This Paper examines the nature and impact of Express Warranties as enshrined in the

Marine Insurance Act 1906, when incorporated in Marine Hull Policies issued in India.
The use of Express Warranties as a risk control measure is a hallmark of prudent and
professional underwriting practice. Appropriate Express Warranties are incorporated
in Hull & Machinery (H&M) Policies and reflect of the risk underwritten – in terms of
the Subject-matter of Insurance, the Premium, the Coverage (Policy Wordings) and the
Deductible.

During the erstwhile period when the Tariff Regime controlled Marine Hull Insurance
in India, the Express Warranties were specified in the Hull Manual, (which is now sadly
obsolete). In the days when the Tariff was applicable, Express Warranties in H&M
Policies were standardised and hence contributed to contract certainty. With the
abolition of the Hull Manual, the guidelines on Express Warranties for different types
of Vessels, no longer exists. This has resulted in a variety of Express Warranties finding
their way into H&M Policies.

Thus, a situation has arisen where due to lack of standard Express Warranties and lack
of knowledge of drafting Warranties, flawed wordings have crept into H&M Polices.
These flawed Express Wordings are mainly of four types – (1) those that are vague and
imprecise, (2) those that are inappropriate, (3) those that cannot be implemented and
(4) those that are uncertain. Despite these flaws, if an Express Warranty is breached,
Insurers are entitled to repudiate claims. Examples of such flawed of Express
Warranties are given, from actual instances in H&M Policies issued in India.

A solution to the avoidance of the present proliferation of flawed Express Warranties

in H&M Policies is proposed to ensure that Marine Insurance is based on a “win-win”
paradigm, by eliminating flawed Express Warranties in H&M Policies.

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1. Introduction

1.1 Marine Policies issued on Institute Wordings are subject to English Law and Practice. In
India all Marine Policies (with the exception of Inland Transit Policies), are issued on
Institute Wordings, and are thus subject to the provisions the Marine Insurance Act 1906
(English Act), hereinafter referred to as “MIA-1906”.

1.2 Sections 33 to 41 of MIA-1906 relate to Warranties. Section 33 of MIA-1906, states:

(1) A warranty, in the following sections relating to warranties, means

a promissory warranty, that is to say, a warranty by which the assured
undertakes that some particular thing shall or shall not be done, or that
some condition shall be fulfilled, or whereby he affirms or negatives the
existence of a particular state of facts.

(2) A warranty may be express or implied.

(3) A warranty, as above defined is a condition which must be exactly

complied with, whether material to the risk or not. If it not be complied
with, then subject to any express provision in the policy, the insurer is
discharged from liability as from the date of the breach of warranty,
but without prejudice to any liability incurred by him before that date.

1.3 In Marine Insurance the term “warranty” which is statutorily defined as above, has a
different meaning as compared to the use of the same word in contracts, as for example,
sale of goods contracts, where the word signifies a collateral stipulation, the breach of
which, gives rise only to a claim for damages and not a right to avoid the contract.

1.4 In Marine Insurance usage, the term “warranty” is used in two different and separate
contexts. One use of the word is the statutory definition, namely a condition which must
be strictly complied with by the Assured. The other use of the word is to signify a
limitation or an exception from the general words of the policy of insurance. An example
of the former is a Classification Warranty (which has to be strictly complied with), while
an example of the latter is, “Warranted Free of Capture & Seizure”, where the Assured
does not undertake that the insured vessel shall not be captured or seized – but the
Insurers uses the term to highlight to the Assured that there is no cover resulting from
Capture or Seizure. When used in such a context, the stipulations of Sections 33(3) and
34 are not applicable. The context in which the term “warranty” is used is a matter of
construction.

2. Express Warranties In Marine Policies – Statutory Provisions

2.1 Section 35 of MIA-1906 relating to Express Warranties, and states as follows:-

(1) An express warranty may be in any form of words from which the
intention to warrant is to be inferred.

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 (2) An express warranty may be included in, or written upon, the policy,
or must be contained in some document incorporated with reference
into the policy.

(3) An express warranty does not exclude an implied warranty, unless

it be inconsistent therewith.

2.2 Express Warranties may be found either (1) incorporated within the Institute wordings
attached to and forming the Policy of Insurance, or (2) they may be incorporated in the
Schedule of Policy as a typed wording, or attached as a printed wordings or cyclostyled
wording with objective evidence that it forms part of the Policy, as for example, it must
bear the Policy number typed thereon and must clearly state that the Express Warranty
wordings form part of the Policy).

2.3 An example of an express warranty incorporated within the policy wordings, is Clause
1.1 of the Institute Time Clauses Hulls 1.10.83 (ITCH-83) wordings, reproduced below
with emphasis added to highlight the Express Warranty incorporated within the Institute
Clause:

1. NAVIGATION

1.1 The Vessel is covered subject to the provisions of this insurance, at all times and has leave
to sail or navigate with or without pilots, to go on trial trips and to assist and tow vessels in
distress, but it is warranted that the Vessel shall not be towed, except as customary or to the
first port or place when in need of assistance, or undertake towage or salvage services under
contract previously arranged by the Assured and/or Owners and/or Managers and/or
Charterers. This Clause 1.1 shall not exclude customary towage in connection with loading and
discharging.

