Marine Insurance

                 Marine Insurance

Insurance is a contract whereby, in return for the payment of premium by the insured, the insurers pay the financial losses suffered by the insured as a result of the occurrence of unforeseen events.

Insurance Terminology

•Insurer

•Insured

•Subject Matter to be insured (Cargo insurance- (i) Special, (ii) Reporting(open cargo policy over a long period of time) and (iii) Floating) Hull insurance (ship insurance for a trip/voyage), Freight Insurance.

•Premium

•Risks covered(theft, loss, or damage to your cargo)

•Insured value (maximum amount an insurance company will pay if an insured asset is deemed a total loss)

•Period of insurance(period of time within which insurance protection is granted)

•Policy (Document detailing the terms and conditions of a contract of insurance)

      Marine Insurance Definition

A contract of marine insurance is a contract whereby the insurer undertakes to indemnify(guarantee) the assured (insured), in manner and to the extent agreed, against marine losses, that is to say (in other words), the losses incident (occurred ) to marine adventure.

Marine Insurance Act, 1963

A contract is made between insurance companies and insured against a certain amount of premium to protect from the risk of waterways is known as Marine Insurance

A typical marine insurance policy covers against the losses caused to:

Cargo present on the vessel

Hull or the vessel itself

Some damages take place on account of unavoidable disasters and some take place due to negligence.

Principles of Insurance

vUtmost Good Faith

vInsurable Interest

vProximate Cause

vIndemnity

vSubrogation

vContribution

    

Utmost Good Faith 

vThe marine contract is based on utmost good faith between on the part of two parties.

vInsured should give full information about the subject matter (object) to the insurer.

vHe should not withhold any information. This principle is based on the insured than on the underwriter.

vInsurance underwriters evaluate the risk and exposures of potential clients. They decide how much coverage the client should receive, how much they should pay for it, or whether even to accept the risk and insure them.

vThe party should act in good faith otherwise, the other party may cancel the contract

vGood faith - Let the buyer beware

   Insurable interest

vThe insured should have an interest in the subject matter when it is  to be insured which means insurable interest.

vIn the case of ships: The owner of the ship or any individual who has purchased the ship on a charter basis can insure the ship to its total value.

vIn the case of cargo: The owner of the shipment can buy a marine cargo policy up to the full value of the consignment.

vFor an insured to be compensated by the insurer insurable interest should exist:

vAt the time of proposing insurance

vBefore the loss

vHe should have reasonable expectation of acquiring such insurable interest.

vHe should get the compensation amount of the loss or damage of goods.

vThe insured must get an insurable interest at the time of loss or damage otherwise, he will not be able to claim compensation

             Cause Proxima

vThe word is derived from Latin which means nearest or proximate cause.

vThis principle helps to decide the actual cause of loss when number of causes have contributed to the loss.

To fix the responsibility of the insurer, the immediate cause should be determined. The remote cause of loss is not important in determining the liability

                   Indemnity

vThe principle indemnify means that the insured will be compensated only to the extent of loss suffered.

vThere is an exception to the principle of indemnity in marine insurance.

vOwing to difficulties in determining the actual value of the property at the time of loss, both of insured and insurer agree on the value of the property when the policy is first issued.

vAt the time of taking policy, the money value of the subject matter is decided. 

             Subrogation 

vSubrogation means substituting of one creditor(the person who lends money) for another.

vIn insurance contracts, except personal accident, health, and life, subrogation is applied to recover the loss from the errant party in marine insurance.

vWhen the loss is insured, and the insurer pays the amount of loss, the party receiving the insurance benefit must forfeit the right to pursue the errant party.

vThe purpose behind subrogation is that the insurer should not get more than the damages incurred to him.

vAfter paying for the loss, the insurer has the right to be compensated from the third party liable to compensate the insured.

             Contribution 

vThe principle holding that two or more insurers each liable for a covered loss should participate in the payment of that loss.

vMany insurance policies stipulate the formula under which contribution among multiple insurers will take place. Two standard methods are Contribution by limits and Contribution by equal shares.

vIn other words, the insurance law contribution clause describes as to how much the issuer(insurance Company) must pay if there is insurance in more than one company on a given loss.

