Marine Insurance

Prof Mahesh Kumar Amity Business School profmaheshkumar@rediffmail.com

History
a)

b)

Historically marine insurance were of two types: Bottomary loan which was a transaction protecting an owner from financial loss if his ship was destroyed. Premiums were calculated on the basis of intuition instead of mathematical estimates. Respondentia loans were comparable to bottomary loans. The difference being a merchant would take a loan using cargo as a collateral. The money lender for a premium in addition to the regular interest charged, agreed to forgive the loan if the cargo was lost.

History

The Indian Marine Insurance Act came into operation on August 1, 1963 and is a comprehensive document containing all regulations of marine insurance business in India. Prior to this Act, the insurance business was conducted on the basis of the principles of General Contract Act and English Marine Insurance Law. Marine insurance includes two types of insurance i.e. Cargo insurance and hull insurance.

History

The cargo insurance includes the goods in transit from the place insured to the sea and from sea to the exporter. The hull insurance is concerned with body, the machinery and technical know-how, stores tools etc of the ship. Marine Insurance covers the loss or damage of ships, cargo, terminals and any transport or property by which cargo is transferred, acquired or held between the points of origin and final destination. Marine Insurance has been made mandatory in export-import business.

Advantage to Business

Marine insurance also provides liquidity to the exporter as he can discount his bills with local banker without waiting for the bills being by the overseas importer which is usually after they receive the goods which may take months in ocean transit.

Definition of Marine Insurance Business

A contract of marine insurance is defined by the Marine Insurance Act 1963 as an ‘agreement whereby the insurer undertakes to indemnify the assured, in the manner and to the extent thereby agreed losses incidental to marine adventure. It may cover loss or damage to vessels, cargo or freight.’ Sec 2 (C & F) of the Marine Insurance Act, 1963 defines marine insurance and includes the movables exposed to maritime perils. Movables mean movable tangible property, which includes money, valuable securities and documents etc.

Types of Marine Insurance
There are four types / classes of marine insurance: a) Hull Insurance: covers physical damage to the ship or vessel. In addition it contains a collision liability clause that covers the owner’s liability if the ship collides with another vessel or damages its cargo. b) Cargo Insurance: covers the shipper of goods if the goods are damaged or lost. The policy can be written to cover a single shipment. If regular shipments are made, an open cargo policy can be used that insures the goods automatically when a shipment is made. The open cargo policy has no expiration date and remains in force till it is cancelled.

Types of Marine Insurance
c)

d)

Protection and Indemnity (P&I) insurance: is usually written as a separate contract that provides comprehensive liability insurance for property damage or bodily injury to third parties. P&I insurance protects the ship owner for damage caused by ship to piers, docks and harbor installations, damage to ship’s cargo, illness or injury to the passenger or crew and fines and penalties. Freight Insurance: indemnifies the ship owner from the loss of earnings if the goods are damaged or lost and are not delivered.

Insurable Property

Insurable property means any ship, goods or other movables exposed to maritime perils. Insurable property must be stated in the policy with reasonable certainty.

Marine Adventure
 1. 2.

3.

There is a marine adventure, whenAny insurable property is exposed to marine perils. The earning of freight, passage money, commission, profit or other pecuniary benefit or security for any advances, loans or disbursements is endangered by the exposure of insurable property to maritime perils. The owner of or other person interested in or responsible for insurable property by reason of maritime perils may insure any liability to the third party.

Voyage
 

Voyage is the journey that the vessel undertakes. The ship could carry on the voyage in the specified route which is mentioned in the policy. Change of voyage is permitted only in a few specified circumstances.

Maritime Perils / Perils of the Sea
 

Maritime Perils are also called ‘Perils of the Sea.’ It means the perils consequent on or incidental to the navigation through the sea for example- fire, war perils, rovers, thieves, captures, seizures, jettisons, barratry and other perils. The term ‘Perils of the Sea’ refers only to fortuitous accidents or casualties of the seas and does not include the ordinary action of winds and waves.

