Marine Insurance

Preface

• Scope of marine insurance
• Marine Insurance Glossary
• Procedure for Issuance of Marine Certificate
• Types of Marine Insurance Papers
• Terms of marine insurance
• Determination of premium in marine insurance
• Settlement of claims
• Marine Losses

Marine insurance is being followed since ancient times in all types of insurance papers. The risk involved in overseas trade is more as compared to inland trade. In some countries, the sea route is also used for inland trade. Marine insurance is a contract made between the insurer (insurance company) and the insured with a view to obtain protection from future risks, perils and damages related to the ship, cargo and shipmates etc. in trade by sea. The insurer’s consideration in this contract is the premium that the insured pays in exchange for the assurance of indemnity. As the volume of trade done through sea route has increased, the utility of this insurance has increased. Marine insurance comes under the category of general insurance. Which is operated in India by four subsidiary companies of the General Insurance Corporation of India.

Definition –

According to Section 2 of the Indian Insurance Act – 1938, “Marine insurance business may include all insurance contracts for ships, goods, vessels or other related insurable interests, by which the risks related to the transport of goods are covered.” covered, whether the goods are to be transported by land or water. It also includes such other risks as have been customarily included in marine insurance letters.

According to Arnold, “a marine insurance contract is a A contract under which, in exchange for a certain consideration, one party undertakes to protect the other party from harm against specified perils or perils of the sea, which may befall a merchant vessel in a maritime operation within a specified voyage or a specified period, and any other interests.

According to Section 3 of the Indian Marine Insurance Act 1963 – Marine insurance is a contract under which the insurer undertakes to indemnify the insured against marine losses to the extent and method specified in the contract. “It is clear from the above definitions that under a contract of marine insurance, the insurer undertakes to indemnify the insured against loss of ship, cargo and ship caused by sea losses within a specified period in exchange for a fixed consideration.

In the field of marine insurance, the possible loss and risks to the insurer are included, which can be divided into the following forms –

1. Subjects Insured – The following are the four subjects contained in marine insurance.
   • Ship – In marine insurance, the goods are transported from one place to another through the ship itself. Ship building costs a lot. Some ships are so huge that in case of damage, the owner has to bear heavy loss. In case of marine insurance of a ship, a single ship or the entire fleet can be insured.
   • Shipped cargo – Shipped cargo can be in the form of food, chemicals, industrial raw materials, equipment, semi-manufactured finished goods or other forms. During the voyage of the ship, the insuring company undertakes to indemnify the goods for loss caused by the insured perils as mentioned in the letter of insurance. The possible liabilities that the marine insurance company assumes are described in the bill of lading.
   • Shipping freight – The shipping company gets shipping freight in exchange for transporting the goods from one place to another through the ship. When goods from one place to another do not reach the destination as a result of maritime calamities or perils. Marine insurance companies insure the possible loss of the brother.
   • Liability Insurance – Liability of the insured to third parties may arise during the voyage of the ship. The insured can also insure the liability arising in this manner under marine insurance. In the event of this insurance, the ships also bear the burden of the liability arising towards the third party during the sea voyage of the goods and the ship of the insured.
2. Insured Risks – The perils insured include perils of sea, terrestrial perils, fire, jettison, war perils, battery etc. These are briefly described as follows:
   • Marine Disasters – Disasters at sea include storm, collision with rock, collision with iceberg, collision with another ship, sinking of ship due to shallow water, sudden bad weather. The insured is responsible for such extraordinary and accidental risks as may occur.
   • Risk at site – Under this, the risks of internal transportation from the warehouse of the exporter to the port of the exporting country and from the port of the importing country to the warehouse of the importer are insured.
   • Fire- The risk of fire increases due to the use of coal, oil, electricity etc. as means of power for running the ship. Due to the disaster of the sea, there can be explosion and fire in the ship. In the event of a fire, water poured to extinguish it may damage the goods and equipment of the ship. In this way, its direct and indirect losses are included in fire risk.
   • Jettison or throwing cargo into the sea – Sometimes it becomes necessary to reduce the carrying capacity of the ship to avoid extensive damage to the ship and passengers. In such a situation, the process of throwing the goods or equipment loaded on the ship is called jettison. Its purpose is to protect the remaining goods and persons from serious harm. Under this, the goods thrown away are compensated.
   • Risks caused by war – In the event of a war breaking out between two or more countries, the aggressive actions taken by one side like firing and the defensive actions of the other country like laying mines etc. can cause serious damage to the merchant ships. Apart from this, there can be risks such as the ship being captured by the navy of a country. These risks are included in war risks.
   • Marine swindle – Under battery, those fraudulent acts done deliberately by the captain and crew of the ship, which harm the owners of the ship, and for which the permission of the owner of the ship has not been obtained. Examples of this are selling the goods loaded on the ship, taking the ship for private work, disappearing with the ship, etc. These risks are insured in battery.
   • Piracy and Piracy – Under this, the risks of those thefts are covered, which are openly committed by an outsider by force. It would be more appropriate to call it a type of robbery. This work is not done by any employee or officer.
   • Hostile action – The insured may have to suffer loss due to the ships belonging to the enemy, so their underwriting is done. This letter of insurance promises to indemnify every citizen of the enemy nation against loss caused by hostile conduct.