2.4 Another example of an express warranty incorporated within the policy wordings, is
Clause 21.2 of ITCH-83, reproduced below:

21. DISBURSEMENTS WARRANTY

21.1 Additional insurances as follows are permitted:
21.1.1 ……………………………………..
21.1.2 ……………………………………..
21.1.3 ……………………………………..
21.1.4 ……………………………………..
21.1.5 ……………………………………..
21.1.6 ……………………………………..
21.1.7 ……………………………………...

21.2 Warranted that no insurance on any interests enumerated in the foregoing 21.1.1
to 21.1.7 in excess of the amounts permitted therein and no insurance which
includes total loss of the vessel P.P.I., F.I.A., or subject to any other like term, is
or shall be effected to operate during the currency of this insurance by or for
account of the Assured, Owners, Managers or Mortgagees. Provided always that
a breach of this warranty shall not afford the Underwriters any defence to a claim
by a Mortgagee who has accepted this insurance without knowledge of such
breach.

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2.5 There is a “Held Covered” provision for certain Express Warranties incorporated in the
Policy. An example is “Breach of Warranty” Clause 3 of ITCH-83, reproduced below for
ready reference:

3. BREACH OF WARRANTY

Held covered in case of any breach of warranty as to cargo, trade, locality, towage,
salvage services or date of sailing, provided notice be given to the Underwriters
immediately after receipt of advices and any amended terms of cover and any
additional premium required by them to be agreed.

2.6 It is to be noted that while there is a “Held Covered” provision for a breach of Clause 1.1
of ITCH-83, (since both towage and salvage services are mentioned in Clause 3), there
is no such “Held Covered” provision for the Disbursement Warranty of Clause 21. “Held
Covered” provisions are usually for situations where the breach may possibly occur
without the knowledge and consent of the Assured.

2.7 Examples of express warranties incorporated in the Schedule of a Policy either as typed
wordings, or attached cyclostyled wordings, are given below:

Warranted Vessel classed in a Classification Society which is a Member of the

International Association of Classification Societies.

Warranted Vessel to trade on East Coast and West Coast of India, with leave
to sail around Sri Lanka while transiting from East Coast to West Coast of
India.

Warranted Vessel to ply in fair weather season only.

Warranted Vessel to have crew or watch and ward on board the Vessel at all
times.

Warranted Vessel to carry general cargo only.

Warranted Vessel safely anchored or moored when not in use.

Warranted Vessel manned in accordance with Safe Manning Certificate.

3. EXPRESS WARRANTIES IN MARINE POLICIES – USE AND ABUSE

3.1 The purpose of Express Warranties in Marine Policies is for one or more of the following
reasons:-

3.1.1 To ensure that the Assured is complying with the representations made at the time
of the proposal, prior to the Insurer going on risk. For example, had the Proposer
mentioned in the Proposal Form, that the Vessel was classed, then a prudent
Insurer would incorporate an Express Warranty pertaining to Classification, of
the Vessel in the Policy. Another example, had the Assured represented that the
Vessel had a three year claims-free record, the Insurer may incorporate an Express
Warranty stating, “Warranted claims-free record for the preceding three years”.

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 3.1.2 To ensure that the Assured is complying with certain statutory or industry
practices with a view to reduce the risk to an as low as reasonably practicable. An
example is compliance with the statutory provisions of the International Safety
Management (ISM) Code.

3.1.3 To ensure that the risk is reduced to an acceptable level for certain operations
such as towing or being towed (under a contract). An example is an Express
Warranty relating to Towage Approval in case the Barge is non-propelled.

3.1.4 To ensure that the risk does not increase to a level not anticipated or envisaged
by the Insurer, commensurate with the premium charged and the insurance
wordings of the Policy. An example is a Trading Warranty restricting the trading
of the Vessel to certain benign areas.

3.2 It must be emphasized that the purpose of Express Warranties in Marine Policies is NOT
for creating a trap for an unwary Assured, in order that the Insurer may easily repudiate
any claim under the Policy. However, this may inadvertently occur when the Express
Warranties are flawed. Examples of such flawed Express Warranties which, it is
submitted, may deemed to be an “abuse”, are given in the paragraphs that follow.

4. FLAWED EXPRESS WARRANTIES IN H&M POLICIES

4.1 When the Express Warranty wordings are vague and imprecise.

4.1.1 One example is, “Warranted Tug, Tow and Towage Arrangements to be approved
by approved Surveyor.” Issues may arise as to whether the Surveyor was
“approved” or otherwise – and if approved, by whom? Such an Express Warranty
is deemed to be trap for the unwary Assured, since the wordings are vague. A
surveyor may be “approved” by one Agency and not by another Agency or not
even by the Insurer. Such vague and imprecise Express Warranty wordings do
not protect the interests of the Policyholders!

