Marine Cargo Insurance Guide

Size: px

Start display at page:

Download "Marine Cargo Insurance Guide"

Deborah Carr
5 years ago
Views:

1 Marine Cargo Insurance Guide What Is Marine Cargo Insurance? Marine cargo insurance covers losses, arising from physical damage to goods, while being transported around the world, whether by road, rail, sea or air and even in storage. This coverage is especially important when you are importing or exporting goods overseas as your goods can be handled by various companies over many continents. Cargo cover will also cover your UK based, Goods-In-Transit for the collection and delivery of your own goods. Why Do I Need Marine Cargo Insurance? If your company delivers, imports or exports goods or uses third-party companies to move your goods, then a Marine Cargo Insurance policy offers you specialist protection against the loss or damage to your goods. Importing and Exporting goods can carry unseen risks such as general average losses (see below) which may not be covered by your shipper s insurance policy and this can cause significant financial losses to the owner of the goods. A cargo policy puts you in financial control of the loss and insurers will pay you directly and decide who was liable in their time, not yours. But the Hauliers insure my cargo, don t they? Hauliers only insure their liability for loss or damage. In the event that cargo is damaged while the haulier is transporting it and assuming the haulier is negligent (therefore, liable), the compensation they pay is controlled by their contract conditions, such as RHA Conditions of Carriage So, even if two tonnes of cargo is worth 20,000, they will only be liable to pay 2,600 under standard RHA conditions, leaving you 17,400 out of pocket. Cargo insurance prevents such shortfalls. This level of compensation often falls short of the full valuation of your goods especially if the goods they are carrying for you are high in value but low in weight. Also, opting to pursue overseas hauliers can be very difficult. Furthermore, carrier s liability insurance may not cover you for common causes of loss, such as General Average, theft or where liability cannot be proved to be negligent. What Does General Average Mean? The law of general average is a legal principle of maritime law according to which all parties in a sea venture proportionally share any losses resulting from a voluntary sacrifice of part of the ship s cargo to save the whole in an emergency for instance, when the crew throws some cargo overboard to lighten the ship. A general average bond refers to a promise to pay a contribution if required. In maritime law, it refers to a cargo owner s bond exacted by a carrier to ensure that the owner will pay the amount owed under a general average contribution. The real-life scenario is that your goods will not be able to move on until a bond is supplied, or the payment made. As general average calculations do not reflect the value of the goods being shipped it can exceed the value of the cargo. Can I Cover Stock in My Warehouse? Yes, this can be included under a marine storage risk and includes loss or damage for goods in warehousing or storage locations in the ordinary course of transit including your facilities. Stock Throughput Insurance is a cost-effective way to cover static stock where one or more storage locations are being used, and there is no processing or manufacture of goods. Some policies will exclude goods held in retail stores but, we have availability to cover stock in these instances which can be very useful for multilocation risks. Can I Cover Tools or Samples, Postal Sending s or Goods at Exhibitions? While every marine policy has its own rules, we can arrange for Tools, Samples, Postal Sending s or Goods at Exhibitions to be insured. Please advise if you require cover for these risks. Can I Cover all Types of Goods Under a Marine Cargo Policy? Yes, if the goods are advised to insurers and accepted, but with all policies, there are some exceptions and below are some goods that need to have special consideration before the cover is agreed.

