MARINE CARGO INSURANCE SIMPLIFIED

INTRODUCTION

This is the oldest branch of Insurance and is closely linked tothe practice of Bottomry which has been referred to in theancient records of Babylonians and the code of Hammurabiway back in B.C.2250. Manufacturers of goods advanced theirmaterial to traders who gave them receipts for the materialsand a rate of interest was agreed upon. If the trader was robbedduring the journey, he would be freed from the debt but if hecame back, he would pay both the value of the materials andthe interest.

The first known Marine Insurance agreement was executed inGenoa on 13/10/1347 and marine Insurance was legallyregulated in 1369.

MEANING OF MARINE INSURANCE

A contract of marine insurance is an agreement whereby theinsurer undertakes to indemnify the insured, in the mannerand to the extent thereby agreed, against transit losses, thatis to say losses incidental to transit.A contract of marine insurance may by its express terms or byusage of trade be extended so as to protect the insured againstlosses on inland waters or any land risk which may beincidental to any sea voyage.

In simple words the marine insurance includes;

  1. Cargo insurance which provides insurance cover in respectof loss of or damage to goods during transit by rail, road,sea or air.

Thus cargo insurance concerns the following:

  • Export and import shipments by ocean-going vesselsof all types,
  • Coastal shipments by steamers, sailing vessels,mechanized boats etc
  • Shipments by inland vessels or country craft, and
  • Consignments by rail, road, or air and articles sentby post.

 

2.Hull insurance which is concerned with the insurance ofships (hull, machinery, etc.). This is a highly technicalsubject and is not dealt here.

MARINE CARGO INSURANCE AND INTERNATIONAL TRADE

Marine insurance plays an important role in domestic tradeas well as in international trade. Most contracts of sale requirethat the goods must be covered, either by the seller or thebuyer, against loss or damage.A contract of sale involves mainly a seller and a buyer,apart from other associated parties like carriers, banks, clearingagents etc

Who is responsible for effecting insurance on the goods whichare the subject of sale? It depends on the terms of sale (INCOTERMS 2010). INCOTERMS state which party has the obligation to make carriage or insurance arrangements.

Examples of INCOTERMS include;

Free On Board (FOB) – The seller is responsible till the goods are placed on board the steamer. The buyer is responsible thereafter. He can get the insurance done wherever he likes.

Free On Rail (FOR) – The provisions are the same as in above. This is mainlyrelevant to internal transactions.

Cost And Freight (C&F) – Here also, the buyer’s responsibility normally attaches once the goods are placed on board. He has to take care of the insurance from that point onwards.

Cost, Insurance & Freight (CIF) – In this case, the seller is responsible for arranging the insurance upto destination. He includes the premium charge as part of the cost of goods inthe sale invoice.AS

The normal practice in export/import trade is for the exporterto ask the importer to open a letter of credit with a bank infavor of the exporter. As and when the goods are ready forshipment by the exporter, he hands over the documents oftitle to the bank and gets the bill of exchange drawn by himon the importer, discounted with the bank. In this process,the goods which are the subject of the sale are considered bythe bank as physical security against the monies advanced byit to the exporter. A further security by way of an insurancepolicy is also required by the bank to protect its interests inthe event of the goods suffering loss or damage in transit, inwhich case the importer may not make the payment. The termsand conditions of insurance are specified in the letter of credit.

For export/import policies, the Institute Cargo Clauses (ICC)A, B and C are used. These clauses are drafted by the Institute of LondonUnderwriters (ILU) and are used by insurance companies in amajority of countries including Kenya.

WHAT ARE THE DIFFERENCES BETWEEN INSTITUTE CARGO CLAUSES A, B AND C?

There are 3 types of marine cargo insurance policies available for international transactions.

These marine cargo insurance policy types are known as Institute Cargo Clauses (A), Institute Cargo Clauses (B) and Institute Cargo Clauses (C).

Each marine cargo policy type covers different amount of risks. Whereas Institute Cargo Clauses (C) has the minimum coverage, Institute Cargo Clauses (A), also known as all risks, has the maximum coverage.

