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17 January, 2011
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Page No.
Why is it Important?....................................................................................................3
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What is Marine Cargo Insurance?
After the end of Cold war, the importance of political relation has shifted to economic
relationship between the states. Nations are in the race to become economic super power and of
course, economic soundness insures stability and ability to exercise influence in world affairs. In
this regard, international trade in the form of global economic relations has been gaining
meaningful existence in the contemporary scenario. In fact, international trade demands free flow
of goods among the nations and most of such cross border transactions could be possible only
through the sea-route. The commencement of the 17th century formed the starting of a new
What is marine cargo insurance? English Marine Insurance Act, 1906 (MIA) states- “ A contract
of marine insurance is a contract whereby the insurer undertakes to indemnify the assured, in
manner and to the extent thereby agreed, against marine losses, that is to say, losses incident to
The Act doesn‟t specifically mentions air travel or pure land- based transit. Therefore to ensure
the Act applies to all modes of transit it is useful to see a clause in the policy document
means a duty to cover a loss suffered by the assured to the extent, and only to the extent of his
actual loss. Marine insurance Act in its opening section also includes „„maritime perils‟ and
„marine adventure‟. „Maritime perils‟ are perils consequent on or incidental to the navigation to
the sea, including perils of the seas, fire, war perils, pirates, rovers, captures, seizures, restrain
any other like perils.”(Chuah 2005). Similarly, marine adventure exists when- i) any ship or
goods are exposed to maritime perils; ii) the earning or acquisition of any freight, passage
money, commission, profit or other pecuniary benefit or the security for any advances is
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endangered by the exposure of insurable property to maritime perils; iii) liability to a third party
may be incurred by the owner of any other person interested in insurable property by reasons of
maritime perils.
Thus, Marine cargo insurance is an insurance policy taken up to protect against loss of or
damage to the goods while they are being transported. Goods, merchandise and other movable
properties which may be exposed to marine hazards or perils during their transportation from one
A vital element of international sales involves protecting the merchandise against loss or
damage while in transit. Whether the importer or exporter is required to purchase or pay for the
insurance for the merchandise depends on the terms agreed upon between the parties. For
example, if the seller is contracted to deliver merchandise the buyer FOB (Free On Board), then
the buyer is responsible for insuring the goods against risks while in transit. Carrier and shipper
firms are not automatically required to provide insurance for cargo they are contracted to
deliver.1
‘Insured’, ‘Insurer’, ‘Insurance’ and ‘Premium’ are the key terms for every kind of
insurance contract. Under the marine cargo insurance, the party interested in the property insured
is called insured or assured, the party undertaking to indemnify the assured against loss is called
the insurer or underwriter, the agreed consideration or stipulated sum for which the underwriter
to indemnify the assured is called the premium and the property insured itself is called the
1
Encyclopedia of Credit, Free Credit Ressource for Credit Management Asssociation, As retrieved on 10 th Jan. 2011
http://www.encyclopediaofcredit.com/Marine-Cargo-Insurance
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Why is it important?
Its true that risk can never be eliminated but the level or degree of risk can be minimized if
appropriate precaution applied in time. Of course, traders face great many risks in handling
business internationally. Even established trader has been facing many potential practical
problems while transporting the goods through marine route in international market. In this
There are many different things that can potential happen during shipment of cargo and container
on a ship. The loading cranes could damage the containers, theft and piracy, weather damage, as
well as potentially losing the cargo overboard or other marine disasters. All of these possible
issues are exactly why the traders need marine cargo insurance.2 The marine cargo insurance can
be described as follows:
1). Importance Of Marine Insurance For The Individual: A person has to import goods from
another country which is located on the other side of sea for his business. While carrying goods
from sea- side, goods may be damaged because of sinking of ship into the water. So businessman
has to experience economic loss. By the result of loss person may be discouraged to engage in
business. But when one insures his/her property in marine insurance does not have to face with
economic problem because marine insurance provides compensation to the insured against the
loss of property.
2
Hub Page Inc., retrieved on 9th Jan. 2011
http://hubpages.com/hub/Cargo-Insurance
5
2). Importance Of marine Insurance for Ship-owner: Expensive ship may be destroyed due to
different types of risks on the marine venture. Ship-owner may have to experience with larger
amounts of loss due to the destruction of the ship. Marine insurance provides compensation of
loss to the ship-owner. So, marine insurance is important insurance for ship-owner.