2 Special Consideration or Excluded Goods can include the following: Arms, munitions, explosives and fireworks, charity goods, humanitarian aid, furs and fur garments, household goods and personal effects, computer chips, motherboards and memory chips in isolation, sim cards, mobile communication equipment, computer tablets, money, coins, bullion, securities, stamps, tickets, documents, antiques, works of art, statues, bloodstock, livestock, living creatures, fresh fruit, vegetables and flowers, patterns and designs, cement, motor vehicles of whatsoever nature, watercraft, aircraft, aero engines, cigarettes, cigars and tobacco, jewellery, watches, precious and semi-precious metals and stones or timber stored on the cargo deck. Can I Cover Goods Anywhere in the World? Cargo cover is available to most ports or places in the World. You should, however, bear in mind that terms and conditions can alter dependent on higher than normal risks of war or terrorism, i.e. Iraq and Afghanistan. It is also possible that cover might not be available where trade is subject to International Sanctions by the United Nations, European Union or The United States of America, i.e. North Korea, Syria and Iran. Insurers may not be able to provide cover for the inland transit leg to or from the port in countries where the road networks are poor, or where there is a perceived/known increase in theft risk, i.e. to or from certain landlocked African or South American countries. Additionally, some countries have laws and local legislation that require buyers to insure their imports with local insurers or state insurance companies, i.e. UAE (Dubai), Nigeria and Brazil. There are many more countries and companies which are not listed here in our example which may have sanctions or local legislation. Should you be in any doubt about those countries or companies you are shipping to or from please provide us with the full details. We can check these with our Insurers on your behalf to ensure that we can provide cover to the fullest extent for you. Who Is Responsible for Cover? When cargo is moved from one place to another, numerous parties can be involved, each with their own responsibilities. The contractual agreement between buyer and seller, known as the Terms of Sale, determines who is responsible for what during the transaction. These internationally recognised terms are called Incoterms. Incoterms (International Chamber of Commerce Terms of Sale) have been established to help reduce disputes and uncertainty in foreign trade. It s worth noting that only two of the 11 Incoterms (CIF and CIP) place a contractual obligation on one party to purchase insurance and even then, only a minimum level of cover is required. However, given the potential implications, if the cargo is lost or damaged on-route, it is prudent to purchase insurance wherever a party bears responsibility for the risk. A Guide to Incoterms Terms of Sale A merchant's requirements for marine insurance are determined by the terms of sale he/she negotiates with the party to whom he/she is selling or buying from. In turn, those terms govern the respective responsibilities in respect of: Who should pay the costs of carriage of the goods Who should arrange customs clearance for export or import Who should pay the costs of loading and discharging How should the risk of loss of or damage to the goods be divided between them Who should arrange Cargo insurance as a protection against these risks Incoterms are a set of international rules and standard trade definitions that are accepted by governments, legal authorities and practitioners worldwide. They help to either reduce or remove uncertainties arising from differing practices and procedures in different countries, by specifying the rights and obligations of the parties to the contract of sale with respect to the transport and delivery of goods sold.

3 The 'Guide to Incoterms' groups the sale terms into four categories Group E EXW Ex Works Group F FCA Free Carrier FAS FOB Free Alongside Ship Free on Board Group C CFR (formerly C&F) Cost and Freight CIF CPT CIP Cost, Insurance & Freight Carriage Paid to Carriage and Insurance Paid to Group D DAF Delivered at Frontier DES DEQ DDU DDP Delivered ex-ship Delivered ex-quay Delivered Duty Unpaid Delivered Duty Paid Group E It will be seen that there is only one E term, namely EXW or Ex Works. This represents the seller s minimum obligation in that he fulfils his contract merely by making the goods available to the buyer at his (the sellers) works or warehouse. The buyer therefore accepts the goods at that point and assumes all onwards responsibility. The seller needs no Cargo insurance. The buyer needs to insure the goods for the whole transit through to final destination. Group F Under the F terms, the seller has the responsibility to deliver the goods either on board the vessel (FOB) or to some other named point (sometimes his own premises) where they are handed to a carrier for the main part of the transit (FCA), free of risk and expense to the buyer. He is also obliged to obtain the bill of lading or consignment note evidencing receipt by the carrier and pass this to the buyer along with the other documents required under the contract. The buyer, having accepted the documents, assumes risk and expense from the named point (or ships rail) onwards. The seller needs to insure the goods from his premises until loaded on board the vessel (FOB) or delivered to the carrier at the named point (FCA). (He may also need Sellers Contingency Cover). The buyer needs to insure the goods from the time of loading on vessel or delivery to carrier at the named point through to final destination Group C The 'C' terms are similar to the 'F' terms except that the seller must bear certain costs relating to the transit after the point where the buyer assumes risk, (i.e. loading on board vessel or delivery to carrier at named point). These extra costs include the freight or carriage charges paid to the carrier to transport the goods to a named destination.

