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ACKNOWLEDGEMENTWe wish to express our sincere thanks to

Mrs. Nitya Vergesh, for giving us the opportunity to work on

the marine insurance project. This has given me the insight of 

how the various theoretical concepts are applied in an marine

insurance firm. I got the opportunity to do a challenging project

in Bajaj Allianz. The project is the important part of our study

and gives us a real practical exposure to the corporate world.

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Marine insurance covers the loss or damage of ships, cargo, terminals, and any transport or 

cargo by which property is transferredMaritime insurance was the earliest well-developed kind

of insurance, with origins in the Greek and Roman maritime loan. Separate marine insurance

contracts were developed in Genoa and other Italian cities in the fourteenth century and spread to

northern Europe. Premiums varied with intuitive estimates of the variable risk from seasons and

pirates.[1]

The modern origins of marine insurance law in English law were in the law merchant, with the

establishment in England in 1601 of a specialised chamber of assurance separate from the other 

Courts. Lord Mansfield, Lord Chief Justice in the mid-eighteenth century, began the merging of law

merchant and common lawprinciples. The establishment of  Lloyd's of London, competitor insurance

companies, a developing infrastructure of specialists (such as shipbrokers, admiraltylawyers, and

bankers), and the growth of the British Empire gave English law a prominence in this area which it

largely maintains and forms the basis of almost all modern practice. The growth of the London

insurance market led to the standardisation of policies and judicial precedent further developed

marine insurance law. In 1906 the Marine Insurance Act was passed which codified the previous

common law; it is both an extremely thorough and concise piece of work. Although the title of the Act

refers to marine insurance, the

general principles have been applied to all non-life insurance.

In the 19th century, Lloyd's and the Institute of London Underwriters (a grouping of London company

insurers) developed between them standardised clauses for the use of marine insurance, and these

have been maintained since. These are known as the Institute Clauses because the Institute covered

the cost of their publication.

Within the overall guidance of the Marine Insurance Act and the Institute Clauses parties retain a

considerable freedom to contract between themselves.

Marine insurance is the oldest type of insurance. Out of it grew non-marine insurance

and reinsurance. It traditionally formed the majority of business underwritten at Lloyd's. Nowadays,

Marine insurance is often grouped with Aviation and Transit (ie. cargo) risks, and in this form is known

by the acronym 'MAT'.

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Protection and indemnity

A marine policy typically covered only three-quarter of the insured's liabilities towards third parties.

The typical liabilities arise in respect of collision with another ship, known as 'running down' (collision

with a fixed object is an 'allision'), and wreck removal (a wreck may serve to block a harbour, for 

example).

In the 19th century, shipowners banded together in mutual underwriting clubs known as Protection

and Indemnity Clubs (P&I), to insure the remaining one-quarter liability amongst themselves. These

Clubs are still in existence today and have become the model for other specialised and uncommercial

marine and non-marine mutuals, for example in relation to oil pollution and nuclear risks.

Clubs work on the basis of agreeing to accept a shipowner as a member and levying an initial 'call'

(premium). With the fund accumulated, reinsurance will be purchased; however, if the loss experience

is unfavourable one or more 'supplementary calls' may be made. Clubs also typically try to build up

reserves, but this puts them at odds with their mutual status.

Because liability regimes vary throughout the world, insurers are usually careful to limit or exclude

American Jones Act liability.

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Actual total loss and constructive total loss

Fire aboard MV Hyundai Fortune resulting in a constructive total loss

These two terms are used to differentiate the degree of proof where a vessel or cargo has been lost.

An actual total loss refers to the situation where the position is clear and a constructive total loss

refers to the situation where a loss is inferred. In practice, a constructive total loss might also be used

to describe a loss where the cost of repair is not economic; ie a 'write-off'.

The different terms refer to the difficulties of proving a loss where there might be no evidence of such

a loss. In this respect, marine insurance differs from non-marine insurance, where the insured is

required to prove his loss. Traditionally, in law, marine insurance was seen as an insurance of 'the

adventure', with insurers having a stake and an interest in the vessel and/ or the cargo rather than,

simply, an interest in the financial consequences of the subject-matter's survival.

