Marine insurance plays a crucial role in the global trade and transportation sector, providing financial protection against various risks associated with maritime activities. In this post; we will take an in-depth exploration of marine insurance, its workings, and the different types of policies available. It elucidates the concept of marine insurance as a contract between the insurer and the insured, designed to indemnify the insured against marine losses.
One must understand the specifics of marine insurance policies, their issuance, and the various clauses they may contain. It also outlines the different types of marine insurance policies, such as time policies, voyage and time policies, valued policies, and more.
Table of Contents
What is Marine Insurance?
Marine insurance has been defined as a contract between the insurer and insured whereby the insurer undertakes to indemnify the insured in a manner and to the interest thereby agreed against marine losses incident to marine adventure.
Hull insurance, Cargo Insurance, Freights Insurance, and Liability Insurance are the subject matter of Marine Insurance.
How Do Marine Insurance Policies Work?
The marine insurance policy is issued only when the contract has been finalized, and it would be legal documents of evidence of the contract. The form of marine insurance policies has been taken from pretty old times.
There has been a slight change in the wording of the policies. For example, ‘Be it is known that’ is substituted for the words ‘In the name of God, Amen.’
The old form of policy is practiced today due to its practicalities which took numerous legal decisions during the past centuries. It has also been practiced that only one form of policy is standardized, and different clauses are added for applying to various types of policies.
The standard policy generally contains the following information;
- Name of insured or his agent.
- Subject matter insured. It may be ship (hull) cargo and freight.
- Risks insured against.
- Name of vessel and officers.
- Description of voyage or period of insurance.
- Amount and term of insurance.
- Premium.
There are various clauses that are suitably inserted according to the nature and type of policies. Hull, cargo, and freight policies have different standard clauses.
In the case of hull insurance, the clauses provide that if the insured vessel, at the expiration of the policy, is at sea or at a port of refuge.
Generally, the ship may be covered until arrival at the port of destination.
In the case of cargo policies with Average, Free of Particular Average, or All Risks are generally used. There are standard clauses that are invariably used in marine insurance.
Firstly, policies are constructed in a plain, ordinary, and popular sense, and later on, specific clauses are added to them according to the terms and conditions of the contract. Clauses attached to the policy would override the printed wording in the policy.
The policy is issued to cover a particular voyage from one port to another and from one place to another. The policy mentions the port of departure and the port of destination, between which the risks are generally underwritten.
This policy is not suitable for hull insurance as a ship usually does not operate over a particular route only.
However, this policy may include a time factor also as from Bombay to London for one year. In this case, the risk may be covered from one place to another, covering a period of one year.
The policy is used mostly in the case of cargo insurance. The goods remain covered even when the ship halts at intermediate ports.
The risks at the port of departure and at the port of destination may be covered by incorporating suitable clauses in the policy. The liability of the insurer continues during the landing and re-shipping of the goods.
17 Types of Marine Insurance Policies
Different classes of policies are used in marine insurance.
Time Policies
Under this policy, the subject matter is insured for a definite period of time, e.g., from 6 a.m. of 1st January 1976 to 6 a.m. on 1st January 1977.
The policy is generally taken for one year, although it may be for less than one year. This policy is commonly used more for hull insurance than for cargo insurance.
The policy may cover while navigating the vessel or while under construction. Risks covered under construction are for more than 12 months.
There are standard clauses in relation to freight, premium, interests, etc., which are added to this policy. The time policy may be taken in the case of goods and other movable vessels.
Voyage and Time Policy or mixed Policies
In this policy, the elements of voyage policy and time policy are combined ‘in under this policy. The reference is made a certain period after the completion of the voyage. For example, 24 hours after arrival. It may be beneficial to the hull as well as to cargo insurance.
Valued Policies
Under this policy, the value of the loss to be compensated is fixed and remains constant throughout the risk except where there are fraud and excessive over-valuation.
The value of the subject-matter is agreed between the insurer fend the assured at the time of taking the insurance. It is also called insured value or agreed value.
