1. MARINE INSURANCE Jamia MIB 09 10

2. Types of
policies: time,
voyage,
valued,
unvalued,
floating, etc.

3. The basics
What is insurance: the primary function of insurance is
risk transference and distribution./ By effecting
insurance, the insured transfers the risk of economic
losses to the insurer, who in turn redistributes the risk
through investment and reinsurance arrangements
Contract of insurance is a contract under which one
person (the insurer) is legally bound to pay a sum of
money or its equivalent to another person (the insured),
upon the happening of a specified event involving some
element of uncertainty as to time or likelihood of
occurrence, which affects the insured’s interest in the
subject-matter of the insurance (F. Marks & A. Balla).
The insured is actually buying his “peace of mind”, the
“invisible product”

4. Non-marine insurance:
insurance of persons: it deals with the life,
physical integrity or health of the insured
and is divided into individual insurance and
group insurance.
damage insurance: property insurance and
liability insurance.
Marine insurance: the object is to
indemnify the insured against losses
incident to marine adventure.

5. DEFINITION OF MARINE INSURANCE
The contract of marine insurance is a special
(insurance) contract of indemnity which protects
against physical and other losses to moveable
property and associated interests, as well as
against liabilities occurring or arising during the
course of a seavoyage (R. Thomas). S. 1 of MIA
1906: A contract of marine insurance is a contract
whereby the insurer undertakes to indemnify the
assured, in manner and to the extent thereby
agreed, against marine losses, that is to say, the
losses incident to marine adventure.

6. Terminology of marine insurance in a nutshell
The insured (assured,
policyholder), the insurer
(underwriter, assurer, insurance
company), the subject-matter
insured and many other terms
peculiar to marine insurance,
which will be explained
throughout the course.

7. Maritime perils: (1) Perils of the seas = fortuitous accidents or
casualties of the sea (heavy weather, sinking, stranding, collision,
contact), not including the ordinary actions of the winds and
waves. (2) Fire, war perils, pirates, rovers, thieves, barratry etc.
SeeThe Captain Panagos DP [1985] 1 Lloyd's Rep. 625. The
element of fortuity is of crucial importance. Also: (3) The
Inchmaree clause = the scope of this clause is to cover loss or
damage to the subject matter insured caused by the bursting of
boilers, breakage of shaft or any latent defect in the machinery or
hull; negligence of the master, officers, crew or pilot; negligence
of repairers or charterers, provided they are not insured under
the policy; and barratry of master, officers, or crew. See Thames &
Mersey Marine Insurance v. Hamilton (The Inchmaree) (1887)12
AC 484. (4) Pollution hazards. (5) Collision liability (The Running
Down Clause).

8. TYPES OF MARINE INSURANCE
Hull insurance: insurance of the vessel with its
gear.
Cargo insurance: insurance of goods carried by
sea. Insurance against the liability of the
carrier: protection and indemnity (P & I Clubs);
compulsory insurance (e.g. CLC 1992, HNS 1996,
Bunker 2001, Athens 2002, etc.); voluntary
insurance (e.g. liability for cargo).
Other types of marine insurance: e.g. freight,
salvage expenses, general average
contributions.

9. Intro MI
MI is the oldest form of
insurance, it was known in
England in the 14th
century. The
first English statute was passed
in 1601. Many of the principles
developed for marine
insurance are valid in
insurance in general.

10. History
First codification was the English
Marine Insurance Act of 1906..
This was a codification of existing
jurisprudence and practice. The
English Act was probably
received in different nations in a
different manner

11. Nature and Scope of Marine
Insurance
• The nature and scope of marine insurance is determined by
reference to s. 6 of the Marine Insurance Act and by the
definitions of “marine adventure” and “maritime perils”.
• It is a contract of indemnity but the extent of the indemnity is
determined by the contract.
• It relates to losses incidental to a marine adventure or to the
building, repairing or launching of a ship.
• A marine adventure is any situation where the insured property
is exposed to maritime perils.
• Maritime perils are perils consequent on or incidental to
navigation.

