Relevance of the Marine Insurance Act

The Marine Insurance Act, 1906 was the first attempt at codifying the rules governing Marine insurance which earlier was totally fragmented with little or no standardization in different parts of the world. The Indian version of the Marine Insurance Act was passed in 1963 and it drew largely from the British Act of 1906.

Is the Marine Insurance Act, 1963 relevant in today’s world? Many marine insurance practitioners ( underwriters & claims handlers) may not have accessed the Marine Insurance Act at all and yet be successful in their practice. The belief is that the marine insurance policy represents the contract between the insurer and the assured & differences if any, should be decided by Courts based on the interpretations of the policy terms and conditions along with the relevant back-papers. Is there any place for the Marine Insurance Act, some youngsters do argue. Nothing can be further from the truth. While the policy terms and conditions form the basis of the contract between the insurer and assured, the over-arching boundaries of all marine policies are laid down by the Marine Insurance Act, 1963. Then why not an Act for every class of insurance one might ask. Marine insurance being global in nature, there is always the need that certain terms are understood in the same sense the world over and certain procedures laid down in the Act are followed uniformly everywhere.

Certain basic features of marine insurance which are often taken as normal or considered as ‘conventional’ find their roots in the Marine Insurance Act, 1963. The simplest of example would be that all of us know marine insurance in its traditional form covered (covers) sea voyages along with incidental inland transits. Section of the Marine Insurance Act, 1963 specifically states that any land risk incidental to the sea voyage is covered under Marine insurance.

The basic principles of insurance (not only Marine insurance) are well-known — 1) Utmost good faith 2) Insurable interest 3) Indemnity 4) Proximate cause 5) Subrogation. The Marine Insurance Act not only defines these basic principles but also elaborates and brings out subtle nuances in each of these principles. As for Utmost good faith (Uberrimae Fidei), the Act says that if the good faith is breached by ‘either party’, the other may avoid the contract. It casts a duty on the assured to disclose every ‘material circumstance’ he knows or should know in the ordinary course of business, to the insurer. It further clarifies what a ‘ material circumstance’ is – something which would influence a prudent insurer in deciding whether to accept a risk or not.

Similarly, the Act defines insurable interest in marine insurance and states that it need to exist at the time of loss and not necessarily when the insurance was effected. It further talks about Defeasible interest and Contingent interest, which lead to the manner of Assignment of policies and covers like Seller’s interest clause. How should an Assignment be done is explained in Section 52. Assignment can be done by endorsement or in any customary manner, either before or after the loss. The effect of assignment is that the beneficial interest in the policy is passed on to the assignee who can sue or defend in his own name as if was the original insured. 

The principle of Indemnity, i.e. ‘ assured not to make a profit out of loss’  is well brought out by the Act. Here the indemnity is not a strict indemnity but a commercial indemnity. In case of Total loss, amount payable will be the sum fixed by the policy, in case of partial loss where part of the goods are totally loss, measure of indemnity will be the proportionate loss relative to the sum insured. In case the whole or part of the goods arrive at the destination in damaged condition, indemnity will be calculated as Gross Sound Value – Gross Damaged Value/ Gross Sound Value, expressed as a percentage and applied to the sum insured. This takes care of adjusting the allowance to suit falling or rising markets at the destination.

On Subrogation, it is common knowledge that it means ‘ stepping into the shoes’ of the insured after settlement of the claim by the insurer . The Act makes a distinction between Subrogation on a Total loss settlement and a partial loss settlement. In case of Total Loss, under subrogation, the insurer gets to take over the salvage apart from getting all the rights and remedies to which the assured is entitled. However, in case of a partial loss, insurer is entitled to all the rights and remedies available to the assured only, he is not entitled to take over the salvage.

The Marine Insurance Act defines the types of losses which can be indemnified under a marine policy. In Total Loss, while distinguishing between an Actual Total Loss & a Constructive Total Loss ( where the expense to be incurred to avoid an Actual Total Loss would exceed the insured value), The Act lays down that in case of a Constructive Total Loss, Notice of Abandonment by the assured to the insurer is a MUST. It may be oral, in writing or partially oral and partly in writing.

The policy form ( SG form) is given as an annexure to the Marine Insurance Act, which was widely used by insurers prior to the Institute Cargo Clauses coming into vogue in 1982. Strangely enough, the SG Form did not specify the excluded losses for which reference to Section 55 of the Marine Insurance Act was necessary. The ICC drew all but two of the exclusions of Section 55 under the General exclusions under ICC-A 2009 and also added some more general exclusions.

Warranties are defined in the Act as an undertaking by the assured that 1) some particular thing shall or shall not done 2) some condition shall be fulfilled 3) affirms or negatives the existence of a particular state of facts. Non-compliance of a warranty, whether it be material to the risk or not would discharge the insurer from liability.

It becomes apparent that whenever a marine claim runs into trouble and goes to a Court of Law, apart from the policy terms and conditions, the underwriting and claims decisions from the standpoint of the Marine Insurance Act are always considered. Hence, the Act is very much relevant to this day and it will be in the interest of marine insurance practitioners that they keep themselves aware of the Marine Insurance Act provisions, especially when encountered with tricky claims.So, can it be said that the Marine Insurance Act, 1963 in its current form is ideal. Maybe not. In the United Kingdom, the Insurance Act, 2015 ( Note there is no specific mention of ‘Marine’) has been introduced. This along with the Enterprise Act, 2016 has brought about certain important changes like Duty of fair representation of facts by the insured including remedies for non-compliance, insurer’s liability not getting permanently discharged for breach of warranty, etc. As of now, in India, the Marine Insurance Act, 1963 holds sway.