It forms the measure of indemnity at the time of loss. The insured value is not necessarily the actual value. It may be a total invoice, e.g., cost of goods, freight, shipping charges, insurance, and a certain percentage of margin (generally 10 percent) to cover anticipated profits.
Unvalued Policies
When the value of the policy is not determined at the time of commencement of risk but is left to be valued when the loss takes place, the value thus left to be decided later on is called the insurable value or unvalued or valuable policy.
In deciding the value, the invoice cost, freight, shipping, and insurance charges are included, and no margin for anticipated profit is added.
Usually, unvalued policies are not common in marine insurance because the evaluation of loss at the time of damage poses a difficult problem. It is extremely difficult when consignment goes nearer the port of destination.
In-hull insurance, the insurable value is determined taking into account the value of the ship at the commencement of risk, including provision and stores for officers and crew plus the charges of insurance.
In insurance on freight, whether paid in advance or otherwise, the insurable value is the gross amount of freight plus the charges of insurance. Similarly, in cargo insurance, it would be the cost of goods plus expenses and insurance charges.
A limitation of insurable value is desirable not only to fix the measure of indemnity under an unvalued policy but also to provide an approximate basis for the calculation of value in a valued policy.
Floating Policies
This policy describes the general terms and leaves the amount of each shipment and other particulars to be declared later on. The declaration is made in order of dispatch of the shipment.
The policy is taken for around a large sum, which is specified at each declaration and is attached to each shipment.
With each declaration, the amount will be reduced until it is exhausted when the insured sum is said to be ‘closed’ and the policy is ‘fully declared’ or ‘run-off.’
The most popular form of contract is ‘Open Cover.’ It is an agreement between the insured and the insurer by which the assured on his part agrees to declare, and the insurer on his part agrees to accept all the shipments falling within the scope of the ‘open cover,’ which is merely an original ship’.
It is not a legal contract of marine insurance and suffers from the same legal disability as the ‘original ‘ship.’ However, the insured and the insurers are honor bound.
To give ‘Open Cover’ a legal form, a policy is issued for the purpose. Separate policies are not issued in the case of each shipment, but only one policy is issued at the time of entering into a contract. All declarations are written on the back of the” policy.
A classification clause is usually inserted in ‘open cover’ to provide the agreed rates of premium.
Similarly, valuation clauses are also inserted to provide the basis for valuation in the event of loss taking place.
This policy is suitable for a cargo owner who makes regular shipments of cargo.
All his shipments are automatically covered as soon as the declarations are made. The floating policies are mostly used in the age of gigantic trade.
Blanket Policies
The policy is taken to cover losses within a particular time and place. The policy is taken for a certain amount, and the premium is paid on the whole of it at the beginning of the policy and is re-adjusted at the end of the policy according to the actual amount at risk.
If the actual coverage of risk is less than the total amount of insurance, the premium related to the excess amount is returned to the insured.
On the other hand, if the amounts of shipment are greater than the insured sum, an additional premium is charged over the excess protection.
Named Policies
Under this policy, the name of the ship and the amount of insured cargo are mentioned. These policies are specific policies.
Single Vessel and Fleet Policies
A ship or a fleet of ships is insured in a single policy. When one policy is assured, it is called single vessel policy and when a fleet of the ship is insured in the single policy, it is called a fleet insurance policy.
The advantages of the fleet policies are that even old and weak ships are also insured. This insurance facilitates the easy and smooth functioning of insurance benefits.
Block Policies
This policy insures incidental inland risks, too, along with the marine perils. For example, cotton is insured from the time of processing to the time when it was delivered at the point of destination.
Currency Policies
Policies issued in foreign currency are called currency policies, where the sum assured is stated in foreign currency.
This policy avoids the fluctuation in foreign currencies because the claim amount is determined in the foreign currency and the fluctuations in the exchange rates of the inland and foreign currencies up to the period of the policy are meaningless.
P.P.l. Policies
The policy is issued to avoid the complication of the principle of insurable interest. This is called ‘ Policy Proof of Interest’ and is honored by the insurer even in the absence of insurable interest.
