CII Marine
CII Marine
goods in transit
insurances
M90 Study text: 2019
2019–
–20
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The author
John Charles Potter ACII Practitioner. As Regional Marine Manager for a major insurer
ACII, Chartered Insurance Practitioner
covering the north east of England, John led a team of underwriters and processors specialising in marine
cargo and freight liability insurance. In addition to those day-to-day duties, John has been involved in in-
house training in the marine and freight disciplines for most of his career. He was also a founding member
and the inaugural chairman of the Leeds Marine Insurance Association. He is still actively involved in the
association’s work and was instrumental in starting their annual marine workshop, held each November. He
has acted as an expert witness in cargo and freight disputes. Since retiring, John has developed his own
business providing training in hull, cargo, goods in transit and energy insurances to a range of clients, both
in the UK and overseas, mainly through Face to Face Training.
Additional updaters
In addition, the CII would like to thank the following for their contributions to the 2019–20 edition:
Reviewers
The CII would like to thank the following reviewers for their assistance with the first edition of this
study text:
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controlled wood sources.
3
At the end of every chapter there is also a set of self-test questions that you should use to
check your knowledge and understanding of what you have just studied. Compare your
answers with those given at the back of the book.
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Examination syllabus
Assumed knowledge
It is assumed that the candidate already has knowledge of the fundamental principles of
insurance as covered in IF1 Insurance, legal and regulatory or equivalent examinations.
Important notes
• Method of assessment:
Mixed assessment consisting of two components, both of which must be passed. One component is a
coursework assignment and one is a multiple choice question (MCQ) examination. The details are:
1. an online coursework assignment using RevisionMate consisting of 10 questions which
sequentially follow the learning outcomes. This must be successfully completed within 6 months
of enrolment; and
2. an MCQ exam at one of the CII’s online centres (paper-based MCQs are available in April and
October for those sitting outside the UK). The MCQ exam consists of 50 MCQs. 1 hour is allowed
for this exam. This exam must be successfully passed within 18 months of enrolment.
• This syllabus will be examined from 1 May 2019 until 30 April 2020.
• Candidates will be examined on the basis of English law and practice unless otherwise stated.
• Candidates should refer to the CII website for the latest information on changes to law and practice
and when they will be examined:
1. Visit www.cii.co.uk/learning/qualifications/diploma-in-insurance-qualification/
2. Select the appropriate qualification
3. Select your unit on the right hand side of the page
Examination syllabus
Examination syllabus
Note: The examination will test the syllabus Marine insurance clauses. Geoffrey Hudson and
alone. Tim Madge. 5th ed. London: LLP, 2012.*
The reading list is provided for guidance only Marine insurance fraud. Baris Soyer. Hoboken:
and is not in itself the subject of the Infoma Law, 2014.*
examination. Marine insurance: law and practice. 2nd ed. Francis
Rose. Cornwall: Informa Professional, 2012.*
The resources listed here will help you keep up-
to-date with developments and provide a wider Marine insurance legislation. Robert Merkin, et al.
coverage of syllabus topics. 5th ed. London: Informa Professional, 2014.*
CII/PFS members can access most of the Principles and practice of marine insurance.
additional study materials below via the Ehsanul Haque. Dubai: United Publications, 2012.
Knowledge Services webpage at https:// The modern law of marine insurance. Volume 4.
www.cii.co.uk/knowledge-services/. Rhidian Thomas. London: Informa, 2016.
New resources are added frequently - for
information about obtaining a copy of an article Ebooks
or book chapter, book loans, or help finding The following ebooks are available through
resources , please go to https://www.cii.co.uk/ Discovery via www.cii.co.uk/discovery (CII/PFS
knowledge-services/ or email members only):
[email protected]. Cases and materials on the carriage of goods by
sea. 4th ed. Anthony Rogers, et al. London:
CII study texts Routledge, 2016.
Cargo and goods in transit insurances. London: CII. International trade and carriage of goods. Baris
Study text M90 Soyer, A M Tettenborn. Oxon: Informa Law from
Routledge, 2017.
Insurance, legal and regulatory. London: CII. Study
text IF1 Marine insurance law. 2nd ed. Ozlem Gurses.
Routledge, 2017.
Books (and ebooks)
Principles of the carriage of goods by sea. Paul
Arnould’s law of marine insurance and average. J
Todd. London: Routledge, 2016.
Gilman, Robert M Merkin et al. 18th ed. London:
Sweet & Maxwell, 2013. The Blackwell companion to maritime economics.
Wayne K Talley. Massachusets: Wiley, 2012.
Carriage of goods by sea. 2nd ed. Stephen Girvin.
Oxford: Oxford University Press, 2011. Factfiles and other online resources
Carriage of goods by sea. 7th ed. John F Wilson. CII fact files are concise, easy to digest but
Harlow: Pearson, 2010. technically dense resources designed to enrich the
knowledge of members. Written by subject
Carriage of goods by sea, land and air: uni-modal
experts and practitioners, the fact files cover key
and multi-modal transport in the 21st Century.
industry topics as well as less familiar or specialist
Baris Soyer, Andrew W Tettenborn. London:
areas of general insurance, life, and pensions and
Informa Law from Routledge, 2013.
financial services, with information drawn together
Carriage of goods by sea under the Rotterdam in a way not readily available elsewhere. Available
Rules. Edited by D R Thomas. London: Lloyd’s List online via www.cii.co.uk/ciifactfiles (CII/PFS
Law, 2010. members only).
Cases & materials on marine insurance law. Susan The Insurance Institute of London (IIL) podcast
Hodges. Routledge-Cavendish, 1999.* lecture series features leading industry figures and
subject experts speaking on current issues and
Contracts of carriage by air. 2nd ed. Malcolm trends impacting insurance and financial services.
Clarke. London: Lloyd’s List, 2010. Available online at https://www.cii.co.uk/
Insuring cargoes: a practical guide to the law and insurance-institute-of-london/ (CII/PFS members
practice. K S Vishwanath. London: Witherby, 2010. only).
International carriage of goods by road: CMR. 6th Project cargo and delayed start-up insurances.
ed. Malcolm Clarke. London: LLP, 2014. John Potter.
International maritime conventions: Volume 1. The Subject gateway on marine insurance. Updated
carriage of goods and passengers by sea. regularly. Available online via www.cii.co.uk/
Francesco Berlingieri. Oxon: Informa Law, 2014.* subjectgateways.
International trade: an essential guide to the Further articles and technical bulletins are
principles and practice of export. Jonathan Reuvid available at www.cii.co.uk/knowledge (CII/PFS
and Jim Sherlock. 3rd ed. London: Kogan Page, members only).
2011.
Examination syllabus
Reference materials
Concise encyclopedia of insurance terms.
Laurence S. Silver, et al. New York: Routledge,
2010.*
Dictionary of insurance. C Bennett. 2nd ed.
London: Pearson Education, 2004.
Insurance: Conduct of Business sourcebook
(ICOBS). Available via www.handbook.fca.org.uk/
handbook/ICOBS.
* Also available as an ebook through Discovery via
www.cii.co.uk/discovery (CII/PFS members only).
Exemplars
Exemplar papers are available for all mixed
assessment units. Exemplars are available for both
the coursework component and the MCQ exam
component.
These are available on the CII website under the
unit number before purchasing the unit. They are
available under the following link www.cii.co.uk/
qualifications/diploma-in-insurance-qualification.
These exemplar papers are also available on the
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after you have purchased the unit.
M90 syllabus
quick-reference guide
Syllabus learning outcome Study text chapter
and section
1. Understand the business environment of shipping and world trade
1.1 Describe the world import and export business, including the 1A, 2A
parties involved.
1.3 Describe different types of goods, including their main origins, 1C, 1D
destinations and methods of transportation.
1.4 Describe the main terms of trade used in buying and selling 2B, 2E
goods internationally.
2. Understand the legal and regulatory environment of cargo and goods in transit risks
2.1 Describe the legal and regulatory environment of carriage of 3A, 3B, 3C, 3D, 3E, 3F, 4A,
goods by sea, road, rail and air. 4B, 4C, 4D
2.2 Apply the relevant laws and regulations to carriage of goods 3A, 3B, 3C, 3D, 3E, 3F, 4A,
scenarios within the UK and global context. 4B, 4C, 4D
3.3 Apply the cover provided by Institute Cargo Clauses to various 5A, 5B, 5C
scenarios in a global context.
3.5 Explain cover provided for consequential loss and delayed 6A, 6C
start-up.
4.1 Explain the tripartite nature of haulage contractor’s liability 7A, 7B, 7E
cover.
4.3 Explain the legal liabilities and the relationship between haulage 7F, 7G
contractors, freight forwarders, warehouse keepers and ports for
the movement of goods.
10 M90/March 2019 Cargo and goods in transit insurances
5.5 Explain how risk accumulates and the importance of its control. 9D
6. Understand claims considerations and procedures for cargo and goods in transit
6.3 Describe the use of cargo survey reports and other documents in 10A
support of claims.
6.4 Explain the main principles and application of bills of lading and 2D, 10A
waybills.
6.5 Adjust cargo claims for partial or total loss in given scenarios. 10C, 10D
6.6 Calculate the following elements in claims scenarios: 10E, 10F, 10G
• Particular charges.
• Salvage charges.
• General average.
• Sue and labour.
• Extra charges.
6.7 Explain and calculate potential recoveries under typical carriage 10H
conditions.
6.8 Describe the correct way in which a declined claim should be 10I
communicated, taking into account the Insurance Act 2015, with
emphasis on s.13 of that Act.
11
Introduction
This study text deals with the insurance of goods in transit from consignor to consignee
anywhere in the world, whether they are traded from one country to another or domestically
within any one country. This falls into two distinct disciplines. The first discipline is the
insurance of the goods themselves against loss or damage and is related directly to the
value of those goods. This is cargo insurance. The text describes the main internationally
recognised London marine clauses that provide cover, as well as those clauses designed for
specific types of goods, such as those sent in a temperature-controlled condition.
By contrast, goods in transit insurance does not cover the goods themselves. Instead, it
covers the various legal liabilities of the bailees of those goods while they are in their
possession for the purposes of delivering them from consignor to consignee – from the seller
to the buyer.
The carriage of goods from a supplier in one country to a customer in another country
involves the services of a number of bailees. These include the haulage contractor who takes
them to the port of embarkation, the road, rail, sea or air carrier who carries them to their
destination country and the carrier in that other country who delivers them to the customer.
Warehouse keepers, who store goods in return for the payment of a fee, are also bailees of
goods, as are freight forwarders and stevedores. Freight forwarders usually arrange this
chain of transport, which may involve temporary storage of goods at any stage of the
carriage. This book covers both the legal liabilities of any of these parties and the insurance
available to the owner of the goods in transit from the premises of the seller up to delivery at
the premises of the buyer.
We will consider the various legal liabilities attaching to the bailees of goods and the rights
and obligations associated with them for both the bailee and the owner of the goods.
Liabilities arise under three main headings: at common law, under private conditions of
contract and under statutory law, both domestic and international. International conventions
include those of the Hague-Visby Rules, the Hamburg Rules, the CMR Convention and the
CIM Convention – all of which form part of this study text.
We will also look at a selection of the many goods typically traded throughout the world and
the risks to which they are routinely and unavoidably exposed. Finally, we will study the
claims considerations and practices associated with both cargo and goods in transit
insurances.
Supporting
your success
Contents
1: World trade
A World export and import business 1/2
B Major trade routes 1/4
C Types of goods carried 1/6
D Containerisation 1/11
2: Business environment
A Parties involved in the carriage of goods 2/2
B Main terms of trade 2/5
C Charterparties 2/12
D Bills of lading and waybills 2/12
E Other documents 2/18
10: Claims
A Claims notification 10/2
B Role of specialists 10/6
C Application of Institute Cargo Clauses 10/9
D Adjustment of cargo claims 10/12
E Other charges and expenses 10/13
F General average claims 10/15
G Measure of indemnity 10/17
H Calculating claims for haulage contractor
contractor’’s liability 10/17
I Policy declinatures (denials) 10/20
Self-test answers i
Glossary xi
Cases xv
Legislation xvii
Index xix
Chapter 1
World trade
1
Contents Syllabus learning
outcomes
Learning objectives
Introduction
Key terms
A World export and import business 1.1
B Major trade routes 1.2
C Types of goods carried 1.3
D Containerisation 1.3
Key points
Question answers
Self-test questions
Learning objectives
After studying this chapter, you should be able to:
• describe world import and export business;
• describe the main trade routes throughout the world; and
• detail the various types of goods carried.
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Introduction
In this opening chapter we will put cargo and goods in transit insurances in the context of
world trade. We will also provide an outline of some of the factors that are influencing the
development of both and the different types of goods that are carried. In the next chapter
we will look at the business environment that surrounds this trade.
Key terms
This chapter features explanations of the following terms and concepts:
Stuffing and destuffing Twenty Equivalent Unit load devices Ventilated containers
Units (TEUs) (ULDs)
The growth in world trade has been phenomenal since 1948, when it stood at US$58bn. By
2017, the EU alone was exporting US$4.67 trillion worth of goods (Source: World Trade
Statistical Review 2018). The UK, with its long history of trading throughout the world is
currently one of the major exporters and importers of goods. In 2017 it held tenth place in
the world for exports, despite much of its mass production business now being located in
other countries, principally due to its exports in services. This demonstrates the continuing
importance of a country with an historical record of trading, invention, innovation and
production running from the start of the industrial revolution late in the eighteenth century.
In the twenty-first century, the UK remains a major producer of goods and machinery, with,
for example, Rolls Royce aero and marine engines powering aircraft and ships throughout
the world, as well as generating power for power stations. In the main, though, the UK has
moved away from large scale mass production in favour of small to medium sized
enterprises whose modest economies of scale do not justify moving production away from
the parent country.
In addition, the UK is a global financial centre and one of the leaders in the field of insurance
and reinsurance, both inwards and outwards, particularly in marine hull and marine cargo
insurance, as well as other catastrophic losses, such as oil spills, bad weather events and
major fires.
A1 Centres of production
What has happened in the UK reflects a wider trend in which the centres of production have
shown a gradual shift away from traditional centres in the developed world, to the new
emerging economies of the developing world. There are a number of reasons for this, as we
shall see in the following sub-sections.
Activity
Look at the following document introducing their Handbook of Statistics 2014 on the
website of the United Nations Conference on Trade and Development (UNCTAD):
http://unctad.org/en/pages/PressRelease.aspx?OriginalVersionID=233
Notice how the share of developing countries into world exports increased between 1996
and 2013. This provides evidence of the increasing progress of the developing countries at
the expense of those in the developed world.
See also the World Trade Organization website www.wto.org
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Consider this
this…
…
What other factors can you think of that have had an influence on the development of
world trade?
Emergence of local
The move to overseas manufacturing centres has also led to the emergence of local insurers,
insurers offering alternative sources of marine insurance. These compete with the UK’s prominent
position in the world marine insurance market, putting pressure on premium rates in the
process. For example, at the turn of the twenty-first century, China’s manufacturing for
export output was relatively small, but it has since grown rapidly. Alongside this growth, a
number of privately owned insurance companies, domiciled in China, have emerged. These
are required by local/national legislation to retain at least some of the risk in the Chinese
market. This is similarly the case in other developing insurance markets, such as Latin
America.
For the UK, the busiest routes are those between it and the Far East, especially China and
Japan. For goods going by sea this will usually involve passage through the Suez Canal and
the Malacca Straits.
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Chapter 1 World trade 1/5
B1 Liner services
Direct liner services operate between the UK and the main trading nations. Liner services are
those provided by shipping lines that operate advertised, scheduled services to specified
destinations. A ship that plies the seas without a specific and advertised route network is
known as a tramp steamer
steamer.
Learning point
Simply by way of illustration, an easy way of understanding the difference between a liner
and a tramp service is to consider two everyday forms of transport.
A bus or train service is a liner service because it runs at advertised times to scheduled
destinations. A taxi, on the other hand, can be hailed by any member of the public to go to
any destination. The taxi does not operate a scheduled and advertised service between
any two points. This makes it comparable to a tramp service.
Example 1.1
Shipments of iron ore travel from Tubarao, Brazil to Qingdao in Eastern China.
South Africa exports around 75m tonnes of coal from two major ports, Maputo and
Richards Bay, each year.
Example 1.2
A ship sailing from Europe to Los Angeles, on the west coast of America, would transit via
the Panama canal (subject to its size) rather than sailing down the coast of South
America, around Cape Horn and then up the west coast of that continent, adding several
thousand miles to its journey.
Nevertheless, ships transiting canals and waterways are still subject to the perils of the sea,
for example, piracy, which is significantly high in areas such as the Malacca Strait, which you
can find easily on the map in figure 1.1.
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Panama Canal
Malacca Strait
Lombok and
Torres Straits
Sunda Straits
Question 1.1
What is a:
a. liner service?
b. tramp service?
Be aware
A dead weight tonne (DWT) or long ton is used to describe a ship’s gross capacity.
Wheat and oats Produced mainly in the USA, Russia, China, Canada, France, India, Turkey, Italy,
Australia and Argentina
Barley Produced mainly in the USA, Russia, the UK and other European countries
Maize Chiefly produced in the USA, Brazil, China, South Africa, Mexico, Russia, the
former Yugoslavia and Argentina
Rice Grown mainly in south-east Asia, especially Thailand, India, Japan, Indonesia,
Bangladesh and Pakistan
Be aware
Panamax vessels are so named because they are designed to be able to pass through the
Panama Canal.
Sugar cane Major producing countries are India, Brazil, China, Cuba and the West Indies, the
USA, the Philippines, Thailand, Mauritius, Australia and South Africa
Sugar beet Grown in cool temperate lands, such as Russia, France, the UK and other
European countries
Liquefied Are carried in specially designed LPG and LNG carriers respectively.
petroleum
gases LPGs) and
gases(LPGs
liquid natural
gases (LNGs
LNGs)
Chemicals Many chemicals are dangerous so they are carried in specially designed tankers.
These are much smaller than oil tankers and are usually operated by large
chemical fleet operators.
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The countries shown in table 1.3 produce at least one million barrels of crude oil per day.
Example 1.3
Oil being carried from Murmansk in Russia to Rotterdam will typically be carried in an
aframax vessel, whereas a longer shipment route from, say, Ras Tanura in Saudi Arabia to
Louisiana in the USA, will use a VLCC.
C1C Minerals
Minerals
Minerals are found at sites throughout the world and transported as raw materials to
transported mainly manufacturing and processing centres mainly by sea. The main minerals carried are:
by sea
Iron Extracted from iron ore. The chief producing countries are Russia, Brazil,
Australia, the USA, China and West Africa. Iron ore is usually carried in vessels of
between 120,000 DWT and 200,000 DWT
Bauxite Mined in Australia, Jamaica, Guyana, Russia, Surinam, Guinea and the former
Yugoslavia
Copper Chiefly produced by the USA, Russia, Chile, Canada, Zambia and Australia
Salt Largest deposits are to be found in the UK, Spain, the USA, Chile and Mexico
Coal Produced chiefly in Australia, South Africa, the USA, Russia, China, Poland, India
and Germany. It is usually shipped in bottoms of between 25,000 tonnes to
120,000 tonnes in large bulk carriers
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Chapter 1 World trade 1/9
Be aware
The reference to shipped in bottoms is derived from the marine term, ‘limit any one
bottom’. This is a term used in marine cargo policies to limit aggregation of cargo on one
vessel to the maximum sum insured under the policy.
C1D Fertilisers
Fertilisers are also carried around the world in bulk as follows:
Nitrates Sourced from northern Chile and southern Peru. They are shipped in bulk in
bottoms of 10,000 to 14,000 tonnes
Phosphates Sourced from the USA and Morocco and shipped in bulk sizes of 12,000 to
14,000 tonnes. India is a major importer of this product
Sulphur An important industrial raw material used in the manufacture of sulphuric acid,
sulphur dioxide and sodium sulphite. These are used for bleaching straw and
wood fibres, and for removing lignin from wood pulp for the paper industry, as
well as in the manufacture of organic chemicals which contain sulphur. It is
usually shipped from New Orleans and Stockton, in the USA, and Vancouver in
Canada in bottoms of 25,000 tonnes to places such as Morocco. It also
originates from several Arabian ports and is sent to North African and
Mediterranean ports. Consignment tonnages are usually in the range 16,000 to
20,000 tonnes
C1E Timber
Timber comes from Russia, Finland, Sweden and South America. On the other hand,
chipboard, contiboard and medium density fibreboard (MDF) come from Canada, Portugal
and South America. Timber is usually shipped on bulk carriers.
Cement Carried in bulk carriers or bagged. Spain and Greece are major suppliers of
cement in bulk while bagged cement comes from the former Yugoslavia,
Romania, South Korea, Japan and Poland
Scrap Comes in many sizes and shapes, including heavy deadweight, shredded, motor
blocks and turnings. The most suitable vessels are bulk carriers, but shipowners
sometimes refuse cargoes of scrap because they can cause damage or extra
expense. Ports of origin include New York, Chicago, New Orleans and Long Beach
in the USA, Liverpool, Tilbury and Cardiff in the UK and Rotterdam in the
Netherlands
Steel Produced mainly in Germany, Belgium, France and the USA. It is shipped in
various sizes as billets, plates, coils, pipes, sheets and rods. Cargoes to the USA
tend to be in bulk carriers while cargoes for other destinations use tweendeckers
Be aware
Tweendeckers are general cargo ships with two or sometimes three decks. The upper
deck is called the main deck while the lower deck is the tweendeck. Cargo such as bales,
bags or drums can also be stacked in the tweendeck space, on top of the tweendeck.
Beneath the tweendeck is the hold space, used for general cargo.
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Question 1.2
How is steel shipped?
C2 Non-bulk cargoes
Several cargoes are not carried in bulk. We look at these in this section.
C2A Clothing
Clothing is made in Eastern Europe, India, Pakistan, Bangladesh, Vietnam, China and the
Philippines. It is shipped by road (in the case of European manufactured clothing) or by sea
inside specifically designed container vessels.
White goods Washing machines, dishwashers, microwave cookers and similar cooking
gadgets. They are manufactured in many countries throughout the world with
Italy, Spain and Turkey being major centres, as is the Far East.
Italy is an important manufacturing country for ceramics, such as floor and wall tiles,
bathroom and sanitary ware, as well as leather goods, cars and trucks.
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Chapter 1 World trade 1/11
Question 1.3
Which countries are the main manufacturing bases for clothing?
D Containerisation
Containerisation is the term used to describe the placing of goods in an enclosed steel box
and delivering the container to a buyer or a place of unloading and distribution. Loading and
unloading of a container is known in the trade as stuffing and destuffing
destuffing.
Open top containers do not have steel roofs. The top can be left open to accommodate
oversize goods, or it can be covered with weatherproof tarpaulin that is secured with ropes.
This type of container is suitable for over-height cargo and heavy machinery.
Useful website
You can find a definition of containerisation at https://bit.ly/2GGNClm.
Worldwide, containers come in three common sizes. We show the respective sizes and
carrying capacities in table 1.4.
D1 Advantages of containerisation
One of the main advantages of using a container is that it can be loaded at the sender’s Goods remain
premises and sent to the buyer without the goods being disturbed en route, thus arriving, in undisturbed
en route
the main, in the condition and quantity in which they were loaded. Sometimes goods may be
disturbed by a customs inspection but, overall, sending goods by container is an
improvement over pre-container days. In those days goods were loaded onto a lorry, taken
to the docks, unloaded and put into a warehouse awaiting an available ship. They were then
taken from the warehouse and loaded by crane or sling into the ship by stevedores. This
process was repeated in reverse when the ship arrived at the overseas port.
You can see how the old system of transporting goods exposed them to the perils of extra
handling damage and theft. Containerisation has reduced both these perils significantly.
The following facts illustrate the extent of the change brought about by containerisation:
• approximately 90% of non-bulk cargo worldwide is moved in containers;
• some 26% of all containers originate from China; and
• over 200 million trips per year are made by 18 million containers worldwide.
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Question 1.4
What are the three common sizes of containers?
Question 1.5
We talked about flexitank containers earlier. What are they and what are they used for?
Ventilated containers
Carry cargoes that
These are also known as passive ventilated or coffee containers and carry cargoes that have
have to be to be ventilated in transit. Green coffee beans are one of the main cargoes carried in this
ventilated
type of container. Openings in the top and bottom side rails, designed so that they do not
allow the entry of rain or spray, provide the ventilation. This type of container is also used in
the carriage of cans of carbonated drinks to destinations in hot climates. Ventilation reduces
the risk of the cans ‘blowing’, i.e. exploding, when high temperatures increase the pressure
inside the standard container. The use of ventilated containers may be necessary if insurance
is to cover ‘blowing’ risks. It is for individual underwriters to decide whether they wish to
cover such risks and, if so, to decide upon the terms of that cover.
Refrigerated containers
Refrigerated containers are sub-divided into two categories:
• integral units (or, integral reefer containers/integrated units); and
• porthole containers.
The integral unit has its own integral refrigeration unit for controlling the temperature within
the container. The unit runs off the ship’s power supply while on board and that of the
container terminal while at the terminal. When being carried by road or rail most run from a
generator set, which may be either a component of the refrigeration unit itself, or be
connected to it. These refrigeration units work by drawing warm air from inside the
container, cooling it in the refrigeration unit and then blowing it back into the container as
cold air.
A porthole container is an insulated container that does not have its own refrigeration unit.
Cold air enters the container via the ship’s own cooling plant. Cold air is blown in at the
bottom and warm air is extracted at the top.
Chapter 1
Chapter 1 World trade 1/13
Refrigerated containers carry goods which must be kept chilled or frozen. These include Carry goods that
meat, fish, many dairy products, vegetables and fruit. Some have hooks in the roof for the must be kept
frozen
carriage of hanging meat. One significant risk of using this method is that the meat could
swing away from the central line if the vehicle is driven too fast round a bend. This sudden
shift of weight has been known to cause the vehicle to become unstable and overturn.
It is important to remember that temperature-controlled containers are designed to
maintain the temperature of the goods that are loaded. They are not designed to reduce
warm foods to a cool, chilled or frozen state. Therefore, it is vital that the goods to be carried
and the container in which they are to be carried are both at the same, correct temperature.
So, for instance, where goods are to be carried at −30° centigrade, both they and the
container should be at −30° centigrade at the time of loading into the container
container. This is of
fundamental importance.
Insulated containers
These containers are insulated with approximately four inches of polyurethane foam and are
ideal for storing products that are sensitive to ambient temperature extremes or
condensation. They are lined internally with either stainless steel or glass reinforced
plastic (GRP).
One use for insulated containers is in the transportation of flowers. Great care has to be
taken in setting and maintaining the temperature at which flowers are to be carried. This is
because they have very limited temperature tolerances outside of which they will be
damaged. It is important that the cargo is properly stowed within the container to allow for
the flow of air throughout.
Flatrack containers
These containers are especially suitable for heavy loads or out-of-gage cargo that needs
loading from the top or sides, such as pipes and machinery. These can be collapsible or
non-collapsible containers, with or without walls. As with standard containers they come in
20 foot or 40 foot sizes.
Tank containers (tanktainers)
These are used for the transport of hazardous or non-hazardous liquids, gases and powders
as bulk cargo. The tank (or vessel) is made of stainless steel and is surrounded by an
insulation and protective layer of, usually, polyurethane and aluminium. The tank is secured
in the middle of a steel frame. A tank container can be loaded and unloaded from the top
and bottom at the loading and unloading facility by connecting hoses to the valves of
the tank.
Activity
Find out more about the operation of refrigerated containers by searching ‘refrigerated
and insulated containers’ on the internet.
AAP LD9 container maximum load capacity 4,400 kg and suitable for the
Boeing 747, 747F and 777 and the Airbus A340
LD6 ALF container maximum load capacity of 3,020 kg and also suitable for the
Boeing 747, 747F and 777 and the Airbus A340
LD2 DPE container maximum load capacity of 1,225 kg and suitable for the
Boeing 767
LD3 container suitable for the Boeing 787 and 777 and all Airbus wide-
bodied aircraft
Air pallets have the greater load capacity. A typical pallet can carry a maximum of 4,930 kg.
Goods are placed onto the pallet and are secured with strong netting.
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D4 Haulage of containers
Open flat lorry trailers or skeletal trailers usually carry containers to and from ports. The
open flat trailer is literally a flat platform on a wheeled trailer chassis. A skeletal trailer is just
as its name implies – it is a steel framed trailer without a timber platform. Twist locks at each
corner secure the container to the trailer. There are also rail equivalents of flat platform and
skeletal trailers.
Conclusion
At the end of this chapter, you should have a clear idea of the extent of world trade, the
factors that influence it and the goods that constitute it. In the following chapters we will
build on this knowledge as we get to grips with the laws governing trade and how insurance
interacts with it. First, however, we will continue our study of world trade by identifying the
parties involved in it and the nature of the agreements between them.
Chapter 1
Chapter 1 World trade 1/15
Key points
The main ideas covered by this chapter can be summarised as follows:
• The UK remains a major world player for imports and exports, despite changes to the centres of
production.
• Production has moved away from the developed world to the developing world, mainly because
labour costs are cheaper there.
• Home grown insurers in new markets are challenging the prominent position of the UK in the world
marine insurance market.
• The majority of the goods in transit at any one time are goods in bulk.
• Goods carried in bulk include oils, gases, chemicals, agricultural products, minerals and fertilisers,
among other things.
• Clothing, machinery, motor vehicles, timber, frozen sea food, tinned food, domestic electrical goods
and electronic computer chips are not transported in bulk.
Containerisation
• Containerisation describes the placing of goods into an enclosed steel box for delivery to the buyer.
• Containers have the advantage that goods remain undisturbed during transit, thus reducing the risk
of damage.
• Containers can either contain the goods of one seller/buyer (FCL) or the goods of a number of
sellers/buyers (LCL or groupage).
• There are different types of container to suit different purposes.
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Question answers
1.1 a. A liner service is a service provided by shipping lines that operate advertised,
scheduled services to specified destinations .
b. A tramp service does not operate to an advertised, scheduled service. Instead it
is free to carry goods to different ports, according to the needs of its client.
1.2 Steel is shipped in various sizes as billets, plates, coils, pipes, sheets and rods.
Cargoes to the USA tend to be in bulk carriers while cargoes for other destinations
use tweendeckers.
1.3 The main manufacturing bases for clothing are Eastern European countries, India,
Pakistan, Bangladesh, Vietnam, China and the Philippines.
1.4 The common sizes of containers are 20 feet, 40 feet and 45 feet high-cube.
1.5 A flexitank container is usually a standard 20 foot metal container lined inside with a
rubber bladder, which is emptied by gravity through its own rubber tube on arrival.
They are used to carry chemicals or wine.
Chapter 1
Chapter 1 World trade 1/17
Self-test questions
1. What has influenced the move of production away from the developed to the
developing world?
2. How are agricultural products, such as wheat and oats, commonly carried?
3. What are brown and grey goods?
4. What is the purpose of a port?
5. What is groupage?
6. What is a ULD and what is it used for?
7. How is a container secured to a road vehicle for transit?
permits and
for you, wherever you are.
cii.co.uk
2
Chapter 2
Business environment
Contents Syllabus learning
outcomes
Learning objectives
Introduction
Key terms
A Parties involved in the carriage of goods 1.1
B Main terms of trade 1.4
C Charterparties 3.6
D Bills of lading and waybills 6.4
E Other documents 1.4
Key points
Question answers
Self-test questions
Learning objectives
After studying this chapter, you should be able to:
• describe the role of the parties involved in the carriage of goods;
• explain the main terms used in international trade;
• describe time and voyage charterparties; and
• identify the main principles and applications of bills of lading and air waybills.
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Introduction
In the previous chapter we looked at world trade. We saw where different cargoes come
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from and the main trade routes they follow. In this chapter we will look at the business
environment that has grown up in support of this international trade. We will look at who is
involved and the terms of business and documentation they use to facilitate the smooth
transfer of goods from one side of the globe to another.
Key terms
This chapter features explanations of the following terms and concepts:
Ex Works (EXW) FIATA documents Free On Board (FOB) Final delivery receipt
Seller road vehicle RO/RO ferry buyer – for most goods to and from Europe
Note: RO/RO ferries are used in other parts of the world for short sea crossings, not just
between the UK and Europe.
CMR Convention RO/RO ferries are designed to allow a fully loaded wagon to drive onto them at one port and
covered in
chapter 4, to drive off at another port. The goods remain on the vehicle or trailer, undisturbed,
section A throughout the transit. Furthermore, under CMR the Convention remains unbroken so long
as goods remain on a trailer, even if the latter is unhitched or detached from the driving cab.
This is normal practice in the RO/RO ferry business.
In some cases, loaded trailers are hauled to the docks, the driving cabs are detached and
driven back to their base. A tugmaster then hauls the trailer, with its load of goods, aboard
the ferry and is then detached. Upon arrival at the foreign port another tugmaster is
attached and hauls the trailer off the ferry. On the quayside the trailer is re-attached to
another driving cab for onward carriage. So far two driving cabs and two tugmasters have
been used, but the goods remain undisturbed on the trailer. This makes the whole movement
of the goods quicker and reduces the risk of loss or damage to them.
In the UK and elsewhere, the driving cabs are known as tractor units. In Australia and the
US, they are known as rigs.
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Where waterside manufacturing locations exist, goods may be loaded directly from the
factory to the vessel – which may be either a feeder vessel or an ocean going one. However,
a road vehicle is still likely to be involved in getting the goods to the quayside, even if only
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for a short distance. The same applies to manufacturing facilities that are located adjacent to
railway systems.
In order to get the goods from seller to buyer, a number of parties have to be involved at
each stage of the journey.
A1D Shipowners
Shipowners, as the name suggests, are those who own or operate the ships used to carry
goods by sea. This will be from a port in the seller’s country to a port in the country in which
the buyer is located.
Activity
Search the internet for ‘air freight’ or ‘cargo air freight’ to find out more about the services
available for the carriage of goods by air. You will be directed to the many providers of air
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freight services.
A1F Stevedores
Once goods arrive at a port by road, rail or on barges, stevedores load them on to the ships
that are to carry them overseas. Similarly, they unload imported goods from ships for their
ongoing transportation. Cargo handlers are their equivalent in the air freight industry.
A2 Fees
The common feature that all carriers of goods share is the nature of the fees they earn. Their
fees or charges are calculated using the cost of getting their lorry, train, ship or plane from
one place to another, plus profit. Thus the fees or charges bear no relationship to the value
of the goods carried, which is often far greater. For this reason, carriers trade under
conditions of carriage, which either protect them from all liability for the goods, or which
limit their liability for any loss or damage. The obvious lesson to be drawn from this is that
owners of goods should insure them in their own name for the widest cover possible to
ensure that the value of their goods is fully protected.
Example 2.1
XYZ Manufacturing, based in Derby, England sells its goods to ABC, based in central
Australia. Thus both are based many miles from the ports of departure and arrival. The
flow chart sets out the various stages involved in getting goods from XYZ in the UK to
ABC in Australia.
Not all of these parties are involved every time goods are carried. For example, if XYZ
Manufacturing sold the same goods to a buyer in Germany the sequence of events would be:
UK seller o freight forwarder o haulage contractor o German buyer.
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In other words, the geographic positions of the seller and buyer and the method of transit
used, influence who is involved in the transit. Furthermore, the seller may have its own
export department and so may not instruct a freight forwarder. The export department itself
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will deal with all the necessary documentation, appoint the haulage contractor and provide it
with the delivery details.
Question 2.1
XYZ Manufacturing are also selling goods to a buyer in Germany. What forms of transport
would be used during transit?
Each of these parties must handle the goods in accordance with the terms of their
respective contracts and, in return, will earn a fee for doing so. Thus, for example, the
haulage contractor must deliver the goods in reasonable time and in the same condition in
which they received them for carriage. When they have done this, they are entitled to
their fee.
However, haulage contractors are contractually obliged under RHA and CMR to refund the
carriage charges in whole for goods totally lost/damaged in their care or pro rata in the case
of partial loss or damage. (For more on CMR and RHA see chapter 4, sections A and D2
respectively.)
Learning point
For the full text of the Incoterms, students are encouraged to obtain a copy of the
Incoterms 2010 book, which gives a full description of each term. It is published by the
International Chamber of Commerce and its ICC Publication No. is 715E and the ISBN
number is: 978-92-842-0080-1.
• Carriage and Insurance Paid to (CIP): for goods carried mainly by road and/or multimodal
transport.
For the remaining nine Incoterms, sellers and buyers arrange marine cargo insurance in their
own names for the part of the carriage/voyage for which they have title in the goods.
Example 2.2
For goods sent FOB or CFR, the seller should insure them in the seller’s name until those
goods are landed safely aboard the ship at the port of departure. This is the point at which
the buyer acquires title to those goods and the seller concedes that title. The buyer should
have arranged marine cargo insurance in its own name, to come into force at this FOB
point, and to continue in force until the goods are received at the buyer’s premises or at
any other destination chosen by the buyer.
The 2010 edition identifies two categories of classification. One is for ‘Any Mode(s) of
Transport’ while the other is restricted to ‘Sea and Inland Waterway Transport’ (i.e. transport
between ports only and places along inland waterways, for example, the Rhine in Germany).
When choosing which Incoterm is appropriate, the deciding factor is the main mode of
transport that is to be used.
Example 2.3
A consignment of goods is going by ship from Japan to Germany. The goods will usually
be carried first on a road vehicle to the port of departure, then by cargo ship to Germany,
or they may possibly be landed in Rotterdam in the Netherlands. Once they are
discharged from the overseas vessel they will be carried by road or by goods train to their
destination. However, because the road/rail parts of the journey are incidental to the main
method of transport, the journey by sea, the four ‘water borne’ Incoterms are appropriate,
i.e. FAS, FOB, CFR and CIF.
The following table is a list of the standard terms, along with the abbreviations used for ease
of communication.
Rules for sea and inland FAS Free Alongside (Sea and Inland waterway)
waterway transport
FOB Free On Board (Sea and Inland waterway)
These are the eleven recognised standard terms of sale. Here, however, we shall concentrate
on the five most commonly used ones, beginning with the most basic – Ex Works (EXW) –
and progressing through to the widest and most popular term – Cost, Insurance and Freight
(CIF). In addition, we also look at the terms DDP, DAT and DAP found in Incoterms 2010®. In
each case we will describe the respective duties of the buyers and sellers under each set
of terms.
Chapter 2 Business environment 2/7
Question 2.2
What is the purpose of Incoterms?
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B1 Duties of buyers and sellers under common
Incoterms®
B1A Ex Works (EXW)
The seller must: place the goods at the disposal of the buyer at the seller’s warehouse
The buyer must: pay for all transport costs, and bear all risks of loss or damage to the
goods from the time they have been placed at their disposal. This will be
at the seller’s premises
should: arrange insurance in its own name on the goods from the time they are
placed at its disposal in the seller’s warehouse until they are delivered to
its premises
The seller must: • deliver the goods ‘on board’ the vessel;
• provide a clean on board receipt (i.e. a clean bill of lading); and
• bear the risks of loss or damage to the goods until they have been
loaded on board the vessel
should: arrange insurance on the goods whilst in transit from its premises until
they are loaded safely aboard the ship at the port of departure
The buyer must: pay for the ocean freight and bear the risks of loss or damage to the
goods from the FOB point to the final destination
should: arrange insurance in its own name on the goods from the time they are
FOB on the ship at the port of departure until the good are delivered to it
at its premises
The seller must: • deliver the goods ‘on board’ the vessel;
• bear the risks of loss or damage to goods until they have been loaded
on board the vessel; and
• pay the ocean freight
should: arrange insurance in its own name on the goods until they are Free On
Board the ship at the port of departure
The buyer must: bear the risks of loss or damage to the goods from the FOB point to the
final destination and any subsequent inland transit charges
should: arrange insurance in its own name on the goods from the time they are
loaded on the ship at the port of departure, i.e. the FOB point, until they
are delivered to it at its premises
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The seller must: • contract for the carriage of the goods from an agreed point of
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should: choose Institute Cargo Clauses (A) 1/1/09 rather than Institute Cargo
Clauses (C) 1/1/09 (which provide significantly less cover than that given
by the (A) Clauses), provided the buyer is willing to pay the difference in
premium between the two covers. If the buyer is not willing to pay for the
wider cover, the seller is advised to arrange all risks cover in its own name
and to apply until the goods are safely loaded on board the ship at the
port of departure
The buyer must: arrange transport from the named overseas port to the final named
destination
should: confirm with the seller that the insurance provided by the buyer is against
all risks of loss or damage, as per Institute Cargo Clauses (A) 1/1/09.
Otherwise, the seller’s obligation under CIF is only to arrange insurance to
a minimum level (that of Institute Cargo Clauses (C) 1/1/09), which would
leave the goods uninsured against some perils, such as theft, accidental
damage, washing overboard and other perils. The buyer would, however,
have to pay the seller the difference in insurance premium between the
(A) clauses cover and that provided by the (C) clauses cover
Institute Cargo The cargo insurance that the seller in a CIF contract is required to provide is not as extensive
Clauses
described in as that usually provided in the market: the Incoterms simply require the seller to obtain the
chapter 5, minimum cover provided by Institute Cargo Clauses (C) 1/1/09. Consequently, the buyer
section A
should not assume that cover procured by the seller is against all risks of loss or damage. In
the market, good business practice favours the provision of cover under the Institute Cargo
Clauses (A) 1/1/09, or their equivalent in the commodity clauses, plus cover against War and
Strikes risks. Under the Incoterms rules, the buyer can require the seller to obtain this wider
cover, and the onus is on the buyer to press for this when the contract for sale is agreed.
Note that the marine cargo insurance must be to at least the overseas port of arrival.
Consequently, it is important that the buyer establishes from the seller the point up to which
the marine cargo insurance has been arranged.
The seller must: • deliver the goods to an agreed place of delivery – usually the carrier;
and
• provide an assignable policy of insurance, to at least the minimum
provided by Institute Cargo Clauses (C) 1/1/09, assigned to the buyer
from the point at which the goods are handed to the carrier until they
are delivered to the place of delivery selected by the buyer.
should: arrange all risks insurance, per Institute Cargo Clauses (A) 1/1/09,
provided the buyer is willing to pay the difference in premium between
the (A) and the (C) Clauses. If the buyer is unwilling to pay this difference,
the seller may arrange insurance in its own name on the goods until they
are delivered to the agreed place of delivery – usually the carrier.
The buyer must: bear the risk of loss or damage to the goods from the point at which they
are delivered to the carrier until they are delivered to the place selected
by the buyer
should: confirm with the seller that the insurance provided by the buyer is against
all risks of loss or damage, as per Institute Cargo Clauses (A) 1/1/09.
Otherwise, the seller’s obligation under CIP is only to arrange insurance to
a minimum level (that of Institute Cargo Clauses (C) 1/1/09), which would
leave the goods uninsured against some perils, such as theft, accidental
damage, washing overboard and other perils. The buyer is, however,
required to pay the seller the difference in insurance premium between
the (A) clauses cover and that provided by the (C) clauses cover
Chapter 2 Business environment 2/9
The seller must: • place the goods alongside the vessel (on the quay or on a barge) at the
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name port of shipment; and
• clear the goods for export
should: arrange insurance on the goods whilst in transit until they are delivered
FAS at the port of shipment
The buyer must: • take delivery of the goods when they are placed Free Alongside the
Ship: and
• arrange the carriage of the goods from the port of shipment, unless the
contract stipulates that this is the responsibility of the seller
should: arrange insurance in its own name from the time the goods are placed
alongside the vessel (on the quay or on a barge) at the named port of
shipment until they are delivered to the place named by it in the contract
of purchase
The seller must: • clear the goods for export but has no obligation to clear them for
import, nor pay any import duty, nor carry out any import customs
formalities;
• deliver the goods by unloading them and placing them at the disposal
of the buyer at the named terminal at the agreed port or place of
destination on the agreed date or within the agreed period;
• provide the buyer, at the buyer’s request, risk and expense, with
information that the buyer needs for obtaining insurance
should: insure the goods in its own name until the goods are placed at the disposal
of the buyer at the named terminal at the agreed port or place of
destination
The buyer must: • pay the price of the goods as provided in the contract of sale;
• take delivery of the goods when they have been unloaded from the
arriving means of transport at the named terminal at the agreed port or
place of destination
should: insure the goods in its own name from the point they are unloaded from
the arriving means of transport until they are delivered to its premises
The seller must: • clear the goods for export, but has no obligation to clear them for
import, nor pay any import duty, nor carry out any import customs
formalities; and
• deliver the goods by placing them at the disposal of the buyer on the
arriving means of transport ready for unloading at the agreed point, if
any, at the named place of destination on the agreed date or within the
agreed period
The buyer must: • pay the price of the goods as provided in the contract of sale;
• take delivery of the goods when they have been placed at its disposal
on the arriving means of transport ready for unloading at the agreed
point at the named place of destination
should: arrange insurance on the goods in its own name from the point at which it
takes delivery of them until they arrive at its premises
Question 2.3
In an ex-works (EXW) contract, what is the duty of the seller?
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The seller must: • arrange and pay the freight to the named destination; and
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• bear all the risks of loss or damage to goods until they have been
delivered to the named place in the country of destination
should: arrange insurance in its own name on the goods until they are delivered to
the name place in the country of destination
The buyer must: accept title and delivery of the goods when they are placed at its disposal
on the arriving means of transport ready for unloading at the agreed place
of delivery
should: • insure the goods in its own name from the time at which they are
delivered to the named place in the country of destination; and
• ensure that this insurance includes the unloading and trans-shipment
risk from the arriving means of transport until delivery to its premises or
chosen place of delivery
The seller must: • deliver the goods to the carrier, or person nominated by the carrier, this
could be at the carrier’s premises or when the carrier collects the goods
from the seller for the commencement of transit;
• contract and pay for the carriage of the goods to the named place of
destination; and
• secure an export licence for the goods and clear them for export and
for their transport through any country prior to delivery
should: insure the goods for its own benefit until they are delivered to the carrier,
or person nominated by the carrier
The buyer must: • take delivery of the goods at the agreed place – usually when delivered
to the carrier at a nominated place; and
• pay the price contracted for the goods
should: insurer the goods in its own name from the time they are delivered to the
carrier, or other person nominated by the carrier, until they are delivered
to the buyer’s premises
The seller must: • deliver the goods to the carrier, or another person nominated by the
buyer, at the premises of the seller or another named place; and
• secure and export licence for the goods and clear them for export
should: insure the goods for any part of a transit to the carrier or other party
nominated by the buyer
The buyer must: • take delivery of the goods when they have been delivered to the
carrier, or to another person nominated by the buyer; and
• contract with the carrier for the carriage of the goods from the named
place of deliver (to the carrier)
should: insurer the goods in its own name from the time they are delivered to the
carrier, or other person it nominated, until they are delivered to the
buyer’s premises
B2 Incoterms 2010®
The categorisation introduced by Incoterms 2010® aims to avoid confusion between
maritime and non-maritime terms by making it clear which terms can be used irrespective of
the method of transport (i.e. the first group), and those that can only be used between ports
(i.e. the second group). The first group can however still be used for maritime transport, as
well as for movements where there is no maritime transport at all.
There is a ‘sliding scale’ of risk between buyer and seller, with EXW transactions
representing the minimum risk for the seller and the maximum obligation for the buyer, and
vice-versa for DDP contracts. This is demonstrated in figure 2.2.
Chapter 2 Business environment 2/11
Figure 2.2: Spread of risk between seller and buyer under the
different terms
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low risk Seller high risk
B3 Using Incoterms®
Incorporation
Incoterms® do not apply automatically. They only apply if expressly incorporated into the
contract of sale, i.e. by stating the term, the version of Incoterms® used, and naming the
appropriate location. With the introduction of Incoterms® 2010, particular care needs to be
taken to ensure that both parties are using the same version (i.e. 2010 and not 2000).
