The marine insurance policy is issued only when the contract has been finalized and it would be legal documents of evidence of the contract. The form of marine insurance policies has been taken from pretty old times.
There has been a slight change in the wordings of the policies. For example, ‘Be it known that’ is substituted for the words ‘In the name of God, Amen’.
The old form of policy has been practiced today due to its practicalities which took after a numerous legal decisions during the past centuries.
It has also been practiced that only form of policy is standardized and different clauses are added for applying to various types of policies.
The standard policy generally contains the following information;
- Name of insured or his agent.
- Subject matter insured. It may be ship (hull) cargo and freight.
- Risks insured against.
- Name of vessel and officers.
- Description of voyage or period of insurance.
- Amount and term of insurance.
There are various clauses which are suitably inserted according to the nature and type of policies. Hull, cargo and freight policies have different standard clauses.
In case of hull insurance, the clauses provide that if the insured vessel at the expiration of the policy is at sea, or at a port of refuge. Generally the ship may be covered until arrival at port of destination.
In case of cargo policies with Average, Free of particular Average, or All Risks are generally used. There are standard clauses which are invariably used in marine insurance.
Firstly, policies are constructed in plain, ordinary and popular sense, and, later on, specific clauses are added to them according to terms and conditions of the contract. Clauses attached to the policy would override the printed wording in the policy.
Different classes of policies are used in marine insurance.
The policy is issued to cover a particular voyage from one port to another and from one place to another. The policy mentions the port of departure and the port of destination, between which the risks are generally underwritten.
This policy is not suitable for hull insurance as a ship usually does not operate over a particular route only. However, this policy may include time factor also as from Bombay to London for one year. In this case the risk may be covered from one place to another covering a period of one year.
The policy is used mostly in case of cargo insurance. The goods remain covered even when the ship halts at intermediate ports.
The risks at the port of departure and at the port of destination may be covered by incorporating suitable, clauses in the policy. The liability of the insurer continues during landing and re-shipping of the goods.
Under this policy, the subject-matter is insured for a definite period of time, e.g., from 6 a.m. of 1st January, 1976 to 6 a.m. of 1st January, 1977.
The policy is generally taken for one year although it may be for less than one year. This policy is commonly more used for hull insurance than for the cargo insurance.
The policy may cover, while navigating the vessel or while under construction. Risks covered under construction are for more than 12 months.
There are standard clauses in relation to freight, premium, interests, etc., which are added to this policy. The time policy may be taken in case of goods and other movable vessels.
Voyage and Time Policy or mixed Policies
In this policy, the elements of voyage policy and of time policy are combined ‘in under this policy. The reference is made certain period after completion of voyage. For example, 24 hours after arrival. It may be beneficial to hull as well as to cargo insurance.
Under this policy the value of loss to be compensated is fixed and remains constant throughout the risk except where there is fraud and excessive over-valuation.
The value of the subject-matter is agreed between the insurer fend the assured at the time of taking the insurance. It is also called insured value or agreed value.
It forms the measure of indemnity at the time of loss. The insured value is not necessarily the actual value. It may be total of invoice, e.g., cost of goods, freight; shipping charges, insurance and a certain percentage of margin (generally 10 per cent) to cover anticipated profits.
When the value of policy is not determined at the time of commencement of risk but is left to be valued when the loss takes place. The value thus left to be decided later on is called the insurable value or unvalued or valuable policy.
In deciding the value, the invoice cost, freight, shipping and insurance charges are included and no margin for anticipated profit is added.
Usually unvalued policies are not common in marine insurance because evaluation of loss at the time of damage poses a difficult problem. It is extremely difficult when consignment goes nearer the port of destination.
In hull insurance, the insurable value is determined taking into account the value of the ship at the commencement of risk including provision and, stores for officers and crew plus the charges of insurance.
In insurance on freight whether paid in advance or otherwise, the insurable value is the gross amount of freight plus the charges of insurance. Similarly, in cargo insurance it would be the cost of goods plus expenses and insurance charges.
A limitation of insurable value is desirable not only to fix the measure of indemnity under an unvalued policy, but also to provide an approximate basis for the calculation of value in a valued policy.
This policy describes the general terms and leaves the amount of each shipment and other particulars to be declared later on. The declaration is made in order of dispatch of shipment.
The policy is taken for a round large sum which is specified at each declaration and is attached to each shipment. With each declaration the amount will be reduced till it is exhausted when the insured sum is said to be ‘closed’ and the policy is ‘fully declared’ or, ‘run off’.
The most popular form of contract is ‘Open Cover’. It is an agreement between the insured and the insurer by which the assured on his part agrees to declare, and the insurer on his part agrees to accept all the shipments falling within the scope of the ‘open cover’ Which is merely an original ship’.
