NATURE OF MARINE INSURANCE CONTRACT

Section 2 (13) A of the Insurance Act 1938 defines marine insurance as follows:-

“Marine insurance business” means the business of effecting contract of insurance upon vessels of any description, including cargoes, freights

and other interests which may be legally insured in or in relation to such vessels, cargoes and freights, goods, wares, merchandise and property of whatever

description insured for any transit by land or water or both, and whether or not including warehouse risks or similar risks in addition or as incidental to

such transit and includes any other risks customarily included amount the risks insured against in marine insurance policies.

The above definition clearly lays down the following classification of the marine insurance.

HULL INSURANCE

Insurance of vessel and its equipments are included under hull insurance.

CARGO INSURANCE

The cargo maybe of any description, for example, wares, merchandise, property, goods and so on.

FREIGHT INSURANCE

Freight is to be payable for the carriage of cargoes or if the vessel is chartered, the money to be paid for the use of the vessel.

The carrier is unable to earn freight if the goods or property (called cargoes) are not safely transported.

LIABILITY INSURANCE

The marine insurance policy may include liability hazards such as collision or running down.

ELEMENTS OF MARINE INSURANCE CONTRACT

The marine insurance has the following essential features which are also called fundamental principles of marine insurance.

Features of General ContractInsurable InterestUtmost Good FaithDoctrine of Indemnity

SubrogationWarrantiesProximate causeAssignment and nomination of the policyReturn of premium

FEATURES OF GENERAL CONTRACT

PROPOSAL

The broker will prepare a slip upon receipt of instructions to insure from ship-owner, merchant or other proposers. Proposal forms,

so common in other branches of insurance, are known in the marine insurance and only the ‘slip’ so called ‘the original slip’ is used for the proposal

The original slip is accompanied with other material information which the broker deems necessary for the purpose.

ACCEPTANCE

Underwriters or other insurers or to the Lead of the insures, who initial the slip and the proposal is formally accepted.

But the contract can be legally enforced until a policy is issued

The slip is an evidence that the underwriter has accepted an insurance and that he has agreed subsequently to sign a policy.

ISSUE OF POLICY

Having effected the insurance, the broker will now send his client a cover note advising the terms and conditions

on which the insurance has been placed. The broker’s cover note is merely an insurance memorandum and naturally has no value in enforcing the contract with the underwrites.

INSURABLE INTEREST

An insured person will have insurable interest in the subject matter where he stands in any legal or equitable relation

to the subject matter in a such a way that may benefit by the safety or due arrival of insurable property or may be prejudiced by its loss,

or by damage thereto or by the detention thereof or may incur liability in respect thereof. Since marine insurance is frequently effected before the commercial transaction

to which the apply are formally completed it is not essential for the assured to have an insurable interest at the time of effecting insurance,

though he should have an expectation of acquiring such an interest. If he fails to acquire insurable interest in due course, he does not become entitled to indemnification.

. Since the ownership and other interest of the subject matter often change from hands to hands, the requirement of the insurable interest to be present only at the time of loss makes a marine insurance policy freely assignable.

EXCEPTIONS

There are two exceptions of the rule in marine insurance.

LOST OR NOT LOST

A person can also purchase policy in the subject-matter in which it was known whether the matters were lost not lost

In such cues the assured and the under writer are ignorant about the safety or otherwise of the goods and complete reliance was placed on the principle of Good Faith.

The policy terminated if anyone of the two parties was aware of the fact of loss. In this case, therefore, the insurable interest may not be present at the time of contract because the subject-matter would have been lost.

P.P.I. POLICIES

P.P.I. ( Policy Proof of Interest), i.e. interest proof policies.

The insurable interest marine insurance can be of the following forms:

1.ACCORDING TO OWNERSHIP

The owner has insurable interest up to the full value of the subject-matter. The owners are of different types according to the subject-matter.

IN CASE OF SHIPS

The ship-owner or any person who has purchased it on character-basis can insure the ship up to its full price.

IN CASE OF CARGO

The cargo-owner can purchase policy up to the full price of the cargo. If he has paid the freight in advance, he can take the policy for the full price of the goods plus amount of freight plus expense of insurance.

IN CASE OF FREIGHT

The receiver of the freight can insure up to the amount of freight to be received by him.

INSURABLE INTEREST IN RE-INSURANCE

The underwriter under a contract of marine insurance has an insurable interest in his risk, and may re-insure in respect of it.

3. INSURABLE INTEREST IN OTHER CASES

In this case all those underwriters are included who have insurable interest in the salary and own liabilities.

. For example, the master or any member of the crew of a ship has insurable interest in respect of his wages. The lender of money on bottomry or respondentia has insurable interest in respect of the loan.

