assignment of marine insurance policy

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Assignment of Marine Insurance Policies

As you are aware that a contract of marine insurance is an agreement whereby the insurer undertakes to indemnify the insured, in the manner and to the extent thereby agreed, against transit losses, that is to say losses incidental to transit.

A contract of marine insurance may by its express terms or by usage of trade be extended so as to protect the insured against losses on inland waters or any land risk which may be incidental to any sea voyage.

In simple words the marine insurance includes;

A. CARGO INSURANCE which provides insurance cover in respect of loss of or damage to goods during transit by rail, road, sea or air.

Thus cargo insurance concerns the following :

(i) export and import shipments by ocean-going vessels of all types,

(ii) coastal shipments by steamers, sailing vessels, mechanized boats, etc.,

(iii) shipments by inland vessels or country craft, and

(iv) Consignments by rail, road, or air and articles sent by post.

B. HULL INSURANCE which is concerned with the insurance of ships (hull, machinery, etc.).

INSURABLE INTEREST

For effecting marine insurance like any other insurance, the assured must have an insurable interest. If there is no such interest, the policy would be a wagering contract and thus it will be void. Any person does have an insurable interest who is interested in a marine journey or who can get affected due to the losses and damages caused in the marine journey or adventure. The interest must subsist either at the time of effecting the insurance or at the time of loss. Any interest which is defeasible or contingent or partial can be insured. A lender under a bottomry bond or respondentia bond has insurable interest as well as master’s and seamen’s wages, advance freight are insurable, a mortgagee has also insurable interest.

The term “ Transfer” or “ Assignment” of policies of insurance are governed by the provisions of the Transfer of Property Act,1882 as amended from time to time. Please note that provisions of Section 38 of the Insurance Act,1938 only deals with transfer or assignment of Life Insurance Polices and the provisions of TP Act,1882 deal with other types of insurance policies.

“ Actionable Claim”-Section 3 of TP Act,1882 defines as – a claim to any debt, other than a debt secured by mortgage of immoveable property or by hypothecation or pledge of moveable property, or to any beneficial interest in moveable property not in the possession, either actual or constructive, of the claimant, which the Civil Courts recognise as affording grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional or contingent. The claim under a policy was regarded as property and is treated as an actionable claim under TP Act,1882 and the rules relating a transfer of actionable claim were held to apply to assignment of policies till specific statute laid down some specific rules for such assignments.

Section 6( e) of the Transfer of Property Act,1882 lays down that a mere right to sue cannot be transferred.

From above we find that an actionable claim means a claim to a debt. In its primary sense a debt is a liquidated money obligation and it is an essential feature of an action for debt that it should be for a liquidated debt or certain sum of money. The right to recover an ascertained and definite debt is not a mere right to sue and is not transferable. It is an actionable claim.

It means if a certain sum of money is due from any person , that sum is recoverable on assignment , and it is not mere right to sue to offend against the provisions of Section 6( e) of TP act,1882. As you know that in case of an actionable claim, there is a surety that there is some amount ,which can be recovered and same as in an Insurance Policy. The Sum Insured is the amount ,which will be recoverable at the time of loss or after assignment of insurance policy by the assignee. A policy of insurance is a present contract in the hand of an insured of which he has present right to the benefit although the fruits are to be enjoyed in future.

A policy on a man’s life expressed to be payable to his executors or administrators is a reversionary interest certain to fall in on the assured’s death or attainment of the stipulated age. A policy of insurance is a choose in action. A policy of life insurance represents money which is due and owned to the assured at his death and in the part of his estate. He has unlettered discretion to sell or charge it, to bequeath it or even to give it away.

“ASSIGNMENT” means- Transfer of interest from one to another is called assignment. In insurance also when rights and obligation under the contract are transferred from one to another, the same is called assignment of the policy. There can be another assignment in insurance which is assignment of benefits under the policies. Assignment of policy and assignment of benefits are quite distinct. Whereas in the former all the rights and obligations are transferred, in the latter only benefits (i.e. money due under the policy etc) are transferred. In insurance the assignment means assignment of rights under the contract. An assignee for all purposes becomes the owner of the policy and enjoys all rights thereunder. However, by assignment no change is made in the subject matter insured by the policy and it remains unaltered.”

ASSIGNMENT OF A CONTRACT OF INSURANCE AND ASSIGNMENT OF THE SUBJECT MATTER OF INSURANCE.

Assignment for the purpose of law o insurance may either be;

(a) The assignment of the subject matter of insurance ;or

(b) The assignment of the policy.

Please note that:- the question of the assignment of the subject matter of insurance in case of life and personal accident insurances does not arise, for the subject -matter in such cases is from its very nature unassignable.

The assignment of the subject-matter in the case of fire insurance is dealt as follows; “ As regards the assignment of the fire policies itself, it is transfer of the contract of insurance with its all rights and liabilities to the transferee and, therefore ,it is substitution of a new insured to all intents and purposes other than the original insured.”

THE SUBJECT MATTER OF INSURANCE

Anything in respect of which there is a risk of loss from maritime perils may be the subject of marine insurance. It will be recalled that there is a distinction between the subject matter of insurance and the subject matter of the contract of insurance, that every lawful marine adventure may be the subject of a contract of marine insurance, and that a contract of marine insurance may be extended to cover risks other than maritime perils in a narrow sense. However, even though a marine insurance contract may include risks arising inland, the contract must be substantially one relating to a marine adventure. Therefore, the subject matter of the insurance must be capable of exposure to maritime perils.

WHETHER FIRE AND ACCIDENT POLICIES ARE ASSIGNABLE?

It is clear from above discussion that a policy of life insurance is pure benefit policies and carry a definite sum or amount as Sum Assured will be payable at the time of accident or happening of assured perils. So in legal sense a Life Insurance Policy is an actionable claim or chose in action and hence assignable under provisions of TP Act,1882.

Therefore we conclude that a policy of fire, property accident insurances are in nature of right to sue for damages and the fact that they as such are not actionable claims is also apparent from the amendment of Section 6(4) of the TP Act,1882 to the effect that a mere right to sue cannot be transferred [Abu Mohammad Vs. SC chunder (1909) 36 Cal 345].

In these policies it may not certain that loss may take place , and also the extent of damages are also not certain. For an actionable claim it must be perfected and absolute , and not merely a sum of money which may or not become payable at future time.

It was held that policies of insurance against loss or damages by fire are not in their nature assignable nor can the interest in them be transferred from one person to another without the express consent of the insurance company. Suppose an insurance policy promises to indemnify “A” against loss by fire. He can assign his right of action against the insurance company to “B”, so that if “A” suffers loss “B” may recover in respect of it , but “B” cannot without the consent of insurance company’s consent ,convert promise to indemnify “A” to a promise to indemnify “B” , because that would not be an assignment but an attempted novation.

PLEASE NOTE THAT : Property and liability insurances are personal contracts, and do not run with the property if it is sold or otherwise disposed of or with a transfer of liabilities of the insured. Therefore, both at common law and equity, as assignment of a policy of insurance can only be valid of the insurer consents to this course, whereby, in truth a new contract of insurance is effected between the assignee and the insurer, and that between the assignor (the original insured) and the insurer lapses.”

RESTRICTIONS ON ASSIGNABILITY IMPOSED BY THE COMPANY; If parties to a contract of insurance agree to impose restrictions to the assignability of the policy or to make it assignable only with the consent of the company , effect must be given to such restrictions. But such provision does not apply to the case of the person on whom the policy has devolved by the operation of law, or in the case of person who is under obligation to insure. If insurance policy is not assignable they assignee has no right to sue or call the insurance company in case of loss or damage due to insured peril. In this case the right person is the insured /assured to claim loss /damage under insurance policy.

PLEASE NOTE THAT: life policies are now construed not as a contract of indemnity but to pay a certain sum in a certain vent depending on the duration of human life. If at the time the contract of insurance is made the person affecting insurance has an insurable interest in the life of the person assured the policy is a valid, notwithstanding the fact that the person effecting the insurance ceased to have an interest in the life assured at the time when policy become due. It follows from this that the assignment of a life policy would be valid and would pass to the assignee the rights to the insurance money, even though the assignor’s interest in the life had ceased to have an interest in the life assured at the time when the policy became due.

It follows from above that the assignment of a life policy would be valid and would pass to the assignee the rights to the insurance money, even through the assignor’s in the life had ceased before the date of the assignment. It means an assignment to person without interest is not invalid assignment.

It is obvious that the contract of insurance may be assigned in one of two ways.

i) In the first place, the policy may be assigned without the assignment of the property insured; or,

ii) secondly, the policy may be assigned together with the assignment of the property insured. The distinction is important, and must be kept in mind.

Where the assignment is of the policy only, there is no difficulty in reconciling this with the nature of a personal contract.

All that is assigned in this case is the right to receive the insurance money, in case the interest of the person originally insured suffers loss from the perils insured against. The assignment is like the assignment of any other chose in action.

The assignee is merely the person designated to receive the insurance, and he acquires only the rights of the assignor, and is subject to all the defences which the insurers have or may have against the person originally insured.

No element of the personal contract is violated, for it is of no consequence to the insurers who receives the insurance money, so long as they are free from the claims of the person originally insured.

But where the property insured is sold, and the policy is assigned, an entirely different question is raised. In this case, the person originally insured has parted with his entire interest in the subject-matter of the contract. He can suffer no loss, for he had no interest in the property at the time of the loss. The insurers cannot indemnify him, for he has no interest which can be the subject of indemnity. That interest is in the assignee, a stranger to the contract, who is neither a party nor a privy to the original contract, and it is he who suffers the loss. If, then, the contract can be assigned, seemingly the whole conception of a personal contract will be done away with.

ASSIGNMENT OF MARINE INSURANCE POLICY

The terms and conditions of Marine Insurance Policies are governed provisions of the Marine Insurance act,1963.

“(1) A marine policy is assignable unless it contains terms expressly prohibiting assignment. It may be assigned either before or after loss.

(2) Where a marine policy has been assigned so as to pass the beneficial interest in such policy, the assignee of the policy is entitled to sue thereon in his own name; and the defendant is entitled to make any defence arising out of the contract which he would have been entitled to make if the action had been brought in the name of the person by or on behalf of whom the policy was effected.

(3) A marine policy may be assigned by endorsement thereon or in other customary manner.

SECTION 17 OF MARINE INSURANCE ACT,1963 provides that

Assignment of interest.—Where the assured assigns or otherwise parts with his interest in the subject-matter insured, he does not thereby transfer to the assignee his rights under the contract of insurance, unless there be an express or implied agreement with the assignee to that effect.

But the provisions of this section do not affect transmission of interest by operation of law.

ACCORDING TO SECTION 25 OF THE MI ACT,1963 provides that a Marine Insurance Plicy must specify ;

(1) the name of the assured, ore of some person who affects the insurance on his behalf;

(2) the subject-matter insured and the risk insured against.

(3) the voyage, or period of time, both, as the case may be, covered by the insurance;

(4) the sum or sums insured;

(5) the name or names of the insurer or insurers.

Contract must be embodied in policy-

According to Section 24 of the marine insurance act 1963, A contract of marine insurance shall not be admitted in evidence unless it is embodied in a Marine policy in accordance with this act (Marine Insurance Act 1963). The policy may be executed and issued either at the time when the contract is concluded or afterwards.

SECTION 52 provides that –

When and how policy is assignable.—(1) A marine policy may be transferred by assignment unless it contains terms expressly prohibiting assignment. It may be assigned either before or after loss.

(2) Where a marine policy has been assigned so as to pass the beneficial interest in such policy, the assignee of the policy is entitled to sue thereon in his own name; and the defendant is entitled to make any defence arising out of the contract which he would have been entitled to make if the suit had been brought in the name of the person by or on behalf of whom the policy was effected.

SECTION 53 OF MI ACT,1963 .

Assured who has no interest cannot assign.—Where the assured has parted with or lost his interest in the subject-matter insured, and has not, before or at the time of so doing expressly or impliedly agreed to assign the policy, any subsequent assignment of the policy is inoperative.

Provided that nothing in this section affects the assignment of a policy after loss.

SECTION 52 provides as to when and how the marine policy may be transferred. It says that a Marine Policy may be transferred by assignment unless it contains express terms, which prohibits any assignment of the policy. It also provides that such assignment can be made before or after the loss has occasioned.

SECTION 52(2) -provides that once assignment is made then the assignee is entitle to sue in his name whereas the insure/defendant is also entitled to raise all such defences against the assignee ,which are available to him against the origiional insured i.e. the assigner.

SECTION 17 -provides that where the assured assigns or otherwise parts with his interest in the subject matter insured, he (insured) does not thereby transfer to the assignee his rights under the contract of insurance unless there is an express or implied agreement with the assignee of that effect. This section does not affect transmission of interest by operation of law.

Please Note That – Section 17 even after making an assignment by the insured of their contract of insurance policy, the rights of insured under the contract of insurance policy are not assigned in favour of assignee by the deed of assignment but they are continued to remain with the insured.

PLEASE NOTE THAT

A marine insurance policy is assignable either before or after the loss, unless it contains terms expressly prohibiting assignment. A policy on goods is generally freely assignable. Merchandise like tea, jute and wheat etc., change hands before they reach their destination and policies on them must be freely transferable. Both policies on ship or on freight are subject to restrictions on assignment.

An assignment by the insured of his interest in the subject-matter insured does not transfer his rights in the policy of insurance thereon to the assignee, unless there is an express or implied agreement to that effect. But a transmission of interest in the subject –matter insured by operation of law- such as by death or insolvency- will operate as a transfer of the policy also.

An assured who has assigned or lost his interest in the insured property cannot subsequently assign the policy of insurance thereon. Unless before or at the time of assigning the property, he has expressly or impliedly agreed to assign the policy. However, he can always assign the policy after loss. The marine policy may be assigned by endorsements on the policy itself or in any other customary manner. On the assignment of the beneficial interest in the policy, the assignee is entitled to sue thereon in his name.

CONCLUSION : from above discussion it is clear that in case of marine insurance ,an Insurable interest must be present only at the time of claiming and policy is easily assignable.It may be assigned to any, who has insurable interest or going to acquire at later date. Cargo insurance assignment does not even require consent of insurer, which is necessary in hull insurance.Transfer of subject matter does not automatically transfer insurance policy also. Person who lost or parted with insurable interest cannot transfer the policy subsequently. We hereby conclude that a Marine Insurance Policy is freely assignable unless expressly prohibited through some terms and conditions in the insurance policy or insured and the insurance company has agreed to prohibit any assignment of insurance policy. There is no inherent difference between the contract of marine insurance and the contract of fire insurance. Both are contracts of indemnity; both are personal contracts with the insured, and both are mercantile contracts ordered and controlled by the custom of merchants. Yet the courts seem to have ruled from the earliest times that, in the case of fire insurance, no assignment of the policy and property will be valid without the consent of the insurer thereto, while in marine insurance no such consent is necessary.

DISCLAIMER above article is only for information and knowledge of readers. In case of necessity do consult with insurance professional for more clarity and understanding on subject matter.

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Marine Insurance - Assignment of marine policies and the applicable law

(raiffeisen zentralbank osterreich ag v five star general trading llc, may 2000, forthcoming in lloyd’s rep ir).

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Assignment of marine insurance policies

Dear Friends,

In simple words the marine insurance includes;

A. CARGO INSURANCE

- which provides insurance cover in respect of loss of or damage to goods during transit by rail, road, sea or air.

Thus cargo insurance concerns the following :

(i) export and import shipments by ocean-going vessels of all types,

(ii) coastal shipments by steamers, sailing vessels, mechanized boats, etc.,

(iii) shipments by inland vessels or country craft, and

(iv) Consignments by rail, road, or air and articles sent by post.

B. HULL INSURANCE

- which is concerned with the insurance of ships (hull, machinery, etc.).

INSURABLE INTEREST

For effecting marine insurance like any other insurance, the assured must have an insurable interest. If there is no such interest, the policy would be a wagering contract and thus it will be void. Any person does have an insurable interest who is interested in a marine journey or who can get affected due to the losses and damages caused in the marine journey or adventure. The interest must subsist either at the time of effecting the insurance or at the time of loss. Any interest which is defeasible or contingent or partial can be insured. A lender under a bottomry bond or respondentia bond has insurable interest as well as master's and seamen's wages, advance freight are insurable, a mortgagee has also insurable interest.

The term " Transfer" or " Assignment" of policies of insurance are governed by the provisions of the Transfer of Property Act,1882 as amended from time to time. Please note that provisions of Section 38 of the Insurance Act,1938 only deals with transfer or assignment of Life Insurance Polices and the provisions of TP Act,1882 deal with other types of insurance policies.

"Actionable Claim"

Section 3 of TP Act,1882 defines as - a claim to any debt, other than a debt secured by mortgage of immoveable property or by hypothecation or pledge of moveable property, or to any beneficial interest in moveable property not in the possession, either actual or constructive, of the claimant, which the Civil Courts recognise as affording grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional or contingent.

The claim under a policy was regarded as property and is treated as an actionable claim under TP Act,1882 and the rules relating a transfer of actionable claim were held to apply to assignment of policies till specific statute laid down some specific rules for such assignments.

Section 6(e) of the Transfer of Property Act,1882 lays down that a mere right to sue cannot be transferred

It means if a certain sum of money is due from any person, that sum is recoverable on assignment, and it is not mere right to sue to offend against the provisions of Section 6( e) of TP act,1882. As you know that in case of an actionable claim, there is a surety that there is some amount,which can be recovered and same as in an Insurance Policy. The Sum Insured is the amount,which will be recoverable at the time of loss or after assignment of insurance policy by the assignee. A policy of insurance is a present contract in the hand of an insured of which he has present right to the benefit although the fruits are to be enjoyed in future.

A policy on a man's life expressed to be payable to his executors or administrators is a reversionary interest certain to fall in on the assured's death or attainment of the stipulated age. A policy of insurance is a choose in action. A policy of life insurance represents money which is due and owned to the assured at his death and in the part of his estate. He has unlettered discretion to sell or charge it, to bequeath it or even to give it away.

"ASSIGNMENT"

It means- Transfer of interest from one to another is called assignment. In insurance also when rights and obligation under the contract are transferred from one to another, the same is called assignment of the policy. There can be another assignment in insurance which is assignment of benefits under the policies. Assignment of policy and assignment of benefits are quite distinct. Whereas in the former all the rights and obligations are transferred, in the latter only benefits (i.e. money due under the policy etc) are transferred. In insurance the assignment means assignment of rights under the contract. An assignee for all purposes becomes the owner of the policy and enjoys all rights thereunder. However, by assignment no change is made in the subject matter insured by the policy and it remains unaltered."

ASSIGNMENT OF A CONTRACT OF INSURANCE AND ASSIGNMENT OF THE SUBJECT MATTER OF INSURANCE

Assignment for the purpose of law of insurance may either be;

The assignment of the subject matter of insurance ;or
The assignment of the policy.

Please note that

The question of the assignment of the subject matter of insurance in case of life and personal accident insurances does not arise, for the subject -matter in such cases is from its very nature unassignable.

The assignment of the subject-matter in the case of fire insurance is dealt as follows; " As regards the assignment of the fire policies itself, it is transfer of the contract of insurance with its all rights and liabilities to the transferee and, therefore,it is substitution of a new insured to all intents and purposes other than the original insured. "

THE SUBJECT MATTER OF INSURANCE

WHETHER FIRE AND ACCIDENT POLICIES ARE ASSIGNABLE?

Since Fire Insurance Policies and other general insurance policies are pure indemnity policies. There is no amount is fixed that will be payable to the insured. Sum Insurance is the maximum amount to be payable in these policies but same will vary to the extent of loss suffered by the insured. In case of contract of indemnity, the amount payable is not certain or calculable it depends upon the loss suffered by the insured, and it becomes payable only if and when the loss occurs. Therefore we conclude that a policy of fire, property accident insurances are in nature of right to sue for damages and the fact that they as such are not actionable claims is also apparent from the amendment of Section 6(4) of the TP Act,1882 to the effect that a mere right to sue cannot be transferred [Abu Mohammad Vs. SC chunder (1909) 36 Cal 345].

In these policies it may not certain that loss may take place, and also the extent of damages are also not certain. For an actionable claim it must be perfected and absolute, and not merely a sum of money which may or not become payable at future time.

It was held that policies of insurance against loss or damages by fire are not in their nature assignable nor can the interest in them be transferred from one person to another without the express consent of the insurance company. Suppose an insurance policy promises to indemnify "A" against loss by fire. He can assign his right of action against the insurance company to "B", so that if "A" suffers loss "B" may recover in respect of it, but "B" cannot without the consent of insurance company's consent,convert promise to indemnify "A" to a promise to indemnify "B", because that would not be an assignment but an attempted novation.

PLEASE NOTE THAT

Property and liability insurances are personal contracts, and do not run with the property if it is sold or otherwise disposed of or with a transfer of liabilities of the insured. Therefore, both at common law and equity, as assignment of a policy of insurance can only be valid of the insurer consents to this course, whereby, in truth a new contract of insurance is effected between the assignee and the insurer, and that between the assignor (the original insured) and the insurer lapses."

RESTRICTIONS ON ASSIGNABILITY IMPOSED BY THE COMPANY

f parties to a contract of insurance agree to impose restrictions to the assignability of the policy or to make it assignable only with the consent of the company, effect must be given to such restrictions. But such provision does not apply to the case of the person on whom the policy has devolved by the operation of law, or in the case of person who is under obligation to insure. If insurance policy is not assignable they assignee has no right to sue or call the insurance company in case of loss or damage due to insured peril. In this case the right person is the insured /assured to claim loss /damage under insurance policy.

Life policies are now construed not as a contract of indemnity but to pay a certain sum in a certain vent depending on the duration of human life. If at the time the contract of insurance is made the person affecting insurance has an insurable interest in the life of the person assured the policy is a valid, notwithstanding the fact that the person effecting the insurance ceased to have an interest in the life assured at the time when policy become due. It follows from this that the assignment of a life policy would be valid and would pass to the assignee the rights to the insurance money, even though the assignor's interest in the life had ceased to have an interest in the life assured at the time when the policy became due.

It follows from above that the assignment of a life policy would be valid and would pass to the assignee the rights to the insurance money, even through the assignor's in the life had ceased before the date of the assignment. It means an assignment to person without interest is not invalid assignment.

It is obvious that the contract of insurance may be assigned in one of two ways.

In the first place, the policy may be assigned without the assignment of the property insured; or,
secondly, the policy may be assigned together with the assignment of the property insured. The distinction is important, and must be kept in mind.

Where the assignment is of the policy only, there is no difficulty in reconciling this with the nature of a personal contract. All that is assigned in this case is the right to receive the insurance money, in case the interest of the person originally insured suffers loss from the perils insured against. The assignment is like the assignment of any other chose in action. The assignee is merely the person designated to receive the insurance, and he acquires only the rights of the assignor, and is subject to all the defences which the insurers have or may have against the person originally insured.

ASSIGNMENT OF MARINE INSURANCE POLICY

The terms and conditions of Marine Insurance Policies have governed provisions of the Marine Insurance act,1963.

"(1) A marine policy is assignable unless it contains terms expressly prohibiting assignment. It may be assigned either before or after loss.

(3) A marine policy may be assigned by endorsement thereon or in other customary manner.

SECTION 17 OF MARINE INSURANCE ACT,1963 provides that

Assignment of interest.

Where the assured assigns or otherwise parts with his interest in the subject-matter insured, he does not thereby transfer to the assignee his rights under the contract of insurance, unless there be an express or implied agreement with the assignee to that effect.

But the provisions of this section do not affect the transmission of interest by operation of law.

ACCORDING TO SECTION 25 OF THE MI ACT,1963

Provides that a Marine Insurance Plicy must specify ;

(1) the name of the assured, ore of some person who affects the insurance on his behalf; (2) the subject-matter insured and the risk insured against. (3) the voyage, or period of time, both, as the case may be, covered by the insurance; (4) the sum or sums insured; (5) the name or names of the insurer or insurers.

Contract must be embodied in policy

SECTION 52 provides that

When and how policy is assignable.

(1) A marine policy may be transferred by assignment unless it contains terms expressly prohibiting assignment. It may be assigned either before or after loss.

