PRNCIPLES OF MARINE INSURANCE IN THE CONTEXT OF UGANDAN LAW

ABSTRACT

“Marine insurance avails the buyer of goods in international Trade would a remedy in the case
goods are lost, damaged or destroyed when in transit. In light of the above statement discuss the
principles of Marine insurance.”

INTRODUCTION

As a general rule statutes dealing with the regulation of insurance business do not or have not
defined the contract of insurance to obviate the danger of excluding contracts within or that should
be within their scope. However a definition is essential as insurance business is closely regulated. In
the words of Channel J, “a contract of insurance then must be a contract for the payment of a sum
of money or for some corresponding benefit to become due on the happening of an event, which
event must have some amount of uncertainty and must be of a character more or less adverse to the
interest of the person effecting the insurance.”1 The Marine Insurance Act, 2002 defines a contract
of marine insurance as an agreement whereby the insurer undertakes to indemnify the insured, in
the manner and to the extent thereby agreed, against transit losses, that is to say losses incidental to
marine adventure.2 There is a marine adventure defined under section 4(2)3 where any insurable
property is exposed to maritime perils, the earning or acquisition of any freight , passage money,
commission , profit or other pecuniary benefit, or the security for any advances , loan
disbursements, is endangered by the exposure of insurable property to maritime perils or where a
third party may be incurred by the owner of ,or the other person interested in or responsible for ,
insurable property, by reason of maritime perils4. A contract of marine insurance may by its express
terms or by usage of trade be extended so as to protect the insured against losses on inland waters or
any land risk which may be incidental to any sea voyage. In simple words the marine insurance
include Cargo insurance which provides insurance cover in respect of loss of or damage to goods
during transit by rail, road, sea or air.

The seller under CIF or FOB 5 obtains a marine insurance cover and tenders the insurance

1 Prudential Assurance Co. Ltd v Inland Revenue Commissioner [1904] 2 KB 658 at 663

2 Section 3 of the Marine Insurance Act,2002

3 Marine Insurance Act,2002

4 Section 2 Marine Insurance Act, 2002 means perils consequent on or incidental to the navigation of the sea
and inland waters for instance waters, fire, war, pirates, rovers, thieves, captures, seizures, restraints, and detainment
of foreign governments and peoples, jettisons, and barratry among others.

5 The question of who is responsible for effecting the insurance is dependent on the contract terms. A CIF
contract requires a seller, at his expense, to obtain insurance cover for the voyage and tender the policy to the buyer(or
the advising /confirming bank where the parties have agreed on a letter of credit arrangement), along with the bill of
lading. In an FOB contract, there is no legal obligation to obtain insurance cover on the part of the buyer or seller. The
buyer, however would be well advised to obtain insurance if he wishes to cover against losses or damage while the
goods are on the high seas. It is however not unusual for a buyer in an FOB contract to request the seller to arrange
documents to the buyer.6 In the absence of express contractual provisions, the seller must obtain a
valid policy on terms that are current in the trade for the benefit of the buyer from reputable insurers
for the transit contemplated by the contract, and the particular cargo. Where the seller fails to obtain
insurance cover, or does not obtain adequate insurance cover, the goods will be at risk of the seller.
For instance in the case of LINDON TRICOTAGEFABRIK v WHITE AND MEACHAM7, the
seller who did not obtain insurance cover for the entire transit was unsuccessful in obtaining the
price of the goods when they were stolen while awaiting delivery to the buyer's correct address. In
international sales, goods are normally insured against the hazards they are likely to encounter
during the voyage from the seller's country to the buyer's country. 8 In the event of loss or damage to
cargo due to perils of the voyage, the insured will be able, depending on the terms of the insurance
policy, to recover his losses from the underwriter or insurer.9 Therefore the insurance of goods is
important during the transit from the exporting country to the importing country in an international
trade sale transaction.

Features and principles of marine insurance

Offer & Acceptance is a prerequisite to any contract. Similarly the goods under marine (transit)
insurance will be insured after the offer is accepted by the insurance company. Then there is
payment of premium next. An owner must ensure that the premium is paid well in advance so that
the risk can be covered. Section 5210 provides that unless otherwise agreed, the duty of the assured
or his or her agent to pay the premium, and the duty of the insurer to issue the policy to the assured
or his or her agent, are concurrent conditions, and the insurer is not bound to issue the policy until
payment or tender of premium. If the payment is made through cheque and it is dishonored then the
coverage of risk will not exist. It is as per this provision that payment of premium must be made in
advance. In the case of COMPANIA MARITIMA SAN BASILIO SA v OCEANUS MUTUAL
UNDERWRITING ASSOCIATION (BERMUDA) LTD11 it was discussed that the onus is on
the assured to ensure that the premium are paid on time notwithstanding the fact that it is open as
between the insurer and the assured to agree otherwise. The assured is deemed to know every
circumstance which, in the ordinary course of business, ought to be known by him. This means that
knowledge that his agents or servants posses will be imputed to the assured, even though the
assured is not personally aware of circumstances since he has not been informed of them by his
agent or servant.

