CHAPTER III

MARINE
INSURANCE
Sections 101-122
 INTRODUCTION
TO
MARINE INSURANCE
Transportation Insurance
defined
It is a part of property insurance concerned
with the perils of property in (or incidental
to) transit as opposed to property at a
generally fixed position. (D.L.
Bickelhaupt)

It is divided into:
Ocean Marine Insurance
Inland Marine Insurance
The Marine Insurance
Policy
Under this policy, all risks or losses may be
insured against, except such as are
repugnant to public policy or positively
prohibited.

It provides protection for (1) ships or hulls;

(2) goods or cargoes; (3) earnings such as
freight, passage money, commissions, or
profits; and (4) liability incurred for the
insured property by reason of maritime
perils.
The Marine Insurance
Policy
Under this policy, all risks or losses may be
insured against, except such as are
repugnant to public policy or positively
prohibited.

It provides protection for (1) ships or hulls;

(2) goods or cargoes; (3) earnings such as
freight, passage money, commissions, or
profits; and (4) liability incurred for the
insured property by reason of maritime
perils.
Perils of the sea, explained
The phrase includes only those casualties
due to the unsual violence or
extraordinary action of wind and wave, or
to other extraordinary causes connected
with navigation.
Thus, the term embraces all kinds of
marine casualty such as shipwreck,
foundering, stranding, collision, and every
specie of damage done to the ship or
goods at sea by violent action of the wind
and waves.
Perils of the sea vs. Perils of
the ship
Perils of the sea includes only such losses as
are of extraordinary nature or arise from
some overwhelming power which cannot be
guarded against by ordinary exertion of
human skill or prudence, as distinguished
from perils of the ship which means the
ordinary wear and tear of the voyage and
injuries suffered by the vessel in
consequence of her not being seaworthy.
All risks marine insurance
policy
It insures against all causes of conceivable
loss or damage, except as otherwise
excluded in the policy or due to fraud or
intentional misconduct on the part of the
insured.

Burden of proof is on the part of insurer to

establish damage or loss falls within the
exceptions provided by the law; otherwise,
it is liable therefor.
What does marine insurance
include?

Under Sec. 101, marine insurance includes:

Insurance against loss or damage to

ships or hulls, goods or cargoes,

earnings such as freight, passage
money, commissions, profits;
Marine protection and indemnity
insurance
Paragraph (a) of Section 101
enumerates the following:
Vessels, craft, aircraft, vehicles, goods, freights,
cargoes, merchandise, effects, disbursements, profits,
moneys, securities, choses in action, instruments of
debt, valuable papers, bottomry, and respondentia
interests and all other kinds of property and interests
therein, in respect to, appertaining to or in connection
with any and all risks or perils of navigation, transit or
transportation, or while being assembled, packed,
crated, baled, compressed or similarly prepared for
shipment or while awaiting shipment , or during any
delays, storage, transshipment, or reshipment
incident thereto, including war risks, marine builders
risks, and all personal property floater risks.
Paragraph (1) of Section 101
enumerates the following:
Person or property in connection with or
appertaining to a marine, inland marine,
transit or transportation insurance,
including liability for loss of or damage
arising out or in connection with the
construction, repair, operation,
maintenance, or use of the subject matter
of such insurance.
Paragraph (1) of Section 101
enumerates the following:

Precious stones, jewels, jewelry, precious

metals, whether in course of
transportation or otherwise.
Paragraph (1) of Section 101
enumerates the following:
Bridges, tunnels, and other
insttrumentalities of transportation and
communication (excludin buildings, their
furniture and furnishings, fixed contents
and supplies held for storage); piers,
wharves, docks and slips, and other aids
to navigation and transportation, including
dry docks, dams, and appurtenant
facilities for control of waterways
INSURABLE INTEREST

As with other insurances, marine

insurance is invalid unless supported
by an insurable interest in the thing
insured
What is the insurable interest of
an owner of a ship to it?

Section 102 provides that he has in all

cases insurable interest in it, to the extent
of its value and this is true even when it has
been chartered by one who covenants to
pay him its value incase of loss and when
he has mortgaged the same.
Insurable interest to the
cargo
The insurable interest is in the shipper or
the consignee depending upon the terms of
sale, namely:

o Free On Board (F.O.B.)

