SSRN Id1594993

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MARINE INSURANCE IN INDIA: POLICIES AND PRINCIPLES

1

MARIE ISURACE I IDIA: POLICIES AD PRICIPLES
Abstract:
LPG (Liberalization, Privatization and Globalization) syndrome in economic sector has
dominated the economies worldwide for past four decades. This has led to freeing of trade
exchanges among nations, with the World Trade Organization (WTO) as latest pattern,
organizing and regulating their conduct. It has in turn led to liberalization of financial markets
enabling capital transfer and the creation of new financial instruments. The opening of the
service sector in compliance to the GATS Agreement has staged uproar among the financial
sectors in India especially the banking and insurance sectors. We do watch randomly the strike
calls given by these sectors and opposition from certain other sectors against the privatization
and globalization of the service sectors. But the entries of multinational insurance companies in
collaboration with Indian counterparts have opened a new debate and solutions for smooth
functioning so as to protect the interests of the policyholders. Therefore it is necessary to
understand the concept of marine insurance and this paper tries to analyse the concept in Indian
context.
Keywords: GATS, marine insurance, insurance, IRDA, perils of the sea, cargo.
Brief introduction about Author - D.P.Verma (Asstt.Professor Law),
email adress [email protected]
H.P.University Regional Centre, Dharamshala, Distt. Kangra, PIN 176215.
Himachal Pradesh. India.
The author is presently working with the abovementioned institute for past eleven years. The
author has done his LL.M. and submitted his Ph.D. Thesis, (Viva to be conducted in first week of
May). The author holds keen interest in business and economic laws and has specialization in
patent laws. The topic in Doctorate Degree is also relating to Patents law in special compliance
to WTO/TRIPs.

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MARIE ISURACE I IDIA: POLICIES AD PRICIPLES
D.P.Verma*
1. ITRODUCTIO
LPG (Liberalization, Privatization and Globalization) syndrome in economic sector has
dominated the economies worldwide for past four decades. This has led to freeing of trade
exchanges among nations, with the World Trade Organization (WTO) as latest pattern,
organizing and regulating their conduct. It has in turn led to liberalization of financial markets
enabling capital transfer and the creation of new financial instruments. The unprecedented
developments in communication and digital technology have spurred consumerism, outsourcing
of jobs, cost reductions and quality improvements in a variety of products and services on a
global scale. Newer risk exposures are continually emerging and for enterprises with global
ambitions risk management of their management process are in need of continual reappraisal.
1

The opening of the service sector in compliance to the GATS Agreement has staged
uproar among the financial sectors in India especially the banking and insurance sectors. We do
watch randomly the strike calls given by these sectors and opposition from certain other sectors
against the privatization and globalization of the service sectors. But the entries of multinational
insurance companies in collaboration with Indian counterparts have opened a new debate and
solutions for smooth functioning so as to protect the interests of the policyholders.
The beginning of the insurance sector reforms can be traced to the undesirable economic
condition prevailing in India when the Reserve Bank of India (RBI) had to mortgage gold abroad
to borrow funds to fund the import of essential commodities and due to almost bankruptcy of
foreign exchange reserves to fund the essential imports. The Government of India initiated
economic reforms to contain the rot and introduced policies of deregulation, liberalization and
globalization. The reforms in the insurance sector came last not because they were not important

Asstt. Professor (Sr.Scale) Law, H.P.University Regional Centre, Dharamshala, H.P. 176215.

1
. G.V.Rao, Globalization of Economies- An Overview of Risk Management in Insurance, Chartered Secretary, Vol.
37, No. 12, December 2007, at 1661.

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but because at political level consensus could not be developed. If there was any subject which
brought in severe opposition to the reform process, it was the subject of insurance. Insurance
industry which is the offspring of socio-economic, political and technological evolution of
human society has become the subject matter of discussion, debate and deliberation for all
segments of the society today in India after liberalization of Indian Insurance sector and
formation of insurance regulatory body Insurance Regulatory and Development Authority
(IRDA).
2

2. ISURACE DEFIED:
The dictionary meaning of the term insurance is coverage by contract whereby one party
undertakes to indemnify or guarantee another against loss by a specified contingency or peril.
3

Insurance, in law and economics, is a form of risk management primarily used to hedge against
the risk of a contingent loss. Insurance is defined as the equitable transfer of the risk of a loss,
from one entity to another, in exchange for a premium, and can be thought of as a guaranteed and
known small loss to prevent a large, possibly devastating loss.
4
Therefore, Insurance can be
defined both from an economic perspective and from a legal perspective. From an economic
perspective insurance is a financial intermediation function by which individuals exposed to a
specific financial contingency each contribute to a pool from which covered events suffered by
participating individuals are paid. From a legal perspective, insurance is an agreement by which
one party, the policy owner, pays a stipulated consideration called the 'premium' to the other
party called the insurer in return for which the insurer agrees to pay a defined amount of money
or provide a defined service if a covered event occurs during the currency of the policy.
An insurer is a company selling the insurance; an insured or policyholder is the person or entity
buying the insurance. The insurance rate is a factor used to determine the amount to be charged
for a certain amount of insurance coverage. Risk management, the practice of appraising and
controlling risk, has evolved as a discrete field of study and practice. Therefore in a
comprehensive way insurance is a contract that, by redistributing risk among a large number of
people, reduces losses from accidents incurred by an individual. In return for a specified payment

2
. R.C.Guria, A New Dimension and Technology of Insurance, The Chartered Accountant, June 2004, at 1359.
3
Merriam Websters Dictionary and Thesaurus
4
http://encyclopedia.thefreedictionary.com/insurance last visited on 15th Feb.2010.