insurance cover on the understanding that the buyer will reimburse the costs incurred.(FOB contracts with additional
services contracts)

6 Indira Carr, International Trade Law, 4th edition, 2010 at page 17

7 1975] 1 Lloyd's Rep 384

8 Indira, international Trade Law at page 431

9 Ibid.

10 Marine Insurance Act 2002.

11 [1977] QB 49
Utmost good faith. Section 1712 provides that a contract if marine insurance is a contract based on
the utmost good faith, and if the utmost good faith is not observed by either party, the contract may
be avoided by the other party. The assured must therefore disclose all the material circumstances13
known to him before the conclusion of the contract. 14 It is a long established principle that all
insurance contracts, are contracts of utmost good faith (uberrimae fidei) as noted by Lord Cynde
in MANIFEST SHIPPING CO. LTD v UNI-POLARIS INSURANCE CO. AND LA
REUNION EUROPEEN (THE STAR SEA).15 The marine policy shall be voidable at the option
of the insurer in the event of misrepresentation, mis-description or non-disclosure of any material
information. Example: The nature of goods must be disclosed that is say whether the goods are
hazardous in nature or not, as premium rate will be higher for hazardous goods. 16 A circumstance is
material if it would influence the judgment the judgment of a prudent insurer in fixing the premium,
or determining whether he will take the risk. The extent to which a circumstance must influence the
prudent insurer's judgment has been much debated since CONTAINER TRANSPORT
INTERNATIONAL INC AND RELIANCE GROUP INC V OCEANUS MUTUAL
UNDERWRITING ASSOCIATION (BERMUDA) LTD.17 In this case, the court concluded that
a fact is material if it would have had an impact on the formation of the prudent insurer's opinion-
that is, if the prudent insurer would have wished to be aware of it. There was no need to prove that
the prudent insurer would have written the risk on different terms or changed a higher premium had
he known of the undisclosed circumstances.

Insurable Interest: insurable interest is defined under section 518 to mean a person who is
interested in a marine adventure where he or she stands in any legal or equitable relation to the
adventure or to any insurable property at risk in it, in consequence of which he or she may benefit
by the safety or due arrival of the insurable property, or may be prejudiced by its loss, or by damage
to it, or by the detention of it, or may incur liability in respect of it. The case of LUCENA V
CRAUFURD19 espouses that a person whose benefit the insurance policy is effected has or expects
to acquire an insurable interest in the property. The marine insurance will be valid if the person is
having insurable interest at the time of loss. The insurable interest will depend upon the nature of
sales contract. Therefore a marine insurance is contract of indemnity and the insurance company is
liable only to the extent of actual loss suffered. If there is no loss there is no liability even if there is
operation of insured peril.

The period of insurance in the policy is for the normal time taken for a particular transit. Generally

12 Marine Insurance Act 2002

13 Circumstances include any communication made to, or information received by, the insured-section 18(5)

14 Section 18(1) Marine Insurance Act,2002

15 [2001] 1 Lloyd's Rep 389

16 Republic of Bolivia v Indemnity Mutual Insurance Co. Ltd (1908) 14 Com Cas 156.

17 [1984] 1 Lloyd's Rep 476

18 Marine Insurance Act 2002

19 (1806) 2 B&PNR 269.

the period of open marine insurance will not exceed one year. This is envisaged in section 2520
which provides for the both voyage and time policies. Subsection (3) is to the effect that a time
policy which is made for any time exceeding twelve months is invalid. However, notwithstanding
subsection (1), subsection (5) talks about a continuation clause to wit; an agreement is made
following that where the ship is at sea or the voyage is otherwise not completed on the expiration
of the policy, the subject matter of the insurance shall be held covered until the arrival of the ship or
for a reasonable time afterwards not exceeding 30 days..

