Meaning of Insurable Interest in Marine Insurance Policy

What is Insurable Interest in Marine Insurance?

Simply put, insurable interest in marine cargo insurance means your reasons for buying marine insurance should be genuine and valid. If you’re planning to get your shipment or cargo insured, your interest should be vested in their safe arrival. 

If your shipment reaches safely the intended destination, then it should be an advantage to you. Similarly, if your shipment is damaged, then it is against the interests for which you have purchased the insurance. This is called the insurable interest of the insured person, whose interests and profit are directly related to the safe arrival of the goods.

Main Characteristics of Insurance Interest

Interestingly, insurable interest does not necessarily be present from the beginning. Especially in the case of a marine open insurance policy, chances are that the insured may not have an insurable interest when the policy was purchased, but eventually becomes their matter of interest. 

However, it is necessary to have an insurable interest in the shipment, especially at the time of a loss or damage to the goods to claim reimbursement. 

This is common if there are several parties involved, or in case there is a change in ownership of goods involved. Insurable interest should have the following characteristics to be legally binding under a marine insurance policy:

• Insured interest must be fixed and definite with no scope of ambiguity
• An estimate of the value of goods should be clear
• Insurable interest should exist during the insurance proposal
• Insurable interest must be present before there is any loss to the insured property
• There should be a significant quantum of insurable interest 
• The policy has to be legally valid and must be legally liable in case there is any damage or loss 

These have been discussed with the help of some case scenarios later in the article.

Case Scenario 1

PCS is a food products exporter from India delivering processed food items to the US worth millions of dollars. 

While a majority of their goods are CIF, PCS has to bear too the cost, insurance and freight expenses until they reach the buyer in the US. In this case, PCS has an insurable interest in the goods till it has safely reached the US. 

Once the goods have arrived and been transferred to the interested buyer, the insurable interest will not transfer to the buyer once they have confirmed the safety and quality of the goods received. In case of any damage to the goods after this transfer, the US buyer can file a claim up to the sum insured with the insurance company later.

Case Scenario 2

Second Flight Logistics is a transport business dealing with the shipment of fragile items and operates throughout India. The company purchased 4 heavy-duty trucks and got them financed from 4 different banks.

Since these banks need the trucks to be insured, this can be done if:

• The Logistics company buys insurance for all the trucks and bears all the costs. They will need to repay the loan in case of a total loss (damages beyond repair) of the truck to the financing bank.
• The Logistics company and the financing banks insure their property separately.
• The Logistics company buys marine insurance and assigns it to the financing banks. In case a claim arises, the Logistics company will get compensated after the financer's claim is satisfied.

Wrapping it Up,

Having a marine insurance policy will secure the interests of the business persons involved, including the financers and sellers. Insurable interests ascertain that these claims are valid and all the parties involved can financially recover in case of a mishap.