The object of an insurance contract is to place the assured after a loss in the same relative financial position in which he would have stood had no loss occurred. By the U.S Marine Insurance Act, the indemnity (contractual obligation of one party to compensate the loss incurred to the other party) “in the manner and to the extent agreed.” A “commercial” indemnity is thus provided. Because insurers cannot undertake to reinstate or replace cargo in the event of loss or damage, they pay a sum of money, agreed in advance, that will provide reasonable compensation. In practice, this is achieved by agreeing in advance on the insured value, based on C.I.F., the value of the goods to which it is customary to add an agreed ten percent which is intended to include the general overheads and perhaps a margin of profit on the transaction.
Upon total loss of the entire cargo by an insured peril, the sum insured is paid in full, and if part of the cargo is a total loss, the appropriate proportion of the insured value is paid.
Damage claims are settled by ascertaining the depreciation percentage and applying this percentage to the insured value. The depreciation percentage is calculated by comparing the value the goods would realize in their damaged state with their gross sound value on the date of the sale. The exact date is used for both values to avoid distortion of the result from market price fluctuations.
In Marine insurance, it is customary to issue agreed-value policies. The agreed value is conclusive between the Insurer and the Assured except in the event of an unintentional error or where fraud is alleged.
“Duty” and “Increased Value” are not agreed value policies. They provide pure indemnity only.
What is Marine Insurance?
Marine insurance covers the physical loss or damage of ships, cargo, terminals, and any transport by which the property is transferred, acquired, or held between the points of origin and the final destination. Cargo insurance is the sub-branch of marine insurance. However, Marine insurance also includes Onshore and Offshore exposed property (container terminals, ports, oil platforms, pipelines), Hull, Marine Casualty, and Marine Liability. When goods are transported by mail or courier, or related post, shipping insurance is used instead.
Features of U.S Marine Insurance:
Offer & Acceptance: It is a prerequisite to any contract. Similarly, the goods under marine (transit) insurance will be insured after the insurance company accepts the offer.
- Payment of premium: An owner must ensure that the premium is paid well in advance to cover the risk.
- Contract of Indemnity: Marine insurance is a contract of indemnity, and the insurance company is liable only to the extent of the loss suffered.
- Utmost good faith: The owner of goods to be transported must disclose all the relevant information to the insurance company while insuring their goods.
- Insurable Interest: The marine insurance will be valid if the person has an interest at the time of loss.
- Contribution: If a person insures his goods with two insurance companies, then in case of marine loss, both insurance companies will pay the loss to the owner proportionately.
- Period of Marine Insurance: The period of insurance in the policy is for the average time taken for a transit. Generally, the period of open marine insurance will not exceed one year.
- Deliberate Act: If goods are damaged or lost during transit because of a deliberate act of an owner, then that damage or loss will not be covered under the policy.
- Claims: To get the compensation under marine insurance, the owner must inform the insurance company immediately so that the insurance company can take the necessary steps to determine the loss.
Operation of Marine Insurance:
Marine insurance plays an essential role in domestic trade as well as in international trade. Most contracts of sale require that the goods must be covered, either by the seller or the buyer, against loss or damage.
Importance of Marine Insurance:
Marine insurance is required in many import-export trade proceedings. Admitting the terms, both parties are liable for the payment of goods under insurance. However, the subject matter of marine insurance goes beyond contractual obligations, and several valid arguments are necessary for buying it before dispatching the export cargo.
Goods in transit need to be insured by one of the three parties:-
- The Forwarding Agent.
- The Exporter.
- The Importer.
Also, it can be taken by anyone involved in the transit of goods.
Types of Marine Insurance:
- Freight Insurance
- Liability Insurance
- Hull Insurance
- Marine Cargo Insurance
Freight Insurance:
In freight insurance, for example, if the goods are damaged in transit, the operator would lose freight receivables & so the insurance will be provided on compensation for loss of freight.
Liability Insurance:
Marine Liability insurance is where compensation is bought to provide any liability occurring because of a ship crashing or colliding.
Hull Insurance:
Hull Insurance covers the hull & torso of the vehicle. It covers transportation against damages and accidents.
Marine Cargo Insurance:
Marine cargo policy refers to the insurance of goods dispatched from the country of origin to the country of destination.
Types of Marine Insurance policies:
There are many types of marine insurance policies, which are as follows:
- Floating Policy
- Voyage Policy
- Time Policy
- Mixed Policy
- Named Policy
- Port Risk Policy
- Fleet Policy
- Single Vessel Policy
- Blanket Policy
Floating policy:
Floating in Marine Insurance policy, large exporters may opt for an open policy, also known as a blanket policy, instead of taking insurance separately for each shipment. An open policy is a one-time insurance that provides coverage against all shipments made during the agreed period, often a year. The exporter may need to declare periodically (say, once a month) the detail of all shipments made during the period, type of goods, modes of transport, destinations, etc.
