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Assignment of Marine Insurance Policy | Insurance Law

Marine insurance - , what police you must specify- , contract must be embodied in policy- , assignment of policy - , assured who has no interest cannot assign- , double insurance -, 23 comments:.

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Assignment of marine insurance policies

Dear Friends,

As you are aware that 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, that is to say losses incidental to transit.

A contract of marine insurance may by its express terms or by usage of trade be extended so as 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 or air.

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.).

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.

The term " Transfer" or " Assignment" of policies of insurance are governed by the provisions of the Transfer of Property Act,1882 as amended from time to time. Please note that provisions of Section 38 of the Insurance Act,1938 only deals with transfer or assignment of Life Insurance Polices and the provisions of TP Act,1882 deal with other types of insurance policies.

"Actionable Claim"

Section 3 of TP Act,1882 defines as - a claim to any debt, other than a debt secured by mortgage of immoveable property or by hypothecation or pledge of moveable property, or to any beneficial interest in moveable property not in the possession, either actual or constructive, of the claimant, which the Civil Courts recognise as affording grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional or contingent.

The claim under a policy was regarded as property and is treated as an actionable claim under TP Act,1882 and the rules relating a transfer of actionable claim were held to apply to assignment of policies till specific statute laid down some specific rules for such assignments.

Section 6(e) of the Transfer of Property Act,1882 lays down that a mere right to sue cannot be transferred

From above we find that an actionable claim means a claim to a debt. In its primary sense a debt is a liquidated money obligation and it is an essential feature of an action for debt that it should be for a liquidated debt or certain sum of money. The right to recover an ascertained and definite debt is not a mere right to sue and is not transferable. It is an actionable claim.

It means if a certain sum of money is due from any person, that sum is recoverable on assignment, and it is not mere right to sue to offend against the provisions of Section 6( e) of TP act,1882. As you know that in case of an actionable claim, there is a surety that there is some amount,which can be recovered and same as in an Insurance Policy. The Sum Insured is the amount,which will be recoverable at the time of loss or after assignment of insurance policy by the assignee. A policy of insurance is a present contract in the hand of an insured of which he has present right to the benefit although the fruits are to be enjoyed in future.

A policy on a man's life expressed to be payable to his executors or administrators is a reversionary interest certain to fall in on the assured's death or attainment of the stipulated age. A policy of insurance is a choose in action. A policy of life insurance represents money which is due and owned to the assured at his death and in the part of his estate. He has unlettered discretion to sell or charge it, to bequeath it or even to give it away.

"ASSIGNMENT"

It means- Transfer of interest from one to another is called assignment. In insurance also when rights and obligation under the contract are transferred from one to another, the same is called assignment of the policy. There can be another assignment in insurance which is assignment of benefits under the policies. Assignment of policy and assignment of benefits are quite distinct. Whereas in the former all the rights and obligations are transferred, in the latter only benefits (i.e. money due under the policy etc) are transferred. In insurance the assignment means assignment of rights under the contract. An assignee for all purposes becomes the owner of the policy and enjoys all rights thereunder. However, by assignment no change is made in the subject matter insured by the policy and it remains unaltered."

ASSIGNMENT OF A CONTRACT OF INSURANCE AND ASSIGNMENT OF THE SUBJECT MATTER OF INSURANCE

Assignment for the purpose of law of insurance may either be;

• The assignment of the subject matter of insurance ;or
• The assignment of the policy.

Please note that

The question of the assignment of the subject matter of insurance in case of life and personal accident insurances does not arise, for the subject -matter in such cases is from its very nature unassignable.

The assignment of the subject-matter in the case of fire insurance is dealt as follows; " As regards the assignment of the fire policies itself, it is transfer of the contract of insurance with its all rights and liabilities to the transferee and, therefore,it is substitution of a new insured to all intents and purposes other than the original insured. "

THE SUBJECT MATTER OF INSURANCE

Anything in respect of which there is a risk of loss from maritime perils may be the subject of marine insurance. It will be recalled that there is a distinction between the subject matter of insurance and the subject matter of the contract of insurance, that every lawful marine adventure may be the subject of a contract of marine insurance, and that a contract of marine insurance may be extended to cover risks other than maritime perils in a narrow sense. However, even though a marine insurance contract may include risks arising inland, the contract must be substantially one relating to a marine adventure. Therefore, the subject matter of the insurance must be capable of exposure to maritime perils.

WHETHER FIRE AND ACCIDENT POLICIES ARE ASSIGNABLE?

It is clear from above discussion that a policy of life insurance is pure benefit policies and carry a definite sum or amount as Sum Assured will be payable at the time of accident or happening of assured perils. So in legal sense a Life Insurance Policy is an actionable claim or chose in action and hence assignable under provisions of TP Act,1882.

Since Fire Insurance Policies and other general insurance policies are pure indemnity policies. There is no amount is fixed that will be payable to the insured. Sum Insurance is the maximum amount to be payable in these policies but same will vary to the extent of loss suffered by the insured. In case of contract of indemnity, the amount payable is not certain or calculable it depends upon the loss suffered by the insured, and it becomes payable only if and when the loss occurs. Therefore we conclude that a policy of fire, property accident insurances are in nature of right to sue for damages and the fact that they as such are not actionable claims is also apparent from the amendment of Section 6(4) of the TP Act,1882 to the effect that a mere right to sue cannot be transferred [Abu Mohammad Vs. SC chunder (1909) 36 Cal 345].

In these policies it may not certain that loss may take place, and also the extent of damages are also not certain. For an actionable claim it must be perfected and absolute, and not merely a sum of money which may or not become payable at future time.

It was held that policies of insurance against loss or damages by fire are not in their nature assignable nor can the interest in them be transferred from one person to another without the express consent of the insurance company. Suppose an insurance policy promises to indemnify "A" against loss by fire. He can assign his right of action against the insurance company to "B", so that if "A" suffers loss "B" may recover in respect of it, but "B" cannot without the consent of insurance company's consent,convert promise to indemnify "A" to a promise to indemnify "B", because that would not be an assignment but an attempted novation.

PLEASE NOTE THAT

Property and liability insurances are personal contracts, and do not run with the property if it is sold or otherwise disposed of or with a transfer of liabilities of the insured. Therefore, both at common law and equity, as assignment of a policy of insurance can only be valid of the insurer consents to this course, whereby, in truth a new contract of insurance is effected between the assignee and the insurer, and that between the assignor (the original insured) and the insurer lapses."

RESTRICTIONS ON ASSIGNABILITY IMPOSED BY THE COMPANY

f parties to a contract of insurance agree to impose restrictions to the assignability of the policy or to make it assignable only with the consent of the company, effect must be given to such restrictions. But such provision does not apply to the case of the person on whom the policy has devolved by the operation of law, or in the case of person who is under obligation to insure. If insurance policy is not assignable they assignee has no right to sue or call the insurance company in case of loss or damage due to insured peril. In this case the right person is the insured /assured to claim loss /damage under insurance policy.

Life policies are now construed not as a contract of indemnity but to pay a certain sum in a certain vent depending on the duration of human life. If at the time the contract of insurance is made the person affecting insurance has an insurable interest in the life of the person assured the policy is a valid, notwithstanding the fact that the person effecting the insurance ceased to have an interest in the life assured at the time when policy become due. It follows from this that the assignment of a life policy would be valid and would pass to the assignee the rights to the insurance money, even though the assignor's interest in the life had ceased to have an interest in the life assured at the time when the policy became due.

It follows from above that the assignment of a life policy would be valid and would pass to the assignee the rights to the insurance money, even through the assignor's in the life had ceased before the date of the assignment. It means an assignment to person without interest is not invalid assignment.

It is obvious that the contract of insurance may be assigned in one of two ways.

• In the first place, the policy may be assigned without the assignment of the property insured; or,
• secondly, the policy may be assigned together with the assignment of the property insured. The distinction is important, and must be kept in mind.

Where the assignment is of the policy only, there is no difficulty in reconciling this with the nature of a personal contract. All that is assigned in this case is the right to receive the insurance money, in case the interest of the person originally insured suffers loss from the perils insured against. The assignment is like the assignment of any other chose in action. The assignee is merely the person designated to receive the insurance, and he acquires only the rights of the assignor, and is subject to all the defences which the insurers have or may have against the person originally insured.

No element of the personal contract is violated, for it is of no consequence to the insurers who receives the insurance money, so long as they are free from the claims of the person originally insured.

But where the property insured is sold, and the policy is assigned, an entirely different question is raised. In this case, the person originally insured has parted with his entire interest in the subject-matter of the contract. He can suffer no loss, for he had no interest in the property at the time of the loss. The insurers cannot indemnify him, for he has no interest which can be the subject of indemnity. That interest is in the assignee, a stranger to the contract, who is neither a party nor a privy to the original contract, and it is he who suffers the loss. If, then, the contract can be assigned, seemingly the whole conception of a personal contract will be done away with.

ASSIGNMENT OF MARINE INSURANCE POLICY

The terms and conditions of Marine Insurance Policies have governed provisions of the Marine Insurance act,1963.

"(1) A marine policy is assignable unless it contains terms expressly prohibiting assignment. It may be assigned either before or after loss.

(2) Where a marine policy has been assigned so as to pass the beneficial interest in such policy, the assignee of the policy is entitled to sue thereon in his own name; and the defendant is entitled to make any defence arising out of the contract which he would have been entitled to make if the action had been brought in the name of the person by or on behalf of whom the policy was effected.

(3) A marine policy may be assigned by endorsement thereon or in other customary manner.

SECTION 17 OF MARINE INSURANCE ACT,1963 provides that

Assignment of interest.

Where the assured assigns or otherwise parts with his interest in the subject-matter insured, he does not thereby transfer to the assignee his rights under the contract of insurance, unless there be an express or implied agreement with the assignee to that effect.

But the provisions of this section do not affect the transmission of interest by operation of law.

ACCORDING TO SECTION 25 OF THE MI ACT,1963

Provides that a Marine Insurance Plicy must specify ;

(1) the name of the assured, ore of some person who affects the insurance on his behalf; (2) the subject-matter insured and the risk insured against. (3) the voyage, or period of time, both, as the case may be, covered by the insurance; (4) the sum or sums insured; (5) the name or names of the insurer or insurers.

Contract must be embodied in policy

According to Section 24 of the marine insurance act 1963, A contract of marine insurance shall not be admitted in evidence unless it is embodied in a Marine policy in accordance with this act (Marine Insurance Act 1963). The policy may be executed and issued either at the time when the contract is concluded or afterwards.

SECTION 52 provides that

When and how policy is assignable.

(1) A marine policy may be transferred by assignment unless it contains terms expressly prohibiting assignment. It may be assigned either before or after loss.

(2) Where a marine policy has been assigned so as to pass the beneficial interest in such policy, the assignee of the policy is entitled to sue thereon in his own name; and the defendant is entitled to make any defence arising out of the contract which he would have been entitled to make if the suit had been brought in the name of the person by or on behalf of whom the policy was effected.

SECTION 53 OF MI ACT, 1963

Assured who has no interest cannot assign. Where the assured has parted with or lost his interest in the subject-matter insured, and has not, before or at the time of so doing expressly or impliedly agreed to assign the policy, any subsequent assignment of the policy is inoperative.

Provided that nothing in this section affects the assignment of a policy after loss.

