Marine Insurance Policy – Definition, Coverage, Exclusions, Principles, Types, Features, Incoterms, Cost, Companies, Claim Process, Quotes

What is a Marine Insurance Policy? – Definition

A Marine Insurance Policy is a type of Insurance Policy which reimburses the Insured Party for the damage to the Insured Cargo whilst in transit.

Marine Insurance as per the Marine Insurance Act of 1906 is defined 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 Act further states, “A contract of Marine Insurance may, by its express terms, or by usage of trade, be extended so as to protect the Assured against losses on inland waters or on any land risk which may be incidental to any sea voyage.”

The definition of Marine Insurance as per the Marine Insurance Act, 1906 makes it clear that the 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.

What does a Marine Insurance Policy Cover?

A Marine Insurance Policy compensates the Insured for any Loss or Damage to Cargo/Goods whilst in transit. Marine Insurance provides cover to Insured Cargo under the 3 types of Institute Cargo Clauses as mentioned below:

1. Coverage under Institute Cargo Clauses (A) of Marine Insurance Policy

Coverage under ICC-A Clauses is the Widest form of Cover available under a Marine Insurance Policy. It is an All-Risk Cover including Theft, Pilferage, Short Delivery, Non-Delivery. All forms of Physical Damage to the Cargo are covered unless not specifically excluded.

2. Coverage under Institute Cargo Clauses (B) of Marine Insurance Policy

Coverage under ICC-B Clauses is the more restrictive form of Cover compared to cover available under a ICC-A Clauses of a Marine Insurance Policy. Institute Cargo Clauses (C) Clauses provide cover for the following perils:

• Fire or Explosion
• Vessel or Craft being stranded grounded sunk or capsized
• Overturning or derailment of land conveyance
• Collision or contact of vessel craft or conveyance with any external object other than water
• Discharge of cargo at a port of distress
• Earthquake, Volcanic Eruption or Lightning
• General Average Sacrifice
• Jettison or Washing Overboard
• Entry of sea lake or river water into vessel craft hold conveyance container lift van or place of storage
• Total loss of any package lost overboard or dropped whilst loading on to, or unloading from, vessel or craft The coverages and the premium of a Marine Insurance Policy would vary depending on the clauses under which the cover is chosen.

3. Coverage under Institute Cargo Clauses (C) of Marine Insurance Policy

Coverage under ICC-C Clauses is the most restrictive form of Cover available under a Marine Insurance Policy. Institute Cargo Clauses (C) Clauses provide cover for the following perils:

• Fire or Explosion
• Vessel or Craft being stranded grounded sunk or capsized
• Overturning or derailment of land conveyance
• Collision or contact of vessel craft or conveyance with any external object other than water
• Discharge of cargo at a port of distress
• General Average Sacrifice
• Jettison

What are the major exclusions under a Marine Insurance Policy?

Marine Insurance Policy normally excludes Loss or Damage to the cargo on account of the following:

1. Loss or Damage to the cargo which can be attributable to the willful misconduct on the insured
2. Loss or Damage to the Cargo on account of ordinary wear and tear
3. Loss or Damage to the Cargo on account of inherent vice or nature of the insured cargo
4. Loss or Damage to the cargo on account of insufficient or unsuitable packaging material used
5. Loss or Damage due to Delay even though the delay is caused by a peril insured against
6. Loss or Damage due to insolvency or financial default of the owners managers charterers or operators of the vessel

What are the 6 Principles of Marine Insurance?

A Marine Insurance Policy works on the following principles:

1. Principle of Insurable Interest

Insurable Interest means that a person having a financial interest in the subject-matter so he stands to benefit from its presence or is prejudiced by the loss of the subject-matter. 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. Principle of Insurable Interest in a Marine Insurance Policy means that the Insured can insure only those assets which he benefits from. Insurable Interest in Marine Insurance must exist only at the time of loss.

