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Marine cargo insurance

This article was last updated by the author in October 2016.

A brief introduction to marine cargo insurance.

Contents

Overview

Marine Cargo traditionally covers the transportation of goods in a recognisable form of transportation, but a marine cargo underwriter may also underwrite a number of other types of risk which on first glance do not appear to be linked; such as satellite pre-launch (which is the transportation of the satellite from factory to Launchpad), stock throughput (which combines a transit risk with a static storage risk), project cargo (which combines a transit risk with a loss of profits type policy that responds to penalties imposed for items not arriving on site in time - for example for a large construction project) and jewellers block/fine art which covers manufacturing, exhibiting and retailing type risks.

For the purposes of this overview however, the focus will remain on a traditional marine cargo book of business.

Typical cover provided

The main clauses used in the London market and worldwide are the Institute Cargo Clauses A, B and C which give a choice of cover ranging from All Risks with the A clauses (where the individual perils are not named), down to a very limited number of listed or named perils in the C Clauses. These clauses were updated in 2009 (1/1/2009) however, earlier versions are still in use (1/1/82) and so care should be taken as the provisions are subtly different.

The C clauses cover such perils as

  • fire and explosion
  • grounding or stranding of the vessel
  • jettison of the cargo (disposing of  the cargo over the side of the ship deliberately)
  • sinking
  • collision
  • damage to the cargo if it has to be discharged after damage to the ship

The B clauses cover all the above perils but add three very important ones which are

  • washing overboard (accidently losing the cargo over the side as contrasted with doing it deliberately)
  • entry of sea, lake or river water to the vessel or place of storage, however note that this peril does not cover rainwater, sprinkler water or condensation type damage
  • total loss of a package by falling overboard

More specific clauses (called Trade Clauses) are available to cover specialist cargos such as bulk oil, frozen food, fats and seeds, timber and rubber and they vary the perils to better reflect the likely dangers that those cargos might face such as contamination for oil.

Most cargo policies will also cover sue and labour expenses which are those costs incurred by an insured when trying to solve a problem for himself - although the loss may in fact be covered by the insurers. Some cargo is found to be wet damaged on discharge from the ship, but the insured pays for the wet to be separated from the dry, thus preventing the spread of the wet damage. As this action has probably reduced or even removed an insurance claim, the insurers will pay those reasonable costs.

Particular to maritime law, and by reference therefore marine insurance, are the concepts of salvage and general average. Salvage is the concept of someone voluntarily rescuing you who then earn a reward. General Average is the concept of all parties (for example ship and cargo) contributing to the costs or expenses one of them makes in order to save everyone. An example of this would be if a ship was unstable in bad weather, some cargo might be thrown overboard in order to restore her stability. By doing this the cargo has been sacrificed to help everybody involved with the voyage and so the ship and any other cargo will pay a share towards the cost of the cargo.

Optional extensions

  • Theft, pilferage and non-delivery - theft is only covered under the A clauses (being All Risks). This extension covers both violent type theft and the rather more clandestine or secretive theft that is pilfering. Non delivery cover is for cargo that mysteriously disappears en route.
  • Storage risks -stock throughput insurance provides cover for the static risk which is not covered under the main ICC wordings. This is done by adding a specific storage related extension onto a transit policy
  • War and strikes risks - war and strikes risks are excluded under a standard marine cargo policy but are freely available on separate wordings, but often written by the same underwriters that wrote the main cargo policy. It is important to note that both sets of clauses available are slightly narrower in coverage than the exclusions they replace. War cover is very limited for those risks which are land based or static in any nature.
  • Malicious damage - there is an exclusion in the ICC B and C clauses for malicious damage which can be bought back using this clause 

Key exclusions

There are a number of exclusions which apply to all the standard ICC A, B and C clauses.

  • Wilful misconduct of the insured - deliberately causing damage to the cargo
  • Wear and tear or inherent vice - the natural behaviour of cargo without any external influence (such as cargo ripening or ferrous metals rusting)
  • Insufficiency of packing - this is a relative concept as the measure is the appropriate packing for that particular cargo, not a standard across all cargos
  • Insolvency of the carrier - this is to try and focus cargo interests minds on the quality of those with whom they do business
  • Delay - even if the delay is caused by a peril insured against. This is because insurers are not interested in covering loss of market
  • Unseaworthiness - particularly if the insured was aware or should have been aware at the time of loading. The concept of unseaworthiness is not just a ship with holes in her hull but also incompetent crew, or missing radios.
  • Unfitness of a container or other conveyance (truck etc) to carry the cargo
  • Malicious damage - this is only in the ICC B and C Clauses
  • War - piracy is not included in this exclusion
  • Strikes
  • Nuclear

Rating factors

Cargo is generally rated based on the following factors;

  • What the cargo actually is
  • How it is packed
  • How will it be transported - just by sea or by various methods?
  • Quality of the carrier (where the insurers are told before the journey starts)
  • The valuation of the cargo
  • What journey it will be taking
  • How much insurance is required (i.e. All risks or limited named perils)
  • How large a deductible or excess is required 

Product providers

According to the International Union of Marine Insurers, the main international cargo markets are (% of overall premium in 2015 reported at their 2016 conference)

  • Japan 8.7%
  • Germany 6.6%
  • China 9.0%
  • London (Lloyds and IUA) 13.3% (split Lloyd's 8.8% and IUA 4.5%) 

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