12. “Marine Adventure
• marine adventure" means any situation where
insurable property is exposed to maritime perils,
and includes any situation where (a) the earning
or acquisition of any freight, commission, profit
or other pecuniary benefit, or the security for
any advance, loan or disbursement, is
endangered by the exposure of insurable
property to maritime perils, and (b) any liability
to a third party may be incurred by the owner of,
or other person interested in or responsible for,
insurable property, by reason of maritime perils;

13. Maritime Perils
"maritime perils" means the perils consequent
on or incidental to navigation, including perils of
the seas, fire, war perils, acts of pirates or
thieves, captures, seizures, restraints,
detainments of princes and peoples, jettisons,
barratry and all other perils of a like kind and, in
respect of a marine policy, any peril designated
by the policy;

14. Purpose of MI
MI provides cover against losses incurred by
marine perils, typically to the ship, cargo or
freight for which different covers are
available. MI includes a variety of types to
insure a variety of risks, for e.g Cargo
insurance, hull, and machinery insurance
for the ship, mortgage indemnity of the
ship, loss of hire insurance, port risks
insurance etc.

15. Ship mortgage indemnity (SMI)
This type of Insurance solution indemnifies a bank against financial loss, in the
event of the failure of a borrower to repay a loan and the subsequent inability
of the bank to recover their debt following sale of the property.
Shipping banks are generally comfortable lending around 60-70 percent of the
value of a vessel, leaving the ship owner to find the shortfall by way of equity,
secondary debt, mezzanine financing, or by any other means.
The aim of this solution is to increase the lender´s comfort level to also include
seconday debt, mezzanine financing etc. Generally some portion of equity is
required, and a generally accepted trance guaranteed by SMI is 15-20 percent
over the banks otherwise normal comfort level.
SMI is underwritten on a case by case basis with each transaction being assessed
on it’s own merits. Underwriters contractual relationship is with the bank, not
the shipowner, and in order to offer terms, underwriters will require total
transparency of the transaction and full information. Typically, this will mean
being copied-in on the bank’s submission to their credit committee.

16. Cargo Insurance
Cargo insurance (also called marine cargo insurance) covers
physical damage to, or loss of your goods whilst in transit by
land, sea and air and offers considerable opportunities and
cost advantages if managed correctly.
When you are looking at the types of cargo insurance
available, you may come across the term General Average.
This is one of the oldest principles of cargo insurance and
relates only to ocean and sea voyages but is still relevant in
today's trading environment. General Average covers the
situation where damage or loss of certain goods occurs so
that the remaining cargo and the means of transport are
saved. For example goods may sustain water damage during
fire fighting. In this situation, if General Average is declared,
all the parties involved must contribute to covering the loss.

17. Cargo insurance is usually provided by the means of
one of three Institute Cargo Clauses - A, B or C, plus
War Clauses and Strikes Clauses. Simply put Cargo
Clauses A provide the most cover with B and C giving
less coverage which is reflected in reduced
premiums for the lower cover (somewhat similar to
car insurance cover with comprehensive, third party,
fire and theft, and third party policies). Also there is
an Institute Cargo Clauses (Air) for movement by air,
which is equivalent to the A clauses. Your insurance
company or broker will be able to give details of
exactly what cover is given by each clause so you can
choose the most appropriate for your business
needs and trading patterns.

18. Types of cargo insurance
Open Cover: This is the most usual type of
cargo insurance, where a policy is drawn
up to cover a number of consignments.
The policy can be either for a specific value
that requires renewal once then insured
amount is exhausted or an permanently
open policy that will be drawn up for an
agreed period, allowing any number of
shipments during this time.