4.1.2 A second example is, “Warranted Sanction and Limitation Clause”, and no such
Clause is attached to or forms part of the Policy. A third example is, “Warranted
Hull Classification Clause” with no such Clause attached to or forming part of
the Policy. A fourth example is, “Warranted validity of all Statutory Rules and
Regulations”, which is followed in the same Policy with the fifth example,
namely, “Warranted compliance of all Rules and Regulations”, both of which
are vague and imprecise. Do such wordings protect the interests of the
Policyholders?

4.2 When the Express Warranty wordings are inappropriate and inapplicable.

4.2.1 The first example is, (1) “Warranted location approval and on-site attendance
by Marine Warranty Surveyor” in a Policy covering a Drill Ship, which requires
no “location approval”, as opposed to an independent Jack-up Unit, which does.

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 4.2.2 The second example is, (2) “Vessel to possess valid licences for trading”. Not all
vessels require a Trading Licence as for example a Vessel registered under the
Coasting Vessels Act (Act XIX of 1838). The third example is (3) Warranted
Vessel compliant with ISM Code”. Not all vessels require to comply with the ISM
Code, as for example a Vessel registered under the Inland Vessels Act (Act I of
1917) as amended from time to time. It is only Sea Going Vessels which are
registered under the Merchant Shipping Act (Act 44 of 1958) that require to a
Trading Licence and only such Vessels which are in excess of 500 Gross Tons
are required to comply with the ISM Code. Are not such inappropriate and
inapplicable Express Warranty wordings detrimental to the interests of the
Policyholders?

4.2.3 Some classes of Vessel registered under the Merchant Shipping Act (Act 44 of
1958) such as River Sea Vessels, do not require to comply with the ISM Code
and hence would not possess a Document of Compliance (DoC) or a Ship Safety
Management Certificate (SMC) issued under the Statue in which the ISM Code
compliance is incorporated. Is an Express Warranty in a Policy covering a River
Sea Vessel requiring compliance with the provisions in the interest of
Policyholders?

4.2.4 In one H&M Policy there is an Express Warranty stating, “Warranted Vessel
registered under the Inland Vessels Act” when in fact the Vessel is registered
under the Merchant Shipping Act, the latter being more stringent than the former.
Does this protect the interests of the Policyholders?

4.3 When the Express Warranty wordings cannot be complied with.

4.3.1 A classic example of an Express Warranty which cannot be complied with is,
“Warranted Vessel to be in a seaworthy condition throughout the policy period”.
When a Vessel is so damaged as to render her unseaworthy (whether by insured
perils or not,) the Assured has breached the Express Warranty. Put in another way,
this flawed warranty means that the Assured in prevented from making any claim
during the policy period even if the loss or damage is caused by an insured peril
(which surely could not have been the intent of the Insurer and the Assured). Since
strict compliance of an Express Warranty is a statutory requirement, there is a
prima facie breach of warranty situation giving the Insurer the right to repudiate
any claim. Is not such a Express Warranty not in the interest of the Policyholders?

4.3.2 Another example is, “Warranted certified and licenced for trading by Competent
Authority and valid throughout the currency of the Policy.” Apart from being
vague as to who is the “Competent Authority”, there is every possibility that the
Trading Licence may expire during the policy period and would have to be
renewed. The renewal process takes time and there may be a gap between the
expiring Licence date and the commencement date of the renewed licence due to
procedural issues are invariably beyond the reasonable control of the Assured.
Such an Express Warranty creates a breach of warranty situation for no fault of
the Assured. Is not such an Express Warranty detrimental to the interest of the
Policyholders?

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 4.3.3 The third example is, “Warranted Vessel classed and class maintained
throughout the policy period”. When a Vessel is damaged (whether by insured
perils or not), some Classification Societies suspend Class whilst the Vessel is
undergoing repairs. Prior to the reinstatement of the damaged Vessel would
require to be inspected after repair and trials, prior to Class being reinstated. In
such a situation the above Express Warranty wordings there would be a breach of
warranty situation, since the Vessel’s Class was not maintained thorough the
Policy period. If the loss was caused by an insured peril it would be ironical that
the indemnity sought under the policy itself would give rise to a breach of
warranty situation. This is definitely not in the interest of the Policyholders!

4.4 When the Express Warranty wordings are uncertain.

4.4.1 Insurance Contract uncertainty is not in the interests of Policyholders. One

example of an Express Warranty which has uncertain implications is, “Warranted
Tug, Tow and Towing Arrangements to be approved and all the Surveyor’s
recommendations are to be complied with”. An incompetent and unprofessional
Surveyor may “imposes” a speed restriction of the tow in his Towage Approval
Certificate, (the limiting speed of the tow being a matter of subjectivity) and
unknown in International Towing Practice / Regulations). This is an classic
example of how a third party to the contract of insurance (the Surveyor) is able to
jeopardize the relationship between the Insurer and the Assured by stipulating
conditions not envisaged at the time of the formation of the Contract of Insurance,
thus modifying the contractual terms of the Insurance Policy.

