Marine Insurance Act 1906 – Detailed Overview

The Marine Insurance Act 1906 is an Act of UK Parliament regulating Marine Insurance. The Marine Insurance Act 1906 (MIA-1906) defines Marine Insurance along with various associated terms such as warranties, conditions, average and various types of losses that would be covered.

Marine Insurance Act 1906 was drafted by Sir Mackenzie Chalmers and is a codification of around 200 years of judicial decisions.

The Marine Insurance Policy and the Institute Cargo Clauses that followed were based on Marine Insurance Act, 1906. Thus, an understanding of MIA 1906 is essential to all those interested in Marine Insurance.

Important Sections of the Marine Insurance Act, 1906

Section 1 of Marine Insurance Act 1906 – Definition of Marine Insurance

The Marine Insurance Act, 1906 defines Marine Insurance as “A Contract of Marine Insurance is a contract whereby the insurer undertakes to indemnify the assured, in manner and to the extent thereby agreed, against marine losses, that is to say, the losses incident to marine adventure.”

The definition of Marine Insurance makes it clear that Insurance Companies would indemnify the Insured for any losses which are incidental to the Marine Adventure. The Principles of Insurance also emerged from the Marine Insurance Act, 1906.

Section 2 of Marine Insurance Act 1906 – Mixed Sea and Land Risks

Section 2 (i) of Marine Insurance Act 1906 makes it clear that the Contract of Marine Insurance can be extended to protect the assured against losses on Inland Waters or any Land Risks which may be incidental to any Sea Voyage.

Section 3 of Marine Insurance Act 1906 – Marine Adventure and Maritime Perils defined

Section 3 (i) of Marine Insurance Act 1906 provides that every lawful marine adventure may be the subject of a Contract of Marine Insurance.

So, it is a requirement of a Marine Insurance Policy that only legal and lawful transits can be insured.

Section 5 of Marine Insurance Act 1906 – Insurable Interest

Section 5 of Marine Insurance Act 1906 defines Insurable Interest as follows:

Subject to the provisions of this Act, every person has an insurable interest who is interested in a marine adventure.
In particular a person is interested in a marine adventure where he stands in any legal or equitable relation to the adventure or to any insurable property at risk therein, inconsequence of which he 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.

Section 6 of Marine Insurance Act 1906 – When interest must attach

Section 6 (i) of Marine Insurance Act 1906 provides that the Assured Party 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. Provided that where the subject-matter is insured “lost or not lost,” the Assured may recover although he may not have acquired his interest until after the loss, unless at the time of effecting the contract of insurance, the assured was aware of the loss, and the insurer was not.
Where the Assured has no interest at the time of the loss, he cannot acquire interest by any act or election after he is aware of the loss. Section 6 (i) of the Marine Insurance Act of 1906 makes it amply clear that the Policyholder needs to have an Insurable Interest in the Subject Matter Insured only at the time of loss. The Act also specifies that an Assured cannot acquire any Insurable Interest in the Subject Matter after he becomes aware of the loss if he did not have an Insurable Interest at the time of the loss.

Section 7 of Marine Insurance Act 1906 – Defeasible or Contingent Interest

A Defeasible Interest is insurable, as also is a Contingent Interest.
In particular, where the buyer of goods has insured them, he has an insurable interest, notwithstanding that he might, at his election, have rejected the goods, or have treated them as at the seller’s risk, by reason of the latter’s delay in making delivery or otherwise

Section 16 of Marine Insurance Act 1906 – Measure of Insurable Value

Section 16 of MIA-1906 provides a guidance of Measure of Insurable Values for various Subject Matter Insured as follows:

In Insurance on ship, the insurable value is the value, at the commencement of the risk, of the ship, including her outfit, provisions and stores for the officers and crew, money advanced for seamen’s wages, and other disbursements (if any) incurred to make the ship fit for the voyage or adventure contemplated by the policy, plus the charges of insurance upon the whole. The insurable value, in the case of a steamship, includes also the machinery, boilers, and coals and engine stores if owned by the assured, and, in the case of a ship engaged in a special trade, the ordinary fittings requisite for that trade.
In insurance on freight, whether paid in advance or otherwise, the insurable value is the gross amount of the freight at the risk of the assured, plus the charges of insurance:
In insurance on goods or merchandise, the Insurable Value is the prime cost of the property insured, plus the expenses of and incidental to shipping and the charges of insurance upon the whole.
In insurance on any other subject-matter, the insurable value is the amount at the risk of the assured when the policy attaches, plus the charges of insurance.