Types of Risks/ Perils covered by the Marine Insurance Policy
1)

2)

3) 4) 5) 6)

Sinking, stranding and grounding of ship/vessel/boat or craft. Collision or contact of vessels, ships, boats with internal and external objects. Discharge of cargo at a port of distress. Average general sacrifice. Volcanic eruption or lightning or fire or explosion. Loss of goods or packages containing goods or articles, dropping of packets or package during loading or unloading while on board or off the broad.

Types of Risks/ Perils covered by the Marine Insurance Policy
7) 8) 9) 10) 11) 12)

Loss caused by delay, wrongful delivery, malicious damage. War, sea pirates, other perils like cyclones, typhoons, spirals. Strikes, riots, lockout, civil commotions & terrorism. Theft, pilferage, breakage & leakage. Loss caused by heating due to the closure of ventilators to prevent the entry of sea waters. Loss caused by rats i.e. a hole made in the bottom of the ship, through which sea water enters the ship and damages the cargo. Marine insurance apart from indemnifying the assured against the maritime perils also includes liability of the third party incurred by the owner of the ship or other person interested in the property assured on happening of the maritime event.

Types of Risks/ Perils covered by the Marine Insurance Policy
 1)

2)

3) 4)

Thus marine insurance includes: Insurance of vessels (hull) of any description. (Hull insurance is concerned with body, the machinery & technical know how, stores tools etc. It also includes ships, mechanized boats etc and consignments transported by rail and road.) Insurance of cargo in vessels ( Cargo insurance includes goods in transit from the place of insured to the sea and from the sea to the exporter. Freight paid or received by the assured. Insurance of third party liability

Types of Risks/ Perils covered by the Marine Insurance Policy
4)

5)

6)

Insurance of transactions which are incidental to the marine adventure or marine transport or transport of cargo from go down to the vessel. Insurance also includes all perils and risks incidental to money, documents, securities & other valuable goods in the ship. Other incidental activities concerned with building, launching of ship or transport of stores concerned.

Summary
 •

Marine insurance is a contract: The contract is made to indemnify the assured for the marine losses and other losses incidental to marine adventure. The parties to the contract agree about the manner and the extent of indemnification in the event of loss. The subject matter of the agreement or the contract of marine insurance includes: cargoes, vessels of any description, freights and other interest in relation to such vessels, cargoes.

Summary

Property of whatever description can be assured for any transit by land or water or by both. May exclude or include warehouse risks or similar risks in addition or as incidental to transit. Any other risks customarily included among the risks assured against marine insurance policies.

Marine Policy

The document containing the contract of insurance is known as the ‘Marine Policy’ or ‘Sea Policy’. The clauses are framed in relation to risk covered, risk excluded and other terms and conditions of the insurance.

Contents of Marine Policy
1. 2. 3. 4. 5. 6. 7. 8. 9.

10. 11.

Name of the insured. Policy Number Sum Assured The subject matter insured and the perils covered Place where claims were payable Streamer (or) other conveyance. Stamp duty (as per the provisions of the Indian Stamp Act 1879) Voyage or Journey Number or date of bill of lading or Registered Port or Air freight receipt. (as the case may be) Place of issue of policy and date. Signature of authorized person signing on behalf of the insurers.

Essentials Elements or Principles of Marine Insurance
1. 2. 3. 4. 5. 6. 7. 8. 9.

Fundamentals of general contract Insurable interest Utmost Good Faith Indemnity Subrogation Contribution Warranties Causa proxima Assignment & Nomination of a policy

Features of A General Contract

1. 2. 3. 4.

A marine policy must fulfill all the essentials of a valid contract namely Offer and Acceptance Consideration Capacity Legal Purpose

Insurable Interest

1. 2. 3. 4. 5. 6. 7. 8.

According to Marine Insurance Act 1963, ‘every person has an insurable interest who is interested in a marine adventure’. The following persons have insurable interest in Marine Insurance. Owner of the Ship Owner of the Cargo Creditor who has advanced money on a ship or cargo to the extent of his interest in such ship or cargo Mortgager Mortgagee Master and crew – for wages Bottomry bond hold Person who pays advance freight is recoverable on loss

Insurable Interest
9. 10.

