Features of Marine Insurance

Dear Friends,

As you are aware that "Marine Insurance" covers the loss or damage of ships, cargo, terminals, and any transport or cargo by which property is transferred, acquired, or held between the points of origin and final destination. I also includes offshore and onshore exposed properties (container terminals, ports, oil platforms, pipelines etc.),hull, marine casualty and marine liability.

In 1906 the Marine Insurance Act was passed in the UK which codified the com one law. It is a combination of market practices and judicial decisions taken before implementation of this Act. Further, Lloyd's and The Institute of London Underwriters (a grouping of London Company Insurers) developed between them standardized clauses for the use of marine insurance . And these have been maintained since.These standards are known as Institute Clauses because the Institute covers cost of their publication.

Typically Marine Insurance is split between the vessels and the cargo. The insurance of ocean going vessels is called "Hull & Machinery", insurance and other is known as "Cargo" insurance.

Insurance law in India had its origin in British Law with the establishment of a British Firm, the Oriental Life Insurance Company in 1818 in Calcutta, followed by the Bombay Life Assurance Company in 1823, the Madras Equitable Life Insurance Society in 1829 and the Oriental Life Assurance Company in 1874. The first General Insurance Company, Triton Insurance Company Ltd., was promoted in 1850 by British nationals in Calcutta. The first General Insurance Company was, Indian Mercantile Insurance Company Ltd., in Bombay in 1907 by an Indian. The first legislation in India to regulate insurance business was The Indian Life Assurance Companies Act, 1912.

The other general insurance items such as fire, accident, marine and other non-life insurance business have not been touched by above the Indian Life Assurance Companies Act, 1912. The pace with which theses non-life insurance business had increased in those days, required comprehensive legislation to control life as well as non-life businesses. Finally the Insurance Act, 1938 was passed to regulate and develop all types of insurance businesses in India.

The Marine Insurance Act, 1963 came into force 1^st August, 1963.

The General Insurance Business was nationalized in 1973 through the introduction of the General Insurance Business (Nationalisation) Act, 1972. The General Insurance Corporation was established in 1972 and shares of all existing General Insurance companies and undertaking of other insurers were transferred to the General Insurance Corporation to secure the development of the general insurance business in India and for regulation and control of such business.

On recommendation of the Malhotra Committee the Indian Government allowed private investment in insurance sector and has established an independent regulatory body called "IRDAI-Insurance Regulatory and Development Authority of India, through the enactment of the Insurance Regulatory and Development act, 1999.

Since Marine business is mostly international and subject to law and international regulations at every stage of operation. It is governed by the Marine Insurance Act, 1963, in India and guided by the various clauses formulated by the Institute of London Underwriters (LU) and the International Commercial Terms, known as "Incoterms", developed by the International Chambers of Commerce, Paris.

The Marine Insurance act, 1963, is designed to regulate the transactions of marine insurance businesses of hull, cargo and freight.

Please Note That: The voyages undertaken are subject to specified Institute of London Underwriters (LU) clauses, during inception and termination of insurance covers, and the perils insured against.

FEATURES OF MARINE INSURANCE

SECTION 3 of the Act,1963 defines - "A contract of marine insurance is an agreement whereby the insurer undertakes to indemnify the assured, in the manner and to the extent thereby agreed, against arise losses, that is to say, the losses incidental t marine adventure."

SECTION 2(d) of Act, 1962 defines - "Marine Adventures"as

"Marin Adventure" includes any adventure where-

1. Any insurance property is exposed t maritime perils;
2. The earnings or acquisition of any freight, passage money, commission, profit or other peculiarly benefit, or the security for any advances, loans, or disbursements is endangered by the exposure of insurance property to maritime perils;
3. Any liability to a third party may be incurred by the owner of, or another person interested in or responsible for, insurance property by reason of maritime perils.