• SECTION 52: Provides as to when and how the marine policy may be transferred. It says that a Marine Policy may be transferred by assignment unless it contains express terms, which prohibits any assignment of the policy. It also provides that such assignment can be made before or after the loss has occasioned.
• SECTION 52(2): Provides that once assignment is made then the assignee is entitle to sue in his name whereas the insure/defendant is also entitled to raise all such defences against the assignee,which are available to him against the origiional insured i.e. the assigner.
• SECTION 17: Provides that where the assured assigns or otherwise parts with his interest in the subject matter insured, he (insured) does not thereby transfer to the assignee his rights under the contract of insurance unless there is an express or implied agreement with the assignee of that effect. This section does not affect the transmission of interest by operation of law.

Please Note That

Section 17 even after making an assignment by the insured of their contract of insurance policy, the rights of insured under the contract of insurance policy are not assigned in favour of assignee by the deed of assignment but they are continued to remain with the insured.

A marine insurance policy is assignable either before or after the loss, unless it contains terms expressly prohibiting assignment. 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 operate as a transfer of the policy also.

An assured who has assigned or lost his interest in the insured property cannot subsequently assign the policy of insurance thereon. Unless before or at the time of assigning the property, he has expressly or impliedly agreed to assign the policy. However, he can always assign the policy after loss. The marine policy may be assigned by endorsements on the policy itself or in any other customary manner. On the assignment of the beneficial interest in the policy, the assignee is entitled to sue thereon in his name .

From above discussion it is clear that in case of marine insurance,an Insurable interest must be present only at the time of claiming and policy is easily assignable.It may be assigned to any, who has insurable interest or going to acquire at later date. Cargo insurance assignment does not even require consent of insurer, which is necessary in hull insurance.Transfer of subject matter does not automatically transfer insurance policy also. Person who lost or parted with insurable interest cannot transfer the policy subsequently. We hereby conclude that a Marine Insurance Policy is freely assignable unless expressly prohibited through some terms and conditions in the insurance policy or insured and the insurance company has agreed to prohibit any assignment of insurance policy. There is no inherent difference between the contract of marine insurance and the contract of fire insurance. Both are contracts of indemnity; both are personal contracts with the insured, and both are mercantile contracts ordered and controlled by the custom of merchants. Yet the courts seem to have ruled from the earliest times that, in the case of fire insurance, no assignment of the policy and property will be valid without the consent of the insurer thereto, while in marine insurance no such consent is necessary.

DISCLAIMER: The above article is only for information and knowledge of readers. In case of necessity do consult with insurance professional for more clarity and understanding on subject matter.

Published by

FCS Deepak Pratap Singh (Associate Vice President - Secretarial & Compliance (SBI General Insurance Co. Ltd.)) Category Corporate Law   Report

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Marine Insurance - Assignment of marine policies and the applicable law

(raiffeisen zentralbank osterreich ag v five star general trading llc, may 2000, forthcoming in lloyd’s rep ir).

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Table of Content

• What is Marine Insurance

Marine Insurance Act 1963

• How Marine Insurance works

Types of Marine Insurance

• Which clauses cover Marine Insurance

Difference between Fire Insurance & Marine Insurance

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Marine Insurance | Meaning, Types, Benefits & Coverage

What is marine insurance.

Marine insurance refers to a contract of indemnity. It is an assurance that the goods dispatched from the country of origin to the land of destination are insured. Marine insurance covers the loss/damage of ships, cargo, terminals, and includes any other means of transport by which goods are transferred, acquired, or held between the points of origin and the final destination.

The term originated when parties began to ship goods via sea. Despite what the name implies, marine insurance applies to all modes of transportation of goods. For instance, when goods are shipped by air, the insurance is known as the contract of marine cargo insurance.

Importance of Marine Insurance

Marine insurance is required in many import-export trade proceedings. Admitting the terms, both parties are liable for the payment of goods under insurance. However, the subject matter of marine insurance goes beyond contractual obligations, and there are several valid arguments necessary for buying it before dispatching the export cargo.

Goods in transit need to be insured by one of the three parties:-

• The Forwarding Agent
• The Exporter
• The Importer

Also, it can be taken by anyone involved in the transit of goods.

Also Read: Role of a Freight Forwarder | Functions, Duties & more

Where to get Marine Insurance?

The process to purchase marine insurance in India is easy. The country’s geographical position allows many banks and financial institutions to provide marine insurance.

The Marine Insurance Act, in India, came into existence in 1963. As per section three of the act, any time the term ‘marine insurance’ is used, expressed or even extended for the insuring of goods against loss or damage, the insurer will be at risk to bear the charges. The insurer will consider all the certainty of goods in case of misfortune sustained during marine ventures.

Principles of Marine Insurance

Principle of Good faith - Parties demand absolute trust on the part of both; the insurer and the guaranteed.

Principle of Proximate Cause - The proximate cause is not adjacent in time; also, it is inefficient. Nevertheless, it is the definitive and adequate cause of loss.

Principle of Insurable Interest - Any object presented as a marine risk and the assured covering the insurance of goods - both should have legal relevance. Also, a series is devoted called 'Incoterms' to respectfully assign the insurance of goods to each party.

Principle of Indemnity - The insurance extended to the parties will only be applicable up to the loss. The parties can't buy insurance to gain profits. If they do, they won't get more than the actual loss.

Principle of Contribution - Sometimes, the risk coverage for goods has more than one insurer. In such cases, the amount has to be fairly distributed amongst the insurers.

Features of Marine Insurance

How Marine Insurance works?

Marine insurance best transfers the liability of the goods from the parties and intermediaries involved to the insurance company. The legal liability of the intermediaries handling the goods is limited to begin with. The exporter, instead of bearing the sole responsibility of the goods, can buy an insurance policy and get maritime insurance coverage for the exported goods against any possible loss or damage.

The carrier of the goods, be it the airline or the shipping company, may bear the cost of damages and losses to the goods while on board. However, the compensation agreed upon is mostly on a ‘per package’ or ‘per consignment’ basis. The coverage so provided may not be sufficient to cover the cost of the goods shipped. Therefore, exporters prefer to ship their products after getting it insured the same with an insurance company.

The Scope of Marine insurance is necessary to meet the contractual obligations of exports. To align with agreements such as cost insurance and freight (CIF) or carriage and insurance paid (CIP) , the exporter needs to take marine insurance to protect the buyer’s or their bank’s interest and honor the contractual obligation. Similarly, in the case of Delivered Duty Unpaid (DDU) and Delivered Duty Paid (DDP) terms, the seller may not be obligated to insure the goods, although in practice they generally do.

To get marine insurance and avoid insurance claims, ensure the following:

Packing of goods should be done keeping in mind their safety during loading and unloading

Packing should be good enough to withstand natural hazards to the best extent possible

Keep in mind the possibility of clumsy handling or theft when packing goods.

How to calculate Marine Insurance Premium?

Freight Insurance

Liability insurance, hull insurance, marine cargo insurance.

In freight insurance, for example, if the goods are damaged in transit, the operator would lose freight receivables & so the insurance will be provided on compensation for loss of freight.

Marine Liability insurance is where compensation is bought to provide any liability occurring on account of a ship crashing or colliding.

Hull Insurance covers the hull & torso of the transportation vehicle. It covers the transportation against damages and accidents.

Marine cargo policy refers to the insurance of goods dispatched from the country of origin to the country of destination.

Types of Marine Insurance policies

• Floating Policy
• Voyage Policy
• Time Policy
• Mixed Policy
• Named Policy
• Port Risk Policy
• Fleet Policy
• Single Vessel Policy
• Blanket Policy

Floating policy

Floating in Marine Insurance policy, large exporters may opt for an open policy, also known as a blanket policy, instead of taking insurance separately for each shipment. An open policy is a one-time insurance that provides insurance cover against all shipments made during the agreed period, often a year. The exporter may need to declare periodically (say, once a month) the detail of all shipments made during the period, type of goods, modes of transport, destinations, etc.

Voyage policy

A specific policy can be taken for a single lot or consignment only. The exporter needs to purchase insurance cover every time a shipment is sent overseas. The drawback is that extra effort and time is involved each time an exporter sends a consignment. With open policies, on the other hand, shipments are insured automatically.

Time policy

Time policy in marine insurance is generally issued for a year’s period. One can issue for more than a year or they may extend to complete a specific voyage. But it is normally for a fixed period. Also under marine insurance in India, time policy can be issued only once a year.

Mixed policy

Mixed policy is a mixture of two policies i.e Voyage policy and Time policy.

Named policy

Named policy is one of the most popular policies in marine insurance policy. The name of the ship is mentioned in the insurance document, stating the policy issued is in the name of the ship.

Port Risk policy

It is a policy taken to ensure the safety of the ship when it is stationed in a port.

Fleet policy

Several ships belonging to the company/owner are covered under one policy. Where it has the advantage of covering even the old ships. Also the policy is a time based policy.

Single Vessel policy

In single vessel policy only one vessel is covered under marine insurance policy.

Blanket policy

In this policy, the owner has to pay the maximum protection amount at the time of buying the policy.

Which clauses cover Marine Insurance?

The Maritime insurance coverage provided by marine insurance can be understood by going through the risks handled by the insurance policies loaded with various marine insurance clauses:

Institute Cargo Clause C provides basic coverage and includes a restricted list of risk covers. It covers the shipment against events such as fire, discharge of cargo in case of distress, explosion, accidents like sinking, capsizing, derailment, collision, etc.

Institute Cargo clause B offers an additional layer of protection. Not only does it include all the risk covers provided under Clause C, but it also covers the shipment against events such as earthquake, volcanic eruption, and damage due to rainwater, seawater, river water, etc., and loss to package overboard or during loading and unloading.

Institute Cargo Clause A provides maximum coverage as it covers all risk of loss or damage to the goods. Apart from the risks covered under Clauses B and C, it also covers losses due to breakage, chipping, denting, bruising, theft, non-delivery, all water damage, etc.

Risks such as wars, strikes, riots, and civil commotions are not covered under the institute cargo clauses. However, the insurer may provide this cover on payment of additional marine insurance premium.

So in terms & conditions of marine insurance coverage, these three types of marine insurance clauses: Institute Cargo Clauses A, B, and C. Clause A provides maximum coverage, Clause C provides basic risk coverage.

What is not covered under Marine Insurance?

Fire insurance is an insurance that covers the risk of fire. The subject matter is any physical asset or property. The moral responsibility is an important condition here. There is no expected profit margin in terms of fire insurance. The insurable interest must be present before taking the policy and also at the time of loss.

Whereas, the Functions of Marine insurance is one that encompasses risks associated with the sea. The subject matter is the ship, freight or cargo. It does not consist of any clause related to the moral responsibility of the cargo owner or the ship. 10 to 15% profit margin is expected in terms of marine insurance. Also in marine insurance the insurable interest must be only at the time of loss.

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What is Marine Insurance? Essential Elements, Essential Elements, Objectives, Types, Primary Branches, Legal Provisions, How to Claim

• Post last modified: 28 September 2023
• Reading time: 27 mins read
• Post category: Shipping and Insurance

What is Marine Insurance?

