When a shipment is made, companies are poised the cargo to be in perfect condition hence do not really think about the possibility of losing the shipment. The market trend is to deliver the products in an absolute perfect condition, save any malicious intentions, however, it never runs through the trader’s mind the consequences if the shipment gets damaged, stolen or lost.
Today the market is well versed with the range of available insurances especially the cargo insurance which falls under the category of marine insurance. This insurance has been significant for any business that requires movement and transfer of cargo either by road, air or sea. Many small scale traders who are of the opinion that cargo insurance or marine insurance may not be required either due to the additional cost or due to lack of knowledge, should think whether there can be any means of safety to their cargo goods whilst it is sailing on high seas.
There are indeed some traders who are of the opinion that taking insurance is merely a formality and a superfluous expense and in case of any damage to the cargo, they will seek revenge from the carrier for such loss and are hopeful to be fully compensated. Firstly, there is no doubt that taking insurance may be expensive depending on the type of cargo that is being shipped or the type of cover that will be purchased. However, for those who try to save money on insurance may face considerable damages or expenses as there is always a risk of an accident, shipwreck, plane crash, civil war, strikes, etc. and of course, all sorts of fraud, theft or even armed robbery being a common factor. It is quite common that cargoes travel several countries and probably more than one mode of transportation is used hence multiple risk on the owner of the cargo. Secondly, with all the laws defining the carrier’s liability and limiting them against the cargo owners, it is not always easy to hold the carrier responsible, which may not only be a futile exercise but will also add expenses to the loss.
International or cross border trade has always been the genesis of shipping, therefore, with the variety of languages it becomes hard to understand as to who will be responsible for insuring a cargo especially when a cargo can change several hands before it has arrived at the destination. Therefore, in order to identify the responsibilities International Chamber of Commerce has published Incoterms, which are wildly used in the industry. There are 13 different terms and each Incoterm refers to a type of agreement for the purchase and shipping of goods internationally. Though this article will not deal with all the terms, however, the terms do identify the responsibility of a seller or a buyer: for example CIF (Cost Insurance and Freight) and CIP (Cost and Insurance paid to) terms would require the seller to contract for carriage on usual terms at his own expense. Therefore, the seller would have to pay transport cost and also the insurance cost.
The Insurance companies will however follow a set of terms for cargo insurance policies which has been voluntarily adopted as standard terms by many international marine insurance organizations, including the Institute of London Underwriters and the American Institute of Marine Underwriters. The present insurance policy and clauses were introduced in the 80s and is also known as Lloyd’s Marine Policy and the cargo clauses are described as Institute Cargo Clauses (‘ICC’) A, B and C. In addition to these three sets of cargo clauses, there are various other clauses such as the Institute War Clauses (Cargo) and the Institute Strikes Clauses (Cargo).
The question that may be asked is what are the risks covered. Widest insurance cover is provided under ICC (A), whereas ICC (B) and (C) only cover risks which are restrictive in nature. The exporter who, in order to save on the premium, does not wish to insure under Clauses A but prefers to insure under Clauses B or C, should make sure that the specific risks to which his cargo may be exposed are expressly covered, and also are not excluded by the provisions of Clauses B and C. In particular each of these clauses contain (i) a risk clause; (ii) a general average clause; and (iii) a transit clause.
Risk Clauses differs in each of the clauses as the widest cover is provided by ICC (A), whereas ICC (C) restricts cover to the effects of major fortuities, viz. fire, collision, etc. As per ICC (A) the meaning of the words ‘all risks’ is a very wide term and the clause 1 of ICC (A) reads: “this insurance covers all risks of loss of or damage to the subject-matter insured except as provided in clauses 4,6,6 and 7 below”. It is a settled practice that as long as the assured/insured can show that the loss was caused by a casualty or something accidental without proving the exact nature of the casualty or accident which caused the loss would suffice the purpose.
ICC(B) however restricts the loss of or damage to the cargo reasonably attributable to fire or explosion, the vessel or craft being stranded, grounded, sunk or capsized, the overturning or derailment of a land conveyance, the collision or contact of the vessel, craft or conveyance with any external object other than water, the discharge of the cargo at a port of distress and earthquake, volcanic eruption or lightning. This clause also covers loos or damage to the cargo caused by general average sacrifice, jettison or washing overboard and the entry of sea, lake or river water into the vessel, craft, hold, conveyance, container, liftvan or place of storage and lastly the total loss of any package lost overboard or dropped whilst loading on to or unloading from the vessel or craft. The highlighted risks are not covered by ICC (C).
The effect of Transit clause in ICC (A), (B) and (C) is to extend the sea voyage to include the risks whilst the goods are transported from the inland warehouse or place of storage to the time and place of loading, as well as the risks from the time of discharge to the delivery at the final warehouse or place of storage at the named destination. Therefore, an assured can, under this clause, for example, insure a consignment of goods from port of Niteroi to Changchun provided these placed are named in the policy as the commencement and destination of the transit.
Under the transit clause, the goods are covered from the time they leave the warehouse at the place named in the policy for the commencement of the transit and continue to be covered until they are delivered to the final warehouse at the destination named in the policy or a warehouse, whether prior to or at the destination named in the policy, but the policy provides an overriding time limit of 60 days after the completion of discharge alongside the overseas vessel at the final port of discharge; on the expiration of that time limit cover ceases even through the goods may not have reached a warehouse. If before the expiration of the 60 days after discharge the goods are forwarded to a destination other than that named in the insurance, the cover terminates when the transit begins. The 60 day’s cover is very valuable for the insured if, for some reason, the goods cannot proceed to the warehouse, for instance, because the buyer has not paid the import duties, and the insured cannot dispose them quickly. The term “warehouse” has to be given its ordinary and natural meaning. The principal underlying these provisions is that the insured shall be covered until he or his buyer can reasonably be expected to have made further insurance arrangements for the goods.
ICC (A), (B) and (C) have also a clearly defined exclusions that will not be covered viz. loss/damage due to willful misconduct of the insured, ordinary leakage, ordinary wear and tear, ordinary loss in weight or volume, loss or damage due to unsuitability of packaging, loss or damage due to inherent vice, loss or damage proximately caused by delay even though the delay is caused by an insured risk, loss or damage due to insolvency or financial default of the owners/managers/charterers/operators of the vessel. As noted above ICC (B) and (C) will have additional exclusions compared to ICC (A). Further, if the cargo is being shipped to a troubled boundaries then it would be imperative to look into War Exclusion Clause which is present in ICC (A), (B) and (C), however, will attract additional premium. Such insurance covers loss or damage to the cargo caused by war, civil war revolution, capture due to covered risks or derelict weapons of war.
Similarly, the Strikes Exclusion clause is present in all three clauses, however will also attract additional premium if required in ICC (B) and (C) as the perils are not within the specific risks covered under these clauses. Such insurance covers, with specified exception, will insure the loss of or damage to the cargo caused by strikes, locked out workmen or persons taking part in labour disturbances, any terrorist activity or by any person acting from a political motive.
It is imperative for the trader to understand the importance of the insurance and the liabilities or responsibilities being attracted as there is no question of doubt that it is necessary to have cargo insurance taken up to protect against loss of or damage to cargo while being transported/shipped either by air/road or by sea. In today’s competitive market, it is comparatively quite easy and straight forward to get the cargo insured. When a trader first enters the international trade arena, they often become confused by the various trade terms that are bandied about by their international suppliers or customers. The marine cargo insurance do tend to get complicated, however, it is merely a matter of clear understanding of the terms.