The marine insurance contract: conclusion, content and performance

While marine insurance provides an essential safety net for activities at sea, it is the contract that weaves the net. This document, or set of documents, formalises the agreement between the insurer and the insured, defining the extent of cover, the obligations of each party and the conditions of compensation. For professionals in the maritime sectoreven non-lawyers, understand the mechanisms of formation, the essential elements and the life of this contract is fundamental to the smooth running of their business. In this context, it is essential to anticipate risks and ensure that all the necessary cover is in place. An in-depth knowledge of contractual clauses can also avoid misunderstandings that could prove costly in the event of a claim. By mastering these aspects, professionals can effectively protect their interests and those of their customers. Adequate preparation also includes keeping abreast of changes in legislation and industry practices. Being proactive in the face of regulatory changes means that insurance cover can be adjusted more effectively and that a rapid response can be made in the event of a marine insurance claim. Constant vigilance not only ensures the safety of operations, but also the sustainability of professional activities. Marine insurance also involves a precise assessment of the risks associated with each operation, which can vary considerably depending on the type of vessel, the cargo and the routes taken. In addition, market fluctuations and weather conditions can influence the nature of marine insurance, making it all the more crucial to call on experts for an in-depth analysis. By incorporating these strategic factors into their approach, professionals can better anticipate unforeseen events and optimise their cover.

What are the rules governing the creation of this agreement? What are the key points to watch out for? How does it work on a day-to-day basis, and what happens when the initial circumstances change? This article guides you through the key stages in the life of a marine insurance contract, from its conclusion to any amendments.

Contract formation: between freedom and safeguards

Unlike insurance designed for private individuals (such as home or car insurance), where the law imposes a high level of protective formalism, marine insurance is traditionally governed by the law. freedom of contract. This principle can be explained by the nature of the players involved: professionals considered to be knowledgeable, capable of negotiating and defending their interests against insurers. Fewer mandatory rules mean greater flexibility to adapt cover to the specific needs of a shipment or fleet.

However, this freedom is not absolute. The legislator has provided for safeguards for public orderIn other words, rules from which the parties cannot derogate, even by mutual agreement. Article L. 171-2 of the Insurance Code lists these mandatory provisions. Their purpose is not so much to protect a weaker party as to preserve the very foundations of the insurance transaction. They include, for example

• The prohibition on a person who has not suffered any loss to claim the benefit of the insurance (article L. 171-3), recalling the principle of compensation.
• Penalties applicable in the event of intentional misrepresentation of the risk by the insured (nullity of the contract, article L. 172-2).
• Inability to cover the consequences of the insured's intentional or inexcusable fault (article L. 172-13).

Beyond these legal limits, the reality of contract formation is strongly influenced by the using standard policies. Drawn up by professional insurance organisations, these standardised documents form the basis of the vast majority of marine insurance contracts. While they offer the advantage of a degree of harmonisation and legal certainty, they often give the contract the characteristics of a contract of adhesion, where the policyholder's room for negotiation may be limited, except for the most powerful economic players. This predominance of standard policies has an important consequence: their interpretation in the event of a dispute is based less on the search for a hypothetical "common intention of the parties" than on an objective analysis of the meaning of the standard clauses.

At the heart of the contract: the essential elements

Whether based on a standard policy or negotiated specifically, all marine insurance contracts are based on fundamental elements that determine their balance. Two of these deserve particular attention: the insured value and the hazard.

The insurance value: determining the amount of cover

It is essential to set a value for the insured goods (ship, cargo) in the contract. This value serves as the basis for calculating the premium and is the reference for compensation in the event of a claim. It also makes it possible to identify any situations of under- or over-insurance.

• Underinsurance : If the sum insured is less than the actual value of the property at the time of the loss, the insured remains his or her own insurer for the difference and will only be compensated on a pro rata basis (unless there is a clause to the contrary or an "agreed value"). This is the application of the proportional capital rule (article L. 172-10 of the Insurance Code).
• Overinsurance : If the sum insured exceeds the actual value, and this is the result of fraudulent intent on the part of the insured, the contract is void. The insurer may then retain the premiums already paid by way of compensation (article L. 172-6, paragraph 1).

The way in which this value is determined varies:

• Visit body insurance (the ship itself), we frequently use a approved value. The parties agree on a fixed value at the start of the contract, which then becomes binding unless fraud is proven. This generally covers the hull, engines, equipment and outbuildings.
• Visit insurance on transported goods (formerly "faculties")The policyholder is responsible for declaring the value. Standard policies often specify the acceptable bases: cost price plus expected profit, value at destination according to market rates, contractual selling price, or replacement value for manufactured goods (subject to proof of actual replacement).