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Average

The term 'Average' has two meanings:

(1) In marine insurance, in the case of a partial loss, or emergency repairs to the vessel, average may

be declared. This covers situations, where, for example, a ship in a storm might have to jettison

certain cargo to protect the ship and the remaining cargo. 'General Average' requires all parties

concerned in the venture (Hull/Cargo/Freight/Bunkers) to contribute to compensate the losses caused

to those whose cargo has been lost or damaged. 'Particular Average' is levied on a group of cargo

owners and not all of the cargo owners.

(2) In the situation where an insured has under-insured, ie. insured an item for less than it is worth,

average will apply to reduce the amount payable. There are different ways of calculating average, but

generally the same proportion of under-insurance will be applied to any payout due.

An average adjuster is a marine claims specialist responsible for adjusting and providing the general

average statement. He is usually appointed by the shipowner or insurer.

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

An excess is the amount payable by the insured and is usually expressed as the first amount falling

due, up to a ceiling, in the event of a loss. An excess may or may not be applied. It may be expressed

in either monetary or percentage terms. An excess is typically used to discourage moral hazard and to

remove small claims, which are disproportionately expensive to handle. The equivalent term to

'excess' in marine insurance is 'deductible' or 'retention'.

A co-insurance, which is typically applied in non-proportional treaty reinsurance, is an excess

expressed as a proportion of a claim, e.g. 5%, and applied to the entirety of a claim.

A franchise is a deductible below which nothing is payable and beyond which the entire amount of the

sum insured is payable. It is typically used in reinsurance arbitrage arrangements.

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Tonners and chinamen

These are both obsolete forms of early reinsurance. Both are technically unlawful, as not

having insurable interest, and so were unenforceable in law. Policies were typically marked P.P.I.

(Policy is Proof of Interest). Their use continued into the 1970s before they were banned by Lloyd's,

the main market, by which time, they had become nothing more than crude bets.

A 'tonner' was simply a 'policy' setting out the global gross tonnage loss for a year. If that loss was

reached or exceeded, the policy paid out. A 'chinaman' applied the same principle but in reverse:

thus, if the limit was not reached, the policy paid out.

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Specialist policies

Various types of specialist policy exist, including:

Newbuilding risks: This covers the risk of damage to the hull whilst it is under construction.

 Yacht Insurance: Insurance of pleasure craft is generally known as 'yacht insurance' and

includes liability coverage. Smaller vessels, such as yachts and fishing vessels, are typically

underwritten on a 'binding authority' or 'lineslip' basis.

War risks: Usual Hull insurance does not cover the risks of a vessel sailing into a war zone.

A typical example is the risk to a tanker sailing in the Persian Gulf  during the Gulf War . War 

risks cover protects, at an additional premium, against the danger of loss in a war zone. The

war risks areas are established by the London-based Joint War Committee, which has

recently moved to include the Malacca Straits as a war risks area due to piracy [1]. If an

attack is classified as a "riot" then it would be covered by war risk insurers[2].

Increased Value (IV): Increased Value cover protects the shipowner against any difference

between the insured value of the vessel and the market value of the vessel.

Overdue insurance: This is a form of insurance now largely obsolete due to advances in

communications. It was an early form of reinsurance and was bought by an insurer when a

ship was late at arriving at her destination port and there was a risk that she might have been

lost (but, equally, might simply have been delayed). The overdue insurance of the Titanic was

famously underwritten on the doorstep of Lloyd's.

Cargo insurance: Cargo insurance is underwritten on the Institute Cargo Clauses, with

coverage on an A, B, or C basis, A having the widest cover and C the most restricted.

Valuable cargo is known as specie.

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Warranties and conditions

A peculiarity of marine insurance, and insurance law generally, is the use of 

the terms condition and warranty. In English law, a condition typically

describes a part of the contract that is fundamental to the performance of 

that contract, and, if breached, the non-breaching party is entitled not only

to claim damages but to terminate the contract on the basis that it has been

repudiated by the party in breach. By contrast, a warranty is not

fundamental to the performance of the contract and breach of a warranty,

whilst giving rise to a claim for damages, does not entitle the non-breaching

party to terminate the contract. The meaning of these terms is reversed in

insurance law. Indeed, a warranty if not strictly complied with will

automatically discharge the insurer from further liability under the contract

of insurance. The assured has no defense to his breach, unless he can

prove that the insurer,by his conduct has waived his right to invoke the

breach, possibility provided in section 34(3) of the Marine Insurance Act

1906 (MIA). Furthermore in the absence of express warranties the MIA will

imply them, notably a warranty to provide a seaworthy vessel at the

commencement of the voyage in a voyage policy (section 39(1)) and a

warranty of legality of the insured voyage (section 41). .[3]

