SVKMS

NMIMS SCHOOL OF LAW

A PROJECT SUBMITTED ON

SEAWORTHINESS AMD MARINE INSURANCE

IN COMPLIANCE TO PARTIAL FULFILLMENT OF THE MARKING

SCHEME, FOR TRIMESTER IX OF 2017, IN THE SUBJECT OF

BANKING AND INSURANCE LAW

SUBMITTED TO FACULTY:

PROF. JOYEETA BANERJEE

FOR EVALUATION

SUBMITTED BY:

KESHAV MAHESHWARI (A038)

B.B.A LL.B (HONS.)

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 TABLE OF CONTENTS

SR. NO. PARTICULARS PAGE NO.

1. TABLE OF CASES 3

2. ABBREVIATIONS 4

3. CHAPTER I 5

4. CHAPTER II 10

5. CHAPTER III 13

6. CHAPTER IV 23

7. CHAPTER V 28

8. BIBLIOGRAPHY 30

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 TABLE OF CASES

Burges v. Wickham, 3 B & S 669.

Dixon v. Sadler, 5 M. & W. 405, 414
General Assurance Society v. Chandumull Jain AIR 1966 SC 1644
Hedley v. The Pinkney and Sons Steamship Company, Limited, [1894] A.C. 222
Kopitoff v Wilson (1876) 1 QBD 377 at p 380
Maurice v. Goldsbrough, (1939) A.C. 452, 466-7 P.C. (per Lord Wright).
McFadden v. Blue Star Line, [1905] 1 K.B. 697
Moore v. Lunn Moore v. Lunn, (1923) 15 Ll. L. Rep. 155.
R. v. British and Foreign Marine Insurance Co., (1921) 1 A.C. 188, 214 H.L.
Sabeeha Faikage and Others v. Union of India and Others, (2013) 1 SCC 262.
State of Orissa v. United India Insurance Co. Ltd. [1997] INSC 365 (1 April 1997)
Steel v. State Line Steamship Co, (1877-78) L.R. 3 App. Cas.
The East and West Steamship v. S. K. Ramalingam Chettiar, AIR 1960 SC 1058.
The Quebec Marine Insurance Company v. The Commercial Bank of Canada (1869 -71)
L.R. 3 P.C. 234.

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 ABBREVIATIONS

1) A.I.R- All India Report

2) Anr. - Another

3) BOM- Bombay

4) IBID- in the same source

5) IBLA- Indian Bills of Lading Act

6) Ltd. - Limited

7) Mad- Madras

8) MIA- Marine Insurance Act

9) MTG- Multimodal Transportation of Goods Act

10) Ors.- Others

11) P&I- Protection and indemnity

12) S.C- Supreme Court

13) S.C.C- Supreme Court Case

14) Sec. - Section

15) T.N- Tamil Nadu

16) U.K- United Kingdom

17) U.O.I- Union of India

18) Vis--Vis- In relation to

19) Vs. - Versus

20) WWW- World Wide Web

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 CHAPTER I
INTRODUCTION

In todays time, business knows no boundaries. People have access to all sorts of product and
services as cross border business has become prevalent. But, the farther our goods are the more
risk is exposed to them. Marine insurance is one of the oldest insurance in the world. In the era
of globalisation, maritime transportation has been the spine of international trade having more
than 80 per cent of the merchandise transportation done by the sea .But marine transport involves
a lot of risk to the goods being carried and also the ship carrying them. Thus, to facilitate trade
and commerce and to mitigate the risk of financial loss to property, they should be insured as it
provides security and protection to individuals, communities and businesses. It provides for risk
sharing and encourages businessmen to innovate and to engage in more risky businesses which
ensure a higher level of economic activity in the country.

Marine insurance is thus an important component of international trade and commerce. The
marine insurance laws are India governed by Marine Insurance Act 1963 and guided by the
clauses under the Institute of London Underwriters (ILU) and international commercial contracts
popularly known as incoterms. Without the facilitation of marine insurance in order to manage
the long distance trade, it would have been very much complicated to manage the expansion of
maritime. The method of trading overseas would have been more risky and costly. And the
various developments in maritime would have taken an altogether different route and pace.

Shipping in the 21st century underpins international commerce and the world economy as the
most efficient, safe and environmentally friendly method of transporting goods around the globe.
We live in a global society which is supported by a global economy and that economy simply
could not function if it were not for ships and the shipping industry1

The above comments highlight the importance of the shipping industry on the international
commerce especially considering that more than 90% of the world trade is carried by sea 2.
Therefore, in order to ensure that this important industry functions properly is kept safe and

1
International Maritime Organization, International Shipping, Carrier of World Trade,
www.imo.org/includes/blastDataOnly.asp/data_id=12908/IntShippingFlyerfinal.pdf, at p.1

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environmentally friendly it is crucial to guarantee that it is properly regulated on a continuous
basis to comply with the regular developments in the industry and world trade.
In order to make certain that such industry is kept safe and environmentally friendly it is critical
to make sure that all ships maintain the highest standards in terms of maintenance, crew
competence and training, safety standards, etc., otherwise enormous consequences could result
from the failure to do so, e.g. oil pollution, increases in insurance premiums, instability of the
commercial industry, increase in marine casualties, etc. It is here where the issue of vessel
seaworthiness comes to light, as seaworthiness deals with the fitness and readiness, in all
respects: human, physical, documentary and cargo -worthiness, of the vessel and its ability to sail
safely to its destination.

1.1 What is Marine Insurance?

In a marine insurance contract, an insurer underwriter agrees to assume some portion of the
maritime risks on a vessel or cargo, or both, in exchange for a premium. The risks covered may
include a variety of risks at sea or in port, for a particular voyage or for a period of time.2
1.2 Definition of Seaworthiness
Under common law, Field J in Kopitoff v. Wilson,3 stated that the carrier should provide a vessel
fit to meet and undergo the perils of the sea and other incidental risks which of necessity she
must be exposed in the course of the voyage. Also, Channel J, in McFadden v. Blue Star Line ,
cited Carver, Carriage by Sea, which defined seaworthiness as that degree of fitness which an
ordinary careful and prudent owner would require his vessel to have at the commencement of her
voyage having regard to all the probable circumstances of it.
Under Marine Insurance Law the carrier has a duty to provide a vessel that is capable of
performing the voyage, i.e. seaworthy; failing to do so will have a serious implication on his
right to claim compensation for the loss he suffered. But does the meaning of seaworthiness
under Marine Insurance differ from the one used for Carriage by Sea?

