MARINE INSURANCE-LEGAL ASPECT IN INDIA

1. Mr. S.Thowseaf (Ph.D. Research Scholar), 2. Dr. M. Ayisha Millath (Research Supervisor, Assistant Professor),

Alagappa Institute of management, Alagappa University, Karaikudi - 630003

Email ID- thowseaf786@gmail.com, Mobile. No- +91 7358167123

Email ID- ayishamillath05@gmail.com, Mobile. No- +919842144984

ABSTRACT

Insurance cover is an important tool for the risk associated with the shipment of goods for
international trade. It covers risk such as the risk of damage, destruction or by the means of perils
of the sea. Every ship runs with the dreary list of hazards such as; fire, storm, collision, theft,
leakage, explosion and spoilage. Cargo insurance is, therefore, playing a significant role in the
field of international trade through shipment. Marine insurance is an important component of
international trade and commerce and subject to international regulations in every stage of
operations. It is governed by the Marine Insurance Act 1963 in India and guided by the various
clauses formulated by the Institute of London Underwriters (ILU) and the international
commercial terms known as Incoterms. This paper overviews the legal aspects the marine
insurance in India and provides an outline of the Marine Insurance Act, 1963.

INTRODUCTION

The insurance had become a fundamental facet of modern society; this is because it was
clearly a way to protect property against the economic consequences and natural calamities.
Insurance lends protection and security against individuals, organization, goods also to
communities. In recent trends, it is acting as the tool facilitating trade and commerce by
providing risk-sharing, generating employment, encouraging business betterment through
innovation by taking more risk associated activities, which in turn direct to economic betterment.
Insurance increases the domestic savings and help in building financial market (Giaschi, 2015).
The world had integrated into the single market, maritime transport is becoming a backbone for
international trade, and 80 percent global trade is flourished through sea routes using maritime
transport. Marine transportation associated risk is known as "perils of the sea". Marine insurance
helps in mitigating the financial loss to the goods, carriage, ship or other properties that are
transported through maritime transport. Insurance thus had become an important component of
carrying out international trade, it enables the buyer, seller, and the ship owner to relive their
burdensome to some extent and carry out their business effectively, this because the marine
insurance covers the financial risk and adds security against loss or damage of goods
(www.nos.org). Developing a competitive insurance in the market such as India is an important
component to be considered as more than quarter of the Indian GDP relays on international trade
through maritime, which also helping India to integrate with the economy. This paper analyzes
the Indian marine insurance legal aspects, marine insurance act 1963 also provides an overview.

HISTORY OF MARINE INSURANCE

Insurance in India was originated during the British period. The first insurance company to
get established in India was Oriental Life Insurance company during1818 in Calcutta, later
seeing it success Bombay Life Assurance Company emerged during 1823, in a while Madras
Equitable life insurance came into existence in 1829. It was Triton Insurance Company Ltd,
which made a benchmark as a first general insurance company. India stepped into insurance
sector during the year 1907; the first Indian insurance company was Indian Mercantile Insurance
Company Ltd in Bombay. Rising Indian insurance companies have paved it the way for
legislation and regulation of life insurance business known as Life Assurance Companies Act,
1912 (IRDA, 2008). The setback of the Life Assurance Companies Act is that they dont possess
any scope to support non-life insurance. The financial loss incurred due to natural calamity and
with other accidental, induced a need for non-life insurance more significant by many
organizations and communities. The result of financial loss incurred through accidents and
natural calamity have made a huge scope for non-life insurance and ended in the act during
1938.The general insurance business was nationalized during the year 1973 and the act was
termed as General Insurance Corporation (GIC) Act. It was during 1991 onwards, the Indian
government started its reforms in the financial sector paying the way for liberalization to various
insurance companies to catch up the opportunities. As the result of reform, Government of India
set up an eight-member crew with a chairperson Mr. R. N. Malhotra, to review the insurance
sector, whose review were submitted during January 1994. The report recommended two key
aspects; first is to allow private players to enter into insurance sector and the second
recommendation is to establish a regulatory authority for the insurance sector. Subsequently, the
recommendation was implemented. Currently, the legislation regulating the insurance business in
India is the insurance Act, 1938, which was amended over decades, regulating life and general
insurance. General insurance includes; fire insurance, marine insurance, and miscellaneous
insurance. Some of the existing legislation in insurance are; Insurance Regulatory Development
Authority (IRDA) Act 1999, The Marine Act 1963, General Insurance Business Act 1972 and
the Life Insurance Corporation Act 1956.