11. 12. 13. 14.

Shipper and their Agents Persons contingent interest such as the buyer, though the goods may be at seller’s risk and though he may have right to reject the goods, but has paid. Trustee Bailee Insurer- he can reinsure Assignee of bill of lading

Utmost Good Faith

The insured must disclose all those relevant facts to the insurer which are likely to affect his willingness to undertake the risk. If either party does not disclose full facts, the other party can avoid the contract at any time.

Contract of Indemnity

Under this contract, the underwriter agrees to indemnify the insured against losses by sea risk to the extent of the amount insured. The insured can recover only the actual loss suffered and nothing more.

Principle of Subrogation

According to this principle after meeting the loss agreed, the insurer steps into the shoes of the insured and becomes entitled to all rights and remedies available to the insured against the insured property or third persons.

Principle of Contribution/Double Insurance
 

a) b) c)

The doctrine of contribution applies to marine insurance. If the subject has been insured with more than one insurer, each insurer has to pay only the ratable proportion of loss subject to the maximum loss. The principle supports the concept that the insured cannot recover amounts on the same property for the same peril from more than one insurer. Thus, according to Sc 34, the pre requisites of double insurance/contribution are: There must be two or more policies. The policies must relate to the same adventure and interest or any part thereof. The sums insured must exceed the indemnity allowed by this Act

Warranties

According to Marine Insurance Act, a warranty means a stipulation or term, the breach of which entitles the insurers to avoid the policy altogether and this is so even though the breach arises through circumstances beyond the control of the warrantor. Warranties can be expressed (written) or implied.

Express Warranties

1. 2.

3.

4.

The expressly stated written warranties and may be like The ship is safe on a particular day The ship & goods are neutral and continue to be so The ship will proceed to its destination without any deviation The ship will sail on or before a certain date

Implied Warranties

1. 2. 3. 4.

There are certain warranties which are implied in every contract of marine insurance unless excluded expressly. These are: Warranty of sea worthiness Warranty of non deviation from path Warranty as to the legality of the voyage Proper documentation related to the ship

Implied Warranties
Warranty of Sea Worthiness  The ship must be sound as regards her hull.  The gear must be sufficient and must be fully equipped, officered and manned  Ship must not be overloaded  If the voyage is to be performed in stages, the ship must be sea worthy at the commencement of each stage.  Sea worthiness also includes cargo worthiness i.e. must be fit to carry the cargo

Implied Warranties
Warranty of Non Deviation  In the case of voyage policy, where, a voyage is contemplated between two given ports, there is an implied warranty of non deviation on the part of the insured except in cases where it is excusable by the law.  The insurer is discharged from the liability as from the time of deviation.  The intention to deviate is immaterial.

Implied Warranties
Warranty of Non Deviation  What is a Deviation? 1. When the course of the voyage specially designated in the policy, is departed from or 2. Where the course of the voyage was not specially designated by the policy, but the usual & customary course is departed from or 3. Where several ports of discharge were specified by the policy, but the ship did not process to them in the order designated by the policy or 4. Where the policy did not specify the ports of discharge but the ship (which should have) did not proceed to them in geographical order.

Implied Warranties
Warranty of Non Deviation- Deviations that can be excused  Destination or delay is excused (justified) under the following circumstances when 1. It is authorized by the contract (or) 2. It is caused by circumstances beyond the control of the master and his employer (or) 3. It is caused by the barratrously conduct of the master or crew if barratry were one of the perils insured against (or) 4. It is necessary in order to comply with an express or implied warranty (or) 5. It is necessary to arrange medical or surgical aid for any person on board the ship (or) 6. It is very necessary for the safety of the ship and subject matter insured (or) 7. It is necessary to avoid being captured or destroyed by the enemy of the Government.

Implied Warranties
Legality of Voyage  This is an implied warranty on the part of the insured that the adventure insures is a lawful one, and that, so far as the assured can control the matter, the adventure shall be carried out in a lawful manner.  This warranty implies that the ship will not be used for undertaking any illegal voyage e.g. smuggling, trading with enemy etc.

