MARINE INSURANCE - National Institute of Open Schooling

1 DIPLOMA IN INSURANCE SERVICESMODULE - 4 NotesMarine InsurancePractice of General INSURANCE INTRODUCTIONThis is the oldest branch of INSURANCE and is closely linked tothe practice of Bottomry which has been referred to in theancient records of Babylonians and the code of Hammurabiway back in Manufacturers of goods advanced theirmaterial to traders who gave them receipts for the materialsand a rate of interest was agreed upon. If the trader was robbedduring the journey, he would be freed from the debt but if hecame back, he would pay both the value of the materials andthe first known MARINE INSURANCE agreement was executed inGenoa on 13/10/1347 and MARINE INSURANCE was legallyregulated in 1369 OBJECTIVESzKnow the meaning of MARINE insurancezBuy the MARINE insurancezSettle the claim under MARINE InsurancezKnow the inland transit/overseas what is not covered under MARINE insurance2 MARINE INSURANCE MODULE - 4 Practice of General InsuranceNotes 19 MARINE InsuranceDIPLOMA IN INSURANCE MEANING OF MARINE INSURANCEA contract of MARINE INSURANCE is an agreement whereby theinsurer undertakes to indemnify the insured, in the mannerand to the extent thereby agreed, against transit losses.

2 Thatis to say losses incidental to contract of MARINE INSURANCE may by its express terms or byusage of trade be extended so as to protect the insured againstlosses on inland waters or any land risk which may beincidental to any sea simple words the MARINE INSURANCE includesA. Cargo INSURANCE which provides INSURANCE cover in respectof loss of or damage to goods during transit by rail, road,sea or cargo INSURANCE concerns the following :(i) export and import shipments by ocean-going vesselsof all types,(ii)coastal shipments by steamers, sailing vessels,mechanized boats, etc.,(iii)shipments by inland vessels or country craft, and(iv)Consignments by rail, road, or air and articles sentby hull INSURANCE which is concerned with the INSURANCE ofships ( hull , machinery, etc.)

3 This is a highly technicalsubject and is not dealt in this FEATURES OF MARINE INSURANCE1) Offer & Acceptance: It is a prerequisite to any the goods under MARINE (transit) INSURANCE willbe insured after the offer is accepted by the insurancecompany. Example: A proposal submitted to the insurancecompany along with premium on 1/4/2011 but theinsurance company accepted the proposal on 15/4 risk is covered from 15/4/2011 and any loss prior tothis date will not be covered under MARINE ) Payment of premium: An owner must ensure that thepremium is paid well in advance so that the risk can becovered. If the payment is made through cheque and it isDIPLOMA IN INSURANCE SERVICESMODULE - 4 NotesMarine InsurancePractice of General INSURANCE 20dishonored then the coverage of risk will not exist.

4 It is asper section 64VB of INSURANCE Act 1938- Payment ofpremium in advance.(Details under INSURANCE legislationModule).3) Contract of Indemnity: MARINE INSURANCE is contract ofindemnity and the INSURANCE company is liable only tothe extent of actual loss suffered. If there is no loss thereis no liability even if there is operation of insured : If the property under MARINE (transit) insuranceis insured for Rs 20 lakhs and during transit it is damagedto the extent of Rs 10 lakhs then the INSURANCE companywill not pay more than Rs 10 ) Utmost good faith: The owner of goods to be transportedmust disclose all the relevant information to the insurancecompany while insuring their goods. The MARINE policyshall be voidable at the option of the insurer in the eventof misrepresentation, mis-description or non-disclosureof any material information.

5 Example: The nature of goodsmust be disclosed whether the goods are hazardousin nature or not, as premium rate will be higher forhazardous ) Insurable Interest: The MARINE INSURANCE will be valid ifthe person is having insurable interest at the time of insurable interest will depend upon the nature ofsales contract. Example: Mr A sends the goods to Mr B onFOB( Free on Board) basis which means the INSURANCE isto be arranged by Mr B. And if any loss arises duringtransit then Mr B is entitled to get the compensationfrom the INSURANCE : Mr A sends the goods to Mr B on CIF (Cost, INSURANCE and Freight) basis which means the insuranceis to be arranged by Mr A. And if any loss arises duringtransit then Mr A is entitled to get the compensation fromthe INSURANCE ) Contribution: If a person insures his goods with twoinsurance companies, then in case of MARINE loss boththe INSURANCE companies will pay the loss to the ownerproportionately.

