By: BANKOLE CLIFFORD EKUNDAYO MORGAN ESQ
LL.M in International Maritime Law
Master in Governance and Leadership
Defence Counsel Legal Aid Board of Sierra Leone
Human Rights Advocate
MARINE INSURANCE CONTRACT
According to section 3 of the Marine Insurance Act, of 1963, maritime insurance is defined as an arrangement in which the insurer agrees to indemnify the assured against marine losses, that is, losses incidental to marine adventure, in the manner and at the extent agreed upon. Principally, marine insurance contract is formed to indemnify against loss or damage to cargo, ships, and related equipment involved in maritime transportation. These contracts provide coverage not only during sea voyages, but also for overland segments, thereby ensuring that goods, vessels and equipment remain protected throughout the logistics chain. Marine insurance play a significant role in facilitating global trade, helping stakeholders manage risks inherent in the marine environment.
MARINE INSURANCE CONTRACT IS ONE OF THE OLDEST COMMERCIAL ACTIVITIES
Marine insurance is considered to be one of the oldest forms of commercial risk transfer, dating back to ancient maritime commerce. Its historical importance lies in providing financial security against unpredictable marine risks, allowing merchants and ship owners to pursue trade with greater confidence. It supports economic viability of shipping enterprises by promoting business continuity and financial stability. Furthermore, marine insurance creates employment opportunities and contributes significantly to economic growth and the broader insurance industry.
ECONOMIC FUNCTION OF MARINE INSURANCE
Marine insurance serves as a vital economic function by distributing and mitigating risks associated with maritime ventures. It provides a financial safety net for losses arising from perils such as collision, fire, piracy and extreme weather conditions. The evolution of shipping technology and the increasing value of cargo have elevated the significance of marine insurance in managing high value exposures. As a result, legal frameworks, including national laws and international conventions have expanded the scope and necessity of compulsory marine liability insurance, thus reinforcing the certainty of marine insurance in global trade.
MARINE INSURANCE LAW AND THE PRINCIPLE OF UTMOST GOOD FAITH
The legal relationship between parties to a marine insurance contract is governed by marine insurance law, which is underpinned by the doctrine of uberrimae fide the latin term for “utmost good faith”. This doctrine obliges both parties, especially the insured to fully disclose all the material facts relevant to the risk being insured. A failure to do so will render the contract voidable at the discretion of the other party. The doctrine ensures transparency and mutual trust, essential for the fair functioning of insurance markets. Utmost good faith must be observed both at the time of contract formation and throughout the life of the contract.
INSURANCE CONTRACT CASES WHERE “UTMOST GOOD FAITH” WERE ILLUSTRATED
The importance of “utmost good faith” has been reinforced through judicial decisions. In the AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSIONS v YOUI PTY LTD (2020) FCA 1701, the Federal court of Australia found that the insurer’s conduct breached section 13 of the insurance contract Act, 1984, failing to uphold the standard of utmost good faith. Similarly, in DIAMOND WORLD JEWELLERS PTY v CATLIN AUSTRALIA PTY LTD (2021), the court determined that the duty applies to both parties and extends to the claims process. These cases under line the legal and ethical obligations that marine insurance contracts impose on stakeholders.
MARINE CARGO PROVIDES PROTECTION AGAINST RISKS
Marine cargo insurance is crucially important in safeguarding cargo shipments in transit against loss or damage. It protect cargo from the point of origin to the final destination, covering a wide range of risks including theft, mishandling, and maritime perils. This type of insurance ensures that cargo owners are financially compensated in the event of unforeseen incidents, allowing global supply chains to function with minimal disruption.
CONTRACT FOR THE CARRIAGE OF GOODS BY SEA
A contract for the carriage of goods by sea is a practice by which a ship owner either directly or through an agent, undertakes to carry goods by sea or to provide a vessel to transport goods from one point of loading until it reaches its destination. This contractual arrangement may be formalised through a bill of lading or charter party. Marine insurance complements these contracts by offering protection against liabilities and risks during transportation, including perils such as shipwreck, piracy, and cargo contamination. These protections are essential to mitigate the operational risks of maritime logistics.
RISK IS INEVITABLE IN THE CARRIAGE OF GOODS BY SEA
Risk is inherent in maritime transportation due to the unpredictable nature of the sea and operational hazards. Accidents such as collisions, grounding, and exposure to severe weather can lead to the loss or damage to ship and cargo. Insurance serves as a critical mechanism to offset these risks, ensuring that both ship owners and cargo owners can recover financially from such events. In order to protect ship owners and cargo owners in transporting goods on sea, it is very important for parties to embark on what is known as marine cargo insurance. By transferring risk from individuals to insurers, marine insurance enhances the resilience of maritime trade.
CONCLUSION
This article has explored the significance of marine insurance law and the principle of utmost good faith in regulating contractual relationships in maritime trade. By examining key legal principles and case law, it is evident that utmost good faith remains a cornerstone of marine insurance, ensuring transparency, fairness, and reliability in the sector. As global trade continues to expand, the importance of marine insurance and its regulatory frameworks will only grow in safeguarding maritime commerce.