Implied Warranties
Proper Documentation of the Ship  Whenever there is an express warranty that the ship shall be neutral (especially in the case of war time adventure) there is an implied warranty that the ship carries all the papers necessary to prove the neutrality.

Proximate Cause

According to the Marine Insurance Act, the insurer is liable for any loss proximately caused by a peril insured against. Insurer is not liable for any loss which is not proximately caused by a peril insured against.

Assignment Of Policy

 

A marine insurance policy is assignable unless it contains terms expressly prohibiting assignment. It may be assigned either before or after loss. A marine policy may be assigned by endorsement thereon or in any other customary manner.

Reinsurance

According to Marine Insurance Act, the insurer under a contract of marine insurance has an insurable interest in his risk and may reinsure the subject matter fully or partly as per his requirement. This is called Reinsurance or Insurance of Insurance. In reinsurance, unless the policy provides otherwise, the original assured has no right or interest in respect of such reinsurance.

Calculation of Rates of Premium
Calculation of rates of premium depends on: 1. Description of goods: Full description of the goods to be insured must be given.
The nature of commodity is very important for rating and underwriting. • Different types of commodities are subject to different types of risk. Ex: Commodities like cement sugar, etc are easily damaged by sea water; cotton or some chemicals may easily catch fire; liquids can get leaked and crockery and glassware are susceptible to breakage.

Calculation of Rates of Premium
2.

Method and Manner of Packaging: The possibility of loss or damage depends very much on the type of packing. Generally goods are required to be packed in commodity friendly bales, bags, bundles, crates, drums, barrels, loose packing, carton etc.

Calculation of Rates of Premium
3.

Voyage and Mode of Transit: The name of the place from where, transit will commence and the name of the place where it will terminate has to be stated. Mode of conveyance to be used in transporting goods by rail, lorry or by air etc. should be given. The name of the vessel is to be given in case if overseas travel. Postal receipt number and date thereof is required in case of goods sent by registered post. If the voyage is to involve trans-shipment, it must be clearly stated.

Calculation of Rates of Premium
4.

5.

Cover Required: The risk against which cover requires should be fully described. Name of the vessel: The correct name of the vessel is necessary, to know the details of the age, tonnage classification (tanker, bulk carrier, container ships, fishing fleet, war vessels) ownership etc.

Shipments through old vessels or smaller vessels will lead to charge of a higher rate of premium. Shipments made by first class vessels attract normal rates of premiums and the vessels are approved by authorities like the Indian Registrar of Shipping. If the vessel used for the voyage is tramp vessel i.e. a vessel which does not follow a fixed schedule and carries cargoes whenever available. The vessels have to be approved by GIC and if not approved, then will attract a very high premium.

Calculation of Rates of Premium

While there is no tariff rate on premium and insurers can charge any rate depending upon the nature of goods , the distance, the mode of trans-shipment, type of package, the voyage route and the past claims experience. Extended covers like SRCC ( Strikes, Riots and Civil Commotion) and war risks are governed by special regulations and the premium collected is credited to the Central Government. Shipping vessels are listed according to their age and draught weight. Full details of every shipping vessel built anywhere in the world is available in ‘Lloyds Register’ (issued by Lloyds of London). Minimum standards are fixed. Any vessel falling short of these standards will attract loading premium. Premiums can be paid on monthly, quarterly, half yearly or yearly basis.

Clauses Incorporated In A Marine Policy
The following are the important clauses: a. Assignment Clause: This clause makes it clear that the marine policy is assignable unless it contains terms expressly prohibiting assignment.  Marine policy may be assigned either before or after the loss.  Assignment my be through endorsement or in other customary manner.  Where the assured has parted with or lost his interest in the subject matter insured, any subsequent assignment is inoperative.  The assignee who has acquired the beneficial interest in the policy is entitled to see thereon in his own name.

Clauses Incorporated In A Marine Policy
d. 