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(premium), the insurer undertakes to pay the insured or his beneficiary a specified amount of
money in the event that the insured suffers loss through the occurrence of an event covered by
the insurance contract (policy). By pooling both the financial contributions and the risks of a
large number of policyholders, the insurer is able to absorb losses much more easily than is the
uninsured individual. Insurers may offer insurance to any individual able to pay, or they may
contract with members of a group (e.g., employees of a firm) to offer special rates for group
insurance. Marine insurance, covering ships and voyages, is the oldest form of insurance; it
originated in ancient times with loans to ship-owners that were repayable only on safe
completion of a voyage, and it was formalized in medieval Europe. Fire insurance arose in the
17th century, and other forms of property insurance became common with the spread of
industrialization in the 19th century. It is now possible to insure almost any kind of property,
including homes, businesses, motor vehicles, and goods in transit.
5

India's insurance sector is zooming to show an unprecedented progressive growth of more than
200% by the period of 2009-09. The Associated Chambers of Commerce and Industry of India is
expected to poise the business of insurance to reach at Rs.2000 billions in coming 2 years from
the present level of Rs. 500 billion.
6
With the result of adoption of the intense marketing
strategies by the private players, the declination has been witnessed in respect of the share of the
state owned insurance companies captured in the market. The market share fallout has been
noticed in context of such companies. It is expected the more severe competition in the insurance
sector likely to be occurred in the near future. Till recently, insurance sector was majority driven
by the government sector players but now many private sector multinational players have come
into the picture like Bajaj-Allianz, HDFC, ICICI- Prudential, Kotak- Mahindra, Tata AIG and
Birla Sunlife etc. Insurance sector has been characterized as the booming sector of the Indian.
2.1. Legislative Developments in insurance sector:
In India the roots of the insurance sector can be tracked down in the year 1818 in the formation
of the life insurance Corporation in Calcutta.
7
The motive behind these developments was to
provide means and secured feeling to the English widows. In 1870, the Bombay Mutual Life

5
"insurance." . Encyclopedia Britannica 2009 Ready Reference. Chicago: Encyclopedia Britannica, 2009.
6
Growth of insurance sector, available at http://www.indianindustry.com/trade-information/insurance-sector-
growth.html. last visited on January 15th , 2010.
7
ibid

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Insurance Society started its insurance business and it charged the same premium from all people
irrespective of whether they were Indian or English irrespective of the Act of 1818. In the year
1912, insurance regulation was started due to the passing of the Life Insurance Companies Act
and the Provident Fund Act. By the year of 1938, in India there were total 176 insurance
companies.
8
In the year 1938, with the passing of Insurance Act, 1938 there was the introduction
of the first comprehensive legislation with the aim of providing the strict state control over the
insurance business. After the independence, insurance sector in India grew at a much higher
pace. In the year 1956, Indian government combined together 245 Indian and foreign insurers
and the provident societies under the name of nationalized Monopoly Corporation. It was the
same period when the life insurance corporation (LIC) came into the existence by the passing of
the Act of Parliament. Till 1972, private sector has enjoyed somehow monopoly in the general
insurance sector. With the effect of the General Insurance Business (Nationalization) Act, 1972,
the general insurance business got nationalized in the India. Due to the amalgamation of 107
private insurance companies, 4 new companies, as the subsidiaries of the General Insurance
Company, came into effect- National Insurance Company, New India Assurance Company,
Oriental Insurance Company and United India Insurance Company. Therefore in a chronological
manner it can be assessed that the principal legislation regulating the insurance business in India
is the Insurance Act of 1938. The other legislations in the field came later on with the passage of
time e.g. the Life Insurance Corporation (LIC) Act, 1956, the Marine Insurance Act, 1963, the
General Insurance Business (GIB) (Nationalization) Act, 1972 and the Insurance Regulatory and
Development Authority (IRDA) Act, 1999. However these are independent legislations the
obligatory provisions of the Indian Contract Act, 1872 and Companies Act, 1956 are applicable
to the companies carrying on insurance business whether life insurance or non life insurance.
Apart from these the subordinate legislation includes Insurance Rules, 1939, and the
Ombudsman Rules, 1998 framed by the Central Government under s.114 of the principal Act as
also 27 regulations made by the IRDA under s.114 A of the principal Act and s.26 of the IRDA
Act 1999 also exists.