2. Principle of Utmost Good Faith

Principle of Utmost Good Faith or Uberrimae Fidei is an important principle of Marine Insurance which means that both the parties to an Insurance Contract, the Insurer and the Insured must make a complete declaration of all Material Facts. The Insured must disclose material information regarding the Subject Matter to the Insurance Company and not misrepresent or conceal any facts which might change the Insurer’s decision to accept the risk.

3. Principle of Proximate Cause

Principle of Proximate Cause in Marine Insurance states that the Insurance Company is liable for any loss which is proximately caused by an Insured Peril. Proximate Cause is the predominant, effective and operative cause of the loss. Proximate Cause determines whether a loss will be payable under the Marine Policy or not.

4. Principle of Indemnity

The Principle of Indemnity in a Marine Insurance Policy aims to place the Insured in the same financial position after the loss as the Insured was in 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.

5. Principle of Subrogation

Principle of Subrogation 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 his 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 and any amount in excess of the Claim paid by the Insurance Company should be remitted back to the Insured. 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.

6. Principle of Contribution

Principle of Contribution in a Marine Insurance Policy means that, if an Insured has 2 or more Policies covering the same subject-matter at the same time, then the Marine Insurance Company will pay the losses on a pro-rata basis in case of a Claim. The Principle of Contribution prevents the policyholder from profiting from his Insurance Policy by insuring the same subject-matter under multiple Marine Insurance Policies

What are the different types of Marine Insurance Policies?

The Different types of Marine Insurance Polices are listed below.

1. Single Transit Policy/Specific Voyage Policy: A Specific Voyage Marine Policy is issued for a specified transit. The Insurance cover ceases once the goods are delivered to the destination mentioned in the Policy.
2. Marine Open Policy: A Marine Open Policy is applicable for businesses having substantial turnover requiring continuous despatches of cargo. In such a case, getting a single transit policy for each and every dispatch is inconvenient and cumbersome. A Marine Open Policy solves this problem by enabling automatic and continuous cover for the cargo while the insured declares the cargo movement at pre decided intervals.
3. Marine Sales Turnover Policy: A Marine Sales Turnover Policy (STOP Policy) covers the company’s turnover compared to normal marine insurance policies which cover the value of cargo. A Sales Turnover Policy is meant to cover Exports and Imports together in a single policy under the ITC and ICC clauses. Such policies are issued for large businesses
4. Duty Policy: A Duty Policy is applicable for imports into India only. If the cargo is damaged during transit from the unloading port to importer’s warehouse, a normal marine cargo insurance policy would be insufficient as it would cover only the value of the cargo whereas the buyer would also suffer substantial losses on account of the customs duty paid once the cargo lands at the port. A Duty Insurance Policy would reimburse the customs duty that has been paid for the damaged cargo.

What are the Features of a Marine Insurance Policy?

The features of a Marine Insurance Policy are as follows:

1. Compensation for Physical Damage to Cargo: A Marine Insurance Policy reimburses the Insured Party for damage to cargo whilst in transit.
2. Various types of Policies available: There are various types of Marine Insurance Policies available depending on the needs and requirements of cargo owners. A businessman engaging in a one-time transit can purchase a Single Transit Policy while a large business can opt for a STOP Marine Policy to cover purchases, sales etc.
3. Worldwide Cover: A Marine Insurance Policy provides compensation for losses in international seas as well. Thus, businesses can conduct import and export transactions without any fear.

What are Incoterms in Marine Insurance?

Incoterms stand for International Commercial Terms. Incoterms are standard terms of an international trade contract which determine the costs, responsibilities and risks of both parties ie. the buyer and the seller, related to transportation of goods. With respect to Marine Insurance, specify Risk Transfer, Insurance Obligations and impact Claim settlement as well. The list of Incoterms are as follows:

