CHAPTER 32

MARINE INSURANCE
 between countries
CHAPTER 32 Outside India
MARINE
32 12
Para INSURANCE
No Claims
TOPIC Against Marine 13
Page No
INDEX
32 Policies
Introduction 4
32 12
1 1 Remittance of Claims on
Insurable Interest 13
4
32 2 Exports
Marine Insurance Policy 4
Actual Total Loss 14
32 12
3 2 Risks not Covered 4
12 Payments in Foreign 14
3 31 General Exclusion 4
Currency
Clauses of certain
Import Claims
Unseaworthiness and 5
3 2
Unfitness Clause
3 3 War Exclusion Clause 5
3 4 Strike Exclusion Clause 5
32 4 Period of Cover 5
32 5 Types of Cover 5
5 1 Institute Cargo 5
Clauses(C)
5 2 Institute Cargo Clause 6
(B)
5 3 Institute Cargo Clause 6
(A)
5 4 War and Strike (SRCC) 6
Cover
32 6 Insurable Value 7
32 7 Loss Coverage 7
7 1 Claims on Policies 7
Covering Merchanting
Trade
7 2 Constructive Total Loss 7
7 3 General Average 7
7 4 Particular Average 8
32 8 Types of Policies 8
8 1 Specific Voyage Policy 8
8 2 Open Cover 8
8 3 Open Policy 8
32 9 Filing Claims 9
9 1 Limitation 11
32 10 Currency 11
32 11 Premium 11
11 1 Premium on Marine 11
Policies Covering Exports
11 2 Premium on Marine 12
Policies Covering Imports
11 3 Premium on Marine 12
Policies Covering
Shipments
32. INTRODUCTION

Marine Cargo Insurance is governed by Marine

Insurance Act, 1963. Section 3 of the Act defines a
contract of Marine insurance as ‘an agreement
whereby the insurer undertakes to indemnify the
assured in the manner and to the extent thereby
agreed to against losses incidental to marine
adventure’.

32.1. INSURABLE INTEREST

Section 8(I) of the Marine Insurance Act states that

the ‘assured’ must be interested in the subject
matter (goods) insured at the time of loss.
Insurance is effected either by shipper/exporter or
buyer by virtue of their ownership of goods or
acquiring an interest in the goods respectively.
The shipper /exporter has to take the insurance in
case the terms of the sale is on CIF basis and the
buyer in cases where the goods are consigned on
C&F or FOB basis.

32.2. MARINE INSURANCE POLICY

A marine insurance policy must specify:

i) Name of the assured or person who effect the

insurance on his behalf.
ii) Subject matter (goods) insured
iii) Risk insured against
iv) Voyage or period or both covered by the
insurance
v) Sum(s) insured
vi) Name(s) of insurer(s)

A Marine Cargo Policy is freely assignable to any

one who may acquire an insurable interest and can
be assigned either before or after a loss.

32.3. RISKS NOT COVERED

The marine insurance policies normally do not

cover the following risks

32.3.1. GENERAL EXCLUSION CLAUSES

i) Loss, damage or expense caused by delay and

inherent vice or nature of the goods
ii) Loss damage or expense attributed to willful
misconduct of the insured.
iii) Ordinary leakage/ordinary loss in weight or
volume / ordinary wear and tear of the insured
goods.
iv) Insufficiency or unsuitability of packing.
v) Deliberate damage to / destruction of the
goods.
vi) Insolvency or financial default of the owners,
managers, charterers or operators of the vessel.
vii) Loss damage or expenses arising from use of
atomic weapons or nuclear fission and / or other
like reaction or radioactive force.

32.3.2. UNSEAWORTHINESS AND UNFITNESS

CLAUSE

Unseaworthiness / unfitness of vessel or craft

where the assured or his servant is privy to such
Unseaworthiness / unfitness at the time the goods
are loaded therein.

32.3.3. WAR EXCULSION CLAUSE

War, Civil war, revolution, rebellion, insurrection,

civil strike, derelict weapons of war, capture,
detainment etc. (Specific policy to be taken).

32.3.4. STRIKE EXCLUSION CLAUSE

Strikes, lock-outs, labour disturbances, riots, civil

commotions, terrorist attacks etc.