3). Importance Of Marine Insurance For Freight: Freight insurance is also included under the
marine insurance. Freight refers to the revenue that a cargo ship earns or the money which is paid
to the ship-owner for transportation of goods from one part to another. If businessman does not
pay freight of his goods to the ship-owner, ship-owner may have to experience economic loss. If
such types of loss occur insurance company indemnifies the ship-owner to marine insurance. So
for his goods. Especially countries which are located on the other side of sea, businessman may
have to use marine venture. Marine insurance keeps them away from worry and fear or all
responsibility of cargo owner is transferred to the hand of insurance company that provides
5) Importance Of Marine Insurance For The Government: International trade has been
increased due to the marine insurance. As international trade increases government also can
receive economic profit. Government increases revenue by including extra income tax. So
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Traders should have a basic understanding of some of the fundamental principles of insurance.
These principles of insurance are equally applicable for marine cargo insurance as well. They are
as follows:
1) Utmost good faith: The principle of utmost good faith is essential in any insurance contract.
Insurers are almost totally dependent on the insured to disclose any relevant information
regarding the insured risk. Good faith works both ways. Both parties (insurer and the insured) in
the contract must disclose all material facts for the benefit of each other. False information or
non- disclosure of any important fact makes the contract avoidable. So,utmost good faith are
2) Insurable Interest: The title or interest which the assured has in his property, is called
insurable interest.( Dixon 1866). The principal of insurable interest is a vital one to all forms of
insurance. In order to take out a policy the policy holder must have an insurable interest in the
insured matter. In the case of cargo insurance this means that they must ‟benefit from the safe
arrival of the goods or be prejudiced by their loss‟. So an insurance contract without the
existence of insurable interest is not legally valid and cannot be claimed in a Court. The object of
compensate for the loss or damage in terms of the value of the insured goods. The amount
insured as agreed between the insurer and the assured forms the basis of indemnity. All types of
contracts except life and personal accident insurance are contract of indemnity. According to
them, the insurer undertakes to indemnify the insured against a loss of the subject matter of
insurance due to insured cause. In life assurance the question of loss and, therefore, of its
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indemnification does not rise. Because the loss of life cannot be estimated in term of money. 4
The principles of indemnity are based on the idea that the assured in the case of loss only shall be
compensated against the actual total loss. But if no event happens, the insured has not to receive
any amount, so in this case the premiums paid by him become the profit of the Insurer.
having indemnified an assured, has transferred to himself all the writes and remedies of the
assured with respect to the subject matter as from the time of causality”(Hodges 1999). It lays
5) Doctrine of proximate cause: This principle is found very useful when the loss occurred due
to series of events. It means that in deciding whether the loss has arisen through any of the risks
insured against, the proximate or the nearest cause should be considered. In fact many claims fail
simply because the cause of the loss is not an insured risk. Just what the insured is not covered
for is listed below, but first the principle of „Proximate Cause‟ needs to be explained.
1) Physical Risk: Marine cargo in international trade never free from possible casualties Goods
moving internationally faces a very real risk of physical loss or damage. This may simply be
damage caused to the goods in handling and transit, possibly due to inadequate packing or bad
4
Hub Page Inc., retrieved on 10th Jan. 2011
http://hubpages.com/hub/Principles-of-Insurance
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handling, or loss due to accidental diversion or deliberate pilferage or theft. When these risks
2) Exchange Risk: In some countries exchange controls limit the buyer so that dollars are not
available until the goods have actually cleared customs.6 Even if we are able to deliver goods in
good condition to the buyer and the satisfied buyer pays us on time it is still possible for the
unwary exporter to lose money. In the event that the exporter is invoicing in a foreign currency it
is possible that the pounds sterling funds eventually received, following exchange of the foreign
currency revenues, are less than was anticipated because of fluctuations in the relevant exchange
rates. It is not possible for the exporter to arrange insurance cover for such risks. It is however
3) Credit Risk: Even if the goods arrive complete and undamaged the problems do not stop
there because there is the risk that the buyer will not actually pay for the goods. This may create
contractual dispute between buyer and seller; after all, the exporter may have shipped total
rubbish to the importer. However we must accept that non-payment may be the result of a
dishonorable intention of the buyer. This takes many forms from non-acceptance of the goods,
through taking over the goods and deliberately delaying payment, to simply not paying for the
goods.