2
Christopher Kingston, Marine Insurance in Britain and America, 1720-1844: A Comparative Institutional
Analysis, EHS (Aug. 17, 2014, 11.13 PM), http://www.ehs.org.uk/dotAsset/332686ee-2db9-4f09-abc6-
cb900150d473.pdf
3
Kopitoff v Wilson (1876) 1 QBD 377 at p 380

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The Marine Insurance Act (MIA) states in S.39 (4) thus A ship is deemed to be seaworthy when
she is reasonably fit in all respects to encounter the ordinary perils of the seas of the adventure
insured.
1.3 Importance of the duty under Carriage of Goods by Sea
The importance of seaworthiness under the current Carriage of Goods by Sea law arises before
and at the beginning of the voyage. Therefore, if the carrier was able to prove that the vessel was
seaworthy at the relevant time4 then he has discharged his obligation and can benefit from the
exceptions or limitation available to him by law.
The next important point about seaworthiness is the effect of the breach of the obligation on the
rights and immunities of the carrier, i.e. would he still be able to use the exceptions provided in
the contract or in the governing Rules and Regulations? Or is it enough for the vessel to be
unseaworthy in order to prevent the carrier from using his immunities or should there be a causal
link between the loss/damage and unseaworthiness?
Also, would the non-compliance of the carrier with a set of Rules and Regulations not part of the
governing regime, e.g. ISPS and ISM Codes have an effect on his rights and obligations?
Moreover, it is very important to know what constitutes a seaworthy vessel, because even if the
vessel is physically seaworthy, she might not be seaworthy in other respects affecting her ability
to navigate safely or even to enter or depart from a port.
How these questions are answered has a direct impact on the compliance of the carriers with his
obligations and his enjoyment of his rights and immunities, and the courts opinions or rulings
will also be influenced by the answers to these questions.
1.4 Relevance of Seaworthiness
The carriers duty to provide a seaworthy vessel has received considerable attention, world-wide,
from courts, scholars and others in the shipping industry. This attention has resulted in the
production of different national laws and international conventions to govern the shipping

4
Under Hague/Hague-Visby Rules he either has to prove that the vessel was seaworthy or that he exercised due
diligence to make her so. Robin Hood Flour Mills, Ltd. v. N. M. Paterson & Sons, Ltd., (The Farrandoc), [1967] 2
Lloyd's Rep. 276, p.280. Maxine Footwear Co. Ltd. and Another. Appellants; v. Canadian Government Merchant
Marine Ltd. Respondents, [1959] A.C. 589. However, the situation differs under the Hamburg Rules where the
carriers obligations extend to cover the whole period when the goods are under his custody, See Article 5 Hamburg
Rules.

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industry in general and seaworthiness in particular. This has resulted in some confusion as to
whether seaworthiness means the same in different branches of Maritime Law.
The duty of the carrier to provide a seaworthy vessel has significant importance. Although it is
not required in all seafaring activities, it still has a serious impact on different aspects of
maritime law, e.g. Marine Insurance, Carriage of Goods by Sea, Salvage, etc. Therefore, it is
important to define the term, and its different aspects, in order to recognize the consequences of
the compliance with or the breach of such a duty.
1.5 Essentials of Marine Insurance
Marine insurance is a contract but despite of it being a contract, the general principles of contract
law are not applicable to marine insurance contracts. The general or basic principle which is
followed by the contract of marine insurance is the contract of indemnity. Under the contract of
indemnity, this is recoverable in the form of pecuniary loss from the insurer by the insured.
Thus, according to Section 3 of Indian Marine Insurance Act, a contract of marine insurance is a
contract where by the insurer undertakes to indemnify the assured, in a manner and to the extent
there by agreed, against marine losses, that is to say, the losses incident to marine adventure.

During the eighteenth century, when marine insurance was emerging as sector in itself, it was
contended with various uncertainties and complex situation, which in turn created various
problems in the agency of the insurer and the insured. Majorly three kinds of agency problems
were faced by them:
Firstly, where there was a probability of a ship or the cargo getting lost or damaged, which
would depend on various factors including the route, distance, and quality of the crew and in
times of war, the threat of the ship getting caught by the enemy vessels. Such kinds of risk are
taken into consideration by the underwriter while determining the premium.
Secondly, certain situations where the hazard is on the part of the insured, which may range from
taking excessive risks to deliberately sinking the ship or cargo or misrepresenting the value of
the goods or even insuring a ship which is already lost.
Thirdly, a major concern for the people buying insurance is the financial stability of the
underwriter. Underwriters may fail to incur the loss when any major hazard happens.

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Due to such exposure of risk to the insured and the agency problems arising between the insured
and the insured, merchants focused on choosing more reliable underwriters and were willing to
pay high amounts of premium making the insurance financially secured.
The formal instrument embodying the contract of marine insurance is called the policy; and
the slip or covering note, is the informal memorandum that is drawn up when the contract is
entered into. The subject matter insured and the consideration for the insurance are respectively
known as the interest insured and the premium. The person who is indemnified is the
assured and the other party is styled the insurer or the underwriter so called because he
subscribes or underwrites the policy. Loss includes damage or detriment as well as actual loss
of property arising from maritime perils.5

5
Gaurangi Patil, Reeling Back In History To Understanding Marine Insurance/ Protection & Indemnity Clubs
(P&I), BRUS (Aug. 17, 2014, 11:08 AM), http://www.brus.in/publications/shipping/MI.pdf

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 CHAPTER II
TYPES OF MARINE INSURANCE

Following are different types of Marine Insurance.

1. Hull Insurance:

Hull and machinery insurance is to protect the ship owners investment in the ship. It is basically
a property insurance which covers the ship itself, the machinery and equipment. Furthermore, the
insurance covers some liabilities, normally collision liability with another ship and sometimes
also liability for colliding with other objects than another ship.

Claims Included:

Total loss of the ship.