Marine insurance is an agreement between an insurer and the insured whereby the insurer accepts to indemnify the insured (to the extent thereby agreed) against losses incurred while goods in transit through sea, air, or rail. A marine insurance contract may be extended further than what was agreed upon for protecting the insured against transit losses or any land risk incidental to a sea voyage. Therefore, in simple words, marine insurance includes the following:

Table of Content

• 1.1 Cargo Insurance
• 1.2 Hull Insurance
• 2.1 Elements of a General Contract
• 2.2 Utmost Good Faith
• 2.3 Doctrine of Indemnity
• 2.4 Doctrine of Subrogation
• 2.5 Warranties
• 2.6 Proximate Cause
• 2.7 Assignment
• 3 Objectives of Marine Insurance
• 4.1 Inland Transit
• 4.2 Import/Export
• 5.1 Cargo Insurance
• 5.2 Hull and Machinery Insurance
• 5.3 Loss of Income Insurance
• 6.1 Subject Matter
• 6.2 Assignment of Policy
• 7 How to Claim
• 8 Key Documents Required for the Settlement of Marine Insurance Claim

Cargo Insurance

This provides insurance cover against the loss of or damage to transit goods by rail, road, sea, or air. It covers the following:

• Export and import shipments through sea
• Coastal shipments via steamers, vessels, ships, etc.
• Inland shipments via vessels or country craft
• Postal consignments by rail, road, or air

Hull Insurance

It is an insurance policy that provides coverage for the physical integrity of a ship. This is concerned with the insurance of ships (hull, machinery, etc.).

The following items are covered under hull insurance:

• All types of ocean-going vessels
• All type of coastal/inland vessels
• Yard and pleasure crafts
• Port crafts
• Shipbuilding-construction of vessel
• Ship repairers’ liabilities
• Charterers liabilities
• Breaches of warranties / voyage cover
• Freight-at-risks insurance for voyages
• Fishing vessels/trawlers
• Sailing vessels
• Jetties (with or without cranes), fixed pontoons/pontoons jetties, wharves etc.
• Ship breaking

Essential Elements of Marine Insurance Contract

Elements of a general contract.

In a marine insurance contract, there are all elements of a general insurance contract. Some essential elements of general contracts are explained as follows:

• Two parties: In a contract of marine insurance, there are two parties to the contract namely an insurance company and the insurance holder.
• Offer and acceptance: Like a general contract, an insurance holder offers an evidence slip to underwriters to accept the policy. This slip form the evidence that the underwriter has accepted insurance and that he has agreed to issue the policy on the terms and conditions indicated on the slip.
• Legal consideration: As a natural contract, the insurer makes confirmation to the insurance holder for deducing risk by money. It is given by the insurer to the insurance holder.
• Capacity of contract: This refers to the capacity of an individual to enter into a legal agreement and the competence to perform an act.
• Legal object: The contract should be legal in nature.
• Consent: Both parties need to agree with the terms and conditions of the contract.
• Certainty: The subject matter of insurance should be reliable.
• Written: Contract must be issued in written.

Utmost Good Faith

Section 19, 20, 21 and 22 of the Marine Insurance Act 1963 explained the doctrine of utmost good faith. The doctrine of the caveat emptor (let the buyer beware) applies to commercial contracts but insurance contracts are based upon the legal principle of uberrima fides (utmost good faith). If this is not observed by either of the parties, the contract can be avoided by the other party.

Doctrine of Indemnity

Section 3 of the Marine Insurance Act provides that a contract of marine insurance is an agreement whereby the insurer undertakes to indemnify the assured in a manner and extent agreed upon by both parties to the contract. The contract of marine insurance is of indemnity. Under no circumstances, an insured is allowed to make a profit out of a claim.

In the absence of the principle of indemnity, it was possible to make a profit. The insurer agrees to indemnify the assured only in a manner and only to the extent agreed upon. Marine insurance fails to provide complete indemnity due to large and the varied nature of the marine voyage.

Doctrine of Subrogation

Section 79 of the Act explains the doctrine of subrogation. The aim of the doctrine of subrogation is that the insured should not get more than the actual loss or damage.

A warranty is that by which the assured undertakes that some particular thing shall or shall not be done, or that some conditions shall be fulfilled or whereby he affirms or negatives the existence of a particular state of facts.

Proximate Cause

According to Section 55 (1) Marine Insurance Act,’ Subject to the provisions of the Act and unless the policy otherwise provides the insurer is liable for any loss proximately caused by a peril insured against, but subject to as aforesaid he is not liable for any loss which is not proximately caused by a peril insured against.’

A marine policy is assignable unless it contains terms expressly prohibiting assignment. It may be assigned either before or after loss. A marine policy may be assigned by endorsement thereon or on other customary manner.

Objectives of Marine Insurance

Marine insurance plays a significant role in domestic as well as international trade. Most sale contracts require that the goods should be covered against the loss or damage either by the seller or the buyer. Marine insurance provides coverage against the loss or damage of goods in transit.

Some of the major objectives of marine insurance are to:

• Cover the loss of hull and equipment along with a legal liability generating from the ownership or operation of the ship/craft.
• Cover the physical loss of or damage to goods in transit across domestic as well as international water, air, road, or rail.
• Cover the legal liability for the ownership of a vessel.
• Cover the damage to a third-party property.
• Protect the goods carrier who operates using approved consignment notes, contracts of carriage against their liability for loss or damage to customers’ goods or livestock in transit.
• Cover the physical loss of or damage to hull, machinery, etc. of vessels against fire, explosion, or perils of the sea.
• Cover a liability for the repair and maintenance of vessel.
• Provide a liability, property, and equipment insurance to marine terminals, inland clearance depots, sea terminals, freight stations, storage depots, and airfreight handling terminals.

Types of Marine Insurance Policy

A marine insurance policy covers goods, freight, and other interests against loss or damage to goods being transported by rail, road, sea, and/or air. The transportation of goods can be classified into three broad categories, as shown in Figure:

These types of insurance are explained as follows:

• Inland transit: Transport of goods within sea boundaries
• Import: Receive goods from another country.
• Export: Transport of goods to another country

Based on this, the following types of policies are issued to cover the transit losses/damage:

Inland Transit

There are four major policies for an inland transport, which are as follows:

• Specific policy: This policy covers a specific single shipment for goods, freight, and other interests against loss or damage while being transported by rail, road, sea and/or air.
• Open policy: It covers the transportation of routine consignments over the same path. The open policy may be acquired for a time period of three months of dispatches with an advance premium payment. As every consignment gets dispatched, a declaration with the details of the dispatch needs to be sent to the insurer. The sum insured is deducted by the amount of declared dispatch and may also be increased for an unlimited number of times during the policy period of one year. However, one needs to take care that an adequate sum insured is available to cover the consignment.
• Special declaration policy: It covers inland goods transit whereby the value of goods shipped in a span of one year exceeds ₹2 crores. Although the premium for the expected annual turnover (estimated value of goods to be transported in that year) needs to be paid in advance, there are premium discounts available in the policy.
• Multi-transit policy: It covers manifold transits of the same consignment comprising intermediate storage and processing. This policy covers goods right from raw material to the final product.

Import/Export

There are three major policies for the import/export of goods, which are explained as follows:

• Specific policy: This policy covers a specific single shipment for goods, freight, and other interests against loss or damage while being transported by rail, road, sea, and/or air.
• Open cover: This policy is issued for a period of 12 months. It indicates the rates and terms and conditions agreed upon by the insured and the insurer for covering the consignments that need to be imported or exported. This requires a declaration to be made to the insurance company as and when a consignment is imported or exported along with the premium at the agreed rate. The insurance company would then issue a certificate covering the declared consignment.
• Customs duty cover: This policy covers a loss of customs duty paid if transit goods are received in a damaged condition. Customs duty cover is generally acquired even if the overseas transit is covered by an insurance company situated abroad. The cover is still taken before the goods arrived at the shores of India.

In India, the marine insurance policy in case of inland and import/ export broadly fall into either of the following types of policies:

• Special declaration policy: It is a type of floating policy issued to clients with an annual turnover (estimated dispatches) by rail/ road/waterways above ₹2 crores. Declaration of dispatches is done at periodical intervals whereby the premium is adjusted on the expiry of the policy based on the total declared amount. At the time of issuing the policy, the sum insured is based on the previous year’s turnover or on a fair estimate of annual dispatches (in case of new proposals).For annual turnover exceeding ₹5 crore, a premium discount and loss ratio on a slab basis is applicable.
• Special storage risks insurance: This insurance is granted alongside an open or special declaration policy. The objective of the policy is to cover goods lying at the railways or carriers’ godowns once the transit cover gets terminated but the clearance of goods by the consignees is awaited. The cover ends once the delivery is received by the consignee or a payment is received by the consignor, whichever is the earliest.
• Annual policy: Such a policy is issued for a period of one year and covers goods belonging to the insured, which do not come under the contract of sale and are in transit by rail, road, or specific depots, processing units, etc.
• Duty insurance: According to the Customs Act , shipment imported into India is subject to the payment of customs duty. The customs duty is either included in the value of the cargo insured under a Marine Cargo Policy or a separate policy could be made whereby the Duty Insurance Clause is incorporated in the policy. This includes a warranty according to which the claim under the ‘duty insurance’ is payable only if the claim under the cargo policy is payable.
• Increased value insurance: This policy is related to ‘goods at destination port’ on the date of landing if it is higher than the duty charged on the cargo.

Primary Branches of Marine Property Insurance

Cargo insurance covers the interest of shippers, consignees, distributors, and others in goods and merchandise shipped primarily by water or, if in foreign trade, also by air. Most cargo insurance involves foreign trade across oceans, but the cargo may also be transported within a nation or between nations on inland waterways.

Hull and Machinery Insurance

This type of insurance protects ship-owners and others with an interest in vessels, and the like against the expenses that might be incurred in repairing or replacing such property if it is damaged, destroyed, or lost due to a covered peril. Usually, hull insurance on pleasure craft and tugs and barges, is provided as part of a package policy providing both property and liability coverage.

Loss of Income Insurance

Marine loss of income insurance covers a ship-owner against loss of business income resulting from damage to or loss of the insured vessel. When written for cargo vessels, whose income is called freight, the coverage is referred to as freight insurance.

Legal Provisions of Marine Cargo Insurance

Insurance law in India originates from the UK Insurance Law with the establishment of a British firm in Kolkata by the name of Oriental Life Insurance Company in 1818 followed by Bombay Life Assurance Company in 1823, Madras Equitable Life Insurance Society in 1829 and the Oriental Life Assurance Company in 1874.

India’s first general insurance company was the Indian Mercantile Insurance Company Ltd. established in Bombay in 1907. The first Indian law for regulating the life insurance business was given in 1912 with the passing of Indian Life Assurance Companies Act, 1912. Currently, the principal legislation for the regulation of insurance business in India is Insurance Act, 1938, which regulates both life insurance and general insurance.

General insurance includes fire insurance business, marine insurance business and miscellaneous insurance business. Marine insurance business is generally spread at the international level; thus, it is subject to international regulations. The marine insurance business is regulated under Marine Insurance Act, 1963, in India under the guidance of various clauses framed 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 regulates the transaction of marine insurance of hull, cargo, and freight. It also includes the provisions of section 64VB of Insurance Act, 1938 on the payment of premium in advance of risk commencement (Sections 64VB (1) and 64VB (5) of Insurance Act, 1938). A marine insurance policy includes a document that embodies all particulars as well as terms and conditions related to the insurance policy. The insurance contract should be included in the policy.

A contract of marine insurance is not admitted in evidence until the time it gets embodied in a marine policy according to Section 25 of the Marine Insurance Act. The policy can be executed either at the time of concluding the contract or later. The policy needs to be attested by or on behalf of the insurer.

It must contain the following:

• Name of the assured;
• Subject matter insured and the risk insured against;
• Voyage, or period of time, or both, as the case may be, covered by the insurance;
• Sum or sums insured;
• Name or names of the insurer or insurers.

Let us discuss what is included in the subject matter and assignment of a marine insurance policy:

Subject Matter

Anything with respect to which there is a risk of loss from sea perils could be the subject of marine insurance. Subject matter should be included in a marine policy with reasonable certainty (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 (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 (Section 28[3]).

