Main Elements of Marine Insurance Contract
1. Principle of Utmost Good Faith: The marine protection policy is based on the concept of extreme confidence or utmost good faith, which clearly illustrates that while filling out the marine insurance, the holder should provide accurate information. Similarly, the insured should not retain any material details. If the candidate hides or covers critical information, the marine insurance agency has the right to reject the insurance application.
Under the Marine Insurance Acts of various countries, the insured is required to disclose all important information connected to the risk in a clear and accurate manner. A substantial fact is one that would affect the decision of a prudent Underwriter as to whether or not to engage in a contract at all.
Alternatively, it would influence a prudent insurer’s decision to proceed with the insurance, as well as with the extra price and terms. Apart from the responsibility of transparency, the insured must act in good faith toward the insurer during the term of the contract.
2. Principle of Insurable Interest: Any “insurable property,” which includes a ship, cargo, or other movables subject to marine risks is described as insurable interest. Thus, the property insured must be destroyed or lost as a consequence of maritime perils, and the assured must have some legal relationship with it in order to gain from its preservation or be prejudiced by its loss or destruction. In the case of marine insurance, the assured’s interest must exist at the moment of loss occurred, even if it did not exist when the insurance cover was executed. This is significant because goods can be sold while in transit under Marine Insurance.
3. Principle of Indemnity: “A contract of marine insurance is an arrangement in which the insurer agrees to indemnify the assured in the manner and extent agreed upon.” The essential principle of insurance is that “the assured should find himself in more or less the same financial situation as he was before the loss. In other words, the insured may not get more or less than the real amount of damage suffered, and the assured may not benefit from the loss. As insurers cannot be expected to reinstate or replace the covered property, they must instead pay a specified value considered “reasonable compensation. A marine insurance contract provides for a predetermined sum subject to specific contract clauses. The amount of indemnity granted under the contract is decided by whether the policy is “valued” or “unvalued.”
4. Principle of Proximate Cause: The principle of Proximate Cause is applied to Marine Insurance. Insurer will be liable for the loss only when such loss is proximately caused by the sea perils, which are stated in the policy. For example, the nearest cause of loss will be considered if a loss is caused by several reasons.
When determining the insurer’s liability, the proximate cause is evaluated first. As a result, if the proximate cause of a loss is a known insured risk, the insurer must pay the insured. It means that if the proximate cause of the loss is insured, the insurer is obligated to pay the insured compensation.