Section 17 of Marine Insurance Act 1906 – Insurance is Uberrimae Fidei

Section 17 of Marine Insurance Act, 1906 provides that the Contract of Marine Insurance is based on the Principle of Utmost Good Faith and if the Principle of Utmost Good Faith is violated, either by the Insurer or the Insured, the Contract of Marine Insurance can be void.

The main point of this section is that the Assured should make complete and accurate disclosures of all the material facts which could influence the decision of the Insurance Company to accept the risk or not. The Insured Party should not hide, suppress, twist or tweak any material facts relevant to the Insurance Policy.

Section 22 of Marine Insurance Act 1906 – Contract must be embodied in Policy

Section 22 of Marine Insurance Act 1906 provides that a contract of Marine Insurance is inadmissible in evidence unless it is embodied in a Marine Policy in accordance with this Act. The policy may be executed and issued either at the time when the contract is concluded, or afterwards.

This section makes it clear that a Marine Insurance Policy is a must for the Assured to avail protection under Marine Insurance Policy.

Section 27 and 28 of Marine Insurance Act 1906 – Valued Policy and Unvalued Policy

Section 27 and 28 of Marine Insurance Act 1906 provides that a Marine Insurance Policy can either be valued or unvalued.

A Valued Policy is one which specifies the Agreed Value of the Subject Matter Insured. Marine Insurance Policy is an Agreed Value Policy means that the Policy will be written at a Sum Insured which is agreed between the Insurer and the Assured. In case of a loss, the Insurance Company will pay the loss as per the Agreed Value under the Principle of Indemnity.

This Agreed Value can only be challenged only in case the Insurance Company is able to establish that the value given was fraudulent.

Section 33 of Marine Insurance Act 1906 – Nature of Warranty

Section 33 of Marine Insurance Act 1906 explains the Nature of Warranty in a contract of Marine Insurance.

Section 33 (i) of Marine Insurance Act 1906 states that “A warranty, in the following sections relating to warranties, means a promissory warranty, that is to say, a warranty by which the assured undertakes that some particular thing shall or shall not be done, or that some condition shall be fulfilled, or whereby he affirms or negatives the existence of a particular state of facts.”
A Warranty can be express or implied.

A Warranty, as above defined, is a condition which must be exactly complied with, whether it be material to the risk or not. If the Warranty is not complied with by the Insured, then the Insurance Company can be discharged from the liability from the date of breach of warranty.

Section 45 of Marine Insurance Act 1906 – Change of Voyage

Section 45 of Marine Insurance Act 1906 deals with Change of Voyage in a Contract of Marine Insurance

Where, after the commencement of the risk, the destination of the ship is voluntarily changed from the destination contemplated by the policy, there is said to be a change of voyage.
Unless the Policy otherwise provides, where there is a change of voyage, the insurer is discharged from liability as from the time of change, that is to say, as from the time when the determination to change it is manifested; and it is immaterial that the ship may not in fact have left the course of voyage contemplated by the policy when the loss occurs.

This means that the Insurance Company is discharged from liability as soon as there is an intention to change voyage. It does not matter whether the Ship has embarked on the new voyage or not.

Section 46 of Marine Insurance Act 1906 – Deviation

Section 46 of Marine Insurance Act 1906 deals with Deviation of Journey in a Contract of Marine Insurance.

Where a ship, without lawful excuse, deviates from the voyage contemplated by the policy, the insurer is discharged from liability as from the time of deviation, and it is immaterial that the ship may have regained her route before any loss occurs.
There is a deviation from the voyage contemplated by the policy—
- Where the course of the voyage is specifically designated by the policy, and that course is departed from; or
- Where the course of the voyage is not specifically designated by the policy, but the usual and customary course is departed from.