Assignment of Policy

A marine insurance policy is assignable either before or after the loss, unless it contains terms expressly prohibiting assignment (Section 52[1]). A policy on goods is usually freely assignable. Commodities such as tea, jute, and wheat are transacted before they reach their destination; therefore, policies on these goods must be freely exchangeable. The policies on ship and freight both are subject to restrictions on assignment.

How to Claim

The following steps should be taken by the insured in event of a loss or damage to goods insured:

• Take immediate steps to minimise loss.
• Inform nearest office of the insurance company or claim settling agent mentioned on the policy.
• In case of damage to goods whilst on ship or port, arrange for joint ship survey or port survey.
• Lodge monetary claim with carrier within stipulated time period.
• Bill of Lading / AWB/GR
• Packing list
• Copies of correspondence exchanged with carriers.
• Copy of notice served on carriers along with acknowledgment/receipt.
• Shortage/Damage Certificate issued by carriers.
• Survey fees are to be paid to the surveyor appointed by the insurance company. These fees will be reimbursed along with the claim if the claim is otherwise admissible. vii. Survey report submitted by Survey

Key Documents Required for the Settlement of Marine Insurance Claim

• Date, time, cause, and circumstance of the loss
• Details of damaged/loss vessel
• Amount of loss claimed
• Other insurance, if any
• Certified copy of note of protest by master
• Payment details of premium amount paid
• Insured’s report on occurrence
• Survey reports where a claim’s amount is over ₹20,000/- as per provisions of Insurance Act, 1938
• Original repair bill, cash memo, invoices
• Weather report by the meteorological department, if available
• Affidavits filed by rescue vessels
• Certificate of survey for inland vessels
• Registry certificate
• Notarised statements of the master of the vessel
• Log Book extracts
• Crew list with details of competency certificates
• Copy of claim bill with supporting documents
• V.R.C. cancellation certificate
• Death certificate of crew for Personal Accident (P.A.) claim
• Post mortem report of crew for P.A. claim
• Disability certificate from a doctor of the crew for P.A. claim
• Legal heir certificate of crew for P.A. claim
• Letter of undertaking where applicable

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Types of Marine insurance policies in India

This article has been written by Arushi Seth, pursuing a Diploma in M&A, Institutional Finance, and Investment Laws (PE and VC transactions) from LawSikho .

Table of Contents

Introduction

Remember the Titanic, which was interestingly christened an “Unsinkable Ship”? Well, the magnificent ship met its tragic end on her maiden journey itself, claiming the lives of over 70% of the crew and passengers on board and submerging cargo, worth approximately $9.5 million today, deep into the Atlantic ocean. But one noteworthy point, in the present context, is that ‘ The Oceanic Steam Navigation Company’ , popularly known as the ‘White Star Line’, insured the Titanic for a sum which today is equivalent to $133 million, and the insurance policies, interestingly, covered almost all of the property claims, thus relieving some of the burdens of the investors.

What is Marine Insurance?

Before diving deep into the sea of marine insurance, it is imperative to understand the meaning of ‘insurance’. The dictionary suggests that the word “Insurance” means, coverage by contract whereby one party undertakes to indemnify or guarantee another against loss by a specified contingency or peril. Marine insurance, therefore, is a type of insurance that covers the losses or the damages caused to the cargo of any ship, or the ships, cargo vessels, terminals, or any marine transport in which goods are carried from the point of origin to the final destination. It also covers the risks faced by various intermediaries. It provides comprehensive coverage for all the probable risks faced by a vessel at the sea. 

Marine transport faces a relatively higher degree of threat as compared to the other modes of transport, such as road, rail, and air. The range of perils offered by the sea is very wide, ranging from weather or natural hazards to cross-border conflicts to pirate attacks. It not only becomes essential for all the people associated with a particular ship (the shipowner, the cargo owners, the intermediaries, etc.) to avail a marine insurance policy, the law mandates all the vessels engaged in commercial transport to have a suitable marine insurance policy to mitigate the potential risks. The Marine Insurance Act, 1963, which is on the lines of its predecessor, The English Marine Insurance Act, 1906 , regulates the principles and law of marine insurance in India.

Types of Marine Insurance in India

Due to a very wide ambit of marine insurance, different categories of it are classified based on different factors. Broadly, the classification of marine insurance in India depends on two factors – the coverage area of the insurance policy, and the structure of the insurance contract . Each of the two categories is further sub-categorized, based on the different needs and suitability of the person entering into the insurance contract. 

Types of Marine Insurance – based on coverage area

The coverage area of an insurance policy is the geographical area or the protected area in which the benefits of an insurance policy apply. The following types of marine insurance are classified, based on the coverage area of the insurance policy –

• Hull & machinery insurance – Hull is the most noticeable part of any ship. It is the watertight body of a ship or a boat that protects the cargo inside the ship from being damaged. Hull and Machinery Insurance, therefore, covers the loss or the damage caused to the body of the ship or any machinery or equipment in it, used for the functioning of the ship. It mostly covers accidents caused due to collisions, or the damages caused by earthquakes and explosions. This type of insurance is generally taken by the owners of the ship.
• Marine cargo insurance – Marine cargo insurance is a type of property insurance that covers the cargo owners against any loss or damage caused to their cargo during its transit. It has extensive coverage, but also has certain limitations, for instance, the cargo owners lose their claims if the packaging of the cargo was defective. It also comes with a third-party liability, which covers the damages caused to the port, or a ship, or a railway track due to the presence of defective cargo.
• Liability insurance – Liability insurance covers the financial liability of the person who is insured. It covers primarily the liabilities which arise due to the damages or injuries caused to the third party, for instance, the death or personal injury caused to any third party traveling in the ship.
• Freight insurance – Freight insurance covers the liability of the shipping company or the logistics provider for the damage or loss caused to the shipment during transit due to events outside the control of the company.

Types of Marine Insurance policies – based on the structure of the contract

A ‘policy is a document that embodies the terms and conditions of the contract of insurance. It essentially is a written form of agreement between the insurance company and the person insured. It generally contains the provisions regarding the coverage area, the limitations of insurance policies, etc. Thus the different types of policies available under marine insurance are –

• Open policy – An open policy, also called a floating policy, provides coverage for an indefinite number of transit journeys during the subsistence of the policy. This is especially beneficial for the companies which are involved in high-volume trade, as they are saved from taking an insurance policy on each transit journey. It covers all the transit journeys of the insured until the policy is canceled or until the last of the payment is realized, whichever is earlier.
• Voyage policy – A voyage policy works on the same lines as the marine cargo insurance. Under this policy, the insurance company agrees to cover the losses or damages caused to the cargo during a specific voyage. It expires when the vessel reaches its destination, irrespective of the time it takes to reach there. Usually, it is bought by small exporters who ship their goods by sea only on some occasions.
• Time policy – A time policy, as the name suggests, is issued for a fixed period of time. The vessel may make any number of voyages during this period. Generally, the insurance company issues this policy for one year, however, the period may vary depending on the agreement between both parties. 
• Mixed policy – A mixed policy is a combination or a mix of voyage and time policies. The insurance company, while issuing this policy, agrees to cover the loss or damage to the ship for a particular voyage till a particular period of time.
• Single vessel policy – A single vessel policy insures only a single ship of the insured.
• Fleet policy – The person insured has an option of either insuring a single ship by a policy, or of insuring several ships under one policy. If he chooses the latter option, he undertakes a ‘Fleet Policy’, under which a fleet of ships is insured under a single policy.
• Unvalued policy – Every insurance policy is either an unvalued or a valued policy. Under an unvalued policy, the insurance company does not assign a value to the thing insured (the vessel or the cargo), at the time of underwriting the policy. The valuation of the property is done only after the claim of insurance has been filed. However, for a successful claim, the true value of the property has to be proved by the insured by way of invoices or estimates, before the valuation.
• Valued policy – In a valued policy, the insured property is given a specific value when the policy is issued, and before any claims are made. When the claim is made by the insured, a pre-estimated or the specified amount is given, which does not depend on the amount of loss incurred by the insured. The depreciation of the property also does not affect the amount of claim, under a valued policy. 
• Block policy – A block policy is an all risks policy. Unless a contrary intention is expressed by the insurer, it essentially covers all the risks to which the goods are exposed when they are in transit, bailment, and on the premises of the third party. There are two popular types of block policy – furrier’s block policy, and jeweler’s block policy since fur and jewelry are two high-value commodities that are exposed to a greater threat of theft.
• Port-risk policy – A port-risk policy covers ships that are either docked or are undergoing repair works at the port. It is an all-risk policy that covers all the risks unless otherwise agreed between the parties. It provides coverage for physical damages to the vessel as well as protection and indemnity but excludes any liability arising on account of the crew and cargo.
• Named policy – A named policy is one in which the name or names of the ships is mentioned in the contract of insurance.
• Wager policy – A wager policy protects from loss of the property of which the insured does not have legal proof of possession. This means, when the insured is not able to prove an insurable interest in the property, the insurance company may issue a wager policy to him. Under it, the whole claim of the insured is subject to the discretion of the insurer and the merits of the claim made. It is not a written policy as it is issued in contravention of the law.

Marine insurance has always been more popular than its peers, mainly because of the persistent and comparatively larger number of threats faced by marine transport. With the deteriorating conditions of the environment, and an upward trend of cyclones and hurricanes forming in seas in recent years, no one can foresee the potential risks to marine transport. In this vast pool of uncertainties, the only certainty cargo and ship owners have is of the compensation by way of insurance, as the law in India mandates all the people engaged in commercial transport to buy an insurance policy suitable to their business. Marine insurance has an impressive array of policies, which cater to the needs of almost all of the business owners and people associated with a particular shipment or consignment. It ensures that not even the smallest intermediary is left with losses due to events out of their control. However, irrespective of the benefits it provides, marine insurance is not void of limitations, drawbacks, and loopholes. Therefore, it is always advised to the people buying a marine insurance policy to determine their needs before they make any agreement with the insurer.

• https://upscapital.com/resources/the-bottom-line-titanic/
• https://www.marineinsight.com/maritime-law/different-types-of-marine-insurance-marine-insurance-policies/
• https://www.paisabazaar.com/commercial-insurance/marine-insurance/
• https://www.bajajallianz.com/blog/knowledgebytes/types-of-marine-insurance.html
• https://www.investopedia.com/terms/o/open-cover.asp
• https://www.investopedia.com/terms/v/voyage-policy.asp
• https://www.investopedia.com/terms/v/valued-marine-policy.asp#:~:text=A%20valued%20marine%20policy%20is%20a%20type%20of%20insurance%20coverage,to%20a%20claim%20being%20made.&te

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Assignment under Insurance Policies

By J Mandakini, NUALS

Editor’s Note: This paper attempts to explore the concept of assignment under Indian law especially Contract Act, Insurance Act and Transfer of Property Act. It seeks to appreciate why the assignment is made use of for securities of a facility sanctioned by ICICI Bank. Also, it explains how ICICI Bank faces certain problems in executing the same. 

INTRODUCTION

For any facility sanctioned by a lender, collateral is always deposited to secure the same. Such mere deposition will not suffice, the borrower has to explicitly permit the lender to recover from the borrower, such securities in case of his default.

This is done by the concept of assignment, dealt with adequately in Indian law. Assignment of obligations is always a tricky matter and needs to be dealt with carefully. The Bank should not fall short of any legally permitted lengths to ensure the same. This is why ambiguity in its security documents have to be rectified. 

