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Abstract
Marine insurance is an important component of international trade and commerce and subject to international
regulations in every stage of operations. It is governed by the Marine Insurance Act 1963 in India and guided by the
various clauses formulated by the Institute of London Underwriters (ILU) and the international commercial terms
known as Incoterms. This paper analyses the legal aspects the marine insurance in India and provides an overview
and analysis of the Marine Insurance Act, 1963.
I. INTRODUCTION
The need to insure property against the economic consequences of its loss or damage has become a fundamental
feature of modern society. Insurance underpins key aspects of society by providing security and protection to
individuals, communities and businesses. It facilitates trade and commerce; generates employment; provides risk
sharing; encourages innovation by allowing individuals and businesses to
engage in more risky business activities, thereby fostering higher levels of economic activity; and mobilizes
domestic savings through the collection of premiums by insurance companies which can help build a countrys
financial market.
In the context of globalization, maritime transport is the backbone of international trade with over 80 per cent of world
merchandise trade by volume being carried by sea. Marine transport involves risks related with the perils of the
sea. In this respect, marine insurance is a mechanism that helps to mitigate the risks of financial loss to the
property such as ship, goods or other movables, in maritime transport. Insurance is, thus, a necessary component
of doing business on an international basis and plays an important role in the international trade. Its purpose is to
enable ship-owner, the buyer and seller of the goods to operate their businesses, while relieving themselves, at least
partly, of the burdensome financial consequences of their propertys being lost or damaged as a result of various
risks of the high seas.
Thus, marine insurance adds the necessary element of financial security so that the risk of an accident happening
during the transport is not an inhibiting factor in the conduct of international trade. In this sense, marine insurance is
an aid to the conduct of seaborne international trade. Therefore, developing an efficient and competitive insurance
market is of key importance for developing countries like India as they integrate into the world economy.
This paper analyses the legal aspects the marine insurance in India. In this regard, it provides an overview and
analysis of the Marine Insurance Act, 1963.
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was still in rudimentary form and regulating them was not considered necessary. Eventually, with the growth of fire,
accident and marine insurance, the need was felt to bring such kinds of insurance within the purview of the
regulations. While there were a number of attempts to introduce such legislation over the years, law on non-life
insurance was finally enacted in 1938 with the passing of the Insurance Act, 1938.
The general insurance business was nationalized in 1973, through the introduction of the General Insurance
Business (Nationalisation) Act, 1972. Under the provisions of the GIC Act, the shares of the existing Indian general
insurance companies and undertakings of other existing insurers were transferred to the General Insurance
Corporation (GIC) to secure the development of the general insurance business in India and for the regulation and
control of such business. The GIC was established by the Central Government in accordance with the provisions of
the Companies Act, 1956 in November 1972 and it commenced business on January 1, 1973. Prior to 1973, there
were a hundred and seven companies, including foreign companies, offering general insurance in India. These
companies were amalgamated and grouped into four subsidiary companies of GIC viz. the National Insurance
Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd., and the United India
Assurance Company Ltd. GIC undertakes mainly re-insurance business apart from aviation insurance. The bulk of
the general insurance business of fire, marine, motor and miscellaneous insurance business is under taken by the
four subsidiaries
From 1991 onwards, the Indian Government introduced various reforms in the financial sector paving the way for
the liberalization of the Indian economy. Consequently, in 1993, the Government of India set up an eight-member
committee chaired by Mr. R. N. Malhotra, to review the prevailing structure of regulation and supervision of the
insurance sector. The Committee submitted its report in January 1994. Two of the key recommendations of the
Committee included the privatization of the insurance sector by permitting the entry of private players to enter the
business of life and general insurance and the establishment of an Insurance Regulatory Authority. Subsequently,
the recommendations of the Malhotra Committee were implemented by the Indian government by allowing private
investments in the insurance sector and establishing a regulatory body through the enactment of the Insurance
Regulatory and Development Act, 1999 with the aim to provide for the establishment of an Authority, to protect the
interests of the policy holders, to regulate, promote and ensure orderly growth of the insurance industry and to
amend the Insurance Act, 1938, the Life Insurance Corporation Act, 1956 and the General Insurance Business
(Nationalization) Act, 1972.
At present, the principal legislation regulating the insurance business in India is the Insurance Act, 1938, as
amended over the years, and regulates both life insurance and general insurance. General insurance has been
defined to include fire insurance business, marine insurance business and miscellaneous insurance business.
Some other existing legislations in the field are the Life Insurance Corporation 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. The provisions of the Indian Contract Act, 1872 are applicable to the
contracts of marine insurance. Similarly, the provisions of the Companies Act, 1956 are applicable to the companies
carrying on insurance business.
Marine insurance business is mostly international and subject to law and international regulations in every stage of
operations. It is governed by the Marine Insurance Act, 1963, in India and guided by the various clauses formulated
by the Institute of London Underwriters (ILU) and the International Commercial Terms, known as Incoterms
developed by ICC (International Chamber of Commerce).
Marine Insurance Act, 1963, is designed to regulate the transaction of marine insurance businesses of hull, cargo
and freight. They have also, in addition, to fulfill the provisions of section 64VB of the Insurance Act 1938 on
payment of premium in advance of risk commencement (See.Sections 64VB(1) and 64VB(5) of the Insurance Act
1938). The voyages undertaken are subjected to specific Institute of London Underwriters (ILU) clauses, defining
inception and termination of insurance covers, and the perils insured against.