In the context of marine insurance letters, some words have been in vogue, these are also called ‘conditions’ of marine insurance. Following are some of the main conditions.

1. On and from – In marine insurance the liability of the insurer commences as soon as the voyage of the ship commences. The meaning of ‘on’ reveals the liability towards the ship standing at the port and the goods loaded in it. The word ‘from’ refers to the ‘time’ when the ship leaves the port and starts the journey. When both the words are used in the letter of insurance. So the liability of the insurer is deemed to commence when the ship reaches the port and the liability is deemed to be complete when the ship successfully completes the voyage.
2. ‘Sparsh’ and ‘Stay’ – This phrase means that the ship will travel by touching or stopping at the designated ports. When a ship ends its voyage by passing through other ports in a disaster-free condition from the diverted route, then the insurance company’s risk bearing means liability ends. Such a ship is considered as misguided or deviated from the path.
3. The words ‘suit’ and ‘attempt’ in a marine insurance policy mean that at the time of peril or damage, it is the duty of the insured and his agent to – as a person of ordinary prudence, to protect the subject matter insured, reduce the loss. and in doing so, use whatever means of loss reduction are appropriate (if available) so as to keep the insurer’s liability to a minimum. In such a situation, the insurer will also be liable to compensate for the personal loss caused to the insured or his agent.
4. Memorial sentence – This sentence is used for things of ‘perishable’ nature. The insurance company does not assume liability to the extent of the cost of all or some of such articles.
5. F. C . S . – The alphabet used here means – F = Free, C = Capture, or S = Seizer. When a ship is captured or detained while on a voyage, the insurer is not liable for such damage, because of this clause in the letter of insurance.
6. Foreign comprehensive sentence – According to this sentence, when the voyage of the ship ends in the middle of the way as a result of some incident or accident. So the loss is apportioned as per the statutory rules of the midway port.
7. R.D. or C.C – The alphabet used here means- RD = Running down = Partial Compensation, CC = Collision clause = Collision clause. This clause renders the insurer liable to pay partial indemnity to the insured if the insured’s ship collides with another person’s ship and the insured is proved to be at fault.
8. Including all perils – If this clause is included in the marine insurance letter, then the insurance company will bear the responsibility of meeting the loss arising out of all the risks arising in the sea voyage.
9. Clause without all average – The meaning of this sentence in the marine insurance letter taken by the insured is that the insurer is responsible for the total loss but does not bear the liability for any kind of average loss. In marine insurance, the hire of the ship is also insured. The freight is paid either in advance or on arrival at the specified destination. Advances were given in case of damage or destruction of the ship during the voyage. The loss of shipping charges is borne by the owner of the goods. On the other hand, if the brother is to be paid on arrival at the destination at the end of the voyage, then in such a situation the owner of the ship suffers a loss of fare. Therefore, for the purpose of securing the loss of the ship’s brother, the insurance of ‘ship’s freight’ is prevalent as the subject matter of insurance under marine insurance.
10. ‘Invemory Clause’ – This clause in the marine insurance policy makes it clear that due to certain causes such as damage caused by explosion on board, boiler burst, axle breakage, accident of nuclear equipment, road – Damage arising out of rail-air transport, damage caused during loading or unloading of fuel or goods or damage caused due to carelessness of the captain, crew, engineers etc. Insured will be indemnified.
11. Destroyed or not destroyed – According to this clause, if the subject matter of insurance is destroyed before insuring and the owner of the ship after the departure of the ship (the cargo and the ship have been insured, with If the above sentence is fixed in the insurance letter itself, then the insurer will be liable to indemnify the insured Here the information about the destruction of the insured subject matter is not known to both the insurer and the insured.
12. Calamity or Peril – This condition clarifies as to which perils the insurer will be bound to indemnify for loss caused and for which he will not be liable.
13. ‘Running clause’ – When the insured has a term insurance policy on a ship issued by an insurance company and the term expires before the completion of the voyage, this clause entitles the insured to cancel the insurance policy by intimation to the insurer. Can be carried forward for further period also.
14. ‘Sister-ship clause’ – The purpose of this clause is to make the insurer liable for loss caused by collision of two ships of the same owner.
15. F.S.R . and C.C. Sentence – The meaning of the alphabet used in this sentence – S = Strike = (strike), F = Free (free), R = Riots (riots), C.C. = Civil Commotion (Civil Commotion),

