Marine insurance
 Marine insurance covers the loss or damage of ships, cargo, terminals, and any transport by which the property is transferred, acquired, or held between the points of origin and the final destination. ... When goods are transported by mail or courier, shipping insurance is used instead.

Marine Insurance



 The fundamental principles of Marine Insurance are drawn from the Marine Insurance Act, 1963* As in all contracts of insurance on property, the contract of Marine Insurance is based on the fundamental principles of Indemnity, Insurable Interest, Utmost Good Faith, Proximate Cause, Subrogation and Contribution. Practitioners of Marine Insurance must familiarize themselves with the Act and uphold these Principles when negotiating Contracts and settling claims under the contract.


 The object of an insurance contract is to place the assured after a  loss  in  the  same relative  financial  position  in  which  he  would  have  stood  had  no  loss  occurred.  By the Marine Insurance Act, the indemnity that is provided is “in manner and to the extent agreed.” A “commercial” indemnity is thus provided. Because insurers cannot undertake to reinstate or replace cargo in the event of loss or damage, they pay a sum of money, agreed in advance, that will provide reasonable compensation. In practice, this is achieved by agreeing in advance the insured value, based on C.I.F., value of the goods to which it is customary to add an agreed ten percent which is intended to include the general overheads and perhaps a margin of profit on the transaction.

 Upon total loss of the entire cargo by an insured peril the sum insured is paid in full, and if part of the cargo is a total loss, the appropriate proportion of the insured value is paid.

 Claims for damage are settled by ascertaining the percentage of depreciation and applying this percentage to the insured value. The percentage of depreciation is calculated by comparing the value the goods would realize in their damaged state with their gross sound value on the date of the sale. The same date is used for both values to avoid distortion of the result arising from fluctuations in the market prices.

 In Marine insurance it is customary to issue agreed value policies. The agreed value is conclusive between the Insurer and the Assured except in the event of the unintentional error or where fraud is alleged.

 “Duty” and “Increased Value” policies are not agreed value policies. They provide pure indemnity only.


 The Marine Insurance Act contains a very clear definition of insurable interest. It states that there must be a physical object exposed to marine perils and that the insured must have some legal relationship to the object, in consequence of which he benefits by its preservation and is prejudiced by loss or damage happening to it or where he may incur liability in respect thereof.

Whereas in fire and accident insurance an insurable interest must exist both at inception of the

contract and at the time of loss, the interest in respect of a marine contract must exist at the time of loss, though it may not have existed when the insurance was affected. This is necessary when one considers the mercantile practice under which there is every possibility of sale and purchase of goods during transit. However, the MIA has provided that where the goods are insured “lost or not lost” the assured may recover the loss, although he may not have acquired his interest until after the loss, unless at the time of effecting insurance he was aware of the loss and the insurer was not. If the assured had no interest at the time of the loss, he cannot acquire interest by any act or election after he is aware of the loss. Arising from this, both a contingent and a defeasible interest are insurable. A partial interest is also insurable.

 Unless like the normal indemnity policy of other classes of insurance, a marine cargo policy is freely assignable either before or after loss provided of course the assignee has acquired insurable interest.

 The type of sale contract also determines the Insurable Interest. A separate chapter has been devoted to most common terms of contracts known as “Inco Terms”. The terms dictate which of the two parties to the contract, is responsible to insure the goods.


 Every contract of insurance is a contract “uberrimae fidei” i.e. one which requires utmost good faith on the part of both the insurer and the assured. In Marine Insurance, it is the duty of the proposer to disclose clearly and accurately all material facts related to the risk. A material fact is a fact, which would affect the judgement of a prudent Underwriter in considering whether he would enter into a contract at all or enter into it at one rate of premium or another and subject to what terms. Apart from the duty of disclosure, the insured must act towards the insurer in good faith throughout the duration of the contract.

 It is customary to classify breaches of the duty of utmost good faith under four headings: non- disclosure, concealment, innocent misrepresentation, and fraudulent misrepresentation. The first two are termed passive breaches and the other two are termed active breaches. The Marine Insurance Act places a statutory duty on the assured to disclose to the insurer all material circumstances known to him or which he should know in the ordinary course of his business.

 Whether non-disclosure is intentional or inadvertent, the effect is the same and the policy may be avoided, although deliberate and material non-disclosure would usually amount to fraud and render the policy void.

 Over-valuation, for example, must be communicated to the insurers; if it is not so communicated, it is a concealment of a material fact and voids the insurance.


 “Proximate cause means the active, efficient cause that sets in motion a train of events which brings about a result, without the intervention of any force started and working actively from a new and independent source.”

 Insurers are liable if an insured peril is the proximate cause of the loss. If an insured peril is only the remote cause of the loss, the proximate cause being an uninsured or excepted peril, the insurers are not liable.

The proximate cause is not necessarily that which is proximate in time, but that which is proximate in efficiency. It is the dominant, effective and operative cause of the loss.

 In case of concurrent causes, following rules apply: –


  1. a) If one of the causes contributing to the loss is an insured peril, and no excepted peril is involved, the loss is cov
  2. b) If one of the causes is an excepted peril, the loss is not covered at all, unless the consequences of the insured peril can be separated from those of the uninsured peril, in which event the former, but not the latter, is cover.


 “Subrogation is the right which one person has of standing in place of another and availing himself of all the rights and remedies of the other, whether already enforced or not.”

 Subrogation is a corollary of the principle of indemnity and the right of subrogation therefore applies only to policies, which are contracts of indemnity. Subrogation is a matter of equity, the purpose of which is to ensure that the insured is not over-indemnified for the same loss.

