Cardinal principles of professional practice and marine insurance 

CHUKWUMA ONONIWU

Chukwuma Ononiwu (FCILRM, Nig; FICRMP, U.K.), an alumnus of Abia State University and Lagos Business School Pan Atlantic University, is a consummate insurance broker, seasoned insurance consultant and digital insurance advocate. He can be reached on: riskswisepro@gmail.com and +234-903-596-8732 (text only).

Penultimate week I wrote on the topic, “Proactively mitigating marine insurance claims challenges”, with particular reference to marine cargo insurance. Last week, still on the subject of mitigating marine insurance claims challenges,  my focus was on marine hull machinery insurances. This week, I want to examine the application of the cardinal principles of the professional practice of insurance in marine insurance.

Please note that marine insurance, aviation insurance, bonds insurance and goods in transit insurance, because of their peculiarities, are classified as special risks insurance. The cardinal principles of insurance are: insurable interest, utmost good faith, proximate cause, contribution, indemnity and subrogation. 

Insurable interest: An insurable interest must exist ab initio. There must be a physical object, exposed to maritime perils. The insured must have a financial relationship and a legal relationship to the physical object which is the subject matter of the contract of insurance. For instance, the ownership of a vessel, in consequence of which the insured benefits, by its preservation and is prejudiced by its loss or damage, etc, of which the insured will incur a liability or liabilities or consequential loss or consequential losses. 

Whereas in a fire insurance policy and in accident insurance policy, an insurable interest must exist both  at the inception of the insurance contract and at the time of loss or damage, etc, the insurable interest in a marine insurance contract, must exist at the time of loss, damage, etc, despite the fact that an insurable interest, may not have existed at the time when the insurance contract, was effected. This is essential, taking into cognizance the mercantile practice, under which there is every possibility of sale and purchase of the vessel, during the course of voyage.  Same applies for sale and purchase of the goods, during the course of voyage.

Utmost Good Faith: This is the duty of the proposed insured to disclose truthfully / clearly / appropriately / accurately, all the material facts/critical facts/fundamental facts/existential facts of the risk(s) to be insured. These are facts that will guide a risk underwriter in accepting the risk(s) and at what premium rate. Also, in deciding the clauses/terms/conditions to be included in the marine insurance policy. 

The breaches of the duty of utmost good faith are inclusive but not limited to: Non disclosure; concealment of material facts; fraudulent misrepresentation, etc. The gravity of the breach of the duty of utmost good faith will determine whether the marine insurance policy will be void in the event of a claim. On the other hand, the insurance firm has a duty of utmost good faith, by ensuring that it has the reinsurance treaty capacity to underwrite the risk(s).

Proximate cause: The proximate cause of a claim is the active and the efficient cause that sets in motion a train of events, which brings about a result, without the intervention of any force started and working actively from a new and independent source. Thus, an insurance firm is liable if an insured peril, for instance, fire, is the proximate cause of the loss or damage, etc, after ascertaining that the proximate cause of the fire in the first instance, was not arson. If an insured peril is only the remote cause of the loss or damage, etc, the proximate cause being an uninsured or excepted peril, the insurance firm is not liable. 

Contribution: This a method of distributing equitably among insurers, the burden of claim, for which each insurer shares responsibility. The principle of contribution is premised on the critical fact that if a loss or damage, etc, occurs, and the insured has taken more than one policy of insurance, the claim payment liability, will be covered by the insurance policies issued by the different  insurance firms, based on the proportion of the insurance coverage which the insurance policies provide.

Indemnity: The key objective of indemnity is to restore the insured in its pre-loss position. Thus, the insured is not expected and is not entitled to make profit from a claim and consequent claim payment. The indemnity here is the payment of a sum of money agreed, ab initio, (the sum insured or the value of the insurance), that will provide an adequate compensation to the insured. 

In professional insurance practice, the sum insured or the value of the insurance is arrived at by the insured, the insurance broker and the insurance firm, agreeing, taking into cognisance, for instance, in the case of marine cargo insurance, the C.I.F., the value of the goods, to which it is the practice to add an agreed 10 percent, which will take care of the general overhead costs and a margin of profit on the transaction.

Subrogation: Subrogation is the corollary of indemnity. The chief purpose is to ensure that the insured is not over-indemnified for the risk(s) insured, for the  same loss, for the same damage, etc. In marine insurance, subrogation applies only after the payment of a claim, as the insurer is entitled to recover only the amount, which has been paid; in respect of rights and remedies. 

Thus, as it is in the application of the principle of indemnity, wherein the insured is not entitled to make a profit from the claim payment, equally, in the application of the principle of subrogation, the insurance firm is not entitled to make a profit from the claim payment. 

Loss minimisation is equally very very key. The insured’s vessel crew need to ensure that the loss is minimised to the best of their ability. For instance, instead of the vessel capsizing or grounding, the goods on board, if thrown into the ocean (jettison of the goods), will save the vessel, the needful, should be done. Same applies for a marine insurance policy, which has been extended to cover inland goods in transit. In the event of a somersault of the conveying truck, the remaining goods which are not lost or damaged, should be salvaged by the truck crew.

Summary: The right application of the cardinal principles of insurance goes the needed very long way to eliminate or to reduce to the barest minimum, the litigations that arise as a result of the failure to rightly apply the cardinal principles of insurance.