Cargo Insurance | Coverage | Filing a Claim
The purpose of cargo insurance is to protect the cargo owner's financial interests while their cargo is exposed to the risks of transit. Air and ocean carriers provide limited coverage while a shipment is in their possession. The bill of lading states the liability that the carrier assumes. It is critical that the shipper understand that the carrier is not responsible for such perils as "Acts of God." When filing a claim with a carrier, the shipper must prove the cause of loss, that the loss occurred while in the carrier's posession, and that the carrier is directly liable for the loss.
Airline--The airlines are liable up to $9.07 per pound or $20 per kilo on shipments to foreign destinations and $0.50 per pound on domestic shipments. Shippers have the option of declaring a higher value for the shipment and paying higher freight charges based upon this declared value.
Ocean Carrier--Similar to the airlines, ocean carriers provide a limited amout of coverage, $500 per customary shipping unit (CSU), as stated on the back of the bill of lading. The CSU is generally interpreted as the ocean container. This coverage is rarely sufficient in covering the cost of the goods shipped.
Freight Forwarder--Most freight forwarders have open cargo policies under which they will arrange coverage on behalf of their clients. These open cargo policies are called "house policies," which the freight forwarder offers as a value-added service to its clients. House policies cover both air and ocean cargo.
Insurance Company--The second means of obtaining air cargo and ocean marine insurance is through an independent agent or marine insurance broker. The agent or broker often represents insurance companies that specialize in ocean and air cargo insurance.
The insurance agent can offer a range of coverage options. Depending upon the size and scope of the shipper's operation, the marine insurance policy will come in the form of an open cargo policy or a special marine policy.
1. Open Cargo Policy--Open cargo policies are used when the shipper has a continuous flow of goods being shipped over a long period of time. The open cargo policy contains no expiration date and provides automatic coverage when the shipper must insure the goods. The policy is customarily issued on a warehouse-to-warehouse basis which provides the shipper continuous coverage throughout the normal course of transit.
Open cargo policies can also be tailored to meet a shipper's many specific needs, such as returned or refused shipments, warehouse exposures outside the scope of the policy, inland transit, and shipments sold on terms other than under CIF.
Since the policy provides automatic coverage, it usually lists the insured party's name, the cargo covered, the insuring conditions, areas of the world that coverage is granted, and the insurance rates. The shipper is required to submit a monthly report of all shipments that have occurred under the policy and to pay a premium on those shipments at the agreed upon insurance rates. Depending on the shipper's needs, the open cargo policy may offer the broadest possible insurance terms for the lowest price.
2. Special Marine Policy--The special marine policy is designed to provide coverage on individual shipments. This policy provides the same coverage available under the open cargo policy. However, it does not provide automatic coverage. Once the shipment has been completed and coverage has ceased, this policy automatically terminates.
There are three common types of cargo coverage: named perils, broad named perils, and all risks. Named perils coverage is written with clauses that specify what portion of the covered loss will be paid in the case of damage. These clauses are Free of Particular Average (FPA) and With Particular Average (WA or WPA). (In insurance terminology, "WPA" means "partial loss.") A policy written with a FPA clause does not pay for partial damage sustained by cargo. The WPA clause pays for partial damage to cargo caused by named perils but is subject to a deductible specified in the policy.
A. Named Perils--This coverage includes perils of the sea, fires, jettisons, barratry, explosions, hurricanes, earthquakes, and other risks. Its coverage can include the FPA or WPA clauses.
B. Broad Named Perils--This policy frequently includes a WPA clause and covers a greater number of risks, such as theft, pilferage, non-delivery, hook damage, fuel oil damage, damage by contact with other cargo, breakage, and leakage.
C. All Risks--This is the broadest type of standard policy, covering all physical loss or damage from any external causes. This coverage does not include loss caused by improper packing, abandonment of cargo, rejection of goods by Customs, failure to pay or collect accounts, inherent vice, employee conversion or dishonesty, loss in excess of policy limits, barge shipments, war, strikes, riots, trade losses, or loss of market.
Many of the perils not covered by the All Risks Policy can be written into the policy for an additional cost. In the case of special cargos or circumstances, the agent or broker can work with the underwriter to modify the policy.
Two other clauses always incorporated into a marine policy are "general average" and "salvage charges." The "general average" clause stipulates that if any shipper sustains loss or damage for the general benefit of the vessel, then all parties shipping product on that vessel must contribute proportionately to reimburse the sufferer for the loss.
"Salvage charges" are paid to a third party that renders services in a time of cargo peril. These charges are paid proportionately by all those who benefited from the service.
The value of the cargo is generally determined by the cost of the cargo, insurance, and freight as indicated on the exporter's invoice, with an additional 10 percent.
Contingency Insurance--When product is sold under terms that require the buyer to provide insurance, experienced exporters often choose to purchase contingency insurance. Contingency insurance acts as a backup insurance for the seller in case the insurance provided by the buyer is not sufficient to cover the value of the shipment.
In the case of international shipments, the consignee (the receiver) will most likely be the first to discover any damage to, or loss of, a shipment. The receiver must thoroughly inspect each shipment and note any signs of damage or loss on the delivery receipt. Even if no outward evidence of loss or damage exists, it is important to inspect the entire shipment as soon as possible for any hidden damage. When loss or damage is discovered, the consignee must take all reasonable actions to minimize the loss or damage. Any reasonable expenses in doing so will be reimbursed by the insurer. The shipping container, packing materials, damaged merchandise, and shipping documents should be kept as evidence of the loss and for claim purposes.
If the cargo is damaged or if any damage or loss is suspected, the insured party must immediately file a claim with the carrier to avoid filing deadlines. If the insured fails to take this step, or signs a waiver of carrier responsibility, it may result in the loss of coverage. The letter of claim to the carrier should include the following information:
The consignee or insured must contact the nearest claim agent so that a survey of damage can be arranged. The carrier or carrier's agent should be notified of the time and location of the survey so that he or she can be represented. When filing a claim the assurer may request some or all of the following documents:
Under the "general average" clause in a cargo insurance policy, a shipper can be held partially financially responsible for losses incurred by another shipper if that loss was incurred to benefit the good of the voyage. An example is when cargo is jettisoned to save the ship and remaining cargo. When filing this type of claim, the shipper should contact the claims agent and provide the following documents: