What You Should Know About Marine Insurance?

Marine Insurance

Why it is needed ?

There are many big trading firms / manufacturers / wholesalers etc. whose consignments are frequently in transit - rail, road, courier and post to the point of sale.

Keeping in view of the transits involved and the entailing hazards like accidental damage, theft, pilferage and non-delivery etc. it is essential that all these consignments are fully insured.

Though the carrier is also responsible for making good the loss the process of recovery is cumbersome and too difficult to pursue. There are a number of fly by night operators who are not at all reliable and if there is a major loss they vanish or start operating with a new name.

Moreover suit for effecting recovery has to be filled before a competent court. One knows how tiresome and expensive our legal system is ! Litigation takes time and money both. Further in order to effect recovery “negligence” factor on the part of carrier has got to be established. Apart from it the “Act of God” perils like lightening is a defence available to carrier and if consignment gets damaged due to lightning he is not liable.

On the other hand the marine insurance provides all risk coverage with a few exceptions. Once you complete the formalities of documents you get your claim.

Unlike recovery suit against carrier where the maximum amount of recovery is limited to ten times of freight charges the marine insurance provides cover for cost of the goods + insurance cost + freight i.e. CIF which can be loaded by 10% towards incidental expenses. Normally issue of Sum Insured is not reopened and payment is made in full in case of total loss or non-delivery.

The documentary requirements are simple and can be completed. No legal hassle is involved.

Hence by any account it can be said that taking marine insurance policy is much better option then the right against the carrier.

Once the need of taking marine insurance is realised you have to understand the basics of it so that it can serve you fruitfully.

There are two types of marine covers (1) Specific Policy - It is taken for consignment sent on occasional basis. (2) Second is open policy : which takes care of frequent consignments sent on a regular basis. Since this article is primarily meant for big traders whose consignments are frequently in transit the open policy is discussed in detail.

Once you decide to go in for open policy the first step is to calculate the annual transit made last financial year.

Taking the upward trend the open policy is taken with annual Sum Insured 20% above to the last year transit and premium is paid on it. If after a year it is found that annual transit was less than what was declared the proportionate premium is refunded . So there is no loss of premium.

Now please go through concept and coverage of marine insurance. There are three policies for Inland Transit - Limited cover policy C, Basic cover policy B and All Risk cover Policy A. In addition to it, SRCC clause is added to make it widest possible cover.

Policy A is exclusion based policy. The exclusions are mentioned in the policy and if the consignment is damaged / stolen / misplaced to whatsoever reason other than exclusions same is covered. War risk is not applicable to Inland Transit.

As the premium rate is low, it is suggested to take Policy A + SRCC. The Sum Insured as explained earlier is projected annual transit i.e. last year transit plus 20% .

Having selected the policy A + SRCC with a pre-determined Sum Insured you have to declare Sum Insured with the basis of valuation as agreed like Cost + Insurance + Freight with 10% loading i.e. CIF+10% .

Advance premium is paid and at the end of each month a declaration is made mentioning the despatches made last month with details as per valuation clause.

The Sum Insured under the policy gets reduced as the dispatches made periodically. Hence you have to be careful that it is not exhausted midway. If need be the SI is increased by paying proportionate premium.

So far balance is available in premium account, all the consignments are covered. All the dispatches are to be declared. However, in rare cases, bonafide omission is condoned by Insurance Company.

Practical part for smooth operation of marine insurance :-

The following documents are to be kept safely which may be needed in case of claim :-

• Invoice and packing list
• Consignment note / Railway receipt and gate pass
• Agreement copy with the carriers
• If packing has been outsourced the agreement copy of the packers
• Any agreement / purchase order by consignee

EXCLUSIONS -

• Willful misconduct of the Insured
• Ordinary leakage, ordinary loss in weight or volume or ordinary wear and tear of the consignment in transit
• Damage or loss caused by inherent vice / nature of the consignment
• Damage or expenses caused by delay even though the delay was caused by an insured peril
• Loss or damage arising from insolvency or financial default of the owner / manager / charterers / operators of the carriers. However this exclusion can be deleted by negotiating with Insurance Company
• Defect in packing

How to lodge a claim ?

The consignment may get damaged / partial delivery / no-delivery following theft / pilferage or may get lost in transit. The damage may occur due to accident to the vehicle, fire, lightning and even by malicious damage.