Contract of sale
Incoterms® form only part of the contract of sale. Other terms may need to be agreed, e.g. in
respect of payment, price, transfer of title, intellectual property, law and jurisdiction. It is
important not to assume that Incoterms® regulate all aspects of the transaction.
The transaction as a whole
An international sale of goods will involve a number of collateral agreements (contracts of
carriage, contracts of insurance, letters of credit) in addition to the contract of sale itself.
Parties must ensure that the contracts work together and are consistent.
Using the correct terms
Buyers and sellers need to understand the terms and ensure they are those best suited to
their operations. They also need to understand the extent of the risk and obligations that
they and their customer or supplier are assuming. The term selected also needs to match the
method of transit; made easier by the system of classification introduced in Incoterms 2010®.
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C Charterparties
A charterer is one who hires a ship for the carriage of its goods, which is typical in the bulk
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A charterer hires a
ship for carriage of trades where either the whole, or a significant part of, the vessel is required by a single
its goods
trader for the shipment of its cargo. A charterparty is the document providing evidence of
the agreement between the charterer and the owner of the ship. This study text is concerned
with the two main types of charter – voyage and time.
Under a voyage charter, the charterer hires the ship for a specific voyage from
Voyage charters
one named port to another.
Under a time charter, the charterer hires the ship for a specified period. During
Time charters
this time it may make several voyages carrying the charterer’s goods.
With both time and voyage charters, the ship remains under the control of the owners and
the master. The charterer merely hires the ship in order to get its goods from one place to
another. The owners of the vessel let it out to the charterer, which may want it for a specific
period or a specific voyage because its cargo is either seasonal or fluctuating in demand; oil
being a good example. Both agreements allow the charterer to sub-let any spare capacity on
the ship.
Bareboat or demise charters
A third, but less used, option is the bareboat or demise charter. Under this type of charter
the charterer takes over the owner’s responsibility for the vessel and its cargo, including its
responsibility for the crewing and provisioning of the vessel. Cargo owners often favour this
type of charter as a way to finance the purchase of a ship to carry their goods.
Activity
Find out more about charterparties by searching the internet for:
• BIMCO 94 GENCON – arguably the most popular voyage charter; and
• NYPE 2015 – arguably the most popular time charter.
Learning point
A good way of remembering the differences between the three types of charter is to
relate them to an everyday activity.
Taking a bus or taxi from is equivalent to a voyage charter
charter. The driver and their employer
are responsible for operating the means of carriage and you have no liability other than to
pay the fare.
Taking a coach trip is equivalent to a time charter
charter. Again the driver and their employer are
responsible for the operation of the coach – you just pay the fare.
Hiring a self-drive car is equivalent to a bareboat or demise charter
charter. You drive the car and
are responsible for any motoring offences you commit and any liability to third parties for
injury or damage to their property you cause.
Learning point
The acronym ‘RED’ is a useful way to remember these essential elements:
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• Receipt of goods.
• Evidence that a contract exists.
• Document of title.
Be aware
Transfer of title to the goods is not synonymous with transfer of property. Whoever holds
the bill of lading may take delivery of the goods, but property will pass when buyer and
seller intend it should do so under a contract of sale, usually on receipt of payment.
Taken together, these three elements show the importance of the bill of lading to commerce. It is a document
The bill of lading shows that a contract of carriage exists and that the carrier has received of title
the goods. This assures the buyer and its bank that the despatch of goods is underway, in
accordance with the contract of sale.
Equally, an exporter holding a bill of lading as title to the goods, may, by choosing when to
pass the bill to the buyer, control when the latter takes delivery of the goods. Thus the bill of
lading becomes an essential element in controlling payment procedures in
international trade.
A number of different types of bills of lading are available to exporters, according to the
type of service required. Furthermore, a number of different clausings are applicable to bills
of lading. However, we will start with a look at the details that must be shown on the bill of
lading.
1. Name and address of the shipper (i.e. the person entering into the contract of affreightment,
most probably the exporter)
3. A description of the cargo, including identifying marks, numbers and types of packages,
contents, gross weights and volume
4. Port of shipment
5. Port of discharge
Alternatively bills of lading may be made out to show ‘to order’ or ‘to the order of...’ in the
consignee box
Often an agent acting on behalf of the consignee at the port of destination, although the
consignor’s details may be entered in the ‘notify party’ box where ‘order’ bills of lading are
applicable
9. Terms of sale
10. Date on which the goods are received for shipment or shipped on board the named vessel
The shipper (exporter), or its agent, should furnish the above details to the shipping line in It is essential that
writing or on blank bills. It is essential that the details are correct in relation to: details are correct
Hague-Visby The reverse side of the Bill of Lading contains the ship owner’s conditions of carriage. These
Rules considered
in chapter 3, incorporate the international convention under which the goods are carried, e.g. the
section D Hague-Visby Rules, in addition to a law and jurisdiction clause (clause paramount). This
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clause determines under which county’s jurisdiction legal proceedings will take place in the
event of any legal dispute between the shipper/consignee and the contractual carrier under
the bill of lading.
On arrival of the goods at the destination, the shipping line’s destination agent will approach
the forwarder’s destination agent with the original ocean bill received from the forwarder,
but issued by the shipping line, to take delivery of the cargo.
Clean bill of lading One on which no note has been made relating to the condition or quantity
of the cargo when received by the shipowner for carriage. Standard bills of
lading usually bear the wording ‘shipped (or received for shipment) in
apparent good order and condition’ in order to give the carrier the ability to
dispute that the goods were loaded clean on board, e.g. for containerised
goods where it is not possible to confirm the condition of the goods inside
the container, should the goods later arrive damaged at destination
Claused bill of lading One on which a note has been made that a cargo has been damaged or is
less than the quantity shipped
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FIATA bill of lading. It is a document designed to be used as a multimodal or combined detailed in
transport document with negotiable status. This document, subject to correct completion section D6
according to ICC UCP 500 rules, is acceptable as a marine ocean bill of lading. Equally, the
document can operate as a forwarder house bill, with a suitable endorsement, or as a
multimodal transport document. This makes it an ideal international transport document and
therefore, whenever possible, the FIATA bill of lading should be stipulated in letters of credit.
In addition, a number of other FIATA exclusive documents are available from members of
the British International Freight Association. The FIATA bill of lading is used worldwide
under the same set of conditions, offering the customer a substantial degree of protection.
A forwarder who trades under 2009 BIFA Conditions may agree with a customer to use a
FIATA bill of lading. In that case, the terms of the FIATA bill of lading will replace those in the
standard trading conditions.
Before issuing a FIATA bill of lading, a freight forwarder must become a registered trading
member of the British International Freight Association (BIFA
BIFA), as this is a condition of
approval by FIATA. The BIFA registration scheme requires that a forwarder maintains
adequate liability insurance to meet its responsibilities under the bill. FIATA also require that
a forwarder issuing a FIATA bill of lading must ensure that:
• it has received the consignment and has sole right of disposal;
• the goods are in apparent good order and condition;
• details set out on the face of the bill of lading correspond with the instructions it has
received;
• insurance arrangements have been clarified; and
• the bill of lading clearly indicates whether one or more originals have been issued (the bill
of lading contains a specific box for this which must be completed).
The liability of the forwarder under the terms of the FIATA bill of lading is based on the
UNCTAD/ICC Rules for Multimodal Transport Documents (ICC Publication 481).
In this instance, the shipper must stamp and sign the bill of lading in order to transfer title to
the goods to the consignee. Thus the bill of lading is useless to the consignee without this
endorsement. This is a useful safeguard against bills being accidentally transmitted to
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buyers directly. Clearly, should this happen the buyer would not be able to take delivery of
the goods and the bill of lading would have to be returned to the shipper for endorsement
and presentation to the bank. Bills of lading completed in this manner are also said to be ‘To
order blank endorsed’.
Question 2.4
A bill of lading containing a note to the effect that the goods are damaged is described
as what?
D4 Sea waybills
Sea waybills are
Sea waybills offer an alternative to the bill of lading and, generally speaking, they embody
generally not the Hague-Visby Rules. With a few exceptions they are not negotiable and so cannot be
negotiable
used as a means of transferring title to goods. They are useful for companies that trade
Hague-Visby internationally with themselves where payment for exports is not a problem. A freight
Rules covered in
chapter 3, forwarder might use them to control groupage cargo. The sea waybill can be sent with the
section D goods, allowing the consignee to take immediate delivery. Some believe that the legal
protection offered to the shipper under a sea waybill is inferior to that offered under a bill of
lading. However, being relatively new, there has been insufficient time to test them in law.
D5 Air waybills
An air waybill is
The air waybill is a document of carriage issued by airlines to shippers of cargo. It is issued
not a document under conditions in the Warsaw Convention, or if both the seller and the buyer’s respective
of title
domiciles are signatories, the Montreal Convention (the provisions of the Warsaw and
Montreal Conventions are beyond the scope of this course).
The air waybill, as distinct from the bill of lading, is not a document of title and in a legal
sense is not negotiable, although there is nothing within the Warsaw Convention that
prevents it from being a negotiable document. The nature of carriage by air is such that to
use an air waybill in such a way for letter of credit purposes is generally invalid. Air freight is,
by definition, a rapid form of transport and the goods would arrive at the airport of
destination days or weeks before the air waybill arrived via the banking system and allowed
the consignee to take delivery of its goods. This delay would negate the usefulness of air
freight as a form of transport. As a result, the document often travels forward with the
goods, allowing immediate release of the goods into the consignee’s charge for subsequent
customs clearance and delivery.
An air waybill
The air waybill has several purposes. It is:
provides evidence
of receipt of goods • evidence of a contract of carriage;
• provides evidence of the receipt of the goods; and
• a freight bill.
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The Warsaw/Montreal Convention requires that the air waybill is completed in at least three
parts, one each for the:
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• carrier (signed by the consignor);
• consignee (signed by the consignor and carrier); and
• consignor (signed by the carrier).
The basic information shown on the air waybill is as follows.
3. Customs reference/status: the air waybill is an approved skeleton pre entry document
6. First carrier
8. Description of goods, dimensions, commodity code, rate class, chargeable weight and freight
rate
of creating a uniform standard that can be used by all freight forwarders and which are
widely recognised and trusted. Each document has its own colour and bears the FIATA logo.
These documents are:
• Forwarders Certificate of Receipt (FIATA FCR)
• Forwarders Certificate of Transport (FIATA FCT)
• FIATA Warehouse Receipt (FWR)
• negotiable FIATA Multimodal Transport Bill of Lading (FBL) – discussed in section D2D
• non-negotiable FIATA Multimodal Transport Waybill (FWB)
• Shippers Declaration for the Transport of Dangerous Goods (FIATA SDT)
• Shippers Intermodal Weight Certificate (FIATA SIC) and
• FIATA Forwarding Instructions (FFI)
Question 2.5
What are the purposes of an air waybill?
E Other documents
E1 CMR Consignment Note
CMR Convention For those countries that have agreed to it, the CMR Convention details the conditions under
discussed in
chapter 4, which carriage of goods by road is carried out. A CMR Consignment Note contains details
section A on the:
• identity of the consignors and consignees; and
• first and subsequent road carriers.
It may be claused to note damage or short delivery. Although it is advantageous to all to
have a CMR Consignment Note when transporting goods by road under the CMR
Convention, its absence does not affect the application of the Convention.
E2 Interchange receipt
An interchange receipt is exchanged between carriers when a container is handed over to
another carrier during transit. It is sometimes called a UNIT Interchange Receipt (UIR UIR), or an
Electronic Interchange Receipt (EIR EIR), which is a UIR in electronic form. One is issued for
each container to be delivered. For example, a haulage contractor who collects a container
from a port will receive a UIR from the port authority. It is a receipt for the container rather
than the goods in it.
E3 Outturn report
An outturn report may be in the form of the port’s white slip or of a ship’s outturn report.
When issued by a ship it details the quantity of goods discharged from that ship. When
issued by port authorities it is prepared by the discharging terminal and records any
discrepancies in the form of over, short and damaged cargo as manifested and details of
cargo checked at the time and place of discharge from the ship.
The final delivery receipt is one of the documents the cargo insurer may require if a claim is
made for loss or damage in transit. If the loss or damage is not shown on the receipt, the
insurer may conclude that the goods did not suffer loss or damage during transit.
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E4A Claused transit documents
The existence of a claused transit document does not, by itself, prove loss or damage in
transit. A claused Final Delivery Receipt indicates only that loss or damage was evident at
the point of delivery. Loss or damage is only proved in conjunction with another transit
document. For example, if the Final Delivery Receipt and the Interchange Report from the
ship at the port of discharge are both claused, noting damage to the cargo, the damage
must have occurred before the cargo was discharged from the ship. However, if both the Bill
of Lading and the Interchange Report are clean, but the Final Delivery Note is claused noting
damage, the inevitable logic is that the damage occurred between the port of discharge and
the premises of the consignee.
Going back further, if the Bill of Lading is claused noting damage to the cargo, that means
the damage occurred on the transit from the seller to the vessel at the port of loading.
Consequently, it is the seller that would have had insurable interest at the time of loss, so it
should be the seller who makes the claim. In reality the seller would already have received
payment for the goods so, since it cannot take payment twice, it must subrogate its rights to
the proceeds of the cargo insurance to the buyer, allowing the buyer to make a claim for the
damage. The significance of transit documentation is shown in the following example.
Example 2.4
Ten tonnes of prime quality beef imported from Argentina were destined for a customer
in Germany. The beef came by sea from Argentina to Rotterdam, where it was discharged
from the ship and then carried by road to Germany. The beef was bought on Incoterms
CIF 2010, for a purchase price of €110,000.
Now let us consider two scenarios.
1. the bill of lading is clean, but the interchange receipt is claused, noting damage.
2. the bill of lading and the interchange receipt are both clean, but the final delivery
receipt is claused, noting damage.
In both scenarios the cargo insurers would pay the claim and acquire subrogation rights
against the carrier who caused the damage.
Scenario 1
The documentation tells us that the damage occurred on board the ship, so the cargo
insurers subrogate against the shipowner. However, the shipowner has 17 defences to
liability that must be overcome to obtain any compensation under the carrier’s conditions,
which in this case will be Hague-Visby Rules. Under those rules compensation is set at two
Special Drawing Rights (SDRs) of weight damaged. This is around €1,666.00 per tonne (at
the rate of exchange in November 2017 when the Euro was at 1.20 to the SDR), giving a
total of €16,660.
Scenario 2
The documentation tells us that the loss occurred during the road transit from Rotterdam
in Holland to the customer in Germany. The goods went by a haulage contractor, by road,
and the journey would take the goods across an international boundary between two
countries. Both countries are signatories to the Convention on the Carriage of Goods by
Road for Reward – CMR. This is potentially good news. If the road carrier is unable to
prove that it could not foresee the circumstances of the damage and could not prevent it,
the cargo insurers can make a recovery at a rate of 8.33 SDRs per kilo of damaged weight.
Assuming ten tonnes of meat is damaged, and the Euro exchanges at 1.20 to 1 SDR, the
cargo insurers can recover at a rate of €8.33 per kilo, or €8,330.00 per tonne*. With ten
tonnes damaged we can recover a maximum of €83,330 (Euros) or the equivalent in
whatever currency the contract was made, subject to the value of the damaged goods not
being greater than the CMR compensation figure.
* It is purely a coincidence that the exchange rate of €1.20 to the SDR produced a figure of
€8.33 per kilo, the same rate as the standard level of compensation under CMR.
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E5 Sales invoice
The sales invoice shows the price the buyer has paid/will pay to purchase the goods being
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E6 Packing list
The packing list usually accompanies the sales invoice and confirms the weight, numbers
and volumes of goods and how they are packed. It should contain an exact description of
the cargo in each carton and any relevant shipping marks and numbers.
Conclusion
This concludes our consideration of world trade and how business is conducted
internationally. In the following two chapters we will look at the laws, national and
international conventions and rules, which define the roles of the various parties, their duties
and potential liabilities.
Chapter 2 Business environment 2/21
Key points
The main ideas covered by this chapter can be summarised as follows:
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Parties involved in the carriage of goods
• Depending on the geographical location of the seller and the buyer, a number of different types of
transport will be used.
• A number of parties will also be involved in getting the goods from seller to buyer.
• Sellers often employ a freight forwarder who will arrange transportation of the goods and organise
the necessary paperwork.
• All the parties involved in the transportation of the goods are bailees.
• Incoterms are a set of rules devised to help ease the passage of goods from one country to another
when contracting for the sale of goods internationally.
• They set out the respective duties of the seller and the buyer.
• There are eleven recognised standard terms of trade.
Charterparties
• A charterparty is the document that provides evidence of the agreement between a charterer and a
shipowner.
• There are two main types: voyage charters and time charters, with a third less used option of a
bareboat or demise charter.
• A bill of lading provides evidence that a contract exists between shipper and shipowner, that the
carrier has received the goods and acts as a document of title.
• It is essential that a bill of lading is accurate on the goods to be shipped, the contract of sale and
any letter of credit/payment requirements.
• Where goods are found to be damaged and a note is made on the bill of lading it is described as
claused: without such a note it is clean.
• There are different types of bills of lading to suit different circumstances.
• A bill of lading is a negotiable document which allows transfer of title to goods by endorsement and
delivery.
• Endorsement can be endorsement by consignee, ‘to order’ or ‘to order of…’.
• Sea waybills are not usually negotiable and so cannot be used to transfer title to goods.
• An air waybill is a document of carriage issued by airlines to shippers of cargo.
• An air waybill provides evidence of a contract of carriage, of receipt of the goods and is a
freight bill.
Other documents
• The CMR Consignment Note is used for goods carried by road under the CMR Convention and
contains details of the consignor, consignee, first and subsequent carriers.
• The interchange receipt is exchanged between carriers when a container passes from one carrier to
another during its journey.
• The outturn report either details the quantity of goods discharged from a particular ship, or records
discrepancies in the form of over, short and damaged cargo.
• The final delivery receipt is signed by the consignee to confirm receipt of the goods.
• The sales invoice shows the price paid for the goods and thus provides evidence of their value.
• The packing list contains details on the contents of each carton.
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Question answers
2.1 XYZ Manufacturing o road vehicle o RO/RO ferry o road vehicle o buyer in
Chapter 2
Germany.
2.2 Incoterms are a set of rules devised to help ease the passage of goods from one
country to another when contracting for the sale of goods internationally. A key
feature is that they clearly set out the responsibilities of both the seller and the buyer.
2.3 Under an ex-works contract, the seller must place the goods at the disposal of the
buyer at the seller’s warehouse.
2.4 Claused.
2.5 The purposes of an air waybill are to:
• provide evidence of the contract of carriage;
• provide evidence of the receipt of goods; and
• act as a freight bill.
Chapter 2 Business environment 2/23
Self-test questions
1. Describe the transport linkage for:
Chapter 2
a. bulk goods in a 40 foot container from the UK to Australia;
b. lightweight electronic goods from China to France which are required to be
delivered to the buyer within seven days of receipt of order?
2. Name three types of bailees in the movement of goods.
3. What do the letters CIF, EXW and CFR stand for?
4. When are goods said to be free on board a ship?
5. To where must the seller of goods under CIF terms arrange the freight?
6. What must the buyer do in a CIF contract?
7. What are the three features of a bill of lading?
8. What is the main difference between an air waybill and a bill of lading?
Chapter 3
carriage of goods by sea
Contents Syllabus learning
outcomes
Learning objectives
Introduction
Key terms
A Marine Insurance Act 1906 2.1, 2.2
B Insurance Act 2015 2.1, 2.2
C Carriage of goods by sea 2.1, 2.2
D Hague-Visby Rules 2.1, 2.2
E Hamburg Rules 2.1, 2.2
F US Carriage of Goods by Sea Act 1936 (US COGSA) 2.1, 2.2
Key points
Question answers
Self-test questions
Learning objectives
After studying this chapter, you should be able to:
• apply the main provisions of the Marine Insurance Act 1906 to cargo risks;
• apply the provisions of the Insurance Act 2015 and the Enterprise Act 2016 in relation to
contracts of insurance;
• explain the main provisions of the Hague-Visby Rules;
• demonstrate the impact of the main provisions of the Carriage of Goods by Sea Act 1971
on cargo risk;
• interpret the Hamburg Rules as they apply to cargo risks; and
• explain the main provisions of the US Carriage of Goods by Sea Act 1936 and its impact on
cargo risks.
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Introduction
In this chapter and the next we look at the main legal obligations owed by the carrier to the
owner of goods while those goods are in its custody or control. These legal obligations arise
from national and international laws, conventions and contract conditions. We shall look at:
• the circumstances in which legal liability for loss of, or damage to, goods attaches to the
carrier under these laws, conventions or contracts;
• the amount the carrier is obliged to pay if it is found to be legally liable; and
Chapter 3
Learning point
In accordance with the syllabus, the legal environment discussed in this chapter, and that
which will be examined, is generally English law and practice. The legal environment may
be different in the market in which you work.
Key terms
This chapter features explanations of the following terms and concepts:
Be aware
The Marine Insurance Act 1906 uses the term assured throughout and in marine insurance
generally the insured party is known as the assured.
Chapter 3 Legal environment: carriage of goods by sea 3/3
A1 Definitions
A1A Marine insurance defined
The MIA defines marine insurance as:
A contract whereby the insurer undertakes to indemnify the assured, in manner and The insurer
to the extent thereby agreed, against marine losses, that is to say, the losses undertakes to
indemnify the
incidental to marine adventure. (MIA, s.1) insured
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A contract of marine insurance may, by its express terms, or by usage of trade, be
extended so as to protect the assured against losses on inland waters or on any land
risks which may be incidental to any sea voyage. (MIA, s.2.2)
As you can see, this caters for goods sent by road, rail or barge where this is incidental to the
sea voyage. Similarly, goods sent by air cargo are catered for within the description of mixed
sea and land risks, as they are analogous to a marine adventure. This is how insurers are able
to provide cover on a warehouse to warehouse basis. Warehouse to warehouse describes
the journey of the goods from the place they start until they arrive at the place of delivery
nominated by the consignee (which does not actually have to be warehouse to warehouse,
but can simply be to or from the premises of the buyer or seller).
Be aware
‘Any liability to a third party’ will be that of general average and salvage charges. These
terms will be discussed in chapters 5 and 10.
Total loss
Example 3.1
Factory Ltd has bought a new machine from manufacturers in Japan and is importing it by
sea. They have bought the appropriate insurances. The arrival of the machine, in sound
condition, is vital for the commencement of a new manufacturing contract. During the
course of the voyage the vessel runs aground on a sandbank and suffers severe damage
to its keel. Bad weather is hampering the efforts of salvors to tow the vessel off and take it
to a port of refuge. The vessel is also beginning to take on water, causing damage to the
cargo. There is no reasonable prospect of getting the new machine off the vessel in the
foreseeable future and it has also suffered damage from ingress of sea water. A
replacement machine is available from the manufacturers and this can be air freighted to
the UK at extra cost. Factory Ltd declares its intention of claiming a CTL for the original
machine by issuing a Notice of Abandonment (NOA) to the cargo insurer.
Chapter 3 Legal environment: carriage of goods by sea 3/5
The insured may give the NOA in writing, by word of mouth, or partially in writing and
partially by word of mouth. Whatever means the insured uses, the NOA must convey the
message that the owners intend to abandon their insured interest in the cargo
unconditionally to the insurer (s.62(2)). At this stage the insured is not bound to continue
with the notice of abandonment. They may change their mind and choose to claim for a
partial loss instead.
Insurer
Insurer’’s rights of ownership upon abandonment
Once the insurer accepts the notice of abandonment, it is irrevocable. Where there is a valid
abandonment of the cargo, the insurer is entitled to take over the interest of the insured in
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whatever may remain of the subject matter insured, along with any incidental proprietary
rights (s.63). At this point the insurer settles the claim in full and takes on rights of ownership
of the abandoned cargo. The effect of this is that, in the unlikely event that its market value
rises after the insurer accepted the abandonment, the insurer is entitled to that greater
value. However, the insurer does not take on the liabilities associated with any cargo or ship
on which a CTL claim has been agreed. This is because such liabilities could include damage
caused by contamination from the goods to the sea water or the cost of clearing the goods
from the wreck site on which they are located. Such liabilities and costs are covered in the
Protection & Indemnity (P&I) market.
In practice, the market may not always seek a formal NOA if it is clear to an insurer that an
actual total loss (ATL) has taken place. However, should an assured insist upon a CTL it must
issue an NOA to the insurer in order for CTL to be considered.
A2 Insurable interest
A person has an insurable interest where they stand in any legal or equitable relation to a
marine adventure or to any insurable property placed at risk in a marine adventure. They
have this insurable interest when they may:
• benefit from the safe or due arrival of insurable property; or
• be prejudiced by its loss, damage or detention; or
• may incur liability arising out of the insurable property (s.5(2)).
Example 3.2
Gardeners, a firm in Australia, orders 1,000 lawn mowers from GrassCutters, a
manufacturer in the UK. The terms of sale are Cost, Insurance and Freight (CIF) and
payment is by way of a letter of credit against the buyer’s bank. Gardeners receive title in
the ownership of the mowers when they are loaded on the vessel at the port of departure.
If the ship sinks during the voyage from the UK to Australia, Gardeners will make its claim
against the UK insurers via the insurer’s agent in Australia. The figure below describes the
sequence of events from the commencement of the voyage to the point at which a claim
arises.
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1,000 mowers by truck Goods loaded on ship Ship sinks in the Indian
to the UK port. They at UK port, master Ocean. The buyer in
are sold on CIF terms. issues a bill of lading. Australia claims against
At this stage the Seller The Buyer (Gardeners) the UK insurer via the
(GrassCutters) has the now has title in the agent in Australia
insurable interest. goods and has designated on the
insurable interest. certificate of insurance.
In marine insurance, it is common practice for the title in the goods to pass from the seller to
the buyer at a defined stage in the journey. For example, where goods are sold under the
Cost, Insurance and Freight (CIF); Free on Board (FOB) or Cost and Freight (CFR)
Incoterms, title passes when the goods are loaded on board the overseas vessel at the port
of departure in the country of the seller.
Reinforce
You may find it useful to refresh your memory on Incoterms at this stage. We covered
them in chapter 2, section B.
A3 Duty of disclosure
The sections of the Marine Insurance that deal with the duty of disclosure have been
repealed and replaced by the Insurance Act 2015
2015. Therefore, we will consider the duty of
disclosure when we look at the Insurance Act 2015 in section B of this chapter.
Chapter 3 Legal environment: carriage of goods by sea 3/7
Chapter 3
4. Voyage and/or period of time covered by the insurance
5. Sums insured
The insurer must sign the policy or arrange for it to be signed on its behalf. Where there is
more than one insurer, each subscription constitutes a separate contract, unless there is a
statement to the contrary (s.24). This is known as co-insuring.
A5 Assignability
As we have seen, a marine policy may be assigned to another who purchases the goods A marine policy
while they are at sea. The MIA specifies that a marine policy is assignable unless it contains may be assigned
to another
terms expressly prohibiting assignment. However, a policy cannot be assigned if the insured
has lost their interest in the subject matter insured (s.50).
The assignee can sue under the assigned policy in their own name. The assignment makes no
difference to the insurer, who is still entitled to use the defences under the policy as it would
have done against the original insured.
Question 3.1
We have used the word ‘proximately’ three times in the last paragraph. Think back to your
earlier studies. Can you remember how proximate cause is defined?
Delay is excluded under the institute cargo clauses. It can be written back in, although is not
a preferred risk for underwriters. If it is written back into a policy, it will be typically both
sublimated and aggregated. A typical wording would be:
Cover hereunder is extended to include physical loss or damage to cargo caused by
delay provided such delay is beyond the control of the Assured. Such cover sub
limited to USD… any one event and USD… in the annual aggregate.
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A7A Warranties
The law on warranties changed with the enacting of the Insurance Act 2015. Therefore, we
will cover this when we consider the Insurance Act in section B of this chapter.
An offence to
Before the passing of this Act, it was a known practice to gamble on the outcome of a
gamble on the safe marine adventure. This Act makes it an offence, punishable by a fine or imprisonment, for
arrival of a ship
any person, lacking a genuine interest, to gamble on the safe arrival of a ship or in the safety
or preservation of its cargo by taking out a policy of insurance on it. A person employed by
the owner of a ship, but who has no ownership of the vessel, also commits an offence if they
take out a contract of marine insurance in relation to the ship, and the contract is made:
• ‘interest or no interest’;
• ‘without further proof of interest than the policy itself’;
• ‘without benefit of salvage to the insurer’; or
• ‘subject to any other like term’.
The Act also applies to any broker or other person who knowingly gambles on loss by
maritime perils, including an insurer with whom such a contract is made.
A person found guilty of an offence under this Act is liable to up to six months imprisonment
or to a fine on a scale in force at the time. They also forfeit to the Crown any proceeds they
may receive under that contract.
Question 3.2
Under what circumstances would an insured issue a notice of abandonment?
B1 Duty of disclosure
Insurance Act 2015
The Insurance Act 2015 replaces s.17 to s.20 of the Marine Insurance Act 1906 for non-
replaces s.17 to consumer contracts (contracts for consumer insurances, such as motor or household, are
s.20 of Marine
Insurance Act 1906
dealt with by a separate law).
The Insurance Act 2015 introduced the duty of fair presentation
presentation, under which all information
must be disclosed in a manner that is reasonably clear and accessible to a prudent insurer. A
representation of a fact must be substantially correct while representations of expectations
or belief must be made in good faith. An assured or a broker who simply provides an insurer
with lots of data without highlighting the key aspects (data dumping), thus making it
difficult for the insurer to understand what cover it is expected to provide, has not made a
fair presentation.
An assured must disclose either:
• every material circumstance they know or ought to know; or
• sufficient information to put a prudent insurer on notice that it needs to make further
enquiries for the purposes of revealing those material circumstances.
To understand what this means, think about the following example.
Chapter 3 Legal environment: carriage of goods by sea 3/9
Example 3.3
XYZ Insurance receives the following information about the business from their assured,
Drugs Co. Ltd:
Goods incidental to the assured’s business as importers and suppliers of
medicines in tablet or liquid form
After the insurance has commenced a consignment of heroin is stolen. XYZ reject the
claim on the basis that the existence of prescription drugs was a material fact that the
assured was bound to disclose when proposing for insurance. Is XYZ correct?
Chapter 3
The answer is that it is certainly wrong under the Insurance Act 2015
The use of the words ‘goods incidental’ and ‘suppliers of medicines’ should have put XYZ
as a prudent insurer on alert to ask a further question, such as: ‘does the assured import or
supply prescription drugs?’
Because their supply is restricted, drugs supplied only on prescription are more theft
attractive than medicines that can be bought over the counter at relatively low cost.
An insurer has the right – and it is good business practice to do so – to challenge any
description of goods which could be open to interpretation. This argument assumes that the
purpose of using this particular description of the subject matter is solely to save Drugs Co.
Ltd from having to list all the products it supplies, with the inherent risk that one or more
may be accidentally omitted.
Material circumstances are any that would influence the judgment of a prudent insurer in
determining whether to take the risk and, if so, on what terms. Special or unusual facts about
the risk should be revealed to an insurer. In addition, any particular concerns that led the
assured to seek cover must also be disclosed. The duty lies firmly with the insured when
proposing, renewing or making mid-term alterations to insurance.
Example 3.4
A material circumstance could include where the nature of certain types of goods is
known only to a few people involved in that business. A recent example is lithium
batteries. When first introduced their overheating and fire properties may not have been
known outside the lithium battery manufacturing world. An insurer would have relied on
its insured informing it about this feature if it was to provide adequate insurance cover.
The material circumstances that must be disclosed are those which are known, or ought to
be known by:
• the assured’s senior management, i.e. individuals who play a significant role in deciding
how the assured is managed or organised; or
• individuals who act on the assured’s behalf for the purposes of procuring the insurance,
including brokers and agents.
The Insurance Act extends to the revealing of material circumstances that are ‘suspected’
though not proved, including circumstances which would have been known if the assured
had not deliberately refrained from confirming them or making enquiries about them. If the
assured deliberately avoids finding out, it has breached its duty to reveal material
circumstances and an insurer would be entitled to repudiate cover under the policy.
Assureds also have a duty to make a reasonable search of the information available to them,
including information held by agents or others acting on their behalf. They must disclose any
material circumstances that a reasonable search would have revealed.
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If the insurer concludes that there has been a breach in the duty to make a fair presentation
it has a number of options.
The breach was either deliberate or The insurer can avoid the contract as if it had never existed,
reckless keep the premium and refuse to pay all claims.
Example 3.5
Let us revisit our example concerning Drugs Co. Ltd.
On renewal, Drugs Co. Ltd. now describes its goods as:
Goods incidental to the assured’s business as importers and suppliers of ‘over the
counter’ medicines
However, Drugs Co. Ltd also obtain and supplies drugs that can only be prescribed by a
doctor.
Again, heroin is stolen.
On the face of it, the breach looks as if it was either deliberate or reckless and so XYZ can
avoid the contract, keep the premium and refuse to pay all claims.
However, it may be that the breach was neither deliberate nor reckless. In this case the
insurer’s decision is likely to be influenced by a combination of factors. The starting point
would be the company’s acceptance policy:
• if prescription drugs are on its list of risks it declines to accept, XYZ can return the
premium, avoid the contract and refuse all claims;
• if the goods are not on XYZ’s decline list and it chooses not to avoid the policy
altogether, then:
– if XYZ would have entered the contract on different terms it can treat the contract as
if those different terms applied, or
– if XYZ would have charged a higher premium it can proportionately reduce the
amount it pays on the claim.
What remedy XYZ adopt will depend on factors such as the value of the broker’s account,
the attitude of the assured in the light of the breach and the value of the claim. A small
claim might be accepted but a claim for a substantial sum may encourage XYZ to refuse
the claim, avoid the contract and return the premium.
B2 Warranties
The law on warranties changed with the enacting of the Insurance Act 2015. They are now
more limited in scope and the remedy for a breach is not as severe (previously an insurer
could avoid a contract entirely on the basis of a breach of warranty). In addition, basis of
contract wordings in proposal forms, which effectively turned an assured’s representations
into warranties, are not allowed under the Insurance Act 2015.
If an insurer alleges that a loss arose as a result of a breach of warranty it must prove it.
Where an assured can show that failure to comply with any term of the policy could not have
increased the risk of the loss which actually occurred, the insurer is no longer able to rely on
the breach of the condition or any warranty.
Chapter 3 Legal environment: carriage of goods by sea 3/11
Example 3.6
A policy contains the warranty that goods are packed in tri-ply cardboard boxes.
However, the goods are not packed in such boxes. There are three claims.
• During transit the goods are stolen. The insurer cannot rely on the warranty as a reason
for avoiding the claim.
• The goods are damaged during handling. The insurer may well be entitled to rely on the
warranty, depending on the circumstances.
• Some of the goods are damaged when a fork-lift truck pierces the packaging with one
Chapter 3
of its forks. The question in this situation is: ‘would the forks have pierced the
packaging even if it was of tri-ply construction?’ The answer is almost certainly ‘yes’,
meaning that, in theory, the insurer cannot rely on the warranty.
Under the Insurance Act 2015 the breach of a warranty discharges the insurer from liability
for losses that the breach of warranty caused or contributed to. The insurer is not freed from
liability for anything that happens before the breach or after the breach is remedied.
Example 3.7
A stockthroughput policy has a warranty which requires that goods are stored on stillages
or pallets at least 100 mm above the floor. This is not done, so the assured is in breach of
the warranty and remains in breach until such time as it stores the goods at least 100mm
above the floor.
Water enters the storage building while the goods are stored on the floor causing them
damage. The insurer can rely on the stillage warranty and reject the claim because, not
only was the warranty breached, but the cause of the damage is directly related to the
reason for the warranty in the first place. However, had the goods been stolen, the insurer
could not rely on that warranty because the fact that the goods were, or were not, on
stillages at least 100mm above the floor had no bearing on the cause of the loss – the
theft.
B3 Fraudulent claims
Where fraud is involved insurers will be entitled, upon notice, to terminate the contract from
the date of the fraudulent act. They do not have to return any premiums paid under the
contract. Furthermore, they are not liable for the fraudulent claim and are able to recover
from the assured any payments made in respect of fraudulent claims.
Valid claims made prior to a fraudulent act are unaffected. Insurers are unable to recoup
payments made on genuine claims unless they can prove that they too were fraudulent.
Be aware
Although the Insurance Act is now in force there will be test cases which will clarify the
new law and set precedents for future cases to follow. Therefore, much of what is written
about the Act in this section must be regarded as more theoretical than factual, but it is
based on existing law and practice because the new Act codifies existing law, with some
changes. These changes relate particularly to duty of disclosure, material fact, and
warranties.
Note also that the Insurance Act allows the parties to a commercial contract of insurance
to contract out of the requirements of the Act, as long as this is made explicit to the
insured.
Remember, the Marine Insurance Act 1906 remains in force except for ss.17 to 20, which
are replaced by the Insurance Act 2015.
3/12 M90/March 2019 Cargo and goods in transit insurances
realistic by way of custom and practice over the coming years, being guided particularly by
decisions handed down by the courts. However, the following requirements have been set
out in the Act, and assureds must prove the following before an award for damages can
be made:
• the claim must be valid;
• there must be an unreasonable delay;
• the assured must suffer an actual loss;
• the loss must be caused by the unreasonable delay;
• the loss must be foreseeable; and
• the assured must take all reasonable steps to mitigate a loss.
(Source: CII Group Policy & Public Affairs.)
While we do not yet know the reaction of the courts to any claim under s.13a of the Insurance
Act 2015, it is possible to reach a reasonable conclusion on what evidence might be taken
into account by a court when assessing levels of damages, by considering the consequences
of an unpaid, or late-paid, claim on the performance of a business. Let us look at an example.
Example 3.8
Our assured is Little M Ltd, who are a small engineering company, typical of many such
companies that exist in the UK. It has a gross annual turnover of £100m, on which they
turn a profit of £10m.
It makes a claim for £1m, which its cargo insurers reject.
The cost of that unpaid £1m claim to Little M Ltd is more than the claimed sum, and the
refusal of insurers to meet the claim has potentially devastating consequences on the firm
and its employees. It must fund the claim from its future profits.
As with many firms, Little M Ltd works for around 240 days of the year, after taking
weekends and annual holiday shut downs into account.
It’s turnover ratio to gross profit is 10:1, so the true cost of the claim to Little M Ltd is £10m,
because the business must generate £10m of turnover in order to produce the £1m cost of
the unpaid claim.
Or, put it another way, with a 240 working day year, the firm grosses £416,666.66 a day,
so it will take 24 days to gross the £10m needed to generate the £1m to cover the cost of
the unpaid claim. That is 24 day’s work just to stand still.
The obvious conclusion is that all the professional parties in a claim – the broker, the
underwriter and the claims handler must have a thorough knowledge of marine insurance if
they are to have any chance of defending a refused claim. Should they lose the case they
may be forced to pay huge sums in legal costs and judgment damages; sums that could have
been avoided with better training and study.
One area of claims handling that has been brought into sharp focus by the Act is the issuing
of claims declinatures (denials). Under s.13a, assureds now have grounds to claim damages
against insurers on the basis that such declinatures are unreasonable. When this is coupled
with the increasing use of claims service and reputation as a performance differentiator, we
can see why insurers are paying greater attention to the validity of declinatures through the
use of peer-review and stress-testing (we discuss these chapter 10, section I).
Chapter 3 Legal environment: carriage of goods by sea 3/13
Chapter 3
conditions governing the carriage of goods to and from the USA. Over the following 15
years, Canada, Australia and New Zealand introduced similar legislation.
An international convention signed in Brussels led to the introduction of the Hague Rules in
1924. These rules followed the same principles as the Harter Act. The Carriage of Goods by
Sea Act 1924 brought these rules into English law. The USA followed by passing its own
1936, loosely based on the Hague Rules.
Carriage of Goods by Sea Act 1936
The legal position then remained unchanged for 32 years, until 1968 saw the introduction of
an amendment by protocol in Visby. The amended rules were named the Hague-Visby
Rules. A new Carriage of Goods by Sea Act enacted the amended rules into English law in
Rules
1971. Let us look at this Act now.
C1B Carrier
Carrier’’s duty of care
The carrier has a duty before and at the beginning of a voyage to exercise due diligence in: Carrier has duty to
make the ship
• making the ship seaworthy; seaworthy
• manning, equipping and supplying the ship properly; and
• making the holds, refrigerating and cool chambers and all the other parts of the ship in
which goods are carried, fit and safe for their reception, carriage and preservation.
Making a ship seaworthy includes such actions as:
• closing all watertight doors;
• closing and securing all hatches fully against the force of the sea;
• ensuring the ship’s engines and other machinery are good for the marine adventure; and
• manning the ship with a suitably qualified crew.
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Be aware
The duty imposed on the shipowner to provide a seaworthy vessel is not an absolute duty.
The duty of the shipowner is to exercise due diligence in providing a seaworthy vessel
before and at the beginning of a voyage.
In legal terms, ‘due diligence’ means taking the reasonable steps necessary to, in this case,
ensure that the vessel is seaworthy. It lies somewhere between negligence and wilful
misconduct.
Different countries place a greater or lesser emphasis on diligence.
Chapter 3
D Hague-Visby Rules
The current version of the Hague-Visby Rules are those amended by the Brussels Protocol
1968. We briefly mentioned these rules in section B when we saw how the introduced them
1968
into English law. We will now study the rules in detail.
Article 1(b) States that such a contract of carriage applies only to carriage governed by a bill of
lading, or any similar document of title (i.e. not sea waybills, unless the rules are
expressly incorporated)
Article 1(c) Describes the property carried as goods, wares, merchandise and articles of every
kind except live animals, and cargo which the contract of carriage describes as being
carried on deck and is so carried
Article 1(d) Defines a ship as any vessel used for the carriage of goods by sea
Article 1(e) States that ‘carriage of goods’ covers the period from the time when the goods are
loaded on to the vessel until the time they are discharged from it. This is sometimes
referred to in the market as ‘ship’s rail to ship’s rail,’ denoting the point at which the
ship has responsibility for the goods until it reaches the point when it relinquishes
that responsibility
Article 3 Provides that a bill of lading, with all its marks and reservations, is prima facie
evidence of the carrier having received the goods as described thereon
Article 3(6) Prescribes a notice period of three days from discharge from the vessel for
notification of any loss or damage that is not immediately apparent. This article also
discharges the carrier from any liability for loss or damage to the goods if suit is not
brought within one year of their delivery or the date when they should have been
delivered
Article 3(8) Renders null and void any agreement of whatever nature that seeks to relieve the
carrier of its liability for loss or damage to the goods arising through its negligence,
fault or failure in duties and obligations
Article 5 Deems that the shipper of the goods has guaranteed to the carrier the accuracy of
the marks, number, quantity and weight of those goods at the time of shipment and
that the shipper agrees to indemnify the carrier against all loss, damage or expense
that may arise from any inaccuracies in those particulars
D1 Carrier
Carrier’’s liability under Hague-Visby
So in what circumstances is the carrier liable for loss or damage to cargo? The answer to this
question is that the carrier:
• is not liable for loss or damage arising from the negligent navigation of the ship;
• is liable for loss or damage to goods arising from the unseaworthiness of the ship if it is
caused by want of due diligence on its part,
– a ship is seaworthy if it is properly manned and equipped for the adventure it is to
undertake; and
• is liable if the places on the ship where the goods are to be stored are not fit and safe for
that purpose.
Chapter 3 Legal environment: carriage of goods by sea 3/15
For a claim to succeed against a carrier there must be actual fault on its part. When goods Must be actual
are lost or damaged and their owner accuses the carrier of being at fault or negligent, the fault on carrier’s
part
onus is on the carrier to prove that it was not. If the carrier causes loss or damage to the
goods intentionally or with recklessness, the limitation of liability can be set aside. This
would make the carrier liable for the full value of the goods lost or damaged. This ‘set aside’
does not apply to an act of general average. This is because, although the general average
act is intentional, it is done to save the ship from foundering and the marine adventure
being lost.
If the carrier is liable for loss or damage to goods, the financial compensation is set on either
Chapter 3
Compensation set
the weight or package basis basis. In other words, compensation is set at whichever is the on either weight or
package basis
greater of:
666.67 units of account (SDRs) per package OR 2 units of account (SDRs) per kilo on the
or unit weight of the goods lost or damaged
Which basis of liability to use when settling a claim depends upon the terms of the bill of
lading.
Special Drawing Rights (SDRs)
We have used the term ‘SDRs’ because, as with other international conventions governing
the carriage of goods for reward, compensation under Hague-Visby is calculated by
reference to Special Drawing Rights (SDRsSDRs). A Special Drawing Right (SDR) is a composite
unit of value for international transactions. Its value is determined daily by the International
Monetary Fund on the basis of a weighted currency basket.
To help you understand how to establish liability by using SDRs, the following example
shows how to calculate compensation under Hague-Visby on either of the two bases
shown above.
Note: the exchange rate of SDRs to £1 will change daily in line with the situation in the
financial markets.
Example 3.9
Let us take as our exchange rate SDR1.12 to £1 and apply it to the two methods of
calculating compensation:
• 666.67 SDRs @ 1.12 × £1 = £595.24 per package; or
• 2 SDRs @ 1.12 × £1 = £1.78 per kilogram × 1,000 = £1,780 per tonne.
Now let us take the first method and apply it to 100 packages, lost or damaged while in
transit under Hague-Visby Rules. We can calculate the potential liability on the carrier as:
100 packages @ £595.24 each = £59,524.00.
Let us now take the weight basis of calculating liability and apply it to 3 tonnes of goods
lost or damaged in transit under Hague-Visby Rules. We can calculate that liability as:
£1,780 per tonne × 3 tonnes = £5,340.00.
4. Act of God
5. Act of war
Chapter 3
8. Quarantine restrictions
9. Act or omission by the shipper or owner of the goods, their agent or representative
10. Strikes, lockouts, stoppage or restraint of labour from whatever cause, whether partial or
general
13. Wastage in bulk or weight or any other loss or damage arising from inherent defect, quality or
vice of the goods
17. Any other cause arising without actual fault or involvement of the carrier, or without the fault or
neglect of the agents or servants of the carrier
(Anyone wishing to plead this defence bears the burden of proving its application)
Remember, that often when goods are carried from one country to another several modes of
transport are used. Each of the carriers involved will have their own individual defences to
liability for loss or damage to the goods and will pay varying degrees of compensation if
they are liable. The usefulness of, and necessity for, marine cargo insurance is clear. It allows
the owner of the goods to claim from its insurer should loss or damage to its goods occur;
leaving the insurer to try and recover whatever it can from the carrier.
D3 Carrier
Carrier’’s rights and dangerous goods
In addition to the defences listed in table 3.2, Article 4.6 of Hague-Visby gives the carrier the
right to land at any place, destroy or render innocuous any goods of an inflammable,
explosive or dangerous nature that the carrier has not consented to carry. This action is
taken without compensation to the shipper, who is also liable for all damages directly and
indirectly arising out of, or resulting from, such shipment.
D4 Application of Hague-Visby
The Hague-Visby Rules apply to every bill of lading relating to the carriage of goods
between ports in two different states if the:
• bill of lading is issued in a contracting state; or
• carriage is from a port in a contracting state; or
• contract contained in or evidenced by the bill of lading provides that these rules or the
legislation of any state giving effect to them are to govern the contract.
Chapter 3 Legal environment: carriage of goods by sea 3/17
Countries that are contracting states to the Hague-Visby Rules are as follows:
Chapter 3
Egypt Italy Singapore Tonga
Question 3.3
What is an SDR?
E Hamburg Rules
The Hamburg Rules are based on the presumed fault of the carrier. The question of
presumed fault is the main difference between the Hamburg and Hague-Visby rules:
• under Hamburg it is for the carrier to prove it is not liable for loss or damage to the goods;
whereas
• Hague-Visby contains defences that make it difficult for the shipper to recover from the
carrier.
