Marine cargo insurance is a class of property insurance that insures property while in transit against loss or damage arising from perils associated with Road, Rail, Inland/ Coastal Waterways, Ocean, Air, Registered Post or Parcel, Courier, or any combinations. The fundamental principles of Marine Insurance are drawn from the Marine Insurance Act, 1963. As in all contracts of insurance on property, the contract of Marine Insurance is based on the fundamental principles of Indemnity, Insurable Interest, Utmost Good Faith, Proximate Cause, Subrogation and Contribution.
Scope of Cover
Most cargo policies contain Warehouse to Warehouse and Extended Cover Clauses which insure goods from the time they leave the warehouse at the point of shipment, through the carriage of goods by sea or air and extends cover during ordinary course of transportation by rail and or rail until the cargo is delivered to the warehouse at the final destination.
Three types of Policies are available & the scope of cover shall be determined by the Institute Clauses attached to the Policy.
Single transit Policy: for a specific voyage or single transit. These policies are issued on a "from and to" basis and the cover commences once the goods leave the place of origin named in the policy and terminates on delivery at the place of destination.
Open Policy: It is an annual cargo insurance policy which is issued for one sum insured to cover a number of dispatches. Successive shipments are declared to the Insurer and they automatically get covered under the policy & the declared sum insured will be debited from the original sum insured. The policy covers a number of dispatches until the sum insured is over. Open policy helps in saving the policyholder from buying the individual insurance policy for each journey.
Marine Open Cover: It is an umbrella cover which is given to clients who are engaged in continuous and regular import and/or export of goods. An open cover is not a stamped document and thus it is not a policy of insurance. It is an agreement to provide insurance cover on all shipments of the insured at pre-agreed rates and terms. As and when shipments are declared the Insurer will issue specific policies or certificates of insurance which are stamped documents. The advantage of open cover is that it gives continuous and automatic protection to cover all shipments declared
Duty Insurance Policy: Once the goods land at the port of destination custom duty becomes payable. In case the goods are damaged during the transit from the port to the importer's warehouse, the CIF value is not sufficient to represent the actual value of the goods since the custom duties should have already been paid. This additional element of cost can be covered by a duty Insurance Policy. Claims under a duty policy are only payable if the claim is otherwise admissible in the marine cargo policy covering the goods.
Internationally accepted wordings.
Governed by Separate Marine act.
Insurable Interest: An assured must have interest in the subject-matter insured at the time of loss though he may not be the Insured at the time of taking Policy.
Freely assignable policy i.e. Transfer of marine Policy from one party to another. This is a notable difference to most other property insurances where ownership remains the same throughout the period of cover & Claims are paid to the person named in the policy. The marine policy recognizes change of ownership when the subject matter of the insurance are bought and sold.
Voyage based policy: It is issued covering individual shipments from named starting point to named final destination point.
INCOTERMS (International Commercial Terms)
Incoterms precisely define the responsibilities of the buyer and the seller and are recognized as the international standard by custom authorities and courts in all the main trading nations. They are standard trade definitions and are issued by the International Chamber of Commerce. Incoterms reduce the risk of misunderstandings and legal disputes. This also specify the loading and unloading responsibilities of the buyer and seller. There are 13 Incoterms, each denoted by a 3-letter code. The terms are grouped in four categories based on the first letter in the three-letter abbreviation.
Under the "E"-term (EXWORKS), the seller only makes the goods available to the buyer at the seller's own premises. It is the only one of that category.
Under the "F"-terms (Free carrier, Free alongside Ship and Free on Board): The seller is called upon to deliver the goods to a carrier appointed by the buyer
Under the "C"-terms (Cost & freight, Cost insurance & freight, Carriage paid to and Carriage and insurance paid): the seller has to contract for carriage, but without assuming the risk of loss or damage to the goods or additional costs due to events occurring after shipment or dispatch
Under the "D"-terms (Delivered at frontier, Delivered ex ship, Delivered ex quay, Delivered Duty Unpaid and Delivered duty paid): The seller has to bear all costs and risks needed to bring the goods to the place of destination.
All Overseas Transits (Exports & Imports) are subject to Institute Cargo Clauses given by Institute of London Underwriters. B (Wider Cover) & C (Basic Cover)
1. ICC (A) All risk Cover subject to only named Exclusions which are mostly uninsurable. Additional Perils Covered under ICC (A) are Partial losses during loading and discharge of cargo.
2. ICC (B) Wider Cover: Provides cover under ICC (C) & Additional risks i.e a) Earthquake, volcanic eruption or lightning, b) Washing overboard c) Entry of sea, lake or river water into vessel d) Total loss of any package lost Following extraneous risks can be covered on payment of extra Premium to ICC (B)
a) Theft, pilferage and / or non-delivery.
b) Fresh water and rainwater damage.
c) Hook and / or oil damage.
d) Heating and sweating.
e) Damage by mud, acid and other extraneous substances.
h) Busting / tearing of bags.
3. ICC (C) Basic Cover: Fire or explosion, Vessel or craft being stranded, grounded, sunk or capsized.
Overturning or derailment of land conveyance.
Collision or contract of vessel, craft or conveyance with any external object other than water.
Discharge of cargo at a port of distress.
General Average sacrifice.
Jettison. Theft, Pilferage, Non-delivery/ Shortage, Hijack, Piracy, Rain water damage
Goods (merchandise) dispatched by rail or road from any place in India to any place in India (not in conjunction with an overseas voyage) are subject to Inland Transit (Rail/Road) Clause(ITC) A,B & C. Inland clauses do not offer cover against War perils. ITC ‘A’ Clause is all risk in nature & ITC ‘B’ & ITC ‘C’ Clauses are “Named Peril” policies where scope of cover is limited.
The brief coverage is as under:
1. Inland Transit (Rail or Road) Clause – A (All Risks): Covers All Risks of Physical loss or damage subject to Exclusions.
2. Inland Transit (Rail or Road) Clause – B (Basic Cover): Covers Physical loss or damage caused by:
i) Fire, Lightning, Breakage of Bridges
ii) Collision with or by the carrying vehicle, derailment or accidents of the like nature to the carrying railway wagon/vehicle.
3. Inland Transit (Rail or Road) Clause – C: Covers Physical loss or damage caused by (i) Fire (ii) Lightning.
ITC ‘C’ & ITC ‘B’ Clauses are “Named Peril” policy where scope of cover is limited. Coverage is in line with ICC clauses. Inland clauses do not offer cover against War perils
Add on covers
1. For Inland Transit: Strike, Riot and Civil Commotion ( Covers terrorism also)
2. For Overseas Transit:
i) War, Strike, Riot and Civil Commotion
ii) Duty and Increased Value Insurance (for Imports only
iii) Seller’s Interest Insurance (for Exports with C&F or FOB terms only)
3. Custom Duty Cover/Policy along with Import Policy.
4 Intermediate Storage: If goods need to be stored during transit at customs warehouse or transporter’s go-down in India, Insured can take add on cover for intermediate storage against fire and burglary perils for maximum of 60 days.
This is an Air freight. Normally, the insurance is taken for CIF +10%.
The general Exclusions under Institute Clauses (A), (B) and (C) are :-
Wilful misconduct of the insured,
Ordinary leakage, loss in weight or volume
Unseaworthiness vessel or craft
Inherent Vice of the subject matter,
War and strikes. ( War and strikes can be extended by payment of additional Premium.)
Ordinary wear and tear and inherent flaws in the cargo insured
Insolvency and financial distress of the carriers