Marine Insurance Claims- India
Risk is a part of every human endeavor. Be it a risk of life or property. In this context, insurance contracts play a significant role in guarding oneself against any risk, contingency or uncertainty. It acts as an important instrument in understanding the risk and implements an effective plan to prevent losses and reduce the impact if a loss occurs.
The integration of national economies into a global economic system has led to a remarkable growth in the international trade. One of the fundamental features of modern trade and commerce is the need for insuring property against the economic consequences of its loss or damage. Insurance provides a sense of security and protection to individuals, communities and businesses by providing for risk sharing and thus, facilitates the trade and commerce, encourages innovation by allowing individuals and businesses to explore and engage themselves in risky business activities, thereby fostering higher levels of economic activity. Insurance mobilizes domestic savings through collection of premiums by insurance companies which can help build the nation’s financial market.
Marine Insurance- India
In the era of globalization, maritime transport plays a very crucial role in fostering trade and commerce. The transportation of high value goods through sea serves as one of the cost effective modes of transportation. It is the backbone of international trade with most of the world merchandise trade by volume being carried by sea. However, since maritime transport also involves greater degree of risk related to ‘perils of the sea’, hence, it is imperative that the parties are adequately secured through insurance contracts. In this context the maritime insurance becomes a significant component of international trade and commerce as it helps in mitigating risks associated with financial loss to the ship, goods or other movables in maritime transportation. In India Maritime Insurance is governed by the Marine Insurance Act, 1963.
Meaning and scope of Marine Insurance under the Marine Insurance Act, 1963.
Marine insurance is defined under Section 3 of the Marine Insurance Act, 1963 as an agreement whereby the insurer undertakes to indemnify the assured, in the manner and to the extent thereby agreed, against marine losses, that is to say, the losses incidental to marine adventure. In simple terms, marine insurance is a contract which protects the assured against losses on inland waters or any land risk that may be incidental to any sea voyage. Under the Act, the contract of marine insurance must be embodied in a policy. “The policy” and “the slip” are the formal instruments which usually make up the terms of contract in marine insurance law. When the contract is entered into, an informal memorandum is drawn up which is called a “covering note” .
It is pertinent to note that marine insurance is not a general type of insurance rather a special type of insurance considering its nature and applicability. In India, a marine insurance policy must strictly be framed in terms of the Act failing which the policy shall be inadmissible in evidence. Additionally, since, like every insurance is based on the doctrine of ‘uberrimae fidei’ i.e. utmost good-faith, even in marine insurance, the assured must disclose all material facts related to the subject- matter insured to the insurer and in case of misrepresentation, the insurer is entitled to terminate the contract of marine insurance.
The nature of maritime insurance is essentially a contract of indemnity meaning thereby that the insurance company is liable only for the actual loss or damages suffered by the insurer. However, the insurer cannot be made liable for each and every loss. Under the Act, the loss to an insurable property must arise as a consequence of a maritime peril.
What are maritime perils?
Section 2 (e) of the Act defines ‘maritime perils’. Broadly speaking, ‘maritime perils’ also called as perils of the sea include extraordinary forces of nature which maritime ventures might need to face during the voyage. It includes those accidents or casualties which happen during the voyage by the act of god without any human intervention. Some of the conditions which cover the loss by the perils of the sea are clearly laid down under Sections 55 to 58 of the Marine Insurance Act, 1963.
What is not covered under Marine insurance?
Under the said Act, loss or damages which occur in the ordinary course of nature or due to own default are not included in the category of maritime perils. These include: Loss damage or expense attributed to willful misconduct of the insured, deliberate damage to / destruction of the goods, ordinary leakage/ordinary loss in weight or volume / ordinary wear and tear of the insured goods, any loss proximately caused by delay, breakage, inherent vice or nature of the subject-matter insured, or for any loss proximately caused by rats or vermin, or for any injury to machinery not proximately caused by maritime perils.
Requirements for claiming marine insurance
The first essential is the existence of maritime peril, which is a condition precedent to claim loss or damage, and the second essential requisite for claiming loss is that the assured must also have ‘insurable interest’. The term insurable interest is defined under Section 7 of the Act. The elementary principle behind insurable interest in the context of maritime insurance is that “insurance cannot be created against injury to property in which the insured has no interest”. Thus, the assured must be interested in the subject matter (i.e. the insurable property) and the loss of property must cause some pecuniary damage to the assured. Buyer of the goods who has insured them, master of the ship, members of the crew, owner of the insurable property etc., are some of the examples under the Act who are considered to have an insurable interest under the maritime insurance.
Once the aforementioned essential conditions are fulfilled, the insured qualifies to claim the losses incurred against the insurer.
Types of marine insurance contracts
In maritime insurance law, there are primarily three types of insurance contracts which cover different aspects of the loss incurred. These are:
- Hull Insurance: Such insurance generally covers the loss caused by damage and destruction of water borne ship vessel belonging to the owner. The insurance covers the articles of the ship including but not limited to the furniture and other mechanized parts of the ship. It is similar to the property insurance & covers the actual damage to the vessel and its related machinery in the event of any mishappening during the voyage. The owner gets indemnified for the losses and mishaps occurring during the normal course of the trading business.
- Cargo Insurance: As the name suggests, cargo insurance covers the goods from any physical damage or loss to the goods during the transit by sea. It is taken by the owners of the goods which are to be shipped through sea. If the cargo gets damages, the owner gets the indemnity from the insurance company.
- Freight Insurance: The transfer of goods from one port to another, the amount paid to the owner of the ship is called freight. Freight insurance offers protection against potential losses caused to the shipment during the transit. This type of marine insurance even covers the cargo loss due to the ship meeting any accident.
- Liability insurance: When an insurer undertakes to indemnify against the loss which may be suffered by an insured on account of liability to a third party such as those caused by collision of a ship and other similar hazards, it is called a Liability insurance.
Types of Losses under Marine Insurance
It is pertinent to note that as per the Act, the losses incurred during transit are categorized into various types of losses which are used to differentiate the degree of loss. These include actual loss, partial loss, total loss and constructive loss. Sections 57 to 61 of the Act specifically define their meaning and enlist the circumstances under which the assured shall be entitled to claim loss against the insurer.
Broadly speaking, an actual total loss occurs when the subject matter insured is totally destroyed or the resultant damage is so extreme that it ceases to be a thing which was insured. For example, a missing ship which cannot be found would be treated as an actual total loss.
A partial loss is one when the subject-matter is only partially damaged.
Constructive loss occurs when the subject-matter is not totally destroyed but at the same time it is also not practicable to restore it to its original position. In cases of constructive total loss, as per section 61 of the Act, the assured has the right to treat the loss as partial loss or it can also abandon the subject-matter insured and treat the loss as if it were an actual total loss. The effect of abandonment will be that the assured can abandon the damaged property and can claim a full settlement amount under certain circumstances.
Fora and dispute resolution mechanism
The Marine insurance disputes can be litigated before the Civil and Consumer Courts in India having requisite territorial jurisdiction and pecuniary jurisdiction. However, in cases where there is an arbitration clause in the marine insurance policy, then the dispute shall be adjudicated by way of arbitration.
Conclusion
Sea has played an important part on the world’s trade industry. With the emergence of global interdependence of trade and commerce, marine insurance has become a safe haven for shipping corporations and transporters. The ship owners and merchants dealing in shipping business benefit a great deal from marine insurance when unexpected situations or contingencies arise. It helps to reduce the aspect of financial loss of important cargo during transportation through inland waters or sea and ultimately provides protection of business against the perils of the sea.
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