(2) Where a marine policy has been assigned so as to pass the beneficial interest in such policy, the assignee of the policy is entitled to sue thereon in his own name; and the defendant is entitled to make any defence arising out of the contract which he would have been entitled to make if the suit had been brought in the name of the person by or on behalf of whom the policy was effected.

SECTION 53 OF MI ACT, 1963

Assured who has no interest cannot assign. Where the assured has parted with or lost his interest in the subject-matter insured, and has not, before or at the time of so doing expressly or impliedly agreed to assign the policy, any subsequent assignment of the policy is inoperative.

Provided that nothing in this section affects the assignment of a policy after loss.

SECTION 52: Provides as to when and how the marine policy may be transferred. It says that a Marine Policy may be transferred by assignment unless it contains express terms, which prohibits any assignment of the policy. It also provides that such assignment can be made before or after the loss has occasioned.
SECTION 52(2): Provides that once assignment is made then the assignee is entitle to sue in his name whereas the insure/defendant is also entitled to raise all such defences against the assignee,which are available to him against the origiional insured i.e. the assigner.
SECTION 17: Provides that where the assured assigns or otherwise parts with his interest in the subject matter insured, he (insured) does not thereby transfer to the assignee his rights under the contract of insurance unless there is an express or implied agreement with the assignee of that effect. This section does not affect the transmission of interest by operation of law.

Please Note That

Section 17 even after making an assignment by the insured of their contract of insurance policy, the rights of insured under the contract of insurance policy are not assigned in favour of assignee by the deed of assignment but they are continued to remain with the insured.

An assignment by the insured of his interest in the subject-matter insured does not transfer his rights in the policy of insurance thereon to the assignee, unless there is an express or implied agreement to that effect. But a transmission of interest in the subject matter insured by operation of law- such as by death or insolvency- will operate as a transfer of the policy also.

From above discussion it is clear that in case of marine insurance,an Insurable interest must be present only at the time of claiming and policy is easily assignable.It may be assigned to any, who has insurable interest or going to acquire at later date. Cargo insurance assignment does not even require consent of insurer, which is necessary in hull insurance.Transfer of subject matter does not automatically transfer insurance policy also. Person who lost or parted with insurable interest cannot transfer the policy subsequently. We hereby conclude that a Marine Insurance Policy is freely assignable unless expressly prohibited through some terms and conditions in the insurance policy or insured and the insurance company has agreed to prohibit any assignment of insurance policy. There is no inherent difference between the contract of marine insurance and the contract of fire insurance. Both are contracts of indemnity; both are personal contracts with the insured, and both are mercantile contracts ordered and controlled by the custom of merchants. Yet the courts seem to have ruled from the earliest times that, in the case of fire insurance, no assignment of the policy and property will be valid without the consent of the insurer thereto, while in marine insurance no such consent is necessary.

DISCLAIMER: The above article is only for information and knowledge of readers. In case of necessity do consult with insurance professional for more clarity and understanding on subject matter.

Published by

FCS Deepak Pratap Singh (Associate Vice President - Secretarial & Compliance (SBI General Insurance Co. Ltd.)) Category Corporate Law Report

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Assignments In Insurance Law

Introduction

1.1 Nature Of Insurance Policies

1.2 Assignment

2. Application Of English Law

2.1 Generally

2.2 Policies Of Assurance Act 1867

2.3 Marine Insurance Act 1906

3. marine insurance, 4. property insurance, 5. motor insurance, 6. life insurance, 6.1 legal assignment, 6.2 equitable assignment, 6.3 incomplete assignment, 6.4 priorities.

7.1 Assignment Of Insurance Policies
7.2 Assignment Of The Proceeds Of Insurance Policies
7.3 Assignment Of The Subject Matter Of Insurance Policies
7.4 Assignment By Operation Of Law

7.5 Conditions Prohibiting Assignment

8. conclusion, assignments in insurance law.

The concept of assignments in insurance law takes on many forms - firstly due to the various branches of insurance law and secondly due to the various components in an insurance transaction that can be assigned. The format of this discussion, therefore, is reflective of this framework.

Assignments are first discussed in the context of the following branches of insurance law:

(i) marine insurance,

(ii) property insurance,

(iii) motor insurance, and

(iv) life insurance.

The next stage of this discussion focuses on what may be assigned in an insurance transaction and how such assignments are legally effected, namely, the assignment of:

(a) an insurance policy,

(b) the proceeds of an insurance policy, and

1.1 Nature of Insurance Policies

A. A. Tarr, Kwai-Lian Liew & W. Holligan writes:

“The origins of insurance date back thousands of years. For example, a central feature of insurance, that of risk interference, was incorporated in commercial arrangements effected by the Babylonians, Phoenicians, Greeks and Romans. However, the infancy of the modern insurance contract is founded on the practices adopted by Italian merchants in the 14th century. These merchants fostered the development of marine insurance and were reluctant to accept the numerous and diverse risks associated with the mercantile adventure of transporting goods across the sea; an early policy entered into in 1385 insured a ship and cargo against loss arising ‘from Acts of God, of the sea, of fire, of jettison, of confiscation by princes or cities or any other person, of reprisal, mishap or any other impediment’. Merchants in their relations with one another tended to uniformity on commercial matters and this tendency led to the rapid dissemination if marine insurance practices to other countries, and, in particular, to the low countries, Spain and England.” [1]

Lord Hailsham of St. Marylebone writes:

“Non-marine insurance first made its appearance in the form of life and fire insurance, but until the middle of the nineteenth century these three [2] types of insurance comprised, in practice, substantially the whole range of insurance.”

The practice of taking insurance and property and later, lives, has a long and rich history. Unsatisfied with leaving the health and safety of property and lives to the capricious whims of fate alone, our ancestors have sought to ‘hedge their bets’ by entering into an insurance transaction.

John Lowry & Philip Rawlings writes:

“The aim of insurance is to shift risk from one person (the insured) to another (the insurers): the owner of a house enters into a fire policy under which an insurer, in exchange for a premium paid by the insured, agrees to pay for damage caused to the property by fire.” [3]

Professor K. S. N. Murthy & K. V. S. Sarma writes:

“The aim of all insurance is to protect the owner from a variety of risks which he anticipates.” [4]

John Birds and Norma J. Hird observe that:

“It is suggested that a contract of insurance is any contract whereby one party assumes the risk of an uncertain event, which is not within his control, happening at a future time, in which event the other party has an interest, and under which contract the first party is bound to pay money or provide its equivalent if the uncertain event occurs.” [5]

In Rayner v Preston [6] , Brett L.J. explained the nature of a contract of insurance in the following terms:

“Now, in my judgment, the subject-matter of the contract of insurance is money, and money only. The subject-matter of insurance is a different thing from the subject-matter of the contract of insurance. The subject-matter of insurance may be a house or other premises in a fire policy, or may be a ship or goods in a marine policy. These are the subject-matter of insurance, but the subject-matter of the contract is money, and money only. The only result of the policy, if an accident which is within the insurance happens, is a payment of money. It is true that under certain circumstances in a fire policy there may be an option to spend the money in rebuilding the premises, but that does not alter the fact that the only liability of the insurance company is to pay money. The contract, therefore, is a contract with regard to the payment of money, and it is a contract made between two persons, and two persons, only, as a contact.” [7]

Poh Chu Chai writes:

“A contract of insurance constitutes a highly personal contract and as a general rule, such a contract is generally not assignable.” [8]

The insurer fixes the premium after considering the particular risks associated with the property and handling of the property in the hands of the insured. As such, as a general rule, an insurance policy is not casually assignable to another party. Nevertheless, assignments are not an unheard of option in an insurance transaction.

Before embarking on the discovery of how assignments in insurance law can be legally effected, it may prove beneficial to consider the nature of what is meant by this phrase which takes centre stage in this discussion, an ‘assignment’.

R. C. Kohli explains:

“Transfer of interest from one to another is called assignment. In insurance also when rights and obligation under the contract are transferred from one to another, the same is called assignment of the policy. There can be another assignment in insurance which is assignment of benefits under the policies. Assignment of policy and assignment of benefits are quite distinct. Whereas in the former all the rights and obligations are transferred, in the latter only benefits (i.e. money due under the policy etc) are transferred. In insurance the assignment means assignment of rights under the contract. An assignee for all purposes becomes the owner of the policy and enjoys all rights thereunder. However, by assignment no change is made in the subject matter insured by the policy and it remains unaltered.” [9]

David Norwood and John P. Weir writes:

“There is no special form of assignment document, no magic words which must be used to create a valid and effective legal assignment. As was expressed in one case [10] : ‘[An assignment] ... may be addressed to the debtor. It may be couched in the language of command, It may be a courteous request. It may assume the form of mere permission. The language is immaterial if the meaning is clear.’

The only important point is that the instrument recording the assignment must make it clear that one party with a contractual right against another party is transferring their right of enforcement of the obligations of the contract to another person.” [11]

Malcolm A. Clarke writes :

“Assignment must have been intended. Intention is ascertained by the substance rather than the form of what is said or done.” [12]

2. Application of English Law

Another introductory matter which must be considered in this discussion is the source of law in the insurance arena in Malaysia.

The governing statute in Malaysia in the field of insurance law is the Insurance Act 1996 [13] . This Act, however, does not seem to mention the issue of assigning insurance policies. As such, the provisions of the Civil Law Act 1956 [14] may be referred to in order to provide valuable guidance on the matter.

Section 3 of the Civil Law Act 1956 provides:

“Save so far as other provision has been made or may hereafter be made by any written law in force in Malaysia, the Court shall -

(a) in West Malaysia or any part thereof, apply the common law of England and the rules of equity as administered in England on the 7 th day of April, 1956;...

Provided always that the said common law, rules of equity and statutes of general application shall be applied so far only as the circumstances of the States of Malaysia and their respective inhabitants permit and subject to such qualifications as local circumstances render necessary.”

Section 5(1) of the Civil Law Act 1956 makes particular reference to life and fire insurance. This section provides that :

“In all questions or issues which arise or which have to be decided in the States of West Malaysia ... with respect to the law of ... marine insurance, average, life and fire insurance ... the law to be administered shall be the same as would be administered in England in the like case at the date of the coming into force of this Act [15] , if such question or issue had arisen or had to be decided in England, unless in any case other provision is or shall be made by any written law.”

With the aid of these provisions, English law has often been referred to for guidance in resolving legal dilemmas in the field of insurance law and since the Malaysian Act on point does not seem to have covered the matter of the assignment of insurance policies, as will be discussed below, many academicians and Malaysian judges have relied on the principles enunciated in the English courts and Parliament on this matter.

2.2 Policies of Assurance Act 1867

There is one particular dilemma highlighted by Nik Ramlah Mahmood with regard to the applicability of the Policies of Assurance Act 1867 [16] of England with regard to the legal assignment of life policies. As this author explains :

“In England, a life policy can be legally assigned in accordance with the Policies of Assurance Act 1867 which deals specifically with such assignment or in accordance with section 136 of the Law of Property Act 1925 [17] which deals with the assignment of a chose in action. [18] ...

As there is no parallel local statute, the Policies of Assurance Act 1867 (UK) is assumed to be applicable in Malaysia and is generally regarded as the only basis for legal assignment of a life policy. The validity of this assumption, however, is questionable. There is in Malaysia a provision similar to section 136 of the Law of Property Act 1925 (UK). This is section 4(3) of the Civil Law Act 1956 which provides for the absolute assignment of a chose in action. The existence of this provision can have two possible effects on the law relating to legal assignment of life policies in Malaysia.

One possible effect is that contrary to popular belief and practice, the Policies of Assurance Act 1867 (UK) is in fact inapplicable in Malaysia. According to section 5 of the Civil Law Act 1856, an English Act like the 1867 Act can only be applied if there are no local statutory provisions on the related issue. As the assignment of a life policy is in fact the assignment of a chose in action and there is a local provision on this, there seems to be no valid justification for applying the Policies of Assurance Act 1867 in Malaysia.

The other possible effect is that there are, in Malaysia as in England, two different statutory provisions relating to the assignment of life policies, one under the Policies of Assurance Act 1867 (UK) and the other under the Civil Law Act 1956. As the Civil Law Act provision deals with the assignment of a chose in action generally, its existence should not prevent the application of an English statute which deals specifically with the assignment of life policies.

While a finding by a Malaysian court in favour of the first possible interpretation may alarm those in the insurance industry who have always regarded the Policies of Assurance Act 1867 of England to be the sole basis for the legal assignment of a life policy, such a finding may in the long term bring the practices of the industry in Malaysia in line with those in England where such assignments are now more commonly done under the Law of Property Act than under the Policies of Assurance Act.” [19]

There is no statute in Malaysia that deals exclusively with the area of marine insurance. As such, as Salleh Abas C.J. clarified in The “Melanie” United Oriental Assurance Sdn. Bhd. Kuantan v. W.M. Mazzarol [20] :

“... we must refer to ... the Marine Insurance Act 1906 of the United Kingdom. This Act is made applicable to Malaysia as part of our law by virtue of section 5(1) [21] of our Civil Law Act 1956.” [22]

The Marine Insurance Act 1906 [23] contains a few sections dealing with the concept of assignment in marine insurance. Section 50 of this Act states :

“(1) A marine policy is assignable unless it contains terms expressly prohibiting assignment. It may be assigned either before or after loss.

(3) A marine policy may be assigned by indorsement thereon or in other customary manner.” [24]

Section 51 of this Act reads :

“Where the assured has parted with or lost his interest in the subject-matter insured, and has not, before or at the time of so doing, expressly or impliedly agreed to assign the policy, any subsequent assignment of the policy is inoperative.

Provided that nothing in this section affects the assignment of a policy after loss.” [25]

In Colinvaux’s Law of Insurance , section 51 of this Act is explained as having the effect such that :

“This rule is an obvious corollary of insurable interest: if the assignor loses insurable interest, the policy lapses and there is thus nothing to assign. In the converse case, where the assured assigns the policy without assigning the subject-matter, the assignee has no insurable interest and is thus unable to sue on the policy.” [26]

Section 15 of this Act provides :

“Where the assured assigns or otherwise parts with his interest in the subject-matter insured, he does not thereby transfer to the assignee his rights under the contract of insurance, unless there can be an express or implied agreement with the assignee to that effect.

But the provisions of this section do not affect a transmission of interest by operation of law.” [27]

In the book, Macgillivray & Parkington on Insurance Law - relating to all risks other than marine [28] , the position when the subject-matter insured is assigned is summarised as :

“If the assured voluntarily parts with all his interest in the subject-matter of the insurance policy, the policy lapses since the assured no longer has any insurable interest and can have suffered no loss [29] . The assignment must, however, be complete [30] and if the assured retains any insurable interest he will be able to recover under the policy; thus, if he enters into a contract to convey the subject-matter and the subject-matter is lost or damaged, the assured can still recover even though the risk has passed to the purchaser [31] ; until the vendor is paid he cannot be certain of receiving the purchase price and it is in effect this risk which, in such a case, is the subject of insurance. [32] The policy will probably remain in force ever after conveyance if the purchase price has not been paid, provided that the vendor has not parted with his lien. The lien will ensure that the assured still has an insurable interest. [33] An assured who enters into a contract of sale will often agree to transfer the insurance policy and, if he effectively does so, the transferee will be able to recover under it.”

Digby C. Jess writes:

“Property and liability insurances are personal contracts, and do not run with the property if it is sold or otherwise disposed of or with a transfer of liabilities of the insured. Therefore, both at common law and equity, as assignment of a policy of insurance can only be valid of the insurer consents to this course, whereby, in truth a new contract of insurance is effected between the assignee and the insurer, and that between the assignor (the original insured) and the insurer lapses.” [34]

In The North of England Pure Oil-Cake Company v The Archangel Maritime Insurance Company, [35] a firm insured a cargo of linseed to be transported by sea. The policy was to cover every stage of the voyage as if each stage of the voyage were separately insured and the policy of insurance was expressed to be for the benefit of the firm and the assignees. During the voyage, the firm sold the cargo. Part of the cargo was sunk due to perils within the terms of the policy. Later, the firm assigned the policy to the purchasers of the linseed.

Cockburn C.J. in this case held :

“We are agreed on one point, which entitles the defendants to judgment, viz. that, the policy not having been assigned until after the interest of the assignors had ceased, an effective assignment was impossible.” [36]

In Sadler’s Company and Badcock, [37] a lessee of a house insured the house from fire. After the lessee’s lease expired but while the insurance policy was still in effect, the house burnt down. Following the destruction of the house, the lessee assigned the policy to the landlords. The landlords then attempted to claim the benefit of the policy from the insurance company.

The Lord Chancellor in this case decided that a policyholder could not assign a policy at a point in time when the policyholder does not have any interest in the insured property. The lessee in this case was not able to assign the policy since at the time the lessee purported to assign the policy the lessee had no longer any interest in the house. In the words of the judge :

“And I am of opinion that the party insured ought to have a property in the thing insured at the time of the insurance made, and at the time of the loss by fire, or he cannot be relieved. Mrs. Strode [the lessee] had no property at the time of the fire, consequently no loss to her; and if she had no interest, nothing could pass to the plaintiffs [landlords] by assignment. ...

If the insured was not to have a property at the time of the insurance or loss, any one might insure another’s house, which might have a bad tendency to burning houses. Insuring the thing from damage is not the meaning of the policy, it must mean insuring Mrs. Strode from damage, and she has suffered none.” [38]

In The Ecclesiastical Commissioners for England v The Royal Exchange Assurance Corporation, [39] one ecclesiastical body sold a farm that was covered by a fire insurance policy to another ecclesiastical body. At the time of the sale, no mention was made about the assignment of the policy. After the sale, the farm burnt down and the purchaser seeks to claim on the policy.

The insurance company argues that there was no valid assignment of the policy and as such, the insurance company is not liable to the seller since the seller had no interest in the insured property and thus have no insurable interest at the time of the accident nor the purchaser since the policy has not been validly assigned to the purchaser. Charles J. in this case agreed with the arguments of the insurance company and held:

“The whole transaction was complete. Can anybody sue? The Commissioners [seller] cannot sue because there has been no assignment of the policy to them. ... In this case the vendors have conveyed away their property and received their consideration ... I must therefore give judgment for the defendants [insurance company], with costs.” [40]

In Collinridge v The Royal Exchange Assurance Corporation, [41] a company which owned a number of buildings insured the same against fire. These buildings were indeed destroyed by fire. However, before the fire took place, these buildings were in the process of being acquired by the Metropolitan Board of Works. There was no mention of an accompanying assignment of the fire insurance policy. The Board had yet to make payments for the conveyance. The insurance company disputes liability.

Mellor J. in this case held:

“It appears that the plaintiff at the time of the fire was in the position of unpaid vendor, and had possession of his premises. Under these circumstances, I think there is nothing to prevent him from bringing an action to recover the amount which he has insured.” [42]

Lush J. in this case concurred :

“The plaintiff is in the position of a person who has entered into a contract to sell his property to another. ... The contract will no doubt be completed, but legally the buildings are still his property. The defendants [insurance company] by their policy undertook to make good any loss or damage to the property by fire. There is nothing to shew that any collateral dealings with the premises, such as those stated in this case, are to limit his liability. If the plaintiff had actually conveyed them away before the fire, that would have been a defence to the action, for he would have then have had no interest at the time of the loss. But in the present case he still has a right to the possession of his property, and the defendants are bound to pay him the insurance money ...” [43]

In Rayner v Preston, [44] a set of buildings covered by a fire insurance policy were contracted to be sold. After the date the contract was signed but before the contract was completed, the buildings were damaged by fire. The contract contained no mention of the fire insurance policy. The insurance company made payments to the seller of the buildings. The purchaser seeks to claim this money or to compel the seller to apply the money received towards making repairs to the buildings.

The first argument proposed by the purchaser was that although the contract made no specific mention of the insurance policy, the contract gave the purchaser a right to all contracts related to the buildings. Cotton L.J. in this case was not in support of this contention and held :

“The contact passes all things belonging to the vendors appurtenant to or necessarily connected with the use and enjoyment of the property mentioned in the contract, but not, in my opinion, collateral contracts; and such, in my opinion, ... the policy of insurance is. It is not a contract limiting or affecting the interest of the vendors in the property sold, of affecting their right to enforce the contract of sale, for it is conceded that, if there were no insurance and the buildings sold were burnt, the contract for sale would be enforced. It is not even a contract in the event of a fire to repair the buildings, but a contract in that event to pay the vendors a sum of money which, if received by them, they may apply in any way they think fit. It is a contract, not to repair the damage to the buildings, but to pay a sum not exceeding the sum insured or the money value of the injury. In my opinion, the contract of insurance is not of such a nature as to pass without apt words under a contract for sale of the thing insured.” [45]

The next argument proposed by the purchaser was that between the time of the contract being made and the conveyance being completed, the seller was a trustee of the property for the purchaser and as such, the seller is a trustee for the purchaser with regard to the money received for the property during this period of trusteeship. This argument did not find favour with the court either and Cotton L.J. held:

“An unpaid vendor is a trustee in a qualified sense only, and is so only because he has made a contact which a Court of Equity will give effect to by transferring the property sold to the purchaser, and so far as he is a trustee he is so only in respect of the property contracted to be sold. Of this the policy is not a part. A vendor is in no way a trustee for the purchaser of rents accruing before the time fixed for completion, and here the fire occurred and the right to recover the money accrued before the day fixed for completion. The argument that the money is received in respect of the property which is trust property is, in my opinion, fallacious.” [46]

Brett L.J. in this case concurred :

“... I venture to say that I doubt whether it is a true description of the relation between the parties to say that from the time of the making of the contract, or at any time, one is ever trustee for the other. They are only parties to a contract of sale and purchase of which a Court of Equity will under certain circumstances decree a specific performance. But even if the vendor was a trustee for the vendee, it does not seem to me at all to follow that anything under the contract of insurance would pass. As I have said, the contract of insurance is a mere personal contact for the payment of money. It is not a contract which runs with the land. If it were, there ought to be a decree that upon completion of the purchaser the policy be handed over. But that is not the law. The contract of insurance does not run with the land; it is a mere personal contract, and unless it is assigned no suit or action can be maintained upon it except between the original parties to it... [47]

“I therefore, with deference, think that the Plaintiffs here [purchaser] cannot recover from the Defendant [seller], on the ground that there was no relation of any kind or sort between the Plaintiff and the Defendant with regard to the policy, and therefore none with regard to any money received under the policy.” [48]

James L.J. in this case gave a dissenting judgment on this point and held that :

“... the relation between the vendor and the purchaser became, and was in law, as from the date of the contract and up to the completion of it, the relation of trustee and cestui que trust , and that the trustee received the insurance money by reason of and as the actual amount of the damage done to the trust property.” [49]

In Castellain v Preston and Others, [50] the defendants owned a piece of land and buildings which were covered by a fire insurance policy. The defendants entered into negotiations to sell the premises to their tenants. In the midst of these negotiations, a fire broke out which damaged a part of the buildings. By the time of the fire the contract of sale was signed, a deposit was paid but the contract was not completely performed as yet. The insurance company made payments to the defendants on the insurance policy for the fire. The tenants paid the full purchase price and proceeded with the slae despite the fire. The insurance company brings the present action.

Brett L.J. commented on the foundation of insurance law :

“The very foundation, in my opinion, of every rule which has been applied to insurance law is this, namely, that the contract of insurance contained in a marine or fire policy is a contract of indemnity, and of indemnity only, and that this contract means that the assured, in case of a loss against which the policy has been made, shall be fully indemnified, but shall never be more than fully indemnified. That is the fundamental principle of insurance, and if ever a proposition is brought forward which is at variance with it, that is to say, which either will prevent the assured from obtaining a full indemnity, or which will give to the assured more than a full indemnity, that proposition must certainly be wrong.” [51]

Cotton L.J. added :

“The policy is really a contract to indemnify the person insured for the loss which he has sustained in consequence of the peril insured against which has happened, and from that it follows, of course, that as it is only a contract of indemnity, it is only to pay that loss which the assured may have sustained by reason of the fire which has occurred. In order to ascertain what that loss is, everything must be taken into account which is received by and comes to the hand of the assured, and which diminishes the loss. It is only the amount of the loss, when it is considered as a contract of indemnity, which is to be paid after taking into account and estimating those benefits or sums of money which the assured may have received in diminution of the loss... [52]

Therefore the conclusion at which I have arrived is, that if the purchase-money has been paid in full, the insurance office will get back that which they have paid, on the ground that the subsequent payment of the price which had been before agreed upon, and the contract for payment of which was existing at the time, must be brought into account by the assured, because it diminishes the loss against which the insurance office merely undertook to indemnify them [53] .”

