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NATURE OF MARINEINSURANCE CONTRACT
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definition
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MARINE INSURANCE IS A CONTRACT UNDERWHICH THE INSURER UNDERTAKES TOINDEMNIFY THE INSURED:
IN THE MANNER AND TO THE EXTENT THEREBY
AGREED AGAINST MARINE LOSSES, INCIDENTALTO MARINE ADVENTURES.
IT MAY BE DEFINED AS A FORM OF INSURANCECOVERING LOSS OR DAMAGE TO:
VESSELS OR TO CARGO DURING TRANSPORTATION
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Marine insurance
marine insurance business means the business
of effecting contracts of insurance upon vessels ofany description, including cargoes, freights andother interests which may be legally insured in or
in relation to such vessels, cargoes and freights,goods, wares, merchandise and property ofwhatever description insured for any transit byland or water or both, and whether or notincluding warehouse risks or similar risks inaddition or as incidental to such transit and
includes any other risks customarily includedamong the risks insured against in marineinsurance policy.
Section 2(13)A of the insurance act 1938
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Section 2 (13) A of the
Insurance Act 1938 definesmarine insurance as
follows:-
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Marine insurance business
means the business of
effecting contract ofinsurance upon vessels of
any description, includingcargoes, freights
CARGO REFERS TO:
THE GOODS AND COMMODITIES CARRIED
DURING TRANSIT BY: RAIL, ROAD, SEA OR
AIR FROM ONE PLACE TO ANOTHER.
THE CARGO TRANSPORTED BY SEA
IS SUBJECT TO MANIFOLD RISKS SUCH
AS:
LOSS OR DAMAGE AT THE PORT AND
LOSS OR DAMAGE DURING THE VOYAGE.
Freight is to be payable for the
carriage of cargoes or if the vessel, is
chartered, the money to be paid for the
use of the vessel.
The carriage is unable to earn freight if
the goods or properties are not safelytransported
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and other interests which
may be legally insured in orin relation to such vessels,
cargoes and freights, goods,
wares, merchandise andproperty of whatever
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description insured for any
transit by land or water or
both, and whether or notincluding warehouse risks or
similar risks in addition or asincidental to
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such transit and includes
any other risks customarilyincluded amount the risks
insured against in marineinsurance policies.
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HULL INSURANCE
Insurance of vessel and its
equipments are included under hullinsurance.
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CARGO INSURANCE
The cargo maybe of anydescription, for example,
wares, merchandise,property, goods and so on.
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FREIGHT INSURANCE
Freight is to be payable for
the carriage of cargoes or if
the vessel is chartered, the
money to be paid for the useof the vessel.
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LIABILITY INSURANCE
The marine insurance policymay include liability hazards
such as collision or running
down.
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ELEMENTS OF MARINEINSURANCE CONTRACT
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The marine insurance has
the following essential
features which are also
called fundamentalprinciples of marine
insurance.
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Features of General
ContractInsurable Interest
Utmost Good Faith
Doctrine of Indemnity
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Subrogation
Warranties
Proximate cause
Assignment and
nomination of the policyReturn of premium
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FEATURES OF GENERALCONTRACT
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PROPOSAL
The broker will prepare a
slip upon receipt ofinstructions to insure from
ship-owner, merchant or
other proposers. Proposalforms,
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so common in otherbranches of insurance, are
known in the marineinsurance and only the slip
so called the original slip is
used for the proposal
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The original slip is
accompanied with othermaterial information which
the broker deems necessary
for the purpose.
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ACCEPTANCE
Underwriters or other
insurers or to the Lead ofthe insures, who initial theslip and the proposal isformally accepted.
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The slip is an evidence that
the underwriter has
accepted an insurance andthat he has agreed
subsequently to sign apolicy.
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ISSUE OF POLICY
Having effected the
insurance, the broker will
now send his client a cover
note advising the terms andconditions
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on which the insurance has
been placed. The brokers
cover note is merely aninsurance memorandum and
naturally has no value in
enforcing the contract with
the underwrites.
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INSURABLE INTEREST
An insured person will have
insurable interest in thesubject matter where he
stands in any legal or
equitable relation
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to the subject matter in a
such a way that may benefitby the safety or due arrival
of insurable property or may
be prejudiced by its loss,
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or by damage thereto or by
the detention thereof or mayincur liability in respect
thereof. Since marineinsurance is frequently
effected before the
commercial transaction
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to which the apply are
formally completed it is notessential for the assured to
have an insurable interest at
the time of effectinginsurance,
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though he should have an
expectation of acquiringsuch an interest. If he fails to
acquire insurable interest indue course, he does not
become entitled to
indemnification.
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. Since the ownership and otherinterest of the subject matter
often change from hands tohands, the requirement of the
insurable interest to be present
only at the time of loss makes amarine insurance policy freely
assignable.
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EXCEPTIONS
There are two exceptions of
the rule in marine insurance.
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In such cues the assured
and the under writer are
ignorant about the safety orotherwise of the goods and
complete reliance wasplaced on the principle of
Good Faith.
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The policy terminated ifanyone of the two parties was
aware of the fact of loss. In
this case, therefore, the
insurable interest may not be
present at the time of contractbecause the subject-matter
would have been lost.
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P.P.I. POLICIES
P.P.I. ( Policy Proof of
Interest), i.e. interest proof
policies.
The insurable interestmarine insurance can be of
the following forms:
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1.ACCORDING TO
OWNERSHIP
The owner has insurableinterest up to the full value of
the subject-matter. The owners
are of different types accordingto the subject-matter.
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IN CASE OF SHIPS
The ship-owner or any
person who has purchased
it on character-basis can
insure the ship up to its fullprice.