 (a)   In Marine insurance, where an insurer pays for a total loss:

      1i) he is entitled to take over the interest of the assured in whatever may remain of the subject-matter so paid for             (abandonment);

      1.ii) and he is subrogated to all the rights and remedies of the assured as from the time of the loss (subrogation)

 (b)   Where an insurer pays for a partial loss, he acquires no title to the subject-matter insured or to such part of it as may remain, but he is subrogated to all the rights and remedies of the assured as from the time of the loss, and in so far as the assured has been indemnified.

 In marine insurance subrogation applies only after payment of a loss. The insurer is entitled to recover only up to the amount, which he has paid, in respect of rights and remedies.

 On payment of a total loss, the insurer is entitled to assume rights of ownership of the subject- matter insured. The right is conferred upon him by abandonment (not by rights of subrogation) and the effect is that if the property is subsequently salvaged or recovered the insurer is entitled to retain the whole of the proceeds of sale even though they may exceed the sum paid out under the policy, always assuming the property is fully insured and that the assured was not bearing part of the risk himself.

 In addition to this right of exercising ownership of the property, the insurer is subrogated to “all rights and remedies of the assured” as from the time of casualty causing the loss. This simply means that if the loss has been caused by the negligence of a third party, against whom the assured has the right of action in tort – say, against a carrier or bailee – then the Insurer is entitled to succeed to any recovery (whereby the loss is reduced) the assured may affect from such third party. This principle applies equally to total and partial losses and has nothing whatever to do with the doctrine of abandonment.


 Sometimes one risk may be covered by more than one insurer. In that case it is desirable not only to ensure that the insured does not receive more than an indemnity but that any loss is fairly spread between all the insurers involved. The principle of contribution is a method of distributing fairly among insurers the burden of claims for which each shares some responsibility.

Following factors are required to exist before a loss is shared among the insurers

      a) There must be at least two policies of insurance.

      b) All insurances must be policies of indemnity

      c) The policies must cover

         i)The same interest

         ii)The same subject matter

         iii)The same peril

       d) A loss must occur

       e) The policies must be in force at the time of loss.

       f) All policies must cover the

       g) The policies must be legally enforceable.

A contract of marine insurance is an agreement whereby the insurer undertakes to indemnify the insured, in the manner and to the extent thereby agreed, against transit losses, losses incidental to transit. A contract of marine insurance may by its express terms or by usage of trade be extended to protect the insured against losses on inland waters or any land risk which may be incidental to any sea voyage. In simple words the marine insurance includes

A)Cargo insurance which provides insurance cover in respect of loss of or damage to goods during transit by rail, road, sea, air or by post. Thus, cargo insurance concerns the following:

 (i) export and import shipments by ocean-going vessels of 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 sent by post.

B)Hull insurance which is concerned with the insurance of ships (hull, machinery, etc.). This is a highly technical subject and is not dealt in this module. Simply speaking this part of marine insurance which is called Hull Insurance is dealing with insurance of Ships, barges launches, boats and offshore installations.


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.

2) Payment of premium: An owner must ensure that the premium is paid well in advance so that the risk can be covered.

3)Contract of Indemnity: Marine insurance is contract of indemnity and the insurance company is liable only to the extent of actual loss suffered.

4) Utmost good faith: The owner of goods to be transported must disclose all the relevant information to the insurance company while insuring their goods.

5) Insurable Interest: The marine insurance will be valid if the person is having insurable interest at the time of loss.

6) 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.

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

8) 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.

9) 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.

OPERATION OF MARINE INSURANCE Marine insurance plays an important role in domestic trade as well as in international trade. Most contracts of sale require that the goods must be covered, either by the seller or the buyer, against loss or damage.

Type of contract Responsibility for insurance Free on Board

The seller is responsible till the goods (F.O.B. Contract) are placed on board the steamer. The buyer is responsible thereafter. He can get the insurance done wherever he likes.

Free on Rail The provisions are the same as in (F.O.R. Contract) above. This is mainly relevant to internal transactions.

Cost and Freight Here also, the buyer’s responsibility (C&F Contract) normally attaches once the goods are placed on board. He must take care of the insurance from that point onwards.

Cost, Insurance & In this case, the seller is responsible Freight for arranging the insurance up to (C.I.F. Contract) destination. He includes the premium charge as part of the cost of goods in the sale invoice.

Practice in International Trade

The normal practice in export /import trade is for the exporter to ask the importer to open a letter of credit with a bank in favor of the exporter.

The terms and conditions of insurance are specified in the letter of credit. For export/import policies, the-Institute Cargo Clauses (I.C.C.) are used. These clauses are drafted by the Institute of London Underwriters (ILU) and are used by insurance companies in most of countries including India.

