Freight Insurance

The ABC of Marine Cargo Insurance

• "A" - All Risk
• "B" - Broader than "C"
• "C" - Catastrophe

The Institute Cargo Clauses are a standard set of London marine Market Clauses which detail the extent of cover provided by insurers.

They have been traditionally used by all insurers since their introduction in January 1982.

These clauses are usually supplemented by individual Company wordings in order that policies can be "Tailor-made" to suit individual client's needs.

There are other specific clauses from certain commodities such as Meat, Coal etc, but are all derivatives from the "ABC" Clauses.

Attached are the basic elements of the "ABC" clauses.

Introduction

Marine Cargo Insurance covers all forms of transit and all types of commodities and interests. Import and/or Export Cargo and Inland transit of goods by Sea, Road, Air, Rail and Post are all encompassed under the name of Marine Cargo Insurance.

Scope of Cover

The Institute Cargo Clauses (A) is the widest of covers available, covering All Risks of Less of or Damage to the subject matter insured, except as provided in the exclusions. The important point to remember is the word "RISKS", in that there must be a risk of loss not a certainty of loss.

Institute Cargo Clauses (B) is not an All Risks policy but quite a limited policy with the perils or risks relating to major accidents to the vessel or the land conveyance as detailed in the clauses, plus the entry of Sea, Lake or River Water and Total Loss of any packages lost overboard or dropped whilst loading or unloading.

Institute Cargo Clauses (C) covers the same risks as the (B) Clause mentioned above, with the exception that earthquake, volcanic eruption or lightning, entry of Sea, Lake or River Water, and Total Loss of packages lost overboard whilst loading or unloading are not covered.

Institute Cargo Clauses (Air) has exactly the same risks clauses as Institute Cargo Clauses (A).

In all of the policies issued you must be aware of the "General Exclusion Clause". The main ones to focus on are as follows:-

Delay

Loss, damage or expense proximately caused by delay, even though the delay be caused by a risk insured against (except expenses payable under the General Average Clause).

Inherent Vice

Loss, damage or expenses caused by Inherent Vice or nature of the subject matter insured. Inherent Vice is something that is bound to happen to the merchandise and not a fortuity, for example, fruit is bound to rot eventually and steel will rust if exposed to salt water.

Insufficiency of Packing

Loss damage or expensse caused by insufficiency or unsuitability of packing or preparation of the subject matter insured.

Goods must be packed in accordance with the customary trade practice. Anything less than this could result in a claim being denied by the Insurance Company.

Calculating the Sum Insured

Under the standard Marine Cargo Insurance policy if Selling C.I.F. you are entitled to insure for a minimum C.I.F. plus 10%. The extra ten percent is to allow for charges, cost incurred in arranging the shipment.

(I.e. The invoice value, the cost of insurance & freight plus 10%.)

For example

This 10 percent loading is NOT profit but is an agreed amount to cover incidentals incurred in Import/Export such as stevedores charges, war risk surcharges, handling charges, etc...

Application of Average

All marine insurance policies including the application of average. What this means is when you effect cover on your commodity, you must insure it for its full value.

The following are examples of how underwriters apple the application of average when partial damage occurs.

Option 1:
An example of how this condition will apply is if goods are worth $100,000 and you elect to ensure for $75,000 and suffer a partial loss of $10,000. The underwriter would apple the condition of average and would therefore reimburse only $7,500 of the actual loss of $10,000. The reason being is that you have elected to only insure for 75% of its actual value and are therefore deemed to be your own insurer for the difference.

Difference between A and B = 75% of actual value. Therefore uninsured portion to be borne by the insured is 25% of any claim incurred.

Option 2:
Goods are worth $90,000 and insured for $75,000 using the same value of a partial loss $10,000. Once again, the underwriter would only reimburse his portion of the loss being 83.33% which equates to only $8,333.00.

Difference between A and B = 83.33% of actual value. Therefore uninsured portion to be borne by the insured is 16.67% of any claim incurred.

In the event of a total loss, the underwriter will reimburse the full amount of the insurance.

Institute Cargo Clauses (A)

Covers

• All risks as a result of physical loss or damage
• General average

Excludes

• Inherent vice, deterioration
• Insufficiency or unsuitability of packing
• Delay, loss of market
• Insolvency or financial default of the owner of the vessel
• War and strikes

Duration of Cover

Transit clause (Warehouse to warehouse clause)

Cover begins from the time the goods leave the warehouse for the commencement of transit, continues during the ordinary course of transit and terminates either:

1. Delivery to the consignee's final warehouse
2. For storage, or
3. On the expiry of 60 days after completion of discharge overside of goods

Institute Cargo Clauses (B)

Covers

• Fire or explosion
• Vessel being stranded, sunk
• Overturning of the carrying vehicle
• Collision of vessel
• General average
• Total loss of package during loading onto or unloading from vessel or craft
• Sea, lake or river water

Excludes

• Inherent vice, deterioration
• Insufficiency or unsuitability of packing
• Delay, loss of market
• Insolvency or financial default of the owner of the vessel
• War and strikes

Institute Cargo Clauses (C)

Covers

• Fire or explosion
• Vessel being stranded, sunk
• Overturning of the carrying vehicle
• Collision of vessel
• General average

Excludes

• Inherent vice, deterioration
• Insufficiency or unsuitability of packing
• Delay, loss of market
• Insolvency or financial default of the owner of the vessel
• War and strikes