Damage to the ship, engines and equipment.
Explosions and fire.
Groundings damage to the ship, salvage of the ship and possible contribution in general
average.
Collisions damage sustained to the ship and sometimes also liability towards the other
ship.
Striking other objects damage inicted to own ship and sometimes also liability
towards the owners of the other object.

2. Cargo Insurance:

Cargo insurance (also called marine cargo insurance) covers physical damage to, or loss of your
goods while in transit by land, sea and air and offers considerable opportunities and cost
advantages if managed correctly.

Types of Cargo Insurance:

i. Open Cover: This is the most usual type of cargo insurance, where a policy is drawn up
to cover a number of consignments. The policy can be either for a specific value that
requires renewal once the insured amount is exhausted or an permanently open policy

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 that will be drawn up for an agreed period, allowing any number of shipments during this
time.
ii. Specific (Voyage) Policy: Although not the norm for cargo insurance, you may from time
to time need to approach an insurance company (or broker, or other intermediary) to
request an insurance policy for a particular consignment. This is usually referred to as
Voyage Policy as the insurance covers only that specific shipment.
iii. Contingency Insurance: As an exporter you may often sell goods on terms where your
customer (as the importer) is responsible for insuring (or at least bearing the risk of
damage of or loss to) the goods, for example under FOB and CFR Inco terms 2010. In
these cases you are exposed to the risk of damage to the goods while in transit and your
customer refusing to accept them. In the worst case your customer may not have insured
the goods.

Claims Included:

The cargo transported by sea is subject to manifold risks such as:

Loss or damage at the port and

Loss or damage during the voyage.

3. Protection and indemnity (P&I):

Protection and Indemnity insurance, or P&I as it is usually called, is a ship owner's insurance
cover for legal liabilities to third parties. Third parties are any person, apart from the ship-
owner himself, who may have a legal or contractual claim against the ship. P&I insurance is
usually arranged by entering the ship in a mutual insurance association, usually referred to as a
club. Ship-owners are members of such clubs. Legal liability is decided in accordance with the
laws of the country where an accident takes place. The P&I insurance cover for contractual
liability is agreed at the time the owner requests insurance cover from the club and is usually in
accordance with the owners responsibility under crew contracts or special terms relating to the
trading pattern of the vessel.

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 4. Other P&I Covered Risks:

Other risks covered include liability for stowaways, liability for oil pollution and other types of
pollution and legal liability for wreck removal if the ship sinks and is blocking free navigation
for other vessels. In short, P&I insurance is a very comprehensive type of insurance cover which
makes it easier for a ship owner or charterer to trade in international shipping transportation. P&I
is as important to a prudent ship owner as his Hull and Machinery insurance cover.

5. Loss of Crew Members Personal Effects:

P&I insurance also covers the owners liability for loss of crew belongings in cases of shipwreck
or fire on board. The cover only applies to items which are deemed to be reasonable for any crew
member to have with him on board. A crew member travelling with unusually expensive items,
such as laptop computers, gold watches etc should make sure that he has such items separately
insured.

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 CHAPTER III
LEGAL ANALYSIS

It is pertinent to point out that there are several legislations applicable in India which directly or
indirectly relate to maritime law, i.e., the Indian Merchant Shipping Act, 1958 [hereinafter
referred to MSA]; the Indian Carriage of Goods by Sea Act, 1925 [hereinafter referred to as
CGSA]; the Indian Bills of Lading Act, 1856 [hereinafter referred to as IBLA]; the Multimodal
Transportation of Goods Act, 1993 [hereinafter referred to as MTG]; the Major Port Trusts Act,
1963 [hereinafter referred to as MPTA]; the Marine Insurance Act, 1963 [hereinafter referred to
as MIA]12; the Contract Act, 1872; the Sale of Goods Act, 1930; the Evidence Act, 1872; the
Indian Penal Code, 1860; the Transfer of Property Act, 1882; the Civil Procedure Code, 1908;
the Criminal Procedure Code, 1973; the Limitation Act, 1963; the Companies Act, 1956; the
Arbitration and Conciliation Act, 1996; the Maritime Zones of India (Regulation of Fishery by
Foreign Vessels) Act, 1981 [hereinafter referred to as MZIA]; the Safety of Maritime Navigation
and Fixed Platform on Continental Shelf Act, 2002 [hereinafter referred to as SMC Act]; the
Territorial Waters Continental Shelf Exclusive Economic Zone and Other Maritime Zones Act,
1976 [hereinafter referred to as TWCS Act], etc.

3.1 Carriage of Goods By Sea Act, 1925: An Analysis

The carriage of goods by sea from any port in India to any other port in or outside India is
generally governed by the CGSA. This Act is based upon the recommendations of the
International Conference on Maritime Law held in Brussels in 1922. The conference drew up a
Draft Convention for adoption by the leading maritime nations of the world. The object was to
secure uniformity of laws as regards the rights and liabilities of carriers by sea and the rules
regarding bills of lading. The CGSA applies to carriage of goods by sea under bills of lading or
similar documents of title from a port in India, to any other port whether in or outside India.6

In East And West Steamship7 the SCI, whilst dealing with the one year period to bring suits in
connection with loss or damage to cargo under bills of lading, has categorically held that the one
year period provided by CGSA and the bill of lading is not only a period of limitation but also

6
S.2, the Carriage of Goods by Sea Act, 1925.
7
The East and West Steamship v. S. K. Ramalingam Chettiar, AIR 1960 SC 1058.

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extinguishment of the right to sue the carrier on the expiry of one year after delivery of the goods
or from the date when the goods ought to have been delivered.

It may however be noted that the substantive rights recognised by the CGSA are of equal
application to foreign merchant ships as they are to Indian merchant ships. It is evident that
CGSA contains provisions which need to be relooked in order to facilitate smooth transport of
goods from India to the rest of the world. By so doing, emerging forms of crimes committed in
transporting goods would be significantly curtailed.

3.2 Merchant Shipping Act, 1958: An Indigenous Attempt

To foster the development and ensure efficient maintenance of Indian mercantile marines, the
MSA was enacted and brought into effect immediately after the independence in 1958, repealing
most of the earlier statutes in toto. Since 1958, MSA Act has undergone several amendments, the
last one being in 2007. This Act is divided into twenty four parts, each part dealing with specific
aspects of merchant shipping.