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Salvage and prizes

The term 'salvage' refers to the practice of rendering aid to a vessel in

distress. Apart from the consideration that the sea is traditionally 'a place of 

safety', with sailors honour-bound to render assistance as required, it is

obviously in underwriters' interests to encourage assistance to vessels in

danger of being wrecked. A policy will usually include a 'sue and labour'

clause which will cover the reasonable costs incurred by a shipowner in his

avoiding a greater loss.

At sea, a ship in distress will typically agree to 'Lloyd's Open Form' with any

potential salvor. The Lloyd's Open Form is the standard contract, although

other forms exist. The Lloyd's Open Form is headed 'No cure - no pay'; the

intention being that if the attempted salvage is unsuccessful, no award will

be made. However, this principle has been weakened in recent years, and

awards are now permitted in cases where, although the ship might have

sunk, pollution has been avoided or mitigated. In other circumstances the

"salvor" may invoke the SCOPIC terms (most recent and commonly used

rendition is SCOPIC 2000) in contrast to the LOF (Lloyd's Open Form)

these terms mean that the salvor will be paid even if the salvage attempt is

unsuccessful. The amount the salvor receives is limited to cover the costs

of the salavage attempt and 15% above it. One of the main negative factors

in invoking SCOPIC (on the salvors behalf) is if the salvage attempt is

successful the amount at which the salvor can claim under article 13 of LOF

is discounted.

The Lloyd's Open Form, once agreed, allows salvage attempts to begin

immediately. The extent of any award is determined later; although the

standard wording refers to the Chairman of Lloyd's arbitrating any award, in

practice the role of arbitrator is passed to specialist admiralty QCs.

A ship captured in war is referred to as a prize, and the captors entitled

to prize money. Again this risk is covered by standard policies.

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Marine Insurance Act, 1906

Main article: Marine Insurance Act 1906 

The most important sections of this Act include:

s.4: a policy without insurable interest is void.

s.17: imposes a duty on the insured of uberrimae fides (as opposed to caveat emptor ); ie. that

questions must be answered honestly and the risk not misrepresented.

s.18: the proposer of the insurer has a duty to disclose all material facts relevant to the

acceptance and rating of the risk. Failure to do so is known as non-

disclosure or concealment (there are minor differences in the two terms) and renders the

insurance voidable by the insurer.

s.33(3): If [a warranty] be not [exactly] complied with, then, subject to any express provision in

the policy, the insurer is discharged from liability as from the date of the breach of warranty,

but without prejudice to any liability incurred by him before that date.

s.34(2): where a warranty has been broken, it is no defence to the insured that the breach has

been remedied, and the warranty complied with, prior to the loss.

Cargo Insurance: Cargo insurance caters specifically to the cargo of the ship and also pertains to the

belongings of a ship’s voyagers.

Hull Insurance: Hull insurance mainly caters to the torso and hull of the vessel along with all the

articles and pieces of furniture in the ship. This type of marine insurance is mainly taken out by the owner of 

the ship in order to avoid any loss to the ship in case of any mishaps occurring.

Liability Insurance: Liability insurance is that type of marine insurance where compensation is sought

to be provided to any liability occurring on account of a ship crashing or colliding and on account of any

other induced attacks.

Freight Insurance: Freight insurance offers and provides protection to merchant vessels’ corporations

which stand a chance of losing money in the form of freight in case the cargo is lost due to the ship meeting

with an accident. This type of marine insurance solves the problem of companies losing money because of 

a few unprecedented events and accidents occurring.

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In addition to these types of marine insurance, there are also various types of marine insurance policies which

are offered to the clients by insurance companies so as to provide the clients with flexibility while choosing a

marine insurance policy. The availability of a wide array of marine insurance policies gives a client a wide arena

to choose from, thus enabling him to get the best deal for his ship and cargo. The different types of marine

insurance policies are detailed below:

Voyage Policy: A voyage policy is that kind of marine insurance policy which is valid for a particular 

voyage.

