Basic of Cargo Insurance
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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:
With Average
All Risks
Stranding
Sinking
Burning
Collision
Faults or errors in the management of the vessel
Bursting of boilers
Latent defects in hull or machinery
Explosion
Jettison
Heavy weather*
Seawater as a result of heavy weather*
Freshwater
Improper stowage by the carrier
Hook damage, mud and grease
Theft of an entire shipping package
Non-Delivery of an entire shipping package
Pilferage