The MSA as it stands today not only establishes a National Shipping Board and shipping
development fund but it also provides for the general administration of Indian shipping by
establishing the office of the Director General of Shipping, the Mercantile Marine Department,
surveyors, radio inspectors, seamens employment offices, shipping offices and seamans
welfare officers. Moreover, the MSA contains provisions for the registration and procedures for
Indian ships; regulates ownership of Indian vessels, contains regulations for certifications,
classification and employment of seafarers and officers as well as for vessels; regulations
governing navigation and specific types of ships, including passenger ships, nuclear ships,
sailing vessels and fishing boats, and provisions for investigations, inquiries and penalties, etc.

Further, the MSA incorporates safety and load line provisions; fixes liability for collisions and
accidents at sea; provides for limitation of liability, liability for and preventive measures against
marine pollution; provisions for wreck and salvage; provisions governing the coasting trade, and
other miscellaneous provisions.

Though from the above account it appears that MSA is comprehensive and up-to-date statute, it
is far from being so. Problems arise out of some of the provisions having been carried verbatim

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from the older Acts as well as being outdated as compared with the position of law in other
developed countries as on today. The other problem with the Act is that it is extremely inclusive.

To further highlight the problems associated with MSA, the SCI has recently in Sabeeha Faikage
and Others v. Union of India and Others8 pointed out the loopholes in the Act and recommended
to the authorities concerned to take immediate steps for amending the MSA and rules made
thereafter in 2005. The Bench comprising Justice A. K. Patnaik and Justice Swatanter Kumar
however, absolved the Union Government of any responsibility towards the mysterious
disappearance of ten Indians who were on board Tugboat Jupiter-6 which was carrying the flag
of Saint Vincent and Grenadines but directed the Center to expedite payment of compensation to
the legal heirs of the Indian nationals.

3.3 Multimodal Transportation Of Goods Act, 1993: A Critique

In India multimodal transportation of goods is generally regulated by MTG which stands

amended by the Multimodal Transportation of Goods (Amendment) Act, 2000. The MTG was
introduced in India in 1993 as a result of the increasing technological advancements in
transportation systems,9 the rampant advent of containerisation in maritime transport61 and the
use of more than one mode of transport10 for the carriage of goods within the country as well as
to various international destinations worldwide. Besides, the MTG was introduced with a view to
reducing and eliminating interruptions in the continuous movement of goods from their origin to
ultimate destinations as also reducing costs and delays and improving the quality of transport
system.

The MTG applies to all cases where two or more than two modes of transport are used in the
course of transportation. It provides a legal regime to govern on a uniform basis, the liabilities
and responsibilities of a multimodal transport operator who can provide services under a single
document to shippers engaged in international trade. In other words, the MTG recognises
multimodal transportation of goods being done under a single transport document which covers
all the modes of transport and the multimodal transport operator remains liable and responsible

8
Sabeeha Faikage and Others v. Union of India and Others, (2013) 1 SCC 262.
9
See, An Overview of the Law of Multimodal Transportation, http://www.scribd.com/doc/19300648/An-
Overview-of-Law-of-Multi-Modal-Transportation-of-GoodsResearch-Paper.
10
Multimodal transport system generally involves the coordination of rail and road networks to ensure good
connectivity between port and hinterland.

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to the cargo owner. However, a multimodal transport operator is not liable under the Act unless
action against him is brought within nine months from the date of delivery of the goods; or from
the date when the goods should have been delivered; or from the date on which the party entitled
to delivery of the goods has the right to treat the goods as lost.

Another grey area in the MTG is that at present Indian corporates are increasingly switching to
multimodal transportation systems for cost-effective movement of both raw material and finished
goods, often outsourcing logistic requirements to third party service providers who are not
covered under the Act. It is thus, fitting that the Directorate-General of Shipping should
recommend the amendment of the MTG with the principal objective of streamlining multimodal
transportation system to suit the present scenario. Besides, the MTG suffers from the following
major drawbacks:

air freight operators are excluded from the applicability of the MTG;
multimodal transport operators license needs to be renewed on an annual basis;
the Act provides higher liabilities for multimodal transport operators;
even though containerization and multimodal transportation system is necessary to make
Indian merchandize competitive, yet inability to develop necessary infrastructure due to
lack of finance and inadequate legal and institutional environment have often proved to
be a stumbling block for development of a sound system of multimodal transportation.

3.4 Marine Insurance Act, 1963: A Replica of the U.K Marine Insurance Act, 1906

Marine Insurance can be connoted to be the most vibrant branch coming under the canopy of
insurance laws. This may be attributed to reasons that are far from cogency to the most coherent
ones, which includes the discovery of trade routes and their role in the expansion of global trade,
the insecurity faced at international levels during the course of sea trade, concerns about the
heavy investments made for a successful sea trade, the generally anticipated scale of attacks that
may be faced by a vessel, etc.11 These different facets can be summed up as contributing to the
necessity of developing an encompassing law for the protection of interests of ship owners,
buyers and sellers of cargoes, that are transferred through the sea.

11
See, Marine Insurance Against Piracy, http://legalservicesindia.com/article/article/marine-insurance-against-
pirac-y-183-1.html

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Marine insurance business can be considered in the broad spectrum as the business of effecting
contracts of insurance upon vessels of any description, including cargoes, freights and other
interests which may be legally insured in relation to such vessels, cargoes and freights, goods,
wares, merchandise and property of whatsoever description insured for any transit by land or
water or air or all the three. The same may include warehouse risks or similar risks in addition or
as incidental to such transit and includes any other risks which are customarily included among
the risks insured against in marine insurance policies.

The MIA is an Act that codifies the law relating to marine insurance. With a few exceptions, this
Act closely follows the UK Marine Insurance Act, 1906.

