MARINE INSURANCE

This is the oldest branch of Insurance and is closely linked to

the practice of Bottomry which has been referred to in the

ancient records of Babylonians and the code of Hammurabi

way back in B.C.2250. Manufacturers of goods advanced their

material to traders who gave them receipts for the materials

and a rate of interest was agreed upon. If the trader was robbed

during the journey, he would be freed from the debt but if he

came back, he would pay both the value of the materials and

the interest.

The first known Marine Insurance agreement was executed in

Genoa on 13/10/1347 and marine Insurance was legally

regulated in 1369 there.

 OBJECTIVES

􀁺 Know the meaning of Marine insurance

􀁺 Buy the Marine insurance

􀁺 Settle the claim under Marine Insurance

􀁺 Know the inland transit/overseas transit.

􀁺 Know what is not covered under Marine insurance

MEANING OF MARINE INSURANCE

A contract of marine insurance is an agreement whereby the

insurer undertakes to indemnify the insured, in the manner

and to the extent thereby agreed, against transit losses, that

is to say losses incidental to transit.

A contract of marine insurance may by its express terms or by

usage of trade be extended so as to protect the insured against

losses on inland waters or any land risk which may be

incidental to any sea voyage.

In simple words the marine insurance includes

A. Cargo insurance which provides insurance cover in respect

of loss of or damage to goods during transit by rail, road,

sea or air.

Thus cargo insurance concerns the following :

(i) export and import shipments by ocean-going vessels

of all types,

(ii) coastal shipments by steamers, sailing vessels,

mechanized boats, etc.,

(iii) shipments by inland vessels or country craft, and

(iv) Consignments by rail, road, or air and articles sent

by post.

B. Hull insurance which is concerned with the insurance of

ships (hull, machinery, etc.). This is a highly technical

subject and is not dealt in this module.

2.3 FEATURES OF MARINE INSURANCE

1) Offer & Acceptance: It is a prerequisite to any contract.

Similarly the goods under marine (transit) insurance will

be insured after the offer is accepted by the insurance

company. Example: A proposal submitted to the insurance

company along with premium on 1/4/2011 but the

insurance company accepted the proposal on 15/4/2011.

The risk is covered from 15/4/2011 and any loss prior to

this date will not be covered under marine insurance.

2) Payment of premium: An owner must ensure that the

premium is paid well in advance so that the risk can be

covered. If the payment is made through cheque and it is

DIPLOMA IN INSURANCE SERVICES

MODULE - 4

Notes

Marine Insurance

Practice of General Insurance

20

dishonored then the coverage of risk will not exist. It is as

per section 64VB of Insurance Act 1938- Payment of

premium in advance.(Details under insurance legislation

Module).

3) Contract of Indemnity: Marine insurance is contract of

indemnity and the insurance company is liable only to

the extent of actual loss suffered. If there is no loss there

is no liability even if there is operation of insured peril.

Example: If the property under marine (transit) insurance

is insured for Rs 20 lakhs and during transit it is damaged

to the extent of Rs 10 lakhs then the insurance company

will not pay more than Rs 10 lakhs.

4) Utmost good faith: The owner of goods to be transported

must disclose all the relevant information to the insurance

company while insuring their goods. The marine policy

shall be voidable at the option of the insurer in the event

of misrepresentation, mis-description or non-disclosure

of any material information. Example: The nature of goods

must be disclosed i.e whether the goods are hazardous

in nature or not, as premium rate will be higher for

hazardous goods.

5) Insurable Interest: The marine insurance will be valid if

the person is having insurable interest at the time of loss.

The insurable interest will depend upon the nature of

sales contract. Example: Mr A sends the goods to Mr B on

FOB( Free on Board) basis which means the insurance is

to be arranged by Mr B. And if any loss arises during

transit then Mr B is entitled to get the compensation

from the insurance company.

Example: Mr A sends the goods to Mr B on CIF (Cost,

Insurance and Freight) basis which means the insurance

is to be arranged by Mr A. And if any loss arises during

transit then Mr A is entitled to get the compensation from

the insurance company.

6) Contribution: If a person insures his goods with two

insurance companies, then in case of marine loss both

the insurance companies will pay the loss to the owner

proportionately. Example; Goods worth Rs. 50 lakhs were

insured for marine insurance with Insurance company A

and B. In case of loss, both the insurance companies will

contribute equally.7) Period of marine Insurance: The period of insurance in

the policy is for the normal time taken for a particular

transit. Generally the period of open marine insurance

will not exceed one year. It can also be issued for the

single transit and for specific period but not for more

than a year.

8) Deliberate Act: If goods are damaged or loss occurs during

transit because of deliberate act of an owner then that

damage or loss will not be covered under the policy.

9) Claims: To get the compensation under marine insurance

the owner must inform the insurance company

immediately so that the insurance company can take

necessary steps to determine the loss.

OPERATION OF MARINE INSURANCE

Marine insurance plays an important role in domestic trade

as well as in international trade. Most contracts of sale require

that the goods must be covered, either by the seller or the

buyer, against loss or damage.

Who is responsible for affecting insurance on the goods, which

are the subject of sale? It depends on the terms of the sale

contract. A contract of sale involves mainly a seller and a buyer,

apart from other associated parties like carriers, banks, clearing

agents, etc.

Practice in International trade

The normal practice in export /import trade is for the exporter

to ask the importer to open a letter of credit with a bank in

favour of the exporter. As and when the goods are ready for

shipment by the exporter, he hands over the documents of

title to the bank and gets the bill of exchange drawn by him

on the importer, discounted with the bank. In this process,

the goods which are the subject of the sale are considered by

the bank as physical security against the monies advanced by

it to the exporter. A further security by way of an insurance

policy is also required by the bank to protect its interests in

the event of the goods suffering loss or damage in transit, in

which case the importer may not make the payment. The terms

and conditions of insurance are specified in the letter of credit.

For export/import policies, the-Institute Cargo Clauses (I.C.C.)

are used. These clauses are drafted by the Institute of London

Underwriters (ILU) and are used by insurance companies in a

majority of countries including India.