Marine Insurance Law: Indemnity and Subrogation in Practice

This essay delves into the critical principles of indemnity and subrogation within the context of marine insurance law. It begins by defining insurance and marine insurance, then elucidates the core principles that govern marine insurance contracts, including the principle of utmost good faith, indemnity, cause proxima, subrogation, and insurable interest. The essay then focuses on indemnity and subrogation, explaining their practical applications and significance. It highlights the principle of indemnity as the primary mechanism for compensating insured parties for losses, supported by case studies like Pimco Shipping Pty Ltd v Moeder and Sea Glory Maritime Co and Another Company v Al Sagr National Insurance Co. The principle of subrogation, a corollary to indemnity, is also discussed, emphasizing the insurer's right to assume the insured's rights to seek recovery from responsible third parties. The essay concludes by asserting the benefits of indemnity for the insured and reinforces the importance of the Marine Insurance Act of 1906. This analysis underscores the importance of these principles in marine insurance practice.

Running head: INDEMNITY AND SUBROGRATION AS MARINE INSURANCE LAW
INDEMNITY AND SUBROGRATION AS MARINE INSURANCE LAW
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INDEMNITY AND SUBROGRATION AS MARINE INSURANCE LAW
Introduction
Insurance has the primary function to transfer and distribute risks related to finance. With
the help of insurance, the insurer saves her or him from economic losses by transferring the risks
to the insurer. Marine insurance refers to the aim of indemnifying the insured as opposed to the
losses incurred in marine adventure. Several principles govern the marine insurance law, which
will be discussed in the paper elaborately.
The paper also aims to highlight two specific principles of the marine insurance law
namely indemnity and subrogation. The paper will first explain the two principles and then find
the relevance of these in the current insurance scenario. The focus of this paper is to demonstrate
that the principle of indemnity is best suited for the person who applies for marine insurance. In
doing so, the paper will first define insurance, and then move on to defining marine insurance
followed by brief explanation of the various principles. Then, the paper will explain the two
principles. In addition to that, the paper will provide cases, judgments and facts associated with
indemnity and subrogation. The cases will be used mostly to justify the thesis that indemnity is
better than subrogation.
Discussion
Insurance – It means a contract where an entity or individual receives reimbursement or
financial protection from any sort of financial loss from an insurance company. The contract is
presented in the form of a policy (Zelizer 2017). The insurance company collects the risks of the
client to make payments more reasonable for the insured.
Insurer – The insurer is the company that provides insurance to the individual. In
Cyprus, the insurer is called Cypriot insurance company.

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Insured – The individual who receives insurance from an insurer is known as the
insured.
Marine insurance – This is the type of insurance that is received on occasions when
there is evident damage or loss to the cargo, ships, terminals or any transport that acquires or
transports property. The sub-branch of marine insurance is cargo insurance although it also
includes Hull, Marine Casualty, Liability, and Onshore and Offshore exposed property (Piccinno
2016). Marine insurance has much significance because it ensures transporters and ship owners
to claim damages particularly taking into account the type of transportation used. The first
marine insurance market was The Lloyd’s Coffee House in England.
Process of Marine insurance contract formation
Marine insurance contract formation could be defined in two parts, as Sooksripaisarnkit
(2017) explains. In the first part, the formation would be explained placing the risk in the Lloyd’s
Market and in the second part; the formation would be explained placing the risk outside. The
reason for this distinction is that the Lloyd’s Market has taken up a rather exclusive process for
risk placing.
Inside the Lloyd’s Market, the modern process of contract formation involves
underwriters called as ‘Names’ formulate their financial investment by entering one of the
syndicates. Corporate members known as ‘capital providers’ control the syndicates. While
forming contract, the insured must place the risk with the syndicate through the managing agent.
For example, if a ship owner wishes to insure his ship at the Lloyd’s Market, he must contact the
registered broker of Lloyd’s who would then provide him a document known as ‘slip’. However,
concerns regarding the legal status of the slip. This could be explained using the judgment given

