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THE BASICS OF
CARGO INSURANCE
The current policy is
designed for the frequent shipper. It
automatically covers approved merchandise that assureds are obliged to insure
under terms of sale. This eliminates
the need for the importer or exporter to negotiate terms, conditions, rates,
and limits for each shipment insured.
Under an open cargo policy, goods can be insured “ALL-RISK”, Free of
Particular Average (FPA) or With Average (WA).
These coverage variations are explained below. “ALL-RISK” COVERAGE The broadest form of
coverage is “ALL-RISK”. An “ALL-RISK”
policy insures approved general merchandise in the event of physical loss or
damage from any external cause. This includes
new, packaged goods without unusual susceptibility to loss from breakage,
pilferage, or the nature of the goods themselves. “ALL-RISK” policies do not cover all losses possible in the
course of an international shipment. Typical exclusions in an “ALL-RISK” Policy are: 1. Improper packing 2. Abandonment of cargo 3. Rejection of goods by customs 4. Failure to pay or collect accounts 5. Inherent vice (infestation or loss due to
the nature of product itself) 6. Employee conversion or dishonesty 7. Losses due to delay or loss of market 8. Losses in excess of policy limits 9. Losses at port city more than 15 days after
discharge of cargo 10. Losses inland more than 30 days after
discharge of cargo 11. Losses in South America more than 60 days
after discharge of cargo 12. Barge shipments 13. Goods subject to an on-deck bill of lading 14. Losses caused by temperature or pressure
(air shipments) 15. Failure to notify air carrier of preliminary
loss in timely fashion: a.
Obvious damage – 7 days b.
Hidden damage – 14 days c.
Non-delivery – 120 days 16. Used goods FREE OF PARTICULAR AVERAGE (FPA) COVERAGE, AMERICAN CLAUSE
FPA is limited
coverage that usually applies to used merchandise, waste materials and goods
shipped subject to an on-deck bill of lading.
It covers partial and total losses due to FPA perils. FPA perils include the sinking, stranding,
burning or collision of the vessels or catastrophic perils on shore such as
earthquake, derailment, collapse of dock, fire, etc.
WITH AVERAGE (WA) COVERAGE With average coverage
extends FPA coverage to include the peril of heavy weather. Frequently, FPA and WA can be extended to
include theft, pilferage and non-delivery. COMPARISON
OF CARGO COVERAGES
* Refers to partial losses. Total loss of cargo from these perils would
be covered. Although above perils are indicated as covered under “All
Risks”, depending upon commodity, certain exclusions may apply. Please refer to policy for exact coverages. WAREHOUSE-TO-WAREHOUSE PROTECTION
Most cargo insurance
protects goods in transit from the time they leave the shipper’s warehouse
until they reach the consignee’s warehouse, as long as they are not taken out
of the normal course of transit by the insured. However, there are circumstances when:
In addition, insurance
is not in effect if the goods do not travel via common carrier, i.e., they are
picked up or delivered by the shipper or consignee. If you have any questions on a specific shipment, please call
Mitchell Baxt. THE
NEED FOR CARGO INSURANCE Avoid the Uncertainty of Recovery from Carriers Importers and
exporters are exposed to countless financial risks when they don’t insure their
international shipments. Trying to
recover losses from carriers is difficult and time consuming. The best way to protect their financial
interest is with “All Risks” insurance coverage. “All Risks” insurance relieves them of their financial exposure
from physical loss or damage to their goods while in transit, since carriers
have limited liability. Air Shipments Ocean Shipments US$9.07 per pound US$500
per Customary Shipping Unit (CSU) US$20.00 per kilo Vessel Owner’s Limited Liability The Hague/COGSA Act
was developed to protect vessel owners against legal liability to shippers for
circumstances out of their control. It
was conceived during the post World War I era when vessel owners had little
jurisdiction over their ships once they left port. COGSA, the Carriage of Goods by Sea Act, limits vessel owner’s
liabilities to US$500 per shipping unit.
It also relieves all their liability to shippers in 17 situations known
as the Hague/COGSA Defenses. This means
shippers have no legal recourse against vessel owners when their goods are lost
or damaged by these 17 causes. The 17 Hague/COGSA Defenses
Neither the carrier nor the ship shall be
responsible for loss or damage arising or resulting from: 1.