6 Example; Goods worth Rs. 50 lakhs wereinsured for MARINE INSURANCE with INSURANCE company Aand B. In case of loss, both the INSURANCE companies willcontribute - 4 Practice of General InsuranceNotes 21 MARINE InsuranceDIPLOMA IN INSURANCE SERVICES7) Period of MARINE INSURANCE : The period of INSURANCE inthe policy is for the normal time taken for a particulartransit. Generally the period of open MARINE insurancewill not exceed one year. It can also be issued for thesingle transit and for specific period but not for morethan a ) Deliberate Act: If goods are damaged or loss occurs duringtransit because of deliberate act of an owner then thatdamage or loss will not be covered under the ) Claims: To get the compensation under MARINE insurancethe owner must inform the INSURANCE companyimmediately so that the INSURANCE company can takenecessary steps to determine the OPERATION OF MARINE INSURANCEM arine INSURANCE plays an important role in domestic tradeas well as in international trade.

7 Most contracts of sale requirethat the goods must be covered, either by the seller or thebuyer, against loss or is responsible for affecting INSURANCE on the goods, whichare the subject of sale? It depends on the terms of the salecontract. A contract of sale involves mainly a seller and a buyer,apart from other associated parties like carriers, banks, clearingagents, ContractBanksClearing AgentsCarriers SellerThe principal types of sale contracts, so far as MARINE insuranceis directly concerned, are as follows:DIPLOMA IN INSURANCE SERVICESMODULE - 4 NotesMarine InsurancePractice of General INSURANCE 22 Type of contract Responsibility for insuranceFree on BoardThe seller is responsible till the goods( Contract)are placed on board the buyer is responsible can get the INSURANCE donewherever he on RailThe provisions are the same as in( Contract)above.

8 This is mainly relevant tointernal and FreightHere also, the buyer s responsibility(C&F Contract)normally attaches once the goods areplaced on board. He has to take careof the INSURANCE from that , INSURANCE &In this case, the seller is responsibleFreightfor arranging the INSURANCE upto( Contract) includes the premium charge aspart of the cost of goods in the in International tradeThe normal practice in export /import trade is for the exporterto ask the importer to open a letter of credit with a bank infavour of the exporter. As and when the goods are ready forshipment by the exporter, he hands over the documents oftitle to the bank and gets the bill of exchange drawn by himon the importer, discounted with the bank.

9 In this process,the goods which are the subject of the sale are considered bythe bank as physical security against the monies advanced byit to the exporter. A further security by way of an insurancepolicy is also required by the bank to protect its interests inthe event of the goods suffering loss or damage in transit, inwhich case the importer may not make the payment. The termsand conditions of INSURANCE are specified in the letter of export/import policies, the- Institute Cargo Clauses ( )are used. These clauses are drafted by the Institute of LondonUnderwriters (ILU) and are used by INSURANCE companies in amajority of countries including - 4 Practice of General InsuranceNotes 23 MARINE InsuranceDIPLOMA IN INSURANCE SERVICESINTEXT QUESTIONS will get claim amount in case of MARINE INSURANCE ?

10 Sale contract is FOB, who should insure the goods? PROCEDURE TO INSURE UNDER MARINE INSURANCEA) Submission of formB) Quotation from the INSURANCE CompanyC) Payment of PremiumD) Issue of cover note/PolicyA) Submission of forma)The form will have the following information:a) Name of the shipper or consignor (the insured).b)Full description of goods to be insured: The natureof the commodity to be insured is important for ratingand underwriting. Different types of commodities aresusceptible for different types of damage duringtransit- sugar, cement, etc are easily damaged by seawater; cotton is liable to catch fire; liquid cargoes aresusceptible to the risk of leakage and crockery,glassware to breakage; electronic items are exposedto the risk of theft, and so )Method and type of packing: The possibility of lossor damage depends on this factor.