chapter 8 exports and imports

7/28/2019 Chapter 8 Exports and Imports

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Chapter 8

Cargo Insurance

Key concepts

Introduction essential to understand role of

cargo insurance in conduct of international trade. Cargo insurance market and all its major factors.

Fundamental principles of insurance very

important to comprehend the four main principles.

Effecting cargo insurance the procedure

mechanism.


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Cargo Insurance

Marine insurance is governed by the MarineInsurance Act 1906, which came into force on 1

January 1907.

The basic principles of insurance as specified in

the Act are:

Insurable interest

Utmost good faith

Indemnity

subrogation


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Cargo Insurance

Marine Insurance is a contract whereby the

insurer undertakes to indemnify the assured in a

manner and to the extent thereby agreed, against

marine losses, that is to say, the losses incidentalto marine adventure.

Hence this includes cargo insurance involving the

maritime conveyance of merchandise from one

country to another.


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Insurable Interest

A person has an insurable interest in a marineadventure (any ship goods or othermovables exposed to maritime perils) wherehe or she stands in any legal or equitable

relationship to the adventure or insurableproperty at risk therein in consequence ofwhich he may:

a. Benefit by the safety or due arrival of the

insurable property, orb. Be prejudiced by its loss, or by damage

thereto, or by the detention thereof, or

c. Incur liability in respect thereof


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Insurable InterestDifference between Subject matter insured and

Insurable Interest

- Insurable interest is the financial interest of a

person in the subject matter insured

- The insurable interest of the cargo owner is notthe goods (the subject matter insured) but his

finical interest in such goods and he should

insure to the extent of that interest


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Insurable Interest

A policy effected without insurable interest is void. It has no legal value and is unenforceable at law

Therefore insurable interest or an expectation ofacquiring one should exist at the time the insurance iseffected

Proof of insurable interest is not required at the timeof effecting an insurance

But when making a claim the assured should showthat he had an insurable interest at the time of loss.


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Utmost Good Faith Contract of marine insurance is a contract based

upon utmost good faith (uberrimae fidei), and ifthe utmost good faith is not observed by eitherparty, the other party may avoid the contract.

Observing the principle of utmost good faith meansa full disclosure of all material circumstancesrelating to the risk before the contract is concluded


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Indemnity

In the event of loss or damage to the subjectmatter insured resulting from an insured peril, he

is placed in the same position that he enjoyed

immediately before the loss occurred.

After indemnity the assured may not be in a better,or worse, position than he was in before the loss.


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Subrogation

Is the corollary of indemnity in so far as its applicationprevents the assured defeating the principle ofindemnity by recovering his loss from more than oneparty. The rights of subrogation pass to the underwriter upon

payment of any type of claim When the claim is in respect of a total loss, the

underwriter is additionally entitled to proprietary rights inrespect of whatever may remain of the insured goods

and may dispose of these and retain the whole of theproceeds even when these may exceed the amount ofthe claim paid


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Subrogation

Underinsurance

Any recovery the underwriter effects in this respect

is limited to the amount of the claim paid under the

insurance

Where the insured goods have been undervalued,the underwriter may recover more than the amount

paid by him as a claim. In this event he must pass

the surplus proceeds to the assured.


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Cargo Insurance Rating

Premium rates are determined by:

1. The carrying vessel the age, classification,flag, ownership, and management of the ship

2. Nature of the packing used adequacy ofprotection to the cargo

3. Type of merchandise some are morevulnerable to damages than others


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Cargo Insurance Rating

4. Nature of transit and related warehouseaccommodation

5. Previous experience if the cargo involved has

been subject to significant damage or pilferage the

premiums are likely to be high6. Type of cover needed more extensive the cover

required, higher the premium rate

7. Volume of cargo involved larger the volume

favourable the premium


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Cargo Claims

The circumstances which give rise to a cargo claim

vary:

1. Missing goods

2. Damaged goods

3. Stained / mutilated / soiled goods4. Non-saleable / marketable goods arising through

frustration of the transit such as transit delays causingperishable goods to deteriorate beyond marketable /saleable product

5. Failure of the goods to arrive on a specified dateresulting in a compensation claim

6. Poor / inadequate packing

7. Inadequate/ poor stowage

8. Poor handling / stacking of cargo resulting in damage,


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Cargo Insurance Claims

Most insurance company policies require that

immediate notice be given to the nearest branch or

agency in the event of damage giving rise to claim

under a policy on goods.

When notified of damage, the companys agent

appoints a suitable surveyor to inspect the goods

and to report on the nature and extent of the

damage.


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Cargo Insurance Claims:

Documents to be produced when making a

claim

1. The export invoice issued to the customer

together with shipping specification and/or weight

notes

2. Original bill of lading, charter party, air waybill, orCMR or CIM consignment note

3. Original policy or certificate of insurance

4. Survey report or other documentary evidence

detailing the loss or damage occurred


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Practice questions

1. List down the 4 fundamental principles ofinsurance

2. List down at least 6 factors determining thepremium rates in cargo insurance

3. List down any 3 circumstances giving rise tocargo claim

4. List down at least 7 documents required whenmaking an insurance claim