Marine Insurance

BS/ Marine Insurance 1

 Insurance Definition

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.

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Insurance Terminology
• Insurer
• Insured
• Subject Matter to be insured (i)Cargo insurance (ii) Hull
insurance(iii) 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)

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• Marine Insurance

❖ 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.

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 • Principles of Insurance

• Utmost Good Faith

• Insurable Interest
• Proximate Cause
• Indemnity
• Subrogation
• Contribution

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 • Utmost Good Faith
❖ The marine contract is based on utmost good faith between on
the part of two parties.
❖ Insured should give full information about the subject matter
(object) to the insurer.
❖ He should not withhold any information. This principle is
based on the insured than on the underwriter.
❖ Insurance underwriters main expertise is to ensure that their
client is protected by unforeseen losses and casualties.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.
❖ The party should act in good faith otherwise, the other party
may cancel the contract
❖ Good faith - Let the buyer beware
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 • Insurable interest
❖ The insured should have an interest in the subject matter when it is
to be insured which means insurable interest.
❖ In 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.
❖ In the case of cargo: The owner of the shipment can buy a marine cargo
policy up to the full value of the consignment.
❖ For an insured to be compensated by the insurer insurable interest
should exist:
❖ At the time of proposing insurance
❖ Before the loss
❖ He should have reasonable expectation of acquiring such insurable
interest.
❖ He should get the compensation amount of the loss or damage of
goods.
❖ The insured must get an insurable interest at the time of loss or
damage otherwise, he will not be able to claim compensation
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 • Cause Proxima

❖ The word is derived from Latin which means nearest or

proximate cause.
❖ This 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.

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 • Indemnity
❖ The principle indemnify means that the insured will be
compensated only to the extent of loss suffered.
❖ There is an exception to the principle of indemnity in marine
insurance.
❖ Owing 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.
❖ At the time of taking policy, the money value of the subject
matter is decided.

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 • Subrogation
❖ Subrogation means substituting of one creditor(the person who
lends money) for another.
❖ In insurance contracts, except personal accident, health, and
life, subrogation is applied to recover the loss from the errant
party in marine insurance.
❖ When 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.
❖ The purpose behind subrogation is that the insurer should not
get more than the damages incurred to him.
❖ After paying for the loss, the insurer has the right to be
compensated from the third party liable to compensate the
insured.

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 Contribution
❖ The principle holding that two or more insurers each liable
for a covered loss should participate in the payment of that
loss.
❖ Many 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.
❖ In 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.

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 Assignment
• Transfer by the holder of a insurance policy (the assignor)
of the benefit of the policy to a lender (the assignee), as a
collateral for a loan.
• In the event of the death of the assignor, the assignee is paid
first and the balance (if any) is paid to the policy's
beneficiary.

• Section 52 of the Marine Insurance Act allows the

assignment unless it is prohibited under the terms
of the policy.

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• Warranties
• A warranty in an insurance policy is a promise by the
insured party that statement 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
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 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
thouh.
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 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.
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• Loss/ Damage

• Partial loss or Particular average

• Total loss
Actual Total Loss
Constructive Total Loss
• General Average

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 Loss/ Damage
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.

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 Loss/ Damage
Constructive Total Loss
• A constructive total loss is when the cost for repair of an item (e.g.,
boat or ship) 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 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".
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• 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 lading.
• 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.
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• 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

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 Hull & Machinery Insurance

BKS/ Marine Insurance 21

• Overview
• 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.

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BS/ Marine Insurance 26
 • Scope of Cover
❖ Perils of the sea, rivers and navigable waters
❖ Fire , lightening and explosion
❖ Violent theft by persons from outside the vessel
❖ Jettison
❖ Piracy
❖ Accident in loading, discharging, shifting cargo or fuel
❖ Bursting of boilers, breakage of shafts
❖ Negligence of master , officers, crew and pilots
❖ Negligence of repairers provided they are notthe
insured under the policy
❖ of boilers, breakage of shafts
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 • Scope of Cover
• Liability of ship-owners for loss of life and personal injury etc.
are generally not covered under Marine Hull policies
• Also any damage caused to the cargo due to negligence of the
ship-owner is also not covered.
• So how do the ship owners protect themselves against these
losses???
• For such lossess P& I Club Come to rescue
• The members of the club undertake to share the liability
• P & I Clubs generally provide cover for the following risks
• Damages or compensation for personal injury to any person,
death etc.
• Shipwreck

