Marine Insurance

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One of the most crucial components of international commerce and trade is marine insurance. The transport of goods over water is especially dangerous as there are many dangers, from natural hazards and weather-related issues to cross-border issues and even piracy.  Hence, at every stage of operations, marine insurance is a necessity and is subject to international rules and regulations. In India, the Marine Insurance Act of 1963 regulates marine insurance. Here is a guide on what you should know about this Act.

What is the Marine Insurance Act of 1963?

In 1963, the government of India passed the Marine Insurance Act to codify the laws relating to marine insurance. This Act was drawn along similar lines to its predecessor, the English Marine Insurance Act of 1906. The principles in both Acts are virtually indistinguishable from each other. The Marine Insurance Act of 1963 was passed to take advantage of the expansion of shipping taking place after the start and growth of industrialisation in India.

As per Marine Insurance Act what does the Marine Insurance cover?

Under this Act, marine insurance is defined as an agreement in which the insurer indemnifies the assured party according to the agreed terms against losses incidental to marine adventure. 

  • Marine adventure means any transit where the insurable property is transported over water and is exposed to maritime perils. 
  • Insurable property means any ship, goods, and movable tangible property, including valuable securities, money, and documents. 
  • Maritime perils include dangers such as perils of the seas, war perils, pirates, fire, thieves, rovers, captures, restraints, and seizures of people. It also covers other similar perils or those designated by the insurance policy.
  • Marine insurance often provides coverage against losses on inland waters and even overland transit

What does marine insurance entail?

Marine insurance entails that goods being dispatched from the place or country of origin to the place or country of destination are covered by insurance. The insurance covers losses due to damage or loss of cargo, ships, terminals, etc. It also covers other modes of transport through which the goods are transported and held between the origin point and point of destination. While the term seems to be mainly for ships that the sear transports,  marine insurance covers all modes of transportation. 

When you transport goods, you also need to cover them with insurance for the following:

  • A forwarding agent
  • The exporter of the goods
  • The importer of the goods

Moreover, anyone involved in the transportation of goods can avail of marine insurance.

What are the features and principles of marine insurance?

  • Proposal and acceptance

Marine insurance coverage starts from the date that the insurance company accepts the proposal. Any damage or loss to the insured goods before the coverage start date will not be covered under the insurance policy. Moreover, coverage starts from the date of the premium payment. So, if the policyholder pays the premium via cheque, the coverage only starts from the date of the realisation of the money.

  • Principle of good faith

Marine insurance relies on this principle which states that at the time of filling out the marine insurance policy document, the applicant will disclose all the correct information. The applicant should not withhold any pertinent information which could be material and important for underwriting. If the applicant does withhold or conceal any information, the insurance company has the right to reject the policy application or claim on the basis of non-disclosure or misrepresentation of material fact. Thus, you must disclose all relevant information right at the time of the policy inception.

  • Principle of insurable interest

According to this principle, the insured parties should have some insurable interest in the goods/subject for which they wish to purchase marine insurance. In this way, it ensures that the policyholders benefit when the goods arrive safely at their destination. They will also suffer losses if there is any damage to or loss of the goods.

If the policyholders do not have an insurable interest at the time of buying their insurance policy, there needs to be future interest for the same. Without the insurable interest in the insured goods, the policyholder will not be able to make a claim from the insurance provider.

  • Principle of indemnity

The principle states that the insurance company will compensate the insured party or policyholder for any losses or damage to the insured goods only to the actual extent of the damage or loss and nothing more. So, the policyholder cannot hope to gain profits by purchasing a marine insurance policy.

  • Principle of cause Proxima 

According to this principle, if and when there are a series of losses, the policyholder has to consider the proximate or nearest cause. Thus, deciding the actual cause of the loss from several causes. So, when deciding if the insured party is the proximate cause, the insurance company is liable to settle the claim. 