Note: The Hamburg Rules are not enacted in the UK and have been more widely adopted in
commodity dominant jurisdictions, such as in South America.
Under Article 5(1) of the Hamburg Rules, a carrier is liable for loss or damage to goods it is Carrier liable
carrying unless it proves that it, its servants or agents took all measures that could unless proves took
all measures
reasonably be required to avoid the occurrence and its consequences. to avoid
academic, it is worth noting that if the carrier infringes this article, it is liable for any damage
or loss to the goods so carried. The limitation of liability is set aside and the carrier is open to
a claim for the full value of the goods (Articles 9.3 to 9.4).
Other points to note in the Hamburg Rules are that they:
• include 11 exceptions, compared to 17 in Hague-Visby;
• allow two years in which to bring an action against a carrier for loss of or damage to
goods, whereas Hague-Visby only allows one year;
• allow 15 days for bringing notice of apparent damage to goods, compared to 3 days under
Hague-Visby;
• apply to all contracts for the carriage of goods by sea, not just to bills of lading;
• allow the carriage of live animals, but exclude loss or damage inherent in the carriage of
living creatures;
• impose responsibility on the carrier from the time the goods are in its charge until the time
of delivery to a consignee or a designated warehouse (this is wider than under Hague-
Visby); and
• permit deviation from the planned route if its purpose is to save life or is reasonably
necessary to save property at sea.
Be aware
Notifying loss or damage and formulating a claim are two separate tasks. The cargo
owner needs to complete both if a claim against a carrier is to succeed. Notifying the
carrier of loss or damage is merely informing it that a claim may follow and does not, by
itself, constitute a formal claim. The cargo owner must make the formal claim within the
time specified in the conditions (one year under Hague-Visby, two years under Hamburg).
The submission must detail the nature of the claim and include formal supporting
documents, such as a:
• claused bill of lading;
• packing list;
• copy of the invoice for the sale of the lost or damaged goods; and
• an invoice for repair costs where partial damage is repairable without exceeding the
value of the goods.
Failure to adhere to the time-limits usually results in the carrier applying a time bar. This
denies the owner of the goods, or their cargo insurer, the compensation that would
otherwise be available.
Thirty-two nations have adopted the Hamburg Rules. However these are not the main
trading countries of the world, so these rules do not carry the level of importance attached
to Hague-Visby. Fifteen of these countries are landlocked.
Chapter 3 Legal environment: carriage of goods by sea 3/19
Chapter 3
1. Act, neglect or default of the master, mariner, pilot, or the servants of the carrier in the
navigation or management of the ship
4. Act of God
5. Act of war
8. Quarantine restrictions
9. Act of omission of the shipper or owner of the goods, their agent or representative
10. Strikes or lockouts or stoppage or restraint of labour from whatever cause, whether partial or
general, although the carrier is not relieved of liability for its own acts
13. Wastage in bulk or weight or any loss or damage arising from inherent defect, quality, or waste
of the goods
17. Any other cause arising without the actual fault and privity of the carrier and without the fault or
neglect of the agents or servants of the carrier
(The burden of proof is on the person claiming the benefit of this exception to demonstrate the
lack of fault, privity or neglect)
Question 3.4
a. The Hague-Visby and US Carriage of Goods by Sea Act 1936 impose the same
limitations of liability upon the carriers.
True F
False F
b. The Hamburg Rules impose the same limitations of liability upon the carrier as those
found in the US Carriage of Goods by Sea Act 1936.
True F
Chapter 3
False F
Conclusion
Rotterdam Rules
Of all three sets of rules, the Hague-Visby Rules remain the most used throughout the world.
published However, it may well be that this emphasis will change and that there will be a merger of
September 2009
ideas between Hague/Visby, Hamburg and the US COGSA. Such a merger has been
considered and as a result the Rotterdam Rules were published in September 2009. These
Rules need to be adopted by a minimum of 20 countries if they are to come into force, which
will only happen twelve months after they have been adopted by this required number of
countries. As of 2018 this has not happened. Cameroon were the fourth country to ratify the
rules on 11 October 2017, following Spain, Togo and Congo, but it seems unlikely that the
Rotterdam Rules will be enacted in the near future. However, as these rules may become the
future for the transport of goods, we have provided information on them on RevisionMate as
an appendix to this chapter for you to read if you are interested.
In the next chapter, we will look at the conventions and agreements that govern the
transporting of goods over land. Although the vast majority of goods worldwide are carried
by sea, the carriage of goods over land, by either road or rail, continues to play a significant
role in, for instance, trade within Europe.
Chapter 3 Legal environment: carriage of goods by sea 3/21
Key points
The main ideas covered by this chapter can be summarised as follows:
• The Marine Insurance Act 1906 defines marine insurance as a contract whereby the insurer
undertakes to indemnify the insured, in the manner and to the extent agreed, against marine losses,
i.e. the losses incidental to marine adventure.
• It defines a marine adventure as where any ship or goods etc. are exposed to maritime perils, where
the earning of pecuniary benefit or the security of money invested is endangered by the exposure
Chapter 3
of insurable property to maritime perils or where liability may be incurred by reason of maritime
perils.
• Maritime perils are those consequent upon, or incidental to, the navigation of the sea.
• Insurable interest must attach at the time of loss.
• It allows the assignment of the marine policy while goods are at sea.
• Losses can be partial, total or constructive total losses.
• The Marine Insurance (Gambling Policies) Act 1909 makes it illegal to gamble on the outcome of a
marine adventure in the absence of a genuine interest in it.
• The Insurance Act 2015 replaced s.17 to s.20 of the Marine Insurance Act 1906. It introduced the
need to make a fair presentation of the risk and provides proportionate remedies for insurers when
this is breached.
• An insurer can only rely on a breach of warranty to avoid a claim where it can prove that the breach
was directly related to the loss.
• The Enterprise Act 2016 imposes penalties for the late payment of claims.
• Powerful shipowning companies began the process of limiting their liability for loss or damage to
cargo while in their possession.
• International conventions, enacted by individual states, brought these conditions of carriage into
international use.
• The Carriage of Goods by Sea Act 1971 (COGSA) brought Hague-Visby into UK law.
• It applies to carriage of cargo that is covered by a bill of lading or similar from a UK port to another
or to the port of another country.
• Under COGSA, the carrier has a duty of care to ensure that the ship is seaworthy and properly
equipped and manned before the voyage.
Hague-Visby Rules
• Describes a carrier as the owner or charterer of a ship which enters into a contract of carriage with a
shipper.
• While the carrier is not liable for loss or damage arising from negligent navigation it is liable if it
arises from the ship being unseaworthy.
• For a claim to succeed against the carrier there must be actual fault on its part and it is for the
carrier to prove that it was not at fault.
• Compensation is set at either 666.67 SDRs per package or 2 SDRs per kilo on the weight of the
goods lost or damaged, whichever is the greater.
• Hague-Visby provides a list of defences available to the carrier.
Hamburg Rules
Question answers
3.1 In IF1 we used the definition of proximate cause as defined in the case of Pawsey v.
Scottish Union and National (1907)
(1907), which is as follows:
Proximate cause means the active, efficient cause that sets in motion a train
of events which brings about a result, without the intervention of any force
started and working actively from a new and independent source.
3.2 An insured would issue a notice of abandonment if it wished to declare its intention
Chapter 3
to claim a constructive total loss.
3.3 An SDR is a Special Drawing Right. It is a composite unit of value for international
transactions. Its value is determined daily by the International Monetary Fund on the
basis of a weighted currency basket.
3.4 a. False. Under Hague-Visby, liability is set at 2 SDRs per kilo on the weight of the
goods or 666.67 SDRs per package, whichever is the higher. The US COGSA on
the other hand sets the carrier’s liability at US$500.
b. False. Liability under the Hamburg Rules is set at 2.5 SDRs per kilo on the weight
of the goods or 835 SDRs per package, whichever is the higher.
3/24 M90/March 2019 Cargo and goods in transit insurances
Self-test questions
1. How does the Marine Insurance Act 1906 define a contract of marine insurance?
2. When must an insured have an insurable interest in a marine policy?
3. What is the duty of fair presentation?
4. What is a CTL?
5. Which Act of Parliament prohibits gambling on the outcome of a marine
adventure?
Chapter 3
Chapter 4
Contents Syllabus learning
outcomes
Learning objectives
Introduction
Key terms
A CMR Convention 2.1, 2.2
B CIM Convention 2.1, 2.2
C Multimodal transport 2.1, 2.2
D Conditions of trade of UK trade associations 2.1, 2.2
Key points
Question answers
Self-test questions
Learning objectives
After studying this chapter, you should be able to:
• explain the main elements of the CMR Convention;
• apply the main elements of the CIM Convention to transit risk;
• describe the main function and principles of multimodal codes; and
• explain contractual liability for goods in transit.
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Introduction
Around 90% of goods transported between buyers and sellers in different countries are
carried by sea. However, the percentage of goods carried by sea between countries within
the continent of Europe and between the UK and Europe is much less than this. The UK’s
trade with the countries of Europe, particularly those within the EU, amounts to around 60%
of its total exports. This figure is, though, likely to change when we leave the European Union
in March 2019. It does not necessarily follow that the figure will reduce. It will be a matter of
keeping a watching brief for at least two years post-Brexit before significant changes
become apparent and can be measured in economic terms.
The large majority of the goods traded between the UK and Europe are carried by road
vehicle, with either short sea crossings of the English Channel or the North Sea on RO/RO
ferries or via the Channel Tunnel. A smaller percentage of mainly lightweight goods go by
air, while some goods are carried by rail.
As with sea-borne trade, there are international agreements in place to ease the
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practicalities of cross-border transportation over land. In this chapter we will look at the
conventions and agreements that govern the transportation of goods by road and rail.
Key terms
This chapter features explanations of the following terms and concepts:
A CMR Convention
We have already made a number of references to the CMR Convention
Convention. The full title of the
CMR Convention is the Convention Internationale Concernant le Transport des Marchandise
par Route, however for the purposes of this study text we will refer to it as the CMR
Convention.
Governs the
The CMR Convention governs the carriage of goods by road for reward. It is an international
carriage of goods agreement covering the rights and responsibilities of the parties involved in transporting
by road for reward
goods by road across an international boundary, where at least one of the countries is a
signatory to it (Article 1.1 of the Convention). The Carriage of Goods by Road Act 1965
brought this agreement into UK law on 19 October 1967.
For the purposes of the Convention, ‘vehicles’ means motor vehicles, articulated vehicles,
trailers and semi-trailers as defined in Article 4 of the Convention on Road Traffic 1949
1949. The
UK’s Carriage of Goods by Road Act 1965 defines an articulated vehicle as:
any motor vehicle with a trailer having no front axle and so attached that part of the
trailer is superimposed upon the motor vehicle and a substantial part of the weight
of the trailer and of the load is borne by the motor vehicle.
The Convention does not apply to:
• carriage performed under the terms of any international postal convention;
• funeral consignments; and
• furniture removal.
There are situations when the CMR Convention gives way to other legislation. This occurs if
the vehicle is carried on part of its journey by another means of transport, such as a
cross-Channel or North Sea ferry and the loss or damage is caused by a fortuity that can only
have occurred whilst under that means of transport, e.g. a marine casualty situation or heavy
weather (see Article 2). In this case, the amount of any compensation to be paid is
determined by the conditions of carriage of the ferry company. However, the road carrier
also has the same defences as those of the ferry owners. If the ferry owners are not liable for
the loss, damage or delay, the carrier is not obliged to pay any compensation.
Chapter 4 Legal environment: carriage of goods by road and rail 4/3
Question 4.1
Which Act brought CMR into UK law?
Chapter 4
• circumstances that the carrier could not avoid and the consequences of which it was
unable to prevent (the Article 17.2 defence
defence).
Article 17.2 contains the main defence to liability available under CMR. It covers a wide range
of potential causes of loss or damage. However, the burden of proving that it can rely on any
of the defences in Article 17 rests with the carrier.
This is an important part of CMR for the haulage contractor and its insurer. It is of equal
importance to the owner and insurer of any goods carried on a CMR vehicle, because it may
have a significant effect on the ability of the owner to recover against the carrier in the event
of loss or damage to the goods. If the haulage contractor is able to prove it was unable to
avoid the circumstances of the loss and unable to prevent the consequences of it, it will not
be liable to the owner or any cargo insurer. Whether the carrier can rely on the Article 17.2
defence is usually determined by comparing the facts of the case with the law of negligence
as applied by the courts in whatever country the case is to be heard.
Let us see how this article of the Convention works by looking at an example. You should be
aware that we have taken this example from English case law. We will see later how the
principles of English law contrast with those of the Convention.
Example 4.1
Cicatiello and others v. Anglo European Shipping Services Ltd and others (1994) (1994). This
case concerned 16 pallets of pickled pelts. While at a lorry park in Italy, a violent gang of
robbers hijacked, at gunpoint, the vehicle carrying the pickled pelts. The driver was
beaten and held captive. The robbers released him many miles away without his vehicle.
The cargo interests alleged that the driver had been negligent in failing to protect the
goods, but the judge decided that the driver could not have avoided the circumstances of
the theft, even with the utmost care, and that he could not have prevented the
consequences. This was despite the fact that, at the time, many insurers considered Italy a
no-go area due to the high number of lorry hijackings there.
The defences available to a haulage contractor under CMR mean that cargo owners should
always insure their goods for the widest cover and for full values. The defences under Article
17 and the Cicatiello case mean the owners of goods need to be sure they are adequately
covered and insurers need to charge sufficient premiums, as recovery is by no means
guaranteed.
Remember that the carrier must satisfy two points if it is to succeed in its defence. It must
prove that it was unable to:
• avoid the circumstances of the cause; and
• prevent the consequences.
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Example 4.2
Bill, a driver for Lorries Ltd has a delivery to make. The most direct route takes him
through an industrial estate where there is known to be industrial unrest. Pickets are
targeting haulage vehicles in an attempt to prevent them entering the estate. As time is of
the essence, Bill chooses not to take the alternative route and heads straight for the
industrial estate. The pickets attack his vehicle causing damage to the goods he is
carrying. In these circumstances, Lorries Ltd may find that they cannot plead the Article
17.2 defence. This is because, although they were unable to prevent the consequences,
they could have avoided the circumstances by taking an alternative route, away from the
troubled area.
Compensation is
As with the conventions covering the carriage of goods by sea, the compensation provided
8.33 SDRs per kilo under CMR uses Special Drawing Rights (SDRs) as its unit of measure. Thus, the standard
compensation payable by a liable carrier under CMR is set at 8.33 SDRs per kilo on the
weight of the goods lost or damaged.
Question 4.2
What is the Article 17.2 defence?
Chapter 4 Legal environment: carriage of goods by road and rail 4/5
A2 Further provisions
Articles 34 to 40 contain rules on the use of successive carriers. These rules apply when the
goods remain undisturbed on the same trailer or semi-trailer throughout the journey, but
different tractor units are used at different stages.
Article 36 is the most significant of these articles. It permits the owner of the goods to claim
against either the first carrier, the last carrier or the carrier responsible for the carriage when
the goods were lost or damaged. This is of particular advantage in circumstances where the
identity of the responsible carrier cannot be determined, as the claimant can recover in full
from the first or last carrier, whether they were actually responsible or not. The paying
carrier can then recover some of what they have paid from the other carriers involved in
proportion to their share of the carriage charges (Article 37). However, where the carrier
Article 37
who caused the loss or damage can be identified, the entire payment can be recovered
against that one carrier. The prudent goods owner will have obtained adequate insurance,
leaving their insurer to recover what it can from the carrier.
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Example 4.3
Lamps Ltd, a UK supplier, sends a container of lamps to Spain by a CMR carrier. Although
Lamps Ltd may be unaware of it, the lamps travel in the following transit sequence:
• The first part of the journey is carried out by UK based Lorries Ltd who haul the trailer
containing the goods to the UK docks, at which point the tractor unit is detached.
• Tugmaster A hauls the trailer containing the goods aboard the ferry.
• Tugmaster B hauls the trailer off the ferry at Rotterdam.
• A Dutch carrier collects the trailer and hauls it to Paris where it is detached from the
tractor unit.
• In Paris a Spanish tractor unit owned by Juanvans picks up the loaded trailer for the
final leg of the journey to Madrid.
Upon arrival in Madrid the buyer inspects the goods and discovers that they have been
damaged. However the time and place of the damage is unknown to any of the carriers
involved. Under Article 36 of CMR the owner of the lamps can make a claim for
compensation against the first carrier, Lorries Ltd, or the last carrier, Juanvans. Lorries Ltd
or Juanvans can then seek contributions from the other carriers involved.
Article 41 precludes any derogation from the provisions of CMR, rendering them null and
void. In the CMR context, derogation means the partial taking away of the effectiveness of a
law. So, to take two examples, no party to a CMR contract may agree a lower level of
compensation nor may they agree to a lesser standard of care of the goods by the carrier.
CMR does not apply to traffic between Great Britain and Northern Ireland and the Republic
of Ireland. This is stated in the Protocol of Signature of the Convention. However, traffic to or
from the continent of Europe, which passes through Great Britain on its way to or from
Ireland, remains subject to the CMR Convention, provided the goods are not lifted from the
vehicle until they reach their destination.
The starting point for establishing negligence in the English courts is the classic description
set out in the case of Blyth v. Birmingham Waterworks Company (1856) in which the judge
described negligence as:
the omission to do something which a reasonable man, guided upon those
considerations which ordinarily regulate the conduct of human affairs, would do, or
doing something which a prudent and reasonable man would not do.
No overall
There is no single, overall standard of what is reasonable under English law. Therefore, in
standard of what is order to establish what is, or is not, reasonable it is necessary to consider the opinion of
reasonable
one’s peers. So, if an allegation of negligence is made against a doctor, then an opinion on
negligence can only come from a similarly, or higher, qualified doctor.
We have already seen that English law does not recognise the concept of wilful default. It
does recognise the concept of wilful misconduct, however, although it treats it less
sympathetically than some jurisdictions. Wilful misconduct was first described in Horabin v.
BOAC Ltd (1952) as follows:
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In order to establish wilful misconduct, the plaintiff must satisfy you…that the person
who did the act knew that he was doing something wrong, and knew it at the time,
and yet did it just the same.
These differences in the application of principles, such as negligence and others, between
countries, bring about the practice known as forum shopping. Forum shopping means
looking to bring a case to court in a jurisdiction that is more likely to be sympathetic to it. For
instance, a claimant alleging wilful misconduct will seek to avoid the English courts, whereas
the defendant would probably prefer them.
To summarise the position in English law: a person is guilty of wilful misconduct if they are
aware of the danger and choose to take the risk regardless of that danger. Knowledge and
intent are the key ingredients. For a claim in wilful misconduct to be successful it must be
demonstrated that the person accused of wilful misconduct:
• was aware of the danger;
• was willing to run the danger;
• actually ran the danger; and
• caused loss or damage to the goods by running the danger.
Activity
Research the following cases involving wilful misconduct:
• Laceys Footwear (Wholesale) Ltd v. Bowler International Freight Ltd and Another
(1997)
(1997);
• Micro Anvika & Others v. TNT Express and Others (1997)
(1997); and
• TNT Global Spa & Another v. Denfleet International Ltd & Another (2007)
(2007).
Identify the strict rule within which wilful misconduct can be pleaded successfully.
Useful website
A useful website for reading about cases decided in the courts in England is
www.bailii.org/. This site is updated regularly so is an important source of both historic
and contemporary information.
B CIM Convention
Formulated to
The CIM Convention governs the activity of sending goods by rail. (As with the CRM
provide a measure Convention, this too has a full title: the Convention Internationale Concernant le Transport
of uniformity
des Marchandises par Chemins de Fer, but for the purposes of this study text we will refer to
it as the CIM Convention.) The CIM Convention, also referred to as the Uniform Rules
Rules, was
formulated to provide a measure of uniformity in Europe with regard to the international
carriage of goods by rail. The provisions of a subsequent CIM Convention in 1970 came into
operation in the UK in 1975, but it did not have the force of law.
Chapter 4 Legal environment: carriage of goods by road and rail 4/7
The CIM regulates, amongst other things, the form and conditions of the contract of
carriage:
• its performance;
• its modifications (i.e. stoppage in transit);
• liability for loss, damage or delay in the transit period;
• its enforcement by action; and
• the mutual rights and obligations of the various railway authorities concerned with the
transit of goods under a ‘through consignment note’.
The CIM Convention was incorporated into the Convention Concerning International
Carriage by Rail (COTIF
COTIF), which was signed in 1980. This came into force in the UK in 1985
by means of s.1 of the International Transport Conventions Act 1983
1983. The current version of
COTIF was ratified by the UK Government in 1996. COTIF signatories include most European
countries, as well as a number in North Africa and the Near East.
Chapter 4
COTIF is the Convention of an international transport organisation known as Organisation
Intergouvernementale pour les Transports Internationaux Ferroviaires (OTIF)
(OTIF), which has
its headquarters in Berne, Switzerland. It contains the rights and responsibilities of both the
carriers and the owners of goods being carried by rail.
The committee of OTIF is responsible for the:
• uniform application and practical implementation of the intergovernmental convention
concerning international carriage by rail (COTIF);
• standardisation of the legal relations between;
– customer and railway undertaking,
– railway undertaking and infrastructure operators,
– different railway undertakings; and
• representation of interests in dealings with public and private instructions.
(Source: www.cit-rail.org)
COTIF is the organisation behind the Convention, but the convention itself is CIM. It contains Convention
a number of articles and we will look at the most relevant now. itself is CIM
3. Articles which, because of their dimensions or weight, are unsuitable for handling by available
installations of rolling stock
Despite this last point, Article 5(i) does allow the carriage of such substances and articles if
they meet stipulated conditions.
1. Dangerous goods
2. Funeral consignments
2. The absence or inadequacy of packing in the case of goods which, by their nature, are liable to
loss or damage when not packed or when not properly packed
3. Loading and/or unloading operations carried out by the consignor/consignee under the
provisions that apply to such operations or under an agreement made between the consignor
and the railway and referred to in the consignment note
4. Defective loading, when it has been carried out by the consignor under the applicable provisions
or under an agreement made between the consignor and the railway and referred to in the
consignment note
5. Completion by the consignor, the consignee, or an agent of either, of the formalities required by
customs or other administrative authorities
6. Where the nature of certain kinds of goods renders them inherently liable to total or partial loss
or damage, especially through breakage, rust, interior and spontaneous decay, desiccation or
wastage
9. Carriage which, under the provisions applicable under an agreement made between the
consignor and the railway and referred to in the consignment note, must be accompanied by an
attendant, if the loss or damage results from any risk which the attendant was intended to avert
Burden of proof
The burden of proving that the loss, damage, or the exceeding of the transit period, was due
rests with the to one of the causes specified in Article 36.2 rests with the railway.
railway
In the event of total or partial loss of goods the compensation payable by the railway is not
to exceed:
The current market price or the normal price, OR Not more than 17 SDRs per kilo of gross mass
according to the normal value of goods of the lost
same kind and quality at the time and place the
goods were accepted for carriage
Chapter 4 Legal environment: carriage of goods by road and rail 4/9
As we have just seen, some goods by nature are generally subject to wastage in transit. For
such goods, the railway is only liable to the extent that the wastage exceeds the following
allowances, whatever the length of the route:
Two per cent of mass for liquid goods or OR One per cent of mass for dry goods
goods consigned in moist condition
Sometimes one consignment note will cover several packages. If the consignment note Amount payable
shows the mass on despatch of each packet separately, or there are ways in which this can shall not exceed 17
SDRs per kilo lost
be ascertained, the wastage is calculated separately for each package. If bulk goods suffer a
total loss, then there is no deduction for wastage in transit. In any case, the maximum
amount payable shall not exceed 17 SDRs per kilo of gross mass lost.
Article 42 deals with compensation for damaged goods. The compensation payable by the
railway is to be equivalent to the loss in value of the goods. This is calculated by applying the
percentage of loss in value noted at the place of destination to the value of the goods.
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However, it must not exceed the value of the part of the consignment that was subject to a
partial loss, nor must it exceed the total value of the goods if the whole consignment is lost.
In other words, the claimant can only claim for the value of their loss, whether it was partial
or total. For all claims, the railway must refund carriage charges, customs duties and other
amounts incurred in connection with the carriage of the lost or damaged goods. There is no
liability for consequential loss, indirect loss, loss of market or anything of that nature.
Compensation, when payable, is payable to the exclusion of all other damages.
In Article 43
43, where exceeding the transit period causes loss or damage, compensation is:
• an amount not exceeding four times the carriage charges for exceeding the transit period;
• not payable in addition to the amount payable for loss or damage in the case of total loss
of the goods; and
• an amount not exceeding three times the carriage charges in respect of that part of the
consignment which has been lost where there is partial loss of goods.
Question 4.3
How is the railway’s liability for loss of goods that are prone to wastage limited?
On occasion the loss or damage is the result of an act or omission on the part of the railway.
By behaving thus, the railway may have intended to cause the loss or damage or simply
acted recklessly, knowing it could cause loss or damage. Where this can be proved, the
railway loses its right to invoke the limits of liability. The effect of this provision, contained in
Article 44, is to make the railway liable for the full value of goods lost or damaged in these
circumstances, and for any consequential loss that may flow from the actions of the railway.
B3 Ratifying countries
The countries that have ratified, or acceded to, COTIF include:
Denmark
4/10 M90/March 2019 Cargo and goods in transit insurances
C Multimodal transport
The term multimodal transport means the carriage of goods in containers from one place to
another by a variety of means. The best way of explaining the effect of this is to consider an
example.
Example 4.4
XYZ Manufacturing in Derby, UK sends a container load of goods to a buyer in India. Three
methods of transport are used, but the container itself remains undisturbed from the point
of loading in the UK to the intended consignee in India. The container was lifted on and off
these various methods of transport, so each carrier will have a different contractual
liability. The journey is broken down as follows:
1. Lorries Ltd takes the container from the Domestic carrying conditions apply. The
warehouse to the rail depot. liability is under either private conditions of
carriage agreed between XYZ and Lorries Ltd
or at common law if no such conditions are
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agreed.
2. The container is loaded onto a freight train The CIM rules apply.
which carries it to Europe.
4. This container is unloaded from the ship and Indian local conditions of carriage apply.
carried by land to its final destination.
None of this need concern the owner of the goods who has cargo insurance. If their goods
are lost or damaged they simply claim from their insurer, leaving it to recover whatever it
can from one of the carriers in the journey. Remember though, the cargo insurer’s right of
subrogation only attaches when it has actually paid the claim.
1. A freight forwarder acts as a shipper’s agent. It negotiates a series of individual contracts with
carriers by road, rail, sea or air. Each contract is independent and subject to the usual unimodal
terms and conventions
2. A freight forwarder acts as agent only, bringing the shipper and each individual carrier together
so they can negotiate the contractual relationships with each other. The freight forwarder
excludes itself from liability. Transhipment from one mode of transport to another is at the risk of
the owner of the goods
The advantage of a CTO type of arrangement is that the owner of the goods is in one
contractual relationship only, with the CTO, with the owner’s land transit operator’s rights
and liabilities being subject to the terms of the combined transport document (otherwise
known as a house or NVOC bill of lading). With this type of contract the combined transport
officer would be responsible for loss or damage arising at all times during transit, including
during transfer from one type of conveyance to another.
Chapter 4 Legal environment: carriage of goods by road and rail 4/11
Chapter 4
• the freight forwarder must exercise a reasonable degree of care, skill, diligence and Compensation set
judgment in the forwarding of goods; and at 2 SDRs per kilo
• standard compensation is set at 2 SDRs per kilo of weight lost or damaged plus up to
75,000 SDRs for claims involving errors and omissions.
BIFA terms stand subordinate to any contract of affreightment that is contained in a statute
or a legal convention, such as Hague-Visby, and compensation for loss or damage to goods
in transit is limited to:
2 SDRs per kilo of weight under 8.33 SDRs per kilo of weight 17 SDRs per kilo of weight for
Hague-Visby under CMR carriage by air freight and by rail
Useful website
Details of the BIFA trading conditions can be found on the BIFA website at:
www.bifa.org/trading-conditions/bifa-stc-2017. Note: you will need to be a member of
BIFA to access this content.
• Compensation is a standard £1,300 per tonne of weight lost or damaged, but the carrier
and the owner of the goods may increase this limit by mutual agreement before the
commencement of transit. They must obtain the prior approval of insurers if there is not to
be any shortfall in the cover afforded to the haulage contractor.
• Unless agreed in writing prior to the commencement of transit, the haulier’s liability for
consequential or other financial loss, including loss of market, is limited to the amount of
the carriage charges.
• There is a nine month time limit from when the transit commenced within which the
claimant can issue legal proceedings.
Useful website
The Road Haulage Association (RHA)’s website is: www.rha.uk.net
4/12 M90/March 2019 Cargo and goods in transit insurances
Liability is £100
• Liability for loss or damage to goods in storage attaches only if caused by the neglect,
per tonne wilful act or default on the part of the warehouse keeper, its servants or agents.
• The standard liability is set at £100 per tonne, but the warehouse keeper and the owner of
the goods may increase it by mutual consent before the commencement of storage and
subject to approval by insurers.
• The warehouse keeper is relieved of its contractual obligations where the customer or
storm, flood, fire, explosion, riot, industrial dispute, labour disturbance or other thing
beyond the reasonable control of the warehouse keeper prevents their performance.
The final point is not a defence to liability for loss or damage to goods in the custody of the
warehouse keeper. It relieves the warehouse keeper of its obligation to provide the storage
Chapter 4
or logistics service if that promised service is frustrated by one of the events described. For
example, if a fire, caused by the warehouse keeper’s neglect, destroys the warehouse, the
warehouse keeper will still be liable for the damage caused to the goods by the negligently
caused fire but it will not be obliged to continue providing a storage facility. In English law,
this is frustration of contract and in English law a contract is said to be frustrated if an event,
unforeseen at the time of contracting, arises and prevents the contract being carried out.
Frustration of contract is a recognised defence to a claim for breach of contract. In Taylor v.
Caldwell (1863)
(1863), there was an agreement in place between the parties to use a music hall for
four days. However, before the use could take place fire destroyed it. The question for the
court was whether the contract was still enforceable. It held that this event must discharge
the contract as the hall was essential to the performance of the contract. Such an event will
not frustrate the contract if in the meantime one party agrees to take on the risk of the
property being destroyed.
The current edition of UKWA’s conditions of storage is The United Kingdom Warehouse
Keepers Conditions for Logistics 2014. They are not restricted to the storage of goods and
may be used for the carriage of goods. However, this has not affected the RHA conditions of
carriage, which continue to dominate the haulage market.
Useful website
The UKWA website can be found at: www.ukwa.org.uk/
Question 4.4
Who does the British International Freight Association (BIFA) represent?
D4 Situation overseas
A similar situation arises in other countries where local conditions of carriage will be used
and these may, or may not, be beneficial to the owners of lost or damaged goods, or their
insurers.
Chapter 4 Legal environment: carriage of goods by road and rail 4/13
Conclusion
Throughout these two chapters we have seen how a range of laws, legal conventions and Owners of goods
conditions of contract play a leading role in the transporting of goods by land, sea and air, in transit should
insure them
describing the responsibilities and rights of both carriers and owners of goods. It should be
clear that each party to a contract of carriage must exercise its duties in accordance with the
rules as they are set down, and that a breach of those rules could result in an extra financial
burden for the carrier or a loss of rights to compensation for the owners of the goods.
Perhaps the most important lesson to be learned from this chapter is that the owners of
goods that are in transit should always insure them for their full value and for the widest
cover available in the market. This allows an owner to continue concentrating on its daily
business activities without having to concern itself with seeking compensation for lost or
damaged goods. It can simply claim from its insurers. This leaves the marine cargo insurer
who paid the claim to concern itself with recovering whatever compensation it can from any
carrier responsible for the loss or damage (bearing in mind that no compensation will be
available if the carrier has a defence to liability).
Chapter 4
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Key points
The main ideas covered by this chapter can be summarised as follows:
CMR Convention
• The CMR Convention is an international agreement covering the rights and responsibilities of
parties involved in the carriage of goods by road for reward across international boundaries.
• The carrier is liable for loss or damage to the goods from the time it takes them over to the time of
delivery.
• The key defence is that the loss, damage or delay was caused by circumstances that the carrier
could not avoid and the consequences of which it could not prevent.
• CMR recognises wilful default, though this is not recognised in English law.
• Compensation is set at 8.33 SDRs per kilo on the weight of the goods lost or damaged.
• Where successive carriers are used and it is impossible to identify which carrier was responsible
when damage was caused, the cargo owner can claim from either the first or last carrier, who can
Chapter 4
then claim for a proportionate share from the other carriers involved.
• Under CMR it is for the defendant carrier to prove it was not negligent, while under English law it is
for the claimant owner to prove that the carrier was negligent.
CIM Convention
Multimodal transport
• Refers to the carriage of goods in containers from one place to another by a variety of means.
• There are four distinct types of multimodal transport whereby a freight forwarder assumes various
levels of responsibility for the goods being shipped.
• The British International Freight Association (BIFA) represents the interests of freight forwarders.
• Its conditions require the freight forwarder to exercise reasonable care and sets the standard
compensation.
• The Road Haulage Association (RHA) represents the interests of haulage contractors in the UK.
• Liability is almost on an all risks basis though there is a standard limit of compensation of £1,300 per
tonne of weight lost or damaged.
• The United Kingdom Warehousing Association (UKWA) represents the interests of warehouse
keepers.
• The warehouse keeper is only liable if the damage or loss is caused by its negligence and the
standard liability is set at £100 per tonne.
Chapter 4 Legal environment: carriage of goods by road and rail 4/15
Question answers
4.1 The Carriage of Goods by Road Act 1965 brought the CMR into UK law.
4.2 The Article 17.2 defence means that the carrier is not liable in circumstances that the
carrier could not avoid and the consequences of which it was unable to prevent.
4.3 For goods prone to wastage, the railway is only liable to the extent that the wastage
exceeds:
• two per cent of mass for liquid goods or goods consigned in moist condition; or
• one per cent of mass for dry goods.
4.4 The British International Freight Association (BIFA) represents the interests of
freight forwarders.
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4/16 M90/March 2019 Cargo and goods in transit insurances
Self-test questions
1. To which three types of goods does the CMR Convention not apply?
2. What is the standard level of compensation under CMR?
3. What is the key difference between negligence under English law and negligence
under CMR?
4. State the maximum level of compensation payable under the CIM Convention,
excluding any interest or carriage charges.
5. What does the term multimodal transport mean?
6. What are the standard conditions of storage of UKWA?
Chapter 5
A Institute Cargo Clauses (A), (B) and (C) 3.1, 3.2, 3.3
B Other Institute Cargo Clauses 3.1, 3.2, 3.3, 3.4
C Application of marine clauses 3.2, 3.3
Key points
Question answers
Self-test questions
Appendix 5.1: Institute Cargo Clauses (A)
Appendix 5.2: Institute Cargo Clauses (B)
Appendix 5.3: Institute Cargo Clauses (C)
Appendix 5.4: Institute Cargo Clause (Air)
Appendix 5.5: Institute War Clauses (Cargo)
Appendix 5.6: Institute War Clauses (Air Cargo)
Appendix 5.7: Institute Strikes Clauses (Cargo)
Appendix 5.8: Institute Strikes Clauses (Air Cargo)
Learning objectives
After studying this chapter, you should be able to:
• explain the main insuring clauses offered by the London market;
• apply the commodity clauses described in the study text.
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Introduction
In this and the next chapter we are going to look at the cover provided by, and the
underwriting of, marine cargo insurance. We begin in this chapter by looking at the various
London market Institute Cargo Clauses which outline cover. We will note that the clauses are
for guidance only, allowing insurers to vary them according to the needs of individual
businesses. We look at the constituent parts of the clauses and will study how the main (A),
(B) and (C) clauses form the basis of the various clauses for specified trades, identifying the
differences between them.
In the next chapter we will move onto a short study of marine consequential loss,
stockthroughput and project cargo insurances, before finally concluding with a discussion of
the types of policy usually found in marine cargo insurance and how marine cargo insurance
is underwritten.
Key terms
This chapter features explanations of the following terms and concepts:
Cover is against
• cover is against all risks of loss or damage to the subject matter insured, except as
all risks excluded by the provisions of clauses 4, 5, 6 and 7;
• general average and salvage charges are covered (adjusted or determined according to
the contract of carriage and/or the governing law and practice) where they are incurred
to avoid, or in connection with the avoidance of, loss from any cause, except those
excluded in clauses 4, 5, 6 and 7; and
• the insurance indemnifies the insured, in respect of any risk insured by the policy, against
any liability incurred under any Both to Blame Collision clause in the contract of carriage
(e.g. in the bill of lading).
Chapter 5 Marine cargo insurance: Institute Cargo Clauses 5/3
Chapter 5
insured where the assured is privy to such unseaworthiness or unfitness;
• the unseaworthiness/unfitness exclusion does not apply where the marine insurance has
been assigned to a party claiming under the clauses who has bought the subject matter
insured in good faith under a binding contract; and
• where insurers waive any breach of the implied warranties of seaworthiness of the ship
and of its fitness to carry the subject matter insured to its destination.
Clauses 6 and 7 exclude the risks of war and strikes in order to prevent duplication of
covers with:
• War Clauses (CL385) 1/1/2009; and We study these in
section B2 and B3
• Strikes Clauses (CL386) 1/1/2009.
We provide the full wording of these clauses as appendices 5.5 and 5.7 respectively.
Two examples of a general average act would be jettisoning goods over the side of a listing
vessel to help right it and using water to put out a fire on board.
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Example 5.1
The Big Ship is a container ship travelling from a UK port. Fire breaks out in one of the
containers and threatens to spread to other containers and to the ship. If it is not
extinguished the ship is in danger of sinking. The master of the vessel uses water to put
out the fire and the vessel makes it to a port of refuge. The master of the vessel declares
that a general average sacrifice has taken place. All the parties interested in the
adventure – the owners of the vessel, the cargo owners and any freight interests –
contribute to the cost of the sacrifice in the proportion that their respective interests bear
to the whole value of the vessel, her cargo and the value of the freight. They become liable
to pay once The Big Ship arrives at her original port of discharge.
However, the general average act does not automatically mean that the interests in the
adventure will have to contribute. The master of the ship must justify their action. Arguing
that they were protecting the interests of a cargo owner, for example, does not justify their
action. In order to sustain a declaration of general average, the master must show that the
whole adventure was in peril and that it was saved by their actions.
What is more, should the ship sink before making port, any general average act is rendered
null and void because the adventure was lost by the sinking before the ship made port.
Be aware
A marine adventure is not completed until the ship makes port.
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A1C Salvage
Institute Cargo Clauses (A), (B) and (C) 1/1/09 cover the liability the owner of goods has to
contribute to the successful salvaging of a vessel in distress at sea. Salvage charges arise
when a ship in distress at sea accepts an offer of salvage from another vessel and that vessel
is successful in salving the adventure.
There are strict requirements for proving an act of salvage:
• the property must be in danger;
• the offer of service must be voluntary; and
• the salvor must be successful: ‘no cure, no pay’.
Calculating a salvage award
Salvage awards are based on the value of the salved property and not on its total value at
the start of the adventure. ‘Salved value’ means the value that has been saved from the
threat of loss.
Example 5.2
The master of a vessel in distress due to a fire in part of the cargo it is carrying, accepts
the offer of assistance from a salvage tug and a contract of salvage is agreed under
Lloyd’s Open Form (LOF) terms.
The vessel is valued at US$100m and the cargo has a value of US$60m.
The fire caused damage estimated at US$20m to the vessel and US$10m to the cargo.
An award of 3% of the salved property was subsequently agreed.
The calculation of that award, and its apportionment between the owners of the vessel
and the owners of the cargo, is made in the following manner (all US$):
Value of vessel $100,000,000
The division of this award between the owners of the vessel and the owners of the various
cargoes is:
Award:
Vessel pays 61.538% of $ 3,900,000 = $2,399,982
Total $3,900,000
* Divided proportionately between each cargo owner according to the value that each
cargo bears to the total value of the salved cargo.
For the sake of ease, let us say there are 100 cargo owners each having the same value of
goods.
Each cargo owner is thus liable to pay 1/100th of $1,500,018 i.e. $15,000.18.
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A1D Common law salvage
This type of salvage occurs rarely. It arises when a ship in distress is abandoned by its
officers and crew in the belief that it is going to sink. However, a body of salvors believe they
can save the ship, board the empty vessel and do indeed succeed in saving it. It is best
explained by looking at an example.
Example 5.3
There is a fire on board a ship. The crew try to fight the fire but cannot bring it under
control. Fearing that the ship is going to sink, they abandon the ship.
As it is nearby, another vessel rescues the crew, but believing that all is not actually lost,
the master of that vessel places a body of salvors on board the stricken ship. After
boarding, the salvors successfully extinguish the fire and bring the ship safely into port.
The salvors have salved the ship, but they do not have a salvage contract with the owners.
They have two options:
• to open negotiations with the owner of the ship for an award in salvage; or
• to appeal to a salvage arbitrator to listen to the merits of their case and decide whether
they are entitled to a salvage award and, if so, the level of that award.
The Both to Blame clause also contains the description non-carrying vessel vessel, which tends to
confuse by implying that it was not carrying goods. This is unlikely to have been the case
unless that vessel was sailing in ballast. It will almost certainly have been carrying goods.
Furthermore, if the fault lies exclusively with the other vessel, the claim will emanate from
the owner of the goods on board the ship described as the ‘non-carrying vessel’.
The description, ‘non-carrying vessel’ may be better understood if it is referred to as the
third party vessel because ‘third party’ is a phrase which is commonly used to identify the
other party to an action in tort. So, if we imagine that a third party vessel negligently causes
ship Z to collide with it damaging the cargo on ship Z, then the owner of those goods can
claim for all of the damage from the owners of the third party vessel. However, the Both to
Blame Collision rule applies and in circumstances where the apportionment is 50:50, the
owner of the third party vessel has the right to claim 50% of their liability from the owners of
ship Z. The owner of ship Z then has a bill for half the cost of the damage, which it can pass
back to the owner of the goods by way of the Both to Blame Collision clause in the bill of
lading. The standard Institute Cargo Clauses cover this liability. Let us look at another
example to help explain this rule.
Example 5.4
Both to Blame Collision
• Ship A and Ship B collide off the coast of Florida. Ship A is the carrying vessel.
• Both ships are liable for 50%.
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• Ship B, the third party ship, is fully responsible for the collision.
• There is a Both to Blame Collision clause in the bill of lading applicable to the goods
being carried by ship A.
Damage occurs as follows:
• damage to cargo in ship A: US$100,000
• damage to ship B (third party): US$50,000
The owner of the goods carried by ship A cannot demand damages from the owner of
ship A under the provisions of the bill of lading because the owners of ship A have the
defence of negligent navigation by officers or crew. This defence relieves the owners of
ship A from liability for loss or damage to goods it is carrying if caused by negligent
navigation.
The owner of ship B pays US$100,000 to the owner of the goods in ship A.
Shipowner B then claims:
• 50% of US$100,000 from shipowner A under the Both to Blame Collision rule; and
• 50% of its own damage of US$50,000 from shipowner A, also under the Both to Blame
Collision rule.
Total claimed by shipowner B from A under the Both to Blame rule: US$75,000.
Shipowner A then:
• pays shipowner B US$75,000; and
• demands US$50,000 from the cargo owners by way of the Both to Blame Collision
clause in the bill of lading.
The cargo owner claims for its liability under the Both to Blame Collision cover in the
Institute Cargo Clauses.
You will see from all this that a maritime liability imposed upon a shipowner by US law is
recoverable from the owner of the goods in the contract of affreightment evidenced by the
bill of lading.
Question 5.1
When entering the waters of which country would a ship’s owners include a Both to Blame
Collision clause in the bill of lading?
Chapter 5 Marine cargo insurance: Institute Cargo Clauses 5/7
On completion of unloading at any other warehouse or place of storage which the insured OR
or their employees elect to use either for storage outside the ordinary course of transit or
for allocation or distribution, whether prior to or at the destination named in the contract
of insurance
When the insured or their employees elect to use any carrying vehicle or conveyance or OR
container for storage other than in the ordinary course of transit
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On the expiry of 60 days after completion of discharge over-side of the subject matter
insured from the oversea vessel at the final port of discharge
Sometimes a vehicle or trailer is loaded and then parked either overnight or over the
weekend in the compound or warehouse of the consignor, ready for an early departure the
next day or the following Monday. Cover under the cargo policy does not apply in these
situations, because the transit anticipated by it has not yet begun. Moving a loaded vehicle
from one part of a premises to another does not constitute commencement of transit for the
purposes of the Institute Cargo Clauses (A), (B) or (C).
Pre-transit parking must be revealed to the insurer, to give it the opportunity of deciding
whether to extend its policy to cover this risk and, if so, the terms on which it will provide
that cover.
The insurance also remains in force during:
• any delay beyond the control of the insured;
• any deviation;
• forced discharge;
• reshipment or transhipment; and
• during any variation of the adventure arising from the exercise of a liberty granted to
carriers under the contract of carriage.
Be aware
The words ‘ordinary transit’ refer only to the temporary storage of goods as an
ordinary course of transit
essential part of the whole transit. For example, goods stored in a warehouse by
stevedores pending the availability of a ship are goods that are still in the ordinary course
of transit. Haulage contractors sometimes hold goods in store pending consolidation with
other goods onto one large vehicle. They may also store imported goods pending
clearance by customs and payment of any customs duties or VAT. Both of these storages
constitute temporary storage during the ordinary course of transit, allowing the marine
cargo cover to remain in force. Any other storage of goods falls outside the scope of
marine cargo insurance because the intended marine transit will have come to an end.
Additional cover, beyond that provided under the Institute Cargo Clauses can be
purchased to cover goods during long-term storage. This is under what is commonly
known as stockthroughput insurance, and we discuss this in chapter 6, section B.
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• entry of sea, lake or river water into the vessel, craft, hold, conveyance, container or place
of storage;
• jettison or washing overboard; and
• total loss of any package lost overboard or dropped while loading or unloading from the
vessel or craft.
The insurance also provides cover against loss of or damage to the subject matter insured
caused by:
• general average sacrifice; and
• jettison.
This insurance also covers the risks of general average and Both to Blame Collision liability in
exactly the same manner as offered under the Institute Cargo Clauses (A) and (B).
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the risks of:
• earthquake;
• volcanic eruption;
• lightning;
• washing overboard; and
• entry of sea, lake or river water into the vessel, craft, conveyance, container or place of
storage.
Table 5.1 provides a summary of the perils covered by the different Clauses.
Stranding/grounding/sinking Stranding/grounding/sinking
Overturning Overturning
Collision Collision
Earthquake/volcano/lightning
Question 5.2
A consignment of goods arrives in the UK from Asia. Upon inspection some of the goods
are found to be rusty while others have been stolen. Under which of the Institute Cargo
Clauses would these losses be covered?
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Be aware
All the marine clauses exclude inherent vice, as do other policies in the non-marine class.
One definition of inherent vice is:
the tendency in physical objects to deteriorate because of the fundamental
instability of the components of which they are made, as opposed to deterioration
caused by external forces.
Inherent vice can be a particular problem with goods carried in temperature-controlled
conditions, meaning that great care has to be taken when employing this exclusion. For
example, if a temperature-controlled vehicle is involved in a road traffic collision, in which
the refrigerant unit is so damaged that it stops working and the goods it is carrying start
to thaw as a consequence, the inherent vice exclusion should not be applied. This is
because the proximate cause of the thawing is the road traffic collision.
These clauses follow the wording of the Institute Cargo Clauses (A). The only differences are
the references to aircraft and the reduction in the maximum number of days contained in the
duration clause to 30, compared to the 60 days in the (A) clauses.
Offers cover
This wording reflects the intention of insurers to offer cover against war risks only at sea.
against war risks The risks and costs of war on land are usually so great that they can only be borne by the
only at sea
governments of the countries involved in the conflict.
