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Insurable Interest in Marine insurance

Insurable Interest in Marine insurance

Marine Insurance Act specifically declares marine contracts without any insurable interest as wagering contracts which are void under Section 30 of the Indian Contract Act 1872. It is sufficient in marine insurance contracts that the insurable interest is present at the time of loss.

Insurable interest, in relation to a marine insurance, means the interest which the Policyholder has in the subject matter which has been insured – in such a way that the Policyholder will benefit if the insured property arrives safely or will be prejudiced in case there is a loss or damage to the insured property.

An insurer has insurable interest in the risk the insurer has assumed and therefore can reinsure the risks with a reinsurance company

Insurance
[Post Image Courtesy of Vichaya Kaitying-Angsulee at FreeDigitalPhotos.net]

Valuation of the insured property

The valuation of the subject matter of insurance is done as per the following principles as specified in Section 18:

(a) In insurance on ship, the insurable value is the value, at the commencement of the risk, of the ship, including all disbursements incurred to make the ship fit for the voyage or adventure contemplated by the policy, plus the charges of insurance upon the whole:

(b) The insurable value, in the case of a steamship, includes also the machinery, boilers, and coals and engine stores if owned by the assured; in the case of a ship driven by power other than steam includes also the machinery and fuels and engine stores, if owned by the assured; and in the case of a ship engaged in a special trade, includes also the ordinary fittings requisite for that trade:

(c) In insurance on freight or cargo (goods transported), whether paid in advance or otherwise, the insurable value is the gross amount of the freight at the risk of the assured, plus the charges of insurance.

(d) In insurance on goods or merchandise, the insurable value is the prime cost of the property insured, plus the expenses of and incidental to shipping the charges of insurance upon the whole.

(e) In insurance on any other subject-matter, the insurable value is the amount at the risk of the assured when the policy attaches, plus the charges of insurance. Marine Insurance is contract uberrimae fidei A contract of marine insurance, like any other contract, is a contract based upon the utmost good faith, and if the utmost good faith is not observed by either party, the contract may be avoided by the other party.

Therefore the assured must disclose to the insurer, before the contract is concluded, every material circumstance which is known to the assured and the assured is deemed to know every circumstance which, in the ordinary course of business, ought to be known to him. If the assured fails to make such disclosure, the insurer may avoid the contract. A circumstance is material if it could influence the judgment of a prudent insurer in fixing the premium, or determining whether or not he will take the risk.

“No obligation to disclose”

In the absence of inquiry from the insurer, the following circumstances need not be disclosed, by the insured, namely:-

(a) any circumstance which diminishes the risk;

(b) any circumstance which is known or presumed to be known to the insurer. The insurer is presumed to know matters of common notoriety or knowledge, and matters which an insurer in the ordinary course of his business as such, ought to know;

(c) any circumstance as to which information is waived by the insurer;

(d) any circumstance which it is superfluous to disclose by reason of any express or implied warranty.

Subject to the above, the Insurance Agent is also obliged to disclose to the insurer the circumstances which are within his knowledge and circumstances which he ought to know.

Representations by Insured and their impact

Section 22 of the Act lists down the representations by insured before the policy issued by the insurer and the impact thereof as follows:

(a) All material representations made by the assured or his agent to the insurer during the negotiations for the contract, and before the contract is concluded, must be true. If it is established that any of the representations is untrue, the insurer may avoid the contract.

(b) A representation is considered “material” if it influences the judgment of a prudent insurer in fixing the premium, or determining whether he will take the risk.

(c) A representation may be either as to a matter of fact, or as to a matter of expectation or belief.

(d) A representation as to a matter of fact is true, if it be substantially correct, that is to say, if the difference between what is represented and what is actually correct would not be considered material by a prudent insurer.

(e) A representation as to a matter of expectation or belief is true if it be made in good faith.

(f) A representation may be withdrawn or corrected before the contract is concluded.

(g) Whether a particular representation be material or not, is, in each case, a question of fact.

Insurance Law And Practice - ICSI

About Author Mohamed Abu 'l-Gharaniq

when an unknown printer took a galley of type and scrambled it to make a type specimen book. It has survived not only five centuries.

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