Cargo Transport Insurance

Topics in This Chapter

• Overview• Risks: Perils of the Sea and Extraneous Risks• Losses: Total Loss, Partial Loss and Expenses• Ocean Marine Insurance Under C.I.C• Institute Cargo Clauses

• Insurance Clause in an International Contract

• Insurance policy

Overview

• Cargo transport insurance is to protect the interests of importers and exporters from possible financial losses caused by risks during the transit of the goods from the factory or warehouse in a country of origin to the warehouse in a country of destination.

• It is now an indispensable part to the import and export practice.

• In insurance, the party who insures others against possible losses or damage and undertakes to make payment in case of loss is called the insurer.

• The party who is insured against possible losses and to whom payment covering the loss will be made is called the insured.

• The contract made between the insurer and the insured is the insurance policy.

• The amount of money the insurer agrees to cover by insurance against the subject matter is the insured amount ( which is usually the amount of 110% of CIF value of the consignment in marine cargo transport insurance).

• The sum of money the insured agrees to pay the insurer for an insurance policy is called premium.

Risks in Cargo Transport

• Risks in cargo transport are of many kinds.

• Different risks mean different losses,

• and different risks are covered by different insurance clauses

• and different insurance clauses mean different premiums.

• So we need to have a good understanding of the different risks and losses before we know how to effect insurance.

• In marine cargo transport insurance, risks fall into perils of the sea and extraneous risks.

Perils of the Sea

• Perils of the sea can further be either natural calamity or fortuitous accidents:

• Natural calamity refers to the perils under force majeure( 不可抗力 ) such as vile weather, thunder storm and lightening, tsunami, earthquake, flood, volcanic eruption, etc. (The ordinary action of the winds and waves is not taken as natural calamities.)

• Fortuitous Accidents are such risks as ship stranding, striking upon the rocks, ship sinking, ship collision, colliding with icebergs or other objects, fire, explosion, ship missing, etc.

Extraneous Risks

• Extraneous risks can further be general extraneous risks and special extraneous risks.

• Risks caused by theft, rain, leakage, shortage, breakage, dampness, mildewing, heating, taint of odor, hooking and rusting are general extraneous risks.

• Risks caused by war, strikes, failure of delivery and rejection, etc. are special extraneous risks.

Losses

• Losses sustained by the insured due to the risks listed above come from

• not only the loss of the goods or the damage done to the goods, • but also from the expenses the insured sustained in rescuing the

goods in danger. • The losses and the damages done to the goods can fall into total

loss and partial loss. • Total Loss includes Actual Total Loss( 实际全损 ) and

Constructive Total Loss.( 推定全损 ).• Partial Loss means that the loss or damage done to the goods is

only partial. Partial loss can be either general average ( 共同海损 )or particular average( 单独海损 ).

Total Loss

• Actual Total Loss means the whole lot of the consignment has been lost or damaged or found valueless upon arrival at the port of destination.

• Constructive Total Loss is found in the case where the actual total loss of the insured goods is unavoidable, or the ship or the consignment has to be abandoned because the cost of salvage or recovery would exceed the value of the ship and the consignment in sound condition upon the arrival of the port of destination.

Partial Loss

• General Average is in use when • both the ship and the consignments on

board are endangered • and the captain intentionally and reasonably

does some sacrifices or makes some expenses

• for the safety of the ship and the consignments on board.

• For example, when a ship goes aground and both the ship and the consignments on board are in peril, the captain, after all his efforts to refloat the ship have failed, may decide to jettison part of the consignments on board to lighten the ship.

• The loss, the sacrifice done for that purpose, is to be borne by both the carrier and the consignors in proportion to the value of their interest thus saved. This is called general average contribution.

• Particular Average means that a particular consignment is partially damaged.

Expenses

• 1. Sue and labor expenses( 施救费用 ) are made by the insured or his agent to prevent them from suffering further losses.

• 2. Salvage Charges( 救助费用 ) are made to those other than the insured, the carrier and the insurer who come to the salvage of the ship and the consignment.

Ocean Marine Insurance Under C.I.C(China Insurance Clauses)

• Cargo transport insurance falls into ocean marine insurance, overland transportation insurance, air transportation insurance, and parcel post insurance.

• Under China Insurance Clauses (C.I.C), for each type of transportation insurance, there are basic risks coverage and additional risks coverage.

Basic Risks Coverage

• Under C.I.C., basic risks coverage falls into three groups:

• Free from Particular Average (F.P.A.) ;• With (Particular) Average (W.A.or

W.P.A.) ; • All Risks . • The insured may choose any one from these

suitable for the carriage of his goods.

Free from Particular Average (F.P.A.)

• Free from Particular Average (F.P.A.) covers the following losses:

• (1) Actual total loss or constructive total loss of the consignment caused by natural calamities such as vile weather, tsunami, earthquake, flood. When the consignment is carried by a lighter to or from the ship, the goods aboard the lighter can be taken as a whole consignment.