4.4.2 In such a case, if the speed of the tow is inevitably increased due to external the
forces of current, wind or wave, even for a fraction of a second which is truthfully
recorded by the Master (as he is supposed to do), it may be concluded that a
breach of warranty has occurred, although the Assured had no control whatsoever
in implementing such uncertain and, it is submitted, unprofessional stipulations
by the Marine Warranty Surveyor.

4.4.3 There are actual cases where the Surveyor nominated by the Insurer for the
towage approval is thereafter appointed for the claim when he seizes of the
opportunity to cover up and hide his incompetence by recommending repudiation
of the claim due to breach of warranty of his imposed speed, when the root cause
of the loss can be is incompetence and lack of professionalism.

4.4.4 Another example is an Express Warranty relating to towage approval, such as:
“Warranted all towage warranty recommendations as imposed by surveyors
being complied with before, during and after safe arrival to destination.”
Remember that there are no guidelines for Towage Approvals. There could not
be greater uncertainty than the punch line which is, “…after safe arrival…” An
unscrupulous Warranty Surveyor may “impose” a condition stipulating, “On safe
arrival at destination, a Condition Survey to be carried out at Assured’s cost by
the Warranty Surveyor and all recommendations complied with, until such time
the Vessel not to sail and is to be laid-up.” Would this be in the interests of the
Assured / Policyholder?

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 4.4.5 There is sometimes a “Held Covered” provision incorporated in the Express
Warranties attached to and forming part of the Policy. An example is, “Warranted
vessel trading outside the Trading Warranty the same should be certified to the
underwriter and it will be covered on an additional premium and approved by
Government / Agency / Port Authority” (sic). This is an example where the
wordings are not only vague, imprecise, inappropriate, inapplicable, cannot be
complied with and is compounded with total uncertainty. The grammatical and
idiomatic flaws have been left uncorrected to highlight the many flaws in the
wordings which has been drafted without the application of mind and attention to
the language used.

5. WAIVER OF BREACH OF EXPRESS MARINE WARRANTIES

5.1 Section 34 of MIA-1906 relating to situations when breach of warranty is excused, in the
following circumstances:-

(1) Non-compliance with a warranty is excused when, by reason of a change of

circumstances, the warranty ceases to be applicable to the circumstances of the
contract, or when compliance with the warranty is rendered unlawful by any
subsequent law.

(2) When a warranty is broken, the assured cannot avail himself of the defence
that the breach has been remedied, and the warranty complied with before the
loss.

(3) A breach of warranty may be waived by the insurer.

5.2 Since the scope of this Paper is a limited one, examples of the Section 34 (1) will not be
discussed. However, it is relevant to discuss firstly the provisions of Sections 34(2) and
secondly Section 34(3) in the light of the Express Warranties which may be (a) vague
and imprecise, and/or (b) inappropriate and inapplicable, and/or (c) such that they cannot
be complied with and/or (d) are uncertain and open-ended.

5.3 Especially in cases where there is insufficient time to discuss and re-negotiate the
wordings of the Express Warranty and a breach has occurred, the Assured in terms of
Section 34(2) no longer has a valid policy in existence from the time the breach has
occurred. In such a case the first attempt to rectify the issue, is for the Assured to seek an
Endorsement from the Insurer to waive the breach. If this request is not acceded to, then
the Assured must seek an alternative Insurer (disclosing the existing circumstances) and
after cover is obtained from the new Insurer, should terminate the Policy with the first
Insurer (irrespective if there is a return of premium or not). This is because an H&M
Policy cannot unilaterally be terminated by either the Assured or the Insurer.

5.4 Although Section 34(3) entitles an Insurer to waive the breach, this is rarely done by
Indian Insurers even in cases where the Express Warranty is either (a) vague and
imprecise, and/or (b) inappropriate, and/or (c) which cannot be complied with and/ or (d)
which is uncertain and open-ended. What is the reason for such a reluctance to take a
decision to waive a breach of warranty as per the provisions of the MIA 1906?

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5.5 It is submitted reflection would lead us to the conclusion that the real reason is systemic
rather than one reflecting on individuals. It is fear of victimization by Internal / External
Audit Observations, Vigilance and the Criminal Bureau of Investigation (CBI), inquiries
against those who have taken decisions which are perceived as against the Organisation
that lead to a situation of not taking decisions. This is based on experience has shown
that it only those individuals who have taken decisions that are victimized.

5.6 Thus, flaws in Express Warranties are rarely responded to in a positive manner, despite
the waiver provision of Section 34(3) of MIA 1906. It is submitted, that the waiver
provision should be invoked where the Insurer desires to take corrective action in the
interests of fairness, to rectify the flawed Express Warranty wordings. This would
certainly be in the larger interests of Policyholders.