The Indian marine insurance has nine essential features which are also called as fundamental
principles of marine insurance, i.e., 1) features of general contract, 12 2) insurable interest, 3)
utmost good faith,13 4) doctrine of indemnity,14 5) subrogation, 6) warranties, 7) proximate
cause, 8) assignment and nomination of the policy and 9) return of premium. A brief discussion
on each feature is as here under:

A. Insurable interest:
According to the MIA, an insured person has, inter alia, an insurable interest in the
subject-matter where he stands in any legal or equitable relation to the subject-matter in
such a way that he may benefit by the safety or due arrival of insurable property or may
be prejudiced by its loss, or by damage thereto or by the detention thereof or may incur
liability in respect thereof. Since marine insurance is frequently affected before the
commercial transactions to which they apply are formally completed it is not essential for
the assured to have an insurable interest at the time of effecting insurance, though he
should have an expectation of acquiring such an interest. If he fails to acquire insurable
interest in due course, he does not become entitled for indemnification.
B. Utmost Good Faith:
The MIA incorporates the doctrine of utmost good faith. The doctrine of caveat emptor
(let the buyer beware) applies to commercial contracts while insurance contracts are

12
For e.g., proposal, acceptance, consideration and issue of policy.
13
Ss.19, 20 to 22
14
S.3

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 based upon the legal principle of uberrimae fides (utmost good faith). If this is not
observed by either of the parties, the contract can be avoided by the other party. The duty
of the utmost good faith applies also to the insurer. It is incumbent upon the insured to
disclose all the material information which may influence the decision of the contract.
Any non-disclosure of a material fact enables the underwriter to avoid the contract,
irrespective of whether the non-disclosure was intentional or inadvertent. The assured is
expected to know every circumstance which in the ordinary course of business ought to
be known by him. He cannot rely on his own inefficiency or neglect. The duty of the
disclosure of all material facts also falls even more heavily on the broker. He must
disclose every material fact which the assured ought to disclose and also every material
fact which he knows. However, the doctrine of good faith may not be adhered to in the
following circumstances, namely, i) facts of common knowledge, ii) facts which are
known should be known to the insurer, iii) facts which are not required by the insurers,
iv) facts which the insurer ought reasonably to have inferred from the details given to
him, and v) facts of public knowledge.15
C. Doctrine of Indemnity:
The contract of marine insurance is of indemnity. Under no circumstances an insured is
allowed to make a profit out of a claim.16 It is for this reason that the MIA incorporates
the doctrine of indemnity to facilitate the insurer to indemnify the assured in a manner
and extent agreed upon between them. Moreover, in fixing the insured value, the cost of
transportation and anticipated profits are added to original value so that in case of loss the
insured can recover not only the cost of goods or properties but a certain percentage of
profit also.
Having, agreed of the value or basis of valuation, the MIA provides that neither party to
the contract can raise objection after loss on the ground that the value is too high or too
low unless it appears that a fraudulent evaluation has been imposed on either party.
D. Doctrine of Subrogation:

15
Steven W. Thomas, Utmost Good Faith in Reinsurance: A Tradition in Need of Adjustment,
http://scholarship.law.duke.edu/cgi/viewcontent.cgi?article=3194&context=dlj
16
R. v. British and Foreign Marine Insurance Co., (1921) 1 A.C. 188, 214 H.L. (per Lord Sumner); Maurice v.
Goldsbrough, (1939) A.C. 452, 466-7 P.C. (per Lord Wright).

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 The MIA also includes the doctrine of subrogation. The aim of the doctrine is to ensure
that the insured does not get more than the actual loss or damage. After payment of the
loss, the insurer gets the right to receive compensation or any sum from the third party
from whom the assured is legally liable to get the amount of compensation. Unlike in
other cases where the insurer has a right to pay the amount of loss after reducing the sum
received by the insured from the third party, in marine insurance on the other hand, the
right of subrogation arises immediately after payment has been made, and it is not
customary as in fire and accident insurance, to alter this by means of a condition to
provide for the exercise of subrogation rights before payment of a claim.
Further, the MIA also deals with the right of contribution between two or more insurers
where there is over insurances by double insurance. It is a corollary principle of
indemnity.
E. Warranties:
A warranty is generally a statement according to which insured person promises to do or
not to do a particular thing or to fulfill or not to fulfill a certain condition. It is not merely
a condition but statement of fact. Warranties are of two types i.e., express warranties
which are expressly included or incorporated in the policy by reference, and implied
warranties which are not mentioned in the policy at all but are tacitly understood by the
parties to the contract and are as fully binding as express warranties.
In marine insurance, implied warranties are very important. They include: seaworthiness
of ship, legality of venture and non-deviation. All these warranties must be literally
complied with as otherwise the underwriter may avoid all liabilities as from the date of
the breach. However, there are two exceptions to this rule when a breach of warranty
does not necessarily affect the underwriter's liability i.e., where owing to a change of
circumstances the warranty is no longer applicable and where compliance would be
unlawful owing to the enactment of subsequent law.
F. Proximate Cause:
The MIA explicitly provides that the insurer is liable for any loss proximately caused by
a peril insured against but not otherwise. However, there must be direct and non-
intervening cause for the insurer to be liable to pay compensation. The Act also
enumerates the losses which the insurer is not liable, i.e.,

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 any loss attributable to the willful misconduct of the assured;
any loss proximately caused by delay; and
any loss due to ordinary wear and tear, leakage and breakage, inherent vice or
nature of the subject-matter insured, or for any loss proximately caused by rats or
vermin, or for any injury to machinery not proximately caused by maritime perils.
G. Assignment:
A marine policy is generally assignable unless it contains terms expressly prohibiting
assignment. It may be assigned either before or after loss. It can be assigned by
endorsement thereon or on other customary manner. Where a marine policy has been
assigned so as to pass the beneficial interest in such policy, the assignee of the policy is
entitled to sue thereon in his own name and the defendant is entitled to make any defense
arising out of the contract which he would have been entitled to make if the suit had been
brought in the name of the person by or on behalf of whom the policy was effected.

Through the above discussion it is conspicuous that the MIA is considerably clear in dealing
with matters relating with marine insurance. However, the Act does not provide for losses that
occur while the ship is sailing in the international waters. This is practically unfavorable
especially to oil tankers and heavy cargo ships.