The intention to deviate is immaterial; there must be a deviation in fact to discharge the insurer from his liability under the contract.

Section 50 of Marine Insurance Act 1906 – When and How Policy is Assignable

Section 50 of MIA 1906 explains the conditions under which a Marine Insurance Policy can be assigned.

A Marine Policy is assignable unless it contains terms expressly prohibiting assignment. It may be assigned either before or after loss.
Where a Marine Policy has been assigned so as to pass the beneficial interest in such Policy, the Assignee of the Policy is entitled to sue thereon in his own name; and the Defendant is entitled to make any defence arising out of the contract which he would have been entitled to make if the action had been brought in the name of the person by or on behalf of whom the Policy was effected.

A Marine Policy may be assigned by endorsement thereon or in other customary manner.

Section 55 of Marine Insurance Act 1906 – Included and Excluded Losses

Sec. 55 (i) of the Marine Insurance Act, 1906 provides that unless the Policy otherwise provides, the Insurer is liable for any loss proximately caused by a Peril insured against, but, subject as aforesaid, he is not liable for any Loss which is not proximately caused by a peril insured against.
Following losses are excluded from coverage under a Marine Insurance Policy
- The Insurer is not liable for any Loss attributable to the Wilful Misconduct of the Assured, but, unless the Policy otherwise provides, he is liable for any Loss proximately caused by a Peril insured against, even though the Loss would not have happened but for the Misconduct or Negligence of the master or crew.
- Unless the policy otherwise provides, the Insurer on ship or goods is not liable for any Loss proximately caused by Delay, although the Delay be caused by a Peril insured against.
- Unless the Policy otherwise provides, the Insurer is not liable for Ordinary Wear and Tear, Ordinary Leakage and Breakage, Inherent Vice or Nature of the 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.

Section 56 of Marine Insurance Act 1906 – Partial and Total Loss

Section 56 of Marine Insurance Act 1906 deals with types of losses: Partial and Total Loss. The section reads as follows:

A Loss may be either Total or Partial. Any Loss other than a Total Loss, as hereinafter defined, is a Partial Loss.
A Total Loss may be either an Actual Total Loss, or a Constructive Total Loss.
Unless a different intention appears from the terms of the Policy, an Insurance against Total Loss includes a Constructive, as well as an Actual Total Loss.
Where the Assured brings an Action for a Total Loss and the evidence proves only a Partial Loss, he may, unless the Policy otherwise provides, recover for a Partial Loss.
Where Goods reach their destination in specie, but by reason of obliteration of marks, or otherwise, they are incapable of identification, the Loss, if any, is Partial, and not Total.

Section 57 of Marine Insurance Act 1906 – Actual Total Loss

Section 57 of Marine Insurance Act 1906 defines an Actual Total Loss as follows:

Where the Subject-Matter Insured is destroyed, or so damaged as to cease to be a thing of the kind Insured, or where the Assured is irretrievably deprived thereof, there is an Actual Total Loss.
In the case of an Actual Total Loss, no Notice of Abandonment needs to be given

Section 60 of Marine Insurance Act 1906 – Constructive Total Loss

Section 60 of Marine Insurance Act 1906 defines Constructive Total Loss as follows:

Subject to any express Provision in the Policy, there is a Constructive Total Loss where the Subject-Matter Insured is reasonably abandoned on account of its Actual Total Loss appearing to be unavoidable, or because it could not be preserved from Actual Total Loss without an expenditure which would exceed its value when the expenditure had been incurred.

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 (a) it is unlikely that he can recover the ship or goods, as the case may be, or (b) the cost of recovering the ship or goods, as the case may be, would exceed their value when recovered; or
In the case of damage to a ship, where she is so damaged by a Peril insured against that the cost of repairing the damage would exceed the value of the ship when repaired. In estimating the cost of repairs, no deduction is to be made in respect of general average contributions to those repairs payable by other interests, but account is to be taken of the expense of future salvage operations and of any future general average contributions to which the ship would be liable if 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.