Types of Marine Insurance

a) Special Declaration Policy This is a form of floating policy issued to clients whose annual estimated dispatches (i.e. turnover) by rail / road / inland waterways exceed Rs 2 crores.

b) Special Storage Risks Insurance This insurance is granted in conjunction with an open policy or a special declaration policy. The purpose of this policy is to cover goods lying at the Railway premises or carrier’s godowns after termination of transit cover under open or special declaration policies

c)Annual Policy This policy, issued for 12 months, covers goods belonging to the insured, which are not under contract of sale, and which are in transit by rail / road from specified depots / processing units to other specified depots / processing units.

d) “Duty” Insurance Cargo imported into India is subject to payment of Customs Duty, as per the Customs Act. This duty can be included in the value of the cargo insured under a Marine Cargo Policy, or a separate policy can be issued in which case the Duty Insurance Clause is incorporated in the policy. Warranty provides that the claim under the Duty Policy would be payable only if the claim under the cargo policy is payable.

e) “Increased Value” Insurance may be ‘goods at destination port’ on the date of landing if it is higher than the CIF and Duty value of the cargo

The important exclusions are:

i)Loss caused by willful misconduct of the insured.

ii)Ordinary leakage, ordinary loss in weight or volume or ordinary wear and tear. These are normal ‘trade’ losses which are inevitable and not accidental in nature

iii. Loss caused by ‘inherent vice’ or nature of the subject matter. For example, perishable commodities like fruits, vegetables, etc. may deteriorate without any ‘accidental cause’. This is known as ‘inherent vice’.

iv)Loss caused by delay, even though the delay be caused by an insured risk.

v)Deliberate damage by the wrongful act of any person. This is called ‘malicious damage’ and can be covered at extra premium, under (B) and (C) clauses. Under ‘A’ clause, the risk is automatically covered. vi. Loss arising from insolvency or financial default of owners, operators, etc. of the vessel

vi. Loss or damage due to inadequate packing.

vii)Loss arising from insolvency or financial default of owners, operators, etc. of the vessel

viii) War and kindred perils. These can be covered on payment of extra premium.

ix)Strikes, riots, lock-out, civil commotions and terrorism (SRCC) can be covered on payment of extra premium. B) Inland Consignments.


 Types of Marine Hull Insurance

Insurance of vessel and its equipment’s are included under hull insurance, there are several classification of vessels such as ocean steamers, sailing vessels, builders, risks fleet policies and so on.

It is concerned with the insurance of hull and machinery of ocean-going and other vessels like barges, tankers, Fishing and sailing vessels.

A recent development in hull insurance has been the growth of insurance of offshore oil/gas exploration and production units as well as connected construction risks.

It is covered with specialized class of business particularly for Fishing Vessels, Trawler’s, Dredgers, Inland and Sailing Vessels are available.

The subject matter of hull insurance is the vessel or ship. There are many types of designs of ships. Most of them are constructed of steel and welded and are capable of sailing on the sea in ballast in with cargo.

The ship is to be measured with GRT (Gross Register Tonnage) and NRT (Net Register Tonnage). GRT is calculated by dividing the volume in cubic feet of the ship’s hull below the tonnage dock, plus all spaces above the deck with permanent means of closing.

NRT is the gross tonnage less certain spines for machinery, crew accommodation ballast spaces and is intended to encompass only those spinning used for carriage of cargo.

DWT (Dead Weight Tonnage) means the capacity in tons of the cargo required in load a ship to her load line level.

Subdivision of Hull Insurance

The Hull Insurance is further Subdivision into;

  1. General Cargo vessels.
  2. Dry Bulk Carriers.
  3. Liquid Bulk Carriers.
  4. Passenger Vessels.

These can be further divided into ocean going and coastal tonnage. Ocean going general cargo vessels is usually in the 5000 to 15000 GRT range, coasters are smaller in size and one engaged in the carriage of bulk cargoes.

Coastal tonnage does not withstand the same strains as ocean going vessels.

  1. General Cargo Vessel

The general cargo vessels may be container ships, large carriers (LASH – Lighter Abroad Ship) Ro-Ro (Roll on Roll off) vessels, Refers (Refrigerated Vessels General Cargo)

  1. Dry Bulk Carriers

Dry Bulk Carriers are specially constructed vessels in the size range of thousands GRT for coasters and 70,000 GRT for ocean going tonnage. The main bulk cargoes carried are iron ore, coal, grain bauxite and phosphate

  1. Liquid Bulk Carriers

Tankers are strongly constructed to carry bulk liquid. The tankers have using tanks which do not extend across the breadth of the tanker.

  1. Passenger Vessels

There are cruise vessels or passenger liners which sail on voyages to distant areas of scenically beautiful but rocky or shallow coasts or near the icy waters of the Arctic and Antarctic. They possess modem navigational systems.

Other Vessels

There are other types of vessels such as fishing vessels, offshore oil vessels and others.

Fishing Vessels

Fishing vessels bulk of steel and fiberglass (GRP) are much more prevalent.

Geographical/physical features of the area of operations vary from comparatively sheltered waters of inshore fishing to the full rigors of the open seas with exposure to gales, heavy seas fog ice and snow.

Offshore Oil Vessels

The offshore oil vessels are used for explanation or for commercial production of oil from the ocean beds.

Hull and Machinery Insurance

The policy covers the hull, machinery and equipment and stores etc. on board but do not cover cargo.

The insurance cover, the requirements of the individual ship owner and protects him against partially loss, total loss, ship’s proportion of general average and salvage charges, sue and labor expenses and ship-owner’s liability towards other vessels arising from collisions.

Hull Underwriting

Hull underwriting requires the following information to assure the risk: Type, construction, builders, age, tonnage, dimension, equipment, propulsion machines, engine, fire extinguisher; classification society, merchant shipping act, warranties, navigation physical and moral hazard.

guide to marine insurance


For most consumers, buying the protection plan is an immediate, hard, “no.” Shoppers quickly calculate the risk of damage to their new purchase and decide it’s not worth the extra cash. This fuzzy and rushed math performed at the cash register might be fine for a new beach stereo, but it’s probably not good enough to determine the safety and protection of your business’s entire inventory for September. If you think about Marine Cargo Insurance as a protection plan, you’re in trouble. For small to medium-sized companies, loss and damage to goods can destroy a bottom line.