32.4. PERIOD OF COVER

 The insurance cover is available for the entire

period of transit from the time the goods leave the
warehouse at the place of commencement and
continues during such transit including deviation.
The cover terminates on delivery of the goods, at
the warehouse at the named destination or on
expiry of 60 days (sea consignment) / 30 days (air
consignment) on completion of discharge from the
vessel at final port.
 The Bank as a standard practice, specifies marine
insurance to be taken on ‘warehouse to
warehouse’ basis. As per the ‘Transit Clause’, if
goods are not delivered within the time limit,
cover ceases on expiry of 60/30 days and would
have to be appropriately extended.
 The Institute Cargo Clauses provides warehouse
to warehouse cover, unless specifically deleted.

32.5. TYPES OF COVER

32.5.1. INSTITUE CARGO CLAUSE ( C )

The insurance policy under Cargo Clauses ( C )

covers loss of damage to goods caused by:
i) Fire or explosion,
ii) Stranding, grounding, sinking or capsizing of
vessel,
iii) Overturning or derailment of land conveyance,
iv) Collusion or contact of vessel , craft or
conveyance etc. with any external object other
than water,
v) Discharge of cargo at a port of distress,
vi) General average sacrifice and
vii) Jettison.

32.5.2. INSTITUTE CARGO CLAUSE (B)

In addition to risks covered under Institute Cargo

Clause ( C ) the following risks are covered by
policies to which Cargo Clause (B) is attached:

i) Loss of or damage to the goods attributable to

earthquake, volcanos, eruption or lightning,
ii) Washing overboard,
iii) Loss of or damage to the goods caused by entry
of sea, lake or river water into the vessel, craft,
hold, conveyance container, liftvan or place of
storage, and
iv) Total loss of any package lost overboard or
dropped whilst loading on to or unloading from
vessel or craft.

EXTRANEOUS PERILS

The policy issued on Institute Cargo Clause (B) can

be extended to cover any of the following non-
maritime extraneous perils by payment of suitable
extra premium,

i) Theft, pilferage and non delivery,

ii) Fresh and / or rain and / or river water damage,
iii) Hook, oil, mud, acid and damage by other
cargo,
iv) Heating and sweating,
v) Breakage, denting, chipping, scratching and
blending,
vi) Leakage and
vii) Bursting and tearing

32.5.3. INSTITUTE CARGO CLAUSE (A)

This Insurance covers all risks of loss of or damage

to the subject goods insured except general
exclusion, Unseaworthiness / unfitness war
exclusion and strikes exclusion clauses. This is the
widest cover and hence is a standard condition for
import LCs issued by the Bank.
32.5.4. WAR AND STRIKE (SRCC) COVER

The risks of loss etc. not eligible under the war and
strike exclusion clauses can in addition to Institute
Cargo Clauses A, B or C be covered by payment of
additional premium. The cover is granted by
attaching Institute War Clauses (Cargo) and
Institute Strike Claims (Cargo) to the policy of
insurance.
32.6. INSURABLE VALUE

The amount of loss payable on marine insurance

policy is based on CIF value of goods plus an
agreed percentage. The prevailing practice in
India is to specify insurable value at CIF plus 10%.
‘Duty’ policies to cover duty payable on the
imported goods are also issued.

32.7. LOSS COVERAGE

The losses covered under marine Insurance can be

broadly classified as:

Loss

Total Loss Partial (Average) Loss

Actual Total Constructive General

Particular
Loss Total Loss
Average Average

32.7.1. ACTUAL TOTAL LOSS

An ‘Actual Total Loss’ may occur when insured

cargo is (a)totally destroyed (e.g. by fire or ship
sinks) (b) so damaged that it ceases to be the thing
insured (e.g. cement turns to concrete due to
water seepage and (c) irretrievably lost or lost
beyond a reasonable time. It can be observed that
destruction; is not essential for claiming actual
total loss.

32.7.2. CONSTRUCTIVE TOTAL LOSS

‘Constructive Total Loss’ (CTL) may be defined as

a total loss when the cost of saving, repairing or
reconditioning the insured goods is more than the
value of goods. Example, repair cost of machinery
damaged due to sea water seepage is more than
the invoice value.

While claiming CTL, the insured is to abandon his

interest in the insured goods in favour of the
insurance company.

32.7.3. GENERAL AVERAGE

‘General Average” (GA) is an extra ordinary
sacrifice or expenditure intentionally and
reasonable made or incurred for the common
safety of property involved in a common maritime
voyage. Examples, a) some cargo thrown
overboard to lighten the ship in rough weather b)
expenses incurred in towing a ship to safety.

The sacrifice/expenditure/loss is to be shared by

all interests in the journey i.e. cargo owners, ship
owners and freight carriers. The sharing of GA
sacrifice or expenditure is worked out by an expert
Average Adjuster as per internationally agreed
rules. All marine policies covers GA loss and
sacrifice.

