One would concur that an important part of international maritime trade is
played by Marine Insurance. Global Maritime trade is affected hugely by the
policies of maritime insurance being followed in various nations. Initially, the
paper will talk about the mechanism of Marine Insurance in India, its history,
and the influence of the English Marine Insurance Act 1906 passed in England.
Then an evaluation will be drawn to show how valued marine insurance is an
imperfect example of a contract of indemnity (which forms the basis for an
insurance policy) with the help of case laws and illustrations. Then a few steps
by the courts will be illustrated to make the policy fairer and just.
What Is Marine InsuranceAn insurance policy is a contract in which an individual or entity (known as an
insured) receives monetary reimbursement against losses, emerging from the
occurrence of an event, from an insurance company (known as an insurer),
generally in exchange for a premium. Marine insurance alludes to a contract
by which the insurer promises to reimburse the insured a loss resulting from
"losses incidental to marine adventure". It provides coverage against any
loss/harm to ships, terminals, cargo, etc.
Brief History It is said that Marine insurance is the primary insurance policy. In
Babylonian times (2100 B.C.), the genesis of the initial insurance policy was
observed whereby the merchants a sum to guarantee the safe arrival of their
goods. Later, around 300 BC, the concept of "Bottomry" came around. It was an
arrangement by which the owner of the ship borrows money for repairing or
maintenance of the ship and in return pledges the ship as security.
something happens to the ship by way of any perils, the lender shall lose his
money but if the ship returns, the lender shall get his money back with a
premium. This laid the foundation stone for the outset of Marine insurance.
Marine Insurance, in a somewhat similar way as we know them now, was first found
in Middle Ages in Europe. There existed generally agreed-upon Sea Codes that
contained various regulations.
In 1688, the first official insurance company was
formed in London in a coffee shop that was famous amongst merchants and ship
owners and grew to be immensely successful. And that's how the Insurance
- Maritime Insurance Act, 1963
It is well-established reality that when the Indian Marine Insurance Act of 1963
(MIA 1963) was drafted, the drafters had the Marine Insurance Act of 1906 (MIA
1906) of the English Law at the back of their heads. The 1963 and 1906 Acts are
closely similar or indistinguishable from each other. The principles governing
the 1906 English Act are duplicated in the 1963 Act of India. The Parliament
passed the MIA 1963 to ensure the smooth functioning of shipping which saw a
huge expansion right after industrialization.
IndemnityA contract of Indemnity is when one party promises to compensate the other for a
loss incurred by them. In the Indian case, Canada Rice Mills Ltd. v. Union
Marine and General Insurance Co. Ltd., the Privy Council held that the
principle of Indemnity maintains the sanctity of the insurance policy.
The Indemnity Principle, in the context of insurance, essentially has two
In the case of Castellain v. Preston, Justice Brett held that marine
insurance is an indemnity contract, and that the assured shall be fully
protected against all the loss that happened, but they should never be
over-compensated/ reimbursed more than what they have lost. This is the "great
principle" of indemnity.
- To ensure that the amount compensated or reimbursed shall not raise the
assets of the insured in any way. An insurance policy can never be a source
of benefit or profit for the insured.
- The amount of compensation or reimbursement should never exceed the
value of the policy taken. The amount which has been agreed upon by the
insured and the insurer, if any, is the upper limit of the compensation to
Marine Insurance And IndemnityThe principle of Indemnity is considered to be the backbone of the insurance law
and industry. It simply means to put the insured in the place he would have been
had the loss not occurred.
There exist broadly two kinds of marine insurance: valued policy and unvalued
policy. Unvalued policy (section 30 of MIA 1963) does not specify the value of
the subject matter insured but sets a limit of the sum insured. This policy
is similar to other kinds of insurance policies like fire, medical, etc.
However, in actuality, choosing the valued insurance policy is the modern
The reason for this change in choice is the difficulty in
ascertaining the value of damage and avoiding disputes relating to the measure
of indemnity. The point that marine insurance is an imperfect contract of
indemnity is observed in valued policy insurance.
Valued policy insurance is an insurance policy where the value of the
subject-matter insured is specified or mutually agreed upon by both parties
while making the contract. This effectively allows the insurer and insured
to negotiate the insurable value of the subject matter between themselves,
however, it may be very difficult for them to ascertain the value accurately.
The value so decided could be less or more or even equal to the actual loss
suffered and such value shall be conclusive. Therefore, the contract of marine
insurance is not a perfect contract of indemnity. This was initially noted by
Lord Patteson in the English case of Irving v. Manning (1847). In this case,
there was valued insurance which calculated the ship's value as 17,500 pounds.
The ship suffered brutal damages on one of the voyages and the repairing cost
came out to be 10,500 pounds. The market value of the ship at that time was
estimated to be 9,000 pounds.