Marine insurance in the case of the above sentence means that the insurer will not be liable for the damage caused to the insured due to strike, riot or civil commotion.

Ever since the nationalization of general insurance, all marine insurance policies in our country are issued under those conditions and procedures which are decided by the General Insurance Corporation of India. These conditions and procedures are based on international norms but the process of issuing them is different from other countries. The procedure followed at present for issue of Marine Insurance Certificate in India is as follows.

1. Selection of insurance company – First of all the person seeking insurance should choose the insurance company from which he wants to get insurance. Since the nationalization of marine insurance in our country, four subsidiary companies are doing marine insurance business. There is no difference between the premium charged by them and the facilities and security provided by them. But the person getting insured should choose any one insurance company according to his convenience and discretion.
2. Filling up the proposal form – After selecting the insurance company, contact the manager or agent of that company and get the proposal and fill the form. Marine insurance includes insurance of ship, ship hire and cargo. To get the ship insured, a proposal form has to be filled. Whereas for getting rent or hire insurance. It doesn’t have to be filled. There is no need to fill any form to get the goods insured, but the questions given in the questionnaire have to be answered. This questionnaire generally contains the name of the insured, full particulars of the goods to be insured, method and type of packing, nature of voyage, terms of ‘cover’ insurance desired, name of the vessel, sum insured, details of previous claims, etc. information is given. Correct information should be filled in this format. Full good faith, correctness, accuracy and honesty should be exercised while filling up the proposal form, otherwise the insurer may be absolved of its obligations under the contract.
3. Submission of the proposal form to the insurer – After entry in the proposal form, it is submitted to the office of the insurance company. After calculating the premium with the help of the agent, his check can also be enclosed.
4. Examination of the contents – When the proposal draft is received by the insurance company, the company gets it thoroughly examined. Since the risk of conduct in marine insurance is minimal, the insurance company is not particularly concerned about inspection.
5. Report of Inspectors – After inspecting the subject matter of insurance, the inspectors hand over their report to the company. They also mention the possible risk in the report.
6. Determining the premium – Now the underwriting department of the insurance company decides the premium for that insurance proposal. The premium is determined according to the amount of risk. In practice, the insurance agent calculates the premium and tells it at the time of filling the proposal form. Hence this step is not required in practice.
7. Acceptance of proposal – After determining the premium, the insurance company sends the acceptance of the insurance proposal. By acceptance, the insurance company also informs the proposer that the premium should be deposited within a specified period. The insurance company can also decide to refuse to insure the subject matter on the basis of the report of the inspectors. In that case, she issues a letter of apology to the proposer.
8. Payment of premium – The proposer receives the intimation for depositing the premium along with the acceptance of the proposal by the insurance company. The insurance contract is not complete until the premium is deposited. As soon as the premium is deposited, a statutory agreement is formed between the insurance company and the proposer.
9. Issuance of temporary certificate of insurance – The insurance company issues a temporary certificate of insurance only after depositing the premium. This is proof that the person has paid the amount of premium demanded by the insurance company, and the insurance company has accepted the proposal. The utility of a temporary certificate of insurance is only till the certificate of insurance is issued.
10. Sending the insurance letter and insurance certificate – After all the formalities of the insurance contract are completed, the insurance company issues the insurance letter. In marine insurance, in addition to the insurance policy, a certificate of insurance is also issued. With this, the process of issuing the insurance certificate is executed.

