Marine insurance: Marine insurance covers the risks associated with marine transport through a

variety of contracts. It’s a contract in which the insurer undertakes to indemnify the insured in
the event of a loss.
Goods and other materials exposed to perils of the sea constitute insurable property. If the contract
covers the ship, it is called hull insurance and if it covers goods, it is called cargo insurance.

Different types of Marine Insurances

1. Hull Insurance: Hull insurance mainly caters to the torso and hull of the vessel along
with all the articles and pieces of furniture on the ship. This type of marine insurance is
mostly taken out by the owner of the ship to avoid any loss to the vessel in case of any
mishaps occurring.
2. Machinery Insurance: All the essential machinery are covered under this insurance and
in case of any operational damages, claims can be compensated (post-survey and
approval by the surveyor).

The above two insurances also come as one under Hull & Machinery (H&M) Insurance. The
H&M insurance can also be extended to cover war risk covers and strike cover (strike in port
may lead to delay and increase in costs)

3. Protection & Indemnity (P&I) Insurance: This insurance is provided by the P&I club,
which is ship owners mutual insurance covering the liabilities to the third party and risks
which are not covered elsewhere in standard H & M and other policies.

Protection: Risks that are connected with ownership of the vessel. E.g. Crew related claims.

Indemnity: Risks that are related to the hiring of the ship. E.g. Cargo-related claims.

4. Liability Insurance: Liability insurance is that type of marine insurance where

compensation is sought to be provided to any liability occurring on account of a ship
crashing or colliding and on account of any other induced attacks.
5. Freight, Demurrage and Defense (FD&D) Insurance: Often referred to as “FD&D” or
simply “Defense,” this insurance provides claims for handling assistance and legal costs
for a wide range of disputes which are not covered under H&M or P&I insurance.
6. Freight Insurance: Freight insurance offers and provides protection to merchant vessels’
corporations which stand a chance of losing money in the form of freight in case the
cargo is lost due to the ship meeting with an accident. This type of marine insurance
solves the problem of companies losing money because of a few unprecedented events
and accidents occurring.
7. Marine Cargo Insurance: Cargo insurance caters specifically to the marine cargo
carried by ship and also pertains to the belongings of a ship’s voyages. It protects the
cargo owner against damage or loss of cargo due to ship accident or due to delay in the
voyage or unloading. Marine cargo insurance has third-party liability covering the
damage to the port, ship or other transport forms (rail or truck) resulted from the
dangerous cargo carried by them
The time limit for claims that are right to compensation may vary depending upon the content of
the policy, and action is to be brought within that period from the date when the damage
occurred.

For Newly built ships, the shipowner is under contract with the shipyard to take out insurance
cover for a period (usually one year) from the date of yard delivery.

In addition to these types of marine insurance, there are also various types of marine insurance
policies which are offered to the clients by insurance companies so as to provide the clients with
flexibility while choosing a marine insurance policy.

The availability of a wide array of marine insurance policies gives a client a wide arena to
choose from, thus enabling him to get the best deal for his ship and cargo.

Types Of Marine Insurance Policies

The different types of marine insurance policies are detailed below:

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

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

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

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

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

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

• Wager Policy: A wager policy is one where there are no fixed terms for reimbursements
mentioned. If the insurance company finds the damages worth the claim then the
reimbursements are provided, else there is no compensation offered. Also, it has to be
noted that a wager policy is not a written insurance policy and as such is not valid in a
court of law.
 • Floating Policy: A marine insurance policy where only the amount of claim is specified
and all other details are omitted till the time the ship embarks on its journey, is known as
a floating policy. For clients who undertake frequent trips of cargo transportation through
waters, this is the most ideal and feasible marine insurance policy.

• Single Vessel Policy: This policy is suitable for small shipowner having only one ship or
having one ship in different fleets. It covers the risk of one vessel of the insured.

• Fleet Policy: In this policy, several ships belonging to one owner are insured under the
same policy.

• Block Policy: This policy also comes under maritime insurance to protects the cargo
owner against damage or loss of cargo in all modes of transport through which his/her
cargo is carried i.e. covering all the risks of rail, road, and sea transport.

