Important principles on which the marine insurance contract is based upon are given below:
Marine Insurance contract is an arrangement by which the insurance company (insurer) agrees to indemnify the owner (insured) of a ship or cargo against risks which are incidental to marine adventure. Such contracts are based on the following principles:
ADVERTISEMENTS:
i) Principle of utmost good faith i.e. the insured must disclose to the insurer all the material facts or circumstances which are known to him or which ought to be known to him in the ordinary course of business.
ii) Principle of insurable interest i.e. no person can enter into a valid contract of insurance, unless he had insurable interest in the object or the life insured. Insurable interest is understood as an interest in the preservation of a thing or continuance of a life, as recognised by law.
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Thus, one can have an insurable interest only when one would stand to benefit financially by the continuance of the life or object insured, otherwise financial loss would result.
Thus, a person can take a policy on his ship, an owner of the goods can take policy on cargo and a person entitled to receive freight can take policy on freight.
ADVERTISEMENTS:
All such persons have insurable interest in the subject manner. Without insurable interest such contracts are merely wagering agreements, which are not valid contracts.
iii) Principle of indemnity i.e. the contracts of insurance only indemnify (make good) a loss resulting from risk covered under the policy. However, the cargo owners are usually allowed a reasonable anticipated profit.
In other words, we can say that the marine insurance policy provides a commercial indemnity rather than indemnity in a strict legal sense.