‘Uberrimae fidei’ or the principle of Utmost good faith— does it apply to Marine insurance as applicable to all other classes of insurance. Yes, of course.What’s more,this principle is laid down in Section 19 of the Marine Insurance Act, 1963 too. That’s where, a grey area emerges between law and practice in certain circumstances. Let me explain how:
Section 20(1) & (2) of the Marine Insurance Act,1963 stipulate that the assured ought to inform the insurer all material facts which he knows or is supposed to know in the ordinary course of business i.e. every fact which would influence a prudent insurer in deciding whether to accept a risk or not and if yes, on what terms and rates.
Problem starts with the circumstances which need not be disclosed by the assured. Section 20(3)(b) talks about any circumstances which are known or presumed to be known to the insurer, matters of public knowledge & matters which in the ordinary course of business the insurer ought to know.
At times, underwriters receive requests for covering shipments after the vessel had sailed. Depending on circumstances, business relationships, the exposure,etc. underwriters do offer coverage albeit in a restricted manner ( ICC-C + WSRCC only) or at times even a full-blown cover. The precaution they take is to get a confirmation from the assured on NKORL ( No Known Or Reported Loss) or make the policy subject to the Lost or not lost clause. The clause states that the insurer agrees to indemnify the assured whether or not the subject-matter was already lost or not before the date of insurance. This recognizes the fact that under marine cargo insurance, most of the losses are ‘discovered’ on arrival and it would be difficult to pin-point the exact date and time of loss, unlike in the case of a Property or Automobile insurance.
So where is the issue? This works fine in case of losses to the subject-matter discovered at destination ( usually partial losses but at times total losses too), wherein if the cover given by the insurer is ICC-C, they can decline liability unless one of the named perils had caused it. What if on the date of taking insurance, the vessel had already sunk? Can the insurer deny liability quoting Sections 20(1) & (2) that the assured ought to declare all material circumstances known to him or which he is supposed to know in the ordinary course of business? Can the assured push back saying that sinking of a vessel will be matter of common knowledge and as per Section 20(3), the insurer, in the ordinary course of business ought to have known about it ? Of course, the assured also ought to have known about the sinking in the ordinary course of business, but if he can establish that for some valid reason, he was unaware of the sinking and did not take the insurance with an intent to defraud, will 20(3) come in the way of a claim declination by the insurer?
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Hi Sir
Interesting topic. In my opinion the claim wouldn’t be tenable. Section19 and 20 here have to be read in correlation with section 41 of the MI Act which governs the contract of insurance. Section 41 talks about the seaworthiness of the vessel. Marine policies come with implied warranty of sea worthiness of the carrying vessel. It is agreed that the insurer ought to know about the details of vessel proposed for insurance and so on. The Insured has an obligation to prove that the vessel was sea worthy as in the date of loss notification.
Sinking of the ship as on the date of NKORL issued is always a grey area. No assured is aware of the fact unless and until it has been shared by its CNF or unless it’s in media.
As an Underwriter I always remove Clause 2 and Clause 3 of ICC and share my reservations with Insured/Intermediary.
One of the common reason why assured seek policy post start of the risk is to save penalty imposed by custom due to no insurance and to Customer to arrive at CIF value. What I know they impose 1.25% of insurance premium on Invoice+Freight, further custom duty is calculated on the new value
Sir in my opinion there are 2 situation s here, 1 if client approaches the insurer for covering the cargo on the vessel which has already sailed and fails to inform the underwriter about the same than I’m my opinion it is the breach of utmost good faith and can be declined as per section 20 (1) and (2).
Situation 2, client approaches the insurer to cover the cargo on the vessel which has already sailed with the BL copy than the onus is on the underwriter to verify the current position of the vessel before binding the cover. If the underwriter fails to check the current status of the vessel and offers the cover than as per 20 (3) he is liable to pay for the loss arising out of the named perils.
Cover can be lost or not lost basis from the inception of the policy which exposes the insurer to higher risk and they would be responsible for the loss which would have already occurred prior to taking the insurance and another option is to offer the insurer from the date of request from the client.
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