Marine Cargo Insurance

Cargo Insurance provides coverage for physical loss or damage to goods from any external cause (in accordance with the terms and conditions of the policy form). The product must be in the ordinary course of transit via a covered conveyance (e.g. vessel, aircraft, road, rail, mail/parcel post, etc). Cargo insurance protects those who have an insurable/financial interest in cargo (buyer or seller and intermediaries, depending on how a contract between the parties is structured). The Great American Insurance Company Cargo Policy provides “all risks” coverage, however we can amend the policy to cover named perils only, as needed/desired by the Insured. We will often extend our basic Marine Cargo Policy to also include domestic transit and/or inventory coverage. When covering both transits and storage exposures under our single policy, it is commonly referred to as a “stock throughput” policy. Our Cargo Policy can also be extended to cover exhibitions, installation, as well as salesperson samples.

Any company that ships or receives a tangible product likely needs cargo insurance. This coverage is needed because in the event the product suffers damage, the financial loss can be catastrophic.

For example, if you are exporting a product to a customer and you have not yet been paid for the goods at the time of shipment, you run the risk of suffering a financial loss should the goods become lost or suffer damage during transit. Conversely, if you are importing a product from a third party and have paid for all or part of the order prior to receiving it, you will likely suffer financial loss if the product arrives damaged etc.

In addition, note that your sales contract may require you to provide cargo coverage to protect the other parties’ interests or in some cases, their bank’s interest. For instance, if you are selling to your customer on CIP or CIF Incoterms, you would be responsible to insure the product while in transit on behalf of your customer. If you don’t fulfill this obligation, you automatically leave open the possibility of suffering financial loss if there is damage to the product. In addition, if you’re not complying with the contract that was agreed with your customer, you may also be faced with legal problems in addition to the loss of future sales with this customer.

General Average is an internationally accepted principle of maritime law whereby all stakeholders in a sea venture (ship owner, cargo owners etc.) will proportionately share in any losses that result from a voluntary sacrifice of part of the ship, or cargo, or expenditure - for the purpose of saving the whole venture. The interests that are saved because of the sacrifice will reimburse the interests who suffered the loss so that each interest shares in the loss (proportionately). When the vessel owner declares a General Average due to a maritime catastrophe, it is very costly for shippers/interests who do not have cargo insurance in place. If you were one of the “lucky” interests who did not suffer damage, you will likely be required to post a bond and/or cash deposit in order to release your cargo (even though there was no damage to your goods). By having the proper cargo insurance in place, your cargo insurer will assume the responsibility of posting the bond and can usually expedite the release of your cargo.

An example of a General Average is a cargo vessel that is sailing in a heavy storm that runs aground (this happens more than you think!). At this juncture, the entire vessel is in danger – the ship, the crew, the cargo onboard etc. – are all at risk if the vessel cannot get afloat. The vessel owner declares a General Average and the crew jettisons several cargo containers overboard to lighten the vessel; or they pay a salvor to pull the vessel off the grounding point. These losses / expenses would be shared by the vessel and all cargo interests onboard.

A shipping company does not provide first party insurance for cargo. The insurance carrier is only responsible for loss or damage to your cargo when it is the result of their negligence while your goods are in their care, custody and control – and you must be able to prove their negligence in order to recover any damages. In addition, carriers are exempt for certain causes of loss or damage (e.g. Acts of God, riots, strikes, force majeure, to name a few). For instance, the carrier would not be responsible for your portion of a General Average. Further, there are limits to the monetary liability of carriers. In most cases, carriers will be limited to a certain amount per pound of product (not the value of the goods). Your own first party cargo insurance policy ensures proper limits of liability, broad / bespoke coverage conditions addressing your specific coverage needs, and professional claims handling.

The Great American Insurance Company Cargo Policy provides warehouse to warehouse coverage, which means coverage attaches at the point where transit commences (may be far inland) and includes any transshipment points (e.g. consolidation/deconsolidation point, temporary storage at warehouse, etc.) and terminates when the cargo is delivered to the final destination (may be far inland).

It is important to note, however, that while our Cargo Policy provides coverage on a warehouse-to-warehouse basis, the primary coverage responsibility on each shipment will be directly determined by the Incoterms / Terms of Sale (e.g.: CIF, CIP, Ex works, FOB etc.) applied in the sales contract between buyer and seller. (NOTE: INCOTERMS are a set of internationally recognized trade terms published by the International Chamber of Commerce which define the obligations and responsibilities of the seller and buyer to each other on goods moving in international trade.)

Standard valuation under a cargo policy is for CIF+10% which means Cost/Invoice Value + Insurance + Freight + 10%. The additional 10% is essentially an advance to account for any additional expenses which may be incurred during shipment but were not known prior to shipment taking place. Further, the 10% can account for any currency fluctuations and/or unforeseen variable freight costs. The intention of the cargo policy is to indemnify the Insured making them whole, which includes allowances for additional cost for reshipping and/or the “cost” of doing business that is otherwise not contemplated within the manufactured or sales value.

It’s difficult to say but we do see losses every day, and it’s important to keep in mind that just one loss could be quite costly. It is documented that thousands of containers are lost overboard each year, and we’ve also seen an uptick of fires onboard vessels in recent cycles. With the increased use of larger “mega” container ships, as well as mis-declared and/or un-declared cargoes becoming a more common theme, so has the volatility.

When considering the costs and benefits of an “all risks” cargo policy vs. relying on negligence of the carrier in the event of a loss, there are many things to think about such as: the time it takes to make a liability insurance claim, having to prove that the carrier is responsible, then having to replace the lost or damaged goods, and then successfully getting the product to the other party. The cargo policy will respond/address all these major concerns, and at a cost that is often nominal relative to all the effort that would be required in proving carrier negligence.

The first step in obtaining a quote for cargo insurance is to complete a cargo insurance application/questionnaire.