The reasonable thing for the insured was to give
up the repairing of the ship and claim a total loss. The case was fiercely
argued by both sides, but the Judges held that the value stated in the contract
is conclusive. It is interesting to note that at the time of the case there did
not exist 1906 Act. The judgment wouldn't probably shock as many people as it
did in 1847. In his judgment, Lord Patteson stated, "A policy of assurance is
not a perfect contract of indemnity. It must be taken with this qualification
that the parties may agree beforehand in estimating the value of the subject
assured, by way of liquidated damages, as indeed they may in any other contract
This was also observed by the Supreme Court of India in State of Insurance v.
United India Insurance Co. Ltd., "�But indemnity, as applicable to marine
insurance, must not be an indemnity, as contemplated by the Indian Contract Act,
as the loss in such a contract is covered by the contract itself and such loss
is not caused to the assured by the conduct of the insurer nor by the conduct of
any other person." Therefore the well-founded concept of indemnity is not
squarely applicable in the marine insurance law. But why though?
- The value agreed in the valued policy is conclusive
Strictly interpreting section 29 (3) of the MIA 1963 (27(3) of MIA 1906), it is
held that the value agreed to by the parties is conclusive. This value
relates to the value of the "subject matter insured" when the contract was made
and not when the contract would be implemented or the loss will be
suffered.Accordingly, in majority of cases where the value of the subject
matter would change between the period when the contract was entered into and
when it is implemented.
The value agreed upon during the formation of the
contract could be different from the real/actual value of the subject matter
insured when the loss is suffered. This was seen in the case of Barker v.
Janson, where the value of a ship decreased significantly and ultimately it
was destroyed. The insured claimed the total value of the policy which was
decided but the insurer argued otherwise.
The court ultimately held that even if
the value of subject matter has reduced significantly before the destruction or
loss to the subject matter insured is caused, then also the insurer is expected
to pay the whole agreed-upon value. The reason for holding the agreed-upon value
as absolutely conclusive (except in cases of fraud) is because a bona fide
transaction is being entered into upon the formation of the contract and the
value is binding because it was agreed upon by consent of both the parties even
if it may not mirror the true value of the subject-matter insured.
In Diwaliben Vasharambhai v. New India Assurance Co. Ltd., the value agreed,
calculated by the surveyors, was held to be conclusive even when it was
This demonstrates that because of this nature of "conclusiveness" of the value
fixed in the Valued policy, there may arise a situation where the insured might
get way more than the loss or even way less except in case of fraud. This goes
against the principle of indemnity as we have seen and observed above.
- Fraud Threshold
At the time of policy formation, it is cumbersome for the parties to calculate
the precise value of the subject matter or to determine how the value will
fluctuate or what the value will be in the future. Therefore, the courts have
upheld the meaning of the word "conclusive" strictly. But in case of excessive
over-valuation, the court might look into the possibility of fraud. If it
appears to the judge that the agreed value is aftereffect of fraud then the
whole policy is deemed void.
The first time a policy was disregarded for being
fraudulently overvalued was Haigh v. de la Cour. However, in reality, it is
extremely difficult to prove fraud. In the case of The Gunford, the insured
had breached the duty of care to disclose the fact that there existed high-value
Producer Price Index (PPI) policies. The court held that this heavy
overvaluation fraud is, a priori, not very far to seek and upheld the act of
In the case of Hindusthan General Insurance v Punam Chand Chhajar, the court
upheld The Gunford judgment and placed the benchmark for proving fraud to be
Therefore, in cases of excessive overvaluation too the principle of indemnity is
not perfectly applied since the insured gets everything or, in rare cases,
nothing. It is beneficial for the insurer to enter such a policy as explained by
Lord Robson. "In the case of a constructive total loss, if the assured wants
to obtain the full value indemnity, he has to establish that the cost of repairs
or salvage of the ship will exceed the agreed value to prove the ship is a total
loss, which is more difficult. Therefore this makes the insurer want to accept
the risk of overvaluation."
A Fair ApproachNow on a plain peruse, the valued policy of marine insurance may appear severely
unfair and in urgent need of some change. Even the courts observed such a
problem and decided to make it fairer. The drafters decided to include Section
18(1) into the MIA 1906 which appears in Section 20(1) of the MIA 1963, states
that every material circumstance, in the ordinary course of business which out
to be known by him, should be disclosed to the insurer, if the insured fails to
do so then the insurer may avoid the contract.
This section has upheld the
concept of utmost good faith mentioned in section 19 of the MIA1963. It was
observed that extreme over-valuation occurred in cases where the insured would
not disclose some material fact regarding the goods and because the insured
cannot know everything, the agreed value was often found to be excessively
In the case of Ionides v. Pender, Justice Blackburn held
But the rule laid down in parsons on Insurance that all should be disclosed
which would affect the judgment of a rational underwriter governing himself by
the principles and calculations on which underwriters do in practice act and
gave 4 tests which the court will refer to in cases of overvaluation:
- Is the overvaluation excessive?
- If such overvaluation was made with fraudulent intentions
- whether fraudulent or not, was it material for the insurer to know the
valuation was excessive?
- was the overvaluation concealed from the insurers? 