Transit Clause or Warehouse to Warehouse Clause: Transit clause provides with respect to goods, for the risk to attach ‘from the loading thereof aboard the said ship’ and for the insurance to continue until the goods are discharged and safely landed at the port of discharge. Warehouse to Warehouse clause helps to provide protection for the entire period of transit. The period of cover extends from the time the goods leave the exporter’s warehouse until they are delivered to the importer warehouse at the named destination or to any other warehouse whether prior to or at the named destination, which the assured elect to use either for storage or for allocation or distribution or on expiry of 60 days after discharge from the overseas vessel at the final port of discharge whichever occurs first.

Clauses Incorporated In A Marine Policy
e.

Change of Voyage Clause (or) Deviation Clause According to Marine Insurance Act, where there is a change in voyage, unless the policy otherwise provides, the insurer is discharged from liability as from the time of the change. Through this clause, the policy does provide otherwise (that means permits deviation) and the event is held covered.

Clauses Incorporated In A Marine Policy
e. 

Touch and Stay Clause The liberty to ‘touch and stay’ at any port or place whatsoever does not authorize the ship to depart from the course of her voyage from the port of departure to the port of destination.

Clauses Incorporated In A Marine Policy
f. 

 i. ii. iii. iv. v. vi. vii.

Inchmaree Clause or Negligence Clause This clause extend the underwriter liability to cover risks of a kind, which are not included within the ordinary meaning of maritime perils. It provides for the insurance to cover loss or damage to hull or machinery directly caused by: Accident in loading or shifting cargo or fuel explosion on ship board and or elsewhere Bursting of boilers Negligence of master, officers Negligence of repairs provided such repairs are not assured hereunder Contact with aircraft Contact with any land conveyance, dock or harbor equipments or installations Earthquake, volcanic eruption or lightning

Clauses Incorporated In A Marine Policy
g. 

Running Down Clause: This clause provides a supplementary contract whereby the assured is given some protection against third party damages. It provides that if the insured vessel collide with another vessel, the underwriter agree to pay three quarters of the amount of damage to which the assured becomes liable.

Clauses Incorporated In A Marine Policy
h. 

Sue and Labor Clause: This clause provides that liability shall not be exceeding the proportion that the amount insured bears to the value of the vessels. In absence of this provision, underwriters would be liable for the full amount of sue and labor charges even when there was under insurance.

Clauses Incorporated In A Marine Policy
i. 

Reinsurance Clause: There are various reasons why an underwriter may deem it prudent to reinsure part or all of a risk for which he has accepted liability.

E.g. He may find that his commitment on any one vessel or in any locality have become too burdensome. Declarations under open covers or floating policies and acceptances by his agents in other markets give him an accumulated liability considerably in excess of his usual retention He may have accepted a line on ‘all risks’ terms and then desire to reinsure in respect to total loss only.

Clauses Incorporated In A Marine Policy
i. 

j) 

k) 

Memorandum Clause: This clause is meant to provide a minimum limit to the underwriter’s liability regarding claims for particular average by exempting him from such claims. Continuation Clause: This clause refers that the vessel shall continue to be covered even after the completion of voyage under the policy at a pro rata premium to her port of destination. Perils of the Sea Clause: The term ‘perils of the sea’ refers to fortuitous accidents and casualties of the sea. It does not include ordinary action of the winds and waves.

Clauses Incorporated In A Marine Policy
l.  

m) 

Warrior Clause: This is supplementary to ‘ Sue and Labor’ clause. In this clause, either party to the contract may take such steps, or incur such expenses, as are contemplated under the sue and labor clause, to minimize a loss without prejudice in the light of the assured on the one hand and the underwriter on the other All Risk Clause: This clause provides that the insurance is against all risks of loss or damage to the subject matter insures and the claims are payable irrespective of percentage of loss.

Clauses Incorporated In A Marine Policy
n. 

General Average Clause: The general average clause refer to the losses that must be partly borne by someone other than the owner of the goods that were damaged or lost. General average losses may be total or partial, whereas particular average losses, by definition are always partial.

Clauses Incorporated In A Marine Policy
n.