Be aware
The clause describes terrorism as:
an act of any person acting on behalf of, or in connection with, any organisation
which carries out activities directed towards the overthrowing or influencing, by
force or violence, of any government whether or not legally constituted.
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Although the (A), (B) and (C) clauses are used to insure the vast majority of goods, some Some trades have
trades and businesses have insurance clauses specifically designed for them. These fall clauses specifically
designed for them
under the general description of commodity clauses
clauses. As we look at a few of these clauses
we will identify on which of the standard clauses it is based and highlight any relevant
differences.
From an historic perspective, the difference between the 1982 (A) clauses and FOSFA lay in
the qualified wording of clauses 4 and 5, dealing with the insolvency or financial default of
the owners or managers of the ship and its unseaworthiness. Both FOSFA and the 2009 (A)
clauses qualify the wording to the effect that the exclusions will not apply where the insured
has no knowledge relating to either the financial status of the shipowners or managers or to
the unseaworthiness of the ship. In reality, the 2009 clauses do not change the position in
any material way because qualified exclusions have been a standard part of supplementary
clauses, sometimes called business protection clauses
clauses. These clauses have been a regular
feature of marine cargo policies for many years.
• pass into the cooling and/or freezing works at the place named in the contract of
insurance, for a maximum of 60 days; or
• are loaded into the conveyance at the freezing works for the commencement of transit; or
• are loaded into an oversea vessel or aircraft.
Cover terminates either:
When the goods are placed in any carrying vehicle, conveyance or container for any OR
storage that is not in the course of transit
Thirty days after discharge of the goods at a destination in Europe, including the UK and OR
the Republic of Ireland, the USA or Canada
When the goods are delivered to the cold store or place of storage named in the contract OR
of insurance
When the goods are delivered to another cold store or place of storage the insured OR
chooses for storage outside the ordinary course of transit
When the goods are stored in any carrying vehicle or container for storage outside the OR
ordinary course of transit
Five days after completion or discharge of the goods overside the overseas vessel or on
completion of unloading from an aircraft at the final place of discharge
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insurance against the perils of theft, non-delivery and malicious damage. Before the advent
of containerisation, timber was carried in bundles on the deck of the vessel, leaving it
exposed to bad weather and heavy seas, resulting in the timber shifting to one side of the
ship causing it to list dangerously. However, if the timber is in a container the risk is much
improved, even if stored on deck, so all risks cover can be given. This also applies to timber
stored in the poop, forecastle, deck house, shelter deck or other enclosed space on the ship.
The cover for goods not carried on deck is also against all risks of loss or damage.
In line with other goods stored on deck, it is possible as an alternative underwriting strategy
to provide cover under Institute Cargo Clauses (A) 1/1/09, rather than the more limited
cover given under the Timber Trade Clauses.
When insuring goods on the deck of a ship it is crucial to ensure that they are properly
lashed before the ship sets sail. It is also important to charge a higher premium to reflect the
higher risk involved.
Learning point
You will find it useful if you have detailed knowledge and understanding of all the Institute
Cargo Clauses before you start to answer any assignments.
B5 Insurance of containers
The London market offers two sets of clauses for the insurance of containers, both of which
also insure general average and salvage charges. These are:
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Institute Container Clauses – Time 1/1/87 Provides insurance against all risks of loss or
damage, including partial loss or damage
Institute Container Clauses – Time – Total Loss, Insures only actual or constructive total loss
General Average, Salvage, Salvage Charges, Sue
and Labour 1/1/87
Schedule is
Both sets of clauses also contain one significant difference from the other clauses we have
incorporated discussed. This difference is that a schedule, containing details such as the subject matter
within the wording
insured, is incorporated within the wording of these clauses. For all the other clauses
referred to, a separate schedule of insurance is issued and attached to the policy wording.
Finally, if a party not named as an insured leases or hires the container, neither set of clauses
allows cover to apply, unless the insurers agree it in writing. You should contrast this with
traditional marine cargo insurance, which is assignable without an insurer’s consent, the
prime requirement for payment of a claim being that the party claiming had an insurable
interest in the cargo at the time of loss.
Chapter 5 Marine cargo insurance: Institute Cargo Clauses 5/15
B6A Classification
All marine cargo policies contain a clause which describes the vessels that may be used for
the carriage of the goods that are the subject of insurance. This is the Institute Classification
Clause. The intention of this clause is to ensure that goods are transported in vessels
Clause
constructed to the recognised standards of an approved classification society. The role of
the classification societies is to:
• set standards during the design and construction of vessels;
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• enter vessels in a classification society, so that the owners of vessels can obtain insurance,
cargoes and financing;
• undertake periodic inspections at not more than five-yearly intervals; and
• act on behalf of governments in confirming that ships on a national register comply with
internationally agreed standards.
In short, their role is to ensure the safety of ships from their original design stage, through
building and onwards throughout their subsequent sailing of the world’s seas.
An approved classification society is one which is a member of the International Association
(LACS). Table 5.1 shows the twelve members, along with their
of Classification Societies (LACS)
internet address.
Activity
Choose one of these societies and look at its website. How are ships classified?
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Be aware
Lloyd’s Register of Shipping is not the same entity as Lloyd’s of London, despite having
the same origin and name. They are in fact two different and independent organisations.
Use of the clause is voluntary and an insurer is not bound to set any particular rate. However,
the standards set as to age, construction and trading provide a valuable guide to insurers.
An insurer can use them to make an informed decision regarding the rates it should charge
when insuring goods carried in a vessel falling outside the parameters contained in the
Classification Clause. For example, a vessel that falls outside the age limits, but which has
been re-engined and re-steeled, may not attract any surcharge at all. In comparison, a ship of
a similar age which has not been similarly refurbished, is likely to attract an increased
premium.
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Age limits on
As just implied, there are recommended age limits on vessels that an underwriter will accept
vessels an at standard cargo rates. These are:
underwriter will
accept
Ten years of age for bulk or combination carriers Thirty years of age for vessels constructed as
and 15 years of age for other vessels, unless they containerships, vehicle carriers or double-skin
have been used for carrying general cargo on a open hatch gantry crane vessels (OHGCs) and
published and regular pattern of trading between which have been used continuously as such on an
a range of specified ports and are not more than established and regular pattern of trading
25 years old between a range of specified ports
Where an insured proposes sending their cargo on a vessel that falls outside these
parameters, they must give prompt notice to insurers. This is so that the insurer has time to
agree suitable terms. Underwriters are not bound to accept any such vessel but, if they do,
they are free to determine the terms and conditions under which they will accept the risk.
Be aware
The ISM Code affects everyone involved with commercial shipping. It is the benchmark
against which legal liability will be measured – in both civil and criminal actions.
Whether you are a crew member of a ship, work in a shipowner’s office ashore or are
involved in marine insurance, you should always be aware of this code and any changes
that are made to it from time to time.
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Example 5.5
Manufacturing Ltd of Derby dispatch a load of machine parts by Lorries Ltd to Hull.
Unfortunately, the vehicle carrying the goods is involved in an accident and the machine
parts are scattered all over a main road. The local authority is keen to re-open the road
and so sends in its contractor to clear up the scattered parts. It then passes on the cost of
doing this to Manufacturing Ltd. Manufacturing Ltd then make a claim against their
insurers and receive an indemnity from them under the Removal of Debris Clause.
A common use of the Institute Cargo Clauses (C) is in the insurance of some goods
transported in bulk, for example scrap metal carried in bulk vessels or containers. This is
because the main threat to this type of commodity is that posed by the perils of the sea: fire
or explosion, sinking, grounding, capsizing and collision. These clauses are also suitable for
the various goods transported in bulk, powder or liquid form. Remember also that there are
clauses designed specifically for certain goods in bulk such as Institute Bulk Oil Clauses, the
Institute Coal Clauses, the FOSFA Trades Clauses (for oils, seeds and fats) and the Institute
Timber Trade Clauses.
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end every contract contains a seven day cancellation clause in respect of war and strikes
risks. The exception to this is strikes, riots and civil commotion risks on shipment to or from
the USA where the cancellation clause is 48 hours. This reflects the vastly increased risk if
the USA is involved.
Question 5.3
What options are open to an insurer if a cargo it has insured is about to pass through the
waters of a country that has just declared war on its neighbour?
Conclusion
This concludes our consideration of the Institute Cargo Clauses. We have seen how these
clauses can form the basis of the cover agreed by the insurer, and how they are open to
amendment to reflect the business and intentions of both insurer and insured. In the next
chapter, we will look at a number of other cover issues, along with an examination of how
marine cargo insurance is actually underwritten.
Appendices
We have provided copies of the Institute Cargo Clauses as appendices to this chapter. You
will find it useful to take the time now to examine them. These clauses are purely illustrative.
Different policy conditions may be agreed. The specimen clauses are available to any
interested person upon request.
In particular:
a. in relation to any clause which excludes losses from the cover, insurers may agree a
separate insurance policy covering such losses or may extend the clause to cover such
events;
b. in relation to clauses making cover of certain risks subject to specific conditions each
insurer may alter the said conditions.
The Chartered Insurance Institute wishes to thank the Lloyd’s Market Association for
permission to reproduce these clauses.
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Key points
The main ideas covered by this chapter can be summarised as follows:
• The Institute Cargo Clauses (A) cover against all risks of loss or damage except as excluded.
• All the Institute Cargo Clauses cover general average and salvage charges where they arise in
connection with a covered risk.
• A general average occurs when a sacrifice is made to save the whole maritime adventure.
• All provide cover where a Both to Blame Collision clause is included in the contract of carriage.
• A Both to Blame Collision clause is included in a contract of carriage for goods entering US waters
due to the way the US courts apportion liability when two ships collide.
• All clauses contain the same duration clause specifying when the cover starts and in what
circumstances it terminates.
• In all cases the insured has a duty to avert or minimise a loss and ensure that the rights against
carriers and bailees are preserved.
• The ICC(B) clauses cover loss or damage caused by named perils.
• Exclusions are as under ICC(A) with the addition of damage caused by deliberate wrongful act.
• The ICC(C) clauses insure a lesser number of specified perils.
• There are Institute Cargo Clauses for carriage by air and to cover risks associated with war and
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strikes.
• There are clauses adapted from the ICC (A), (B) and (C) clauses to suit different types of goods.
• There are specific clauses for the carriage of containers.
• The Classification Clause is intended to ensure that goods are transported in ships approved by the
classification societies.
• There are clauses dealing with the removal of debris, terrorism and cyber attacks.
• All clauses are illustrative and can be amended and/or expanded by an insurer to meet the
requirements of its customer.
Chapter 5 Marine cargo insurance: Institute Cargo Clauses 5/21
Question answers
5.1 The waters of the USA. This is because of the way in which the US courts apportion
responsibility when ships collide in their waters.
5.2 The Institute Cargo Clauses (C) do not cover either the rusting or the theft, nor do
the Institute Cargo Clauses (B). Only the Institute Cargo Clauses (A) provide cover
for rusting and theft.
5.3 The insurer has the options of either:
• increasing its premium rates; or
• withdrawing cover.
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Self-test questions
1. What is general average?
2. Name the clause which describes the period during which insurance applies in the
standard marine clauses.
3. What is the duty of the assured in minimising losses?
4. Where does war cover apply?
5. For what does the acronym FOSFA stand?
6. What cover is given by the Institute Timber Trade Federation Clauses for timber
stored in containers on the deck of a ship?
7. Name six classification societies which are members of the International
Association of Classification Societies.
1/1/09
RISKS COVERED
Risks
1. This insurance covers all risks of loss of or damage to the subject-matter insured except as excluded by the
provisions of Clauses 4, 5, 6 and 7 below.
General Average
2. This insurance covers general average and salvage charges, adjusted or determined according to the contract
of carriage and/or the governing law and practice, incurred to avoid or in connection with the avoidance of
loss from any cause except those excluded in Clauses 4, 5, 6 and 7 below.
EXCLUSIONS
4. In no case shall this insurance cover
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4.1 loss damage or expense attributable to wilful misconduct of the Assured
4.2 ordinary leakage, ordinary loss in weight or volume, or ordinary wear and tear of the subject-matter
insured
4.3 loss damage or expense caused by insufficiency or unsuitability of packing or preparation of the subject-
matter insured to withstand the ordinary incidents of the insured transit where such packing or
preparation is carried out by the Assured or their employees or prior to the attachment of this insurance
(for the purpose of these Clauses "packing" shall be deemed to include stowage in a container and
"employees" shall not include independent contractors)
4.4 loss damage or expense caused by inherent vice or nature of the subject-matter insured
4.5 loss damage or expense caused by delay, even though the delay be caused by a risk insured against
(except expenses payable under Clause 2 above)
4.6 loss damage or expense caused by insolvency or financial default of the owners managers charterers or
operators of the vessel where, at the time of loading of the subject-matter insured on board the vessel,
the Assured are aware, or in the ordinary course of business should be aware, that such insolvency or
financial default could prevent the normal prosecution of the voyage
This exclusion shall not apply where the contract of insurance has been assigned to the party claiming
hereunder who has bought or agreed to buy the subject-matter insured in good faith under a binding
contract
4.7 loss damage or expense directly or indirectly caused by or arising from the use of any weapon or device
employing atomic or nuclear fission and/or fusion or other like reaction or radioactive force or matter.
5. 5.1 In no case shall this insurance cover loss damage or expense arising from
5.1.1 unseaworthiness of vessel or craft or unfitness of vessel or craft for the safe carriage of the
subject-matter insured, where the Assured are privy to such unseaworthiness or unfitness, at
the time the subject-matter insured is loaded therein
5.1.2 unfitness of container or conveyance for the safe carriage of the subject-matter insured, where
loading therein or thereon is carried out
prior to attachment of this insurance or
by the Assured or their employees and they are privy to such unfitness at the time of
loading.
5.2 Exclusion 5.1.1 above shall not apply where the contract of insurance has been assigned to the party
claiming hereunder who has bought or agreed to buy the subject-matter insured in good faith under a
binding contract.
5.3 The Insurers waive any breach of the implied warranties of seaworthiness of the ship and fitness of the
ship to carry the subject-matter insured to destination.
7.4 caused by any person acting from a political, ideological or religious motive.
DURATION
Transit Clause
8. 8.1 Subject to Clause 11 below, this insurance attaches from the time the subject-matter insured is first
moved in the warehouse or at the place of storage (at the place named in the contract of insurance) for
the purpose of the immediate loading into or onto the carrying vehicle or other conveyance for the
commencement of transit,
8.1.1 on completion of unloading from the carrying vehicle or other conveyance in or at the final
warehouse or place of storage at the destination named in the contract of insurance,
8.1.2 on completion of unloading from the carrying vehicle or other conveyance in or at any other
warehouse or place of storage, whether prior to or at the destination named in the contract of
insurance, which the Assured or their employees elect to use either for storage other than in the
ordinary course of transit or for allocation or distribution, or
8.1.3 when the Assured or their employees elect to use any carrying vehicle or other conveyance or
any container for storage other than in the ordinary course of transit or
8.1.4 on the expiry of 60 days after completion of discharge overside of the subject-matter insured
Chapter 5
9.1 until the subject-matter insured is sold and delivered at such port or place, or, unless otherwise
specially agreed, until the expiry of 60 days after arrival of the subject-matter insured at such port or
place, whichever shall first occur,
or
9.2 if the subject-matter insured is forwarded within the said period of 60 days (or any agreed extension
thereof) to the destination named in the contract of insurance or to any other destination, until
terminated in accordance with the provisions of Clause 8 above.
Change of Voyage
10. 10.1 Where, after attachment of this insurance, the destination is changed by the Assured, this must be
notified promptly to Insurers for rates and terms to be agreed. Should a loss occur prior to such
agreement being obtained cover may be provided but only if cover would have been available at a
reasonable commercial market rate on reasonable market terms.
10.2 Where the subject-matter insured commences the transit contemplated by this insurance (in accordance
with Clause 8.1), but, without the knowledge of the Assured or their employees the ship sails for
another destination, this insurance will nevertheless be deemed to have attached at commencement of
such transit.
CLAIMS
Insurable Interest
11. 11.1 In order to recover under this insurance the Assured must have an insurable interest in the subject-
matter insured at the time of the loss.
11.2 Subject to Clause 11.1 above, the Assured shall be entitled to recover for insured loss occurring
during the period covered by this insurance, notwithstanding that the loss occurred before the
contract of insurance was concluded, unless the Assured were aware of the loss and the Insurers were
not.
Forwarding Charges
12. Where, as a result of the operation of a risk covered by this insurance, the insured transit is terminated at a
port or place other than that to which the subject-matter insured is covered under this insurance, the
Chapter 5 Marine cargo insurance: Institute Cargo Clauses 5/25
Insurers will reimburse the Assured for any extra charges properly and reasonably incurred in unloading
storing and forwarding the subject-matter insured to the destination to which it is insured.
This Clause 12, which does not apply to general average or salvage charges, shall be subject to the exclusions
contained in Clauses 4, 5, 6 and 7 above, and shall not include charges arising from the fault negligence
insolvency or financial default of the Assured or their employees.
Increased Value
14. 14.1 If any Increased Value insurance is effected by the Assured on the subject-matter insured under this
insurance the agreed value of the subject-matter insured shall be deemed to be increased to the
total amount insured under this insurance and all Increased Value insurances covering the loss, and
liability under this insurance shall be in such proportion as the sum insured under this insurance bears
to such total amount insured.
In the event of claim the Assured shall provide the Insurers with evidence of the amounts insured
under all other insurances.
Chapter 5
14.2 Where this insurance is on Increased Value the following clause shall apply:
The agreed value of the subject-matter insured shall be deemed to be equal to the total amount
insured under the primary insurance and all Increased Value insurances covering the loss and effected
on the subject-matter insured by the Assured, and liability under this insurance shall be in such
proportion as the sum insured under this insurance bears to such total amount insured.
In the event of claim the Assured shall provide the Insurers with evidence of the amounts insured
under all other insurances.
BENEFIT OF INSURANCE
15.This insurance
15.1 covers the Assured which includes the person claiming indemnity either as the person by or on whose
behalf the contract of insurance was effected or as an assignee,
15.2 shall not extend to or otherwise benefit the carrier or other bailee.
MINIMISING LOSSES
Duty of Assured
16.It is the duty of the Assured and their employees and agents in respect of loss recoverable hereunder
16.1 to take such measures as may be reasonable for the purpose of averting or minimising such loss,
and
16.2 to ensure that all rights against carriers, bailees or other third parties are properly preserved and
exercised
and the Insurers will, in addition to any loss recoverable hereunder, reimburse the Assured for any charges
properly and reasonably incurred in pursuance of these duties.
Waiver
17.Measures taken by the Assured or the Insurers with the object of saving, protecting or recovering the subject-
matter insured shall not be considered as a waiver or acceptance of abandonment or otherwise prejudice the
rights of either party.
AVOIDANCE OF DELAY
18.It is a condition of this insurance that the Assured shall act with reasonable despatch in all circumstances
within their control.
NOTE:- Where a continuation of cover is requested under Clause 9, or a change of destination is notified under
Clause 10, there is an obligation to give prompt notice to the Insurers and the right to such cover is dependent
upon compliance with this obligation.
© Copyright: 11/08 - Lloyd's Market Association (LMA) and International Underwriting Association of London
(IUA).
CL382
01/01/2009
5/26 M90/March 2019 Cargo and goods in transit insurances
1/1/09
INSTITUTE CARGO CLAUSES (B)
RISKS COVERED
Risks
1. This insurance covers, except as excluded by the provisions of Clauses 4, 5, 6 and 7 below,
1.1 loss of or damage to the subject-matter insured reasonably attributable to
1.1.1 fire or explosion
1.1.2 vessel or craft being stranded grounded sunk or capsized
1.1.3 overturning or derailment of land conveyance
1.1.4 collision or contact of vessel craft or conveyance with any external object other than water
1.1.5 discharge of cargo at a port of distress
1.1.6 earthquake volcanic eruption or lightning,
1.2 loss of or damage to the subject-matter insured caused by
1.2.1 general average sacrifice
1.2.2 jettison or washing overboard
1.2.3 entry of sea lake or river water into vessel craft hold conveyance container or place of storage,
1.3 total loss of any package lost overboard or dropped whilst loading on to, or unloading from, vessel or
craft.
General Average
2. This insurance covers general average and salvage charges, adjusted or determined according to the contract
Chapter 5
of carriage and/or the governing law and practice, incurred to avoid or in connection with the avoidance of
loss from any cause except those excluded in Clauses 4, 5, 6 and 7 below.
"Both to Blame Collision Clause"
3. This insurance indemnifies the Assured, in respect of any risk insured herein, against liability incurred under
any Both to Blame Collision Clause in the contract of carriage. In the event of any claim by carriers under
the said Clause, the Assured agree to notify the Insurers who shall have the right, at their own cost and
expense, to defend the Assured against such claim.
EXCLUSIONS
4. In no case shall this insurance cover
4.1 loss damage or expense attributable to wilful misconduct of the Assured
4.2 ordinary leakage, ordinary loss in weight or volume, or ordinary wear and tear of the subject-matter
insured
4.3 loss damage or expense caused by insufficiency or unsuitability of packing or preparation of the subject-
matter insured to withstand the ordinary incidents of the insured transit where such packing or
preparation is carried out by the Assured or their employees or prior to the attachment of this insurance
(for the purpose of these Clauses "packing" shall be deemed to include stowage in a container and
"employees" shall not include independent contractors)
4.4 loss damage or expense caused by inherent vice or nature of the subject-matter insured
4.5 loss damage or expense caused by delay, even though the delay be caused by a risk insured against
(except expenses payable under Clause 2 above)
4.6 loss damage or expense caused by insolvency or financial default of the owners managers charterers or
operators of the vessel where, at the time of loading of the subject-matter insured on board the vessel,
the Assured are aware, or in the ordinary course of business should be aware, that such insolvency or
financial default could prevent the normal prosecution of the voyage
This exclusion shall not apply where the contract of insurance has been assigned to the party claiming
hereunder who has bought or agreed to buy the subject-matter insured in good faith under a binding
contract
4.7 deliberate damage to or deliberate destruction of the subject-matter insured or any part thereof by the
wrongful act of any person or persons
4.8 loss damage or expense directly or indirectly caused by or arising from the use of any weapon or device
employing atomic or nuclear fission and/or fusion or other like reaction or radioactive force or matter.
5. 5.1 In no case shall this insurance cover loss damage or expense arising from
5.1.1 unseaworthiness of vessel or craft or unfitness of vessel or craft for the safe carriage of the
subject-matter insured, where the Assured are privy to such unseaworthiness or unfitness, at
the time the subject-matter insured is loaded therein
5.1.2 unfitness of container or conveyance for the safe carriage of the subject-matter insured, where
loading therein or thereon is carried out
prior to attachment of this insurance or
by the Assured or their employees and they are privy to such unfitness at the time of
loading.
5.2 Exclusion 5.1.1 above shall not apply where the contract of insurance has been assigned to the party
claiming hereunder who has bought or agreed to buy the subject-matter insured in good faith under a
binding contract.
5.3 The Insurers waive any breach of the implied warranties of seaworthiness of the ship and fitness of the
ship to carry the subject-matter insured to destination.
6.2 capture seizure arrest restraint or detainment, and the consequences thereof or any attempt thereat
6.3 derelict mines torpedoes bombs or other derelict weapons of war.
7. In no case shall this insurance cover loss damage or expense
7.1 caused by strikers, locked-out workmen, or persons taking part in labour disturbances, riots or civil
commotions
7.2 resulting from strikes, lock-outs, labour disturbances, riots or civil commotions
7.3 caused by any act of terrorism being an act of any person acting on behalf of, or in connection with, any
organisation which carries out activities directed towards the overthrowing or influencing, by force or
violence, of any government whether or not legally constituted
7.4 caused by any person acting from a political, ideological or religious motive.
DURATION
Transit Clause
8. 8.1 Subject to Clause 11 below, this insurance attaches from the time the subject-matter insured is first
moved in the warehouse or at the place of storage (at the place named in the contract of insurance) for
the purpose of the immediate loading into or onto the carrying vehicle or other conveyance for the
commencement of transit,
continues during the ordinary course of transit
and terminates either
8.1.1 on completion of unloading from the carrying vehicle or other conveyance in or at the final
warehouse or place of storage at the destination named in the contract of insurance,
Chapter 5
8.1.2 on completion of unloading from the carrying vehicle or other conveyance in or at any other
warehouse or place of storage, whether prior to or at the destination named in the contract of
insurance, which the Assured or their employees elect to use either for storage other than in the
ordinary course of transit or for allocation or distribution, or
8.1.3 when the Assured or their employees elect to use any carrying vehicle or other conveyance or
any container for storage other than in the ordinary course of transit or
8.1.4 on the expiry of 60 days after completion of discharge overside of the subject-matter insured
from the oversea vessel at the final port of discharge,
whichever shall first occur.
8.2 If, after discharge overside from the oversea vessel at the final port of discharge, but prior to
termination of this insurance, the subject-matter insured is to be forwarded to a destination other than
that to which it is insured, this insurance, whilst remaining subject to termination as provided in Clauses
8.1.1 to 8.1.4, shall not extend beyond the time the subject-matter insured is first moved for the
purpose of the commencement of transit to such other destination.
8.3 This insurance shall remain in force (subject to termination as provided for in Clauses 8.1.1 to 8.1.4
above and to the provisions of Clause 9 below) during delay beyond the control of the Assured, any
deviation, forced discharge, reshipment or transhipment and during any variation of the adventure
arising from the exercise of a liberty granted to carriers under the contract of carriage.
Termination of Contract of Carriage
9. If owing to circumstances beyond the control of the Assured either the contract of carriage is terminated at a
port or place other than the destination named therein or the transit is otherwise terminated before
unloading of the subject-matter insured as provided for in Clause 8 above, then this insurance shall also
terminate unless prompt notice is given to the Insurers and continuation of cover is requested when this
insurance shall remain in force, subject to an additional premium if required by the Insurers, either
9.1 until the subject-matter insured is sold and delivered at such port or place, or, unless otherwise
specially agreed, until the expiry of 60 days after arrival of the subject-matter insured at such port or
place, whichever shall first occur,
or
9.2 if the subject-matter insured is forwarded within the said period of 60 days (or any agreed extension
thereof) to the destination named in the contract of insurance or to any other destination, until
terminated in accordance with the provisions of Clause 8 above.
Change of Voyage
10. 10.1 Where, after attachment of this insurance, the destination is changed by the Assured, this must be
notified promptly to Insurers for rates and terms to be agreed. Should a loss occur prior to such
agreement being obtained cover may be provided but only if cover would have been available at a
reasonable commercial market rate on reasonable market terms.
10.2 Where the subject-matter insured commences the transit contemplated by this insurance (in accordance
with Clause 8.1), but, without the knowledge of the Assured or their employees the ship sails for
another destination, this insurance will nevertheless be deemed to have attached at commencement of
such transit.
CLAIMS
Insurable Interest
11. 11.1 In order to recover under this insurance the Assured must have an insurable interest in the subject-
matter insured at the time of the loss.
11.2 Subject to Clause 11.1 above, the Assured shall be entitled to recover for insured loss occurring
during the period covered by this insurance, notwithstanding that the loss occurred before the
5/28 M90/March 2019 Cargo and goods in transit insurances
contract of insurance was concluded, unless the Assured were aware of the loss and the Insurers were
not.
Forwarding Charges
12. Where, as a result of the operation of a risk covered by this insurance, the insured transit is terminated at a
port or place other than that to which the subject-matter insured is covered under this insurance, the
Insurers will reimburse the Assured for any extra charges properly and reasonably incurred in unloading
storing and forwarding the subject-matter insured to the destination to which it is insured.
This Clause 12, which does not apply to general average or salvage charges, shall be subject to the exclusions
contained in Clauses 4, 5, 6 and 7 above, and shall not include charges arising from the fault negligence
insolvency or financial default of the Assured or their employees.
Constructive Total Loss
13.No claim for Constructive Total Loss shall be recoverable hereunder unless the subject-matter insured is
reasonably abandoned either on account of its actual total loss appearing to be unavoidable or because the
cost of recovering, reconditioning and forwarding the subject-matter insured to the destination to which it is
insured would exceed its value on arrival.
Increased Value
14. 14.1 If any Increased Value insurance is effected by the Assured on the subject-matter insured under this
insurance the agreed value of the subject-matter insured shall be deemed to be increased to the
total amount insured under this insurance and all Increased Value insurances covering the loss, and
Chapter 5
liability under this insurance shall be in such proportion as the sum insured under this insurance bears
to such total amount insured.
In the event of claim the Assured shall provide the Insurers with evidence of the amounts insured
under all other insurances.
14.2 Where this insurance is on Increased Value the following clause shall apply:
The agreed value of the subject-matter insured shall be deemed to be equal to the total amount
insured under the primary insurance and all Increased Value insurances covering the loss and effected
on the subject-matter insured by the Assured, and liability under this insurance shall be in such
proportion as the sum insured under this insurance bears to such total amount insured.
In the event of claim the Assured shall provide the Insurers with evidence of the amounts insured
under all other insurances.
BENEFIT OF INSURANCE
15. This insurance
15.1 covers the Assured which includes the person claiming indemnity either as the person by or
on whose behalf the contract of insurance was effected or as an assignee,
15.2 shall not extend to or otherwise benefit the carrier or other bailee.
MINIMISING LOSSES
Duty of Assured
16.It is the duty of the Assured and their employees and agents in respect of loss recoverable hereunder
16.1 to take such measures as may be reasonable for the purpose of averting or minimising such loss,
and
16.2 to ensure that all rights against carriers, bailees or other third parties are properly preserved and
exercised
and the Insurers will, in addition to any loss recoverable hereunder, reimburse the Assured for any charges
properly and reasonably incurred in pursuance of these duties.
Waiver
17.Measures taken by the Assured or the Insurers with the object of saving, protecting or recovering the subject-
matter insured shall not be considered as a waiver or acceptance of abandonment or otherwise prejudice the
rights of either party.
AVOIDANCE OF DELAY
18.It is a condition of this insurance that the Assured shall act with reasonable despatch in all circumstances
within their control.
LAW AND PRACTICE
19.This insurance is subject to English law and practice.
NOTE:- Where a continuation of cover is requested under Clause 9, or a change of destination is notified under
Clause 10, there is an obligation to give prompt notice to the Insurers and the right to such cover is dependent
upon compliance with this obligation.
© Copyright: 11/08 - Lloyd's Market Association (LMA) and International Underwriting Association of London
(IUA).
CL383
01/01/2009
Chapter 5 Marine cargo insurance: Institute Cargo Clauses 5/29
1/1/09
INSTITUTE CARGO CLAUSES (C)
RISKS COVERED
Risks
1. This insurance covers, except as excluded by the provisions of Clauses 4, 5, 6 and 7 below,
1.1 loss of or damage to the subject-matter insured reasonably attributable to
1.1.1 fire or explosion
1.1.2 vessel or craft being stranded grounded sunk or capsized
1.1.3 overturning or derailment of land conveyance
1.1.4 collision or contact of vessel craft or conveyance with any external object other than water
1.1.5 discharge of cargo at a port of distress,
1.2 loss of or damage to the subject-matter insured caused by
1.2.1 general average sacrifice
1.2.2 jettison.
General Average
2. This insurance covers general average and salvage charges, adjusted or determined according to the contract
of carriage and/or the governing law and practice, incurred to avoid or in connection with the avoidance of
loss from any cause except those excluded in Clauses 4, 5, 6 and 7 below.
"Both to Blame Collision Clause"
Chapter 5
3. This insurance indemnifies the Assured, in respect of any risk insured herein, against liability incurred under
any Both to Blame Collision Clause in the contract of carriage. In the event of any claim by carriers under
the said Clause, the Assured agree to notify the Insurers who shall have the right, at their own cost and
expense, to defend the Assured against such claim.
EXCLUSIONS
4. In no case shall this insurance cover
4.1 loss damage or expense attributable to wilful misconduct of the Assured
4.2 ordinary leakage, ordinary loss in weight or volume, or ordinary wear and tear of the subject-matter
insured
4.3 loss damage or expense caused by insufficiency or unsuitability of packing or preparation of the subject-
matter insured to withstand the ordinary incidents of the insured transit where such packing or
preparation is carried out by the Assured or their employees or prior to the attachment of this insurance
(for the purpose of these Clauses "packing" shall be deemed to include stowage in a container and
"employees" shall not include independent contractors)
4.4 loss damage or expense caused by inherent vice or nature of the subject-matter insured
4.5 loss damage or expense caused by delay, even though the delay be caused by a risk insured against
(except expenses payable under Clause 2 above)
4.6 loss damage or expense caused by insolvency or financial default of the owners managers charterers or
operators of the vessel where, at the time of loading of the subject-matter insured on board the vessel,
the Assured are aware, or in the ordinary course of business should be aware, that such insolvency or
financial default could prevent the normal prosecution of the voyage
This exclusion shall not apply where the contract of insurance has been assigned to the party claiming
hereunder who has bought or agreed to buy the subject-matter insured in good faith under a binding
contract
4.7 deliberate damage to or deliberate destruction of the subject-matter insured or any part thereof by the
wrongful act of any person or persons
4.8 loss damage or expense directly or indirectly caused by or arising from the use of any weapon or device
employing atomic or nuclear fission and/or fusion or other like reaction or radioactive force or matter.
5. 5.1 In no case shall this insurance cover loss damage or expense arising from
5.1.1 unseaworthiness of vessel or craft or unfitness of vessel or craft for the safe carriage of the
subject-matter insured, where the Assured are privy to such unseaworthiness or unfitness, at
the time the subject-matter insured is loaded therein
5.1.2 unfitness of container or conveyance for the safe carriage of the subject-matter insured, where
loading therein or thereon is carried out
prior to attachment of this insurance or
by the Assured or their employees and they are privy to such unfitness at the time of
loading.
5.2 Exclusion 5.1.1 above shall not apply where the contract of insurance has been assigned to the party
claiming hereunder who has bought or agreed to buy the subject-matter insured in good faith under a
binding contract.
5.3 The Insurers waive any breach of the implied warranties of seaworthiness of the ship and fitness of the
ship to carry the subject-matter insured to destination.
6. In no case shall this insurance cover loss damage or expense caused by
6.1 war civil war revolution rebellion insurrection, or civil strife arising therefrom, or any hostile act by or
against a belligerent power
6.2 capture seizure arrest restraint or detainment, and the consequences thereof or any attempt thereat
6.3 derelict mines torpedoes bombs or other derelict weapons of war.
7. In no case shall this insurance cover loss damage or expense
5/30 M90/March 2019 Cargo and goods in transit insurances
7.1 caused by strikers, locked-out workmen, or persons taking part in labour disturbances, riots or civil
commotions
7.2 resulting from strikes, lock-outs, labour disturbances, riots or civil commotions
7.3 caused by any act of terrorism being an act of any person acting on behalf of, or in connection with, any
organisation which carries out activities directed towards the overthrowing or influencing, by force or
violence, of any government whether or not legally constituted
7.4 caused by any person acting from a political, ideological or religious motive.
DURATION
Transit Clause
8. 8.1 Subject to Clause 11 below, this insurance attaches from the time the subject-matter insured is first
moved in the warehouse or at the place of storage (at the place named in the contract of insurance) for
the purpose of the immediate loading into or onto the carrying vehicle or other conveyance for the
commencement of transit,
continues during the ordinary course of transit
and terminates either
8.1.1 on completion of unloading from the carrying vehicle or other conveyance in or at the final
warehouse or place of storage at the destination named in the contract of insurance,
8.1.2 on completion of unloading from the carrying vehicle or other conveyance in or at any other
warehouse or place of storage, whether prior to or at the destination named in the contract of
insurance, which the Assured or their employees elect to use either for storage other than in the
Chapter 5
Insurers will reimburse the Assured for any extra charges properly and reasonably incurred in unloading
storing and forwarding the subject-matter insured to the destination to which it is insured.
This Clause 12, which does not apply to general average or salvage charges, shall be subject to the exclusions
contained in Clauses 4, 5, 6 and 7 above, and shall not include charges arising from the fault negligence
insolvency or financial default of the Assured or their employees.
Constructive Total Loss
13.No claim for Constructive Total Loss shall be recoverable hereunder unless the subject-matter insured is
reasonably abandoned either on account of its actual total loss appearing to be unavoidable or because the
cost of recovering, reconditioning and forwarding the subject-matter insured to the destination to which it is
insured would exceed its value on arrival.
Increased Value
14. 14.1 If any Increased Value insurance is effected by the Assured on the subject-matter insured under this
insurance the agreed value of the subject-matter insured shall be deemed to be increased to the
total amount insured under this insurance and all Increased Value insurances covering the loss, and
liability under this insurance shall be in such proportion as the sum insured under this insurance bears
to such total amount insured.
In the event of claim the Assured shall provide the Insurers with evidence of the amounts insured
under all other insurances.
14.2 Where this insurance is on Increased Value the following clause shall apply:
Chapter 5
The agreed value of the subject-matter insured shall be deemed to be equal to the total amount
insured under the primary insurance and all Increased Value insurances covering the loss and effected
on the subject-matter insured by the Assured, and liability under this insurance shall be in such
proportion as the sum insured under this insurance bears to such total amount insured.
In the event of claim the Assured shall provide the Insurers with evidence of the amounts insured
under all other insurances.
BENEFIT OF INSURANCE
15. This insurance
15.1 covers the Assured which includes the person claiming indemnity either as the person by or on whose
behalf the contract of insurance was effected or as an assignee,
15.2 shall not extend to or otherwise benefit the carrier or other bailee.
MINIMISING LOSSES
Duty of Assured
16.It is the duty of the Assured and their employees and agents in respect of loss recoverable hereunder
16.1 to take such measures as may be reasonable for the purpose of averting or minimising such loss,
and
16.2 to ensure that all rights against carriers, bailees or other third parties are properly preserved and
exercised
and the Insurers will, in addition to any loss recoverable hereunder, reimburse the Assured for any charges
properly and reasonably incurred in pursuance of these duties.
Waiver
17.Measures taken by the Assured or the Insurers with the object of saving, protecting or recovering the subject-
matter insured shall not be considered as a waiver or acceptance of abandonment or otherwise prejudice the
rights of either party.
AVOIDANCE OF DELAY
18.It is a condition of this insurance that the Assured shall act with reasonable despatch in all circumstances
within their control.
LAW AND PRACTICE
19.This insurance is subject to English law and practice.
NOTE:- Where a continuation of cover is requested under Clause 9, or a change of destination is notified under
Clause 10, there is an obligation to give prompt notice to the Insurers and the right to such cover is dependent
upon compliance with this obligation.
© Copyright: 11/08 - Lloyd's Market Association (LMA) and International Underwriting Association of London
(IUA).
CL384
01/01/2009
5/32 M90/March 2019 Cargo and goods in transit insurances
These clauses are purely illustrative. Different policy conditions may be agreed. The specimen clauses are available to any interested
person upon request. In particular:
(a) in relation to any clause which excludes losses from the cover, insurers may agree a separate insurance policy covering such
losses or may extend the clause to cover such events;
(b) in relation to clauses making cover of certain risks subject to specific conditions each insurer may alter the said conditions.
1/1/09
RISKS COVERED
Risks
1. This insurance covers all risks of loss of or damage to the subject-matter insured except as excluded by the
provisions of Clauses 3, 4 and 5 below.
Salvage Charges
2. This insurance covers salvage charges incurred to avoid or in connection with the avoidance of loss from any
cause except those excluded in Clauses 3, 4 and 5 below.
EXCLUSIONS
3. In no case shall this insurance cover
3.1 loss damage or expense attributable to wilful misconduct of the Assured
3.2 ordinary leakage, ordinary loss in weight or volume, or ordinary wear and tear of the subject-matter
Chapter 5
insured
3.3 loss damage or expense caused by insufficiency or unsuitability of packing or preparation of the subject-
matter insured to withstand the ordinary incidents of the insured transit where such packing or
preparation is carried out by the Assured or their employees or prior to the attachment of this insurance
(for the purpose of these Clauses "packing" shall be deemed to include stowage in a container and
"employees" shall not include independent contractors)
3.4 loss damage or expense caused by inherent vice or nature of the subject-matter insured
3.5 loss damage or expense arising from unfitness of aircraft conveyance or container for the safe carriage
of the subject-matter insured, where loading therein or thereon is carried out prior to attachment of
this insurance or by the Assured or their employees and they are privy to such unfitness at the time of
loading. This exclusion shall not apply where the contract of insurance has been assigned to the party
claiming hereunder who has bought or agreed to buy the subject-matter insured in good faith under a
binding contract.
3.6 loss damage or expense caused by delay, even though the delay be caused by a risk insured against
3.7 loss damage or expense caused by insolvency or financial default of the owners managers charterers or
operators of the aircraft where, at the time of loading of the subject-matter insured on board the
aircraft, the Assured are aware, or in the ordinary course of business should be aware, that such
insolvency or financial default could prevent the normal prosecution of the transit
This exclusion shall not apply where the contract of insurance has been assigned to the party claiming
hereunder who has bought or agreed to buy the subject-matter insured in good faith under a binding
contract
3.8 loss damage or expense directly or indirectly caused by or arising from the use of any weapon or device
employing atomic or nuclear fission and/or fusion or other like reaction or radioactive force or matter.
4. In no case shall this insurance cover loss damage or expense caused by
4.1 war civil war revolution rebellion insurrection, or civil strife arising therefrom, or any hostile act by or
against a belligerent power
4.2 capture seizure arrest restraint or detainment (piracy excepted), and the consequences thereof or any
attempt thereat
4.3 derelict mines torpedoes bombs or other derelict weapons of war.
5. In no case shall this insurance cover loss damage or expense
5.1 caused by strikers, locked-out workmen, or persons taking part in labour disturbances, riots or civil
commotions
5.2 resulting from strikes, lock-outs, labour disturbances, riots or civil commotions
5.3 caused by any act of terrorism being an act of any person acting on behalf of, or in connection with, any
organisation which carries out activities directed towards the overthrowing or influencing, by force or
violence, of any government whether or not legally constituted
5.4 caused by any person acting from a political, ideological or religious motive.
DURATION
Transit Clause
6. 6.1 Subject to Clause 9 below, this insurance attaches from the time the subject-matter insured is first
moved in the warehouse, premises or at the place of storage (at the place named in the contract of
insurance) for the purpose of the immediate loading into or onto the carrying vehicle or other
conveyance for the commencement of transit,
continues during the ordinary course of transit
and terminates either
6.1.1 on completion of unloading from the carrying vehicle or other conveyance in or at the final
warehouse, premises or place of storage at the destination named in the contract of insurance,
6.1.2 on completion of unloading from the carrying vehicle or other conveyance in or at any other
warehouse, premises or place of storage, whether prior to or at the destination named in the
Chapter 5 Marine cargo insurance: Institute Cargo Clauses 5/33
contract of insurance, which the Assured or their employees elect to use either for storage other
than in the ordinary course of transit or for allocation or distribution, or
6.1.3 when the Assured or their employees elect to use any carrying vehicle or other conveyance or
any container for storage other than in the ordinary course of transit or
6.1.4 on the expiry of 30 days after completion of unloading of the subject-matter insured from the
aircraft at the final place of discharge,
whichever shall first occur.
6.2 If, after unloading from the aircraft at the final place of discharge, but prior to termination of this
insurance, the subject-matter insured is to be forwarded to a destination other than that to which it is
insured, this insurance, whilst remaining subject to termination as provided in Clauses 6.1.1 to 6.1.4,
shall not extend beyond the time the subject-matter insured is first moved for the purpose of the
commencement of transit to such other destination.
6.3 This insurance shall remain in force (subject to termination as provided for in Clauses 6.1.1 to 6.1.4
above and to the provisions of Clause 7 below) during delay beyond the control of the Assured, any
deviation, forced discharge, reshipment or transhipment and during any variation of the adventure
arising from the exercise of a liberty granted to the air carriers under the contract of carriage.
Termination of Contract of Carriage
7. If owing to circumstances beyond the control of the Assured either the contract of carriage is terminated at
a place other than the destination named therein or the transit is otherwise terminated before unloading of
the subject-matter insured as provided for in Clause 6 above, then this insurance shall also terminate unless
prompt notice is given to the Insurers and continuation of cover is requested when this insurance shall
Chapter 5
remain in force, subject to an additional premium if required by the Insurers, either
7.1 until the subject-matter insured is sold and delivered at such place, or, unless otherwise specially
agreed, until the expiry of 30 days after arrival of the subject-matter insured at such place, whichever
shall first occur,
or
7.2 if the subject-matter insured is forwarded within the said period of 30 days (or any agreed extension
thereof) to the destination named in the contract of insurance or to any other destination, until
terminated in accordance with the provisions of Clause 6 above.
Change of Transit
8. 8.1 Where, after attachment of this insurance, the destination is changed by the Assured, this must be
notified promptly to Insurers for rates and terms to be agreed. Should a loss occur prior to such
agreement being obtained cover may be provided but only if cover would have been available at a
reasonable commercial market rate on reasonable market terms.
8.2 Where the subject-matter insured commences the transit contemplated by this insurance (in accordance
with Clause 6.1), but, without the knowledge of the Assured or their employees the aircraft leaves for
another destination, this insurance will nevertheless be deemed to have attached at commencement of
such transit.
CLAIMS
Insurable Interest
9. 9.1 In order to recover under this insurance the Assured must have an insurable interest in the subject-
matter insured at the time of the loss.
9.2 Subject to Clause 9.1 above, the Assured shall be entitled to recover for insured loss occurring during
the period covered by this insurance, notwithstanding that the loss occurred before the contract of
insurance was concluded, unless the Assured were aware of the loss and the Insurers were not.
Forwarding Charges
10. Where, as a result of the operation of a risk covered by this insurance, the insured transit is terminated at a
place other than that to which the subject-matter insured is covered under this insurance, the Insurers will
reimburse the Assured for any extra charges properly and reasonably incurred in unloading storing and
forwarding the subject-matter insured to the destination to which it is insured.
This Clause 10, which does not apply to salvage charges, shall be subject to the exclusions contained in
Clauses 3, 4 and 5 above, and shall not include charges arising from the fault negligence insolvency or
financial default of the Assured or their employees.
Constructive Total Loss
11. No claim for Constructive Total Loss shall be recoverable hereunder unless the subject-matter insured is
reasonably abandoned either on account of its actual total loss appearing to be unavoidable or because the
cost of recovering, reconditioning and forwarding the subject-matter insured to the destination to which it is
insured would exceed its value on arrival.
Increased Value
12. 12.1 If any Increased Value insurance is effected by the Assured on the subject-matter insured under this
insurance the agreed value of the subject-matter insured shall be deemed to be increased to the
total amount insured under this insurance and all Increased Value insurances covering the loss, and
liability under this insurance shall be in such proportion as the sum insured under this insurance bears
to such total amount insured.
In the event of claim the Assured shall provide the Insurers with evidence of the amounts insured
under all other insurances.
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12.2 Where this insurance is on Increased Value the following clause shall apply:
The agreed value of the subject-matter insured shall be deemed to be equal to the total amount
insured under the primary insurance and all Increased Value insurances covering the loss and effected
on the subject-matter insured by the Assured, and liability under this insurance shall be in such
proportion as the sum insured under this insurance bears to such total amount insured.
In the event of claim the Assured shall provide the Insurers with evidence of the amounts insured
under all other insurances.
BENEFIT OF INSURANCE
13. This insurance
13.1 covers the Assured which includes the person claiming indemnity either as the person by or on whose
behalf the contract of insurance was effected or as an assignee,
13.2 shall not extend to or otherwise benefit the carrier or other bailee.
MINIMISING LOSSES
Duty of Assured
14. It is the duty of the Assured and their employees and agents in respect of loss recoverable hereunder
14.1 to take such measures as may be reasonable for the purpose of averting or minimising such loss,
and
14.2 to ensure that all rights against carriers, bailees or other third parties are properly preserved and
exercised
and the Insurers will, in addition to any loss recoverable hereunder, reimburse the Assured for any charges
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© Copyright: 12/08 - Lloyd's Market Association (LMA) and International Underwriting Association of London
(IUA).
