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Marine Insurance

The nature of the risks associated with the movement of goods using international transportation is such that a special kind of insurance is required. This type of insurance is called marine insurance, also known as cargo insurance. The term ''marine'' can be misleading as it is not only applicable for use in sea transport, but also for all the other means of international transportation, namely, air, road or rail. Your customers'' goods, while in-transit to an international destination, are exposed to all kinds of perils such as fire, pilferage, theft, sinking of the vessel, aircraft accident, explosions, war, strikes, weather conditions and damage from poor handling.

The need for marine insurance is highlighted by the fact that you have very little control over the safety of the cargo once it is handed over to the carrier for shipment. Even if the carrier can be held liable for the safety of the goods, rates of compensation may cover only a portion of the value of the goods.

For example, the standard airline liability rate as indicated on the back of the international air waybill is 17 SDR (USD 20.00) per kg. On this basis, carrier compensation for the loss of a piece of cargo of 100 kgs might be USD 2000 whereas the value of the consignment could be well in excess of that figure, hence the need for marine insurance. It is therefore strongly recommended that forwarders offer marine insurance to their clients as a matter of company policy.

When should you take out marine insurance?

Parties to a marine insurance contract must have or expect to have at some future date, an insurable interest in the goods. Any party who stands to lose or gain from the safe arrival of the goods is said to have an insurable interest and can thus claim against an existing insurance policy.

The lncoterm relative to the consignment will determine at what stage the risk of loss or damage to the goods changes hands in the transport chain.

The forwarder should only arrange insurance at the express written request of the customer. The function of the forwarder is limited to the procurement of suitable marine insurance. If the instructions are simply to arrange for insurance, the forwarder can take out transport insurance against all risks. If this is not possible, or if the desired extent of cover is not clear, you should clarify the matter with the customer.

All risks is the common form of cargo insurance appropriate for most shipments handled by forwarders.

Can you take out insurance for one consignment?

Marine insurance policies can be designed for a single shipment, or the exporter or forwarder can choose to take out a policy that will cover a number of shipments over a period of time - normally known as an open policy.

Unless otherwise agreed in writing a forwarder is not under any obligation to effect a separate insurance on each consignment, but may declare it on an open or general policy, which may be held  with an insurance company. The efficiency of an open cargo policy far outweighs any supposed disadvantages.

BIFA Standard Conditions

Clause 11(A). No insurance will be effected except upon express instructions given in writing by the Customer and accepted in writing by the Company,and all Insurances effected by the Company are subject to the usual exceptions and conditions of the Policies of the Insurance Company or Underwriter taking the risk. Unless otherwise agreed in writing the Company shall not be under any obligation to effect a separate Insurance on each consignment but may declare it on any open or general Policy held by the Company.

Types of Marine Insurance

The London Institute of Underwriters have defined marine insurance cover under standard sets of clauses usually referred to as the Institute Cargo Clauses  A, Air, B and C. These sets of clauses are widely recognised and used by most underwriters world-wide:

  • Clause A or "all risks" as it is commonly known, covers all physical loss-or damage to the cargo from any external cause, general average and salvage charges. You should make customers aware of the exclusions for which they will not be covered. These are listed in the next section.
  • Clause Air is the same as "all risks" in that it covers all physical loss or damage to the cargo from any external cause. The clause specifies the aircraft as the carrier and the same exclusions would apply as with Clause A.
  • Clause B and Clause C provide cover against nominated perils and should only be used for certain commodities making use of bulk shipments.

There are also clauses that address specific concerns such as war and strikes. Should the shipper wish to protect himself against loss or damage to his cargo resulting from war or strikes, the war or strike clause must be included in his policy.

The A, B and C clauses are the standard forms of cover provided for goods shipped under deck, but are frequently unsuited for special cargoes or special circumstances. The insurer (insurance company) needs to be aware of this and make the necessary adjustments particularly where, for example, cargo is being transported on deck. An agent or broker will normally tailor a marine insurance policy to suit the circumstances in question, and adjust the insurance rates accordingly.

Exclusions in Marine Insurance

It is important that the insured is aware of the exclusions applicable to "all risks" cover. The most common are loss, damage or expense:

  • attributable to wilful misconduct of the insured
  • caused by insufficiency or unsuitability of packing or preparation of the cargo
  • as a result of ordinary leakage and wastage
  • arising from the insolvency or financial default of the owners, charterers or operators of the vessel
  • caused by inherent vice of the cargo (e.g. the innate tendency of a product to deteriorate over time. For example, fruit will go rotten)
  • caused by delay
  • resulting from strikes and labour disturbances (covered by strike clause)
  • arising from un-seaworthiness of the vessel where the insured is privy to the defects at the time of loading cargo

An important point to note when taking out marine insurance is that the onus is on the insured to ensure adequate packaging and marking. In the event of loss or damage to cargo attributable to inadequate packaging or marking, the insurer (the insurance company) will disallow any claim made.

