Marine insurance: nature, interest, value and kinds of policies

1. Definition and scope

Section 3 defines a contract of marine insurance as an agreement whereby the insurer undertakes to indemnify the assured, in the manner and to the extent agreed, against marine losses, that is, the losses incidental to marine adventure. Key definitions in s.2:

• Marine adventure: any adventure where insurable property is exposed to maritime perils, or where freight, commission, profit or security for advances is endangered by such exposure, or where liability to a third party may be incurred by reason of maritime perils.
• Maritime perils: perils consequent on or incidental to the navigation of the sea: perils of the seas, fire, war perils, pirates, rovers, thieves, captures, seizures, restraints and detainments of princes and peoples, jettisons, barratry and any other perils of the like kind or designated by the policy.
• Insurable property: any ship, goods or other movables exposed to maritime perils. Freight includes the shipowner’s profit from carrying his own goods but not passage money.

Mixed sea and land risks (s.4). A marine policy may, by its express terms or by usage, be extended to cover losses on inland waters or on any land risk incidental to a sea voyage (warehouse to warehouse cover). Ships under construction and analogous adventures written on a marine form are also governed by the Act. Every lawful marine adventure may be insured (s.5).

The subject matter of marine insurance falls into four groups: hull (the ship and its machinery), cargo, freight, and liability (the shipowner’s liability to third parties, usually placed with protection and indemnity clubs).

2. History (short note)

Marine insurance is the oldest branch. Ancient traders used bottomry and respondentia, loans on ship or cargo repayable only on safe arrival. Lombard merchants in the fourteenth century wrote policies in Italian ports and took the practice to London. From about 1688 underwriters met at Edward Lloyd’s coffee house, from which Lloyd’s of London grew; the Lloyd’s S.G. form of policy was adopted in 1779. Lord Mansfield, as Chief Justice from 1756, built the law of marine insurance from mercantile custom (Carter v. Boehm, 1766, on good faith). Chalmers drafted the English Marine Insurance Act, 1906, codifying that case law. In India marine cover was written by British firms in the Presidency towns; Indian general insurers followed in the early twentieth century; the business was nationalised in 1972 and opened again after 1999. The Marine Insurance Act, 1963 replaced the earlier reliance on English law, and its Schedule reproduces the old form of policy and the rules for its construction.

3. Insurable interest (ss.6–17)

• Wagering policies are void (s.6), including policies “interest or no interest”, “without further proof of interest than the policy itself” and “without benefit of salvage to the insurer”.
• Every person interested in a marine adventure has an insurable interest: a legal or equitable relation to the adventure or to property at risk, by which he may benefit from its safety or be prejudiced by its loss, damage or detention, or incur liability (s.7).
• The interest must exist at the time of the loss, though not when the insurance is effected; under a “lost or not lost” policy the assured may recover even if he acquired his interest after the loss, unless he knew of the loss and the insurer did not (s.8).
• Defeasible and contingent interests (s.9), partial interests (s.10), the re-insurer’s interest in his risk (s.11), the lender on bottomry or respondentia (s.12), the master and crew in their wages (s.13), the person advancing freight (s.14) and the assured in the cost of the insurance (s.15) are all insurable.
• A mortgagor has an interest in the full value and a mortgagee up to the debt; a consignee or mortgagee may insure for others as well as himself; an owner insures the full value even if a third party has agreed to indemnify him (s.16).
• Assignment of the interest does not transfer the policy without agreement (s.17).

4. Insurable value (s.18)

Subject to any express valuation in the policy, the insurable value is ascertained as follows:

• Ship: the value at the commencement of the risk, including outfit, provisions and stores for officers and crew, money advanced for wages and other disbursements to make the ship fit for the voyage, plus the charges of insurance; for a steamship also the machinery, boilers, coal and engine stores if owned by the assured.
• Freight: the gross amount of freight at the risk of the assured, plus the charges of insurance.
• Goods: the prime cost of the goods, plus the expenses of and incidental to shipping and the charges of insurance on the whole.
• Any other subject matter: the amount at the risk of the assured when the policy attaches, plus the charges of insurance.

Insurable value is fixed at the start of the risk, unlike fire insurance where value at the time of loss is taken. In practice cargo is usually insured on a valued basis (CIF value plus 10%).

5. Formation and form of the policy

• The contract is concluded when the assured’s proposal is accepted by the insurer, whether or not the policy is issued; the slip or covering note may be referred to to show when it was accepted (s.23).
• The contract is not admissible in evidence unless embodied in a marine policy (s.24).
• The policy must specify the name of the assured or his agent, the subject matter and risk, the voyage or period, the sum insured, and the insurer’s name (s.25), and must be signed by or for the insurer; each subscription by several insurers is a distinct contract (s.26).
• A marine policy is freely assignable, before or after loss, by endorsement or customary manner, unless it expressly prohibits assignment (s.52). This is why cargo policies travel with the bill of lading.

6. Classification of marine policies

By the statute.

• Voyage policy (s.27(1)): insures the subject matter “at and from” or “from” one place to another. Usual for cargo. An implied warranty of seaworthiness applies (s.41).
• Time policy (s.27(1)): for a definite period. Usual for hulls. A time policy for more than twelve months is invalid (s.27(2)). No implied warranty of seaworthiness, but the insurer is not liable for loss attributable to unseaworthiness to which the assured was privy (s.41(5)).
• Mixed policy: voyage and time in the same policy (s.27(1)), for example a named voyage but for not more than a stated period.
• Valued policy (s.29): specifies the agreed value, which in the absence of fraud is conclusive between insurer and assured of the insurable value, whether the loss be total or partial, though not for deciding whether there is a constructive total loss.
• Unvalued policy (s.30): does not specify value; the insurable value is ascertained under s.18, subject to the sum insured.
• Floating policy (s.31): describes the insurance in general terms and leaves the names of ships and other particulars to be declared later; declarations must be made in order of shipment, must cover all consignments within the policy, and an honest omission may be corrected even after loss.

By market practice.

• Open cover: an agreement by the insurer to issue policies for all shipments within its terms for a period, usually a year; each shipment is declared and a certificate issued.
• Blanket policy: a lump-sum premium for all shipments in a period.
• Fleet policy: all ships of an owner under one policy.
• Port risk policy: the ship while in port.
• Builder’s risk / construction policy: a ship under construction (s.4(2)).
• Single vessel and composite policies (several insurers, each a separate contract under s.26(2)).
• By scope of cover: Institute Cargo Clauses (A) (all risks subject to exclusions), (B) and (C) (named perils, C narrowest); war and strike clauses added separately.

How this is examined

“Explain the various kinds of policies in marine insurance” (June 2025) is a 10-mark essay: define marine insurance, then section 6. “Insurable values” (June 2025) and “History of marine insurance” (June 2025, February 2025) are short notes from sections 4 and 2. Insurable interest in marine insurance can be asked as part of a wider insurable interest question.