Marine insurance is one of the oldest commercial activities protecting one group
of stakeholders from losses to their property and related interests and enabling the
other group to carry on business, provide employment, and earn and make profits.
The very gist of insurance is not paying for damages and liabilities but, rather, offering
‘peace of mind’—an invisible product in the shape of economic security which
is of crucial importance not only to the private sector, but also to governments and
local and global markets.
The problems arising from marine insurance soon required a set of unique maritime
rules, called marine insurance law, which has been coloured throughout
the centuries by morality and ethics because of its very nature of mutual trust.
Namely, a contract of marine insurance is said to be a contract based upon the
utmost good faith (uberrima fides), meaning that the insured especially, is obliged
to disclose all the material facts and must not misrepresent them to the insurer.
The principle applies prior to the conclusion of the contract and also during the
contract. If it is not observed by either party, the contract may be avoided by the
other party.
This Chapter is dedicated to the basics of marine insurance law, explaining briefly
its definition, historical background, types of marine insurance, organization of
marine insurance markets, and characteristics of marine insurance contracts with
specific emphasis on the principle of indemnity, insurable interest, and utmost
good faith. The reader will also learn about marine insurance policies, the subject
matter insured, the sum insured, under-insurance, over-insurance, double
insurance, deductibles, period of insurance, peculiar warranties, risks, types of
loss, subrogation, reinsurance, and co-insurance.
Definition of Marine Insurance
The term marine insurance (Fr. assurance maritime, It. assicurazioni maritime,
Germ. Seeversicherung) refers to the insurance of vessels; cargoes; shipowner’s,
shiprepairer’s, and other marine liabilities; and of the various other moveable property
and associated interests exposed to the risks incidental to marine transport.
It protects the insured against damage, loss, and liability arising from exposure of
a vessel, goods, or any moveable property to maritime perils; meaning the perils
consequent on, or incidental to, navigation at sea. A contract of marine insurance
may cover mixed sea and land, or inland water, risks. A typical example of
such a contract is the cargo insurance contract containing the so-called ‘transit
clause’ according to which the insurance covers the goods whilst in transit ‘from
warehouse to warehouse’. Shipbuilders’ risks insurance contracts also typically
cover mixed sea and land risks incidental to the entire process of ship construction,
including the laying of the keel, building and assembly, launching, equipping of
the ship, and sea-trials.
In a wider sense, the term marine insurance may also refer to all types of insurance
of transport risks, including transport by rail, road, inland waterways, and
air. Modern transport insurance originally developed from marine insurance and
is based on very similar rules and principles. Nowadays, in the era of multimodal
transport, the general tendency in cargo insurance is that the application of marine
insurance rules is frequently extended to insurance against losses on inland waters
or against any land risks. This is done on the basis of express contract terms, applicable
national laws, or by the usage of the trade. However, this Chapter focuses on
marine insurance only.
An example of a legal definition of a contract of marine insurance can be found in
section 1 of the UK Marine Insurance Act 1906 (MIA 1906) which provides: ‘A
contract of marine insurance is a contract whereby the insurer undertakes to
indemnify the assured, in manner and to the extent thereby agreed, against marine
losses, that is to say, the losses incident to marine adventure.’
Marine adventure is further defined in section 3 of MIA 1906 as follows:
Very similar legal definitions of a contract of marine insurance are to be found in
other common law countries, including the United States, India, South Africa,
Australia, and other former members of the British Empire, since their laws ultimately
originate from English law.
However, in general MIA 1906 and English marine insurance law have also had a
strong influence on the modern development of marine insurance law in the rest
of the world, primarily because of the global role of the London marine insurance
market. Namely, much of the world’s marine insurance business is transacted in
London and is governed expressly or impliedly by English law. Furthermore, MIA
1906 sought to codify the pre-existing common law of marine insurance, and
therefore it reflects much of the respective lex mercatoria and lex maritima that had
historically entered the common law of marine insurance. For these reasons, it may
be safely said that MIA 1906 is one of the most significant pieces of legislation in
the world.
It is, indeed, the ‘mother of all insurance statutes’ which can help us tremendously
in understanding any law of marine insurance, as marine insurance is international
in nature, crossing national boundaries and jurisdictions. It should also
be considered that historically lex mercatoria and lex maritima had an important
influence on the development of modern national maritime laws and thus, in
particular, on the development of the law of marine insurance in different countries.
Therefore, the contracts and practices of marine insurance are considerably
uniform internationally, and so are the common law and civil law definitions of
marine insurance.
An example of a civil law definition of a contract of marine insurance can be found
in the French Code des assurances of 1967 defining a contract of marine insurance
as a contract of insurance which has as its object the guarantee of risks in
respect of a maritime operation. Sometimes marine insurance is further defined in
French legal terminology as a contract whereby an insurance company undertakes
to indemnify the insured against marine losses within the limits agreed under the
contract. Hence, it is stated that marine insurance may protect the insured against
losses occurring in inland waters or arising from land risks as long as they are in
connection with a sea voyage.
The insured (also referred to as the assured or the policyholder) is the party to the
insurance contract who is entitled to enforce the insurer’s obligations to provide
benefits thereunder. That party is the legal owner of the policy and the person
whose material interest is insured.
The insurer (also referred to as the underwriter, the assurer, or the insurance company)
is the party to the insurance contract who engages to indemnify the insured
against any loss or damage covered according to the terms of the contract.
The premium is the consideration paid by the insured to the insurer as a price for
the insurer’s undertaking.
The subject matter insured or the subject matter of insurance is anything capable of
exposure to maritime perils, and which is subject to the marine insurance coverage.
It can be a ship, a consignment of goods, other moveable property, third party
liability, freight, passage money, commission, profit, or other pecuniary benefit, or
the security for any advances, loans, or disbursements.
The subject matter of a contract of marine insurance is the lawful maritime
adventure.
There is a maritime adventure where any ship, goods, or other moveables are exposed
to maritime perils.
Maritime perils are perils consequent on or incidental to navigation, including perils
of the seas, fire, war perils, acts of pirates or thieves, capture, seizure, restraint,
detainment of princes and peoples, jettison, barratry, and all other perils of like
kind and, in respect of a marine policy, any peril designated by the policy.
Perils of the seas are fortuitous accidents or casualties of the sea (heavy weather,
stranding, grounding, capsizing, collision, contact, etc.), not including the ordinary
actions of the winds and waves. The element of fortuity is of crucial importance.
The economic function of marine insurance is to protect the financial interests of
the participants in the maritime adventure against the adverse consequences of any
extraordinary events arising from or in relation to navigation at sea. In that respect,
marine insurance is a mode of risk management inseparable from the maritime
trade. The development of modern technologies, the growing capacity of ships,
and the emersion of ever more expensive cargoes led to an increase in the value of
property at risk in marine transport. That, combined with the increase of shipowners’
liability limits and the advent of compulsory marine liability insurance as prescribed
by international conventions and national laws, contributes to the growing
importance of marine insurance.