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1/1/09
INSTITUTE WAR CLAUSES (CARGO)
RISKS COVERED
Risks
1. This insurance covers, except as excluded by the provisions of Clauses 3 and 4 below, loss of or damage to
the subject-matter insured caused by
1.1 war civil war revolution rebellion insurrection, or civil strife arising therefrom, or any hostile act by or
against a belligerent power
1.2 capture seizure arrest restraint or detainment, arising from risks covered under 1.1 above, and the
consequences thereof or any attempt thereat
1.3 derelict mines torpedoes bombs or other derelict weapons of war.
General Average
2. This insurance covers general average and salvage charges, adjusted or determined according to the
contract of carriage and/or the governing law and practice, incurred to avoid or in connection with the
avoidance of loss from a risk covered under these Clauses.
EXCLUSIONS
Chapter 5
3. In no case shall this insurance cover
3.1 loss damage or expense attributable to wilful misconduct of the Assured
3.2 ordinary leakage, ordinary loss in weight or volume, or ordinary wear and tear of the subject-matter
insured
3.3 loss damage or expense caused by insufficiency or unsuitability of packing or preparation of the
subject-matter insured to withstand the ordinary incidents of the insured transit where such packing or
preparation is carried out by the Assured or their employees or prior to the attachment of this
insurance (for the purpose of these Clauses "packing" shall be deemed to include stowage in a container
and "employees" shall not include independent contractors)
3.4 loss damage or expense caused by inherent vice or nature of the subject-matter insured
3.5 loss damage or expense caused by delay, even though the delay be caused by a risk insured against
(except expenses payable under Clause 2 above)
3.6 loss damage or expense caused by insolvency or financial default of the owners managers charterers or
operators of the vessel where, at the time of loading of the subject-matter insured on board the
vessel, the Assured are aware, or in the ordinary course of business should be aware, that such
insolvency or financial default could prevent the normal prosecution of the voyage
This exclusion shall not apply where the contract of insurance has been assigned to the party claiming
hereunder who has bought or agreed to buy the subject-matter insured in good faith under a binding
contract
3.7 any claim based upon loss of or frustration of the voyage or adventure
3.8 loss damage or expense directly or indirectly caused by or arising from any hostile use of any weapon or
device employing atomic or nuclear fission and/or fusion or other like reaction or radioactive force or
matter.
4. 4.1 In no case shall this insurance cover loss damage or expense arising from
4.1.1 unseaworthiness of vessel or craft or unfitness of vessel or craft for the safe carriage of the
subject-matter insured, where the Assured are privy to such unseaworthiness or unfitness, at
the time the subject-matter insured is loaded therein
4.1.2 unfitness of container or conveyance for the safe carriage of the subject-matter insured,
where loading therein or thereon is carried out
prior to attachment of this insurance or
by the Assured or their employees and they are privy to such unfitness at the time of
loading.
4.2 Exclusion 4.1.1 above shall not apply where the contract of insurance has been assigned to the party
claiming hereunder who has bought or agreed to buy the subject-matter insured in good faith under a
binding contract.
4.3 The Insurers waive any breach of the implied warranties of seaworthiness of the ship and fitness of the
ship to carry the subject-matter insured to destination.
DURATION
Transit Clause
5. 5.1 This insurance
5.1.1 attaches only as the subject-matter insured and as to any part as that part is loaded on an
oversea vessel
and
5.1.2 terminates, subject to 5.2 and 5.3 below, either as the subject-matter insured and as to any
part as that part is discharged from an oversea vessel at the final port or place of discharge,
or
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on expiry of 15 days counting from midnight of the day of arrival of the vessel at the final port
or place of discharge,
whichever shall first occur;
nevertheless,
subject to prompt notice to the Insurers and to an additional premium, such insurance
5.1.3 reattaches when, without having discharged the subject-matter insured at the final port or
place of discharge, the vessel sails therefrom,
and
5.1.4 terminates, subject to 5.2 and 5.3 below, either as the subject-matter insured and as to any
part as that part is thereafter discharged from the vessel at the final (or substituted) port or
place of discharge,
or
on expiry of 15 days counting from midnight of the day of re-arrival of the vessel at the final
port or place of discharge or arrival of the vessel at a substituted port or place of discharge,
whichever shall first occur.
5.2 If during the insured voyage the oversea vessel arrives at an intermediate port or place to discharge the
subject-matter insured for on-carriage by oversea vessel or by aircraft, or the subject-matter insured is
discharged from the vessel at a port or place of refuge, then, subject to 5.3 below and to an additional
premium if required, this insurance continues until the expiry of 15 days counting from midnight of the
day of arrival of the vessel at such port or place, but thereafter reattaches as the subject-matter
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insured and as to any part as that part is loaded on an on-carrying oversea vessel or aircraft. During
the period of 15 days the insurance remains in force after discharge only whilst the subject-matter
insured and as to any part as that part is at such port or place. If the subject-matter insured is on-
carried within the said period of 15 days or if the insurance reattaches as provided in this Clause 5.2
5.2.1 where the on-carriage is by oversea vessel this insurance continues subject to the terms of
these Clauses,
or
5.2.2 where the on-carriage is by aircraft, the current Institute War Clauses (Air Cargo) (excluding
sendings by Post) shall be deemed to form part of the contract of insurance and shall apply to
the on-carriage by air.
5.3 If the voyage in the contract of carriage is terminated at a port or place other than the destination
agreed therein, such port or place shall be deemed the final port of discharge and this insurance
terminates in accordance with 5.1.2. If the subject-matter insured is subsequently reshipped to the
original or any other destination, then provided notice is given to the Insurers before the
commencement of such further transit and subject to an additional premium, this insurance
reattaches
5.3.1 in the case of the subject-matter insured having been discharged, as the subject-matter insured
and as to any part as that part is loaded on the on-carrying vessel for the voyage;
5.3.2 in the case of the subject-matter not having been discharged, when the vessel sails from such
deemed final port of discharge;
thereafter this insurance terminates in accordance with 5.1.4.
5.4 The insurance against the risks of mines and derelict torpedoes, floating or submerged, is extended
whilst the subject-matter insured or any part thereof is on craft whilst in transit to or from the oversea
vessel, but in no case beyond the expiry of 60 days after discharge from the oversea vessel unless
otherwise specially agreed by the Insurers.
5.5 Subject to prompt notice to Insurers, and to an additional premium if required, this insurance shall
remain in force within the provisions of these Clauses during any deviation, or any variation of the
adventure arising from the exercise of a liberty granted to carriers under the contract of carriage.
(For the purpose of Clause 5
"arrival" shall be deemed to mean that the vessel is anchored, moored or otherwise secured at a berth or
place within the Harbour Authority area. If such a berth or place is not available, arrival is deemed to have
occurred when the vessel first anchors, moors or otherwise secures either at or off the intended port or
place of discharge
"oversea vessel" shall be deemed to mean a vessel carrying the subject-matter from one port or place to
another where such voyage involves a sea passage by that vessel)
Change of Voyage
6. 6.1 Where, after attachment of this insurance, the destination is changed by the Assured, this must be
notified promptly to Insurers for rates and terms to be agreed. Should a loss occur prior to such
agreement being obtained cover may be provided but only if cover would have been available at a
reasonable commercial market rate on reasonable market terms.
6.2 Where the subject-matter insured commences the transit contemplated by this insurance (in
accordance with Clause 5.1), but, without the knowledge of the Assured or their employees the ship
sails for another destination, this insurance will nevertheless be deemed to have attached at
commencement of such transit.
7. Anything contained in this contract which is inconsistent with Clauses 3.7, 3.8 or 5 shall, to the extent
of such inconsistency, be null and void.
Chapter 5 Marine cargo insurance: Institute Cargo Clauses 5/37
CLAIMS
Insurable Interest
8. 8.1 In order to recover under this insurance the Assured must have an insurable interest in the subject-
matter insured at the time of the loss.
8.2 Subject to Clause 8.1 above, the Assured shall be entitled to recover for insured loss occurring during
the period covered by this insurance, notwithstanding that the loss occurred before the contract of
insurance was concluded, unless the Assured were aware of the loss and the Insurers were not.
Increased Value
9. 9.1 If any Increased Value insurance is effected by the Assured on the subject-matter insured under this
insurance the agreed value of the subject-matter insured shall be deemed to be increased to the
total amount insured under this insurance and all Increased Value insurances covering the loss, and
liability under this insurance shall be in such proportion as the sum insured under this insurance
bears to such total amount insured.
In the event of claim the Assured shall provide the Insurers with evidence of the amounts insured
under all other insurances.
9.2 Where this insurance is on Increased Value the following clause shall apply:
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The agreed value of the subject-matter insured shall be deemed to be equal to the total amount
insured under the primary insurance and all Increased Value insurances covering the loss and
effected on the subject-matter insured by the Assured, and liability under this insurance shall be in
such proportion as the sum insured under this insurance bears to such total amount insured.
In the event of claim the Assured shall provide the Insurers with evidence of the amounts insured
under all other insurances.
BENEFIT OF INSURANCE
10. This insurance
10.1 covers the Assured which includes the person claiming indemnity either as the person by or on whose
behalf the contract of insurance was effected or as an assignee,
10.2 shall not extend to or otherwise benefit the carrier or other bailee.
MINIMISING LOSSES
Duty of Assured
11. It is the duty of the Assured and their employees and agents in respect of loss recoverable hereunder
11.1 to take such measures as may be reasonable for the purpose of averting or minimising such loss,
and
11.2 to ensure that all rights against carriers, bailees or other third parties are properly preserved and
exercised
and the Insurers will, in addition to any loss recoverable hereunder, reimburse the Assured for any charges
properly and reasonably incurred in pursuance of these duties.
Waiver
12.Measures taken by the Assured or the Insurers with the object of saving, protecting or recovering the
subject-matter insured shall not be considered as a waiver or acceptance of abandonment or otherwise
prejudice the rights of either party.
AVOIDANCE OF DELAY
13.It is a condition of this insurance that the Assured shall act with reasonable despatch in all circumstances
within their control.
NOTE:- Where a reattachment of cover is requested under Clause 5, or a change of destination is notified
under Clause 6, there is an obligation to give prompt notice to the Insurers and the right to such cover is
dependent upon compliance with this obligation.
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(IUA).
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INSTITUTE WAR CLAUSES (AIR CARGO)
(excluding sendings by Post)
RISKS COVERED
Risks
1. This insurance covers, except as excluded by the provisions of Clause 3 below, loss of or damage to the
subject-matter insured caused by
1.1 war civil war revolution rebellion insurrection, or civil strife arising therefrom, or any hostile act by or
against a belligerent power
1.2 capture seizure arrest restraint or detainment, arising from risks covered under 1.1 above, and the
consequences thereof or any attempt thereat
1.3 derelict mines torpedoes bombs or other derelict weapons of war.
Salvage Charges
2. This insurance covers salvage charges, incurred to avoid or in connection with the avoidance of loss from any
cause except those excluded in Clause 3 below.
EXCLUSIONS
3. In no case shall this insurance cover
Chapter 5
DURATION
Transit Clause
4. 4.1 This insurance
4.1.1 attaches only as the subject-matter insured and as to any part as that part is loaded on the aircraft
for the commencement of the air transit insured
and
4.1.2 terminates, subject to 4.2 and 4.3 below, either as the subject-matter insured and as to any part as
that part is discharged from the aircraft at the final place of discharge
or
on expiry of 15 days counting from midnight of the day of arrival of the aircraft at the final place of
discharge,
whichever shall first occur;
nevertheless,
subject to prompt notice to the Insurers and to an additional premium, such insurance
4.1.3 reattaches when, without having discharged the subject-matter insured at the final place of
discharge, the aircraft departs therefrom,
and
Chapter 5 Marine cargo insurance: Institute Cargo Clauses 5/39
4.1.4 terminates, subject to 4.2 and 4.3 below, either as the subject-matter insured and as to any part as
that part is thereafter discharged from the aircraft at the final (or substituted) place of
discharge,
or
on expiry of 15 days counting from midnight of the day of re-arrival of the aircraft at the final place
of discharge or arrival of the aircraft at a substituted place of discharge,
whichever shall first occur.
4.2 If during the insured transit the aircraft arrives at an intermediate place to discharge the subject-
matter insured for on-carriage by aircraft or oversea vessel, then, subject to 4.3 below and to an
additional premium if required, this insurance continues until the expiry of 15 days counting from
midnight of the day of arrival of the aircraft at such place, but thereafter reattaches as the
subject-matter insured and as to any part as that part is loaded on an on-carrying aircraft or
oversea vessel. During the period of 15 days the insurance remains in force after discharge only
whilst the subject-matter insured and as to any part as that part is at such intermediate place. If
the subject-matter insured is on-carried within the said period of 15 days or if the insurance
reattaches as provided in this Clause 4.2
4.2.1 where the on-carriage is by aircraft this insurance continues subject to the terms of these
Clauses,
or
4.2.2 where the on-carriage is by oversea vessel, the current Institute War Clauses (Cargo) shall
Chapter 5
be deemed to form part of the contract of insurance and shall apply to the on-carriage by
sea.
4.3 If the air transit in the contract of carriage is terminated at a place other than the destination
agreed therein, that place shall be deemed to be the final place of discharge and this insurance
terminates in accordance with 4.1.2. If the subject-matter insured is subsequently consigned to
the original or any other destination, then, provided notice is given to the Insurers before the
commencement of such further transit and subject to an additional premium, this insurance
reattaches
4.3.1 in the case of the subject-matter insured having been discharged, as the subject-matter
insured and as to any part as that part is loaded on the on-carrying aircraft for the transit;
4.3.2 in the case of the subject-matter insured not having been discharged, when the aircraft
departs from such deemed final place of discharge;
thereafter this insurance terminates in accordance with 4.1.4.
4.4 Subject to prompt notice to Insurers, and to an additional premium if required, this insurance shall
remain in force within the provisions of these Clauses during any deviation, or any variation of the
adventure arising from the exercise of a liberty granted to the air carriers under the contract of
carriage.
(For the purpose of Clause 4
"oversea vessel" shall be deemed to mean a vessel carrying the subject-matter from one port or place to
another where such voyage involves a sea passage by that vessel)
Change of Transit
5. 5.1 Where, after attachment of this insurance, the destination is changed by the Assured, this must be
notified promptly to Insurers for rates and terms to be agreed. Should a loss occur prior to such
agreement being obtained cover may be provided but only if cover would have been available at a
reasonable commercial market rate on reasonable market terms.
5.2 Where the subject-matter insured commences the transit contemplated by this insurance (in
accordance with Clause 4.1), but, without the knowledge of the Assured or their employees the aircraft
leaves for another destination, this insurance will nevertheless be deemed to have attached at
commencement of such transit.
6. Anything contained in this contract which is inconsistent with Clauses 3.8, 3.9 or 4 shall, to the extent
of such inconsistency, be null and void.
CLAIMS
Insurable Interest
7. 7.1 In order to recover under this insurance the Assured must have an insurable interest in the subject-
matter insured at the time of the loss.
7.2 Subject to Clause 7.1 above, the Assured shall be entitled to recover for insured loss occurring during
the period covered by this insurance, notwithstanding that the loss occurred before the contract of
insurance was concluded, unless the Assured were aware of the loss and the Insurers were not.
Increased Value
8. 8.1 If any Increased Value insurance is effected by the Assured on the subject-matter insured under this
insurance the agreed value of the subject-matter insured shall be deemed to be increased to the
total amount insured under this insurance and all Increased Value insurances covering the loss, and
5/40 M90/March 2019 Cargo and goods in transit insurances
liability under this insurance shall be in such proportion as the sum insured under this insurance
bears to such total amount insured.
In the event of claim the Assured shall provide the Insurers with evidence of the amounts insured
under all other insurances.
8.2 Where this insurance is on Increased Value the following clause shall apply:
The agreed value of the subject-matter insured shall be deemed to be equal to the total amount
insured under the primary insurance and all Increased Value insurances covering the loss and
effected on the subject-matter insured by the Assured, and liability under this insurance shall be in
such proportion as the sum insured under this insurance bears to such total amount insured.
In the event of claim the Assured shall provide the Insurers with evidence of the amounts insured
under all other insurances.
BENEFIT OF INSURANCE
9. This insurance
9.1 covers the Assured which includes the person claiming indemnity either as the person by or on whose
behalf the contract of insurance was effected or as an assignee,
9.2 shall not extend to or otherwise benefit the carrier or other bailee.
Chapter 5
MINIMISING LOSSES
Duty of Assured
10. It is the duty of the Assured and their employees and agents in respect of loss recoverable hereunder
10.1 to take such measures as may be reasonable for the purpose of averting or minimising such loss,
and
10.2 to ensure that all rights against carriers, bailees or other third parties are properly preserved and
exercised
and the Insurers will, in addition to any loss recoverable hereunder, reimburse the Assured for any charges
properly and reasonably incurred in pursuance of these duties.
Waiver
11.Measures taken by the Assured or the Insurers with the object of saving, protecting or recovering the
subject-matter insured shall not be considered as a waiver or acceptance of abandonment or otherwise
prejudice the rights of either party.
AVOIDANCE OF DELAY
12.It is a condition of this insurance that the Assured shall act with reasonable despatch in all circumstances
within their control.
NOTE:- Where a reattachment of cover is requested under Clause 4, or a change of destination is notified
under Clause 5, there is an obligation to give prompt notice to the Insurers and the right to such cover is
dependent upon compliance with this obligation.
© Copyright: 12/08 - Lloyd's Market Association (LMA) and International Underwriting Association of London
(IUA).
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INSTITUTE STRIKES CLAUSES (CARGO)
RISKS COVERED
Risks
1. This insurance covers, except as excluded by the provisions of Clauses 3 and 4 below, loss of or damage to
the subject-matter insured caused by
1.1 strikers, locked-out workmen, or persons taking part in labour disturbances, riots or civil commotions
1.2 any act of terrorism being an act of any person acting on behalf of, or in connection with, any
organisation which carries out activities directed towards the overthrowing or influencing, by force or
violence, of any government whether or not legally constituted
1.3 any person acting from a political, ideological or religious motive.
General Average
2. This insurance covers general average and salvage charges, adjusted or determined according to the contract
of carriage and/or the governing law and practice, incurred to avoid or in connection with the avoidance of
Chapter 5
loss from a risk covered under these Clauses.
EXCLUSIONS
3. In no case shall this insurance cover
3.1 loss damage or expense attributable to wilful misconduct of the Assured
3.2 ordinary leakage, ordinary loss in weight or volume, or ordinary wear and tear of the subject-matter
insured
3.3 loss damage or expense caused by insufficiency or unsuitability of packing or preparation of the subject-
matter insured to withstand the ordinary incidents of the insured transit where such packing or
preparation is carried out by the Assured or their employees or prior to the attachment of this insurance
(for the purpose of this Clause 3.3 "packing" shall be deemed to include stowage in a container and
"employees" shall not include independent contractors)
3.4 loss damage or expense caused by inherent vice or nature of the subject-matter insured
3.5 loss damage or expense caused by delay, even though the delay be caused by a risk insured against
(except expenses payable under Clause 2 above)
3.6 loss damage or expense caused by insolvency or financial default of the owners managers charterers or
operators of the vessel where, at the time of loading of the subject-matter insured on board the vessel,
the Assured are aware, or in the ordinary course of business should be aware, that such insolvency or
financial default could prevent the normal prosecution of the voyage
This exclusion shall not apply where the contract of insurance has been assigned to the party claiming
hereunder who has bought or agreed to buy the subject-matter insured in good faith under a binding
contract
3.7 loss damage or expense arising from the absence shortage or withholding of labour of any description
whatsoever resulting from any strike, lockout, labour disturbance, riot or civil commotion
3.8 any claim based upon loss of or frustration of the voyage or adventure
3.9 loss damage or expense directly or indirectly caused by or arising from the use of any weapon or device
employing atomic or nuclear fission and/or fusion or other like reaction or radioactive force or matter
3.10 loss damage or expense caused by war civil war revolution rebellion insurrection, or civil strife arising
therefrom, or any hostile act by or against a belligerent power.
4. 4.1 In no case shall this insurance cover loss damage or expense arising from
4.1.1 unseaworthiness of vessel or craft or unfitness of vessel or craft for the safe carriage of the
subject-matter insured, where the Assured are privy to such unseaworthiness or unfitness, at the
time the subject-matter insured is loaded therein
4.1.2 unfitness of container or conveyance for the safe carriage of the subject-matter insured, where
loading therein or thereon is carried out
prior to attachment of this insurance or
by the Assured or their employees and they are privy to such unfitness at the time of loading.
4.2 Exclusion 4.1.1 above shall not apply where the contract of insurance has been assigned to the party
claiming hereunder who has bought or agreed to buy the subject-matter insured in good faith under a
binding contract.
4.3 The Insurers waive any breach of the implied warranties of seaworthiness of the ship and fitness of the
ship to carry the subject-matter insured to destination.
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DURATION
Transit Clause
5. 5.1 Subject to Clause 8 below, this insurance attaches from the time the subject-matter insured is first moved
in the warehouse or at the place of storage (at the place named in the contract of insurance) for the
purpose of the immediate loading into or onto the carrying vehicle or other conveyance for the
commencement of transit,
5.1.1 on completion of unloading from the carrying vehicle or other conveyance in or at the final
warehouse or place of storage at the destination named in the contract of insurance,
5.1.2 on completion of unloading from the carrying vehicle or other conveyance in or at any other
warehouse or place of storage, whether prior to or at the destination named in the contract of
insurance, which the Assured or their employees elect to use either for storage other than in the
ordinary course of transit or for allocation or distribution, or
5.1.3 when the Assured or their employees elect to use any carrying vehicle or other conveyance or any
Chapter 5
Increased Value
9. 9.1 If any Increased Value insurance is effected by the Assured on the subject-matter insured under this
insurance the agreed value of the subject-matter insured shall be deemed to be increased to the total
amount insured under this insurance and all Increased Value insurances covering the loss, and liability
under this insurance shall be in such proportion as the sum insured under this insurance bears to such
total amount insured.
In the event of claim the Assured shall provide the Insurers with evidence of the amounts insured under
all other insurances.
9.2 Where this insurance is on Increased Value the following clause shall apply:
The agreed value of the subject-matter insured shall be deemed to be equal to the total amount
insured under the primary insurance and all Increased Value insurances covering the loss and effected
on the subject-matter insured by the Assured, and liability under this insurance shall be in such
proportion as the sum insured under this insurance bears to such total amount insured.
In the event of claim the Assured shall provide the Insurers with evidence of the amounts insured under
all other insurances.
BENEFIT OF INSURANCE
Chapter 5
10. This insurance
10.1 covers the Assured which includes the person claiming indemnity either as the person by or on whose
behalf the contract of insurance was effected or as an assignee,
10.2 shall not extend to or otherwise benefit the carrier or other bailee.
MINIMISING LOSSES
Duty of Assured
11.It is the duty of the Assured and their employees and agents in respect of loss recoverable hereunder
11.1 to take such measures as may be reasonable for the purpose of averting or minimising such loss,
and
11.2 to ensure that all rights against carriers, bailees or other third parties are properly preserved and
exercised
and the Insurers will, in addition to any loss recoverable hereunder, reimburse the Assured for any charges
properly and reasonably incurred in pursuance of these duties.
Waiver
12.Measures taken by the Assured or the Insurers with the object of saving, protecting or recovering the subject-
matter insured shall not be considered as a waiver or acceptance of abandonment or otherwise prejudice the
rights of either party.
AVOIDANCE OF DELAY
13.It is a condition of this insurance that the Assured shall act with reasonable despatch in all circumstances
within their control.
LAW AND PRACTICE
14.This insurance is subject to English law and practice.
NOTE:- Where a continuation of cover is requested under Clause 6, or a change of destination is notified under
Clause 7, there is an obligation to give prompt notice to the Insurers and the right to such cover is dependent
upon compliance with this obligation.
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INSTITUTE STRIKES CLAUSES (AIR CARGO)
RISKS COVERED
Risks
1. This insurance covers, except as excluded by the provisions of Clause 3 below, loss of or damage to the
subject-matter insured caused by
1.1 strikers, locked-out workmen, or persons taking part in labour disturbances, riots or civil commotions
1.2 any act of terrorism being an act of any person acting on behalf of, or in connection with, any
organisation which carries out activities directed towards the overthrowing or influencing, by force or
violence, of any government whether or not legally constituted
1.3 any person acting from a political, ideological or religious motive.
Salvage Charges
2. This insurance covers salvage charges incurred to avoid or in connection with the avoidance of loss from any
cause except those excluded in Clause 3 below.
EXCLUSIONS
3. In no case shall this insurance cover
3.1 loss damage or expense attributable to wilful misconduct of the Assured
Chapter 5
3.2 ordinary leakage, ordinary loss in weight or volume, or ordinary wear and tear of the subject-matter
insured
3.3 loss damage or expense caused by insufficiency or unsuitability of packing or preparation of the subject-
matter insured to withstand the ordinary incidents of the insured transit where such packing or
preparation is carried out by the Assured or their employees or prior to the attachment of this insurance
(for the purpose of this Clause 3.3 "packing" shall be deemed to include stowage in a container and
"employees" shall not include independent contractors)
3.4 loss damage or expense caused by inherent vice or nature of the subject-matter insured
3.5 loss damage or expense arising from unfitness of aircraft conveyance or container for the safe carriage
of the subject-matter insured, where loading therein or thereon is carried out prior to attachment of
this insurance or by the Assured or their employees and they are privy to such unfitness at the time of
loading. This exclusion shall not apply where the contract of insurance has been assigned to the party
claiming hereunder who has bought or agreed to buy the subject-matter insured in good faith under a
binding contract.
3.6 loss damage or expense caused by delay, even though the delay be caused by a risk insured against
3.7 loss damage or expense caused by insolvency or financial default of the owners managers charterers or
operators of the aircraft where, at the time of loading of the subject-matter insured on board the
aircraft, the Assured are aware, or in the ordinary course of business should be aware, that such
insolvency or financial default could prevent the normal prosecution of the transit
This exclusion shall not apply where the contract of insurance has been assigned to the party claiming
hereunder who has bought or agreed to buy the subject-matter insured in good faith under a binding
contract
3.8 loss damage or expense arising from the absence shortage or withholding of labour of any description
whatsoever resulting from any strike, lockout, labour disturbance, riot or civil commotion
3.9 any claim based upon loss of or frustration of the transit or adventure
3.10 loss damage or expense directly or indirectly caused by or arising from the use of any weapon or device
employing atomic or nuclear fission and/or fusion or other like reaction or radioactive force or matter
3.11 loss damage or expense caused by war civil war revolution rebellion insurrection, or civil strife arising
therefrom, or any hostile act by or against a belligerent power.
DURATION
Transit Clause
4. 4.1 Subject to Clause 7 below, this insurance attaches from the time the subject-matter insured is first
moved in the warehouse, premises or at the place of storage (at the place named in the contract of
insurance) for the purpose of the immediate loading into or onto the carrying vehicle or other
conveyance for the commencement of transit,
continues during the ordinary course of transit
and terminates either
4.1.1 on completion of unloading from the carrying vehicle or other conveyance in or at the final
warehouse, premises or place of storage at the destination named in the contract of insurance,
4.1.2 on completion of unloading from the carrying vehicle or other conveyance in or at any other
warehouse, premises or place of storage, whether prior to or at the destination named in the
contract of insurance, which the Assured or their employees elect to use either for storage other
than in the ordinary course of transit or for allocation or distribution, or
Chapter 5 Marine cargo insurance: Institute Cargo Clauses 5/45
4.1.3 when the Assured or their employees elect to use any carrying vehicle or other conveyance or any
container for storage other than in the ordinary course of transit or
4.1.4 on the expiry of 30 days after completion of unloading of the subject-matter insured from the
aircraft at the final place of discharge,
whichever shall first occur.
4.2 If, after unloading from the aircraft at the final place of discharge, but prior to termination of this
insurance, the subject-matter insured is to be forwarded to a destination other than that to which it is
insured, this insurance, whilst remaining subject to termination as provided in Clauses 4.1.1 to 4.1.4, shall
not extend beyond the time the subject-matter insured is first moved for the purpose of the
commencement of transit to such other destination.
4.3 This insurance shall remain in force (subject to termination as provided for in Clauses 4.1.1 to 4.1.4 above
and to the provisions of Clause 5 below) during delay beyond the control of the Assured, any deviation,
forced discharge, reshipment or transhipment and during any variation of the adventure arising from the
exercise of a liberty granted to the air carriers under the contract of carriage.
Termination of Contract of Carriage
5. If owing to circumstances beyond the control of the Assured either the contract of carriage is terminated at a
place other than the destination named therein or the transit is otherwise terminated before unloading of the
subject-matter insured as provided for in Clause 4 above, then this insurance shall also terminate unless
Chapter 5
prompt notice is given to the Insurers and continuation of cover is requested when this insurance shall remain
in force, subject to an additional premium if required by the Insurers, either
5.1 until the subject-matter insured is sold and delivered at such place, or, unless otherwise specially agreed,
until the expiry of 30 days after arrival of the subject-matter insured at such place, whichever shall first
occur,
or
5.2 if the subject-matter insured is forwarded within the said period of 30 days (or any agreed extension
thereof) to the destination named in the contract of insurance or to any other destination, until
terminated in accordance with the provisions of Clause 4 above.
Change of Transit
6. 6.1 Where, after attachment of this insurance, the destination is changed by the Assured, this must be
notified promptly to Insurers for rates and terms to be agreed. Should a loss occur prior to such
agreement being obtained cover may be provided but only if cover would have been available at a
reasonable commercial market rate on reasonable market terms.
6.2 Where the subject-matter insured commences the transit contemplated by this insurance (in accordance
with Clause 4.1), but, without the knowledge of the Assured or their employees the aircraft leaves for
another destination, this insurance will nevertheless be deemed to have attached at commencement of
such transit.
CLAIMS
Insurable Interest
7. 7.1 In order to recover under this insurance the Assured must have an insurable interest in the subject-
matter insured at the time of the loss.
7.2 Subject to Clause 7.1 above, the Assured shall be entitled to recover for insured loss occurring during
the period covered by this insurance, notwithstanding that the loss occurred before the contract of
insurance was concluded, unless the Assured were aware of the loss and the Insurers were not.
Increased Value
8. 8.1 If any Increased Value insurance is effected by the Assured on the subject-matter insured under this
insurance the agreed value of the subject-matter insured shall be deemed to be increased to the total
amount insured under this insurance and all Increased Value insurances covering the loss, and liability
under this insurance shall be in such proportion as the sum insured under this insurance bears to such
total amount insured.
In the event of claim the Assured shall provide the Insurers with evidence of the amounts insured under
all other insurances.
8.2 Where this insurance is on Increased Value the following clause shall apply:
The agreed value of the subject-matter insured shall be deemed to be equal to the total amount
insured under the primary insurance and all Increased Value insurances covering the loss and effected
on the subject-matter insured by the Assured, and liability under this insurance shall be in such
proportion as the sum insured under this insurance bears to such total amount insured.
In the event of claim the Assured shall provide the Insurers with evidence of the amounts insured under
all other insurances.
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BENEFIT OF INSURANCE
9. This insurance
9.1 covers the Assured which includes the person claiming indemnity either as the person by or on whose
behalf the contract of insurance was effected or as an assignee,
9.2 shall not extend to or otherwise benefit the carrier or other bailee.
MINIMISING LOSSES
Duty of Assured
10.It is the duty of the Assured and their employees and agents in respect of loss recoverable hereunder
10.1 to take such measures as may be reasonable for the purpose of averting or minimising such loss,
and
10.2 to ensure that all rights against carriers, bailees or other third parties are properly preserved and
exercised
and the Insurers will, in addition to any loss recoverable hereunder, reimburse the Assured for any charges
properly and reasonably incurred in pursuance of these duties.
Chapter 5
Waiver
11.Measures taken by the Assured or the Insurers with the object of saving, protecting or recovering the subject-
matter insured shall not be considered as a waiver or acceptance of abandonment or otherwise prejudice the
rights of either party.
AVOIDANCE OF DELAY
12.It is a condition of this insurance that the Assured shall act with reasonable despatch in all circumstances
within their control.
LAW AND PRACTICE
13.This insurance is subject to English law and practice.
NOTE:- Where a continuation of cover is requested under Clause 5, or a change of destination is notified under
Clause 6, there is an obligation to give prompt notice to the Insurers and the right to such cover is dependent
upon compliance with this obligation.
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Marine cargo insurance:
6
other issues and
underwriting
Contents Syllabus learning
outcomes
Learning objectives
Introduction
Key terms
A Marine consequential loss 3.5
B Stockthroughput insurance 3.7, 5.7
Chapter 6
C Project cargo insurance 3.5, 3.7
D Charterparties and cover 3.6
E Underwriting marine cargo insurance 5.3
Key points
Question answers
Self-test questions
Learning objectives
After studying this chapter, you should be able to:
• explain marine consequential loss, stockthroughput and project cargo insurances;
• describe the basic policy forms used in cargo insurance; and
• explain the fundamentals of rating cargo insurance, some typical approaches to it and the
adjustment of premiums.
6/2 M90/March 2019 Cargo and goods in transit insurances
Introduction
In this second of our chapters on marine cargo insurance we begin by looking at three
further types of insurance present in the market: marine consequential loss, stockthroughput
and project cargo. We move on to look at the cover issues associated with charterparties.
Later in the chapter we consider the various types of policy available and how marine cargo
insurance is underwritten.
Key terms
This chapter features explanations of the following terms and concepts:
section C market, is the daily indemnity for a delayed start up or loss of profit following a loss covered
by the marine transit policy. Cover is usually sought by consortium involved in major
infrastructure projects, such as power stations or mining projects. The lending banks, as part
of the finance contract, will insist that borrowers take out marine cargo and consequential
loss insurance to protect the revenue stream in the event that the loss of or damage to a
critical item results in the project start-up date (the date that revenue starts to be earned)
being delayed.
Specialist wordings are used in the market. Premium and deductibles are generally
expressed as a number of days of indemnity. This is more commonly known as delayed start
up (DSU
DSU) insurance and it is only written in conjunction with a marine cargo policy that
carries the title Project Cargo
Cargo.
B Stockthroughput insurance
Stockthroughput insurance has gained in popularity over the last 30 years. In current
practice, it makes up a fair proportion of the business sought by insurers on a day to day
basis. Underwriters also continue with the time-honoured tradition of devising or adding
cover tailored to the individual needs of different insureds and which help support the
business in the event of a claim.
In effect, stockthroughput insurance is a combination of traditional marine clauses and the
cover given for storage risks in the property market. Thus it gives seamless cover from seller
to buyer. It includes any form of storage, whether in the ordinary course of transit or for
unspecified periods.
Stockthroughput insurance was originally conceived for risks that did not involve
manufacturing, other than breaking goods down into small units and repackaging for
onwards transit. With the passage of time and the gaining of experience in stockthroughput
by marine underwriters, some policies now include risks where the goods are in
manufacturing premises. Global stockthroughput takes this a stage further: it covers goods
that are in various stages of production spread over more than one premises and sometimes
in more than one country.
Chapter 6 Marine cargo insurance: other issues and underwriting 6/3
Reinforce
You will recall from your studies of IF1, that the condition of average in property insurance
means that when there is underinsurance the claim is paid in proportion to the amount of
underinsurance. The common pro rata condition of average uses the formula:
sum insured
× loss
value of goods at risk
Example 6.1
The storage limit in a policy is £250,000, but the value of the goods stored there at the
time of the damage was £500,000.
A claim is made for damage of £375,000.
The application of the condition of average means that only half the value of the claim will
be paid, as follows:
Value of goods at risk in the storage location: £500,000
Chapter 6
Goods at this location insured for a maximum limit of: £250,000
£250,000 £187,500
× £375,000 = £187,500
£500,000
The obvious solution is to ensure that the values of goods at any one storage location does
not exceed the limit stated in the policy schedule. A monthly or quarterly stock declaration
by the assured to the broker or the insurer is therefore a wise precaution.
Notice that eleven risks are catered for by the words: ‘special perils’. Add to these the many
perils arising in the marine and transit part of the risk and it will become clear that in
stockthroughput insurance the insurer is exposed to around thirty different perils that can
cause loss of or damage to the goods. This is why a constructive approach to establishing a
suitable premium for stockthroughput insurance is essential if the marine account is to be
profitable.
It next becomes necessary to produce a total premium that should be sufficient to cater for
all these individual risks. Actually producing a premium for each individual risk would be too
complicated to administer, so a turnover based method is used instead. The premium
decided upon is divided into the assured’s annual turnover, allowing a single rate on total
turnover to be established. From this the level of deposit and the minimum premium to be
charged at inception can be decided. The policy will be adjusted at the end of the insurance
year based upon actual turnover achieved. Not all policies will have a minimum and deposit
premium, and in these cases adjustments will be made quarterly following receipt of
monthly or quarterly declarations from the client.
This is best explained by looking at an example.
Example 6.2
Using a turnover figure of £50m, and a property location limit of £5m at one location, let
us look at structuring a suitable single rate, assuming the following split of sendings:
Annual UK to: Rate Premium
values
Fire 0.35%
Perils 0.15%
Theft 0.10%
£44,900
× 100 = single rate of 0.0898%
£50m
At the end of the year of insurance the assured declares an actual turnover of £55m. The
adjustment is calculated as follows:
£55m × 0.0898% = £49,390
Note: These rates are purely illustrative and do not reflect market rates at any one time.
Chapter 6 Marine cargo insurance: other issues and underwriting 6/5
Chapter 6
stockthroughput proposal to an underwriter a broker may help the interests of itself, its
client and the underwriter by providing photographic evidence of the building in which the
stock is to be housed. Photographs taken both inside and outside the building are of great
value in both selling the risk to the underwriter and in highlighting any shortcomings in the
building or the surrounding area, allowing them to be fully included in the underwriter’s
consideration of the risk. An underwriter may waive the need for photographic evidence, but
this would be detrimental to them in the event of a subsequent claim they wish to dispute.
B2A Housekeeping
The term ‘housekeeping’ describes the general condition of the building, alongside the
assured’s attitude to the conduct of business, as evidenced by what is apparent both within
and outside the building. For example, the premises must be clean and tidy, with any waste
materials being swept up regularly, bagged and removed from the building at the end of
each day’s work, or at regular intervals during the day if a lot of waste is produced.
Combustible materials, such as waste, will encourage the spread of a fire should one break
out, which is why its removal is so important. Neither must it be stored against the outside of
the building, as any fire in it could find its way inside through the roof fascia, soffit or other
openings and damage the stock. The best solution is for waste materials to be stored away
from the building, preferably in locked dumpster-type containers, and for it to be removed
at regular intervals.
The electrical system in the building too must be kept in proper working order, with no
frayed wiring. It must be checked and certified as fit for purpose at a maximum interval of
five years. The need for re-testing arises if any alteration or repair is carried out to the
existing system.
B2B Construction
Industrial buildings are mainly constructed in two ways:
• with lightweight profile insulated metal cladding panels on an exposed steel frame and a
roof of profile metal cladding panels; or
• along more traditional lines, involving the use of brick or stone and having a slate or
tiled roof.
6/6 M90/March 2019 Cargo and goods in transit insurances
The advantages of lightweight buildings are that they are quicker to erect than traditional
buildings and can be replaced more quickly following a fire. The disadvantages are that it is
more vulnerable to damage by heavy winds, and the exposed steel frame – which is the
strong part of the structure – is vulnerable to buckling in the heat of a fire. This will cause it to
lose its integral strength and lead to the collapse of the building. This will be a total loss,
compared to what would have been a partial loss if the fire had occurred in a building made
from brick or stone.
Rainwater can also cause damage to stored goods. In this the key issue is the condition of
the gutters and downpipes, which should be good enough to deal with the flow of heavy
rainwater. The capacity of gutters is reduced by bird deposits, which need to be cleared at
least once every year if the gutter is not to be overwhelmed by a sudden downpour of rain,
meaning it gets into the building and causes water damage to the goods inside. This is
especially so during hot weather when the deposits become hard baked by the sun. A visual
clue to the state of gutters is the appearance of stalks of grass above their tops.
Where a roof is pitched more than once along its length, or is L-shaped, the water will drain
off the roof via valley gutters. These are gutters within the ‘V’ of the pitch, which means that
water will flow from two pitches of the roof, instead of just one.
Activity
Use the internet to search for images of single valley gutters and double valley gutters.
Why might it be better for valley gutters to be double rather than single?
It is better for valley gutters to be double rather than single because a single valley gutter
has insufficient capacity to deal with water coming off two pitches. The excess water will
flow in through the roof and damage the goods inside.
In an old building the costs involved may make it unfeasible to install a suitable width valley
gutter. Choices open to the underwriter in this situation include declining the risk, applying a
Chapter 6
large deductible for such losses or warranting that the goods are not stored where such
water may enter the building.
B2C Surroundings
The area outside the storage building gives rise to other problems. We have already looked
at one problem that is within the control of the insured: the disposal of waste materials.
However, other problems are outside the assured’s control. These relate to neighbouring
businesses, the activities they undertake and their proximity to the assured’s building. A
separation of not less than 40 feet (12.192 metres) is necessary to minimise the chances of
‘fire-jump’ (the situation in which a fire in one building can spread to another). There is very
little the underwriter can do in terms of risk control measures, because there is no
contractual relationship between the insurer and the third party business. In the end the
underwriter has choose whether to underwrite or not when, for example, a storage risk is
close to business that carries on operations with a high fire or explosion risk (e.g. a foundry).
It is not sufficient to simply accept a report which states that the storage building is
surrounded by fences and a locked gate, it is necessary to ask about the quality of both.
Wire mesh fencing linked to concrete posts provides only nominal protection and is easily
overcome. Fencing should be a solid steel palisade style to at least six feet (1.8288 metres)
and securely concreted into the ground. The gate should also be of the same material, it
must be secured with a high quality close shackle padlock (CSP) – one where it is not
possible to get the point of a pen into the gap between the hasp of the lock and the staple of
the gate. Most importantly, the gates must be fitted with anti-lifting plates as in the past
thieves have ignored the lock and simply lifted a gate from its hinges.
B2D Security
Virtually all buildings used for the storage of goods should be protected with a Redcare
alarm system by a NACOSS approved installer, with signalling to a 24-hour manned central
monitoring station. Audible only alarms are not acceptable as they rely on someone
reporting it when they are triggered. Given that many storage locations are remote from
residential areas, such alarms are not effective.
Chapter 6 Marine cargo insurance: other issues and underwriting 6/7
The alarm system must be backed up by good quality physical protections, which includes
solid steel sheeting to the external surfaces of doors. Locks should be top quality five lever
mortice deadlocks or close shackle padlocks (CSPs) – depending upon the type of door –
with draw-bolts on roller shutter or sliding doors. In addition, powered doors should have
the internal chain padlocked to prevent its operation out of hours and the electric for the
door motor should be switched off.
Some premises may also be protected by Closed Circuit Television (CCTV). These systems
have limited value unless they are continuously monitored by staff who are trained in how to
respond the moment an intruder is detected. The recordings they make can help in
explaining how a theft was perpetrated, but insurers are much happier if theft is prevented in
the first place.
Consider this
this…
…
A determined thief will not be thwarted by any of these protections, so why are they
considered useful?
Although a determined thief will find a way around any security measures taken, it will take
time. The longer it takes a thief to break into the premises the more likely it is they will be
detected and stopped.
B2E Misappropriation/conversion
Misappropriation is just another word for conversion. Even though cover for
misappropriation or conversion is available in a limited form in the market, the default
position should be to exclude it from any marine cargo or stockthroughput wording,
because of the moral hazard involved. The risk of misappropriation/conversion is described
clearly in chapter 2, section A4, concerning freight forwarders and how vulnerable they can
be to a misappropriation or conversion claim.
Chapter 6
In the final analysis, it is for the underwriter to make their own decision whether to continue
to exclude misappropriation or to include it (if it is permitted by their employers). The
default position in the UK insurance market seems to be to exclude losses arising from
misappropriation or conversion. Nevertheless, the Joint Cargo Committee has produced two
wordings: an exclusion wording – JC2017-010; and one for including the risk – JC2017-011.
B3 Process clause
All stockthroughput policies should contain a process clause as standard. A typical process
clause is:
We will not pay for any loss or damage to the subject matter insured, which is due to
or directly results from any process of use, testing, manufacture or repair.
The intention of this exclusion clause is that insurers will not pay for any damage which is the
inevitable result of any manufacturing or repairing process. This is best described by looking
at a couple of example situations where this exclusion will apply.
6/8 M90/March 2019 Cargo and goods in transit insurances
Example 6.3
It has become necessary to cut a damaged panel from a machine and replace it with a
new panel. This process will inevitably damage the machine at the point where the cutting
is done and at any place where holes have to be drilled in order to fix the new panel in
place of the old one. The insurer does not pay for this inevitable damage.
However, the cutting process causes a fire which destroys the machine. The insurer will
pay for the rest of the machine apart from the part being worked upon.
A similar situation may, however, produce a different result.
During steel and metal founding the raw material is heated to around 1,500°C. An
explosion occurs during the process which results in the loss of the molten material. The
insurer will not pay for this because the whole of the molten metal was being worked on at
the time.
The underwriters must make their position on how they intend such terms to apply
abundantly clear to their assured before terms are agreed and cover begins.
B4 Basis of valuation
The basis upon which a stockthroughput claim is settled depends upon whether the storage
element included any process which added to the cost value of the goods. That is to say, the
cost paid by the assured, which will include the seller’s profit.
Example 6.4
A warehouse belonging to a large chain of shops stores goods to be called for by its retail
outlets to replenish goods sold. In this case the cost price is not altered.
The anticipated profit to be made by the retail outlet is not taken into account because, at
Chapter 6
the point upon which the goods are called for, they have not been sold to retail
customers, so there is no increase in value.
There is an expectation that the goods will be sold but, between expectation and actual
sale, the value remains static and may even decline if discounting is employed as a
reaction to sluggish sales and falling prices in the market.
In those cases in which goods are delivered part-finished the value increases when further
work is carried out. Again, this is best described by looking at an example.
Example 6.5
A machine is built to a first stage and then sent to another manufacturer for the second
stage work to be carried out. It then goes to a third manufacturer for final completion.
There are three different levels at which a claim should be settled:
Stage one Cost charged by first manufacturer, plus freight and insurance
Stage two Cost of stage one plus cost of work done on stage two plus freight and insurance
Stage three Cost of stages one and two plus the cost of work done on stage three plus
freight and insurance
Remember: The word ‘cost’ includes the profit of the manufacturers carrying out each
stage.
What that cost should be is achieved only when each stage is completed and the machine
is ready for despatch.
It may also be possible to include an uplift of 10% on these figures, in the same way that
goods sent in direct marine transit from seller to buyer, without any storage en route, are
covered when the Incoterm Cost, Insurance and Freight (CIF) is used.
The basis of valuation is negotiable between the assured and the insurers. It may be varied to
suit the needs of either assured or insurer, so long as both parties stick to the rule of
indemnity, which is to put the claimant back to the position it was in immediately prior to the
loss or damage.
Chapter 6 Marine cargo insurance: other issues and underwriting 6/9
Chapter 6
Cold stores are a risk to be avoided, and may even be on an insurer’s decline list. They are
not an ideal risk for stockthroughput for the following reasons:
• temperature-controlled goods have above-average risk profiles when compared to
other goods;
• cold stores are targets for animal liberation activists;
• frozen and chilled food is theft attractive;
• risk of loss or damage may extend to cover failure of the public utilities,
– cold stores need to be fitted with an independently powered automatic back-up
generator for such eventualities;
• cold stores have insulated panels in the roofs/ceilings, which assist the spread of fire,
– with this type of fire, firefighters will avoid entering the building, unless there is
evidence of human life at risk, instead concentrating on containing the fire before
extinguishing it altogether; and
– a total loss is almost inevitable.
