Chaper-08
Marine Insurance
Definition of Marine Insurance
Marine insurance is a type of insurance that provides coverage for various risks associated with
ships, cargo, and other related interests during transportation. It protects the owner of the goods
or the cargo ship from financial losses resulting from events such as shipwrecks, collisions, and
damage to the cargo.
Example: A company shipping electronic equipment from China to the Bangladesh purchases
marine insurance to protect against potential losses during transit. If the cargo is damaged due to
a storm at sea, the insurance would cover the financial loss incurred by the company, helping
them recover the value of the damaged goods.
Subject matter of Marine Insurance
The subject of marine insurance typically revolves around providing coverage for risks
associated with the transportation of goods and cargo over water. It involves the protection of
interests related to maritime activities and the movement of goods by sea. The primary subjects
of marine insurance include:
1. Cargo: This involves the goods or merchandise being transported by sea. Marine insurance
covers potential damage or loss to the cargo during the voyage.
2. Hull: Refers to the ship or vessel itself. Marine insurance can cover damage to the ship's
hull, machinery, and equipment. This is crucial for ship-owners to protect their investment in
the vessel.
3. Freight: Marine insurance may also cover the freight, which is the cost of transporting goods
by sea. If a shipment is lost or damaged, the insurance can compensate for the financial loss
associated with the freight.
4. Liabilities: Marine insurance can extend to cover various liabilities, including third-party
liabilities for damage caused to other ships, port facilities, or injuries to personnel during
maritime operations.
5. Freight Forwarders and Logistics Providers: Companies involved in facilitating the
transportation of goods, such as freight forwarders and logistics providers, may also seek
marine insurance to cover their liabilities and responsibilities in the shipping process.
Overall, the subject of marine insurance is broad and encompasses various elements related to
maritime commerce, providing financial protection against the uncertainties and risks inherent in
the transportation of goods by sea.
Important of Marine Insurance
Marine insurance plays a crucial role in the world of international trade and maritime commerce
due to several important reasons:
1. Risk Mitigation: Shipping cargo across oceans involves inherent risks such as storms,
piracy, collisions, and other unforeseen events. Marine insurance helps mitigate these risks
by providing financial protection against potential losses, ensuring that businesses can
recover from unexpected incidents.
2. Facilitation of Trade: As a significant portion of global trade relies on maritime
transportation, marine insurance facilitates international commerce by providing confidence
to businesses engaging in cross-border transactions. It allows companies to ship goods with
the assurance that they are financially protected in case of unforeseen events.
3. Protection of Investments: Ship-owners invest substantial capital in vessels and their
operations. Marine insurance protects these investments by covering damages to the hull,
machinery, and equipment, ensuring that ship-owners can recover financially in the event of
accidents or disasters.
4. Compliance and Legal Requirements: Many countries and international trade agreements
require proof of insurance for shipping. Marine insurance helps businesses comply with legal
and contractual obligations, allowing them to participate in global trade without disruptions
5. Financial Security for Cargo Owners: Cargo owners purchase marine insurance to
safeguard their goods during transit. This provides them with financial security and allows
them to confidently engage in import and export activities, knowing that they are protected
against potential losses.
6.
Support for Lenders and Investors: Banks and financial institutions that provide
financing for maritime ventures often require insurance as a condition for lending. Marine
insurance serves as a risk management tool, providing assurance to lenders and investors that
their financial interests are protected.
7.
Liability Coverage: Marine insurance covers various liabilities, including those related to
third-party damage or injuries during maritime operations. This protects businesses from
legal and financial consequences arising from accidents or incidents involving their vessels.
8. Global Economic Stability: The stability and reliability of marine insurance contribute to
the overall stability of global trade. It provides a safety net for businesses engaged in
international transactions, fostering confidence and promoting economic growth.
Marine insurance is essential for managing risks, ensuring the smooth flow of international trade,
protecting investments, and providing financial security in the dynamic and unpredictable
environment of maritime activities.
Documents of Marine Insurance
Marine insurance involves several important documents that help outline the terms, conditions,
and details of the insurance coverage. These documents are crucial for both the insurer and the
insured to understand their respective responsibilities. Here are some key marine insurance
documents:
1. Insurance Policy: The insurance policy is the primary document that outlines the terms
and conditions of the insurance coverage. It includes details such as the types of risks
covered, exclusions, sum insured, premium amount, policy period, and any specific
conditions or endorsements. The policy serves as a legal contract between the insurer and
the insured.
2. Certificate of Insurance: In many cases, especially for cargo insurance, a certificate of
insurance is issued as evidence of coverage. It provides a summary of the key details
from the insurance policy, including the names of the insured parties, the type of
coverage, policy limits, and effective dates. This document is often required in
international trade transactions.
