Cargo Transport Insurance

1
Cargo Transport Insurance
2
Topics in This Chapter

• Overview
• Risks Perils of the Sea and Extraneous Risks
• Losses Total Loss, Partial Loss and Expenses
• Ocean Marine Insurance Under C.I.C
• Institute Cargo Clauses
• Insurance Clause in an International Contract
• Insurance policy

3
Overview

• Cargo transport insurance is to protect the
  interests of importers and exporters from
  possible financial losses caused by risks during
  the transit of the goods from the factory or
  warehouse in a country of origin to the warehouse
  in a country of destination.
• It is now an indispensable part to the import and
  export practice.
• In insurance, the party who insures others
  against possible losses or damage and undertakes
  to make payment in case of loss is called the
  insurer.

4

• The party who is insured against possible losses
  and to whom payment covering the loss will be
  made is called the insured.
• The contract made between the insurer and the
  insured is the insurance policy.
• The amount of money the insurer agrees to cover
  by insurance against the subject matter is the
  insured amount ( which is usually the amount of
  110 of CIF value of the consignment in marine
  cargo transport insurance).
• The sum of money the insured agrees to pay the
  insurer for an insurance policy is called premium.

5
Risks in Cargo Transport

• Risks in cargo transport are of many kinds.
• Different risks mean different losses,
• and different risks are covered by different
  insurance clauses
• and different insurance clauses mean different
  premiums.
• So we need to have a good understanding of the
  different risks and losses before we know how to
  effect insurance.
• In marine cargo transport insurance, risks fall
  into perils of the sea and extraneous risks.

6
Perils of the Sea

• Perils of the sea can further be either natural
  calamity or fortuitous accidents
• Natural calamity refers to the perils under force
  majeure(????) such as vile weather, thunder storm
  and lightening, tsunami, earthquake, flood,
  volcanic eruption, etc. (The ordinary action of
  the winds and waves is not taken as natural
  calamities.)
• Fortuitous Accidents are such risks as ship
  stranding, striking upon the rocks, ship sinking,
  ship collision, colliding with icebergs or other
  objects, fire, explosion, ship missing, etc.

7
Extraneous Risks

• Extraneous risks can further be general
  extraneous risks and special extraneous risks.
• Risks caused by theft, rain, leakage, shortage,
  breakage, dampness, mildewing, heating, taint of
  odor, hooking and rusting are general extraneous
  risks.
• Risks caused by war, strikes, failure of delivery
  and rejection, etc. are special extraneous risks.

8
Losses

• Losses sustained by the insured due to the risks
  listed above come from
• not only the loss of the goods or the damage done
  to the goods,
• but also from the expenses the insured sustained
  in rescuing the goods in danger.
• The losses and the damages done to the goods can
  fall into total loss and partial loss.
• Total Loss includes Actual Total Loss(???? ) and
  Constructive Total Loss.(????).
• Partial Loss means that the loss or damage done
  to the goods is only partial. Partial loss can be
  either general average (???? )or particular
  average(???? ).

9
Total Loss

• Actual Total Loss means the whole lot of the
  consignment has been lost or damaged or found
  valueless upon arrival at the port of
  destination.

• Constructive Total Loss is found in the case
  where the actual total loss of the insured goods
  is unavoidable, or the ship or the consignment
  has to be abandoned because the cost of salvage
  or recovery would exceed the value of the ship
  and the consignment in sound condition upon the
  arrival of the port of destination.

10
Partial Loss

• General Average is in use when
• both the ship and the consignments on board are
  endangered
• and the captain intentionally and reasonably does
  some sacrifices or makes some expenses
• for the safety of the ship and the consignments
  on board.

11

• For example, when a ship goes aground and both
  the ship and the consignments on board are in
  peril, the captain, after all his efforts to
  refloat the ship have failed, may decide to
  jettison part of the consignments on board to
  lighten the ship.
• The loss, the sacrifice done for that purpose, is
  to be borne by both the carrier and the
  consignors in proportion to the value of their
  interest thus saved. This is called general
  average contribution.
• Particular Average means that a particular
  consignment is partially damaged.

12
Expenses

• 1. Sue and labor expenses(????) are made by the
  insured or his agent to prevent them from
  suffering further losses.
• 2. Salvage Charges(????) are made to those other
  than the insured, the carrier and the insurer who
  come to the salvage of the ship and the
  consignment.

13
Ocean Marine Insurance Under C.I.C(China
Insurance Clauses)

• Cargo transport insurance falls into ocean marine
  insurance, overland transportation insurance, air
  transportation insurance, and parcel post
  insurance.
• Under China Insurance Clauses (C.I.C), for each
  type of transportation insurance, there are basic
  risks coverage and additional risks coverage.

14
Basic Risks Coverage

• Under C.I.C., basic risks coverage falls into
  three groups
• Free from Particular Average (F.P.A.)
• With (Particular) Average (W.A.or W.P.A.)
• All Risks .
• The insured may choose any one from these
  suitable for the carriage of his goods.

