MARINE CARGO POLICY Salient Features AN OVERVIEW OF RISKS TO WHICH THE CARGO IS EXPOSED DURING TRANSPORTATION y y Standard risks

of transport Exceptional risks of transport (war, strike or similar)

Scope of Cover When these risks occur, they may result in either total loss or partial losses. Partial losses can be of two types viz. : 1. Particular Average - The term Particular Average refers to physical damage and loss as well as to any loss in weight or quantity suffered by the insured goods during transit. 2. GENERAL AVERAGE - General Average is a risk specific to marine transport. Therefore, if a vessel is in danger and the only way to prevent the vessel from striking is to throw one persons cargo overboard, then the rest of the cargo owners and the vessel owner will make up the loss to that person in proportion to the value of their goods in relation to the total amount saved. 3. RISKS OF WAR, STRIKE, ETC. Extent of Cover Provided The main coverage provided to cargo in the Indian market are as per the Institute Cargo clauses A B & C. These covers are international in nature. Duration of Cover 1. The risk attaches from the time the goods leave the warehouse or place of storage at the place named in the policy for commencement of transit and continues during ordinary course of transit. 2. The first possibility of termination is upon delivery to the consignees or other final place of storage. The Policy also terminates at any intermediate point if the goods come into the control of the assured for storage other than in ordinary course of transit, for allocation or for re-distribution. A time limit of 60 days is provided to allow completion the final leg of the transit after discharge from overside the overseas vessel at the final port of discharge.

Summary of the covers provided by the Institute Clauses Institute Cargo Clauses C. This provides the most restricted coverage and subject to the listed exclusions (which we shall examine later) covers loss or damage to the subject matter insured reasonably attributable to i. ii. iii. Fire or Explosion Standing, Grounding, Sinking or Capsizing Overturning or Derailment

iv. Collision or contact of vessel craft or conveyance with any external objects other than water. v. Discharge of cargo at point of distress.

The insurance also covers loss or damage to the subject matter insured caused by vi. vii. General Average Jettison

To sum up, the C clauses provide major casualty coverage during the land or sea transit and tend to be used for cargoes that are not easily damaged e.g. scrap steel, coal etc.

Institute Cargo Clause B : ICC B this is the next step up which includes all cover under C and also loss of or damage to the subject matter insured reasonably attributable to : i. ii. iii. iv. Earthquake, volcanic eruption or lightning and water damage by entry of sea/river water ( excluding rainwater) total loss of package lost overboard total loss of package dropped during loading and unloading.

These are significant additional coverages. Wet damage from sea, lake or river water and accidents in loading and discharge are covered, but there is no coverage for theft, shortage and non-delivery.

Institute Cargo Clause ICC A is the next option. This option is the widest of all three and is generally summed up as All Risks of loss or damage to the subject matter insured This words All Risks have been the subject of careful examination in legal cases over the years and should be understood, in the context of the A Clause to cover fortuitous loss but not loss that occurs inevitably.

Cover includes everything under both B & C and also Breakage Scratching, Chipping, Denting & Bruising Theft Malicious Damage Non Delivery All water damage including rain damage.

The Insititute Cargo Clauses incorporates a set of exclusions under clauses that should be highlighted at this point. Exclusions Principle Exclusions i)

Clause4,5 and 6

Wilful misconduct of the Assured Even if the loss is proximately caused by an insured peril it is excluded if it is attributable to the willful misconduct(deliberate damage) of the Assured. Ordinary leakage, ordinary loss in weight or volume or ordinary wear and tear Examples of losses excluded within this category would include evaporation, natural

ii)

