Nature and Functions of Marine Insurance

    Nature of Indemnity Promise. Marine insurance exists to indemnify interested parties against loss, damage, or expense occasioned accidentally in connection with vessels, cargoes, and freight charges through any of the numerous perils incident to transportation by water. The indemnity is promised and denned in a contract commonly known as a " marine insurance policy." Such a policy may be denned as a contractual agreement whereby one party (known as the insurer or underwriter) undertakes, in return for a stipulated consideration (called the premium) and in accordance with definitely expressed restrictions, to indemnify another party (known as the insured or assured) against loss or damage to a defined interest in vessel, cargo, or freight earnings when unavoidably caused by certain definitely enumerated contingencies.

    Marine insurance is not intended to indemnify all kinds of losses. Its purpose is to cover fortuitous losses, i. e., those which are accidental in character and beyond the control of the insured. Customary and inevitable loss, such as results from the inherent nature of the goods or the usual wear and tear of seafaring property, or which occurs in connection with the inherent nature of goods or their packing when considered in the light of the particular voyage under consideration, is not a fit subject for protection under a marine insurance contract. Such losses are not the result of an accident, and owing to their comparative certainty, should not serve to increase, abnormally, the size of insurance premiums. Instead, they should be borne by business as a normal item in the cost of operation. Sentimental or aesthetic values likewise are not covered, except by mutual arrangement and when subject to financial valuation. Moreover, losses which are attributable to the negligence of the custodian of the property (the carrier) should not be covered, although competition has been responsible for serious modification of this principle, as in the case of loss through pilferage. Briefly stated, marine insurance should indemnify restore the insured to his original position only such loss and damage as is accidental, unavoidable and unusual. But subject to these conditions the modern marine insurance policy affords a very broad protection. The modern " warehouse to warehouse clause " enables goods to be covered from the time they leave the shipper's warehouse in the interior, through all the various stages of the journey either by water or land carriers, until they are safely delivered to the warehouse of the consignee. In fact it has been said that marine insurance should justly be called "transportation insurance." Judged from this stand- point, it is regarded as essential that a marine insurance policy should not attach to goods after their transportation has been completed, or after they have reverted back to the custody of the insured.

     It is also important to bear in mind that a marine insurance policy is a personal contract. Strictly speaking the contract does not insure property, but the persons who own the same or possess some other insurable interest therein. This personal character of the contract cannot be overemphasized and is responsible for many of the restrictions contained in the policy. The term " property insurance " when applied to marine or fire insurance is in one sense a misnomer. Two vessels may be exactly alike, except for ownership, yet the underwriter may have to regard these risks as entirely different since one may be owned by an honest party whereas the other is controlled by a dishonest one.