8
ibid


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2.2 Background to legislative Developments
However in India the opening of the economy had started in mid eighties on the market
requirement or Structural Adjustment Programme (SAP) at the direction of World Bank and
International Monetary Fund, but the new industrial policy in 1991, envisaged the transition of
the economy from a regulated to a liberalized regime leading to the privatization of insurance
sector to provide a better coverage to citizens and to boost the flow of long-term financial
resources. With the advent of WTO Agreements and particularly General Agreement on Trade in
Services (GATS) the entry of private players particularly foreign companies in joint venture
with Indian partners was expected in this sector and competition was bound to intensify in future.
In order to keep the balance of interest of both insurers as well as policyholders it was
imperative to have in place an effective regulatory regime. Insurers being repositories of public
trust, efficient regulation of their business became necessary to ensure that they remained worthy
custodians of this trust. Further, insurance cash flows generated funds needed for investment in
the social sector and for the development of infrastructure. Therefore, the regulation of insurance
required a paradigm shift from just supervisory and monitoring role to development role so that
the insurance business promoted economic growth.
3. PHILOSOPHY OF MARIE ISURACE:
Business today knows no boundaries. We have an access to products and services across borders
as countries continue to globalize. However the farther our goods travel the more risk they are
exposed to. Marine Insurance is the oldest form of insurance in the world. With the globalization
of the economy, supplier linkages span oceans, but still require goods to be delivered to the
concerned party in a pristine state, just-in-time. Capital or consumer goods are produced in one
country whereas users or consumers are located in some other part of the country or elsewhere in
the world. Therefore, there is a need for transportation or transit of such goods by rail, road,
inland waterway, sea or air. During this process of transportation, the cargo is exposed to various
hazards like theft, breakage or damage. In export/ import trade, goods are transported from the
warehouse of the exporter at some interior place in one country and travel to the port for loading
on the vessel. There is a trans-shipment of the goods from the land vehicle to the vessel. In

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England there is classification made as a marine insurance and non-marine insurance but in India
keeping in view the legislations regarding insurances classification can be made into four groups
viz. Life Insurance, General Insurance, Marine Insurance and miscellaneous Insurance.
Therefore the marine insurance in India covers exclusively the marine adventures but covers
comprehensive subject matter.
The marine insurance covers transit, storage, halt, because in some cases there may be
intermediate storage at the port warehouse due to non-availability of a vessel. The goods once
shipped travel through oceans and seas confront the perils of the seas. At the destination port
there is another phase of unloading, a probable storage at the port and then loading on the land
vehicle for transportation to the interior part of the country where the consignee is
located. During this entire process of transportation, storage, loading and unloading, the goods
are exposed to umpteen hazards. Goods are often lost or damaged due to the operation of these
hazards and there is a pecuniary loss to the exporter/ importer. It is this loss that is taken care of
by marine cargo insurance or what is more popularly known as transit insurance.
Transit insurance is intended to cover the goods from warehouse of the consignor to the
warehouse of the consignee. However, such insurance can be obtained from any nodal point of
transit to another, depending upon the contract of sale and the requirement of the parties
concerned. In many instances, liability can be for a lower value than the actual value of the cargo
or where for example the loss or damage is beyond the control of the carriers, the carriers may
actually not have any liability. Therefore, although transit insurance is not compulsory, the need
for it is very real. Even without such insurance the trader can proceed to recover any transit loss
from the carriers by virtue of the transport contract which assigns the responsibility of safe
delivery of the goods on the transporter. However, the limits of liability laid down by law and the
cumbersome procedure of litigation against carriers for recovery and of course the uncertainty of
the recovery itself makes the case for marine insurance sound.
3.1. eed for marine insurance:
Since time immemorial, merchants engaged in maritime commerce have explored ways to ensure
the security essential for the transportation of their merchandise. The onslaught of the perils of
the sea has always threatened the safe passage of goods across the seas and frontiers. Respite

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from this burden of trade was only possible through mutual aid and assistance. Traders pooled
together a fund that could be utilized in the contingency of their partner. Thus became the
foundation of what today is popularly known as Marine Cargo Insurance. Most of the attention
today is on the rise of piracy off the coast of Somalia and around the Gulf of Aden as many
pirate attacks were reported there in the first quarter of 2009. Somalia and the Gulf of Aden
accounted for 61 of the total up from 6 in 2008. Somalia is suffering from nearly 20 years of
violent civil war, and its people live on an average of less than 2 US dollars a day. The causes of
piracy there are so complex that the current problem is likely to continue for some time, and it is
critical that ships passing through the region are well prepared and properly insured;
9
Besides
that this region is ideal for piracy because the Gulf of Aden is the gateway to the Suez Canal, and
some 20,000 tankers, freighters and merchant ships pass through it every year. Pirates are now
ranging farther and farther out to sea, attacking ships off the coast of neighboring countries such
as Yemen, and their impact on global shipping is growing. The waters off Nigeria have also
shown an increase in recent years, especially in the region off Lagos and the Bonny River, with
40 reported attacks in 2008.
10
It is one of a few regions which are in danger of becoming a larger
piracy hotspot.
11
Therefore it was not possible to cover marine insurance subject matter in other
general insurances and right solution was to have comprehensive legal coverage for this field
separately. In this context, a marine turnover policy has come in as a blessing for companies. All
the requirements of a companys Marine policies can be met by a single comprehensive policy.
4. DEFIITIO AD SCOPE OF MARIE ISURACE:
The Marine Insurance Act gives a very comprehensive definition as it mentions that a contract
of marine insurance is a contact whereby the insurer undertakes to indemnify the assured in the
manner and the extent thereby agreed, against marine losses, that is to say, the losses incidental

9
For details see, Special 'war' insurance for piracy risks? Allianz Global Corporate & Specialty Munich, June 22,
2009, document available on https://www.allianz.com/en/press/news/studies/news_2009-06-22.html.
10
Source: ICC International Maritime Bureau quoted in Special 'war' insurance for piracy risks? Allianz Global
Corporate & Specialty Munich, June 22, 2009 document available on
https://www.allianz.com/en/press/news/studies/news_2009-06-22.html.
11
Supra note 9.

