Marine insurance


In the business of shipping there are two main players, the shipowner and the shipper, and they both need insurance. The shipper insures the cargo against loss or damage. The shipper also insures against any liability that may arise with respect to the cargo, for example general average contribution.
The shipowner insures the hull and machinery of the ship against loss or damage. The shipowner does not insure the cargo but does insure against liability towards the cargo, as well as against other liabilities that may arise in operating the ship. Note the distinction between insuring against loss or damage to cargo and insuring against liability for loss or damage to cargo.
The Australian Marine Insurance Act 1909 (Cth) is closely based on the English Marine Insurance Act 1906. Discussions of specific provisions of the English Act in textbooks are valid with regard to the Australian Act.
(a) Insurance of the shipowner

The shipowner customarily takes out the following insurances:

Hull and machinery insurance: This insurance covers loss or damage to the ship, and navigational risks and liabilities, including collision damage. The insurance is effected with hull underwriters and the policy that issues is typically the marine policy (MAR), incorporating the Institute Time Clauses (Hulls).

P&I club cover: This covers the shipowner’s liability for loss or damage to cargo, compensation for injury or death of seamen, port workers and others, pollution risks, special compensation to salvors, and various other liabilities and expenses. The cover is effected with the shipowner’s P&I club and the certificate of entry in the club and the club rules constitute the ‘policy’.
(b) Insurance of the cargo owner

The cargo owner usually takes out marine cargo insurance on the goods being shipped. The marine policy (MAR) incorporates appropriate Institute Cargo Clauses.
When cargo is lost or damaged while in the custody or control of the shipowner, the cargo owner gives notice of loss or damage to the shipowner and also to the marine cargo insurer.

The marine cargo insurer usually pays the cargo owner’s claim promptly. The claim is then adjusted (settled) between the subrogated marine cargo insurer and the shipowner’s P&I club.




Focus questions


The purpose of this module is for you to be able to answer the following critical questions:

  1. How do the rules as to abandonment and subrogation apply to the principle of indemnity?
  2. Explain the operation of P&I clubs and their critical role in marine insurance cover.
  3. What are insurance warranties? In the context of marine insurance, what is the consequence of a shipowner breaching an insurance warranty?
  4. Why is it critical to establish the proximate cause of loss or damage to an insured ship?
  5. (a) What is the role of marine insurance in supporting commercial shipping, in particular, liner shipping?
    (b) What is the consequence of an insured breaching an insurance warranty? Is this consequence a fair and legitimate one? Justify your opinion.




This module considers marine insurance as a vital component in the overall business of shipping. There are many principles that make up the body of the law of marine insurance. Ultimately, there is a lot of potential risk and the law has developed to attempt to build confidence within marine insurance markets.

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