Marine Insurance

Marine Cargo Insurance will provide you with indemnity & financial protection for loss of or damage to your cargo during transit. Cargo may be carried by Sea, Air, Rail and Land courier.

                                         
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Categories Of Marine Insurance

  • Marine Cargo Insurance:   This involves insurance of goods in transit from one place to another by any means of transport either through sea, road, rail, air, inland water ways, or registered post or courirer.
  • Marine Hull Insurance:   This category involves in insurance of ships, yachts, barges, tugs, and other floating equipment during maritime operations against the loss or damage to the hull and machinery is covered under Marine Hull Insurance.
  • Marine delayed start up:  this is insurance of loss of profits and fixed expenses that is standing charges. delay in start up covers are always given in conjuction with marine cargo insurance where the project materials are in transit. if there is a loss to the cargo during transit which results in the project period getting delayed beyond the scheduled date of completion.
  • Marine Liabilities:  this is one of the category of marine insurance dealing with liabilities of various interests associated with shipping industry and maritime trade. some of the common policies under this are charterers liability, stevedores liability, terminal operators liability and freight forwarders liability.  

Types Of Marine Cargo Policies

  • Specific policy: a policy covering a single defined  trip from one place to another is called a Specific Policy or Trip Policy. the transit could be a movement with in India or an Export or Import.
  • Open policy:  this policy is issued, usually for a period of 12 months based on the estimated turn over of the insured comprising of numerous shipments or the exhaustion of the estimated sum insured which ever is earlier

Features of Specific Policy

  • Specific policy: a policy covering a single defined  trip from one place to another is called a Specific Policy or Trip Policy. the transit could be a movement with in India or an Export or Import.
Advantages 
  1. From the insureds stand point is that need not block their funds as in case of ab open policy and can purchase a policy as and when required especially for a small trader or businessman.
  2. The insured can be selective in choosing the transits they would like to insure and the ones where they would prefer to carry the risk themselves.the insured is also not tied down to a single insurer and can have different insurers insuring different transits.
Disadvantage: 
  1.  A specific policy is that each time there is a transit details are to be submitted to the insurer, premium paid and a policy taken. this involves administrative hassles and if an urgent shipment is to be insured on a  holiday the insured can face problems.
  2. Some shipments which had to be insured getting missed out is also a possibility. depending on the circumstances on the date of request for insurance, at times, the proposal may be declined or underwritten with high rates and stiff terms.

Features of Open Policy

  • Open policy:  this policy is issued, usually for a period of 12 months based on the estimated turn over of the insured comprising of numerous shipments or the exhaustion of the estimated sum insured which ever is earlier
  • Advantages:
  1. All transit are held covered as long as there is adequate premium balance under the open policy
  2. No necessity of running to the insurance company, every time a dispatch is to be done.
  3. Given the larger volumes, negotiation of better terms with insurers possible
  4. Cash flow is not affected since enhancements in sum insured during currency of the policy is possible.
  5. Premium is charged on actual utilisation of estimated sum insured only

Terms and Conditions of Open Policy

  • limit per sending:  it represents maximum liability of the insurer per conveyance for any claim arising out of any accident, this is fixed in advance at the time of negotiating.
  • limit per location:  This represents the maximum liability of the insurer for any claim arising out of any accidents, this is also decided in advance and is usually equal to or best twice the limit per sending to take care of the contingency of two shipments getting accumulated at the same location without the consent of the insured.
  • Declarations:  the insured has to declare each and every shipment without exception.
  • Inspection of records:  the insurer shall have the right to inspect the records of the insured any time during business hours to ensure that declarations are being made without exception. 

Types Of Open Policy

  1. Multi Transit policy:  it is a single marine open policy providing coverage to multi transit of the insured. this is done by describing under the voyage section of the policy schedule, all transits thus doing away with the need for having multi open policies. the insured would issue certificates of insurance where needed and submit a monthly consolidated figure of each type of transit.
  2. Sales turnover Policy: this is also a single policy covering all the different transits of an insured. estimated values for each of the transits are obtained and a rate of premium worked out by the insurer for each transit. however the client need not declare his individual transits or even a consolidated monthly figure of each of the transits. 
  • Misconceptions of sales turn over policy:
 (a) only estimated sales figure need to be collected at the time of proposal,
 (b) all other transits, whether described or not covered free of cost.
 (c) it is always cheaper than a normal open policy
 (d) transit cover for capital equipment is available under this policy without any additional premium 
 (e) intermediate storage cover is automatic. 

Facts of Open Policy

  • Detailed discussion is needed at the proposal stage. the entire pattern of transits is to be clearly and estimated values for each leg of transit has to be revealed.
  • no leg of transit is covered free of cost. even though rate of premium is expressed as a percentage of sales, premium is computed for each leg of transit at the back end.
  • Since the rate arrived as a percentage of sales is a weighted average rate the rate of premium under stop will be usually higher than under a conventional open policy for each leg.
  • a stop is based on the premise that all inputs which go into creation of outputs and outputs themselves are covered under a single sum insured represented by the estimated output sales figure. capital equipments does not constitute inputs , hence separate sum insured should be shown for purchase of capital equipment and separate premium charged.
  • Though intermediate storage cover can be be considered under open policies and its versions like multi transit and stop, it would be incorrect to assume that storage cover under stop is automatic. 

Factors To Be Considered In Open Policy

  • Policy on sales turnover basis is not suited for small clients whose sales figures are not easily verifiable from external sources or whose book of accounts are suspect and it is unable to spell out the pattern of movements and estimated values for each leg.
  • STOP is not suited for traders who accumulate stocks when the price is low and wait for the prices to go high before selling.
  • STOP should not be issued to clients who have businesses which are seasonal in nature and also to clients who have started new business.
  • Policy on sales turnover basis is not suited for clients whose business comprises import of raw materials in bulk and sale in packaged from in smaller quantities.