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to a marine adventure.
12
A contract of marine insurance may, by its express term, 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.
13
A marine policy must be signed by or on behalf of
the insurer. Where a policy is subscribed by or on behalf of two or more insurers, each
subscription, unless the contrary be expressed, constitutes a distinct contract with the assured.
14

With the due development of commerce and civilization, insurance also developed and now the
strict scope of marine insurance, which was concerned only with the risk incidental to a sea
voyage, has been expanded and it covers a wide variety of risks which are of course incidental to
or connected directly or remotely, with a sea voyage. The contract of marine insurance must be
contemplated in a marine policy following by all the fundamental principles.
4.1. The Marine Adventure:
The subject of the marine insurance is strictly speaking different from the subject matter of
insurance. In a contract of marine insurance, what is insured is not the property exposed to peril
but only the risk or adventure of the assured. From this it can be seen that what is really insured
is the risk of adventure that is the pecuniary interest of the assured in the subject matter in or in
respect of the property exposed to the peril and not the subject-matter itself. Section 2(d) of the
Marine Insurance Act specifies there is marine adventure where:
i) Any ship, goods or other movable properties are exposed to maritime perils;
ii) The earning or acquisition of any freight, passage money, commission, loan or
disbursements, is endangered by the exposure of the properties.
iii) Any liability to a third party may be incurred by the owner of, or other person interested in
or responsible for such property by reason of maritime perils.
In view this definition of Marine Adventure, the different policies have been devised which
cover the risk of ship and the cargo carried thereon. In Home Insurance Co. v. Ramanath & Co,
it was held that though the ship owner is not liable for the loss of cargo under the contract the

12
. The Marine Insurance Act, 1963, Section 3.

13
. Id. Section 4 (1).
14
. Id. Section 26.

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insurer may still be liable if loss of cargo is by perils of the sea. In this case Ramanath & CO,
shipped the goods which contained the condition that the goods were washed away; the ship
owner disclaimed liability on the ground that they were booked at the owners risk and the court
accepted the defence. The insurer contended that when the ship owner is not liable, he is also not
liable. But the court rejected the contention and decreed the suit against the insurer.
15
Apart from
this the subject-matter of a contract of marine insurance should not only be a marine adventure
but should also be a lawful one.
16

4.2. Perils of The Sea:
Perils of the Sea is one of the most important concepts of marine insurance as every marine
insurance policy mandatorily includes loss due to perils of the sea. But, at the same time it is
one of the most difficult concepts to define and understand. Even though some principles have
been evolved for determining whether a particular incident is caused by a peril of the sea or
not, it is impossible to come out with a common solution for the same. It has to be evaluated on
the facts and circumstances of a given case. It is beyond human comprehension to predetermine
all the incidents that may take place on a ship while at sea. In certain cases one of the factors of
the loss may be the sea but it may not be the proximate cause of loss. In such case, the loss
would not be covered under loss by the perils of the sea. There are different notion regarding
this term worldwide but in a comprehensive way it covers almost everything which happens on
voyage.
There is no statutory definition for perils of the sea under the English Law. The Marine
Insurance Act, 1906 defines only maritime perils and states that ,The term perils of the sea as
used in a marine insurance policy, does not include every casualty which may happen to the
subject-matter of the insurance on sea; it must be a peril of or due to the sea. The term perils of
the sea refers only to fortuitous accidents or casualties of the sea. It does not include the
ordinary action of winds and waves. Thus, fortuity is a key element in determining whether a

15
. AIR 1955, Mad. 602.
16
Marine Insurance Act 1963, Section 5

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loss resulted from a peril of the seas.
17
In US law it is also not defined but it is only the case laws
which have contributed the most to the development of the law of marine insurance.
In India, the law relating to the marine insurance is incorporated in the Marine Insurance Act,
1963. This Act is more or less similar to the English Act of 1906. Like the English Act this Act
does not define the term perils of the sea, it only defines maritime perils. Section 2 (e) of the
Act, 1963 defines maritime perils as perils consequent on, or incidental to, the navigation of the
sea that is to say, perils of the sea, fire, war perils, pirates, rovers, thieves, captures, seizures,
restraints and detainments of princes and peoples, jettisons, barratry and any other perils which
are either of the like kind or may be designated by the policy. While determining whether a
particular loss is caused by perils of the sea or not, Indian Courts rely heavily on the English
cases. In ew India Assurance Co. v. Andhra Fishermen Co-op Society Ltd.
18
where the boat
was sunk due to bursting of shaft, which had resulted in wider bursting into boat and most
probably it was a latent defect which might have occurred due to metal fatigue. The Court held
that this was due to the perils of the sea especially because the ship was given a certificate of sea
worthiness before the voyage. Here perils of the sea include:
(a) Sinking of ship.
(b) Damage to the ship and cargo due to dashing of the waves.
(c) Dashing of the ships on the rocks.
(d) Fire or explosion on the ship.
(e) Spoilage of cargo due to sea water.
(f) Destruction of the ship and cargo by the crew or captain of the ship, piracy and such other
risks, and do not include the ordinary action of winds and waves.
4.3. Excluded Losses or the Losses not regarded as Perils of the Sea

17
Nupoor Agarwal and Saurabh Saraogi, Tingling Insurance Issues: Law on Perils of the Sea, Chartered
Secretary, Vol. XXXVIII, No. 5, May 2008, pp 621-24.
18
. AIR, 2003, A.P. 231.