Time Policy: A marine insurance policy which is valid for a specified time period – generally valid for a

year – is classified as a time policy.

Mixed Policy: A marine insurance policy which offers a client the benefit of both time and voyage policy

is recognized as a mixed policy.

Open (or) Un-valued Policy: In this type of marine insurance policy, the value of the cargo and

consignment is not put down in the policy beforehand. Therefore reimbursement is done only after the loss

to the cargo and consignment is inspected and valued.

Valued Policy: A valued marine insurance policy is the opposite of an open marine insurance policy. In

this type of policy, the value of the cargo and consignment is ascertained and is mentioned in the policy

document beforehand thus making clear about the value of the reimbursements in case of any loss to the

cargo and consignment.

Port Risk Policy: This kind of marine insurance policy is taken out in order to ensure the safety of the

ship while it is stationed in a port.

Wager Policy: A wager policy is one where there are no fixed terms of reimbursements mentioned. If 

the insurance company finds the damages worth the claim then the reimbursements are provided, else

there is no compensation offered. Also, it has to be noted that a wager policy is not a written insurance

policy and as such is not valid in a court of law.

Floating Policy: A marine insurance policy where only the amount of claim is specified and all other 

details are omitted till the time the ship embarks on its journey, is known as floating policy. For clients who

undertake frequent trips of cargo transportation through waters, this is the most ideal and feasible marine

insurance policy.

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Basis of Sum Insured 

Marine Insurance policies are issued on 'agreed value basis' and should be based on invoice

and covering incidental expenses.

What are the types of Coverage offered?

The following table contains the types of coverage offered. All overseas transits are subjected to Institute Cargo

Clauses, given by Lloyds Underwriter and Technical Committee, London. The brief coverage is:- Risks Institute Cargo Clauses

(Proximate Cause)

A

(All risk

Cover)

B

(Wider 

Cover)

C

(Basic

Cover)

Stranding , Grounding, Sinking or Capsizing  Yes Yes Yes

Overturning or Derailment of Land Conveyance  Yes Yes Yes

Collision of Ship or Craft with another Ship or Craft  Yes Yes Yes

Contact of Ship, Craft or Conveyance with anything other than Ship or 

Craft (excludes Water but not Ice) Yes Yes Yes

Discharge of Cargo at Port of Distress  Yes Yes Yes

Loss overboard during Loading/Discharge (total loss only). N/A Yes No

Fire or Explosion  Yes Yes Yes

Malicious Damage  Yes No* No*

Theft/ Pilferage  Yes No No

General Average Sacrifice  Yes Yes Yes

Jettison  Yes Yes Yes

Washing Overboard (deck cargo)  Yes Yes No

War Risks No* No* No*

Seawater entering Ship, Craft, Hold,

Conveyance Container Lift Van or Place of Storage Yes Yes No

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River or Lake Water entering same  Yes Yes No

BAJAJ Allianz LIMITED

ANNUAL REPORT 2010-2011

DIRECTOR'S REPORT

 The directors present their fourth annual report and the audited statementsof accounts for the year ended 31 March 2011.

Financial results

  The financial results of the company are elaborated in the annexedManagement Discussion and Analysis Report.

 The highlights of the Standalone Financial Results are as under:

(Rs. In Lakh)

2011 2010

Income from Operations & other income 12,60612,980

Gross profit before interest & depreciation 9,431 8,130

Interest- -

Depreciation1,003 2,196

Gross Profit before exceptional item8,428 5,934

Exceptional item-Surplus on pre-paymentof sales tax deferral incentive/loan 13,907 -

Profit before tax 22,335 5,934

Provision for tax 3,501 2,536

Profit after tax 18,834 3,398

Profit available for appropriation 19,066 2,939

 Transfer to Reserve Fund under section 45-IC (1)of the Reserve Bank of India Act, 1934 3,767 680

 Transfer to General Reserve 1,883 340

Proposed dividend (inclusive of dividend tax) 1,809 1,687

Provision for Corporate Dividend Tax written back (184) -

Balance carried to Balance Sheet 11,791 232

Earnings per share (Rs.) 13.0 2.3

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 The highlights of the Consolidated Financial Results are as under:

