All you need to know about Marine insurance, not my own creation but compiled.

1. MARINE INSURANCE

2. • Marine insurance business means the
business of effecting contracts of insurance,
which may be legally insured in or relation to
vessels, cargoes and freights, goods,
merchandise and property of whatsoever
description insured for any transit by land or
water or air or all the three.

3. • A contract or policy of marine insurance is an
arrangement whereby one person called
insurer or underwriter, agrees, according to
specific terms of contract, to indemnify
another person, called assured, for the losses
incurred in connection with property, such as
ship, goods or other movables, in maritime
transport.

4. • It is not intended that assured should make a
profit from his loss but that he should not
merely be in worse situation than he was
before the loss occurred.

5. • Further, it is not practicable to expect the
insurer to replace an object which is lost, nor
it is reasonable to expect him to restore the
damaged object to the whole sound object. As
a compromise, any recompense must be of a
monetary nature and this system of
reimbursement is called “indemnity”.

6. • “Marine adventure” includes any adventure
where any insurable property is exposed to
maritime perils i.e. perils consequent to
navigation of the sea. It also includes the
earnings 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.

7. • Marine adventure also includes any liability to
a third party may be incurred by the owner of,
or other person interested in or responsible
for, insurable property by reason of maritime
perils.

8. • 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.

9. • An insurer underwrites or subscribe to a risk in
return for the payment of ‘premium’ by the
assured. The premium is considered
compensation for running risks of the insured
property and is normally retained whether or
not the insured property is lost or not

10. • The size of the premium depends upon the
insurer’s estimation of degree of the risk that
the insured property will incur a loss and on
amount of indemnity he will have to pay.

11. • The word “risk” being in this context to refer
to the risk of loss occurring in connection with
insured property, and the risk of loss can
include not only actual property but also
financial losses, such as those resulting from
the loss of freight, passage money,commission
or profit as well as certain types of liabilities
incurred to third parties.

12. • The specification of insurance contract usually
stipulates certain limitations as to the type of
occurrences that may cause losses for which
the insurer will pay indemnity. Such
occurrences are called “insured risks” or
“insured perils”.

13. • The term “perils of the sea” refers only to
accidents or causalities of the sea, and does
not include the ordinary action of the winds
and waves.
• Besides, maritime perils include, fire, war
perils, pirates, seizures and jettison, etc.
• A marine insurance policy may specify that
only certain maritime risks, or “perils of the
sea”, are covered.

14. • Some of the important types of marine
insurance are as follows:
• Hull Insurance
• Cargo Insurance
• Freight Insurance
• Liability Insurance

15. a) Marine hull insurance
• This pertains to insurance of ocean going ships
and other vessels. “Hull” refers to the body or
frame of the ship. Hull insurance provides the
cover for the hull and machinery as well as in
respect of materials and outfit and stores and
provisions for the officers and crew.
• Hull policy consists of basic policy attached to
Institute Clauses, which are drafted by the
Institute of London Underwriters.

16. b) Marine cargo insurance
• Cargo insurance covers the cargo or goods
contained in the ship and the personal
belongings of the crew and passengers. It
provides cover for various transit perils in
respect of goods and or merchandise in transit
from one place to another by sea, air, road or
registered post. Transit risks or perils are
covered under marine insurance.

17. • Marine insurance plays a pivotal role in
import, export and internal trade. Goods while
in transit are liable to be lost or damaged
through one or other of various perils from
the time it leaves the warehouse of the
supplier till it is received at the final
warehouse of the consignee. The loss or
damage suffered due to these perils is to be
transferred to the insurer in lieu of the
premium.

18. c) Freight insurance
• Freight insurance provides protection against the
loss of freight. In many cases, the owner of goods
is bound to pay freight, under the terms of the
contract, only when the goods are safely
delivered at the port of destination. If the ship is
lost on the way or the cargo is damaged or stolen,
the shipping company loses the freight. Freight
insurance is taken to guard against such risk.