4 Under CIF and CIP terms these extra costs include the Cargo insurance premium to insure the goods to final destination. The policy or certificate is passed to the buyer along with the other documents of title and, being assigned to him, enables the buyer to claim under this insurance for loss or damage occurring after the point when the goods become at his risk. Under CIF or CIP terms therefore, The seller needs to arrange insurance from his premises through to final destination. The buyer needs no primary cover but may buy Buyers Contingency Cover, or, if he is trading in a raw material or commodity, may need Increased Value Cover. Unless otherwise agreed, the insurance arranged by the seller should cover 110% of CIF or CIP invoice price and be on conditions current in the trade. A buyer claiming under a policy arranged by the seller will normally deal with the Insurers local claim settling agent as nominated on the policy or certificate. Under the other C terms, (CFR and CPT), insurance needs are the same as for F terms. Group D The D terms place further responsibility on the seller as he has not fulfilled his obligations until the goods are actually delivered to a stated destination (usually in the buyer s country) and the goods are at the seller s risk up to that point. Under DDU and DDP terms the stated destination would usually (but not always) be the buyers warehouse. (If the delivery under DDU or DDP is at some other place, delivery is completed when the cargo is loaded onto the collecting vehicle sent by the buyer, unless the contract specifies otherwise). The seller needs to insure from his premises through to the named destination. The buyer needs no insurance unless there is transit beyond the named destination. One source of misunderstanding which commonly occurs is in respect of the difference between a CIF contract and a Delivered contract, both of which involve procurement by the seller of Cargo insurance covering the whole transit. It must be emphasised that under a CIF contract, the seller has fulfilled his obligations when he has delivered the specified goods on board the vessel at loading port (or to the sea carrier for shipment), has paid or agreed to pay the freight and insurance charges, has obtained the bill of lading or other carriage document and has passed this with the other documents required in the contract (including insurance document) to the buyer. Once the buyer has accepted the documents and thus title to the goods, he has also accepted the risk of loss or damage retrospectively from time of shipment (loading on board or delivery to carrier). If loss occurs after this point, e.g. during the voyage, he has no recourse against the seller (unless the loss was caused by the seller s negligence, e.g. failure to pack the goods properly) but can claim under the insurance document which the seller has assigned to him. Under a Delivered contract, however, the seller has not fulfilled his obligations until the goods have been delivered to the buyer at the named destination. Thus any loss or damage during the voyage would fall against the seller who would claim under his Cargo insurance. Although the nature of the F terms and C terms seems complicated, these are often most appropriate when transactions are being financed through the banking system, either through documentary credits (letters of credit) or documentary collections. Under these transactions the goods are represented by the set of documents called the documents of title and ownership passes with these documents

5 1. Cost, Insurance & Freight (C.I.F.) 2. Cost & Freight (C.F.R.)/Free on Board (F.O.B.) Common Terms Seller responsible for insurance from his works or warehouse until delivered to Buyer's warehouse or other final destination stipulated by the Buyer. Contingency Cover if he extends credit to his overseas buyer. Buyer may require cover in respect of increased value arising out of charges payable at destination or rising market prices. Buyer responsible for insurance from Free on Board until delivered to final destination. 3. Free on Rail (F.O.R.) IFREE on Trailer (F.C.T.) 4. Free on Quay (F.O.Q.) IFREE Alongside (F.A.S.) 5. Ex Works Seller needs no transit insurance but may require Contingency Cover if he extends credit to his overseas buyer. Buyer responsible for insuring the whole transit from place of sale from Seller's warehouse to final destination. 6. DDU (Delivered Duty Unpaid) 7. DDP (Delivered Duty Paid) Seller responsible for insurance from his works or warehouse until delivered to Buyer's warehouse or other final destination stipulated by the Buyer. Seller is required to provide cover for the value of the consignment before the application of duty in the country of destination. Seller will wish to protect himself in respect of the possibility of his incurring liability for duty in the event of loss of the goods prior to the point of transfer of risk. Seller responsible for insurance from his works or warehouse until delivered to Buyer's warehouse or other final destination stipulated by the Buyer. Seller is responsible for, and therefore must arrange insurance cover for, all charges, including taxes, attaching to the goods up to the delivery point unless specifically agreed otherwise with the buyer. Buyer may require cover in respect of increased value arising out of charges payable at destination or rising market prices. In particular, the buyer will require cover for duty actually paid, or for which he has a potential liability if goods remain in bond. Buyer should not need to arrange cover other than to the extent that he has agreed with the seller to accept responsibility for local charges and taxes. Additionally, the buyer will require cover in respect of any further transit onwards from the agreed point of delivery. Effect on Price of Terms The nature of the obligations on the seller under the different sale terms will obviously influence the price charged to the buyer. The price of goods sold CIF, for example, will be greater than the price charged if the same goods are sold FOB as the CIF price will include freight charges and insurance premium paid by the seller. This is an important point to remember when we come across an importer who is buying CIF and we are persuading him to switch his insurance arrangements so that he insures with us. He should be advised to request a C & F (now called CFR) price from the seller so that he can compare the difference in prices with the cost of our own premiums.

