Breach of Indemnity
The primary objective of an insurance contract, which is predicated on the concept of the principle of indemnity, is to hide for losses. in line with the above principle, the key and intrinsic consequences of the indemnity contract in insurance law are the complete coverage of the victim’s damages, up to the ceiling of the insurer’s responsibility.
The Indemnity Principle as an underlying principle of an insurance policy has two aspects:
Firstly, ensuring that the reimbursement of damages doesn’t raise claimant assets because the insurance can never be a source of benefit for claimants and secondly, the quantity of reimbursement should never surpass the worth of the policy taken. Marine insurance as an insurance contract is additionally a contract of indemnity. It is a sort of insurance that gives coverage against any damage or loss occurred to ships, vessels, terminal , etc. it is necessary for all the owner of the ships who use it for commercial or transportation purpose.
It supplies the claimant with benefits like the loss that happened, that is corresponding to either the sum of the entire loss incurred or the value of the insured object previously decided upon. Incidentally, the concept of principle of indemnity also gives rise to the concept of subrogation and contribution , which ensures that an insured party doesn’t have the benefit of an insurance.
“Insurance is a social device providing financial compensation for the effects of misfortune ,the payment being made from the accumulated contribution of all parties participating in the scheme” – Prof. D.S. Hansell
As per section 3 of the Marine Insurance Act 1963, “a contract of marine insurance is a contract where the insurer undertakes to indemnify the assured, in manner and to the extent thereby agreed, against marine hazards.”
The oldest of the numerous modes of damage protection, Marine Insurance contains a long tradition that dates back to past and is in line with the maritime trade itself.
In this, a ship is mortgaged in such a way that if it’s lost, the lender loses the cash so advanced, but if the ship arrives safely at the port, he or she is going to get the loan amount back in conjunction with the premium so negotiated during the formation of the contract. This very concept developed into a contemporary system of insurance.
The fundamental purpose of insurance contract is to compensate the insured for the damage suffered and to the extent prescribed . Damage refers to the harm suffered by the insured property. A loss agnostic under the marine insurance must be the one which is caused by a marine Adventure. the same as maritime risks, the damages incurred by marine travel often vary from the losses sustained by other sorts of insurance coverage.
With the expansion of industrialization and therefore the liberalization of international trade, overseas exports and imports have increased and therefore the shipping of products by sea, river or other waterways has also increased. This has attended raise the danger involved in maritime transport. Marine insurance provides an answer to the danger inherent with marine transport.
As such, as an integral a part of international trading, maritime insurance is governed by various international laws and regulations . The Marine Insurance Act of 1963 regulates the law concerning marine insurance in India. This act is a significant copy of English law of 1906 with appropriate amendments to suit the Indian economy.
The entire idea of the maritime insurance contract is that the quantity to be recovered from the insurer is that the monetary damage experienced by the insured under the contract. Accordingly, a marine insurance contract is a contract under which the insurer undertakes to indemnify the insured against marine damages, i.e., losses arising from marine adventure. All marine insurance contract are contract of indemnity.
Marine Insurance a Contract of Indemnity:
The principle of indemnity is that the backbone of insurance law and policy. Indemnity means putting the person within the position he would have been if no damage had been incurred .Besides providing compensation it also ensures that the insured doesn’t gain from the insurance contract by merely providing the quantity with reference to the particular loss.
Marine insurance is additionally an indemnity contract where the insurer undertakes to pay the insured for the damages suffered during a marine adventure. consistent with the section 1 of the Marine Insurance Act,1906 “A marine policy is an appointment whereby the insurer undertakes to indemnify the insured against marine damages, i.e., losses incident to marine activity, within the manner and to the range prescribed therein.” It is obvious that the word indemnify is that the most operative word in it, and it’s within the framework of the cardinal principle of indemnity that the entire contract is founded and from which the laws concerning the proper to say under a policy emanate.
The philosophy behind insurance and indemnification was summed up within the early case of Brotherston v Barber (1816), where an insured ship was captured by an American privateer then re-captured by a Royal Navy ship. Although the claimant, on hearing of the initial capture, claimed for a complete loss, the court ruled that he could only be indemnified for a partial loss, because the ship had been re-captured.
And, in Richards v Forestal Land, Timber and Railways Co Ltd  , where goods aboard a German vessel were lost at the outset of the Second war , when the ship was scuttled so as to avoid capture, Lord Wright had occasion to think about the aim of a contract of insurance and therefore the part the Act had to play within the construction of that contract.