This policy is based on mutual understanding, so it is called honored policy. This is also called wagering policy because insurable interest is not required; consequently: it cannot be legally enforceable.
Annual Policy
The Annual Policy is insured for a period of 12 months to cover goods belonging to the assured or held trust by the assured. The policy is not assignable or transferable.
The policy is not allowed to be issued to transport operators/contractors, clearing, forwarding, and commission agents, or to freight forwarders.
Nor can this policy be issued in Joint Names. The sum insured is the aggregate maximum estimated value on rail/road at any one time of all the insured goods in respect of a specified transit.
The policy shall be subject to the condition of average stipulating that if, at the time of any loss damage, the total value of goods in transit is more than the sum assured in respect of that specified transit, the assured shall be considered as being his own insurer for the difference and shall bear a rateable proportion of the loss accordingly.
Sum assured under the Annual Policy shall stand; reinstated as from the time of the happening of an event giving rise to a valid claim, and the assured shall remain responsible for a pro-rata additional premium for the remaining period of the policy on the amount reinstated continuing from the date of the loss.
Inland Transit Cargo Policy
Inland Transit Policy covers all risks for inland transit for rail on the road. It may cover only a few risks such as a fire or theft or strikes, riots, or civil commotion.
The cover may be extended up to 7 days after arrival at the destination. It may be extended per week additional premium for a subject to not exceeding 8 weeks.
This extension applies to goods only which is lying in railway or road carrier’s premises or in clearing and forwarding agents’ warehouse in a bonded warehouse at the destination.
Inland Vessel Policy
Inland vessel policy covers all cargo carried on rivers, canals, or other smooth waters, including F.O.B. shipment. General average sacrifice and jettison are not included in the risk covered. The rate of premium is based on age, propelled engine, steel, wooden boats, etc.
Free on Board Policy
The policy is arranged by the buyer overseas for his own account and benefit. Risks under the buyer’s policy commence on loading of the cargo on the overseas vessel because it is at that juncture of transit that the risk passes from the seller to the buyer.
The covers start from the time the cargo leaves the warehouse until such goods are loaded on the ship. The policy also covers loss/damage reasonably attributable to craft, raft or lighter being stranded, grounded, and sunk or capsized.
Sailing Vessels Policy
Sailing vessels include country craft total and/or constructive total loss of the subject-matter insured attributable to fire or shrinking or stranding.
Loss/Damage is also covered of the subject-matter insured caused by jettison due to the stress of weather stranding, sinking or burning, or collision at sea.
Package Policy
This policy has bear devised under the tariff to cater to the special requirements of certain categories of business, such as tea estates, coffee estates, and Export Promotion under the Duty Exemption Scheme.
9 Elements of Marine Insurance Contract
Marine insurance has the following essential features, which are also called fundamental principles of marine insurance;
- Features of General Contract,
- Insurable Interest,
- Utmost Good Faith,
- The doctrine of Indemnity,
- Subrogation,
- Warranties,
- Proximate cause,
- Assignment and nomination of the policy, and
- Return of premium.
The proposer may approach the insurer directly or through an agent or broker.
Generally, the proposal is made through brokers because they are well-known for their insurance practices. The broker prepares a slip where material information is recorded.
This slip is presented to the insurer who will signify his acceptance by initialing the slip and indicating the sum they are prepared to- accept. The risk may commence from the date of acceptance or from any other date which is mutually agreed upon.
Sometimes, the insurer asks for additional information from the broker.
When the additional information, called the closing slip, has been accepted by the insurer, he may issue a policy.
Before issuing the policy, the open cover is issued to the insured, which becomes inoperative as soon as the policy is issued. The document containing the term of the contract is called the policy.
The assured cannot legally make any claim over the underwriter if the loss occurs before a final policy is issued. The ‘open cover’ or ‘slip’ is not legally binding on the insurers.
In practice, however, the insurer pays the number of claims even before the issue of policies. Insurers in marine insurance are generally called ‘underwriters.’
