Marine Cargo Insurance

What is marine cargo insurance?

Marine cargo Insurance is the insurance of property as it moves from place to
place. The word marine conjures up the sea but marine insurance
departments insure property conveyed by aircraft and road and rail vehicles
as well.
Section 3 of the Marine Insurance Act defines what marine insurance. It
states that;
(1) A contract of marine insurance is a contract whereby the insurer
undertakes to indemnify the assured, in manner and to the extent thereby
agreed, against the losses incident to marine adventure.
(2) A contract of marine insurance may, by its express terms, or by usage of
trade, be extended so as to protect the assured against losses on inland
waters or on any land risk which may be incidental to any sea voyage.
(3) Where a ship in course of building, or the launch of a ship or any
adventure analogous to a marine adventure, is covered by a policy, this Act
applies to it so far as it may, but, except so far as this section provides, this
Act does not alter or affect any rule of law applicable to any contract of
insurance other than a contract of marine insurance.
Marine cargo insurance is a class of property insurance that insures property
while in transit against loss or damage arising from perils associated with the
navigation of the sea or air and subsequent land and inland waterways.
Section 4 of the MIA stipulates what qualifies as a marine adventure stating
that; there is a marine adventure where
(a) any insurable property is exposed to maritime perils;

(b) the earning or acquisition of any freight, passage money, commission,

profit or other pecuniary benefit, or the security for any advances, loan or
disbursements, is endangered by the exposure of insurable property to
maritime perils; or
(c) any liability to a third party may be incurred by the owner of, or other
person interested in or responsible for, insurable property, by reason of
maritime perils.
Maritime perils means perils consequent on or incidental to the carriage of
property by sea. Section 2 of the MIA defines them as the perils consequent
on or incidental to the navigation of the sea, that is to say, perils of the seas,
fire, war, pirates, rovers, thieves, captures, seizures, restraints and
detainments of foreign governments and peoples, jettisons and barratry, and
any other perils of the like kind or which may be designated by the policy.
The inclusion of this last sentence allows insurers to include at their
discretion in their policies other risks, for example risks appropriate to other
means of transport, like crashing, derailment and overturning. It should
however be mentioned that the normal action of wind and wave is not
considered a peril of the sea.
So what precisely is the property that is the subject of marine cargo
insurance? The Act refers to it in section 2 as insurable property which
means any ship or movables capable of being insured against maritime
perils. In summary, the subject-matter insured. In essence it can be anything
that is in the process of being conveyed from one place to another. Most
usually it is raw materials and components coming into the assured or
finished products going out.
The genre for this type of property is Goods and or Merchandise that
indicates traded goods. Also items of the assureds own equipment can be

insured, for example machinery, office furniture, samples and engineers tools
and exhibition materials. Indeed just about everything that has moved and
as a result can be insured as the subject matter insured under a marine
cargo policy. Section 2 of the MIA defines movables as any movable tangible
property other than the ship, including money, valuable securities and other
documents;
Who can insure marine cargo?
According to MIA section 5, everyone who has an insurable interest who is
interested in a marine adventure. This begs the question who has an
insurable interest? The Act continues by saying that a person is interested
where he stands in any legal or equitable relation to the adventure in
consequence of which he may benefit by the safe arrival of the property or
be prejudiced by its loss.
Consider the position of a manufacturer selling his goods. He has an
insurable interest in those goods even while they are travelling away from
him until he has received payment for them. Up to the point of payment he
stands in a position to gain by the success of the adventure or suffer if it
fails. He therefore qualifies to insure his interest under a marine cargo policy.
Similarly, his buyer also has an insurable interest or more correctly an
expectation of receiving one, and can thus effect a marine insurance. The Act
says that an assured (note the term assured as opposed to insured) must be
interested in the subject-matter insured at the time of loss though he need
not be interested when the insurance is effected, (MIA section 6). Thus if
property in transit becomes damaged it is necessary to discover by reference
to the terms of sale or purchase which party held the insurable interest at
the time of loss.