B5B Clothing
Whether the clothing is ‘haute couture’ or normal every day, the theft risk is high as there is a
ready market for the disposal of stolen clothing. Therefore:
• clothing storage premises must be fitted with a top quality intruder alarm system, to
NACOSS standards and with signalling to Redcare standards; and
• these must be backed up with top quality physical protections, e.g. five lever CSPs, solid
steel cross-braced bars at maximum six inch centres on windows and under sky/roof
lights and steel plating, coach bolted, on the outside of doors.
6/10 M90/March 2019 Cargo and goods in transit insurances
years of writing stockthroughput until a strong premium base for the storage risk is
achieved.
Question 6.1
We looked at the UKWA conditions in chapter 4. Can you remember:
a. In what circumstances liability for loss or damage attaches under the UKWA
conditions?
b. At what amount standard liability is set?
These warehouses are traditionally used for relatively short periods of time, e.g. to hold
goods awaiting customs clearance. They are not suitable for long term storage and should
not, in any case, be accepted for the storage of high value goods, except where the goods
are temporarily stored ‘during the ordinary course of transit’ as set out in the Institute Cargo
Clauses (A), (B) and (C) 1/1/09.
All aspects of property insurance are covered in the CII study text M93 Commercial Property
Chapter 6
and Business Interruption Insurances.
Example 6.6
1. Joe Bloggs Energy Limited (as Principal and Project Manager, hereinafter called ‘the
principal’) and/or Sponsors and/or Shareholders and/or Partners and/or Parent/
Subsidiary companies and/or Affiliated companies and/or Partnerships and/or Joint
Venture companies for their respective rights and interests of the foregoing and/or any
new legal entities as they now exist and/or hereinafter be constituted having the
ownership or management of the new facilities under construction.
2. Present and/or former directors, officers, or employees of the foregoing, while acting in
their capacity as such.
3. Contractors or sub-contractors of any tier.
4. Consultants, technical advisers, suppliers, and/or any other company, firm, person or
party with whom the assureds in 1 or 2 have, or in the past had, entered into written
agreement(s) in connection with the Project.
5. All others for whom there may be an interest or responsibility to insure but only to the
extent of their activities related to the Project.
6. Banks and other financial groups or individuals who are financing the Project.
6/12 M90/March 2019 Cargo and goods in transit insurances
As you can see, the description of the parties covered by the policy is very much more
extensive than is usually found in a traditional cargo policy. This is necessary to encourage
maximum efficiency in the operation of a large capital project in the course of construction.
The traditional method would have required the various sub-contractors to obtain their own
insurances for their part in the capital project. However, if there were differences in cover, or
if some of the covers had not been obtained, or if claims were declined, that would leave the
principal contractor with the responsibility for the financial consequences. Project cargo
insurance brings all the parties to the project contract together into one policy. Each party is
charged with a contribution to the premium for the project cargo insurance, based on each
contractor’s proportion of the contract. In this way the principal contractor is able to control
the business and be confident that there will be a consistent approach to all claims relating
to the project.
C1 What is a project?
Here are some examples of typical capital projects:
• rail systems;
• road systems;
• power plants;
• petro-chemical plants;
• dams;
• bridges;
• tunnels;
• mines; and
• wind farms.
Chapter 6
C2 The voyage
The description of the voyage from the supplier of the parts making up the completed
project to the project site, is wider than under the traditional cargo policy. This is because
project cargo insurance applies from the premises of each contractor to the project site, i.e.
at the named place by direct shipment or ports or places in any order, including transits to,
from and while at the premises of:
• the assured;
• forwarders;
• packers;
• consolidators;
• hauliers;
• warehousemen and other bailees; and
• fabricators, modification or assembly works (a Process Clause applies), including loading,
transhipment, unloading and returned shipments.
Example 6.7
Goods, merchandise or cargo of every description incidental to the business of the
Assured or otherwise, including duties, taxes or increased values the Property of the
Assured or for which they have, or assume a responsibility to insure or for which they have
received instruction to insure prior to shipment or before known or reported loss or
accident, consisting principally of but not limited to:
• plant;
• equipment;
• materials;
• machinery;
• parts;
• spare parts;
• buildings and structures;
• supplies and accessories;
• process and general consumables;
• office and management equipment; and
• all interests in connection with the Joe Bloggs Energy Ltd project located in… and/or all
other ancillary or associated facilities.
Excluding contractors’ plant and equipment unless agreed by underwriters.
C5 Period of cover
The period of cover is the duration of the project until completion, i.e. the proposed length of
time it will take to construct the project. This means that the period of insurance in project
Chapter 6
cargo insurance is not a renewable one and so does not have a renewal date. A facultative
method is used instead (‘facultative’ refers to a single period of time – hence it is used to
describe the period of insurance). Single voyage is another name used in marine insurance,
but ‘facultative’ is the preferred term in project cargo insurance. An example of the wording
used to describe the period of cover is as follows.
Example 6.8
Facultative risks attaching and interest otherwise at risk from (stated date) Local
Standard time until completion of contract estimated, but not limited, to be (stated
date) – the expected date of commercial operation – both dates inclusive local
standard time.
C6 Basis of cover
Cover for project cargo is usually based on Institute Cargo Clauses (A) 1/1/09, with the
addition of bespoke extra clauses that are appropriate to Project cargo risks. The cover
provided by Institute War Clauses (Cargo) 1/1/09 and the Institute Strikes Clauses (Cargo)
1/1/09 is also added.
Example 6.9
The owners of oil often charter a vessel for its carriage. Therefore, it is covered by:
• the Institute Bulk Oil Clauses – CL273 – 1/2/83;
• the Institute Strikes Clauses (Bulk Oil) – CL274 – 1/2/83; and
• the normal war clauses.
We looked at However, when goods are transported under a bareboat or demise charter charter, additional
bareboat and
liabilities attach. The owners must find cover for the hull and machinery, third party liabilities
Chapter 6
demise charters
in chapter 2, arising out of the operation of the vessel and the liabilities that arise out of the spillage of oil
section C
from the vessel. Practice varies between underwriters, but typical cover would be provided
by the Institute Time Clauses (Hulls) 1/10/83, with the cover for 75% of the third party
liabilities being provided by the ITC and the remaining balance being placed in the
Protection & Indemnity (P&I) market.
E1 Policy types
E1A Voyage policy
A voyage policy is one which insures goods from one place to another. It is also known as a
facultative or single voyage policy
policy.
This type of policy is useful for:
• sellers whose exports in any one year are too few to justify taking out an annual policy;
• sellers whose main market is their own country, but which sometimes export goods; and
• sellers who usually sell their goods on ex-works (EXW) terms, but occasionally sell them
on CIF terms.
Be aware
Sellers who sell on ex-works terms, and who insist upon receiving payment for the goods
before releasing them, have no insurable interest in them once those goods are placed at
the buyer’s disposal at the seller’s premises. (See Incoterms in chapter 2, section B.)
Chapter 6 Marine cargo insurance: other issues and underwriting 6/15
Chapter 6
An advantage of the open cover arrangement is that the insured only pays the premium
after it has sent the goods. The insured pays no deposit premium and pays only for the exact
value of the goods it sent. In effect it provides a facility for paying the premium by
instalments, but without any formal credit agreement being necessary and without the
insured having to pay any charges. This type of policy has a long history and the way in
which premium is invoiced to the insured pre-dates the use of instalment facilities by several
decades.
Consider this
this…
…
Did you notice the absence of any charge for insurance premium tax? Why do you think
this is?
Insurance premium tax is a UK domestic tax and does not apply to insurance on goods being
imported or exported. However, British expatriates moving their household furniture and
personal belongings in or out of the country will pay IPT on their insurance. This is because
HM Revenue and Customs does not regard either movement as a permanent import or
export. It is also usual to apply IPT on insurance for goods being exhibited outside the UK,
based on the presumption that they will be returned after the exhibition has ended.
Question 6.2
What is the difference between a ‘voyage’ and a ‘time’ policy?
Annual deposit
The underwriter calculates the annual deposit premium based on the estimated sendings
premium during the forthcoming twelve months and the rates applying to the destinations shown in
calculated on
estimated
the policy. It is also usual for them to specify a minimum retained amount. This means that
sendings the insurer will only return premium down to this minimum level. A minimum retention of
80% of the estimated annual premium is common, but this may move up or down according
to competition in the market. In a soft market, in which rates are depressed, it may drop to as
low as 60% as insurers seek to defend existing business or to acquire new risks.
Example 6.10
Adjusting an annual policy upon declaration after twelve months:
Total goods value sent £3,500,000
Example 6.11
Shipping Ltd is intending to send £250m worth of goods throughout world during the
next year. Its insurers charge a rate of 0.05%, inclusive of standard war and strikes cover.
Shipping Ltd pay a premium of £125,000.
Chapter 6 Marine cargo insurance: other issues and underwriting 6/17
Once this flat premium for the year is agreed, the only reason any more would be charged is
if war broke out in a region of the world to which the company sends goods. Even when
insurers agree a rate that includes cover for war and strikes risks, they usually retain the right
to charge a higher premium if an outbreak of war results in the market increasing the rate
charged for war risks.
Example 6.12
XYZ Insurers settle a claim for £300,000. The premium for the risk was £1,500, or 1/200th
of the cost of the claim.
To put it another way, 200 premiums of £1,500 (£1,500 × 200 = £300,000) are needed to
fund that claim.
Let us now assume that 25% commission was paid on the premium.
Now XYZ Insurers need 267 premiums of £1,125 (£1,500 – 25% = £1,125) to cover the
£300,000 loss.
Remember: office expenses and profit need to be accounted for, thus further increasing
the number of premiums required.
A lesson to be drawn is that, when the market is competitive bringing down premium levels,
more premiums are required as claims costs do not reduce. Of course, when the market
hardens (becomes less competitive) the number of premiums needed to cover claims is
Chapter 6
reduced.
E2 Basis of valuation
Marine cargo policies contain a basis of valuation wording
wording, which describes the basis on
which any claim will be settled that arises prior to the sending being declared to insurers. A
commonly used wording is ‘cost, insurance and freight’ where the contract for sale uses this
Incoterm.
It is also common practice to add uplift in the sum insured on CIF sendings, to cover the
buyer’s administration costs in setting up the import, such as:
• cost of import licences;
• bank charges and loan interest;
• increased value of goods at discharge of vessel or aircraft; and
• an element for the buyer’s potential profit from the sale of the goods.
For CIF contracts the Incoterms 2010 call for the seller to insure for the CIF plus 10% (the CIF
value is the sale price of the goods, plus the costs of insurance and freight). The percentage
uplift is not for the benefit of the seller should loss or damage occur prior to them passing
the insurable interest in the goods. This is because all charges relating to the sale of the
goods should have been included within the sale price of the goods, including the seller’s
profit.
Conversely, if the basis of valuation is free on board (FOB) to the UK port, this limits the
insurer’s geographic exposure to the distance between the premises of the seller in the UK
to the point at which the goods are loaded onto the ship at the UK port. The UK based
insurer will still be liable to pay up to the amount of the sale price, but only if the loss or
damage occurs up to the point the goods are loaded onto the ship. It is the buyer who
suffers for any loss or damage occurring after that point. Thus it is its responsibility under
FOB terms to have arranged its own insurance, to attach once the goods are loaded onto the
ship at the UK port. The 10% uplift is not applied to FOB sales.
6/18 M90/March 2019 Cargo and goods in transit insurances
For sendings under the remaining Incoterms, the basis of valuation is the sale price of the
goods. This usually includes the cost of the freight to get the goods to the place at which the
buyer takes delivery. However, the cost of insurance is borne by the seller because, with one
exception, the seller does not arrange an assignable policy of insurance for the buyer. The
exception is the Incoterm Carriage and Insurance Paid to (CIP). As with CIF the seller
arranges cargo insurance which is assignable to a buyer, but there is no 10% uplift under CIP.
Where a contract of sale does not use Incoterms, which is common practice with
second-hand goods, the basis of valuation might refer to ‘invoice value’ or ‘sales cost.’
Describes
In summary, the basis of valuation clause describes the maximum sum an insurer will pay for
maximum an loss or damage to goods when they are lost prior to declaration. However, charges for
insurer will pay
general average, salvage or sue and labour can be paid in excess of this maximum sum.
Conclusion
These days the coverage on offer from various insurers is arguably wider than just the well
established traditional marine cargo class of insurance. We see this in the more recent
developments in marine consequential loss, stockthroughput and project cargo insurances.
We also see this in the many different additional clauses available from the various insurers
and underwriters, which enrich the basic covers given by the London market. Additional
clauses such as:
• Additional Discharge Expenses;
• Airfreight Replacement;
• Brand and/or Trademark Protection;
• Concealed Damages;
• Debris Removal;
Chapter 6
• Duty;
• Fumigation;
• Packers’ Premises; and
• Pollution Hazard.
These are just a small selection of the many additional clauses available that enhance cover
and, together with bespoke clauses, mould it to the individual needs of businesses. They
show how the marine market has moved with the times in order to satisfy the changing
demands of its customers, while at the same time retaining its pre-eminence in the insurance
market.
In the next chapter we will go on to consider the insurance of transit risks and haulage
contractor’s liability.
Chapter 6 Marine cargo insurance: other issues and underwriting 6/19
Key points
The main ideas covered by this chapter can be summarised as follows:
• Marine consequential loss insurance covers losses caused by delays in start-up or to profits arising
out of a loss covered by a marine transit policy.
Stockthroughput insurance
• Stockthroughput insurance combines marine clauses with cover for storage risks found in the
property market to provide seamless cover from seller to buyer.
Project cargo
• Project cargo insurance brings all the parties to a project contract together into one policy. Each
party is charged with a contribution to the premium for the project cargo insurance, based on each
contractor’s proportion of the contract.
• With charterparties, where a time or voyage charter is used, goods are insured under the
appropriate Institute Cargo Clauses.
• Because of the addition liability taken on with a bareboat or demise charter, insurance is typically
shared by the Institute Time Clauses (Hulls) 1/10/83 and the P&I market.
• A voyage (or facultative or single voyage) policy insures goods from one place to another.
• A time policy covers a defined period and commonly a deposit premium is paid at inception with an
adjustment made at the end of the policy to reflect the true exposure.
• An open cover policy incepts at a specified date and then remains open until either the insured or
the insurer cancels it. Premium is paid in instalments on the basis of the insured’s monthly or
quarterly declarations of actual sendings.
Chapter 6
• A valued policy specifies the value of the subject matter and is a feature of voyage policies.
• An unvalued policy specifies the maximum sum insured under the policy and is a feature of annual
policies and open covers.
• Open cover policies run indefinitely and involve the monthly declaration of sendings and paying of
an appropriate premium.
• An annual adjustable policy involves the payment of a deposit premium at the start of the policy
year and adjusting this in the light of actual sendings at the end of the year.
• Flat non-adjustable annually reviewable policies involve the payment of an agreed flat premium.
The underwriter then reviews the policy in the light of actual sendings etc. in order to set the
premium for the following year.
• Turnover based policies have a premium set on the basis of the company’s turnover.
• The basis of valuation wording describes the basis upon which any claim will be settled that occurs
prior to the sending being declared.
6/20 M90/March 2019 Cargo and goods in transit insurances
Question answers
6.1 a. Liability for loss or damage attaches only if it is caused by the neglect, wilful act
or default of the warehouse keeper, its servants or agents.
b. The standard liability is set at £100 per tonne.
You may wish to revise chapter 4, section D3 if you struggled with this question.
6.2 A ‘voyage’ policy is one which insures goods from one place to another while a ‘time’
policy is one which is in force for a defined period.
Chapter 6
Chapter 6 Marine cargo insurance: other issues and underwriting 6/21
Self-test questions
1. What is stockthroughput insurance designed to cover?
2. Why do additional liabilities attach for charterparties transporting goods under a
bareboat or demise charter?
3. How does an ‘open’ policy differ from an ‘annual’ policy?
4. What is a ‘valued’ policy?
5. Describe the basis of valuation clause.
Chapter 6
Supporting
your
research
From reports and articles that can
be referenced in coursework assignments
and dissertations, to ebooks, statistics,
and specialist librarians just an email
away, knowledge services’ resources
provide a wealth of information.
Chapter 7
Question answers
Self-test questions
Learning objectives
After studying this chapter, you should be able to:
• explain the fundamental nature of haulage contractor’s liability insurance and its
differences from marine cargo insurance;
• describe the construction and content of a typical policy;
• explain the rating practices of haulage contractor’s liability insurance, including premium
adjustments;
• demonstrate the importance of custody and control of goods in the application of cover;
• explain the risk of mis-delivery and the application of cover for this risk;
• identify the limits of liability of haulage contractors under private contract conditions, by
statute or convention and under common law; and
• explain the relationship between haulage contractor’s liability and the liability of freight
forwarders, warehouse keepers and ports for goods in transit.
7/2 M90/March 2019 Cargo and goods in transit insurances
Introduction
In this chapter we study the nature of haulage contractor’s liability insurance and how it
compares to marine cargo cover. In so doing, we have to consider the common link between
the two classes of insurance – the goods – rather than the differences between them.
We start by studying the structure of a typical policy. You will notice that it does not contain
the rigid structure found in the internationally recognised Institute Cargo Clauses. However,
the cover given by the various players in the haulage contractor’s liability market is similar.
We then emphasise the significance of the haulage contractor having custody and control of
the goods at the time of loss or damage. This is important, because it is this that makes the
haulage contractor legally liable. This link is especially critical during loading and unloading
to and from the carrier’s vehicle because these activities are not usually undertaken by the
carrier’s driver.
We will conclude this chapter with a study of some of the headings under which legal liability
may attach to a haulage contractor and by highlighting the relationship between the
haulage contractor and other bailees of goods, such as freight forwarders.
Haulage contractor
contractor’’s conditions of carriage
Not all haulage contractors use conditions of carriage such as those of the Road Haulage
Association (RHA). Although the RHA Conditions of Carriage are the leading carrying
conditions in the UK, some haulage contractors do not use conditions of carriage at all,
making them common law carriers; others use ‘all risks’ conditions of carriage (often the
case with car transporter firms). Therefore, it must not be assumed that a haulage
contractor operating in the UK will always use the RHA conditions.
Key terms
This chapter features explanations of the following terms and concepts:
A Haulage contractor
contractor’’s liability compared
to cargo risks
Premium relates to
Goods are the common link between cargo and haulage contractor’s liability cover.
the haulage However, in contrast to cargo insurance, in which the premium directly relates to the value
charges earned for
carrying the goods
of the goods, in haulage contractor’s liability insurance the premium relates to the haulage
charges earned for carrying the goods. This means that premium levels in the haulage
market are naturally depressed, bearing no relation to the value of the goods being carried.
Haulage charges are based primarily on the cost of carrying goods from one place to
another and it costs the same to transport one tonne of expensive machinery over a certain
distance as it does to transport one tonne of something much less valuable, such as coal. For
an insurer, the consequence of this is that, although it takes on a higher risk with valuable
goods, it is often difficult to charge a higher premium as the haulage charge is the same or
similar, regardless of the value of the goods at risk.
Despite it being the haulage contractor’s legal liability that is insured, the goods remain a
prime underwriting consideration due to a combination of their nature and the environment
in which they are carried. Goods carried on land are particularly exposed to the perils of
theft, road accident, storm and flood, plus handling damage during loading, unloading and
transhipment. It does not follow automatically that the haulage contractor will be liable, even
if the loss or damage arises while the goods are in its charge. We will study these perils in
more detail in chapters 7 and 8.
Under domestic conditions of carriage, such as those of the Road Haulage Association
(RHA) in the UK, the carrier is liable and has few worthwhile defences to liability. However,
compensation is limited to just £1,300 per tonne, which may only be a small proportion of
the value of the goods.
The CMR Convention, on the other hand, imposes a greater financial burden upon the carrier,
but gives it the opportunity to deny liability and not pay any compensation at all, if it can
prove it has discharged its duty in accordance with the requirements of the CMR
Convention.
By comparison, a marine cargo insurer insuring under Institute Cargo Clauses (A), is
generally liable for the full value of its loss or damage. While it may attempt a recovery of its
outlay, there is no guarantee that it will succeed in recovering all, or indeed any, of its
payment to the insured.
Chapter 7
A typical policy contains three alternative bases of cover:
1. The policy agrees to pay a claim for loss or damage to goods if the haulage contractor is legally
liable under the contract terms agreed with its customers, who could be the owners of the
goods, other haulage contractors or freight forwarders acting on behalf of the owners of goods
2. An insurer may choose to put forward any defence to liability that is available to the haulage
contractor under either the contract terms agreed with its customer or at law. The insurer will
pay any legal costs incurred with its written consent, although in practice, the insurer appoints
solicitors of its own choosing, thus enabling it to retain control of the claim
3. If the owners of the goods, their legal representatives or their insurers, elect to challenge any
defence to liability put forward on behalf of the haulage contractor, the insurers have the right
to either pay the claim and the legal costs of defending the insured or resist the challenge.
However, if the challenge is successful the haulage contractor’s liability insurers will then pay
the cost of the judgment awarded to the claimant, plus its own legal costs, together with any
costs awarded against the haulage contractor
You will see from this that, although an insurer may reject a claim from the owner of the
goods because the haulage contractor has a valid defence under the terms of its conditions
of carriage, this does not mean that the insurer is refusing its client an indemnity. By putting
a defence forward the insurer offers the haulage contractor protection from having to pay a
claim for which it is not liable and, as we have also seen, provides for the payment of legal
costs arising from that defence.
Question 7.1
What four sections does a typical policy for haulage contractor’s liability contain?
B1 Cover provided
Provides a
The fundamental nature of the haulage contractor’s liability policy is that it provides a
bailment type bailment type of cover. That is to say, it provides cover for the legal liability of the haulage
of cover
contractor under agreed contract conditions, at statute or at common law, for loss or
damage to goods that are in its custody and control for reward. There are two important
points here to consider:
• cover applies only when the haulage contractor has custody and control of the goods;
and
• the goods must be carried for reward,
– goods belonging to the haulage contractor are not covered, unless the policy is
specifically extended to cover them and suitable terms are agreed between insurer and
insured.
Question 7.2
Can you remember how negligence was defined in Blyth v. Birmingham Waterworks
Company (1856)
(1856)?
Some insurers and underwriters go a stage further by offering a contingent common law
cover, known as non-incorporation of contract conditions
conditions. This operates in the event of a
failure to incorporate the conditions of carriage into the contract. If the insured can prove
that the failure was an unusual oversight by a member of staff and that it has in force a
system for incorporating its conditions of carriage, insurers agree to accept the claim at
common law. However, this is not a cure for all situations. There must still have been an
intention to enter into a contract to carry the goods for this contingent cover to operate. If a
goods owner and haulage contractor had no intention to enter into a contract of carriage,
there is no haulage charge. Consequently, there will be none to declare to the insurer, so it is
unable to charge a premium. Without a premium there can be no cover.
Example 7.1
Matrix v. Uniserve (2009)
(2009). The absence of any contractual agreement became apparent
in this case. Goods were mis-delivered to the premises of a freight forwarder who was not
destined to receive them. The freight forwarder then failed to establish contact with the
owners of the goods to advise them of the mis-delivery and so no contract could be
agreed. This left the freight forwarder in the position of being a bailee of the goods for
their full value. This reminds us of the lesson learnt in our studies of IF1: there cannot be a
contract unless there are at least two parties to it.
Chapter 7 Scope of cover: haulage contractor’s liability 7/5
Question 7.3
Lorries Ltd has omitted to include its conditions of carriage in its contract of carriage with
Manufacturing Ltd. This isn’t a problem because the contingent common law cover will
ensure that it is still insured for the risks it faces under common law.
True F
False F
Chapter 7
charges following loss or damage in transit or, in the case of a CMR carrying, where interest
is added to the compensation payable.
Own goods cover: Covering such items as sheets, ropes, tarpaulins, trailer
curtains, webbing straps, packing materials and similar
items. A typical limit might be £10,000 any one claim
Cover for containers and trailers: Those which the haulage contractor does not legally own or
has not hired or leased, if it is legally liable for their loss or
damage caused by its negligence. Insurers usually specify a
limit that varies from £10,000 to around £50,000 per
container or trailer
Not only do insurers have expectations regarding the security of the vehicle and its load,
they also expect the haulage contractor to take certain precautions regarding drivers they
employ. They sometimes state this in the policy. Some insurers require the employer to
obtain satisfactory written references from employers for at least the two years leading up
to employing a new driver. The references must refer not only to the driver’s ability to do the
job but also to their honesty.
Question 7.4
Bill is carrying a load of pipes when his lorry is involved in an accident. Which of the
following would his firm’s haulage contractor’s liability policy cover?
a. The ropes holding the pipes in place snap and will need to be replaced.
Yes F
No F
b. Pipes are scattered all over the road and have to be cleared up.
Yes F
No F
c. Many of the pipes are dented and cannot be used.
Yes F
No F
d. Bill’s portable DVD player is thrown around inside the cab and damaged beyond
repair.
Yes F
No F
C Rating practices
As with all forms of insurance, it is for the insurer to collect sufficient premium to fund claims
and pay all expenses, including staff salaries and associated costs, while making a profit on
the underwriting. With haulage contractor’s liability insurance insurers use three main ways
Chapter 7
to calculate premiums. They are:
• a set premium per vehicle;
• an adjustable premium based on estimated haulage charges; and
• a fixed annually reviewable premium charged at 100% of the estimated figure.
Example 7.2
A haulage contractor operates five goods carrying vehicles, carrying for reward under
standard RHA Conditions of Carriage 2009. The premium is calculated as follows:
Premium: £200 per vehicle × 5 £1,000.00
C2 Adjustable premium
Premiums
For most haulage risks, insurers calculate premiums by reference to the estimated gross
calculated on haulage charges the haulier will earn during the following twelve months. This figure is then
estimated haulage
charges
usually divided between the various conditions of carriage in use and a rate, representing
the risk exposure to the insurer, is allocated to each activity. The rates are used to calculate
the estimated premium for each set of carrying conditions, the total is calculated and a full
estimated premium is produced. The insurer has then to decide whether to charge a 100%,
or lesser, deposit on that premium. The easiest way for us to see how this works is to look at
an example.
Example 7.3
Lorries Ltd, a haulage contractor, estimates gross charges of £2m for the following twelve
months. This is divided between:
• 30% for standard Road Haulage Association (RHA) carryings;
• 20% for an ‘all risks’ contract with a limit of £100,000 per vehicle; and
• 50% for CMR carryings to and from the near continent of Europe, excluding Italy.
Although these rates are fictitious rates, as rates change according to the prevailing
market conditions at any one time, you will be able to see how the premium is
constructed.
RHA £600,000 @ 0.10% £600
Unlike marine cargo insurance, Insurance Premium Tax (IPT) is payable for the UK domestic
part of this operation. Thus, in our example IPT charged at 12% on £2,600 (the total of the UK
part of the rate) would give a payment of £312.
If sub-contractors are employed, the charges paid to them are separated from the figures
given and are then charged at around half the prime rates. This is on the understanding that
the sub-contractor will accept any claim for loss or damage to goods in their possession in
the first instance.
An insurer may also agree to a variation in rating by taking an average of all the rates and
charging a premium based on one single rate over the whole policy. This is more convenient
when a risk has a number of different rates. Applying one single rate makes it easier to adjust
the premium at the end of the period of insurance.
Chapter 7 Scope of cover: haulage contractor’s liability 7/9
Question 7.5
Construct an estimated gross annual premium for the following scenario. Use the same
rates as those we used in example 7.2.
Estimated gross charges: £1m
Divided between:
50% RHA
30% All risks contract with limit £100,000 per vehicle
20% CMR near continent of Europe.
Practice varies from one insurer to another, but they would usually collect a deposit
premium of around 80% at the commencement of cover. This is usually also specified as the
minimum amount that the insurer will retain upon adjustment.
Let us look again at our example.
Example 7.4
We estimated the gross annual premium for Lorries Ltd as:
RHA £600,000 @ 0.10% £600
Question 7.6
Chapter 7
Using your answer to question 6.5, calculate:
a. a deposit premium of 80%;
b. IPT on the deposit premium.
At the end of the period of insurance the haulage contractor must make a declaration of its
actual gross haulage charges for that period. The insurer will charge additional premium
where business activity was greater than anticipated when the deposit was taken. It will give
a return of premium if the business activity was less than estimated. However, as we have
just seen, insurers usually state a minimum retained premium and so would not make a
return that takes the premium below the level specified. Let us continue to look at how
things develop for Lorries Ltd in our example.
7/10 M90/March 2019 Cargo and goods in transit insurances
Example 7.5
At the end of the period of insurance, Lorries Ltd declares actual gross earned charges of
£2.5m, in the same proportion to each activity. Thus its gross earned charges break down
as follows:
RHA £750,000
CMR £1,250,000
Question 7.7
Again, use the figures from question 6.5. The declared actual charges are £1.5m (divided
between the contracts in the same proportions as before). Calculate:
a. the remaining premium due from the insured;
b. IPT payable on the full premium.
response to competition. It is not necessarily universal in the market, but has become a
regular feature with some insurers. Such insurers establish the premium using the same
method as that used for calculating an adjustable premium and fix it at 100% of the
estimated premium for the forthcoming year. Let us see what difference this approach
would have made to Lorries Ltd in our example.
Example 7.6
Based on Lorries Ltd’s estimated gross charges of £2m we established that the estimated
gross annual premium would be £6,600.
• Under the fixed annually renewal premium method, Lorries Ltd would pay a premium of
£6,600 plus IPT at 12% on the UK part of their charges.
• It would pay no further premium (unless the contracts change during the year).
At its annual review, the actual gross charges were £2.5m.
• This meant that the actual premium should have been £8,250.
• Its insurers would seek to charge £8,250 for the next twelve months (or more, if the
estimated earnings are greater).
For the insured, the fixed annually renewable method of calculating premium means that:
• it knows its maximum expenditure on haulage contractor’s liability insurance; but
• there is no return premium if the business achieves less than the anticipated charges.
For the insurer the fixed annually renewable method:
• provides a useful tool for attracting new business or retaining existing accounts; but
• means that the insurer is exposed to more risk if the business develops at an unexpected
level during the year as there will be no extra premium to account for it.
Chapter 7 Scope of cover: haulage contractor’s liability 7/11
On balance, for both insurer and insured, this method of premium is best suited to times
when the market is either at or near to equilibrium.
Be aware
Some insurers also adopt the practice of cross-checking the estimated annual charges
offered by a haulage contractor against the number of vehicles in its fleet. For an
estimated £2m in charges, based on mixed UK and continental traffic, there should be
around 22 vehicles grossing around £91,000 each. If the vehicle numbers are greater it is
likely that the estimate given is less than it should be.
Chapter 7
the vehicle is moved from the loading area and cannot be delegated.
Although it is the senders and receivers of goods who carry out the majority of loading and
unloading, there are some exceptions, for example:
• car transporting; and
• bulk liquids haulage.
Car transporting
The haulage driver invariable both loads the cars onto the car transporter and unloads them
from it at destination. What is more, the location of some car dealerships means there may
be insufficient space for the large car transporter to enter the premises, or there may be
roadside restrictions preventing unloading immediately outside the dealership.
Consequently, there can be some driving on the public highway for short distances, making
the unloading and delivery procedures more complicated and extensive than is the case with
most other goods. However, the cars are still in the custody and control of the driver of the
car transporter until they hand the keys to the dealership. Therefore, it is normal practice to
extend the haulage contractor’s policy to cover loss or damage during this operation.
Bulk liquids
Bulk liquids are usually loaded onto the haulage tanker when collected by either the driver or
the consignor. Usually on delivery the tanker driver will unload the liquid into tanks or silos.
Drivers are responsible for the goods until satisfactory delivery into the correct tank or silo.
Thus the driver usually retains custody and control of the bulk goods during their discharge
into the static receiving receptacle. In section E of this chapter, we will study the effect
delivering bulk goods into the wrong container, silo or receptacle has on cover under the
haulage contractor’s liability policy.
7/12 M90/March 2019 Cargo and goods in transit insurances
Question 7.8
In which of the following circumstances would a haulier be liable?
a. During loading, a pallet slips, tipping its contents onto the floor.
Yes F
No F
b. A poorly secured load of pipes falls onto the road during transit.
Yes F
No F
c. On arrival the goods being carried are found to have been damaged during transit.
Yes F
No F
E Mis-delivery
Mistakes occur in even the best run organisations and a common mistake in the haulage
business is mis-delivery. It usually involves the delivery of the goods to either the:
• wrong address; or
• wrong location at the right address.
The mis-delivery of bulk goods is usually a different matter altogether. It involves the
mis-delivery of the goods at the wrong location in the premises of the correct delivery
address. It generally arises from confusion between the driver and the receiving staff as to
which is the correct container/silo/tank or receptacle to deliver into. In the short distance
between the gatehouse of the premises and the actual delivery point the driver sometimes
forgets the number of the tank, silo etc. into which the goods are supposed to be delivered,
or they may be given the wrong number by the receiving staff. As with all transit related
incidents, although the driver may not be at fault or culpable, they generally get the blame.
Whoever is at fault, the result of the mis-delivery is that the goods from the vehicle and
those already in the container are mixed and contaminate each other. Even though
contamination is the result, the proximate cause is the mis-delivery and this is how insurers
will treat the claim. This also means that, if the policy excludes contamination as a cause,
insurers will still admit the claim because it was caused by the mis-delivery.
Note, however, that the haulage contractor’s liability insurer pays only for the goods that
were being carried and which were mis-delivered. They do not pay for the goods already in
the silo, tank or other receiving receptacle and which were contaminated by being mixed
with the delivered goods. Claims for these goods are the responsibility of either the third
party section of the motor policy covering the delivery vehicle or of the public/products
liability insurance held by the haulage contractor.
Chapter 7 Scope of cover: haulage contractor’s liability 7/13
In addition, the haulage contractor is liable to refund the haulage charges in proportion to
the part of the load lost or damaged. Under CMR, the carrier is also liable to pay interest at
5%. This is calculated from the date on which the claim was sent, in writing, to the carrier or,
if no such claim has been made, from the date on which legal proceedings were instituted
(Article 27.1) and is in addition to the amount of the liability and the carriage charges.
Chapter 7
Under the BIFA terms, the freight forwarder also has a liability for claims for clerical errors
and omissions committed by its staff or principals. This is limited to 75,000 SDRs any one
claim. Furthermore, the BIFA conditions also stand subordinate to liability under statute or
international convention.
F1 ‘All Risks
Risks’’ conditions
Some haulage contractors accept goods for carriage under ‘All Risks’ conditions, without
there being a specific definition of ‘All Risks’ in the contract of carriage. In effect they are
similar to common law carriers, with the exception that they accept full responsibility for the
goods regardless of whether or not they are negligent in causing the loss or damage. The
result of this is that the haulage contractor acts as a substitute for cargo insurance with one
important exception – the owner of the goods does not have a contractual relationship with
the haulage contractor’s liability insurer. In the event of a claim being disputed, the owner’s
course of action is against the haulage contractor. If the haulage contractor’s insurance is
either inadequate, or the insurer refuses to meet the claim because of a breach of a policy
term, for example, the owner of the goods does not have contractual access to those
insurers. It is thus unable to sue them for payment of a claim that has been refused. This
supports the view expressed throughout this study text, that the owners of goods should
insure them in their own name.
7/14 M90/March 2019 Cargo and goods in transit insurances
CMR £350,000
RHA £39,000
The errors and omissions section of the policy usually provides cover against clerical errors
or omissions committed by office staff and directors or principals of the business, e.g. a
member of the freight forwarder’s staff provides an incorrect address so goods are sent to
the wrong place. The freight forwarder will have to pay the extra costs incurred in re-routing
the goods to the correct destination.
Practice varies between insurers, but these limits are representative of those found in the
market. The limits are calculated by reference to the potential liabilities under the various
conditions of carriage. The CMR limit is comfortably more than a claim is likely to reach.
Example 7.7
Assuming that the pound sterling has reached parity with the Special Drawing Rate (SDR)
and the vehicle has the maximum carrying capacity of 30 tonnes.
CMR liability is worked out as follows:
• The maximum liability any one vehicle load would be: 8.33 × 1 × 1,000 × 30 = £249,900;
• plus a refund of the carriage charges; and
• interest at 5%.
The RHA limit of £39,000 is calculated as follows:
Chapter 7
However, modern practice for some insurers is to provide a standard limit of £350,000 any
one vehicle load. The haulage contractor must also refund the carriage charges, either in
whole or pro rata to the extent of loss or damage.
The standard limit with BIFA conditions is not based solely on vehicle carrying capacities,
but instead on day to day market practices. Some insurers also provide cover for a higher
limit of £250,000 as standard for errors and omissions. However, bearing in mind that under
BIFA terms this liability is restricted to 75,000 SDRs, this is comfortably in excess of the
actual maximum liability.
Calculating the limit for a warehouse keeper using United Kingdom Warehousing
Association (UKWA) terms can be quite complicated. This is because it depends upon
whether the goods are stored on pallets, on shelves or loose stored. Storage on pallets is the
easiest way of calculating potential liability, so long as the maximum number of pallets that
can be stored in the building can be established and the maximum weight of goods stored
on a pallet is known.
Example 7.8
1,000 pallets of goods are stored in a UKWA warehouse with a 1,000 pallet storage
capacity. Each pallet is packed with goods weighing up to 1 tonne.
Liability is calculated as follows:
1,000 pallets × 1 tonne @ £100 per tonne = £100,000.
This is the minimum limit that the warehouse keeper will need to have insured. In practice,
it will prefer a limit that is more than the theoretic maximum exposure in the building.
Chapter 7 Scope of cover: haulage contractor’s liability 7/15
Question 7.9
Which of the following is correct?
On a typical policy the RHA limit is calculated at:
a. £1,300 × 20 tonne = £26,000. F
b. £1,300 × 30 tonne = £39,000. F
c. £1,200 × 30 tonne = £36,000. F
Reinforce
We considered these conditions in detail in chapter 4, and you may wish to refresh your
memory at this point.
F3A CMR
Under the CMR convention the carrier is liable for loss or damage to the goods, unless it can Liability under
CMR considered
show that the cause was due to circumstances it could not foresee and the consequences of in chapter 4,
which it was unable to prevent (Article 17.2). There are other circumstances in which the section A1
carrier may be relieved of liability. However, the 17.2 defence is the one usually used to
defend a claim under CMR.
Chapter 7
F3B RHA
Under RHA conditions, the carrier is liable for loss or damage to the goods entrusted to it,
whether it is negligent or not. However, its financial liability is limited to not more than
£1,300 per tonne of goods lost or damaged, unless a higher limit per tonne has been agreed.
F3C BIFA
The BIFA standard terms of business are unlike those for haulage, forwarding and storage in
that they operate in two separate ways. Firstly, they act as conditions in their own right and,
secondly, they stand subordinate to any statutory conditions or international conventions,
such as CMR and Hague-Visby, but only to the extent of those liabilities.
The position of the freight forwarder under BIFA terms of business is that the forwarder
must discharge its duties with a reasonable degree of care, skill, diligence and judgment.
However, because freight forwarders undertake many activities, the specific liability
attaching in any one claim will depend upon what activity it was undertaking at the time the
goods were lost or damaged. It could be CMR or RHA but could also be under UKWA,
Hague-Visby or other international convention.
F3D UKWA
The liability of a warehouse keeper in the UK using the United Kingdom Warehousing
Association (UKWA) Conditions attaches for any loss or damage to goods caused by the
neglect or wilful act or default of the warehouse keeper, its servants or sub-contractors. The
standard liability is limited to £100 per tonne, although the warehouse keeper and the owner
of the goods may increase this by prior agreement. However, the warehouse keeper is not
liable if the damage is caused by certain perils, notably fire, explosion, storm, strikes, flood or
any other cause outside its control.
7/16 M90/March 2019 Cargo and goods in transit insurances
business activities
is vital to ensure
adequate cover
businesses form an essential part of the transit chain, which moves goods from seller to
buyer, both domestically and to and from other countries. These various parties attract a
variety of legal liabilities to themselves and the haulage contractor’s liability policy can cater
for those liabilities. A full disclosure of the business activities of the haulage contractor,
forwarder or warehouse keeper is vital if the insurer is to provide cover that will cater for all
the risks to which the insured is exposed.
The extent of activities naturally varies from business to business but, as a rule, freight
forwarders have the more complex business and the widest range of activities. These range
from carrying themselves or appointing a carrier, through to storage, issuing essential transit
documents and clearing goods through customs, as well as arranging space for the cargo on
the chosen method of conveyance. By comparison, where the seller and buyer of goods are
located in the same country things are a lot simpler and there is no specific need to employ
the services of a freight forwarder. The documentation for domestic haulage is usually
restricted to the consignment note issued by the haulage contractor. The contractual
relationship is between the haulier and the buyer or seller of the goods and it is for them to
agree mutually acceptable conditions of carriage. Those conditions will apply throughout
the carriage, including any temporary storage during the ordinary course of transit, and
regardless of whether the goods are transferred to another vehicle as a normal part of the
haulage operation. Domestic haulage is a much less complex and far more predictable risk
for an insurer to underwrite.
One type of liability policy usually covers all the risks run by all the businesses in the transit
chain. The following example is of a typical policy schedule, designed with a freight
forwarder in mind.
Chapter 7 Scope of cover: haulage contractor’s liability 7/17
Example 7.9
Policy schedule for a freight forwarder.
Legal liability Limit of liability
The schedule also identifies those conditions of carriage under which the standard liability is
altered. For instance, ‘RHA @ £2,500 per tonne’ would be shown on a separate line to the
standard rate and the vehicle limit would be shown as £75,000.
The manner in which the risks and limits are shown on the policy schedule varies according
to the house style of each insurer, but the example shown above is typical of that to be
found in the market.
Chapter 7
control discussed
rule. Where a sub-contractor is used, the principal carrier retains prime responsibility for loss in section D
or damage to goods while in the custody of a sub-contractor it has appointed. This remains
so, even if the principal does not have physical custody and control of the goods when the
loss or damage occurs.
The prime contractual relationship is between the principal carrier and it customer, from Carrier vicariously
whom it received its instructions for carrying the goods. In law, the carrier is vicariously liable liable for the acts
of any sub-
for the acts of both its servants and any sub-contractors it employs. In practice, the claim is contractors it
usually referred to the carrier who actually had possession of the goods at the time of loss or employs
damage, but the claim can be made upon the principal carrier in the first place. In any case, it
will end up with the principal if the sub-contracting carrier, or its insurer, fails to respond to
any claim.
There is a variation to this rule in the case of freight forwarders, but only where they contract
as agents to introduce the owner of the goods to a road carrier. The two parties are then
able to agree their own terms for the carriage of the goods. In this capacity the freight
forwarder is acting as an agent only, and does not have the status of a principal. Under the
BIFA terms and conditions the forwarder claims the right to arrange conditions of carriage
with a carrier on its customer’s behalf, while retaining the status of agent. This can
sometimes create a grey area as regards the freight forwarder’s status. In order to establish
the capacity in which the forwarder acted, the standard procedure is to study the whole of
the service provided. If the forwarder’s own vehicle carried the goods, it is obvious that it
was acting as a principal carrier. On the other hand, if it produces an invoice for its services
showing that independent contractors carried out all the activities involved in the carriage –
it may be regarded as an agent.
7/18 M90/March 2019 Cargo and goods in transit insurances
In respect of the carriage of goods between the UK and the continent of Europe, the
existence of the CMR note accompanying the goods makes the position easier. This is
because the haulage contractor shown on the CMR note as the first carrier takes the prime
liability for any loss or damage.
G2 Stevedoring firms
Finally, the movement of goods at ports is carried out by stevedoring firms, who are
responsible for the loading and discharging of goods to and from both RO/RO and deep sea
vessels, for the movement of cargo within the terminal and for loading onto road trailers
and/or railway wagons.
Two methods of loading are involved here:
• RO/RO vessels: the loading and unloading consists of hauling loaded trailers and
containers to and from the vessel by tug masters operated by the stevedores; and
• deep sea vessels: the loading and discharge usually involves the craning of loaded
containers onto and off the ship.
Conclusion
We have now looked at the insurance of goods as they are moved by land and sea. However,
before moving on, let us put all this information into context by getting a feel for the extent
of import and export trade internationally and how it can fluctuate.
The charts in figure 7.1, showing export and import activities in world trade from 2011 to 2018
reveal two important trends:
Chapter 7
• There has been a substantial fall from the figure for 2011, when the global recession began
to be fully felt. This has been followed by a gentle recovery in 2013 and 2014 for exports,
with a much more irregular pattern showing for those same years in imports. The figures
for both exports and imports in 2016 show significant drops in activity, suggesting that
world trade may have paused its growth during the period under review. Some of this
slowing in activity may be due to the effect of the Brexit process between the United
Kingdom and the European Union.
• Both charts indicate the importance of the Asian, European and North American markets
in global trade. This is driven, in the main, by the developed economies of these areas of
the world, which are with densely populated with consumers. These consumers drive the
demand for both the everyday necessities of life, such as household products and for
luxury goods.
Chapter 7 Scope of cover: haulage contractor’s liability 7/19
6 6
5 5
4 4
3 3
2 2
1 1
0 0
-1 -1
2011 2012 2013 2014 2015 2016 2011 2012 2013 2014 2015 2016
Chapter 7
7/20 M90/March 2019 Cargo and goods in transit insurances
Key points
The main ideas covered by this chapter can be summarised as follows:
Haulage contractor
contractor’’s liability compared to cargo risks
• Goods are the common link between cargo and haulage contractor’s liability cover.
• Premium for cargo insurance relates to the value of the goods, whereas premium for haulage
contractor’s liability insurance relates to haulage charges.
• It costs the same to transport one tonne of expensive goods over a certain distance as it does to
transport one tonne of cheaper goods, meaning that premium levels are depressed.
Rating practices
• Legal liability attaches to the carrier when the goods are in its custody and control.
• It does not usually apply during loading and unloading.
Chapter 7
Mis-delivery
• Mis-delivery can either be to the wrong address or to the wrong location at the right address.
• Whereas contamination is usually excluded, where it is caused by mis-delivery it is covered because
the mis-delivery is the proximate cause of the contamination.
• Delivery to bogus consignees is usually treated as theft by deception.
• The policy covers the standard limits of liability stated in the various conditions of carriage, though
cover for increased liability is available.
• Each set of standard conditions – RHA, BIFA, UKWA etc. – have their own limits of liability and
impose their own duties on the haulage contractor or warehouse keeper.
• The haulage contractor must incorporate the conditions of carriage into its contract with its
customer.
• The haulage contractor must make a full disclosure of all its business activities to ensure that any
legal liabilities attaching as result of its business relationships with others, e.g. freight forwarders, is
covered by the insurance.
• Where a sub-contracted haulier is used, the haulage contractor retains liability for loss or damage
to the goods, although most claims will be made to the sub-contractor in the first instance.
Chapter 7 Scope of cover: haulage contractor’s liability 7/21
Question answers
7.1 The four sections are:
• cover;
• additional covers;
• conditions precedent and subsequent to liability; and
• exclusions.
7.2 Blyth v. Birmingham Waterworks Company (1856) defined negligence as:
the omission to do something which a reasonable man guided upon those
considerations which ordinarily regulate the conduct of human affairs, would
do, or doing something which a prudent and reasonable man would not do.
(We looked at this in chapter 4, section A3)
7.3 False. Contingent common law cover only applies if the conditions have been set
aside by a court of law.
7.4 They are all covered under a typical haulage contractor’s liability policy.
7.5
RHA £500,000 @ 0.10% £500
£4,200
Chapter 7
Less deposit (80% × £2,800) £2,240
Self-test questions
1. Name the common link between marine cargo and haulage contractor’s liability
insurance.
2. How are haulage charges calculated?
3. Identify the basic difference between marine cargo and haulage contractor’s
liability insurance.