5
National Insurance Company Ltd.( A Government of India Undertaking), As retrieved on 7th Jan. 2011
http://www.nationalinsuranceindia.com/nicWeb/nic/PolicyServlet?id=9999&name=2101.html
6
Export Insurance Service, Georgia(Representatives also in Florida, North Carolina, Illinois and Texas), As
retrieved on 7th Jan. 2011
http://www.exportinsurance.com/minsurancem.htm
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Total Loss in Marine Cargo
1)Actual Total Loss: A loss of cargo in which the subject matter is destroyed or damaged to
such an extent that it can no longer be used for its purpose, or when the insured is irretrievably
2) Constructive Total Loss: A marine insurance term indicating that the cost of repairing
damage to a ship will exceed its total value. In such case the insurance payment is the total sum
for which it has been insured, and not the estimated cost of repairs.7
Cargo cannot be preserved without incurring expenditure that is garter than the value of
the cargo.
Cargo insurance policy primarily protects against loss or damage of the goods while they are
being transported. The policy helps to indemnify if there is any loss or damage on cargo. The
marine cargo insurance policy can be designed to meet the individual needs of the exporter or
importer in an international transaction.8 Commonly used cargo insurance policies are as follows
7
Encyclopedia.com, As retrieved on 6th Jan. 2011
http://www.encyclopedia.com/
8
Guide to US Cargo Insurance, American Institute of Marine Underwriter(2005), 14 Wall Street New York, As
retrieved on 6th Jan. 2011
http://www.google.com/search?sourceid=chrome&ie=UTF-8&q=aimu+cargo+guid
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1) Time Policy:“Marine Insurance Act, sec.25(1) provides that where the contract is to insure the
subject matter for a definite period of time the policy is called time policy”. This policy cover
risks during a stated period of time. An insured vessel is not bound to a particular route and all
voyages within the stated policy period are covered. Where there is not certainty, the contract
2) Voyage Policy: A voyage policy is defined by s. 25 “ as one where the subject matter is
insured „at and from‟ or from one place to another or other places”. Voyage policies protect a
certain ship traveling a certain route regardless of length of time. In these cases the insurance
would not be effective until the voyage begins and would terminate when the voyage ends.
3) Valued Policy: The valued policy is one where the parties agree to the limit or amount of
cover regardless of the actual value of goods. There should be a specific agreed value proposed
4) Unvalued Policy: Section 28 describes “The unvalued policy is one which doesn‟t specify the
value of subject matter insured and leaves the insurable value to be subsequently ascertained in
the manner set out in s. 16. Section 16(3) provides that the insurable value of goods is the prime
cost of property insured, plus expenses of an identical to shipping and the charge of the
insurance”. Those with an undermined value of stated property are called unvalued or open
policies.
5) Floating Policy: According to s. 29, “ A floating policy describes the insurance in general
terms, but leaves the name of the ship or other particulars to be defined by subsequent
declaration. The value of the goods must be honestly stated.” This policy designed primarily for
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merchants and exporters who frequently ship large amounts of mixed goods. It allows the
insured to buy a certain dollar amount of protection and declare particular ships, voyages and
or C. The „A‟ clauses cover all risk, subject to specific exclusion. The „B‟ and „C‟ clauses cover
the risks stated, subject to specific exclusion. In simple terms, Cargo clauses „A‟ are equivalent
of all risks, „B‟ covers less than „A‟ and „C‟ covers less than „B‟, with a corresponding decrease
1)Institute Cargo Clauses ‘C’: It covers the losses -from warehouse to warehouse, total loss of
the cargo due to perils of the sea, partial losses caused by the – sinking, fire or explosion,
It doesn’t cover loss, damage or expense caused by- willful misconduct of assured. ordinary
leakage , loss of weight or volume, wear and tear, unsuitable packing, inherent vice, delay,
2) Institute Cargo Clauses ‘B’: It covers losses- from warehouse to warehouse, total loss of the
cargo due to perils of the sea, partial losses caused by the – sinking, fire or explosion,
overturning or derailment, collision, discharge of cargo at point of distress, jettison, loss of entire
package whilst loading, unloading and during transshipment, entry of water into vessel,
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It doesn’t cover loss, damage or expense caused by- Willful misconduct of Assured. Ordinary
leakage, loss of weight or volume, wear and tear, unsuitable packing, inherent vice, delay,
3) Institute Cargo Clauses ‘A’: It covers the losses- from warehouse to warehouse, covers all
risks of loss to the cargo, both partial loss and total loss except if caused by: Willful
misconduct of Assured, ordinary leakage, loss of weight or volume, wear and tear, unsuitable
packing, inherent vice, delay ,radioactivity , atomic weapon of war, insolvency or financial
Insurer and insured both parties should have appropriate knowledge of fragile goods and their
techniques of management while making the contract of marine cargo insurance. People shipping
antique, artworks, or luxurious items that may cost thousands of dollars, might discover that the
container holding the goods was damaged due to rough handling or accidents. 9 Therefore, some
tips for a simple way to safely send fragile packages are as follows:
1) Use only high quality heavy duty boxes made from corrugated cardboard.
