Basics of cargo insurance, why one should insure, the types of insurance and how to make a claim properly when cargo is ...
Second Review Business Analysts
Sept 14 2009
CARGO INSURANCE MATTERS Excerpts from Freight Matters Canada
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INSURANCE Index
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Introduction Errors & Omissions Limited Liability All Risks & War F.P.A. General Average Obtain Cargo Policy
Sept 14 2009
Terms
Claims
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Second Review Business Analysts
INSURANCE Introduction
The risk of transporting cargo regardless of the mode, is the owner’s risk and not the carrier’s. This principle is thousands of years old and holds true today.
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INSURANCE Introduction -2
Carriers do carry insurance however this is very limited and not intended to transfer all risks to themselves. It is expected that importers and exporters undertake sufficient cargo insurance to cover damage, loss, war, acts of god and general averages although this is not mandatory.
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INSURANCE Introduction -3
Cargoes that have an inherent vice are normally uninsurable or subject to very high premiums, deductibles and restrictions as insurance companies do not insure risks that are likely to occur. The owner of the cargo must take all actions to reduce or minimize any loss or damage, whether by utilizing special containers, bracing, correct packing, or choice of route.
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INSURANCE Limited Liability
• Limited Liability is a limit placed on any liability
incurred by a carrier, NVOCC and freight forwarder. – The limits are explained in print in the carrier’s conditions of carriage or standard trading conditions issued by the forwarder. – The majority of forwarders adopt the CIFFA (Canadian Freight Forwarding Association ) trading conditions whose limit is two SDR per Kg. (See Glossary General) – Airlines normally offer $20 per Kg. – Steamship lines normally offer $500 per Customary Shipping Unit e.g. container
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Second Review Business Analysts
INSURANCE Errors & Omissions
• Errors & Omissions or otherwise known as
Professional Liability Insurance is carried by most freight forwarders and protects them and ultimately the client from risks of The expenses to reduce the damage The expenses to complete the shipment The penalties The survey expenses Physical or financial damage or loss of the third party caused by the freight forwarder – The damage or loss of the customers caused by the failure of the freight forwarder – – – – –
A small flat fee is normally charged by the forwarder Sept 14 2009
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Second Review Business Analysts
INSURANCE All Risks & War Open Cargo Policy
• All Risks Open Cargo Policy is the broadest form of coverage available, protecting against all risk of physical loss or damage from any external cause.
• Loss or damage due to delay, inherent vice, pre-
shipment condition, inadequate packaging, or loss of market is not covered but the following is included: General Average, War Risks , Civil Riot Clauses, Partial or Total Loss, Warehouse to Warehouse coverage, salvage and survey expenses.
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Second Review Business Analysts
INSURANCE Where to obtain Open Cargo Policy
• Importers/Exporters could obtain an open cargo policy direct from an insurance provider and would handle monthly reporting themselves. Certificates would not be required in most cases. as this is designed for continuous cargo movements.
• Alternatively they could purchase All Risks insurance from the freight forwarder’s own open policy where they would handle administration and reporting. Premiums and Minimum charges would be higher in this case.
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INSURANCE General Average -1
Business Analysts
An Ancient principle of equity in which all parties in a sea adventure (ship, cargo, and freight) proportionately share losses. The 3 required elements are : 1.
A peril to the common venture – For example: A storm at sea, which threatens the vessel itself, cargo carried on board (some of which may be yours) as well as the lives of the passengers and crew. Together these constitute the “common venture “.
2.
An extraordinary sacrifice or expenditure to avert the peril – This could involve jettisoning cargo to lighten the vessel, or engagement of a salvage tug to tow the damaged vessel, etc….
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Second Review Business Analysts
INSURANCE General Average -2
3. The successful preservation of the venture – If the vessel is not preserved, you may be presented with a conventional marine claim and not a General Average.
• When the vessel owner declares a general average, the vessel owner and all of the cargo interests will share the expenses associated with the general average on a pro-rata basis. These expenses are covered under the Open Cargo Policy
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Second Review Business Analysts
INSURANCE F.P.A. Free of Particular Average
• Marine insurance provision which limits the liability of an insurance company to only those losses that exceed a specified percentage of the value of the goods.
• It is similar to the deductible clause included in other
types of insurance, but is not applicable where a cover for total loss is in force. FPA conditions are applied where the goods are extremely susceptible to damage, or are rendered almost worthless from exposure to water or heat.
