MOAC Ocean Cargo Plain Language Companion

Transcription

1 MOAC Ocean Cargo Plain Language Companion NOTE: This document is for descriptive purposes only. The exact coverage provided is subject to the terms, conditions and exclusions of the policies as issued. 1. ASSURED This clause names the writing company and the named insured. "For the account of whom it may concern" This expression permits the named insured to act as agent in effecting insurance when instructed to do so on behalf of others. 2. ASSIGNMENT Simply stated, the ocean cargo policy is for the assured's use only and may not be assigned or transferred to another party. The assured may not assign to a third party any of the interests in or rights of the insurance unless the Company has given its consent. 3. LOSS PAYEE Losses are payable to the assured. This clause permits the loss to be paid to a third party where the insurance certificate has been endorsed over to the third party with an insurable interest in the cargo. This clause may also be amended to pay losses to any third party with a financial interest, such as banks. 4. ATTACHMENT AND TERMINATION This is the date that it is mutually agreed that coverage will begin to cover all shipments from the moment of initiation of transit and continues in force until cancelled by either party on 30 days written notice. 5. SHIPMENTS INSURED This clause defines that only lawful (legal) shipments of merchandise will be insured under this policy. The policy will generally name the merchandise which the assured customarily ships; however, it is not restricted to these. Both Clause 13 (Average Terms) and the Schedule of Rates, which specify merchandise, limit the policies rates and insuring terms to cover the specified merchandise. This has the effect of reducing coverage on other merchandise to terms specified in the Perils Clause (No.12). In addition to stating what merchandise the policy will cover, this clause also defines what constitutes an insurable interest. For example, under what terms the assured may legally (and must) effect insurance. This clause then provides automatic insurance on lawful goods which are incidental to the business of the assured and where the assured has an insurable interest. 6. VALUATION This clause sets forth the manner in which the assured's shipments will be valued and the basis under which we will pay claims. The valuation most commonly used is: the basic cost of the merchandise (invoice value), plus special charges usually included in the invoice (consular fees, special packing charges, etc.) and the cost of transportation (freight), unless already included in the invoice. To this total, a percentage is generally added to cover unforeseen charges which may arise. This percentage (the "advance") is most commonly 10%, although it may vary. The added percentage for unforeseen charges becomes important and is a financial protection device when the assured is required to post a general average bond (see General Average Clause No. 19), as general average contributions are based on sound landed value of the merchandise. It is important to remember that the valuation clause is used in determining the claim value. This means that the clause should suit the assured's needs whenever possible. Care should be taken to ensure that the assured will be made whole.

2 7. GEOGRAPHICAL LIMITS This defines the geographical scope of the ocean cargo policy. It can give the assured worldwide coverage. We tailor this coverage further on the Schedule of Rates page to define the specific scope of the assured's business, by rates, terms and conditions as applicable to geographical areas. 8. CONVEYANCES This clause protects the underwriter by requiring shipments to be made via mechanically self-propelled vessels, aircraft, mail or parcel post and excludes shipments which may be inherently unsuited for ocean trade. 9. CRAFT In some ports of the world, the physical characteristics of the port make it impossible for direct entry. In these instances, it becomes necessary for the vessel to anchor offshore and be loaded or discharged onto shallow draft vessels, called lighters. This clause extends coverage for this situation. In many ports, lightermen have been successful in requiring releases from liability. Underwriters recognize that such situations are beyond the control of the assured and as such provide coverage. 10. LIMIT OF LIABILITY This clause defines the maximum amount for which the company will be liable aboard any one vessel, aircraft, connecting conveyance, and barge or at any one shore point AT ANY ONE TIME. Under section (a) of the clause, the underwriter will insert the limit the company is willing to grant with respect to cargo shipped under an "ON DECK" bill of lading. This limit is normally substantially less due to the fact that cargo stowed on the deck of a vessel has a greater exposure to the elements than cargo stowed under deck. This amount is usually 10% of the steamer limit. Section (b) is the limit with respect to cargo shipped via aircraft. Section (c) is the limit with respect to cargo shipped via mail or parcel post. Section (d) is the limit with respect to cargo shipped via barge or tow. This section is further restricted by a policy warranty. A company approved surveyor must approve the barge, tug, tow, towing arrangements, weather, loading and stowage prior to the commencement of the voyage unless such barge is operating as a common carrier. The last paragraph refers to the event in which the limit of liability is exceeded. In such an event, the assured is obligated to report the total value and pay the premium. The company in turn agrees to pay claims up to but not exceeding the policy limit. 