Act, neglect, or default of the master,
mariner, pilot, or the servants of the carrier in the navigation or in the
management of the ship 2.
Fire, unless caused by the actual fault or
privity of the carrier 3.
Perils, danger, and accidents of the sea or
of other navigable waters 4.
Act of God 5.
Act of war 6.
Act of public enemies 7.
Arrest or restraint of princes, rulers, or
people or seizure under legal process 8.
Quarantine restrictions 9.
Act or omission of the shipper or owner of
the goods, his agent or representative 10.
Strikers, lockouts, stoppage or restraint
of labor from whatever cause, whether partial or general: Provided that nothing herein contained shall
be construed to relieve a carrier from responsibility for the carrier’s own
acts 11.
Riots and civil commotions 12.
Saving or attempting to save life or
property at sea 13.
Wastage in bulk or weight or any other loss
or damage arising from inherent defect, quality, or vice of the goods 14.
Insufficiency of packaging 15.
Insufficiency or inadequacy of marks 16.
Latent defects not discoverable by due
diligence 17.
Any other cause arising without the actual
fault and privity of the carrier without the fault or neglect of the agents or
servants of the carrier, but the burden of proof shall be on the person
claiming the benefit of this exception to show that neither the actual fault or
privity of the carrier nor the fault or neglect of the agents or servants of the carrier contributed to the loss or
damage Air Carriers’ Limited Liability The Warsaw Convention
was developed to protect air carriers against liabilities to shippers. Unless subject to Montreal Protocol No. 4,
air carriers’ liabilities are limited to US$9.07 per pound for international
shipments and $0.50 per pound for domestic shipments. To recover the actual value of their lost or damaged goods,
shippers decide many times to declare value with air carriers. Even when the value is declared with the
airline, there are provisions which can still make recovering losses from air
carriers difficult and time consuming. “All Risks”
Insurance vs. Declared Value
“All Risks” Insurance “All Risks” insurance
protects the shipper against physical loss or damage to their cargo from
external causes, subject to policy terms and conditions. It is not necessary to prove the carrier’s
liability. Declared Value Declaring value to a
carrier is not the same as providing insurance protection for merchandise in
transit. If there is a claim against a
carrier, the shipper has to prove the merchandise was damaged and prove the
carrier caused the damage. This makes
recovering losses very difficult. What this Means to your Clients
If merchandise is
damaged in transit and the carrier did not cause the damage, the shipper would
not be able to recover the loss. “All
Risks” insurance provides protection without having to prove carrier liability.
CLAIMS
The most common
problem with marine cargo insurance claims is that few claimants know what to
do in the event of a claim. This lack
of knowledge is what often creates havoc in documenting and processing
claims. This section details the
guidelines and procedures to follow in the event of a claim. OWNERSHIP OF DAMAGED CARGO Most assureds have the
impression that the title to all damaged goods is automatically transferred to
the insurance company and that the assured will have no further interest in the
cargo. This is not the case and any
claimant who acts in accordance with such belief may find himself jeopardizing
the very rights he/she may be trying to protect. The most important thing to remember is that the cargo belongs to
the assured and the assured alone is the one who has sustained the loss. Contrary to popular
belief, the insurance company has no legal title to the goods and is not a
party to the contract of carriage within the terms of the bill of lading. The insurance company can only pursue the
claim against carriers after proving the loss has been paid under the
policy. The assured must protect the
insurance company’s right to subrogate. The fact is that the
cargo remains the property of the assured, and under limited circumstances will
an insurance company agree to take title to or sell it. “ONUS OF GOOD FAITH” An assured does not
have the right to abandon cargo or fail to take any action which could result
in averting or minimizing a loss or damage.
In other words, assureds must at all times act in the same manner as
they would in the event they were uninsured.
