P90SP 1

P90SP

SPECIMEN

PAPER

P90 – CARGO AND GOODS IN TRANSIT INSURANCES

This paper is intended as a guide to candidates preparing for an examination in cargo and

goods in transit insurances. It provides candidates with an insight into the different style of

questions in the examination paper and indicates the depth and breadth of answer sought by

examiners. It also indicates the structure of the full examination paper which will be

presented to candidates when they sit the examination in October 2010.

The answers presented in the paper provide an outline of the key points which candidates

could beneficially cover in responding to the questions. They are not intended as a definitive

answer to each of the questions: in many instances the examiners can allow scope for well

reasoned, alternative views to gain good marks.

Careful preparation is a major factor in achieving examination success. Giving attention to

these specimen questions should therefore help candidates to feel more confident that they

are prepared for the forthcoming examination, and can demonstrate their knowledge to its

full extent.

CONTENTS

Important guidance for candidates............................................................................................ ..........................3

Question paper............................................................................................................... ........................................7

Model answers......................................................................................................................................................12

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© The Chartered Insurance Institute 2009

P90SP 3

IMPORTANT GUIDANCE FOR CANDIDATES

Introduction

The purpose of this Specimen Paper is to help you to understand how examiners seek to assess the knowledge

and skill of candidates. You can then demonstrate to the examiners that you meet the required levels of

knowledge and skill to merit a pass in this unit. During your preparation for the examination it should be your

aim not only to ensure that you are technically able to answer the questions but also that you can do justice to

your abilities under examination conditions.

Before the examination

Make sure you have a copy of the current Diploma in Insurance

Information for Candidates Details of administrative arrangements and the regulations which form the basis of your examination entry are

to be found in the current Diploma in Insurance Information for Candidates brochure, which is essential reading

for all candidates. It is available online at www.cii.co.uk or from Customer Service.

Study the syllabus carefully It is important to study the syllabus, which is available online at www.cii.co.uk or from Customer Service. The

questions in the examination paper are based directly on the syllabus, so it is vital that you are familiar with it.

Read widely Your knowledge should be wider than the scope of one book. While books specifically produced to support

your studies will provide coverage of the syllabus areas, you should be prepared to read around the subject. A

reading list can be found at the end of the syllabus.

Make full use of the Specimen Paper You can use Specimen Papers as „mock‟ examination papers, attempting them under examination conditions as

far as possible, and then comparing your answers to the model ones.

Understand the nature of assessment Each Specimen Paper contains a full examination paper and model answers. The model answers show the type

of responses the examiners are looking for, and which would achieve high marks. However, you should note

that there are alternative answers to some question parts which would also gain high marks. For the sake of

clarity and brevity not all of these alternative answers are shown.

Know the structure of the examination Familiarise yourself with the structure of the examination paper and the time allowed to complete it. This

information can be found on the question paper included within each Specimen Paper.

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In the examination

Do justice to yourself in the examination

Assuming you have prepared adequately, you will only do justice to yourself in the examination if you

follow two common sense rules:

Spend your time in accordance with the allocation of marks as indicated on the paper. If you do not

complete the whole paper, your chances of passing may be reduced considerably. Do not spend

excessive time on any one question. If you have used up the time allocation for that question, leave

some space, go on to the next question, and only return to the incomplete question after you have

completed the rest of the paper. The maximum marks allocated to each question and any constituent parts are

given on the paper; the number of marks allocated is the best indication of how much time you should spend

answering it.

Take care to answer the precise question set. You will see that the model answers provided in this

Examination Guide are quite focused and precise; alternative answers would only be acceptable if they

still answer the question. However brilliantly you write on a particular topic, if it does not provide a

satisfactory answer to the precise question as set, you will not score the marks allocated. Many

candidates leave the examination room confident that they have written a „good‟ paper, only to be mystified

when they receive a disappointing result. Often, the explanation for this lies in a failure to think carefully about

what the examiner requires, before putting pen to paper.

Order of tackling questions

Tackle the questions in whatever order you feel most comfortable with. Generally, it is better to leave any

questions which you feel less confident in answering until you have attempted those with which you are more

familiar, but remember not to spend excessive time on your „good‟ questions.

Handwriting

Provided your handwriting is legible, you will not lose marks if it is untidy. We recommend that you do not

write in block capitals, because you will be slowed down so much by doing so and, paradoxically, block

capitals can become more difficult to read than joined-up writing when done quickly.

Answer format

Unless the question requires you to produce an answer in a particular format, such as a letter or a report, you

should use „bullet points‟ or short paragraphs, since this allows you to communicate your thoughts in the most

effective way in the shortest time. The model answers give an indication of which style is acceptable for the

different types of question.

1

2

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Calculators

If you bring a calculator into the examination room, it must be a silent, battery or solar powered, non-

programmable calculator. The use of electronic equipment capable of being programmed to hold alphabetical

or numerical data and/or formulae is prohibited. You may use a financial or scientific calculator, provided it

meets these requirements. It is important that you show all the steps of any calculation in your answer. The

examination is testing your ability to carry out all the appropriate steps in calculating a value. A proficient

mathematician is someone who follows the correct method, i.e. carries out the appropriate steps. The majority

of the available marks will be allocated for demonstrating the correct method of calculation.