Please see the graph below on how Incoterms work. How Do Insurers Calculate What I Have Lost? Insurers will work by valuation and below is a general guide to how payment would normally be made.

6 Please see the graph below on how Incoterms work. How Do Insurers Calculate What I Have Lost? Insurers will work by valuation and below is a general guide to how payment would normally be made. Inland Transits (Purchases or Sales) to include goods sold under FOB terms (Free on Board) or CIF Terms (Cost and Freight) or similar payment would be the invoice cost to the buyer, plus freight and packing costs already incurred. Imports or Exports The payment would be the Invoice cost plus the charges of insurance and freight, plus an additional 10% or more if agreed prior. If you send goods under CIF terms (Cost Insurance and Freight), you can add 10% or more if agreed prior plus duty if incurred. Returned Goods The payment would be the market value at the time of loss or the invoice costs, whichever is less. Un-sold Stock The payment would be the Invoice cost to the Named Assured person or company. Pre-sold Stock The payment would be the Invoice cost to the Buyer. Inter-Company Movements (Moving goods between your locations) and all other goods covered which are not the subject of a purchase or sales invoice. In these cases, the payment would be the Market value at the time of the loss. While this is only a short guide, we hope it has helped you to understand a little more the risks you face. Please call the office on to discuss what we can do to help protect you and your goods.

7 Institute Cargo Clauses Quick Reference Guide This is a quick reference guide to the differences between the three sets of Institute Cargo Clauses CL382/CL383/CL A Clauses are sometimes referred to as "Full Cover" B Clauses as "With Particular Average" C Clauses as "Free of Particular Average. The differences highlighted are indicative only and are by no means exhaustive. It is your responsibility to ensure you read through the full clauses within your insurance policy or quotation to ensure you fully understand what is and what is not covered and raise any questions you may have in regard to coverage being sufficient. PROXIMATE CAUSE A CLAUSES B CLAUSES C CLAUSES Stranding, Grounding, Sinking Or Capsizing Overturning Or Derailment Of Land Conveyance Collision Of Ship Or Craft With Another Ship Or Craft Contact Of Ship, Craft Or Conveyance With Anything Other Than Ship Or Craft (Excludes Water But Not Ice) Discharge Of Cargo At Port Of Distress Fire Or Explosion Earthquake, Volcanic Eruption Or Lightning Malicious Damage Theft or Pilferage General Average Sacrifice Jettison Washing Overboard (Deck Cargo) War Risks (Except Piracy) Takings At Sea (Except War Risks) Seawater Entering Ship, Craft, Hold, Conveyance, Container Lift Van Or Place Of Storage River Or Lake Water Entering Same Loss Overboard During Loading/ Unloading (Total Loss Only) Any Risks Of Physical Loss Or Damage Not Specified YES YES * YES* YES YES* NO YES NO** NO** YES NO NO YES YES YES YES YES YES YES YES NO NO NO NO YES NO NO YES YES NO YES YES NO N/A YES NO YES NO NO

Regulatory update: Cargo insurance in Kenya

Regulatory update: Cargo insurance in Kenya Nairobi - May 11 th 2017 Aon Risk Solutions 2 Aon Risk Solutions 2 Marine Cargo Insurance The basis Scope of Marine Cargo Insurance Aon Risk Solutions 4 Marine