This paper attempts to explore the concept of assignment in contract law. It seeks to appreciate why the assignment is made use of for securities of a facility sanctioned by ICICI Bank. The next section will deal with how ICICI Bank faces certain problems in executing the same. The following sections will talk about possible risks involved, as well as defenses and solutions to the same.

WHAT IS ASSIGNMENT?

Assignment refers to the transfer of certain or all (depending on the agreement) rights to another party. The party which transfers its rights is called an assignor, and the party to whom such rights are transferred is called an assignee. Assignment only takes place after the original contract has been made. As a general rule, assignment of rights and benefits under a contract may be done freely, but the assignment of liabilities and obligations may not be done without the consent of the original contracting party.

The liability on a contract cannot be transferred so as to discharge the person or estate of the original contractor unless the creditor agrees to accept the liability of another person instead of the first. [i]

Illustration

P agrees to sell his car to Q for Rs. 100. P assigns the right to receive the Rs. 100 to S. This may be done without the consent of Q. This is because Q is receiving his car, and it does not particularly matter to him, to whom the Rs. 100 is being handed as long as he is being absolved of his liability under the contract. However, notice may still be required to be given. Without such notice, Q would pay P, in spite of the fact that such right has been assigned to S. S would be a sufferer in such case.

In this case, that condition is being fulfilled since P has assigned his right to S. However, P may not assign S to be the seller. P cannot just transfer his duties under the contract to another. This is because Q has no guarantee as to the condition of S’s car. P entered into the contract with Q on the basis of the merits of P’s car, or any other personal qualifications of P. Such assignment may be done with the consent of all three parties – P, Q, S, and by doing this, P is absolved of his liabilities under the contract.

 1.1. Effect of Assignment

Immediately on the execution of an assignment of an insurance policy, the assignor forgoes all his rights, title and interest in the policy to the assignee. The premium or loan interest notices etc. in such cases will be sent to the assignee. [ii] However, the existence of obligations must not be assumed, when it comes to the assignment. It must be accompanied by evidence of the same. The party asserting such a personal obligation must prove the existence of an express assumption by clear and unequivocal proof. [iii]

 Assignment of a contract to a third party destroys the privity of contract between the initial contracting parties. New privity is created between the assignee and the original contracting party. In the illustration mentioned above, the original contracting parties were P and Q. After the assignment, the new contracting parties are Q and S.

 1.2. Revocation of Assignment

Assignment, once validly executed, can neither be revoked nor canceled at the option of the assignor. To do so, the insurance policy will have to be reassigned to the original assignor (the insured).

 1.3. Exceptions to Assignment

There are some instances where the contract cannot be assigned to another.

• Express provisions in the contract as to its non-assignability – Some contracts may include a specific clause prohibiting assignment. If that is so, then such a contract cannot be assigned. Assignability is the rule and the contrary is an exception. [iv]

Pensions, PFs, military benefits etc. Illustration

 1.4. enforcing a contract of assignment.

From the day on which notice is given to the insurer, the assignee becomes the beneficiary of the policy even though the assignment is not registered immediately. It does not wait until the giving of notice of the transfer to the insurer. [vi] However, no claims may lie against the insurer until and unless notice of such assignment is delivered to the insurer.

If notice of assignment is not provided to the obligor, he is discharged if he pays to the assignor. Assignee would have to recover from the assignor. However, if the obligor pays the assignor in spite of the notice provided to him, he would still be liable to the assignee.

The following two illustrations make the point amply clear:

Illustrations

1. Seller A assigns its right to payment from buyer X to bank B. Neither A nor B gives notice to X. When payment is due, X pays A. This payment is fully valid and X is discharged. It will be up to B to recover it from A

2. Seller A assigns to bank B its right to payment from buyer X. B immediately gives notice of the assignment to X. When payment is due, X still pays A. X is not discharged and B is entitled to oblige X to pay a second time.

An assignee doesn’t stand in better shoes than those of his assignor. Thus, if there is any breach of contract by the obligor to the assignee, the latter can recover from the former only the same amount as restricted by counter claims, set offs or liens of the assignor to the obligor.

The acknowledgment of notice of assignment is conclusive proof of, and evidence enough to entertain a suit against an assignor and the insurer respectively who haven’t honoured the contract of assignment.

1.5. Assignment under various laws in India

There is no separate law in India which deals with the concept of assignment. Instead, several laws have codified it under different laws. Some of them have been discussed as follows:

1.5.1. Under the Indian Contract Act

There is no express provision for the assignment of contracts under the Indian Contract Act. Section 37 of the Act provides for the duty of parties of a contract to honour such contract (unless the need for the same has been done away with). This is how the Act attempts to introduce the concept of assignment into Indian commercial law. It lays down a general responsibility on the “representatives” of any parties to a contract that may have expired before the completion of the contract. (Illustrations to Section 37 in the Act).

An exception to this may be found from the contract, e.g. contracts of a personal nature. Representatives of a deceased party to a contract cannot claim privity to that contract while refusing to honour such contract. Under this Section, “representatives” would also include within its ambit, transferees and assignees. [vii]

Section 41 of the Indian Contract Act applies to cases where a contract is performed by a third party and not the original parties to the contract. It applies to cases of assignment. [viii] A promisee accepting performance of the promise from a third person cannot afterwards enforce it against the promisor. [ix] He cannot attain double satisfaction of its claim, i.e., from the promisor as well as the third party which performed the contract. An essential condition for the invocation of this Section is that there must be actual performance of the contract and not of a substituted promise.

  1.5.2. Under the Insurance Act

The creation of assignment of life insurance policies is provided for, under Section 38 of the Insurance Act, 1938.

• When the insurer receives the endorsement or notice, the fact of assignment shall be recorded with all details (date of receipt of notice – also used to prioritise simultaneous claims, the name of assignee etc). Upon request, and for a fee of an amount not exceeding Re. 1, the insurer shall grant a written acknowledgment of the receipt of such assignment, thereby conclusively proving the fact of his receipt of the notice or endorsement. Now, the insurer shall recognize only the assignee as the legally valid party entitled to the insurance policy.

 1.5.3. Under the Transfer of Property Act

Indian law as to assignment of life policies before the Insurance Act, 1938 was governed by Sections 130, 131, 132 and 135 of the Transfer of Property Act 1882 under Chapter VIII of the Act – Of Transfers of Actionable Claims. Section 130 of the Transfer of Property Act states that nothing contained in that Section is to affect Section 38 of the Insurance Act.

 I) Section 130 of the Transfer of Property Act

An actionable claim may be transferred only by fulfilling the following steps:

• Signed by a transferor (or his authorized agent)

The transfer will be complete and effectual as soon as such an instrument is executed. No particular form or language has been prescribed for the transfer. It does not depend on giving notice to the debtor.

The proviso in the section protects a debtor (or other person), who, without knowledge of the transfer pays his creditor instead of the assignee. As long as such payment was without knowledge of the transfer, such payment will be a valid discharge against the transferee. When the transfer of any actionable claim is validly complete, all rights and remedies of transferor would vest now in the transferee. Existence of an instrument in writing is a sine qua non of a valid transfer of an actionable claim. [x]

 II) Section 131 of the Transfer Of Property Act

This Section requires the notice of transfer of actionable claim, as sent to the debtor, to be signed by the transferor (or by his authorized agent), and if he refuses to sign it, a signature by the transferee (or by his authorized agent). Such notice must state both the name and address of the transferee. This Section is intended to protect the transferee, to receive from the debtor. The transfer does not bind a debtor unless the transferor (or transferee, if transferor refuses) sends him an express notice, in accordance with the provisions of this Section.

III) Section 132 of the Transfer Of Property Act

This Section addresses the issue as to who should undertake the obligations under the transfer, i.e., who will discharge the liabilities of the transferor when the transfer has been made complete – would it be the transferor himself or the transferee, to whom the rest of the surviving contract, so to speak, has been transferred.

This Section stipulates, that the transferee himself would fulfill such obligations. However, where an actionable claim is transferred with the stipulation in the contract that transferor himself should discharge the liability, then such a provision in the contract will supersede Ss 130 and 132 of this Act. Where the insured hypothecates his life insurance policies and stipulates that he himself would pay the premiums, the transferee is not bound to pay the premiums. [xi]

FACILITIES SECURED BY INSURANCE POLICIES – HOW ASSIGNMENT COMES INTO THE PICTURE

Many banks require the borrower to take out or deposit an insurance policy as security when they request a personal loan or a business loan from that institution. The policy is used as a way of securing the loan, ensuring that the bank will have the facility repaid in the event of either the borrower’s death or his deviations from the terms of the facility agreement.

Along with the deposit of the insurance policy, the policyholder will also have to assign the benefits of the policy to the financial institution from which he proposes to avail a facility. The mere deposit, without writing, or passing of any document of title to such a claim, does not create any equitable charge. [xii]

ETHICS OF ASSIGNING LIFE INSURANCE POLICY TO LENDERS

The purpose of taking out a life insurance policy on oneself, is that in the event of an untimely death, near and dear ones of the deceased are not left high and dry, and that they would have something to fall back on during such traumatic times. Depositing and assigning the rights under such policy document to another, would mean that there is a high chance that benefits of life insurance would vest in such other, in the event of unfortunate death and the family members are prioritized only second. These are not desirable circumstances where the family would be forced to cope with the death of their loved one coupled with the financial crisis.

 Thus, there is a need to examine the ethics of:

• The bank accepting such assignment

The customer should be cautious before assigning his rights under life insurance policies. By “cautious”, it is only meant that he and his dependents and/or legal heirs should be aware of the repercussions of the act of assigning his life insurance policy. It is conceded that no law prohibits the assignment of life insurance policies.

In fact, Section 38 of the Insurance Act, 1938 , provides for such assignments. Judicial cases have held life insurance policies as property more than a social welfare measure. [xiii] Further, the bank has no personal relationship with any customer and thus has no moral obligation to not accept such assignments of life insurance.

However, the writer is of the opinion that, in dealing with the assignment of life insurance policies, utmost care and caution must be taken by the insured when assigning his life insurance policy to anyone else.

CURRENT STAND OF ICICI REGARDING FACILITIES SECURED BY INSURANCE POLICY, WITH SPECIFIC REFERENCE TO ASSIGNMENT OF OBLIGATIONS

This Section seeks to address and highlight the manner in which ICICI Bank drafts its security documents with regard to the assignment of obligations. The texts placed in quotes in the subsequent paragraphs are verbatim extracts from the security document as mentioned.

Composite Document for Corporate and Realty Funding

 “ 8 .   CHARGING CLAUSE

  The Mortgagor doth hereby:

iii) Assign and transfer unto the Mortgagee all the Bank Accounts and all rights, title, interest, benefits, claims and demands whatsoever of the Mortgagor in, to, under and in respect of the Bank Accounts and all monies including all cash flows and receivables and all proceeds arising from Projects and Other Projects_______________, insurance proceeds, which have been deposited / credited / lying in the Bank Accounts, all records, investments, assets, instruments and securities which represent all amounts in the Bank Accounts, both present and future (the “Account Assets”, which expression shall, as the context may permit or require, mean any or each of such Account Assets) to have and hold the same unto and to the use of the Mortgagee absolutely and subject to the powers and provisions herein contained and subject also to the proviso for redemption hereinafter mentioned;

(v) Assign and transfer unto the Mortgagee all right, title, interest, benefit, claims and demands whatsoever of the Mortgagors, in, to, under and/or in respect of the Project Documents (including insurance policies) including, without limitation, the right to compel performance thereunder, and to substitute, or to be substituted for, the Mortgagor thereunder, and to commence and conduct either in the name of the Mortgagor or in their own names or otherwise any proceedings against any persons in respect of any breach of, the Project Documents and, including without limitation, rights and benefits to all amounts owing to, or received by, the Mortgagor and all claims thereunder and all other claims of the Mortgagor under or in any proceedings against all or any such persons and together with the right to further assign any of the Project Documents, both present and future, to have and to hold all and singular the aforesaid assets, rights, properties, etc. unto and to the use of the Mortgagee absolutely and subject to the powers and provisions contained herein and subject also to the proviso for redemption hereinafter mentioned.”

