Basic of Cargo Insurance

THE BASICS OF CARGO INSURANCE

The current policy is designed for the frequent shipper. It automatically covers approved merchandise that assureds are obliged to insure under terms of sale. This eliminates the need for the importer or exporter to negotiate terms, conditions, rates, and limits for each shipment insured. Under an open cargo policy, goods can be insured "ALL-RISK", Free of Particular Average (FPA) or With Average (WA). These coverage variations are explained below.

"ALL-RISK" COVERAGE

The broadest form of coverage is "ALL-RISK". An "ALL-RISK" policy insures approved general merchandise in the event of physical loss or damage from any external cause. This includes new, packaged goods without unusual susceptibility to loss from breakage, pilferage, or the nature of the goods themselves. "ALL-RISK" policies do not cover all losses possible in the course of an international shipment.

Typical exclusions in an "ALL-RISK" Policy are:

1. Improper packing

2. Abandonment of cargo

3. Rejection of goods by customs

4. Failure to pay or collect accounts

5. Inherent vice (infestation or loss due to the nature of product itself)

6. Employee conversion or dishonesty

7. Losses due to delay or loss of market

8. Losses in excess of policy limits

9. Losses at port city more than 15 days after discharge of cargo

10. Losses inland more than 30 days after discharge of cargo

11. Losses in South America more than 60 days after discharge of cargo

12. Barge shipments

13. Goods subject to an on-deck bill of lading

14. Losses caused by temperature or pressure (air shipments)

15. Failure to notify air carrier of preliminary loss in timely fashion:

a. Obvious damage - 7 days

b. Hidden damage - 14 days

c. Non-delivery - 120 days

16. Used goods

FREE OF PARTICULAR AVERAGE (FPA) COVERAGE, AMERICAN CLAUSE

FPA is limited coverage that usually applies to used merchandise, waste materials and goods shipped subject to an on-deck bill of lading. It covers partial and total losses due to FPA perils. FPA perils include the sinking, stranding, burning or collision of the vessels or catastrophic perils on shore such as earthquake, derailment, collapse of dock, fire, etc.

Policy Written for FPA Conditions Loss Caused By or Resulting From: Partial Loss Coverage Total Loss Coverage

1. Heavy weather, lightning, barratry of the Master or Mariners, assailing thieves except:

While on deck, if a direct result of stranding, sinking, burning, fire or collision

While under deck, if the vessel strands or is burnt during the insured voyage or if loss or damage can reasonably be attributable to fire or collision

Not Covered

Covered

Covered

Covered

Covered

Covered

2. Fire or explosion Covered Covered

3. Vessel or craft being stranded, sunk or burnt Covered Covered

4. Collision or upset to an air or land conveyance Covered Covered

5. Collision or contact of a water borne conveyance with any external object (ice included) other than water Covered Covered

WITH AVERAGE (WA) COVERAGE

With average coverage extends FPA coverage to include the peril of heavy weather. Frequently, FPA and WA can be extended to include theft, pilferage and non-delivery.

COMPARISON OF CARGO COVERAGES

Loss Caused By or Resulting From:

FPA

With Average

All Risks

Stranding YES YES YES

Sinking YES YES YES

Burning YES YES YES

Collision YES YES YES

Faults or errors in the management of the vessel YES YES YES

Bursting of boilers YES YES YES

Latent defects in hull or machinery YES YES YES

Explosion YES YES YES

Jettison YES YES YES

Heavy weather* NO* YES YES

Seawater as a result of heavy weather* NO* YES YES

Freshwater NO NO YES

Improper stowage by the carrier NO NO YES

Hook damage, mud and grease NO NO YES

Theft of an entire shipping package NO NO YES

Non-Delivery of an entire shipping package NO NO YES

Pilferage NO NO YES