32.7.4. PARTICULAR AVERAGE

‘Particular Average’ is partial loss or damage in

which there is no contribution from other interests
in the journey, as in case of general average
policy. It becomes payable only when specifically
covered. Example, Goods thrown overboard due to
deterioration likely to spread to remaining stock.

32.8. TYPES OF POLICIES

32.8.1. SPECIFIC VOYAGE POLICY

A voyage policy covering the risks that may arise

during a journey from one specific place to
another. The duration clause inherent in the
Institute Cargo Clauses provide warehouse to
warehouse cover with an outer limit of 60 days in
case of sea shipment / 30 days in any case of air
shipment from date of discharge at the port of
destination.

32.8.2. OPEN COVER

Open Cover is not an insurance policy, but an

agreement under which the insurance company
would honour and accept declarations of shipments
of cargoes and issue stamped specific certificate of
insurance against each declaration. The open
cover is designed to avoid the inconvenience of
negotiating the insured’s consent for each
transaction. The open cover agreement generally
specifies limitation clause Per Bottom, Per Place
clauses etc. restricting the liability of the
insurance company to a specific amount. Per
Bottom Clause places a limit on the value of goods
to be carried in one carrier and Per Place clause on
the value of goods at a particular place.
The insured is required to declare each and every
shipment. The insurance company may hold an
open cover null and void if insured does not
willfully report shipments.

32.8.3. OPEN POLICY

Open Policy (Floating Policy) is a stamped
enforceable contract of insurance for an agreed
amount, against which a series of consignments
may be despatched and declared. The sum insured
will gradually diminish by the amount of
declaration until it is exhausted.

32.9. FILING CLAIMS

In case of an export transaction, the claim is to be

filed by the exporter when the ownership of goods
has not passed to the overseas buyer e.g. FOB
contract in case of damage at port of loading etc.
The terms of the contract and more specifically
the INCOTERM used will determine the point at
which the risk is transferred to the buyer. The
overseas buyer will make the claim in other cases.
The same principle would appropriately apply in
case of an import transaction. The claim is to be
filed at the office of insurance company (generally
in exports) or their agent (generally in imports)
without any delay. It is the duty of the insured to
take reasonable measures to avert or minimise the
loss/further loss. The rights of the insurance
company to claim recovery from carriers, port
authorities etc. are to be protected by the insured.
Hence in case of loss/damage etc. the insured
must lodge a proper monetary claim with carriers,
port authorities and other intermediaries. In case
of any missing package, a log entry is to be made
with port authority and on its subsequent tracing,
clearance is to be made only after a joint survey.
The joint survey by agents of the carriers, port
authority, custom authority and the insurer is also
to be arranged within 3 days (7 days for air
consignment) of discharge from vessel where loss
or damage is apparent / visible.

Procedure and Documentation when a loss arises

a. In the event of loss or damage to the goods

giving rise to a claim under/or their agents must
give immediate notice of loss to the insurance
company and/or their agents mentioned in the
policy giving the details of loss.

b. It is a condition of the policy of insurance that

insured and/or their agents should act as if
uninsured and take such measures as may be
reasonable for the purpose of averting or
minimising the loss or damage to the goods by an
insured peril. Insured or his agents must also
ensure that all rights against carriers, bailees or
other third parties are properly preserved and
exercised..
c. While taking delivery of the goods from the
carriers and/or bailees, if the packages show any
outward sign of loss or damage, insured and/or
their agents must call for a detailed survey by ship
surveyors on such packages and also lodge a proper
monetary claim on the shipping company for loss
or damage found in the packages.

d. If the ship survey is time-barred, the insured

and/or the agents must call for an insurance
survey on such packages before effecting
delivery. If the packages are found in apparent
sound condition but on unpacking if any loss or
damage is found, insured and/or their agents must
inform immediately the Insurance Company and
obtain an insurance survey. Insured should keep
the goods as well as the contents with its packing
materials intact for inspection by the surveyors for
proper assessment of loss or damage.

e. In case of packages which are found to be

missing, insured must lodge a proper monetary
claim for full value of the missing packages with
the shipping company and also with the bailees
and obtain a proper acknowledgement from them.

f. In terms of carriage of Goods by Sea Act, 1925 as

amended upto 1993 the time limit for filing suit
against the shipping companies is one year from
the date of discharge. The following documents
are required by insurers to finalise the claim
promptly:
1. Original Insurance Policy
2. Original invoice and packing list
3. Copy of bill of lading
4. Survey report/shortland/non-delivery/landed
but missing certificate
5. Copies of correspondence exchanged with the
carriers or bailees
6. Claim bill.