1. FOB factory- Buyer assumes responsibility when goods
leave the factory.
2. FOB point of destination- Buyer does assumes
responsibility only when goods reach carrier
Insurable interest to the
cargo
The insurable interest is in the shipper or the
consignee depending upon the terms of sale,
namely:

o Cost, Insurance, and Freight (C.I.F.)

The seller assumes complete responsibility for securing all
necessary insurance.

o Cost and Freight (C.&F.)

The buyer procures his own insurance.
Insurable interest of a
vendee/consignee of goods in transit
Vendee/consignee has such existing
interest as may be the subject of a valid
contract of insurance. His interest over
the good is based on the perfected
contract of sale between him and the
shipper of goods which operates to vest in
the him an equitable title even before
delivery and or before the performance of
condition of the sale. (Filipino Merchants
Ins. Corp. vs CA)
What is the shipowners insurable
interest where vessel is
hypothecated by bottomry?
His insurable interest is only the excess of
its value over the amount secured by
bottomry. (Sec. 103)

What is a loan on bottomry?

It is one which is payable only if the vessel,
given as security, completes in safety the
contemplated voyage.
What is the lenders insurable
interest where vessel is
hypothecated by bottomry?
His insurable interest will be up to the
amount of such loan only.
What is meant by
freightage?
Section 104 states that freightage signifies all
benefits derived by the owner, either by the
chartering of the ship or its employment for the
carriage of his own goods or those of others.
I may be derived from (1) the chartering of the
ship; (2) its employment for the carriage of his own
goods; and (3) its employment for the carriage of
the goods of others.
Does the owner of a ship have
an insurable interest over
expected freightage?
Yes. Under Section 105, the shipowner or charterer
has an insurable interest in expected freight which
according to the ordinary and probable course of
things he would have earned but for the
intervention of a peril insured against or other peril
incident to the voyage.
Freightage may refer to freight itself earned and
payable upon completion of voyage; (b) the hire of
the vessel, payable by the charterer; (c) the benefit
accruing to the owner from the use his vessel in the
way of profits upon carriage of his own goods.
When does insurable interest exist in expected
freightage, in cases of a charter party?

When the ship has broken ground on the

chartered party;
When goods are actually on board, in case if

a price is paid for carriage of goods;

When there is some contract for putting

goods on board and both ship and goods

are ready for the specified voyage. (Section
5)
 Inall this cases, the insured must
have an inchoate right to freight,
that is, he must be in such
position with regard to freight
that nothing could prevent him
from ultimately having a perfect
right to it but the intervention of
the perils insured against.
When does none exist?

A. Where there is no contract and no part

of the goods expected to be carried are on
board;
B. Where the vessel is a mere seeking

ship, or a vessel looking for a cargo to be

transported.
When does insurable interest in
expected profits exist?
Under Section 107, it exist when one has an
interest in the thing from which profits are
expected to proceed. This interest should be
legal, however. (Sec. 14 [c])
As such, one having a reasonable expectation
of profits from marine adventure may take out
insurance to protect such profits. (Patapsco Ins.
Co vs. Coulter)
Under this provision, the owner of a cargo has
insurable interest not only on the value of the
cargo but also on the profit to be derived from
sale of such cargo.
 Also, insured has insurable interest in
the thing involved if it is based on a
valuable consideration paid.
Example, one who has made a
contract for purchase of property
made ready for shipment but not
loaded and who has contracted to
sell it at a profit has insurable
interest in the profit.
What is the extent of insurable
interst of a charterer of a ship?