6. PROACTIVE APPROACHES TO AVOID FLAWED EXPRESS MARINE

WARRANTIES

6.1 General Comments

6.1.1 Dispute Resolution Clauses are conspicuous by their absence in all Marine
Polices issued in India. Further, there has been a persistent resistance and
reluctance by Indian Insurers / the Reinsurer to introduce a Dispute Resolution
Clause in Marine H&M Policies, or Memorandum of Agreements, despite some
Professional Insurance Brokers advocating the same during renewals of large
fleets. Thus, Litigation is the only option left for an aggrieved Assured who is a
victim of flawed Express Warranties in H&M Insurance Policies, to obtain
justice. If one considers the inordinate delays and associated high costs inherent
in the litigation system of this Country, any attempt at litigation – a reactive
response, it is submitted, is a waste of time and effort. Moreover, it and goes
against the grain of a “win-win” approach to Insurance and runs counter to the
foundation of Insurance which is Utmost Good Faith! Thus a Dispute Resolution
Clause in Marine Policies would be a great advantage to the Policyholders.

6.1.2 Thus, only a proactive approach would be an effective antidote to the virus of
flawed Express Warranties in H&M Policies. A multi-pronged approach is called
for by active participation from all Stakeholders as enumerated in the following
paragraphs:-

6.2 Insurance Development And Regulatory Authority (IRDA):

6.2.1 The Mission Statement of IRDA reads as follows: -

To protect the interests of the Policyholders, to regulate,

promote and ensure orderly growth of the insurance industry
and for matters connected therewith of an incidental nature.

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 6.2.2 There is no doubt that flawed Express Warranty wordings in H&M Policies do
not protect the interests of Policyholders and hence IRDA as the Regulator has
a duty to ensure that in a similar manner to approving various insurance products,
Express Warranty Wordings also require to be vetted and approved by IRDA
(assisted by independent Advisors who have no vested interest) in a consultative
manner, by obtaining the views of all the Stakeholders (Insurers, Brokers,
Surveyors and Average Adjusters) as well as Trade Associations representing
Shipowners and other Stakeholders.

6.2.3 As a starting exercise, IRDA may collate all present Express Warranties from all
the Indian Insurers who underwrite Marine Hull risks with a view of
standardizing and vetting the wordings to ensure uniformity and fairness in the
Express Warranties by removing the many existing flaws described earlier.

6.3 Insurers Underwriting H&M Risks:

6.3.1 The Vision, Mission and Value Statements of all General Insurance Companies
have the underlying theme of customer satisfaction. Flawed Express Warranty
wordings (as given in the examples earlier) are not conducive to customer
satisfaction and only contribute to customer disgust when genuine claims are
denied due to flawed Express Warranties in H&M Policies, as described earlier.

6.3.2 With the emphasis on Risk Management and Corporate Governance in The
Companies Act 2013, the Board of General Insurance Companies have a duty to
ensure that flawed Express Warranty wordings in H&M Policies are avoided.
This can be achieved by designing a robust risk management system which is
defensible and is designed on system integrity (all of which are the new
requirements under the Companies Act 2013). In the absence of such a systemic
approach, flawed Express Warranties would continue to surface in H&M
Policies to the detriment of Policyholders.

6.3.3 As a starting exercise, the Boards of Indian Insurance Companies (both Public
and Private Sectors) may collate all Express Warranties presently in vogue with
a view of vetting and then standardizing them to ensure uniformity and fairness
in the wordings. Ideally, the services of an external independent Consultant well
versed with the subtleties and nuances of Marine Insurance would add value to
the Team delegated with such review. This must be done before submitting the
Express Warranty wordings to IRDA for vetting and approval, thereby reducing
the load on IRDA and making the approval process more effective.

6.4 Assureds of H&M Policies of Insurance:

6.4.1 Indian Shipowners generally assume that the Insurance Brokers and H&M
Insurers to whom they insure their Ships are as knowledgeable as them in the
intricacies of the shipping industry, which is not necessarily the case. As an
example the case of Indian Tug Owners and Non-propelled Barge Owners may
be sighted.

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 6.4.2 If a survey is done of most Indian Tug Owners and Non-propelled Barge
Owners, it would come as a rude shock for them to know that in most cases there
is a breach of the express warranty incorporated in Clause 1.1 referred to and
highlighted in paragraph 2.3 above. It is indeed very rare for a Barge Owner to
tow his Non-propelled Barge with his own Tug. He would rather Charter hire a
Tug. Similarly, it is equally rare for a Tug to be deployed to two another’s Non-
propelled Barge without a Contract. Thus the importance of requesting the
deletion of Clause 1.1 must be made by the Proposer of Tugs and Non Propelled
Barges, at the time of seeking insurance cover.

6.4.3 The above is rarely done, consequent to which there is a potential for claim
repudiation on the grounds of breach of warranty contained in Clause 1.1. In
cases where such a request had been made through the Insurance Broker (after
the Policy is issued), some Insurers have known to refuse to issue and
Endorsement but give their verbal assurance that they would not invoke Clause
1.1 against the Assured Tug Owner or Non-propelled Barge Owner. Such verbal
assurances are, it is submitted, satisfactory and ineffective since they cannot be
a substitute for an Endorsement from a legal perspective.