15
Free from Particular Average (F.P.A.)

• Free from Particular Average (F.P.A.) covers the
  following losses
• (1) Actual total loss or constructive total loss
  of the consignment caused by natural calamities
  such as vile weather, tsunami, earthquake, flood.
  When the consignment is carried by a lighter to
  or from the ship, the goods aboard the lighter
  can be taken as a whole consignment.
• (2) Total loss or partial loss caused by
  fortuitous accidents such as stranding, striking
  upon the rocks, icebergs or other objects,
  collision, fire and explosion.

16

• (3) General average of the insured goods
  attributable to vile weather, lightening and /or
  tsunami, where the ship has been stranded, sunk,
  or burned, inspective of whether the event took
  place after or before such accidents.
• (4) Partial or total loss consequent on failing
  of an entire package or packages into the sea
  during loading, unloading, and transshipment.
• (5) Reasonable expenses the insured makes for the
  salvage of the goods insured, and for averting or
  minimizing the losses, provided the expenses do
  not exceed the insured amount.

17

• (6) Expenses incurred by discharge of the insured
  cargoes at a port of distress following a sea
  peril as well as special charges arising from
  loading, warehousing at an intermediate port of
  call or refuge.
• (7) Sacrifice in and contribution to general
  average and salvage charges.
• (8) Such proportion of losses sustained by the
  ship-owners as is to be reimbursed by the insured
  under the Contract of Affreightment Both to
  Blame Collision clause.

18
With Average (W.A.)

• Aside from the risks covered under the F.P.A.
  condition as above, W.A. also covers particular
  average of the insured goods caused by vile
  weather, lightening, tsunami, earthquake and / or
  flood.

19
All Risks

• Aside from the risks covered under the F.P.A. and
  W.A. conditions as above, All Risks also covers
  all risks or damage done to the insured goods
  whether partial or total, arising from general
  extraneous risks during transit.

20
Additional Risks

• Additional risks complement the basic risks.
• Additional risks can not be used independently.
• Additional risks under C.I.C. fall into general
  additional risks and special additional risks.

21
General Additional Risks

• General additional risks cover the losses caused
  by general extraneous risks.
• General additional risks are covered by All Risks
  in basic insurance coverage. Hence, you do not
  need to ask for general additional risks coverage
  if you have asked for All Risks coverage.
• General additional risks fall into 11 types

22
11 Types of General Additional Risks

• General additional risks fall into 11 types
• 1.???????(Theft, Pilferage and Non-delivery, ??T.
  P. N. D.)
• 2.?????(Fresh Water and /or Rain Damage,??F. W.
  R. D.)
• 3.???(Risk of Shortage)
• 4.??????(Risk of lnter-mixture Contamination)
• 5.???(Risk of Leakage)

23

• 6.??????(Risk of Clash Breakage)?
• 7.???(Taint of Odor)
• 8.??????(Damage Caused by Heating Sweating)
• 9. ???(Hook Damage)
• 10.?????(Loss or Damage Caused by Breakage of
  Packing)
• 11.???(Risks of Rust)

24
Special Additional Risks

• Special Additional Risks cover losses caused by
  special extraneous risks. They include
• War Risks, Strikes,
• Failure to Deliver,
• Import Duty,
• On Deck,
• Rejection,
• Aflatoxin,
• Fire Risk Extension clause, (F.R.E.C.- for
  storage of cargo at destination of Hongkong,
  including Kowloon, or Macao.)

25
Warehouse to Warehouse Clause

• W/W Clause Ocean marine insurance under C.I.C.
  takes effect as soon as the insured cargo is
  taken away from the warehouse listed on the
  insurance policy.
• Insurance terminates when the goods are carried
  to the final warehouse listed on the insurance
  policy, or 60 days after the goods are discharged
  from the ship in case they fail to reach the
  warehouse during a reasonable period of time.
• If within 60 days after the goods have been
  discharged from the ship, the goods are taken to
  some other destination other than one specified
  on the insurance policy, the insurance terminates
  thereupon.

26
Institute Cargo Clauses

• The Institute Cargo Clauses, shortened as I.C.C.
  were set forth by the Institute of London
  Underwriters. They have exerted great influences
  in the development of international insurance.
  Most countries in the world have referred to them
  more or less in making their own insurance
  clauses.
• The Institute Cargo Clauses have undergone
  revisions for many times. The latest revision
  came into effect on Jan.1, 1982. The old clauses
  of I.C.C. were basically the same as the ocean
  marine cargo clauses of the Peoples Insurance
  Company of China. The new version has a different
  system.

27
Insurance Coverage under the New Version of I.C.C

• Insurance coverage under the new version of
  I.C.C. falls into 6 clauses
• Institute Cargo Clauses A (ICC A)
• Institute Cargo Clauses B (ICC B)
• Institute Cargo Clauses C (ICC C)
• Institute War Clauses- Cargo
• Institute Strikes Clauses Cargo
• Malicious Damage Clauses.

28
Insurance Clause in an International Contract

• The insurance clause in an international contract
  must specify
• the insured amount,
• the risks to be covered
• and the clauses adopted.
• Example

29
Insurance Policy

• A legal document a contract between the insurer
  and the insured
• Binding upon both the insurer and the insured
• Insurance certificate is a simplified insurance
  policy without clauses on the back but with the
  same legal effect as the insurance policy.

30
Calculation

• 1. Insured Amount CIF value x (110)
• 2. Premium Insured Amount x premium Rate
• 3. Example