 ICICI Bank’s Standard Terms and Conditions Governing Consumer Durable Loans

  “ insurance.

The Borrower further agrees that upon any monies becoming due under the policy, the same shall be paid by the Insurance Company to ICICI Bank without any reference / notice to the Borrower, but not exceeding the principal amount outstanding under the Insurance Policy. The Borrower specifically acknowledges that in all cases of claim, the Insurance Company will be solely liable for settlement of the claim, and he/she will not hold ICICI Bank responsible in any manner whether for compensation, recovery of compensation, processing of claims or for any reason whatsoever.

Reference has been made only to assignment of assets, rights, benefits, interests, properties etc. No specific reference has been made to the assignment of obligations of the assignor under such insurance contract.

THE ISSUE FACED BY ICICI BANK

Where ICICI Bank accepts insurance policy documents of customers as security for a loan, in the light of the fact that the documents are silent about the question of assignment of obligations, are they assigned to ICICI Bank? Where there is hypothecation of a life insurance policy, with a stipulation that the mortgagor (assignor) should pay the premiums, and that the mortgagee (assignee) is not bound to pay the same, Sections 130 and 132 do not apply to such cases. [xiv] With rectification of this issue, ICICI Bank can concretize its hold over the securities with no reservations about its legality.

RISKS INVOLVED

This section of the paper attempts to explore the many risks that ICICI Bank is exposed to, or other factors which worsen the situation, due to the omission of a clause detailing the assignment of obligations by ICICI Bank.

Practices of Other Companies

The practices of other companies could be a risk factor for ICICI Bank in the light of the fact that some of them expressly exclude assignment of obligations in their security documents.

There are some companies whose notice of assignment forms contain an exclusive clause dealing with the assignment of obligations. It states that while rights and benefits accruing out of the insurance policy are to be assigned to the bank, obligations which arise out of such policy documents will not be liable to be performed by the bank. Thus, they explicitly provide for the only assignment of rights and benefits and never the assignment of obligations.

Possible Obligation to Insurance Companies

By not clearing up this issue, ICICI Bank could be held to be obligated to the insurance company from whom the assignor took the policy, for example, with respect to insurance premiums which were required to be paid by the assignor. This is not a desirable scenario for ICICI Bank. In case of default by the assignor in the terms of the contract, the right of ICICI Bank over the security deposited (insurance policy in question) could be fraught in the legal dispute.

Possible litigation

Numerous suits may be instituted against ICICI Bank alleging a violation of the Indian Contract Act. Some examples include allegations of concealment of fact, fraud etc. These could be enough to render the existing contract of assignment voidable or even void.

Contra Proferentem

This doctrine applies in a situation when a provision in the contract can be interpreted in more than one way, thereby creating ambiguities. It attempts to provide a solution to interpreting vague terms by laying down, that a party which drafts and imposes an ambiguous term should not benefit from that ambiguity. Where there is any doubt or ambiguity in the words of an exclusion clause, the words are construed more forcibly against the party putting forth the document, and in favour of the other party. [xv]

The doctrine of contra proferentem attempts to protect the layman from the legally knowledgeable companies which draft standard forms of contracts, in which the former stands on a much weaker footing with regard to bargaining power with the latter. This doctrine has been used in interpreting insurance contracts in India. [xvi]

If litigation ensues as a result of this uncertainty, there are high chances that the Courts will tend to favour the assignor and not the drafter of the documents.

POSSIBLE DEFENSES AGAINST DISPUTES FOR THE SECURITY DOCUMENTS AS THEY ARE NOW

This section of the paper attempts to give defences which the Bank may raise in case of any disputes arising out of silence on the matter of assignability of obligations.

Interpretation of the Security Documents

UNIDROIT principles expressly provide a method for interpretation of contracts. [xvii] The method consists of utilizing the following factors:

This defence relates to the concept of estoppel embodied in Section 115 of the Indian Evidence Act, 1872. According to the Section, when one person has, by his declaration, act or omission, intentionally caused or permitted another person to believe a thing to be true and to act upon such belief, neither he nor his representative shall be allowed, in any suit or proceeding between himself and such person or his representatives, to deny the truth of that thing.

If a man either by words or by conduct has intimated that he consents to an act which has been done and that he will not offer any opposition to it, and he thereby induces others to do that which they otherwise might have abstained from, he cannot question legality of the act he had sanctioned to the prejudice of those who have so given faith to his words or to the fair inference to be drawn from his conduct. [xviii] Subsequent conduct may be relevant to show that the contract exists, or to show variation in the terms of the contract, or waiver, or estoppel. [xix]

Where the meaning of the instrument is ambiguous, a statement subsequently interpreting such instrument is admissible. [xx] In the present case, where the borrower has never raised any claims with regard to non assignability of obligations on him, and has consented to the present conditions and relations with ICICI Bank, he cannot he cannot be allowed to raise any claims with respect to the same.

Internationally, the doctrine of post contractual conduct is invoked for such disputes. It refers to the acts of parties to a contract after the commencement of the contract. It stipulates that where a party has behaved in a particular manner, so as to induce the other party to discharge its obligations, even if there has been a variation from the terms of the contract, the first party cannot cite such variation as a reason for its breach of the contract.

Where the parties to a contract are both under a common mistake as to the meaning or effect of it, and therefore embark on a course of dealing on the footing of that mistake, thereby replacing the original terms of the contract by a conventional basis on which they both conduct their affairs, then the original contract is replaced by the conventional basis. The parties are bound by the conventional basis. Either party can sue or be sued upon it just as if it had been expressly agreed between them. [xxi]

The importance of consensus ad idem has been concretized by various case laws in India. Further, if the stipulations and terms are uncertain and the parties are not ad idem there can be no specific performance, for there was no contract at all. [xxii]

In the present case, the minds of the assignor and assignee can be said to have not met while entering into the assignment. The assignee never had any intention of undertaking any obligations of the assignor. In Hartog v Colin & Shields, [xxiii] the defendants made an offer to the plaintiffs to sell hare skins, offering to a pay a price per pound instead of per piece.

AVOIDING THESE RISKS

To concretize ICICI Bank’s stand on the assignment of obligations in the matter of loans secured by insurance policies, the relevant security documents could be amended to include such a clause.

For instances where loans are secured by life insurance policies, a standard set by the American Banker’s Association (ABA) has been followed by many Indian commercial institutions as well. [xxvi] The ABA is a trade association in the USA representing banks ranging from the smallest community bank to the largest bank holding companies. ABA’s principal activities include lobbying, professional development for member institutions, maintenance of best practices and industry standards, consumer education, and distribution of products and services. [xxvii]

There are several ICICI security documents which have included clauses denying any assignment of obligations to it. An extract of the deed of hypothecation for vehicle loan has been reproduced below:

“ 3. In further pursuance of the Loan Terms and for the consideration aforesaid, the Hypothecator hereby further agrees, confirms, declares and undertakes with the Bank as follows:

(i)(a) The Hypothecator shall at its expenses keep the Assets in good and marketable condition and, if stipulated by the Bank under the Loan Terms, insure such of the Assets which are of insurable nature, in the joint names of the Hypothecator and the Bank against any loss or damage by theft, fire, lightning, earthquake, explosion, riot, strike, civil commotion, storm, tempest, flood, erection risk, war risk and such other risks as may be determined by the Bank and including wherever applicable, all marine, transit and other hazards incidental to the acquisition, transportation and delivery of the relevant Assets to the place of use or installation. The Hypothecator shall deliver to the Bank the relevant policies of insurance and maintain such insurance throughout the continuance of the security of these presents and deliver to the Bank the renewal receipts / endorsements / renewed policies therefore and till such insurance policies / renewal policies / endorsements are delivered to the Bank, the same shall be held by the Hypothecator in trust for the Bank. The Hypothecator shall duly and punctually pay all premia and shall not do or suffer to be done or omit to do or be done any act, which may invalidate or avoid such insurance. In default, the Bank may (but shall not be bound to) keep in good condition and render marketable the relevant Assets and take out / renew such insurance. Any premium paid by the Bank and any costs, charges and expenses incurred by the Bank shall forthwith on receipt of a notice of demand from the Bank be reimbursed by the Hypothecator and/or Borrower to the Bank together with interest thereon at the rate for further interest as specified under the Loan Terms, from the date of payment till reimbursement thereof and until such reimbursement, the same shall be a charge on the Assets…”

The inclusion of such a clause in all security documents of the Bank can avoid the problem of assignability of obligations in insurance policies used as security for any facility sanctioned by it.

An assignment of securities is of utmost importance to any lender to secure the facility, without which the lender will not be entitled to any interest in the securities so deposited.

In this paper, one has seen the need for assignment of securities of a facility. Risks involved in not having a separate clause dealing with non assignability of obligations have been discussed. Certain defences which ICICI Bank may raise in case of the dispute have also been enumerated along with solutions to the same.

Formatted by March 2nd, 2019.

BIBLIOGRAPHY

[i] J.H. Tod v. Lakhmidas , 16 Bom 441, 449

[ii] http://www.licindia.in/policy_conditions.htm#12, last visited 30 th June, 2014

[iii] Headwaters Construction Co. Ltd. v National City Mortgage Co. Ltd., 720 F. Supp. 2d 1182 (D. Idaho 2010)

[iv] Indian Contract Act and Specific Relief Act, Mulla, Vol. I, 13 th Edn., Reprint 2010, p 968

[v] Khardah Co. Ltd. v. Raymond & Co ., AIR 1962 SC 1810: (1963) 3 SCR 183

[vi] Principles of Insurance Law, M.N. Srinivasan, 8 th Edn., 2006, p. 857

[vii] Ram Baran v Ram Mohit , AIR 1967 SC 744: (1967) 1 SCR 293

[viii] Sri Sarada Mills Ltd. v Union of India, AIR 1973 SC 281

[ix] Lala Kapurchand Godha v Mir Nawah Himayatali Khan, [1963] 2 SCR 168

[x] Velayudhan v Pillaiyar, 9 Mad LT 102 (Mad)

[xi] Hindustan Ideal Insurance Co. Ltd. v Satteya, AIR 1961 AP 183

[xii] Mulraj Khatau v Vishwanath, 40 IA 24 – Respondent based his claim on a mere deposit of the policy and not under a written transfer and claimed that a charge had thus been created on the policy.