shrinkage. iii) Inadequate sufficiency or unsuitability of packing or preparation of packing of the subject matter insured it is the duty of the insured it act as if uninsured. Clearly if goods are sent insufficiently packed to withstand the normal handling anticipated during transit, then any loss that arises therefrom should not be for insurers to pay. Inherent vice or nature of the subject matter insured Examples of excluded loss would include blowing of tins containing foodstuffs or spontaneous combustion of a cargo liable to self heating. Delay The insurer is not responsible for any loss, damage or expense proximately caused by delay although the delay can be caused by a peril insured against. Losses through delay could include loss of market or deterioration in respect of perishable goods which would not be recoverable even if the cause of the delay was peril insured such as a collision. Insolvency or financial default of Carriers- This exclusion clause was introduced to discourage Assureds from shipping their goods on vessels whose owners, managers, charterers or operators might be in financial distress. In practice the clause would exclude all types of claims for recovery and forwarding of goods arising from the abandonment of an insured voyage where the proximate cause was the financial distress of one of the aforementioned parties. Unseaworthiness and Unfitness exclusion This only applies where the assured or their agents are privy to this information prior to loading.

iv)

v)

vi)

vii)

viii) War and Strikes, Riots and Civil Commotions These risks are excluded under A, B and C clauses but can be written back into the policy.

War Risks Coverage provided by war risks clauses do not operate during the entire course of transit. Marine underwriters only offer cover for war risks whilst waterborne or airborne, for which they charge a relatively small premium.

There is no war risk covers for any of the goods up to the time they are loaded onto the ship and the cover terminates immediately after the goods discharged at the destination port. A relaxation of the water borne only coverage is allowed immediately after the goods are discharged at the destination port. A relaxation of the water borne only coverage is allowed whilst the goods are being transshipped at an intermediate port but this is subject to

restrictions both in location and time. Whilst the goods are being transshipped at an intermediate port but this is subject to restrictions both in location and time.

Strike Risks Unlike War risk cover, coverage for STRIKES risks continues throughout the transit. Cover is limited to PHYSICAL LOSS or DAMAGE to the cargo caused by STRIKES, LOCKED OUT WORKMEN, PERSONS TAKING PART IN LOCAL DISTURBANCES, RIOTS and CIVIL COMMOTIONS, TERRORISTS or any PERSON acting from a POLITICAL MOTIVE. Pure Inland Transit Clauses Insurance of goods carried by Rail, Road, Inland waterways are covered as per coverage granted under Inland Transit(Rail/Road) clauses A, B, Inland Transit (Inland Vessels Clauses). B Clauses are restrictive in nature while A Clauses provide All Risks subject to certain exclusions.

One of the important differences between the Institute Cargo Clauses and the Inland Transit Clauses is the Duration Clause. Whereas in the former set of clauses, the duration of cover is limited to 60 days from the date of discharge of goods, under the latter set of clauses, the time limit is 7 days from the date of arrival at the station.

Transit by Air will be governed by Institute Cargo Clauses (Air).

Various Need 1. Special Declaration Policy - This is basically an open policy of 12 months duration and such policies are issued to Concerns having estimated annual turnover of Rs. 2 Crores or above. All transits upto the sum insurd are covered without any exception and total value of goods in transit are required to be declared at least once in a quarter in the form of a certified statement. Final premium is adjusted(downward only) on the basis of actual annual turnover of goods covered. Mid-term increase in Sum Insured is also permissible twice during a year. Since the Insurer get a sizable premium at the inception, they grant cash discount(called

turnover discount) ranging from 20% to 50% on the premium.

2. Multi-transit/Stock throughout policies - A Marine Policy terminates if during the transit the goods come into the control of the assured for storage other than in ordinary course of transit, allocation or re-distribution. Subsequent transits are considered separate. Multitransit policies ensure continuous cover even in case of such exigencies. Irrespective of the number of transit the cover stays operative. Storage periods which may or may not include some processing can also be covered.

3. Package policy for plantation owners (Tea, Coffee, Rubber, Cardamom) - Cover commences from the collection point of green/raw/plucked plantation, continues during storge and various stages of processing in the factory, subsequent transit to anywhere in the world including further storage at intermediate and final destination godowns and terminates on delivery to the final customer.

4. Package policy for exporters - Exporters having DEEC certificates under DES can have this package policy which covers import of raw materials from overseas, storage, processing and export to overseas customers.