There are many types of insurance policies prevalent for marine insurance. The brief description of these insurance letters is as follows –

1. On the basis of the ship –
   • Single ship insurance policy – In this insurance policy, a single ship is insured by a single ownership insurance policy. When a company has more than one ship, a separate letter of insurance is issued for each.
   • Fleet Insurance – In these insurance letters, the shipping company takes only one insurance letter for all the ships plying on a route. With group insurance, on the one hand, less premium has to be paid and on the other hand, one gets freedom from the formalities related to the insurance letter of each ship.
   • Construction Insurance Letter – This insurance letter is obtained for the ships being built in the docks. Under this, the risk is included till the ship is completely built and once or twice tested at sea before laying.
2. Letter of insurance on the basis of cargo –
   • Named letter of insurance – In this type of letter of insurance, the name of the ship and the goods insured are mentioned. For example 1000 bales of cotton on a ship named ‘Viraat’.
   • Letter of Insurance – If the insured has to send the goods from time to time in a specified period, then under this letter of insurance, the value of the goods estimated to be sent in the specified period is insured. , Thereafter, the goods sent are declared from time to time. This letter of insurance is suitable for exporters.
   • All Risk Insurance – The scope of risks covered by this type of insurance is wide. Under this, in addition to the maritime risks of goods, the risks of internal transport, the losses related to war are also included.
3. Policy on the basis of period –
   • Time policy – As it is clear from the name, these insurance policies are issued for a fixed period. They automatically get canceled at the end of the stipulated period.
   • Voyage Insurance – In this insurance, the marine risks of the ship and goods are included as per the terms of the insurance letter for the time taken during the arrival of the ship from port to port. The duration of the journey may be less or more than the normal time.
   • Mixed Letter of Insurance – This letter of insurance is a mixed form of time and travel letters of insurance. In this, there is a description of the journey within a specified time limit and from where to where. For example, marine insurance for travel from Manchester to Mumbai from January 1, 2009 to March 5, 2009.
4. On the basis of valuation –
   • Valued insurance letter – In this insurance letter, the monetary value of the insured subject matter is determined mutually by the insured and the insurance company at the time of insurance. In case of loss to the insured item, compensation is paid at this value. There is no loss to the insurer if there is a fall in the market value thereafter. These letters of insurance are an exception to the indemnity principle, since it is possible that the insured may receive indemnity more than the actual loss.
   • Unvalued Insurance Letter – In these insurance letters, the value of the insured subject matter is not determined at the time of insurance, but in case of loss, compensation is made for the actual loss or the insured value, whichever is less.
5. On the basis of internal transport –
   • Marine and Construction Insurance – In this type of insurance, in addition to marine disasters, the risks of land are also included. By doing this, the insurance company also accepts the internal risk of the goods reaching the destination by land after traveling by sea.
   • Internal Transfer Insurance Letter – In this insurance letter, insurance is taken of goods sent from one place to another under registered post, road, railway transport. And the loss incurred during internal transfer is made good.
   • Freight Insurance – These insurance letters are issued to cover the risk of shipping companies. When a ship does not reach its destination due to a maritime disaster, there is a risk of freight being collected from the owners of the cargo. This risk is insured in freight insurance.
   • Currency Insurance Certificate – Currency Insurance Certificates are issued with the objective of minimizing the risk of importer from appreciation in foreign exchange rates. Under this, the insurer promises to indemnify in the currency of another country.