[xiii] Insure Policy Plus Services (India) Pvt. Ltd. v The Life Insurance Corporation of India, 2007(109)BOMLR559

[xiv] Transfer of Property Act, Sanjiva Row, 7 th Edn., 2011, Vol II, Universal Law Publishing Company, New Delhi

[xv] Ghaziabad Development Authority v Union of India, AIR 2000 SC 2003

[xvi] United India Insurance Co. Ltd. v M/s. Pushpalaya Printers, [2004] 3 SCR 631, General Assurance Society Ltd. v Chandumull Jain & Anr., [1966 (3) SCR 500]

[xvii] UNIDROIT Principles, Art 4.3

[xviii] B.L.Sreedhar & Ors. v K.M. Munireddy & Ors., 2002 (9) SCALE 183

[xix] James Miller & Partners Ltd. v Whitworth Street Estates (Manchester) Ltd., [1970] 1 All ER 796 (HL)

[xx] Godhra Electricity Co. Ltd. v State of Gujarat, AIR 1975 SC 32

[xxi] Amalgamated Investment & Property Co. Ltd. v Texas Commerce International Bank Ltd., [1981] 1 All ER 923

[xxii] Smt. Mayawanti v Smt. Kaushalya Devi, 1990 SCR (2) 350

[xxiii] [1939] 3 All ER 566

[xxiv] Terrell v Alexandria Auto Co., 12 La.App. 625

[xxv] http://www.uncitral.org/pdf/english/CISG25/Pamboukis.pdf, last visited on 30 th June, 2014

[xxvi] https://www.phoenixwm.phl.com/shared/eforms/getdoc.jsp?DocId=525.pdf, last visited on 30 th June, 2014

[xxvii] http://www.aba.com/About/Pages/default.aspx, last visited on 30 th June, 2014

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Concept of Marine Insurance under Marine Insurance Act, 1963

Marine Insurance covers the loss or damage of ships, cargo, terminals, and any transport or cargo which property is transferred, acquired, or held between the points of origin and final destination. Cargo Insurance is a branch of Marine Insurance. Marine Insurance also includes onshore or offshore exposed property (container terminals, pots, oil platforms, pipelines) hull, marine casualty, and marine liability.

Typically, Marine Insurance is split between the vessels and the cargo. Insurance of vessels generally known as “Hull and Machinery” (H & M). A Total Loss Only Insurance Policy will cover total loss of the vessel and not any partial loss.

The Coverage will of on either of “Voyage or Time” basis, or a combination of both. The “Voyage Basis” covers transit between the ports set out in the Policy. The “Time Basis”, covers a period of time of Voyage. A time policy should be not more than one year.

The Marine Insurance business is mostly international and subject to law and international regulations at every stage of its operation. It is governed by the Marine Insurance Act, 1963 in India and guided by various clauses formulated by Institute of London Underwriters (ILU) and the International Commercial Terms, known as “INCOTERMS” developed by International Chambers of Commerce, Paris.

The Marine Insurance Act, 1963 was introduced in India on 1 st August, 1963 and is designed to regulate the transactions of marine insurance businesses of hull, cargo and freight. The voyages undertaken are subjected to specified Institute of London Underwriters (ILU) Clauses, defining inception and termination of insurance covers, and the perils insured against.

SALIENT FEATURES OF MARINE INSURANCE

SECTION 3: defines “Marine Insurance “as A Contract of Marine Insurance is 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.

SECTION 2(d):  defines “Marine Adventure”, includes any adventure where-

(i) Any insurable property is exposed to maritime perils;

(ii) The earnings or acquisition of any freight, passage money, commission, profit or other pecuniary benefit, or the security for any advances, loans, or disbursements is endangered by the exposure of insurable property to maritime perils;

(iii) Any liability to a third party may be incurred by the owner of, or other person interested in or responsible for, insurable property by reason of maritime perils.

TYPES OF MARINE INSURANCE;

i) Hull Insurance;

ii) Cargo Insurance;

iii) Freight Insurance; and

iv) Liability Insurance.

MAIN FEATURES OF MARINE INSURANCE

SECTION 19:  provides that “A Contract of Marine Insurance is a contract based upon the utmost good faith (Uberrimae Fldei), and if at most good faith be not observed by either party, the contract may be avoided by the other party.

Every material representation made by the assured or his agent to the insurer during the negotiations for the contract, and before the contract is concluded, must be true. If it is untrue the insurer may avoid the contract.

The Material facts disclosed should be true, because on the basis of facts disclosed by the assured or his agents the insurer will decide the amount of premium and the value of risk the insurer it will take.

INSURABLE INTEREST (SECTION 7, MIA 1963)

 A person is said to have an Insurable Interest if he is to benefit by the safety or due arrival of insurable property, or may be prejudiced by its loss, or by damage thereto, or by the detention thereof, or may incur liability in respect thereof.

“Insurable Interest”, in the subject matter insured must exist at the time of loss. It need not exist at the time of the insurance policy was taken under the Marine Insurance.

The following persons would have deemed to have “Insurable Interest”, in a Marine Insurance Policy;

i) The Owner of the Ship;

ii) The Owner of the Cargo;

iii) A Creditor who have advances money on the security of the ship or cargo;

iv) The mortgagor and mortgagee;

v) The master and crew of the ship have “Insurable Interest”, in respected of their lives and wages;

vi) In case of advance freight, the person advancing the freight has an “Insurable Interest”, if such freight is not repayable in case of loss.

WARRANTIES AND CONDITIONS;

A Contract of Marine Insurance generally subject to various Conditions and Warranties.

A CONDITION; 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.

A WARRANTY; A warranty is not fundamental to the performance of the contract. Breach of warranty, while giving rise to a claim for damages, does not entitle the non-breaching party to terminate the contract.

NOTE: The definition of” Warranty” in Insurance Act,1938 is just opposite. The Insurance Law provides that a Warranty if not strictly complied with will automatically discharge the insurer from further liability under the contract of insurance.    

The Assured has no defence 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, 1963.

A “Warranty”, is a promise by the assured to the underwriter that something shall or shall not be done or certain of affairs does or does not arise. A Warranty is a condition which must be exactly complied with, whether it is material to the risk or not. If it is not so complied with, then, the insurer is discharged from the liability as from the date of the breach of warranty, but without prejudice to any liability incurred by him before that date.

TYEPS OF WARRANTIES

i) Express Warranties; -it appears in the policy documents itself

ii) Implied Warranties; -it not expressed but must be complied with.

Examples of Express Warranties;

• Warranted Packed in new gunny bags;
• Warranted new drums for packaging;
• Warranted professional packed cargo;
• Warranted sailing within a period of &(seven) days;
• Warranted shipped under deck;
• Warranted surveyed before shipping cargo and so on.

Example of some implied warranties;

• Seaworthiness of the vessel at the commencement of the voyage;
• Legality of the adventure and so on.

INCOTERMS REULES AND INSURANCE: the basic function of the Incoterms Rules is to simplify the quotation of prices in international trade, to define the responsibilities and rights of sellers and buyers under each of terms of sale. Some of the most frequently employed terms in international trade are

FOB: Free on Board;

CIF: Cost, Insurance and Freight

it is common for exporters in many transactions, even though selling as FAS or FOB, terms to control the placing or arrangement of marine and war risk insurance on a “Warehouse to Warehouse basis” for account to whom it may concern as an additional provision in the overall contract of sale. This may be arranged as a matter of convenience. In this situation the cost of insurance is charged to the buyer as a separate item of expense in addition to the FAS or FOB Price. It is a fact that the exporter has sold the goods on extended payment terms, meaning that he is financially at risk, while the goods are in transit to overseas destination. When financially at risk he can benefit from the security of the marine and war risk insurance arranged through his own insurance agent or broker with a sound insurance company.

Following are the advantages of a trader having his own ocean cargo policy;

1. Automatic “warehouse to warehouse protection is provided with proper terms of insurance specifically designed for the “Assured Goods”, and methods of shipment. Such insurance provides coverage for full exposure, at proper values and adequate limits.

2. Rates will be competitive and reflect the Assured’s own experience.

3. Worldwide Claims service is available by claims representatives appointed by underwriters.

4. A trader is free to choose his own insurance company.

LETS’ DISCUSS:

OPEN CARGO POLICY

An Open Cargo Policy can be written to cover all cargoes shipped by the Assured in foreign trade by overseas vessels, aircraft and foreign parcel post. Coverage is afforded while goods are in transit from the seller’s warehouse to buyer’s warehouse in the course of transit. The contract is tailor -made to fit requirements of the individual Assured’s Shipment and can be written to cover broad or named perils.

The basic Open Cargo Policy includes;

1. The Perils Clause;

2. One or more average clause and;

3. Additional basic coverage clauses including general average.

A. PERILS CLAUSE the majority of risks covered under this clause come within the comprehensive term, perils of the seas, that is, loss or damage due to heavy weather, standing, collision, sinking, contact with seawater, etc.

Other perils normally covered include:

1. FIRE: both direct and consequential damage whether from smoke or steam or efforts to extinguish a fire (spontaneous combustion occurring in the insured shipment is exclude unless specifically assumed by the underwriter).

2. ASSAILING THIEVES: Forcible taking of a shipment rather than mysterious disappearance or pilferage.

3. JETTISON: Voluntary dumping overboard of cargo.

4. BARRATRY: Fraudulent, criminal or wrongful act of the Ship’s caption or crew that causes loss or damage to the ship cargo.

5. ALL OTHER LIKE PERILS: Perils of the same nature as those specifically mentioned above, but not “all risks” in the customary usage of the term.

B. THE AVERAGE CLAUSE: while total losses from any of the hazards listed in the perils clause are fully recoverable up to the policy limits, partial losses (other than general average) known as “Particular Average” from the perils are recoverable only as specified by the average clause.

The Assured is free to select best suited Average Clause based on his circumstances;

There are Five Principal Average Clauses;

1. Free of Particular Average American Conditions (FPAAC): Limits recovery on partial losses to those directly caused by fire, stranding, sinking or collision of the vessel. This is the most limited Average Clause.

2. Free of Particular Average English Conditions (FPAEC): similarly, to FPAAC, except that it is not necessary that the damage to cargo be a direct result of specified peril, it is being sufficient that one of these has occurred.

3. With Average, if amounting to 3%: Provides protection for partial loss from the perils of the seas. The percentage is called a franchise and is the minimum amount of the claim.

4. Average irrespective of percentage: all partial losses due to perils of the sea are fully recoverable regardless of percentage.

NOTE: the foregoing average clauses may be extended to include additional perils depending upon type of commodity to be insured, packaging, voyage, stowage, etc. These extensions may include theft, pilferage, non-delivery, sweat or steam in the ship’s hold, fresh water, leakage, breakage etc.

5. All Risk Conditions; this coverage insures against “All Risks”, of physical loss or damage from any external cause.

NOTE: Below mentioned losses are not covered by “All Risks” Clause in the Policy.

• Loss of market or loss or damage or deterioration arising from delay;
• Loss arising from inherent vice of goods;
• Loss or damage arising from strikes, riots, civil commotions (SR & CC). (This coverage generally taken through endorsement);
• Loss or damage arising from acts of war (this usually covered under a companion war risk policy).

Policies can be written with other specific exclusions or limitations. This might happen, for example, when goods or merchandise are highly susceptible to damage. Coverage may then be limited to make the risk insurable or in order to avoid the payment of high premiums. This flexibility is the major advantage of an Open Cargo Property.

C. ADDITIONAL COVERAGE CLAUSE; In addition to the Perils Clause and the Average Clause, the typical Open cargo Policy contains following clauses;

i) Explosion Clause;

ii) Inchmaree Clause;

iii) Fumigation Clause;

iv) Warehousing and Forwarding Packages Lost in Loading, etc. Clause;

v) Shore Clause;

vi) Both to Blame Collision Clause;

vii) General Average and Salvage Clause;

viii) Sue and Labour Clause.

D. DURATION OF COVERAGE: Normally under Open Cargo Policy the goods are insured from the moment they leave the point of shipment, being at the risk of the Assured, and the coverage continues in due course of transit until they are delivered to the final warehouse at destination.

