Marine Final

8/7/2019 Marine Final

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MARINE INSURANCEMARINE INSURANCEByBy--

Kush AggarwalKush Aggarwal

Sridurga KamathSridurga KamathShalabh MaheshwariShalabh Maheshwari

Ranjith PaiRanjith Pai


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INTRODUCTIONINTRODUCTION

Insurance connected with the risks of transportation ofInsurance connected with the risks of transportation ofgoods, is one of the oldest and most important formsgoods, is one of the oldest and most important formsof insuranceof insurance

The value of goods shipped by the business firms eachThe value of goods shipped by the business firms eachyear cost billions of rupeesyear cost billions of rupees

These goods are exposed to damage or loss fromThese goods are exposed to damage or loss from

numerous perils associated with transportationnumerous perils associated with transportation These goods can be protected by marine insuranceThese goods can be protected by marine insurance

contracts.contracts.


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INTRODUCTIONINTRODUCTION

It is an important element of the general insuranceIt is an important element of the general insuranceindustryindustry

It essentially provides cover for the losses sufferedIt essentially provides cover for the losses suffereddue to marine perilsdue to marine perils

In India, the marine insurance is regulated by:In India, the marine insurance is regulated by:

1.1. The Indian maritime insurance act, 1963, which isThe Indian maritime insurance act, 1963, which is

based on the original marine insurance act, 1906. Ofbased on the original marine insurance act, 1906. OfU.K.U.K.


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HISTORYHISTORY Marine insurance as we know it today, can beMarine insurance as we know it today, can be

described as mother of all insurancesdescribed as mother of all insurances It is believed to have originated in England owing toIt is believed to have originated in England owing to

the frequent movement of ships over high seas forthe frequent movement of ships over high seas forcommerce and tradecommerce and trade

Prior to the development of marine insurance, thePrior to the development of marine insurance, thepeople across the world, had a system of: Pooling theirpeople across the world, had a system of: Pooling theircontributions so that if any one of them suffers losscontributions so that if any one of them suffers lossduring voyage, he would be compensated from theduring voyage, he would be compensated from the

pool.pool. Today marine insurance has assumed a vastToday marine insurance has assumed a vast

dimensions due to ever expanding trade across thedimensions due to ever expanding trade across theglobe.globe.


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DEFINITIONDEFINITION

Marine insurance is a contract under which the insurerMarine insurance is a contract under which the insurerundertakes to indemnify the insured in the mannerundertakes to indemnify the insured in the mannerand to the extent thereby agreed against marineand to the extent thereby agreed against marinelosses, incidental to marine adventures.losses, incidental to marine adventures.

It must specify:It must specify:1.1. the name of the assured, or of some person whothe name of the assured, or of some person who

effects the insurance on his behalfeffects the insurance on his behalf2.2. the subjectthe subject--matter insured and the risk insured againstmatter insured and the risk insured against

the voyage, or period of time, or both, as the case maythe voyage, or period of time, or both, as the case maybe, covered by the insurancebe, covered by the insurance3.3. the sum or sums insuredthe sum or sums insured4.4. the name or names of the insurer or insurersthe name or names of the insurer or insurers


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SUBJECT MATTERSUBJECT MATTER

It is required to protect the interest of:It is required to protect the interest of:

1.1. The owner of the shipThe owner of the ship

2.2. Owner of the cargoOwner of the cargo

3.3. The person interested in freightThe person interested in freight

4.4. For liabilities and in respect of fines imposed forFor liabilities and in respect of fines imposed forvarious reasons.various reasons.


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PRINCIPLESPRINCIPLES

Following are the Marine insurance principles:Following are the Marine insurance principles:

Utmost good faithUtmost good faith

IndemnityIndemnity

Insurable interestInsurable interest

Proximate causeProximate cause

SubrogationSubrogation

ContributionContribution


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UTMOST GOOD FAITHUTMOST GOOD FAITH

Assured must disclose to the insurer before theAssured must disclose to the insurer before thecontract is concluded, every material circumstancecontract is concluded, every material circumstancewhich is known to the assured and which wouldwhich is known to the assured and which would

influence the insurers judgment in fixing the premiuminfluence the insurers judgment in fixing the premiumor whether or not he would accept the risk.or whether or not he would accept the risk.

e.g. shipe.g. ship--owner must disclose that his ship is in bad orowner must disclose that his ship is in bad orgood conditiongood condition


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INDEMNITYINDEMNITY Principle ofIndemnity is that insurer will indemnifyPrinciple ofIndemnity is that insurer will indemnify

assured for loss and will restore him to the position heassured for loss and will restore him to the position hewas immediately before loss occurred.was immediately before loss occurred.