Importance of the duty under Carriage of Goods by Sea:

The importance of seaworthiness under the current Carriage of Goods by Sea law arises before
and at the beginning of the voyage. Therefore, if the carrier was able to prove that the vessel was
seaworthy at the relevant time then he has discharged his obligation and can benefit from the
exceptions or limitation available to him by law.17 The next important point about seaworthiness
is the effect of the breach of the obligation on the rights and immunities of the carrier, i.e. would
he still be able to use the exceptions provided in the contract or in the governing Rules and
Regulations? Or is it enough for the vessel to be unseaworthy in order to prevent the carrier from
using his immunities or should there be a causal link between the loss/damage and
unseaworthiness? Also, would the non-compliance of the carrier with a set of Rules and
Regulations not part of the governing regime, e.g. ISPS and ISM Codes have an effect on his

17
McFadden v. Blue Star Line, [1905] 1 K.B. 697

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rights and obligations? Moreover, it is very important to know what constitutes a seaworthy
vessel, because even if the vessel is physically seaworthy, she might not be seaworthy in other
respects affecting her ability to navigate safely or even to enter or depart from a port.

How these questions are answered has a direct impact on the compliance of the carriers with his
obligations and his enjoyment of his rights and immunities, and the courts opinions or rulings
will also be influenced by the answers to these questions.

Importance of the duty under Marine Insurance Law

The seaworthy condition of the vessel has a direct impact on the right of the carrier/ship owner to
claim compensation from his insurers in case of loss or damage to the ship or its cargo. When
issuing an insurance policy for a vessel, the insurer(s) will assume when estimating the premium
that the vessel is deemed to be seaworthy at the commencement of the voyage,18 or the stage she
is going to perform, even if they did not inquire about this. Also under the Marine Insurance Act
1906 the Assured is under a legal obligation to disclose all material information and
circumstances known to him or that should be known by him, or his insurance contract can be
void if the insurer could prove that such material information would have influenced his
judgement, e.g. in taking the risk or fixing the premium. Such materiality should also affect the
ultimate liability of the insurer, and therefore, if the insurer could prove this, the contract can be
annulled. This is due to the fact that taking the route of s 17 of MIA 1906 will be more difficult
so the insurers best option is to stick to s 39.

Nature of duty

The duty to provide a seaworthy vessel is a personal duty on the part of the carrier. The personal
character of the duty is the same under common law, the Hague/Hague-Visby Rules and
Hamburg Rules; what changes is the nature of the duty. Under common law the duty is an
absolute one, whereas the Hague/Hague-Visby and the Hamburg Rules provide for a duty to
exercise due diligence. In spite of this variation the ship owner remains under an absolute duty
where the Hague/Hague-Visby Rules or the Hamburg Rules do not apply. This section will
consider the nature of the duty to provide a seaworthy vessel under the common law, the
Hague/Hague-Visby Rules and the Hamburg Rules.
18
Marine Insurance Act 1906, s 39 Warranty of seaworthiness of ship.

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 Absolute Obligation

The common law obligation is a strict one which imposes on the carrier an absolute duty to
provide a seaworthy vessel, but this absolute duty does not mean that he has to provide a perfect
vessel. The carrier is not required to provide a vessel that can withstand any kind of hazards
during its voyage merely to provide a vessel that is fit for the purpose of the contracted voyage
she is going to perform3, that is, he should furnish a vessel that can meet the ordinary perils of
the sea she is likely to encounter, taking into consideration the time of the voyage, the type of
waters she is going to navigate through, the type of the vessel, the cargo she is going to carry and
where the cargo is going to be stowed. It is not enough for the ship owner to prove that he did his
best to make her seaworthy but it should be fit for the purpose.

Due Diligence

The concept of Due Diligence was introduced by the Harter Act in 1893, then the Hague/Hague-
Visby Rules and Hamburg Rules adopted it, and it became an inseparable part of the obligation
to provide a seaworthy vessel. This duty has a different nature from the absolute duty to provide
a seaworthy vessel. And in order to understand the effect of this duty it is important to define it.
The duty to exercise due diligence was firstly introduced by the US Harter Act 1893; due to the
need to find a balance between the carriers and the cargo-owners interests. At that time the
exercise of the duty was not a positive obligation but was a way for the carriers to defend
themselves should the cargo owners incur damage or loss. At a later stage, the positive obligation
to exercise due diligence was adopted by Hague/Hague-Visby Rules Art III (1) and Art IV (1).19
By taking this approach, the absolute duty to provide a seaworthy vessel was replaced by a duty
to exercise due diligence.

19
Article III r1. The carrier shall be bound before and at the beginning of the voyage to exercise due diligence to:
(a) Make the ship seaworthy; (b) Properly man, equip and supply the ship; (c) Make the holds, refrigerating and cool
chambers, and all other parts of the ship in which goods are carried, fit and safe for their reception, carriage and
preservation. Art IV r1 provides that Neither the carrier no the ship shall be liable for loss or damage arising or
resulting from unseaworthiness unless caused by want of due diligence on the part of the carrier to make the ship
seaworthy, and to secure that the ship is properly manned, equipped and supplied, and to make the holds,
refrigerating and cool chambers and all other parts of the ship in which goods are carried fit and safe for their
reception, carriage and preservation in accordance with the provisions of paragraph 1 of Art III. Whenever loss or
damage has resulted from unseaworthiness the burden of proving the exercise of due diligence shall be on the carrier
or the person claiming exemption under this article.

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 CHAPTER IV
ROLE OF JUDICIARY

Dixon v. Sadler20

In this case seaworthiness of the vessel was defined thus: she (the vessel) shall be in a fit state
as to repairs, equipment, and crew, and in all other respects to encounter the ordinary perils of
the voyage. The MIA 1906, in defining the duty to provide a seaworthy vessel, used the ability
of the vessel to encounter the ordinary perils of the sea.

Hedley v. Pinkney21

The term seaworthy is a well-known term in nautical matters. In this Act it is used with regard
to such matters. It appears to me that, in the absence of any reason to the contrary, it must receive
in this Act its ordinary meaning in nautical matters. What is that meaning? It has been well
explained by Parke, B., in Dixon v. Sadler, The question being one of insurance, he is dealing
with the time of sailing, but the legal definition given of seaworthiness, which is not applicable
only to insurance cases, is that the ship must be in a fit state as to repairs, equipment, and crew,
and in all other respects to encounter the ordinary perils of the voyage.