Mahinder Singh Sidhu observes :

“An assignment of the policy means a ‘change of interest’ i.e., somebody else is substituted for the original insured in the motor insurance contract. All motor policies can be validly assigned but the insurer’s prior consent is essential.” [54]

Mahinder Singh Sidhu also writes :

“A motor insurance contract is always personal in the sense that some human element is inevitably involved, and in a technical sense, the insurer’s decision to enter on the contract depends on the personal qualities of the insured and the insurer’s confidence in him. The insurers have the right to question and investigate the proposed insured and vary the terms of the contract. If an assignment takes place it is termed as a “novation”, since the assignment virtually creates a new contract with the assignee.

A valid assignment gives the assignee the right to sue and gives the insurance company a good legal discharge without the necessity of joining the assignor. Where there is a conditional sale of a car to the new purchaser, the ownership of the car still remains with the insured, and does not amount to any transfer of his insurable interest. But where there has been a complete sale and transfer of the vehicle and handing over of the policy documents to the purchaser, it does not create a valid assignment, though there is a transfer of interest of the subject matter of the insurance. The transfer of the insurable interest causes the policy to lapse, and the purchaser has no insurance cover if he drives the car and meets with an accident.” [55]

In Peters v General Accident Fire & Life Assurance Corporation Ltd. [56] , the owner of a motor van sold the vehicle to another person and purportedly assigned the motor insurance policy for the van to the purchaser. After the sale, the purchaser was involved in an accident and attempted to make a claim to the insurance company based on the motor insurance policy purportedly assigned. The insurance company disputed the purchaser’s right to claim under the insurance policy issued to the seller of the van.

Sir Wilfred Greene M.R. in this case decided that:

“Assuming in his favour that there was an intention to assign the policy, the fundamental remains : Is this policy one which is capable of assignment? The judge held that it was not, and I am in entire agreement with that.” [57]

The effect of the motor insurance policy was that the insurance company undertook to indemnify the policyholder in the case of an accident while the car was driven by the policyholder or anyone else driving the vehicle with the policyholder’s consent or permission.

Sir Wilfred Greene M.R. explained the effect of deciding that such a policy was assignable:

“It appears to me as plain as anything can be that a contract of this kind is in its very nature not assignable. The effect of the assignment, if it were possible to assign, was ... that, from and after the assignment, the name of Mr. Pope, the assignee [the purchaser], would have taken the place of that of Mr. Coomber [the seller] in the policy, and the policy would have to be read as though Mr. Pope’s name were mentioned instead of Mr. Coomber’s. In other words, the effect of the assignment would be to impose upon the insurance company an obligation to indemnify a new assured, or persons ordered or permitted to drive by that new assured. That appears to be altering in toto the character of the risk under a policy of this kind. The risk that A.B. is going to incur liability by driving his motor car, or that persons authorised by A.B. are going to cause injury by driving his motor car, is one thing. The risk that C.D. will incur liability by driving a motor car, or that persons authorised by C.D. will incur liability through driving a motor car, is, or may be, a totally different thing.” [58]

One reason given by Sir Wilfred Greene M.R. for deciding that an insurance policy of this kind was not capable of assignment was that :

“The insurance company in this case, as in every case, make inquiries as to the driving record of the person proposing to take out a policy of insurance with them. The business reasons for that are obvious, because a man with a good record will be received at an ordinary rate of premium and a man with a bad record may not be received at all, or may be asked to pay a higher premium. The policy is, in a very true sense, one in which there is inherent a personal element of such a character as to make it, in my opinion, quite impossible to say that the policy is one assignable at the volition of the assured.” [59]

The second reason given by the judge as the basis of his judgement was that the according to the Road Traffic Act 1930 [60] in the United Kingdom, it is unlawful for anyone to use a motor vehicle or permit anyone else to use the motor vehicle unless that user or other person permitted by the user is covered by a motor insurance policy for the use of the motor vehicle. [61] Additionally under the statute, if a judgment is obtained in respect of a liability covered by the policy against any person insured by the policy, then the insurance company is generally liable to make the required payment to the person who has the benefit of the judgment. [62]

The purchaser of the car in this case argued that he was driving the car with the permission of the policyholder [63] and as such, should receive the same benefit of coverage in terms of the insurance policy. Based on this rationale, the purchaser argued that since judgment was obtained against him in respect of the accident and since he was covered by the policy, the insurance company should be liable under the judgment and make payments to the party who obtained the judgment. The court, however, held that :

“At the date when the accident took place, the entire property in this car was vested in Pope [the purchaser]. He had bought the car. On the sale of the car, the property passed to him ... The property, therefore, passed to the purchaser long before this accident took place. The circumstance that he had not paid the whole of the purchase price is irrelevant for that purpose, because that circumstance does not leave in the vendor, Mr. Coomber, any interest in the car. There is no vendor’s lien, or anything of that sort. The car had become the out-and-out property of Pope. When Pope was using that car, he was not using it by the permission of Coomber [the seller]. It is an entire misuse of language to say that. He was using it as owner, and by virtue of his rights as owner, and not by virtue of any permission of Coomber.” [64]

In Smith v Ralph, [65] the scenario was basically the same as above, namely, that the purchaser of a motor vehicle again tried to claim the coverage of the insurance policy issued to the seller of the motor vehicle on the basis that the purchaser was driving the motor vehicle with the permission or consent of the policyholder.

Lord Parker of Waddington C.J. in this case similarly held that the purchaser was not covered by the policy as the policyholder could not assign any rights in the policy when he no longer had any interest in the vehicle covered by the policy. In the words of the judge :

“Any permission or authority given by the policyholder ... could not extend beyond the time when he ceased to be a policyholder in the sense of having any insurable interest.” [66]

In Nanyang Insurance Co. Ltd. v. Salbiah & Anor, [67] a car was bought on behalf of a company. The company then entered into negotiations to sell the car to the purchaser. The terms of the proposed sale in the written contract included the obligation of the purchaser to make an initial payment and thereafter to continue paying for the car in instalments. The parties varied this term by oral agreement when the purchaser did not make this initial payment in full by allowing him to make this initial payment in instalments. The car was involved in an accident and judgment was obtained against the driver of the car who was the purchaser. The insurance company disputed liability for the claim against them to honour the judgment obtained as they argued that the seller of the car no longer had any insured interest with the proposed sale of the car and as such, the insurance policy has lapsed.

Azmi C.J. in this case held:

“It is therefore quite clear in my view from the evidence, that the company intended to retain the property in the car until Abdul Karim [the purchaser] has paid in full the initial payment of $1,000 under the D.6 [the contract] when he could execute a hire-purchase agreement with a financial company. ...

For the above reason, I would therefore with respect, agree with the finding of the trial judge that the appellants [seller] had an insurable interest in the car on the date of the accident and the car was being driven by Abdul Karim with the permission of the insured.” [68]

In People’s Insurance Co. of Malaya Ltd. v Ho Ah Kum & Anor, [69] the driver of a van was sued by the estate of a deceased who was killed in an accident due to the negligent driving of this driver. The estate of the deceased obtained judgment against the driver of the van. The driver, it was alleged, was driving the van with the permission of the owner of the van who had an insurance policy on the van. The question that arose in this case was whether the driver was so driving with the permission of the owner or whether the owner of the van had sold the van to the driver and as such parted with possession of the van before the date of the accident.

The driver was actually an employee of the owner of the van who at the time of the accident was using returning from a delivery made on behalf of the employer in the course of his employment. The evidence showed that the owner told the driver that the ownership of the van would not be transferred unless and until the driver made full payment of the purchase price. The owner was aware that the reason the driver bought the van was to use the van in making these deliveries.

Wee Chong Jin C.J. in this case held on the facts that:

“In any event, having regard to the relationship between Foo [driver] and Yeo [owner] throughout the material times; to the purpose for which Foo agreed to purchase from Yeo the motor van; and most important of all to the uncontradicted evidence of Foo that when the accident occurred he was returning after delivering Yeo’s flour and there being no evidence to the contrary, I take the view that there is sufficient evidence on the record for me to find and I do find that at the time of the accident Foo was driving the van on the order of the insured.” [70]

In Tattersall v. Drysdale, [71] the driver of a car was involved in an accident and judgment was obtained against him. The driver had an insurance policy with the London & Edinburgh Insurance Company for a Standard Swallow Saloon car. This Standard car was sold to a company who was in turn selling the driver a Riley Saloon car belonging to the director of this company which was under a Lloyd’s Eclipse insurance Policy. The driver was in the process of having his insurance company, the London & Edinburgh Insurance Company, cover the Riley car and no longer cover the Standard car. However, this change was not made before the accident as yet. The question that arose was which insurance company was liable for the accident.

Goddard J. in this case held :

“As to the question of permission, I am clearly of opinion that he was driving with Gilling’s [the director of the company the Riley car was bought from] permission. ... The truth is that no bargain about insurance was ever made. Gilling, on handing over his car after the bargain had been made, wished the plaintiff [driver] to insure it and he was willing to do so, but he was allowed to drive it as he wished ...” [72]

Both insurance policies contained a clause that coverage is extended to indemnify a person driving the insured car with the assured’s permission provided that the driver is not entitled to indemnity under any other insurance policy. The next question that arose, as such, was whether the Riley car was covered by the insurance policy of the driver. The judge held that it did not. This insurance policy was stated to cover the Standard car which had been sold. The Riley car was not entered on this policy. The coverage was extended to the situation when the assured drove another car temporarily but it is the car stated in the policy which is the subject of the insurance. As such, this insurance policy in the name of the driver lapsed when the car the insurance policy was stated to cover, namely the Standard car, was sold.

The driver held to be driving the Riley car with the permission of the assured, namely the director of the company who owned this car with an insurance policy, the judge went on to direct that the insurance company of the director, namely, the Lloyd’s Eclipse insurance Policy, through the extension clause discussed above, covered the driver of the Riley car and as such, was liable on the judgment obtained for the accident.

In Roslan bin Abdullah v. New Zealand Insurance Co. Ltd, [73] there was a collision between 2 trucks. Judgment was obtained and the appellant then sought to claim against the insurance company who had issued an insurance policy on the respondent’s truck. The insurance company disputed liability as the judgment obtained was not entered against the assured as the assured was the previous owner of the truck and not the current owner, the respondent company.

Wan Suleiman F.J. [74] in this case, with regard to whether there was any assignment or novation of the insurance policy from the previous owner to the new owner, affirmed the following principles from the judgment of Goddard J. in Peters v General Accident Fire & Life Assurance Corporation Ltd. [75]

Goddard J. (as he then was) held:

(a) when the vendor sold the car, the insurance policy automatically lapsed.

(b) at the time of the accident, the purchaser could not be said to be driving the car by the order or with the permission of the vendor, as the car was then the purchaser’s property.

(c) the insured is not entitled to assign his policy to a third party. An insurance policy is a contract of personal indemnity, and the insurer cannot be compelled to accept responsibility in respect of a third party who may be quite unknown to them.” [76]

Wan Suleiman F.J., with regard to whether the driver, as an employee of the current owner of the truck was driving with the permission of the previous owner of the truck, held :

“We are informed by counsel for the appellant that Wee & Wee Realty Sdn. Bhd. [the previous owner of the truck] and United Malaysia Co. Ltd. [the current owner of the truck] the second defendant in C.S. K.124/76 are sister companies. Be that as it may they are distinct entities. The respondents were no longer the owners of the truck and therefore there cannot be any question of them ordering or permitting the first defendant [employee of the current owner of the truck] in C.S. K.124/76 to drive it.” [77]

S. Santhana Dass writes :

“Life insurance seeks to reduce the financial uncertainties arising from the natural contingencies in old age and death and to ease the burden in the case of possible misfortunes - injury and sickness. The principal function of life insurance business is to furnish protection against the financial needs which may be caused by disability and death. It provides food, shelter and clothing, when illness, injury or death cuts off the income of the breadwinner.” [78]

In the book, Colinvaux’s Law of Insurance , it is written:

“Life policies are to be considered something more than a contract. They are treated as securities for money payable at an uncertain but future date which is bound to occur.” [79]

Robert J. Surridge, Sara Forrest, Noleen Dignan, Alison Broadberry & Duncan Backus writes :

“A practical definition might be that a life assurance contract is one whereby one party (the insurer) undertakes for a consideration (the premium) to pay money (the sum assured) to or for the benefit of the other party (the assured) upon the happening of a specified event, where the object of the assured is to provide a sum for himself or others at some future date, or for others in the event of his death.” [80]

Robert J. Surridge, Sara Forrest, Noleen Dignan, Alison Broadberry & Duncan Backus also write with regard to the assignment of life policies that :

“An assignment of a life policy is a document or action which is effective to transfer the ownership of the policy from one person to another. Assignments may be made for a variety of reasons, including:

- Sale of exchange;

- Gift or voluntary transfer;

- Settlement, transferring the policy to trustees to give effect to successive or contingent interests;

- Transfer to existing trustees of a settlement or to beneficiaries in pursuance of the trusts;

- Mortgage; transfer of mortgage; or reassignment on repayment;or

- Assignment to a trustee for the benefit of creditors.” [81]

Nik Ramlah Mahmood writes:

“In relation to life insurance, an assignment means the transfer of one’s interest in the policy to another. Such an assignment commonly happens when an insured under an own life policy uses the policy, which is a valuable piece of property, as security for a loan and assigns it to the creditor. This usually takes the form of a conditional assignment whereby the policy would be reassigned to the insured once he has paid all his debts. Banks and other credit-giving institutions which lend huge sums of money to individuals normally insist that the borrower takes out a policy on his life and assigns it to them as security for the loan.

A life policy can also be unconditionally or absolutely assigned either as a gift or under a contract of sale. Such an assignment is absolute and does not leave any residual rights with the assignor.” [82]

In Dalby v. The India and London Life-Assurance Company, [83] the Anchor Life-Assurance Company insured the life of his late Royal Highness, the Duke of Cambridge. This policy was effected by Wright on behalf of the company.

Parke B. stated in this case:

“The contract commonly called life-assurance, when properly considered, is a mere contract to pay a certain sum of money on the death of a person, in consideration of the due payment of a certain annuity for his life, - the amount of the annuity being calculated, in the first instance, according to the probable duration of the life; and when once fixed, it is constant and invariable. The stipulated amount of annuity is to be uniformly paid on one side, and the sum to be paid in the event of death is always (except when bonuses have been given by prosperous offices) the same, on the other. This species of insurance in no way resembles a contract of indemnity.

Policies of assurance against fire ands against marine risks, are both properly contracts of indemnity, - the insurer engaging to make good, within certain limited amounts, the losses sustained by the assured in their buildings, ships, and effects... [84]

... a contract of indemnity only. But that is not of the nature of what is termed an assurance for life; it really is what it is on the fact of it, - a contract to pay a certain sum in the event of death [85] .”

S. Santhana Dass points out that:

“An assignee under a life insurance contract can re-assign the policy to the original owner.” [86]

The Policies of Assurance Act 1867 [87] defines a life insurance policy as “... ‘any instrument by which the payment of moneys, by or out of the funds of an assurance company, on the happening of any contingency depending on the duration of human life, is assured or secured’. [88] ”

The Policies of Assurance Act 1867 provides that an assignee can sue in his own name if [89] :

(i) the assignee has the right in equity to receive and the right to give a valid discharge to the assurance company for the policy money, that is, it was a precondition that the assignee be beneficially entitled to the policy money or entitled to receive the policy money as a trustee or mortgagee at the time of the claim;

(ii) the assignee has obtained an assignment, either by endorsement on the policy or by separate instrument, in the words or to the effect set forth in the Schedule to this Act; and

(iii) written notice of the assignment had been given to the insurance company.

Cotton L.J. in the case In re Turcan [90] commented :

“Before the Act of 1867 [91] (30 & 31 Vict. C. 144) a policy could not be assigned at law, but now it can ...” [92]

Section 4(3) of the Civil Law Act 1956 [93] states :

“Any absolute assignment, by writing, under the hand of the assignor, not purporting to be by way of charge only, of any debt or other legal chose in action, of which express notice in writing has been given to the debtor, trustee or other person from whom the assignor would have been entitled to receive or claim the debt or chose in action, shall be, and be deemed to have been, effectual in law, subject to all equities which would have been entitled to priority over the right of the assignee under the law as it existed in the State before the date of the coming into force of this Act [94] , to pass and transfer the legal right to the debt or chose in action, from the date of the notice, and all legal and other remedies for the same, and the power to give a good discharge for the same, without the concurrence of the assignor.”

S. Santhana Dass has summarised the requirements under section 4(3) of the Civil Law Act 1956 in order to effect a legal assignment of a life insurance policy as follows :

“The requirements for an absolute assignment of a life policy are as follows:-

(a) the assignment must be in writing and signed by the assignor (the insured);

(b) it must be absolute and not by way of charge only; and

S. Santhana Dass goes on to explain:

“The common practice amongst insurers with respect to assignments (be it under the Section 4(3) of the Civil Law Act 1956 or the Policies of Assurance Act 1867 (U.K.) can be summarised as follows:-

(i) An assignment should be in writing and a life policy can be assigned absolutely or conditionally.

(ii) The written notice of assignment must be sent to the Head Office or the Principal Office of the insurer.

(iii) Upon receipt of the assignment notice the insurer registers each notice.

(iv) If there is no written notice given to the insurer and the insurer has made payment to a person other than the assignee, the insurers shall not be liable to the assignee thereafter. The assignee cannot sue the insurer for recovery of any benefit under the policy unless a notice of assignment has been sent to the insurer.

(v) An assignment can be done by effecting an endorsement and attaching it to the back of the policy. Otherwise it is effected by a separate deed signed by all parties concerned i.e. the assignor, assignee and the insurer.

(vi) If there is more than one assignment, the priority of claims by the assignor will depend upon the priority in the date of receipt of the notice by the insurer. Thus position has now been altered by Section 168(2) of the Insurance Act 1996 where priority is based on the date of the assignment rather than date of the notice.” [96]

Robert J. Surridge, Sara Forrest, Noleen Dignan, Alison Broadberry & Duncan Backus writes:

“Where there has not been a legal assignment but the assignee has given consideration , equity will (subject to the riles on priority) assist him to perfect his title against third parties, even though he may not have obtained formal assignment.

If, however, a voluntary assignee seeks the support of equity, he will succeed only where:

(1) the assignment is complete between assignor and assignee, ie everything necessary has been done to make a present transfer and render the assignment binding; or

(2) the assignor has constituted himself as trustee for the assignee.” [97]

Roy Hodgin writes :

“Assignment can be made in equity ... commonly, under the Policies of Assurance Act 1867, which requires that notice of such assignment be given in writing to the insurer. Under the 1867 Act, the assignment may be made either by an endorsement on the policy or by a separate document using the wording set out in the Schedule to the Act.” [98]

Cohen L.J. in Inland Revenue Commissioners v. Electric and Musical Industries, Ltd. [99] explained :

“It is quite true that as a matter of law there is no special form required to constitute an equitable assignment. Whether or not what has been done in any particular transaction amounts to an equitable assignment is a matter of inference from the facts and documents concerned ...” [100]

“There is no specific method of effecting an equitable assignment of a life policy. The only important requirement is that there must be a clear indication that the object of the transaction is to transfer the benefits in the policy from one party to another. No written document is necessary. A common way of effecting an equitable assignment is by the assignor depositing the policy of insurance with the assignee. An equitable assignee cannot enforce his rights directly against the insurer in his own name, he must either compel the assignor to sue on his behalf or sue the assignor and join the insurer to the action. The equitable assignee is thus not in a position to give a legal disharge to the insurer.” [101]

Tan Lee Meng writes:

“For the assignor to claim under the policy, the assignment must be complete.” [102]

In the case In re Williams [103] , an owner of an insurance policy paid the insurance premiums until his death. The court had to construe a purported assignment of the policy to his housekeeper through the following signed endorsement:

“’I authorise Ada Maud Ball, my housekeeper and no other person to draw this insurance in the event of my predeceasing her this being my sole desire and intention at time of taking this policy out and this is my signature.’” [104]

Lord Cozens-Hardy M.R. held:

“According to my construction it is not an assignment at all. The question whether in the circumstances there is a voluntary gift always involves the consideration not whether the donor might have given the property, but what is the form in which he has purported to give it. Take the case of shares in a limited company which are only transferable by deed, or the case of Consols which are only transferable at the Bank of England; it is quite clear that a mere letter not under seal in either of these cases purporting to assign the property would not have been complete, the donor would not have done all he could to perfect it, and the intended gift would have failed. Of course if there had been valuable consideration for the assignment the position would have been different.” [105]

Warrington L.J. in this case agreed:

“The assignee in the present case is a volunteer, and she claims to have received in the assignor’s lifetime the gift of a certain chose in action, namely, a policy of insurance, the amount secured by which is in its nature only to be paid on the death of the assured. It is a policy on the assignor’s own life. Claiming as she does as a volunteer and alleging that the assignor made this gift to her, she can only succeed if she can show that the assignor did everything which according to the nature of the property comprised in the assignment was necessary to be done in order to transfer the property and render the assignment binding upon him. ...

The question turns largely if not entirely on the construction of the document. Of course the mere form of words is immaterial if the assignor has used any form of words which expressed a final and settled intention to transfer the property to the assignee there and then. That would be sufficient. He need not use the word “give” or “assign” or any particular words.” [106]

Warrington L.J. construed the words of the endorsement and came to the conclusion that it merely created a revocable authority to receive the policy money after the assignor’s death which was a nullity as the authority would be revoked by the assignor’s death [107] . Lord Cozens-Hardy M.R. similarly construed the endorsement as either a mere: [108]

• power of attorney, though not under seal, authorising the person named to receive the money which power becomes inoperative on the death of the person conferring it; or

• mandate which ceased to be operative at death.

In Newman v. Newman, [109] section 3 of the Policies of Assurance Act 1867 was construed. This section states:

“No assignment made after the passing of this Act of a policy of life assurance shall confer on the assignee therein named, his executors, administrators, or assigns, any right to sue for the amount of such policy, or the moneys assured or secured thereby, until a written notice of the date and purport of such assignment has been given to the assurance company liable under such policy at its principal place of business for the time being; and the date on which such notice was received shall regulate the priority of all claims under any assignment; and a payment bona fide made in respect of any policy by any assurance company before the date on which such notice was received shall be as valid against the assignee giving such notice as if this Act had not been passed.” [110]

North J. in this case interpreted this section in the following manner:

“That Act was passed in order to avoid the necessity of joining the assignor of the policy in actions against the insurance office, and it provides that if a certain notice is given to the office then the assignee may sue without joining the assignor. Then these words occur ‘And the date on which such notice shall be received shall regulate the priority of all claims under any assignment.’ It was contended that these words went much further than was necessary for the protection of the insurance office, and affected the rights of the parties inter se . ... In my opinion that is not the meaning of the statute, which was not intended to give a simpler remedy against an insurance office, and also to give facilities to insurance offices in settling claims by enabling them to recognise as the first claim the claim of the person who first gave such notice as required by the statute. It was not intended in my opinion to enact that a person who had advanced money upon a second charge without notice of the first, and made subject to it, should be giving statutory notice of the office exclude the person who had the prior incumbrance.” [111]

In Spencer v. Clarke [112] , a life insurance policy was used as security for two separate loans from separate parties. The contention was then which party had priority in terms of the security.

