A disbursement warranty in marine insurance is a limit on the amount of coverage for certain specified items, such as anticipated freight, time charter hire and premiums.

A disbursement account, also known as DA, is an itemised list of charges and expenses incurred by the shipping company during the voyage. These expenses include port fees, crew wages, and repairs and maintenance, among others.

The purpose of the DA account is to provide a detailed breakdown of these expenses related to the vessel journey and to ensure that they are correctly accounted for and paid.

The disbursement warranty in marine insurance is a clause that limits the amount that can be insured for the mentioned operational expenses associated with a vessel.

Under the disbursement warranty, the policyholder is not allowed to insure the disbursements and similar items beyond a certain percentage of the ship’s insured value.

This clause helps ensure that marine insurance coverage remains aligned with the actual risk and discourages shipowners from intentionally causing losses for financial gain.

A disbursement warranty is a type of marine insurance that is typically applied to hull and machinery (H&M) insurance. The function of this clause is to limit how much a shipowner or operator can insure for certain voyage-related operational expenses.

At the time of purchasing a marine insurance policy, policyholders need to declare the disbursement account that is being insured above the ship's physical value. The clause will limit the amount of insurable interest, which is generally 25% of the H&M value.

This limit helps prevent over-insurance, which could lead to moral hazard, resulting in negligence or fraudulent claims to gain insurance payouts. In the event of damage and loss to the vessel, the disbursement clause became activated up to the specified limit. If the declared disbursements fall within the agreed limit, the claim proceeds accordingly.

Let us understand the disbursement warranty in marine insurance with an example. Suppose a vessel which is insured under the Hull and Machinery insurance for ₹25 crores. The disbursement amount that is insured above the ship value is ₹10 crores.

According to the disbursement warrant clause, the additional insurance cap is 25% of the vessel's insured value, which amounts to ₹6.25 crores. In the event of loss or damage, the insurance provider will honour the disbursement loss up to ₹6.25 crores.

In the event of a breach of warranty by the policyholder, it can lead to the insurance company being automatically discharged from liability for that part of the coverage. Here are some serious consequences the policyholder may face for breaching the disbursement warranty.

• One of the main consequences of breaching the warranty in marine insurance is denial of the insurance claims even if it did not contribute to the loss or damage.
• Another consequence the policyholder may face is the suspension of the insured liability from the moment of a breach until the breach is remedied.
• If the warranty involves a false statement of fact, it could be considered a misrepresentation, potentially leading to legal action for damages.

Warranties in marine insurance are written statements in which the insured party promises to do or not do certain specified actions. A warranty in marine insurance is a strong statement that should remain valid throughout the policy's tenure. There are basically two types of warranty in marine insurance.

Express Warranty

The express warranty in marine insurance is the promise or statement made by the policyholder. These statements and promises are clearly stated in the marine insurance policy document. The express warranty in marine insurance generally includes below-mentioned conditions.

• It specifies the vessel's condition and suitability for the intended voyage.
• Under the express warranty, policyholders promise to adhere to safety and good operational standards.
• The express warranty also requires the policyholder to provide full disclosure of all relevant information.
• It also states the legality of the vessel and consignment.
• Lastly, it provides an accurate description of the cargo or shipment in accordance with applicable laws and regulations.

Also Read: Express Warranties in Marine Insurance

Implied Warranty

The implied warranties in marine insurance are the types of warranty that are not explicitly stated but understood by the parties involved. The implied warranties in marine insurance include the seaworthiness of the vessel or the legality of the ship. Let us understand the different types of implied warranties.

• At the time of the voyage, the vessel must be seaworthy. It means that the ship should be in good condition for the intended journey.
• Another implied warranty is around the legality of the vessel. It means the vessel used for the voyage need not be involved in any unlawful or criminal activity during the journey.
• The insurance provider and policyholder will operate in good faith throughout the insurance arrangement. This generally includes not hiding or misinterpreting any information from the insurance provider.

Also Read: Warranties in Marine Insurance

Understanding the disbursement warranty in marine insurance is crucial for businesses, as it outlines the conditions for payout at the time of claims. The warranty in marine insurance also plays a crucial role in ensuring compliance with established industry standards and regulations.

Failing to adhere to the warranty can result in the rejection of marine insurance online claims.
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