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Wear and Tear: This term is used to denote the natural decay and deterioration, which
invariably happens to a ship or any portion of the ship due to the action of the winds and waves.
In the case of a ship it means a decay of the body of the ship and its appurtenances, eg. splitting
of a sail, breakage of anchor, rope or cable and in case of cargo of perishable nature like fruits.
Springing a Leak: If a ship develops a leak; it is not a peril of the sea unless it is due to an
accident.
Breakage of Goods: If the Goods are broken or damaged during the voyage due to movement of
the ship it is not a peril of the sea; but if it is due to violent action of waves and consequent
labouring of the ship, it is a peril of the sea.
Inherent Vice: The insurer will not be liable for any loss caused due to the defect in the goods,
e.g. if the fruits become rotten or wine becomes bad due to inherent decomposition.
4.4. Contents of an Insurance Policy
According to section 25 of the Act, 1963 a marine insurance policy must specify:
i. The name of the insured, or of some person who effects the insurance on behalf of the insured;
ii. The subject-matter insured and the risk insured against losses;
iii. The voyage or period of time or both, as the case may, covered by the insurance;
iv. The sum or sums insured; and
v. The name or names of the insurer or insurers.
Marine policies are generally either specific-voyage policies or declaration policies for
either imports, exports, indigenous transits of raw material or finished goods, customs duty,
transits from anywhere to anywhere in the world and to and from job works. While for a specific
policy, the cover is issued from commencement to landing at the final destination, the other
policies are generally continuous policies issued on an annual basis or for a specified period of
time for an agreed value of transits based on the insureds estimate of goods movement for the
specified period. It is mandatory for all transits in the agreed period to be declared.

13

4. 5. Classification of a Contract of Marine Insurance:
As has already been mentioned that every lawful marine adventure may be the subject matter of
a contract of marine insurance, thus, marine insurance may be effected in relation to all such
interests which are exposed to maritime perils. The more popular types of marine insurance are
as follows:
a. Hull Insurance- Insurance of vessel and its equipments (i.e. furniture and fittings, machinery,
tools, coal and engine stores etc.) are included in hull insurance. The owner of a ship may effect
hull insurance. Marine Hull insurance covers nearly everything that floats and moves, starting
with rowing boat to huge ocean going tankers. It covers loss or damage to hull and machinery.
The hull is the structure of the vessel. Machinery is the equipment that generates the power to
move the vessel and control the lighting and temperature system such as boiler, engine, cooler
and electricity generator. Just as a motor insurance policy is taken to cover the vehicles plying on
the road, similarly a marine hull policy is taken to cover the vessels.
b. Cargo Insurance- The insurance of cargo includes goods and merchandise and not the
personal belongings of the crew and passengers. This type of insurance covers A.B & C clauses.
Clause C is the most restricted coverage and subject to the listed exclusions, covers loss or
damage to the subject matter insured caused by Fire or explosions, Stranding, grounding, sinking
or capsizing, Overturning or derailment, Collision or contact of vessel craft or conveyance with
any external object other than water. Discharge of cargo at port of distress. General Average
losses. Jettison.
Clause B cover is wider and apart from the risks covered under ICC 'C', it also covers loss or
damage to cargo caused by Earthquake, volcanic eruption or lightning. Water damage by entry of
sea/ river water. Total loss of package lost overboard.
These is significant additional coverage against wet damage from sea, lake or river water and
accidents in loading and discharge are covered but there is no coverage for theft, pilferage,
shortage and non-delivery.
Clause C is the widest of all three and is generally summed up as 'All Risks' of loss or damage to
the insured cargo. The words 'All Risks' have been the subject of careful examination in legal
cases over the years and should be understood, in the context of the 'A' Clause, to cover
fortuitous loss but not loss that occurs inevitably. The cover includes everything under both the

14

foregoing Clauses and also Breakage, Scratching, chipping, denting and bruising, theft,
malicious damage, non-delivery. It also covers all water damages including rain water damage.
c. Freight Insurance- In many instances, under the terms of contract, the shipping company is
unable to earn freight, whether paid in advance or otherwise, if the cargoes are not safely
transported. As such, if the cargoes are destroyed or the ship is lost on the way, the shipping
company loses the freight. To guard against such an eventuality the shipping company may
effect freight insurance.
d. Liability Insurance- Liability insurance includes liability to third party by reason of hazard
like collision, etc.
19

5. MARIE POLICY
A policy means a document which contains all the particulars and the terms and conditions for
the construction of the policy, overleaf. A Marine Contract must be embodied in policy. A
contract of marine insurance shall not be admitted in evidence unless it is embodied in a marine
policy in accordance with this Act, 1963. The policy may be executed and issued either at the
time when the contract is concluded, or afterwards.
20
In our country the practice is to issue cover
notes which are similar to slips. As the practice is not to stamp a cover note it is admissible
only to prove the agreement. It cannot be used for any purpose except to compel the delivery of a
policy in accordance with its terms.
5.1. Designation and subject-matter

The subject-matter insured must be designated in a marine policy with reasonable certainty.
The nature and extent of the interest of the assured in the subject-matter insured need not be
specified in the policy. Where the policy designates the subject-matter insured in general terms,
it shall be construed to apply to the interest intended by the assured to be covered. In the
application of this section regard shall be had to any usage regulating the designation of the
subject-matter insured.
21

5.2. Types of Marine Policies:

19
. Nirmal Singh, Business Laws, Deep & Deep Publiction New Delhi 2003 at. 598-599.
20
. Marine Insurance Act 1963, Section 24.
21
. Id. Section 28.

