A contract of marine insurance is a contract whereby the insurer undertakes to indemnify the insured, against marine losses, that is to say, the losses incidental to marine adventure. It is a contract of indemnity. It is a contract ‘uberrimae fidei”. It must have insurable interest. The doctrine of subrogation applies to it.
Marine Adventure: There is a marine adventure when;
- Any ship, goods or movable property(i.e. insurable property) is exposed to maritime perils;
- The earning or acquisition of any freight, passage money, commission, profit or other pecuniary benefit, or the security for any advances, loans or disbursements is endangered by the exposure of insurable property to maritime perils;
- Any inability to a third party maybe incurred by the owner of, or other person interested in, insurable property by reason of maritime perils.
‘Insurable property’ means any ship, goods or other movables which are exposed to maritime perils.
Maritime Perils: Maritime perils mean the perils consequent on, or incidental to the navigation of the sea. In other words, they mean perils of the sea, fire, war perils, pirates, rovers, thieves, captures, seizures, restraints and detainment’s, jettisons and barratry, and any other perils which are either of the like kind or may be designated by the policy. In simple words, ‘perils of the sea’ mean all perils and misfortunes of a marine character or incidental to a ship which the underwriter in a marine insurance takes upon himself.
The following losses are covered by the perils of the sea:
- A loss by a vessel striking upon a sunken rock.
- A loss by foundering, owing to a ship coming into collision with another ship, even when the collision results from the negligence of that other ship.
- A loss brought about by negligent navigation.
- Damage caused to insured against fire and perils of the sea by heading due to the closing of ventilators to prevent the incursion of sea water in rough weather.
- Damage caused to cargo by rats making a hole in the bottom of a ship and sea water entering the ship through the hole.
A person has an insurable interest if he is interested in a marine adventure in consequence of which he may benefit by the safe arrival of insurable property, or be prejudiced, by its loss, damage or detention. The assured must be interested in the subject-matter insured at the time of the loss, though he need not be interested when the insurance is effected.
Kinds of Marine Insurance Policies
- Time Policy: It insures the subject matter for a certain specified period, not exceeding twelve months.
- Voyage Policy: It insures the subject-matter for a certain voyage only i.e, journey from one fixed port to another fixed port.
- Valued Policy: It specifies the agreed value of the subject-matter insured. Insurers are liable only for the loss not exceeding the value mentioned in the policy.
- Unvalued or Open Policy: It does not specify the value of the subject-matter. The value is to be ascertained subsequently at the time of actual loss.
- Mixed Policy: It insures the subject-matter for a specified voyage and for a particular period.
- Floating Policy: It describes the general terms of insurance, leaving other particulars such as the name of the ship etc. to be declared subsequently.
- Wagering or Honor Policy: It is also known as “policy proof of interest” or “Interest or no interest policy”. In this case, the insurer does not have insurable interest in the subject-matter of the contract. It resembles a wager and hence void. Losses are indemnified depending on the honour of the insurer.
Contents of a Marine Insurance Contract
A marine insurance policy contains the following particulars:
- Name of the ship.
- Name of the parties.
- The time of commencement and duration of the risk.
- “Lost or not lost” clause whereby the insurer is made liable whether the goods were in existence or not at the time when the insurance was effected, except when the insured knew that the goods were destroyed already.
- “Touch and Stay” clause which mentions the various parts which the ship touches and the period of its stay at these parts.
- Accepted perils for which the insurer undertakes to be liable.
- “Free from capture and seizure” clause which exonerates the insurer from his liability for the loss arising out of the capture and seizure of the ship.
- “Free from particular average” or “Free from all average” clause whereby the insurer is exempted from his liability for any particular average loss or for all average loss caused to the subject-matter of the contract.
- “Barratry” clause relates to the liability of the insurer for the loss arising out of the wrongful act of the master or any of the crew of the ship.
- “Sue, Labor and Travel” clause which entitles the insured to minimize the loss and claim for expenses from insurer and to recover the goods lost by falling overboard accidentally.
- “Collision or running down” clause whereby the owner of an insured ship shall indemnify the owner of another ship if the former ship collides negligently with the latter.
- “Inchmaree” clause which protects the insured against any latent defect in the machinery of the ship.
