Principles Of Marine Insurance
2022-03-21 17:55:01Most people think that marine insurance is a new concept, which was introduced recently to the market. However, it has been around for years. As trading has grown at a rapid pace, marine insurance has become more popular. Marine insurance is all about covering the loss and damage happening during the transfer of goods from one place to another by ship, road, rail, and air.
In order to maintain fairness and consistency in the delivery of insurance services, fundamental principles of marine insurance play a crucial role. Understanding each principle helps you in making the right decision when buying any type of marine insurance. In this blog, let's understand these principles of marine insurance in detail.
Fundamental Principles of Marine Insurance
Let's understand the principles of marine insurance to make informed decisions.
Principle Of Utmost Good Faith
Like other insurance policies, this marine policy relies on the principle of good faith. Transparency and trust are the two important aspects that one should know before buying a policy. Therefore while buying a marine policy, the insurer and insured both should provide proper details without hiding any kind of material info.
If you hide any of your essential information then the insurance company has legal rights to reject or ignore your policy application. Breaking this rule falls into 4 main types: hiding information, not sharing important details, lying about something, and accidentally giving incorrect information.
So, while filling out your policy make sure that you have all the genuine and correct information about the things requested in your policy.
Principle Of Insurable Interest
Insurable interest refers to the investment that is made by a person to avoid financial loss. If you want the safety of your products then you must go with this option. According to the Marine Insurance Act of 1963, the principle of insurable interest states that the person having this type of investment gets the advantage for the safe arrival of his goods without suffering any losses.
On the other hand, you lose money if the goods are delivered late or not in the right condition. So, according to this principle, you need to make sure the goods arrive safely to get benefits.
also Read - Guide To Marine InsurancePrinciple Of Indemnity
Under this principle of marine insurance, you will get covered for the losses of your damaged goods only. It doesn't compensate for any extra benefits to the policyholder. The insurer will only provide an amount that is essential to cover your loss.
For example, if you have a marine insurance policy worth 40 lakhs and you lose 10 lakhs because of an accident, you will only get 10 lakhs in compensation, even though your policy covers up to 40 lakhs.
Many times it is observed that people invest their money in this insurance without much research, which results in undesirable consequences. Therefore, you are not going to get any extra credit in marine insurance other than your actual loss.
Principle Of Proximate Cause
This fundamental principle of marine insurance deals with the nearest cause of claim in any kind of insurance. During loss, it helps to find the direct/actual cause of damage to goods and vessels, especially when multiple events have happened at once.
According to this principle, the insurer will only pay if the policy covers the main cause of the loss. If the main cause isn’t covered by the policy, the insurer doesn't have to pay.
For example, if your cargo was robbed by pirates and your policy only covers losses from natural events, you can’t claim compensation by saying heavy rain caused the theft. In this case, piracy is the main cause of the loss, so the insurance company is not liable to pay for this.
Principle Of Contribution
The contribution principle comes to act on those situations when a proposer takes multiple policies against a single subject matter. This principle states that you can't make multiple claims or buy multiple policies for one subject matter.
The insurance company has legal rights to refuse such claims and covers demanded by the proposer. For example - if you have purchased a policy for your property worth 5 lakhs from companies A and B respectively. In case of any damage, you are allowed to claim the amount from any one company (due to the contribution principle).
Final Word
Understanding the fundamental principles of marine insurance such as utmost good faith, insurable interest, indemnity, proximate cause, subrogation, and contribution, can help you avoid various problems when making a claim. They guide both insurers and policyholders and are crucial for smooth claim settlements.
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What is marine insurance?
Marine insurance protects goods and vessels during transportation by ship, road, rail, and air. It covers losses or damages that occur while moving items from one place to another.
What does the principle of utmost good faith mean?
This principle means that both the insurer and the insured must be honest and provide all important information. Hiding or misrepresenting details allows the insurance company to deny the claim.
What is insurable interest?
Insurable interest means that you need to have a financial stake in the goods or property you're insuring. If something happens to them, you should bear a loss.
What is the Marine Insurance Act of 1963?
The Marine Insurance Act, introduced in India on August 1, 1963, which sets the rules for marine insurance. It explains what insurers, insured parties, and brokers need to do and their rights and responsibilities.
Why is marine insurance important?
Marine insurance gives protection from financial losses, fulfills legal requirements, helps in managing risks, encourages investments, supports international trade, and more.