In the case of marine insurance papers, certain words are used in a special sense and more widely. These are also called conditions of marine insurance. Some of the key words or terms are as follows:-

1. Clause ‘on and from’ – In marine insurance, the liability of the insurance company begins with the commencement of the voyage. The word ‘but’ means the liability to the ship lying at the port and the goods kept in it. ‘From’ refers to the time the ship leaves the port. Therefore, in the case of the use of the clause ‘on and from’ in the letter of insurance, the liability of the insurer continues from the time the ship arrives at the port till the successful completion of the voyage.
2. ‘Name sentence’ – In this sentence the name of the person getting insured is written. In case of marine insurance, the insured himself or his representative can purchase the insurance certificate.
3. ‘Sparsh’ and ‘Stay’ sentence – This sentence tells the destination that the ship will complete its journey only by touching and passing through the fixed ports along the fixed route. When the vessel completes the voyage by changing the course, track and stability specified in the letter of insurance, the risk and liability of the insurer is deemed to be over. It is also called the ship’s ‘ deviation from the path ‘ or ‘ going astray ‘.
4. Cause and Endeavor – In marine insurance, in case of peril or damage, the insured or the agent is expected to take all possible measures to prevent the subject from being damaged or to minimize the damage as a person of ordinary prudence. For this purpose, when the resources of low cost are available, they will be used first. So as to limit the liability of the insurer. The insurer shall also be liable for any loss caused to the insured or his representative by attempting to limit the liability.
5. ‘Memorial sentence’ – This sentence is used for ‘perishable’ nature objects. The insurer is not liable for damages of this nature to the extent of the cost of all or any of them.
6. ‘damage’ or ‘no damage’ clause – In marine insurance, this clause is assumed to be effective from an earlier date. Under this, when the subject of insurance is damaged before insurance and the owner of the ship has insured the goods and the ship kept in it after the commencement of the voyage of the ship and the sentence mentioned above is included in the insurance letter, then the insurance The company will be bound to make good the loss caused to the insured. But here it is important that both the parties should not know beforehand about the destruction of the subject matter.
7. ‘Disaster’ sentence – This sentence expresses that which disasters are included in the insurance letter. It is clear that the insurance company will be bound only for the damage caused due to the calamities mentioned in the insurance letter.
8. ‘Continue Clause’ – When the insured has taken a term insurance letter of the ship and the stipulated period expires during the sea route itself, then due to the ‘continue sentence’, the insured can get the insurance letter from the insurer to continue for a further period by giving mere notice. .
9. The term ‘warehouse to warehouse’ – This term means that the liability of the insurer begins as soon as the goods are removed from the exporter’s warehouse. This obligation continues till the goods are delivered to the overseas buyer’s warehouse. As a result of that sentence, complete protection can be provided to the insured.
10. ‘Valuation’ sentence – Through this sentence, in case of damage to the insured, profit from the sale of the goods is also assured to compensate for the loss. Under this, the profit received in the value of the insured is also included. In case of damage to the insured subject matter, the fixed price along with profit is paid to the insured. It is also called a letter of insurance assuring coverage of profit and loss.
11. ‘Valuation’ clause – It is decided by this clause that due to some specified reasons which include explosion on board, boiler burst, ground breaking, breakdown of nuclear equipment, damage during transport by land, fuel or cargo loading and unloading. During the work, the insurer will also provide compensation to the insured in case of damage caused by negligence of employees, engineers, earthquake or natural calamities.

Determination of risk and premium in case of marine insurance is a difficult task. Due to the different nature of the risk, a flat or fixed premium rate cannot be fixed. Unlike life or fire insurance, certified risks cannot be insured in this insurance. In marine insurance, each proposal is unique, hence the risk is assessed in each proposal on the basis of merits. The amount of premium is decided only on the basis of the nature of the risk. In the case of insurance of goods, the intrinsic nature of the commodity, packing, perishable nature, trade practice, weather or adverse conditions, value, quantity, distance etc. are the major factors which decide the premium.

In ship insurance, the ship’s design, suitability, load carrying capacity, technical excellence, safety equipment, qualification and experience of the ship’s staff and captain are made the basis of premium determination. The amount of premium also increases as the insured seeks protection against more perils or calamities. Along with physical, defects in character conduct are also made the basis of premium determination. The risk of the insurer also increases in case of fault in the moral conduct of the ship, port personnel and the insured, hence the rate of premium is also increased accordingly.