The claim is to be filed immediately on

discovery/notification of loss. The claims should
be supported by following documents:

i) Original insurance policy or certificate of

insurance duly endorsed by insured.
ii) Full set of Bill of Lading in case of total loss.
Non negotiable copy in other cases.
iii) Copy of invoice with packing / weight list.
iv) Insurance Survey Report or other documentary
evidence to substantiate cause and extent of loss.
v) Joint Ship Survey / Discrepancy Certificate,
issued by the carriers
vi) Port authority landing certificate
vii) Causal Report when vessel is missing or lost
viii) Ship Master’s Protest or an authenticated copy
of extract from ship’s log book in case vessel
encountered heavy weather or other casualty
during the voyage.
ix) In case of short landing claims, a short landing
certificate issued by the carrier or Port authority.
x) A landed but Missing Certificate from port
authority in case where package has landed but is
missing.
xi) Triplicate copy of Bill of Entry (in case of
import into India).
xii) Copies of letters lodging claims on the carrier,
port authority etc.
xiii) Letter of subrogation duly stamped and
signed.
xiv) Any other document as may be asked by the
insurance company.

32.9.1. LIMITATION

No suit can be filed by the insured against the

insurer after a lapse of three years from:

i) the date of occurrence of the loss or,

ii) the date when the claim is repudiated either
partly or wholly.

If the claim is not settled for three years, it

becomes time barred under Law. The claimant
would have to file suit within three years to keep
their claim rights open. The claim would also
remain open if the insurers belatedly repudiate the
claim.

Memorandum of Exchange Control Regulations

relating to general insurance in India are
summarized as under:

32.10. CURRENCY

i) Marine Insurance policies on coastal shipments

may be issued only in Indian Rupees

ii) Marine Insurances policies on shipments

between India and other countries as also between
two points outside India may be issued in Rupees
or in any foreign currencies.

32.11. PREMIUM

32.11.1. Premium on Marine policies covering

exports

Payment of premium on a marine insurance policy

on exports from India may be accepted in rupees
provided exporter furnishes to the insurer a
certificate to the effect either (a) that insurance
charges on the shipment in question have to be
borne by him in terms of contract with overseas
buyer and that he is not making the payment on
behalf of any non-resident or (b) that he is
defraying insurance charges on the shipment in
question on account of overseas buyer of the
goods and he undertakes to add the amount on the
invoice and recover the payment so made from the
buyer in an approved manner.
NOTES:
A. Overseas buyers may sometimes
approach Insurers directly or through their
overseas offices/agents for extension of
cover for additional risks or for extended transits
risks necessitated by circumstances not
envisaged when the marine insurance was
originally covered in India with the Insurers.
Such extensions may be made by Insurers
provided the additional premiums are collected
from overseas buyers in foreign currency.
B. Certain countries operate restrictions requiring
importers in their countries to obtain marine
insurance cover from local insurers, settlement
under which may not be possible in the event of
cargo getting lost before reaching port of
destination due to Exchange Control regulations
governing remittances against imports into those
countries. Insurers may issue in such cases
contingency marine insurance policies to exporters
to protect their interest till goods are paid for .
The policies should be issued with a condition that
they will not be assignable to overseas buyer or
any other non-resident party. Claims on such
policies should be paid only to exporters in India.

32.11.2. Premium on Marine Policies covering

Imports

(i) Payment of premium on a marine insurance

policy on imports into India may be accepted in
rupees provided importer furnishes to the insurer a
certificate to the effect that (a) the insurance
charges are required to be borne by him in terms
of the contract with the overseas seller and (b)
where the import is made against an Import
Licence, he undertakes to ensure that the amount
of insurance premium is endorsed on the import
licence in due course.

(ii) In case of imports by the public sector

(viz. Central Government, any State Government,
Statutory or public bodies and Government
undertakings), payment of insurance premium in
rupees may be freely accepted.

(iii) In all other cases, where payment of premium

in respect of imports is offered in Rupees, prior
approval of Reserve Bank will be required.
Applications for the purpose should be made by
letter (in duplicate) furnishing full particulars.