Deliberate Act: If goods are damaged or loss occurs during transit because of deliberate act of an
owner then that damage or loss will not be covered under the policy. In every indemnity contract of
insurance, the risk covered must be a fortuitous risk; it must arise from an unintended harm,
accident or casualty or unlooked for event. The duty of the assured is to prove that the loss is one of
such a nature, in case “all risks” are covered, all he needs to show is that the loss was due to an
accident or something fortuitous and does not need to show what exact type of risk it was. However
the assured cannot recover in respect of loss arising out of his intentional and deliberate acts
because in such a case there is a deliberate courting of the risk. This was discussed in the case of
CAMPAGNIE DES BAUXITES DE GUINEE V INSURANCE CO OF NORTH
AMERICA.21 Where the plaintiff company filed a suit against its insurers to recover for business
interruption losses arising from various casualties at its bauxite mining and processing facility in the
Republic of Guinea. The issue was whether the insurer could recover in respect of business
interruption caused by structural failure of its tippler building and crusher house. The cause of the
damage was that the engineers had not followed the right specifications. The insurers denied
liability on ground that insurance covers only risks not certainties, their argument was that the
design failures made the failure inevitable thus this event was not fortuitous. The district court held
that loss arising from an unknown design defect was not caused by a fortuitous event. On appeal the
issue was whether a loss caused by an unknown design defect was fortuitous? It was held that the
definition of a fortuitous event is that it is an event which so far as the parties to the contract are
aware is dependent on chance. It may be beyond the power of any human being to bring the event to
pass; it may be within the control of a third person, it may even be a past event, such as a loss of a
vessel provided that the fact is unknown to the parties. Something in the nature of an accident or
something unplanned and unintentional. It should be noted that to get the compensation under
marine insurance the owner must inform the insurance company immediately so that the insurance
company can take necessary steps to determine the loss.

It is a well established principle in insurance law that once the insurer settles the insured's claims,
he is subrogated to all the rights and remedies of the assured in relation to the subject matter. That is,
the insurer takes the place of the insured, and can exercise any rights and remedies the insured has
respect of loss for which the insurer has paid out. This is envisaged in section 7922 to the effect that
where the insurer pays for the total loss, either of the whole or in the case of goods of any
apportionable part, of the subject matter insured, the insurer thereupon becomes entitled to take over

20 Marine Insurance Act 2002

21 724 2d 369 1983 US App Lexis 14225

22 Marine Insurabce Act 2002

the interests of the assured in whatever may remain of the subject matter so paid for, and the insurer
is by that subrogation to all the right and remedies of the assured in and in respect of that subject
matter as from the time of the causality causing the loss. In other words, as Lord Cairns, the Lord
Chancellor, stated in SIMPSON v THOMSON 23 “ [subrogation if found] on the well known
principle of law that, he will, on making good the indemnified might have protected himself against
or reimbursed him for the loss. It is on this principle that the underwriters of a ship that has been
lost are entitled to the ship in specie if they can find and recover it; and it is on the same principle
that they can assert any right which the owner of the ship might have assert against a wrongdoer for
damage for the act which has caused the loss (at page 284)24

conclusion.

Marine insurance deals with goods when these are being moved from one place to another by
approved mode of transportation. The goods can be moved within the country and outside the
country. The risks are involved in any type of transportation and to cover these risks marine (transit)
insurance is developed. The risk coverage depends upon the nature of goods and packing and to
cover the risks the price is to be paid which is known as premium. The consignment can be single or
multiple and accordingly the marine insurance policy i.e single transit or open cover or open policy
is issued by the insurance company.

23
(1877) 3 App Cas 279
24
discussed in the case of Burnard v Radocanchi(1888) 7 App Cas 198.
BIBLIOGRAPHY

STATUTES

1. Marine Insurance Act 2002

TEXTS

1. Indira Carr, International Trade Law, 4th edition, 2010

CASES

1. PRUDENTIAL ASSURANCE CO. LTD V INLAND REVENUE COMMISSIONER [1904]

2 KB 658 AT 663

2. LINDON TRICOTAGEFABRIK v WHITE AND MEACHAM [1975] 1 Lloyd's Rep 384

3. COMPANIA MARITIMA SAN BASILIO SA v OCEANUS MUTUAL

UNDERWRITING ASSOCIATION (BERMUDA) LTD [1977] QB 49

4. MANIFEST SHIPPING CO. LTD v UNI-POLARIS INSURANCE CO. AND LA

REUNION EUROPEEN (THE STAR SEA) [2001] 1 Lloyd's Rep 389

5. CONTAINER TRANSPORT INTERNATIONAL INC AND RELIANCE GROUP INC V

OCEANUS MUTUAL UNDERWRITING ASSOCIATION (BERMUDA) LTD [1984] 1
Lloyd's Rep 476

6. LUCENA V CRAUFURD (1806) 2 B & PNR 269.

7. CAMPAGNIE DES BAUXITES DE GUINEE V INSURANCE CO OF NORTH

AMERICA 724 2d 369 1983 US App Lexis 14225

8. SIMPSON v THOMSON(1877) 3 App Cas 279