In addition to the buyer and seller other interested parties may also insure
up to the extent of their insurable interest. For example shipping and
forwarding agents or carriers and other bailees to whom the property was
entrusted to their care and custody, charterers and other hirers of ships, will
all have an interest in the adventure in so far as they could be sued for
failure to deliver.
The Act refers to insurers who by the fact of their policy have a vested
interest in the success or failure of the adventure and therefore qualify to
insure (or in their case re-insure) their insurable interest (MIA section 9). The
original assured has no right or interest in the re-insurance
If there is no insurable interest or reasonable expectation of receiving one
then the marine insurance is deemed to be a gaming or wagering contract
and accordingly held to be void.
When is a contract deemed to be concluded?
According to section 21 of the MIA, a contract of marine insurance is deemed
to be concluded when the proposal of the assured is accepted by the insurer,
whether the policy is then issued or not; and, for the purpose of showing
when the proposal was accepted, reference may be made to the slip or
covering note or other customary memorandum of the contract.
What should be contained in a Marine Insurance Policy?
A contract of marine insurance is inadmissible in evidence unless it is
embodied in a policy. The policy may be executed and issued either at the
time when the contract is concluded, or afterwards. A policy must
specify( MIA section 23)
(a) the name of the assured, or of some person who effects the insurance on
his behalf;

(b) the subject-matter insured and the risk insured against;

(c) the voyage, or period of time, or both, as the case may be, covered by
the insurance;
(d) the sum or sums insured; and
(e) the name or names of the insurers
A policy must be signed by or on behalf of the insurer, and if the insurer is a
corporation the policy may be executed under the common seal of the
corporation or in any other lawful manner. Where the policy is subscribed by
or on behalf of two or more insurers, each subscription, unless the contrary is
expressed, constitutes a distinct contract with the assured. (section 24 MIA)
How and why does a marine policy transfer from one party to another?
The term used to describe this process is assignment.
When an exporter sells goods overseas he has the option of either selling the
goods on terms that leave the insurance to be arranged by him or his buyer,
or he can arrange an insurance that covers the entire voyage but the benefit
of which passes from him to his buyer when the insurable interest passes
from one to the other.
Under certain terms of sale, and Cost Insurance and Freight is a popular one,
the seller contracts to obtain at his own expense a cargo insurance that the
buyer, or any other person having an insurable interest in the goods, shall be
entitled to claim directly from the insurer and to provide the buyer with an
insurance policy or certificate for that purpose.
This is a notable difference to most other property insurances where
ownership remains the same throughout the period of cover. Claims are paid
to the person named in the policy. However, the marine policy has to allow

for ownership to change as goods, the subject matter of the insurance are
bought and sold.
Section 50 of the MIA states that, a policy is assignable unless it contains
terms expressly prohibiting assignment and it may be assigned either before
or after loss. Where a policy has been assigned so as to pass the beneficial
interest in the policy, the assignee of the policy is entitled to sue thereon in
his own name; and the defendant is entitled to make any defence arising out
of the contract which he would have been entitled to make if the action had
been brought in the name of the person by or on behalf of whom the policy
was effected. A policy may be assigned by endorsement thereon or in other
customary manner.
Section 51 continues by saying that an Assured who has no interest cannot
assign. Where the assured has parted with or lost his interest in the subjectmatter insured and has not, before or at the time of so doing, expressly or
impliedly agreed to assign the policy, any subsequent assignment of the
policy is in operative.
The insurance certificate contains two additional pieces of information. Firstly
it provides the name and address of the insurers claims representative in the
country of destination and secondly the certificate will be signed, usually on
the reverse by the policyholder thus opening up or assigning the certificate
to the benefit of the buyer.
This means the buyer can proceed to receive settlement for loss or damage
to the goods in transit as though he were the original assured. From an
insurers point of view this process means that claims are paid to parties
other than the named assured in other countries.
So as well as providing evidence of a sending having been placed under an
Open policy, it also acts as a document of title enabling the holder of the

original version to obtain settlement. It also gives the insurer the necessary
detail to apply the policy rate and to charge the premium.