Marine Insurance Fundamentals and Legal Framework
Scope of the domain
This section covers the legal skeleton of a marine cargo contract: indemnity, insurable interest, utmost good faith, warranties, policy construction and assignment under the Marine Insurance Act, 1963. The exam tests application, not bare definitions.
Core rules
- Marine insurance is a contract of indemnity. A valued policy fixes the agreed insured value; an unvalued policy requires proof of insurable value.
- Cargo insurable interest depends on risk, not title. Under FOB and CIF sales, risk usually passes at shipment, so the buyer normally has the interest when loss occurs; the seller may retain risk under other terms.
- Section 6 of the Act requires insurable interest at the time of loss, not necessarily when the policy is effected. But a contract made after the insured knows of a loss is void for lack of good faith.
- Utmost good faith requires disclosure of every material circumstance known to the insured, including previous losses, deck stowage, hazardous cargo and adverse voyage information. Misrepresentation or non-disclosure allows avoidance.
- Warranties are strict conditions. A breach discharges the insurer from liability from the date of breach, even if the breach did not cause the loss, unless the policy says otherwise.
- Assignment of a marine policy is permitted unless it contains a non-assignment clause; the assignee takes subject to the insurer's defences.
Worked example
An Indian exporter sells goods FOB Mumbai. The buyer arranges ICC(A) cover. The goods are damaged by handling in the terminal after loading but before the vessel sails. Risk has passed to the buyer at shipment, so the buyer has insurable interest and can claim. If the buyer effected the policy only after learning of the damage, the insurer may avoid for non-disclosure.
Traps
Do not confuse title with insurable interest; do not treat all-risks cover as a substitute for insurable interest; and do not assume a breach of warranty is excused because it was unrelated to the loss.