In marine insurance, the insured makes a claim on the insurance company to get compensation for the damage caused to the insured subject matter and the risks included in the insurance letter. starts. After the claim, the insurance company investigates it and decides the amount of compensation after reviewing the loss. Finally, the insurance company pays the amount of compensation to the insured. This process is as follows

1. Submission of claim: In case of damage to the subject or thing insured by the risks included in the insurance policy, the insured should submit a claim for compensation within the prescribed period. The claim should be made in the prescribed form. Along with the claim application, it is mandatory to attach the original insurance policy, original copy of shipping invoice, original copy of shipping bill, copy of shipping instructions etc.
2. Scrutiny of Claim: When the claim is submitted by the insured, the insurance company scrutinizes it. Under this, it is seen whether the claim has been made within the stipulated period or not. Along with this, it should also be seen whether necessary forms and other proofs are attached with it or not.
3. Determination of loss – Determination of loss caused to the insured subject or thing in marine insurance is a difficult task. The insurance company is liable to indemnify only those risks which are included in the insurance policy. The principle of ‘proximate or proximate cause’ is strictly followed while determining the damages. If the proximate cause (peril) of the loss was insured, then only the insurance company would be liable to indemnify. The amount of insurer’s loss is determined according to the coverage of full or partial loss of the insured subject.
4. Payment of loss amount – After determining the loss, the insurance company fixes the amount of compensation and pays it to the insured. The insurance company cannot be compelled to compensate the loss only in cash. The insurance company may also decide to reinstate the damaged item.

Marine insurance losses can be classified mainly into two parts – full and partial loss. Absolute losses can be sub-divided into actual absolute loss and constructive absolute loss. Partial losses can be further sub-divided into average and expense heads.