In absence of special arrangement, this period of coverage is determined by the Warehouse to Warehouse and /or Marine Extension Clause.

The Marine Extension Clause extends the coverage in certain circumstances by superseding the time limitations imposed by the Warehouse-to-Warehouse Clause. The Marine Extension Clause continues the coverage during the ordinary course of transit including deviations, delays, re-shipments, transhipments or any other variations in the voyage so long as the Assured does not exercise control over such interruptions of normal transit.

E. STRIKES, RIOTS AND CIVIL COMMOTATIONS (SR & CC) Strikes, Riots and Civil Commutations are covered by an Optional Endorsement to the Open Cargo Marine Policy. The SR & CC endorsement covers loss or damage to the property insured cause by the strikers, locked-out-workmen, those taking part in labour disturbances, riots or civil commutation, or persons acting maliciously.

F. WAR RISK An Open Policy insuring against war and similar risks is usually issued as a companion to the Marine Open Policy. It covers most of the perils arising from hostilities, but excludes loss of damage resulting from the hostile use of nuclear weapons.

It is recommended that both marine and war risk coverage be obtained from the same underwriters, thus obviating disputes when the actual cause of loss is in question, as in case of missing vessel.

G. AMOUNT OF INSURANCE; The Open Cargo Policy contains a Valuation Clause- a formula for determining the amount of insurance in advance of shipment. This formula can be tailored to conform to trade customs or to follow variations in the value of commodity which is subject to price fluctuations.

A common form of valuation clause: “Valued at amount of invoice including all charges in the invoice and including prepaid and/or advanced and /or guaranteed freight not included in the invoice, plus ten per cent.

H. COST OF INSURANCE COVER; Its usual practice of all insurers to issue with an Open Cargo Policy a Schedule of Marine Rates, which can be used by the Assured, while calculating amount of insurance based the destination of his supply. The type, nature, destination and some other factors determined amount of premium to be paid by the Assured for an Open Cargo Policy.

CONCLUSION: We have gone through different aspects of Marine Insurance. We know that there are two types of Marine Insurance, one is Vessels and other is Cargo Insurance. The Marine Insurance Business generally deals with overseas or international boundaries. It is governed by provisions of The Marine Insurance Act, 1963 as well as by various clause formulated by Institute of London Underwriters (ILU) and International Commercial Terms, known as “INCOTERMS”, developed by International Chambers of Commerce, Paris.

DISCLAIMER:  The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness, and reliability of the information provided, author assume no responsibility, therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws and take appropriate advice of consultants. The user of the information agrees that the information is not professional advice and is subject to change without notice. Author assume no responsibility for the consequences of the use of such information.

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Name: FCS Deepak P. Singh

Qualification: cs, company: sbi general insurance company limited, location: mumbai, maharashtra, india, member since: 25 aug 2018 | total posts: 370, my published posts, join taxguru’s network for latest updates on income tax, gst, company law, corporate laws and other related subjects..

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Very nicely elaborated article. Thank you 🙂

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Marine insurance: nature, subject matter and principles.

ADVERTISEMENTS:

Marine insurance is concerned with overseas trade. International trade involves transportation of goods from one country to another country by ships. There are many dangers during the transhipment. The persons who are importing the goods will like to ensure the safe arrival of their goods.

The shipping company wants the safety of the ship. So marine insurance insures the coverage of all types of risks which occur during the transit. Marine insurance may be called a contract whereby the insurer undertakes to indemnify the insured in a manner and to the extent thereby agreed upon against marine losses.

Marine insurance has two branches:

(i) Ocean Marine Insurance

(ii) Inland Marine Insurance.

Ocean marine insurance covers the perils of the sea whereas inland marine insurance is related to the inland risks on the land. Marine insurance is one of the oldest forms of insurance. It has developed with the expansion of trade. It was started during the middle ages in Italy and then in England. The sending of goods by sea involves many perils; so it was necessary to get the goods insured. In modern times marine insurance business is well organised and is carried on scientific lines.

Lloyd’s Association :

This association has played an important role in marine insurance in England. During the middle of seventeenth century some persons used to assemble in coffee houses of London and transact marine insurance business. They used to transact business in their own names. One of the coffee houses was owned by Edward Lloyd.

For the facility of his customers he started publishing a paper called Lloyd’s News in 1696. This paper contained all types of information about the movement of ships. The persons who used to assemble in Lloyd’s Coffee House formed an association called Lloyd’s Association.

This association provided only the requisite information, but business was contracted by the underwriters in their own names. Anybody interested in entering marine insurance business could become the members of this association. The member’s reputation and financial position was scrutinised properly. The association earned a great name in marine insurance and is considered one of the best organisations in the world even today.

Subject Matter to be insured:

The marine insurance may cover three types of things:

(i) Cargo Insurance:

The person who is importing the goods and the person who is sending them are interested in the safety of goods during the sea journey. The goods to be insured are called ‘cargo’. Any loss of goods during journey is indemnified by the insurance company.

The goods are generally insured according to their value but some percentage of profit can also be included in the value. The cargo policies may be special, reporting and floating. The special policy is only for one shipment. Reporting or open cargo policy, on the other hand, covers all shipments made by an exporter over a long period of time.

The floating policy is just similar to open cargo policy but differs from it only in respect of the method of paying the premium. In floating policies the value of the future shipments is estimated and premium is deposited with the company. Later on, actual shipments are compared with the estimates and the premium is adjusted.

(ii) Hull Insurance:

When the ship is insured against any type of danger it is called Hull Insurance. The ship may be insured for a particular trip or for a particular period.

(iii) Freight Insurance:

The shipping company has an interest in freight. The freight may be paid in advance or on the arrival of goods. The shipping company will not get freight if the goods are lost during transit. The shipping company may insure the freight to be received which is known as freight insurance.

Principles of Marine Insurance :

Some of the principles related to marine insurance are given as under:

1. Utmost Good Faith:

The marine contract is based on utmost good faith on the part of both the parties. The burden of this principle is more on the insured than on the underwriter (insurance company). The insured should give full information about the subject to the insured. He should not withhold any information. If a party does not act in good faith, the other party is at liberty to cancel the contract.

2. Insurable Interest:

Insurable interest means that the insured should have interest in the subject when it is to be insured. He should be benefited by the safe arrival of commodities and he should be prejudiced by loss or damage of goods. The insured may not have an insurable interest at the time of acquiring a marine insurable policy, but he should have a reasonable expectation of acquiring such interest. The insured must have insurable interest at the time of loss or damage otherwise he will not be able to claim compensation.

3. Indemnity:

This principle means that the insured will be compensated only to the extent of loss suffered. He will not be allowed to earn profit from marine insurance. The underwriter provides to compensate the insured in cash and not to replace the cargo or the ship. The money value of the subject matter is decided at the time of taking up the policy. Sometimes the value is calculated at the time of loss also.

There is one exception to the principle of indemnity in marine insurance. Some profit margin is also allowed to be included in the value of the goods. The assumption is that the insured will earn profit when goods reach at their destination.

4. Cause Proxima:

This is a Latin word which means the nearest or proximate cause. It helps in deciding the actual cause of loss when a number of causes have contributed to the loss. The immediate cause of loss should be determined to fix the responsibility of the insurer. The remote cause for a loss is not important in determining the liability. If the proximate cause is insured against, the insurer will indemnify the loss.

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What has Kamala Harris accomplished as vice president? Here's a quick look.

Vice President Kamala Harris and her meteoric rise as the successor to President Joe Biden, 81, as the Democratic presidential candidate in the Nov. 5 election is the most significant seismic shift in presidential politics in recent history.

As she gears up to secure the Democratic presidential nomination in Chicago this August, we examine some of Harris’ most significant accomplishments and policy initiatives.

More: Biden drops out of 2024 presidential race: What to know as America looks to election

Immigration

In response to immigration concerns, Harris’ call to action was the public-private partnership Central America Forward (CAF). The idea behind CAF is to support the creation of local jobs and other measures in order to slow the flow of mass migration.

CAF has generated more than $5.2 billion since its launch in 2021, and its partners include more than 50 companies and organizations that have committed to supporting economic growth in the Central America region. The entities represent the financial services, textiles, apparel, agriculture, technology, telecommunications, nonprofit sectors, and others, according to the White House.

Voting rights

Harris was at the forefront of the administration’s pursuit to enshrine voting rights protection throughout the U.S. according to White House transcripts . She pushed for Congress to pass the John R Lewis Voting Rights Advancement Act , which would’ve extended the protections of the 1965 Voting Rights Act and required federal approval for some local election law changes.

In 2021, the bill did not receive the 60 votes needed to overcome a Republican filibuster, preventing the start of debate on the Senate floor where Harris would have cast the deciding vote in the evenly split chamber.

Harris visited a Planned Parenthood clinic on March 14, a historic first for any president or vice president while in office, according to previous reporting by USA TODAY.

Walking through the clinic in Minnesota, the vice president spoke with staff members and health care providers as part of her nationwide “Fight for Reproductive Freedoms” tour earlier this year.

Gun violence

In September 2023, Biden established the first-ever White House Office of Gun Violence Prevention to reduce gun violence, overseen by Vice President Harris, as announced by the White House.

The Office of Gun Violence Prevention builds upon actions taken by the Biden-Harris administration to end gun violence, which include the signing of the Bipartisan Safer Communities Act.

Heralded by the White House as the most impactful gun violence prevention measure in almost three decades, the now law bars individuals under the age of 21 from buying firearms, grants the Justice Department additional powers to prosecute gun traffickers, provides mental health services in schools to assist youth affected by gun violence trauma and grief and funds community-based violence intervention programs.

Maternal health

In her previous role as U.S. Senator for California, Harris introduced the Maternal CARE Act and the Black Maternal Health Momnibus Act , which would direct multi-agency efforts to improve maternal health, particularly among racial and ethnic minority groups, veterans, and other vulnerable populations as well as maternal health issues related to COVID-19.

The vice president’s prior work on maternal and infant health care was a key component of the Build Back Better Act , passed in 2022. The legislation expands access to maternal care and makes new investments to drive down mortality and morbidity rates.  

Broadband expansion

In 2023, Harris and U.S. Secretary of Commerce Gina Raimondo traveled to Kenosha, Wisconsin to celebrate the announcement of new electronics equipment production made possible by the Biden-Harris Administration’s “ Investing in America ” agenda and Bipartisan Infrastructure Law.

The Bipartisan Infrastructure Law requires the use of American-made materials and products for federally funded infrastructure projects, with the goal of bringing hundreds of new jobs to the U.S. The law also notably includes a historic $65 billion investment to expand affordable and reliable high-speed Internet access in communities across the U.S.

“Our investments in broadband infrastructure are creating jobs in Wisconsin and across the nation and increasing access to reliable, high-speed internet so everyone in America has the tools they need to thrive in the 21st century,” said Harris.

In 2021, President Biden declared Juneteenth a federal holiday. Often referred to as the “Second Independence Day,” it commemorates June 19, 1865, the day when 2,000 Union troops reached Galveston, Texas, to announce that enslaved African Americans were freed by executive order two years after the signing of the Emancipation Proclamation, according to the National Museum of African American History and Culture .

“As a United States Senator, I was proud to co-sponsor a bill to make Juneteenth a federal holiday,” said Harris during the Juneteenth concert at the White House. “This [day], we will hold a national day of action on voting.  And I call on all the leaders here to please join us in helping more Americans register to vote.”

Reuters contributed to the reporting of this story.