Principles of marine insurance. Section 1 of the U:K. Marine Insurance Act 1906 states:
“A contract of marine insurance is a contract whereby the insurer undertakes to indemnify the assured in manner and to the extent thereby agreed, against marine losses, that is to say, the losses incident to marine adventure.”
Under the provisions of section 3(2) there is a marine adventure when the ship or cargo or other property (e.g., money, documents) are exposed to “maritime perils”. This property is known as insurable property”. In addition, if freight is in danger of not being earned because the insurable property is exposed to maritime perils it is also insurable. So, traditionally, ship, cargo, and freight form the basis of subject-matter which is insurable. Liability of the owner of insurable property to a third party can only be insured but mainly this forms the cover provided by Protecting and Indemnity Associations (some liability cover is provided by hull insurers under the Institute Time Clauses (Hulls) for 3/4ths collision liability).
“Maritime perils” means the perils (dangers) consequent on or incidental to, the navigation of the sea. These include perils of the sea, fire, war perils, pirates, thieves, captures, restraints, jettison and barratry, for example. “Perils of the sea refers only to fortuitous (chance) accidents and casualties and does not include the ordinary action of the wind and sea. It also does not include an intentional act such as scuttling. If a ship strands or collides, any loss would be attributable to a “peril of the sea”. Perills are also those described in the policy.
So to return the definition in section 1, we see that contains the first principle of insurance, indemnity of the assured. “Indemnity” here means “compensation” or “reimbursement”.