For example, rats puncture a ship, which then causes seawater to flood in and damage the cargo. So, here there are two causes for the damage:

  • The rats that punctured the ship and
  • The seawater that already entered the ship through the puncture holes.

Luckily, the cargo owner has a marine insurance policy to cover his losses. Since the proximate cause was the seawater, the insurer settles the claim accordingly.

  • Principle of loss minimisation

This principle states that the purchase of a marine insurance policy does not absolve the policyholder from their duty to ensure to minimise all risks. The policyholder bears the responsibility of taking all the necessary steps to restrict and minimise any risk of loss and damage. They must not behave irresponsibly, which would put the insured goods at risk. For example, while packing the goods, you must keep in mind their safety during loading and unloading.

At the time of packing the goods, you need to do it according to the conditions in which the transport will occur. This makes sure that the goods are able to withstand all natural hazards as best as possible. You need to take enough precaution and care in order to minimise any damage or loss. The damage could be due to natural hazards, clumsy handling, and theft risk. If the policyholder does not ensure these basic principles, there is a strong possibility that the insurance company will reject any claim they make.

  • Principle of subrogation

With marine insurance, the right of subrogation only arises after the insurance company makes a payment against a claim to the insured party. After the claim settlement, the insurance company has the right to sue the third party who may be responsible for the loss or damage of goods. So, in this way, the insurance company can recover the amount that the third party pays to the person insured. 

  • Principle of contribution

Here, the principle states that the insurance company makes the payment for losses proportionately if the insured party has multiple insurance policies for his goods. For example, suppose an insured party has goods worth Rs 80 lakh covered by two different insurance companies. In the event of loss or damage of the insured goods, the two insurance companies settle the claim proportionately.

What are the types of marine insurance?

There are four types of marine insurance available:

  1. Marine cargo insurance:

    Mishandling of the cargo during transport and at the terminal poses a risk for cargo owners. This insurance protects the cargo owner from financial losses arising from such losses. It includes third-party liability coverage. Cargo insurance covers damage to the port, ship, railway track, humans, or other cargo caused by the policyholder’s cargo.

  2. Liability insurance:

    This type of insurance covers the policyholders against events out of their control; such as piracy attacks, natural calamities, and so on. Valuable cargo, as well as human life, can be at risk. So, this insurance protects the ship owners from losses due to such liabilities.

  3. Hull and machinery insurance:

    Usually, ship owners opt for this policy, as it covers the policyholder for any damage that happens to the ship. The hull is the main body of the ship, excluding the rigging (masts, chains, etc.). Along with hull insurance, ship owners also purchase machinery insurance which covers the policyholder. This could be for any mechanical, electrical, and operational damage to the ship’s machinery.

  4. Freight insurance:

    Freight Insurance covers the policyholder against losses due to the loss of freight. So, if the ship or freight is lost or suffers from damage, the shipping company does not bear the loss. Instead, the insurance company compensates them via this insurance type.

The bottom line

Marine insurance is a vehicle that helps in mitigating the risks of financial loss to the insured property. These could be goods, ships, and other movables in nautical transport. Once the policyholder pays a premium to the insurance company, the insurer provides coverage for any loss or damage to the cargo or ship incurred during transit.

The Marine Insurance Act of 1963 is a UK law that governs marine insurance contracts and provides a legal framework for the industry. It sets out the rights and obligations of the insurer and the insured, and provides guidelines for the interpretation of insurance policies. Some of its key provisions include the duty of utmost good faith, the duty of disclosure, the principle of indemnity, and the principle of subrogation. The Act remains an influential piece of legislation in the marine insurance sector and is widely used as a reference in the UK and other common law countries.

The Marine Insurance Act of 1963 lays down all the rules and regulations of Marine insurance in India. It is one of the most popular forms of insurance. This has heightened the probability of risks that may occur during nautical transits. Here, the only certainty that ship owners and cargo owners can be sure of is the coverage against the losses via marine insurance.