It may be noted that under all risk + SRCC policy except exclusions all proximate causes are covered. Hence exclusions may be understood clearly which are as follows :-

Most of the claims are rejected by insurance companies by invoking this exclusion. The Surveyor certifies  that packing was inadequate - not strong enough to withstand the hazards of transit and insurance company is happy to repudiate the liability.

However, it has to be remembered that if the earlier consignments had been reaching destination safely with the same kind of packing, this exclusion shall not apply. Policy too mentions customary packing .

Moreover, if the packing has been outsourced and insured / employee is not a privy to it, this exclusion can not be invoked. It is better to add “Defect in Packing Clause” which is favourable to the Insured.

Now having understood the exclusions we may discuss claim-procedure for smooth, fast and fair settlement.

Marine Claims :-

Mainly there would be two types of Claims -

i)        Damage to consignment

ii)        Non-delivery or short delivery of consignment

Damage to consignment may be due to accident of the carrying vehicle. It may be due to seepage or rain water in spite of protection through tarpaulin. Damage may also be due to bad handling during loading / unloading operation. Jerks and jolts are damaging the consignments due to poor road conditions. Malicious damage, Civil disturbances, Terrorism etc. are some other perils which may cause damage. All these circumstances are covered in policy A + SRCC - widest possible cover.

All such cases insured must take the following steps :-

i)        Inform Insurance Company

ii)        Check and confirm your records that the consignment was declared properly and the balance premium was available in your account with the insurance company. In other words Sum Insured under the Policy was not exhausted.

iii)        Insurance company will depute Surveyor at the earliest to assess the loss and to determine the circumstances of loss. Please co-operate with him and provide all required documents. Sometimes a panel of Surveyors is given to you so that you entrust a Surveyor directly by giving a parallel notice to Insurance Company.

iv)        Obtain a damage certificate from the Transporter.  Do not worry if he denies liability. He is still liable under the act.

v)        Submit a certified copy of Invoice and Packing List along with the claim form. If gate pass is available, submit it also.

vi)        Serve notice upon the carrier asking him to make good the loss or pay the compensation. This notice is to be served within time limit stipulated in the carrier act as hereunder :

        Railways :- 6 months from the date of R/R

        Roadways :- 6 months from the date of consignment-note

       Air (Domestic) :- 7 days from the date of delivery / 14 days from date of booking (non-delivery).

Please note that for filing suits in the competent Court the time limit is 3 years in case of rail / road and 2 years for Air (domestic). However the filing of suit is the duty of Insurance Company. In nutshell you are required to submit following documents in damage claims :-

i)       Claim form (blank form) is supplied by insurance company. It is to be completed and submitted.

ii)       Certified xerox copy of Invoice,  Packing List and Gate pass

iii)      Certified xerox copy of consignment note with remarks of Carriers confirming the damage.

iv)      Damage certificate issued by the carriers.

v)      Copy of registered notice served upon the Carriers with postal receipt / A/D card.

Please note that the survey report shall be collected by the insurance Company directly from the Surveyor even in those cases where you deputed Surveyor from the panel.

Once the claim is settled by the Insurance Company the following documents will be required by them to pursue the recovery from the carrier.

i)        Letter of subrogation duly stamped and executed

ii)       Special power of Attorney where recovery from Railway is involved.

Non-Delivery / Short-Delivery :-

The consignment may be misplaced in full or delivered to wrong persons. When you do not receive your consignment even after waiting for a reasonable period, it is called non-delivery. In some cases, it is short-delivery, where some items are removed by skillful tampering of packing. Apparently, it may look intact but in actual it stands lost.

In both these cases the following steps are to be taken :-

1)        After waiting for a suitable period please approach the carrier and take his endorsement on original R/R / consignment note.

2)        Inform Insurance Company and lodge claim. In some cases they depute tracer to find out the missing consignments.

3)        In short-landing cases the carrier puts remarks on the R/R / Consignment note confirming short delivery.

In both the cases Non-Delivery / short-delivery certificate is issued which has to be submitted to the Insurance Company.

The required documents as listed in the damage claims except that here non-delivery certificate or short-delivery certificate is to be submitted in lieu of damage certificate.

The processing of marine claims is fairly simple if documents are in order.

M. K. SINHA

Regional Manager (Retired)

United India Insurance Co.Ltd.