3) Try to get the box size as close to the item size as possible
9
Cargo Insurance, As retrieved on 10th Jan. 2011
http://www.cargoinsurance.com/tips-shipping-fragile-goods/
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4) Avoid packing fragile items in used boxes
Use packing peanuts to fill corners and small spaces within the box.
Use proper packaging tape, not masking or cellophane tape, as these aren‟t as strong.
Place the item in the centre of the box (make sure it doesn‟t touch the edges)
Pack padding material in all spaces and corners and ensure the box is totally full
Clearly mark your package with clear „fragile‟ and/or „handle with care‟ notices. This
10
Boxability is a Division of Welsh Boxes Company Limited. It supplies conventional and heavy duty performance
http://www.boxability.co.uk/fragile-goods/
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Claim Documents for Marine Cargo Insurance
1). Original policy or certificate: Bearing in mind that the policy is „proof of interest‟
(ie, insurable interest), this is essential. It also describes the subject matter,
2) Invoices and packing specifications:. Needed to assess the percentage of a part loss and
3) Original bill of lading or other transport document:. Proves the goods were in apparent
good order and condition when shipped and evidences the contract of carriage should action be
4) Survey report or other evidence of loss or damage: An independent report of the nature and
extent of the loss should ideally be produced by an approved agency, eg Lloyd‟s agent.
the out-turn of the goods at destination. Useful for identifying where damage took place in the
6) Any correspondence with the carrier/other parties: Obviously the insurers wish to
maintain any legal rights against other parties and insist that the insured do not give them away.
Not an unreasonable set of documents to require and every one there for a specific, and
understandable, purpose.
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Marine Cargo Insurance: A Case Study
February 1994, China Textile Import and Export Corporation and Dalian in a maritime
companies have signed a 1000 transport protocol silk shirts to Marseilles. After signing the
contract, the insurance company to import and export companies Youxiang transport of the
goods insured single FPA. February 20, after loading the goods set sail on February 25, loading
the goods in the ship suddenly encountered a rare storm at sea, the hull badly damaged, sank on
February 26, March 20 . Textiles Import and Export Company for the goods to the insurance
company claims, the insurance company to the goods caused by natural disasters, refused
compensation for the loss, then, import and export company to court to require insurance
The insurance company liable. According to the Chinese People‟s Insurance Company of marine
cargo insurance provisions, marine cargo insurance, the basic insurance coverage is divided into
two major categories and additional insurance, the basic insurance is insurance for insurance
alone. Main Cheng Baohai the loss of goods on the risk of causing, including the FPA, WPA and
general insurance. FPA on the part of the loss caused by natural disasters are generally not
responsible, unless the transit occurred stranded, sunk, and burnt and other accidents. Although
FPA part of the loss caused by natural disasters liable, but all the losses caused by natural
disasters should be liable, in this case, the import and export companies covered is FPA, and the
security of cargo the ship sank due to storms when the total loss, there was an actual total loss, so
the insurance company liable, the reason put forward is not established.
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Bibliography
Dixon, Francis B. (1866). Marine Insurance and Average, 133 Pearl and 80 Beaver Street
Martin, Elizabeth A.( 2009). Dictionary of Law, Oxford press Inc. New York
Hodsan, Susan . (1999). Case Study and Materials on Marine Insurance Law, Cavendish
Boxability is a Division of Welsh Boxes Company Limited. It supplies conventional and heavy
duty performance packaging throughout the UK and Ireland, As retrieved on 11th Jan.2011
http://www.boxability.co.uk/fragile-goods/
http://www.cargoinsurance.com/tips-shipping-fragile-goods/
http://www.encyclopediaofcredit.com/Marine-Cargo-Insurance
http://www.encyclopedia.com/
Export Insurance Service, Georgia(Representatives also in Florida, North Carolina, Illinois and
Texas), As retrieved on 7th Jan. 2011
http://www.exportinsurance.com/minsurancem.htm
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http://www.google.com/search?sourceid=chrome&ie=UTF-8&q=aimu+cargo+guid
http://hubpages.com/hub/Principles-of-Insurance
http://hubpages.com/hub/Cargo-Insurance
http://insurancestudies.blogspot.com/2010/01/importance-of-marine-insurance.html
National Insurance Company Ltd.( A Government of India Undertaking), As retrieved on 7th Jan.
2011
http:/ /www.nationalinsuranceindia.com/nicWeb/nic/PolicyServlet?id=9999&name=2101.html
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