19. Specific (Voyage) Policy
Although not the norm for cargo insurance,
you may from time to time need to
approach an insurance company (or broker,
or other intermediary) to request an
insurance policy for a particular
consignment. This is usually referred to as
Voyage Policy as the insurance covers only
that specific shipment.

20. Contingency (seller's interest) insurance
Shipments sold by the Assured on F.O.B., F.A.S., Cost and
Freight or similar terms whereby the Assured is not
obligated to furnish ocean marine insurance, will be
covered under this policy, subject to all its terms and
conditions, from the time:
1) the buyer fails or refuses to accept the goods;
(2) the buyer cancels the contract prior to arrival of the
shipments at final warehouse; and/or
(3) the Assured exercises a lien on the goods or interrupts
their transit, or suspends the sale contract while the
goods are in transit when this is reasonable to safeguard
his interest.

21. Contingency (seller's interest) insurance
• Shipments insured under this clause will be valued
at Assured’s selling price as per the contract of sale.
• In any such cases this insurance will cover during
delay and/or return of the goods or until they are
otherwise disposed of.
• Warranted that this insurance is not to be disclosed
to the buyer; and that it will not be deemed double
insurance.
• The Assured must use all reasonable and practical
measures (including those which may be required by
this Company), to prevent or minimize the loss
and/or to enforce the sales contract.

22. LETS SEE THE CLASSICAL Law
English Marine Insurance
Act 1906: An Act to codify
the Law relating to
Marine Insurance [21st
December 1906]

23. Marine insurance defined
A contract of marine insurance is a
contract whereby the insurer
undertakes to indemnify the
assured, in manner and to the
extent thereby agreed, against
marine losses, that is to say, the
losses incident to marine
adventure.

24. Kinds of Insurance cover
Valued and unvalued : a//c to21(1) of
the MIA 1906, a policy can be wither
valued or unvalued. A vlaued policy
specifies the agreed value of the
subject matter(s.27(2)), whereas an
unvalued policy only states the upper
limit and leaves the insurable value to
be subsequently ascertained (s.28)

25. Voyage cover ,time and mixed policies
A) a voyage policy,if it insures the subject
matter from one place to another, thus
for a particular journey.
B) time policy, if it covers the subject
matter for a definite period of time; and
C) a mixed policy, if both aspects are
included, i.e the journey and the
duration.

26. Floating policy, open cover and blanket policy
a/c to sec. 29 of the MIA1906, a floating policy describes
the general terms and leaves the name of the ship and
other particulars to a subsequent declaration. These
particulars are usually unknown to the assured at the
time when the floating policy is effected. The floating
policy is a single policy, usually a limited period, covering
all shipment falling within this scope. As long as the
assured declares all consignment promptly, all the
shipments made under a floating policy are insured. It
has an overall value, which each declared consignment
value is deducted until the policy is exhausted. The
floating policy then the aggregate of voyage policy.

27. Open cover
Where more flexibility is sought, the parties can
arrange an open cover. This is not a policy, but a
document by which the insurer undertakes to issue
policies, including floating policies, from time to
time within the terms of the cover. Declarations of
each shipment must be made and cover is written
off accordingly. Thus, the open cover is very similar
to floating policy. However, a floating policy is
usually for 12 months whereas as an open cover can
be either for a limited time period of time or
permanent. Also, under a floating policy the assured
actually holds a policy, whereas under an open
cover the assured does not receive one, but is
entitled to demand a policy if required.