1. Total Loss– When the thing insured is completely destroyed, it is called a total loss.
   • Actual Total Loss – As per Section 75(1) of the Indian Marine Insurance Act, 1963, when the subject matter insured as a whole, these losses are mainly of two types: the article is destroyed or its form is so changed that it If it cannot be brought back to its original form or if the insured loses it for ever, then such loss is called an actual absolute loss. There are three categories of total loss, first, the destruction of the subject insured, such as the sinking of a ship or cargo, second, damage to the subject insured in such a way that it is not possible to bring it back to its original form, such as the destruction of a food product. Lost and Third: Permanent loss of the subject matter insured, such as ship or goods being looted by pirates.
   • Constructive Total Loss – In Section 60 (1) of the Indian Marine Insurance Act 1963, it has been defined that Constructive Total Loss will be called when “the actual total, loss of the insured is known to be certain or the insured is so much The loss is such that the cost of repairing it becomes equal to or more than its value. In case of total loss, the subject matter insured is completely lost, while in constructive total loss it is possible to bring it back to its original form. But as a result of equal to or more than the value of the cost of bringing the original form, the insurer considers it appropriate to indemnify the insured. For example, out of the goods loaded in a ship, the goods worth 50 thousand rupees fall into the ship. If it costs Rs 70,000 to remove it and bring it back to its original condition, then the correct option would be for the insurer to compensate for the actual loss.
2. Partial Losses – In partial losses, the subject matter insured is not completely destroyed, but only a part of it is destroyed. Hence the insurer is also liable to indemnify for the same portion. A brief description of the different types of partial losses is as follows:
   • Special average loss – Most of the losses in the case of marine insurance are special average losses. Section 64 of the Indian Marine Insurance Act, 1963 defines it as “Special average loss is the partial loss suffered by the insured in the risks covered, not being the general average loss”. And with reference to the brother of the ship, it is calculated on the following basis.
     • Special average loss on the ship – It is calculated on the basis of repair cost. In case of damage to the vessel the insured shall be entitled to receive the actual cost of repairs thereof. The insurer is under no liability to pay for the expenses of repairs arising in the ordinary course of the ship’s operation.
     • Special average loss on freight – If there is a provision in the insurance letter to pay the freight on safe arrival of the ship at the destination and the ship does not reach the destination and the freight is insured, then the insurer will compensate for the special average loss on freight. Makes it In case of undervaluation of the insurance letter, compensation is paid in proportion to the sum of freight loss and insurable value by fixing freight insurance. In the case of an appraised letter of insurance, compensation is made after knowing the ratio of loss of hire to the insured value.
     • Special average loss on the goods – For the calculation of this loss, the safe selling price received on arrival of the goods at the destination is known and the amount received from the sale of the damaged goods is reduced from it and the value of the actual total loss is calculated. is ascertained. The insured is compensated by ascertaining the ratio of the value of the secured value and the actual total loss.
   • Ordinary Average Loss – This loss means the loss voluntarily and intentionally in extraordinary circumstances to protect the interests of all. In this way, the prudent and voluntary ordinary expenditure to protect all stakeholders related to time travel during a crisis in sea travel is called simple average loss.It is necessary to clarify here that the expenditure is done to protect all the interests related to the journey, so the responsibility of bearing the loss also falls on all the parties.
     • Sources of Simple Average Loss – Characteristics of Simple Average Loss : There can be two sources of Simple Average Loss: (i) Average Simple Sacrifice and (ii) Average Simple Expenditure. In the normal course the property is given up. For example, when a ship becomes overburdened for some reason, it becomes necessary to throw some cargo into the sea or destroy any part of the ship to lighten it. Similarly, in the event of the ship running out of fuel, the use of goods or any part of the ship as fuel. Normal average cost means such cost as may be incurred to keep a ship safely afloat in times of distress. Examples of this type of expenditure are the cost of taking shelter at a port for the safety of the ship, the cost of getting the ship out of water, etc.
     • Characteristics of Simple Average Loss – Following are the characteristics of Simple Average Loss.
       • The adverse situation or crisis must be real and extraordinary,
       • The sacrifice or expenditure must be made for the protection of all interests.,
       • The sacrifice or expenditure of the interest must be done with wisdom and prudence.,
       • The sacrifice or expenditure of the interest must be done voluntarily.,
       • The loss must be a direct result of the sacrifice or expenditure.
       • The ship and the goods must be protected as a result of the sacrifice or expense.
     • The interest of the contributory – that is, goes to it. The interests that are protected by this general average loss are called contributory interests. The contributory interests are (i) the owner of the ship, (ii) the owner of the cargo, and (iii) the hirer. The one who gets Therefore, in case of general average loss, all these three contribute to the loss. The value of the common average loss and the share of each contributory is determined on arrival at the place of destination or at the place where the journey is terminated. This is called adjustment of normal average loss. The owner of the ship contributes on the basis of the value of the ship, the owner of the goods on the basis of the value received at the destination and the hirer has to contribute on the basis of the rent received at the destination. Therefore, before sharing the loss, the value of the ship, goods and fare is determined and the average loss is divided in the ratio of this value. This determination of value is called ‘contributory value’. The contribution value may be different from the sum assured. If the loss is the result of a peril which has been insured, the contributors shall be entitled to recover normal average contribution from the insurance institutions under their respective insurance policies.
     • Calculation of Normal Average Loss – Average adjusters are appointed by the captain of the ship after reaching the destination in case of normal average loss, who prepare the adjustment sheet of average loss by which the contribution of each contributory is determined.
     • Special – In the event of a sea vessel getting stuck in a distress situation, it is the duty of the captain of the ship to try as much as possible to get him out of distress. Whatever expenses have to be incurred to face the danger and save the ship from it, they can be recovered from the insurer. It is the duty of the captain of the ship to report these expenses to the master of the ship. It is worth mentioning here that the expenditure should be just and reasonable. The expenses are incurred to cover only those risks which are mentioned in the insurance policy by the insured party. These expenses must have been incurred in good faith and before arrival at the port of destination. Expenditure incurred on apprehension and estimation of danger is not admissible. These are paid by the insurer only in case of actual occurrence of the crisis.
     • Salvage Expenses – These expenses are incurred in relation to saving the ship from danger during sea voyage. A person who rescues a ship in distress is entitled to receive some reward or remuneration for his efforts as per the provisions of the Marine Insurance Act. But the person saving the ship must not have any insurable interest in the ship in distress. In the event of non-payment by the insurer of the reward or remuneration in respect of salvaging the ship, the person salvaging may retain the property insured until such payment is made.