Marine cargo insurance has been recognized for centuries as one of the essential services in world
trade, contributing greatly to the confidence, stability and security of the interested parties as well as the
transporters and bankers.
The document which evidences an insurance contract is called Insurance Policy.
According to established trading practices, the delivery of and payment for goods are made by means of a draft accompanied by shipping documents which mainly consist of Invoice, Bill of Lading and Policy or Certificate of Insurance.
The document which evidences an insurance contract is called Insurance Policy.
According to established trading practices, the delivery of and payment for goods are made by means of a draft accompanied by shipping documents which mainly consist of Invoice, Bill of Lading and Policy or Certificate of Insurance.
Cargo insurance is arranged by the party who bears the obligation of insuring the goods under the sales contract, that is the seller or the buyer, as the case may be.
If the sales contract is on CIF or C&I terms, the exporter as the seller concludes the insurance contract on behalf of the importer who is the bearer of the risk. There is much diversity in the form and kind of sales contract. For the benefit of parties concerned, the so-called "Incoterms" define basic obligations of exporters and importers.
There are several countries requiring by law that marine insurance on import shipments to these countries should be underwritten by local insurance companies.
If the sales contract is on CIF or C&I terms, the exporter as the seller concludes the insurance contract on behalf of the importer who is the bearer of the risk. There is much diversity in the form and kind of sales contract. For the benefit of parties concerned, the so-called "Incoterms" define basic obligations of exporters and importers.
There are several countries requiring by law that marine insurance on import shipments to these countries should be underwritten by local insurance companies.
Insurance conditions are normally specified in the sales contract and/or Letter of Credit, but in cases where there are no specific instructions therein, it is usual to follow the practice of the trade. Of course, it is desirable to make the insurance conditions clear in the sales contract.
Normally the insured amount is shown in the sales contract and/or Letter of Credit. Current Incoterms provide that the insured amount should be not less than the amount of 110% of the CIF value.
Under CIF terms, the exporter is bound to provide marine insurance covering the whole voyage up to the final destination and to furnish the importer with shipping documents including the insurance policy.
There is another type of contract called C&I contract which is considered to be a variation of the CIF contract. Under C&I contracts, ocean freight is excluded from the price of sales contract since it is payable at the destination by the buyer. However, the obligation of the exporter relating to insurance is identical to that of CIF contract.
Normally the insured amount is shown in the sales contract and/or Letter of Credit. Current Incoterms provide that the insured amount should be not less than the amount of 110% of the CIF value.
Under CIF terms, the exporter is bound to provide marine insurance covering the whole voyage up to the final destination and to furnish the importer with shipping documents including the insurance policy.
There is another type of contract called C&I contract which is considered to be a variation of the CIF contract. Under C&I contracts, ocean freight is excluded from the price of sales contract since it is payable at the destination by the buyer. However, the obligation of the exporter relating to insurance is identical to that of CIF contract.
Under FOB terms, the exporter is bound to load the goods onto the carrying vessel at his own cost and risk, but he does not need to arrange insurance to protect the interests of the importer, which will be insured by the importer. In the case of C&F contract, the position of the exporter relating to insurance is quite the same as FOB contract, since the insurance premium covering the ocean voyage is excluded from the price of sales contract. The difference between FOB and C&F contracts relates to whom the ocean freight is paid by. Under FOB and C&F contracts, the exporter has an obligation of sending a shipping advice to the importer immediately on completion of loading the cargo at the port of shipment, so that the importer may effect insurance without delay. On the other hand, the exporter bears the risk before loading for which he will have to arrange insurance on his own behalf.
The importer's position regarding insurance protection under various trade terms is the reverse of the exporter's. The importer on CIF terms must rely upon the insurance arranged by the exporter, and on FOB or C&F terms he has to effect insurance by himself.
The importer's position regarding insurance protection under various trade terms is the reverse of the exporter's. The importer on CIF terms must rely upon the insurance arranged by the exporter, and on FOB or C&F terms he has to effect insurance by himself.
Letters of Credit are important in international trades. In dealing with Letters of Credit, banks must ascertain whether an insurance policy provides adequate security should any loss of or damage to the goods take place during transportation. From this point of view it is evident that marine cargo insurance plays a very important role in the operation of Letters of Credit.