General Average Clause: Ex: Suppose that a certain cargo of lumber wrapped in a large bundle is stored on deck. To lighten the ship during heavy storm that is threatening the safety of the voyage, the captain orders the limber worth Rs.50000 to be jettisoned. The action of the captain is successful in saving the ship and all other interests. Such a sacrifice is termed as general average, and the interests that were saved would be required to share a pro-rata part of the loss. Thus is the ship and freight interests were valued at Rs.1000000 and other cargo interests at Rs.950000, the ship owner would pay one half (100/200) of the value of the lumber. The other cargo interests would share 95/200 of the loss and the owner of the lumber would bear 5/200 of the loss All marine policies provide coverage for general average claims that may be made against the insured.

Clauses Incorporated In A Marine Policy
o. 

p.    

Foreign General Average Clause: This clause means that the arrangement in case of General Average Claim which may arise under the policy, the average settlement made in foreign country will be adopted as the basis for settlement. Free of Capture and Seizure (FCS): This clause is generally inserted in times of war. It means that insurer/ underwriter will not be liable for loss or claim arising from seizure of ship as a price of war. In times of war, this clause is inserted unless the insured pays the underwriters additional premium for war risks. In ocean marine policy, losses from pirates, assailing thieves or overtly dishonest actions by the ship’s master or crew (barratry) are considered burglary and robbery protection on land and are not losses from war. Typically pilferage is not covered.

Clauses Incorporated In A Marine Policy
q. 

Free of Particular Average Clause (FPA): This clause restricts the liability of the insurer/underwriter. Insurer is liable only for total loss and not for particular average or partial loss Particular average means partial loss to an interest that must be borne entirely by that interest. The free-of-particular average clause provides that no partial loss will be paid to single cargo interest unless the loss is caused by certain perils such as stranding, sinking, burning or collision.

Clauses Incorporated In A Marine Policy
b.

Lost or Not Loss Clause:

c.

At or From Clause

Types of Marine Insurance Policies
1. 

Bottomry Bond It is a bond representing loan raised by the master of the ship so as to meet certain urgent expenses like repairing a ship or for security of ship or cargo. It is repayable after a certain agreed number of days after the arrival of the ship as specified in the bond. If the vessel is lost before the arrival at destination, the lender losses his money.

Types of Marine Insurance Policies
2. 

 

Respondentia Bond: Like Bottomry Bond, Respondentia Bond also represents a monetary loan borrowed by the master of a ship to meet certain urgent expenses. The loan is raised on the security of CARGO ONLY. The loan is to be repaid within a certain period after the arrival of the cargo at the destination as specified in the Respondentia Bond. If the cargo is lost on its way, the lender losses his money.

Types of Marine Insurance Policies

1.

Marine policies are known by different names according to their manner of execution and the nature of risks covered. Following are the various kinds of marine insurance policies as contained in the Marine Insurance Act, 1963. Voyage Policy: As the name suggests this policy covers a voyage.

This is a policy in which the limits of the risk are determined by place of particular voyage e.g. Chennai to Singapore , Chennai to London Such policies are always used for goods insurance, sometimes for freight insurance but only rarely nowadays for hull insurance.

Types of Marine Insurance Policies
2.

Time Policy: This policy is designed to give cover for some specified period of time say for example noon of 1st January 2009 to noon of 1st January 2012

Time policies are usual in case of hull insurance.

2.

Voyage & Time Policy or Mixed Policy: It is a combination of voyage and time policy.

It is a policy which covers the risk during a particular voyage for a specified period. Example A ship may be insured for voyages between Chennai to London for a period of one year

Types of Marine Insurance Policies
4.

Valued Policy: This policy specifies agreed value of the subject matter insured, which is not necessarily the actual value. This agreed value is also known as insured value. Once agreed these values cannot be changed and remains binding on the parties.
Unvalued Policy/ Open Policy: In case of unvalued policy, the value of the subject matter insured is not specified at the time of effecting insurance. It is taken for a specified amount and the insurable value is ascertained at the time of loss. The insurer is liable to pay only up to actual loss incurred to the policy amount.

5.

Types of Marine Insurance Policies
6.      