Hall, V.C. held:

“I am of the opinion that as between the Plaintiffs [the second creditor] in this action and the Defendant Tranter [the first creditor], the Defendant Tranter is entitled to priority as to the policy in the Westminster and General Life Assurance Association . That policy was deposited with him by way of equitable security. He is first in point of time, and therefore first as regards his security.” [113]

The first creditor then contended that he obtained priority by giving notice to the insurance office of his claim first in accordance with the Policies of Assurance Act 1867 . However, Hall V.C. held on this point that :

“In order to bring the case within the statute, there must, according to the plain words of the statute and the explanatory form of assignment given in the schedule, be an assignment, and an agreement to assign upon request is not an assignment.” [11]

“In essence, whether there has been a valid assignment under the provisions of the Policies of Assurance Act or section 4(6) of the Civil Law Act, all claims to priority amongst the assignees and encumbrances of a policy are dealt with on the basis that all claimants are equitable assignees so long as the proceeds of a policy are with the insurers or have been paid into court. The priority of equitable assignment is dependent on the date of assignment and the fact that there has been notice of prior equities does not affect the position. However, if X is an equitable assignee for value and Y is the holder of a prior equity, X can claim priority over Y if he has no actual or constructive notice of the earlier assignment and if he has given formal notice to the insurers of the assignment before the insurers have come to know of Y’s interest or if X has been misled by Y into taking the assignment or if Y has by his negligence contributed to the creation of the assignment to X.” [115]

Robert M. Merkin writes with regard to priorities of assignments:

“... a number of basic principles may be stated. First, the general equitable rule is that assignments rank in priority in order of their date of creation, but this is subject to the further rule that, where one or more assignees have given notice to the insurer, priority is determined by the date of notice. Secondly, the giving of notice to the insurer will obtain priority only for an assignee, whether legal or equitable, who was unaware of earlier assignments at the date of his own assignment. Knowledge for these purposes may be actual or constructive; the fact, for example, that the assured cannot deposit the policy with the assignee has been held [116] to put him on notice that it may have been deposited by way of assignment earlier. ... Thirdly, it is possible to have a legal assignment only by the giving of notice to the insurer.” [117]

S. Santhana Dass points out that :

“This common law position has been altered by Section 168(2) of the Insurance Act 1996 ... Notice of assignment to the insurers are no more relevant for the purpose of determining priority which puts the insurer in a more difficult position. Do they have to ensure that there are no prior assignment before paying to an assignee? It would be impractical to impose such a duty on the insurers because they would have no means of getting such information. As long as they pay to the assignee, whose assignment they had notice, they would be free of liability in respect of any claim, provided they have no knowledge of any earlier assignment. It may be prudent for insurers to include in their standard assignment form, a declaration by the insured that he has not created any prior assignment in respect of the policy at the time of execution of the assignment.” [118]

Section 168(2) of the Malaysian Insurance Act 1996 [119] provides :

“Where more than one person are entitled under the security or the assignment, the respective rights of the persons entitled under the security or the assignment shall be in the order of priority according to the priority of the date on which the security or the assignment was created, both security and assignment being treated as one class for this purpose.”

7.1 Assignment of Insurance Policies

Francis Tierney and Paul Braithwaite writes:

“An insurance policy is a contract under which the insured has defined rights and obligations. An assignment of an insurance policy may be defined as follows:

An assignment of an insurance policy by an insured is the transfer of the rights and obligations of the insured under the policy to another who then becomes the insured in place of the original insured.” [120]

Ray Hodgin writes:

“Assignment of insurance policies has an important role in commercial life. A common example is where a mortgagee requires the mortgagor to effect a life policy to cover the extent of the loan should the mortgagor die before the loan is repaid. The policy is then assigned to the mortgagee [121] .”

Roy Hodgin points out the “... desire of the courts to make the policy assignable and therefore as flexible as possible ...” [122] In order to illustrate this point, this author discusses the United States case of Grigsby v Russell [123] where a life policy was taken out by someone on his own life. This person paid two premiums and no more as he required the money for medical care. This person assigned the policy to someone else for value and the assignee continued to pay the premiums. Upon the assignor’s death, the question that arose was whether the insurance company should pay the proceeds to the assignor’s estate or the assignee. The Supreme Court of the United Stated held that the proceeds should be paid to the assignee. Mr. Justice Holmes in this case commented:

“Of course, the ground suggested for denying the validity of an assignment for a person having no interest in the life insured is the public policy that refuses to allow insurance to be taken out by such persons in the first place ... the ground for the objection to life insurance without interest in the earlier English cases was not the temptation to murder but the fact that such wagers came to be regarded as a mischievous kind of gaming ... On the other hand, life insurance has become in our days one of the best recognised forms of investment and self-compelled savings. So far as reasonable safety permits, it is desirable to give to life policies the ordinary characteristics of property ... To deny the right to sell except to persons having such an interest is to diminish appreciably the value of the contract in the owner’s hands.”

This indication of the attitude of the American courts as quoted by an English writer is noteworthy. However, in Malaysia, the courts are bound by the beneficiary of a life policy proving that he/she has an insurable interest in the life insured under section 152 of the Insurance Act 1996. [124]

“For a valid assignment of personal contracts such as contracts of fire insurance and liability insurance, the insurer’s consent is required... [125]

To be valid, an assignment by the insured of a non-life policy must be contemporaneous with an assignment of the subject matter of insurance to the assignee. The insured will not be in a position to assign the policy at a later date as he will no longer have an insurable interest in the property, in respect of which the policy was issued [126] . ...

An assignor of a life policy, which is a valuable chose in action, may effect a legal assignment of his policy by virtue of the provisions of the Policies of Assurance Act [127] , which only concerns the assignment of life policies, or by virtue of the provisions of section 4(6) of the Civil Law Act [128] , which concerns the assignment of all choses in action including life policies [129] .”

S. Santhana Dass writes:

“’Choses in action’ or ‘things in action’ are assignable.

Assignment of chose in action take places when the liabilities imposed or the rights acquired under a contract between A and B are transferred to C who is not a party to the original contract.

The expression ‘chose in action’ or ‘thing in action’, in the literal sense, means a thing recoverable by suit or action in law. ...

Rights under a contract of insurance are choses in action.” [130]

As such, it would seem that with regard to property and motor insurance, the assignment or sale of the subject matter of the insurance is insufficient to transfer the insurance policy as well. The insurance company’s consent is required before the policy will change hands. In order for the insured or original policy holder to effect a valid assignment, the insurance company’s consent and resulting assignment of the insurance policy must be contemporaneous with the assignment or sale of the subject matter since once the assignment or sale of the subject matter is complete, the insured no longer has any insurable interest in the subject matter of the insurance and as such, no more insurable interest in the policy to assign.

Nik Ramlah Mahmood explains:

“The contract of insurance itself can only be assigned with the consent of the insurer. This amounts to the substitution of a new contract for the old - a novation - and is allowed under the Contracts Act 1950 [131] . Novation results in the formation of a new contract between the insurer and the assignee and the latter is subject to all the terms and conditions of the new contract and he effectively replaces the assignor as the insured under the policy.” [132]

The assignment of life insurance policies may be effected by the insured through a legal assignment, either under the Policies of Assurance Act 1867 [133] or section 4(3) of the Civil Law Act 1956 .

7.2 Assignment of the Proceeds of Insurance Policies

“The proceeds of a policy may be assigned either in equity or at law in accordance with the provisions of section 4(6) of the Civil Law Act [134] . The insured’s right to the proceeds of a policy is a valuable chose in action and it may be assigned either before or after the occurrence of a loss. For an assignment of the proceeds of a policy, which is distinct from an assignment of the contract or policy of insurance, the consent of the insurer is not required.”

In the case of an equitable assignment of the proceeds of the policy, an action to recover the said proceeds must be brought in the name of the insured.

Where the assignor has effected a legal assignment of the proceeds of the policy in accordance with the requirements of section 4(6) of the Civil Law Act, the assignee may sue in his own name. The assignment must be an absolute assignment in writing under the assignor’s hand and express notice of such assignment must be given in writing to the insurers.

The assignee of the proceeds of the policy cannot acquire rights which are superior to those of the assignor. It follows that all the defences which could have been raised by the insurer against the assignor are equally applicable against the assignee. Thus, the insurers may avoid liability on account of the assignor’s misrepresentation or non-disclosure. Furthermore, all terms which are conditions precedent to the insurer’s liability must be complied with and the insurer may avoid liability to the assignee of the proceeds of a policy on the ground of the assignor’s failure to comply with a condition precedent. For instance, in Re Carr & Sun Fire Insurance Co., [135] the insured’s failure to provide the insurer with proof of loss within the time stipulated under the terms of the policy precluded the trustee in bankruptcy from recovering the proceeds of the policy.” [136]

7.3 Assignment of the Subject Matter of Insurance Policies

E. R. Hardy Ivamy writes:

“Before the assignee of the subject-matter can in his own name enforce the contract contained in the policy, it is necessary that the policy should be validly assigned to him... [137]

On the completion of the assignment, the rights and duties of the original assured devolve on the assignee, who becomes, to all intents and purposes, the assured under the policy which he may accordingly enforce in his own name [138] .”

“The question of an assignment of the subject matter of insurance arises when the insured property has been sold or otherwise disposed of by the insured. It does not arise in the case of life and personal accident policies because the subject matter of such policies is unassignable.

An insured who has voluntarily and completely given up his interest in the subject matter of the insurance ceases to have an insurable interest in the insured property. Such an insured can no longer make a claim under the policy with respect to the property which has been given up as he will not be in a position to suffer any loss with regard to the property.” [139]

7.4 Assignment by Operation of Law

The case of Thomas v. National Farmer’s Union Mutual Insurance Society Ltd. [140] involved the property in hay and straw on a farm being passed from a tenant to a landlord by virtue of the Agricultural Holdings Act 1948 when the landlord served a notice to quit on his tenant. Diplock J. in this case explained:

“Where property passes automatically as the result of statutory provisions when certain circumstances arise, it seems to me that this is a passing of property by operation of law.” [141]

“The insured’s interest in the policy or in the subject matter of interest may be assigned by operation of law. For instance, such an assignment will occur in the event of the death or bankruptcy of the insured.

As far as the insured’s interest in the insured property is concerned, such interest vests in the insured’s personal representative in the event of the insured’s death. On the other hand, in the event of the bankruptcy of the insured, the insured’s interest in the insured property vests in the Official Assignee. In either of these situations, the continued effectiveness of the policy is not in doubt.

Where a loss occurs before an assignment by operation of law, the insured’s personal representatives or trustee in bankruptcy, as the case may be, has the right to claim against the insurers. The position is more complicated where a loss occurs after an assignment by operation of law and after the property has been distributed to those who are entitled to the same. Most policies avoid such complications by providing that the insurer shall indemnify the insured and all other persons to whom his interest in the insured property may pass by means of a will or by operation of law.” [142]

Myint Soe writes :

“The general principle is that on death and bankruptcy, both the subject matter insured and the policy itself pass to the personal representatives or the Official Assignee, as the case may be.

However, the personal representatives or the Official Assignee cannot have a better title than the deceased or the bankrupt. The claim would be liable to be defeated by any non-disclosure or misrepresentation or breach of condition on the part of the insured before the assignment takes effect.” [143]

“Any person who takes an insurance policy should find out whether there is any special clause prohibiting or restricting assignment. Some policies may prohibit the assignment of the subject matter during the currency of the policy. Some policies may prohibit assignment otherwise than by will or operation of law.” [144]

Kenneth Sutton writes :

“A policy of insurance is or evidences a contract and is therefore, like any other agreement, subject to the general law of contract as developed by the common law and modified by statute. In addition, special rules have been developed in relation to insurance contracts. Thus, they are the most common example of that special class of contract known as contracts uberrimae fidei, that is, of utmost good faith, and hence there are special rules in relation to non-disclosure, misrepresentation and the like in respect of them.” [145]

The legal standing of assignments in the field of insurance, thus, is not a straightforward question to answer. It depends on what is being assigned and how assignments are conducted in the various branches of insurance law.

In practical terms, insurance companies themselves may not be certain of the legal stand of various claimants who clamour at their doors demanding payment on insurance claims arising out of purported assignments. Insurance companies, therefore, may demand these eager voices to prove the validity of their claims in court. The insurance company then, will make payment on the claims as directed by the superior wisdom and authority of the court of law. As Irwin M. Taylor writes:

“Insurance companies are frequently presented with conflicting claims advanced by the original beneficiary and a subsequently designated beneficiary or assignee. Rather than pay to either one at its peril, it is the practice of insurance companies to bring both claimants into a law suit, deposit the money into court and leave the two claimants to fight the matter out themselves.” [146]

A. Vijayalakshmi Venugopal*

[*] Advocate & Solicitor

High Court of Malaya

[1] A. A. Tarr, Kwai-Lian Liew & W. Holligan, Australian Insurance Law , Second Edition, The Law Book Company Limited, 1991, at page 1.

[2] Namely marine, life and fire insurance.

[3] John Lowry & Philip Rawlings, Insurance Law: Doctrines and Principles , Hart Publishing (U.S.A), 1999, at page 3.

[4] Professor K. S. N. Murthy & K. V. S. Sarma, Modern Law of Insurance in India , N. M. Tripathi Private Limited (Bombay, India), 1995, at page 3.

[5] John Birds & Norma J. Hird, Birds’ Modern Insurance Law , Fifth Edition, Sweet & Maxwell (London), 2001, at page 13.

[6] (1881) 18 Ch.D 1.

[7] Ibid 9-10.

[8] Principles of Insurance Law , Fifth Edition, Butterworths Asia, 2000, at page 1193.

[9] R. C. Kohli, An Introduction to Insurance Practice and Principles in Singapore and Malaysia, Singapore Insurance Training Centre, 1982, at page 77.

[10] William Brandt’s Sons & Co. v. Dunlop Rubber Co. (1905) A.C. 454 (House of Lords) per Lord Macnaghten, at page 462.

[11] David Norwood & John P. Weir, Norwood on Life Insurance Law in Canada , Second Edition, Carswell Thomson Professional Publishing, 1993, at page 258.

[12] Malcolm A. Clarke, The Law of Insurance Contracts , Second Edition, Lloyd’s of London Press Ltd, 1994, at page 170.

[13] Act 553.

[14] Act 67 (revised 1972).

[15] This Act is declared to come into force on 7 April 1956.

[16] 30 and 31 Victoria, chapter 144.

[17] 15 and 16 Geo. V., chapter 20.

[18] A ‘chose in action’ has been defined by Erin Goh, Valerie Low and Low Kee Yang (editor) in Butterworths Law for Business Series - Insurance Law , Butterworths Asia, 2001, at page 191 in the following manner, “A chose in action is the right to demand payment of a sum of money or to recover damages under a contract.”

[19] Nik Ramlah Mahmood, Insurance Law in Malaysia , Butterworths, 1992, at pages 207-208.

[20] [1984] 1 MLJ 260 (Federal Court).

[21] Quoted and discussed above.

[22] [1984] 1 MLJ 260 (Federal Court), at page 264.

[23] 6 Edw 7, c. 41 (United Kingdom).

[24] Halsbury’s Statutes of England and Wales, Fourth Edition, Volume 22, 2000 Reissue, Butterworths (London), 2000, at page 42.

[25] Ibid 43.

[26] Robert Merkin (Editor), Colinvaux’s Law of Insurance , Sixth Edition, Sweet & Maxwell (London), 1990, at pages 405-406.

[27] Halsbury’s Statutes of England and Wales, Fourth Edition, Volume 22, 2000 Reissue, Butterworths (London), 2000, at page 25.

[28] Michael Parkington, Nicholas Leigh-Jones, Andrew Longmore & John Birds (Editors), Macgillivray & Parkington on Insurance Law - relating to all risks other than marine, Eighth Edition, Sweet & Maxwell (London), 1988, at pages 714-715.

[29] The cases quoted in support of this proposition in this book, at page 714 are Rayner v. Preston (1881) 18 Ch. D. 1, at page 7 per Cotton L,J, Ecclesiastical Commissioners v. Royal Exchange Assurance Corporation (1895) 11 TLR 476, Robson v. Liverpool, London and Globe Insurance Co. (1900) The Times, June 23, Rogerson v. Scottish Automobile and General Insurance Co. Ltd. (1931) 48 TLR 17, Tattersall v. Drysdale [1935] 2 K.B. 174 and Boss and Hansford v. Kingston [1962] 2 Lloyd’s Rep. 431.

[30] The case quoted in support of this proposition, at page 714 of this book is Forbes & Co. v. Border Counties Fire Office (1873) 11 Macph. 278.

[31] The case quoted in support of this proposition in this book, at page 714 is Collingridge v. Royal Exchange Assurance Corporation (1877) 3 QBD 173.

[32] The cases quoted in support of this proposition in this book, at page 715 are Castellain v. Preston (1883) 11 QBD 380, at page 385 per Brett L.J. and A.R. Williams Machinery Co. v. British Crown Assurance Corporation Ltd . (1921) BCR 481.

[33] The case quoted in support of this proposition in this book, at page 715 is the judgment of Bowen L.J. in Castellain v. Preston (1883) 11 Q.B.D. 380, at pages 401 and 405. This author also comments that once the vendor is fully paid, however, his interest will cease and he will be unable to recover as was held in Bank of New South Wales v. North British and Mercantile Insurance Co. (1881) 2 NSWLR 239.

[34] Digby C. Jess, The Insurance of Commercial Risks Law and Practice , Second Edition, Butterworths (London), 1993, at page 15.

[35] (1875) LR 10 QB 249.

[36] (1875) LR 10 QB 249, at page 253.

[37] (1743) 1 Wils. KB 10; 95 ER 463.

[38] (1743) 1 Wils. KB 10, at page 10; 95 ER 463, at page 463.

[39] (1895) 11 TLR 476 (High Court).

[40] Id 476.

[41] (1877) 3 QBD 173.

[42] Ibid 176-177.

[43] Ibid 177.

[44] (1881) 18 Ch.D 1.

[45] Ibid 6.

[46] Ibid 6-7.

[47] (1881) 18 Ch.D 1, at page 11.

[48] Ibid 12.

[49] Ibid 16.

[50] (1883) 11 QBD 380 (Court of Appeal).

[51] (1883) 11 QBD 380 (Court of Appeal), at page 386.

[52] Ibid 393.

[53] Ibid 396-397.

[54] Mahinder Singh Sidhu, Casebook on Motor Insurance Law in Malaysia and Singapore - with synopsis and principles, International Law Book Services, 1995, at page 25.

[55] Ibid 31.

[56] [1938] 2 All ER 267 (Court of Appeal).

[57] Ibid 269.

[58] Ibid 269-270.

[59] Ibid 270.

[60] The equivalent Act in Malaysia is the Road Transport Act 1987 (Act 333).

[61] Refer to section 35 of the United Kingdom Act and section 90 of the Malaysian Act.

[62] Refer to section 10 of the United Kingdom Act and section 91 of the Malaysian Act.

[63] Who was the seller of the car.

[64] [1938] 2 All ER 267 (Court of Appeal), at pages 270-271.

[65] [1963] 2 Lloyd’s Rep. 439 (High Court).

[66] [1963] 2 Lloyd’s Rep. 439 (High Court), at page 440.

[67] [1967] 1 MLJ 94 (Federal Court).

[68] Ibid 96.

[69] [1967] 2 MLJ 134 (Federal Court).

[70] Ibid 136.

[71] [1935] 2 KB 174.

[72] Ibid 178.

[73] [1981] 2 MLJ 324 (Federal Court).

[74] This judgment was delivered by Lee Hun Hoe C.J. (Borneo).

[75] [1937] 4 All ER 628 (High Court). Discussed above is the Court of Appeal judgment.

[76] [1981] 2 MLJ 324 (Federal Court), at page 325.

[77] Ibid 325.

[78] S. Santhana Dass, Law of Life Insurance in Malaysia , Alpha Sigma Sdn Bhd, 2000, at page 1.

[79] Robert Merkin (Editor), Colinvaux’s Law of Insurance, Sixth Edition, Sweet & Maxwell (London), 1990, at page 178.

[80] Robert J. Surridge, Sara Forrest, Noleen Dignan, Alison Broadberry & Duncan Backus, Houseman and Davies Law of Life Assurance , Eleventh Edition, Butterworths (London), 1994, at page 1.

[81] Ibid 262

[82] Nik Ramlah Mahmood, Insurance Law in Malaysia , Butterworths, 1992, at page 206.

[83] (1854) 15 CB 365; 139 ER 465.

[84] Ibid page 387; 139 ER 465, at page 474.

[85] (1854) 15 C.B. 365, at page 391; 139 E.R. 465, at page 476.

[86] S. Santhana Dass, Law of Life Insurance in Malaysia , Alpha Sigma Sdn Bhd, 2000, at page 287.

[87] An Act in the United Kingdom.

[88] Robert J. Surridge, Sara Forrest, Noleen Dignan, Alison Broadberry & Duncan Backus, Houseman and Davies Law of Life Assurance , Eleventh Edition, Butterworths (London), 1994, at page 263.

[90] (1888) 40 Ch.D 5.

[91] The Policies of Assurance Act 1867.

[92] (1888) 40 Ch.D 5, at page 10.

[93] Act 56.

[94] This Act came into force in West Malaysia on 7 April 1956.

[95] S. Santhana Dass, Law of Life Insurance in Malaysia , Alpha Sigma Sdn Bhd, 2000, at page 276.

[96] Ibid 281-282.

[97] Robert J. Surridge, Sara Forrest, Noleen Dignan, Alison Broadberry & Duncan Backus, Houseman and Davies Law of Life Assurance , Eleventh Edition, Butterworths (London), 1994, at page 265.

[98] Ray Hodgin, Insurance Law - Text and Materials , Cavendish Publishing Limited (United Kingdom), 1998, at page 63.

[99] [1949] 1 All ER 120 (Court of Appeal).

[100] Ibid 126.

[101] Nik Ramlah Mahmood, Insurance Law in Malaysia , Butterworths, 1992, at pages 206-207.

[102] Tan Lee Meng, Insurance Law in Singapore , Second Edition, Butterworths Asia, 1997, at page 415.

[103] (1917) 1 Ch.D 1 (Court of Appeal).

[104] Ibid 2.

[105] Ibid 7.

[106] Ibid 8.

[107] Ibid 8.

[108] Ibid 7.

[109] (1885) 28 Ch.D 674.

[110] Poh Chu Chai, Principles of Insurance Law , Fifth Edition, Butterworths Asia, 2000, at page 1208.

[111] (1885) 28 Ch.D 674, at pages 680 and 681.

[112] (1878) 9 Ch.D 137.

[113] Ibid 140.

[114] Ibid 141.

[115] Tan Lee Meng, Insurance Law in Singapore , Second Edition, Butterworths Asia, 1997, at page 417.

[116] The authority given in this book, at page D.1.2-04, for this proposition is the case of Re Weniger’s Policy (1910) 2 Ch.D 291.

[117] Robert M. Merkin, Kluwer’s Insurance Contract Law , Croner CCH, 2000, at page D.1.2-04.

[118] S. Santhana Dass, Law of Life Insurance in Malaysia , Alpha Sigma Sdn Bhd, 2000, at page 284.

[119] Act 553.

[120] Francis Tierney & Paul Braithwaite, A Guide to Effective Insurance , Second Edition, Butterworths Canada Ltd., 1992, at page 13.

[121] Ray Hodgin, Insurance Law - Text and Materials , Cavendish Publishing Limited (United Kingdom), 1998, at page 63.

[122] Ibid .

[123] 222 US 149 (1911).

[124] Act 553.

[125] Tan Lee Meng, Insurance Law in Singapore , Second Edition, Butterworths Asia, 1997, at page 411

[126] Ibid 413.

[127] According to footnote 27, at page 413 of this book, prior to the coming into force of the English Policies of Assurance Act 1867, a life policy could only be assigned in equity and not through a legal assignment. The equitable assignee could only sue by

having the assignor of the policy joined as a party to the action.

[128] The equivalent Malaysian provision is section 4(3) of the Civil Law Act 1956

[129] Tan Lee Meng, Insurance Law in Singapore , Second Edition, Butterworths Asia, 1997, at page 413.

[130] S. Santhana Dass, Law of Life Insurance in Malaysia , Alpha Sigma Sdn Bhd, 2000, at page 274

[131] Nik Ramlah Mahmood, at page 209, in footnote number 12 clarifies that she is referring to section 63 of the Contracts Act 1950 (Act 136) in this context which states, “If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed.”