5. Duty Insurance Policy - Importers may take out insurance policy to cover the additional value of goods resulting due to payment of customs duty.

6.

Sellers Contingency Policy -

In almost all export transactions where credit is allowed by the seller to the buyer and the goods are not exported on a C&F (Cost and Freight) basis, the responsibility for the goods passes to the buyer when the goods are loaded on to the overseas vessel but the ownership does not change until the buyer accepts the goods and relative documents. FOB (Free on Board) contracts require some further steps to be taken by the seller. The seller here undertakes to put the goods on board (definitely across the rail) of a ship that has been named to him by the buyer and is berthed at the agreed port of shipment. All charges, including the delivery of goods on board, have to be borne by the seller while the buyer has to bear all the subsequent expenses including stowage, freight, insurance, import duties and other incidental charges. Theexport licenses have to be obtained by the seller. In this case,

the proof of delivery has to be given to the buyer or his agent. An exporter may often sell goods on terms where his customer (an importer) is responsible for insuring (or at least bearing the risk of damage of or loss to) the goods; for example, where the terms of payments as per the contract of sale are on FOB or C&F basis. Thus, if the seller is allowing credit to the buyer and has shipped goods on FOB or C&F terms, where the responsibility for loss or damage to the goods is passed to the buyer when the goods are loaded on to the overseas vessel, the seller has no control over the conditions of the insurance cover arranged by the buyer. In the worst case, the buyer may not have insured the goods. In these cases, an exporter is exposed to the risk of damage to the goods whilst in transit and his customer refusing to accept them. If the buyer has opened a revocable Letter of Credit, i.e., (L/C) (refer to Box1), in terms of which the buyer/his banker can cancel or amend the terms of the credit without prior notice to the exporter/seller, the seller still remains utterly at risk even during the overseas voyage. He may have an 'insurable interest' during the voyage and that is why he may be constrained to arrange an additional insurance coverage. It may happen that the seller may fail to realize the 'sale proceeds' due to the buyer (that is, importer) not honouring the contract of sale. When this happens, the risk and title in the goods which should have been assumed by the buyer fall back upon the unpaid seller. Thus he would need insurance to protect his interest in those goods from the time of commencement of risk/transit. The Seller's Contingency Policy is in fact a 'Backup Insurance' that protects a party's interest if certain events occur. For example, if the Assured buys or sells cargo on terms under which the insurance is arranged by the other party, and that insurance fails to respond to a covered loss, the Contingency Insurance protects the Assured's interest in the shipment. It is an insurance against relatively remote possibilities.

The New Institute Cargo Clauses The new clauses are not exact replacements of the old clauses. Some companies may still use the old clauses. The counterparts of the new cargo clauses are as follows:

New Cargo Clauses Institute Cargo Clauses (A) Institute Cargo Clauses (B) Institute Cargo Clauses (C)

Old Cargo Clauses Institute Cargo (All Risks) Institute Cargo (With Average) Clauses (A.R.) Clauses (W.A.)

Institute Cargo Clauses (Free of Particular Average) (F.P.A.)

Comparison Institute Cargo Clauses (A), (B) and (C) LEGEND: Risks covered Risks not covered (or Exclusions)

of

Risks Covered and the Exclusions

Institute Cargo Clauses

(A) Loss or damage to the subject matter insured proximately caused by [in Clauses (A)] and reasonably attributable to [in Clauses (B) and (C)]: Fire or explosion Vessel or craft stranded, sunk, burnt or capsized Land conveyance overturned or derailed Collision or contact of vessel, craft or conveyance with any external object except water Discharge of cargo at port of distress (A) Earthquake, lightning or volcanic eruption Malicious damage Theft Delay Inherent vice or nature of the subject matter insured

(B)

(C)

(B)

(C)