In life insurance, purpose is to pay a known sum ofIn life insurance, purpose is to pay a known sum of

money, with a possibility that as a result, assured will bemoney, with a possibility that as a result, assured will bebetter off than before.better off than before. Where indemnity is the purpose, assured should not beWhere indemnity is the purpose, assured should not be

better off as a result of the loss, fraud will be otherwisebetter off as a result of the loss, fraud will be otherwiseencouraged.encouraged.

Assured cannot claim more than once on the same riskAssured cannot claim more than once on the same riskwith two insurers (double insurance)with two insurers (double insurance)

Assured cannot recoup his loss from another partyAssured cannot recoup his loss from another partyafter the claim was settled. E.g. cargo owner afterafter the claim was settled. E.g. cargo owner after

claiming from his insurers cannot claim again from hisclaiming from his insurers cannot claim again from hiscarrier.carrier.


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INSURABLE INTERESTINSURABLE INTEREST

The subject matter must be a physical object exposedThe subject matter must be a physical object exposedto peril.to peril.

Assured must have some legal relationship (notAssured must have some legal relationship (not

necessarily ownership) to the subject matter.necessarily ownership) to the subject matter.

Assured must stand to benefit, by its preservation.Assured must stand to benefit, by its preservation.

Assured must stand to lose, by its loss or damage.Assured must stand to lose, by its loss or damage.


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PROXIMATE CAUSEPROXIMATE CAUSE

The efficient cause which brings about a loss with noThe efficient cause which brings about a loss with noother intervening cause which breaks the chain ofother intervening cause which breaks the chain ofevents.events.

It is to keep the scope ofInsurance within the limitsIt is to keep the scope ofInsurance within the limitsintended by the insured & the insurer, when theintended by the insured & the insurer, when thecontract is madecontract is made

In absence of this rule, every loss could be claimed byIn absence of this rule, every loss could be claimed bythe insured and/or every claim will be rejected by thethe insured and/or every claim will be rejected by the

insurerinsurer Thus this principle also helps to protect the rights ofThus this principle also helps to protect the rights of

parties to contractparties to contract


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SUBROGATIONSUBROGATION

SubrogationSubrogation is the substitution of the insurer as ais the substitution of the insurer as aclaimant for a loss suffered by the insured.claimant for a loss suffered by the insured.

The right to sue for the losses sustained by the insuredThe right to sue for the losses sustained by the insuredis transferred to the insurance company, which can seekis transferred to the insurance company, which can seek

reimbursement for the payment to the insured from thereimbursement for the payment to the insured from theparty who caused the loss.party who caused the loss.

It prevents a guilty party from being absolved of theirIt prevents a guilty party from being absolved of theirnegligence simply because the victim has insurancenegligence simply because the victim has insurance

the guilty party still has to pay for the loss that theythe guilty party still has to pay for the loss that theycaused.caused.

It also keeps insurance rates down, since the insuranceIt also keeps insurance rates down, since the insurancecompany can pay for the loss from reimbursementscompany can pay for the loss from reimbursements

from guilty parties rather than, from premiums.from guilty parties rather than, from premiums.


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CONTRIBUTIONCONTRIBUTION

StatesStates-- If the same property is insured under more thanIf the same property is insured under more than1 policy, the insured cannot recover more than his loss,1 policy, the insured cannot recover more than his loss,but can recover only a rate able portion of loss underbut can recover only a rate able portion of loss undereach policyeach policy

It is based on the premise that no one should gain fromIt is based on the premise that no one should gain froma loss, since an insurable risk is a pure risk.a loss, since an insurable risk is a pure risk.

Another requirement is that each policy must cover theAnother requirement is that each policy must cover thesame risk giving rise to the losssame risk giving rise to the loss

Another preAnother pre--requisite is that each policy must protectrequisite is that each policy must protectthe same interest of the same insured. All policies mustthe same interest of the same insured. All policies mustbe in force at the time of the lossbe in force at the time of the loss


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MARINE CARGO CLAIMSMARINE CARGO CLAIMSThe claim upon a policy of marine insurance goods mayThe claim upon a policy of marine insurance goods may

arise upon thearise upon the thethe happening as a result of insuredhappening as a result of insuredperils any of the following :perils any of the following :

Total Loss or actual or constructiveTotal Loss or actual or constructive

Particular average or partial lossParticular average or partial loss General average lossGeneral average loss

