Principles of Marine Insurance

What is a Marine Insurance Policy?

A Marine Insurance Policy is an Insurance Policy which reimburses the Insured Party for the loss or damage to the Insured Cargo whilst in transit. A Marine Insurance Policy covers transits by sea, air or waterways before or after the sea voyage, as long as these transits are incidental to the main sea voyage. Understanding principles of marine insurance is essential to ensure its effectiveness and fairness. Read on to know the key principles.

What are the Principles of Marine Insurance?

This article will explore the principles of a Marine Insurance Policy in detail namely:

Principle of Insurable Interest
Principle of Utmost Good Faith
Principle of Indemnity
Principle of Proximate Cause
Principle of Subrogation
Principle of Contribution

What is the Principle of Insurable Interest in Marine Insurance?

The Principle of Insurable Interest is a fundamental principle of Marine Insurance.

Clause 6 (1) of Marine Insurance Act, 1906 states that “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: 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

The Marine Insurance Act, 1906 defines Insurable Interest as a person having a financial interest in the subject matter so he stands to benefit from its presence. This means that the Insured Party benefits from the safe arrival of the Cargo at its intended destination and makes a financial loss if the goods do not reach the destination. The Condition of Lost or Not Lost in the Marine Insurance Act allows the Insured to acquire Insurable Interest in the ordinary course of transit even if the Insured is acquiring Insurable Interest after the Cargo has already been lost during transit. The only condition is that the Insured was not aware of the loss and he acquired the Interest in Good Faith.

The Insured must have an Insurable Interest in the Subject Matter for Marine Insurance to apply. However, unlike in other Insurance Policies such as a Fire Insurance Policy where the Insurable Interest should exist at the time of purchasing the Policy, during the currency of the Policy and also at the time of loss, in Marine Insurance, the Insurable Interest must exist only at the time of loss.

What is the Principle of Utmost Good Faith in Marine Insurance?

Another important principle governing a Marine Insurance Policy is the principle of Uberrimae Fidei, a Latin phrase meaning Utmost Good Faith. The Principle of Utmost Good Faith means that both the parties to an Insurance Contract, the Insurer and the Insured must make a complete declaration of all Material Facts. The Principle of Utmost Good Faith is applicable to both, the Insurer and the Insured, and the principle is valid at all stages of the Insurance Policy. The Insured must disclose material information regarding the Subject Matter to the Insurance Company. The Insured is expected to honestly disclose all the details about the Subject Matter and not misrepresent or conceal any facts which might change the decision to accept the risk. The Insurer can reject the Claim in case of any discrepancy found. Hence, it is very important for the insured party to disclose all the right information. The Principle of Utmost Good Faith in Marine Insurance is implemented on the basis on the legal doctrines of Non-Disclosure, Concealment, Innocent Misrepresentation, And Fraudulent Misrepresentation.

What is the Principle of Indemnity in Marine Insurance?

The Principle of Indemnity is another Principle which is different for Marine Insurance as compared to other lines of Insurance. The Principle of Indemnity says that the Marine Insurance Policy would put the Insured in the same financial position as he was immediately before the loss. A Marine Insurance Policy is an Agreed Value Policy whereby the Insurer ‘agrees’ to pay the Insured a Value agreed in advance for loss or damage to the Insured Cargo. However, it is important to note that “Duty” and “Increased Value” policies are not agreed value policies. These Policies provide Pure Indemnity only.

What is the Principle of Proximate clause in Marine Insurance?

Section 55(1) of Marine Insurance Act 1906 states that “Subject to the provisions of this Act, and 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.” This means that the Insurance Company is liable for any loss which is proximately caused by an Insured Peril. So, it is the Proximate Cause which decides whether a loss will be payable under the Policy or not. Proximate Cause is the predominant, effective and operative cause of the loss. In cases where there are 2 or more causes of loss involved, it is difficult to determine which cause will be considered as a Proximate Cause of Loss. In such a case, if one of the causes of loss is by an Insured Peril and the other causes are not explicitly excluded from the Policy, the loss will be payable under the Marine Insurance Policy.

What is the Principle of Contribution in Marine Insurance?

Principle of Contribution in Marine Insurance aims to disallow the Insured to make profits by insuring the same subject-matter with multiple Insurance Companies. This means that if the same subject matter is Insured with 2 or more Insurance Companies, then the Insurance Companies will pay the losses on a pro-rata basis. This means that the Insured will not receive a Claim Amount in excess of his loss and that he cannot profit from the Marine Insurance Policy. For the Principle of Contribution to apply, following conditions must be met:

At least 2 Marine Insurance Policies covering the same Subject-Matter should exist
Marine Insurance Policies must cover the same Subject-Matter
Marine Insurance Policies must cover the same Peril
Both Policies must be active

What is the Principle of Subrogation in Marine Insurance?

The Principle of Subrogation in a Marine Insurance Policy allows the Insurance Company to recover losses from a negligent third party after it has paid the losses to the Insured Party. Subrogation means stepping into the Shoes of the Insured. Principle of Subrogation entitles the Insurance Company to stand in place of the Insured and pursue all rights and remedies available to the Insured to recover losses. However, the Insurance Company cannot stand in place of the Insured until it has paid the losses to the Insured and made good the loss. Thus, the Principle of Subrogation is applicable after the settlement of the claim. On his part, the Insured should not renounce any right to pursue losses against the third party as doing so, could jeopardise his claim settlement. Similar to Principle of Indemnity, the Insurance Company cannot make profits from Subrogation Rights. The Insurance Company is entitled to recover only that amount which it has paid out as claim to the Insured. Any excess amount which is recovered should be remitted to the Insured.

Get Best Quotes for Marine Insurance Policy with Qian!

A Marine Insurance Policy is essential for all businesses where transport of goods is involved. There are various types of Marine Cargo Insurance Policies available depending on requirements of the business owner. If you wish to purchase a Marine Insurance Policy, you can send us an email at insurance@qian.co.in or call us on 022-35134695. We would be glad to assist you.