Marine Insurance

Marine Insurance

Marine insurance is perhaps the oldest type of insurance. Under a contract of marine insurance, the Insurance company or the underwriter agrees to Indemnify the owner of a ship or cargo against risks which are incidental to marine adventure such as sinking or burning of the ship and its contents, stranding of the ship, collision of ship, Jettison, i.e. throwing overboard the cargo into the sea to save the ship from sinking or some other imminent danger, barratry, i.e., wrongful act of the captain of the ship in destroying or stealing the vessel or cargo causing loss to owners.

Types of Marine Insurance

The common types of marine insurance are as follows

(i) Cargo insurance - This type of marine insurance covers risks to the cargo on the ship. The cargo on the ship is exposed to risks arising from an act of God, enemies, fire etc.

(ii) Hull insurance - The ship is also exposed to the perils described in (i) above. Therefore, the owner of the ship may affect ‘hull' insurance to cover such perils.

(iii) Freight insurance - Where the owner of goods promises or undertakes to pay the freight when the cargo is safely delivered at the port of destination and the cargo is destroyed on the way, the shipping company would lose the freight. The shipping company can cover this risk by taking out a freight insurance policy.

Types of Marine Losses

Marine losses may be broadly of two types —

(i) Total Loss: When the subject matter of insurance, i.e., cargo, ship, freight etc. is totally lost, it is known as a ‘total loss. Total loss is also of two types :

(a) Actual Total Loss: When the subject-matter of insurance is absolutely destroyed or totally lost to the insured,  is known as the actual total loss.

(b) Constructive Total Loss : When the subject matter is not actually totally lost but is  lost for all practical purposes e.g., where the ship or cargo is reasonably abandoned and taken as lost or expenses to be incurred for saving the cargo or the ship are expected to be more than the value thereof, it is known as constructive total loss.

(ii) Partial Loss: When only a part of the subject matter is lost, it is known as the partial loss. This loss may also be of two types as discussed below :

(a) General Average Loss: Such a loss is caused by the extraordinary voluntary sacrifice made or expenditure incurred with the objective of protecting the interests of all owners in a voyage. An example of this type of loss is when the ship has run aground and part of the cargo is to be jettisoned to lighten the ship to save it as well as the cargo from total loss.

(b) Particular Average Loss: It is a partial loss of the subject matter of insurance caused by a peril against which it is insured but which is not a general average loss.

Types of Marine Insurance Policies

Generally, a standard form for all policies is used for all marine insurance policies to cover various types of risks. However, differing needs of the insured have led to the evolution of a variety of marine insurance policies, the main among which are:

(i) Time policy - It is that policy which covers the risk of the subject matter for a specified period of time. It is generally used for hull insurance though it can be taken out also for cargo.

(ii) Voyage policy - This is a policy whereby the subject matter in transit is insured from one place to another. It is generally carried out for cargo which is exposed to marine risks in transit.

(iii) Mixed policy - This is also known as time and voyage policy as under this the subject matter on a particular voyage is insured for a specified period of time.

(iv) Floating policy - This policy is taken out by cargo owners who make regular shipments of cargo to ensure the shipments expected to be shipped for a certain time by one policy. At the time the cargo is shipped, the insured declares the value of the shipment and the total value of the policy is reduced by that amount.

(v) Blanket policy - This policy is taken for a specified amount, the premium in respect of which is paid for the entire policy at the beginning itself and is adjusted at the end of the specified period for the value of risks covered during this period.

(vi) Fleet insurance policy - This policy ensures the whole fleet of ships.

(vii) Open policy - This type of policy is taken out without specifying the value where at the time of insurance, the insured is not aware of the value of the subject matter to be insured, which is ascertained and declared to the insurer later. The insurance cover is subject to the limit of the sum assured.

(viii) Port policy - This policy covers the ship when it is docked/stationed at a port.

(ix) Composite policy - It is a policy underwritten by more than one underwriter. The liability of each underwriter is however distinct and separate.

(x) Valued policy - Under this policy, the value of the subject matter is agreed between the underwriters and the insured at the time of taking the policy and Is specified therein.

Clauses in a Marine Policy:

A marine policy may cover or exclude various types of risks. In view of this, some special clauses may be inserted in the policy, Some of the important clauses are discussed below:

(i) Lost or Not Lost Clause - When this clause is inserted in the policy, the goods net insured irrespective of whether they are already lost or not lost before the policy is taken out. In other words, it covers loss of goods occurring between shipment of goods and the issuance of the policy.

(ii) Waiver Clause - When this clause is included in a marine policy no act of the insurer or the insured in saving, maintaining and preserving the cargo or the hull will be considered as a waiver, i.e., in case the insured takes steps under Sue, Labour and Travel clause after the notice of abandonment Is given by him to the insurer but is not accepted by the insurer, it will not amount that the notice of abandonment is waived. Thus, if the insurer takes any such steps it cannot be taken to mean as an acceptance of the notice of abandonment.

(iii) Permission to Touch and Stay Clause - As per this clause, the ship is permitted to touch and stay at the ports mentioned in the policy in the order specified therein. In case nothing is specified, the ship must touch and stay at ports which are normally touched in the particular trade. Any deviation from the route specified Is permitted in an emergency to save the ship and the lives of the passengers.

(iv) Running Down Clause (RDC) - This clause enables the insured to claim the loss caused by collision with another ship

(v) Free of Capture and Seizure Clause (FCS) - This clause is included In the policy to clarify that the underwriters will not be liable for any loss caused by the ship being captured or seized in a war or warlike situation.

(vi) Continuation Clause - This clause may be included in a time policy whereby the ship will be covered until the end of the voyage or for not more than 30 days thereafter where the ship is still at sea at the time of expiry of the policy. A monthly pro-rata premium is required to be deposited for this purpose.

(vii) Excepted Perils Clause - This clause specifies the risks not covered by the insurance policy

(viii) Free of Particular Average (FPA) and Free of All Averages (FAA) Clauses - As the names suggest. the FPA clause exempts the underwriter from particular average and all averages, i.e., both general and particular average liabilities (discussed hereinafter).

(ix) Insurance Clause - This clause covers, among others, the losses caused by the negligence of the master, crew etc. or by explosives or by other defects in the machinery of the ship.

(x) Jettison Clause - This clause covers the loss caused by jettisoning of goods, i.e throwing overboard goods to reduce the weight of the ship and prevent capture by the enemy.

(xi) Barratry - This clause covers all losses caused by willful misconduct or defaults of the master and crew of the ship.