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risks in order to benefit from the probability that only a limited percentage will experience losses by law of
averages.
The word risk being in this context to refer to the risk of loss occurring in connection with insured property, and the
risk of loss can include not only actual property in return for the payment of premium by the assured losses but also
financial losses, such as those resulting from the loss of freight, passage money, commission or profit as well as
certain types of liabilities incurred to third parties (ibid., sections 2[d]{ii}.)
The specification of insurance contract usually stipulates certain limitations as to the type of occurrences that may
cause losses for which the insurer will pay indemnity. Such occurrences are called insured risks or insured perils.
The term perils of the sea refers only to accidents or causalities of the sea, and does not include the ordinary action
of the winds and waves. Besides, maritime perils include, fire, war perils, pirates, seizures and jettison, etc. A marine
insurance policy may specify that only certain maritime risks, or perils of the sea, are covered.
2. Types of Marine Insurance
Some of the important types of marine insurance are as follows:
Hull Insurance
Cargo Insurance
Freight Insurance
Liability Insurance
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c) Freight insurance
Freight insurance provides protection against the loss of freight. In many cases, the owner of goods is bound to pay
freight, under the terms of the contract, only when the goods are safely delivered at the port of destination. If the ship
is lost on the way or the cargo is damaged or stolen, the shipping company loses the freight. Freight insurance is
taken to guard against such risk.
d) Liability insurance
Liability insurance is one in which the insurer undertakes to indemnify against the loss which the insured may suffer
on account of liability to a third party caused by collision of the ship and other similar hazards.
a) Subject-matter
The subject-matter insured must be designated in a marine policy with reasonable certainty(ibid., Section 28[1]).
The nature and extent of the interest of the assured in the subject-matter insured need not be specified in the policy
(ibid. Section 28[2]). 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 (ibid., Section 28[3]).
b) Assignment of policy
A marine insurance policy is assignable either before or after the loss, unless it contains terms expressly prohibiting
assignment(ibid., Section 52[1]). 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
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of the ship or ships and other particulars to be defined by subsequent declaration(ibid., Section 31[1]). The
subsequent declaration or declarations may be made by endorsement on the policy, or in other customary
manner(ibid., Section 31[2]). Unless the policy otherwise provides, the declarations must be made in the order of
dispatch or shipment. They must, in the case of goods, comprise all consignments within the terms of the policy, and
the value of the goods or other property must be honestly stated. An omission or erroneous declaration may be
rectified even after loss or arrival, provided the omission or declaration was made in good faith(ibid., Section 31[3]).
If a declaration of value is not made until after notice of loss or arrival, the policy is generally treated as an unvalued
policy as regards the subject-matter of that declaration(ibid., Section 31[4]). Such policies are very useful to
merchants who regularly despatch goods through ships.
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A trustee holding any property in trust has insurable interest in such property.
In case of advance freight the person advancing the freight has an insurable interest in so far as such freight is
repayable in case of loss.
The insured has an insurable interest in the charges of any insurance policy which he may take.
3. Principle of Indemnity
Most kinds of insurance policies other than life and personal accident insurance are contracts of indemnity whereby
the insurer undertakes to indemnify the insured for the actual loss suffered by him as a result of the occurring of the
event insured against. A contract of marine
insurance is an agreement whereby the insurer undertakes to indemnify the insured to the extent agreed upon(ibid.,
Section 75). Although the insured is to be placed in the same position as if the loss has not occurred, the amount of
indemnity may be limited by certain conditions as follows:
Injury or loss sustained by the insured has to be proved.
The indemnity is limited to the amount specified in the policy.
The insured is indemnified only for the proximate causes.
The market value of the property determines the amount of indemnity.
4. Principle of Subrogation
The principle of subrogation is a corollary of 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(ibid.,
Section 79[1]).
In the marine policy, the insurer must have paid the claim before they are entitled to rights of subrogation (ibid.
Section 79[2]). Whether the loss paid is total or partial insurers subrogated to all the rights and remedies of the
insured. However, the insurer can retain only up to the amount they have indemnified the insured under subrogation.
Such rights and remedies include right of recovery from third parties. In the event of loss of goods at the destination,
the sum insured which is the agreed value will be paid. In case the goods are damaged during transit, the amount
payable is arrived as a proportion of the sum insured according to the percentage of depreciation, suffered by the
goods as certified by surveyors.
V. CONCLUSION
Marine insurance is a mechanism that helps to mitigate the risks of financial loss to the property such as ship, goods
or other movables, in maritime transport, on the payment of premium by the assured to the insurer. Insurer provides
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 marine insurance is governed by the national legal regimes. In India,
Marine Insurance Act, 1963, regulates various aspects of marine insurance.
However, the fact that divergent national legal regimes exist, in the conduct of marine insurance business, has
certain consequences for the parties to contract, particularly the assured, who will have difficulty in understanding
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the coverage of foreign insurance market. Without the uniformity in the national marine insurance legal regimes, the
international conduct of marine insurance, particularly from the assureds perspective, would be severely impeded.
Hence, given the international character of marine insurance, there is a need for harmonization of the legal regimes
governing the rights and obligation of the parties to the insurance contract involving international transport and trade.
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