Chapter6

Cargo Insurance
Basic concepts of insurance
The definition of risk
Uncertainty, probability and chance
The components of risk
Hazard: physical, morale, moral
peril
Loss
The basic principles of insurance
1. principle of insurable interest
A person has an "insurable interest" in
something when loss or damage to it would
cause that person to suffer a financial loss or
certain other kinds of losses.
legal, financial interest, definite: present and
expected
the principle which requires a person effecting
insurance to have a legally recognized
relationship to the subject matter of the
insurance
2. principle of utmost good of faith (uberrimae fidei)
the duty of good faith imposed on both parties to an
insurance contract to disclose all material facts.
Representations
Oral or written form, important information
warranty
Express: promissory(future) & affirmative(past and
present)
Implied: practice and customs
waiver and estoppel (mainly for the insurer)



3.principle of indemnity
the placing of the insured in the same
financial position after a loss as he was in
immediately prior to the occurrence.
restrictions:
Actual loss, sum insured, insurable
interest
4.principle of proximate cause
the direct cause of a loss.
identification of proximate cause
Single cause; multiple cause
Scope of cargo insurance
Ocean marine cargo insurance
Overland transportation cargo insurance
Air transportation cargo insurance
Parcel post insurance
1. Ocean marine cargo insurance
1) risk
Perils of the sea /


a. Natural calamities: Caused by
the forces resulting from the changes of
nature, e.g. vile weather, thunder, lightning,
tsunami, earthquake, flood, etc.

b. Fortuitous accidents: The
accidents resulting from unexpected causes,
the carrying conveyance being grounded,
stranded, or in collision with floating ice or
other objects, as well as fire or explosion.
Extraneous risks
a.General extraneous risks:
theft, shortage, leakage, dashed by fresh and
rain water, sweating and heating, intermixture
and contamination, taint of odor, hook damage,
breakage of packing, rusting, etc.
b.Special extraneous risks :
on deck, war, strikes, failure of delivery, rejection,
etc.

2. Ocean losses and expenses
Total loss
It is classified into 2 kinds:
Actual Total Loss:
The insured subject matter is totally and
irretrievably lost.
Constructive Total Loss:
It is estimated that the actual total loss of cargo is
inevitable or the cost of salvage or recovery could
have exceed the value of the cargo.

Partial loss
General Average:
It refers to a certain special sacrifice and extra
expense intentionally incurred for the general interests
of the ship owner, the insurer, and the owners of
the various cargoes abroad the ship.
Particular Average:
It means that a particular cargo is damaged by any
cause and the degree of the damage does not reach a
total loss, i.e., only a partial loss, which shall be borne
by the owner of this individual consignment.

Expenses
Sue and labor charges:
The reasonable expenses to save, protect, or
reduce the loss by insured and the policy
beneficiary. It shall be covered by the insurer.
Salvage charges:
The expenses of the third party to save the
cargo and the ship successfully.
According to the relative laws, the insurer shall
pay to the salver. But there is a principle, i.e.,
no cure-no pay.

Terms and coverage of ocean
marine cargo insurance in China
Basic coverage and terms
Basic risks
There 3 conditions:
F.P.A.
Free from Particular Average ()
W.A. or W.P.A
With Average, With Particular Average

All risks ()

F.P.A.
8 circumstances:
(1) Actual total loss or constructive total loss from natural calamity, i.e.
vile weather, bore, earthquake, flood
The Insured must authorize the insurer if it is the constructive total loss.

(2) Total loss or partial loss caused by fortuitous accidents, i.e. stranded,
collision with floating ice or other objects, fire or explosion

(3) Partial loss caused from natural calamity again before and after
fortuitous accidents

(4) Total or partial loss of one or several pieces of cargo dropping into
the sea when shipment or transshipment.

(5) Reasonable expenses to save, protect, or reduce the
loss by insured, but no more than the insured value.

(6) Special expenses of unloading, storage and shipping in
harborage after ship getting perils of the sea.

(7) The sacrifice, sharing and the charges of general
average.

(8) If the term of collision with ships is involved in
transport contract, the owners of the cargoes should
compensate the loss of the ships owner.


W.A. or W.P.A. ()
It covers partial loss due to vile weather, lightning, tsunami,
earthquake and/or flood as well as the risks covered under F.P.A.
condition as mentioned above.
All risks ()
Aside from the risks covered under the F.P.A. and W.A. conditions
as above, it also covers all risks of losses or damage to the insured
goods whether partial or total, arising from external causes in the
course of transit (extraneous risks) .
W / W Clause
Warehouse to warehouse clause:
From the warehouse in departure to the final warehouse in
destination or 60 days after unloading.

W.P.A.(W.A.) = F.P.A. + Particular
Average caused by natural calamity

All Risks = W.P.A. + General Additional
Risks
Additional risks
This kind of risk cant be covered independently;
they shall be underwritten depending on one
kind of the basic risks.
General additional risks
1. Clash & breakage /
2. Taint of odor /
3. Fresh water &/or rain damage /
4. T.P.N.D. Theft, pilferage and non-delivery /

5. Shortage /

6. Leakage /
7. Intermixture & contamination /

8. Hook damage /
9. Sweat and heating /
10. Rust /
11. Breakage of packing /



Special additional risks
1. War risks / direct loss & general average of it;
only on board of ship or lighter, but not for loss of atom bomb.
2. Strike risks / direct loss & general average of it
3. Aflatoxin /
4. Failure to deliver / no after 6 months
5. On deck /
6. Import duty / total duty for damaged goods.
7. Rejection / rejected by importing government
8. F.R.E.C. Fire risk extension clause /


Ocean insurance-frozen products
Ocean insurance-wood oil bulk
Ocean insurance-livestock & poultry
insurance
Overland transportation insurance
Overland transportation
Overland transportation all risks
Frozen products
War risks
Air transportation insurance
Air transportation risks
Air transportation all risks
Air transportation war risks
Parcel post insurance
Parcel post risks
Parcel post all risks
Parcel post war risks
Institute Cargo clauses
Institute Cargo Clauses A:most extensive
coverage, except:
General exclusions
Unseaworthiness and unfitness exclusions
War exclusions
Strikes exclusions
Institute Cargo Clauses B:
Institute Cargo Clauses C:
Determination of insurance amount
Rate of Insured Addition: CIF or CFR x 10%
Insured amount = CIF (or CIP) x (1+10%)
If an importer covers the insurance under FOB term:
Insured amount = FOB (or FCA) x
(1+ average transit rate + average insured rate)

If CFR or CPT price is given:
CIF(CIP) = CFR (or CPT) / 1 -premium rate x (1+10%)

Premium = CIF (or CIP) x (1+10%) x Premium rate
Insurance document
Policy
Insurance certificate
Open policy
endorsement
Claim
Loss notice
Reasonable measures to salve
Right of subrogation