The charterer of a ship has an insurable

interest in the ship to the extent that he is
liable to be damnified by its loss. (Section
108)
As regards insurable interest in the profits

expected for carrying goods, it shall be the

excess of the amount he agreed to pay for
the charter of the vessel.
Example
Y charters a vessel valued at 2M from X. In case of loss, Y
will pay its value. Thus, Y may insure the vessel for 2M, as
this is the extent of his insurable interest.
If the agreement with X is that Y would pay 200K for the
charter of the vessel, Ys insurable interest is 2.2M.
Suppose Y is only to pay the charter price upon safe arrival
of the vessel at the port of destination, and he engages to
carry the goods of Z for 300K. The expected profits of 300K
exceed the chartered hire of 200K. In this case, Y can
insure the vessel to the extent of 2.1M, as the extent that
he is liable to be damnified by its loss.
What are charter parties?
It is 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. (Puromines vs. CA)
It can be;

1. Bareboat or demise charter

2. Contract of affreightment
a. voyage charter
b. time charter
CONCEALMENT
What is concealment in
marine insurance?
Itis 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
party has no actual or presumptive
knowledge.
What information should be
communicated by each party in marine
insurance?
Those material to the contract (Section 28);
Those which the party concealing makes no
warranty (Section 28);
Those which the other party has no means of
ascertaining (Section 28);
Those which each party possesses and are
material to the risk (Section 109);
Exact and whole truth in relation to all matters
that a party represents, or upon inquiry
discloses or assumes to disclose (Section
109).
Is information of the belief or
expectation of a third person
material?

Yes.As provided under Section 110,

information of the belief or
expectation of a third person, in
reference to a material fact, is
material. This applies only in marine
insurance.
When does the presumptive
knowledge of prior loss by insured
exist?
There is presumptive knowledge of loss by
insured if, at the time of insuring, the information
might possibly have reached him in the
usual mode of transmission and at the
usual rate of communication. (Section 111)

The insured, however, is not bound to use all

accessible means of information at the very lat
instant of time to ascertain the condition of the
property insured. (Neptune Ins. Co. vs. Robinson)
When is concealment not a
vitiation to the contract?
Concealment of the following matters does not
vitiate the contract:
National character of the insured;
Liability of the thing insured to capture and detention;
Liability to seizure from breach of foreign laws of
trade;
Want of necessary documents;
Use of false or simulated papers. (Section 112)
In this cases, policy is not void ab initio.
However, if vessel be lost due to causes
mentioned, insurer is not liable.
REPRESENTATION
Whenis there misrepresentation
in marine insurance?

If representation by insured is intentionally false

in any material respect;
If representation by insured is intentionally false
in respect of any fact on which the character
and nature of the risk depends. (Section 113)
What is the effect of false
representation by the insured?
If intentional, it will avoid the

policy.

If not intentional but the fact

misrepresented is material to the
risk, insurer may rescind from
the time representation becomes
false.
Some representations deemed
to be material are:
Age of vessel;
Equipment;
Earnings;
Particular condition of a vessel;
Rating of a vessel;
Repair at a certain place;
Arrival in the port of destination;
Insurance by other underwriters;
Anything which concerns the state of the vessel
at any particular period of her voyage
What is the effect of falsity of
representationas to expectation?
The eventual falsity of a representation
as to expectation does not, in the
absence of fraud, avoid a contract of
marine insurance. (Section 114)
This rule applies to statements of the

time a vessel will sail, nature of the

cargo to be shipped, destination of the
vessel, or that the insured no doubt that
he can get insurance effected for a
certain premium.
IMPLIED WARRANTIES
Warranty in marine insurance
defined
A warranty has been defined as a
stipulation, either express or
implied, forming part of the policy
as to some fact, condition, or
circumstances relating to risk.
(Hearn vs. Equitable Safety Ins. Co.)
What warranty is always
present in voyage policy of
marine insurance?
In every voyage policy, there is always an
implied warranty that the vessel is in all
respects seaworthy, and such can be
excluded only upon a clear provision of a
policy. (Section 115)
 Where seaworthiness is admitted by insurer,
the issue of seaworthiness cannot be raised
by insurer without showing concealment or
representation by insured.
Where seaworthiness is unknown to owner of
cargo insured, the implied warranty of
seaworthiness attaches to whoever is
insuring the cargo, whether he be the
shipowner or not.
Where vessel is found unseaworthy, as a
general rule common carriers are presumed
to be at fault, unless they prove they acted
with diligence. A shipowner is also negligent
and thus is liable for the loss of the insured.
What constitutes
seaworthiness?
A ship is seaworthy when it is
reasonably fit to perform the services
and to encounter the ordinary perils
of the voyage contemplated by the
parties to the policy. (Section 116)
Nature of the Ship