Voyage policy:
A specific policy can be taken for a single lot or consignment only. The exporter must purchase insurance coverage every time a shipment is sent overseas. The drawback is that extra effort and time are involved each time an exporter sends a consignment. With open policies, on the other hand, shipments are insured automatically.
Time policy:
A time policy in marine insurance is generally issued for a year. One can issue for more than a year or they may extend to complete a specific voyage. But it is generally for a fixed period. Also, under marine insurance in India, a time policy can be issued only once a year.
Mixed policy:
A mixed policy is a mixture of two policies, i.e., the Voyage policy and the Time policy.
Named policy:
Named policy is one of the most popular policies in the marine insurance policy. The ship’s name is mentioned in the insurance document, stating the policy issued is in the ship’s name.
Port Risk policy:
It is a policy to ensure the ship’s safety when stationed in a port.
Fleet policy:
Several ships belonging to the company/owner are covered under one policy. Where it has the advantage of covering even old ships. Also, the policy is a time-based policy.
Single Vessel policy:
In a single-vessel policy, only one vessel is covered under the marine insurance policy.
Blanket policy:
The owner has to pay the maximum protection amount when buying the policy in this policy.
Where to get Marine Insurance?
The process of purchasing marine insurance in India is easy. The country’s geographical position allows many banks and financial institutions to provide marine insurance.
Marine Insurance Act 1963:
The Marine Insurance Act in USA came into existence in 1963. As per section three of the act, any time the term ‘marine insurance’ is used, expressed, or even extended for the insuring of goods against loss or damage, the insurer will be at risk of bearing the charges. The insurer will consider all the certainty of goods in case of misfortune sustained during marine ventures.
Principles of U.S Marine Insurance:
- Principle of Good faith: Parties demand absolute trust on the part of both; the insurer and the guaranteed.
- Principle of Proximate Cause: The proximate cause is not adjacent in time; also, it is inefficient. Nevertheless, it is the definitive and adequate cause of loss.
- Principle of Insurable Interest: Any object presented as a marine risk and the assured covering the insurance of goods – both should have legal relevance. Also, a series called ‘Incoterms’ is devoted to respectfully assigning the insurance of goods to each party.
- Principle of Indemnity: The insurance extended to the parties will only be applicable up to the loss. The parties can’t buy insurance to gain profits. If they do, they won’t get more than the actual loss.
- Principle of Contribution: Sometimes, the risk coverage for goods has more than one insurer. In such cases, the amount has to be fairly distributed amongst the insurers.
How does U.S Marine Insurance work?
Marine insurance best transfers the liability of the goods from the parties and intermediaries involved to the insurance company. The legal liability of the intermediaries handling the goods is limited. Instead of bearing the sole responsibility for the goods, the exporter can buy an insurance policy and get maritime insurance coverage for the exported goods against any possible loss or damage.
The carrier of the goods, be it the airline or the shipping company, may bear the cost of damages and losses to the goods while on board. However, the compensation agreed upon is mainly on a ‘per package’ or ‘per consignment basis. The provided coverage may not be sufficient to cover the cost of the goods shipped. Therefore, exporters prefer to ship their products after getting them insured the same with an insurance company.
The Scope of Marine insurance is necessary to meet the contractual obligations of exports. To align with agreements such as cost insurance and freight (CIF) or carriage and insurance paid (CIP), the exporter needs to take marine insurance to protect the buyer’s or their bank’s interest and honor the contractual obligation. Similarly, in the case of Delivered Duty Unpaid (DDU) and Delivered Duty Paid (DDP) terms, the seller may not be obligated to insure the goods. However, in practice, they generally do.
To get marine insurance and avoid insurance claims, ensure the following:
- Packing of goods should be done keeping in mind their safety during loading and unloading
- Packing should be good enough to withstand natural hazards to the best extent possible
- Keep in mind the possibility of clumsy handling or theft when packing goods.
Difference between Fire Insurance & Marine Insurance:
Fire insurance is a policy that covers the risk of fire. The subject matter is any physical asset or property. Moral responsibility is an essential condition here. There is no expected profit margin in terms of fire insurance. The insurable interest must be present before taking the policy and at the time of loss.
Whereas the Functions of Marine insurance encompasses risks associated with the sea. The subject matter is the ship, freight, or cargo. It does not consist of any clause related to the moral responsibility of the cargo owner or the ship. 10 to 15% profit margin is expected in terms of marine insurance. Also, in marine insurance, the insurable interest must be only at the time of loss.
Bottom Lines:
Marine insurance and its types is an article that explains all you need to know when purchasing insurance.
The article further explains the meaning of marine insurance, the features of marine insurance, the importance of marine insurance, the types of marine insurance, the types of marine insurance policies, where to get marine insurance, how marine insurance works, and the differences between fire insurance and marine insurance.