General Average

General average is an interesting concept in sea freight as it implies that the owner of the goods being shipped accepts a measure of responsibility for the well being of the ship and all of its cargo. In short, the implications of general average are that should the captain of the ship have to take certain actions at sea to save the ship and its cargo, e.g. he might have to jettison some of the cargo overboard to lighten the load,a general average cost would apply. This means that the cargo owner would have to pay a proportion of the cost of the loss incurred by the cargo owner whose cargo was jettisoned overboard to save the ship. All three clauses (A, B and C) cover this eventuality.

Value for insurance purposes and cost of insurance

The minimum insurance value of cargo is generally determined as follows:

  • Cost of the goods
  • Plus freight and other associated charges (e.g. DDP shipments)
  • Plus 10% (to cover claims administration)

The insurance premium is calculated using a % factor determined by the insurer based on specific information such as the type of transport, type of product, the track record of the insured and any other circumstances affecting the level of risk involved. Sea freight cargo insurance is usually more expensive than airfreight insurance because of the greater risks involved. An insurance premium could be in the region of 0.5% of the insurance value of the cargo.

Providing Marine Insurance

The customer (i.e. the seller or the buyer) has the option of approaching the marine insurance company directly or through a broker to insure cargo. Alternatively, the forwarder can arrange for marine insurance on behalf of their customer, and forwarders selling insurance in this way create an income opportunity, receiving commission from insurance placed. In addition, it is a way of protecting the excess on the liability cover.

If not carried out correctly, the placing of insurance by the forwarder can result in serious financial loss, hence the requirement for the customer''s instructions to be received in writing.

BIFA Standard Trading Conditions

Clause 11(B). Insofar as the Company agrees to effect Insurance, the Company acts solely as Agent for the Customer. The limits of liability under Clause 26(A)(ii) of these Conditions shall not apply to the Company''s obligations under Clauses 11.

If a forwarder fails to insure goods as instructed, the customer may be able to recover the amount that the insurance would have paid for the loss or damage. The forwarder may not be able to limit its liability to the limitation appropriate for the loss of the goods. To avoid catastrophic damage claims, some standard trading conditions include a limitation provision that applies to general commercial claims, such as a failure to insure.

Insurance of warehoused goods

Unless otherwise instructed in writing by the customer, the freight forwarder should carry insurance for the risks of fire, water or theft (through burglary) in his own name and for account of the customer based upon the invoice value at the time of storage.

Many customers have an open cargo policy that covers goods wherever located, including those held awaiting distribution. On the forwarder side, most forwarders have an open policy that does not cover goods after the conclusion of transport (beyond a reasonable waiting period). Goods that are being stored are therefore not covered under the type of policy a forwarder will generally arrange.

Consequential Loss

As more forwarders enter into ''partnership'' arrangements with customers they will come under more pressure to assume some responsibility for the consequential losses arising from delays and breakages.

BIFA Standard Conditions

Clause 27 (A). Any claim by the Customer against the Company arising in respect of any service provided for the Customer or which the Company has undertaken to provide shall be made in writing and notified to the Company within 14 days of the date upon which the Customer became or ought reasonably to have become aware of any event or occurrence alleged to give rise to such claim and any claim not made and notified as aforesaid shall be deemed to be waived and absolutely barred except where the Customer can show that it was impossible for him to comply with this Time Limit and that he has made the claim as soon as it was reasonably possible for him to do so.

BIFA Standard Conditions
Clause 26 (C). Save in respect of such loss or damage as is referred to at Sub-Clause (B) and subject to Clause 2(B) above and Sub-Clause (D) below, the Company shall not in any circumstances whatsoever be liable for indirect or consequential loss such as (but not limited to) loss of profit, loss of market or the consequences of delay or deviation however caused.

Forwarders generally consider that they cannot be responsible if goods are delayed in arriving at their destination. This exemption can be stated in legally correct terms -the forwarder is not liable unless its negligence has contributed to the delay. However, carriers are exempt under general legal principles from consequential loss unless a shipper takes extra steps to warn the carrier of the consequences that follow from a failure to deliver.

Claims Processes

Claims may be unsuccessful because of a failure to recognise that prompt action is necessary. It is important to remember that often the most crucial period in the marine claim process is the first few moments immediately subsequent to initial loss/damage discovery.

In the event of loss or damage being discovered, if you are unsure of the best action to take, and before you sign any delivery document to acknowledge receipt of the goods, there are three things you must do immediately.