• (2) Total loss or partial loss caused by fortuitous accidents such as stranding, striking upon the rocks, icebergs or other objects, collision, fire and explosion.

• (3) General average of the insured goods attributable to vile weather, lightening and /or tsunami, where the ship has been stranded, sunk, or burned, inspective of whether the event took place after or before such accidents.

• (4) Partial or total loss consequent on failing of an entire package or packages into the sea during loading, unloading, and transshipment.

• (5) Reasonable expenses the insured makes for the salvage of the goods insured, and for averting or minimizing the losses, provided the expenses do not exceed the insured amount.

• (6) Expenses incurred by discharge of the insured cargoes at a port of distress following a sea peril as well as special charges arising from loading, warehousing at an intermediate port of call or refuge.

• (7) Sacrifice in and contribution to general average and salvage charges.

• (8) Such proportion of losses sustained by the ship-owners as is to be reimbursed by the insured under the Contract of Affreightment “Both to Blame Collision” clause.

With Average (W.A.)

• Aside from the risks covered under the F.P.A. condition as above, W.A. also covers particular average of the insured goods caused by vile weather, lightening, tsunami, earthquake and / or flood.

All Risks

• Aside from the risks covered under the F.P.A. and W.A. conditions as above, All Risks also covers all risks or damage done to the insured goods whether partial or total, arising from general extraneous risks during transit.

Additional Risks

• Additional risks complement the basic risks.

• Additional risks can not be used independently.

• Additional risks under C.I.C. fall into general additional risks and special additional risks.

General Additional Risks

• General additional risks cover the losses caused by general extraneous risks.

• General additional risks are covered by All Risks in basic insurance coverage. Hence, you do not need to ask for general additional risks coverage if you have asked for All Risks coverage.

• General additional risks fall into 11 types:

11 Types of General Additional Risks

• General additional risks fall into 11 types:• 1. 偷窃提货不着险（ Theft, Pilferage and Non-

delivery, 简称 T. P. N. D. ）• 2. 淡 水 雨 淋 险 （ Fresh Water and /or Rain

Damage ，简称 F. W. R. D. ）• 3. 短量险（ Risk of Shortage ）• 4. 混 杂 、 沾 污 险 （ Risk of lnter-mixture &

Contamination ）• 5. 渗漏险（ Risk of Leakage ）

• 6. 碰损、破碎险（ Risk of Clash & Breakage ）。• 7. 串味险（ Taint of Odor ）• 8. 受热、受潮险（ Damage Caused by Heating &

Sweating ）• 9. 钩损险（ Hook Damage ）• 10. 包 装 破 裂 险 （ Loss or Damage Caused by

Breakage of Packing ）• 11. 锈损险（ Risks of Rust ）

Special Additional Risks

• Special Additional Risks cover losses caused by special extraneous risks. They include

• War Risks, Strikes, • Failure to Deliver, • Import Duty, • On Deck, • Rejection, • Aflatoxin, • Fire Risk Extension clause, (F.R.E.C.- for storage of cargo

at destination of Hongkong, including Kowloon, or Macao.)

Warehouse to Warehouse Clause

• W/W Clause: Ocean marine insurance under C.I.C. takes effect as soon as the insured cargo is taken away from the warehouse listed on the insurance policy.

• Insurance terminates when the goods are carried to the final warehouse listed on the insurance policy, or 60 days after the goods are discharged from the ship in case they fail to reach the warehouse during a reasonable period of time.

• If within 60 days after the goods have been discharged from the ship, the goods are taken to some other destination other than one specified on the insurance policy, the insurance terminates thereupon.

Institute Cargo Clauses

• The Institute Cargo Clauses, shortened as I.C.C. were set forth by the Institute of London Underwriters. They have exerted great influences in the development of international insurance. Most countries in the world have referred to them more or less in making their own insurance clauses.

• The Institute Cargo Clauses have undergone revisions for many times. The latest revision came into effect on Jan.1, 1982. The old clauses of I.C.C. were basically the same as the ocean marine cargo clauses of the People’s Insurance Company of China. The new version has a different system.

Insurance Coverage under the New Version of I.C.C

• Insurance coverage under the new version of I.C.C. falls into 6 clauses:

• Institute Cargo Clauses A (ICC A); • Institute Cargo Clauses B (ICC B); • Institute Cargo Clauses C (ICC C); • Institute War Clauses- Cargo; • Institute Strikes Clauses – Cargo;• Malicious Damage Clauses.

Insurance Clause in an International Contract

• The insurance clause in an international contract must specify

• the insured amount,

• the risks to be covered

• and the clauses adopted.

• Example

Insurance Policy

• A legal document – a contract between the insurer and the insured

• Binding upon both the insurer and the insured

• Insurance certificate is a simplified insurance policy without clauses on the back but with the same legal effect as the insurance policy.

Calculation

• 1. Insured Amount: CIF value x (1+10%)

• 2. Premium: Insured Amount x premium Rate

• 3. Example