The Provisions governing Marine Insurance in India are Indian Contract Act 1872 and the
Companies Act 1956. Marine Insurance also regulated by international regulation as they are
mostly involved in international business, it mostly abides by Institute of London Underwriters
(ILU) clause and the International Commercial Terms (INCO), which was developed by
International Chamber of Commerce (ICC). Marine Insurance Act 1963 is designed to cover
hull, cargo and freight. The special additional provision that Marine Insurance holds is that it has
to fulfill section 64VB of the insurance Act 1938 (MS-INS, 2015). The ILU clauses in marine
Insurance have clearly defined on inception and termination of insurance cover and the perils
insured against.

MARINE INSURANCE

A marine insurance policy is an arrangement, wherein insurer or underwriter agrees upon

specific terms of the contract for diversifying the risk to a tolerable level with assurer when the
loss occurred. According to Section 3 of the marine Insurance Act, 1963 A contract of marine
insurance is an agreement whereby the insurer undertakes to indemnify the assured, in the
manner and to the extent thereby agreed, against marine losses, that is to say, the losses
incidental to marine adventure (Dr. Thiyagu, 2014). Marine Insurance which is also known as
perils also includes an assurance to acquisition of money, passage money, commission,
pecuniary benefit, security against advance, loans and profit. The provision in marine insurance
that the third party can be insured by the owner to extent protection against the goods or other
property, while the third party is making maritime transportation also the protection is extended
to losses against inland water, land risk, and sea voyage.

RISK COVERED BY MARINE INSURANCE

Perils of the sea: These risk covers loss due to ordinary waves, stranding lightening,
damage by sea water and collisions.

Fire: Explosions caused by fire, loss due to direct fire or smoke or steam also the loss
incurred due to the effort made to extinguish a fire is covered.

Barratry: This kind of insurance covers only the misconduct that can happen in ships
such as theft, wrongful conversion, breach of trust with dishonest intent and international casting
of vessels.

Jettison: This the risk that covers to articles that are thrown away from the board to
lighten the ship at the time of emergency.

Assailing thieves: This refers to the forcible tanking or clandestine theft of mere
pilferage.

TYPES OF MARINE INSURANCE & POLICIES

Insurance

I. Hull Insurance

Hull Insurance policy pertains to the ship being in the hand of its builders. It is a most
highly favorable policy as it gives assurance in every aspect excluding defects and
destruction by war. The Hull insurance has a clause favorable against; (i) Fire and
collision (ii) Loss due to machinery, accidents in loading and unloading cargos (iii)
Consequence due to negligent navigation and (iv) Defects in vessels and accidents
causing problems in defects.
 II. Cargo Insurance

Cargo insurance covers only the particular cargo and goods in the particular voyage.
The cargo and the goods within which is transported from one destination to another
through all such medium such as air, water, road or registered post can be proclaimed
in the case of a loss against cargo insurance.

III. Freight Insurance

Freight insurance provides protection to policyholder against freight money loss,

which is caused due to unavoidable peril. In most of the case the goods owners can
proclaim freight only on safe delivery of goods to the destination place, in such a
case, if the ship got lost or the cargo within is damaged or stolen, the owner will incur
freight loss. N order to protect from such a kind of loss freight insurance is
proclaimed.

IV. Liability Insurance

Liability insurance is one in which the insurer accepts to assure against the loss which
the insured may suffer from liability to a third party caused by the collision of the
ship and other similar hazards.

Marine Policies

I. Voyage Policy

It is a policy in which the subject matter is insured for a particular voyage irrespective
of the time involved in it (Dr. Thiyagu, 2014).Here the risk attaches only when the
ship starts on the voyage.

II. Time policy

In this, the subject-matter is insured for a definite period of time, the policy covers all
the risk from perils of the sea for a subject for the definite period of time.

III. Mixed policy

 It is the combination of voyage and time policies. It covers particular voyage over a
specified period of time.

IV. Valued policy

It is a policy in which the value f the subject matter is insured. Here the insurer and
the insured will agree upon the value to be ensured based the risk and cost of the
property.

V. Open or un-valued policy

It is the policy in which the value of the subject-matter insured is not specified.
Subject to the value of the limit of the sum of the assured, it leaves the value of the
loss to be subsequently ascertained.