It is not a legal contract of marine insurance and suffers from the same legal disability as the ‘original ‘ship’. However the insured and the insurers are honor bound.
To give ‘Open Cover’ a legal form, a policy is issued for the purpose. Separate policies are not issued in case of each shipment but only one policy is issued at the time of entering into contract. All declarations are written on the back of the” policy.
A classification clause is usually inserted in ‘open cover’ to provide the agreed rates of premium. Similarly, valuation clauses are also inserted to provide the basis for valuation in the event of loss taking place.
This policy is suitable for a cargo-owner who makes regular shipments of cargoes. All his shipments are automatically covered as soon as the declarations are made. The floating policies are mostly used in the age of gigantic trade.
The policy is taken to cover losses within the particular time and place. The policy is taken for a certain amount and premium is paid on the whole of it in the beginning of the policy and is re-adjusted at the end of the policy according to the actual amount at risk.
If the actual coverage of risk is less than the total amount of insurance, the premium related to the excess amount is returned to the insured. On the other hand, if the amounts of shipment are greater than the insured sum, additional premium is charged over the excess protection.
Under this policy, the name of the ship and the amount of insured cargo are mentioned. These policies are specific policies.
Single Vessel and Fleet Policies
A ship or a fleet of ships is insured in a single policy. When one policy is assured, it is called single vessel policy and when a fleet of ship is insured in single policy, it is called fleet insurance policy.
The advantages of the fleet policies are that even old and weak ships are also insured. This insurance facilitates easy and smooth functioning of insurance benefits.
This policy insures incidental inland risks, too, along with the marine perils. For example, cotton is insured from the time of processing to the time when it was delivered at the point of destination.
Policies issued in foreign currency is called currency policy, where the sum assured is stated in foreign currency.
This policy avoids the fluctuation in foreign currencies because the claim amount is determined in the foreign currency and the fluctuations in the exchange rates of the inland and foreign currencies up to the period of the policy are meaningless.
The policy is issued to avoid the complication of the principle of insurable interest. This is called ‘ Policy Proof of Interest’ and are honored by the insurer even in absence of insurable interest.
This policy is based on mutual understanding, so, it is called honored policies. This is also called wagering policies because insurable interest is not required; consequently: it cannot be legally enforceable.
The Annual Policy is insured for a period of 12 months to cover goods belonging to the assured or held trust by the assured. The policy in not assignable or transferable.
The policy is not allowed to be issued to transport operators / contractors, clearing, forwarding and commission agents or to freight forwarders.
Nor can this policy be issued in Joint Names. The sum insured is the aggregate maximum estimated value on rail/road at any one time of all the insured goods in respect of a specified transit.
The policy shall be subject to condition of average stipulating that if at the time of any loss damage, the total value of goods in transit is more than the sum assured in respect of that specified transit, the assured shall be considered as being his own insurer for the difference and shall bear a rate-able proportion of the loss accordingly.
Sum assured under the Annual Policy shall stand; reinstated as from the time of the happening of an event giving rise to a valid claim and the assured shall remain responsible for a pro-rata additional premium for the remaining period of the policy on the amount reinstated continuing from the date of the loss.
Inland Transit Cargo Policy
Inland Transit Policy covers all risk for inland transit for rail on road. It may cover only a few risks such a fire or theft or strikes, riots, civil commotion.
The cover may be extended up to 7 days after arrival at destination. It may be extended per week additional premium for a subject to not exceeding 8 weeks.
This extension apply to goods only which is lying in railway or road carrier’s premises or in clearing and forwarding agents’ warehouse in bonded warehouse at the destination.
Inland Vessel Policy
Inland vessel policy covers all cargoes carried on rivers, canals or other smooth waters including F.O.B shipment. General average sacrifice and jettison are not included in the risk covered. The rate of premium is based on age, propelled engine, steel, wooden boats, etc.
Free on Board Policy
The policy is arranged by the buyer overseas for his own account and benefit Risks under the buyer’s policy commence on loading of the cargo on the overseas vessel, because it is at that juncture of transit that the risk passes from the seller to the buyer.
The covers start from the time the cargo leaves the warehouse till such goods are loaded on the ship. The policy also cover loss/damage reasonably attributable to craft, raft or lighter being stranded, grounded, and sunk or capsized.
Sailing Vessels Policy
Sailing vessels include country craft total and/or constructive total loss of the subject-matter insured attributable to fire or shrinking or stranding.
Loss/Damage is also covered of subject-matter insured caused by jettison due to stress of weather stranding sinking or burning or collision at sea.
This policy has bear devised under the tariff to cater to the special requirements of certain categories of business such as tea estates coffee estate and Export Promotion under Duty Exemption Scheme.