Selection of Insurance Cover
Proper insurance coverage is a critical component in managing the traders’ risk. Some of the important considerations in selecting an insurer are as follows:
- The insurance provider’s financial health and claims paying ability.
- The insurer’s reputation for fair and prompt settlement of claims and their aggressive pursuit of subrogation.
- The insurer’s capacity to offer a full range of loss control and risk management abilities.
- The insurance company’s ability to provide a full range of coverage to meet the basic requirements of the traders.
- The insurer’s knowledge and expertise to identify and create specific coverage for the exclusive needs of merchants.
- The insurers’ capabilities to offer internationally acceptable underwriting, claims, subrogation, and loss control abilities.
- The cost of purchasing the marine insurance policy.
Some of the main features undertaken by a trade merchant while selecting the insurance cover are discussed in the upcoming section.
Table of Content
Scope of Cover
Marine insurance covers all risks/perils relating to vessels, floating dry docks, jetties and ship owners’ interests.
The following fall under the scope of marine insurance:
- Hull and machinery
- Freight, disbursements
- Increased value
- Excess liabilities
- Protection and indemnity liabilities
- Charterers’ liabilities
- Charterers’ freight
- Charterers’ hire and/or disbursements
- General average disbursements
- Ship repairers’ liabilities
- Ship building risks
- Ship breaking risks
- Other allied interests of whatsoever nature required to be insured in India
The marine insurance policy covers perils of seas, rivers, lakes, or other navigable water loss/damage to the property insured caused by the following:
- Fire, explosion
- Stranding, sinking etc.
- Overturning, derailment
- Violent theft by sea pirates
- Collision
- General average sacrifice, salvage charges
- Jettison
- Breakdown of or accident to nuclear installations or reactors
- Contact with aircraft or similar objects
- Earthquake volcanic eruption or lightning
- Crew negligence
However, there are certain exclusions not covered under the policy, which include the following:
- Cautious damage/destruction of a vessel by the wrongful act of any person
- Use of weapon of war employing atomic/nuclear fission and or fusion.
- Radioactive contamination, chemical, biochemical, biological, electromagnetic weapons.
- Insolvency or financial default of the vessel owner/operators/charterers
- War, strike, riot, or civil commotion
- Damage caused by any terrorist or person with a political motive
Insurance of Air Cargo
Air cargo insurance provides financial protection to the traders of merchandise being transported through air against the risk of physical loss or damage to air freight. It is generally offered by insurance companies, freight forwarders, and trade service intermediaries.
The cover amount and deductibles required in air cargo insurance varies across different insurance providers. An insurance premium for the cargo is generally calculated based on the value of the merchandise irrespective of its nature, type, transportation route, and other factors. It is quite similar to the marine cargo insurance policy, which protects the traders of goods against loss and damage of goods transported through water.
Fob Policy
One of the several terms used in the contracts of sale (concerning inland transits/imports/exports) is the Free-on-Board (FOB) policy for indicating the responsibility for damage to goods during shipment. When merchandise is transmitted under the FOB policy, the seller’s responsibility concludes and the buyer’s responsibility commences after the carrier lands safely at the designated ports. From that point, the buyer is responsible for insuring the merchandise in case it needs to be transported further.
The FOB policy contract requires some more initiatives on the part of the merchandise seller. The seller needs to undertake to put the merchandise on board of the ship requested by the buyer under the contract. All charges, including goods delivery have to be borne by the seller. On the other hand, the buyer bears all resulting charges including stowage, freight, insurance, import duties, etc. The seller needs to obtain the export licenses and the proof of delivery is given to the buyer or his agent once the shipment is unloaded at the ports.
Seller’s Interest Insurance
The seller’s interest insurance policy covers the physical loss of or damage to the insured consignment, in accordance with the terms and conditions of the policy for protecting the interests of the insured. Seller’s interest insurance cannot be assigned to any other person who acquires the insurable interest of property insured except a banker operating in India.
Other assignments shall render the policy as void. The insurance policy warrants that the insured shall not alter the terms of the sale contract relating to goods insured for the purpose of securing indemnity under the policy. It also warrants that the insured shall protect all contractual rights against buyers, carriers, and other parties involved in the trade of goods covered under the policy.
No claim shall be payable if either the named insured or the buyer of the insured goods is entitled to indemnification under any other policy (in existence) covering the same goods. The claims made under the policy, if any, are payable in the Indian denomination only. This policy does not include risks covered or which are insurable by the Export Credit Guarantee Corporation (ECGC).
Warranty
As per Section 32, 33 to 39 of the Marine Insurance Act, ‘warranty’ means a promissory warranty by which the insured:
- Assumes that some particular thing will or will not be done or that some condition will be fulfilled; or
- Affirms or negates the existence of specific facts.
A warranty may be classified into two types, which is listed in Figure:
Express Warranties
These are the statements of promises expressed clearly in the insurance policy. Express warranty ensures the trustworthiness of the policy to the insured. As per Section 33(1) of the Federal Marine Insurance Act (s. 36(1) of the B.C. Act), ‘an express warranty may be in any form of words from which the intention to warrant may be inferred.’
This means that creating a warranty simply implies choosing the appropriate policy wording. However, a challenge lies in selecting the appropriate policy wording. In addition to this, several times even choosing the precise wording may not imply that a warranty has been created.
Implied Warranties
A warranty that is not explicitly expressed in the policy but is understood by the implication of the law. The implied warranties set out in the Act are as follows:
Warranty of Legality (Section 34 Federal Act)
There is an implied warranty that the voyage insured is legal and that so far as assured can regulate it, the voyage would be carried out in a lawful manner. An express warranty of legality has precedence over the implied warranty to the extent that the two are inconsistent.
Warranty of Seaworthiness (Section 37 Federal Act)
This refers to an implied warranty whereby at the commencement of the journey, the ship would be seaworthy for the purpose of a particular voyage. Accordingly, a ship is considered as seaworthy if it reasonably fits in all aspects to face the ordinary perils of the sea. In a marine insurance policy, the insurer is required to only prove that the ship was unseaworthy at the commencement of the journey.
Warranty of Neutrality (Section 36 Federal Act)
The warranty of neutrality is not specifically an implied warranty because it applies only in case of an express warranty of neutrality with respect to insurable property. It only defines the limits of the scope of the express warranty of neutrality.
Section 33(3) Federal Act states that ‘the implied warranties of seaworthiness and legality are, however, true implied warranties in that there existence is assumed at law and they will form part of any contract of marine insurance unless inconsistent with an express warranty.’