VI. Floating policy

The policy only mentions the amount for which the insurance is taken out and leaves
the other details to be defined in the subsequent declaration.

VII. Builders risk policy

This policy cover or one year or more than one year, its policy covers the risk of
damage to the vessels from the time of construction to commence to until the trail is
completed.

VIII. Port risk policy

The policy covers all the risk of vessels while it is standing at the port.

TERMS USED IN MARINE INSURANCE TO EXPLAIN DAMAGE OR LOSS

T. L. V. O. (Total Loss of Vessels Only): This is the minimal coverage package in marine
insurance, which covers only the loss of cargo resulting from total loss of vessels.

T. L. O. (Total Loss Only): This covers the total loss of insured cargo whether or not the total
vessel is lost.
F. P. A. (Free of Particular or Average): This is in similar to General Average i.e. this
covers the risk of loss due to the voluntary sacrifice of ships or its materials due to the perils of
the sea.

W. A (With Average): This covers risk against stranded, fire, collisions and sunk. Here the
insurance company pays all the damage incurred fully.

WHAT IS NOT INSURED

Marine Insurance Doesnt cover following; Inherent invoice, Delay of delivery, loss due to
improper packaging by means of leakage or hook losses on goods packed, spontaneous
combustion fires in cotton or other such goods unless heated stowage is provided, unavoidable
loss due to shrinkage or evaporation during bulk shipment, perils like war, strikes, riots and civil
commotions are excluded from insurance (B. M. Wali, 1993).

FACTORS INFLUENCING RATE OF INSURANCE

The following are the list of factors, considered by the underwriters for rate fixing:

I. Type of coverage
II. Characteristic of the commodity involved
III. Origin, destination, and voyage
IV. Carrier Used
V. Transshipment if any
VI. Effect of trade loss
VII. Packaging
VIII. Attitude towards third party recoveries
IX. Attitude towards claim by assured
X. Shipping and delivery practices
XI. Assured experience of foreign trader
4. CONCLUSION

Choice of right insurance cover is an important task for international trade. Every exporter
wants to have the widest coverage All Risk Coverage with minimal cost, but the underwriters
may agree to provide only with limited risk coverage. Thereby it is a good rule of thumb for an
exporter to insure proper type of coverage generally accepted in his trade. In order to make best
utilization of insurance, it is not just the coverage of risk also the underwriters should be
analyzed, considering; company quoting lowest rate, company that has a background of promptly
settling as mentioned in contract and insurance companies that are specialized in particular
commodities will always serves better. Marine insurance is a component that mitigates the risk
associated with money and risk related misfortune to the property. Insurance provides a plan to
spread risk to the ship proprietors or the cargo owner against misfortune or harm that the ship or
freight might endure in travel because of mischance and incidents in the way of financial
indemnity. The insurance agency embraces to make assurance against the loss of goods to the
most concurred with the safeguarded hazards or dangers. The marine protection is represented by
the national legal regimes. In India, Marine Insurance Act, 1963, is regulating different aspects
of marine insurance. Be that as it may, the way that dissimilar national legal regimes exist, in the
conduct of marine insurance business, hosts certain results for the gatherings to contract,
especially the guaranteed, which will experience issues in comprehension scope outside
insurance market. Without the consistency in the national marine insurance legal regimes, the
universal behavior of marine protection, especially from the assures' point of view, would be
seriously blocked. Thus, given the global character of marine protection, there is a requirement
for harmonization of the legitimate regimes representing the rights and commitment of the
gatherings to protect the contract including international transport and trade.

REFERENCE

1. B. M. Wali, B. K. (1993). Export management. New Delhi: Sterling Publishers.

2. Dr. Thiyagu, I. C. (2014). International Trade Finance. Chennai: Thakur Publisher.

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http://www.admiraltylaw.com/: http://www.admiraltylaw.com/papers/marine_insurance-
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4. IRDA. (2008, March). www.irdaonline.org. Retrieved from http://www.irdaonline.org/:

http://www.irdaonline.org/irdacontent/journals/irda_mar08.pdf

5. MS-INS. (2015). www.ms-ins.com. Retrieved from www.ms-ins.com: http://www.ms-

ins.com/pdf/cargo/MARINECARGOINSURANCECLAUSES.pdf

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http://www.nos.org/media/documents/vocinsservices/m4-2f.pdf