15

Specific Voyage or Time Policies
22

These policies are issued to firms that require coverage for a specific voyage. It is suitable for
those firms who seldom require marine cargo policies in the course of their trade. These policies
are issued on a "from and to" basis and the cover commences once the goods leave the place of
origin named in the policy and terminates on delivery at the place of destination. Sometimes
these policies are also issued in terms of duration of the voyage, in which case the cover
commences on the date and time specified for the same in the policy. - This is a policy in which
the subject matter is insured for a particular voyage irrespective of the time involved in it. In a
voyage policy the contract is to insure the subject-matter at and from, or from one place to
another. In this case the risk attaches only when the ship starts on the voyage. A Voyage policy
covers the risks that may arise during a journey from specific place to another. In time policy 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. A time
policy cannot be for a period exceeding one year, 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. The time limit for time policy is one year and anything beyond that period is unlawful
23

However the policy holder can opt for both the policies together.
Valued Policy
24

This is a policy in which the value of the subject matter insured is agreed upon between the
insurer and the insured at the time of taking out the policy, and it is specified in the policy itself.
This facilitates easy settlement of claims in the event of loss.
Open or Un-valued Policy
25
: -
In this case, the value of subject matter is not agreed upon at the time of taking out the policy. It
is determined only in the event of loss. Subject to the limit of the sum assured, it leaves the value
of the loss to be subsequently ascertained. Exporters/ importers, firms and companies that handle

22
Id Section 27
23
Id Clause 2.
24
. Marine Insurance Act 1963, Section 29.
25
. Id. Section 30

16

a large turnover of goods take such policies. It becomes extremely cumbersome for them to take
specific voyage policies, each and every time they engage in transportation of their goods as they
need to handle innumerable transactions during a given period of time. Instead, they take an
Open Policy that is normally issued for a period of one year and insure a part of their annual
turnover at the beginning of the policy and go on declaring the value of their consignments to the
insurance companies each time they send them.

Floating Policy
26
:
This is a policy which only mentions the amount for which the insurance is taken out and leaves
the name of the ship and other particulars to be defined by subsequent declarations. Such policies
are very useful to merchants who regularly dispatch goods through ships.

6. FEATURES OF MARIE ISURACE POLICY
The basic features of marine policies are as follows:
1. The marine cargo insurance policies are freely assignable as the assignee finally takes the
goods pass through various hands before the assignee finally takes their delivery. The assignment
of insurance policy is allowed in terms of sections 52 and 53 of the Marine Insurance Act 1963.
A Marine Insurance Policy can be assigned either before or after the loss.
2. The assignment is done by endorsement and delivery or by any other customary manner.
3. Insurable interest of the claimant must exist at the time of loss of the cargo.
4. The value of the insurance policy is the sum agreed between the insured and the insurer. Thus
these policies are always on agreed value basis. Since contracts of insurance provide for
indemnity the loss suffered by the insured is not just the loss suffered by the insured is not just
the loss represented by the value of the goods but also the amount of profit that the parties would
have earned from the sale of those goods.
5. The contract of marine insurance is a contract of commercial indemnity and not pure
indemnity because this insurance provides for indemnity against the loss of profits as well.

26
. Id. Section 31.

17

6. The duration of the marine insurance policy is based on the institute cargo clause yet it is
provided to include the period of transit, the time of discharge of the goods and the time of
arrival of the goods. Generally the duration of the policy covers time upto 30 days after arrival of
the goods in case of air shipments and 60 days after the arrival of shipments by sea to allow for
the transportation of cargo from the final port of discharge to the warehouse of the importer.
7. ASSIGMET OF MARIE POLICY
A marine policy is assignable either before or after the loss unless it contains terms
expressly prohibiting assignment. A policy on goods is generally freely assignable. Merchandise
like tea, jute and wheat etc., change hands before they reach their destination and policies on
them must be freely transferable. Both policies on ship or on freight are subject to restrictions on
assignment.
An assignment by the insured of his interest in the subject-matter insured does not transfer
his rights in the policy of insurance thereon to the assignee, unless there is an express or implied
agreement to that effect. But a transmission of interest in the subject matter insured by
operation of law- such as by death or insolvency- will operate as a transfer of the policy also.
27

An assured who has assigned or lost his interest in the insured property cannot subsequently
assign the policy of insurance thereon. Unless before or at the time of assigning the property, he
has expressly or impliedly agreed to assign the policy. However, he can always assign the policy
after loss.
28
The marine policy may be assigned by endorsements on the policy itself or in any
other customary manner. On the assignment of the beneficial interest in the policy, the assignee
is entitled to sue thereon in his own name.
8. FUDAMETAL PRICIPLES GOVERIG MARIE
ISURACE
The fundamental principles governing the marine insurance are very helpful in the
assessment of loss and the claim for which the assured is entitled. There are mainly five
fundamental principles which govern the marine insurance contracts;

27
. Id, Section 17.
28
. Id. Section 53.

