December 27, 2021

Marine Cargo Insurance

Marine Cargo Insurance

Marine Cargo Insurance is a Business Insurance policy that covers any loss of or damage to goods that are being transported by the business via road, railways, airways, waterways, courier, or any other means. Both international and domestic transit of goods can be covered under this policy.

Running a business involves frequent transfer of goods and other assets from one destination to another to aid in sales, procurement, payment, and other necessary operations. This physical transit of goods comes with certain perils and associated risks that need to be hedged against.

Marine Cargo Insurance provides financial security to commercial establishments for meeting the countless risks posed by the transit of goods. It is a type of Insurance policy that covers physical loss or damage to merchandise/goods/assets in ordinary course of transit via air, road, rail, sea, courier, registered post, or a combination of these modes, between any two places.

There are two main types of Marine Cargo Insurance policies. These are:

  • Marine Specific Transit - This policy is valid for a single shipment or voyage at a time, from a named place to a named destination. The policy is issued before the voyage starts and the coverage ceases immediately on completion of the voyage
  • Marine Open Policy - This policy is ideal for big establishments that deal in large volumes of trade. Here, coverage is provided automatically to all shipments and transits during the policy period (usually 1 year) on pre-arranged terms and conditions

Coverage offered under a Marine Cargo Insurance policy can be of different types depending on the mode of transport and the requirements of the insured. The three main categories are :

For goods transported via water bodies, coverage is provided under the following three clauses that are uniformly used in international markets :

I) All Risk Institute Cargo Clause A - This is the highest marine insurance cover available for cargo, covering all risks of loss or damage to the insured property except for the perils specified in the exclusions. Some of the risks covered here are :

  • Fire, explosion, earthquake, volcanic eruption, and lightning
  • Vessel being stranded, grounded, sunk, or capsized
  • Overturning or derailment of land conveyance
  • Collision of vessel with any object other than water
  • Entry of water into the vessel or container, or rainwater damage
  • Jettison, washing overboard, or loss of package while loading or unloading
  • Piracy, or deliberate damage by wrongful persons
  • Liability under Both-To-Blame-Collisions
  • Extra charges incurred for unloading, storing and forwarding to destination
  • Reasonable charges incurred to minimise further losses

Other external perils covered under the ‘All Risks’ clause :

  • Shifting of cargo
  • Heating, breaking, crumbling, crushing, or denting of cargo
  • Infestation, mould, mildew, or contact with mud / oil / other cargo
  • Hook / sling losses
  • Shortage, theft, pilferage, non delivery or short delivery

II) Basic Cover Institute Cargo Clause B - This clause provides coverage under a named perils basis as opposed to an ‘All Risks’ basis. Some of the perils insured under this clause are :

  • Fire, explosion, earthquake, volcanic eruption, and lightning
  • Vessel being stranded, grounded, sunk, or capsized
  • Overturning or derailment of land conveyance
  • Collision of vessel with any object other than water
  • Entry of water into the vessel or container
  • Jettison, washing overboard, or loss of package while loading or unloading
  • Liability under Both-To-Blame-Collisions
  • Extra charges incurred for unloading, storing and forwarding to destination
  • Reasonable charges incurred to minimise further losses

All other risks are kept out of the scope of this clause

III) Fire and Lightning Institute Cargo Clause C - This clause also provides exclusive coverage to named perils. However, the risks covered here are more limited than those covered under Clause B. Some of these risks are :

  • Fire or Explosion
  • Vessel being Stranded, Grounded, Sunk or Capsized
  • Overturning or Derailment of Land Conveyance
  • Collision or Contact of vessel with any object other than water
  • Jettison
  • Liability under Both-To-Blame-Collisions
  • Extra charges incurred for unloading, storing and forwarding to destination
  • Reasonable charges incurred to minimise further losses

For international trade, Marine Cargo Insurance coverage is provided on an ‘All Risks’ basis as per Institute Cargo Clause (Air). The perils covered here are the same as laid out under Institute Cargo Clause A above.

Coverage for domestic transit of goods via any mode of transport including road or rail is provided as per the following Inland Transit Clauses :

  • Inland Transit Clause (A) : Coverage is on an ‘All risk’ basis where all risks are covered except for those specifically mentioned in the exclusions
  • Inland Transit Clause (B) : Coverage is on a named perils basis, which includes fire, lightning, breakdown of bridges, collision, overturning or derailment. Loss as a result of theft, pilferage or non-delivery (known as TPND in insurance parlance) can also be covered by paying extra premium.

Some insurers offer certain clauses as extensions on payment of additional premium or agreement for a higher deductible. Some of these extensions are :

  • Air Freight Replacement Clause - Under this extension, coverage is provided for the costs of air freighting the damaged goods to manufacturers for repair and return and/or the air freighting of replacement goods to destination
  • Concealed Damage Clause - Under this extension, any concealed loss or damage to the insured goods which cannot be found from the external appearance of the original package is covered for up to 30 days after arrival at final destination
  • Loading and Unloading Clause -  This covers damage to the goods whilst they are being loaded onto or unloaded from the carrying vehicle
  • Duty Insurance Clause - This clause extends coverage to the loss sustained on duty imposed on the insured goods due to insured perils
  • Labels Clause - In cases where the damage to the consignment is such that only the labels & packaging is damaged and the actual goods are intact, a Marine Cargo Insurance policy pays for the cost of re-labelling and/or re-packing.

Some of the general exclusions under a Marine Cargo Insurance policy are :

  • Wilful misconduct of the insured
  • Ordinary leakage, ordinary loss in weight or volume, or ordinary wear and tear of the insured property
  • Inherent vice or defective nature of the insured property
  • Insufficiency or unsuitability of packing and preparation of goods
  • Delay of shipment due to any reason
  • Insolvency or financial default of the owners, managers or operators of the vessel
  • Nuclear risks
  • War and related perils
  • Loss or damage caused by strikes, riots, or civil disturbances by any person
  • Unfitness/ Unseaworthiness of carrying conveyance

Marine Cargo Insurance reduces a business’s risk exposure during one of the most common business activities - the movement of goods. With the rise of congestion in shipping terminals and frequent perils like oil spills, collisions, and bad weather, the need for such an insurance policy has also increased. In fact, a Marine Cargo Insurance policy is obligatory international trade, often forming an integral part of the seller’s agreement.

Marine Insurance protects goods while they're in transit. But, how are goods stored in warehouses and factories protected? Through Fire and Allied Perils Insurance!

Opinions, conclusions and statements of intent expressed in this article are that of the author and Verak does not accept liability for the views expressed unless confirmed by an authorized representative of the Company independently of this communication.