6.4.4 Apart from the above unsatisfactory situation, in H&M Policies covering Non-
propelled Barges, there are on rare occasions as many as three Express
Warranties relating to Towage Approval. An example from an actual policy, is
given below:-

1. “Warranted Tug, Tow and Towing Arrangements to be approved by

IRDA “A” Category Surveyor and all the recommendations
complied with.”

2. “Warranted Tug, Tow and Towing Arrangements to be approved by

Classification Surveyor and all the recommendations complied
with.”

3. “Warranted Tug, Tow and Towing Arrangements to be approved by

Mercantile Marine Department (MMD) Surveyor / GMB Surveyor
and all the recommendations complied with.”

6.4.5 Having one Marine Surveyor to approve Tug, Tow and Towing Arrangements
is stressfully enough, due to lack of standardised guidelines and / or
requirements. Having to deal with three different Surveyors, apart from being
super-stressful, would invariably mean that the Assured would not comply with
at least one set of recommendations (since all the three recommendations are
invariably different). Moreover, the MMD no longer approves towages as this
presently is the responsibility of the Directorate General of Shipping who in turn
has delegated the responsibility to Indian Register of Shipping as the Recognized
Organization. In such an event would Insures consider it a case of waiver under
Section 34(1)? It is doubtful for reasons stated in paragraph 5.4. Tug Owners and
Non-propelled Barge Owners should approach their Trade Associations (such as
Indian National Shipowners Association (INSA), or Indian Coastal Conference
Shipowners Association (ICCSA) to represent the matter to IRDA.

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 6.4.6 Carrying out an audit of the Insurance Policy after it is issued is a reactive
approach, yet rarely done. What requires to be done by Shipowners, is to
formulate their insurance requirements and discuss it with a Risk Management
Consultant and / or the Insurance Broker to enable the latter to prepare a “Slip”
(also called a “Broker’s Slip”) to set down the terms and conditions including
the Express Warranty wordings that one expects from the H&M Insurer.

6.4.7 This approach would prevent flawed Express Warranties from creeping into
H&M Policies and hence prevent disputes arising out of the wordings. It is
relatively easy to do and does not involve additional costs.

6.5 Insurance Brokers of H&M Policies of Insurance:

6.5.1 Most Insurance Brokers in respect of H&M Policies, focus on reduction in

premium and increase in Policy Coverage which in a competitive soft market, is
the most convenient path of least resistance, to take. Using one low quote of an
H&M Insurer, an unprofessional Insurance Broker is often able to obtain from
another impudent Insurer a further discount in the premium rate quoted.
Discounts in marine hull premium rates are as high as 85% of the erstwhile Tariff
Rates for Marine Hull Insurance – a situation which is ridiculous and, it is
submitted the cuasa causans of repudiating genuine H&M Claims

6.5.2 Efforts are rarely made by Insurance Broker seek before-hand a copy of the
Policy Wordings and Express Warranties. If this is done and the Shipowner kept
informed, there could be a possibility of negotiating terms (by rightfully paying
additional premium) for the advantage of obtaining contract certainty.

6.5.3 H&M Insurance requires domain knowledge and in case this is not available with
the Assured or the Insurance Broker, the Shipowner must seriously consider
engaging the services of an Independent Risk Management Consultant or a
Marine Insurance Consultant, to liaise with him and his Insurance Broker to
obtain the insurance coverage desired. This too, is rarely done.

6.6 Marine Warranty Surveyors:

6.6.1 Ironically, Marine Warranty Surveyors are nominated by the Insurers yet obtain
their professional fees from the Assured. There is no reference in the IRDA
Regulations of Marine Warranty Surveyors, yet most H&M Insurers require
IRDA “A” Category Surveyors to carry out Towage Approvals.

6.6.2 An IRDA “A” Category Surveyor is not necessarily an ex-seafarer or a person

knowledgeable in Maritime Towage Operations. IRDA has virtually closed the
doors to Ex-Master Mariners and Ex-Marine Engineers of the Indian Merchant
Navy as well as Ex-Artificers of the Indian Navy for choosing a career as an
IRDA Surveyor for Marine Hull Surveys. This is in contradiction to the
provision laid down in the Insurance Rules 1938, (based on which the majority
of the present Category “A” Surveyors and Loss Assessors (who were ex-
seafarers) obtained their Licences from the erstwhile Controller of Insurance.

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 6.6.3 Most of the existing IRDA Category “A” Surveyors (who are ex-seafarers) are
in their mid-sixties. This means in five to ten years’ time, IRDA “A” Category
Surveyors would be non-mariners who are expected to issue Towage Approval
Certificates for Ships and Cargo worth many Crores of Rupees, without the
domain knowledge required. This does not auger well either for the Indian H&M
Insurers or their Assured Shipowners.