INCOTERMS

The INCOTERMS rules or international commercial terms are series of three lettered trade terms drafted by international chambers of commerce which provide rules and guidance to exporters, importers, transporters, insurers and students involved in international trade and procurement process about the tasks, costs and risks associated with the transportation and delivery of goods.
these INCOTERMS have been accepted by government and legal authorities of various countries as they almost eliminated the possibility of gaps in interpretation. this further faciliattes quickly and hassle free international trade.

EX- WORKS

EX-WORK means that the seller delivers when he places the goods at the disposal of the buyer at the sellers premises or another named place that is works, factory, warehouse, etc not cleared for export and not loaded on any collecting vehicle.
this term represents that the buyer has to bear all costs and risks involved in taking the goods from the sellers premises to its buyer.
however if the buyer wishes to put loading activity along with the cost on seller the the same should be explicitly mention in the contract of sale.

Free On Board

FREE ON BOARD (FOB):
it mean that the seller delivers when the goods pass the ships rail at the named port of shipment. this means that the buyer has to bear all cost and risks of loos or damage to the goods from that point. the FOB term requires the seller to clear the goods for export.

COST INSURANCE AND FREIGHT

COST INSURANCE FREIGHT (CIF):
  • This refers to that the seller delivers when the goods pass the ships rail in the port of shipment.
  • the seller must pay the costs and freight necessary to bring the goods to the named port of destination but the risks of loss or damage to the goods as well as any additional costs due to unforeseen events occurring after the time of delivery, are as transferred from the seller to the buyer.
  • however in CIF the seller also has to procure marine insurance against the buyers risk of loss or damage to the goods during the carriage.
  • Consequently, the seller contracts for insurance and pays the insurance premium. the buyer should note that under the CIF term the seller is required to obtain insurance only on minimum cover. should the buyer wish to have the protection of greater cover, he would either need to agree as much expressly with the seller or to make his own extra insurance arrangements. the CIF term requires the seller to clear the goods for export. 

Examples

  1. as an insurer for seller, who is selling on FOB basis storage cover at the load port would be demanded from insurer as he may not know the exact date of arrival of the carrying vessel at the load port. but under CFR rule there is no such requirement because the seller, who will arrange the carrying vessel, would be in a position to know when the vessel is arriving.
  2. When seller is selling goods on CIF seller assigns the policy in the name of buyer at the deck of shipment at the load port and buyer acquires insurable interest through assignment. whereas when buyer is buying goods in EX-WORKS then buyer acquires direct insurable interest.

Marine Cargo Clauses-1

RISKS COVERED UNDER (INSTITUTE CARGO CLAUSES-A)
  • while coverage under ICC-B and C are against named perils with named exclusions, ICC-A Does not name the perils against which it offers coverages. this is the widest form of marine cargo insurance coverage.
  • This insurance covers all risks of loss or damage to the subject matter insured except those specifically excluded under the exclusions . in addition, ICC-A also covers general average and salvage charges incurred to avoid or in connection with the avoidance of loss from any cause except those specifically excluded under the exclusions portion of the clauses plus any liability arising out of both blame collision clause in the contract of carriage.
  • In reality all risks any losses arising out of the named exclusions are not payable. the underlying condition is that any loss to the subject matter insured which is not fortutious in nature is not payable

Marine Cargo Clauses-2

RISKS COVERED UNDER (ICC-B CLAUSES)
ICC-B clauses provide a wider coverage than under ICC-C. this is done by naming of additional risks under this clause. Apart from all the risks covered under ICC-C the additional risks covered under ICC-B are as follows:
  • loss or damage due to any earthquake, volcanic eruption or lightning.
  • loss or damage due to washing over board, entry of sea, lake or river water into vessel, craft hold, container, conveyance or place of storage, or total loss of package lost overloaded, dropped whilst loading on to , or unloading from vessel or craft will be covered. 

Marine Cargo Clauses-3

RISK COVERED UNDER (ICC-C CLAUSES)
  • Loss or damage due to fire explosion, vessel or craft being stranded, grounded, sunk or capsized, overturning of land conveyance, collision or contact of vessel, conveyance with any external object, discharge of cargo at a port of distress.
  • loss or damage due to general average sacrifice, jettison
  • general average and salvage charges incurred to avoid or in connection with the avoidance of loss from any cause except those specifically excluded under the exclusions clauses.
  • any liability arising out of both blame, collision clause in the contract of carriage will be covered.
  • this is the most restricted form of cover with the perils named being mainly maritime perils that is perils related to the sea. overturning or derailment of land conveyance is also covered where it is incidental to the main voyage by sea.

Marine Cargo Clauses-4

EXCLUSIONS UNDER (ICC-A,B AND C CLAUSES)
  • Loss, damage or expenses arising out of willful misconduct of the assured.
  • Ordinary leakage, ordinary loss in weight or volume or wear and tear to subject matter insured.
  • loss, damage, or expense caused by insufficiency or unsuitability of packing or presentation of the subject matter insured. packing shall be deemed to include stowage in a container as well.
  • loss, damage caused by inherent vice or nature to the subject matter insured.
  • loss, damage or expense proximately caused by delay even though the delay is caused by a risk insured against.
  • loss, damage due to insolvency or financial default of the owners , managers, charterers or operators of the vessel.
  • loss, damage or expense due to the use of any weapon of war employing atomic or nuclear fission and fusion like reaction or radioactive force or matter.

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