Second Review

CARGO INSURANCE MATTERS

Business Analysts
Excerpts from Freight
Matters Canada

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Second Review Index
Business Analysts

Introduction
Errors & Omissions

Limited Liability
All Risks & War
F.P.A.
General Average Terms

Obtain Cargo Policy

Claims

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Business Analysts Introduction

The risk of transporting cargo

regardless of the mode, is the
owner’s risk and not the carrier’s.
This principle is thousands of years
old and holds true today.

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Business Analysts Introduction -2

Carriers do carry insurance however this is very

limited and not intended to transfer all risks to
themselves.

It is expected that importers and exporters

undertake sufficient cargo insurance to cover
damage, loss, war, acts of god and general
averages although this is not mandatory.

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Cargoes that have an inherent vice are normally

uninsurable or subject to very high premiums,
deductibles and restrictions as insurance
companies do not insure risks that are likely to
occur.

The owner of the cargo must take all actions to

reduce or minimize any loss or damage, whether
by utilizing special containers, bracing, correct
packing, or choice of route.

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Second Review
Business Analysts Limited Liability

• Limited Liability is a limit placed on any liability

incurred by a carrier, NVOCC and freight forwarder.

– The limits are explained in print in the carrier’s conditions

of carriage or standard trading conditions issued by the
forwarder.
– The majority of forwarders adopt the CIFFA (Canadian
Freight Forwarding Association ) trading conditions whose
limit is two SDR per Kg. (See Glossary General)
– Airlines normally offer $20 per Kg.
– Steamship lines normally offer $500 per Customary
Shipping Unit e.g. container

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Errors & Omissions

• Errors & Omissions or otherwise known as

Professional Liability Insurance is carried by most
freight forwarders and protects them and ultimately the
client from risks of

– The expenses to reduce the damage

– The expenses to complete the shipment
– The penalties
– The survey expenses
– Physical or financial damage or loss of the third party
caused by the freight forwarder
– The damage or loss of the customers caused by the failure
of the freight forwarder

A small flat fee is normally charged by the

forwarder

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All Risks & War
Open Cargo Policy

• All Risks Open Cargo Policy is the broadest form of

coverage available, protecting against all risk of
physical loss or damage from any external cause.

• Loss or damage due to delay, inherent vice, pre-

shipment condition, inadequate packaging, or loss of
market is not covered but the following is included:
General Average, War Risks , Civil Riot Clauses, Partial
or Total Loss, Warehouse to Warehouse coverage,
salvage and survey expenses.

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Where to obtain Open
Cargo Policy

• Importers/Exporters could obtain an open cargo policy

direct from an insurance provider and would handle
monthly reporting themselves. Certificates would not
be required in most cases. as this is designed for
continuous cargo movements.

• Alternatively they could purchase All Risks insurance

from the freight forwarder’s own open policy where
they would handle administration and reporting.
Premiums and Minimum charges would be higher in
this case.

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Second Review General Average -1
Business Analysts

An Ancient principle of equity in which all

parties in a sea adventure (ship, cargo, and
freight) proportionately share losses.
The 3 required elements are :

1. A peril to the common venture – For example: A storm at sea,

which threatens the vessel itself, cargo carried on board (some of
which may be yours) as well as the lives of the passengers and
crew. Together these constitute the “common venture “.

2. An extraordinary sacrifice or expenditure to avert the peril – This

could involve jettisoning cargo to lighten the vessel, or
engagement of a salvage tug to tow the damaged vessel, etc….

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Business Analysts General Average -2

3. The successful preservation of the venture – If the

vessel is not preserved, you may be presented with a
conventional marine claim and not a General Average.

• When the vessel owner declares a general average,

the vessel owner and all of the cargo interests will
share the expenses associated with the general
average on a pro-rata basis. These expenses are
covered under the Open Cargo Policy

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F.P.A. Free of Particular
Business Analysts Average

• Marine insurance provision which limits the liability of

an insurance company to only those losses that
exceed a specified percentage of the value of the
goods.

• It is similar to the deductible clause included in other

types of insurance, but is not applicable where a cover
for total loss is in force. FPA conditions are applied
where the goods are extremely susceptible to
damage, or are rendered almost worthless from
exposure to water or heat.