6.6.4 These concerns were raised in an Article in the Bimaquest Vol. 13, Issue 1,
January 2013, by the Author – despite which, the stalemate continues, with no
apparent corrective action by IRDA and the other Stakeholders.

6.6.5 In the Oil & Gas (Energy) Offshore Construction Insurance Industry, which is
mainly reinsurance-driven, there is no requirement for the Marine Warranty
Surveyors to be IRDA Category “A” Surveyors. It is a practice in the Offshore
Construction industry for joint discussions between the Assured, Insurance /
Reinsurance Brokers and the Marine Warranty Surveyors to formulate the scope
of work which is then approved by the Lead Reinsurer. This proactive approach
helps avoid disputes and can be emulated by H&M Insurers.

6.6.6 Marine Warranty Surveyors nominated by H&M Insurers should be transparent

and inform the Insures, the Brokers and the Assured of their scope of work and
the methodology to be adopted by them for the Warranty Surveys for which they
have been nominated. When such a document is made available to the Assured
in advance he knows exactly what is required and would not be subject to
surprises at the last minute, which may lead to breach of warranty situations.

6.7 Surveyors / Loss Assessors (Appointed by H&M Insurers For Claims):

6.7.1 Since IRDA has not distinguished between Marine and Non-Marine Surveyors in
their Regulations defining the duties and responsibilities of Surveyors / Loss
Assessors, a conflict of law situation has arisen. Marine Hull Policies (as also
Marine Cargo Policies for export and/or import) are issued on Institute wordings
and hence, are subject to English Law and Practice while all Non-Marine Policies
and Inland Transit Policies are not issued on Institute wordings, and are hence
subject to Indian Law and Practice.

6.7.2 The role of Surveyors in Marine Hull Policies governed by English Law and
Practice, is confined to reporting on the nature and extent of damages and
commenting whether they agree or disagree with the allegation as to the cause of
loss / damage made by the Assured and they are NOT required to comment on
aspects of liability under the Marine Hull Policy of Insurance.

6.7.3 The IRDA Regulations on the other hand require amongst other things for the
Surveyor also to comment on aspects of liability and the quantum thereof.
However there is no consistency in this, especially in cases where an Average
Adjuster is involved. This has given rise to the conflict of law situation mentioned
earlier, which is not at all in the interests of the Policyholders, in particular
Shipowners of coastal and inland vessels.

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 6.7.4 Immediate attention is also required to stem the unprofessional and unethical
practice of some Insurers appointing the same Marine Warranty Surveyor as the
Claims Surveyor when a claim is reported on the same Vessel. This is a direct
conflict of interest situation. However, there are some H&M Insurers and some
IRDA “A” Category Surveyors who are openly flaunting this basic principle of
avoiding conflict of interest situations, which breaches the Code of Conduct of
Surveyors and Loss Assessors Regulation of IRDA issued in 2002 (as later
amended).

6.7.5 In two cases, one which went to the Consumer Forum and the other pertaining to
an unresolved Marine Hull Claim, the Marine Warranty Surveyor was appointed
by the respective Insurers in two separate cases as the Surveyor / Loss Assessor.
In both these instances the Surveyor / Loss Assessor stated that there was a breach
of warranty situation due to speed in excess of which he had arbitrarily stipulated
in the Certificate of Towage Approval – thus being the Judge and Jury of his own
cause. This is against the Law of Natural Justice enshrined in the Legal Maxim
Nemo iudex in causa sua.

6.7.6 Consequent to the above and considering the inordinate delays in obtaining justice
through litigation in India, the Assured remains a victim of the situation where a
third party (the Marine Warranty Surveyor) varies the Contract of Insurance by
his unilateral and subjective imposition of vague, imprecise, inappropriate and
inapplicable requirements in the Certificate of Towage Approval, that cannot be
complied with, resulting in the Assured being denied his rightful claim.

6.7.7 As a proactive measure, Surveyors / Loss Assessors should not accept the
assignment to be the Surveyor / Loss Assessor where he / she has been the Marine
Warranty Surveyor, since it is a conflict of interest. In this in accordance with the
spirit of the Code of Conduct Regulations for Surveyors / Loss Assessors as laid
down by IRDA.

6.8 Average Adjusters:

6.8.1 Average Adjusters are irreplaceable Service Providers in Marine Hull Claims and
also for Claims under other Marine Policies. However, the Average Adjusters
and General Average are not even mentioned in a single IRDA Regulation.

6.8.2 One possible reason that Marine Polices do not have a Dispute Resolution Clause
is that when an Average Adjuster in appointed by a Shipowner Assured or the
Insurer, she / he acts in an impartial and fair manner without fear or favour and
attempts to resolve all disputes in the first instance, rather allow them the
stalemate to continue. The recent trends of Insurers discouraging the appointment
of Average Adjusters is more than disturbing and does not auger well for Marine
Hull Insurance and the interests of the Policyholders.