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by Blackburn J. in Ionides v Pacific Insurance Co.[ (1871) LR 6 q QB 674]. He stated that the
slip is actually the “complete and final contract between the parties, fixing the terms of the
insurance and the premium, and neither party can, without the assent of the other, deviate from
the terms thus agreed on”.
Outside the Lloyd’s Market, the contract is formed through the usual principles of contract law.
The prospective insured provides the insurer with the specifics of the risk that he wants the
insurer to undertake. In this case, the insurer either accepts the offer or comes up with a counter
offer. The counter offer might in the form of terms and conditions the insurer applies. Example
of such counter offer could be explained with the case of Canning v Farquhar [(1886) 26 QBD
727] where the insurance company purported to accept the risk with the letter containing the
sentence “No assurance can take place until the first premium is paid”. Mr. Canning suffered
injury within months after the insurance but the company rejected the premium acceptance.
Lindley L.J identified the purported acceptance of the risk by the insurance company as ‘counter
offer’.
Principles of marine insurance
The marine insurance has some principles that govern it and that must be explained in
order to understand how the insurance works (Kingston 2014). These include:
Principle of utmost good faith – This principle states that the applicant or the one to be
insured must disclose the correct or genuine information while filling up the policy of marine
insurance. Further, the principles also states that the applicant must not withhold any type of
material information and it does so, the company offering the marine insurance policy has every
right to reject or cancel the policy application.

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INDEMNITY AND SUBROGRATION AS MARINE INSURANCE LAW
Principle of indemnity – According to this principle, the policyholder of marine
insurance will be compensated for the loss only to the extent the amount of loss has been
incurred (Sarrabezoles et al. 2016). In simpler terms, the insured must not purchase or apply for
marine insurance policy in order to earn profits. In no circumstance would the insured receive
more than the tangible loss incurred.
Principle of Cause Proxima – Cause Proxima is a Latin word that relates to proximate
or nearest cause. This principle helps determine the actual cause of the loss when several causes
seem to contribute to it. The responsibility of the insurer is decided when the immediate cause of
loss is revealed (Hjalmarsson et al. 2014).
Principle of Subrogation – This is a principle of indemnity under which the insured has
no right to look for profits or benefits from the loss. Subrogation refers to the transport of
remedies and rights of insured to any insurer who has indemnified her or him with respect to the
loss.
Principle of insurable interest – It is the principle where the insured must have claim in
the subject during the time it is insured or to be insured (Thomas 2015).
Amongst the above-mentioned principles, the principle of indemnity and subrogation
shall be elaborated.
As describe earlier, the principle of indemnity refers to the process where the insured
should be positioned at the exact financial place where he was just prior to the occurrence of the
loss. The principle of indemnity is inscribed in section 1 of the Marine Insurance Act 1906
according to which, “a contract of marine insurance is a contract whereby the insurer undertakes
to indemnify the assured” (Thomas 2015).

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INDEMNITY AND SUBROGRATION AS MARINE INSURANCE LAW
In the case of Pimco Shipping Pty Ltd v Moeder, Hernmann and Moeher Trading Pty
Ltd [(1987) PGNC 57; (1987) PNGLR 427 (23 December 1987)] the principle of indemnity is
clearly explained. The claimant had a coastal vessel that in 1978, carried goods that were
damaged during transit and the owner was awarded for the damages after he sued the claimant.
However, the claimant claimed that during that time, the defendant was the vessel’s actual owner
and the suit was brought based on the fact that the defendant indemnify the claimant for
damages. The action was dismissed holding that the claimant’s action for indemnity is time
barred pursuant to the Sea-Carriage of Goods Act Article 3, R. 6. The act states that the case in
respect of damage or loss should brought within a year after the delivery of goods or during the
time, the goods have been delivered. Another example could be provided of the case Sea Glory
Maritime Co and Another Company v Al Sagr National Insurance Co [ (2013 EWHC 2116
(comm)]. In this case, the owners sought indemnity from their underwriters of the hull after their
vessel suffered a constructive loss due to a fire. The underwriters turned down the claim and
wished to avoid the responsibility under the policy of marine insurance. The underwriters
claimed it stating that misrepresentation or non-disclosure was there concerning the actual vessel
manager. Further, there was non-disclosure about port state control detentions, and to a conflict
of interest.
Subrogation principle is a part of the indemnity principle according to which, the insurers
are allowed to be in the position of the insured and avail all the remedies and rights of the
insured. As per the Cyprus legal definition, subrogation applies to every insurance including fire
insurance, vehicle insurance, property insurance, liability insurance and loss of profits insurance.
It also means that in accepting some form of compensation, the insured is giving up the authority
to collect it from other sources and thus providing this opportunity to the individual who paid the