Many freight carriers offer per pound or per item coverage, which sounds like an effective idea. However, what happens when your 1,000-pound solar panel – which is worth $1,200,000 – is only covered for a few thousand dollars? Purchasing additional freight coverage can mean the difference between growing your company and shuttering your doors. Protecting your investment with Marine Cargo Insurance will keep your company on the right path forward.


What Marine Cargo Insurance Covers

what marine cargo insurance covers

Simply put, Marine Cargo Insurance covers your goods for any loss or damage while in-transit on the ocean. While each policy might vary on the details, the main point of ocean freight insurance is to protect you and your company from suffering revenue.

There are a few different types of cargo insurance policies which you should consider. Check out this great list of the kinds of freight insurance over at the Cerasis blog (another excellent resource for shippers and logistics professionals). Knowing which type of policy best suits your business requires knowing your full scope of work, and the risks involved in your specific move and industry.

Since Marine Cargo Insurance covers goods over the ocean, it protects your bottom line against fire and loss. It even covers damage due to weather. The hurricane season is upon us, and with recent storms pummeling the seas and costs of Hawaii, extra protection against the treacherous winds and rain is an excellent idea for any business. Rough seas can cause damage to items from being tossed and jostled around inside containers.

Protect your assets from the start. There are small things you can do to lessen the risk of damage to your goods. Properly packaging your freight before it begins its journey will go a long way in safeguarding against loss.


Marine Cargo Insurance Providers and Resources

marine cargo insurance resources

Now that you know the basics of what a freight policy covers, it’s time to find a partner. A quick Google search will yield plenty of potential providers for Marine Cargo Insurance. Like any other insurance policy or protection service, it is best to explore your options before choosing a provider thoroughly. Ask your ocean freight carrier if they have any recommendations. Phone a friend or trusted business associate and asked if he or she has any experience with procuring Marine Cargo Insurance. The more information you gather on your prospective supplier, the more likely you are to be fully covered.

Inbound Logistics – who made our list of top resources for international freight – provides shippers with a great tool for finding marine cargo insurance.

Understand your freight provider’s full terms and conditions before you ship your valuable merchandise over the ocean. Asking a few simple questions on their claims process, their primary coverage, and whether or not your items will be covered if any loss or damage occurs is a vital step in the shipping process. A great provider will let you know up front if they think you should seek out additional Marine Cargo Insurance.

Marine insurance

From Wikipedia, the free encyclopedia

Marine insurance covers the loss or damage of ships, cargo, terminals, and any transport by which the property is transferred, acquired, or held between the points of origin and the final destination. Cargo insurance is the sub-branch of marine insurance, though Marine insurance also includes Onshore and Offshore exposed property, (container terminals, ports, oil platforms, pipelines), Hull, Marine Casualty, and Marine Liability. When goods are transported by mail or courier, shipping insurance is used instead.


Marine insurance was the earliest well-developed kind of insurance, with origins in the Greek and Roman marine loan. it was the oldest risk hedging instruments our ancestors used to mitigate risk in medieval times were sea/marine (Mutuum) loans, commenda contract, and bill of exchanges[1].Separate marine insurance contracts were developed in Genoa and other Italian cities in the fourteenth century and spread to northern Europe. Premiums varied with intuitive estimates of the variable risk from seasons and pirates.[2] Modern marine insurance law originated in the Lex mercatoria (law merchant). In 1601, a specialized chamber of assurance separate from the other Courts was established in England. By the end of the seventeenth century, London’s growing importance as a centre for trade was increasing demand for marine insurance. In the late 1680s, Edward Lloyd opened a coffee house on Tower Street in London. It soon became a popular haunt for ship owners, merchants, and ships’ captains, and thereby a reliable source of the latest shipping news.[3]

Lloyd’s Coffee House was the first marine insurance market. It became the meeting place for parties in the shipping industry wishing to insure cargoes and ships, and those willing to underwrite such ventures. These informal beginnings led to the establishment of the insurance market Lloyd’s of London and several related shipping and insurance businesses. The participating members of the insurance arrangement eventually formed a committee and moved to the Royal Exchange on Cornhill as the Society of Lloyd’s. The establishment of insurance companies, a developing infrastructure of specialists (such as shipbrokersadmiralty lawyers, bankers, surveyors, loss adjusters, general average adjusters, et al.), and the growth of the British Empire gave English law a prominence in this area which it largely maintains and forms the basis of almost all modern practice. Lord MansfieldLord Chief Justice in the mid-eighteenth century, began the merging of law merchant and common law principles. The growth of the London insurance market led to the standardization of policies and judicial precedent further developed marine insurance law. In 1906 the Marine Insurance Act codified the previous common law; it is both an extremely though and concise piece of work. Although the title of the Act refers to marine insurance, the general principles have been applied to all non-life insurance. In the 19th century, Lloyd’s and the Institute of London Underwriters (a grouping of London company insurers) developed between them standardized clauses for the use of marine insurance, and these have been maintained since. These are known as the Institute Clauses because the Institute covered the cost of their publication. Out of marine insurance, grew non-marine insurance and reinsurance. Marine insurance traditionally formed the majority of business underwritten at Lloyd’s. Nowadays, Marine insurance is often grouped with Aviation and Transit (cargo) risks, and in this form is known by the acronym ‘MAT’.

It is common for marine insurance agencies to compete with the offerings provided by local insurers. These specialist agencies often fill market gaps by providing cover for hard-to-place or obscure marine insurance risks that would otherwise be difficult or impossible to find insurance cover for. These agencies can become quite large and eventually become market makers. They operate best when their day to day management is independent of the insurers who provide them with the capital to underwrite risks on their behalf.