11. ACCUMULATION Underwriters recognize that through no fault or knowledge of the assured there are situations which will arise resulting in an accumulation of values either at loading or discharge points or during transit. These may result from cancellation of vessel sailing or an accumulation on the dock. In the event of an accumulation, the company agrees to cover up to twice the limit as expressed in the limit of liability Clause No. 10, provided the assured gives prompt notice when they become aware. 12. PERILS Defines the fundamental perils covered by the policy, unless modified under the Average Terms Clause No. 13. This clause sets forth the basic perils to which the policy will respond. The perils covered are: Perils of the seas, meaning losses resulting from the unusual actions or forces of nature at sea. They are stranding, sinking, collision with another vessel, and heavy

3 weather (sea-water) damage, i.e. those dangers which are inherent in sea travel. Fire is specifically included because it is not a peril of the sea but rather on the sea. Jettison is the deliberate casting overboard of a portion of the ship or cargo, usually for the purpose of preserving the vessel or other cargo. For example, the cutting free of a heavy machine loaded on deck which imperils the stability of the vessel in a storm would be a jettison. Assailing thieves is the forceful taking of the cargo or vessel by one who is not a party to the venture. Barratry is serious misconduct on the part of the master or crew that is adverse to the owner's interest, such as a fraudulent or criminal act that causes the loss of or damage to the ship. Barratry does not include loss or damage caused solely by ignorance or even gross negligence. All other like perils, losses and misfortunes, have been construed by courts to include only perils similar in kind or class to the perils specifically listed in the policy. 13. AVERAGE TERMS AND/OR ADDITIONAL PERILS This is where the underwriter must spell out the specific coverages agreed to. Due to the wide diversity in cargo shipped, the cargo policy must be flexible in order to provide coverage requirements either on the part of the assured or underwriter. Throughout the ocean cargo policy the terms "particular average" and "general average" are found. As used in marine insurance, the term "average" means partial loss arising from an insured peril. "General Average" applies to a loss in which all interests aboard (including the vessel) are involved, while "particular average" refers to the loss affecting a particular interest. The common forms of average clauses are: F.P.A.A.C. (Free of Particular Average - American Conditions) "Free of Particular Average unless caused by the vessel being stranded, sunk, burnt, on fire or in collision." These are the most restrictive insuring terms ordinarily encountered in ocean cargo insurance. The loss must be a direct result of one or more of the named casualties. The term "American Conditions " describes the historical origin of the clause, not the geographic area of usage. F.P.A.E.C. (Free of Particular Average - English Conditions) "Free of Particular Average unless the vessel be stranded, sunk, burnt, on fire or in collision with any external substance (ice included) other than water." Again, the "E.C." refers to the market in which the clause originally developed - the two clauses are used in both the English and the American markets. Both F.P.A. clauses modify the perils clause in that one of the "perils of the seas" heavy weather damage - is not covered. The basic difference between the two F.P.A. clauses is that under the E.C. terms, the occurrence of one of the enumerated casualties at any time during the voyage will revert the insurance to the perils clause; i.e. will permit inclusion of heavy weather damage even though the casualty bears no relationship to the damage. For example, a vessel may leave New York and suffer a stranding on the way out of the harbor, be freed to proceed (having suffered no damage) and 10 days later encounter a severe storm. Heavy weather or seawater damage resulting from the storm is covered under E.C. Terms; not so under A.C. Terms, which stipulate that the damage must be a result of the stranding. With Average (W.A. Or W.P.A.) "to pay particular average if amounting to 3% unless the vessel be stranded, sunk, burnt, on fire or in collision with any substance (ice included) other than water, each shipping package separately insured." This, a common form of the "W.A." clause, states that partial losses resulting from perils of the seas and from fire will be recovered if they amount to 3% (another percentage figure, or the words "irrespective of