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• Always inspect cargo on arrival and ensure apparent

or suspected damage is noted on your delivery
receipt. This is a vital component of your claim.

• In the case of water damage, if cargo arrives in a

container, inspect the container, door and roof.

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Business Analysts Claims (2)

• Hold all carriers, forwarders and delivery companies

responsible immediately. Be sure to indicate file numbers,
airway bill and house bill of lading numbers so that the
transaction can be identified easily and provide initial
estimate of damage. Notify all parties by email or fax.

• Take pictures - it’s worth a thousand words.

• Ensure quick, preventative action is taken to prevent

further loss, e.g. Leaking barrel,

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• Contact the Surveyor – they may or may not

determine whether the goods are to be
inspected. The insurance company will
provide a list of local surveyors /agents.

• Complete the claim form. This will be

provided to you by your insurance provider.

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Claims (4)
Business Analysts

• Provide the shipment documentation.

*Bill of Lading / Air Waybill
* Commercial Invoice
* Insurance Certificate
* Copy of notice of claim lodged against carrier
* Documentation relating to out-turn / receipt of goods
* Local Carriers Waybill, where applicable
* Copy of temperature records, where available
* Invoices to confirm salvage / sale price, where
applicable
* Copy of instructions to carrier regarding carriage
temperature, where applicable

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Act of God A natural event, not preventable by any human agency,

such as flood, storms, or lightning. Force of nature that a carrier has
no control over, and therefore cannot be held accountable for
Approved Merchandise Goods that are not particularly susceptible to
loss or either by reason of their nature or because they are well
packed. This term embraces practically all manufactured articles or
new merchandise.
Certificate of Insurance (Policy of Insurance) Document issued on
behalf of the Underwriter stating the terms and conditions of the
marine insurance. Issued when evidence of insurance is required,
as by the bank issuing the Letter of Credit (especially on export
shipment.)
Concealed Damage Damage to the contents of a package which is
externally in good condition.
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Second Review Terms (2)
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Fire Statute 1851 U.S. Statute that provides no ship owner can be
held liable for any loss or damage to merchandise on board his
vessel by reason of fire on board unless this fire has been caused
by the design or neglect of the ship owner
F.O.B/F.A.S. Endorsement If a merchant sells on F.O.B., F.A.S.,
C&F, or similar terms, it is the buyer's responsibility to place the
marine insurance. However, if the buyer purchases marine
insurance that does not have a "Warehouse-to-Warehouse" Clause,
or Marine Extension clauses, the coverage may not attach until the
cargo is placed aboard the vessel. If the merchant has an Open
Cargo Policy, an F.O.B./F.A.S. Endorsement provides automatic
coverage on such shipments until such time as the buyer's policy
attaches. A type of Contingency coverage.

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Second Review Terms (3)
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Inherent Vice A loss caused by the inherent nature of the thing

insured .
Insured Value Value of the merchandise, freight, haulage, packing,
documentation, insurance,
Loss of Market A situation in which, sound cargo is no longer
wanted by the consignee when it arrives. This is a "business loss"
not recoverable under a Marine Cargo Policy; e.g. Christmas trees
arriving in January undamaged.
Named Perils Policy Any marine policy limiting coverage to perils
specifically listed in the policy;
Salvage 1) The service rendered by a third party for assistance in
saving cargo from peril.
2) The monetary award granted for such service. 3) That which
is saved.
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Subrogation The operation by which the insurance company (on

payment of a claim) assumes all of the assured's rights to recovery
from any third parties; substitution of one creditor for another.
War Risks Those risks related to two (or more) belligerents engaging
in hostilities, whether or not there has been a formal declaration of
war. Such risks are excluded by the F.C. & S. (Free of Capture and
Seizure) Warranty, but may be covered by a separate War Risk
Policy, at an additional premium
Total Loss Actual Total Loss: Total loss of property insured due to :
1. Total Destruction: Physical destruction of the property, 2.
Loss of Specie: Property is so badly damaged that it ceases to be
recognizable e.g. bags of cement wetted by sea water and
hardening. 3. Irretrievable Deprivement: The owner of the
property has been deprived of the use of the property, even through
it may be undamaged, as when a shipment of silver ingots is lost
overboard.
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