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IN CASE OF CARGO
The cargo-owner can purchase
policy up to the full price of thecargo. If he has paid the freight
in advance, he can take the
policy for the full price of thegoods plus amount of freight
plus expense of insurance.
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IN CASE OF FREIGHT
The receiver of the freightcan insure up to the amount
of freight to be received byhim.
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INSURABLE INTEREST IN
RE-INSURANCE
The underwriter under a
contract of marine insurance
has an insurable interest in hisrisk, and may re-insure in
respect of it.
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3. INSURABLE INTERESTIN OTHER CASES
In this case all thoseunderwriters are included
who have insurable interestin the salary and own
liabilities.
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. For example, the master or any
member of the crew of a ship hasinsurable interest in respect of his
wages. The lender of money on
bottomry or respondentia hasinsurable interest in respect of the
loan.
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UTMOST GOOD FAITH
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The doctrine of caveat
emptor (let the buyerbeware) applies to
commercial contracts, butinsurance contracts are
based upon the legal
principle of uberrimae fides
(utmost good faith).
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But the duty of disclosure of
material facts rests highly on
the insured because he is
aware of the material
common in other branches
of insurance are not used inthe marine insurance.
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DOCTRINE OF INDEMNITY
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EXCEPTIONS
There are two exceptions of
the doctrine of indemnity in
marine insurance.
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PROFITS ALLOWED
Actually the doctrine says
that the market price of the
loss should be indemnifiedand no profit should be
permitted, but in marineinsurance a certain profit
margin is also permitted.
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INSURED VALUE
The doctrine of indemnity isbased on the insurable
value whereas the marine
insurance is mostly basedon insured value. The
purpose of the valuation isto predetermine the worth of
insured.
WARRANTIES
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WARRANTIES
A Warranty is that by which
the assured undertakes that
some particular thing shall ofshall be fulfilled or whereby he
affirms or negatives theexistence of a particular state
of facts.
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SEAWORTHINESS OF SHIP
The warranty implies that the
ship should be seaworthy atthe commencement of the
voyage, or if the voyage iscarries out in stages at the
commencement of each stage.
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LEGALITY OF VENTURE
This Warranty implies that the
adventure insured shall belawful and that so far as the
assured can control the matterit shall be carried out in the
lawful manager of the country
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OTHER IMPLIED
WARRANTIES
There are other warranties
which must be complied in
marine insurance.
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PROXIMATE CAUSE
According to Marine
Insurance Act, Subject to
the provisions of the Act and
unless the policy otherwise
provides the insurer is liablefor any loss
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proximately caused by a
peril insured against, but
subject to as aforesaid he isnot liable for any loss which
is not proximately caused bya peril insured against
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The insurer is not liable for
any attributable to thewillful misconduct of the
assured, but unless the
policy otherwise provides,
he is liable for any loss
proximately caused by aperil insured against.
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The insurer will not be
liable for any loss causedby delay unless otherwise
provided.
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The insurer is not liable for
ordinary wear and tear,ordinary leakage and breakage,
inherent vice or nature ofsubject matter insured, or for
any loss proximately caused by
rats or vermin, or for any injury
to machinery not proximately
caused by maritime perils
NATURE OF INSURANCE
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NATURE OF INSURANCEOF FIRE INSURANCE
DEFINATION AND
NATUREFire insurance is a device to
compensate for the loss
consequent upon
destruction by fire.
FUNCTIONS
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FUNCTIONS
The system of fire insurance
cannot save the society fromthe economic loss to the
community to the extent ofthe property lost by fire,
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but it compensates
someone and this saves himfrom a ruinous loss, at the
cost of group of some
others.
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CAUSES OF FIRE
Fire waste is the result oftwo types of hazard viz.,
physical and moral.
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PHYSICAL HAZARD: It refers
to the inherent risk of fire in theproperty which may occur due
to inflammable nature,construction, artificial lighting
and heating, lack of
extinguishing apparatus use ofthe property etc.
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MORAL HAZARD: The moral
hazard depends upon the manas physical hazard depends on
the property. The property may
be set on fire by the owner or
by any person with his
willingness, carelessness andlack of sense of duty may also
increase the fire waste
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Sometimes, when market price
is going down the owner canwillingly set fire on the property
and gain from the payment ofinsurance money. Thus, where
the property was destroyed with
the willingness of the property
owner, moral hazard exists.
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PREVENTION OF LOSS
Insurance is meant forindemnification of loss and not
for prevention of loss althoughevery reasonable step can be
taken to eliminate it or minimize
it through the agencies engagedin prevention of loss.
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INDEMINIFICATION OR
CURATIVE EFFORTS: Theinsurance provides protection
by indemnifying the financialloss suffered by insured
person which occurred
beyond the control of insured
and insurer.
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PREVENTIVE EFFORTS: Fire
insurers stimulate the installationof protective device and better
types of construction throughgranting credit. They help in
installation of fire-fighting
apparatus, water supply and
engineering services.
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REINSURANCE
Reinsurance is an arrangement
whereby an original insurer
who has insured a risk again
with another insurer, that is to
say, reinsures a part of the riskin order to diminish his own
liability
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Insurance is a contract
between the insurer and the
original insured.
Reinsurance is a contract
between the reinsured (theinsurer) and the reinsurer.
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REINSURANCE
Reinsurance is the transfer
of insurance business fromone insurer to another.
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The insurer transferring the
business is called thePrincipal or ceding or
original office and the officeto which the business is
transferred is called for
reinsurer or guaranteeingoffice
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ADVANTAGE OF
REINSURANCEReinsurance makes it possible
to accept each risk for the veryamount desired by the
proposer and to transfer the
excess above the retention
limit to another insurer.