3. Insurance Binder: An insurance binder is a temporary document issued by the insurer
before the formal policy is issued. It provides immediate coverage until the actual policy
is processed. Once the policy is issued, the binder is replaced by the official policy
document.
4. Open Cover: An open cover is a type of policy that is used for multiple shipments within
a specified period. It is commonly used in cargo insurance to cover various shipments
without the need to issue a separate policy for each. The open cover outlines the terms
and conditions applicable to all shipments covered under it.
5. Declaration: A declaration is a statement or report provided by the insured to the
insurer, specifying the details of the shipments or assets to be covered. It includes
information such as the nature of the goods, their value, the mode of transportation, and
other relevant details. Declarations help the insurer assess the risk and determine
appropriate coverage.
6. Survey Report: In the event of a claim, a survey report may be prepared by a surveyor
appointed by the insurance company. This report assesses the extent of the damage or
loss and provides details that are crucial for the claims settlement process.
7. Bill of Lading: While not strictly an insurance document, the bill of lading is a crucial
shipping document. It serves as a receipt for the cargo and a document of title. It may
contain clauses related to the insurance of the cargo and is often required for the
processing of insurance claims.
These documents collectively form the framework for marine insurance transactions, helping
to establish clarity, compliance, and accountability between the insured parties and the
insurer.
Feature or Elements of Marine Insurance Contract
The elements of marine insurance refer to the key components and considerations that make up
the structure of marine insurance policies. These elements define the scope, terms, and
conditions of the insurance coverage. Here are the fundamental elements of marine insurance:
Legal Elements
Other Elements
Two Parties
Insurable Interest
Legal Objects
Utmost Good Faith
Contractual ability of both parties
Compensation for Damage
Certainty
Proportionate Contribution
Written
Subrogation
Damage for cause proxima
Types of Marine Insurance
Marine insurance encompasses various types of coverage to address the diverse risks associated
with the transportation of goods and vessels over water. Here are some common types of marine
insurance:
1. Voyage Policy
2. Time Policy
3. Mixed Policy
4. Valued Policy
5. Unvalued Policy
6. Floating Policy
7. Currency Policy
8. Named Policy
9. Joint Policy
10. Block Policy
 Voyage Policy
A Voyage Policy is a form of insurance that safeguards ships, cargo, and freight during
specific journey. This policy is designed to cover the risks associated with a particular
transit, from the point of departure to the destination.
 Time
Policy
A Time Policy in marine insurance is a type of coverage that provides
protection for a specified period, often a year, providing continuous
protection for vessels, cargo, and associated risks throughout multiple
voyages undertaken during that period.
 Mixed Policy
A Mixed Policy in marine insurance combines elements of both voyage and time policies.
This hybrid coverage provides protection for specific voyages as well as continuous
coverage for a designated time period, offering flexibility for varying maritime activities.
 Valued Policy
A Valued Policy in insurance is a policy where the value of the insured property, such as
cargo or a vessel, is pre-determined at the time the policy is issued. The agreed value is
predetermined and is paid out in the event of a total loss, providing certainty in
compensation.
 Unvalued Policy
An Unvalued Policy in insurance is a policy where the value of the insured property, such
as cargo or a vessel, is not pre-determined at the time the policy is issued. Instead, the
compensation in the event of a covered loss is based on the actual value of the property at
the time of the loss, up to the policy limit. The valuation is determined when a claim is
filed.
 Floating Policy
When numerous vessels owned by the same individual or entity operate in a specific
region, and their status, condition and value are collectively underwritten in a single
policy, it is referred to as a floating policy.
 Currency Policy
A policy that is denominated in a foreign currency and specifies the sum assured in that
particular foreign currency is termed a currency policy.
 Joint Policy
A joint policy is established when a policyholder obtains insurance coverage for the
identical ships, cargo, and freight from two distinct insurance companies simultaneously.
 Black Policy
This policy provides coverage not only for incidental islands risks but also for marine
time risks
Meaning or definition of marine perils and hazards
Marine perils and hazards refer to the various risks and dangers associated with maritime
activities and transportation over water. Basically there are two types of marine perils and
hazards
1. Natural Perils
 Marine Cyclones
 Tsunami
 Dashing against ice-berg
 Dashing against submerged mountains
2. Unnatural perils or Moral Hazards
 Theft and Robbery
 War Situation
 Jettison
 Fire
 Capture or seizure (‡MÖßvi ev AvUK)




Betrayal (cÖZviYv)
Explosion (we‡ùviY)
Strikes (niZvj)
Piracy(Rj`my¨Zv)
Marine Loss
A marine loss refers to the financial impact or harm suffered in the maritime sector due to a
range of risks and perils associated with sea voyages. This can involve the complete or
partial destruction, damage, or loss of vessels, cargo, or other maritime assets. Marine losses
can arise from accidents, natural disasters, human errors, piracy, or other unexpected
incidents occurring during shipping, transportation, or navigation activities.