This is called the “Onus of Good Faith” and it is the basis on which all
insurance is governed. MINIMIZING A KNOWN LOSS Some assureds will
question the right to incur an expense in order to minimize a loss before
receiving the insurance company’s authority to incur that expense. Provided the expense incurred is reasonable
relative to the amount of loss you are trying to avoid, the insurance company
will pay for those expenses. This
contingency is covered under the “sue and labor” clause of most marine
policies. PROCEDURES
CONTACT YOUR FORWARDER OR BROKER WHEN IN DOUBT OR WITH ANY
QUESTIONS ON HOW TO PROCEED. Prepare a preliminary
claim form and send it to the carrier for signature. MIF has a claims package that includes the required forms on our
web site. If pilferage or damage
has occurred, a survey may be required.
As a general rule, amounts under $500.00 DO NOT require a survey. If the damage is noted, you are to stop
unloading or unpacking until a decision has been reached on the need for a
survey. Failure to follow these
instructions may prejudice any future recovery. DO NOT discard any dunnage or exterior containers as they will be
part of any survey. SUBSTANTIATE THE CLAIM A vital component of
our claims procedures is the substantiating of the claim. The consignee must prove the claim was
caused as a result of transit and occurred during the period of insurance
coverage. Please follow the steps below
to substantiate the claim. 1. EXAMINE EXTERNAL
CONDITION OF PACKAGES Upon delivery, examine
the external condition of all packages before signing the delivery
receipt. This may seem impossible with
today’s business pace as it can delay trucks and cargo elevators. The trucking companies may charge you a
minimal fee for the delay. However,
when you thoroughly examine packages and note damage on delivery receipts, you
protect your rights of recovery and minimize your losses. 2. NOTE EXCEPTIONS ON
DELIVERY RECEIPT All steamship
companies, airlines, railways, trucking companies and harbor authorities must
obtain a signature on a delivery receipt from the person or company taking
delivery of cargo. All delivery
receipts contain a clause stating the cargo was delivered in apparent good
condition unless noted to the contrary. If your receiving
department or cartage company signs a delivery receipt without noting damage,
your coverage is at risk. By signing
the delivery receipt without noting damage, you have legally acknowledged
receiving the goods in “apparent good condition”. This destroys your chance to prove the goods were damaged before
arriving at your premises and also destroys the chance that your insurance
company will successfully recover the loss from the carrier. By signing the delivery receipt without
noting damage, you are providing the carrier with a clean receipt. It is important to note
some tactics trucking companies may use to obtain clean receipts from you. They may try to convince you to sign for a
visibly damaged package by saying it had been “opened by Customs”. Also, they may attempt to convince you a
damaged package was signed for from the wharf or last carrier in damaged
condition. You should not accept these
claims until you have determined the goods are in proper condition. Remember, the consignee is sole judge in
deciding how the packages appear and how they should be signed for. If delivery carriers
attempt to prevent you from noting their delivery receipt, you should advise
the trucker to hold the merchandise. On
future shipments, you should request your insurance company to send a surveyor
to inspect the shipment on the trucker’s vehicle. Also, you should refuse a carrier if he/she suggests you sign for
damaged packages “subject to inspection”.
This notation does not imply that the package is damaged, and it becomes
the responsibility of the consignee to prove when it occurred. Finally, there is
another reason not to sign for damaged packages. In the event your loss is not insured, signing for the damaged
goods in “apparent good condition” jeopardizes your own rights to recover your
loss from the carrier. 3. RECORD NUMBERS OF
PACKAGES When noting delivery
receipts, record all case numbers that appear damaged. It is not enough to indicate “Five Cases
Damaged” on the receipt. You must
record the numbers appearing on each case.
For example: “Case #5, #6, #7 and
#12 are in damaged condition”. DOCUMENT THE CLAIM PLACE ALL CARRIERS ON NOTICE Along with noting
delivery receipts, it is vital to place all carriers “on notice” in the event
of a claim. Sample letters are included
in this manual. The following are time
limitations for placing carriers ‘On
notice’ of the nature and extent of the claim:
While it is necessary
to place the carrier on notice within the given time frame, payment from them
should never be accepted without first advising the insurance company. Accepting payment from the carrier without
notifying the insurance company prejudices the insurance company’s right of
subrogation and violates a provision of your policy which may jeopardize the
outcome of the claim. |