- “Expected Perils” clause which specifies the risks not covered by the insurance policy.
A marine policy is thus a formal document signed by the insurer. It must be stamped. It contains the terms of the insurance as explained above. It is an actionable claim and can be transferred by means of an assignment.
Warranties in a Marine Insurance Contract
A warranty in a contract of marine insurance is substantially the same as a condition in a contract of sale of goods. It gives the aggrieved party the right to avoid the contract. A warranty may be (1) express, or (2) implied.
1. Express Warranties
An express warranty is one which is expressly stated in the policy of insurance. It must be included in, or written upon, the policy, or must be contained in some document incorporated by reference into the policy. There is no limit to the number of express warranties but the following express warranties are generally included in a marine policy:
- The ship is seaworthy on a particular day.
- The ship will sail on a specified day.
- The ship will proceed to the destination without any deviation.
- The ship is neutral and will remain so during the voyage.
2. Implied Warranties
Implied warranties are conditions which are not incorporated in a policy but which are assumed to have been included in the policy by law, custom or general agreement. These warranties are:
(1) In a voyage policy there is an implied warranty that at the commencement of the voyage the ship is seaworthy for the purpose of the particular adventure insured. It includes the following:
- That the ship is properly constructed
- That its machinery is in proper working order
- That it has sufficient and efficient crew and master
- That it is sufficiently provided with the necessities of the voyage
- That it is not overloaded or badly loaded
- That it is sound as regards her hull and that it is properly stowed
(2) In a voyage policy, where the voyage is to be performed in stages, the ship must be seaworthy at the commencement of each stage.
(3) Where a voyage policy attaches while the ship is in port, there is an implied warranty that she shall, at the commencement of the risk, be reasonably fit to encounter the ordinary perils of the port.
(4) In a voyage policy on goods or other movables, there is an implied warranty that at the commencement of the voyage the ship is not only seaworthy as a ship, but also that she is reasonably fit to carry the goods or other movables to the destination contemplated by the policy.
2. Legality of Voyage
There is an implied warranty that the adventure insured is a lawful one, and that, so far as the assured can control the matter, the adventure shall be carried out in a lawful manner.
There is an implied warranty that the ship shall not deviate from its prescribed or the usual customary route. If it does, the insurer shall not be liable unless the deviation is lawfully excused.
The voyage to be performed by a ship must be described in the policy. The ship must follow the course specified in the policy. If the course is not specified, it must follow the usual and customary course. Where the place of departure is specified in the policy, and the ship, instead of sailing from that place, sails from any other place, the risk does not attach. The risk also does not attach where the destination is specified in the policy, and the ship instead of sailing for that destination, sails for any other destination.
Deviation of Voyage
If a ship proceeds by an unusual course, or takes the ports of call by an order different from the one mentioned in the policy, there takes place a deviation of voyage. Where a ship, without any lawful excuse, deviates from the voyage contemplated by the policy, the insurer is discharged from liability as from the time of deviation and it would not make any difference even if the ship regains her route before any loss occurs. But the insurer is liable for any loss which might have occurred prior to the deviation.
When Deviation is Excused
A deviation or delay in prosecuting the voyage as specified in the policy is excused:
- Where it is authorized by any special term in the policy;
- Where it is caused by circumstances beyond the control of the master and his employees, e.g. deviation caused due to rough weather, storm, cyclone etc.
- Where it is reasonably necessary in order to comply with an express or implied warranty;
- Where it is reasonably necessary for the safety of the ship or the subject-matter insured;
- Where it is necessary for the purpose of saving human life or aiding a ship in distress, where human life may be in danger;
- Where it is reasonably necessary for the purpose of obtaining medical or surgical aid for any person on board the ship;
- Where it is caused by the barratrous conduct of the master or crew if barratry is one of the perils insured against.
- Where the vessel is blown out of her course by violent gales or is ordered during war by the Naval Authorities to deviate from her ordinary course in order to avoid the danger of sub-marines.
The ship must resume her course with reasonable dispatch, as soon as the causes which excuse deviation or delay cease to operate.
Unless the policy otherwise provides, the insurer is liable for any loss proximately caused by a peril insured against. A loss may be either total or partial. Any loss other than a total loss is a partial loss.