Marine losses can be classified into different categories
A. Total Loss (mvgwMÖK ÿwZ)
 Actual total loss (cÖK…Z mvgwMÖK ÿwZ)
 Constructive total loss (D×v‡hvM¨ mvgwMÖK ÿwZ)
B. Partial Loss (AvswkK ÿwZ)
 Particular Average loss (we‡kl AvswkK ÿwZ)
o Vassal Particular average loss
o Cargo Particular average loss
o Freight Particular average loss
 General Average loss(mvaviY AvswkK ÿwZ)
o Sacrifices (Z¨vM ¯^xKvi)
o Expenditure (M”Pv)
o Incidental Charge (Avbylvw½K LiP)
 Salvage Charge (D×vi msµvšÍ LiP)
 Special Charge (we‡kl LiP)
A. Total Loss
A total loss occurs when the insured property is entirely destroyed or lost.
 Actual total loss
An actual total loss in marine insurance occurs when the insured property is
entirely destroyed or lost, or when it is so severely damaged that it becomes
irreparable or unrecoverable. In the context of maritime activities, this term is
used when the insured vessel or cargo has suffered such extensive damage or
loss that it is deemed impractical or economically unfeasible to salvage or repair.
 Constructive total loss
A constructive total loss in marine insurance occurs when the insured property,
such as a vessel or cargo, has suffered damage or loss to the extent that its repair
or recovery is technically possible but would be economically impractical. In
other words, the cost of repairing or salvaging the property is deemed to exceed
its insured value or the sum assured.
B. Partial Loss
Partial loss refers to damage or loss that falls short of a complete destruction of the
insured property. In such cases, the insurer may indemnify the policyholder for the
value of the damaged or lost portion.

Particular Average loss
Particular average loss involves the partial loss or damage of insured property
due to specific perils. Unlike general average, the costs are not shared but are
borne by the individual owner of the damaged property.

General Average Loss
This type of loss occurs when, during a maritime emergency, certain sacrifices or
expenditures are deliberately made to safeguard the common interest, and the
resulting costs are shared proportionally among all parties involved.
Payment of Claims
Payment of claims refers to the process by which an insurance company disburses funds to
the insured or a third party to settle a valid claim. When a covered loss or event occurs, and
the insured party files a claim in accordance with the terms and conditions of the insurance
policy, the insurance company assesses the claim and, if approved, issues a payment to
compensate for the covered loss.
 Document require for Claim
i.
Policy or Certificate of insurance
ii. Ill of lading:
It determines the scope of the contract carriage
iii. Invoice or bill:
sating terms and conditions of sale
iv.
Copy of protest
v.
Certificate of Survey
vi.
Account sales or Bill of sale:
Similar documents where goods
have been sold. The difference between gross sound value and proceeds as
per account sales might be accepted as amount of loss
vii.
Letter of subrogation:
It gives the underwriters to sue and recover
compensation from third parties where the same is due
 Documents in different types of claims
 Total Loss
1) Insurance policy: It furnishes and evidence of the terms and contract of insurance.
2) Bill of lading: It is the correspondence of the insurance contract with the voyage
and vessel.
3) Copy of the invoice: A copy of the invoice relating to the goods insured should be
sent. It will help in estimating the correct value of the goods.
4) Protest: A copy of protest is required when the total loss is due to the loss of the
vessel or their accident
5) Latter of Subrogation: A letter of subrogation is sent if anything remains of the
subject matter insured after the total loss or if there are rights or remedies regarding
the interest or against third parties.
6) Notice of Abandonment (eR©b weÁwß):
It is a formal communication from the insured party to the insurer in the context of
marine insurance. It is used when the insured considers their vessel or cargo as a
constructive total loss or believes that the cost of recovery or repair would be
uneconomical or impractical. The Notice of Abandonment is a key element in the
process of invoking the abandonment clause within the insurance policy.
 Partial Loss
1) The policy or the certificate
2) The invoice for the whole shipment
3) The bill of lading should be sent to the underwriters and
4) The copy of the master’s protest or an extract from logbook of the ship is to be
presented with the policy if the particular average is recoverable in certain
circumstance according to the terms of the policy
5) A Surveyor’s Report: A surveyor’s report prepared by some recognized surveyor
should be appended to the above documents when evidence is necessary to show
that the settled franchise has reached.
6) Bill of Sale: When there is a sale of the damaged goods the bill of sale is repaired
by the measures.
7) The latter of Subrogation: The latter of subrogation should be duly furnished by
the insured if required by the insurers.
8) Cost of Protection: On the proof, the cost ot protection is paid by the underwriters
apart from the particular average if there was a successful claim. In unsuccessful
claims, Insurers are not liable to pay these charges.