Willful misconduct of the assured

(A) Loss or damage to the subject matter insured caused by: General average sacrifice Jettison Washing overboard Entry of sea, river or lake water into vessel, craft, conveyance, container or place of storage Total loss of any package lost overboard or dropped whilst loading on to, or unloading from, vessel or craft Piracy (A) War Strikes, riots and civil commotions, includes terrorists or any persons acting from a political motive Use of any atomic or nuclear weapon Ordinary leakage, ordinary loss in weight or volume, or ordinary wear and tear Insufficiency or unsuitability of packing The assured privy to the unseaworthiness of vessel or craft and/or unfitness of vessel, craft, conveyance or container at the time of loading Insolvency or financial default of the

(B)

(C)

(B)

(C)

owners or operators of the vessel

Endorsement of the Insurance Clauses The term endorsement used in the endorsement of insurance clauses refers to the modifying of insurance to include risks not covered in the basic policies by adding suitable clauses and paying additional premium. For example, in the Institute Cargo Clauses none of the three basic policies covers the risks of war, strikes, riots, and civil commotions. In order to cover against such risks, the F.C.&S. Clause (Free of Capture and Seizure Clause) and the F.S.R.&C.C. Clause (Free of Strikes, Riots and Civil Commotions Clause) are deleted from the policy (by stamping the word "DELETED" over such clauses usually) and the Institute War Clauses and the Institute Strike Clauses are endorsed. The endorsement usually is in the form of pre-printed clauses attached (i.e., stapled, gummed or taped) to the policy. Some policy forms may be provided with an endorsement space wherein the clauses are typed and/or attached.There are clauses which are approved by certain associations (e.g. bank, trade, etc.) to suit the particular market needs. For example, the Bank Clause: "It is warranted and agreed to by the Assured and the Company that in the event of loss or damage becoming recoverable under this Policy, the Company will not be liable for more than its share of the loss or damage at the rate of exchange mentioned in this Policy." (The word "Company" above refers to the insurance company.) The exporter may consult the insurance company or its agents for any specific endorsements that may be required in a particular market and trade. y Amount of Insurance Coverage Insurance Claims y Other Institute Clauses

Transit Clause It names the points of voyage (i.e., the commencement of the transit, continues during the ordinary course of transit and terminates on delivery) between which the insurance is in effect. It may incorporate the Warehouse to Warehouse Clause (see Duration of Insurance Coverage). Termination of Adventure Clause It provides for the insurance to remain in effect in the event that the contract of affreightment or the adventure is terminated at a port or place other than the named

destination (i.e., before the named destination is reached), subject to prompt notice being given to insurer and to payment of an additional premium, if required.

Craft Clause It provides for coverage including transit by craft, raft or lighter to or from the vessel. Change of Voyage Clause It provides for continuous coverage in case of change of voyage or of any omission or error in the description of the interest vessel or voyage, subject to payment of an additional premium. Constructive Total Loss Clause It gives the insurer the right to pay the assured for the total loss when the goods are so damaged that the cost of recovering and reconditioning would exceed their original value. G.A. (General Average Clause) Clause

It gives the rules to be followed to settle the general average claims and the salvage charges. Seaworthiness Admitted Clause It provides that in the event of loss the assured's right to recovery shall not be prejudiced by the fact that the loss may have been attributable to the wrongful act or misconduct of the shipowners or their crews, committed without the privity of the assured. Bailee Clause It requires the assured and their agents, in all cases, to take such measures as may be reasonable for the purpose of averting or minimizing a loss and to ensure that all rights against carriers, bailees or other third parties are properly preserved and exercised---it obligates the assured to file a claim against third parties who may be liable for the loss or damage.

Not to Inure Clause It prohibits the assured from assigning any right of recovery in the policy to the carrier or other bailee (warehouse owner, truck owner, etc.). Therefore, it prevents the carrier or

other bailee from becoming the assured from such assignment of the right of recovery, otherwise the insurer could not bring action against them in case of loss or damage. Both to Blame Collision Clause It protects the assured against any claim that he/she may have as a result of collision. F.C.&S. Clause (Free of Capture and Seizure Clause) It excludes coverage of risks against


the capture, seizure, arrest, restraint or detainment, and the consequences thereof or of any attempt thereat; the consequences of hostilities or warlike operations, whether there be a declaration of war or not; the collision or contact with a mine or torpedo; and the consequences of civil war, revolution, rebellion, insurrection or civil strife arising therefrom, or piracy.