[132] Nik Ramlah Mahmood, Insurance Law in Malaysia , Butterworths, 1992, at page 209.

[133] If that applies in Malaysia as discussed by Nik Ramlah Mahmood, Insurance Law in Malaysia , Butterworths, 1992, at pages 207-208.

[134] The equivalent Malaysian provision is section 4(3) of the Civil Law Act 1956 (Act 65).

[135] (1897) 13 TLR 186.

[136] Tan Lee Meng, Insurance Law in Singapore , Second Edition, Butterworths Asia, 1997, at pages 410-411

[137] E. R. Hardy Ivamy, General Principles of Insurance Law , Sixth Edition, Butterworths (London), 1993, at page 348.

[138] Ibid 353.

[139] Tan Lee Meng, Insurance Law in Singapore , Second Edition, Butterworths Asia, 1997, at page 407.

[140] [1961] 1 WLR 386.

[141] [1961] 1 WLR 386, at page 392.

[142] Tan Lee Meng, Inssurance Law in Singapore , Second Edition, Butterworths Asia, 1997, at pages 430-431.

[143] Myint Soe, The Insurance Law of Malaysia , Quins Pte. Ltd., 1979, at page 62.

[144] Ibid .

[145] Kenneth Sutton, Insurance Law in Australia , Third Edition, LBC Information Services, 1999, at pages 11-12.

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Different Types of Marine Insurance & Marine Insurance Policies

The subject of Marine Insurance is very wide and encompassing, which is why there is a definite categorization of various types of marine insurance and different types of marine insurance policies.

As per the needs, requirements and specifications of the transporter, an appropriate type or type of marine insurance can be narrowed down and selected to be put into operation.

Why Marine Insurance?

Any insurance is designed to manage risks in the event of unfortunate incidents like accidents, damage to the property and environment or loss of life.

When it comes to Ships, the stakes are higher as all factors are involved in the operation, i.e. risk of losing valuable cargo or expansive ships, the risk of damage to the environment due to oil pollution and risk of losing precious lives of seafarers due to accidents.

Related Reading: What is marine insurance?

To ensure all the risks can be managed without the lack of monetary funds when needed the most, different Maritime insurances are made compulsory for ships and ship owners to take. Only post that, the ISM can be implemented on ships.

The types of marine insurance available for the benefit of a client are many and all of them are feasible in their own way.

Depending on the nature and scope of a client’s business, he can opt for the best marine insurance plans and enjoy the advantage of having marine insurance.

There are several marine insurance companies providing types of insurance for ship owners, cargo owners and charterers.

Different types of Marine Insurances

Hull Insurance: Hull insurance mainly caters to the torso and hull of the vessel along with all the articles and pieces of furniture on the ship. This type of marine insurance is mostly taken out by the owner of the ship to avoid any loss to the vessel in case of any mishaps occurring.

Related Reading: Hull of a ship: Understanding Design And Characteristics

Machinery Insurance: All the essential machinery are covered under this insurance and in case of any operational damages, claims can be compensated (post-survey and approval by the surveyor).

The above two insurances also come as one under Hull & Machinery (H&M) Insurance. The H&M insurance can also be extended to cover war risk covers and strike cover (strike in port may lead to delay and increase in costs)

Related Reading: What is marine underwriting?

Protection & Indemnity (P&I) Insurance: This insurance is provided by the P&I club , which is ship owners mutual insurance covering the liabilities to the third party and risks which are not covered elsewhere in standard H & M and other policies.

Protection: Risks that are connected with ownership of the vessel. E.g. Crew related claims.

Indemnity: Risks that are related to the hiring of the ship. E.g. Cargo-related claims.

Types Of Marine Insurance Policies

The different types of marine insurance policies are detailed below:

Voyage Policy: A voyage policy is that kind of marine insurance policy which is valid for a particular voyage.
Time Policy : A marine insurance policy which is valid for a specified time period – generally valid for a year – is classified as a time policy.
Mixed Policy : A marine insurance policy which offers a client the benefit of both time and voyage policy is recognized as a mixed policy.
Open (or) Unvalued Policy : In this type of marine insurance policy, the value of the cargo and consignment is not put down in the policy beforehand. Therefore reimbursement is done only after the loss of the cargo and consignment is inspected and valued.
Valued Policy: A valued marine insurance policy is the opposite of an open marine insurance policy. In this type of policy, the value of the cargo and consignment is ascertained and is mentioned in the policy document beforehand thus making clear about the value of the reimbursements in case of any loss to the cargo and consignment.
Port Risk Policy: This kind of marine insurance policy is taken out in order to ensure the safety of the ship while it is stationed in a port.
Wager Policy: A wager policy is one where there are no fixed terms for reimbursements mentioned. If the insurance company finds the damages worth the claim then the reimbursements are provided, else there is no compensation offered. Also, it has to be noted that a wager policy is not a written insurance policy and as such is not valid in a court of law.
Floating Policy: A marine insurance policy where only the amount of claim is specified and all other details are omitted till the time the ship embarks on its journey, is known as a floating policy. For clients who undertake frequent trips of cargo transportation through waters, this is the most ideal and feasible marine insurance policy.
Single Vessel Policy: This policy is suitable for small shipowner having only one ship or having one ship in different fleets. It covers the risk of one vessel of the insured.

Related Reading: Marine insurance for piracy attacks

Fleet Policy: In this policy, several ships belonging to one owner are insured under the same policy.
Block Policy: This policy also comes under maritime insurance to protects the cargo owner against damage or loss of cargo in all modes of transport through which his/her cargo is carried i.e. covering all the risks of rail, road, and sea transport.

Marine Insurance is an area which involves a lot of thought, straightforward and complex dealings in order to achieve the common ground of payment and receiving.

But as much as complex the field is, it is nonetheless interesting and intriguing because it caters to a lot of people and offers a wide range of services and policies to facilitate easy and uncomplicated business transactions.

Therefore, in the interest of the clients and the insurance providers, it is beneficial and relevant to have the right kind of marine insurance. It resolves problems not just in the short run, but also in the long run as well.

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25 comments.

Good but not excellent

Short and sweet

Thanks for another fantastic article. Where else may anybody get that kind of information in such an ideal means of writing? I’ve a presentation subsequent week, and I am on the search for such info.

Excellent blog post ! I was enlightened by the info , Does anyone know where my assistant might be able to get a fillable a form copy to work with ?

Well written . Had all the information I was looking for in a concise manner.

Excellent write up, Succint.

I love this post. gets straight to the point.

Well explained

Excellent write up….thank you marine insight.

The information is really understandable precise and more easy to get thanks for good work

brief and precise thanks

@KATO: Glad our content is able to help fellow sea professionals.

That’s good to know that a time policy is generally valid for about a year. If you keep a boat docked somewhere or like to go out then you’d probably want to find some way to keep you covered. You’d just need to find a marina insurance agency that would give you the policy you need.

Great article!! I just want clarification on a fishing vessel insured under the Institute Fishing Vessel Clause, for a Particular Average claim are the towage and salvage charges also paid along with vessel repair?

Very important article for beginners.Thank you so much .If you add something about the open policy and it’s documentary process it is much great full. Aruna Shantha

@Aruna: Thank you for your valuable suggestion. I will pass it on to my editorial team. ?

Useful information! Freight Insurance solves the problem of companies losing money because of a few unprecedented events and accidents occurring.

How about compensation for unfit seafarers

its appropriate thank you!!!!

@Nega: Thank you ??

very good. Thanks

Thank you for sharing this interesting blog, I would like to get more information on freight insurance , cargoes insurance. Plz share this also.

Noted. We will take your topic suggestions for future articles.

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356. Assignment of marine insurance policy.

In the case of a marine insurance policy, a transfer of the property insured does not by itself effect the transfer of the policy to the assignee 1 . Moreover, where the assured has parted with or lost their interest in the subject matter

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What is Marine Insurance? Essential Elements, Essential Elements, Objectives, Types, Primary Branches, Legal Provisions, How to Claim

Post last modified: 28 September 2023
Reading time: 27 mins read
Post category: Shipping and Insurance

What is Marine Insurance?

Marine insurance is an agreement between an insurer and the insured whereby the insurer accepts to indemnify the insured (to the extent thereby agreed) against losses incurred while goods in transit through sea, air, or rail. A marine insurance contract may be extended further than what was agreed upon for protecting the insured against transit losses or any land risk incidental to a sea voyage. Therefore, in simple words, marine insurance includes the following:

Table of Content

1.1 Cargo Insurance
1.2 Hull Insurance
2.1 Elements of a General Contract
2.2 Utmost Good Faith
2.3 Doctrine of Indemnity
2.4 Doctrine of Subrogation
2.5 Warranties
2.6 Proximate Cause
2.7 Assignment
3 Objectives of Marine Insurance
4.1 Inland Transit
4.2 Import/Export
5.1 Cargo Insurance
5.2 Hull and Machinery Insurance
5.3 Loss of Income Insurance
6.1 Subject Matter
6.2 Assignment of Policy
7 How to Claim
8 Key Documents Required for the Settlement of Marine Insurance Claim

Cargo Insurance

This provides insurance cover against the loss of or damage to transit goods by rail, road, sea, or air. It covers the following:

Export and import shipments through sea
Coastal shipments via steamers, vessels, ships, etc.
Inland shipments via vessels or country craft
Postal consignments by rail, road, or air

Hull Insurance

It is an insurance policy that provides coverage for the physical integrity of a ship. This is concerned with the insurance of ships (hull, machinery, etc.).

The following items are covered under hull insurance:

All types of ocean-going vessels
All type of coastal/inland vessels
Yard and pleasure crafts
Port crafts
Shipbuilding-construction of vessel
Ship repairers’ liabilities
Charterers liabilities
Breaches of warranties / voyage cover
Freight-at-risks insurance for voyages
Fishing vessels/trawlers
Sailing vessels
Jetties (with or without cranes), fixed pontoons/pontoons jetties, wharves etc.
Ship breaking

Essential Elements of Marine Insurance Contract

Elements of a general contract.

In a marine insurance contract, there are all elements of a general insurance contract. Some essential elements of general contracts are explained as follows:

Two parties: In a contract of marine insurance, there are two parties to the contract namely an insurance company and the insurance holder.
Offer and acceptance: Like a general contract, an insurance holder offers an evidence slip to underwriters to accept the policy. This slip form the evidence that the underwriter has accepted insurance and that he has agreed to issue the policy on the terms and conditions indicated on the slip.
Legal consideration: As a natural contract, the insurer makes confirmation to the insurance holder for deducing risk by money. It is given by the insurer to the insurance holder.
Capacity of contract: This refers to the capacity of an individual to enter into a legal agreement and the competence to perform an act.
Legal object: The contract should be legal in nature.
Consent: Both parties need to agree with the terms and conditions of the contract.
Certainty: The subject matter of insurance should be reliable.
Written: Contract must be issued in written.

Utmost Good Faith

Section 19, 20, 21 and 22 of the Marine Insurance Act 1963 explained the doctrine of utmost good faith. The doctrine of the caveat emptor (let the buyer beware) applies to commercial contracts but insurance contracts are based upon the legal principle of uberrima fides (utmost good faith). If this is not observed by either of the parties, the contract can be avoided by the other party.

Doctrine of Indemnity

Section 3 of the Marine Insurance Act provides that a contract of marine insurance is an agreement whereby the insurer undertakes to indemnify the assured in a manner and extent agreed upon by both parties to the contract. The contract of marine insurance is of indemnity. Under no circumstances, an insured is allowed to make a profit out of a claim.

In the absence of the principle of indemnity, it was possible to make a profit. The insurer agrees to indemnify the assured only in a manner and only to the extent agreed upon. Marine insurance fails to provide complete indemnity due to large and the varied nature of the marine voyage.

Doctrine of Subrogation

Section 79 of the Act explains the doctrine of subrogation. The aim of the doctrine of subrogation is that the insured should not get more than the actual loss or damage.

A warranty is that by which the assured undertakes that some particular thing shall or shall not be done, or that some conditions shall be fulfilled or whereby he affirms or negatives the existence of a particular state of facts.

Proximate Cause

According to Section 55 (1) Marine Insurance Act,’ Subject to the provisions of the Act and unless the policy otherwise provides the insurer is liable for any loss proximately caused by a peril insured against, but subject to as aforesaid he is not liable for any loss which is not proximately caused by a peril insured against.’

A marine policy is assignable unless it contains terms expressly prohibiting assignment. It may be assigned either before or after loss. A marine policy may be assigned by endorsement thereon or on other customary manner.

Objectives of Marine Insurance

Marine insurance plays a significant role in domestic as well as international trade. Most sale contracts require that the goods should be covered against the loss or damage either by the seller or the buyer. Marine insurance provides coverage against the loss or damage of goods in transit.

Some of the major objectives of marine insurance are to:

Cover the loss of hull and equipment along with a legal liability generating from the ownership or operation of the ship/craft.
Cover the physical loss of or damage to goods in transit across domestic as well as international water, air, road, or rail.
Cover the legal liability for the ownership of a vessel.
Cover the damage to a third-party property.
Protect the goods carrier who operates using approved consignment notes, contracts of carriage against their liability for loss or damage to customers’ goods or livestock in transit.
Cover the physical loss of or damage to hull, machinery, etc. of vessels against fire, explosion, or perils of the sea.
Cover a liability for the repair and maintenance of vessel.
Provide a liability, property, and equipment insurance to marine terminals, inland clearance depots, sea terminals, freight stations, storage depots, and airfreight handling terminals.

Types of Marine Insurance Policy

A marine insurance policy covers goods, freight, and other interests against loss or damage to goods being transported by rail, road, sea, and/or air. The transportation of goods can be classified into three broad categories, as shown in Figure:

These types of insurance are explained as follows:

Inland transit: Transport of goods within sea boundaries
Import: Receive goods from another country.
Export: Transport of goods to another country

Based on this, the following types of policies are issued to cover the transit losses/damage:

Inland Transit

There are four major policies for an inland transport, which are as follows:

Specific policy: This policy covers a specific single shipment for goods, freight, and other interests against loss or damage while being transported by rail, road, sea and/or air.
Open policy: It covers the transportation of routine consignments over the same path. The open policy may be acquired for a time period of three months of dispatches with an advance premium payment. As every consignment gets dispatched, a declaration with the details of the dispatch needs to be sent to the insurer. The sum insured is deducted by the amount of declared dispatch and may also be increased for an unlimited number of times during the policy period of one year. However, one needs to take care that an adequate sum insured is available to cover the consignment.
Special declaration policy: It covers inland goods transit whereby the value of goods shipped in a span of one year exceeds ₹2 crores. Although the premium for the expected annual turnover (estimated value of goods to be transported in that year) needs to be paid in advance, there are premium discounts available in the policy.
Multi-transit policy: It covers manifold transits of the same consignment comprising intermediate storage and processing. This policy covers goods right from raw material to the final product.

Import/Export

There are three major policies for the import/export of goods, which are explained as follows:

Specific policy: This policy covers a specific single shipment for goods, freight, and other interests against loss or damage while being transported by rail, road, sea, and/or air.
Open cover: This policy is issued for a period of 12 months. It indicates the rates and terms and conditions agreed upon by the insured and the insurer for covering the consignments that need to be imported or exported. This requires a declaration to be made to the insurance company as and when a consignment is imported or exported along with the premium at the agreed rate. The insurance company would then issue a certificate covering the declared consignment.
Customs duty cover: This policy covers a loss of customs duty paid if transit goods are received in a damaged condition. Customs duty cover is generally acquired even if the overseas transit is covered by an insurance company situated abroad. The cover is still taken before the goods arrived at the shores of India.

In India, the marine insurance policy in case of inland and import/ export broadly fall into either of the following types of policies:

Special declaration policy: It is a type of floating policy issued to clients with an annual turnover (estimated dispatches) by rail/ road/waterways above ₹2 crores. Declaration of dispatches is done at periodical intervals whereby the premium is adjusted on the expiry of the policy based on the total declared amount. At the time of issuing the policy, the sum insured is based on the previous year’s turnover or on a fair estimate of annual dispatches (in case of new proposals).For annual turnover exceeding ₹5 crore, a premium discount and loss ratio on a slab basis is applicable.
Special storage risks insurance: This insurance is granted alongside an open or special declaration policy. The objective of the policy is to cover goods lying at the railways or carriers’ godowns once the transit cover gets terminated but the clearance of goods by the consignees is awaited. The cover ends once the delivery is received by the consignee or a payment is received by the consignor, whichever is the earliest.
Annual policy: Such a policy is issued for a period of one year and covers goods belonging to the insured, which do not come under the contract of sale and are in transit by rail, road, or specific depots, processing units, etc.
Duty insurance: According to the Customs Act , shipment imported into India is subject to the payment of customs duty. The customs duty is either included in the value of the cargo insured under a Marine Cargo Policy or a separate policy could be made whereby the Duty Insurance Clause is incorporated in the policy. This includes a warranty according to which the claim under the ‘duty insurance’ is payable only if the claim under the cargo policy is payable.
Increased value insurance: This policy is related to ‘goods at destination port’ on the date of landing if it is higher than the duty charged on the cargo.

Primary Branches of Marine Property Insurance

Cargo insurance covers the interest of shippers, consignees, distributors, and others in goods and merchandise shipped primarily by water or, if in foreign trade, also by air. Most cargo insurance involves foreign trade across oceans, but the cargo may also be transported within a nation or between nations on inland waterways.

Hull and Machinery Insurance

This type of insurance protects ship-owners and others with an interest in vessels, and the like against the expenses that might be incurred in repairing or replacing such property if it is damaged, destroyed, or lost due to a covered peril. Usually, hull insurance on pleasure craft and tugs and barges, is provided as part of a package policy providing both property and liability coverage.

Loss of Income Insurance

Marine loss of income insurance covers a ship-owner against loss of business income resulting from damage to or loss of the insured vessel. When written for cargo vessels, whose income is called freight, the coverage is referred to as freight insurance.

Legal Provisions of Marine Cargo Insurance

Insurance law in India originates from the UK Insurance Law with the establishment of a British firm in Kolkata by the name of Oriental Life Insurance Company in 1818 followed by Bombay Life Assurance Company in 1823, Madras Equitable Life Insurance Society in 1829 and the Oriental Life Assurance Company in 1874.

India’s first general insurance company was the Indian Mercantile Insurance Company Ltd. established in Bombay in 1907. The first Indian law for regulating the life insurance business was given in 1912 with the passing of Indian Life Assurance Companies Act, 1912. Currently, the principal legislation for the regulation of insurance business in India is Insurance Act, 1938, which regulates both life insurance and general insurance.

General insurance includes fire insurance business, marine insurance business and miscellaneous insurance business. Marine insurance business is generally spread at the international level; thus, it is subject to international regulations. The marine insurance business is regulated under Marine Insurance Act, 1963, in India under the guidance of various clauses framed by the Institute of London Underwriters (ILU) and the International Commercial Terms, known as ‘Incoterms’ developed by ICC (International Chamber of Commerce).

Marine Insurance Act, 1963 regulates the transaction of marine insurance of hull, cargo, and freight. It also includes the provisions of section 64VB of Insurance Act, 1938 on the payment of premium in advance of risk commencement (Sections 64VB (1) and 64VB (5) of Insurance Act, 1938). A marine insurance policy includes a document that embodies all particulars as well as terms and conditions related to the insurance policy. The insurance contract should be included in the policy.

A contract of marine insurance is not admitted in evidence until the time it gets embodied in a marine policy according to Section 25 of the Marine Insurance Act. The policy can be executed either at the time of concluding the contract or later. The policy needs to be attested by or on behalf of the insurer.

It must contain the following:

Name of the assured;
Subject matter insured and the risk insured against;
Voyage, or period of time, or both, as the case may be, covered by the insurance;
Sum or sums insured;
Name or names of the insurer or insurers.

Let us discuss what is included in the subject matter and assignment of a marine insurance policy:

Subject Matter

Anything with respect to which there is a risk of loss from sea perils could be the subject of marine insurance. Subject matter should be included in a marine policy with reasonable certainty (Section 28[1]). The nature and extent of the interest of the assured in the subject matter insured need not be specified in the policy (Section 28[2]). Where the policy designates the subject matter insured in general terms, it shall be construed to apply to the interest intended by the assured to be covered (Section 28[3]).

Assignment of Policy

A marine insurance policy is assignable either before or after the loss, unless it contains terms expressly prohibiting assignment (Section 52[1]). A policy on goods is usually freely assignable. Commodities such as tea, jute, and wheat are transacted before they reach their destination; therefore, policies on these goods must be freely exchangeable. The policies on ship and freight both are subject to restrictions on assignment.

How to Claim

The following steps should be taken by the insured in event of a loss or damage to goods insured:

Take immediate steps to minimise loss.
Inform nearest office of the insurance company or claim settling agent mentioned on the policy.
In case of damage to goods whilst on ship or port, arrange for joint ship survey or port survey.
Lodge monetary claim with carrier within stipulated time period.
Bill of Lading / AWB/GR
Packing list
Copies of correspondence exchanged with carriers.
Copy of notice served on carriers along with acknowledgment/receipt.
Shortage/Damage Certificate issued by carriers.
Survey fees are to be paid to the surveyor appointed by the insurance company. These fees will be reimbursed along with the claim if the claim is otherwise admissible. vii. Survey report submitted by Survey

Key Documents Required for the Settlement of Marine Insurance Claim

Date, time, cause, and circumstance of the loss
Details of damaged/loss vessel
Amount of loss claimed
Other insurance, if any
Certified copy of note of protest by master
Payment details of premium amount paid
Insured’s report on occurrence
Survey reports where a claim’s amount is over ₹20,000/- as per provisions of Insurance Act, 1938
Original repair bill, cash memo, invoices
Weather report by the meteorological department, if available
Affidavits filed by rescue vessels
Certificate of survey for inland vessels
Registry certificate
Notarised statements of the master of the vessel
Log Book extracts
Crew list with details of competency certificates
Copy of claim bill with supporting documents
V.R.C. cancellation certificate
Death certificate of crew for Personal Accident (P.A.) claim
Post mortem report of crew for P.A. claim
Disability certificate from a doctor of the crew for P.A. claim
Legal heir certificate of crew for P.A. claim
Letter of undertaking where applicable

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Table of Content

What is Marine Insurance

Marine Insurance Act 1963

How Marine Insurance works

Types of Marine Insurance

Which clauses cover Marine Insurance

Difference between Fire Insurance & Marine Insurance

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13 July 2021

Marine Insurance | Meaning, Types, Benefits & Coverage

What is marine insurance.

Marine insurance refers to a contract of indemnity. It is an assurance that the goods dispatched from the country of origin to the land of destination are insured. Marine insurance covers the loss/damage of ships, cargo, terminals, and includes any other means of transport by which goods are transferred, acquired, or held between the points of origin and the final destination.

The term originated when parties began to ship goods via sea. Despite what the name implies, marine insurance applies to all modes of transportation of goods. For instance, when goods are shipped by air, the insurance is known as the contract of marine cargo insurance.

Importance of Marine Insurance

Marine insurance is required in many import-export trade proceedings. Admitting the terms, both parties are liable for the payment of goods under insurance. However, the subject matter of marine insurance goes beyond contractual obligations, and there are several valid arguments necessary for buying it before dispatching the export cargo.

Goods in transit need to be insured by one of the three parties:-

The Forwarding Agent
The Exporter
The Importer

Also, it can be taken by anyone involved in the transit of goods.

Also Read: Role of a Freight Forwarder | Functions, Duties & more

Where to get Marine Insurance?

The process to purchase marine insurance in India is easy. The country’s geographical position allows many banks and financial institutions to provide marine insurance.

The Marine Insurance Act, in India, came into existence in 1963. As per section three of the act, any time the term ‘marine insurance’ is used, expressed or even extended for the insuring of goods against loss or damage, the insurer will be at risk to bear the charges. The insurer will consider all the certainty of goods in case of misfortune sustained during marine ventures.

Principles of Marine Insurance

Principle of Good faith - Parties demand absolute trust on the part of both; the insurer and the guaranteed.

Principle of Proximate Cause - The proximate cause is not adjacent in time; also, it is inefficient. Nevertheless, it is the definitive and adequate cause of loss.