The Marine Insurance Act includes, as a schedule, a standard policy (known as the “SG form”), which parties were at liberty to use if they wished. Because each term in the policy had been tested through at least two centuries of judicial precedent, the policy was extremely thorough. However, it was also expressed in rather archaic terms. In 1991, the London market produced a new standard policy wording known as the MAR 91 form using the Institute Clauses. The MAR form is simply a general statement of insurance; the Institute Clauses are used to set out the detail of the insurance cover. In practice, the policy document usually consists of the MAR form used as a cover, with the Clauses stapled to the inside. Typically, each clause will be stamped, with the stamp overlapping both onto the inside cover and to other clauses; this practice is used to avoid the substitution or removal of clauses.because marine insurance is typically underwritten on a subscription basis, the MAR form begins: We, the Underwriters, agree to bind ourselves each for his own part and not one for another […]. In legal terms, liability under the policy is several and not joint, i.e., the underwriters are all liable together, but only for their share or proportion of the risk. If one underwriter should default, the remainder are not liable to pick his share of the claim. Typically, marine insurance is split between the vessels and the cargo. Insurance of the vessels is generally known as “Hull and Machinery” (H&M). A more restricted form of cover is “Total Loss Only” (TLO), generally used as a reinsurance, which only covers the total loss of the vessel and not any partial loss. Cover may be on either a “voyage” or “time” basis. The “voyage” basis covers transit between the ports set out in the policy; the “time” basis covers a period, typically one year, and is more common.

Protection and indemnity

A marine policy typically covered only three-quarter of the insured’s liabilities towards third parties (Institute Time Clauses Hulls 1.10.83). The typical liabilities arise in respect of collision with another ship, known as “running down” (collision with a fixed object is a “allision”), and wreck removal (a wreck may serve to block a harbour, for example). In the 19th century, shipowners banded together in mutual underwriting clubs known as Protection and Indemnity Clubs (P&I), to insure the remaining one-quarter liability amongst themselves. These Clubs are still in existence today and have become the model for other specialized and noncommercial marine and non-marine mutuals, for example in relation to oil pollution and nuclear risks. Clubs work on the basis of agreeing to accept a shipowner as a member and levying an initial “call” (premium). With the fund accumulated, reinsurance will be purchased; however, if the loss experience is unfavourable one or more “supplementary calls” may be made. Clubs also typically try to build up reserves, but this puts them at odds with their mutual status.Because liability regimes vary throughout the world, insurers are usually careful to limit or exclude American Jones Act liability.

Actual total loss and constructive total loss

These two terms are used to differentiate the degree of proof that a vessel or cargo has been lost. An actual total loss occurs when the damages or cost of repair clearly equal or exceed the value of the property. A constructive total loss is a situation in which the cost of repairs plus the cost of salvage equal or exceed the value. The use of these terms is contingent on there being property remaining to assess damages, which is not always possible in losses to ships at sea or in total theft situations. In this respect, marine insurance differs from non-marine insurance, with which the insured is required to prove his loss. Traditionally, in law, marine insurance was seen as an insurance of “the adventure”, with insurers having a stake and an interest in the vessel and/or the cargo rather than simply an interest in the financial consequences of the subject-matter’s survival.

The term “constructive total loss” was also used by the United States Navy during World War II to describe naval vessels that were damaged to such an extent that they were beyond economical repair. This was most often applied to destroyer-type ships in 1945, the last year of the war, many which were damaged by kamikazes. By this time enough ships were available for the war that some could be disposed of if severely damaged.[4]

General averages

Average in marine insurance terms is “an equitable apportionment among all the interested parties of an such an expense or loss.”

General average stands apart for marine insurance. In order for general average to be properly declared, 1) there must be an event which is beyond the shipowner’s control, which imperils the entire adventure; 2) there must be a voluntary sacrifice, 3) there must be something saved. The voluntary sacrifice might be the jettison of certain cargo, the use of tugs, or salvors, or damage to the ship, be it, voluntary grounding, knowingly working the engines that will result in damages. General average requires all parties concerned in the maritime venture (hull/cargo/freight/bunkers) to contribute to make good the voluntary sacrifice. They share the expense in proportion to the ‘value at risk” in the adventure. Particular average is the term applied to partial loss be it hull or cargo.

Average – is the situation in which the insured has under-insured, i.e., insured an item for less than it is worth. Average will apply to reduce the claim amount payable. An average adjuster is a marine claims specialist responsible for adjusting and providing the general average statement. An Average Adjuster in North America is a ‘member of the association of Average Adjusters’ To insure the fairness of the adjustment a General Average adjuster is appointed by the shipowner and paid by the insurer.

Excess, deductible, retention, co-insurance, and franchise

An excess is the amount payable by the insured and is usually expressed as the first amount falling due, up to a ceiling, in the event of a loss. An excess may or may not be applied. It may be expressed in either monetary or percentage terms. An excess is typically used to discourage moral hazard and to remove small claims, which are disproportionately expensive to handle. The term “excess” signifies the “deductible” or “retention”.

A co-insurance, which typically governs non-proportional treaty reinsurance, is an excess expressed as a proportion of a claim in percentage terms and applied to the entirety of a claim. Co-insurance is a penalty imposed on the insured by the insurance carrier for under reporting/declaring/insuring the value of tangible property or business income. The penalty is based on a percentage stated within the policy and the amount under reported. As an example: a vessel actually valued at $1,000,000 has an 80% co-insurance clause but is insured for only $750,000. Since its insured value is less than 80% of its actual value, when it suffers a loss, the insurance payout will be subject to the under-reporting penalty, the insured will receive 750000/1000000th (75%) of the claim made less the deductible.