32.11.3. Premium on Marine Policies covering

Shipments between countries outside
India

(i) Premiums on marine insurance policies covering

shipments between countries outside India
must ordinarily be received in foreign currency,
but payment in rupees may be accepted provided a
certificate from an authorised dealer in foreign
exchange is produced to show that the rupees are
derived by a remittance from abroad in an
approved manner.
NOTE: Overseas offices of the Insurers may grant
marine insurance cover for trade between China
and third countries and receive premium/settle
claims through foreign currency accounts
maintained by their overseas offices without prior
approval of Reserve Bank.
(ii) Sometimes, firms and companies in India
finance merchanting trade i.e. goods shipped from
one foreign country to another and financed by an
intermediary in India. In some of these cases
goods may be purchased on f.o.b./c.&f. terms
and /or sold on c.i.f. terms, the marine insurance
cover being arranged by the intermediary in India.
Insurance companies registered with IRDA may
issue policies covering transit risks between the
loading and the destination ports in Rupees or in
any foreign currency in such cases, against
payment of premium in Rupees by the
intermediary, after satisfying themselves that the
contract provides for marine insurance being taken
by the intermediary.

32.12. CLAIMS AGAINST MARINE POLICIES

Claims against marine insurance policies, when

payable to persons, firms or companies in India
should be paid only in Rupees, irrespective of the
currency in which relative policies had been
issued. Where claimant is not a resident, of India,
Insurers may settle the claim out of foreign
currency balances held by them, provided they
are satisfied that ownership of the goods lost,
damaged etc., vests in such claimant and that the
latter is not making the claim merely as agent of
the real owner of the goods in India.

32.12.1. Remittance of Claims on Exports

In the case of marine claims against exports,

remittances of claim will be permitted by
authorised dealers in foreign exchange on
application on form A2 provided the Insurer has
satisfied himself that the ownership of the goods
on which claim has arisen vests in the non-resident
claimant. Applications should be supported by
following documents:

a. Statement of claim duly certified by an official

authorised by the insurance company registered
with IRDA for this purpose.
b. Insurance policy.
c. Survey report or other customary proof of loss.
d. Bill of Lading / Airway bill.
e. Certified copy of invoice
f. Any other documents ordinarily required to
support the claim.

Where original documents are not available for any

reason, photo copies may be produced to
authorised dealer together with reasons for non-
availability of the original documents. This
provision does not apply to remittances for
replenishment of foreign currency balances which
will require specific approval of Reserve Bank.

NOTE : i) Insurers may settle claims in rupees in

favour of Indian exporters even in cases where
title to the goods has passed to foreign buyer, if a
request to that effect has been made by the non-
resident claimant. A certificate indicating full
particulars of the transaction including number of
relative
GR/PP form and amount paid in settlement of
claims should be issued to the exporter to enable
the latter to obtain necessary approval form
Reserve Bank for making replacement shipments.

iii) Claims against marine insurance policies

covering exports may also be settled through the
overseas claims settling agents, if so desired by
insurers. Authorised dealers have been permitted
to open revolving letters of credit in favour of
established claims-settling agents abroad and
reimburse claims under the credit on verification
of the necessary documentary evidence viz.
statement of claim, survey report or other
documentary evidence of loss/damage, original
policy or certificate of insurance etc.

32.12.2. Payments in Foreign Currency of

certain Import claims

Although it is a basic rule that marine claims on

imports should be settled locally in Rupees in
favour of importer in cases where ownership of the
goods lost, damaged, etc. vests in the importer,
Insurers may settle claims from their foreign
currency balances in favour of overseas suppliers in
the following categories of imports, in order to
facilitate early replacement of the lost, damaged
etc. goods, on request being received in this
regard from importers:

a. Imports by Government Departments and public

sector undertakings
b. Imports by private sector undertakings against
foreign credits provided the terms of the foreign
credit require that insurance cover should be taken
in foreign currency for replacement of
lost/damaged goods.
c. In all other cases, where the ownership of the
goods lost/damaged, etc. vests with the overseas
supplier and no payment has been made towards
any part of the cost of the goods.

These provisions are applicable not only to marine

policies, but also to marine-cum-erection policies,
whether issued separately or combined.

32.12.3. Claims on Policies Covering Merchanting

Trade

Claims arising from marine insurance policies

covering merchanting trade financed through India
may be settled by Insurers from their foreign
currency balances only if –
a. the ownership of the goods vests with the
overseas party and
b. where the claim is proposed to be settled in
favour of the overseas supplier, payment for the
goods has not been made to the supplier and
where claim is proposed to be settled in favour of
the overseas buyer, payment for the goods has
been received by the Indian intermediary from the
buyer.