Hazard: a vital condition

The very essence of insurance is to cover an uncertain risk, a future event whose occurrence or date of occurrence is unknown. Without hazardno valid insurance. This condition is particularly scrutinised in marine insurance.

Imagine insuring a cargo that has already been lost at sea, or a ship that has arrived safely at its destination. It would make no sense. The law is clear: insurance taken out after the occurrence of the loss or after the safe arrival of the insured item is without effect if the event was known at the time the contract was taken out (article L. 173-3 of the Insurance Code). Knowledge is assessed quite broadly: it is sufficient for the news to have reached the place where the policy was taken out or the place where the insured was located, even without proof that he or she had personal knowledge of it.

Historically, a "good news/bad news" clause made it possible to validate an insurance policy even if the property had already been lost or arrived, provided that person (neither the insured nor the insurer) was aware of it. However, article L. 172-5 specifies that this insurance is void if the insured knew of the loss or if the insurer knew of the arrival. In practice, this clause has become largely obsolete with modern means of communication.

Putting the agreement into practice: obligations and paperwork

The actual conclusion of the contract implies obligations for each party and is evidenced by various documents.

Obligations at the time of conclusion

• Visit insurer Contrary to ordinary land insurance law (article L. 112-2 of the Insurance Code), the law does not impose a formal pre-contractual information obligation on the marine insurer (provision of an information sheet, etc.). The presumption of professionalism on the part of the insured exempts the insurer from this formal requirement. This does not mean, however, that they can mislead their clients; a general duty of loyalty and accuracy in the information provided remains.
• Visit underwriter (who may be the insured himself, or act on behalf of a specific third party or "on behalf of whom it may concern", article L. 171-4): The main obligation is to spontaneously and accurately declare all the circumstances known to him that are likely to enable the insurer to assess the risks he is assuming (article L. 172-19, 3°). This is a fundamental obligation. Policyholders must also declare whether they have taken out other insurance policies for the same interest and against the same risks (cumulative insurance, article L. 172-8).

The sanctions in the event of a breach of the policyholder's obligation to declare the risks are severe:

• Intentional omission or misrepresentation (bad faith) The insurer may request the nullity of the contract if this erroneous declaration could have reduced significantly his opinion of the risk (article L. 172-2). The premium is retained by the insurer.
• Unintentional omission or misrepresentation ("good faith") The penalty is, in principle, a reduction in the indemnity in the event of a claim, depending on the nature of the claim. proportional premium rule (the indemnity is reduced in the proportion between the premium paid and that which should have been paid if the risk had been correctly declared, article L. 172-3). A noteworthy particularity: unlike in land insurance, where the insurer must prove bad faith in order to obtain nullity, in marine insurance the insurer must prove bad faith in order to obtain nullity, it is up to the insured to prove good faith to escape nullity and be subject "only" to the proportional rule. This reversal of the burden of proof underlines the rigour of the system towards the insured professional.

Documents evidencing the commitment

If the insurance contract is consensual (i.e. it exists by the sole agreement of the parties), proof of this agreement and its content must be provided by a writes (article R. 172-1 of the Insurance Code). Several documents can play this role:

• La cover note Provisional document issued by the insurer or broker, certifying cover pending issue of the final policy.
• L'insurance decree Policyholder agreement: A document often issued by the broker and signed by the insurer, valid as a contract and immediately committing the policyholder to payment of the premium.
• Le insurance certificate Used mainly in goods insurance, it enables the holder (often the receiver of the goods) to assert his rights directly with the insurer.
• The endorsements Documents amending the initial contract (extension of cover, change of conditions, termination, etc.).
• La insurance policy Policy contract: This is the main contractual document, drawn up by the insurer. It must contain compulsory information (identity of the parties, risks covered, sum insured, premium, place and date of subscription, etc., article R. 172-3). It is often made up of "general conditions" (the common base) and "special conditions" (adaptations specific to the policyholder, which take precedence over the general conditions in the event of contradiction).

The formalism of these documents is more flexible than in land-based insurance: there is no legal obligation to use very conspicuous characters for nullity or exclusion clauses, and the use of English (the language of international maritime trade) is common and accepted.