Moore v. Lunn22
In this case, the vessel started her voyage with a cargo of wooden logs on deck unlashed, with
improper manning, Lord Justice Bankes said that on a trip like the one the ship was performing
in winter, with unlashed cargo and improper manning, the ship was unseaworthy because it could
be predicted that the ship would be going to face bad weather.

The Quebec Marine Insurance Company v. The Commercial Bank of Canada23

In this case the vessel was insured for a trip from Montreal to Halifax, which included navigation
in a river and the sea. The boiler of the vessel had a defect which was not apparent in the river

20
Dixon v. Sadler, 5 M. & W. 405, 414. Cited in Hedley v. The Pinkney and Sons Steamship Company, Limited,
[1894] A.C. 222 at p.227. See also Steel v. State Line Steamship Co, (1877-78) L.R. 3 App. Cas. 72, Lord Cairns,
defined seaworthiness as that the ship should be in a condition to encounter whatever perils of the sea a ship of that
kind, and laden in that way, may be fairly expected to encounter on the voyage.
21
Hedley v. The Pinkney and Sons Steamship Company, Limited. [1892] 1 Q.B. 58 at p. 64
22
Moore v. Lunn, (1923) 15 Ll. L. Rep. 155.
23
The Quebec Marine Insurance Company v. The Commercial Bank of Canada, (1869 -71) L.R. 3 P.C. 234.

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leg of the voyage, but as soon as the vessel touched salt water the defect became apparent and
she had to put in for repair. The court decision was that the ship was not seaworthy because she
was not fit to embark on the sea leg of the voyage. Consequently, the underwriter was not liable
to pay the assured when the vessel became a wreck because the shipowner was in breach of his
implied obligation, by virtue of s39 of the Marine Insurance Act, to make his vessel seaworthy.

Burges v. Wickham24

In this case the Ganges, a steamer, was built in the UK in order to navigate the river Indus. She
was supposed to sail from Liverpool to Karachi or Calcutta where she was supposed to be
delivered. An insurance policy was issued to cover the ocean journey of the steamer. Due to the
construction and character of the steamer as a river steamer, she was modified in order to be able
to withstand the peril of her ocean journey to her final destination. The builder did everything
that can be done to a vessel of this type to strengthen it in order to be able to encounter the
ordinary perils of its journey. The assured paid an extra premium due to the extra risk the
insurers were taking and they were informed about the modification that had been done. During
the voyage the steamer met with heavy gales and subsequently was lost. The insurers contended
that the steamer was not seaworthy because she was designed to navigate in rivers rather than
ocean trip. But the court refused that and held that: the warranty of seaworthiness must be taken
to be limited to the capacity of the vessel, and therefore, was satisfied if, at the commencement
of the risk, the vessel was made as seaworthy as she was capable of being made: though it might
not make her as fit for the voyage as would have been usual and proper if the adventure had been
that of sending out an ordinary sea-going vessel.

McFadden v Blue Star Line25

When a voyage is in stages the warranty is that the ship on starting on each particular stage is fit
for that stage. Thus, if she is going to stop at an intermediate port, she must have sufficient coals
to take her to that port, but she is not bound to have sufficient coals to take her the whole voyage.
It is treated as a separate warranty for each stage of the voyage. I think one must apply exactly
the same rule to the loading stage of a vessel whilst she remains in her port of loading. I think the

24
Burges v. Wickham, 3 B & S 669.
25
[1905] 1 KB 697 by Channell J at pp.703-5

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warranty is that at the time the goods are put on board she is fit to receive them and to encounter
the ordinary perils that are likely to arise during the loading stage; but that there is no continuing
warranty after the good are once on board that the ship shall continue fit to hold the goods during
that stage and until she is ready to go to sea, notwithstanding any accident that may happen to
her in the meantime. And the reason for so holding is precisely the same as that which exists
with respect to the warranty of fitness to encounter the perils of the voyage; as soon as the goods
are on board they are in the custody of the carrier, and he is liable for any accident which then
happens because he is an insurer of them unless he is protected by some clause in his bill of
lading.

Thus absolute common law undertaking of seaworthiness is not continues one but applies at the
beginning of each separate stage of voyage, while stages are marked either by the completion of
a particular operation, e.g. loading, or by changes in the nature of the operation to be performed,
e.g. river transit or ocean transit.

General Assurance Society v. Chandumull Jain26

In this case it was held that, Marine Insurance is based on few principles which are also its
essentials these are principle of utmost good faith; principle of insurable interest; principle of
indemnity and principle of subrogation. Here utmost good faith shall mean that the insured relies
absolutely on the insurer, a contract of marine insurance is nothing different from any other form
of contract. In case either insured or insurer commits fraud the other party can avoid such
contract. It shall be prima facie duty of both the parties to act in utmost good faith and disclose
every material circumstance known as per section 20 and 21. Insurable interest here would mean,
at the time of insurance the insurer should have interest in subject matter. The insurer is liable to
indemnify the insured in case of loss also given under section 75 of the Act. Subrogation means
substitution of the insurer in place of the insured for the purpose of claiming indemnity from a
third person for loss covered by insurance. The insurer is entitled to recover from a negligent
third party for any loss payment made to the insured as also under section 79 of the Act.

The purpose of marine insurance has been to enable the ship owner and the buyer and seller of
goods to operate their respective business while relieving themselves, at least partly, of the

26
AIR 1966 SC 1644

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burdensome financial consequences of their propertys being lost or damaged as a result of the
various risks of the high seas. Thus, in other words, marine insurance adds the necessary element
of financial security so that the risk of an accident occurring during the transport is not an
inhibiting factor in the conduct of international trade. The importance of marine insurance, both
to assureds, in terms of the security it provides and its cost element in the overall economics of
running a ship or transporting goods, and to countries, particularly developing countries, in its
impact on their balance of payments position, cannot be overemphasized.

It is well known that in India, until the coming into operation of the Indian Act of 1963, the
courts used to follow the principles of English law and decisions based on such principles as well
as the provisions of the English Act, viz. the Marine Insurance Act, 1906. The Indian law is a
direct take- off from its English counterpart, and so, whenever it is not self-evident, case law
spanning over two centuries is to be looked into to arrive at the true position. Moreover, the
Marine Insurance Act itself being a codification of previous case law, an appreciation of past
authorities is not only an essential requirement to the understanding of the legal concepts
generally, but also of paramount importance when wishing to gain an insight into the very
constitution of the sections within the Act.