4 percentage" may be substituted) or more on each shipping package. In the event of a named casualty, the percentage, or "franchise" is waived. Under the franchise of 3% rule, if the loss equals or exceeds the percentage figure, the loss is payable in full; if under the figure, no loss is payable. The purpose of a franchise is to eliminate a plethora of small claims, the handling of which would entail great expense. Distinction must be made between a franchise and a deductible; under the latter, a specified amount is deducted from each claim and if the claim exceeds the deductible, the company pays only the excess over that deductible. Also, deductibles are more often applied to eliminate "trade losses" i.e., those losses which experience has shown to be normal (thus, not fortuitous) in a particular trade. To the basic F.P.A. or W.A. coverages may be added such perils as theft, pilferage, non-delivery, sweat and/or steam of hold, contact with other cargo or fuel oil, fresh-water damage; in short, almost any and all perils (depending on underwriting factors and premium the assured wants to pay) up to the broadest terms available, the "All Risks" conditions These conditions do not include losses as a result of delay, loss of market or profit. The word external excludes losses resulting from the inherent properties of the merchandise. The risks of war, strikes, riots and civil commotions are also excluded; these may be covered by endorsement S.R.& C.C. (Strikes, Riots and Civil Commotion) and under a companion War Risks policy. 14. LANDING WAREHOUSING Under this clause, the company is liable for all landing, warehousing, forwarding and special charges incurred in saving or preserving the goods insured which would be recoverable under a policy covering particular average, even though the insuring terms be otherwise F.P.A. The company further agrees to pay the insured value of any package which may be totally lost in loading, transshipment or discharge. The package must be "totally lost," in other words, partial loss of contents or damage to any package in loading, transshipment or discharge is not covered under this clause. 15. SHORE This clause spells out land transit coverages where the voyage is covered against the basic perils. Covered is the loss or damage caused by or resulting from the perils listed while the goods are in transit on land or awaiting transit, even though more limited terms may be provided elsewhere in the policy. 16. EXPLOSION The policy is extended to cover explosions of any kind. However the specific exclusions of the F.C.& S. (Free of Capture and Seizure) and S.R.& C.C. warranties are reiterated. 17. F.P.A. Discussed in detail in "insuring terms" the insertion of this clause makes it a warranty of the policy limiting the coverage on shipments of merchandise which is lawful but was not contemplated in the original consideration of the risk by the underwriter. 18. INCHMAREE This clause extends the policy to cover physical loss or damage to the merchandise insured resulting from busting of boilers, breakage of shafts, latent defects in the machinery, hull or appurtenances, or from faults or errors in the navigation or management of the vessel by the master, mariners, mates, engineers or pilots. 19. GENERAL AVERAGE General Average may be defined as an extraordinary sacrifice or expenditure of or on

5 the part of the ship and/or cargo made for the purpose of preserving or saving the venture as a whole. The sacrifice or expenditure must be intentional, it must be reasonable (under the circumstances), and the effort must be successful, (i.e. the venture must be saved in order to be allowable in general average). The sacrifice, which is made for the general benefit of all interests, must be shared in the same proportion by all interests involved. Each interest must bear the same proportion as their interest bears to the overall worth of the venture. The basis for general average adjustment is customarily established in the contract of affreightment, which usually states that adjustment will be made according to the rules of a certain port or, if that port or country lacks jurisdiction, according to the "York-Antwerp Rules." It is important to remember that the policy undertakes to guarantee the payment of general average and salvage contributions. Otherwise the cargo owners would have to post a cash bond in order to have their goods released. Without this guarantee or bond, the goods would be held in trust by the average adjuster until the completion of the adjustment. It is not uncommon for an adjustment to take several years to complete. Also, the cargo policy stipulates that if the insured value is less than the "contributory value" the company will pay only that portion as the former bears to the latter. 