4. What are the three alternative bases of cover provided by a haulage contractor’s
liability policy?
5. When does the contingent common law cover operate?
6. Identify four extra covers found in a haulage contractor’s liability policy.
7. Name the two usual bases of calculating premium.
8. When is a carrier liable for loss or damage to goods?
Learning objectives
After studying this chapter, you should be able to:
• describe the key characteristics and risk profiles of different cargoes and goods in transit
risks; and
• describe the cover issues related with these risks.
Chapter 8
8/2 M90/March 2019 Cargo and goods in transit insurances
Introduction
This chapter is the first of two in which we consider risk perception and evaluation. In this
chapter we consider the nature of the goods actually being transported. Goods are the
common denominator in both marine cargo and haulage contractor’s liability insurance. It is
the fact that these goods face all sorts of perils while being transported that generates the
need for insurance.
Key terms
This chapter features explanations of the following terms and concepts:
Brown, white and Frozen goods Fruit and vegetables Goods in bulk
grey goods
Note: much of the following information is based on the Lloyd’s Survey Handbook
(ISBN: 1859786820).
Although they are written in the cargo market, specie risks require highly specialist High value goods
underwriting. As high value goods they are very theft attractive and vulnerable to poor are theft attractive
moral hazard.
Thus, in addition to being subject to the normal perils of transit by land, sea and air, they are
also vulnerable to:
• armed robbery;
• sleight of hand;
• falsification of documentation such as valuation certificates, export licences, certificates
of origin and documents of title;
• substitution by inferior copies;
• reduction in value even after the most minor of repairs;
• malicious damage, e.g. by slashing, assault by ink, paint or other chemicals;
• theft by principals and employees, i.e. inside jobs; and
• forgery.
A2 Frozen goods
Apart from exposure to the usual maritime risks, frozen foods, including frozen meat, are Vulnerable if
also vulnerable to damage if the refrigerating machinery on board the vessel, or in the land refrigerating
machinery
conveyance, is faulty or breaks down. Meat damaged in this way will be rejected on arrival as breaks down
unfit for human consumption. Frozen foods also have their own particular vulnerabilities in
the event of a road traffic accident. The accident may damage the vehicle and cause
contamination to the frozen food or it may damage the refrigeration unit, causing it to
malfunction or fail.
Another significant risk with frozen fish and meat is that of malicious damage caused by
members of animal rights groups. This particular risk is much greater on land, especially
where a number of refrigerated conveyances are parked together, such as in the compounds
of transport organisations. The publicity attracted by setting fire to a number of such
vehicles in the one location is the main aim of the protagonists. Transport operators should
try to avoid or mitigate this accumulation risk wherever possible, as it can weigh heavily
against it when arranging its goods in transit cover.
Chapter 8
• its water content;
• the mode of preparation and packing;
• the conditions of transport;
• the time taken in transport;
• temperature and variations in temperature; and
• the water vapour content and degree of agitation of the surrounding atmosphere.
Non-natural risks associated with fruit and vegetables include poor handling during both
packing and stowage, theft while in transit by road vehicle and contamination by stowaways
in trailers. It may seem unusual for fruit and vegetables to be theft attractive, but the key to
this sort of theft is the fact that it is difficult, if not impossible, to recognise individual items
belonging to different owners: one golden delicious apple looks much like another. This
makes disposal of stolen fruit and vegetables a relatively easy process.
Be aware
It can often be difficult to determine if perishable food produce, whether frozen or chilled,
has been damaged during the course of transit where the temperature logs are correct.
Such goods can suffer damage if ‘hot stuffed’ or if they have reached a too mature state in
their lifecycle before either being frozen or the transit commencing.
8/4 M90/March 2019 Cargo and goods in transit insurances
Vulnerable to
The extra risk of insuring goods in bulk is mitigated to a certain extent by the reduction in at
mis-delivery, least one of the perils to which most goods are vulnerable – that of theft. This does not mean
shortage
and contamination
that there is no theft of bulk goods, just that the general level of theft is lower than it is with
consumer goods. There have been large thefts of oil in bulk brought about by
misappropriation of the cargo. Distinct additional risks to which goods in bulk are vulnerable
are mis-delivery, shortage and contamination.
One cause of contamination is a foreign article getting into the bulk goods. There are many
causes of this, but one would be oil from the ship’s pipes getting into the goods. It has also
been known for flakes of rust from the underside of a warehouse roof to fall into a raw
material intended for use in steel making, rendering it unfit for use in that process.
Sometimes, delivery into the wrong tank, silo or container is the cause of the contamination
as the goods mix with the contents already stored. You should remember at this point that,
although the result is contamination, the proximate cause in this instance is mis-delivery. If
an insured owner wishes to ensure that the risk of mis-delivery is covered, they need to
insure under the ICC (A) clauses or add the peril of mis-delivery as an endorsement to the
policy.
A significant catastrophic risk with dry bulk goods such as nickel ore, is the risk of solid bulk
cargo liquefaction (SBCL
SBCL). Bulk cargo of any material that has been quarried from the
ground will contain moisture within its mass. If the moisture content is above a certain
amount when it is loaded into a bulk carrier, the natural movement of the ship through the
seas will cause the moisture to move within the bulk material. This will cause the material to
liquefy. Once this process reaches a certain point, the bulk cargo will move within the hold.
Bulk carriers are usually large open vessels and this gives the liquefied bulk cargo a large
area to move around in, which can cause the carrier to list. Before too long a tipping point
may be reached causing the vessel to capsize and sink. This is how the Vinalines Queen, a
large bulk carrier, was lost in 2005. She was barely six years old at the time of her sinking.
Oil tankers do not suffer from this risk to the same extent as other bulk carrying vessels. This
is because they are built with several tanks on the port and starboard sides and on the centre
line. This design limits the movement of the bulk oil, largely eliminating the SBCL risk.
Chapter 8
A5 Made-up clothing
The description ‘made-up clothing’ covers a wide range of clothes from suits and tee shirts
to jeans and shoes. There are two main risks with clothing:
• theft; and
• water damage from rain and sea water or sea spray.
It is important to study the cartons used in packing the goods very carefully for signs of
wetness or water staining. If inspection reveals either of these, the clothing must be removed
from the cartons without delay. This is necessary to stop the water damage from spreading
to the whole of the contents and to prevent mildew. For the same reason, it is important to
separate the damaged items from those which are undamaged. The visual evidence of water
staining means that damage is almost inevitable. However, prompt action can mitigate the
extent of the damage.
Question 8.1
Why are vegetables theft attractive?
Be aware
Clausing the delivery note
This refers to the practice of adding a note on a delivery document indicating loss or
damage. This is an important practice during the receipt of goods because it effectively
ties that carrier into a claim for the loss or damage, giving a strong indication of the period
of carriage during which it occurred. Such a document is invaluable in obtaining
Chapter 8
compensation from a carrier.
Question 8.2
What are white goods?
Almonds are easily damaged by moisture, heat, odours or contact with unclean goods.
Moisture damage occurs during periods of high humidity. Almonds are usually shipped in
cartons or bags.
Aluminium in sheets is usually protected by a layer of tissue paper between each sheet, or
treated with oil or lanolin. Being relatively soft, the surfaces of aluminium sheets are
particularly vulnerable to scoring damage caused when one sheet drags across another.
Moisture can occur when sheets of aluminium are stacked together in cases or in stores.
Alkaline compounds, sometimes present in cement, mortar and plaster, accelerate corrosion
by moisture. It should therefore not be stowed in close proximity to such products nor
should it rest on an unprotected concrete floor.
Apples are carried under temperature-controlled conditions – usually between 0.75˚C and
4˚C, depending upon the type of apple. The waxy nature of the apple surface affords it a
certain amount of protection, but apples are still vulnerable to bruising by mishandling.
Apricots, in dried form, are shipped in cases or cartons. They are subject to inherent vice
Apricots
(deterioration or damage without outside influence), which is aggravated by contact
with heat.
Bacon is usually shipped in cases or cartons and must at all times be kept at a temperature
not exceeding 4.5˚C.
Bananas are usually shipped in perforated cartons, individually wrapped in polythene, or in
bulk in branches. Recommended temperature during transit is between 11.5˚C and 12˚C.
Correct stowage and carrying temperatures are essential to avoid damaging the fruit.
Batteries – lithium ion and lithium metal can overheat during transit, causing fire. Because
of this at least two airlines in the USA have banned the carrying of such batteries, both in
cargo holds and in dedicated cargo carrying aircraft.
Beans are usually shipped in bags, but occasionally in bulk. Almost all types of beans are
prone to heat and will deteriorate if shipped in damp conditions, which will cause them to
heat up, sweat and ferment. Mould or rot occurs if the dampness is excessive. Dried beans
are also liable to infestation by weevils, which eat their way out from the centre of the bean
causing loss of bulk. If exposed to heat beans may also attract vermin.
Beers are transported in bottles or cans in cases or cartons and in barrels. When transported
in barrels, beer is very much affected by variations and extremes of temperature. Bottled
and canned beer is vulnerable to collapse of cartons and cases, breakage, denting or
collapse of cans, soiling of labels and corrosion.
Brazil nuts still in their shells are shipped in bags, while kernels are usually shipped in
vacuum foil packs in cartons. High moisture content in the shells of nuts may appear as
mould on the shells. In time, this will destroy the kernel. The cause may be the build-up of
moisture in poorly ventilated containers, improper stowage or rain before and during
Chapter 8
loading.
fats. The main problems with transporting these commodities relates to loss of
Bulk oils and fats
weight or volume and, as with most foodstuffs, contamination. Oils and fats in bulk which
solidify and require heating to liquefy and facilitate pumping out, will give a false reading if
the contents of the tank are not completely liquefied. The terms of the contract of sale allow
for normal losses caused by the product sticking to the walls of tanks and pipelines.
Question 8.3
What are the main risks associated with transporting bulk oils and fats?
Caravans, whether motorised or trailer, are vulnerable to theft or pilferage of fixtures and
Caravans
fittings. Damage to the relatively flimsy walls of caravans is very expensive to repair because
it usually entails stripping out the internal fixtures in order to remove and replace the
damaged area. Caravans are also especially vulnerable to damage caused by high winds,
particularly when they are stored on open quay areas awaiting loading to vessels or
subsequent to discharge after arrival at ports.
Chocolate is usually wrapped in foil and paper, then in boxes and cartons for transport. It
should be carried at a cool temperature. It is most prone to moisture, heat, sudden changes
in temperature and infestation by insects if containing dried fruits. Its quality can also
deteriorate as it ages during the time between manufacture and purchase by a consumer.
Coffee beans are usually shipped in woven bags made from natural fibres which allow for Lose weight during
the free circulation of air. The bags are vulnerable to hook and handling damage. Coffee transport
beans lose weight during transport, which is generally accepted at 0.5% of the total weight.
Water damage is also a feature of coffee beans and leads to discolouration and mould.
Therefore, it is trade practice to cover the bags with craft paper to deflect the moisture from
the underside of the top of the metal container holding the bags. The use of craft paper is a
simple, inexpensive way to avoid this type of damage. Provided any damaged beans can be
separated from beans in sound condition, the latter can be re-bagged in fresh bags and the
damaged beans sold off as mouldy beans. Coffee beans may also suffer from infestation, but
this can be dealt with by fumigation.
Copper and copper alloy products are vulnerable to damage by sea and fresh water,
causing corrosion. Superficial stains do not affect the quality of this product, but the buyer
may reject it if it is rough and pitted from corrosion. These products come as sheets, strips,
tubes, wire and other wrought shapes and castings. Thin sheets are vulnerable to scratches,
gouges and tears. Copper and copper alloy products are also the regular target of scrap
metal thieves.
Cotton goods sometimes suffer mildew and decay, but this can be avoided by the use of
suitable antiseptics. If cotton encounters conditions of high humidity, or if it is packed warm
or in conditions of high humidity, mould growth caused by the starch used in its production
will quickly become apparent, and may develop to a considerable extent during the course
of transit.
Detergents in powder form are usually shipped in iron drums. Absorption of moisture is the
greatest risk. If this product suffers wetness it has little salvage value.
Electrical equipment and Electronic goods (including computers, televisions, tablets etc.) Also considered
in section A6
Chapter 8
are vulnerable to damage by impact, dropping, wetting and, mostly during the land part of
the journey, to theft, even more so when a particular technology is new. Electronic goods
supplied by reputable manufacturers are encased in polystyrene moulded to the shape of
the product, and in cardboard packages, preventing any movement within the packing. This
method of packing provides excellent protection against damage arising from the normal
rigours of transit by land, sea and air, though not against rough handling or dropping. Water
entering the packing will cause damage to the product, rendering it unfit for sale as new.
A further issue with such goods is that in order to protect their brand image, some
manufacturers will insist on the product being written off and destroyed if the packing
shows signs of wetness, even if the water has not penetrated to the computer inside. This is
taken a stage further by some manufacturers of large computer processing systems in tall
cabinets which suffer minor damage. Experience has shown that these manufacturers will try
to prevent such a product going into use in industry or commerce, even when testing shows
that the system runs perfectly. Such a stance can result in a total write-off claim for around
£50,000, although it could be repaired for £5,000. Unless the policy has been specially
endorsed to cater for this, e.g. by a brand and trademarks clause, the rule of indemnity will
allow an insurer to insist upon the insured fulfilling its duty to mitigate its loss.
Fertilisers are transported as bulk or bagged cargoes. Generally, bags are made from woven
polypropylene or polythene. The main risks are moisture and tearing of bags. Fertilisers may
also contaminate other goods nearby if the contents escape from the bags.
8/8 M90/March 2019 Cargo and goods in transit insurances
Fish is best transported in a deep frozen condition. For long voyages it is essential that it is
kept between minus 25˚C and minus 30˚C, in order to maintain its taste and to keep it in the
same condition as it was when it was caught. As with all temperature-controlled goods, fish
must be at the required low temperature at the time it is loaded into the temperature-
controlled transport. This is because the equipment on board such transport is designed
only to maintain a given temperature; it cannot reduce it further by more than a degree or
two. Fish sent by air cargo is mixed with dry ice, but this has great limitations as a method of
preserving the fish.
several years old and have little intrinsic value. Owners have an expectation that any claim
will be settled on a new for old basis, whereas marine claims traditionally attract an
indemnity settlement. Where the packing and removal is done by professional packers and
removers, some household insurers automatically provide cover during removal but this
may, or may not, extend to overseas removals. For removal goods a valued inventory
prepared at the time of buying the insurance is of great advantage in the event of a claim
arising.
Subject to rusting
Iron and steel products come in many forms, such as billets, plates, coils, pipes, sheets and
if wetted and rods and are subject to rusting if wetted and exposed to air. Because steel is prone to rust,
exposed to air
extra care must be taken to ensure the vessel’s holds are thoroughly clean and dry before
loading and that the hatch covers are watertight. It is common practice for insurers to
exclude from cover the rusting, oxidisation and discolouration (ROD) of steel products in
bulk. However when insuring non-bulk products, some underwriters qualify this exclusion by
adding words such as ‘unless adequately packed and protected against such damage’.
Practice varies between insurers, but if an underwriter is satisfied with the level of protection
against the ROD risk, there is every reason to accept the risk by qualifying the exclusion in
this way. Steel fresh from the rolling mills and steel works will acquire surface rust very soon
after being exposed to the atmosphere. This is entirely natural and can be easily dealt with
by shot blasting. Mild steel rods are also prone to twisting and bending during poor stowage,
rough handling and faulty slinging. With stainless steel sheets surface scratching and scoring
is a significant risk. Steel products are routinely targeted for theft by scrap metal thieves.
Chapter 8 Risk profiles of typically traded goods 8/9
Machinery comes in a variety of shapes, sizes and weights. Various forms of packing may be Recipient should
used, including crating of larger items, while smaller items are packed in cardboard cartons. note evidence of
damage on
Components are wrapped in oiled paper, plastic sheets or open-end bags, polystyrene delivery note
moulded forms or corrugated paper and the like. Handling damage is a notable risk, together
with the risk of rusting, oxidisation or discolouration. Loss prevention is achieved by good
packing standards, including the use of moisture absorbing material such as silica gel. A
visual inspection of the exterior of the crate before opening will indicate if damage is likely to
have occurred. Such indicators include water staining or actual physical damage to the
crate, both of which strongly suggest that the machinery may have experienced wet or rust
damage or physical damage caused either by rough handling or movement of the crate
during transit. The recipient should make a note of this evidence on the carrier’s delivery
note, stating the suspected nature of the damage. They should then open the crate straight
away and remove its contents. Where they suspect water damage this will act to mitigate
the extent of the damage. This is important because the Institute Cargo Clauses impose a
duty upon the insured to avert or minimise a loss. If they fail to discharge this duty, the
insurer may reduce the claims payment or refuse to meet the claim altogether.
The main problem found with some types of second-hand machinery is their inherent
instability while in transit. A pertinent example is old printing presses, which are vulnerable
to toppling over because of their high centre of gravity. During their working lives these
presses were held in place by being secured to walls and floors, but this is not possible in
transit and so there is a great risk of their toppling over or falling from carrying vehicles.
There is no universal agreement on the ideal vehicle to use when transporting printing
presses. Their high centre of gravity suggests that this would be a low loader, although an
open flat platform trailer is sometimes used.
Some machinery, such as earth moving equipment and lifting gear (e.g. cranes) is very
heavy. Some is extremely heavy and very large and cannot be broken down into smaller
parts for ease of carriage. The risks associated with such heavy machinery are that its lifting,
handling and movement must be planned with great care. In addition, its size means that it is
too large to go in a container, so is very often carried on the deck of a vessel, where it is most
exposed to the maritime environment. When transporting by land, it is usually necessary to
plan routes beforehand and the use of multi-wheeled vehicles is compulsory, so that the
weight of the load is spread evenly and damage to road surfaces is avoided.
Meat is carried in a frozen or chilled state. Chilled meat is the greater risk of the two because
it is more vulnerable to changes in temperature. The biggest risk involves the failure or
malfunction of the refrigerating equipment in transit or in store during transit. Meat is theft
attractive and contamination from a variety of causes is also a significant risk. Hanging meat
can also be damaged, and possibly written off, if the movement of the vehicle causes the
meat to sway to the extent that the vehicle becomes unstable and even overturns.
Motor vehicles face the following main risks:
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• handling damage (including loading and unloading under the vehicle’s own power);
• movement of the vehicles on board the ship due to harsh weather conditions;
• damage caused by the poor driving skills of the driver while on a car transporter;
• rusting; and
• most significantly, hail damage.
Insurers usually require a pre-shipment report on the condition of second-hand vehicles,
although digital photographs are a useful substitute. They can establish the value of the
vehicles by referring to the various vehicle pricing guides used in the motor trade and will
usually exclude the risks of rust, oxidisation and discolouration, unless the vehicle is
protected from them.
Paints are usually carried in tins and drums, with smaller sized tins also being packed in Usually carried in
cartons or open crates. Oil based paints are flammable and are thus subject to the tins and drums
International Maritime Dangerous Goods Code (IMDG Code), issued by the International
IMDG Code
Maritime Organisation. Tins and drums are vulnerable to damage caused by rough handling
in transit and by heavy seas if not stowed properly. This may cause them to burst or spill
their contents, contaminating other goods stowed nearby. Paints must also not be stowed
too near boilers or other hot surfaces. Furthermore, stowage in extremely cold conditions
will cause the constituent parts of paint to break up rendering them impossible to mix.
8/10 M90/March 2019 Cargo and goods in transit insurances
Paper in reels is damaged by heavy landing, which causes it to flatten. It is also vulnerable to
edge damage caused by heavy handling and may suffer wetness if not properly protected.
Paper in such condition is unsuitable for modern high speed presses and may have to be
sold as salvage.
Petrol and petroleum products are flammable and, as such, are subject to the IMDG Code.
They are liable to loss of volume and to contamination caused by the remains of the previous
cargo, by tank cleaning substances and as a result of insufficiently cleaned or emptied tanks
or pipelines. Contamination from sea water may also cause damage. The product, as well as
the dimensions and design of the cargo tanks, dictate the extent of this loss. The voids in
some cargo tanks can trap the liquid so that it is not discharged. This is known as ullage and
it is usual to take account of ullage when calculating the outturn upon unloading.
Underwriting petrol and diesel in transit by road tanker is not such a bad risk as it might first
appear. This is because, though a fire may look spectacular, the financial cost for insurers is
not especially high. HMRC is unlikely to apply duty if the fuels are destroyed before reaching
the retail filling station, because it will not be introduced into the consumer market.
However, if petrol or diesel is stolen in transit, the full duty will be payable, as there is a
reasonable presumption that it will be introduced to the consumer market. Since duty is a
substantial percentage of the cost of fuel at the point of delivery to the customer, where it
has been proved to have been destroyed, the amount to be paid by insurers is limited to the
material value of the fuel only.
Project cargo Project cargo covers a wide variety of materials, machinery and equipment for use in major
described more
fully in chapter 6, capital projects, e.g. the building of a power station, wind farm or airport etc. A great
section C percentage of project cargo is large, heavy and indivisible for transit, but smaller items, such
as computers, may also form an integral part of the project. As its name suggests, project
cargo is cargo that is part of a project and cover is usually written in conjunction with
delayed start up (DSU) insurance. Although the Institute Cargo Clauses (A) 1/1/09 form the
basis of the cover, the wordings are much wider than for traditional cargo.
Typical items falling within the description of project cargo include masts, sails and turbines
for wind farms, generators, furnaces, industrial turbines, pre-cast steel modules and much
more. When large items that form part of a capital project, e.g. a reactor, are being sent
overseas by ship, the ideal Incoterm to use is Free Alongside Ship (FAS). Under this term the
buyer takes responsibility for the property when it is delivered to the quayside at the port of
departure.
A significant extra damage risk arises if items of project cargo are carried by unmade roads
in remote locations. In addition to carriage by road, rail, sea and sometimes air, regular use is
also made of barges, pontoons, skids and sleds. Stability can be an issue with barges and
pontoons, in particular because of their shallow draughts in the water. This combined with
the fact that their total deadweight is closer to the weight of the cargo being carried, means
that they are more prone to capsizing than, say, RO/RO ferries or cargo ships.
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Rice is liable to heat and sweat, causing it to lose between 1% and 3% of its weight. It is liable
to taint and must be stowed away from scented or odorous goods.
Tea is packed in plywood chests lined with aluminium foil, polypropylene sacks lined with
polythene or multiwall sacks lined with aluminium foil. The main risks associated with tea are:
• fresh or salt water damage;
• pre-shipment damage;
• ship’s sweat;
• fire or smoke;
• odours of taint;
• loss of weight;
• pilferage; and
• improper cooperage.
Chapter 8 Risk profiles of typically traded goods 8/11
Timber falls into two main categories – softwoods and hardwoods. The main risks are Main risks are
wetting and edge damage, the latter usually caused by poor handling. Wetting generally wetting and edge
damage
leads to the development of mould and decay and, in the case of chipboard and board with
similar properties, to loss of strength, thus rendering it unfit for the use for which it was
designed. Timber can be dried either by stacking and separating the tiers of wood with dry
square sticks to allow ventilation by ambient air, or by heating air in a kiln. Sub-categories of
timber include logs, chipboard/flakeboard/particleboard, medium density fibreboard
(MDF)/laminboard/blockwood and plywood.
Question 8.4
Draw lines matching the following goods with the risk associated with them.
Meat Theft
Beans ROD
Chapter 8
8/12 M90/March 2019 Cargo and goods in transit insurances
Key points
The main ideas covered by this chapter can be summarised as follows:
• The risks faced by goods in transit vary according to whether the transit is by road, rail or sea and
by the nature of the goods being carried.
• Some goods are more prone to theft, e.g. grey goods, while others are more prone to
contamination, e.g. goods carried in bulk, such as steel.
• Specie risks are particularly vulnerable to theft.
• Frozen goods are vulnerable to changes in temperature.
• Machinery is vulnerable to wet or damp conditions.
• All fruit and vegetables are subject to natural weight loss during transport.
• Goods carried in bulk can either be dry or liquid and either foods or non-foods.
• Clothing is vulnerable to theft and water damage.
• Brown, white and grey goods are generally well packed but remain vulnerable to damage caused
by dropping and rough handling and theft.
• Any indication that goods may be damaged should be noted on the delivery note (clausing the
delivery note) and action taken to mitigate it.
• Dangerous goods are subject to the International Maritime Dangerous Goods Code (IMDG Code).
Chapter 8
Chapter 8 Risk profiles of typically traded goods 8/13
Question answers
8.1 Vegetables are theft attractive as it is difficult to distinguish a consignment of
vegetables stolen from a shipper from another of the same sort. This makes them
easy to sell on.
8.2 White goods are electrical domestic products such as fridges and washing machines.
8.3 Bulk oils and fats are vulnerable to:
• loss of weight or volume;
• contamination;
• false readings where they require heating to liquefy to facilitate pumping and they
are not completely liquefied; and
• losses caused by it sticking to the walls of tanks and pipelines.
8.4 You should have made the following connections:
Meat Theft
Beans ROD
Chapter 8
8/14 M90/March 2019 Cargo and goods in transit insurances
Self-test questions
1. What are specie risks?
2. To what risk are goods in bulk particularly vulnerable?
3. Bill delivers a bulk load of olive oil to Spicy Senorita Ltd. Unfortunately he
discharges the load into the wrong tank. The load is insured under ICC (A) clauses –
is the damage to the olive oil covered by the insurance?
4. You take delivery of a crate of clothing. On inspection, you find that the crate is
damaged and very damp. What should you do?
5. What are the main risks associated with canned goods?
6. What aspect of computers makes them a good risk for insurers? What makes them
a bad risk?
Learning objectives
After studying this chapter, you should be able to:
• explain how risk is perceived and evaluated;
• evaluate the geographical and physical aspects of risks in different countries and different
routes;
• explain the importance of loss prevention and the methods used in pursuing this
important aspect of insurance; and
• describe how risk accumulates and the importance of controlling it at all times.
Chapter 9
9/2 M90/March 2019 Cargo and goods in transit insurances
Introduction
Here we continue our study of the perception of the everyday risks faced by goods that are
in transit around the world by land, sea and air, and how that perception is evaluated. We
have already considered the perils to which particular goods are exposed. In this chapter we
study the perils that are common to all goods, such as the perils of the sea. We also look at
what methods shippers and underwriters use to prevent losses occurring: loss prevention is
as important in marine cargo as it is in any other class of insurance. Finally, we study how risk
accumulates and the methods available to an underwriter to control it.
Key terms
This chapter features explanations of the following terms and concepts:
Accumulation clause Handling damage Hatch and hold surveys Load, stow and
securement survey
Risk accumulation
A1A Fog
Fog consists of droplets of water vapour suspended in the air near the sea. In winter icing
conditions, a dense winter fog contains ice particles. These can be especially hazardous if
Chapter 9
allowed to build up on the superstructure of a ship, as it can cause the vessel to become
unstable, roll over and sink. The main risks with fog are collision between vessels and
grounding. Fog is a particular hazard in the North Atlantic off Newfoundland and Labrador,
where the Labrador Currents and the Gulf Stream meet, as well as off Greenland, which is
regularly fog bound.
A1B Currents
Currents are bodies of water that flow in certain directions and at different depths. Surface
currents can travel at speeds of up to several nautical miles per hour (one nautical mile per
hour equates to one knot). Depending upon its direction and force, a current can push a ship
off course, slow it down or speed it up. Strong currents, such as those found off the south
coast of Africa, increase the risk of stranding and grounding.
Chapter 9 Further aspects of risk 9/3
A1D Ice
Ice is a significant threat to shipping but, unlike heavy weather, its threat is more gradual. It
builds up on the superstructure of a ship until it reaches a critical point, causing the vessel to
become unstable as the weight of the ice accumulates above the waterline. If a ship
becomes trapped in freezing waters it may eventually be crushed.
Icebergs are fragments that have broken away from glaciers in the Arctic or Antarctic and
have been carried away by currents in the sea. Ice is a significant threat in the North Atlantic,
Baltic, North Sea, North Pacific, Arctic, Antarctic and Bering Sea.
Example 9.1
The RMS Titanic sank after colliding with a large iceberg while on its maiden voyage from
Southampton to New York in April 1912. Until her wreck was discovered in 1985, it was
generally believed that the iceberg had caused a long gash in the hull, along the waterline,
but a subsequent survey of the wreck on the seabed showed no gash. The rivets holding
her hull plates together had failed under the strain of the collision, opening her to the sea.
She lies, in two halves, about 600 feet apart, some 12,600 feet down 375 miles south east
of St John’s, Newfoundland and 1,000 miles due east of Boston, Massachusetts.
Ice can also hinder the passage of goods along certain routes. For example, ice in Hudson
Bay means that the shipping canals can only be used for certain months of the year.
Example 9.2
A vivid demonstration of the power of tsunamis took place on 26 December 2004. A
subduction caused, undersea megathrust earthquake off the west coast of Sumatra,
Indonesia triggered a series of tsunami along the coasts of landmasses bordering the
Indian Ocean. Waves up to 30 metres high inundated coastal communities, killing nearly
230,000 people in eleven countries.
Though it was one of the deadliest natural disasters in recorded history in terms of human
life, it had minimal impact upon marine cargo and hull insurance. However, it is easy to see
how devastating it could have been for industry and commerce if it had occurred close to
a large manufacturing area, or to a major financial trading centre.
Chapter 9
Tides ebb and flow over a period of several hours, due to the relative positions and orbits of
the earth, moon and sun, producing centrifugal and gravitational forces. A change in tide can
cause a vessel to become stranded. The usual option is to wait for the next tide when
attempts will be made to try to float her off without extra stress or strain. However,
depending upon how fast she is stuck, it may sometimes be necessary to lighten her burden
by unloading some or all of her cargo into another vessel.
Question 9.1
What impact can currents have on a ship at sea?
A2B Piracy
Piracy has long been one of the threats to maritime trade and is particularly prevalent off the
coast of East Africa and in the Far East. The traditional aim was to steal the money the ship
carries to pay wages and purchase supplies at overseas ports. However, in recent years
there has been a move towards holding the ship and its crew until a ransom has been paid.
The Court of Appeal’s unanimous judgment in Masefield AG v. Amlin Amlin, delivered in January
2011, upheld the earlier decision in the judgment at first instance, and confirmed two
important points of law in cases of piracy:
• it is not against public policy to pay a ransom to pirates for the release of a ship and crew
held by them; and
• the capture and seizure of a vessel did not in itself constitute an Actual Total Loss (ATL)
of either the ship or its cargo. The owners of the vessel or the cargo could not be
described as having been irretrievably deprived of their property.
Rix LJ concluded:
piratical seizure in the circumstances of this case where there was not only a chance,
but a strong likelihood, that payment of a comparatively small sum, relative to the
value of the vessel and cargo, would secure recovery of both, was not an actual total
loss. It was not an irretrievable deprivation of property. It was a typical ‘wait and see’
situation.
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You should also note that the payment of a ransom sounds in general average, thus allowing
the cargo owner to be indemnified by its insurer in respect of that GA liability.
One important point to bear in mind is that there must be a clear distinction between pirates
and terrorists. Any payment to a terrorist or a terrorist organisation is illegal. This is why it is
important that skilled negotiators are used when dealing with piracy, as they have the skills
and knowledge to identify the sometimes blurred distinction between a pirate and a
terrorist.
Finally, in Masefield the appellants abandoned their claim for Constructive Total Loss (CTL)
on the first day of the appeal hearing, thereby accepting that the capture of a ship and its
cargo by pirates does not constitute a CTL.
Chapter 9 Further aspects of risk 9/5
A3A Theft
Theft represents a major portion of claims by both number and by the amount it costs the
insurer. Consumer goods and clothing, in particular, are highly theft attractive, as are goods
of value, though intrinsic value is not always necessary.
Example 9.3
Although cigarettes are not particularly valuable in themselves, the high level of
Government duty charged on them in the UK (representing some 80% of the total price)
makes them attractive to thieves, who find them very easy to sell when this duty is not
added to the sale price.
If we sub-divided theft into the various methods used by thieves, we will see the extent of an
insurer’s exposure during the carriage of goods on a road vehicle. Thieves use a variety of
methods and theft can be:
• from unattended vehicles;
• from attended vehicles, e.g. during refuelling;
• while the driver is sleeping in the cab;
• by deception (the bogus consignee);
• by trick (the helpful ‘passer-by’);
• by threat of force or actual force – hijack;
• during loading or unloading;
• by driver or other employee;
• by driver collusion; and
• ‘round the corner’ theft.
In Star Fire Diamond v. Angel Ltd (1962) the then Master of the Rolls, Lord Denning, said Vehicle is attended
that a vehicle is attended if the driver is in sight of it and in a position to do something about if driver is in
sight of it
any attempt at theft of or from the vehicle. Therefore, a driver who does not meet these two
requirements is not in attendance on the vehicle. Interestingly, Lord Denning did not define
what ‘doing something about any attempted theft’ meant, so his definition is open to
Chapter 9
Theft by deception
‘Round the corner’ theft describes a method of theft by deception. The driver, arriving at a
delivery address, is met outside by one or more persons, attired as if employed there,
complete with clipboards. These people advise the driver to take their load around the
corner to the overflow warehouse because the main warehouse is full. The driver delivers the
goods into the overflow warehouse and the delivery note is signed. The driver proceeds on
their way, thinking they have made a successful delivery. Sadly the truth is quite the
opposite; they have handed the goods into the custody of persons who were not entitled to
receive them. Thus they have not delivered them in accordance with the contract of
carriage. By the time the ruse is discovered the goods will have been removed from the
‘overflow’ warehouse and disposed of by way of the criminal fraternity.
Question 9.2
What is round the corner theft?
A4 Air freight
Represents an
Sending goods by air freight exposes them similarly to the power of nature. In this case the
attractive risk forces of nature are limited to wind and storm, rain, snow and fog and the exposure is for a
much shorter time. Carriage of goods by air is, with few exceptions, necessarily limited to
relatively lightweight goods and accounts for around 5% of goods in transit during any one
year. It represents an attractive risk to marine cargo insurers, who recognise the better risk
by allowing discounts of up to 40% from the rates charged for surface sendings.
A5 Summary
This finishes our consideration of the risks faced by goods during transit. To conclude this
section, here is a summary of the main risks to goods in transit by land, sea or air:
1. Contact with exterior items causing contamination by taste, smell, colour, quality, vermin and
infestation;
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8. Washing overboard;
9. Impact damage during movement or during handling, loading, storage, unloading, crushing,
breaking loose during a voyage, rubbing, scratching, denting and bruising, collapse of
the stow;
11. Sinking, subsiding, grounding and crashing of the selected mode of transport;
Chapter 9 Further aspects of risk 9/7
17. Breakage;
C Loss prevention
Chapter 9
Cardboard cartons are a popular form of packing for many goods. As we have seen, for
many domestic electrical products this also includes encasing them in polystyrene foam, to
prevent any movement during carriage.
Question 9.3
Think back to the last chapter. What loss prevention measures would you take to prevent
clothing from being damaged during transit?
In the past, some insurers have considered the use of plain labels as a loss prevention
measure. These labels do not identify the manufacturer, and thus give no clue as to the
identity of the product. However, the value of this practice is compromised by the fact that
the name and addresses of the consignor and consignee have to be shown on the outside of
the package. In most cases, this information is enough to help the thieves decide whether
the goods are those that they wish to steal.
Loss prevention and carriers
Loss prevention is more easily applied to the carriers of goods than to the owners. This is
because the carriers have control over the means of transporting goods and are therefore in
a position to exercise due diligence to prevent or mitigate loss or damage during transit.
In marine insurance, much loss prevention work is enforced by statutory requirements.
Section 39 of the Marine Insurance Act 1906 imposes a warranty of seaworthiness on the
owners of vessels. It sets out the requirements a vessel needs to meet before she sets out
from port. Under the Act a ship is deemed seaworthy when she is reasonably fit in all
respects to encounter the ordinary perils of the seas of the adventure insured.
What insurers With carriers by road, insurers usually apply certain requirements relating to the security and
require of carriers
on security general well being of the goods. They place emphasis on the security of the vehicle on the
considered in basis that the goods will be safe if the vehicle is kept safe. We saw earlier that some insurers
chapter 7,
section B2 require reference checks for drivers before they are entrusted with goods. If the goods are
high value, and so theft attractive, insurers may refuse cover if agency drivers are employed.
Loss prevention
Loss prevention plays an important part in the insuring of goods in transit throughout the
protects goodwill world. Apart from keeping premiums to a minimum it also protects the goodwill of the seller
of the seller
in the eyes of the buyer. No matter how sad the circumstances of a loss may be, or the fact
that insurers pay for goods lost or damaged, there is no insurance against the loss of
goodwill. If a seller is unable to supply goods as promised, the buyer may obtain substitute
goods from another supplier. This has the potential to break a long standing commercial
arrangement by giving competing suppliers an opportunity to secure future orders. Thus it is
in the interests of both seller and carrier to ensure that all reasonable methods of loss
prevention are routinely exercised.
C1 Use of surveys
Further loss prevention practices involve the use of cargo surveyors. There are many cargo
surveying firms throughout the world providing a variety of services. Cargo surveys can be:
• preventative
preventative: anticipating the risk of loss or damage by assessing the loading situation
and recommending suitable loss prevention measures; or
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• post-loss
post-loss: establishing the cause of the loss and possibly making recommendations to
prevent a recurrence.
Load, stow and securement surveys
Load, stow and securement surveys are used to approve the load, stow and securing of the
cargo. Where the cargo is of a hazardous nature, these surveys should also approve the
securing of the load as adequate and customary for the intended voyage.
Packing surveys
Packing surveys are used to determine the general condition of a cargo upon arrival and to
document any pertinent conditions found aboard the ship. These are particularly valuable in
the case of goods that are prone to deterioration if not carried at the correct temperature,
such as fruit and goods carried in temperature-controlled conditions.
Chapter 9 Further aspects of risk 9/9
D Risk accumulation
Risk accumulates when an insurer is inadvertently exposed to more risk than it had intended.
In the commercial insurance market it is standard procedure for an insurer to check whether
it is exposed to more than one risk in any one multi-tenanted building by checking centrally
held survey records. The risk to a property insurer is that it could take on risks in the same
building from different brokers without realising it has accepted this increased exposure.
For a cargo insurer there is a significant danger of having more than one of its insured risks in Danger of having
the same vessel. Usually, the insurer only realises this when there is a catastrophic loss, such more than one risk
in same vessel
as the sinking or capsizing of the ship. In the UK, where many goods travel to Europe on road
vehicles using the cross-Channel rail link and RO/RO ferries, there is a considerable risk of
accumulation. There are a number of large haulage firms in the UK and these will have
several vehicles on the same ferry at any one time.
The risk of accumulation also occurs on land. For example, many containers of goods are
gathered together in port areas, pending either shipment overseas or customs clearance
during import.
Example 9.4
An example of how such an accumulation can affect insurers is the series of explosions
that occurred at Tianjin port in China on 12 August 2015, which killed 173 people and
injured hundreds of others.
The largest explosion involved the detonation of about 800 tonnes of ammonium nitrate.
Fires caused by the initial explosions continued to burn, causing numerous further
explosions.
In 2016, the International Union of Marine Insurance (IUMI) projected that the claims
relating to the Tianjin explosions could amount to US$6 billion.
Another common, land based, accumulation exposure for cargo insurers is the holding of
brand new vehicles in port pending shipment or delivery. In certain parts of the world
these are highly susceptible to bodywork damage caused by hailstones.
At the underwriting level, insurers control risk accumulation, to a certain extent, by using the
any one loss limit in the policy. This limit is usually set at no more than double the maximum
sending limit and it restricts the amount that can be claimed by an insured to the stated
figure for any one incident. For example, if the limit any one sending in a cargo policy is
£250,000 the any one loss limit will usually be set at no more than £500,000.
Example 9.5
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Shortfall = £250,000
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Limit exposure by
Another method of avoiding risk accumulation is for the underwriter to try to ascertain full
arranging shipment details from an insured’s records. They then capture the accumulated data into a
reinsurance
recording system which allows them to adopt in-house or proprietary modelling techniques.
These techniques allow the underwriter to acquire a better picture of the likely true
exposure to accumulated cargo at any one port or place in the world, after allowing for the
continuous movement of cargo from its point of origin to its destination. Using such a
technique means the underwriter can assess their accumulation exposure with greater
confidence. This information can then be used to limit the insurer’s exposure to risk
accumulation further by arranging an appropriate reinsurance programme.
Conclusion
We have now completed our study of the legal and regulatory background of marine cargo
and transit insurance, the policy types, risks underwritten and the methods of underwriting.
However, the true test of any insurance policy is what happens when the insured needs to
make a claim. In the next chapter we will look at how insurers handle claims made under
marine cargo and transit insurance policies.
Chapter 9
Chapter 9 Further aspects of risk 9/11
Key points
The main ideas covered by this chapter can be summarised as follows:
• All goods are exposed to a variety of perils, which vary depending on whether they are being
carried by land, sea or air.
• Natural perils of the sea are fog, currents, heavy weather, ice, volcanic eruptions, tsunamis, sand
banks, rocks and tides.
• Unnatural perils are fire, explosion, piracy and handling damage.
• Main risks to goods carried over land are theft and road traffic accidents.
• Goods carried by air are exposed to weather risks of wind, storm, snow, rain and fog, but for less
time than goods at sea.
• Extreme weather conditions, such as cyclones and hurricanes, are particularly prevalent in
particular parts of the world at certain times of the year.
Loss prevention
• Loss prevention is important to prevent loss or damage, to keep the cost of premiums down and to
protect the goodwill of the business.
• A good loss prevention technique for owners of goods is to ensure they are adequately packed to
withstand the rigours of the journey.
• At sea, much loss prevention work is enforced by statute.
• By road, loss prevention is tied into the security of the vehicle and the good character of the drivers.
• Surveys, either preventative or post-loss are used to enhance loss prevention.
Risk accumulation
• Risk accumulates when an insurer is inadvertently exposed to more risk than it intended.
• It happens when the insurer has more than one insured risk on the same ship, at the same port or on
the same RO/RO ferry.
• Insurers limit their exposure through the any one loss limit on the policy and through arranging
appropriate reinsurance.
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9/12 M90/March 2019 Cargo and goods in transit insurances
Question answers
9.1 Currents can:
• push a ship off course;
• cause it to speed up or slow down; and
• increase the risk of stranding and grounding.
9.2 Round the corner theft occurs when the driver is deceived into loading their goods at
a bogus overflow warehouse by thieves masquerading as employees of the intended
recipient.
9.3 Clothing can be shipped in cardboard cartons or as hanging garments. For clothing
in cardboard cartons, protection against wetting and dirt is provided by placing
them in clear plastic bags. Hanging garments should always be protected with full
length plastic coverings, which extend usually six inches below the bottom of the
garment. Cartons should be inspected for signs of wetness and water staining and
the clothes removed if necessary.
Chapter 9
Chapter 9 Further aspects of risk 9/13
Self-test questions
1. Identify six forces of nature that may pose a threat to goods in marine transit.
2. What are the causes of tsunamis?
3. What are the main risks to goods in the land part of any transit?
4. Which parts of the world are exposed at what times of the year to:
a. hurricanes;
b. typhoons; and
c. heavy gales?
5. Give three reasons for promoting loss prevention measures.
6. Name two methods used by insurers to control accumulation of risk.
Chapter 9
Chapter 9
10
Claims
Contents Syllabus learning
outcomes
Learning objectives
Introduction
Key terms
A Claims notification 6.1, 6.3, 6.4
B Role of specialists 6.2
C Application of Institute Cargo Clauses 6.5
D Adjustment of cargo claims 6.5
E Other charges and expenses 6.6
F General average claims 6.6
G Measure of indemnity 6.6
H Calculating claims for haulage contractor
contractor’’s liability 6.7
I Policy declinatures (denials) 6.8
Key points
Question answers
Self-test questions
Learning objectives
After studying this chapter, you should be able to:
• explain the procedures that must be followed in the notification of claims;
• explain the importance of surveyor’s reports and other documents in dealing with claims;
• describe the role of surveyors, average adjusters, lawyers and recovery agents in the
claims process;
• explain the liability imposed upon owners of cargo under the Both to Blame Collision
clause;
• describe the way in which claims for partial, actual and constructive total loss, and loss of
use are adjusted in practice;
• describe the settlement and calculation of claims for particular charges, salvage charges,
sue and labour charges and extra charges;
• describe general average awards; and
Chapter 10
Introduction
In this chapter we study claims procedures for cargo and goods in transit claims and the
bodies engaged in processing a claim from start to finish. We then look to the importance of
the various documents used by insurers to prove a claim and the extent of cover provided
by the various marine cargo clauses we discussed earlier.
The documentation involved serves more than one purpose. A bill of lading, for example:
• confirms the receipt of goods on board a vessel;
• establishes the terms of the contract of affreightment between the shipowner and the
shipper of the goods; and
• acts as a document of title in the goods, which is particularly important in marine cargo as
goods are regularly sold to another buyer while they are on the high seas.
Another document of great importance is the certificate of insurance. It may have been
assigned to the buyer after the goods have left the seller’s premises. The claimant must
produce this certificate if the insurer who issued it is to consider their claim.
Finally, we consider how claims are adjusted by calculating the various sums to be paid for
direct loss or damage and the amounts claimed for additional costs, such as those for
salvage, sue and labour and general average.
In making a claim it is important that the:
• claimant gives notification immediately they become aware of a situation that may give
rise to a claim;
• goods are surveyed without delay; and
• carriers are held responsible for any loss or damage.
We discuss these procedures in this chapter.
Key terms
This chapter features explanations of the following terms and concepts:
A Claims notification
A1 Documents relating to the carriage
As soon as an insured becomes aware that they need to make a claim, they must notify their
insurers. They then need to supply certain documents to enable the insurer to adjust their
claim. We described some of these in chapter 2. The documents the insured needs to
supply are:
5. Interchange receipt;
Question 10.1
Think back to your studies in chapter 2. What is an outturn report?
A1B Waybills
Waybills are issued for:
• sendings by air: an air waybill
waybill; and
• goods that are not sent under a bill of lading, such as goods carried onto a RO/RO vessel
and which remain on the carrying vehicle: a sea waybill
waybill.
• Issued by the carrier of the goods • Cover both domestic and international flights
• Serve as a receipt for the goods carrying goods to a specified destination
• Contain or evidence a contract for the carriage • Serve as a receipt for the goods by the air
of the goods by sea carrier
• Identify the person to whom delivery of the • Contain the terms of carriage (usually the
goods is to be made by the carrier in Warsaw Convention for international carriage
accordance with the contract by air)
• Is not a document of title • Is not a document of title
Be aware
A waybill or air waybill acts as a receipt for goods for carriage and as evidence of the
contract of affreightment. However, unlike a bill of lading, it is not a document of title in
the ownership of goods and is a non-negotiable document.
This has led to waybills becoming more popular in contemporary international marine
commerce. When the recipient of a cargo is already known and the cargo does not need
to be traded or sold during transit, the use of a waybill adds a layer of security in the
ownership of the goods and helps ensure delivery to the intended recipient.
• shipment, including a description of the goods, their quantities, weights, volumes and
values; and
• voyage from seller to buyer, which determines the rate to be applied to the value at risk in
order to produce a premium for the risk.
It is submitted to the insurer at agreed intervals for premium calculation purposes. A claim
will not be admitted under a cargo policy if the declaration is not submitted.
Chapter 10 Claims 10/5
Be aware
Remember that an insurer cannot subrogate until it has indemnified. It may be weeks or
months before a claim is finally settled. In the meantime, the issue of a letter holding the
carrier/bailee responsible protects the insurer’s position in future subrogation.
Remember also, that the settlement of a cargo claim as ‘without prejudice’ or ‘ex gratia’
prevents the insurer from recovering against the carrier. This is because such settlements
are not made in accordance with a contractual obligation on the part of the insurer to pay
the claim.
Be aware
A ‘writ’ is a legal document that orders a person to do a particular thing.
