Marine Insurance

It is possible to divide marine losses under the following head-

  1. Total Loss= It can be further segmented into the below categories:
  • Actual Total Loss- It happens when-
  • Goods are completely damaged
  • Goods are damaged beyond repairing
  • Policyholder is deprived of the insured subject
  • Ship is missing, and there is no trace of it

In case of actual total loss, the policyholder is entitled to get the full amount of loss. When the insured has been compensated, the title of goods is also passed on to the insurance company. It means, if some amount is recovered from the sale of damaged items, the same will go to the insurance company and not to the policyholder.

Case: L.S Crockery was sending a consignment worth Rs 10 lakh to Maldives when the fire erupted in the ship due to overheating of the engine. Though it was able to douse the flame, the heat damaged the crockery and reduced it to pieces. As L.S Crockery had a marine insurance policy, it approached the insurer for the claim settlement who considered it as a case of total loss and settled the claim accordingly.

  • Constructive Total Loss= It happens when due to certain reasons, the ship is abandoned and it is not commercially profitable to retrieve the ship. In this case, the ship is not completely damaged, but still, it is not practical to get it repaired and restored to its original state. In case, where the cost of repairing a ship is more than its value, it is advised to abandon the ship. Similarly, if the cargo is safe in the abandoned ship, however, to bring the cargo to coast is more than the cargo cost, it is better to leave the cargo.

Case: MJ Ship, laden with merchandise belonging to German merchants for sale in Maldives, was on a voyage when the war broke out between Germany and UK. Unfortunately, the ship was in UK water when the war broke out, and therefore, UK navy personnel took it into their custody and released their crew members but refused to release the goods. The crewmembers returned to Germany, and MJ Ship approached its marine insurance company for the claim settlement. The insurer appointed a surveyor who found out that expenses incurred in bringing the cargo to coast were more than the actual cost of the cargo. The surveyor considered it as a case of constructive total loss and on the basis of the report, the insurer settled the claim accordingly.

  1. Partial Loss= It can be divided into the following:
  • Particular Average Loss= It is a partial loss which is caused by an insured peril.

Case: The ship was carrying a cargo of Rs 50 lakh when suddenly it started overheating due to mechanical issues. The captain informed the same to the shipowner who tried to find ways to curtail the losses in order to protect goods. Finally, the cargo owner decided to sell a part of the cargo at the lower value in the immediate port much before the cargo reached the destination. Here, the goods were sold for Rs 4 lakh, however, if they would have been sold in the market the cargo owner would have fetched Rs 12 lakh. As cargo owner incurred losses due to urgent selling, it approached its marine cargo insurance company who considered it as a case of particular average loss and decided to settle the claim accordingly.

Read more: Do Past Claims Cause Higher Premium in Marine Policy?

  • General Average Loss= It is a loss which is caused voluntarily in order to avoid any impending danger.

Case: LS Ship was on its way to Dubai when it started sinking due to overloading. At this point, the captain allowed some of the cargo to be thrown out of the ship in order to save the ship and the crew member from sinking. Any loss happened to this would be covered by marine insurance as items were thrown off to save the ship and human life.

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