1. Ex-Works (EXW): Under the Ex-Works Incoterm, the buyer is responsible for all costs, including Freight, Insurance etc.
2. Free Carrier (FCA): Under the Free Carrier Incoterm, the Seller clears the Goods for exports, takes all the clearances and does the documentation but the buyer chooses the carrier. The Seller has to deliver the goods into the custody of the carrier nominated by the buyer at a named place, which is the Point of Risk Transfer as well. Buyer assumes all the risks and costs associated with delivery of Goods to Final Destination including the Transportation after delivery to the carrier. The Risk Transfer happens when the seller delivers the goods into the custody of the carrier nominated by the buyer at a named place. Since the buyer is responsible for damage to the cargo once the goods are delivered to the carrier, the buyer is responsible for insuring the cargo for the Ocean Voyage.
3. Free Alongside Ship (FAS): Under the Free Alongside Ship Incoterm, the Seller clears the Goods for exports, takes all the clearances and does the documentation and must deliver the cargo to the Port alongside the Ship. The Seller does not load the cargo onto the ocean-going vessel under the FAS Incoterm. Loading is the responsibility of the buyer. The Risk is transferred when the seller delivers the cargo alongside the vessel (eg: a quay or a barge). The buyer bears all the cost and risk associated with the cargo once the cargo is placed alongside the vessel. Since the buyer is responsible for damage to the cargo once the goods are placed alongside the vessel, the buyer is responsible for insuring the cargo for the Ocean Voyage.
4. Free on Board (FOB): Under the Free-on-Board Incoterm, the Seller clears the cargo for export, and delivery is completed when the cargo is placed onboard the vessel at the named port of loading. The Seller has to deliver the cargo onboard the vessel and he is responsible for loading. Risk Transfer happens when the seller delivers the cargo onboard the vessel. Since the buyer is responsible for damage to the cargo once the goods are placed onboard the vessel, the buyer is responsible for insuring the cargo for the Ocean Voyage as well.
5. Cost and Freight (CFR): Under the Cost and Freight Incoterm, the Seller clears the cargo for export, and delivery is completed when the cargo is placed onboard the vessel at the named port of loading. The seller also pays for the Ocean Freight upto the destination port under the CFR Incoterm as compared to the FOB Incoterm, where the buyer bears the Ocean Freight. The Seller has to deliver the cargo onboard the vessel and the delivery point is the same as under the FOB Incoterm. The Risk Transfer under the CFR and FOB happens at the same point only, ie the Risk is transferred to the buyer as soon as the seller loads the cargo onboard the vessel. Since the Risk is transferred to the buyer as soon as the seller loads the cargo onboard the vessel, the buyer is responsible for arranging Insurance as the buyer has Insurable Interest in the cargo after it is loaded onboard the vessel under the CFR Incoterm.
6. Cost, Insurance and Freight (CIF): Under the Cost, Insurance and Freight Incoterm, the Seller clears the cargo for export, and delivery is completed when the cargo is placed onboard the vessel at the named port of loading. The seller also pays for the Ocean Freight upto the destination port and is also responsible for arranging Insurance under the CIF Incoterm. The Risk Transfer to the buyer happens as soon as the seller loads the cargo onboard the vessel. The CIF Incoterm mandates the Seller to purchase Insurance to protect against the buyer’s risk of loss or damage to goods during the ocean voyage.
7. Carriage Paid To (CPT): Under the Carriage Paid To Incoterm, the Seller clears the Goods for exports, takes all the clearances and does the documentation, pays for the Ocean Freight but the buyer chooses the carrier. The Seller has to deliver the goods into the custody of the carrier nominated by the buyer at a named place, which is the Point of Risk Transfer as well. Carriage Paid to (CPT) Incoterm is very similar to FCA (Free Carrier). Under the CPT Incoterm, the Seller hands over the cargo to the carrier nominated by the buyer but the Seller also pays for the Ocean Freight (Freight for Main Voyage) whereas under the FCA Incoterm, the Seller hands over the cargo to the carrier nominated by the buyer and the Buyer pays for the Ocean Freight. Since the buyer is responsible for damage to the cargo once the goods are delivered to the carrier, the buyer is responsible for insuring the cargo for the Ocean Voyage.
8. Carriage and Insurance Paid (CIP): CIP Incoterm is the same as CPT Incoterm where the Seller delivers the cargo to the carrier nominated by the buyer and pays the freight for the Main Ocean Voyage under both, CPT and CIP Incoterm. In addition, the seller also arranges for Marine Cargo Insurance for the main Ocean Voyage under the ICC-A Clauses under the CIP Incoterm. The Seller has to deliver the goods into the custody of the carrier nominated by the buyer at a named place, which is the Point of Risk Transfe, pay for the Ocean Freight and Insurance as well. Under the CIP Incoterm, the Seller has to deliver the cargo into the custody of the carrier nominated by the buyer at a named place. The CIP Incoterm mandates the Seller to purchase a Marine Insurance Policy for the Ocean Voyage under the Institute Cargo Clauses (A).
9. Delivered at Place (DAP): Under the Delivered at Place Incoterm, the Seller has the responsibility for all expenses incurred including Ocean Freight, till the goods are delivered at the named Port of destination. Any loss which happens on the ocean voyage, the claim is payable to the Indian Exporter (Seller) in Indian Rupees. The Seller clears the goods for Exports under DAP. However, the seller is not responsible for Unloading of Goods at the Destination Port. Under the DAP Incoterm, the Seller has to deliver the cargo at the nominated place of destination port which is also the Point of Risk Transfer. Since the Risk is transferred to the Buyer from the Seller on Delivery of the Cargo to the Destination Port under the DAP Incoterm, the Seller bears the risk during the Ocean Voyage and is responsible for arranging a Marine Insurance Policy to secure his risk.
10. Delivered at Place Unloaded (DPU): Under the Delivered at Place Unloaded Incoterm, the Seller has the responsibility for all expenses incurred including Ocean Freight, till the goods are unloaded at the named Port of destination. Any loss which happens on the ocean voyage, the claim is payable to the Indian Seller in Indian Rupees. The Seller clears the goods for Exports under DPU. Additionally, the seller is responsible for Unloading of Goods at the Destination Port unlike the DAP Incoterm, where the buyer is responsible for Unloading at the Destination Port. Under the DPU Incoterm, the Seller has to unload and deliver the cargo at the nominated place of destination port which is also the Point of Risk Transfer. Since the Risk is transferred to the Buyer from the Seller on the Safe Unloading of the Cargo to the Destination Port under the DPU Incoterm, the Seller bears the risk during the Ocean Voyage and is responsible for arranging a Marine Insurance Policy to secure his risk.
11. Delivered Duty Paid (DDP): Under the Delivered Duty Paid Incoterm, the Seller is responsible for all expenses incurred including Ocean Freight, till the goods are unloaded delivered at the named place of destination. Any loss which happens on the ocean voyage, the claim is payable to the Seller. The Seller clears the goods for Exports under DDP. Additionally, the seller is responsible for Unloading of Goods at the Destination Port and delivery of the cargo at the Named Place of Destination. The Seller is responsible for all expenses till delivery including customs duty, taxes and customs clearance at the destination port under the DDP Incoterm. The Risk is transferred to the buyer from the Seller when the cargo is delivered at the named place of destination under the DDP Incoterm. Since the Risk is transferred to the Buyer from the Seller on safe delivery of the Cargo at the Named Destination under the DDP Incoterm, the Seller bears the risk during the Ocean Voyage and will have to arrange Insurance to secure his risk as well as Insurance for the Tail End Transit from the Destination Port to the Named Place by the Buyer.