TYPES OF MARINE INSURANCE

Marine Insurance can be classified into four broad categories;

1. Hull Insurance;
2. Cargo Insrance;
3. Freight Insurance, and
4. Liability Insurance.

CLAUSE 19 - of the Marine Insurance Act, 1962 states as follows-

"A contract of Marine Insurance is a contract based upon utmost good faith, and if thee utmost good faith be not observed by either party, the contract may be avoided by the other party."

It means that every material representation made by the insured or his agent to the insurer during the negotiations for the contract, and before the contract is concluded, must be true. If at any stage it is found to be untrue then the insurer may avoid the contract.

CLAUSE 9 - Insurable Interest -a person is said to have insurance interest if he is to benefit by the safety or due arrival of insurance property, or maybe prejudice by its loss, or by damage thereto, or by the detention thereof, or may incur liability in respect thereof.

"Insurance Interest", in the subject matter insured must exist at the time of the loss. It need no exit when the insurance policy was taken under marine insurance.

The following person would be deemed to have "Insurable Interest";

1. The owner of the ship;
2. The owner of the cargo;
3. A creditor who has advanced money on the security of the ship or cargo;
4. The mortgagor and the mortgagee;
5. The master and crew of the ship have "insurable interest", in respect of their wages;
6. In case of advance freight, the person advancing the freight has an "Insurable Interest", I such advance is not repayable in case of loss.

WARRANTIES AND CONDITIONS

"A Warranty", is a promise by the assured to the underwriter that something shall or shall not be done or certain of affairs does or does not arise. A Warranty is a condition which must be exactly complied with, whether it is material to the risk or not. If it be not so complied with, then, the insurer is discharged from the liability as from the date of the breach of warranty, but without prejudice to any liability incurred by him before that date.

A peculiarity of Marine Insurance and insurance law generally is thee use of the terms condition and warranty. In English Law, a Condition typically describes a part of the contract that is fundamental to the performance of that contract, and, if breached, the non-breaching party is entitled not only to claim damages but to terminate the contract on the basis that it has been repudiated by the party in breach.

On the other hand, Warranties are not fundamentals to the performance of the contract. Breach of warranty, while giving rise to a claim for damages, does not entitle the non-breaching party to terminate the contract. Indeed a warranty not strictly complied with may automatically discharge the insurer for further liability under contract of insurance.

SECTION 39-of the MIA, 1963 provides that

No implied warranty of nationality.—There is no implied warranty as to the nationality of a ship, or that her nationality shall not be changed during the risk.

SECTION 41-of the MIA, 1963 provides that

Warranty of seaworthiness of ship.

(1) In a voyage policy there is an implied warranty that at the commencement of the voyage the ship shall be seaworthy for the purpose of the particular adventure insured.

(2) Where the policy attaches while the ship is in port, there is also an implied warranty that she shall, at the commencement of the risk, be reasonably fit to encounter the ordinary perils of the port.

(3) Where the policy relates to a voyage which is performed in different stages, during which the ship requires different kinds of or further preparation or equipment, there is an implied warranty that at the commencement of each stage the ship is seaworthy in respect of such preparation or equipment for the purposes of that stage.

(4) A ship deemed to be seaworthy when she is reasonably fit in all respects to encounter the ordinary perils of the sea of the adventure insured.

(5) In a time policy there is no implied warranty that the ship shall be seaworthy at any stage of the adventure, but where, with the privity of the assured, the ship is sent to sea in an unseaworthy state, the insurer is not liable for any loss attributable to unseaworthiness.

OCEAN CARGO INSURANCE IN INTERNATIONAL TRADE

An exporter having insurable interest in a Cargo Shipment has a need for an Ocean Cargo Policy. The Cargo Insurance indemnified the exporter or importer in the event of loss or damage to goods due to a peril insured against while at risk under the policy.

We know that each ocean-going ship or vessel is a joint venture of the shipowner and all the cargo owners. The Cargo Insurance protection is an aid to commercial negotiations. It allows traders to proceed with confidence in the knowledge that each party to the transaction is properly protected. It also helps to get assistance from various Export Credit Institutions with greater ease. Understand that the cost of a Cargo Insurance is much more less than the value of subject insured or involved in the transit and hence it is necessary for exporters or importers to opt for cargo insurance coverage.

