The Essence of the Marine Insurance Contract
Under the contract of marine insurance, the insurer, in return for the appropriate consideration — the insurance premium — undertakes the obligation to compensate the insured, or another person in whose favour the contract has been concluded, for loss when the peril or event indicated in the contract occurs — the insured event. This definition reflects two fundamental elements of marine insurance: on the one hand, the insurer answers only for the peril or event named in the contract, not for every contingency; on the other, compensation belongs both to the insured and to a benefiting third party — the beneficiary. Marine insurance thus differs from general insurance in that its subject-matter consists of the specific risks connected with navigation, and the space of those risks is defined precisely by the Code and by the contract.
What May Be the Object of Insurance
The object of marine insurance may be any proprietary interest connected with navigation: the ship — including one under construction; the cargo; the freight; the fare of passage; the charter hire; the profit; other claims secured by the ship, cargo or freight; the wages of the master and members of the crew or other remuneration; the proprietary or civil liability of the shipowner and of the carrier of goods; and also the risk assumed by the insurer — reinsurance. This catalogue is broad enough to make almost every commercial interest of a voyage insurable. The law attaches a single requirement to it: the object of insurance must be indicated in the contract of marine insurance — without specification the contract cannot define the object, and the scope of the insurer's liability remains indeterminate.
The Insured Sum: Under- and Over-Insurance
Upon concluding the contract of marine insurance, the insured is obliged to declare the sum for which the corresponding interest is insured — the insured sum. Its relation to the true value of the insured interest — the insurable value — determines the rule of compensation. If the insured sum is less than the insurable value, the insurer answers for the loss in proportion to the relation of the insured sum to the insurable value — in under-insurance the loss is apportioned between the insured and the insurer. If the insured sum stated in the contract exceeds the insurable value, the contract is considered void in that part of the insured sum which exceeds the value — over-insurance is automatically cut down to the real value. Knowing these two rules enables the insured, at the conclusion of the contract, to fix the sum correctly and to avoid both a reduction of compensation and paying too high a premium.
The Limits of the Insurer's Liability
The law defines both the insurer's exemptions and the boundaries of its liability. The insurer is not liable for loss caused by the gross negligence or deliberate act of the insured, of the consignor or consignee of the cargo, or of their representative — deliberately inflicted damage is not covered by insurance. The vertical limit is the insured sum: the insurer answers for loss only within the insured sum. That limit, however, has exceptions: the costs provided for by the Code and the general average contribution are reimbursed by the insurer regardless of whether those amounts together with the loss exceed the insured sum. Likewise, the insurer answers for loss caused by several successive insured events even where their aggregate exceeds the insured sum — the within-the-sum rule thus operates inside a single insured event and not against losses accumulated over the whole term of the contract.
Frequently Asked Questions
Below we answer the questions most frequently asked on this subject.
What can be the object of marine insurance?
Any proprietary interest connected with navigation — a ship, including one under construction, cargo, freight, hire, profit, wages, liability and reinsurance; the object must be indicated in the contract.
What happens if the insured sum exceeds the value?
The contract is void in the part of the sum that exceeds the insurable value — over-insurance is cut down to the real value.
When does the insurer not compensate the loss?
Where the loss was caused by the gross negligence or deliberate act of the insured, of the consignor or consignee of the cargo, or of their representative.
The costs exceed the insured sum — who pays?
The costs provided for by the Code and the general average contribution are reimbursed by the insurer even if together with the loss they exceed the insured sum; the same applies to the aggregate loss of several successive insured events.
How We Help on Legal.ge
A contract of marine insurance demands both a correct definition of the object and the ability to calculate the insured sum. On Legal.ge you can consult a maritime-law lawyer who will check the terms of the contract, assess the prospects of compensation and protect your interests in a dispute with the insurer. Submit a request on the site and receive qualified assistance.