Floating Policy: A floating policy describes the insurance in general terms, leaving the name of the ship or ships to be defined by subsequent declarations. The declaration may be made by endorsement on the policy or in another customary manner. Declaration must be made in the order of shipment unless the policy provides otherwise. It must comprise all the consignments within the terms of the policy and the values must be stated honestly. Errors and omissions however, may be rectified even after the loss has occurred, if made in good faith. When the total amount declared exhausts for which the policy has been issued, it is said to be ‘run off’ or ‘fully declared’. The assured may then arrange for a new policy to be issued to succeed the one about to lapse, otherwise the cover terminates when the policy is fully declared.

Types of Marine Insurance Policies
7.

Wagering Policy/ PPI Policy: This policy is issued without there being any insurable interest or policy bearing evidence that the insured is willing to dispense with any proof of interest If policy contains such words as ‘Policy Proof of Interest’ (PPI) or ‘Interest or No Interest’ it is a Wagering or Honour Policy. Under Sc 4 of the Marine Insurance Act, such policies are void in Law but such policies continue to be common.

Types of Marine Insurance Policies
8.

Construction or Builder Risk Policy: This is designed to

9.

cover risks incidental to the building of a vessel, usually giving cover from the time of laying the keel until the completion of trials and handing over to the owners. In the case of very large vessel, the period may extend over several years. Blanket/ Open Cover Policy: In order to arrange their marine insurance in advance and to be assured to be covered at all times, and also to avoid the effects of possible rapidly fluctuating rates, it is practice of regular importers and exporters to avail ‘Blanket Insurance’. An open cover policy is an agreement between the assured and his underwriter under which the former agrees to declare and the latter to accept, all shipments coming within the scope of the open general cover during some stipulated period of time.

Types of Marine Insurance Policies
10.

11.

Duty Policy : In case of CIF contracts, the exporter would have arranged for insurance only up to CIF value. Customs duty payable if any is the responsibility of the importer and they can separately obtain custom duty policy on ‘standalone basis’. Increased Value Policy: If goods imported are damaged in transit and such goods can be procured locally at prices higher than the CIF+ Customs duty, the increase value policy covers such difference in values.

Variants: Marine Insurance Products
12.

13.

Marine Delays: Any loss or damage to the equipment during transit which leads to the delay in completion of the project , commencement of production and thereby loss in profit is covered under this policy and is also known as ‘Consequential loss due to marine delays’ or simply ‘Delay Start Up’. Marine Cum Erection Policy: In standard marine cargo policy, the cover ceases after the goods are delivered at the site of erection. If any damage attributable to transit risk was found at the time of erection, then marine policy and erection policy bear 50% each of the cost of damage.

Types of Marine Insurance Policies
14.

Port Risk Policy: This is to cover a ship or cargo during a period in port against the risks peculiar to a port as distinguished from voyage risks.

Marine Losses
 a. b.

c.

According to Marine Insurance Act, unless the policy provides otherwise, The insurer is liable for any loss proximately caused by a peril insured against The insurer is not liable for any loss attributable to the willful misconduct of the assured but unless the policy otherwise provides, he is liable for any loss proximately caused by a peril insured against even though the loss would not have happened but for the misconduct or negligence of the Master or Crew of the Ship. Unless the policy otherwise provides, the insurer is not liable for ordinary wear and tear, ordinary leakage and breakage, inherent vice or nature of subject matter insured or for any loss proximately caused by rat or vermin or any injury to machinery not caused by maritime perils.

Types of Marine Losses
Marine Losses

Total Loss

Partial Loss

Actual Loss

Constructive Total Loss

Particular Average Loss

General Average Loss

Types of Marine Losses
 1. 2. 3.

It is said that actual total loss has arisen : When the subject matter insured is destroyed or is so damaged that it ceases to be a thing or a kind insured. When the assured is irretrievably deprived of the subject matter. When the ship concerned in the adventure is missing, and after the lapse of a reasonable time period, still no news of it is received. In the case of Actual Total Loss, the insurer has to pay either the insured amount or the actual loss whichever is less but the cause of the loss must be one of the perils insured against.

Types of Marine Losses
 1.

2.