Expenses which include:Expenses which include:

a)a) Legal and labor chargesLegal and labor chargesb)b) Salvage chargesSalvage charges

c)c) Forwarding expensesForwarding expenses

d)d) Extra chargesExtra charges


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RECOMMENDATIONSRECOMMENDATIONS

Marine policies except increased policies , areMarine policies except increased policies , arefreely assignable. Marine policy document is afreely assignable. Marine policy document is a

fundamental requirement for discountingfundamental requirement for discountinginvoices with local bankers without waiting forinvoices with local bankers without waiting for

the importer to receive the overseas shipmentsthe importer to receive the overseas shipmentsand pay the invoicesand pay the invoices

Even for a sale contract on FOB basis when theEven for a sale contract on FOB basis when the

insurable interest ceases (the goods are placedinsurable interest ceases (the goods are placedoverboard byoverboard by the seller)the seller) by notional extension ofby notional extension of

principle of insurable interest the risk can beprinciple of insurable interest the risk can be

covered by sellers contingency policycovered by sellers contingency policy


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CLAUSESCLAUSES

Institute Cargo ClausesInstitute Cargo Clauses

1.1. ICCICC A: covers all risks of loss & damage toA: covers all risks of loss & damage to

subject matter insuredsubject matter insured2.2. ICCICC BB

3.3. ICCICC CC

Institute Cargo Clause (Air)Institute Cargo Clause (Air) Institute War Clause (Air Cargo)Institute War Clause (Air Cargo)


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EXCLUSIONSEXCLUSIONS

General Exclusions ClauseGeneral Exclusions Clause

UnUn--seaworthiness Clauseseaworthiness Clause

War Exclusion ClauseWar Exclusion Clause Strikes Exclusion ClauseStrikes Exclusion Clause


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TYPES OF MARINE POLICIESTYPES OF MARINE POLICIES

Voyage PolicyVoyage Policy: Where the contract is to insure the: Where the contract is to insure thesubjectsubject--matter at and from or from one place tomatter at and from or from one place toanother or othersanother or others

Time PolicyTime Policy: Where the contract is to insure the: Where the contract is to insure thesubjectsubject--matter for a definite period of time. It cant bematter for a definite period of time. It cant befor a period more than a year.for a period more than a year.

Valued PolicyValued Policy: is a policy in which the value of the: is a policy in which the value of the

goods are not fixed, (e.g., things like painting, historicalgoods are not fixed, (e.g., things like painting, historicalcoins, work of art, ancient things) and the prices agreedcoins, work of art, ancient things) and the prices agreedto both the parties is fixed for this.to both the parties is fixed for this.


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TYPES (contd..)TYPES (contd..)

Unvalued PolicyUnvalued Policy: is the policy in which the value of the: is the policy in which the value of thesubject matter is not decided at the time of issuing thesubject matter is not decided at the time of issuing thepolicy however it is ascertained in the event of loss.policy however it is ascertained in the event of loss.When the loss occurs the value is decided by taking intoWhen the loss occurs the value is decided by taking intoaccount the cost of goods as per the invoice and doesaccount the cost of goods as per the invoice and doesnot include any anticipated profit.not include any anticipated profit.

Floating PolicyFloating Policy: It only mentions the amount for which: It only mentions the amount for whichthethe insuranceinsurance is taken out, and leaves the name of theis taken out, and leaves the name of theship or ships and other particulars to be defined byship or ships and other particulars to be defined bysubsequent declarations, which will be declared by thesubsequent declarations, which will be declared by theassured by endorsement on the policy or in otherassured by endorsement on the policy or in othercustomary manner.customary manner.


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TYPES (contd..)TYPES (contd..)

Blanket policy:Blanket policy: Under the condition of the blanketUnder the condition of the blanketpolicy the maximum limit of the required amount ofpolicy the maximum limit of the required amount ofprotection is estimated which is purchased in lumpprotection is estimated which is purchased in lumpsum. The amount of premium is usually paid insum. The amount of premium is usually paid in

advance.T

his policy describes the nature of goodsadvance.T

his policy describes the nature of goodsinsured, specific route, ports and places of the voyagesinsured, specific route, ports and places of the voyagesand covers all the risk accordingly.and covers all the risk accordingly.

Builder's risk policy:Builder's risk policy: This policy is issued for more thanThis policy is issued for more thanone year. This covers the risk of damage to vesselsone year. This covers the risk of damage to vessels

from the time its construction commences until its trailfrom the time its construction commences until its trailis completed.is completed. Port risk policy:Port risk policy: This policy covers all the risk of aThis policy covers all the risk of a

vessel while it is standing at a port for particular periodvessel while it is standing at a port for particular periodof time.of time.