Tonners and chinamen

These are both obsolete forms of early reinsurance. Both are technically unlawful, as not having insurable interest, and so were unenforceable in law. Policies were typically marked P.P.I. (Policy is Proof of Interest). Their use continued into the 1970s before they were banned by Lloyd’s, the main market, by which time they had become nothing more than crude bets. A “tonner” was simply a “policy” setting out the global gross tonnage loss for a year. If that loss was reached or exceeded, the policy paid out. A “chinaman” applied the same principle but in reverse: thus, if the limit was not reached, the policy paid out.

Specialist policies

Various specialist policies exist, including:

  • Newbuilding risks: This covers the risk of damage to the hull while it is under construction.
  • Open Cargo or Shipper’s Interest Insurance: This policy may be purchased by a carrier, freight broker, or shipper, as coverage for the shipper’s goods. In the event of loss or damage, this type of insurance[5] will pay for the true value of the shipment, rather than only the legal amount that the carrier is liable for.
  • Yacht Insurance: Insurance of pleasure craft is generally known as “yacht insurance” and includes liability coverage. Smaller vessels such as yachts and fishing vessels are typically underwritten on a “binding authority” or “lineslip” basis.
  • War risks: General hull insurance does not cover the risks of a vessel sailing into a war zone. A typical example is the risk to a tanker sailing in the Persian Gulf during the Gulf War. The war risks areas are established by the London-based Joint War Committee, which has recently (when?) moved to include the Malacca Straits as a war risks area due to piracy. If an attack is classified as a “riot” then it would be covered by war-risk insurers.
  • Increased Value (IV): Increased Value cover protects the shipowner against any difference between the insured value of the vessel and the market value of the vessel.
  • Overdue insurance: This is a form of insurance now largely obsolete due to advances in communications. It was an early form of reinsurance and was bought by an insurer when a ship was late at arriving at her destination port and there was a risk that she might have been lost (but, equally, might simply have been delayed). The overdue insurance of the Titanic was famously underwritten on the doorstep of Lloyd’s.
  • Cargo insurance: Cargo insurance is underwritten on the Institute Cargo Clauses, with coverage on an AB, or C basis, A having the widest cover and C the most restricted. Valuable cargo is known as specie. Institute Clauses also exist for the insurance of specific types of cargo, such as frozen food, frozen meat, and particular commodities such as bulk oil, coal, and jute. Often these insurance conditions are developed for a specific group as is the case with the Institute Federation of Oils, Seeds and Fats Associations (FOFSA) Trades Clauses which have been agreed with the Federation of Oils, Seeds and Fats Associations and Institute Commodity Trades Clauses which are used for the insurance of shipments of cocoacoffeecotton, fats and oils, hides and skins, metals, oil seedsrefined sugar, and tea and have been agreed with the Federation of Commodity Associations.

Warranties and conditions

A peculiarity of marine insurance, and insurance law generally, is the use of the terms condition and warranty. In English law, a condition typically describes a part of the contract that is fundamental to the performance of that contract, and, if breached, the non-breaching party is entitled not only to claim damages but to terminate the contract on the basis that it has been repudiated by the party in breach.

By contrast, a warranty is not fundamental to the performance of the contract and breach of a warranty, while giving rise to a claim for damages, does not entitle the non-breaching party to terminate the contract. The meaning of these terms is reversed in insurance law. Indeed, a warranty if not strictly complied with will automatically discharge the insurer from further liability under the contract of insurance. The assured has no defense to his breach, unless he can prove that the insurer, by his conduct, has waived his right to invoke the breach, possibility provided in section 34(3) of the Marine Insurance Act 1906 (MIA). Furthermore, in the absence of express warranties the MIA will imply them, notably a warranty to provide a seaworthy vessel at the commencement of the voyage in a voyage policy (section 39(1)) and a warranty of legality of the insured voyage (section 41).[6]

Salvage and prizes

The term “salvage” refers to the practice of rendering aid to a vessel in distress. Apart from the consideration that the sea is traditionally “a place of safety”, with sailors honour-bound to render assistance as required, it is obviously in underwriters’ interests to encourage assistance to vessels in danger of being wrecked. A policy will usually include a “sue and labour” clause which will cover the reasonable costs incurred by a shipowner in his avoiding a greater loss.

At sea, a ship in distress will typically agree to “Lloyd’s Open Form” with any potential salvor. The Lloyd’s Open Form (LOF) is the standard contract, although other forms exist. The Lloyd’s Open Form is headed “No cure — no pay”; the intention being that if the attempted salvage is unsuccessful, no award will be made. However, this principle has been weakened in recent years, and awards are now permitted in cases where, although the ship might have sunk, pollution has been avoided or mitigated.

In other circumstances the “salvor” may invoke the SCOPIC terms (most recent and commonly used rendition is SCOPIC 2000) in contrast to the LOF these terms mean that the salvor will be paid even if the salvage attempt is unsuccessful. The amount the salvor receives is limited to cover the costs of the salvage attempt and 25% above it. One of the main negative factors in invoking SCOPIC (on the salvor’s behalf) is if the salvage attempt is successful the amount at which the salvor can claim under article 13 of LOF is discounted.