19. d) Liability insurance
• Liability insurance is one in which the insurer
undertakes to indemnify against the loss
which the insured may suffer on account of
liability to a third party caused by collision of
the ship and other similar hazards.

20. • Marine Insurance Policy :
• Hull policy consists of basic policy attached to
Institute Clauses, which are drafted by the
Institute of London Underwriters.
• A marine insurance policy is a document
which embodies all the particulars and the
terms and conditions for the construction of
the policy. Contract must be embodied in
policy.

21. • A contract of marine insurance shall not be
admitted in evidence unless it is embodied in
a marine policy in accordance with section 25
of the Marine Insurance Act.

22. • The policy must be signed by or on behalf of the
insurer. It must contain the following:
- the name of the assured;
- the subject-matter insured and the risk insured
against;
- the voyage, or period of time, or both, as the
case may be, by the insurance;
- the sum or sums insured;
- the name or names of the insurer or insurers.

23. • Types of marine policies
• i) Voyage policy
• When a marine insurance policy embodies the
contract to insure the subject-matter at and from,
or from one place to another or others, the policy
is called a “voyage policy”.
• In a voyage policy, the subject matter is insured
for a particular voyage irrespective of the time
involved in it. In this case the risk attaches only
when the ship starts on the voyage.

24. • ii) Time policy
• Time policy is an insurance policy embodying
a contract in which the subject matter is
insured for a definite period of time.
• The ship may pursue any course it likes, the
policy would cover all the risks from perils of
the sea for the stated period of time.

25. • A time policy cannot be for a period exceeding
one year because it will be invalid, but it may
contain a ‘continuation clause’. The
‘continuation clause’ means that if the voyage
is not completed within the specified period,
the risk shall be covered until the voyage is
completed, or till the arrival of the ship at the
port of call.

26. • iii) Mixed policy
• Mixed insurance policy is a combination of
voyage and time policies and covers the risk
during particular voyage for a specified period
of time. A contract for both voyage and time
may be included in the same policy.

27. • iv) Valued policy
• A marine insurance policy may be either
valued or unvalued. A valued policy is a policy
which specifies the agreed value of the
subject-matter insured between the insurer
and the insured and it is specified in the policy
itself.
• Hull and goods policies are invariably valued
policies.

28. • The value fixed by the policy is, as between
the insurer and assured, conclusive of the
insurable value of the subject intended to be
insured, whether the loss be total or partial.
• However, unless expressly stated, the value
fixed by the policy is not conclusive for the
purpose of determining whether there has
been a constructive total loss.

29. • v) Un-valued policy
• An unvalued marine insurance policy is a
policy which does not specify the value of the
subject-matter insured.
• Subject to the limit of the sum assured, it
leaves the value of the loss to be subsequently
ascertained, in the manner explained in the
policy itself.

30. • It means that the method of ascertaining the
value of the loss has been agreed upon
between the insured and insurer beforehand
in case of an unvalued policy.
• Unvalued policies are used in connection with
freight insurance, presumably because the
insurance value would doffer very little from
the insured value if the latter were agreed.

31. • vi) Open Covers :
• In order to arrange their marine insurance in
advance and to be assured of cover at all
times, and also to avoid the effect of the
possibly fluctuating rates, it is the practice of
regular importers and exporters to avail
themselves of some kind of blanket insurance.
• One way of achieving this is by means of
“open covers”.

32. • An open cover is an agreement between the
assured and his underwriters under which the
former agrees to declare and latter to accept
all shipments coming within the scope of the
open cover during the period of time.
• The open cover itself is simply an original slip
with the disadvantage that like other slip, it is
not legally enforceable and is binding in
honour only.

33. • Whenever a shipment is made the assured
notifies and gives the details to the
underwriters who than issues a stamped
policy.
• Although, the underwriters’ aggregate liability
during the period of cover is limited, a
stipulation is invariably made that no
shipment shall exceed a specified sum in any
one vessel.

