An overview of cargo insurance

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Cargo insurance for trade

Lesley Batchelor OBE is Director General of the Institute of Export, the professional membership body for everyone involved in international trade. Here she gives an overview of the types and key considerations around cargo insurance.

As with all things trade insurance is something which it is easy to forget but vital to remember. Cargo insurance is among the types of insurance that you need to consider when sending your product out for export.

Types of insurance

In Transit – from shore to shore in the UK

FOB – over the ships rail

Marine insurance cover (All movements of goods normally by sea freight) – Open policy/Declaration policy allows you to hold an open policy that allows the holder to produce their own certificates of insurance. (Normally larger companies use this.)

Whatever happens your cargo should not be travelling uninsured unless it’s a calculated risk that you have thought through as part of your financial planning and overall strategy. It is not a good idea, as goods in transit may face any number of unforeseen fates.  Either you should insure or your customer should demonstrate that they have insured the goods.

Key considerations for cargo insurance

Insurable interest

Only you as the owner or the customer can take out an insurance on your cargo. Anyone else would be speculating on your cargo reaching the destination!

Indemnity

Insurance will only take you back to where you were – it will not reimburse any profit you may have made from the transaction.

Utmost good faith

All insurance and elements of international trade are conducted in what is termed ‘utmost good faith’ which means that you must be honourable and honest.

Subrogation

Is the right or rights of the insurer to assume the rights of the insured. Legal rights or to step into the shoes of.[1] Rights of subrogation can arise two different ways: automatically as a matter of law, or by agreement as part of a contract.[2] Subrogation by contract commonly arises in contracts of insurance this helps with dealing with freight conventions as These offer maximum carriers liabilities based on a recovery of 80p in the pound.

Conventions that cover freight are:

  • Sea – Hague-Visby Rules or Hamburg Rules
  • Air – Warsaw
  • Road – CMR
  • Rail CIM

Contingency (sellers interest) insurance

Is an important type of insurance that protects you as athe seller when you have asked the question about insurance and they have stated that they will insure the goods. If you are uncomfortable with the insurance company that they have quoted or it is a low grade insurance company contingency insurance can be taken out to protect the cargo. Please remember that you should never tell your customer you have taken this out and you should always be discreet in these matters as sometimes the customer relies on your insurance which is cheaper as a contingency. Talk to a broker about tis if you are at all uncertain.

Proximate cause

there must be temporal and spatial proximity between the claimant and the accident or how the accident was caused, or proximity of perception.

Exclusions from normal cargo insurance

  • Delay
  • Wear and tear
  • Inherent vice – goods may be apt to do and therefore predictable
  • Ullage – inherent in liquids
  • Wilful misconduct of the assured

If you have your cargo insured there will be a note of who will be responsible as a surveyor of the cargo if any incident should happen. This survey report should be part of the documents that you need to submit.

Documents needed to support a claim

  • Original policy/certificate
  • Invoices and packing lists
  • Original bill of lading or other transport document
  • Survey report or other evidence of loss or damage
  • Landing account/weight notes at destination/stowage brokers record
  • Any correspondence with the carrier or parties involved

Read the article on what insurance options are available and why they are important for more information.