The Lloyd’s Open Form, once agreed, allows salvage attempts to begin immediately. The extent of any award is determined later; although the standard wording refers to the Chairman of Lloyd’s arbitrating any award, in practice the role of arbitrator is passed to specialist admiralty QCs. A ship captured in war is referred to as a prize, and the captors entitled to prize money. Again, this risk is covered by standard policies.

Marine Insurance Act, 1906

The most important sections of this Act include::§4: a policy without insurable interest is void.:§17: imposes a duty on the insured of uberrimae fides (as opposed to caveat emptor), i.e., that questions must be answered honestly and the risk not misrepresented.:§18: the proposer of the insurer has a duty to disclose all material facts relevant to the acceptance and rating of the risk. Failure to do so is known as non-disclosure or concealment (there are minor differences in the two terms) and renders the insurance voidable by the insurer.:§33(3): If [a warranty] be not [exactly] complied with, then, subject to any express provision in the policy, the insurer is discharged from liability as from the date of the breach of warranty, but without prejudice to any liability incurred by him before that date.:§34(2): where a warranty has been broken, it is no defence to the insured that the breach has been remedied, and the warranty complied with, prior to the loss.:§34(3): a breach of warranty may be waived (ignored) by the insurer.:§39(1): implied warranty that the vessel must be seaworthy at the start of her voyage and for the purpose of it (voyage policy only).:§39(5): no warranty that a vessel shall be seaworthy during the policy period (time policy). However, if the assured knowingly allows an unseaworthy vessel to set sail the insurer is not liable for losses caused by unseasworthiness.:§50: a policy may be assigned. Typically, a shipowner might assign the benefit of a policy to the ship-mortgagor.:§§60-63: deals with the issues of a constructive total loss. The insured can, by notice, claim for a constructive total loss with the insurer becoming entitled to the ship or cargo if it should later turn up. (By contrast an actual total loss describes the physical destruction of a vessel or cargo.):§79: deals with subrogation, i.e., the rights of the insurer to stand in the shoes of an indemnified insured and recover salvage for his own benefit. Schedule 1 of the Act contains a list of definitions; schedule 2 contains the model policy wording.

Claims Basis & Deductibles

Marine insurance is always written on an occurrence basis, covering claims that arise out of damage or injury that took place during the policy period, regardless when claims are made. Policy features often include extensions of coverage for items typical to a marine business such as liability for container damage and removal of debris.

A deductible is the first amount of a claim that the policy holders bears themselves. There can occasionally be a zero deductible but in most cases a deductible applies to claims made under a policy of marine insurance.

See also


  1. ^ Din, Sajid Mohy Ul (2013). “Impact of cost of marine and general insurance on international trade and economic growth of Pakistan”. World Applied Sciences Journal28 (5): 659-671.
  2. ^ J. Franklin, The Science of Conjecture: Evidence and Probability Before Pascal (Baltimore: Johns Hopkins University Press, 2001), 273-278.
  3. ^ Palmer, Sarah (October 2007). “Lloyd, Edward (c.1648–1713)”Oxford Dictionary of National Biography. Oxford University Press. doi:10.1093/ref:odnb/16829. Archived from the original on 15 July 2011. Retrieved 16 February 2011.
  4. ^ Stille, Mark (2016). U.S. Navy Ships vs. Kamikazes: 1944-45. Oxford: Osprey. pp. 68–70. ISBN 978-1-4728-1273-5.
  5. ^ Hartford, The (May 2016). “Ocean Marine Insurance”The Hartford Ocean Marine Insurance. The Hartford Financial Services Group, Inc. Retrieved 16 May 2016.
  6. ^ see also: Bank of Nova Scotia v. Hellenic Mutual War Risks Association (Bermuda) Ltd. (“The Good Luck”) [1991] 2 WLR 1279 and at 1294-5


  • Birds, J. Birds’ Modern Insurance Law. Sweet & Maxwell, 2004. (ISBN 0-421-87800-2)
  • Donaldson, Ellis, Wilson (Editor), Cooke (Editor), Lowndes and Rudolf: Law of General Average and the York-Antwerp Rules. Sweet & Maxwell, 1990. (ISBN 0-420-46930-3)
  • John, A. H. “The London Assurance Company and the Marine Insurance Market of the Eighteenth Century,” Economica New Series, Vol. 25, No. 98 (May 1958), pp. 126–141 in JSTOR
  • Roover, Florence Edler de. “Early Examples of Marine Insurance,” Journal of Economic History Vol. 5, No. 2 (Nov., 1945), pp. 172–200 in JSTOR
  • Wilson, DJ, Donaldson (1997). Lowndes and Rudolf: General Average and the York-Antwerp Rules. British Shipping Law Library: Sweet & Maxwell. ISBN 0-421-56450-4.

External links



Different Types of Marine Insurance & Marine Insurance Policies

Why Marine Insurance?

Any insurance is designed to manage risks in the event of unfortunate incidents like accidents, damage to the property and environment or loss of life. When it comes to Ships, the stakes are higher as all factors are involved in the operation, i.e. risk of losing valuable cargo or expansive ships, the risk of damage to the environment due to oil pollution and risk of losing precious lives of seafarers due to accidents.

Related Reading: What is marine insurance?

To ensure all the risk can be managed without the lack of monetary funds when needed the most, different Maritime insurances are made compulsory for ships and ship owners to take. Only post that, the ISM can be implemented on ships.


The types of marine insurance available for the benefit of a client are many and all of them are feasible in their own way. Depending on the nature and scope of a client’s business, he can opt for the best marine insurance plans and enjoy the advantage of having marine insurance.


