
Deviation is any unexcused departure from the regular course or route of the
insured voyage or any other act which substantially alters the risk.
Cases of deviation:
 1. Departure from the course of sailing fixed by mercantile usage between
the places of beginning and ending specified in the policy. (Sec. 123);
2. Departure from the most natural, direct, and advantageous route
between the places specified if the course of sailing is not fixed by
mercantile usage (Sec 124);
3. Unreasonable delay in pursuing the voyage (Sec. 125);
4. The commencement of an entirely different voyage.

Kinds of Deviation:
1. Proper – Specified in Section 126
2. Improper – Not specified in Section 126

LOSS
Kinds of losses
 Total or partial (Sec. 129)
Kinds of Total Loss
1. Actual or absolute (Sec. 132)
- Actual total loss exists when the subject matter of the insurance is
wholly destroyed or lost or when it is so damaged as no longer to exist
in its original character.

- When the loss is total, the underwriter is liable for the whole of the
amount insured.
Causes of actual total loss:
a. A total destruction of the thing insured;
b. The irretrievable loss of the thing by sinking, or by being broken up;
c. Any damage to the thing which renders it valueless to the owner for
the purpose for which he held it; or
d. Any other event which effectively deprives the owner of the
possession, at the port of destination, of the thing insured.

2. Constructive or Technical (Sec. 133)

- One in which the loss, although not actually total, is of such a
character that the insured is entitled, if he thinks fit, to treat it as
total by abandonment.

Distinction between actual and constructive total loss

1. Actual total loss – abandonment is necessary
2. Constructive loss – abandonment becomes necessary in order to recover
as for a total loss.

Presumption of actual total loss

Sec. 134. An actual loss may be presumed from the continued
absence of a ship without being heard of. The length of time which
 is sufficient to raise this presumption depends on the circumstances
of the case.

Liability of insurer in case of reshipment (Insurance upon a cargo)

- Marine insurer’s liability on the cargo continues after they are
reshipped.
In any case, the insurer may require an additional premium if the hazard be
increased by the extension of liability. (Sec. 135)

Additional liability of insurer of goods (Sec. 136)

1. Damages
2. Expenses of discharging, storage, reshipment, extra freightage
3. All other expenses incurred in saving the cargo reshipped
The liability of the marine insurer cannot exceed the amount of the insurance.

Average
– any extraordinary or accidental expense incurred during the voyage for the
preservation of the vessel, cargo, or both and all damages to the vessel and
cargo from the time it is loaded and the voyage commenced until it ends and
the cargo unloaded.

Kinds of Averages
1. Gross or general averages – includes damages and expenses caused by
the master of the vessel or upon his authority

2. Simple or particular averages – includes all damages and expenses

caused to the vessel or to her cargo

- A general average loss must be borne equally by all of the interests

concerned in the venture in proportion to the value of the property
saved.
- A particular average loss is suffered by and borne alone by the owner
of the cargo or of the vessel, as the case may be.

Liability of insurer for general average

Liable for his proportion of all general average loss assessed upon the thing
insured.

Liability of insurer for particular average

In the absence of any contrary stipulation, the insurer is liable for particular
average loss.
 ABANDONMENT
Sec. 140. Abandonment, in marine insurance, is the act of the
insured by which, after a constructive total loss, he declares the
relinquishment to the insurer of his interest in the thing insured.

Requisites for valid abandonment in marine insurance

1. There must be an actual relinquishment by the person insured of his
interest in the thing insured. (Sec. 140)
2. There must be a constructive total loss (Sec. 141)
3. The abandonment be neither partial nor conditional (Sec. 142)
4. It must be made within a reasonable time after receipt of reliable
information of the loss (Sec. 143)
5. It must be factual (Sec. 144)
6. It must be made by giving notice thereof to the insurer which may be
done orally or in writing. (Sec. 145); and
7. The notice of abandonment must be explicit and must specify the
particular cause of the abandonment (Sec. 146)

MEASURE OF INDEMNITY