INSTITUTE CARGO CLAUSES (C)

Institute Cargo Clauses (C) covers very limited risks most of them which must happen during the carriage in forms of accidents.

 Institute Cargo Clauses (C) is the cargo insurance policy type which is requested by the INCOTERMS 2010 rules.

This insurance covers, except as provided in Clauses 4,5,6, and 7 below;

1.
Loss of or damage to the subject-matter insured reasonably attributable to

  • Fire or explosion
  • Vessel or craft being stranded, grounded, sunk or capsized
  • Overturning or derailment of land conveyance
  • Collision or contact of vessel craft or conveyance with any external object other than water
  • Discharge of cargo at a port of distress

2. Loss of or damage to the subject-matter insured caused by

  • General average sacrifice
  • Jettison

3. General Average Sacrifice: There is a general average act when, and only when, any extraordinary sacrifice or expenditure is intentionally and reasonably made or incurred for the common safety for the purpose of preserving from peril the property involved in a common maritime adventure.

4. Jettison: The intentional throwing overboard of part of the cargo or some piece of the ship in order to save the ship or its cargo.

5. Both to Blame Collision Clause: This insurance is extended to indemnify the Insured against such proportion of liability under the contract of affreightment “Both to Blame Collision” Clause as in respect of a loss recoverable here-under

 

INSTITUTE CARGO CLAUSES (B)

This insurance covers, except as provided in Clauses 4,5,6, and 7 below;

  1. Loss of or damage to the subject-matter insured reasonably attributable to
  • Fire or explosive
  • Vessel or craft being stranded, grounded, sunk or capsized
  • Overturning or derailment of land conveyance
  • Collision or contact of vessel, craft or conveyance with any external object other than water
  • Discharge of cargo at a port of distress
  • Earthquake, volcanic eruption or lightning
  1. Loss of or damage to the subject matter insured caused by
  • General average sacrifice
  • Jettison or washing overboard
  • Entry of sea, lake or river water into vessel, craft, hold, conveyance, container, liftvan or place of storage
  1. Total loss of any package lost overboard or dropped whilst loading on to, or unloading from, vessel or craft
  2. General Average Clause: This insurance covers general average and salvage charges incurred to avoid loss from any cause except those excluded.
  3. Both to Blame Collision Clause: This insurance is extended to indemnify the Insured against such proportion of liability under the contract of affreightment “Both to Blame Collision” Clause as in respect of a loss recoverable hereunder.

INSTITUTE CARGO CLAUSES (A)

 Institute Cargo Clauses (A) covers maximum risks as a result it is also known as All Risks cargo insurance policy. It covers all the risks of loss of or damage to the goods except those excluded in Clauses 4, 5, 6 and 7 below;

Institute Cargo Clauses (A) is the cargo insurance policy type which is requested by the issuing banks under letter of credit transactions.

