International trade involves multiple stakeholders, long transit routes and values that often run into large sums. A single incident during transit can affect not just goods, but contracts, cash flow and business credibility. This is why marine insurance is built on a set of well-defined principles that govern coverage and claim assessment.
Understanding these principles is important for exporters, importers, logistics providers and anyone involved in cross-border movement of goods, as they shape both policy terms and real-world outcomes during a loss.
Principles of Marine Insurance
Principle of Utmost Good Faith
The foundation of marine insurance is the principle of utmost good faith. This means that both the insurer and the insured are expected to disclose all material facts honestly and completely at the time of policy taken. For the insured, this includes details about the nature of goods, packing method, transit route, mode of transport and previous loss history.
This principle is particularly relevant when arranging transit insurance, as even small omissions can affect claim validity. For example, failing to disclose that cargo is fragile, hazardous or temperature-sensitive may result in complications during settlement.
Principle of Insurable Interest
Another key principle is insurable interest. Simply put, the person taking the policy must stand to suffer a financial loss if the insured goods or vessel are damaged or lost. In marine insurance, insurable interest does not have to exist at the time of policy purchase, but it must exist at the time of loss.
This allows flexibility in international trade, where ownership and risk may transfer at different stages depending on the contract terms. Exporters, importers, buyers under CIF contracts and even banks financing shipments can have insurable interest, provided they are financially exposed to the risk.
Principle of Indemnity
Marine insurance operates on the principle of indemnity, which ensures that the insured is compensated for actual loss suffered, without making a profit from the claim. The aim is to restore the insured to the financial position they were in before the loss occurred.
In the case of cargo insurance, compensation is usually linked to the invoice value of the goods, the freight paid and a limited margin, all within the boundaries set out in the policy. This approach prevents over-insurance and underlines the purpose of cover as a financial safeguard rather than a way to generate returns from a loss.
Principle of Subrogation
Once a claim is paid, the insurer gains the legal right to pursue recovery from any third party responsible for the loss. This is known as subrogation. For example, if cargo damage is caused by a negligent carrier or port handler, the insurer may seek recovery from that party after compensating the insured.
Subrogation helps keep insurance costs in check and ensures accountability across the logistic chain. For businesses, it also removes the burden of pursuing recovery themselves, as the insurer handles the process.
Principle of Contribution
In some cases, the same cargo may be insured under more than one policy. Under the principle of contribution, the cost of a claim is divided between insurers instead of falling on just one.
It usually comes into play when the same shipment ends up being covered more than once, often because traders arrange overlapping policies or different parties insure the goods separately without realising it.
Conclusion
The principles behind marine insurance come into play when something actually goes wrong. They affect how information is assessed, how claims are handled and who can seek recovery after a loss. In a trade environment that involves multiple parties and long transit chains, these rules bring structure to situations that would otherwise become disputes.
Businesses that move goods frequently tend to face fewer issues when claims arise if they already understand how these principles work in practice. When selecting a transit insurance policy, working with established insurers such as TATA AIG can also make a difference, as they are generally better equipped to explain coverage limits and handle claims in a way that aligns with real-world trading conditions.
