Principle of Warranty in Marine Insurance

In simple terms, the principle of warranty is an assurance by the insured to disclose all the relevant information about the subject matter of the policy to the insured. The insured promises to reveal all the true and correct information to the insurer, failing which, he may be unable to receive part or the complete benefit from the policy.

Under the warranty principle, the insurer promises to adhere to certain conditions and reveal certain truthful facts.

This principle helps the insurer to ascertain the extent of the risk and calculate the premium to be charged from the insured. Thus, the insurer will be saved from unnecessary risk and from incurring financial loss.

Similarly, the insured can rest assured that if he fulfils all the warranties and requirements, the insurer is obliged to compensate him in case any unfortunate event damages the insured property.

• The insurer must disclose the correct and accurate terms and conditions of the insurance contract to the policyholder.

• The insurer must reveal any changes in the premium amount, extent of coverage, etc., to the insured.

• The insurance company must carry out the investigation and claim settlement in a fair manner.

Warranties play a crucial role in the administration of marine insurance policies. Both the parties to the insurance contract are legally bound to the promises as they outline the conditions to be met. The importance of warranties can be understood from the following points:

Governs the Insurance Agreement

Warranties lay down the legal ground for governing the insurance contract. They clearly establish the terms which must be agreed upon by the insured and the insurer. Therefore, both parties become aware of their rights and obligations, which leads to a smooth fulfilment of the contract.

Affects the Claim Settlement

Adherence to the warranties is essential for the claim settlement process to take place smoothly. When both parties fulfil their contractual obligations, there are no disputes or claim denials.

Mitigates the Risks Involved

Express warranties explicitly mention the obligations and expectations of the insured. Therefore, there is clarity to the insured that a breach of contract from his end may deny him the insurance claim. SImilarly, the insurer knows the exact amount of risk involved, enabling him to fix the premium accordingly so he does not incur a loss in the contract.

Adherence to the Laws

Warranties require the insured to adhere to the legal requirements of the maritime industry at the national and international levels. Following the laws and regulations ensures the safety of lives, property and the maritime environment.

There are two types of warranties in a marine insurance policy, which must be fulfilled and adhered to by the insured. If the insured fails to uphold the warranties, the insurer will be discharged from paying the part or complete claim amount.

Express Warranties

• Expressed warranties are the promises and assurances made by the policyholder that are expressed and explicitly stated in the insurance policy document. Express warranties are clear and leave no scope for any confusion. Some notable features of express warranties are:

• They are clearly outlined in the policy.

• They are absolute and strict, with no room for any deviation.

• They play a pivotal role in setting the terms and conditions of the insurance contract.

• A breach or deviation renders the insurance contract void and nullified.

• Express warranties can be further divided into the following categories:

Affirmative Warranties

Affirmative warranties are those statements or facts that are true at the time of policy issuance. Policyholders are well aware of these warranties as they are specified in the insurance.

Promissory Warranties

Promissory warranties are assurances stating that few conditions will be met during the term of the policy. In case the insured fails to keep the said promise or conducts any breach, he may lose the benefits of the policy. An example of a promissory warranty is that the insured says all the fire extinguishers on the ship shall be serviced annually.

The following are included in express warranties:

• Ships seaworthiness for the intended voyage.

• The purpose of insuring the vessel and its intended usage.

• Compliance with various laws and regulations.

• Competence and qualification of the crew.

• The geographical limit of the vessel.

• Notification of any changes or events.

Implied Warranties

Though implied warranties are not stated or explicitly mentioned, they are assumed promises. They must be adhered to on the basis of industry standards and practices, legal laws and basic understanding. Though they are not present in the documentation, they must be fulfilled by the insured.

• The features of implied warranties are:

• They are an inherent part of the insurance contract.

• They include the basic features.

• They are not explicitly stated in the insurance document.

• They form the basic principles that lay the foundational framework of the insurance contract.

• Some of the implied warranties are:

Legal Voyage

Every insurance contract has an implied warranty that the insured and his vessel will engage in legal activities. It means that all activities, including trade, voyage and transactions, are legal according to the prevailing laws.

Complete Disclosure

The insured is required to disclose all the facts and not misrepresent any information which the insurer may use to decide the various aspects of the insurance policy.

Insurable Interest

This warranty implies that the insured has an insurable interest in the policy's subject matter. It means that if any loss or damage occurs to the subject matter, the insured will suffer financial loss.

The principle of warranty has a deep legal and moral implication when it comes to marine insurance in India. It defines the obligations of the insurer and insured, which ensures a smooth claim settlement process.

Expressed and implied warranties are the two types of warranties, which are further divided into different types. The insured must be aware of the meaning of each type so he may fulfil his obligation. If an insured fails to adhere to the warranties, the insurer may refuse part or complete payment of the claim, leading to heavy financial losses to the insured.

Those engaged in the cargo or shipment business must have marine cargo insurance to safeguard their vessels from unforeseen perils of land, sea, air and rail. A marine policy from a trustworthy provider such as Tata AIG ensures that your ships are adequately protected.

Tata AIG offers various types of policies including marine open policy, which protects multiple vessels under one blanket for a period of 12 months. It allows you to adjust the policy premium throughout the tenure of the policy according to the risk exposure. It covers loss or damage due to ship sinking, natural calamities, fire accidents, derailment, loss due to loading and unloading, etc.

You can find the most affordable and wide coverage policies with Tata AIG!

What are the principles of marine insurance?

The principles of marine insurance are:

Principle of indemnity

Principle of utmost good faith

Principle of insurable interest

Principle of proximate cause

Principle of contribution

Principle of subrogation

What are the types of marine insurance?

Some types of marine insurance are:

Freight insurance

Liability insurance

Hull insurance

Marine cargo insurance

Who should buy an open marine policy?

An open marine insurance policy is beneficial for

Traders and shipment organisations that require continuous coverage for multiple shipments in a year

Businesses that are planning on expansion and growth

Small and medium enterprises who want to streamline their insurance into a single policy for better management.