What is the Cost of Marine Insurance Policy?

The Cost of a Marine Insurance Policy with All Risk Coverage under ICC-A Clauses usually ranges from 0.05% to 0.10% of Sum Insured. The Cost of a Marine Insurance Policy depends on the following factors:

1. Sum Insured: Sum Insured is an important factor which impacts the Premium of a Marine Insurance Policy. Higher the Sum Insured higher will be the cost of a Fire Insurance Policy.
2. Nature of Cargo: The Nature of the Cargo being Insured impacts the premium of a Marine Insurance Policy. The Premium of a Marine Insurance Policy will be higher for Hazardous Cargo as compared to Premium for Non-Hazardous Cargo.
3. Coverages: The Coverages opted for also impacts the premium of a Marine Insurance Policy. The Premium of a Marine Insurance Policy with All Risk Coverage under ICC-A Clauses will be higher than the Premium of a Marine Policy with Coverage under ICC-B Clauses.
4. Add-On Covers: Policyholders can opt for Add-On Covers to enhance Policy Coverage. These add-On Covers like War and Strikes Coverage are granted on payment of additional Premium. Opting for Add-On Covers will increase the Premium of a Marine Insurance Policy.
5. Past Claims History: The Past Claims Experience also affects the cost of a Marine Insurance Policy. Marube Insurance Policies with past Claims will have higher Premiums than Policies with No Claims.

