The Cargo That Never Sailed
A public sector general insurer has received a total-loss claim of ₹4.62 crore under a marine cargo open policy for 400 MT of stainless steel coils said to have been shipped from Mundra to Jebel Ali on MV Sea Pride, bill of lading dated 20 February 2025, with a certificate of insurance issued on 3 March 2025. The insured, a trading company incorporated in November 2024 with paid-up capital of ₹5 lakh, says the vessel sank in the Arabian Sea on 27 February 2025. The bill of lading, commercial invoice, packing list and a "survey report" were all generated as PDFs on the same device within 90 seconds of each other, and the surveyor is not on the insurer's panel. The insurer's vessel-tracking subscription shows MV Sea Pride was on the Chittagong–Singapore run throughout February 2025 and never called at Mundra. Premium was paid by a cheque drawn on the account of an unrelated third party, and the insured has now asked for settlement "in cash or to a Dubai account to save tax". The claims head must decide this week.
1. Set out the insurer's legal position under the Marine Insurance Act, 1963 and the policy, and the procedural steps the claims team must take while the file is under investigation.
Read the worked answer
The insurer has a strong defence and should not pay.
Utmost good faith and disclosure. A contract of marine insurance is uberrimae fidei, and the assured must disclose every material circumstance known to it (Sections 19–20, Marine Insurance Act, 1963). A misrepresentation that induces the contract entitles the insurer to avoid it ab initio. Here the bill of lading is fabricated: the tracking data show the vessel never called at Mundra. That is a misrepresentation of the very subject-matter and voyage, and the insurer may avoid and tender the premium.
No insured loss. A policy responds to a fortuity. If the vessel did not carry the goods, there was no shipment, no maritime peril and no loss. The insurer does not have to prove what actually happened; the assured must prove a loss by an insured peril, and it cannot do so when the documents are contradicted by independent evidence.
Fraudulent claim. A claim advanced on forged documents is a fraudulent claim, and the assured forfeits the claim in its entirety, including any genuine part. A surveyor engaged by the assured and outside the insurer's panel is not independent evidence of loss.
Procedure. Issue a reservation-of-rights letter, appoint an independent surveyor, obtain written confirmation from the port and vessel owner, and do not pay, part-pay, or agree liability. Any act done while fully aware of the fraud may be argued as waiver of the right to avoid, so decisions must go through the claims committee with legal sign-off.
2. What are the insurer's anti-money laundering obligations, and how should the demand for a cash or Dubai settlement be handled?
Read the worked answer
This must be treated as a suspicious transaction regardless of how the claim is finally decided.
Obligation. Insurers are reporting entities under the Prevention of Money Laundering Act. The Principal Officer must file a Suspicious Transaction Report with FIU-IND within seven working days of concluding that the transaction is suspicious. Suspicion is enough; the insurer need not wait for proof, and must not delay the STR while the marine investigation continues.
Red flags. A newly incorporated company with ₹5 lakh capital insuring ₹4.62 crore of cargo; a third-party premium payer, always a high-risk indicator; a request for cash payment or payment to a foreign account "to save tax"; and multiple claim documents created in a single 90-second burst on one device.
Tipping off. It is an offence to disclose to the client or any third party that an STR has been filed or is contemplated. The claims team must not tell the insured why the file has been referred, and knowledge of the STR must be compartmentalised.
Relationship decision. Whether to continue or exit must be a documented decision of the Principal Officer and the Designated Director. Given the forged documents, exit with a suspicious-transaction note is defensible. Retain KYC, transaction and claim records for five years and produce them to FIU-IND on request. The demand for cash settlement should be answered in writing only by stating the policy's payment mode terms - never by negotiating the method.
3. How should the insurer run this as a fraud case under its fraud risk management framework, and what reporting and governance follow-ups are required?
Read the worked answer
Treat it as insurance fraud under the board-approved fraud policy, not merely as a claim file.
Classification and preservation. Register the case in the fraud register as claims fraud - marine document forgery - and grade it high severity. Preserve the PDFs and their metadata, emails and call records; do not "clean" or reformat any file, as that destroys evidence.
Investigation. Obtain written confirmation from the vessel owner, the port authority and the tracking provider; commission an independent survey; run the assured, the intermediary and the surveyor through internal and industry fraud databases.
Reporting. Report the fraud to IRDAI under the Insurance Fraud Monitoring Framework Guidelines, 2024, in the prescribed format and timelines, and include it in the periodic fraud return. Report the forged bill of lading to the police and the cyber crime cell, and coordinate with FIU-IND once the STR is filed.
Governance. The Fraud Monitoring Committee should review the case at its next meeting, check whether the same broker, surveyor or insured appears in other open claims across lines, and report the exposure to the Audit Committee. Root cause matters: make vessel tracking a mandatory pre-certification check above a stated sum insured for marine cargo, and require the certificate to be issued against verified sailing data rather than the assured's declaration.
Recovery and deterrence. Recover investigation costs where the policy or law permits, review the intermediary that placed the risk, and consider a market alert through the industry fraud-sharing arrangement.