20. MACHINERY The purpose of this clause is to make clear the fact that the company will not pay a total loss merely because breakage of a part renders the machine inoperable. The assured has the option of repairing or replacing the damaged part and the company will pay the cost of such repairing or replacing up to, but not exceeding, the insured value of the complete machine. Underwriters must be especially careful when insuring used machinery as this clause does not offer adequate protection in the event of partial loss. The underwriter may wish to utilize a used machinery endorsement which will further limit the company's liability in the event of a partial loss. 21. LABELS This clause limits the underwriter's liability with respect to loss or damage to the labels, capsules or wrapping. Underwriters will only be liable for new labels, capsules or wrappers, but for not more than the value of the merchandise. 22. BRANDS This clause addresses situations in which goods bearing a brand, trademark, or label are partially damaged and must be sold for salvage. In such cases, the brands, trade marks, or labels on the property are customarily removed so that the assured's or supplier's name will not be impaired by being associated with damaged merchandise. The insurer will bear the cost of removing the brands, trademarks, or labels and the salvage value of such damaged property shall be determined after they have been removed. 23. LOADING OF GRAIN This clause insures that grain loaded in the U.S. is loaded in compliance with U.S. Coast Guard recommendations and that a certificate is issued to that effect. All this must be done under the supervision of a qualified surveyor. 24. DUTY Merchandise entering this country from abroad may be subject to payment of duty. While duty is not required to be paid on goods lost at sea or damaged so as to be unrecognizable or unusable, the majority of shipments, even if damaged, must post the full duty amount in order to be released. Refunding is made by the government at

6 a later date on the damaged portion. Due to the normally lengthy delay in obtaining these refunds, the company, therefore, undertakes to reimburse the assured and collect on their behalf. Generally, a percentage of the marine rate is charged (1/3). The assured should report this amount separately on the reporting form. 25. WAREHOUSE TO WAREHOUSE This clause defines the period during which insurance provided by the policy will cover. The clause provides that merchandise is covered from the time the merchandise leaves the warehouse at the point where transit is initiated, continues while in transit to the point of discharge from the overseas vessel and during overland transit until delivered to the final destination. The coverage after discharge from the vessel is limited to fifteen (15) days after discharge if the final destination is inside the limits of the port, or up to thirty (30) days if outside the limits of the port. Coverage ceases upon delivery to the final destination or upon expiry of the appropriate time limit, whichever occurs first. The assured would be unable to use the time limits referred to above for storage because any unreasonable delay or voluntary interruption in transit voids the coverage. It must be remembered that the actual attachment and termination of the shipment are still dependent upon the terms of sale. 26. MARINE EXTENSION CLAUSES This clause is a modification of the warehouse to warehouse clause. It broadens the coverage provided by holding covered the assured without requirement of notice if transit is interrupted, delayed or deviated, or other variations of the originally contemplated risk, and in the event the voyage is terminated other than at the intended destination. However, any or all of these contingencies must be beyond the control of the assured and must be reported to this company immediately upon acquiring knowledge of any such event. 27. SOUTH AMERICAN CLAUSE This clause overrides the warehouse to warehouse and the marine extension clauses after the goods have been discharged in a South American port. Coverage remains in force for a period of sixty (60) days or ninety (90) days if the goods travel via the Magdelena River from the date of discharge, or delivered to final destination whichever occurs first. 28. DEVIATION If the assured, through no fault of their own, incorrectly declares a shipment, or if there is an interruption in transit beyond the control of the assured, coverage continues provided the assured notifies underwriters as soon as they are aware and pays any additional premium, if required. 29. PARAMOUNT WARRANTIES The preamble to the F.C.& S. and the S.R.& C.C. warranties is intended to make certain that any relaxation of these excluded risks must be explicit. That means that these warranties cannot be overridden by inference by any other wording contained elsewhere in the policy. F.C.& S. Warranty (Free of Capture and Seizure) This is intended to exclude from the marine policy liability for any loss, damage or expense resulting from any risks of war, whether declared or not. It also specifically excludes all loss or damage caused by any weapon of war, in time of war or of peace, which employs atomic fission or fusion or a radioactive force. The risks of war may be covered under a separate "war risk only" policy. S.R.& C.C. Warranty (Strikes, Riots and Civil Commotions) This clause similarly excludes loss or damage arising from strikes, riots, civil commotions and the like. These exclusions may be modified by the S.R.& C.C. Endorsement.