34. • vii) Floating policy
• This provides another method of obtaining a
long term contract for goods insurance , which
may be used instead of an open cover.
• Such policy has the advantage of being a valid
marine policy.

35. • A floating policy describes the insurance
contract in general terms, and leaves the
name or names of the ship or ships and other
particulars to be defined by subsequent
declaration.
• The subsequent declaration or declarations
may be made by endorsement on the policy,
or in other customary manner.

36. • Unless the policy otherwise provides, the
declarations must be made in the order of
dispatch or shipment.
• They must, in the case of goods, comprise all
consignments within the terms of the policy,
and the value of the goods or other property
must be honestly stated.

37. • An omission or erroneous declaration may be
rectified even after loss or arrival, provided
the omission or declaration was made in good
faith.

38. • If a declaration of value is not made until after
notice of loss or arrival, the policy is generally
treated as an unvalued policy as regards the
subject-matter of that declaration. Such
policies are very useful to merchants who
regularly despatch goods through ships.

39. • London Market :
• The term ‘London Market’ is commonly used to
refer to all the international and United Kingdom
insurance and reinsurance practitioners based in
London.
• The market includes both Lloyd’s insurers,
represented by the Lloyd’s Market Association
(LMA), and individual companies represented by
the International Underwriting Association of
London (IUA).

40. • The IUA was formed in 1998 through the merger
of the London International Insurance and
Reinsurance Market Association and the Institute
of London Underwriters (ILU).
• The IUA is the world’s largest representative
organization for international and wholesale
insurance and reinsurance companies.
• The IUA protects and strengthens the business
environment for its member companies
operating in or through London.

41. • The London Market is the only place in the world
where all 20 of the world’s largest insurers and
reinsurers are represented. Gross premiums on
the market were estimated at £22 billion in 2004.
• Between 10 percent and 15 percent of the
world’s large industrial insurance is placed on the
market and, in certain key classes of business,
such as marine, it is reported to be much higher.

42. • INSTITUTE CLAUSES
• In the 19th century, Lloyd’s and the ILU
developed standardized clauses for the use of
marine insurance. These have been
maintained ever since and are known as
institute clauses.
• The institute clauses are made for marine hull,
including machinery, and cargo insurance.

43. • HULL
• The London market Joint Hull Committee (Lloyd’s
Underwriters’ Association and IUA), in
consultation with ship owning associations,
insurers, average adjusters and brokers,
developed International Hull Clauses (IHC), a new
set of hull clauses.
• The IHC, which became effective on 1 November
2002, are not a major rewrite of the 1983 and
1995 Institute Time Clauses (ITC).

44. • Rather, ITC have been updated to reflect
current market practices.
• The International Hull Clauses are divided into
three parts:
- part one contains the principal insuring
conditions;

45. - part two presents a range of additional clauses
that were frequently required by assureds and
added to ITC separately.
- part three contains provisions for claims
handling and sets out the rights and
responsibilities of underwriters and assureds.

46. • The Institute Time Clauses, which afford
coverage for a specific period, (usually 12
months) are the most important clauses in
marine hull insurance policies.
• Depending on the nature and degree of risks,
there are three categories of ITC.

47. • (1) Institute Time Clauses (Hull) that provides
maximum coverage (i.e. perils and other
losses and expenses covered); (2) Institute
Time Clauses (free partial average) that
provides similar coverage to that of the Hull’s
clauses, but excludes coverage on machinery
damages, and (3) Institute Time Clauses (total
loss only) that provides coverage only in the
event of a total loss. This is usually extended
to old vessels.

48. • CARGO
• The Institute Cargo Clauses (ICC) define the
risks covered, circumstances excluded,
duration or validity of coverage and conditions
of claims.
• Coverage is provided on an A, B, or C basis, A
having the widest coverage and C the most
restricted.