An important new feature resulting from the "Attractiveness" law of June 2024 (article L. 112-5 of the Insurance Code): marine insurance policies (as well as air, river, etc.) can now be drawn up, signed, kept and, most importantly transferred electronically when they are stipulated as "to order" or "to bearer", facilitating their circulation as genuine negotiable securities.

The life of the contract: performance and contingencies

Once concluded, the contract takes effect and governs the relationship between the insurer and the insured. Its performance implies ongoing obligations and must be able to adapting to change.

The start of the guarantee: "putting yourself at risk

• For the transported goodsUnder article L. 173-17-1, insurance takes effect at the start of loading operations and ceases at the end of unloading (with precise time limits). Article L. 173-17-1 also stipulates that if the risks have not commenced within two months of the commitment, the insurance is null and void (except for "floating" or "subscription" policies).
• For the vessel bodyThe rules depend on the type of contract (article L. 173-1 et seq.): for a single voyage, cover runs from the start of loading to the end of unloading (or from start-up to mooring if travelling in ballast); for "time" insurance (for a fixed period), the risks on the first and last day are covered. Policies often specify that cover applies anywhere (within the geographical limits specified), whether the ship is in operation, under repair, afloat or dry.

Obligations during the term of the contract

Performance of the contract implies duties for the insured:

• Paying the premium Payment: This is the fundamental obligation. In the event of non-payment, the insurer may suspend cover or request cancellation of the contract following formal notice sent by registered letter. The time limit for taking action after formal notice is short: eight days (article L. 172-20), compared with forty days in land insurance. Specific rules apply in the event of insolvency proceedings against the policyholder (article L. 172-22). Note: the insurer's right to offset unpaid premiums against compensation due to a third party beneficiary is now limited to transported goods insurance (article L. 172-21).
• Providing "reasonable care Article L. 172-19, 2°): The insured must ensure that the insured property is properly preserved and take the necessary measures to prevent losses. This is not an obligation of result, but of means. However, if the insurer proves that the damage is due to a "lack of reasonable care" on the part of the insured to protect the objects from risks, it may be released from its guarantee, even in the absence of intentional or inexcusable fault (article L. 172-13).

Changes along the way

• Increased risk New circumstances: If new circumstances increase the risk (change of navigation area to a more dangerous one, change in the nature of the goods transported, etc.), the insured must declare them to the insurer within three days of becoming aware of them, if the increase is "appreciable" (article L. 172-19, 4° and L. 172-3). The consequences are complex and depend on whether the worsening is attributable to the policyholder and whether he or she made the declaration in good or bad faith (articles L. 172-2 and L. 172-3, the wording of which is notoriously confused): the consequences may range from continuation of the policy with an additional premium, to cancellation, or even nullity or application of the proportional rule.
• Asset-related changes :
  • L'alienation (sale) or bareboat charter of the insured vessel in principle transfers the insurance to the buyer or charterer (article L. 173-14). However, the latter must inform the insurer and fulfil the obligations of the contract. The insurer retains the right to cancel the contract within one month of notification. In practice, many hull policies simply provide for automatic termination of the insurance in the event of sale or bareboat charter, unless prior agreement has been reached.
  • The creation of a mortgage on the vessel must often be declared to the insurer under the terms of the policy.
  • Other changes (flag, ship classification society) may also require a declaration, depending on the contract.
• Changes related to the parties The receivership or compulsory liquidation of the insured (or of the insurer) gives rise to specific rules, in particular the possibility for the insurer to terminate the contract in the event of unpaid premiums (article L. 172-22), but such termination may not prejudice the rights acquired by third parties acting in good faith prior to notification.

The marine insurance contract is therefore a living instrument, the proper execution of which depends on a clear understanding of its terms and a constant dialogue between the insured and the insurer, often facilitated by the intervention of a competent broker.

Navigating the clauses of a marine insurance policy or managing the consequences of a change in circumstances during the term of the contract can be complex. To help you secure your operations and ensure that your cover is adequate and correctly managed, our team is at your disposal for a individual support.

Sources

• Insurance Code (Title VII Book I, in particular articles L.171-2, L.171-4, L.172-2, L.172-3, L.172-5, L.172-6, L.172-8, L.172-10, L.172-13, L.172-19 to L.172-22, L.173-1 to L.173-4, L.173-14, L.173-17-1, R.172-1, R.172-3, L.112-5)
• Commercial code
• Law no. 2024-537 of 13 June 2024 aimed at increasing business financing and the attractiveness of France (for transferable electronic policies)