7 Nuclear Exclusion This exclusion is designed to protect underwriters where cargo policies have been extended to cover ashore, while not in due course of transit. The rationale here is that underwriters may have large concentrations at risk under numerous open policies, and because of delay in reporting, may be unaware of their overall liability in a given area. The normal protection of spread of risk would be unavailable because of the very wide spread area of destruction which would be inevitable, for example, in the case of a nuclear reactor exploding. Thus, this risk is assumed to be uninsurable by the private insurance sector under the standard open policy. However, if the policy insures against the peril of fire, then direct physical damage to property insured by fire is covered if directly caused by the perils described. The nuclear reaction, radiation or radioactive contamination, whether caused directly or indirectly by any of the perils of the F.C.& S. warranty will not be covered. Delay warranty This clause affirms that underwriters do not intend to cover for loss of market or for loss, damage or deterioration arising from delay. (Note that the "delay" provision in the marine extension clauses applies to the continuation of insurance coverage and has no bearing upon perils insured against). 30. CONSTRUCTIVE TOTAL LOSS This provision states that there will be no recovery for a constructive total loss unless the insured property is reasonably abandoned because an actual total loss appears to be unavoidable or because the property cannot be preserved from actual total loss without spending more than the value of the property to recover and repair it. Once a constructive total loss is established using these criteria, the measure of indemnity is the same as that for an actual total loss; the full insured value as determined by the valuation clause. 31. CONTAINER DEMURRAGE CHARGES This clause extends coverage to demurrage charges and/or late penalties assessed against the assured for late return of containers. There is a stipulation that the containers must be retained at the written instruction of the company. This clause does not extend coverage if the charges are a result of strike, lockout, stoppages or restraint of labor for master, officers and crew of the vessel or tugboat or pilots. The company is liable for charges beginning at the time the company instructs the assured to retain containers until the company instructs the assured to return containers. 32. DELIBERATE DAMAGE/POLLUTION HAZARD When a vessel is leaking oil or other pollutants, or such leakage is imminent, governmental authorities may take measures to protect the public welfare, such as towing the vessel to sea and sinking her. Although this type of measure is seldom taken, this clause states that loss resulting from such measures taken by a governmental authority will be covered, if the accident giving rise to the government authority's action would otherwise be covered by the policy. This peril is covered only while the property is waterborne. 33. DEBRIS REMOVAL This extension provides an additional amount of insurance ($25,000) to pay for the removal of debris of covered property that has resulted from an insured loss. Excluded under this coverage are any expenses incurred in consequence of, or to prevent or mitigate pollution or contamination. It further excludes the cost of removal of cargo from a vessel except when the cargo would be recoverable under the absence of this clause.

8 34. FUMIGATION In certain trades, governmental policy requires that vessels be fumigated prior to discharge of the goods, thus preventing infesting vermin or insects from entering the country. Loss or damage to the cargo arising from such fumigation process is covered under this clause. 35. BILL OF LADING Since it would be impractical for the assured to determine if a vessel is seaworthy, we agree to consider all vessels seaworthy as far as our assured is concerned and further agree not to deny liability for loss or damage to goods caused by the willful misconduct of the vessel owner or those carrying out their acts so long as the loss would have been covered by the policy and provided the assured had no prior knowledge. Bills of lading and charter parties usually contain provisions that stipulate that the owners or charterers are not liable for loss or damage resulting from negligence of the master or mariners/crew, nor from latent defect in the vessel hull or machinery. This clause simply states that the underwriter not consider acceptance of such provisions as prejudicing the assured's rights under the policy. 36. FRAUDULENT BILLS OF LADING This clause covers physical loss or damage to goods insured under the policy in the event that a fraudulent bill of lading has been accepted. This coverage extends to the assured, their agents, and shippers who unknowingly accept fraudulent bills of lading. 37. BOTH TO BLAME A "both to blame" clause is found in the bill of lading and states that in the event of a collision between two vessels where both are at fault, the cargo owners will reimburse the carrier for any liability they incur to cargo owners on the other vessel. This clause as it appears in the bill of lading has been ruled illegal by the supreme court in that a common carrier cannot contract liability for their own negligence. 