Marine insurance operates based on several fundamental principles that guide the formation and interpretation of marine insurance contracts. These principles are crucial for both insurers and policy holders to understand.
Principles of Marine Insurance
Principle of Utmost Good Faith
The principle of utmost good faith, also known as uberrimae fidei, requires both the insurer and the insured to act with utmost honesty, transparency, and disclosure of all material facts. The insured must provide accurate and complete information regarding the risk being insured, such as the nature of the goods, their value, and any known hazards.
Principle of Insurable Interest
The principle of insurable interest states that the insured must have a legally recognized interest in the subject matter of the insurance. In marine insurance, the insured must demonstrate a financial interest in the cargo or the vessel being insured. Without an insurable interest, the policy is void.
Principle of Indemnity
The principle of indemnity in marine insurance aims to compensate the insured for the actual loss suffered, up to the insured value or sum insured. The purpose is to restore the insured to the same financial position as before the occurrence of the insured event. Marine insurance policies are typically designed to provide indemnity for the value of the cargo or the vessel.
Principle of Proximate Cause
The principle of proximate cause is used to determine the cause that is directly responsible for the loss or damage. It helps establish whether the loss falls within the coverage of the marine insurance policy. The insured event must be the direct result of a covered peril specified in the policy.
Principle of Subrogation
The principle of subrogation allows the insurer, after settling a claim, to step into the insured’s shoes and pursue any rights or remedies against third parties responsible for the loss. By subrogation, the insurer seeks to recover the amount paid as indemnity from those who may be liable for the loss or damage.
Principle of Abandonment
The principle of abandonment provides the insured with the option to abandon the insured property to the insurer in case of a total loss. This allows the insured to transfer their rights in the property to the insurer in exchange for a claim settlement.
Principle of Contribution
The principle of contribution applies when multiple insurance policies cover the same subject matter and insured event. It states that each insurer is liable to contribute proportionately to the loss payment based on the policy limits and terms. This principle prevents the insured from receiving more than the actual loss suffered.
