Marine Insurance

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Here are the principles which apply to a marine insurance policy-

  1. Principle of Utmost Good Faith= The marine insurance policy relies on the principle of utmost good faith, which clearly states that at the time of filling the marine insurance policy document, the applicant should disclose the correct information. Also, the applicant would not withhold any material information. If the applicant conceals or hides important information, the marine insurance company has all rights to reject the policy application.

Case: L.S Fashion is planning to buy a marine insurance policy. It means, the company should disclose all the material information about its current state. In case L.S Fashion hides material information, the marine insurance company has all rights to reject the policy application. Even if at the time of the claim, the insurer finds out that L.S Fashion hides material facts, it can reject its policy application form.

  1. Principle of Insurable Interest= According to this principle, it is necessary for the policyholder to have some insurable interest in the subject for which he/she wants to buy insurance. It means, the policyholder should be benefitted from the safe arrival of goods and should suffer losses due to damage of goods. It might happen that the policyholder doesn’t have an insurable interest at the time of buying a marine insurance policy, however, he should expect getting such interest in the future. It is necessary that the policyholder must have some insurable interest in the insured item otherwise he will not be able to get the claim settled from the insurer.

Case: Last year, K.M Manufacturing bought a marine insurance policy for the consignment which it was sent to Sri Lanka. Now, once the consignment reached the destination, the insurer’s liability also ended at that point. As K.M Manufacturing had an insurable interest in consignment, it bought marine insurance but as soon as goods reached the destination, its insurable interest was over and therefore, the marine insurance company was not liable to pay for any losses or damages which happened to goods after delivery.

  1. Principle of Indemnity= As per this principle, the marine insurance policyholder would be compensated only to the extent of the loss. It means, the person should not purchase marine insurance to earn profits. In any case, the policyholder will not get more than the actual loss incurred.

Case: As M.K Tech has a vast base of clients which spread around the world, the company has purchased marine insurance to get coverage in case something goes wrong. The total cover available under the policy is Rs 50 lakh. It means, M.K Tech will not get more than the loss even if the sum insured is more than the loss. It means, if the loss is of Rs 20 lakh, M.K Tech will not get more than the actual loss, i.e., Rs 20 lakh, even when the total cover is Rs 50 lakh.

  1. Principle of Cause Proxima= At the time of loss, the marine insurance policyholder would consider the nearest or proximate cause, which would help in deciding the actual cause of loss when there would be a series of causes which have attributed to the loss. Here, remote cause for a loss is not required to determine the liability and therefore, if the proximate cause is insured, the marine insurance company has to settle the claim.

Case: Rats punctured a cargo ship because of that water entered and damaged the cargo. Now, here are two main causes for the cargo damage- (i) the cargo ship got punctured due to rats (ii) the sea water entered the ship through holes.

Read More: What is covered under Marine Cargo Insurance?

In this case, the cargo owner had a marine insurance policy and the nearest cause of the damage was water, which was covered and therefore the insurer settled the claim accordingly.

Principle of Loss Minimisation= Just because someone has a marine insurance policy, it doesn’t mean the person can act carelessly. It is necessary for the policyholder to take all the steps to curtail and minimise The policyholder must not behave irresponsibly during an accident just because the property is insured under marine insurance.

Case: L.F Electronics got a major contract of exporting electrical items to a buyer situated in Dubai. To get protection against various losses or damages, the company also purchased a marine insurance policy. In this case, the company had a marine insurance policy, but it did not mean that L.F Electronics could act carelessly. It means, L.F Electronics would require taking all precautionary steps to curtail the losses or damages. In any way, L.F Electronics couldn’t act carelessly just because it purchased a marine insurance policy.