38. CARRIER OR BAILEE Some bills of lading have a clause that states that if a shipper takes out insurance, it will be for the carrier s benefit as well as the shipper. This has been ruled invalid because it takes away the shippe s rights of recovery against the carrier. This clause states that the insurance shall not benefit the carrier and gives underwriters the same rights against the carrier as the shipper would have if the company were called upon to pay a loss under the policy. 39.VESSEL CLASSIFICATION CLAUSE The vessel on which insured cargo is shipped should not be over 20 years old, nor smaller than 1000 net registered tons. In addition, the vessels should be classed A1 with the American Bureau of Shipping or equivalent member of the International Association of Classification Societies. Some vessels over 20 years old are approved by the company. Vessels built for service on the Great Lakes, or solely for military service, or for the carriage of dry bulk or liquid cargoes that are older than 15 years, are also excluded. An additional premium may be charged if cargo is shipped on excluded vessels. 40. NOTICE OF LOSS This clause insures that assureds will promptly notify underwriters when they have become aware of a loss. Further, it requires that the assured submit documentation to this effect along with proof of loss. This allows the company to take any steps which may minimize the loss as well as to serve notice on liable parties. 41. PAYMENT OF LOSS Loss, if any, shall be paid in 30 days after "proof of loss," "proof of interest" and

9 "adjustment thereof." This clause does not mean, contrary to the belief of many assureds, that losses will be paid 30 days after a claim is reported. An ocean cargo proof of loss is usually a certificate of survey and proof of interest is usually a properly endorsed certificate of insurance; it is the "adjustment thereof" which usually delays claims payments. 42. PARTIAL LOSS This clause sets forth the rules for determining the amount of partial loss. If the assured's merchandise is only partially damaged, they should only be reimbursed for the damaged portion. 43. CONTRIBUTORY VALUE This provision, previously discussed under "general average," attempts to make certain that premium is collected on the full extent of the values at risk. Further it describes to what extent underwriters will respond in the event of a general average or salvage charge. 44. SUBROGATION AND IMPAIRMENT OF RECOVERY This clause makes two points: (1) the assured may not assign to a third party any of the interests in or the rights of the insurance company without their expressed and written consent, and (2) the insured must not impair or prejudice the company's right of recovery from a carrier or a bailee either by agreement, by performing any act which would prejudice those rights or by failing to act in a reasonable manner so as to safeguard those rights. This provision is important as assureds are constantly being asked to sign waivers, releases and other documents which attempt to relieve third parties from their liabilities. This stipulation makes it clear that should such waivers be agreed to, underwriters may refuse legitimately to respond to a claim. Assureds should always be cautioned against accepting such waivers or releases without first consulting with their underwriters. 45. SUE AND LABOR This clause means that the existence of insurance does not relieve the assured from acting prudently at all times and in effect, as though there were no insurance. Underwriters agree to pay expenses incurred by the assured so long as the cause of loss would be covered under the policy. It is possible to pay sue & labor charges up to the policy limit. This clause requires the assured, in the event of a loss, to act prudently and minimize damage by taking steps to save and preserve the property from further loss or damage. The clause provides that charges or expenses reasonably incurred in preserving the property are recoverable from underwriters so long as the cause of loss would be covered under the policy. 46. COMPANY'S OPTION TO ADVANCE LOSS In cases of loss where third party liability for proper care and custody of the goods may be involved, such liability may take considerable time to determine. In many cases, litigation is involved and final determination will be decided by the courts. Technically, the company would only be required to pay the amount of loss not recoverable from the third party. However, in order to put the assured in funds, the company agrees to advance to the assured, the full amount of the loss recoverable under the policy as a loan without interest and the assured in turn agrees to reimburse the company with the amount recovered from the carrier or bailee up to but not exceeding the amount of the loan. 47. TIME FOR SUIT This clause stipulates that suit or legal action must be brought in a specified period of time in order to protect underwriters from having to adjust claims without the proper opportunity to investigate the circumstances surrounding the claim.