Marine Insurance is an area which involves a lot of thought, straightforward and complex dealings
in order to achieve the common ground of payment and receiving.

But as much as complex the field is, it is nonetheless interesting and intriguing because it caters to
a lot of people and offers a wide range of services and policies to facilitate easy and uncomplicated
business transactions.

Therefore, in the interest of the clients and the insurance providers, it is beneficial and relevant to
have the right kind of marine insurance. It resolves problems not just in the short run, but also in
the long run as well.

Principles of Marine Insurance:

1. Principle of Good Faith: The marine insurance policy strictly reckon upon the principle of
good faith wherein while filing the marine insurance policy document every information
given by the applicant must be correct. Besides, there should not be any discrepancy by
the applicant. In case, if the applicant gives false information or hides any information,
then the marine insurance providers have all the rights to reject the marine insurance
policy application.
2. Principle of Insurable Interest: Based on this Principle, While buying marine insurance
policy the insured must have some insurable interest for whom the insured to get an
advantage when the goods are arrived securely likewise suffer a loss in the case of
hampered goods. On the off chance, there is a possibility that while buying the marine
insurance policy the insured does not have an insurable interest. So in such a case, the
insurer needs to be mentally prepared he would get such interest in the nearby future.
Remember, it is essential to have an insurable interest or else the insured will not be able
for a claim settlement from the insurance provider.
3. Principle of Indemnity: This should clearly be understood even before buying the marine
insurance policy that the insured will only be able to receive compensation depending
upon the loss. The compensation to be received by the insured in any case would not be
 more than the incurred actual loss. So, buy marine insurance when required and not to
earn profits.
4. Principle of Proximate Cause: When a loss incurs, the insured will contemplate the
proximate cause to understand the actual fount of the loss as there is a possibility of series
of causes, which could be attributed for the incurred loss. To be precise, to determine the
liability the remote cause for the loss is not required. Therefore, when the proximate
cause is insured, the insurance provider needs to settle the claim.
5. Principle of Subrogation: In simplest words, the principle of subrogation follows the
principle of indemnity wherein the insured is not allowed to make any profits out of the
incurred loss. It is precisely the shift of the rights and remedies of an insured to an insurer
who has recompensated the insured in terms of the loss. For instance, let us consider a
situation wherein furnishings worth Rs. 1, 00,000 are insured against fire and ignition.
Now, supposedly the furnishing is burnt down. Here, the insured is paid the complete
amount of Rs.1, 00,000 by the insurance provider. Now, the damaged furnishing is sold
for Rs, 10,000. The insurer will receive an amount of Rs, 10,000.
6. Principle of Contribution: There are chances that certain goods might be insured with
more than two insurers against the same perils. Under such circumstances, the insurance
provider needs to split the weight of payment in proportion to the insured amount by
each.

What is Marine Insurance Act 1906?

The Marine Insurance Act 1906 is an Act of UK Parliament regulating Marine Insurance. The
Marine Insurance Act 1906 (MIA-1906) defines Marine Insurance along with various associated
terms such as warranties, conditions, average and various types of losses that would be covered.

Marine Insurance Act 1906 was drafted by Sir Mackenzie Chalmers and is a codification of around
200 years of judicial decisions.

The Marine Insurance Policy and the Institute Cargo Clauses that followed were based on Marine
Insurance Act, 1906. Thus, an understanding of MIA 1906 is essential to all those interested in
Marine Insurance.

Chapter 3
What is Cargo Insurance?

Cargo insurance is an exemplary risk management tool that protects against financial losses due
to lost or damaged cargo. The cargo insurance coverage includes events mentioned in the policy
like vehicle accidents, cargo renunciation, damage due to natural calamities, acts of war, piracy,
etc. It covers up to the limit of an amount insured and is different from carrier liability.

What is the Difference Between Cargo and Freight Insurance?

Usage of these two terms, freight, and cargo, refers to goods transported for commercial
purposes by a business. Though the perception is that these two terms can be interchangeably
used; both hold significant differences:

• Freight is usually for the transportation of goods via trucks, small utility vehicles, and
trains. On the other hand, the term cargo is generally used for transporting goods via
ships and airplanes.
• Freight charges are fees or expenses the carrier charges. In contrast, the word cargo is to
define goods and not any charges.
• Cargo specifies goods shipped to larger vehicles like ships or vessels, whereas freight
refers to packages that can be transported in small or medium-sized utility vehicles.

