Marine insurance is a branch of insurance which covers losses or liabilities relating to ship and their cargoes against the dangers or perils of the sea. This is probably the oldest form of insurance. The perils of the sea include storm, tempest, collision, theft and fire.
Marine insurance policy is compulsory in international trade so that all goods passing through the sea, including the ships must be covered by marine insurance. Lloyds of London is considered as the largest marine insurers in the whole world.
Features of Marine Insurance Policy
- It covers against risk associated with sea voyages.
- The ship owner can insure his ship against loss as a result of fire, storm or collision.
- The cargo can also be insured.
- The ship owner can insure a ship for one voyage or for a specified period of time.
Types of Marine Insurance
Marine insurance risks may be classified under the following:
- Hull Insurance: This is a policy which covers the ship against damages which may result from the perils of the sea. The policy can be taken to cover the hull of the ship against damages by storm, collision and fire. It may be for a specific time or journey.
- Cargo Insurance: This policy is entered into to cover goods or cargoes carried by a ship. It is taken to cover loss arising from damage to cargo while in transit. Cargo insurance is very important in foreign trade and it must be stated whether the importer or exporter will be responsible for the insurance of the cargo. It is a valued policy based on the value stated on the invoice.
- Ship Owners Liability: This type of insurance covers all risks or losses for which the owner of the ship or its employees are liable for negligence in handling of goods, injury to crew on board, damage to other ships or to ports. The liabilities include the cargo, passengers, crew members, fixed installations at wharves and beaches liable to be damaged by the action of the ship.
- Freight Insurance: This is a type of policy taken to cover against refusal to pay charges for lifting the goods. The shipper covers himself against loss for sums paid out in freight if the cargo was lost in transit before reaching its destination.
Types of Marine Insurance Policies
- Time Policy: This policy covers the ship and cargo for a specific period, usually a year. In case the policy expires on sea, there will be a continuation clause to cover it until the ship arrives at its destination.
- Voyage Policy: This policy covers a particular or specific voyage, e.g. London to Amsterdam. The ship will be insured to cover a journey from one place to another; any deviation from this specified route will not be covered.
- Floating Policies: This policy is used by traders who make frequent shipments of cargo. The cover applies to any shipment made by the holder who makes a declaration as to the precise amount involved with individual shipments. This declaration is set against the floating policy, reducing the sum insured by that amount until the full sum insured is exhausted.
- Mixed Policy: This policy covers the subject matter for the voyage and a period of time thereafter, e.g. while in ports.
- Construction Policy: This policy covers the construction of a marine vessel.
- Open Cover Policy: This relates to an agreement by a marine insurer to accept insurance on proposed shipment. It is a form of insurance in which the insurer agrees to insure all shipments of cargo made during an agreed period.
- Valued Policy: The valued policy specifies the value of the goods, and the holder of such a policy receives specified sum in the event of a total loss, irrespective of its value at the time of the loss.
- Unvalued Policy: This provides for claims based on the value of the goods at the time. of loss. The policy does not state the original value of goods.
- Fleet Policy: This is a policy which covers a fleet of ships under one ownership.
Marine losses can be categorised into total loss and partial loss.
1) Total Loss: This occurs where the subject matter (goods) is completely destroyed. Total loss can be subdivided into:
- Actual Total Loss: This is a type of loss which occurs when the goods are completely destroyed by fire, when a ship sinks after collision or when the goods have been affected by sea water such that they are no more fit for the purpose intended.
- Constructive Total Loss: This occurs where the objects insured have to be abandoned because what is left is beyond economic repairs, i.e ., the cost of repair is more than the value.
2) Partial Loss: This occurs when there is damage to a portion of the ship or its cargo. It can be categorised into:
- General Average Loss: This is a partial loss which occurs when the ship master, for the interest of the parties, deliberately and reasonably throws overboard or jettisons some of the cargoes in order to lighten the ship so as to reduce loss. The expenses will be borne by all parties concerned, e.g. during storm, some of a ship’s cargo can be jettisoned.
- Particular Average Loss: This occurs when the cargo or ship suffers partial loss or damage. The loss here is accidental. It occurs when loss which is accidental is not suffered for the general benefit of all on board a vessel, e.g. collision between ships or when the propeller blade is damaged. In this case, loss is borne by the owners of the object affected.