28. Blanket policy
In case the assured prefers not having to
declare each single consignment, he
can take out a blanket policy. Here, for
a lump sum and over a period of time,
all shipments falling within the terms
are insured. Thus, no consignment is
uninsured due to forgetfulness or
other reasons

29. Indian Case
• HISTORY OF MARINE INSURANCE
Marine insurance as we know it today can be described as
mother of all insurances. It is believed to have originated
in England owing to the frequent movement of ships
over high seas for trade. In India, insurance has been in
vogue for several centuries. History holds proof that
these people had a system of pooling their
contributions, if any one of their clan were to meet a
tragedy in their voyages. Today marine insurance has
assumed a vast canvas due to the expanding trade
across the globe, which involves large shipping
companies that require protection for their fleet against

30. • Marine insurance is a contract under which, the
insurer undertakes to indemnify the insured in
the manner and to the extent thereby agreed,
against marine losses, incidental to marine
adventures. It may be defined as a form of
insurance covering loss or damage to vessels or
to cargo during transportation to the high seas. It
follows from the above discussion the marine
insurance is a contract between the insured and
the insurer. The insured may be a cargo owner or
ship owner or a freight receiver.

31. The insurer is known as the underwriter.
The document in which the contract is
incorporated is called “Marine policy”.
The insured pays a particular sum,
which is called premium, in exchange
for an undertaking from the insurer to
indemnify the insured against loss or
damage caused by certain specified
perils.

32. salient features of a contract of marine insurance
• It is based on utmost good faith. Both
the insured and the insurer must
disclose everything which is in their
knowledge and can affect the
contract of insurance.
• It is a contract of indemnity. The
insured is entitled to recover only the
actual amount of loss from the
insurer.

33. • Insurable interest in the subject-
matter insured must exist at the
time of the loss. It need not exist
when the insurance policy is
taken. Under marine insurance,
the following persons are
deemed to have insurable
interest:

34. a) The owner of the ship.
b) The owner of the cargo.
c) A creditor who has advanced money on the
security of the ship or cargo.
d) The mortgagor and mortgagee.
e) The master and crew of the ship have insurable
interest in respect of their wages.
f) In case of advance freight, the person advancing
the freight has an insurable interest if such
freight is not repayable in case of loss.

35. It is subject to the doctrine of causa proxima Where a
loss is brought by several causes in succession to one
another, the proximate or nearest cause of loss must
be taken into account. If the proximate cause is
covered by the policy, only then the insurance
company will be liable to compensate the insured.
• It must contain all the essential requirements of
a valid contract, e.g. lawful consideration, free
consent, capacity of the parties, etc

36. MEANING OF MARINE PERILS
Maritime perils can be defined as the fortuitous
(an element of chance or illluck) accidents or
casualties of the sea caused without the
willful intervention of human agency. The
perils are incidental to the sea journey that
arises inconsequence of the sea journey.
There are different forms of perils, of which
only a few are covered by insurance while
others are not. Accordingly we have insured
and uninsured perils.

37. Insured perils
are storm, collision of one ship with
another ship, against rocks,
burning and sinking of the ship,
spoilage of cargo from sea water,
mutiny, piracy or willful
destruction of the ship and cargo
by the master (captain) of the ship
or the crew, jettison etc.

38. Uninsured perils
• are regular wear and tear of the
vessel, leakage (unless it is caused by
an accident), breakage of goods due
to bad movement of the ship,
damage by rats and loss by delay. All
losses and damages caused due to
reasons not considered as perils of
the sea are not provided insurance
cover.

39. • The insured may be the owner of the
ship, owner of the cargo or the person
interested in freight. In case the ship
carrying the cargo sinks, the ship will be
lost along with the cargo. The income
that the cargo would have generated
would also be lost. Based on this we can
classify the marine insurance into three
categories.

40. Hull Insurance
Hull refers to the ocean going
vessels (ships trawlers etc.)
as well as its machinery.
The hull insurance also
covers the construction risk
when the vessel is under
construction. A vessel is
exposed to many dangers
or risks at sea during the
voyage. An insurance
effected to indemnify the
insured for such losses is
known as Hull insurance.

41. Cargo Insurance
Cargo refers to the goods and
commodities carried in the ship
from one place to another. The
cargo transported by sea is also
subject to manifold risks at the port
and during the voyage. Cargo
insurance covers the shipper of the
goods if the goods are damaged or
lost. The cargo policy covers the
risks associated with the
transshipment of goods. The policy
can be written to cover a single
shipment. If regular shipments are
made, an open cargo policy can be
used that insures the goods
automatically when a shipment is
made.

