Marine insurance case study

Generally speaking, marine policies will cover goods during the various stages of transit from the seller’s door to the buyer’s door. There are many different types of marine polices, so it is important to understand the limitations and risks covered in your policy.

INCO Terms, the standard delivery terms established by the International Chamber of Commerce, provide for insurance to be included in agreements between the seller and buyer; CIF for example (Cost of goods + Insurance + Freight) which provides the buyer with insurance cover to either a destination port or depot.

In a recent case handled by ITM the buyers agreed term was CIF Sydney port with the insurance liability moving to the buyer once the goods moved from the vessel to the wharf. However, the container fell from the overhead crane back onto the vessel. In this case the shipper was able to claim on their marine policy as the container had not yet reached the destination port. However if the accident had occurred whilst the container was on the terminal the shippers policy may not have provided cover for any loss or damage and, had the buyer not taken out their own cargo insurance policy, they may have faced a situation where they were liable for the loss.

Under international laws and conventions*, carriers such as shipping lines and airlines are generally NOT held liable for damages to cargo due to a multiplicity of possible causes including:

(a) act, neglect, or default of the master, mariner, pilot or the servants of the carrier in the navigation or in the management of the ship;

(b) fire, unless caused by the actual fault or privity of the carrier;

(d) act of God;

(e) act of war;

(f) act of public enemies;

(g) arrest or restraint of princes, rulers or people, or seizure under legal process;

(h) quarantine restrictions;

(i) act or omission of the shipper or owner of the goods, his agent or representative;

(j) strikes or lock-outs or stoppage or restraint of labour from whatever cause, whether partial or general;

(k) riots and civil commotions;

(l) saving or attempting to save life or property at sea;

(m) wastage in bulk or weight or any other loss or damage arising from inherent defect, quality or vice of the goods;

(n) insufficiency of packing;

and others.

In some specified limited circumstances, carriers may be held liable but the amount of liability is limited to the cost of the freight or up to, currently, around $34 per kg for airfreight and just $4 per kg for sea freight (based on a specified number of Special Drawing Rights under the International Monetary Fund).

Therefore it is extremely important that shippers and importers alike have in place appropriate cargo insurance to protect their business from financial harm arising from damage to or loss of cargo while in transit.

Accidents can and do happen. Which brings us back to our initial question - Are you adequately covered?

Carrier’s and freight forwarders alike, do not generally have an insurable interest in the cargo they move on behalf of their clients. Therefore cargo cover is not ‘automatic’ and cargo owners need to specifically choose the cover they require or accept the risk of not being insured. If you have any questions about your marine or cargo insurance policy please contact your ITM Supply Chain Specialist for advice.

If you have any questions about your marine or cargo insurance policy please contact your ITM Supply Chain Specialist for advice.

* Limited liability under the terms and conditions of carrier’s bills of lading and air waybills is generally a reflection of, and supported by, international laws and conventions such as the Hague-Visby Rules and the Montreal Convention 1999.