1. Total Loss
A total loss may be either (1) an actual total loss, or (2) a constructive total loss.
1. Actual Total Loss: An actual total loss occurs:
- Where the subject-matter is actually destroyed or irreparably damaged; or
- Where the subject-matter ceases to be a thing of the kind insured, or where it ceases to exit in specie.
- Where the assured is irretrievably (irrecoverably) deprived of the subject-matter.
- Where the subject-matter is lost to the owner by a decree of a Court, in consequence of a peril insured against.
An actual total loss may be presumed if a ship is missing, and after a reasonable time no news of her has been received.
2. Constructive Total Loss:A constructive total loss occurs where the subject-matter insured is reasonably abandoned because its actual total loss appears to be unavoidable, or because the expenditure to prevent an actual total loss would exceed the value of the subject-matter when saved. In particular, there is a constructive total loss:
- Where the assured is deprived of the possession of his ship or goods by a peril insured against, and it is unlikely that he can recover the ship or goods, as the case may be, or the cost of recovering the ship or goods would exceed their value when recovered;
- In the case of damage to a ship by a peril insured against, where the cost of repairing the damage would exceed the value of the ship when repaired; or
- In the case of damage to goods, where the cost of repairing the damage and forwarding the goods to their destination would exceed their value on arrival.
Examples of Constructive total loss: Constructive total loss occurs where:
- A ship on fire is abandoned in mid-stream,
- A ship is sunk in deep water and cannot be raised without expenditure in excess of its value,
- A ship is so damaged that the cost of its repairs will exceed its value after repair,
- The cargo is so damaged that the cost of reconditioning it would be more than its value after its reconditioning.
Unless a different intention appears from the terms of the policy, an insurance against total loss includes constructive, as well as an actual, total loss.
Abandonment: Where there is a constructive total loss, the assured may treat the loss as a partial loss or abandon the subject-matter insured tot he insurer and treat the loss as if it were an actual total loss. Where the assured treats the loss as an actual total loss, he must give, after the receipt of the information of the loss, notice of abandonment to the insurer. If he fails to do this, the loss will be treated as a partial loss. Abandonment means surrendering all proprietary rights in whatever remains of the subjectmatter. In case of its loss, to the insurer in order to claim the total loss from him. If the insurer accepts the abandonment, he pays the total loss to the assured and recovers whatever he can from the sale of the abandoned property.
2. Partial Loss
Partial loss may be either (1) particular average loss, or (2) general average loss.
1. Particular Average Loss: The three interests risked during the course of a sea voyage are: (a) the ship, (b) the cargo, and (c) the freight. As a general rule any loss which any of these interests sustains must be borne by that interest alone; this is known as particular average loss and is to be borne by the interest incurring it. If, for example, one of the ship’s boat is carried away in a storm, this is a particular average loss and must be borne by the shipowner alone.
A particular average loss is a partial loss of the subject-matter insured, caused by a peril insured against, and which is not a general average loss. It gives no right of contribution from the other parties interested in the adventure. It can be recovered from the insurers if it is caused by a peril insured against. Wherever damage is caused by accident or otherwise to property in a marine adventure by the perils of the sea and the damage is not one suffered for general benefit, it is called a particular average loss.
2. General Average Loss: Where extraordinary sacrifices are made or expenditure is incurred voluntarily and reasonably in time of peril for the benefit of the whole adventure, the loss is known as a general average loss and is borne by all interested in the common adventure. There is a general average loss when:
- A ship is scuttled to avoid destruction of the whole of the ship, or forced to cut away a part of her rigging as a consequence of collision, or forced to return to a port to execute certain repairs as a consequence of collision, or stranded and a part of the cargo is jettisoned, or
- A part of the cargo is sold to pay for repairs to enable the ship to continue her voyage, or thrown overboard to save the ship from the storm, or
- A cargo is damaged while being unloaded for the purpose of executing repairs to the ship necessitated by the collision of the ship with another ship, or
- Wages are paid to non-members of the crew for pumping out the water from the ship.
Where there is a general average loss, the party on whom it falls is entitled to ratable contribution from the other parties interested and such contribution is called a general average contribution.