42. Freight Insurance• Freight refers to the fee received for
the carriage of goods in the ship.
Usually the ship owner and the
freight receiver are the same person.
Freight can be received in two ways-
in advance or after the goods reach
the destination. In the former case,
freight is secure. In the latter the
marine laws say that the freight is
payable only when the goods reach
the destination port safely. Hence if
the ship is destroyed on the way the
ship owner will loose the freight
along with the ship. That is why, the
ship owners purchase freight
insurance policy along with the hull
policy

43. Liability Insurance
It is usually written as a separate
contract that provides
comprehensive liability
insurance for property
damage or bodily injury to
third parties. It is also known
as protection and indemnity
insurance which protects the
ship owner for damage caused
by the ship to docks, cargo,
illness or injury to the
passengers or crew, and fines
and penalties

44. TYPES OF MARINE POLICY
Voyage Policy: Under the policy, the
subject matter is insured against
risk in respect of a particular voyage
from a port of departure to the port
of destination, e.g.Mumbai to New
York. The risk starts from the
departure of ship from the port and
it ends on its arrival at the port of
destination. This policy covers the
subject matter irrespective of the
time factor. This policy is not
suitable for hull insurance as a ship
usually does not operate over a
particular route only. The policy is
used mostly in case of cargo
insurance

45. Time Policy
It is one under which the
insurance is affected for a
specified period of time,
usually not exceeded twelve
months. Time policies are
generally used in connection
with the insurance of ship.
Thus if the voyage is not
completed with in the
specified period, the risk
shall be covered until the
voyage is completed or till
the arrival of the ship at the
port of call.

46. Mixed Policies
It is one under which
insurance contract is
entered into for a certain
time period and for a
certain voyage or voyages,
e.g., Kolkata to New York,
for a period of one year.
Mixed Policies are generally
issued to ships operating on
particular routes. It is a
mixture of voyage and time
policies.

47. Valued Policies
• It is one under which the value of
subject matter insured is specified
on the face of the policy itself. This
kind of policy specifies the settled
value of the subject matter that is
being provided cover for. The value
which is agreed upon is called the
insured value. It forms the measure
of indemnity in the event of loss.
Insured value is not necessarily the
actual value. It includes (a)invoice
price of goods (b) freight, insurance
and other charges (c) ten to fifteen
percent margin to cover expected
profits.

48. Unvalued policy
It is the policy under
which the value of
subject matter
insured is not fixed at
the time of effecting
insurance but has to
be ascertained
wherever the subject
matter is lost or
damaged.

49. Open policy
• An open policy is issued for a period of 12 months and
all consignments cleared during the period are covered
by the insurer. This form of insurance Policy is suitable
for big companies that have regular shipments. It saves
them the tedious and expensive process of acquiring an
insurance policy for each shipment. The rates are fixed
in advance, without taking the total value of the cargo
being shipped into consideration. The assured has to
declare the nature of each shipment, and the cover is
provided to all the shipments. The assured also deposits
a premium for the estimated value of the consignment
during the policy period.

50. Floating Policy
• A merchant who is a regular shipper of goods can take
out a ‘floating policy’ to avoid botheration and waste of
time involved in taking a new policy for every shipment.
This policy stands for the contract of insurance in
general terms. It does not include the name of the ship
and other details. The other details are required to be
furnished through subsequent declarations. Thus, the
insured takes a policy for a huge amount and he informs
the underwriter as and when he makes shipment of
goods. The underwriter goes on recording the entries in
the policy. When the sum assured is exhausted, the
policy is said to be “fully declared” or “run off”.