A4 Other documents
In specific circumstances, other documents may be required. These are:
• condemnation certificates
certificates, where the authorities have destroyed or condemned
foodstuffs that have been contaminated or have deteriorated through a variation in
temperature, either while in transit or while in temporary storage in the ordinary course of
transit;
• the ship
ship’’s temperature data log
log;
• pre-shipment surveys
surveys, confirming the condition and value of certain goods, such as motor
cars, immediately prior to transit; and
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A5 Survey reports
The cargo surveyor’s report may confirm the damage to the cargo or its short delivery.
Nowadays, photographs of the damaged goods, and of any container involved, accompany
the report. This can be vital evidence for the insurer when it exercises its rights of recovery
against any party negligently causing damage to the cargo. When goods are short delivered,
the survey report will usually confirm whether the carriers were unable to trace the goods in
any docks or warehouse or other port of call. It is important to check this aspect of any short
delivery claim because sometimes goods are simply mis-delivered and the consignee,
accepting them in good faith but in error, may not be in a hurry to report the mis-delivered
goods to the carrier. Mis-delivery can also occur when goods destined for another place are
temporarily unloaded to facilitate the delivery of goods at a place en route to the final
destination. A simple check such as this can save insurers considerable sums in claims that
they would otherwise pay.
Be aware
Marine claims are only payable to those having insurable interest at the time of loss.
Consequently, all documents of title, such as the bill of lading and the certificate of
insurance, must be originals.
Question 10.2
Why is the sales invoice an essential document?
B Role of specialists
The settlement of a claim does not only involve the insured and their insurer. Other parties
have a role to play. These parties may assist in determining the validity of the claim or in
ensuring that any possible recoveries are made.
B1 Surveyors
Marine cargo claims surveyors are found throughout the world. Their role is to inspect
damaged cargo and investigate claims for lost or stolen cargo. The certificate of insurance
contains the contact details of the survey agent, enabling any claimant with an insurable
interest to contact the agent local to where the damaged cargo is landed, without the need
to contact the insurer direct. The agent will have authority from the insurer to:
• investigate the claim;
• take charge of the relevant documentation, including any bill of lading and the certificate
of insurance; and
• agree repairs or negotiate settlement, where repair is either not possible or not economic
in relation to the value of the damaged goods when new.
The surveyors will remind the insured of their duty to act as if uninsured and to mitigate their
losses. However, they will usually also act to protect any rights in subrogation by holding
carriers and other bailees of the goods responsible.
B2 Average adjusters
Average adjusters are experts in the law and practice of general average and marine
insurance. They prepare claims under marine insurance policies, which generally involve loss
Chapter 10
or damage to marine craft, their cargoes or freight. In this course we are concerned with the
role of average adjusters in relation to the goods owners’ general average liabilities
following a general average sacrifice. General average is a particular area of expertise and
average adjusters prepare general average statements and assist in effecting settlements.
Their instructions usually include the collection of general average security and salvage
security and may ask them to prepare statements of claim against third parties and to deal
with the division of recoveries from third parties.
Chapter 10 Claims 10/7
Be aware
The owners of a cargo held by a ship’s owners following a general average act must give a
general average security if the goods are to be released. This security is actually provided
by the cargo insurers under the standard cover given by the Institute Cargo Clauses.
Any party involved in a marine claim may appoint an average adjuster. However, irrespective
of the identity of that party, the average adjuster is bound to act in an impartial and
independent manner.
B4 Recovery agents
Recovery agents are firms that act as both claims and recovery agents. They may become
involved in the claims process before the recovery stage by acting to mitigate the loss. They
may arrange to take the goods to a place of safekeeping pending release to their owners
once any marine liabilities, such as general average, have been satisfied. The issue of a
general average guarantee by the cargo insurers, or the receipt of a monetary deposit from
the owners of the goods, will bring about the release of the goods. Where looters take goods
from a wreck site, the recovery agent may act to recover the stolen goods. Decisive action
by a recovery agent can significantly influence the final cost of a claim and mitigate what
would otherwise be a large loss.
Example 10.1
The MSC Napoli was damaged during bad weather and, after the crew were evacuated,
was beached by the coastguards not far from the shore in Devon, England. Many of its
containers fell overboard and they and their contents landed on the beach. Looters
descended and stole many items from the wreckage, including brand new motorbikes.
Some estimates claimed that the looters increased the cost of the loss by 800%. The loss
of goods affected production in manufacturing units as far away as South Africa.
B5 Insurance brokers
The role of the insurance broker is to act as an intermediary between a proposer for
insurance and an insurance provider, such as an underwriting syndicate or a composite,
specialist or mutual insurer. Their principle duty is to act on behalf of the insured. Insurance
brokers collect information from their clients, the proposers, and then present details of the
risk to be insured to an underwriter or insurer(s) they consider appropriate. Upon securing
an offer of cover on terms they consider suitable, the broker will communicate them to their
client and await the client’s decision. They must communicate only the terms put forward by
the selected insurer(s). If they receive instructions to proceed with cover in accordance with
the terms of the quotation they must place the cover with the chosen insurer without delay.
They must then ensure that the policy document is correct and that it corresponds entirely
with the terms of the quotation.
The same duty arises when the policy comes due for renewal.
In addition, the broker will take an active role in any claim reported under the policy and
ensure that claim is dealt with in accordance with the terms of the policy. The income of an
insurance broker is derived either from commission paid by insurers at a pre-determined
rate, or by a fee paid by the client.
Chapter 10
Chapter 10 Claims 10/9
Question 10.3
Match the following experts with a service they provide.
There are two claims to be made – one for theft and one for damage. The formula for
adjusting each claim would be (all US$):
Claim for damage as a CTL $200,000
$237,600
$59,400
Be aware
This claim would not be admissible under either the ICC(B) or ICC(C) clauses.
Reinforce
For CIF sendings the sum insured is uplifted by 10% to cover the buyer’s administration
costs in setting up the import. These costs include:
• the cost of import licences;
• bank charges and loan interest;
• the increased value of the goods when discharged from the vessel or aircraft; and
• an element of the buyer’s potential profit when they sell the goods.
Question 10.4
Goods to the value of £375,000 have been sold on CIF + 10% terms to an overseas buyer.
The cost of freight is £5,000.
While on the high seas 55% of the goods by value are damaged by heavy weather.
Insurance is provided by ICC(A) clauses.
a. Is the damage covered?
b. How much will the insured receive in settlement of their claim?
Be aware
This claim would not be payable under the Institute Cargo Clauses (C).
Chapter 10 Claims 10/11
Example 10.5
A cargo of unrefurbished, pre-owned machinery is damaged beyond repair by fire on
board a vessel.
This peril is covered by risk clause 1.1.1 of the ICC(C) clauses.
The ICC(C) clauses also cover the risk of collision or overturning of a land conveyance (risk
clause 1.1.3). However, these clauses do not provide any cover during loading and unloading
operations.
Question 10.5
In heavy seas several cargoes are washed overboard. Some are insured under ICC(A)
clauses, some under ICC(B) clauses and some under ICC(C) clauses.
Which of these clauses, if any, will cover such losses?
Example 10.6
• Three vessels are involved in a collision in the approaches to New York harbour, USA.
Vessel A is British registered and vessels B and C are registered in the USA.
• Vessels A and B are held jointly liable for the collision.
The cargo is damaged and will cost US$50,000 to repair.
Vessel A is the cargo carrying vessel, while vessels B and C are the third party vessels for
the purposes of the Both to Blame Collision liability clause.
Claims can be made as follows:
• The cargo owners cannot claim against the owners of vessel A because they are bound
by the terms of the Hague-Visby Rules, incorporated into the Bill of Lading.
• The cargo owners can claim the full amount of their repair costs from the owners of
vessel B: US$50,000.
• The owners of vessel B can claim 50% of the cargo repair costs from the owners of
vessel A: US$25,000.
• The owners of vessel A can claim the full amount of this liability under the Both to
Blame Collision liability rule from the owners of the cargo carried in their vessel
because such liability arises only by virtue of the Both to Blame Collision liability rule:
US$25,000.
• The owners of the cargo can claim for this liability from their insurers under the Both to
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Outstanding US$00,000
The cargo owner is indemnified (it is in the position it was before the damage occurred).
10/12 M90/March 2019 Cargo and goods in transit insurances
Vessel B seeks contribution of 50% (US$25,000) from Vessel A, which then claims that
liability from the cargo owners.
Cargo owner claims from their insurers under
Institute Cargo Clauses US$25,000
Outstanding US$00,000
Cargo owner indemnified (it is in the position it was before the Both to Blame liability
attached to it).
Both cargo owner A and vessel owner B have recovered their losses in full for the damage to
the cargo and for their liabilities arising from it under the Both to Blame Collision clause. This
does not cover all the vessel owners’ costs as the collision will have caused damage to the
ships involved, but consideration of the impact of hull repair costs and liabilities is beyond
the scope of this study text.
D1 Partial damage
Partial damage can occur while the cargo is on board the overseas vessel or while it is on its
way, overland, to the port of departure. We will consider both in this section.
£300,000
The calculation remains the same for a valued policy. This is provided the sum insured is
sufficient to:
Chapter 10
Example 10.8
Machinery £450,000 × 60% damaged = £270,000 payable.
Example 10.9
A vessel sinks in shallow waters. On board is £450,000 of machinery.
It will cost £530,000 to recover it.
Freight is £10,000.
This would be a valid claim for constructive total loss at:
Value of machinery £450,000
£460,000
E1 Particular charges
Particular charges are expenses incurred by, or on behalf of, the insured for the safety or
preservation of cargo. They must be reasonable – their purpose is to encourage the insured
to protect the cargo and to minimise their losses.
10/14 M90/March 2019 Cargo and goods in transit insurances
E2 Salvage charges
Salvage awards are based upon the value of the salvaged property, not its total value at the
commencement of the adventure. We can see this by looking at the following example.
Example 10.10
Derek is the master of a vessel. A fire breaks out in part of the cargo his vessel is carrying.
As the vessel is in distress, Derek accepts the offer of assistance from a salvage tug and
they agree a contract of salvage under Lloyd’s Open Form (LOF) terms.
• The vessel is valued at US$60m;
• the cargo has a value of US$40m.
The fire causes damage estimated at:
• US$10m to the vessel; and
• US$5m to the cargo.
An award of 2% of the salvaged property is subsequently agreed. The calculation of that
award, and its apportionment between the owners of the vessel and the owners of the
cargo, is calculated in the following manner (all US$):
Value of vessel $60,000,000
The division of this award between the owners of the vessel and the owners of the various
cargoes is:
Vessel salvaged value $50,000,000
× 100 = 58.824%
Total salvaged value $85,000,000
Award:
Vessel pays 58.824% of $1,700,000 = $1,000,008
Chapter 10
Total $1,700,000
*This is divided proportionately between each cargo owner according to the value that each cargo
bears to the total value of the salvaged cargo.
Chapter 10 Claims 10/15
Question 10.6
A salvage operation for a ship on fire is successful and an award of 2.50% is agreed. Use
the formula shown in the example to identify the salved values and calculate the award,
apportioning it between the various interested parties. There are five cargo owners.
Value of ship prior to the fire US$12,000,000
Example 10.11
A consignment of clothes is delivered to Funky Gear Ltd. It is discovered that part of the
consignment is wet. The insured (Funky Gear Ltd) must immediately sort the damaged
clothes from the undamaged ones to stop the wetness from spreading and to prevent
odour and mildew. If possible, the damaged clothing should be cleaned, dried and
repackaged.
The cost of these procedures falls under the heading of sue and labour.
E4 Extra charges
Extra charges are those that arise in assessing the extent of loss, for example surveyors’ fees.
Also classed as extra charges are the costs associated with selling damaged cargo.
Example 10.12
(All US$.)
Ship and machinery $10,000,000
Cargo A $500,000
Cargo C $50,000
Cargo D $150,000
Cargo E $250,000
Cargo F $750,000
Cargo G $1,250,000
Cargo H $925,000
Cargo I $76,000
The balance, amounting to 68.961193%, is for the account of the owners of the ship in
respect of the ship, its machinery and the freight to be earned from the voyage.
Each cargo owner’s share of liability for the general average sacrifice is recoverable from
their cargo insurer under the terms of the Institute Cargo Clauses, be they (A), (B) or (C), in
addition to any claim for loss or damage to cargo. So in our example, cargo owner B, whose
goods were sacrificed by the general average act, will claim the value of the goods sacrificed
plus its liability under the general average rules, i.e. US$1,000,000 + US$62,691.99.
Question 10.7
At sea, the master of a vessel uses water to put out a fire which is endangering the vessel
and the adventure. He succeeds, but damage valued at £1.5m is caused.
The ship is valued at £20m, the cargo at £10m and the freight is £500,000. For ease
Chapter 10
G Measure of indemnity
As with all policies of insurance, the measure of indemnity in cargo and transit insurance is
the sum required to put the insured back into the position they were in before the
occurrence of the loss or damage that is the subject of the claim.
G1 Valued policy
A valued policy is one in which a specific item is insured for an agreed sum (Marine Insurance Valued and
unvalued policies
Act 1906 (MIA), s.27.2). This is common with single voyage/facultative policies. You should, covered in
however, note that the fixing of a valued sum insured is not conclusive when determining chapter 6,
section E1D
whether there has been a constructive total loss (MIA 1906, s.27.4).
G2 Unvalued policy
The Marine Insurance Act 1906, s.28 describes an unvalued policy as one that does not
specify the value of the subject matter insured. Instead, subject to the limit of the sum
insured, it leaves the insurable value to be ascertained by subsequent declaration.
Example 10.13
Lorries Ltd is carrying 30 tonnes of goods with a value of £100,000. While parked at a
truck stop, thieves steal 15 tonnes from the lorry. The liability is:
15 tonnes × £1,300 per tonne = £19,500.
The claim is paid regardless of whether the haulage contractor was or was not negligent in
the circumstances surrounding the loss or damage. If the owner of the goods has insured the
cargo for its full value, they will make a claim upon the cargo insurer in the first instance,
leaving the cargo insurer to recover in subrogation from the insurer of the haulage
contractor. So, to return to our example:
Example 10.14
• Value of goods lost = £50,000
• Haulage contractor’s liability = £19,500
Owners claim from their cargo insurers = £50,000
Chapter 10
However, if the goods lost or damaged have a lesser value than £1,300 per tonne, the
haulage contractor is only liable for this lesser amount. Similarly, if the goods are repairable
at a cost less than £1,300 per tonne the haulage contractor’s liability is limited to that figure.
Any party suffering loss or damage is not entitled to profit from the situation.
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Example 10.15
Consider the same load as in example 9.13. This time the goods are damaged in a road
traffic accident:
• 30 tonnes of goods with a value of £100,000;
• 15 tonnes are damaged in the road traffic accident;
• cost of repair is £15,000.
Haulage contractor’s liability = £15,000.
Question 10.8
A lorry carrying 20 tonnes of goods is stolen from a lorry park.
a. What is the haulage contractor’s liability under RHA conditions?
b. Would your answer differ if the goods stolen were valued at £20,000?
Interest is added to this figure at the rate of 5% per annum from the date the claim is
submitted in writing to the haulage contractor. In addition, the haulage charges are
refundable in full for a total loss and proportionately for a partial loss.
Example 10.17
Lorries Ltd is carrying a machine valued at £500,000 and weighing 20 tonnes under CMR
terms. The driver’s negligent driving causes partial damage to the machine.
• Value of damaged part = £12,500;
• weight of damaged part = 1 tonne;
• exchange rate at the time of damage = SDR1.10/£ or £0.909 to SDR 1.00.
Therefore liability is calculated as:
8.33 SDRs × 0.909 = £7.57197 per kilo × 1,000 = £7,571.97 per tonne
1 tonne of machine part = a haulage contractor’s liability of £7,571.97
Although less than the value of the damaged part, this is the amount the haulage
contractor is liable to pay in compensation under the CMR Convention.
There will be no shortfall for the owner of the machine as long as it was insured under a
marine cargo all risks policy.
In addition, the carrier is also liable to refund the carriage charges, customs duties and other
charges incurred in connection with the carriage in proportion to the value of the damage.
Example 10.18
Returning to example 9.17.
1 tonne of machinery damaged out of 20 tonnes carried works out at 5% of the machinery
damaged.
Therefore, 5% of the carriage charges, customs duties and other charges will be added to
the claim for damage.
Example 10.19
A warehouse keeper negligently causes a fire at its warehouse.
The fire destroys 150 tonnes of goods, valued at £1,000,000.
Liability is calculated as: 150 × £100 = £15,000.
The existence of a fire does not, in itself, cause liability to attach to the warehouse keeper.
The question to be asked is: what caused the fire? If the answer is that it was caused by the
negligence of the warehouse keeper, liability will attach for the loss or damage to the goods
caused by the fire. For example, if a warehouse keeper fails to repair a defective electrical
cable and this cable overheats, causing a fire, the warehouse keeper will clearly have been
negligent.
On the other hand, if lightning sets the warehouse on fire, it would be a natural cause. In
these circumstances the warehouse keeper is not negligent and so cannot be held liable. The
warehouse keeper is only liable for damage or loss caused by its negligence.
Chapter 10
Example 10.20
Let us assume that 1.10 SDRs are worth £1 sterling and that 10 tonnes of goods, worth
£100,000 are lost.
Liability is calculated as follows:
£1/SDR1.10 = £0.909 (to three decimal points)
17 SDRS × 0.909 = £15.453 per kilo × 1,000 = £15,453 per tonne
10 tonnes damaged × £15,453 = £154,530
However, the goods are only worth £100,000 and so the limit of the carrier’s liability for
the goods is £100,000.
If, however, the goods had been worth £250,000, the rail carrier would have had to pay
compensation totalling £154,530 (i.e. 10 tonnes × £15,430 as calculated above) but this no
longer covers the full value of the goods:
£250,000 – £154,530 = £95,470
This shortfall illustrates one very important reason why owners of cargo in transit should
insure for the full value of those goods, and against all risks of loss or damage.
I2 Declining claims
In the first of the scenarios set out in the following case studies we describe a typical claims
situation. We will use it to show how, by using an analysis of the information supplied by a
cargo surveyor, together with our knowledge of the cover provided by the Institute Cargo
Clauses (A) 1/1/09, we are able to decide whether the insurer’s decision to decline the claim
is right or wrong.
Chapter 10 Claims 10/21
Consider this
this…
…
This is your challenge: Do you think the declinature of the claim could be maintained if it is
challenged by the assured or its representatives?
In order to answer this question it is necessary to apply a stress-test to establish whether the
declinature is justified and would be upheld if it was challenged in a court of law. The
methodology to be applied is to consider the stated facts in conjunction with the cover
provided and the terms of the contract. Think about this yourself before reading the analysis.
Analysis
Let us now analyse the information given in this example to see if the insurer’s decision to
decline the claim is correct. From the information given in the case study we see that the
insurer is declining the claim on two grounds:
• inherent vice, in the form of the poor welding of the legs to the machine; and
• insufficient packing.
Both inherent vice and insufficient packing are excluded by the Institute Cargo Clauses (A)
1/1/09. However, there are flaws in the arguments put forward, which compromise the
decision of the cargo insurers to use these exclusions as reasons for declining the claim. We
will return to these in our challenge to this decision. We will show the shortcomings in the
insurers’ view of the claim.
Remember that the claim, if disputed in a court, will be decided by the judge ‘on the balance
of probabilities’. So how does this help us challenge the declinature?
The surveyors report states clearly that the container in which the crated machine was
carried was ‘landed heavily’ on the quayside during discharge from the ship. This is noted on
the interchange report issued by the ship. The bill of lading was signed clean, meaning that
the goods were received by the ship in good condition, but were discharged in a damaged
state. The damage occurred during the sea voyage, which has not ended until the goods are
safely discharged from the ship at the port of arrival. This is definite damage: it is not
speculation nor is it opinion. It is fact, witnessed by two documents – the clean bill of lading
and the claused interchange report. By contrast, the surveyor’s report on the welding of the
legs and on the sufficiency of the packing are just opinions, as yet unproven.
Inherent vice is a straightforward unqualified exclusion under the Institute Cargo Clauses (A)
1/1/09. If the welding was poor, the argument from the insurers may be valid but, as it is an
all risks cover, it will be for them to prove the exclusion was the proximate cause of the
Chapter 10
damage. Against them is the clear fact that the container was landed heavily on the
quayside, the impact of which may, on the balance of probabilities, have caused the legs to
break. Remember, the judge decides these matters on the balance of probabilities. In this
situation the cargo insurers will face severe difficulty in sustaining their declinature. If they
lose in court they will be liable to pay substantial legal bills as well as paying for the original
damage.
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Insufficient packing is also an exclusion under the Institute Cargo Clauses (A) 1/1/09, but it is
only a qualified exclusion. The clauses state that the assured must be aware of the
insufficient packing. However, at the time of packing the party with the insurable interest
was the seller. Unless the buyer had specified or approved of the packing, this exclusion
cannot be used against them.
Taking everything into consideration we can conclude that this is a claim that should be paid
under the terms of the policy and should not be declined.
Activity
Take a look at the wording of the Institute Cargo Clause (A) 1/1/09 (in appendix 5.1) and
find the two exclusions referred to in this claim.
Before a declinature is issued to the insured, careful consideration should also be given to
the scope of cover provided under the policy. We examine this in our next example scenario.
Consider this
this…
…
This is your challenge: Was the insurer correct or incorrect to decline the claim? Why?
The answer lies in your analysis of the facts. You need look no further in order to arrive at the
correct answer. Think about this yourself before reading the analysis.
Analysis
Where damage to the cargo was evident upon delivery to the consignee, the burden of
proving, on the balance of probabilities, that the damage did not occur at any point after the
insured acquired an insurable interest would be on the insurer. The insurer’s failure to fully
investigate where this damage occurred, which could, for example, have been at the
insured’s processing facility in Argentina, may be a significant factor. This is because this was
a stockthroughput policy, not a traditional marine cargo cover.
The insurer is incorrect to decline the claim as it made its decision based on the surveyor’s
conclusion that the damage did not occur during transit, without giving consideration to the
fact that coverage under the stockthroughput policy not only covered physical loss or
damage to the cargo during transit, but also any damage that occurred pre- or post-transit
whilst the insured had an insurable interest in it. The insurer’s failure to consider the full
scope of the stockthroughput cover it provided will now result in costly litigation in
California and a financial exposure far greater than that it faced had the insurer agreed
Chapter 10
the claim.
Chapter 10 Claims 10/23
A key question to ask is how might the scope of the Stockthroughput cover have escaped
the insurer’s notice when deciding to decline this claim? Quite simply, they are marine cargo
insurers first and foremost, which means their mindset may be to concentrate on traditional
marine claims documents, such as bills of lading and delivery receipts. However, writing
Stockthroughput insurance, means a change of mindset. A claim under an STP policy must
be considered in a different light to that under a standard marine cargo policy. A simple
error or oversight, like the one depicted in our scenario, will result in large and unnecessary
additional legal costs.
Lessons to learn
Before confirming declinature of a claim with the insured it is necessary to apply a stress-
test to establish whether the declinature is justified and would be upheld if it was challenged
in a court of law. The stress-test would consider the stated facts in conjunction with the
cover provided and the terms of the contract. This should be done by the claims handler, but
could also be usefully carried out by a colleague in addition, in the form of a peer review. It is
important not to assume that a claim is not covered.
Conclusion
This concludes our study of marine cargo and transit insurances. By now you should know
the environment in which world trade is conducted, understand the various laws,
conventions and agreements that influence it and be able to explain how the insurance
market responds. You should have a good grasp of the risks faced by goods as they move
around the world and be able to handle straightforward claims.
Chapter 10
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Key points
The main ideas covered by this chapter can be summarised as follows:
Claims notification
Role of specialists
• Surveyors are found throughout the world and act as a local point of contact when a claimant
wishes to make a claim.
• Average adjusters are experts in the law and practice of general average and marine insurance.
• Lawyers give advice on their legal position to both insurers and insureds in the event of a dispute
over a claim. Barristers represent the parties in court.
• Recovery agents act to mitigate the loss, seek to recover looted goods and pursue recoveries from
others who are liable.
• Whether or not a particular claim is covered depends on which Institute Cargo Clauses the
insurance is based.
• Liability under the Both to Blame Clause moves around between the vessels involved and the cargo
owners.
• A claim is for either a total or a partial loss. A total loss can be constructive or actual.
• A claim for a partial loss at sea covers the freight paid in the same proportion that the lost or
damaged cargo bears to the value of the total cargo.
• A claim for a partial loss on land does not include either uplift (usually) or the freight paid (carriage
charges are usually refunded).
• A claim for an actual or constructive loss at sea will be for the full value of the cargo plus freight plus
uplift.
• Particular charges are expenses incurred by, or on behalf of, the insured for the safety or
Chapter 10
• The contribution of the various cargo owners to a general average liability is based on the value of
their respective interests when compared to the total value of the whole adventure.
Measure of indemnity
• Under RHA conditions, the haulage contractor’s liability is limited to £1,300 per tonne or the value
of the goods, whichever is lesser.
• If the goods are repairable for less that £1,300 per tonne, the haulage contractor’s liability is limited
to the lesser amount.
• Compensation under CMR is payable at a rate of 8.33 SDRs per kilo of goods lost or damaged and
the haulage contractor is only liable if they were negligent.
• For damaged goods, compensation is calculated by reference to how much the value of the goods
has been diminished and cannot exceed the amount that would have been paid had the goods
been lost.
• A warehouse keeper’s liability is restricted to £100 per tonne of goods lost or damaged and they are
only liable if their negligence caused the loss or damage.
• Compensation under CIM is set at 17 SDRs per kilo of weight lost or damaged.
• Where liability applies under the standard BIFA trading conditions, the liability is set at 2 SDRS
per kilo.
• Potential risks arise around the declinature of claims under s.13a of the Insurance Act 2015.
• Careful consideration must be given to the facts of the case, the cover provided (and its type) and
whether the declinature would be agreed to by a court of law before a claim is declined.
• Useful tools in ensuring that claims are declined appropriately are stress-testing and peer review.
Chapter 10
10/26 M90/March 2019 Cargo and goods in transit insurances
Question answers
10.1 When issued by a ship, an outturn report details the quantity of goods discharged
from that ship. When issued by port authorities it records any discrepancies in the
form of over, short and damaged cargo as manifested and details of cargo checked
at the time and place of discharge from the ship.
You may want to review chapter 2, section E3 if you struggled with this question.
10.2 The sales invoice provides evidence of the amount paid for the goods and thus the
quantum of the claim.
10.3 You should have made the following connections:
£209,000
10.5 The ICC(A) clauses are an all risks wording and do not exclude washing overboard,
so the loss is covered.
The ICC(B) clauses specify washing overboard as one of the perils covered, so a
claim can also be made.
The ICC(C) clauses do not cover the risk of washing overboard, so no claim can be
made for these goods.
10.6 (All US$.)
Value of vessel $12,000,000
Damage $2,000,000
Damage $1,000,000
Chapter 10
$375,000.00
10.7
Value of ship £20,000,000
Freight £500,000
Cargo £10,000,000
£1,500,000.00
10.8 a. Under RHA conditions, the haulage contractor’s liability would be:
20 tonnes × £1,300 per tonne = £26,000.
b. Under RHA conditions, the haulage contractor’s liability is limited to £1,300 per
tonne or the value of the goods, whichever is the lesser. As the value of the
goods is less than £1,300 per tonne the haulage contractor’s liability is limited to
£20,000.
Chapter 10
10/28 M90/March 2019 Cargo and goods in transit insurances
Self-test questions
1. Why is it important for claims to be reported immediately?
2. Identify the documents that are needed to establish the cause of a claim by:
• sea;
• air; and
• road.
3. What two documents must an insured produce to enable insurers to protect their
rights in subrogation?
4. Identify two additional documents that will be required to prove the cause of
damage to temperature-controlled goods, involving failure or malfunction of a
refrigerant unit.
5. If a ship is sunk in shallow waters, state the key factor in deciding whether the cargo
is a constructive total loss.
6. How are salvage awards calculated?
7. Give three examples of particular charges.
8. Give two examples of extra charges.
9. Describe a valued policy.
10. What is an unvalued policy?
Chapter 1
self-test answers
1. Labour is cheaper in the developing world and the ease by which lightweight goods
can be carried by air means that the distance between the centre of production and the
customer is not an issue.
2. Agricultural products, such as wheat and oats, are commonly carried in vessels of up to
50,000 DWT and in Panamax vessels of approximately 60,000 DWT.
3. Brown goods are televisions, radios, hi-fi systems and stereos.
Grey goods are computers and similarly related goods.
4. Ports exist to facilitate the movement of goods in and out of a country.
5. There are companies specialising in collating part loads from different senders into one
container load at frequent, regular intervals. This practice is known as groupage.
6. A ULD is a unit load device and it is used in the carriage of goods by air.
7. A container is secured by twist locks on each corner.
ii M90/March 2019 Cargo and goods in transit insurances
Chapter 2
self-test answers
1. a. Seller o road vehicle o ship o road vehicle o buyer.
b. Seller o road vehicle o air freight o road vehicle o buyer.
2. Any three from:
• haulage contractors;
• warehouse keepers;
• freight forwarders;
• operators of ships;
• operators of aircraft; and
• operators of trains.
In fact, any body or individual having goods in their custody.
3. They are all Incoterms and:
• CIF stands for cost, insurance and freight.
• EXW stands for ex works.
• CFR stands for cost and freight.
4. When they are loaded on board the vessel.
5. To the named port of destination.
6. Arrange transport from the port to the final named destination.
7. The bill of lading is:
• a Receipt for goods loaded on board a ship.
• Evidence of the contract of carriage between the shipowner and the shipper.
• the Document of title in ownership of goods.
8. The air waybill is not documentary evidence of title in the ownership of goods.
Self-test answers iii
Chapter 3
self-test answers
1. Section 1 of the MIA defines a contract of marine insurance as one in which: ‘the insurer
undertakes to indemnify the assured, in the manner and, to the extent thereby agreed,
against marine losses, that is to say, the losses incidental to marine adventure.’
2. At the time of loss.
3. The duty of fair presentation requires all information to be disclosed to the insurer in a
manner that is reasonably clear and accessible to the insurer. It must be substantially
correct and made in good faith.
4. A CTL is a constructive total loss, which is a hybrid loss between an actual total loss and
a partial total loss. A constructive total loss is claimed when the cost of salvaging or
repairing the goods exceeds their value.
5. The Marine Insurance (Gambling Policies) Act 1909.
6. Compensation is based on either:
• 2 SDRs per kilo on the weight of the goods lost or damaged; or
• 666.67 SDRs per package lost or damaged;
whichever is the greater.
7. The Hague-Visby Rules apply to every bill of lading relating to the carriage of goods
between ports in two different states if the:
• bill of lading is issued in a contracting state; or
• carriage is from a port in a contracting state; or
• contract contained in or evidenced by the bill of lading provides that these rules or
legislation of any state giving effect to them are to govern the contract.
iv M90/March 2019 Cargo and goods in transit insurances
Chapter 4
self-test answers
1. CMR does not apply to:
• carriage performed under terms of any international postal convention;
• funeral consignments; and
• furniture removals.
2. The standard level of compensation under CMR is 8.33 Special Drawing Rights (SDRs)
per kilo on the weight of the goods lost or damaged.
3. Under CMR, the defendant (the carrier) is required to prove that it was not negligent in
causing any loss or damage to the goods. Under English law, however, it is for the
claimant to prove that the defendant was negligent.
4. In the event of total or partial loss of goods the compensation payable by the railway is
not to exceed:
• the current market price or the normal price, according to the normal value of goods
of the same kind and quality at the time and place the goods were accepted for
carriage; or
• not more than 17 SDRs per kilo of gross mass lost.
5. The term multimodal transport means the carriage of goods in containers from one
place to another by a variety of means.
6. The standard conditions of storage of UKWA are:
• liability for loss or damage to goods in storage attaches only if the wilful neglect of
the warehouse keeper, its servants or agents causes it;
• the standard liability is set at £100 per tonne but the warehouse keeper and the
owner of the goods may increase it by mutual consent before the commencement of
storage and subject to approval by insurers; and
• the warehouse keeper is relieved of its contractual obligations where the customer
or storm, flood, fire, explosion, riot, industrial dispute, labour disturbance or other
thing beyond the reasonable control of the warehouse keeper prevents their
performance.
Self-test answers v
Chapter 5
self-test answers
1. General average is a voluntary and extraordinary act done by the master of a vessel in
peril of sinking.
2. The Duration Clause.
3. The assured has a duty to take reasonable measures to avert or minimise a loss and to
ensure that all rights against carriers and bailees are properly preserved and exercised.
4. War cover applies only at sea.
5. Federation of Oils, Seeds and Fats Associations.
6. All Risks cover is given for timber stored in a container on deck.
7. Any six from:
• ABS American Bureau of Shipping
• BV Bureau Veritas
• CCS China Classification Society
• CRS Croatian Register of Shipping
• DNV GL Det Norske Veritas Germanischer Lloyd
• IRS Indian Register of Shipping
• KR Korean Register of Shipping
• LR Lloyd’s Register of Shipping
• NK Nippon Kaiji Kyokai
• PRS Polish Register of Shipping
• RINA Registro Italiano
• RS Russian Maritime Register
vi M90/March 2019 Cargo and goods in transit insurances
Chapter 6
self-test answers
1. Stockthroughput insurance combines the cover offered by traditional marine insurance
with storage risks in the property market.
2. Under a bareboat or demise charter the charterparty takes responsibility for both the
vessel and its cargo. Thus it is liable for third party damage arising out of the operation
of the vessel and for any spillage of oil from the vessel. The charterparty also requires
cover for the hull and machinery of the vessel.
3. An open policy starts from a specific date and remains open until closed by the insured
or the insurer. An annual policy is valid between two defined dates. In addition,
premium is collected in different ways:
• under the open policy premium is charged as each sending is declared; and
• under the annual policy, a deposit premium is charged at inception and renewal and
this is subject to adjustment at the end of the period of insurance.
4. A policy that specifies the agreed value of the subject matter insured.
5. The basis of valuation clause describes the basis upon which a claim will be settled.
Self-test answers vii
Chapter 7
self-test answers
1. Goods are the common link between marine cargo and haulage contractor’s liability
insurance.
2. Haulage charges are based on the cost of transporting goods from one place to
another and this remains the same regardless of the type of goods being carried.
3. Marine cargo insures the goods, while haulage contractor’s liability insures the legal
liability of the carrier for loss or damage to goods in its custody or control.
4. The three bases of cover are: to pay; to defend a claim; or to defend the claim in a court
of law.
5. The contingent common law cover operates when the conditions of carriage are set
aside by a court ruling.
6. The additional covers provided are:
• own goods;
• expenses (debris removal);
• containers and trailers; and
• drivers’ personal effects.
7. The two usual bases for calculating premium are per vehicle and haulage charges.
8. The carrier is liable when loss or damage occurs while it has custody or control of the
goods or they are with its sub-contractor.
viii M90/March 2019 Cargo and goods in transit insurances
Chapter 8
self-test answers
1. Bullion and bank notes, fine arts and jewellery.
2. Contamination.
3. Yes the loss is covered. Although contamination is not generally insured, in this
instance the proximate cause of the damage is not the contamination, it is the
mis-delivery. The insurance covers this, so the claim will be met.
4. You should:
• clause the delivery note to show that the damage has occurred;
• unpack the crate immediately; and
• separate any damaged clothing from the rest.
5. • The cans may blow or even explode which will also cause damage to the
surrounding cans.
• Poor handling may cause denting to the cans.
• The cans may rust.
6. • Good: they are usually well packed and so able to withstand the rigours of
transportation.
• Bad: they are attractive to thieves.
Self-test answers ix
Chapter 9
self-test answers
1. Fog, currents, heavy weather, ice, volcanoes and tsunamis.
2. Undersea earthquakes and volcanic eruptions.
3. Theft and road traffic accidents.
4. a. Hurricanes: Caribbean Sea and Gulf of Mexico – July to November.
b. Typhoons: China Sea – July to November.
c. Heavy gales: Pacific Coast of Mexico – September to October and North Atlantic
and Bay of Biscay – winter.
5. Three reasons for promoting loss prevention measures are to:
• protect goods from loss or damage;
• keep premiums down; and
• protect a supplier’s goodwill.
6. Insurers control accumulation risk by using:
• a policy overall loss limit; and
• reinsurance.
x M90/March 2019 Cargo and goods in transit insurances
Chapter 10
self-test answers
1. Immediate notification of a claim allows an early survey of damaged goods to be
completed and for carriers and other bailees to be held responsible, thereby protecting
the insurer’s rights in subrogation.
2. • Sea: bill of lading.
• Air: air waybill.
• Road: CMR Consignment note or delivery note for UK/UK carryings.
3. • Letter of reserve to the carrier/bailee; and
• carrier/bailee’s reply or settlement.
4. • Local authority condemnation certificate.
• Copy of the ship’s temperature data log.
5. If the cost of recovering the cargo is more than the insured value of the goods.
6. Salvage awards are calculated by reference to the value of the ship, the freight and the
cargo, where each is taken as a proportion of the total. Each proportion is then
compared to the value of the salvaged property to establish the percentage share.
7. Any three from:
• the costs of sorting damaged cargo from sound;
• dry cleaning and repacking wet damaged clothing;
• fumigating infested cocoa beans; and
• repacking machinery at an intermediate port where damage to the original
packaging exposes the machinery to rust or rough handling.
8. • Costs of selling damaged cargo; and
• surveyors’ fees.
9. A valued policy is one in which a specific item is insured for an agreed sum (MIA 1906,
s.27.2).
10. Section 28 of the MIA 1906 describes an unvalued policy as a policy which does not
specify the value of the subject matter insured but, subject to the limit of the sum
insured, leaves the insurable value to be ascertained by subsequent declaration.
xi
Glossary
air freight carriers carry goods by air.
air waybill a document of carriage issued by airlines to shippers of cargo.
average adjusters experts in the law and practice of general average and marine
insurance.
bareboat or By this document the charterer takes on the shipowner’s
demise charter responsibility for the ship, including crewing and provisioning.
bill of lading provides evidence that a contract exists, is the receipt of goods
delivery on board a vessel and is a document of title.
charterer one who hires a ship for the carriage of goods.
charterparty a document providing evidence of the agreement between a
shipowner and the party chartering the ship.
CMR contains details of the consignors, consignees and the road carriers
Consignment for carriage of goods by road under the CMR Convention.
note
combined a CTO negotiates a single contract for multimodal transport on a
transport door to door basis.
operator (CTO)
constructive total a loss mid-way between actual total loss and partial loss and is
loss (CTL) declared when:
• the cost of recovery or repair exceeds the value of the goods
were they to be recovered or repaired; or
• the cargo aboard a ship is in such a situation (e.g. the ship has
sunk in shallow waters) and the cost of recovery is greater than
the value of the cargo when it is recovered.
(see also notice of abandonment)
dead weight term used to describe a ship’s gross capacity.
tonne (dwt)
destuffing the process of unloading a container.
extra charges costs that arise from assessing the extent of the loss.
freight forwarder takes responsibility for arranging the movement of goods, often
through the use of other parties, and preparing paperwork.
full container load a container stuffed and destuffed at the risk of, and for the account
of, a single seller or buyer.
groupage cargoes of more than one buyer/seller brought together into a
single container by a company specialising in the provision of part
loads at frequent, regular intervals.
haulage the firm responsible for carrying goods from one point to another,
contractor usually by road.
Incoterms
Incoterms®® rules by which the sale of goods between buyers and sellers in
different parts of the world is facilitated. Incoterms set out the duties
of the seller and the buyer in getting the goods from the one to
the other.
insulated lined with approximately 4” of polyurethane foam, these containers
containers are used for transporting goods sensitive to changes in ambient
temperature.
interchange a receipt passed between carriers when the goods are passed from
receipt one carrier to another.
less than a single container used by more than one seller and/or buyer to
container load transport their goods.
liner service advertised, scheduled services to specified destinations provided by
shipping lines.
xii M90/March 2019 Cargo and goods in transit insurances
longshoremen the US term for stevedores they load and unload goods on to ships.
marine cargo inspect cargo and investigate claims for lost or stolen cargo.
claims surveyors
multimodal the carriage of goods in containers from one place to another by
transport different types of transport.
notice of a notice issued by a cargo owner to its insurers when it wishes to
abandonment claim a constructive total loss.
(NOA)
outturn report details the goods discharged from a ship or if prepared by the
discharging terminal it shows any discrepancies in the goods
discharged.
panamax vessels vessels designed to be able to pass through the Panama Canal.
particular charges expenses incurred by, or on behalf of, the insured for the safety or
preservation of the cargo.
project cargo a specialist class within the cargo division, insuring large items of
plan and materials used in major infrastructure projects.
recovery agents firms and individuals whose activities include recovering insurers’
claims payments by subrogating against carriers responsible for loss
or damage to goods. Usually work on a ‘no cure, no pay’ basis.
refrigerated these containers can either be integral units, having their own
containers refrigeration unit, or porthole containers that run off the ship’s own
cooling plant and are designed to carry frozen goods.
rig the US term for the driver’s cab on a lorry, the UK equivalent is
tractor unit.
RO/RO ferry a ferry designed to allow a fully loaded wagon to drive on at one
port and off again at another port.
salvage charges the charges payable by owners of a vessel and/or cargo to salvors,
expressed as a percentage of the total value salved.
sea waybill a generally non-negotiable alternative to a bill of lading. Often used
by RO/RO ferry operators.
shipowners those who own and operate the ships used to carry goods by sea.
special drawing a composite unit of value used in international transactions. Its value
right (SDR) is determined daily by the International Monetary Fund on the basis
of a weighted currency basket.
stevedores load and unload goods on to ships.
stockthroughput a seamless cover in which both the transit and storage risks are
insurance combined into one policy and covered by the marine department.
stuffing the process of loading a container.
sue and labour expenses incurred by a shipowner when averting a threat to cargo.
charges
through transport a freight forwarder who acts as a principal for one stage of the
operator (TTO) carriage and acts as agent of the shipper for the other stages.
time charter a charterer hires the ship for a specific period of time.
tractor unit the UK term for the driver’s cab on a lorry.
tweendeckers general cargo ships with two or three decks. The upper deck is the
main deck, while the lower deck is the tweendeck. Beneath this is
the hold.
Twenty one container 20ft in length.
Equivalent
Units (TEUs)
unit load containers designed to carry goods by air.
devices (ULDs)
ventilated containers with openings in the top and bottom side rails to provide
containers ventilation.
Glossary xiii
Cases
A
Adler v. Dickson (1954), 7G2
B
Blyth v. Birmingham Waterworks Company
(1856), 4A3, 7B1A
C
Cicatiello and others v. Anglo European
Shipping Services Ltd and others (1994),
4A1
H
Horabin v. BOAC Ltd (1952), 4A3
M
Masefield AG v. Amlin (2011), 9A2B
Matrix v. Uniserve (2009), 7B1A
Moss v. Smith (1850), 3A1D
S
Star Fire Diamond v. Angel Ltd (1962), 9A3A
T
Taylor v. Caldwell (1863), 4D3
U
United States v. Reliable Transfer Co., Inc.,
421 U.S. 397 (1975) No. 74–363, 5A1E
xvi M90/March 2019 Cargo and goods in transit insurances
xvii
Legislation
C
Carriage of Goods by Road Act 1965, 4A
Carriage of Goods by Sea Act 1924, 3C
Carriage of Goods by Sea Act 1936 (US
COGSA), 3C, 3F
Carriage of Goods by Sea Act 1971 (COGSA),
3C1, 3C1A
E
Enterprise Act 2016, 3B4
H
Harter Act 1893 (US), 3C
I
Insurance Act 2015, 3B, 3B1, 3B2, 3B3, 3B4,
10I1
International Transport Conventions Act
1983, 4B
M
Marine Insurance Act 1906, 3A, 3A1A, 3A1B,
3A1D, 3A1E, 3A2C, 3B1, 3B3, 5A1B, 6B4, 9C,
10C1, 10E1, 10G1, 10G2
Marine Insurance (Gambling Policies) Act
1909, 3A8
xviii M90/March 2019 Cargo and goods in transit insurances
xix
Index
A BIFA, 4D1
conditions of carriage, 7F3C
abandonment
BIFA freight forwarder
insurer’s rights of ownership on, 3A1D
calculating liability, 10H5
notice of (NOA), 3A1D
bill of lading, 10A1A
acceptable cargo, 4B1
bills of lading, 2D
accumulation clause, 9D
combined transport, 2D2
acetic acid, 8B
details incorporated in, 2D1
actual total loss
groupage, 2D2
adjustment of, 10D2
house, 2D2
actual total loss (ATL), 3A1D
negotiable FIATA multimodal transport,
adjustable premium, 7C2
2D2
adjustment of a constructive total loss,
negotiating, 2D3
10D3
through, 2D2
adjustment of an actual total loss, 10D2
‘To order’, 2D3B
adjustment of cargo claims, 10D
types of, 2D2
aframax, 1C1B
Both to Blame Collision
agricultural produce, 1C1A
calculation of indemnity, 10C4
air cargo, 1A1B
clause, 5A1E
air freight, 9A4
cover, 5A1E
carriers, 2A1E
brazil nuts, 8B
containers and pallets, 1D3A
British International Freight Association,
air waybills, 10A1B
see BIFA
master and house, 2D5
brown goods, 1C2E, 8A6
all risks conditions, 7F1
bulk cargoes, 1C1, 1C1G
almonds, 8B
bulk goods, 8A4
aluminium, 8B
bulk liquids, 7D
annual deposit and adjustable policy, 6E1E
bulk oils and fats, 8B
any one loss limit, 9D
bulk trade routes, 1B2
apples, 8B
business protection clauses, 5B4C
application of COGSA 1971, 3C1A
application of war and strikes clauses, 5C1
apricots, 8B
Article 4.2, 3D2 C
Article 17.2 defence, 4A1 calculating a salvage award, 5A1C
assignability, 3A5 canned goods, 8B
average adjusters, 10B2 car transporting, 7D
average condition in property insurance, 6B caravans, 8B
cargo claims, adjustment of, 10D
cargo handlers, 2A1F
O R
oils, gases and chemicals, 1C1B rail carriers, calculating CIM liability, 10H4
on board the overseas vessel, 10D1A rating practices, 7C
open cover, 6E1C recovery agents, 10B4
ordinary course of transit, 5A1F, 6B6B refrigerated containers, 1D3
Organisation Intergouvernementale pour Removal of debris clause, 5B6D
les Transports Internationaux Ferroviaires repair invoice, 10A2C
(OTIF), 4B RHA, 4D2, 7F3B
outturn report, 2E3, 10A1E calculating liability, 10H1
own goods cover, 7B1D rice, 1C1A, 8B
owners of goods and loss prevention, 9C risk accumulation, 9D
risk perception and evaluation, 9A
risk profiles of goods, 6B5, 8B
P risks in different countries and routes, 9B
package basis, 3D1 Road Haulage Association, see RHA
packing list, 2E6, 10A2B road traffic accidents, 9A3B
packing surveys, 9C1 rocks, 9A1F
paints, 8B
paper in reels, 8B
Part 36 Offer, 10B3 S
partial damage, 10D1 Safety of Life at Sea Convention 1974
partial loss, 3A1C (SOLAS), 5B6B
particular charges, 10E1 sales invoice, 2E5, 10A2A
parties involved in the carriage of goods, salt, 1C1C
2A, 2A3 salvage, 5A1C
what they have in common, 2A4 calculating a salvage award, 5A1C
perils of the sea, 9A1, 9A2 charges, 10E2
petrol and petroleum products, 8B common law, 5A1D
phosphates, 1C1D sandbanks, 9A1F
piracy, 9A2B scope of insurance clause, 5B5
policy construction, haulage contractor’s scrap, 1C1G
liability, 7B sea waybills, 2D4, 10A1B
xxiv M90/March 2019 Cargo and goods in transit insurances