Page 4 - L4

time of loss. For example, a person has insurable interest in the property he owns, a businessman
has insurable interest in his stock, plant, machinery and building, an agent has an insurable
interest in the property of his principal, a partner has insurable interest in the property of a
partnership firm, and a mortgagee has insurable interest in the property, which is mortgaged.
(ii) Similar to the life insurance contract, the contract of fire insurance is a contract of utmost
good faith i.e., uberrimae fidei. The insured should be truthful and honest in giving information
to the insurance company regarding the subject matter of the insurance. He is duty-bound to
disclose accurately all facts regarding the nature of property and risks attached to it. The
insurance company should also disclose the facts of the policy to the proposer.
(iii) The contract of fire insurance is a contract of strict indemnity. The insured can, in the event
of loss, recover the actual amount of loss from the insurer. This is subject to the maximum
amount for which the subject matter is insured. For example, if a person has insured his house
for Rs. 4,00,000 the insurer is not necessarily liable to pay that amount, although the house may
have been totally destroyed by fire; but he will pay the actual loss after deducting depreciation
within the maximum limit of Rs. 4,00,000. The purpose being that a person should not be
allowed to gain by insurance.
(iv) The insurer is liable to compensate only when fire is the proximate cause of damage or loss.

Marine Insurance

A marine insurance contract is an agreement whereby the insure undertakes to indemnify the
insured in the manner and to the extent thereby agreed against marine losses. Marine insurance
provides protection against loss by marine perils or perils of the sea. Marine perils are collision
of ship with the rock, or ship attacked by the enemies, fire and captured by pirates and actions of
the captains and crew of the ship. These perils cause damage, destruction or disappearance of the
ship and cargo and non-payment of freight. So, marine insurance insures ship hull, cargo and
freight. Thus, it is a device wherein the insurer undertakes to compensate the owner of a ship or
cargo for complete or partial loss at sea.

The insurer guarantees to make good then losses due to damage to the ship or cargo arising out
of the risks incidental to sea voyages. The insurer in this case is known as the underwriter and a
certain sum of money is paid by the insured in consideration for the guarantee/ protection he
gets. Marine insurance is slightly different from other types. There are three things involved i.e.,
ship or hull, cargo or goods, and freight.

(a) Ship or hull insurance: Since the ship is exposed to many dangers at sea, the insurance
policy is for indemnifying the insured for losses caused by damage to the ship.
(b) Cargo insurance: The cargo while being transported by ship is subject to many risks. These
may be at port i.e., risk of theft, lost goods or on voyage etc. Thus, an insurance policy can be
issued to cover against such risks to cargo.