51. Block Policy
• This policy covers other risks also in
addition to marine risks. When goods are
to be transported by ship to the place of
destination, a single policy known as
block policy may be taken to cover all
risks. E.g. when the goods are dispatched
by rail or road transport for shipment, a
single policy may cover all the risks from
the point of origin to the point of
destination.

52. CLAUSES IN A MARINE POLICY
1.Valuation Clause: This clause states the value of the subject
matter insured as agreed upon between both the parties.
2. Sue and Labour clause: This clause authorizes the insured to take
all possible steps to avert or minimize the loss or to protect the
subject matter insured in case of danger. The insurer is liable to
pay the expenses, if any, incurred by the insured for this purpose.
3. Waiver Clause: This clause is an extension of the above clause.
The clause states that any act of the insured or the insurer to
protect, recover or preserve the subject matter of insurance shall
not be taken to mean that the insured wants to forgo the
compensation, nor will it mean that the insurer accepts the act as
abandonment of the policy.

53. 4. Touch and Stay Clause: . This clause requires the ship to touch and
stay at such ports and in such order as specified in the policy. Any
departure from the route mentioned in the policy or the ordinary
trade route followed will be considered as deviation unless such
departure is essential to save the ship or the lives on board in an
emergency.
5. Warehouse to warehouse clause: This clause is inserted to cover
the risks to goods from the time they are dispatched from the
consignor’s warehouse until their delivery at the consignee’s
warehouse at the port of destination.
6.Inchmaree Clause: This clause covers the loss or damage caused to
the ship or machinery by the negligence of the master of the ship
as well as bye explosives or latent defect in the machinery or the
hull

54. F.P.A. and F.A.A. Clause: The F.P.A. (Free of Particular Average)
clause relieves the insurer from particular average liability. The
F.A.A. ( free of all average) clause relieves the insurer from liability
arising from both particular average and general average.
8. Lost or Not Lost Clause: Under this clause, the insurer is liable
even if the ship insured is found not to be lost prior to the contact
of insurance, provided the insurer had no knowledge of such loss
and does not commit any fraud. This clause covers the risks
between the issue of the policy and the shipment of the goods.
9.Running down Clause.
This clause covers the risk arising out of collision between two ships.
The insurer is liable to pay compensation to the owner of the
damaged ship. This clause is used in hull insurance.

55. 10. Free of Capture and Seizure Clause: This clause relieves
the insurer from the liability of making compensation for
the capture and seizure of thevessel by enemy countries.
The insured can insure such abnormal risks bytaking an
extra ‘war risks’ policy.
11.Continuation Clause: .This clause authorizes the vessel
to continue andcomplete her voyage even if the time of
the policy has expired. This clause isused in a time policy.
The insured has to give prior notice for this and deposita
monthly prorate premium.
12.Barratry Clause: This clause covers losses sustained by
the ship owner or the cargo owner due to willful conduct
of the master or crew of the ship.

56. • 13. Jettison Clause: . Jettison means throwing overboard
a part of the ship’s cargo so as to reduce her weight or
to save other goods. This clause covers the loss arising
out of such throwing of goods. The owner of jettisoned
goods is compensated by all interested parties.
• 14.At and From Clause: This clause covers the subject
matter while it is lying at the port of departure and until
it reaches the port of destination. It is used in voyage
policies. If the policy consists of the word ‘from’ only
instead of ‘at and from’, the risk is covered only from
the time of departure of the ship

57. DUTY OF UTMOST GOOD FAITH
[ uberrima fides]
The principle of utmost good faith (uberrimae fidei): a
contract of marine insurance is a contract based upon
the utmost good faith and, if the utmost good faith be
not observed by either party, the contract may be
avoided by the other party (s. 17 of MIA 1906). See
Carter v. Boehm (1766) 3 Burr. 1905 which made the
contract void, however the MIA 1906 makes it
avoidable. The principle applies prior to the conclusion
of contract and also during the contract. See sections
17-21 of MIA 1906. See the “Appendix IV ” at the end of
this course outline