18

Principle of Utmost Good Faith (Uberrimae fides): - A marine insurance contract is based on
the principle of utmost good faith i.e., a higher degree of honesty is imposed on both parties to
an insurance contract than it is imposed on parties to other contracts. The principle has its
historical roots in ocean marine insurance. An ocean marine underwriter had to place great faith
in statements made by the applicant for insurance concerning the cargo to be shipped. The
property to be insured may not have visually inspected and the contract may have been formed in
a location far removed from the cargo and ship. Thus, the principle of utmost good faith imposed
a higher degree of honesty on the applicant for insurance.
29
A contract of marine insurance is a
contract based upon the utmost good faith, and if the utmost good faith, be not observed by either
party, the contract may be avoided by other party.
30

The practical aspect of this principle of utmost good faith takes the form of the positive duty
of the proposer or his agent to disclose all material circumstances and not to make untrue
representation to the insurer during the negotiations for the contract. Every circumstance is
material, which would influence the judgment of a prudent insurer in fixing the premium, or
determining whether he will take the risk.
Principle of Insurable Interest: - The principle of insurable interest is another important legal
principle. The principle of insurable interest states that the insured must be in a position to lose
financially if a loss occurs. A valid contract of insurance can be entered into by a person only if
he has insurable interest in the subject matter of insurance, i.e. if he is interested in the marine
adventure. 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 in consequence 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.
31
Thus the
ship-owner, the cargo-owner and the person who has advanced loan on the security of the ship or
on any goods arriving by the ship and even the insurer of the ship or cargo have insurable interest
to the extent of their several interests.

29
. George E Rejda., Principles of Risk Management and Insurance, Pearson Education Limited , 2003, at.85.
30
. Marine Insurance Act 1963,, Section 19.
31
Id. Section 7.

19

Principle of Indemnity: - The principle of indemnity is one of the most important legal
principles in insurance. The principle of indemnity states that the insurer agrees to pay no more
than the actual amount of the loss; in other words we can say that the insured should not profit
from a loss. Most property and liability insurance contracts are contracts of indemnity. If a
covered loss occurs, the insurer should not pay more than the actual amount of the loss.
Principle of Proximate Cause (Causa Proxima): - This principle is based on the maxim in jure
non remota causa, sed proxima, spectatur, which means in law the immediate and not the
remote cause, is to be considered in measuring the damages. Proximate cause simply means the
nearest cause of loss. This maxim is applicable to marine insurance but the application is very
difficult due to the different kinds of maritime perils. To make a marine insurer liable the insured
must prove three things- 1) that the loss is caused by the perils of the sea; 2) that the peril is one
that is insured against in the policy; and 3) that the peril insured against is the proximate cause
for the loss sustained. This principle implies that the insurer becomes liable to pay for loss if the
insured peril or risk is the proximate cause of loss.
Principle of Subrogation: - The principle of subrogation strongly supports the principle of
indemnity. Subrogation means substitution of the insurer in place of the insured for the purpose
of claiming indemnity from a third person for loss covered by insurance. The insurer is therefore
entitled to recover from a negligent third party any loss payments made to the insured.
9. Malhotra Committee Report and IRDA 1999:
The Government of India in the new emerging scenario of open economy set up a committee under Mr.
R.N.Malhotra to examine the structure, strength and weaknesses of the insurance industry in terms of the
objective of providing high quality services to the public and serving as an effective instrument for
mobilization of financial resources for development especially with a supervising mechanism to this
sector. The Committee submitted its report in 1994. Some of the key recommendations made by this
committee were as under
32
:-

32
For detail see Raj Kapila and Uma Kapila, Understanding India's economic reforms, ed. .Academic Foundation
New Delhi, Ch. 13,.Malhotra Committee Report on Reforms in Insurance Sector. pp 332-372


20

- establishment of an independent regulatory authority on the analogy of Securities
and Exchange Board of India;
- giving green signal to private sector to enter the insurance field;
- marketing of life insurance to relatively weaker sections of the society and
specified proportion of business in rural areas;
- welfare oriented schemes of general insurance;
- functioning of Tariff Advisory Committee (TAC) as a separate statutory body;
- investment on the pattern laid down in Sec.27;
- the requirement of specified proportion of the general business as rural non-
traditional business to be undertaken by the new entrants;
- technology driven operation of General Insurance Corporation of India (GICI);
GIC to exclusively function as a reinsurer and to cease to be the holding
company;
- introduction of unlinked pension plans by the insurance companies; and
- restructuring of insurance industry.
Although the Malhotra Committee report on insurance sector reforms was out in 1994, it
was only in December, 1999 that the Insurance Regulatory and Development Authority
(IRDA) Act was passed by the Parliament and subsequently in the year 2000 the Authority
was established. The model adopted by India in ushering reforms in the insurance sector with
the setting up of Regulatory Authority and the subsequent regulations promulgated by IRDA
have been well received around the world and a lot of appreciation is echoed by industry
professionals in the global forums.
33

The IRDA Act provides for the composition of the Authority and general rules governing the
role and condition of services of the authority. The Act also provides for establishment of
Insurance Advisory Committee; Insurance Regulatory and Development Authority fund and
powers of the Central Government to make rules, to issue directions to the Authority and to
supersede the same, if it is necessary; and other miscellaneous provisions. It also contains
three schedules whereby the First Schedule listed out several amendments to the Insurance
Act, 1938. The Second Schedule inserted s.30A in the Life Insurance Corporation Act, 1956

33
. S.J Gidwani,, Reforms in Insurance Sector- Good Progress but Miles to Go, in Chartered Secretary , Vol. 37,
No. 12, at 1663.