To comply with the implied warranty of

seaworthiness, the vessel must be in a fit
state as to repair, equipment, crew, and in
all other respects to perform the voyage
insured and to encounter the ordinary perils
of navigation
Nature of the Voyage

What is reasonable fitness to encounter the

perils expected to arise in the course of the
voyage vary, naturally, with the character of
the particular voyage.
Nature of service

The seaworthiness of a vessel is also to be

determined with regard to the nature of the
cargo which she undertakes to transport,
the requirement being that she shall be
reasonably capable of safely carrying the
cargo to its port of destination
Criterion of Seaworthiness
A perfect vessel nor one impervious to the
assaults of the elements is not required; not is
the best and most skillful form of construction
required , but only such as is sufficient for the
kind of vessels insured with reference to their
physical and mechanical condition, the extent
of its fuel and provisions supply, the quality of
officers and crew, and its adaptability for the
service in which they are employed.
When is seaworthiness complied
with?

According to Section 117, the implied

warranty of seaworthiness is deemed
complied with if the ship be seaworthy at
the time of the commencement of the risk.
Prior or subsequent unseaworthiness is
not a breach of warranty.
What are the exceptions?
According to Section 117, the implied warranty of
seaworthiness is not deemed complied with:
When the insurance is made for a specified length of
time, the implied warranty is not complied with unless
ship be seaworthy at the commencement of every
voyage it undertakes during that time (time policy);
When the insurance is upon the cargo which, by the
terms of the policy, description of the voyage, or
established custom of trade, is to be transhipped at an
intermediate port, the implied warranty is not complied
with unless each vessel upon which the cargo is shipped,
or transhipped, be seaworthy at the commencement of
each particular voyage (cargo policy);
In case of voyage policy comtemplating a voyage in
different stages, the ship must be seaworthy at the
commencement of each portion (Section 119).
What is the scope of
seaworthiness of vessel?
Condition of the structure of the ship;
Should should be properly laden;
Provided with competent master
A sufficient number of competent officers

and seamen;
Requisite appurtenances and equipment,

such as ballasts, cables and anchors,

cordage and sails, food, water, fuel and
lights, and other necessary stores and
implements for the voyage
How is seaworthiness complied
with during voyage in stages?
Where the policy contemplates a
voyage in different stages during which
the subject matter insured will be
exposed to different degrees or kind of
perils, or the ship will require different
kinds of equipment, she must be
seaworthy at the commencement of
each stage, but it is sufficient if that at
the commencement of each stage she
is seaworthy for that stage. (Section
119)
What happens where ship becomes
unseaworthy during voyage?
An unreasonable delay in repairing the
defect exonerates the insurer on ship or
shipowners interest from liability from any
loss arising therefrom.(Section 120)
Thus, it is the masters duty to exercise

diligence to repair the defect making the

ship unseaworthy; otherwise, insurer will be
released from liability. But the contract of
insurance is not affected as to any other
risk or loss covered by the policy.
Does the nature of the cargo
determine also the vessels
seaworthiness?

Yes. Under Section 121, a ship which is

seaworthy for the purposes of an
insurance upon the ship may,
nevertheless, be reason of being unfitted
to receive the cargo, be unseaworthy for
the purpose of insurance upon the cargo.
What is the effect where the
nationality or neutrality of a ship
or cargo is expressly warranted?

It implies that the ship will carry requisite

documents to show such nationality or
neutrality and that it will not carry any
documents which cast reasonable suspicion
thereon.
What is a warranty of national
character?

A warranty of nationality does not mean that

the vessel was built in such country, but that
the property belongs to a subject thereof.
What is a warranty of
neutrality?
A warranty of neutrality imports that the
property insured is neutral in fact, and shall
be so in appearance and conduct, that the
property shall bel;ong to neutrals, and that
no act of the insured or his agent shall be
done which can legally compromise its
neutrality.