In the insurance sector, freight and cargo are separate terms, and coverages are available
accordingly. Hence, businesses must avail of the appropriate policy based on the maximum
usage of a particular transportation mode.

What does Freight & Cargo Insurance Cover?

Different types of unforeseen incidents can occur during transit via road, sea, or airline. To
safeguard a business from bearing heavy physical losses due to loss or damage of shipments,
here are the primary coverages that cargo insurance companies provide:

1. Cargo insurance companies mostly provide coverages for damage caused due to
explosions or fires, stranding or sinking, etc.
2. Covers additional expenses raised due to overturning, collision, or other road
inconveniences
3. Insurance covers damages due to earthquakes, floods, tsunamis, or volcanic eruptions.
4. Package lost while loading or unloading and handling
5. Any damage caused due to the entry of seawater into ships and vessels.

Besides the scenarios mentioned above, cargo insurance companies offer lucrative security to
shipments in other cases that may vary across insurers.

What are the Types of Cargo Insurance?

Generally, cargo insurance is of two types – marine and land cargo insurance.
Land Cargo Insurance

As the name suggests, land cargo insurance is for the cargo which uses the road as its mode of
transportation and is usually shipped in trucks and other utility vehicles. This insurance offers
coverage in incidence related to collision damages, theft, and other risks in freight shipping. This
type of insurance is for the shipment of goods within the country's geographical boundaries.

Marine Cargo Insurance

Marine cargo insurance is used for international shipment through sea routes and covers the air
portion when it is part of that same journey. This type of insurance offers coverage on any
damages due to bad weather conditions, loading and unloading of goods, piracies, and other
possible losses involved while the cargo has the Airline and Shipping line.

In addition, this freight insurance has several kinds of policies which are mentioned below in
brief:

1. Single Coverage

Single coverage policies are also known as specific coverage policies and offer coverage on a
single shipment basis. Generally, small business owners who have started getting sales or
businesses who send shipments infrequently use a single coverage policy.

2. Contingency Policies

Contingency policies are the ones where a consumer has a liability to bear the cargo insurance
cost. A lot of times, customers avoid liability for the damage and refrain from accepting the
goods. However, this involves getting assistance from legal bodies that will pass an order for a
consumer to pay on being proven responsible. Hence, for these reasons, the contingent policy
includes additional charges and requires time.

3. Open Coverage

This kind of policy is suitable for companies that send shipments through airlines and shipping
lines frequently. Open coverage is opted for covering more than one shipment for a year or
specific period. This effective instrument used for risk management has two types:

• Permanent The permanent policy is imposed for a certain period, like one year, and offers
coverage to an unlimited number of shipments within this timeframe.
• Renewable This kind of policy can be renewable in between the delivery of cargo which
makes it ideal for businesses to transport single shipments.
4. Free from Particular Average

Also known as named peril policy, this kind of ocean cargo insurance covers the major damages
that all-risk coverage policy does not cover. This includes Force Majeure or unpredictable
events, rough weather conditions, theft or piracy, collision, damage due to sinking, non-delivery
of the cargo, etc.

5. All-Risk Coverage Policy

The all-risk coverage covers a wide array of damages that are caused due to uncontrollable
external factors. This insurance policy covers primarily new products and is not easily vulnerable
to any damage, leakage, or spoilage. Some of the damages that this policy does not cover are:

• Customs rejection
• Force Majeure events like a volcanic eruptions or natural calamities
• Damage or loss due to war, riots, or any civil unrest as mentioned in WSRCC
• In cases of unpaid goods
• Occurrence of damage due to negligence on the exporter or importer’s behalf
• Cargo abandonment

This policy offers the industry's best coverage rates and has easy accessibility under any
circumstances.