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WARRANTYWARRANTY

A warranty is a promise by the assured to theunderwriter that something shall or shall not be done,or certain of affairs does or does not arise

A warranty must be and literally complied with, asotherwise the insurer may avoid all liability, from thedate of breach

Warranty is in effect a safety valve of the insurers.

2 types Express Warranty & Implied Warranty


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EXPRESS WARRANTYEXPRESS WARRANTY

These are appearing in the policy itself andneeds to be complied with. For example:

1. Warranted packed in new gunny bags

2. Warranted new drums

3. Warranted professionally packed

4. Warranted sailing within seven days

5. Warranted shipped under deck

6. Warranted surveyed before shipping


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IMPLIED WARRANTYIMPLIED WARRANTY

These are not expressed but implied and are thereforetermed implied warranties. For example:

1. Seaworthiness of the vessel at the

2. Commencement of the voyage and

3. Legality of the adventure.

In the voyage policy on goods, there is no impliedwarranty that the goods insured are seaworthy.


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LIMITING FEATURES OFLIMITING FEATURES OF

WARRANTIESWARRANTIES Change of port of departureChange of port of departure

Change of destinationChange of destination

Change of voyageChange of voyage

Deviation from voyageDeviation from voyage

Delay in voyageDelay in voyage


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KINDS OF MARINE LOSSESKINDS OF MARINE LOSSES

Marine losses can be divided into two board types.Marine losses can be divided into two board types.

1. Total Loss1. Total Loss

(a) ActualT

otal(a) ActualT

otal(b) Constructive total Loss(b) Constructive total Loss

2. Partial Loss2. Partial Loss

(a) General Average(a) General Average

(b) Particular Average(b) Particular Average

(c) Salvage Charges(c) Salvage Charges


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TOTALLOSSTOTALLOSS

Actual Total LossActual Total Loss::The actual total loss takes place when the cargo or shipThe actual total loss takes place when the cargo or ship

insured against the perils of sea is totally destroyed. Aninsured against the perils of sea is totally destroyed. Anactual total loss also occurs when the insured looses theactual total loss also occurs when the insured looses thepossession of his property. The amount of total will bepossession of his property. The amount of total will bepaid by the underwriter on all policies issued on thatpaid by the underwriter on all policies issued on thatship.ship.

Examples of total lossExamples of total loss

(i) If the ship is sunk in the sea.(i) If the ship is sunk in the sea.(ii) If the ship is burnt to ashes.(ii) If the ship is burnt to ashes.(iii) If the ship is captured by an enemy.(iii) If the ship is captured by an enemy.


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TOTALLOSSTOTALLOSS

Constructive total loss:Constructive total loss:

A constructive total loss is declared when the PropertyA constructive total loss is declared when the Propertybecomes useless for all practical purposes. It alsobecomes useless for all practical purposes. It also

occurs where the subject matter of marine insurance isoccurs where the subject matter of marine insurance isdamaged to such an extent that the expenditure ofdamaged to such an extent that the expenditure ofrepairs will be equal to or even more than the value ofrepairs will be equal to or even more than the value ofproperty. Notice of abandonment must be served inproperty. Notice of abandonment must be served in

writing to insurer in case of such loss.writing to insurer in case of such loss.


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PARTIALLOSSPARTIALLOSS

General average:General average:

A ship sailing in the open water faces some perils. ShipA ship sailing in the open water faces some perils. Shipmasters have to incur several expenses in order to carrymasters have to incur several expenses in order to carry

ship cargoes safely to their destination. For exampleship cargoes safely to their destination. For exampledeck cargo is thrown into the sea during a heavy stormdeck cargo is thrown into the sea during a heavy stormfor the safety of the ship. As the loss is the result of afor the safety of the ship. As the loss is the result of avoluntary sacrifice, incurred in time of need so all ~ thevoluntary sacrifice, incurred in time of need so all ~ the

interested parties bear a share of the loss.interested parties bear a share of the loss.


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PARTIALLOSSPARTIALLOSS

Particular average:Particular average:

Particular average refers to partial loss which must beParticular average refers to partial loss which must beborne by the particular party that suffers the losses.borne by the particular party that suffers the losses.

There are not incurred for the common benefit but areThere are not incurred for the common benefit but areresult of the accident or carelessness. Such is damage byresult of the accident or carelessness. Such is damage bysea water or fire, stranding. If some bales of cotton aresea water or fire, stranding. If some bales of cotton aredamaged by fire It is particular average.damaged by fire It is particular average.

Marine Final

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