Principle of Insurable Interest - Any object presented as a marine risk and the assured covering the insurance of goods - both should have legal relevance. Also, a series is devoted called 'Incoterms' to respectfully assign the insurance of goods to each party.

Principle of Indemnity - The insurance extended to the parties will only be applicable up to the loss. The parties can't buy insurance to gain profits. If they do, they won't get more than the actual loss.

Principle of Contribution - Sometimes, the risk coverage for goods has more than one insurer. In such cases, the amount has to be fairly distributed amongst the insurers.

Features of Marine Insurance

How Marine Insurance works?

Marine insurance best transfers the liability of the goods from the parties and intermediaries involved to the insurance company. The legal liability of the intermediaries handling the goods is limited to begin with. The exporter, instead of bearing the sole responsibility of the goods, can buy an insurance policy and get maritime insurance coverage for the exported goods against any possible loss or damage.

The carrier of the goods, be it the airline or the shipping company, may bear the cost of damages and losses to the goods while on board. However, the compensation agreed upon is mostly on a ‘per package’ or ‘per consignment’ basis. The coverage so provided may not be sufficient to cover the cost of the goods shipped. Therefore, exporters prefer to ship their products after getting it insured the same with an insurance company.

The Scope of Marine insurance is necessary to meet the contractual obligations of exports. To align with agreements such as cost insurance and freight (CIF) or carriage and insurance paid (CIP) , the exporter needs to take marine insurance to protect the buyer’s or their bank’s interest and honor the contractual obligation. Similarly, in the case of Delivered Duty Unpaid (DDU) and Delivered Duty Paid (DDP) terms, the seller may not be obligated to insure the goods, although in practice they generally do.

To get marine insurance and avoid insurance claims, ensure the following:

Packing of goods should be done keeping in mind their safety during loading and unloading

Packing should be good enough to withstand natural hazards to the best extent possible

Keep in mind the possibility of clumsy handling or theft when packing goods.

How to calculate Marine Insurance Premium?

Freight Insurance

Liability insurance, hull insurance, marine cargo insurance.

In freight insurance, for example, if the goods are damaged in transit, the operator would lose freight receivables & so the insurance will be provided on compensation for loss of freight.

Marine Liability insurance is where compensation is bought to provide any liability occurring on account of a ship crashing or colliding.

Hull Insurance covers the hull & torso of the transportation vehicle. It covers the transportation against damages and accidents.

Marine cargo policy refers to the insurance of goods dispatched from the country of origin to the country of destination.

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Types of Marine Insurance policies

Floating Policy
Voyage Policy
Time Policy
Mixed Policy
Named Policy
Port Risk Policy
Fleet Policy
Single Vessel Policy
Blanket Policy

Floating policy

Floating in Marine Insurance policy, large exporters may opt for an open policy, also known as a blanket policy, instead of taking insurance separately for each shipment. An open policy is a one-time insurance that provides insurance cover against all shipments made during the agreed period, often a year. The exporter may need to declare periodically (say, once a month) the detail of all shipments made during the period, type of goods, modes of transport, destinations, etc.

Voyage policy

A specific policy can be taken for a single lot or consignment only. The exporter needs to purchase insurance cover every time a shipment is sent overseas. The drawback is that extra effort and time is involved each time an exporter sends a consignment. With open policies, on the other hand, shipments are insured automatically.

Time policy

Time policy in marine insurance is generally issued for a year’s period. One can issue for more than a year or they may extend to complete a specific voyage. But it is normally for a fixed period. Also under marine insurance in India, time policy can be issued only once a year.

Mixed policy

Mixed policy is a mixture of two policies i.e Voyage policy and Time policy.

Named policy

Named policy is one of the most popular policies in marine insurance policy. The name of the ship is mentioned in the insurance document, stating the policy issued is in the name of the ship.

Port Risk policy

It is a policy taken to ensure the safety of the ship when it is stationed in a port.

Fleet policy

Several ships belonging to the company/owner are covered under one policy. Where it has the advantage of covering even the old ships. Also the policy is a time based policy.

Single Vessel policy

In single vessel policy only one vessel is covered under marine insurance policy.

Blanket policy

In this policy, the owner has to pay the maximum protection amount at the time of buying the policy.

Which clauses cover Marine Insurance?

The Maritime insurance coverage provided by marine insurance can be understood by going through the risks handled by the insurance policies loaded with various marine insurance clauses:

Institute Cargo Clause C provides basic coverage and includes a restricted list of risk covers. It covers the shipment against events such as fire, discharge of cargo in case of distress, explosion, accidents like sinking, capsizing, derailment, collision, etc.

Institute Cargo clause B offers an additional layer of protection. Not only does it include all the risk covers provided under Clause C, but it also covers the shipment against events such as earthquake, volcanic eruption, and damage due to rainwater, seawater, river water, etc., and loss to package overboard or during loading and unloading.

Institute Cargo Clause A provides maximum coverage as it covers all risk of loss or damage to the goods. Apart from the risks covered under Clauses B and C, it also covers losses due to breakage, chipping, denting, bruising, theft, non-delivery, all water damage, etc.

Risks such as wars, strikes, riots, and civil commotions are not covered under the institute cargo clauses. However, the insurer may provide this cover on payment of additional marine insurance premium.

So in terms & conditions of marine insurance coverage, these three types of marine insurance clauses: Institute Cargo Clauses A, B, and C. Clause A provides maximum coverage, Clause C provides basic risk coverage.

What is not covered under Marine Insurance?

Fire insurance is an insurance that covers the risk of fire. The subject matter is any physical asset or property. The moral responsibility is an important condition here. There is no expected profit margin in terms of fire insurance. The insurable interest must be present before taking the policy and also at the time of loss.

Whereas, the Functions of Marine insurance is one that encompasses risks associated with the sea. The subject matter is the ship, freight or cargo. It does not consist of any clause related to the moral responsibility of the cargo owner or the ship. 10 to 15% profit margin is expected in terms of marine insurance. Also in marine insurance the insurable interest must be only at the time of loss.

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Marine Insurance Policy

By Saksham Dwivedi, CNLU

Introduction & Historical Development

Marine Insurance is not of recent origin. Its existence can be traced back to several centuries. Questions concerning it have naturally been coming up for a number of years and the law concerning it had taken a definite shape much prior to 1906 when the English Marine Insurance Act was passed with a view to codify that law.

Contrary to popular belief, Lloyds’ of London was not the first group of people to offer insurance for maritime commerce. The first form of marine insurance dates back to the year 3000 BC when Chinese merchants dispersed their shipments amongst several vessels so as to abridge the possibility of damage to the product(s). The earliest account of insurance came in the form of ‘bottomry’, a monetary payment that protects traders from debt if merchandise is lost or damaged.

Another form of early insurance was the ‘general average’. During cargo shipments in 916 BC, a merchant would accompany his cargo to see that it was not jettisoned, or voluntarily thrown overboard by the crewmen in times of a storm or sinkage. To guard against this mutual interest of safety and quarreling amongst merchants, the Rhodians initiated the ‘general average’, which ideally meant that a person would be compensated through pro rata contributions of other merchants if their goods were jettisoned during shipment.

From the 11th century to the 18th century, a few additional breakthroughs occurred in marine insurance. In 1132, the Danish began to reimburse those who experienced loss at sea. In 1255, ‘insurance premiums’ were used for the first time as the Merchant State of Venice pooled these premiums to indemnify loss due to piracy, spoilage, or pillage.

The first marine insurance policy was introduced in 1384 in an attempt to cover bales of fabric traveling to Savona from Pisa, Italy. Within the next century, merchants from Lombard began the first insurance practice in London. Finally, in 1688, Lloyd’s of London, named after Edward Lloyd, began the risky business of insurance underwriting. From a Coffee house in London, it has now grown to become the largest marine insurance underwriters in the world. [1]

The law relating to marine insurance was codified in England by the Marine Insurance Act of 1906, and this Act came into force on January 1, 1907. This was proposed and initiated in an attempt to clarify and set forth the regulations and policy variables associated with marine insurance agreements. This enactment purported to codify only those principles of the law which related exclusively to marine insurance and expressly enacted that the rules of the common law, including the law merchant, save in so far as they were inconsistent with the express provisions of the Act, was to continue to apply to contracts of marine insurance.

Development Of Indian Law

Since independence Indian shipping had undergone considerable expansion, and it became mandatory for Indian legislation consistent with Indian conditions, for the smooth development of Indian marine insurance. Prior to the legislation, questions turning on this branch of law had to be decided by the general law of contract and the English decisions based on the common law rules of contract.

The Indian enactment is a substantial reproduction of its English counterpart, following its plan closely and deviating from it at some places, only unnecessarily.

The preamble to the Indian Act states that it is “ an Act to codify the law relating to marine insurance.” The canon of construction generally applicable to a codifying statute is well known: the language of the statute must be given its natural meaning, regard being had to the previous state of the law only in cases of doubt or ambiguity.[2]

But, as in the case of its English counterpart, the Indian Act embodies only some and not all of the legal principles and rules of marine insurance, and its language is so extremely concise and general that its full import and meaning can scarcely be understood without referring to the existing law which it was intended to express or to the decided cases from which that law was evolved.[3]

In India, the law of marine insurance has been put in a statutory form since 1963.

Contract Of Marine Insurance

Most of the law of marine insurance is in essence pure interpretation of the contract contained in the common form of marine policy.[4] The basic principle of a contract of insurance is that the indemnity recoverable from the insurer is the pecuniary loss suffered by the assured under the contract. Thus, as per the enactment, a contract of marine insurance is a contract whereby the insurer undertakes to indemnify the assured, in manner and to the extent thereby agreed, against marine losses, that is to say, the losses incident to marine adventure.[5]

A contract of marine insurance may, by its express terms, or by usage of trade, be extended so as to protect the assured against losses on inland waters or any land risk that may be incidental to any sea voyage. Where a ship in course of building, or the launch of a ship, or any adventure analogous to a marine adventure, is covered by a policy in the form of a marine policy, the provisions of this Act, in so far as applicable, shall apply thereto; but, except as by this section provided, nothing in this Act shall alter or affect any rule of law applicable to any contract of insurance other than a contract of marine insurance as defined, by the Act.[6]

The formal instrument embodying the contract of marine insurance is called “ the policy”; and “ the slip” or “covering note”, is the informal memorandum that is drawn up when the contract is entered into. The subject- matter insured and the consideration for the insurance are respectively known as “ the interest insured” and “the premium”. The person who is indemnified is “the assured” and the other party is styled “the insurer” or “the underwriter” so called because he subscribes or underwrites the policy.

“Loss” includes damage or detriment as well as actual loss of property arising from maritime perils.

“Maritime perils” means the perils consequent on, or incidental to, the navigation of the sea, that is to say, perils of the sea, fire, war perils, pirates, rovers, thieves, captures, seizures, restraints, and detainments of princes and peoples, jettisons, barratry, and any other perils, either of the like kind or which may be designated by the policy. [7]

The phrase “Perils of the sea” refers to dangers that are particularly incident to the sea or navigation thereof.[8] It refers only to fortuitous accidents or casualties of the sea or caused by the sea. It was not necessary that there must have been strong winds and/or waves at the time of the accident to constitute “peril of the seas”.[9] There must be some casualty, something that could not be foreseen, as one of the necessary accidents of adventure.[10]

A “marine adventure”[11] includes any adventure where-

a. Any insurable property (that is to say, any ship, goods[12] or other movables[13]) is exposed to maritime perils;

The earning or acquisition of any freight, passage money, commission, profit, or other pecuniary benefits, or the security for any advances, loan, or disbursements, is endangered by the exposure of insurable property to maritime perils;
Any liability to a third party may be incurred by the owner of, or other people interested in or responsible for, insurable property, by reason of maritime perils.

The very foundation, in my opinion, of every rule which has been applied to insurance law, is this, namely, that the contract of insurance contained in a marine or fire policy is a contract of indemnity, and of indemnity only, and that this contract means that the assured, in case of a loss against which the policy has been made, shall be fully indemnified, but shall never be more than fully indemnified.

That is the fundamental principle of insurance, and if ever a proposition is brought forward which is at variance with it, that is to say, which either will prevent the assured from obtaining a full indemnity, or which will give to the assured more than a full indemnity, that proposition must certainly be wrong.[14]

In principle, marine insurance is a contract of indemnity, however, in practice it by no means results always in a complete indemnity.[15]

In Richards v. Forest Land, Timber and Railways Co. Ltd., [16] it was observed,

“ The Act is merely dealing with a particular branch of the law of contracts- namely, those of marine insurance. Subject to various imperative provisions or prohibitions and general rules of the common law, the parties are free to make their own contracts and to exclude or vary the statutory terms. The object both of the legislature and of the courts has been to give effect to the idea of indemnity, which is the basic principle of insurance, and to apply it to the diverse complications of fact and law in respect of which it has to operate. In this way, the law merchant has solved or sought to solve, the manifold problems which have been presented by insurances of maritime adventures.”

Thus, whilst the overriding principle of insurance is that of indemnification for losses sustained, the courts accept the fact that, because there must be an element of freedom for the parties to the insurance to contract on whatever terms they deem fit, in many instances, the indemnity is unlikely to be perfect.[17]

This is largely attributable to the fact that both the common law and the enactment[18] endorse the fact that the value fixed by the police is conclusive of the insurable value of the subject matter insured. This allows the parties the freedom to set the value of the subject matter insured at whatever figure they so wish. Provided that any overvaluation is not so excessive as to offend the cardinal principle of the duty to observe utmost good faith, the law of non-disclosure of a material fact, and of misrepresentation and the rule against wager, the courts are obliged to uphold the value fixed in the policy as conclusive. [19]

The most general rule of construction of a marine policy is that it is to be construed according to its sense and meaning, as collected in the first place from the terms used in it; and these terms are to be understood in their plain, ordinary and popular sense, unless they have by the known usage of trade acquired a peculiar meaning distinct from the popular sense of the same words, or unless the context evidently points out that they must in the particular instance, and in order to effectuate the immediate intention of the parties, be understood in some other special and peculiar sense.[20]

If there is any discrepancy between the printed clause in a marine policy and the stamped or written clause, the latter, on ordinary principles of construction, will prevail, since the stamped or written words are the immediate language and terms selected by the parties themselves for the expression of their meaning, whereas the printed words are a general formula adapted equally to their case and that of all other contracting parties upon similar occasions and subjects.[21]

Requirements Of Taking An Insurance Policy

Apart from the foremost requirement of entering into a contract of insurance (as aforementioned), it is essential that the contract contains an insurable interest in the subject matter, which has a value and is not a contract by way of wagering.[22] Also, the policy must be in compliance with the provisions mentioned under sections 24 to 34 of the Indian Act[23] and the Rules mentioned in the Schedule.

INSURABLE INTEREST [24]

Marine Insurance Act, declares void all marine insurance polices where insurable interest does not apply at the time of loss. In the Act, Insurable interest is defined as- Subject to the provisions of this Act, every person has an insurable interest who is interested in a marine adventure. In particular a person is interested in a marine adventure where he stands in any legal or equitable relation to the adventure or to any insurable property at risk therein, in consequence of which he may benefit by the safety or due arrival of insurable property, or may be prejudiced by its loss, or damage thereto, or by the detention thereof, or may incur liability in respect thereof. [25] The essence of “interest”, is that

(a) There should be a physical object exposed to sea perils, and

(b) The assured should stand in some relationship, recognized by law, to that object, in consequence of which he either benefits by its preservation, or is prejudiced by its loss or mishap thereto.[26]

The insured must bear some relationship to the insured thing whereby s/he stands to benefit by its safety or be prejudiced by its loss or by incurring liability. That is to say, insurable interest exists where insured stands in a legal relationship to the property or otherwise stand to suffer loss as a result of its destruction.[27]

The Indian Act does not profess to give an exhaustive definition of “insurable interest”. Nor is it possible to define the expression “insurable interest” exhaustively, but the general rule is clear that to constitute “interest” insurable against a peril, there must be an interest such that the peril would, by its proximate effect, cause damage to the assured.[28]

ATTACHMENT OF INTEREST

Section 8 of the Indian Act of 1963 [29], states in the following words when “interest” must attach: –

1. The assured must be interested in the subject-matter insured at the time of the loss though he need not be interested when the insurance is affected:

Provided that where the subject-matter is insured “lost or not lost”, the assured may recover although he may not have acquired his interest until after the loss unless at the time of effecting the contract of insurance the assured was aware of the loss, and the insurer was not.

2. Where the assured has no interest at the time of the loss, he cannot acquire interest by any act or election after he is aware of the loss.

The main problem with insurable interest concerns the time at which the interest must attach; as a general rule (given under section 8, above), the assured must, at the time of loss, have an insurable interest in the subject matter insured. In contracts of international sale of goods, it is not always easy to ascertain at any given time whether the property has in fact passed from seller to buyer.

The existence of “interest” is a condition for effective insurance. It is often a difficult question to determine the exact moment when under a contract of sale, the risk passes from seller to buyer. Prima facie, the risk passes when the property passes; but under the terms of the contract, they may pass at different times. When the buyer insures goods, the question is whether, on the true construction of the contract, the risk has passed to him at the time the loss occurs.

Thus, the law recognizes certain exceptions to the general rule that the assured must have an insurable interest at the time of the loss.

First, if the policy offers cover on a ‘lost or not lost’ basis, then the assured is, according to the proviso to Section 8(1) [30] permitted to recover under the policy even though the loss was sustained before the insurance was effected. This exception operates to protect an assured who might have purchased goods without knowing whether or not they have already been lost at sea.

Secondly, an assignee of a policy can acquire an interest in the subject matter insured even though the policy was assigned to him only after the loss, provided of course, that the assignor himself had, at the time of assignment, an interest to assign.[31]

Moreover, a defeasible or contingent interest ( Section 9 of the 1963 Act ), partial interest ( Section 10 ), Bottomry[32] ( Section 12 ), masters and seamen’s wages[33] ( Section 13 ), Advance freight[34] ( Section 14 ) and charges of interest[35] are all cases of insurable interest.

With reference to the assignment of interest, Section 17 of the Indian Act[36] provides: – “Where the assured assigns or otherwise parts with his interest in the subject matter insured, he does not thereby transfer to the assignee his rights under the contract of insurance, unless there be an express or implied agreement with the assignee to that effect.

But the provisions of this section do not affect the transmission of interest by operation of law.”

Where a cargo of tallow was insured “warehouse to warehouse” by purchasers and the cargo was delivered short for transit and the missing quantity was never in transit and never became the property of the purchasers, they were held to have no insurable interest and the underwriters were held not liable for the missing quantity.[37]

VALUATION OF INSURANCE

The insurable value of the subject matter insured is relevant in determining the measure of indemnity in the case of an unvalued policy, and in the case of a valued policy when the valuation is not conclusive or has to be apportioned.[38]

A clear delimitation of insurable value is necessary (a) to fix the measure of indemnity in the case of an unvalued policy, (b) to fix the measure of indemnity in the few cases in which a valued policy can be opened up, and (c) to furnish an approximate standard for fixing the value in a valued policy.

According to modern practice, unvalued policies are very rare, being practically confined to goods and in a few instances to freights payable on arrival. Other interests are almost invariably insured by valued policies. As regards goods, a voyage policy on goods is an insurance of the adventure, as well as insurance on the goods themselves.[39]

OTHER POLICY REQUIREMENTS

A marine policy is only a promise of indemnity giving a right of action for unliquidated damages in case of non-payment. However, a contract of marine insurance must be embodied in a policy. Section 24 of the Indian Act [40] enacts as follows:

A contract of marine insurance is inadmissible in evidence unless it is embodied in marine policy in accordance with this Act. The policy may be executed and issued either at the time when the contract is concluded, or afterward.

By the Indian Stamp Act, 1899, Section 7(1), no contract for sea-insurance shall be valid unless the same is expressed in a sea policy. Accordingly, where the appellant had sued the respondent for damages for breach of a contract to issue policies of marine insurance upon goods to be shipped by it, it was held that the contract alleged was a contract of sea insurance and, not being expressed in policy, was unenforceable.[41]

A marine policy, must also specify certain essential matters, and Section 25 of the Indian Act [42] enumerates them as follows:

1. The name of the assured, or of some person who effects the insurance on his behalf:

2. The subject matter insured and the risk insured against;

3. The voyage, or period of time, or both, as the case may be, cover3ed by the insurance;

4. The sum or sums insured;

5. The name or names of the insurers.

A marine policy must be signed by or on behalf of the insurer ( Section 26 0f the Indian Act ), and such policy may either be a “voyage” policy or a “time” policy or a combination of both.[43]

As regards the designation of subject matter, Section 28 of the Indian Act [44] provides: The subject-matter insured must be designated in a marine policy with reasonable certainty.

The nature and extent of the interest of the assured in the subject-matter insured need not be specified in the policy. Where the policy designates the subject-matter insured in general terms, it shall be construed to apply to the interest intended by the assured to be covered.

In the application of this section, regard shall be had to any usage regulating the designation of the subject-matter insured. Marine policies may either be valued or unvalued/open, but must not be “doubly insured”, that is to say that there must not be two or more policies effected by or on behalf of the assured on the same adventure, and the sum insured in such a case should not exceed the indemnity allowed by this Act.

This is applicable in case of two or more insurance policies on the same subject- matter and by the same person. It does not apply when different persons insure the same subject- matter with respect to different rights.[45] Over insurance includes ‘ppi policies’.[46] This is because, if both a marine policy and a ppi policy are effected upon the maritime property and, in the event of a loss, the insurer chooses to ‘honour’ the ppi policy, the indemnity, when added up under both policies, would amount to over insurance.[47]

1. Where the assured is over-insured by double insurance, a. The assured unless the policy otherwise provides, may claim payment from the insurers in such order as he may think fit, provided that he is not entitled to receive any sum in excess of the indemnity allowed by this Act;

2. Where the policy under which the assured claims is a valued policy, the assured must give credit as against the valuation for any sum received by him under any other policy without regard to the actual value of the subject-matter insured;

3. Where the policy under which the assured claims is an unvalued policy he must give credit, as against the full insurable value, for any sum received by him under any other policy;

4. Where the assured receives any sum in excess of the indemnity allowed by this Act, he is deemed to hold such sum in trust for the insurers, according to their right of contribution among themselves.[48]

A policy may be limited to covering only total losses. Alternately, the policy may indicate that it includes all types of partial loss, called “average”, or it may distinguish between different types of averages, covering “general average”, which is average caused deliberately to save all the interests in the voyage from total loss, but excluding particular average, which is average caused accidentally by the “perils of the seas”.

The word “average”, whose origin is discussed towards the beginning of this paper, may be taken to mean material damage or pecuniary loss sustained in the course of a marine adventure, and the character of the loss may either be particular or general. General Average is a partial loss, voluntarily and reasonably incurred in time of peril for the safety of the joint adventure; which is contributed to by the owners of all property saved, e.g., ship, freight, and cargo.

It is the result of a voluntary act, and the loss is subject to contribution by the owners of all the property saved by the general average act. These interests are usually the ship, the freight in the course of being earned, and the cargo respectively. The liability to contribute to general average arises primarily out of the carriage of goods by sea, and is, in England, a common law liability to which the owners of the property are subject, whether they are insured or not.

Duties Of The Parties

A contract of marine insurance is uberrimae fidie or, as enumerated in Section 19 of the Indian Marine Insurance Act, ‘ a contract based upon the utmost good faith.’[49] The notion of utmost good faith, the cardinal principle governing the marine insurance contract, is a well-established doctrine derived from the celebrated case of Cater v. Boehm[50], decided long before the inception of the Act.

With the codification of the law, the principle found expression in Sections 19-22: In section 19 is presented the general duty to observe the utmost good faith, with the following sections introducing particular aspects of the doctrine, namely, the duty of the assured ( Section 20 ) and the broker ( Section 21 ) to disclosed material circumstances, and to provide making representations ( Section 22 ).[51]

Thus, the obligations to disclose and to abstain from misrepresentations constitute the most significant manifestations of the duty to observe utmost good faith. The only remedy available to the innocent party in case of any such breach is avoidance ab initio, that is, avoidance from the very beginning, even though the breach may have occurred during the course of the contract.