Representation Image – Photograph by Keegan Welken 

There are several marine insurance companies providing types of insurance for ship owners, cargo owners and charterers.

The different types of marine insurance can be elaborated as follows:

Hull Insurance: Hull insurance mainly caters to the torso and hull of the vessel along with all the articles and pieces of furniture on the ship. This type of marine insurance is mostly taken out by the owner of the ship to avoid any loss to the vessel in case of any mishaps occurring.

Related Reading: Hull of a ship: Understanding Design And Characteristics 

Machinery Insurance: All the essential machinery are covered under this insurance and in case of any operational damages, claims can be compensated (post-survey and approval by the surveyor).

The above two insurances also come as one under Hull & Machinery (H&M) Insurance. The H&M insurance can also be extended to cover war risk covers and strike cover (strike in port may lead to delay and increase in costs)

Related Reading: What is marine underwriting?

Protection & Indemnity (P&I) Insurance: This insurance is provided by the P&I club, which is ship owners mutual insurance covering the liabilities to the third party and risks which are not covered elsewhere in standard H & M and other policies.

Protection: Risks which are connected with ownership of the vessel. E.g. Crew related claims.

Indemnity: Risks which are related to the hiring of the ship. E.g. Cargo-related claims.

Related Reading: How P & I Clubs Work

Liability Insurance: Liability insurance is that type of marine insurance where compensation is sought to be provided to any liability occurring on account of a ship crashing or colliding and on account of any other induced attacks.

Related Reading: 10 Important things to do during ship collision accident

Freight, Demurrage and Defense (FD&D) Insurance: Often referred to as “FD&D” or simply “Defense,” this insurance provides claims for handling assistance and legal costs for a wide range of disputes which are not covered under H&M or P&I insurance.

Freight Insurance: Freight insurance offers and provides protection to merchant vessels’ corporations which stand a chance of losing money in the form of freight in case the cargo is lost due to the ship meeting with an accident. This type of marine insurance solves the problem of companies losing money because of a few unprecedented events and accidents occurring.

Marine Cargo Insurance: Cargo insurance caters specifically to the marine cargo carried by ship and also pertains to the belongings of a ship’s voyages. It protects the cargo owner against damage or loss of cargo due to ship accident or due to delay in the voyage or unloading. Marine cargo insurance has third-party liability covering the damage to the port, ship or other transport forms (rail or truck) resulted from the dangerous cargo carried by them

Related Reading: What is marine cargo insurance

The time limit for claims that are right to compensation may vary depending upon the content of the policy, and action is to be brought within that period from the date when the damage occurred.

For Newly built ships, the shipowner is under contract with the shipyard to take out insurance cover for a period (usually one year) from the date of yard delivery.


In addition to these types of marine insurance, there are also various types of marine insurance policies which are offered to the clients by insurance companies so as to provide the clients with flexibility while choosing a marine insurance policy. The availability of a wide array of marine insurance policies gives a client a wide arena to choose from, thus enabling him to get the best deal for his ship and cargo. The different types of marine insurance policies are detailed below:

  • Voyage Policy: A voyage policy is that kind of marine insurance policy which is valid for a particular voyage.
  • Time Policy: A marine insurance policy which is valid for a specified time period – generally valid for a year – is classified as a time policy.
  • Mixed Policy: A marine insurance policy which offers a client the benefit of both time and voyage policy is recognized as a mixed policy.
  • Open (or) Unvalued Policy: In this type of marine insurance policy, the value of the cargo and consignment is not put down in the policy beforehand. Therefore reimbursement is done only after the loss of the cargo and consignment is inspected and valued.
  • Valued Policy: A valued marine insurance policy is the opposite of an open marine insurance policy. In this type of policy, the value of the cargo and consignment is ascertained and is mentioned in the policy document beforehand thus making clear about the value of the reimbursements in case of any loss to the cargo and consignment.
  • Port Risk Policy: This kind of marine insurance policy is taken out in order to ensure the safety of the ship while it is stationed in a port.
  • Wager Policy: A wager policy is one where there are no fixed terms for reimbursements mentioned. If the insurance company finds the damages worth the claim then the reimbursements are provided, else there is no compensation offered. Also, it has to be noted that a wager policy is not a written insurance policy and as such is not valid in a court of law.
  • Floating Policy: A marine insurance policy where only the amount of claim is specified and all other details are omitted till the time the ship embarks on its journey, is known as a floating policy. For clients who undertake frequent trips of cargo transportation through waters, this is the most ideal and feasible marine insurance policy.
  • Single Vessel Policy: This policy is suitable for small shipowner having only one ship or having one ship in different fleets. It covers the risk of one vessel of the insured.

Related Reading: Marine insurance for piracy attacks

  • Fleet Policy: In this policy, several ships belonging to one owner are insured under the same policy.
  • Block Policy: This policy also comes under maritime insurance to protects the cargo owner against damage or loss of cargo in all modes of transport through which his/her cargo is carried i.e. covering all the risks of rail, road, and sea transport.

Marine Insurance is an area which involves a lot of thought, straightforward and complex dealings in order to achieve the common ground of payment and receiving. But as much as complex the field is, it is nonetheless interesting and intriguing because it caters to a lot of people and offers a wide range of services and policies to facilitate easy and uncomplicated business transactions. Therefore, in the interest of the clients and the insurance providers, it is beneficial and relevant to have the right kind of marine insurance. It resolves problems not just in the short run, but also in the long run as well.

Disclaimer: The authors’ views expressed in this article do not necessarily reflect the views of Marine Insight. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Marine Insight do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader.

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