Marine Insurance: Meaning, Branches & Principles

Meaning: 

This is the oldest branch of Insurance and is closely linked to the practice of Babylonians in the ancient times. Marine  insurance  is  an  agreement  (contract)  by  which  the  insurance  company  (also known  as  underwriter)  agrees  to  indemnify  the  owner  of  a  ship  or  cargo  against  risks,  which are incidental to marine adventures.

The owner of the ship may insure it against loss on account of perils of the sea.  When the  ship  is  the  subject matter  of  insurance,  it  is  known  as  hull insurance.

Marine insurance covers the loss or damage of ships, cargo, terminals, and any transport or cargo by which property is transferred, acquired, or held between the points of origin and final destination.  Cargo  insurance —  discussed  here —  is  a  sub-branch  of  marine insurance,  though  Marine  also  includes  Onshore  and  Offshore  exposed  property (container terminals, ports, oil platforms, pipelines); Hull; Marine Casualty; and Marine Liability.

Branches of Marine insurance

1.  Ocean Marine Insurance.

Ocean marine insurance covers the perils of the sea. It was started during the middle ages in Italy and then in England. The  sending  of  goods  by  the  sea  involves  many  perils;  so  it  was  necessary  to  get  the goods  insured.  In  modern  times  marine  insurance  business  is  well  organized  and  is carried on scientific lines.

2.  Inland Marine Insurance.

Inland marine insurance is related to the inland risks on the land.  In general inland marine insurance gives coverage to the traders of domestic nation.

Principles of Marine Insurance

The  principles  of  all  types  of  insurance  are  generally  the  same  and  they  have  been discussed earlier, in detail. Some of the principles related to marine insurance are given as under:

I. Utmost good faith:

The marine contract is based on utmost good faith on the part of the parties. The burden of this principle is more on the insured than on the underwriter. The insured should give full information about the subject to the insured. He should not withhold any information. If a party does act in good faith, the other party is at liberty to cancel the contract.

II. Insurable Interest:

Insurable interest means that the insured should have interest in the subject when it is to be insured. He should be benefited by the safe arrival of commodities and he should be prejudiced by loss or damage of goods. The insured may not have an insurable interest at the  time  of  acquiring  a  marine  insurance  policy,  but  he  should  have  a  reasonable, expectation  of  acquiring  such  interest.  The  insured  must  have  insurable  interest  at  the time of loss or damage, otherwise he will not be able to claim compensation.

III. Indemnity:

This  principle  means  that  the  insured  will  be  compensated  only  to  the  extent  of  loss suffered. He will not be allowed to earn profit from marine insurance. The underwriter provides to compensate the insured in cash and not to replace the cargo or the ship. The money  value  of  the  subject-matter  is  decided  at  the  time  of  taking  up  the  policy. Sometimes the value is calculated at the time of loss also.

IV. Cause Proxima:

This is a Latin word which means the nearest or proximate cause. It helps is deciding the actual cause of loss when a number of causes have contributed to the loss. The immediate cause  of  loss  should  be  determined  to  fix  the  responsibility  of  the  insurer.  The  remote cause  for  a  loss  is  not  important  in  determining  the  liability.  If  the  proximate  cause  is insured against, the insurer will indemnify the loss.

V. Offer  &  Acceptance: 

It is a prerequisite to any contract.  Similarly the goods under marine (transit) insurance will be insured after the offer is accepted by the insurance company.

VI. Payment of premium: An owner must ensure that the premium is paid well in advance so that the risk can  be  covered.  If the payment is made through  cheque  and  it  is dishonored then the coverage of risk will not exist.

VII. Contribution: If a person insures his goods with two insurance companies, then in case  of  marine  loss  both  the  insurance  companies  will  pay  the  loss  to  the  owner proportionately.

VIII. Period of marine Insurance: The period of insurance in the policy is  for the normal  time taken for a particular transit. Generally the period of open marine insurance will not exceed one year.

IX. Deliberate  Act:  If  goods  are  damaged  or  loss  occurs  during  transit  because  of deliberate act of an owner then that damage or loss will not be covered under the policy.

X. Claims: To get the compensation under marine insurance the owner must inform the insurance company immediately so that the insurance company can take necessary steps to determine the loss.