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❖ of boilers, breakage of shafts
 • Scope of Cover

• 1/4th Collision liability (Liability for physical damage to another

vessel, it is not covered under some Marine Hull Polices)
• Pollution risks

❖ of boilers, breakage of shafts

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 • Concept of a P & I Club
Liability
Ship-owner 1 of Ship-owner 1
Common Fund
Ship-owner 2

Ship-owner 3 Claim

Ship-owner 4 Liability of Ship-owner 2

Club

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 Organisation of a P & I Club

Board of Directors

Manager

Correspondents 31

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 • International Group of P&I clubs
▪ 17 major clubs, about 90% of world tonnage
▪ Pooling agreement
▪ Sharing risks
▪ Loss prevention/ control measures
▪ Interaction with other international bodies

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 • P & I - Risks Covered
▪ Personnel injury claims
▪ Claims relating to crew
▪ Claims for family of crew
▪ Fixed & floating objects claims
▪ Non contact damage
▪ Cargo claims

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 • P & I - Risks Covered
▪ Collision claims
▪ Pollution claims
▪ Fines
▪ Stowaways
▪ Sue & labour charges

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 • P & I - Risks Covered

▪ Wreck removal
▪ Legal costs-dealing with liability
claims
▪ Diversion expenses
▪ General average charges
▪ Omnibus Rule

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 Institute Marine Cargo
Clauses

Institute Cargo Clauses, 1.10.82 – A, B & C

Institute Cargo Clauses, 1.1.2009 – A, B & C
•Institute War Clauses (Cargo)
•Institute Strikes Clause (Cargo)
•Institute War Clauses (Air Cargo)
•Institute Strikes Clauses (Air Cargo)
•Inland transit Rail/Road Clause
•Strike Riots and Civil Commotions Clause
•Institute Trade Clauses

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 Institute Marine Cargo
Clauses
RISKS COVERED in
Clause ‘A’
1.- Risks Clause

This insurance covers all risks of loss of

or damage to the subject-matter insured
except as provided in Clauses 4, 5, 6
and 7.

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 Institute Marine Cargo Clauses
Exclusions
4. General Exclusion Clause
Willful misconduct of the assured
Inherent vice
Insufficiency in packing
Wear & tear
Delays
Insolvency of ship owner, charterers etc.
Deliberate damage by any person (not in A)
5. Unseaworthiness and Unfitness Exclusion Clause
6. War Exclusion Clause
7. Strikes Exclusion Clause

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BKS/ Marine Insurance
 RISKS COVERED in Clause ‘B’
1. - Risks Clause

1 This insurance covers, except as provided in Clauses 4, 5, 6 and 7

1.1 loss of or damage to the subject-matter insured reasonably attributable to

1.1.1 fire or explosion

1.1.2 vessel or craft being stranded grounded sunk or capsized

1.1.3 overturning or derailment of land conveyance

1.1.4 collision or contact of vessel craft or conveyance with any external

object other than water

1.1.5 discharge of cargo at a port of distress

1.1.6 earthquake volcanic eruption or lightning,

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 RISKS COVERED in Clause ‘B’

1.2 loss of or damage to the subject-matter insured caused by

1.2.1 general average sacrifice

1.2.2 jettison or washing overboard

1.2.3 entry of sea lake or river water into vessel craft hold
conveyance
container liftvan or place of storage,

1.3 total loss of any package lost overboard or dropped whilst

loading
on to, or unloading from, vessel or craft.

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 RISKS COVERED in Clause ‘C’
1. - Risks Clause
1 This insurance covers, except as provided in Clauses 4, 5, 6 and 7
1.1 loss of or damage to the subject-matter insured reasonably attributable to
1.1.1 fire or explosion
1.1.2 vessel or craft being stranded grounded sunk or capsized
1.1.3 overturning or derailment of land conveyance
1.1.4 collision or contact of vessel craft or conveyance with any external object
other than water
1.1.5 discharge of cargo at a port of distress
1.2 loss of or damage to the subject-matter insured caused by
1.2.1 general average sacrifice
1.2.2 jettison
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