CARGO INSURANCE

"Cargo"refers to the goods and commodities carried during transit by; rail, road, sea or air from one place to another. The "Cargo", transported by sea is subject to manifold risks such as; loss or damage at the port, loss or damage during the voyage or at the point of delivery.

Thus "Marine Insurance", covers the following;

1. Export and import shipments by ocean;
2. Transshipment ;
3. Shipment by inland vessels;
4. Consignments sent by rail, road, air or by post.

"Marin Cargo Insurance" covers the shipper of the goods. If the goods are damaged or lost during transit the "Cargo" policy covers the risk associated with the transshipment of goods. The policy could be issued to cover Single Shipment, or if regular shipment are made an "Open Cargo Policy" can be issued which insures the goods/cargo automatically whenever shipment is made.

INCOTERMS RULES AND INSURANCE

Onof many important questions that must be decided in every transaction involving a Sale of goods is"which party to the contract is obliged to arrange marine and war risks insurance protection?".

INCOTERMS 2010 RULES

It defines the obligations of buyer and the seller for sharing of costs, and the passing of risks.

The basic function of the Incoterms Rules is to simplify the quotation of prices in international trade, to define the responsibilities and rights of the sellers and buyers under each of terms of sale.

Some of the most frequently employed terms in international trade are ;

1. FOB-Free on Board;
2. CIF- Cost, Insurance & Freight.

In many transactions it is common for exporters, even though selling on FAS or FOB terms, to control the placing or arranging of marine and war risk insurance on a "Warehouse -to -Warehouse" basis for an account of whom it may concern, as an additional provision in the overall contract of sale. The may also be arranged as a matter of convenience. In this situation the cost of the insurance is charged to the buyer as a separate item of expense in addition to FOB or FAS price.

It is often the fact that the exporter has sold the goods on extended payment terms, meaning that at the time of sale he is in financial risk, while the goods are in transit to overseas destination. When financially at risk he can benefit from the security of the marine and war risk insurance arranged through his own insurance agent or broker with a sound insurance company.

Generally, no difficulty should b experienced in fixing the cost of Marine and War Risk Insurance and ocean freight for a reasonable period of time. When there is question about the possibility of a change in insurance or ocean freight rates, a CIF quotation can always be qualified with the words,"Changes in insurance and freight rates shall be for account to the buyer."Where is not practical to sell on CIF or buy on CFR terms, it is recommended that traders control the arranging of the insurance, particularly when they are financially at risk. Control of Marine and War Risk Insurance is an advantage to the trader desiring to compete effectively in the World Market.

MAIN ADVANTAGES of a trader having his own Ocean Cargo Insurance Policy

1. Automatic "Warehouse-to-Warehouse" protection is provided with proper terms of insurance specifically designed for the Assured's goods and methods of shipment . Such insurance provides coverage for the full exposure, at proper value and adequate limits.
2. Rates will be competitive and reflect the Assured's own experience.
3. Worldwide claims service is available by claims representatives appointed by the underwriter.
4. The Assured has all advantages of dealing through his own broker or agent for prompt personal service, dependability and convenience.
5. A trader is free to choose his own insurance company.
6. A trader can negotiated the terms and conditions on his own with the insurance company.

CONCLUSION

From above it is clear that a contract of Marine Insurance is a contract of good faith. An insured must disclose all material facts to the insurance company at the time of submitting of proposal for insurance policy. It should be noted that the insured must have an insurable interest in the subject matter at the time of accident or filing of claim. We know that marine insurance is generally related to international and governed by in India through provisions of Marine Insurance Act, 1963 and in international trade INCOTERMS Rules,2010. We shall discuss the Institute Cargo Clauses, 2009 in our next article.

DISCLAIMER; the article produced here is only for the knowledge and information of readers. The article has been prepared on the basis of available materials at various plate forms at the time of preparation. The views expressed here are the personal views of the author and same should not be considered as professional advice. In case of any necessity, please consul with insurance professional.