6. General Average

The general average is quintessential for marine freight as the principle of this concept helps
businesses to a great extent. As per this policy, even if the cargo of a specific owner does not go
through any damage or loss due to any turbulence during transit via sea, they will be liable to pay
for damages of other cargo. In other words, owners of surviving merchandise on board the same
ship must share the cost of loss or damage if some of the goods belonging to other owners are in
bad condition or lost completely.

The policyholder must separately include a general average in a policy as it will not be present
by default. Statistically, though this type of claim happens every 8-9 years, it puts an owner of a
damaged cargo in an advantageous position.

Chapter 4
Hull And Machinery Insurance

Hull and machinery insurance provides physical damage protection for the ships, vessels,
and their machinery.
Since the soundness and normal operation of the hull and machinery of a ship are key to the
safe transportation and delivery of any cargo or freight, it is highly advisable that ship owners
purchase hull and machinery insurance.

Characteristics Of Hull And Machinery Insurance

• Hull and machinery insurance is a type of ocean marine insurance. This hull coverage
protects the insured vessel or fleet against physical damage caused by a peril of the sea
or other covered perils while the vessel is in transit over water.
• Although the most commonly insured vessels are those operating in the ocean or the
sea, hull and machinery insurance can cover vessels that work in any kind of waterway.
For example, tugboats, barges, floating machinery, and even oil rigs which operate in
coastal areas.
• Hull and machinery insurance policies can be written to cover a single vessel or the
whole fleet of a ship owner.
• A deductible specified in the policy declarations is payable in the event of a hull and
machinery insurance claim.

What Is Covered Under Hull Insurance?

Hull and machinery insurance primarily addresses two things:

1. Physical damage done to your ship or vessel. This can include fire damage, storms,
and other perils.
2. Collision liability liability. In the event that your boat collides with another vessel and
damages property and/or cargo in the process, this provision could protect you against
legal liability.

It’s possible to take out hull insurance on a fleet of vessels owned by a single owner. The
policy can also cover various vessels operating in waterways, like tugboats or floating
machinery.

Chapter 5

What is Marine Protection and Indemnity (P&I) Insurance?

Ship owners need to be mindful of many perils their vessels are subjected to during operations.
Along with ensuring financial protection in case of damage to cargo or the ship, they also need
to consider potential lawsuits should their ship cause damage to a third party. Equally essential
is to remain guarded against legal actions from crew and passengers.
While a marine insurance policy safeguards ship owners financially if their ship suffers
physical damages, marine protection and indemnity insurance protects them from third-party
liability risks. It is one of the essential marine insurance coverages offered, the others being
hull coverage and cargo insurance.

The Need for Marine Protection and Indemnity Insurance

Ship-owners, today, require coverage beyond traditional ones. They are exposed to a range of
unique third party liabilities that could result in expensive lawsuits. Settling them can pinch
finances hard. Therefore, ship owners need to have this coverage for comprehensive protection.

For example, an oil spill from a ship can cause environmental damages worth several lakh
dollars, resulting in many civil lawsuits. Deaths to passengers and crew members because of
accidents or illnesses may also lead to settling expensive claims and paying for medical
expenses. Hence, as a vessel owner, you need to be financially prepared to face such liabilities.

Coverage Under Marine Protection and Indemnity Insurance

Loss of life, illness or injury to crew member and passengers

Marine protection and indemnity insurance will help you settle claims arising due to loss of life,
illness or injury to the vessel’s crew members and passengers. In the past, many cases of crew
members and passengers losing their lives or injuring themselves on ships have come to the fore
resulting in expensive litigation for ship owners.

Medical expenses
Treatment of injured crew members and passengers can be an expensive affair. Marine
protection and indemnity insurance can help ship owners bear these costs to some extent.

Age of Employees
Age is a critical factor while buying health insurance, and group health insurance policy is no
different. Risk increases with age as the body becomes vulnerable to several ailments. If the
employees’ age is on the higher side, you need to pay a higher premium towards the plan.

Damage to other vessels

If your vessel accidentally causes damage to another ship, the other ship-owner can sue you.
However, marine protection and indemnity insurance can help you pay for the damages and
cover the legal cost.

Along with these coverages, this insurance policy also covers costs for removing wrecks,
repatriation of crew members, wars and political risks, among others.
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