Steel v. State Line Steamship Co27

Lord Cairns, defined seaworthiness as that the ship should be in a condition to encounter
whatever perils of the sea a ship of that kind, and laden in that way, may be fairly expected to
encounter on the voyage.

State of Orissa v. United India Insurance Co. Ltd.28

The admitted facts are that Vijay Commercial Corporation submitted a proposal for insurance to
cover certain risks, viz., supply of 12 Bulldozers of Yugoslavian make, under Ex.A-22 dated July
23, 1966, which was subsequently extended by fresh policy, Ex.A-3, dated July 27, 1966,
wherein the Chief Engineer of State of Orissa was also included as one of the insured. The
insurance coverage was for Rs. 27 lakhs. Before commencement of the contract for said supply,
a notice was issued on December 6, 1966 cancelling the insurance. Since the appellant has
27
(1877-78) L.R. 3 App. Cas.
28
[1997] INSC 365 (1 April 1997)

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claimed under the insurance policy, the Insurance Company, namely, Hindustan Ideal Insurance
Company Ltd. laid a suit in the trial Court for declaration that the insurance coverage was duly
cancelled and for consequential injunction.

The trial Court granted the decree. On appeal, the High Court confirmed the same by the above
judgment. The only question is: whether the appellant is entitled to damages from the Insurance
Company for non- supply of 12 bulldozers through their agent, Vijay Commercial Corporation,
who had the insurance from the Insurance Company.

The High Court extracted all the relevant clauses in the contract of insurance and held that it was
a Marine and Transit Insurance policy under Ex.A-22 and non- supply of bull-dozers was not a
condition of this policy and further, since under the contract the insurer was entitled to terminate
the contract in terms of the insurance, the cancellation thereof was valid in law and that the
respondents were not liable for damages for non-supply of the goods.

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 CHAPTER V
CONCLUSION

Marine insurance is a mechanism that helps to mitigate the risks of financial loss to the property
such as ship, goods or other movables, in maritime transport, on the payment of premium by the
assured to the insurer. Insurer provides risk cover to the ship-owners or the cargo-owners against
loss or damage that the ship or cargo may suffer in transit due to accidents and mishaps in the
nature of a financial indemnity. The insurance company undertakes to make good the loss to the
maximum value as agreed with the insured perils or risks. Loss is payable only when it has been
proximately caused by the insured peril. The marine insurance is governed by the national legal
regimes. In India, Marine Insurance Act, 1963, regulates various aspects of marine insurance.

However, the fact that divergent national legal regimes exist, in the conduct of marine insurance
business, has certain consequences for the parties to contract, particularly the assured, who will
have difficulty in understanding the coverage of foreign insurance market. Without the
uniformity in the national marine insurance legal regimes, the international conduct of marine
insurance, particularly from the assureds perspective, would be severely impeded. Hence, given
the international character of marine insurance, there is a need for harmonization of the legal
regimes governing the rights and obligation of the parties to the insurance contract involving
international transport and trade.

In a nutshell, vessel seaworthiness includes three fundamental aspects, physical fitness of the
vessel, which includes the physical readiness of the vessel and its equipment to undertake the
voyage; human seaworthiness, a very important factor as most marine incidents could be traced
back to an error on the part of the carrier or his crew, which includes ensuring the competence of
the crew to deal with the vessel and its equipment, and also extends to cover their readiness to
deal with emergencies, e.g. fire-fighting training. Finally vessel seaworthiness covers the
documentary element of seaworthiness, e.g. navigational charts, ship plans, etc. Once the vessel
has satisfied these three elements we can say that the vessel is seaworthy. However a vessel
satisfying the above elements will be seaworthy but may not be cargo worthy. This would leads
on to the second aspect of seaworthiness which is cargo worthiness of the vessel.

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The carrier is under an obligation to exercise due diligence, or absolute obligation, where the
common law applies, to make the vessel seaworthy. This obligation consists of two aspects:
vessel seaworthiness and cargo-worthiness. The first aspect includes a requirement that the
vessel is physically capable of safe navigation and that it is provided with appropriate equipment
which guarantees the safety of the vessel and its cargo and crew. Also the carrier has to ensure
that his crew has the experience and skills to manage the vessel and he has to provide them with
training on a regular basis. Finally the carrier has to ensure that the vessel has on board the
appropriate documents that the vessel might need on its voyage, i.e. navigational documents,
ship plan, etc. The second aspect of seaworthiness is to ensure the ability of the vessel to receive
the cargo and make sure that the cargo is stowed on board in a way that does not endanger the
safety of the vessel.

The parties to a contract of carriage can incorporate into the contract a clause which exempts the
carrier from liability for breach of their obligation to provide a seaworthy vessel. However, in
order for this clause to achieve its intended purpose the language used in its construction must be
clear and unambiguous, i.e. it should clearly state that it intends to protect the carrier from
liability for any loss or damage resulting from a breach of the obligation to provide a seaworthy
vessel. But the carrier cannot exempt himself from the exercise of the obligation to provide a
seaworthy vessel, whether it was an absolute obligation or an obligation to exercise due
diligence; this is because the carriers obligation to provide a seaworthy vessel is an overriding
one 37, In addition if the carrier was allowed to exempt himself from exercising his obligation to
provide a seaworthy vessel the whole purpose of contract of carriage, i.e. to deliver the vessel
safely to its destination, will be lost as an unseaworthy vessel will not be able to deliver the cargo
to its destination.

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 BIBLIOGRAPHY

BOOKS REFFERED
1. Law of Insurance, 3rd edition 2017, Dr. Avtar Singh
2. Insurance Laws Manual, 18thedition, 2017, Taxmann
3. Law of Insurance, 2nd edition, 2016, J.V.N Jaiswal
WEBSITES VISITED
1. Uncitral.org
2. legalservicesindia.com
3. corporatelawcorpus.blogspot.in
4. lawteacher.net
5. lobis.nic.in
6. rmlnlulawreview.wordpress.com
7. blog.ipleaders.in
8. mondaq.com
9. indiankanoon.org
10. indialawjournal.org
11. advocatekhoj.com

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