The principles of marine insurance are essential for maintaining fairness and consistency in the delivery of insurance services. These guiding principles include utmost good faith, insurable interest, indemnity, proximate cause, subrogation, and contribution. Understanding each principle is crucial for making informed decisions when purchasing marine insurance. Let's explore each of these principles in detail.
There are certain important principles, which govern marine insurance. Let us have an understanding of each of the principle below:
The principle of utmost good faith is foundational to every insurance product, including marine insurance. It requires both the insurer and the insured to act with complete honesty and transparency. When purchasing marine insurance, an individual or organization must provide accurate and thorough information without hiding any critical details.
If the insurer finds that important information has been withheld or misrepresented, they have the right to reject the application or any claims. Therefore, the insured must disclose all relevant risks that could affect the underwriter’s decision and maintain good faith throughout the policy term.
Breaches of this principle fall into four categories: concealment, non-disclosure, fraudulent misrepresentation, and innocent misrepresentation. To avoid complications, it is crucial to provide precise and comprehensive information when obtaining marine cargo insurance.
The Marine Insurance Act of 1963 provides a clear definition of insurable interest. According to this principle, a tangible commodity must be subject to marine risks, and the insured must have a legal relationship with it.
Simply put, marine insurance applies only if you have an insurable interest in the property at the time of loss. This means you benefit if the goods reach their destination safely and on time.
Conversely, you incur a loss if the goods are not delivered on time or in the expected condition. Therefore, under the principle of insurable interest, you must have a vested interest in ensuring the safe arrival of the goods.
Cargo insurance aims to restore the insured to the same financial position they were in before the loss occurred. Although an insurance company cannot replace the lost or damaged goods, it can provide reasonable compensation.
The principle of indemnity ensures that the policy covers only the losses of the damaged goods. By compensating only for the actual loss incurred, the insurer ensures the policy is not used for profit.
For example, suppose you have a marine insurance policy worth ₹50 lakh. If you incur a loss of ₹20 lakh due to a collision, you will receive ₹20 lakh as compensation, even though the policy coverage is ₹50 lakh.
The principle of proximate cause is an essential concept in marine insurance. It determines the direct cause of loss or damage to goods or vessels, helping to identify the true cause when multiple events have occurred.
According to this principle, the insurance provider is liable to compensate you if the policy covers the proximate cause of your loss. If the proximate cause is not covered by your policy, the insurer is not liable to pay.
For example, suppose pirates attack and steal your cargo en route to Japan. Your policy covers losses caused by natural forces only. Without the principle of proximate cause, you could claim that heavy rain was the cause of the theft, as it impaired visibility and prevented you from spotting the pirates in time. However, in a marine insurance policy, piracy would be considered the proximate cause of your loss.
Often, the same perils or risks to goods are covered by multiple insurance providers. In such cases, the principle of contribution applies. This principle states that each insurer shares the payment proportionately in the event of a claim.
This ensures you do not receive more than the indemnity amount and that any loss is fairly distributed among the insurers.
For example, if you insure goods worth ₹50 lakh with two insurance companies, any loss in a marine event will be paid proportionately by both companies. Here are the conditions that must be met for the loss to be shared among the insurers:
The principle of subrogation in marine insurance aligns with the principle of indemnity, ensuring that the insured party does not receive more than the actual loss incurred. Under this principle, once you have received compensation from the insurance provider, you cannot profit from the damaged goods.
This principle prevents any profit from the marine insurance contract. If you dispose of the damaged goods, you must return any excess amount to the insurance provider after the claim.
For example, if the sum insured on your cargo is ₹10 lakh and the entire cargo is damaged in an accident, the insurer will settle your claim. However, if you sell the damaged goods and earn ₹50,000, the total amount received exceeds the loss by ₹50,000. According to the subrogation principle, you must return the extra ₹50,000 to the insurance provider, as you have already been compensated for the loss.
Marine insurance is governed by national legal systems. In India, the Marine Insurance Act of 1963 regulates various aspects of marine insurance. However, the existence of different national legal systems in the conduct of marine insurance business poses challenges for the parties involved, particularly the insured, who may struggle to understand the coverage in foreign insurance markets.
The lack of consistency in national marine insurance legal systems can significantly hinder the international conduct of marine insurance, especially from the perspective of the insured. Therefore, given the global nature of marine insurance, there is a need for harmonization of the legal frameworks that govern the rights and obligations of the parties to the insurance contract, including international transport and trade.
Conclusion
Understanding the principles of marine insurance—utmost good faith, insurable interest, indemnity, proximate cause, contribution, and subrogation—is essential for ensuring fair and consistent coverage. These principles help maintain integrity and trust in marine insurance transactions, ensuring that all parties are treated equitably and that claims are settled justly. Additionally, the harmonization of legal frameworks across different national systems is crucial for the smooth international conduct of marine insurance, providing clarity and consistency for insured parties navigating global markets.
Ans: Unlike bylaws, principles are adhered to in absolute terms—either you have complied with them, or you haven't.
Ans: Marine insurance contracts have the following characteristics:
Ans: The General Insurance Council of India has outlined the fundamental principles of marine insurance. If you breach one of these principles, you would also be breaching the insurance contract in some form, making the matter legally enforceable. The insurer can pursue the case in a court of law, as per the jurisdiction specified in the insurance contract.
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