Constructive Total Loss occurs when the Consignment is not totally damaged but the cost of repairing and cost of retrieving will be much more than the value of cargo itself. So, it doesn’t make sense to retrieve or repair the cargo. In case of a Constructive Total Loss, the Insured needs to give a Notice of Abandonment to the Insurance Company.

Section 64 of Marine Insurance Act 1906 – Particular Average Loss

Section 64 of Marine Insurance Act 1906 defines a Particular Average Loss as follows:

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.

Expenses incurred by or on behalf of the Assured for the safety or preservation of the Subject-Matter Insured, other than General Average and Salvage Charges, are called Particular Charges. Particular Charges are not included in Particular Average.

Section 66 of Marine Insurance Act 1906 – General Average Loss

Section 66 provides details about General Average Loss:

A General Average Loss is a Loss caused by or directly consequential on a General Average Act. It includes a General Average Expenditure as well as a General Average Sacrifice.
There is a General Average Act where any extraordinary sacrifice or expenditure is voluntarily and reasonably made or incurred in time of peril for the purpose of preserving the property imperilled in the common adventure.
Where there is a General Average Loss, the Party on whom it falls is entitled, subject to the conditions imposed by maritime law, to a rateable contribution from the other parties interested, and such contribution is called a General Average Contribution.
Subject to any express provision in the Policy, where the Assured has incurred a General Average Expenditure, he may recover from the Insurer in respect of the proportion of the loss which falls upon him; and, in the case of a General Average Sacrifice, he may recover from the Insurer in respect of the whole loss without having enforced his right of contribution from the other parties liable to contribute.
Subject to any express provision in the Policy, where the Assured has paid, or is liable to pay, a General Average Contribution in respect of the Subject Insured, he may recover therefor from the Insurer.
In the absence of express stipulation, the Insurer is not liable for any General Average Loss or Contribution where the loss was not incurred for the purpose of avoiding, or in connection with the avoidance of, a Peril insured against.
Where ship, freight, and cargo, or any two of those interests, are owned by the same assured, the liability of the Insurer in respect of General Average Losses or Contributions is to be determined as if those subjects were owned by different persons.

Section 78 of Marine Insurance Act 1906 – Suing and Labouring Clause

Section 78 of Marine Insurance Act 1906 of MIA 1906 provides that where the Policy contains a Suing and Labouring Clause, the engagement thereby entered into is deemed to be supplementary to the contract of Insurance, and the Assured may recover from the Insurer any expenses properly incurred pursuant to the Clause, notwithstanding that the Insurer may have paid for a Total Loss, or that the Subject-Matter may have been warranted free from Particular Average, either wholly or under a certain percentage.
General Average Losses and Contributions and Salvage Charges, as defined by this Act, are not recoverable under the Suing and Labouring Clause.
Expenses incurred for the purpose of averting or diminishing any loss not covered by the policy are not recoverable under the suing and labouring clause.
It is the duty of the Assured and his agents, in all cases, to take such measures as may be reasonable for the purpose of averting or minimising a Loss.

Section 81 of Marine Insurance Act 1906 – Effect of Under Insurance

Section 81 of Marine Insurance Act 1906 provides that where the Assured is insured for an amount less than the Insurable Value or, in the case of a Valued Policy, for an amount less than the Policy Valuation, he is deemed to be his own Insurer in respect of the Uninsured Balance.

Conclusion

Marine Insurance Act 1906 is the foundation upon which the Marine Insurance Policy is built and the Act is a codification of judicial decisions relating to Marine Insurance. In India, the Marine Insurance Act, 1963 was enacted which adopted most provisions of Marine Insurance Act 1906 with minor changes.

Qian is an experienced Marine Insurance Broker with experience of serving clients across diverse industries for their Marine Insurance requirements. If you wish to purchase a Marine Insurance Policy, you can reach out to us at insurance@qian.co.in or call us on 022-22044989.

We would be glad to assist you!

References

Marine Insurance Act 1906

What is Marine Insurance Act 1906?