10 48. OTHER INSURANCE When damage to cargo has occurred, it is sometimes revealed that the same cargo was subject to more than one insurance coverage; this may be deliberate, but more often arises because of a confusion between seller and buyer as to who has the responsibility for placing insurance. This clause spells out in detail how such situations will be treated by this company, thus negating drawn-out arguments as to whom shall respond to the loss. 49. DECLARATIONS This clause specifies at the same time that: (1) the assured is required to declare for premium purposes every shipment which falls within the scope of the policy, and (2) the company is required to accept for coverage every such shipment. However, if failure to declare, or error in such declaration occurs is inadvertent, coverage under the policy will not be prejudiced provided that such omission or error is reported when discovered. Note that a willful failure to declare can void the policy. However, as a practical matter, many assureds fail to declare certain shipments simply because the broker or agent did not clearly explain to them their responsibilities. Thus, the underwriter should always make certain that the broker or agent understands fully what is expected of the assured. The remainder of the clause deals with the underwriter's right to proper premium and the right to make investigation to insure that they are getting the appropriate premium. An important point is that this investigative right extends for one year after the policy is cancelled. This means that if the underwriter feels that they are entitled to additional premium above what has already been received, they may audit the assured's records. 50. CERTIFICATES Certificates and special policies are in most instances valid only when they have been countersigned by an authorized representative of the company. Since many assureds prepare their own certificates on a daily basis, it would be impractical for a company representative to sign each one. Therefore, this clause appoints the assured as the company's agent for this purpose only by authorizing the assured to sign. 51. BROKERS This clause is important in those states where brokers are permitted to place insurance directly with insurance carriers. The clause affirms that in all dealings with the company the broker is not the agent of the company but of the assured. However, the broker is deemed to be the fiduciary agent of the company as respects premium collections. 52. CANCELLATION The ocean cargo policy is an "open" or "until cancelled" policy. This clause explains the terms under which the contract may be terminated. The thirty (30) day notice affords the broker or agent sufficient time to notify the assured and negotiate replacement. THE FOLLOWING OPTIONAL COVERAGES ARE AVAILABLE FOR YOUR OPEN CARGO POLICY: DIFFERENCE IN CONDITIONS An open cargo policy provides automatic coverage on shipments which the assured is obligated to insure and specifically excludes coverage on those shipments which the assured is not obligated to insure, such as those purchased C.I.F. (Cost, Insurance, Freight). However, the party responsible for insuring such shipments could be

11 purchasing insurance with more limited conditions than the assured would have under his own open cargo policy. This clause gives the assured coverage for the difference in conditions between the coverage provided by the seller's insurance and the conditions for which the merchandise would otherwise have been insured under this policy. CONSOLIDATION/DECONSOLIDATION This clause provides coverage on merchandise while on the premises of freight forwarders, export packers, consolidators, truckers, warehousemen, or others for the purpose of storage incidental to transit, packing or repacking, consolidation, deconsolidation, containerization, decontainerization, distribution or otherwise. This clause restricts coverage to a period not exceeding fifteen days after arrival at such premises. The clause is extended to cover goods in transit to final destination as provided in the warehouse to warehouse and marine extension clauses. CONCEALED DAMAGE This clause is extended to cover damage found upon opening of original shipping packages that externally appear sound so long as the time period of 30 days after the delivery to final destination has not expired. It further states that if packages are received in a visibly damaged condition they shall be opened immediately. CONTROL OF DAMAGED GOODS This clause is self-explanatory in that the assured retains control of all damaged goods in the event of loss or damage. If it is practical for the goods to be reconditioned and sold the assured will proceed after the removal of all brands and trademarks. RETURNED OR REFUSED SHIPMENTS This clause automatically covers returned or refused shipments. A shipment may need to be returned prior to or after delivery by the ocean carrier. Reshipment may be necessary when the buyer has rejected the shipment or has gone out of business, when the wrong product has been shipped, or in a variety of other situations. This clause does stipulate that such shipments remain in original export packing so there is some guarantee of the condition of the goods.