The Act is simply handling a specific branch of the law of contracts—namely, those of marine insurance. Subject to varied imperative provisions or prohibitions and general rules of the common law, the parties are liberal to make their own contracts and to exclude or vary the statutory terms. the thing both of the legislature and of the courts has been to offer effect to the thought of indemnity, which is that the fundamentals of insurance, and to use it to the various complications of fact and law in respect of which it’s to work . during this way, the mercantile law has solved, or sought to unravel , the manifold problems which are presented by insurances of maritime adventures.
Marine Insurance Contracts: Subrogation Rights
Subrogation simply denotes replacement of one person in position of another , in order that the one that is replaced succeeds within the rights of another in reference to the debt or claim and its rights, remedies and securities. Subrogation within the context of maritime insurance is that the privilege under which the insurer, having settled the loss, recovers all the insured’s rights, remedies and liabilities. The insurer is entitled to compensation from the opposite party liable for compensating the insured. It is pretty widely known law that subrogation may be a deduced from the concept of indemnity . It ensures that the assured doesn’t get quite the damage occurred to him.
In the case of Lufeng company Ltd vs M.V. Rainbow Ace, M/S Rainbow Shipping Ltd. made a loss of Rs. 3 crore in shallow waters due to one among its ships being caught within the sand. it had been figured that the value of retrieving the vessel was exorbitantly high, more than the price of a replacement vessel of an equivalent capability and resilience.
The insurer agreed to pay M/S Rainbow for the acquisition of a replacement ship after depreciation and secured the rights to save and retrieve the beached vessel reciprocally . The ship was later spotted floating within the Arabian Sea during a coastal cyclone. M/S Rainbow’s crew found the vessel and told the administration, but the management refused to recapture the vessel and informed the insurer to do so in place. The insurer seized the ship and later sold it to a scrapyard, recovering Rs. 15 lakhs from it.
Marine Insurance Contracts: Insurable Interest
If an individual wants to insure a property, he or she must have an interest within the property; i.e., the individual should be financially impaired by loss or harm to the property. Marine insurance is additionally supported the interest within the property. The pre-requisite for the insured to possess an interest within the subject-matter of the maritime policy is linked to the actual fact that the marine insurance contract is an indemnity contract.
The policies issued for a few amount of time explicitly waived evidence of assureds interest and thus came to be called ” interest no interest’ policies. The parties decided to wager regardless of the interest , in such a policy and it had been with the passage of the Act of 1745 that such arrangements were forbidden to discourage the illegitimate loss of vessels.
Section 6 of the Indian marine insurance act,1963 renders wagering contracts as void . Basically , Insurance contracts are viewed as wagering contracts where there’s no interest at the time the contract is entered into.
There must be a legal relationship between the individual taking advantage of insurance (insured) and therefore the insured property so as to enter into an insurance arrangement, that’s there should be ” interest .” An interest is, thus, a pre requisite during a contract of maritime insurance. The insured must primarily have an interest within the insured subject-matter so as to be entitled to say reimbursement and, secondly, have one at the time of the loss. It should therefore have an economic interest within the material , to the degree that the insured may enjoy the continued security of the topic matter or could also be damaged by the loss, injury or incarceration of the topic matter.
In the landmark judgement of Macura v. Northern Assurance Co ,the court ruled that neither a corporation shareholder nor an easy lender to a corporation has any engrossment in any company’s asset, even if they incur damages thanks to the destruction of it. Thus, so as to avoid ambiguity all the facts associated with the case of interest during an insurance contract must be carefully observed in order that generalizations aren’t drawn.
The aim of marine insurance was to encourage the ship’s owner and the buyer and seller of goods to operate their respective business while a minimum of to an extent relieving themselves of the burdensome financial consequences of the loss or damage to their property as a results of the various threats of the high seas.
In other words, maritime insurance adds an integral aspect of monetary security so as to make sure that the possibility of misfortune during shipping isn’t an inhibitory think about the conduct of foreign trade. Although marine insurance may be a boon for the Indian economy , it’s also essential that each one terms and conditions of the agreement are complied with so as to get rid of all the ambiguities which will arise in future.
There is always an opportunity that the insured is gaining from the insurance agreement by claiming that the losses are either misconceived or wrongly calculated. As a result, there should not be any quite vagueness while calculation of indemnity. It is well founded that the courts used to obey the principles of English law, i.e. the Marine Insurance Act, 1906, before the Indian Marine Insurance Act, 1963, came into force in India. So, we may assume that the Indian law may be a clear begin from English equivalent, and if it’s not self-evident, it’s appropriate to research the case law between the two countries to reach the true situation.
Written by: Akriti Shah
ILS Law College, Pune
(intern at Bhatt & Joshi Associates)