Contribution clauses help to limit the liability of the insurers.

Warranties

•A warranty in an insurance policy is a promise by the insured party that statements affecting the validity of the contract are true. Most insurance contracts require the insured to make certain warranties.

•An insurance contract is written on the principle of utmost good faith, meaning each party must trust that the other is being completely truthful.

•For the contract to be valid, you may have to warrant that an assumption the insurer is making is true.

•This is the only instance where the term "insurance warranty" is accurate.

•According to Section 35 (1) of the Marine Insurance Act, warranty is a promise, that is an undertaking by the assured that

Deductibles

This amount is deducted from the total claim due to an insured peril and the insurer pays the remaining part.

The hull part covers the value of the vessel owned by the insured. If something happens  to the vessel and it’s a covered peril, one deductible, usually a percentage of the hull value applies.

No deductible applies in the event of a total loss though.

Duty of Assured

In case of any loss or misfortune it is the duty of the Assured (insured) and their  agents(representative) to take such measures as may be reasonable for the purpose of averting or minimizing a loss.

A standard clause in a maritime insurance policy which allows the insured to recover from the insurer any reasonable expenses incurred by the insured in order to minimize or avert a loss to the insured property, for which loss to the insurer would have been liable under the policy.

Loss/ Damage

Partial loss or Particular average

Total loss

  Actual Total Loss

  Constructive Total Loss

General Average

Actual Total Loss

•Actual total loss is the loss of a thing or property which cannot be recovered or reused because it is totally destroyed.

•Eg: If a ship is destroyed and submerged in a sea such that it cannot be recovered or reused. It is said to have been an actual total loss.

•Subject matter is destroyed/ so damaged that it ceases to be a thing of the kind insured

•Subject matter is missing

•The insurer settles the insured the entire amount on the basis of the fact that the repairing cost exceeds the replacement or market value.

Constructive Total Loss

•A constructive total loss is when the cost for repair of an item (e.g.,  boat or car) is more than the current value of that item. It also refers to the insurance claim that is settled for the full value of the associated coverage.

1.Assured is deprived of goods and their recovery is unlikely or cost of recovery would exceed the value when recovered.

2.The cost of repairing the goods and thereafter forwarding them to the destination would exceed their value on arrival.

3.The cost of removal, sending to the repair facility, and repairing the ship would exceed its insured value.

4. In other words, a total loss or write-off is a situation where the lost value, repair cost or salvage cost of a damaged property exceeds its insured value. Such a loss may be an "actual total loss" or a "constructive total loss".

      General Average

A general average means the loss or damage to the ship or the cargo which is shared by the ship owner and the cargo owner.

The new Jason clause simply states that the Cargo owner has to contribute in the general average even when the damaging incident is caused by the negligence of the ship/carrier owner.

In such case the new Jason clause should be present in the bill of landing.

Thus, the new Jason clause protects the ship owners by having general average in case of damage caused by the negligence by the shipowner or the crew.

Before the adoption of Harter Act in 1893, the shipowners were not allowed to get any benefit from the cargo owners in case of losses sustained by shipowner’s negligence.

          Exclusion

•Willful misconduct of the Assured

•Ordinary leakage, ordinary loss in weight/volume, or ordinary wear and tear of the subject matter insured.

•Insufficient and unsuitability of packing

•Inherent vice or nature of the subject matter

•Delay even though caused by insured perils

•Insolvency or financial default of the ship owners

•Nuclear perils

•Unseaworthiness and unfitness of the vessel/conveyance (if the Assured is not aware of)

•War and warlike perils and strike perils.

•War perils and strike perils can be covered concurrently by attaching

•Institute War and Strike Clauses

Hull and  Machinery insuran

Hull & Machinery insuranceprovides physical loss or damage insurance for not only the hull of a ship but also her propulsion machinery and any equipment used for activities such as cargo handling.

•Hull & Machinery insurance provides physical loss or damage insurance for not only the hull of a ship but also her propulsion machinery and any equipment used for activities such as cargo handling.