POLICY EXCLUSIONS

  1. General Exclusion Clauses
  • Loss damage or expense attributable to willful misconduct of the Assured
  • Ordinary leakage, ordinary loss in weight or volume, or ordinary wear and tear of the subject-matter insured
  • Loss damage or expense caused by insufficiency or unsuitability of packing or preparation of the subject matter insured to withstand the ordinary incidents of the insured transit where such packing or preparation is carried out by the Assured or their employees or prior to the attachment of this insurance (for the purpose of these Clauses “packing” shall be deemed to include stowage in a container and “employees” shall not include independent contractors)
  • Loss damage or expense caused by inherent vice or nature of the subject-matter insured
  • Loss, damage or expense caused by delay, even though the delay be caused by a risk insured against
  • Loss, damage or expense caused by insolvency or financial default of the owners, managers, charterers or operators of the vessel where, at the time of loading of the subject-matter insured on board the vessel, the Assured are aware, or in the ordinary course of business should be aware, that such insolvency or financial default could prevent the normal prosecution of the voyage. This exclusion shall not apply where the contract of insurance has been assigned to the party claiming hereunder who has bought or agreed to buy the subject-matter insured in good faith under a binding contract
  • Loss, damage or expense directly or indirectly caused by or arising from the use of any weapon or device employing atomic or nuclear fission and/or fusion or other like reaction or radioactive force or matter.
  1. Exclusion Clauses Covering Insufficiency of the Vessel or Containers etc.
  • Loss damage or expense arising from unseaworthiness of vessel or craft or unfitness of vessel or craft for the safe carriage of the subject-matter insured, where the Assured are privy to such unseaworthiness or unfitness, at the time the subject-matter insured is loaded therein
  • Loss damage or expense arising from unfitness of container or conveyance for the safe carriage of the subject-matter insured, where loading therein or thereon is carried out prior to attachment of this insurance or by the Assured or their employees and they are privy to such unfitness at the time of loading.
  1. Exclusion Clauses Covering War related Risks
  • Loss damage or expense caused by war civil war revolution rebellion insurrection, or civil strife arising therefrom, or any hostile act by or against a belligerent power.
  • Loss damage or expense caused by capture seizure arrest restraint or detainment (piracy excepted), and the consequences thereof or any attempt thereat.
  • Loss damage or expense caused by derelict mines, torpedoes, bombs or other derelict weapons of war.
  1. Exclusion Clauses Covering Strikes, Riots and Civil Commotions Risks
  • Loss damage or expense caused by strikers, locked-out workmen, or persons taking part in labor disturbances, riots or civil commotions.
  • Loss damage or expense resulting from strikes, lock-outs, labor disturbances, riots or civil commotions.
  • Loss damage or expense caused by any act of terrorism being an act of any person acting on behalf of, or in connection with, any organization which carries out activities directed towards the overthrowing or influencing, by force or violence, of any government whether or not legally constituted;
  • Loss damage or expense caused by any person acting from a political, ideological or religious motive.

 

 

 

UNDERWRITING CONSIDERATIONS

 The insurance company will evaluate the risk and exposures of a potential client by looking at the following;

  • The character/Nature of the Cargo (subject matter) – finished goods, refrigerated goods, pharmaceuticals, machinery etc
  • The Carrying Conveyance – Sea freight or Airfreight
  • Packaging of subject-matter
  • Hazards and Customs
  • Quality and Suitability of the Vessel used as Carrier
  • Duration of Voyage
  • Road Transportation – Limit per conveyance
  • Route of transportation and operating condition of point of departure and destination
  • Seaworthiness and safety equipment – construction and type of the vessel
  • Past Claims Experience – historical data of incidents with the insured
  • Value of the goods
  • Inherent risks your products may possess
  • Any political risk, strike, riots, and civil commotion that could hamper the delivery of goods
  • Natural forces
  • Nationality of the vessel

HOW TO PLACE MARINE CARGO INSURANCE?

  • Submission of application form with the following details;
    • Name of the shipper or consignor (the insured)
    • Full description of nature of goods to be insured
    • Method and type of packing
    • Voyage (Point of commencement & Destination)
    • Mode of Transit e.g Sea, Air, Rail, Road
    • Risk Cover required
  • Quotation from the Insurance Company
  • Payment of Premium
  • Issue of Cover Note/Policy Document

A Cover Note is a document granting cover provisionally pending the issue of a regular policy.

PROCEDURE FOR CLAIM SETTLEMENT

Should insured goods be delivered in a damaged condition or if there is any reason to suspect damage, the attention of the carrier’s or shipper’s representative should be immediately drawn to same and necessary documents submitted.

The documents vary according to the type of loss, the circumstances of the claim and the mode of carriage. The documents required include:

  • A claim form duly completed
  • A letter of claim (Demand Letter) lodged with the Carrier or Shipper’s agent
  • Details on extent of loss or damage or an estimate of repair or replacement cost
  • Original Cover Note issued
  • Correspondences exchanged with Third Parties
  • Police Abstract report, where applicable
  • Bill of lading
  • Delivery Note/Road Consignment Note
  • Commercial Invoice
  • Packing List
  • Port Documents, if any

A loss adjuster will be appointed to adjust the loss and may request to be provided with a copy of the contract between yourselves and the Third Parties.

admin
admin@walton.co.ke