 

F.S.R.&C.C. Clause (Free of Strikes, Riots and Civil Commotions Clause) It excludes the loss or damage


caused by strikers, locked-out workmen, or persons taking part in labor disturbances, riots or civil commotions; resulting from strikes, lock-outs, disturbances, riots or civil commotions.

Reasonable Despatch Clause It requires the assured to act with 'reasonable despatch'---how the owner would act in case the goods are not insured---in all circumstances within his/her control. Sue and Labour Clause It provides for reimbursing the assured for the expenses to protect the interest insured from further loss or damage. T.P.&N.D. (Theft, Pilferage and Non-Delivery Clause) Clause

It covers theft, pilferage and non-delivery of goods, includes theft and pilferage by the crew. Institute Malicious Damage Clause

It covers deliberate damage to or deliberate destruction of the property insured or any part thereof by the wrongful act of any person(s). Institute Dangerous Drugs Clause It provides that no claim will be paid in respect of drugs to which the various International Conventions relating to opium and other dangerous drugs apply unless: the drugs are expressly declared as much in the policy, the exporting and importing countries are specifically stated, the route by which the drugs were conveyed was usual and customary, and the proof of loss is accompanied by a license, certificate or authorization issued by the government of the exporting or the importing country, as the case may be.

Standard Three

Basic

Cargo Policies

(in

the

Insurance Old Cargo

--Clauses)

Institute Cargo Clauses (All Risks) The term All Risks is misleading as not all the risks are covered. The All Risks (A.R.) is the broadest form of coverage commonly encountered in exporting. It covers all risks of physical loss or damage from any external causes irrespective of percentage. If the assured wishes to be covered against the risks of war, strikes, riots, and civil commotions, the insurer deletes the exclusions in the Institute Cargo Clauses and endorses the special clauses, that is, the Institute War Clauses and Institute Strike Clauses, on the insurance policy and the assured pays an additional premium.

Institute Cargo Clauses (With Average) The With Average (W.A.) is sometimes called the With Particular Average. In insurance parlance, the word "particular" means partial, and the word "average" means loss. As such, the words "with average" and "with particular average" mean including partial loss. The With Average (W.A.) is a less inclusive form of coverage than the All Risks. It covers against total loss and partial loss caused by the perils of the sea (i.e., the vessel

has been stranded, sunk, burnt or been in a collision with other vessels or external substances other than water, such as ice), jettison of cargo, barratry (i.e., negligence, fraud or wrongful acts of the ship's master and/or crew resulting in injury or loss to the ship's owner), and other like perils. The partial loss, however, is subject to a franchise being written into the policy. The percentage of franchise can be 3% (or other percentage as specified) of the value of the shipment as agreed between the insurer and the assured. If the loss is less than the indicated franchise of 3% (or other percentage as specified) the assured cannot claim the loss. However, if the loss is equal to or more than the indicated franchise, the assured can claim the loss in full amount without any deduction from the insurer. Instead of a franchise the insurer and the assured may agree on an excess (deductible). The percentage of excess can be 3-10%. If the loss is equal to or less than the indicated excess, the assured bears the loss, that is, cannot claim the loss. However, if the loss is more than the indicated excess, the assured can claim the loss minus the deduction of the percentage of excess specified. In other words, the assured will always shoulder a percentage of the loss regardless of the amount of the loss. Institute Cargo Clauses (Free of Particular Average) In insurance parlance, the words "free of" mean the insurer (the insurance company) is not liable for whatever follows the words "free of". The words "particular average" mean partial loss. As such, the words "free of particular average" mean excluding partial loss. The Free of Particular Average (F.P.A.) is the narrowest form of coverage. It covers against total loss. When partial loss is specifically covered in the policy, it is recoverable from the insurer only if the loss is the result of the carrying vessel being stranded, sunk or burnt, on fire, or in collision.