3.

Constructive total loss is said to have occurred : When the assured is deprived of the possession of ship or goods by a peril insured against and it is unlikely that he can recover the ship or goods as the case may be or the cost of recovering the ship or goods, as the case may be, would exceed their value when recovered In the case of damage of goods, where cost of repairing the damage and forwarding the goods to their destination would exceed their value. In case of damage of the ship, where it is so damaged by the peril insured against that the cost of repairing the damage would exceed the value of the ship. Effect of Constructive Total Loss: When there is a constructive total loss, the assured may either treat the loss as a particular loss or abandon the subject matter insured to the insurer and treat the loss as if it were an Actual Total Loss.

Types of Marine Losses
Notice of Abandonment :  It is a notice by the assured to the insurer that he abandons all interests in the subject matter of insurer unconditionally to the insurer. As per the Sc 62, the rules regarding abandonment are: 1. A notice of abandonment should be given by the insured to the insurer. If he fails to do so, the loss can only be treated as a Partial Loss. 2. The insurer may waive the Notice Of Abandonment. 3. The notice of abandonment must be unconditional and can be done by expression, writing or both. 4. Notice of Abandonment must be given written within a reasonable time after the receipt of reliable information of the loss. However in case of doubt, assured is entitled to a reasonable time to make inquiry and then to notify.

Types of Marine Losses
When the 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. 6. The acceptance of abandonment may be either express or implied from the conduct of the insurer. The mere silence of the insurer after the notice does not amount to an acceptance. 7. Once the notice of abandonment is accepted, the abandonment is irrevocable. The acceptance of the notice conclusively admits liability for the loss. Effect of Abandonment: Whenever there is a valid abandonment, the insured is entitled to take over the interest of the assured in whatever may remain in the subject matter insured, and all proprietary rights incidental thereto.
5.

Partial Loss
Any loss other than total loss is Partial Loss and may be classified into: Particular Average Loss General Average Loss

a) b)

Particular Average Loss

1. 2. 3. 4.

When the subject matter is partially lost or damaged by a peril insured against, it is called Particular Average Loss. A Particular Average Loss must fulfill the following conditions: Only a particular subject matter is lost or damaged. The loss should be accidental. It should be caused by peril insured against. The damage should not have suffered for a general benefit.

General Average Loss
 a) b)

c)

Examples of General Average Loss are: Loss caused to cargo due to fire. Money paid to pirates for the purpose of saving the ship and cargo. Expenses incurred due to outside help taken in making the vessel reach its destination. The liability of General Average extends to the owner of the ship, the cargo and the freight.

York Antwerp Rules

As General Average causes many difficulties particularly when adjustments has to be made in foreign courts, an international code has been compiled known as YorkAntwerp Rules. The association for reform and codification of the law of nature meet at Antwerp in 1877, where code of rules were adapted and known as ‘York Antwerp Rules’. The rules were further revised in 1890 and 1924. These rules deal only with certain specific method relating to General Average Loss and further provided that in case of matters not included in the rules, that should be dealt with according to the law and practice of the court of destination.

Difference Between General Average Loss and Particular Average Loss
1. 2.

3.

4.

General Average Loss It is incurred for the benefits of all parties. It is always done voluntarily and is reasonably incurred. General Average is shared by all those who are benefited by the Average Act. It includes expenditure and sacrifice along with loss.

1. 2.

Particular Average Loss It is in connection with any of the parties. It is accidental and fortuitous. It is paid by the insurers.

3.

4.

It results from an accident or normal perils of the sea.

Claim Documents

 a) b) c) d) e) f) g)

Claim under the marine policy have to be supported by certain documents, which vary according to the type of circumstances of the claim and mode of carriage. Typical documents required for Particular Average claim are: Original Policy: Certificate of insurance. Bill of lading: Evidence that the goods were actually shipped Invoice: Evidence for term of sale. Survey Report: Show the cause and extent of the loss. Debit Note: Claim bill Copy of Protest: Protest on arrival at destination before public notary. Letter of Subrogation: Legal documents which transfer the right of claimant against third party to the insurer.

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