6.8.3 Another disturbing trend in Marine Hull Claims Management in India, is that
some H&M Insurers are referring the Statement of Adjustment to the Surveyors
they had appointed for the damage survey for comments.

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 6.8.4 This is because it take years of experience and in some regimes the requirement
to pass a stringent examination, prior to one becoming an Average Adjuster (or
“Adjuster of Averages”), a profession which is on the verge of extinction not only
in India but around the world.

6.8.5 Average Adjusters are most suited to be advisors to all the Stakeholders including
IRDA to help eradicate flawed Express Warranties in Marine Hull Policies. Their
knowledge of the Law and Practice of Marine Insurance could synergise the
process of eliminating the flawed Express Warranty wordings in H&M Policies.

6.9 Insurance Educational Institutions:

6.9.1 Insurance Education Institutes like National Insurance Academy and the College
of Insurance are Temples of Insurance Learning in India and have a vital role to
play in creating awareness of trends which tend to create disputes in Insurance
Contracts, and thus strain in the Insurer – Assured relationship.

6.9.2 Training Programs, Seminar and Conference can be developed for bringing
together all Stakeholders in Marine Hull Insurance to discuss their different
perspectives with a view of evolving lasting solutions that would be to the mutual
benefit of all the Stakeholders.

7. CONCLUSION

7.1 Domain expertise in Marine Hull Insurance has fallen from its zenith just after
Nationalisation in 1972, to its nadir in present times, 43 years later. This is aggravated
with the unrealistically low premium rates for Marine Hull Insurance making this a losing
portfolio.

7.2 To add fuel to fire, the Hull Tariff and the Hull Manual were “thrown overboard” in the
name of reforms. The word “thrown overboard” has been intentionally used instead of
the word “jettisoning”, since jettison is always for the common good, and no good –
common or otherwise, has resulted from the obliteration of the Hull Tariff / Hull Manual
which was the result of many years of wisdom and experience of the Underwrites of the
pre-nationalization era who nurtured the Nationalised Insurance Sector in the infant days
of its birth, under the auspices of the Tariff Advisory Committee which was set up as a
Statutory Body under the Insurance Act 1938.

7.3 Two private General Insurers have closed their books on this portfolio while some others
are resorting to devious ways and means of repudiating genuine Marine Hull Claims with
the active connivance of some unprofessional Surveyors / Loss Assessors. Another
method sought to “protect” a losing portfolio is the insertion of flawed Express Warranty
wordings either due to culpable ignorance or maliciously, as traps for the unwary
Assured. This is disturbing trend which requires to be arrested forthwith. This Paper
creates awareness on this issue and is based on true examples of such flawed Express
Warranties in Marine Hull Policies issued in India.

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7.4 It is hoped that this Paper will awaken all concerned from blissful ignorance to painful
awareness, to enable change to be brought about for the better, by making the paradigm
of “win-win”. Such an approach would in no small way contribute to reviving the loss-
making portfolio of Marine Hull Insurance so that it may rise like the Phoenix from the
present smouldering mess to its pristine glory of yesteryears where domain expertise was
the order of the day at the time of Nationalization of the Indian Insurance Industry, and
when Marine Hull Insurance was a profitable line of business, with claims being settled
in time and to the satisfaction of all the Stakeholders.

7.5 The Paper apart from analysing the present situation makes several recommendations for
all the Stakeholders to contribute towards eliminating this underwriting aberration by
eliminating vague, imprecise, inappropriate, uncertain and impractical Express
Warranties in Marine Hull Policies.

References:
1. Marine Insurance Act 1960 (English Act)
2. The Marine Insurance Act 1963 (Indian Act)
3. Law of Marine Insurance. Dr Susan Hodges. Cavendish Publishers Ltd. 1999
4. Cases and Materials on Marine Insurance Law. Dr. Susan Hodges. Cavendish Publishers Ltd. 1999
5. Warranties in Marine Insurance. Boris Soyer. Cavendish Publishers Ltd. 2001.
6. Insurance Contract Law Issues Paper 2 Warranties – Scottish Law Commission Nov 2006
7. Warranties in Marine Insurance: An Unpleasant Necessity. Carl Christian Rosio.
8. The “Insurance Contract” Warranties and Representations. Fordham Law Review Vol 10 Is. 2 1941
9. The Warranties in your Marine Insurance Policy May No Longer Matter. Quntin Rares

End Note
This Paper is dedicated firstly to all the stalwarts who contributed their expertise,
knowledge and experience in developing and structuring the Hull Manual as well as
all Members of the erstwhile Tariff Advisory Committee who nurtured
professionalism in Marine Hull Underwriting, and secondly to my son Charles J.V.
Fernandez who is Class Underwriter (Marine Hull & Marine Liabilities) at the
Canopius Syndicate and who also heads the Gemini Syndicate at Lloyds, and who, I
had the pleasure and privilege of sharing my thoughts with on Marine Insurance and
empowering him to become a Professional Underwriter of Marine Insurance at
Lloyds.

______

This is an edited version by the Author of his original article

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