When the sales contract provides that payment will be made under a Letter of Credit, the importer arranges with his bank (the issuing bank) for opening of the required Letter of Credit in accordance with the sales contract. When the exporter has loaded the goods on board the overseas vessel and obtained the required documents, he will draw a draft and attach to it the shipping documents including an insurance policy required by the Letter of Credit. Then, he presents the draft together with the documents to his negotiating bank who must examine the documents to see whether they are in accordance with the terms and conditions of the Letter of Credit. This examination must be carried out with reasonable care,since, if there be any discrepancy in the documents the negotiating bank will not be able to enforce payment against the issuing bank. If the documents are found to be in order, payment by the negotiating bank is made to the exporter. The bank will forward the draft and documents to the issuing bank who will then check the documents and will claim payment from the importer.
When the sales contract provides that payment will be made under a Letter of Credit, the importer arranges with his bank (the issuing bank) for opening of the required Letter of Credit in accordance with the sales contract. When the exporter has loaded the goods on board the overseas vessel and obtained the required documents, he will draw a draft and attach to it the shipping documents including an insurance policy required by the Letter of Credit. Then, he presents the draft together with the documents to his negotiating bank who must examine the documents to see whether they are in accordance with the terms and conditions of the Letter of Credit. This examination must be carried out with reasonable care,since, if there be any discrepancy in the documents the negotiating bank will not be able to enforce payment against the issuing bank. If the documents are found to be in order, payment by the negotiating bank is made to the exporter. The bank will forward the draft and documents to the issuing bank who will then check the documents and will claim payment from the importer.
(1) Marine risks
There are three sets of standard clauses published by the Institute of London Underwriters which set the scope of coverage the latter having wider scope:
i) Institute Cargo Clauses (F.P.A.)
ii) Institute Cargo Clauses (W.A.)
iii) Institute Cargo Clauses (All Risks)
In addition, three new sets of clauses dated 1/1/82 drafted by the Institute are also used:
i) Institute Cargo Clauses (C)=almost equivalent to i) above
ii) Institute Cargo Clauses (B)=almost equivalent to ii) above
iii) Institute Cargo Clauses (A)=almost equivalent to iii) above
i) Institute Cargo Clauses (F.P.A.)
ii) Institute Cargo Clauses (W.A.)
iii) Institute Cargo Clauses (All Risks)
In addition, three new sets of clauses dated 1/1/82 drafted by the Institute are also used:
i) Institute Cargo Clauses (C)=almost equivalent to i) above
ii) Institute Cargo Clauses (B)=almost equivalent to ii) above
iii) Institute Cargo Clauses (A)=almost equivalent to iii) above
(2) War and S.R.C.C. Risks
War, Strikes, Riots, and Civil Commotions Risks are excluded from the above mentioned Institute clauses covering marine risks. There are separate Institute clauses covering War risks and S.R.C.C. risks respectively.
The period covered by a marine cargo policy is defined as "Warehouse to Warehouse" in the Transit Clause of the Institute Cargo Clauses. Under this clause, the insurance attaches from the time when the goods leave the warehouse for the commencement of transit, continues during the ordinary course of transit, and terminates either on delivery to the final warehouse at destination or on the expiry of 60 days after completion of discharge, whichever shall first occur. It further provides to the effect that the insurance shall terminate on delivery to any other warehouse or place of storage, whether prior to or at the destination named in the policy, which the assured elects to use either for storage other than in the ordinary course of transit, or for allocation or distribution.
However, the duration of cover against War risk is limited to "Waterborne", which means that the goods are covered against War risks only when they are on board the ocean going Vessel.
However, the duration of cover against War risk is limited to "Waterborne", which means that the goods are covered against War risks only when they are on board the ocean going Vessel.
Since it is impracticable to assess the market value of the insured goods at the time and place when and where the loss of or damage to them takes place during the course of transit, an agreement on the valuation of the goods is made beforehand between the insurer and the assured when the contract of marine cargo insurance is concluded. Such value is called "Agreed Insured Value" and the marine cargo insurance policy is called a "Valued Policy".
The insured amount is the limit of the amount, for which the insurer is liable in respect of one accident, and insurance premiums are calculated upon this amount. Although the Insured Value and Insured Amount are different terminologies, the insured amount is normally fixed at the same as the insured value.
The insured amount is the limit of the amount, for which the insurer is liable in respect of one accident, and insurance premiums are calculated upon this amount. Although the Insured Value and Insured Amount are different terminologies, the insured amount is normally fixed at the same as the insured value.