Reciprocal duty

Section 19 , by the use of the word ‘either’, has made it amply clear that the duty to observe utmost good faith operates on a bilateral basis. There is no doubt that the obligation to disclose material facts is a mutual one imposing reciprocal duties on the insurer and insured. In the case of marine insurance contracts, Section 17 (of the English Act) in effect so provides.[52]

Moreover, the duty of good faith is an independent and an overriding duty, with the ensuing sections on disclosure and representations providing mere illustrations of that duty. Also, section 19 has been construed as having imposed on the parties a continuing duty to observe utmost good faith.[53]

The scope of the insurer’s duty of disclosure

The duty falling upon the insurer must at least extend to disclosing all facts known which are material either to the nature of the risk sought to be covered or the recoverability of a claim under the policy which a prudent insured would take into account in deciding whether or not to place the risk for which he sees cover with that insurer.[54]

The extent of the insurer’s duty of disclosure in that sense is pre-contractual.

The scope of assured’s post-contractual duty of disclosure

Even though there have been suggestions that like the ensuing sections, the assured’s liability under section 19 would also not be beyond the formation of the contract. But, according to Hist J in the ‘Litsion Pride case’[55], an assured is undoubtedly under a continuing duty to disclose relevant information even after the conclusion of the contract. This case also drew out two limbs of the duty, namely the duty to disclose relevant information, and the duty not to make fraudulent claims[56].

Assured’s pre-contractual duty of disclosure

Section 20 has imposed a strict and absolute obligation upon the assured to disclose to the insurer every material circumstance[57] ‘before the contract is concluded’.[58]This means that it is for the assured to take the initiative to reveal to his insurer all material circumstances, and not for the insurer to inquire. Under this section, mere non-disclosure is sufficient to constitute a breach, and the presence of mens rea is inconsequential. Another duty imposed on the assured under Section 22 is that every material representation made by him must be true, otherwise, the insurer may avoid the contract.

Rights Of Insurer On Payment

The Marine Insurance Act provides for three rights to an insurer, namely, the right of subrogation, the right of contribution and the right of under insurance. The right of subrogation[59] is a necessary incident of a contract of indemnity, and, speaking broadly, the insurer in the absence of special contract, must exercise all remedies arising from subrogation in the name of the assured.[60]

An underwriter is entitled only to the rights of the assured in respect of the subject matter insured, in so far as he has indemnified the assured.[61]

As a contribution among insurers, Section 80 of the Act enacts: –

1. Where the assured is over-insured by double insurance, each insurer is bound, as between himself and the other insurers, to contribute rateably to the loss in proportion to the amount for which he is liable under his contract.

2. If any insurer pays more than his proportion of the loss, he is entitled to maintain an action for contribution against the other insurers and is entitled to the like remedies as a surety who has paid more than his proportion of the debt.

As per Halsbury’s Laws of England, a condition must be satisfied before a contribution can be said to arise. The condition is that: “Each policy must be in force at the time of the loss. There is no contribution if one of the policies has already become void or the risk under it has not yet attached; the insurer from whom contribution is claimed can repudiate liability under his policy on the ground that the assured has broken a condition.”[62]

Under section 81 of the Act, the insurer is not liable to the assured for any sum in excess of the amount actually insured, and thus in a case of under insurance, it is the assured who himself will be the insurer for the balance amount.

The purpose of marine insurance has been to enable the shipowner and the buyer and seller of goods to operate their respective business while relieving themselves, at least partly, of the burdensome financial consequences of their property’s being lost or damaged as a result of the various risks of the high seas. Thus, in other words, marine insurance adds the necessary element of financial security so that the risk of an accident occurring during the transport is not an inhibiting factor in the conduct of international trade.

The importance of marine insurance, both to assured’s, in terms of the security it provides and its cost element in the overall economics of running a ship or transporting goods, and to countries, particularly developing countries, in its impact on their balance of payments position, cannot be overemphasized.

It is well known that in India, until the coming into operation of the Indian Act of 1963, the courts used to follow the principles of English law and decisions based on such principles as well as the provisions of the English Act, viz. the Marine Insurance Act, 1906.

The Indian law is a direct take- off from its English counterpart, and so, whenever it is not self-evident, case law spanning over two centuries is to be looked into to arrive at the true position. Moreover, the Marine Insurance Act itself being a codification of previous case law, an appreciation of past authorities is not only an essential requirement to the understanding of the legal concepts generally but also of paramount importance when wishing to gain an insight into the very constitution of the sections within the Act.

Formatted on February 17th, 2019.

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REFERENCES:

[1]http://www.acs.ucalgary.ca/MGMT/inrm/industry/marine.htm. [2] Bank of England v. Vagliano Brothers, (1891) A.C. 107, 144 H.L. (per Lord Herschell). [3] Cf. Rickards v. Porestal, (1942) A.C. 50, 79 H.L. (per Lord Wright). [4] Kulukundis v. Norwich Union Fire Insurance Society, (1937) 1 K.B. 1, 34 C.A. (per Scott L.J.). [5] Indian Marine Insurance Act, 1963, Section 3 (= Section 1, English Act of 1906). [6] Indian Marine Insurance Act, 1963, Section 4 (= Section 2, English Act of 1906). [7] Indian Marine Insurance Act, 1963, Section 2(e) (= Section 3(2), English Act of 1906); Thames v. Hamilton, (1887) 12 App. Cas. 484, 498 H.L. (per Lord Herschell). [8] Thus, rain is not a peril of the sea, but ice obstructions and shoals form some of the vicissitudes of navigating the seas: Canada v. Union Marine, (1941) A.C. 55, 64 P.C. (per Lord Wright). [9] The Xantho, (1887) 12 App. Cas. 503, 508-91; Hamilton v. Pandorf (1887) 12 App. Cas. 518, 523 H.L. (per Lord Herschell). [10] Stewart v. New Zealand, (1912) 16 C.W.N. 991, 996 (per Chaudhuri J.). [11] Indian Marine Insurance Act, 1963, Section 2(d) (= Section 3(2), English Act of 1906). [12] “Goods” means goods in the nature of merchandise, but does not include personal effects or provisions or stores for use on board a ship; Rule 17 of the Schedule to Indian Marine Insurance Act, 1963. [13] “Movable” means any movable tangible property, other than a ship or goods, and includes money, valuable securities and other documents; Indian Marine Insurance Act, 1963, Section 2(f). [14] Castellain v Preston (1883) 11 QBD 380, CA, (per Brett LJ). [15] British & Foreign Marine Insurance Co., (1921) 1 A.C. 188, 214 H.L. (per Lord Sumner); Maurice v. Goldsbrough, (1939) A.C. 452, 466-7 P.C. (per Lord Wright). [16] [1941] 3 All ER 62, HL, (per Lord Wright). [17] A policy of assurance is not a perfect contract of indemnity. It must be taken with this qualification, that the parties may agree beforehand in estimating the value of the subject assured, by way of liquidated damages, as indeed they may in any other contract to indemnify: Irving v. Manning, (1847) 1 HLC 287, (per Patteson, J.). [18] Indian Marine Insurance Act, 1963, Section 29(3) (= Section 27(3), English Act of 1906). [19] Hodges, Susan, CASES AND MATERIALS ON MARINE INSURANCE LAW, Cavendish Publishing Limited, p. 2. [20] Robertson v. French, (1803) 4 East 130, 135 (per Lord Ellenborough C.J.); Hart v. Standard Marine Insurance Co., (1889) 22 Q.B.D. 499, 501 (per Brown L.J.); Birrel v. Dryer, (1884) 9 App. Cas. 345, 353 H.L. (per Lord Watson). [21] Robertson v. French, (1803) 4 East 130, 135 (per Lord Ellenborough C.J.); Canadian v. Canadian, (1947) A.C. 46, 57 P.C. (per Lord Wright); Renton v. Palmyra Trading Corporation, (1957) A.C. 149, 168 H.L. (per Lord Mortos). [22] Indian Marine Insurance Act, 1963, Section 6 (= Section 4, English Act of 1906). [23] (= Section 22 to 32, English Act of 1906). [24]http://www.staff.ul.ie/greenfordb/claims/Lecture 17 Insurable Interset.ppt. [25] Indian Marine Insurance Act, 1963, Section7 (= Section 5, English Act of 1906). [26] Chalmers on Marine Insurance Act, 1906, 5th Ed., p. 12. [27] Lucena v. Crauford, (1806) 2 Bos. & P. (N. R.) 269, 321 H.L. (per Lord Eldon); Macaura v. Northern Assurance, (1925) A.C. 619, 627 H.L. (per Lord Buckmaster). [28] Seagrave v. Union Marine, (1866) L.R. 1 C.P. 305, 320 (per Willes J.). [29] =Section 6 of the English Act. [30] = Proviso to Section 6(1) of the English Act. [31] Hodges, Susan, CASES AND MATERIALS ON MARINE INSURANCE LAW, Cavendish Publishing Limited, p. 39. [32] The lender of money on bottomry or respondentia has an insurable interest in respect of the loan. [33] The master or any member of the crew of a ship has an insurable interest in respect of his wages. [34] In the case of advance freight, the person advancing the freight has an insurable interest, in so far as such freight is not repayable in case of loss. [35] The assured has an insurable interest in the charges of any insurance that he may affect. [36] =Section 15 of the English Act. [37] Halsbury’s Laws of England, 3rd Ed., Vol. 22, p. 100 f.n. (f); Plata v. Lancashire Hamburg-Amerika Linier, (1957) 2 Lloyds Rep. 347. [38] Halsbury’s Laws of England, 3rd Ed., Vol. 22, p. 127. [39] British & Foreign Marine Insurance Co. v. Sanday, (1916) 1 A.C. 650, 672 H.L. (per Lord Wrenbury). [40] (= Section 22, English Act of 1906). [41] Surajmull Nagoremull v. Triton Insurance Co. Ltd., (1924) L.R. 52 I.A. 126, 129 (per Lord Sumner). [42] (= Section 23, English Act of 1906). [43] Where the contract is to insure the subject-matter “at and from”, or from one place to another or others, the policy is called a “voyage policy”, and where the contract is to insure the subject-matter for a definite period of time the policy is called a “time policy”: Indian Marine Insurance Act, 1963, Section 27 (= Section 25, English Act of 1906). [44] (= Section 26, English Act of 1906). [45] The reason for that is obvious enough. Where different persons insure the same property in respect of their rights they may be divided into two classes. It may be that the interest of the two between them makes up the whole property: North British and Mercantile Insurance Co. v. London, Liverpool, and Globe Insurance Co., (1877) 5 Ch D 569, CA (per Mellish LJ). [46] A ‘ppi’ policy (policy proof of interest), is deemed to be a gaming or wagering contract by the Act, and hence void. [47] Thames and Mersey Marine Insurance Co. Ltd. v. ‘Gunford’ Ship Co. Ltd. [1911] A.C. 529, H.L. [48] Indian Marine Insurance Act, 1963, Section34 (2) (= Section 32 (2), English Act of 1906). [49] LIC v. Ajit Gangadhar Shanbhay, AIR 1997 Kant. 157. [50] (1766) 3 Burr 1905. [51] Hodges, Susan, CASES AND MATERIALS ON MARINE INSURANCE LAW, Cavendish Publishing Limited, p. 213. [52] Banque Financiere de la cite SA v. Westgate Insurance Co. Ltd., [1987] 1 Lloyd’s Rep 69; Good faith forbids either party, by concealing what he privately knows, to draw the other into a bargain: Cater v. Boehm, (1766) 3 Burr 1905 (per Lord Mansfield). [53] Container Transport International Inc and Reliance Group Inc v. Oceanus Mutual Underwriting Association (Bermuda) Ltd. [1984] 1 Lloyd’s Rep 476, C.A. [54] Banque Financiere de la cite SA v. Westgate Insurance Co. Ltd., [1987] 1 Lloyd’s Rep 69. [55] Black King Shipping Corporation v. Massie, ‘Litsion Pride’, [1985] 1 Lloyd’s Rep 437. [56] A fraudulent claim is one that is ‘willfully false in any substantial respect’: Goulstone v. Royal Insurance Company (1858) 1 F&F 276, 279. [57] Every circumstance is material which would influence the judgement of a prudent owner in fixing the premiums, or determining whether he will take the risk: Pan Atlantic Insurance Co. Ltd. V. Pine Top Insurance co. Ltd., [1994] 2 Lloyd’s Rep 427, HL. [58] Duty under section 20 comes to an end on the termination of the contract. However, duty under section 19 exists even after its termination. [59] Subrogation is a process in insurance law whereby an insurer, having indemnified an assured, has transferred to himself all the rights and remedies of the assured with respect to the subject matter as from time of the casualty. However, those rights and remedies brought about by way of subrogation, may only be acted upon in the name of the assured who has been indemnified: Esso Petroleum Co. Ltd. V. Hall Russell and Co. [1988] 3 WLR 730, HL (per Lord Jauncey). [60] Simpson v. Thomson, (1877) 3 App. Cas. 279, 293 (per Lord Blackburn); “The general rule of law is that where there is a contract of indemnity, and a loss happens, anything which reduces or diminishes that loss reduces or diminishes the amount which the indemnifier is bound to pay; and if the indemnifier has already paid it, then, if anything which diminishes the loss comes into the hands of the person to whom he has paid it, it becomes an equity that the person who has already paid the full indemnity is entitled to be recouped by having that amount back: Burnard v. Rodocanachi (1882) 7 App. Cas. 333, HL (per lord Blackburn). [61] A.G. v. Glen Line, (1930) 37 Ll. L.R. 55 H.L.; Yorkshire Insurance Co. v. Nishet Shipping Co., (1962) 2 Q.B. 330. [62] Eagle Star Insurance Co. v. Provincial Insurance plc, [1993] 2 Lloyd’s Rep 143, PC.

Types of Marine insurance policies in India

This article has been written by Arushi Seth, pursuing a Diploma in M&A, Institutional Finance, and Investment Laws (PE and VC transactions) from LawSikho .

Table of Contents

Introduction

Remember the Titanic, which was interestingly christened an “Unsinkable Ship”? Well, the magnificent ship met its tragic end on her maiden journey itself, claiming the lives of over 70% of the crew and passengers on board and submerging cargo, worth approximately $9.5 million today, deep into the Atlantic ocean. But one noteworthy point, in the present context, is that ‘ The Oceanic Steam Navigation Company’ , popularly known as the ‘White Star Line’, insured the Titanic for a sum which today is equivalent to $133 million, and the insurance policies, interestingly, covered almost all of the property claims, thus relieving some of the burdens of the investors.

What is Marine Insurance?

Before diving deep into the sea of marine insurance, it is imperative to understand the meaning of ‘insurance’. The dictionary suggests that the word “Insurance” means, coverage by contract whereby one party undertakes to indemnify or guarantee another against loss by a specified contingency or peril. Marine insurance, therefore, is a type of insurance that covers the losses or the damages caused to the cargo of any ship, or the ships, cargo vessels, terminals, or any marine transport in which goods are carried from the point of origin to the final destination. It also covers the risks faced by various intermediaries. It provides comprehensive coverage for all the probable risks faced by a vessel at the sea.

Marine transport faces a relatively higher degree of threat as compared to the other modes of transport, such as road, rail, and air. The range of perils offered by the sea is very wide, ranging from weather or natural hazards to cross-border conflicts to pirate attacks. It not only becomes essential for all the people associated with a particular ship (the shipowner, the cargo owners, the intermediaries, etc.) to avail a marine insurance policy, the law mandates all the vessels engaged in commercial transport to have a suitable marine insurance policy to mitigate the potential risks. The Marine Insurance Act, 1963, which is on the lines of its predecessor, The English Marine Insurance Act, 1906 , regulates the principles and law of marine insurance in India.

Types of Marine Insurance in India

Due to a very wide ambit of marine insurance, different categories of it are classified based on different factors. Broadly, the classification of marine insurance in India depends on two factors – the coverage area of the insurance policy, and the structure of the insurance contract . Each of the two categories is further sub-categorized, based on the different needs and suitability of the person entering into the insurance contract.

Types of Marine Insurance – based on coverage area

The coverage area of an insurance policy is the geographical area or the protected area in which the benefits of an insurance policy apply. The following types of marine insurance are classified, based on the coverage area of the insurance policy –

Hull & machinery insurance – Hull is the most noticeable part of any ship. It is the watertight body of a ship or a boat that protects the cargo inside the ship from being damaged. Hull and Machinery Insurance, therefore, covers the loss or the damage caused to the body of the ship or any machinery or equipment in it, used for the functioning of the ship. It mostly covers accidents caused due to collisions, or the damages caused by earthquakes and explosions. This type of insurance is generally taken by the owners of the ship.
Marine cargo insurance – Marine cargo insurance is a type of property insurance that covers the cargo owners against any loss or damage caused to their cargo during its transit. It has extensive coverage, but also has certain limitations, for instance, the cargo owners lose their claims if the packaging of the cargo was defective. It also comes with a third-party liability, which covers the damages caused to the port, or a ship, or a railway track due to the presence of defective cargo.
Liability insurance – Liability insurance covers the financial liability of the person who is insured. It covers primarily the liabilities which arise due to the damages or injuries caused to the third party, for instance, the death or personal injury caused to any third party traveling in the ship.
Freight insurance – Freight insurance covers the liability of the shipping company or the logistics provider for the damage or loss caused to the shipment during transit due to events outside the control of the company.

Types of Marine Insurance policies – based on the structure of the contract

A ‘policy is a document that embodies the terms and conditions of the contract of insurance. It essentially is a written form of agreement between the insurance company and the person insured. It generally contains the provisions regarding the coverage area, the limitations of insurance policies, etc. Thus the different types of policies available under marine insurance are –

Open policy – An open policy, also called a floating policy, provides coverage for an indefinite number of transit journeys during the subsistence of the policy. This is especially beneficial for the companies which are involved in high-volume trade, as they are saved from taking an insurance policy on each transit journey. It covers all the transit journeys of the insured until the policy is canceled or until the last of the payment is realized, whichever is earlier.
Voyage policy – A voyage policy works on the same lines as the marine cargo insurance. Under this policy, the insurance company agrees to cover the losses or damages caused to the cargo during a specific voyage. It expires when the vessel reaches its destination, irrespective of the time it takes to reach there. Usually, it is bought by small exporters who ship their goods by sea only on some occasions.
Time policy – A time policy, as the name suggests, is issued for a fixed period of time. The vessel may make any number of voyages during this period. Generally, the insurance company issues this policy for one year, however, the period may vary depending on the agreement between both parties.
Mixed policy – A mixed policy is a combination or a mix of voyage and time policies. The insurance company, while issuing this policy, agrees to cover the loss or damage to the ship for a particular voyage till a particular period of time.
Single vessel policy – A single vessel policy insures only a single ship of the insured.
Fleet policy – The person insured has an option of either insuring a single ship by a policy, or of insuring several ships under one policy. If he chooses the latter option, he undertakes a ‘Fleet Policy’, under which a fleet of ships is insured under a single policy.
Unvalued policy – Every insurance policy is either an unvalued or a valued policy. Under an unvalued policy, the insurance company does not assign a value to the thing insured (the vessel or the cargo), at the time of underwriting the policy. The valuation of the property is done only after the claim of insurance has been filed. However, for a successful claim, the true value of the property has to be proved by the insured by way of invoices or estimates, before the valuation.
Valued policy – In a valued policy, the insured property is given a specific value when the policy is issued, and before any claims are made. When the claim is made by the insured, a pre-estimated or the specified amount is given, which does not depend on the amount of loss incurred by the insured. The depreciation of the property also does not affect the amount of claim, under a valued policy.
Block policy – A block policy is an all risks policy. Unless a contrary intention is expressed by the insurer, it essentially covers all the risks to which the goods are exposed when they are in transit, bailment, and on the premises of the third party. There are two popular types of block policy – furrier’s block policy, and jeweler’s block policy since fur and jewelry are two high-value commodities that are exposed to a greater threat of theft.
Port-risk policy – A port-risk policy covers ships that are either docked or are undergoing repair works at the port. It is an all-risk policy that covers all the risks unless otherwise agreed between the parties. It provides coverage for physical damages to the vessel as well as protection and indemnity but excludes any liability arising on account of the crew and cargo.
Named policy – A named policy is one in which the name or names of the ships is mentioned in the contract of insurance.
Wager policy – A wager policy protects from loss of the property of which the insured does not have legal proof of possession. This means, when the insured is not able to prove an insurable interest in the property, the insurance company may issue a wager policy to him. Under it, the whole claim of the insured is subject to the discretion of the insurer and the merits of the claim made. It is not a written policy as it is issued in contravention of the law.

Marine insurance has always been more popular than its peers, mainly because of the persistent and comparatively larger number of threats faced by marine transport. With the deteriorating conditions of the environment, and an upward trend of cyclones and hurricanes forming in seas in recent years, no one can foresee the potential risks to marine transport. In this vast pool of uncertainties, the only certainty cargo and ship owners have is of the compensation by way of insurance, as the law in India mandates all the people engaged in commercial transport to buy an insurance policy suitable to their business. Marine insurance has an impressive array of policies, which cater to the needs of almost all of the business owners and people associated with a particular shipment or consignment. It ensures that not even the smallest intermediary is left with losses due to events out of their control. However, irrespective of the benefits it provides, marine insurance is not void of limitations, drawbacks, and loopholes. Therefore, it is always advised to the people buying a marine insurance policy to determine their needs before they make any agreement with the insurer.

https://upscapital.com/resources/the-bottom-line-titanic/
https://www.marineinsight.com/maritime-law/different-types-of-marine-insurance-marine-insurance-policies/
https://www.paisabazaar.com/commercial-insurance/marine-insurance/
https://www.bajajallianz.com/blog/knowledgebytes/types-of-marine-insurance.html
https://www.investopedia.com/terms/o/open-cover.asp
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Types of Insurance
Marine Insurance

MARINE INSURANCE POLICY

The fundamental principles of Marine Insurance are drawn from the Marine Insurance Act, 1963* As in all contracts of insurance on property, the contract of Marine Insurance is based on the fundamental principles of Indemnity, Insurable Interest, Utmost Good Faith, Proximate Cause, Subrogation and Contribution. Practitioners of Marine Insurance must familiarize themselves with the Act and uphold these Principles when negotiating Contracts and settling claims under the contract.

INDEMNITY:

The object of an insurance contract is to place the assured after a loss in the same relative financial position in which he would have stood had no loss occurred. By the Marine Insurance Act, the indemnity that is provided is “in manner and to the extent agreed.” A “commercial” indemnity is thus provided. Because insurers cannot undertake to reinstate or replace cargo in the event of loss or damage, they pay a sum of money, agreed in advance, that will provide reasonable compensation. In practice, this is achieved by agreeing in advance the insured value, based on C.I.F., value of the goods to which it is customary to add an agreed ten percent which is intended to include the general overheads and perhaps a margin of profit on the transaction.

Upon total loss of the entire cargo by an insured peril the sum insured is paid in full, and if part of the cargo is a total loss, the appropriate proportion of the insured value is paid.

Claims for damage are settled by ascertaining the percentage of depreciation and applying this percentage to the insured value. The percentage of depreciation is calculated by comparing the value the goods would realize in their damaged state with their gross sound value on the date of the sale. The same date is used for both values to avoid distortion of the result arising from fluctuations in the market prices.

In Marine insurance it is customary to issue agreed value policies. The agreed value is conclusive between the Insurer and the Assured except in the event of the unintentional error or where fraud is alleged.

“Duty” and “Increased Value” policies are not agreed value policies. They provide pure indemnity only.

INSURABLE INTEREST:

The Marine Insurance Act contains a very clear definition of insurable interest. It states that there must be a physical object exposed to marine perils and that the insured must have some legal relationship to the object, in consequence of which he benefits by its preservation and is prejudiced by loss or damage happening to it or where he may incur liability in respect thereof.