21

whereby the exclusive privilege of LIC to carry on life insurance business in India was
ceased. The Third Schedule inserted a similar provision, s.24A, in the General Insurance
Business (Nationalization) Act, 1972 whereby the exclusive privilege of the GIC and its
subsidiaries in relation to general insurance business ceased.
9.1. Powers and functions of IRDA
The IRDA has the duty to regulate, promote and ensure orderly growth of the insurance and
reinsurance business. Sec. 14, The powers and functions of the IRDA include:

(a) registration/modification/cancellation of registration of insurance companies;
(b) to cause compliance of the requirement of capital structure of the companies as also
solvency margin, insurance business in rural and social sector, submission of their
returns/reports, approval and preparation of the scheme of amalgamation and transfer of
insurance business;
(c) to issue of license to insurance intermediaries or agents;
(d) control over management of insurance companies;
(e) search and seizure,
(f) protection of interest of policy holders,
(g) promotion and regulation of professional organizations conducting insurance business,
(h) regulation of investment of funds by insurance companies,
(i) investigation and inspection of the affairs of the insurers,
(j) adjudication of disputes between insurers and insurance intermediaries,
(k) supervising functions of Tariff Advisory Committee,
(l) and to frame regulations to carry out purposes of the Insurance Act,1938.

Pursuant to its power under the IRDA Act, the IRDA has framed 27 sets of Regulations on
various topics like preparation and submission of actuarial reports, obligations of insurers to rural
and social sectors, registration of Indian insurance companies, preparation of financial statements
and auditors report of insurance companies, form of annual statements of account and record,
insurance brokers, etc. These regulations are important constituents of the Regulatory regime.
10. LEGISLATIVE DEVELOPMETS AFTER 1999:

22

The Insurance Amendment Act, 2002 permitted, by way of insertion of s.2 (8A) in the Insurance
Act, 1938 insurance co-operative societies, registered under the Co-Operative Societies Act,
1912 or Multi-State Co-Operative Societies Act, 1984 or under any state law relating to co-
operative society to carry on any class of insurance business. However, the IRDA has been
empowered to exempt an insurance co-operative society from the application of any of the
provisions of the principal Act or application of its provisions with exceptions, modifications or
adaptations [see proviso to section 94A(2)]. The Amendment Act provided for insurance
intermediaries, including insurance brokers and consultants, and provisions for the payment of
commission, brokerage or fee to them, thereby introducing in this country the business practiced
the world over in this area. Further, s.49 of the Act has been modified provide shareholders an
entitlement of actuarial surplus. By virtue of amendment to s.64 VB, the IRDA has been
authorized to prescribe the mode of payment of premium, i.e., through credit cards or through the
internet which in turn might result in an increase in insurance business. Moreover, the General
Insurance Business (Nationalisation) Amendment Act, 2002 made the General Insurance
Corporation the only reinsurer to carry on exclusively reinsurance business in India. It ceased to
carry on general insurance business as also to control four subsidiaries. The Central Government
was authorised to discharge its functions in respect of these subsidiaries in future.

11. SUM UP
The theme of the business of insurance is related to the protection of the economic value of
assets or in other words we can say that insurance is a mechanism that helps to reduce the
adverse consequences which may arise in the future. Marine insurance is the practice of
providing risk cover to the ship-owners or the cargo-owners against loss or damage that the ship
or cargo may suffer in transit due to accidents and mishaps in the nature of a financial indemnity.
The insurance company undertakes to make good the loss to the maximum value as agreed with
the insured perils or risks. Loss is payable only when it has been proximately caused by the
insured peril. The insurance value is agreed on the basis of the Cost, Insurance and Freight (CIF)
value of goods plus a percentage (generally, ten percent). Insurance policies to cover the payable
customs duties are also issued in case of import cargo. The marine insurance policy can have a
very wide scope to cover all possible perils and losses. It provides protection against total loss
(actual and constructive) and partial loss (general average and particular average) against

23

maritime, and strike perils. The policies are generally fixed on the basis of standard terms and
conditions. Similarly, marine insurance can cover any and all risks, or just risks and perils
specified in the policy. No matter the policy type, it is very important to fully understand all of
the stipulations which may render the policy null and void. For example, many policies specify
navigational limits which render the policy void if exceeded. Depending on the area, accidentally
exceeding navigational limits can be very easy on the water where boundaries are not well
marked. Personal watercraft insurance is available for virtually all watercraft, from small
pleasure boats and fishing boats, to large yachts and houseboats. Specialty coverage can include
coverage for watercraft rentals, fishing excursions, and other charter boat trips. With a wide
selection of insurance companies and options available, finding the right coverage for your craft
and situation simply takes a little research. Keeping in view the interest of both the parties to
insurance contract the regulatory body has been designated under central Act. The IRDA Act is
mechanism to have a check in this globalized scenario and thats why limited entry with
collaboration has been allowed till date in this sector. This industry is booming large and in the
times to come lot of new legal requirements will automatically flow. There are certain other
factors which are excluded from the subject matter of the marine policy such as Ordinary
leakage, ordinary loss in weight or volume or ordinary wear and tear; Insolvency or financial
default of carriers; War, strikes, riots and civil commotion; but these risks are excluded under all
the clauses but can be insured by payment of an additional premium.

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