Which Insurance Companies offer Marine Insurance Policy in India?

Following Insurance Companies provide a Marine Insurance Policy in India:

1. New India Assurance Company
2. Oriental Insurance Company
3. United India Insurance Company
4. National Insurance Company
5. Tata AIG Insurance Company
6. HDFC Ergo General Insurance Company
7. ICICI Lombard General Insurance Company
8. Bajaj Allianz General Insurance Company
9. SBI General Insurance Company
10. Future Generali General Insurance Company
11. Iffco Tokio General Insurance Company
12. GoDigit General Insurance Company

Marine Insurance Act, 1963

The Marine Insurance Act of 1963 codifies the laws relating to Marine Insurance. It was adopted from the English Law and thus Marine Insurance Act of 1963 is very similar to Marine Insurance Act, 1906. The Marine Insurance Act of 1963 deals with major aspects of Marine Insurance such as:

1. Definition of “Marine”
2. Insurable Interest
3. Insurable Value
4. Principles of Disclosures
5. Marine Insurance Policy Structure
6. Contribution
7. Warranties
8. Voyage
9. Assignment of Marine Policy
10. Types of Losses and Abandonment
11. Measure of Indemnity
12. Subrogation
13. Return of Premium

What is the Sum Insured for a Marine Insurance Policy?

Generally, the Sum Insured for a marine policy is taken on an agreed value basis which is usually CIF + 10%.

What is the Claims Process under a Marine Insurance Policy?

The Insured needs to follow the below mentioned steps in order to make a Claim under Marine Insurance Policy:

1. Claim Intimation: Intimate the loss to the Marine Insurance Company along with information such as date of loss, description of loss
2. Surveyor Appointment: The Insurance Company will appoint a surveyor to examine the loss and determine the quantum of damage.
3. Document Submission: Submit the requisite documents such as Policy Copy, Bill of Lading, Invoice Copy when filing for a Claim under a Marine Insurance Policy.
4. Claim Settlement: Post examination of documents, the Insurance Company will pay the claim, if the loss is deemed to be admissible.

What are the Documents required to make a Claim under a Marine Insurance Policy?

The Insured needs to produce following documents to the Insurance Company to make a claim under the Marine Insurance Policy:

• Marine Insurance Policy Copy/Certificate Copy
• Original or signed copy of Invoice
• Copy of Bill of Lading
• Bill of Entry
• Pre-shipment survey/inspection report
• Extract from log book/copy of Master’s report (if vessel sustained casualty/ rough weather)
• Lost Overboard certificate, if cargo is lost overboard
• Copy of monetary claim on the carrier
• Acknowledgement for the claim letter from Carrier

Get Best Quotes for Marine Insurance Policy with Qian!

Whenever goods are being transported, they are exposed to various risks. The ship or the vehicle carrying the cargo may catch fire or may be involved in an accident. It may be attacked by pirates at sea or may collide with other goods. Such occurrences result in substantial financial losses for the cargo owner. A Marine Cargo Insurance Policy is one of the best options to compensate you for any losses or damage that occur to goods in transit. Qian is an experienced Marine Insurance Broker with the experience of having worked with multiple corporates for their cargo insurance needs. The team of experts at Qian have wide experience in assisting clients across diverse industries for their Marine Insurance requirements. If you wish to purchase a Marine Insurance Policy to secure your Cargo, reach out to us at insurance@qian.co.in or call us at 📞 022-35134695 . We would be glad to assist you!

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