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Second Review Business Analysts
INSURANCE Claims (1)
• Always inspect cargo on arrival and ensure apparent or suspected damage is noted on your delivery receipt. This is a vital component of your claim.
• In the case of water damage, if cargo arrives in a container, inspect the container, door and roof.
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Second Review Business Analysts
INSURANCE Claims (2)
• Hold all carriers, forwarders and delivery companies
responsible immediately. Be sure to indicate file numbers, airway bill and house bill of lading numbers so that the transaction can be identified easily and provide initial estimate of damage. Notify all parties by email or fax.
• Take pictures - it’s worth a thousand words. • Ensure quick, preventative action is taken to prevent further loss, e.g. Leaking barrel,
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Second Review Business Analysts
INSURANCE Claims (3)
• Contact the Surveyor – they may or may not determine whether the goods are to be inspected. The insurance company will provide a list of local surveyors /agents.
• Complete the claim form. This will be
provided to you by your insurance provider.
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INSURANCE Claims (4)
Business Analysts
• Provide the shipment documentation. *Bill of Lading / Air Waybill * Commercial Invoice * Insurance Certificate * Copy of notice of claim lodged against carrier * Documentation relating to out-turn / receipt of goods * Local Carriers Waybill, where applicable * Copy of temperature records, where available * Invoices to confirm salvage / sale price, where applicable * Copy of instructions to carrier regarding carriage temperature, where applicable
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INSURANCE Terms (1)
Business Analysts
Act of God A natural event, not preventable by any human agency, such as flood, storms, or lightning. Force of nature that a carrier has no control over, and therefore cannot be held accountable for Approved Merchandise Goods that are not particularly susceptible to loss or either by reason of their nature or because they are well packed. This term embraces practically all manufactured articles or new merchandise. Certificate of Insurance (Policy of Insurance) Document issued on behalf of the Underwriter stating the terms and conditions of the marine insurance. Issued when evidence of insurance is required, as by the bank issuing the Letter of Credit (especially on export shipment.) Concealed Damage Damage to the contents of a package which is externally in good condition. Sept 14 2009
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INSURANCE Terms (2)
Business Analysts
Fire Statute 1851 U.S. Statute that provides no ship owner can be held liable for any loss or damage to merchandise on board his vessel by reason of fire on board unless this fire has been caused by the design or neglect of the ship owner F.O.B/F.A.S. Endorsement If a merchant sells on F.O.B., F.A.S., C&F, or similar terms, it is the buyer's responsibility to place the marine insurance. However, if the buyer purchases marine insurance that does not have a "Warehouse-to-Warehouse" Clause, or Marine Extension clauses, the coverage may not attach until the cargo is placed aboard the vessel. If the merchant has an Open Cargo Policy, an F.O.B./F.A.S. Endorsement provides automatic coverage on such shipments until such time as the buyer's policy attaches. A type of Contingency coverage. Sept 14 2009
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INSURANCE Terms (3)
Business Analysts
Inherent Vice A loss caused by the inherent nature of the thing insured . Insured Value Value of the merchandise, freight, haulage, packing, documentation, insurance, Loss of Market A situation in which, sound cargo is no longer wanted by the consignee when it arrives. This is a "business loss" not recoverable under a Marine Cargo Policy; e.g. Christmas trees arriving in January undamaged. Named Perils Policy Any marine policy limiting coverage to perils specifically listed in the policy; Salvage 1) The service rendered by a third party for assistance in saving cargo from peril. 2) The monetary award granted for such service. 3) That which is saved. Sept 14 2009
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INSURANCE Terms (4)
Business Analysts
Subrogation The operation by which the insurance company (on payment of a claim) assumes all of the assured's rights to recovery from any third parties; substitution of one creditor for another. War Risks Those risks related to two (or more) belligerents engaging in hostilities, whether or not there has been a formal declaration of war. Such risks are excluded by the F.C. & S. (Free of Capture and Seizure) Warranty, but may be covered by a separate War Risk Policy, at an additional premium Total Loss Actual Total Loss: Total loss of property insured due to : 1. Total Destruction: Physical destruction of the property, 2. Loss of Specie: Property is so badly damaged that it ceases to be recognizable e.g. bags of cement wetted by sea water and hardening. 3. Irretrievable Deprivement: The owner of the property has been deprived of the use of the property, even through it may be undamaged, as when a shipment of silver ingots is lost overboard. Sept 14 2009
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Second Review Business Analysts
CARGO INSURANCE MATTERS Contact us at :
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