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INDEMNITY AND SUBROGRATION AS MARINE INSURANCE LAW
insured collect the amount from the liable party. It is mentioned under section 79 (2) of the
Marine Insurance Act 1906, “the insurer is entitled to recover from a negligent third party any
loss payments made to the insured” (Gurses 2016).
In the case of Castenllain v Preston [(1883) LR 11 QBD], it reads, “As between the
underwriter and the assured, the underwriter is entitled to the advantage of every right of the
assured, whether such right consists in contract, fulfilled or unfulfilled”. In Simpson v
Thompson (1887) 3 App Cas 279, Lord Blackburn stated that the right for subrogation came
from the actuality that the underwriters had paid indemnity. In Darrel v Tibbitts (1880) 5 QBD
560, Bret J. noticed that once the insured has been paid , is the insurer in fact put into the
position of the insured with regard to every right given to the insured by the law regarding the
subject-matter insured.
From the above discussion, it is evident that indemnity as a principle of marine insurance
is better for the insured than is the principle of subrogation. In fact, subrogation is the corollary
principle that leads to indemnity. Bazvand (2016) holds that indemnity is a valued principle in
marine insurance policies because it includes the losses that were not included previously in the
insurance policies. The author also highlights the importance of the marine insurance for those in
trade businesses concerning the sea and the importance of the Marine Insurance Act of 1906.
This shows the importance of indemnity in marine insurance. The principle allows the insurer to
enjoy benefits and not give undue profits to the insured. The principle is good also because once
the insured receives the compensation that matches her or his exact loss of the property and the
insurer earns profit from the damaged property, she or he has no right to claim the profit. The
principle even has an exception as well where certain profit margin is allowed to be included in

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INDEMNITY AND SUBROGRATION AS MARINE INSURANCE LAW
the cost of the goods damaged. As per this exception, the insured has the right to earn some
profit when the goods are delivered to her or him.
Conclusion
In the end, it could be reinstated that the person, who applies for marine insurance, would
be benefitted more from indemnity principle than he would be from the subrogation principle.
The paper discussed in details the marine insurance policy in order to establish the thesis. At
first, the paper provided brief description of the various terms associated with marine insurance.
Prior to that, the paper also provided a brief description of insurance. Further, the paper
explained the process of marine insurance contract formation with the help of case examples.
This was followed by an elaborate discussion on the various principles of marine insurance. It
was found that marine insurance is a part of the general insurance that looks to safeguard the
financial losses faced by the marine traders and businesses. The paper then discussed the two
principles of indemnity and subrogation in details to reveal that indemnity as a marine insurance
principle is better than subrogation. The discussion was backed up by case examples of both
indemnity and subrogation. However, it must be suggested that further analysis of other
principles of marine insurance be carried out in order to understand it better.

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INDEMNITY AND SUBROGRATION AS MARINE INSURANCE LAW
References:
Bazvand, A., 2016. The Principle of Indemnity in Valued Marine Policies. European Journal of
Multidisciplinary Studies, 3(1), pp.55-62.
Canning v Farquhar [(1886) 26 QBD 727]
Castenllain v Preston [(1883) LR 11 QBD]
Darrel v Tibbitts (1880) 5 QBD 560
Gurses, O., 2016. Marine Insurance Law. Routledge.
Hjalmarsson, J., Merkin, R., Bugra, A. and Lavelle, J., 2014. Marine insurance legislation.
Informa Law from Routledge.
Ionides v Pacific Insurance Co.[ (1871) LR 6 q QB 674]
Kingston, C., 2014. Governance and institutional change in marine insurance, 1350–1850.
European Review of Economic History, 18(1), pp.1-18.
Piccinno, L., 2016. Genoa, 1340–1620: Early Development of Marine Insurance. In Marine
Insurance (pp. 24-45). Palgrave Macmillan, London.
Pimco Shipping Pty Ltd v Moeder, Hernmann and Moeher Trading Pty Ltd [(1987) PGNC 57;
(1987) PNGLR 427 (23 December 1987)]
Sarrabezoles, A., Lasserre, F. and Hagouagn’rin, Z., 2016. Arctic shipping insurance: towards a
harmonisation of practices and costs?. Polar Record, 52(4), pp.393-398.

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INDEMNITY AND SUBROGRATION AS MARINE INSURANCE LAW
Sea Glory Maritime Co and Another Company v Al Sagr National Insurance Co [ (2013 EWHC
2116 (comm)].
Simpson v Thompson (1887) 3 App Cas 279
Sooksripaisarnkit, P., 2017. Marine insurance–collateral lies: when lies are not fraud. Maritime
Business Review, 2(1), pp.52-56.
Thomas, R. ed., 2015. The modern law of marine insurance: Volume four. CRC Press.
Zelizer, V.A.R., 2017. Morals and markets: The development of life insurance in the United
States. Columbia University Press.