UTMOST GOOD FAITH

The doctrine of caveat emptor (let the buyer beware) applies to commercial contracts, but insurance contracts are based upon the legal principle of uberrimae fides (utmost good faith).

But the duty of disclosure of

material facts rests highly on the insured because he is aware of the material common in other branches of insurance are not used in the marine insurance.

DOCTRINE OF INDEMNITY

The contract of marine insurance is of indemnity. Under no circumstances an insured is allowed to make a profit out of a claim.

EXCEPTIONS

There are two exceptions of the doctrine of indemnity in marine insurance.

PROFITS ALLOWED

Actually the doctrine says that the market price of the loss should be indemnified and no profit should be permitted, but in marine insurance a certain profit margin is also permitted.

INSURED VALUEThe doctrine of indemnity is based on the insurable value whereas the marine insurance is mostly based on insured value. The purpose of the valuation is to predetermine the worth of insured.

WARRANTIES

A Warranty is that by which the assured undertakes that some particular thing shall of shall be fulfilled or whereby he affirms or negatives the existence of a particular state of facts.

SEAWORTHINESS OF SHIP

The warranty implies that the ship should be seaworthy at the commencement of the voyage, or if the voyage is carries out in stages at the commencement of each stage.

LEGALITY OF VENTURE

This Warranty implies that the adventure insured shall be lawful and that so far as the assured can control the matter it shall be carried out in the lawful manager of the country

OTHER IMPLIED WARRANTIES

There are other warranties which must be complied in marine insurance.

NO CHANGE IN VOYAGE

When the destination of voyage is changed intentionally after the beginning of the risk, this is called change in voyage.

PROXIMATE CAUSE

According to Marine Insurance Act, ‘ Subject to the provisions of the Act and unless the policy otherwise provides the insurer is liable for any loss

proximately caused by a peril insured against, but subject to as aforesaid he is not liable for any loss which is not proximately caused by a peril insured against

The insurer is not liable for any attributable to the willful misconduct of the assured, but unless the policy otherwise provides, he is liable for any loss proximately caused by a peril insured against.

The insurer will not be liable for any loss caused by delay unless otherwise provided.

The insurer is not liable for ordinary wear and tear, ordinary leakage and breakage, inherent vice or nature of subject matter insured, or for any loss proximately caused by rats or vermin, or for any injury to machinery not proximately caused by maritime perils.

NATURE OF INSURANCE OF FIRE INSURANCE

DEFINATION AND NATUREFire insurance is a device to compensate for the loss consequent upon destruction by fire.

FUNCTIONS

The system of fire insurance cannot save the society from the economic loss to the community to the extent of the property lost by fire,

but it compensates someone and this saves him from a ruinous loss, at the cost of group of some others.

CAUSES OF FIRE

Fire waste is the result of two types of hazard viz., ‘physical’ and ‘moral’.

PHYSICAL HAZARD: It refers to the inherent risk of fire in the property which may occur due to inflammable nature, construction, artificial lighting and heating, lack of extinguishing apparatus use of the property etc.

MORAL HAZARD: The moral hazard depends upon the man as physical hazard depends on the property. The property may be set on fire by the owner or by any person with his willingness, carelessness and lack of sense of duty may also increase the fire waste

Sometimes, when market price is going down the owner can willingly set fire on the property and gain from the payment of insurance money. Thus, where the property was destroyed with the willingness of the property owner, moral hazard exists.

PREVENTION OF LESSInsurance is meant for indemnification of loss and not for prevention of loss although every reasonable step can be taken to eliminate it or minimize it through the agencies engaged in prevention of loss.

INDEMINIFICATION OR CURATIVE EFFORTS: The insurance provides protection by indemnifying the financial loss suffered by insured person which occurred beyond the control of insured and insurer.

PREVENTIVE EFFORTS: Fire insurers stimulate the installation of protective device and better types of construction through granting credit. They help in installation of fire-fighting apparatus, water supply and engineering services.

REINSURANCE

Reinsurance is an arrangement whereby an original insurer who has insured a risk again with another insurer, that is to say, reinsures a part of the risk in order to diminish his own liability.

Insurance is a contract between the insurer and the original insured. Reinsurance is a contract between the reinsured (the insurer) and the reinsurer.

REINSURANCE

Reinsurance is the transfer of insurance business from one insurer to another.

The insurer transferring the business is called the ‘Principal’ or ceding or original office and the office to which the business is transferred is called for ‘reinsurer or guaranteeing office’

ADVANTAGE OF REINSURANCEReinsurance makes it possible to accept each risk for the very amount desired by the proposer and to transfer the excess above the ‘retention limit’ to another insurer.