This case took place before the enactment of MIA 1906, and since then the
defence of non-disclosure has been made added in sections 18 of MIA 1906 and 20
of MIA 1963. The courts in India have referred to this judgment in several cases
and applied the same rationale to deliver a judgment as well.
Now it may be difficult for the insured to determine the degree of disclosure to
be made by the insured as well. To tackle this, certain circumstances have been
mentioned in section 20(3)(b) of the MIA 1963. It states that not everything
must be disclosed by the assured which might influence the minds of the insurer
otherwise the duty to disclose will become too high which would prove to be
counter-productive for the business.
In the famous case of General Shipping and Forwarding Co. v British General
Insurance Co. Ltd.
, the ship was overvalued by 3,600 pounds. But the
court held that the insurer was in the position to have all the information
about the vessel including the actual market value of the vessel. The fact that
he still went ahead and accepted the policy to undertake the risks will not
allow him to refuse the payment now.
Moreover, a better approach for the courts to adopt, in case of excessive
overvaluation, would be to determine a reasonable amount of compensation and
grant the same. But from early on, the courts have adopted an "All-or-Nothing
approach, when having a sliding scale would have been a logical step to follow.
Because otherwise, it puts an unnecessary burden on the insured, who may not get
a single penny in some cases, and the insurer, who is required to pay the gross
amount of money.
Though contract of marine insurance is said to be a contract of indemnity but as
we have observed above there might arise situations where the insured is
over-indemnified or under-indemnified. Therefore it would be safe and right to
say that it is an imperfect contract of indemnity.
This was noted by Justice Patteson first, in the case of Irving v. Manning
"It is argued that this course of proceedings infringes on the generally
received rule, that an insurance is a mere contract of indemnity, for thus the
assured may obtain more than a compensation for his loss." 
To tackle the unfair disadvantage or advantage and to maintain the merit of a
contract of insurance, the English law enacted The Marine Insurance Act, 1906,
and subsequently India adopted the Marine Insurance Act, 1963 which is almost
identical to the English Act. These laws direct the functioning and mechanism of
marine insurance and attempt to make the practice more just.
Apart from this, various judicial decisions have shown the practice of the court
in different circumstances and facts, which tries to make the policy even more
equitable. Therefore, even if the valued marine insurance policy is not a
perfect contract of indemnity, the legislation and the courts have turned it
into a meaningful, practical, and favourable contract of insurance.
- Francis Rose, Marine Insurance: Law and practice (first published 2004,
Informa Law 2004).
- Marine Insurance Act 1963, s 3.
- Gaurangi Patil, 'India: Reeling Back In History To Understanding Marine
Insurance/ Protection & Indemnity Clubs (P&I) - Marine Insurance' (Mondaq,
27 November 2012) < https://www.mondaq.com/india/marine-shipping/208632/reeling-back-in-history-to-understanding-marine-insurance-protection-indemnity-clubs-pi--marine-insurance>
accessed 4 April 2022.
- Ajendra Srivastava, Modern Law of International Trade (Published 2020,
- Sir Frederick Pollock and Dinshah Fardunji Mulla, "The Indian Contract
Act, 1872" (16th edition, Sweet & Maxwell 1909)
- Canada Rice Mills Ltd. v. Union Marine and General Insurance Co. Ltd
(1940) 67 Ll.L.Rep. 549.
- Wang Han, 'On If an Insurance Policy Is a Perfect Contract of Indemnity
in Marine Insurance' (2018) 6 China Legal Sci 77.
- Castellain v Preston  11 QBD 380, 386.
- Sir Frederick Pollock and Dinshah Fardunji Mulla, "The Indian Contract
Act, 1872" (16th edition, Sweet & Maxwell 1909)
- Marine Insurance Act 1963.
- Neil Beadle and Aisha Lala, 'What Is Your Ship Worth? -Agreed Value
Policies in Marine Insurance' (Mondaq, 27 November 2008) < https://www.mondaq.com/newzealand/marine-shipping/70708/what-is-your-ship-worth--agreed-value-policies-in-marine-insurance>
accessed on 5 April 2022.
- Marine Insurance Act 1963, s 29.
- Irving v_Manning  1 HLC 287.
- State of Insurance v. United India Insurance Co. Ltd. 1998 (2) ALT 51.
- Marine Insurance Act 1963, s 29(3).
- Barkerv. Janson  LR 3 CP 303.
- Diwaliben Vasharambhai v. New India Assurance Co. Ltd ORIGINAL PETITION
NO. 21 OF 2001.
- The Gunford  AC 529, HL
- Hindusthan General Insurance v Punam Chand Chhajar AIR 1971 Cal 285.
- ibid (n 23).
- ibid (n 23).
- Marine insurance Act 1963, s 20(1).
- Ionides v. Pender LR9 QB 531.
- M/S. J.K. Dall Mill v. New India Assurance Co. Ltd. Revision Petition
No. 503 OF 2016.
- Marine Insurance Act 1963, s 20 (3) (b).
- General Shipping and Forwarding Co. v. British General Insurance Co. Ltd
 15 LIL Rep 175.
- ibid (n 14).
- ibid (n 14).