(Rs. In Lakh)

2011 2010Gross Revenue:

i) Gross written premium

a) Life Insurance-

Bajaj Allianz Life Insurance Co Ltd 960,995 1,141,971

b) General Insurance-

Bajaj Allianz General Insurance Co Ltd 312,937272,489

ii) Interest & Finance Charges-BajajFinance Ltd 110,939 -

iii) Income from windpower generation-Bajaj Finserv Ltd 4,179 4,311

iv) Investment income (excluding accretionson unit linked Investment)76,619 63,532

v) Others 5,514 4,336

  Total 1,471,183 1,486,639

Dividend

  The directors recommend for consideration of the shareholders at theensuing annual general meeting, payment of a dividend of Rs. 1.25 per share(25 per cent) for the year ended 31 March 2011. The amount of dividend isRs. 1,809 lakh.

Dividend paid for the year ended 31 March 2010 was Rs. 1 per share (20 percent). The amount of dividend and the tax thereon aggregated to Rs. 1,687lakh.

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excluding the additional provisioning due to Motor Pool losses, the ROE forFY2011 would have been higher at 20%.

Miscellaneous Issues

Relief Against ForfeitureMost provinces have a statutory provision giving the courts the power to relieveagainst penaltiesand forfeiture. Section 24 of the Law and Equity Act of B.C. is typical:24 The court may relieve against all penalties and forfeitures, and in granting therelief may impose any terms as to costs, expenses, damages, compensationsand allother matters that the court thinks fit.Additionally, s. 10 of the Insurance Act of B.C. contains a relief against forfeitureprovision.10 If there has been imperfect compliance with a statutory condition as to theproof 

of loss to be given by the insured or other matter or thing required to be done oromitted by the insured with respect to the loss, and a consequent forfeiture oravoidance of the insurance in whole or in part, or if there has been a terminationof the policy by a notice that was not received by the insured owing to the insured'sabsence from the address to which the notice was addressed, and the courtdeems itinequitable that the insurance should be forfeited or avoided on that ground orterminated, the court may, on terms it deems just, relieve against the forfeitureoravoidance or, if the application for relief is made within 90 days of the date of 

themailing of the notice of termination, against the termination. The validity and applicability of these provisions must be considered in light of the decision of the Supreme Court of Canada in Ordon v Grail. However, if such provisions arefound to not beconstitutionally applicable, the Ordon v Grail analysis might well lead a court toamend Canadianmaritime law to incorporate the principles contained in these provisions. In eitherevent, the courtwill look at the entire circumstances when considering whether to grant relief against forfeiture.

An extremely important consideration is whether the insurer has been prejudicedby the failure togive notice.

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Third Party Rights Against InsurersMany provincial statutes contain a provision giving injured persons a rightof direct action againstthe insurer of the defendant. Section 24 of the B.C. Insurance Act istypical:24 (1) If a judgement has been granted against a person in respect of a liabilityagainst which the person is insured and the judgment has not been satisfied, the

 judgment creditor may recover by action against the insurer the lesser of (a) the unpaid amount of the judgment, and(b) the amount that the insurer would have been liable under the policy to pay totheinsured had the insured satisfied the judgment.(2) The claim of a judgment creditor against an insurer under subsection (1) issubject to the same equities as would apply in favour of the insurer had the

 judgmentbeen satisfied by the insured.(3) This section does not apply in the case of a contract of automobile insurance.

Because of the constitutional issues regarding the applicability of provincial statutes to matters

governed by Canadian maritime law there is an issue as to whether thesestatutes can apply tomarine insurance.Many marine insurance contracts contain a provision that makes theobligation to indemnify theassured conditional on the assured having paid the claim against it. This isdone using words suchas "shall become liable to pay and shall have paid...". These clauses arecalled “pay to be paid”. The effect of such clauses is that if the assured has not actually paid theinjured party, because of bankruptcy or some other reason, the insurer is under no obligation toindemnify and the injuredparty cannot recover direct against the insurer.

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Bibliography.

Google.

Bajaj Allianz website.

Wikipedia.

SYBMS banking & Insurance textbook – Vipul

Prakashan.