UNIT-III

MARINE INSURANCE

Meaning and definition of marine insurance

Marine insurance insures all types of risks which can occur during transit. It may be called a contract in
which the insurer undertakes to indemnify the insured in a manner and to the extent thereby agreed
upon marine losses.

Arnold defines Marine insurance as a contract whereby one party for an agreed consideration,
undertakes to indemnify the other against loss arising from certain perils and sea risks to which a
shipment and other interest in a marine adventure may be exposed during a certain voyage or a certain
time.

Principles of Marine insurance Marine insurance

The marine insurance has the following essential features which are also called fundamental principles
of marine insurance.

1.Features of general contract

A Marine insurance policy must fulfill all he essentials of a valid contract, namely offer, acceptance,
agreement, competent parties, free consent, lawful consideration and legal object. Here, the insured or
proposal may be offered by a ship owner or cargo owner or a freight receiver. when the insurer accepts
their proposal. It becomes an agreement. The insurer is known as the underwriter. The premium is
determined on assessment of the proposal and is paid is paid at the time of the contract.

2.Insurable interest

The insured must have an insurable interest in the subject matter insured at the time when loss occurs.
It is not necessary that the insurable interest must exist at the time of effecting the insurance. According
to Marine insurance act 1963, every person has an insurable interest who is interested in a marine
adventure.

The assured must have insurable interest in the subject matter of the insurance, otherwise the contract
of insurance will be a wagering agreement. A person s said to have an insurable interest in the subject
matter when he stands in any legal or equitable relation to the relation in such a way that he may
benefit by the safety or due arrival of insurable property, or may be prejudiced by its loss , damage or
detention or may incur liability in respect thereof.

The following persons have insurable interest in Marine insurance:

 Ship owner
 Cargo owner
  A creditor who has advanced money on a ship or cargo to the extent of his interst in such a ship
or cargo
 Mortgagor
 Mortgagee
 Master and crew , in respect of their wages
 Bottomry bond holder
 Person who pays advance freight , if freight is recoverable on loss
 Shippers and their agents
 Person with defensible and contingent interest such as buyers , though the goods may be at
seller’s risk and he may have the right to reject the goods.
 Trustee
 Bailee
 Insurer can reinsure
 Assignee of the bill of lading

According to the provisions of the Marine insurance Act 1963 , the following interest are insurable:
a. The insurer under a contract of Marine insurance has an insurable interest in his risk. He may re-
insure the said risk to the extent of his interest.
b. The lender of money on Bottomry or respondents bonds has an insurable interest in respect of the
loan.
c. The master or any member of the crew of a ship has an insurable interest on their wages.
d. In the case of advance freight, the person advancing the freight has an insurable interest, as far as
such freight not repayable in case of loss.
e. The assured has an insurable interest in the charges of any insurance which he may effect.
f. Partial interest of any nature is insurable

Insurable value
Insurable must not be confused with insurable interest. Insurable value is quite different from insurable
interest. Insurable value is the amount of the valuation of the insurable interest for the purpose of
insurance. Section 18 of the Act provides that , subject to any express provision of the valuation of the
policy , the insurable value of the subject matter must be ascertained as follows;
1. Ship
In insurance on ship , the insurance value at the commencement of risk , of the ship , including outfit,
machinery, fuels and engine, stores etc., plus the charges of insurance on the whole.
2. Freight
In an insurance on freight, whether such freight is paid in advance or not , the insurable value is the
gross value of the risk of assured plus the insurance charges.
3. Goods
In insurance on goods or merchandise, the insurable value is the prime cost of the property insured,
plus the expenses of any incidental to shipping and charges of insurance to the whole.
4. Any other subject matter
In insurance on any other subject matter, the insurable value is the amount at the risk of the assured
when the policy attaches plus the charges of insurance.
3. UTMOST GOOD FAITH
Marine insurance is a contract of utmost good faith. The insured most observe utmost good faith in a
contract of marine insurance. He must disclose all relevant facts to the insurer which are likely to affect
his willingness to undertake the risk.
Duty of disclosure
Section 20 provides that the assured must disclose to the insurer every material circumstance which is
known to the assurer. The assured is deemed to know every circumstance which in the ordinary course
of business ought to be known to him.
Material circumstance
An assured is under an obligation to disclose only the material circumstances. A circumstance will be
material which would influence the judgment of a product insurer in fixing the premium or determining
whether he will take the risk.
Agents Duty
The agent must effecting the insurance must also disclose all material circumstances known to him. He
need not disclose circumstances which the assured is not bound to close.
Representation
Every material representation made by the assured or his agent to the insurer during the negotiations
for the contract and before the contract is concluded to be true. If it be untrue, the insurer may void the
contract.
4. CONTRACT OF INDEMNITY
The essence of marine insurance contract is that it is a contract of indemnity. This mean that by this
contract the underwriter agrees to indemnify the insured against losses by sea risks to the extent of the
amount insured. As a result the insured can recover only the actual loss suffered.
5. PRINCIPLES OF SUBROGATION AND CONTRIBUTION
Principles of subrogation and contribution are applicable to marine insurance contract. After meeting
the loss agreed, the insurer steps in to the shoes of the insured and become entitled to all the rights and
remedies available to the insured against third persons.
6. WARRENTIES
According to the marine insurance act, a warranty means a stipulation or term of breach which entitles
the insurers to avoid the policy altogether and this is so. Warranties may be express or implied.
7 .PROXIMATE CAUSE
The insurer is liable for any loss proximately caused by a peril insured against, but subject to as
aforesaid, he is not liable for any loss which is not proximately caused by a insured against.
8. ASSIGNMENT AND NOMINATION OF POLICY
A marine insurance policy is assignable unless it is expressly prohibited. It may be assigned either before
or after loss.
9. RETURN OF PREMIUM
Premium is the consideration for the risk run by the insurer, and if the risk insured against is not run,
then the consideration fails, the policy does not attach, and as a consequence the premium paid can be
recovered from the insurer.

TYPES OF MARINE POLICIES

The following are the various kinds of marine policies as contained in the Marine insurance Act 1963;
1. VOYAGE POLICY
This is a policy in which the limits of the risks are determined by place of a particular voyage. For
example, Chennai to Singapore, Chennai to London. Such policies are always used for goods insurance,
sometimes for freight insurance.
2. TIME POLICY
This designed to give cover for some specified period of time. For example, 1st Jan 2003 to noon, 1st Jan
2004. Time policies are usual incase of hull insurance.
3. VOYAGE AND TIME POLICY OR MIXED POLICY
Here the insurer is liable to pay only up to actual loss incurred. It is a combination of voyage and time
policies. It is a policy which covers the risk during a particular voyage for a specified period. For example
a ship may be insured for voyages between Chennai to London for a period of one year.
4. VALUED POLICY