1. Make every effort to minimise the loss and/or prevent further loss. This could include, for example:

  • separating damaged cargo from sound cargo
  • spreading out damp or wetted items to aid drying
  • re-bagging
  • temporarily sealing leaking drums/carboys
  • re-banding or re-packaging

Reasonable expenses incurred in taking such steps are reimbursable in addition to any payment of the claim itself. It is incumbent upon the insured/claimant to act responsibly in minimising all damages.

2. Notify your insurance agent or broker so that, if required by underwriters, a survey of the damage can be arranged promptly. Until specifically advised by your insurance agent or broker that a survey will not be necessary, you should assume that a loss investigation survey will be carried out.

Wherever practicable, the damaged cargo and all original packing materials should be retained in the condition received until after the survey, unless further damage will result by doing so.

Once a survey is arranged, the carrier or his agent should be notified of the time and place of the survey so that they may be represented. The carrier may often opt not to attend the survey. However, he must be given the opportunity to do so.

3. Hold the carrier responsible. It is essential that:

  • If any loss or damage is discovered before the departure of the delivery transport, then any delivery documents presented for signature as proof of delivery1acknowledgement of receipt, must be endorsed with a statement identifying loss or damage. This statement should be brief, and unless you are confident that the full extent of damage is known, no specific details regarding such extent should be entered. A suitable suffix to any such endorsement is "Full report and claim to follow".
  • A claim is made in writing against the carrier (inland or ocean/air) as soon as the loss is known. This can be in any form, but must include:

i. the Bill of Lading and/or Air Waybill and/or Delivery Note number

ii. the name of the carrying vessel and/or vehicle registration number

iii. a description of the loss or damage

iv. a statement holding the carrier responsible for the loss or damage.

At a later stage, once the full extent of loss and corresponding claim amount has been clearly ascertained, a second letter should be forwarded to the carrier, identifying these points. A number of documents are required to support a marine insurance cargo claim.

The extent of documentation required depends on the exact circumstances and conditions of the claim in question; however, there are a number of standard documents, which are normally required to substantiate a cargo claim and these may include:

1. The document issued showing the amount of insurance placed and the coverage provided:

  • For an export shipment, this would be the original copy of the Special Marine Policy or Certificate of Insurance
  • For imports, this would probably be a copy of the marine insurance declaration or bordereau (list of cargo carried on a road vehicle in international transport).

2. For ocean freight a negotiable copy of the primary transit document, i.e. the Bill of Lading.

  • For an air shipment the applicable Master Air Waybill/Air Waybill/House Waybill
  • For a continental road shipment, a CMR note.

3. Final delivery or consignment note.

  • For domestic (UK-UK) transits, the delivery note is likely to represent the primary transit document
  • In respect of imports or exports, a delivery note will normally be issued by the final road carrier/forwarder (in addition to the primary transit document).

4. Original shipper''s invoice.

5. The shipper''s letter of instructions

6. Packing list, weight certificates or other evidence of the nature and condition of the goods at the time of shipment.

7. Any damage/discrepancy/handling report from any intermediary party.

8. The survey report, if an independent surveyor was called in to represent your interest.

9. Copy of claim on carrier and (if available)the carrier''s reply.

What can be done to expedite the claim process?

1. Always liaise/correspond via your appointed intermediary/agent/broker. This is usually your Insurance Broker.

2. Ask claimant to lodge formal written claim. An example document can be obtained from BIFA.

3. Make immediate investigation with all parties involved in the transport chain.

4. Notify all parties involved of the action being taken, and, depending on circumstances, this may include the shipper, the consignee, the agent at destination/origin station, the insurers, any carrier and/or transit shed operators involved, hauliers involved, and in certain circumstances, the police authorities.

5. Always quote underwriters'' and brokers'' claims reference numbers when making any form of communication.

6. Forward additional or supplementary information1documentationto your broker as soon as it becomes available.

7. Set up your own claim file, so that if necessary, more than one person can respond to any supplementary advices/queries that underwriters may have.

What else can be done to substantiate the claim?

1. If any employees/personnel, attendant upon delivery or when damage was discovered, made any significant observations, then it may be useful to ask them to make a short written statement of such observations.

2. Such statements are particularly useful in cases where cargo is dropped or poorly handled by forklifts, tail lifts and other mechanical handling equipment, or when cargo arrives poorly stowed and/or secured.

3. The ultimate enhancement of the written statement, as identified above, is the provision of photographic evidence. Although we cannot expect every receiver of goods to constantly retain a camera on the premises, specifically for use in the event of cargo being received in a damaged condition, the value of such an option cannot be too highly stressed.

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