This article is written by Sreejit Nair, pursuing diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from Lawsikho, as a part of his coursework. He is a Partner at S C Legals and deals with IT and Real Estate Laws. 

Introduction

Marine Insurance Contract means an agreement where insurer undertakes to pay to the assured in the manner as agreed between them for the damages occurred during the marine journey. It also includes the incident in which the losses are occurred in inland waters and also on land risk which may be assumed as sea voyage.

The features of Marine Insurance Contract are as follows:-

Insurable Interest

For effecting marine insurance like any other insurance, the assured must have an insurable interest. If there is no such interest, the policy would be a wagering contract and thus it will be void.  Any person does have an insurable interest who is interested in a marine journey or who can get affected due to the losses and damages caused in the marine journey or adventure. The interest must subsist either at the time of effecting the insurance or at the time of loss. Any interest which is defeasible or contingent or partial can be insured. A lender under a bottomry bond or respondentia bond has insurable interest as well as master’s and seamen’s wages, advance freight are insurable, a mortgagee has also insurable interest.

Proposal and Acceptance

A contract of insurance becomes concluded when there is a proposal to the assured and as insurer accepts the contract, irrespective of issue of policy. Though a contract is concluded without issue of policy but it cannot be treated as an evidence if marine policy is not issued with respect to the contract. The policy must specify

1. Name of the assured or of some person who effects the insurance on his behalf
2. Subject matter insured and the risk insured against
3. Voyage or term of policy or both agreed by the parties
4. Sum assured e. Name of the Insurer.

Consideration

Here the premium is called Consideration which is captured in the contract and is computed on the basis of assessment of proposal form and is paid at the time of executing the contract.

Issuance of Policy

Policy can be considered as effective legal evidence in a court of law when it is prepared, stamped and signed and finally issued to the assured party. Although the policy is issued it can be rectified by the order of court to express the intention of parties stated in the contract.

Floating

Marine insurance contract can be a floating policy which means where a policy through which insurance only mentions the general terms and names of the ships are left out and other details to be defined by subsequent declaration to be made by endorsement on the policy or otherwise.

Assignment

It can be transferred by assignment unless there is a term prohibiting transfer and it can be assigned before or after loss. Assignment can be effected through a customary manner or any other manner as agreed between the parties. The party cannot assign the policy after losing interest in the subject matter.

Doctrine of subrogation

This doctrine means that the assured shall not get more amount than the actual loss or damage caused. The insurer has the right to receive compensation from the third party from whom he is actually liable to receive the amount after the payment of the loss/damage amount. In marine insurance the right of subrogation arises only after the payment. The assured shall assist the insurer in every possible manner to receive money from the third party.

Utmost good faith

The doctrine of utmost good faith is covered in section 19, 20, 21 and 22 of the Marine Insurance Act 1963. Contracts regarding insurances are based on the principle of uberrimae fides which means utmost good faith. If any party to the contract fails to comply with this principle then contract can be avoided by the other party.

The duty of the utmost good faith applies also to the insurer. He may not urge the proposer to affect an insurance which he knows is not legal or has run off safely. The obligation of utmost good faith and disclosure of correct facts is more on assured as compared to insurer because he is aware of the material common in other branches of insurance are not used in the marine insurance.The assured shall disclose all the material information which may affect the contract in any manner. Any non-disclosure of a material fact enables the underwriter to avoid the contract, irrespective of whether the non-disclosure was intentional or inadvertent. The assured is expected to know every circumstance which in the ordinary course of business ought to be known by him. He cannot rely on his own inefficiency or neglect.

Doctrine of Indemnity

Marine insurance is an indemnity policy under which an insurer agrees to compensate for losses or damages in consideration of the timely payment of premium. The contract of marine insurance shall cover the clause for indemnity as in no case Assured shall be allowed to make profits out of claim amount. There is a possibility of making profits by the party in the absence of indemnity clause in the marine insurance contract.

The insurer agrees to indemnify the assured only to the extent agreed upon. Marine insurance contract does not often includes complete indemnity due to large and varied nature of the marine voyage.

This value may be either the insured or insurable value. If the value of the subject matter is determined at the time of taking the policy, it is called ‘Insured Value’. When loss arises the indemnity will be measured in the proportion that the assured sum bears to the insured value. Transportation cost and anticipated profits are added to the original value so that in case of loss the insured can recover not only the cost of goods or properties but a certain percentage of profit also.

Indemnity applies where the value of subject-matter is determined at the time of loss.Where the value for the goods has not been fixed in the beginning but is left to be determined the time of loss, the measurement is based on the insurable value of the goods. However, in marine insurance insurable value is not common because no profit is allowed in estimating the insurable value. However Indemnity clause has exceptions which are as follows:

1. Profits Allowed

The market value of the loss should be indemnified and no profit is allowed in general commercial contracts, but in marine insurance contract a certain profit margin is also allowed as covered in the Marine Insurance Act.

2. Insured Value

The doctrine of indemnity covers the insurable value, wherein the marine insurance covers insured value. The purpose of the valuation is to determine the value of insured in advance.

Warranties

A warranty means that assured shall abide by and shall fulfill certain condition as covered in contract. If in case any of the warranty is breached, contract shall stand terminated.

Warranties are of two types: Express Warranties, and Implied Warranties.

1. Express Warranties: It is expressly included in the Marine insurance contract.
2. Implied Warranties: It is not covered in the contract but it is assumed to be binding on the parties.
3. Seaworthiness of Ship – Ship should be seaworthy at the time of the journey of the ship begins, or if the voyage takes place in stages, during the beginning of each stage. Seaworthiness is not calculated on the basis of physical condition of ship, but it is calculated on many other important aspects which includes the suitability and adequacy of the parts of the ship, experience and quality of the officers and crew. At the commencement of the journey, the ship must be take the ordinary strain and stress of the sea on which factors the seaworthiness is calculated and looked upon.
4. Legality of Venture; – This warranty concludes that the journey insured shall be legal and that the assured can control the matter it shall be carried out in a lawful manner of the country. Violation of foreign laws does not necessarily involve breach of the warranty. Implied warranty for the nationality of a ship is not covered in the contract.

 Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skill.