Whereas in fire and accident insurance an insurable interest must exist both at inception of the

contract and at the time of loss, the interest in respect of a marine contract must exist at the time of loss, though it may not have existed when the insurance was affected. This is necessary when one considers the mercantile practice under which there is every possibility of sale and purchase of goods during transit. However, the MIA has provided that where the goods are insured “lost or not lost” the assured may recover the loss, although he may not have acquired his interest until after the loss, unless at the time of effecting insurance he was aware of the loss and the insurer was not. If the assured had no interest at the time of the loss, he cannot acquire interest by any act or election after he is aware of the loss. Arising from this, both a contingent and a defeasible interest are insurable. A partial interest is also insurable.

Unless like the normal indemnity policy of other classes of insurance, a marine cargo policy is freely assignable either before or after loss provided of course the assignee has acquired insurable interest .

The type of sale contract also determines the Insurable Interest. A separate chapter has been devoted to most common terms of contracts known as “Inco Terms”. The terms dictate which of the two parties to the contract, is responsible to insure the goods .

GOOD FAITH:

Every contract of insurance is a contract “uberrimae fidei” i.e. one which requires utmost good faith on the part of both the insurer and the assured. In Marine Insurance, it is the duty of the proposer to disclose clearly and accurately all material facts related to the risk. A material fact is a fact, which would affect the judgement of a prudent Underwriter in considering whether he would enter into a contract at all or enter into it at one rate of premium or another and subject to what terms. Apart from the duty of disclosure, the insured must act towards the insurer in good faith throughout the duration of the contract.

It is customary to classify breaches of the duty of utmost good faith under four headings: non- disclosure, concealment, innocent misrepresentation, and fraudulent misrepresentation. The first two are termed passive breaches and the other two are termed active breaches. The Marine Insurance Act places a statutory duty on the assured to disclose to the insurer all material circumstances known to him or which he should know in the ordinary course of his business.

Whether non-disclosure is intentional or inadvertent, the effect is the same and the policy may be avoided, although deliberate and material non-disclosure would usually amount to fraud and render the policy void.

Over-valuation, for example, must be communicated to the insurers; if it is not so communicated, it is a concealment of a material fact and voids the insurance.

PROXIMATE CAUSE:

“Proximate cause means the active, efficient cause that sets in motion a train of events which brings about a result, without the intervention of any force started and working actively from a new and independent source.”

Insurers are liable if an insured peril is the proximate cause of the loss. If an insured peril is only the remote cause of the loss, the proximate cause being an uninsured or excepted peril, the insurers are not liable.

The proximate cause is not necessarily that which is proximate in time, but that which is proximate in efficiency. It is the dominant, effective and operative cause of the loss.

In case of concurrent causes, following rules apply: -

a) If one of the causes contributing to the loss is an insured peril, and no excepted peril is involved, the loss is cov
b) If one of the causes is an excepted peril, the loss is not covered at all, unless the consequences of the insured peril can be separated from those of the uninsured peril, in which event the former, but not the latter, is cover.

SUBROGATION:

“Subrogation is the right which one person has of standing in place of another and availing himself of all the rights and remedies of the other, whether already enforced or not.”

Subrogation is a corollary of the principle of indemnity and the right of subrogation therefore applies only to policies, which are contracts of indemnity. Subrogation is a matter of equity, the purpose of which is to ensure that the insured is not over-indemnified for the same loss.

(a) In Marine insurance, where an insurer pays for a total loss:

1i) he is entitled to take over the interest of the assured in whatever may remain of the subject-matter so paid for (abandonment);

1.ii) and he is subrogated to all the rights and remedies of the assured as from the time of the loss (subrogation)

(b) Where an insurer pays for a partial loss, he acquires no title to the subject-matter insured or to such part of it as may remain, but he is subrogated to all the rights and remedies of the assured as from the time of the loss, and in so far as the assured has been indemnified.

In marine insurance subrogation applies only after payment of a loss. The insurer is entitled to recover only up to the amount, which he has paid, in respect of rights and remedies.

On payment of a total loss, the insurer is entitled to assume rights of ownership of the subject- matter insured. The right is conferred upon him by abandonment (not by rights of subrogation) and the effect is that if the property is subsequently salvaged or recovered the insurer is entitled to retain the whole of the proceeds of sale even though they may exceed the sum paid out under the policy, always assuming the property is fully insured and that the assured was not bearing part of the risk himself.

In addition to this right of exercising ownership of the property, the insurer is subrogated to “all rights and remedies of the assured” as from the time of casualty causing the loss. This simply means that if the loss has been caused by the negligence of a third party, against whom the assured has the right of action in tort – say, against a carrier or bailee – then the Insurer is entitled to succeed to any recovery (whereby the loss is reduced) the assured may affect from such third party. This principle applies equally to total and partial losses and has nothing whatever to do with the doctrine of abandonment.

CONTRIBUTION

Sometimes one risk may be covered by more than one insurer. In that case it is desirable not only to ensure that the insured does not receive more than an indemnity but that any loss is fairly spread between all the insurers involved. The principle of contribution is a method of distributing fairly among insurers the burden of claims for which each shares some responsibility.

Following factors are required to exist before a loss is shared among the insurers

a) There must be at least two policies of insurance.
b) All insurances must be policies of indemnity
c) The policies must cover

i)The same interest

ii)The same subject matter

iii)The same peril

d) A loss must occur
e) The policies must be in force at the time of loss.
f) All policies must cover the
g) The policies must be legally enforceable.

A contract of marine insurance is an agreement whereby the insurer undertakes to indemnify the insured, in the manner and to the extent thereby agreed, against transit losses, losses incidental to transit. A contract of marine insurance may by its express terms or by usage of trade be extended to protect the insured against losses on inland waters or any land risk which may be incidental to any sea voyage. In simple words the marine insurance includes

A) Cargo insurance which provides insurance cover in respect of loss of or damage to goods during transit by rail, road, sea, air or by post. Thus, cargo insurance concerns the following:

(i) export and import shipments by ocean-going vessels of all types,

(ii) coastal shipments by steamers, sailing vessels, mechanized boats, etc.,

(iii) shipments by inland vessels or country craft, and

(iv) Consignments by rail, road, or air and articles sent by post.

B) Hull insurance which is concerned with the insurance of ships (hull, machinery, etc.). This is a highly technical subject and is not dealt in this module. Simply speaking this part of marine insurance which is called Hull Insurance is dealing with insurance of Ships, barges launches, boats and offshore installations.

FEATURES OF MARINE INSURANCE

Offer & Acceptance: It is a prerequisite to any contract. Similarly, the goods under marine (transit) insurance will be insured after the offer is accepted by the insurance company.

2) Payment of premium: An owner must ensure that the premium is paid well in advance so that the risk can be covered.

3)Contract of Indemnity: Marine insurance is contract of indemnity and the insurance company is liable only to the extent of actual loss suffered.

4) Utmost good faith: The owner of goods to be transported must disclose all the relevant information to the insurance company while insuring their goods.

5) Insurable Interest: The marine insurance will be valid if the person is having insurable interest at the time of loss.

6) Contribution: If a person insures his goods with two insurance companies, then in case of marine loss both the insurance companies will pay the loss to the owner proportionately.

7)Period of marine Insurance: The period of insurance in the policy is for the normal time taken for a transit. Generally, the period of open marine insurance will not exceed one year.

8) Deliberate Act: If goods are damaged or loss occurs during transit because of deliberate act of an owner then that damage or loss will not be covered under the policy.

9) Claims: To get the compensation under marine insurance the owner must inform the insurance company immediately so that the insurance company can take necessary steps to determine the loss.

OPERATION OF MARINE INSURANCE Marine insurance plays an important role in domestic trade as well as in international trade. Most contracts of sale require that the goods must be covered, either by the seller or the buyer, against loss or damage.

Type of contract Responsibility for insurance Free on Board

The seller is responsible till the goods (F.O.B. Contract) are placed on board the steamer. The buyer is responsible thereafter. He can get the insurance done wherever he likes.

Free on Rail The provisions are the same as in (F.O.R. Contract) above. This is mainly relevant to internal transactions.

Cost and Freight Here also, the buyer’s responsibility (C&F Contract) normally attaches once the goods are placed on board. He must take care of the insurance from that point onwards.

Cost, Insurance & In this case, the seller is responsible Freight for arranging the insurance up to (C.I.F. Contract) destination. He includes the premium charge as part of the cost of goods in the sale invoice.

Practice in International Trade

The normal practice in export /import trade is for the exporter to ask the importer to open a letter of credit with a bank in favor of the exporter.

The terms and conditions of insurance are specified in the letter of credit. For export/import policies, the-Institute Cargo Clauses (I.C.C.) are used. These clauses are drafted by the Institute of London Underwriters (ILU) and are used by insurance companies in most of countries including India.

Types of Marine Cargo Insurance

a) Specific voyage policy: A specific voyage policy covers transportation of goods through inland transport, import and export for specific destinations.
b) Open policy/Open cover: An open policy or an open cover is an undertaking to cover all shipments/transits that will be made during the year. At inception the insurer will have only general details of the cargoes, estimated sum insured, voyages and the quality of vessels that will be used. Specific details are provided for each shipment in the order of dispatch or in the form of periodic declarations.
c) Annual Sales Turnover Policy An Annual Sales Turnover Policy has become very popular in India. This is no different from any open policy except that the rate of premium is charged only on the sales turnover (and any other components not captured by the term ‘sales turnover’). It is also known as Sales Turnover Policy (STOP) and Annual Turnover Policy (ATP) in different companies
d) “Duty” Insurance Cargo imported into India is subject to payment of Customs Duty, as per the Customs Act. This duty can be included in the value of the cargo insured under a Marine Cargo Policy, or a separate policy can be issued in which case the Duty Insurance Clause is incorporated in the policy.
e) Contingency Insurance( Buyer’s or Seller’s): This policy extends to cover the assured’s contingent financial interest in any goods where the assured has no responsibility to insure under the Terms of Sale or where the cover provided is more restrictive than that afforded under this policy.

The important exclusions under marine cargo policies are:

i)Loss caused by willful misconduct of the insured.

ii)Ordinary leakage, ordinary loss in weight or volume or ordinary wear and tear. These are normal ‘trade’ losses which are inevitable and not accidental in nature

iii. Loss caused by ‘inherent vice’ or nature of the subject matter. For example, perishable commodities like fruits, vegetables, etc. may deteriorate without any ‘accidental cause’. This is known as ‘inherent vice’.

iv)Loss caused by delay, even though the delay be caused by an insured risk.

v). Loss or damage due to inadequate packing.

vi)Loss arising from insolvency or financial default of owners, operators, etc. of the vessel

vii) War and kindred perils. These can be covered on payment of extra premium.

viii)Strikes, riots, lock-out, civil commotions and terrorism (SRCC) can be covered on payment of extra premium.

MARINE HULL INSURANCE

Types of Marine Hull Insurance

Insurance of vessel and its equipment’s are included under hull insurance, there are several classifications of vessels such as ocean steamers, sailing vessels, builders, risks fleet policies and so on.

It is concerned with the insurance of hull and machinery of ocean-going and other vessels like barges, tankers, Fishing and sailing vessels.

A recent development in hull insurance has been the growth of insurance of offshore oil/gas exploration and production units as well as connected construction risks.

It is covered with specialized class of business particularly for Fishing Vessels, Trawler’s, Dredgers, Inland and Sailing Vessels are available.

The subject matter of hull insurance is the vessel or ship. There are many types of designs of ships. Most of them are constructed of steel and welded and are capable of sailing on the sea in ballast in with cargo.

The ship is to be measured with GRT (Gross Register Tonnage) and NRT (Net Register Tonnage). GRT is calculated by dividing the volume in cubic feet of the ship’s hull below the tonnage dock, plus all spaces above the deck with permanent means of closing.

NRT is the gross tonnage less certain spines for machinery, crew accommodation ballast spaces and is intended to encompass only those spinning used for carriage of cargo.

DWT (Dead Weight Tonnage) means the capacity in tons of the cargo required in load a ship to her load line level.

Subdivision of Hull Insurance

The Hull Insurance is further Subdivision into;

General Cargo vessels.
Dry Bulk Carriers.
Liquid Bulk Carriers.
Passenger Vessels.

These can be further divided into ocean going and coastal tonnage. Ocean going general cargo vessels is usually in the 5000 to 15000 GRT range, coasters are smaller in size and one engaged in the carriage of bulk cargoes.

Coastal tonnage does not withstand the same strains as ocean going vessels.

General Cargo Vessel

The general cargo vessels may be container ships, large carriers (LASH – Lighter Abroad Ship) Ro-Ro (Roll on Roll off) vessels, Refers (Refrigerated Vessels General Cargo)

Dry Bulk Carriers

Dry Bulk Carriers are specially constructed vessels in the size range of thousands GRT for coasters and 70,000 GRT for ocean going tonnage. The main bulk cargoes carried are iron ore, coal, grain bauxite and phosphate

Liquid Bulk Carriers

Tankers are strongly constructed to carry bulk liquid. The tankers have using tanks which do not extend across the breadth of the tanker.

Passenger Vessels

There are cruise vessels or passenger liners which sail on voyages to distant areas of scenically beautiful but rocky or shallow coasts or near the icy waters of the Arctic and Antarctic. They possess modem navigational systems.

Other Vessels

There are other types of vessels such as fishing vessels, offshore oil vessels and others.

Fishing Vessels

Fishing vessels bulk of steel and fiberglass (GRP) are much more prevalent.

Geographical/physical features of the area of operations vary from comparatively sheltered waters of inshore fishing to the full rigors of the open seas with exposure to gales, heavy seas fog ice and snow.

Offshore Oil Vessels

The offshore oil vessels are used for explanation or for commercial production of oil from the ocean beds.

Hull and Machinery Insurance

The policy covers the hull, machinery and equipment and stores etc. on board but do not cover cargo.

The insurance cover, the requirements of the individual ship owner and protects him against partially loss, total loss, ship’s proportion of general average and salvage charges, sue and labor expenses and ship-owner’s liability towards other vessels arising from collisions.

Hull Underwriting

Hull underwriting requires the following information to assure the risk: Type, construction, builders, age, tonnage, dimension, equipment, propulsion machines, engine, fire extinguisher; classification society, merchant shipping act, warranties, navigation physical and moral hazard.

Fire Insurance
Motor Insurance
Health Insurance
Personal Accident
Crop Insurance
All other Miscellaneous
Property Insurance
Engineering

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UK Public General Acts
1906 c. 41 (Regnal. 6_Edw_7)
Assignment of Policy
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Assignment of Policy U.K.

50 when and how policy is assignable. u.k..

(1) A marine policy is assignable unless it contains terms expressly prohibiting assignment. It may be assigned either before or after loss.

(3) A marine policy may be assigned by indorsement thereon or in other customary manner.

51 Assured who has no interest cannot assign. U.K.

Where the assured has parted with or lost his interest in the subject-matter insured, and has not, before or at the time of so doing, expressly or impliedly agreed to assign the policy, any subsequent assignment of the policy is inoperative:

Provided that nothing in this section affects the assignment of a policy after loss.

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Assignment of Marine Insurance Policies
Understanding Assignment of Marine Insurance Policies: Explore the ins and outs, from the types of marine insurance to the principles of insurable interest. Delve into the legal aspects, discussing policy assignment, restrictions, and key provisions under the Marine Insurance Act, 1963. Learn how the nature of marine insurance policies differs from other insurance types and the critical role ...
Assignment of Marine Insurance Policy
Assignment of Policy -. When and how policy is assignable- according to Section 52-. (1) A Marine Policy may be transferred by assignment unless it contains terms expressly prohibiting assignment. It may be assigned either before or after loss. (2) where A marine policy has been assigned so as to pass the beneficial interest in such policy, the ...
PDF Module Handbook Marine Insurance
The embodiment of the marine insurance contract, the Policy: the formal requirements of a policy, inconsistency between the contract, the policy and the slip; ... 4. Assignment: assignment of the policy, assignment of a specific right under the policy, assignment of the subject-matter of the insurance policy, distinction between assignees and ...
Marine Insurance
In English law, marine policies are freely assignable, and the formalities for assignment under s 50 (2) of the Marine Insurance Act 1906 are minimal. Written notice need not be given to the insurers, although notice is desirable in order to preserve the assignee's priority over later assignees. In Raiffeisen Zentralbank Osterreich AG v Five ...
Assignment of marine insurance policies
Assignment of marine insurance policies. Dear Friends, As you are aware that a contract of marine insurance is an agreement whereby the insurer undertakes to indemnify the insured, in the manner and to the extent thereby agreed, against transit losses, that is to say losses incidental to transit. A contract of marine insurance may by its ...
ASSIGNMENTS IN INSURANCE LAW
3. Marine Insurance. The Marine Insurance Act 1906 [23] contains a few sections dealing with the concept of assignment in marine insurance. Section 50 of this Act states : "(1) A marine policy is assignable unless it contains terms expressly prohibiting assignment. It may be assigned either before or after loss.
Different Types of Marine Insurance & Marine Insurance Policies
Floating Policy: A marine insurance policy where only the amount of claim is specified and all other details are omitted till the time the ship embarks on its journey, is known as a floating policy. For clients who undertake frequent trips of cargo transportation through waters, this is the most ideal and feasible marine insurance policy.
356. Assignment Of Marine Insurance Policy.
Assignment of marine insurance policy. ... In the case of a marine insurance policy, a transfer of the property insured does not by itself effect the transfer of the policy to the assignee 1. Moreover, where the assured has parted with or lost their interest in the subject matter.
PDF Marine insurance policies and practice: An appraisal
This type of marine insurance is mainly taken out by the owner of the ship in order to avoid any loss to the ship in case of any mishaps occurring. It covers: the insurance of the vessel and its equipment i.e. furniture and fittings, machinery, tools, fuel, etc. It is effected generally by the owner of the ship.
Marine Insurance Contract Part I
Marine Insurance Contract Part I | Types of Marine Policies | Lectures on Insurance Law.For pdf of lecture click link given below.https://rzp.io/l/nVzLwvBLga...
PDF Marine Insurance Act
Assignment of policy. 51. When and how policy is assignable. 52. Assured who has no interest cannot assign. ... An Act to provide for marine insurance and to prohibit gambling on loss by mari- time perils. [1961 No. 54.] ... is covered by a policy in the form of a marine policy, the provisions of this Act, in so far as applicable, shall apply ...
Assignment under Insurance Policies
The creation of assignment of life insurance policies is provided for, under Section 38 of the Insurance Act, 1938. ... all marine, transit and other hazards incidental to the acquisition, transportation and delivery of the relevant Assets to the place of use or installation. The Hypothecator shall deliver to the Bank the relevant policies of ...
PDF The Principle of Insurable Interest in The Context of Marine Insurance
9The Indian Marine insurance Act, 1963 defines Insurable Interest as:"(1) Subject to the provisions of this Act, every pe. the detention thereof, or may incur liability in respect thereof"10The above provision is a verbatim duplication of the English Marine Insurance Act of 1906.11 The section states that every person who is inter.
What Is Marine Insurance? Essential Elements, Essential ...
Assignment of Policy. A marine insurance policy is assignable either before or after the loss, unless it contains terms expressly prohibiting assignment (Section 52[1]). A policy on goods is usually freely assignable. Commodities such as tea, jute, and wheat are transacted before they reach their destination; therefore, policies on these goods ...
Assignment of Policy
Assignment of Policy. 50. When and how policy is assignable. (1)A marine policy is assignable unless it contains terms expressly prohibiting assignment. It may be assigned either before or after loss. (2)Where a marine policy has been assigned so as to pass the beneficial interest in such policy, the assignee of the policy is entitled to sue ...
Important features of Marine Insurance Contract
Assignment can be effected through a customary manner or any other manner as agreed between the parties. The party cannot assign the policy after losing interest in the subject matter. ... Marine insurance is an indemnity policy under which an insurer agrees to compensate for losses or damages in consideration of the timely payment of premium ...
Marine Insurance
Floating in Marine Insurance policy, large exporters may opt for an open policy, also known as a blanket policy, instead of taking insurance separately for each shipment. An open policy is a one-time insurance that provides insurance cover against all shipments made during the agreed period, often a year. The exporter may need to declare ...
PDF KLE LAW ACADEMY BELAGAVI
The insurance policy, being a contract, is subject to all the judicial interpretative ... Proxima, Assignment of the subject matter. UNIT - III ... Insurable values- Marine insurance and policy- Conditions and express warranties Voyage deviation- Perils of sea- Loss- Kinds of Loss- The Marine Insurance Act, 1963 (Ss 1 to 91). ...
Marine Insurance Policy
The law relating to marine insurance was codified in England by the Marine Insurance Act of 1906, and this Act came into force on January 1, 1907. This was proposed and initiated in an attempt to clarify and set forth the regulations and policy variables associated with marine insurance agreements.
PDF UNIT V Marine Insurance -scope and nature types of Marine policies
marine insurance policy. 9.Blanket policy: In this policy, the owner has to pay the maximum protection amount at the time of buying the policy. Difference between Fire Insurance & Marine Insurance Fire insurance is an insurance that covers the risk of fire. The subject matter is any physical asset or property.
Types of Marine insurance policies in India
The following types of marine insurance are classified, based on the coverage area of the insurance policy -. Hull & machinery insurance - Hull is the most noticeable part of any ship. It is the watertight body of a ship or a boat that protects the cargo inside the ship from being damaged. Hull and Machinery Insurance, therefore, covers the ...
Marine Insurance
MARINE INSURANCE POLICY The fundamental principles of Marine Insurance are drawn from the Marine Insurance Act, 1963* As in all contracts of insurance on property, the contract of Marine Insurance is based on the fundamental principles of Indemnity, Insurable Interest, Utmost Good Faith, Proximate Cause, Subrogation and Contribution.Practitioners of Marine Insurance must familiarize themselves ...
Marine Insurance Act 1906
Assignment of Policy U.K. 50 When and how policy is assignable. U.K. (1) A marine policy is assignable unless it contains terms expressly prohibiting assignment. It may be assigned either before or after loss. (2) Where a marine policy has been assigned so as to pass the beneficial interest in such policy, the assignee of the policy is entitled to sue thereon in his own name; and the defendant ...

Assignment of Marine Insurance Policies

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Assignment of Marine Insurance Policy | Insurance Law

Insurance Law Monthly

Marine Insurance - Assignment of marine policies and the applicable law

Assignment of marine insurance policies

A. CARGO INSURANCE

B. HULL INSURANCE

INSURABLE INTEREST

"Actionable Claim"

Section 6(e) of the Transfer of Property Act,1882 lays down that a mere right to sue cannot be transferred

"ASSIGNMENT"

ASSIGNMENT OF A CONTRACT OF INSURANCE AND ASSIGNMENT OF THE SUBJECT MATTER OF INSURANCE

Please note that

THE SUBJECT MATTER OF INSURANCE

WHETHER FIRE AND ACCIDENT POLICIES ARE ASSIGNABLE?

PLEASE NOTE THAT

RESTRICTIONS ON ASSIGNABILITY IMPOSED BY THE COMPANY

ASSIGNMENT OF MARINE INSURANCE POLICY

SECTION 17 OF MARINE INSURANCE ACT,1963 provides that

ACCORDING TO SECTION 25 OF THE MI ACT,1963

Contract must be embodied in policy

SECTION 52 provides that

SECTION 53 OF MI ACT, 1963

Please Note That

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Introduction

1.2 Assignment

2.1 Generally

2.3 Marine Insurance Act 1906

7.5 Conditions Prohibiting Assignment

1.1 Nature of Insurance Policies

2. Application of English Law

2.2 Policies of Assurance Act 1867

7.1 Assignment of Insurance Policies

7.2 Assignment of the Proceeds of Insurance Policies

7.3 Assignment of the Subject Matter of Insurance Policies

7.4 Assignment by Operation of Law

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Different Types of Marine Insurance & Marine Insurance Policies

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356. Assignment of marine insurance policy.

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LEGAL SOLUTIONS

What is Marine Insurance? Essential Elements, Essential Elements, Objectives, Types, Primary Branches, Legal Provisions, How to Claim

What is Marine Insurance?

Cargo Insurance

Hull Insurance

Essential Elements of Marine Insurance Contract

Utmost Good Faith

Doctrine of Indemnity

Doctrine of Subrogation

Proximate Cause

Objectives of Marine Insurance

Types of Marine Insurance Policy

Inland Transit

Import/Export

Primary Branches of Marine Property Insurance