Warranty of Neutrality in Marine Insurance

According to the Marine Insurance Act, a neutral warranty is a warranty under which the insured property, such as the ship, vessel or cargo, is warranted to be neutral. In simpler terms, the warranty of neutrality implies that the insured property shall be neutral and it shall not belong to or support any nation or country involved in a war/aggression.

The warranty means that the insured property will not engage in any activities related to war, such as supplying weapons to a nation involved in wars, etc. Thus, the ship must refrain from being involved in any activity related to any hostile nation.

It means that there is an implied condition that the insured property is neutral in character at the time of risk commencement and shall remain so till the situation is under the control of the insured.

If the insured fails to uphold this warranty, the insurer has a right to deny the claim for any type of loss incurred to the ship, cargo or vessel.

Example:

**Situation 1: **A ship carrying medicinal supplies has a marine insurance cover with a warranty of neutrality clause. If the ship sails and supplies the medical items to a neutral country, there is no problem as the warranty is upheld. In case there is any loss or damage to the insured property, the insurance company shall pay the insurance claim.

Situation 2: If the same ship carrying medical supplies delivers the goods to a military hospital in a country that is engaged in war, it will lead to a breach of warranty of neutrality, and the insurance company can refuse to pay the insurance claim.

**-Insurance Validity: **The warranty of neutrality is primarily essential to keep the insurance cover valid. A breach of the warranty makes the insurance cover void.

-Helps Insurers in Managing Risks: This warranty enables the insurers to ascertain the risk and prevent any exposure to war-related activities.

**-Safe Trade Routes: **The warranty is also essential to maintain safe trade routes without endangering the ships involved in regular businesses.

**-Establishes a Legal Boundary: **A warranty of neutrality establishes a legal boundary for the insurance contract. It helps both the parties to know the extent of legality and act accordingly.

Two types of warranties exist in marine insurance: express and implied. Warranties are a guarantee by the insured to the insurer which are made at the time of purchasing the insurance policy. They are assurances given by the policyholder stating the specific conditions or usage of the said property. Let us understand the two types of warranties.

Express Warranty: Express warranties are those promises that are explicitly stated in the insurance policy. They are not a part of the base policy. Hence, they are specifically mentioned in the policy and are agreed upon by the insured and the insurer.

Express warranties are precedent conditions and must be complied with to prevent the insurance coverage from becoming void. Some express warranties include the following:

• The ship must be suitable for the intended voyage

• The insurer must disclose all the information.

• The consignment/cargo and the voyage must be legal.

• The insured must follow the operational and safety standards and procedures.

• The insured must provide an accurate description of the cargo that is in line with the legal standards.

**Implied Warranty: **Implied warranties are automatic and fundamental to marine insurance and are not explicitly mentioned in the policy. They are considered to be a part of the agreement between the insured and the insurer. Some common implied warranties are:

• Seaworthiness of the ship

• Voyage legality

• Non-concealment of information

Marine insurance works on the principle of warranties, meaning the insurance coverage remains valid till the warranties are fulfilled. Warranties in marine insurance are promises and commitments by the insured in relation to the ship or cargo. This commitment is crucial as any breach on the part of the insured will make the insurance coverage null and void. Under such a circumstance, the insurer has a right to deny any compensation.

Understanding and complying with the express and implied warranties are essential for the insured parties, as they specify the insured’s duties and obligations and help to fulfil them.

The warranty of neutrality is crucial for both the insured and the insurer as it lays down the condition under which the policy will remain in effect. The breach of this warranty makes the policy void and the insurer can refuse to accept the claim.

Marine business owners who want to safeguard their vessels and cargo from various risks must opt for a marine insurance policy. At TATA AIG, we offer the most affordable and wide coverage insurance plans, which not only serve as risk management tools but also assist you in complying with the industry’s safety standards.

Additionally, marine insurance offers flexible coverage, international protection, liability protection and much more. You can customise the plans to suit your requirements. Our SME Insurance plans are available in different types, such as import insurance, export insurance, marine cargo insurance, inland marine insurance, hull insurance, and so on.

Who should buy marine insurance?

All parties engaged in transporting goods by sea must buy a marine policy. It includes:

• Buyers

• Manufacturers

• Customers

• Banks

• Import/export merchants

• Buying agents

• Contractors, etc.

What is covered under marine policy?

TATA AIG Marine policy offers a wide coverage, which includes the following:

• Average clause

• Accumulation clause

• Debris removal clause

• Brands clause

• Civil Authority clause

• Declaration clause

• Buyers interest clause

• Fumigation clause

• General Average, etc.

How does the warranty of neutrality affect the validity of marine policy in India?

Warranty of neutrality is considered as a condition of marine policy. Thus, if the insured breaches the warranty, it leads to the marine policy becoming null and void. In such a case, the insurer will not be liable for any losses.