After the examination

All Diploma in Insurance examiners, one of whom will mark your answer book, are either active practitioners

in the insurance industry or are experts on the subject. They have been specially trained to mark papers using a

detailed marking scheme.

The marking of each examiner is closely monitored throughout the marking period and all marked answer

books are carefully checked. This process means that all answer books are marked to the same standard.

After all the answer books have been marked, a moderation meeting is held, at which all available statistical

information is considered, together with the views of the Senior Examiner for that unit and other assessment

experts. At the meeting a pass mark is set to ensure that the standard of knowledge and skills required to gain a

pass in the paper is comparable with that of previous papers. All candidates at or above the agreed pass mark

will pass: the CII does not operate a quota system whereby only a fixed percentage of candidates can pass a

paper.

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© The Chartered Insurance Institute 2009

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P90

THE CHARTERED INSURANCE INSTITUTE

DIPLOMA

EXAMINATION PAPER

UNIT P90

CARGO AND GOODS IN TRANSIT INSURANCES

INSTRUCTIONS

Three hours are allowed for this paper.

Fill in the information requested on the answer booklet and on form B.

You are allowed to write on the inside pages of this question paper but you must NOT

write your name, candidate number, PIN or any other identification anywhere on this

question paper.

The answer booklet and this question paper must be handed in personally by you to

the invigilator before you leave the examination. Failure to do this may result in your

paper not being marked and you may be prevented from entering this examination

in future.

READ THE INSTRUCTIONS OVERLEAF CAREFULLY BEFORE ANSWERING

ANY QUESTIONS.

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THE CHARTERED INSURANCE INSTITUTE

P90 – Cargo and Goods in Transit Insurances

CANDIDATE INSTRUCTIONS

READ THE INSTRUCTIONS BELOW BEFORE ANSWERING ANY QUESTIONS.

Three hours are allowed for this paper. You should answer all questions in Part I and two out of the three

questions in Part II.

The paper carries a total of 200 marks, as follows:

Part I 14 compulsory questions 140 marks

Part II 2 questions selected from 3 (scenarios) 60 marks

The number of marks allocated to each question part is shown next to the question and you should spend your

time in accordance with that allocation.

Answer each question on a new page. If a question has more than one part, leave several lines blank after each

part.

It is important to show each step in any calculation, even if you have used a calculator.

You may find it helpful in some places to make rough notes in the answer booklet. If you do this, you should

cross through these notes before you hand in the booklet.

© The CII Examinations Department, 20 Aldermanbury, London EC2V 7HY

P90SP 9

PART I

Compulsory questions

1) Explain the purpose and use of INCOTERMS. (7)

2) a) Describe the importance of an original bill of lading in a CIF shipment of

goods from the UK to a buyer in another country.

(3)

b) State why the bill of lading must be produced in the event of a claim. (3)

c) Identify two similarities and one difference between a bill of lading and a

waybill.

(3)

(Total 9)

3) A large, second-hand reconditioned machine, valued at £300,000, has been sold by

a UK machinery supplies company to a buyer in Kenya. Cover is required for the

journey from the UK seller to the buyer in Nairobi, Kenya.

Explain why one insurer might offer cover under Institute Cargo Clauses (A) 1/1/09

whilst another would only offer cover under Institute Cargo Clauses (B) or (C)

1/1/09.

(12)

4) A consignment of machinery spare parts in a container is being shipped by the seller in the

UK to the buyer in the USA. The invoice price is $250,000 and the sale is on CIF plus 10%

terms. Whilst being loaded aboard the overseas vessel at the UK port the container falls to

the deck of that ship, causing damage to the cargo. Sixty per cent of it is damaged beyond

repair.

a) Identify the party who must make the claim. (4)

b) State why it is that particular party. (4)

c) Calculate the settlement figure. (4)

(Total 12)

5) a) How does the Marine Insurance Act 1906 define

i) a contract of marine insurance (4)

ii) insurable interest. (5)

b) State when insurable interest must exist in marine insurance. (1)

(Total 10)

6) Describe the elements necessary to constitute General Average. (10)

7) List the perils covered by the Institute Cargo Clauses (B) 1/1/09. (12)

8) a) Name two types of tank vessels used in the carriage of crude oil in bulk and

state the usual maximum DWT for each.

(4)

b) Identify four leading countries which produce crude oil. (4)

(Total 8)

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9) Name five documents that are usually required to prove the quantum of a marine

cargo claim and explain their relevance.

(15)

10) a) Name the three headings under which liability attaches to a haulage contractor

for loss or damage to goods.

(3)

b) Name the three ways in which premium for haulage contractor‟s liability

insurance is usually calculated.

(5)

c) State what a haulage driver‟s first duty is after signing for goods that have just

been loaded on his vehicle.

(3)

(Total 11)

11) State three ways in which an insurer could control the accumulation of risk. (9)

12) a) Identify the clauses an insurer is likely to use to provide full cover for the

following goods:

i) New clothing, in cardboard cartons and containerised, from Hong Kong

to Holland.

(1)

ii) Frozen meat in a temperature controlled container from Australia to

China.

(1)

iii) Oil in bulk from Saudi Arabia to the UK. (1)

iv) Sawn timber from Finland to the UK. (1)

v) Lightweight electrical components for overnight delivery from Chicago,

USA to Manchester, England.

(1)

b) Identify what additional clauses an insurer should use to provide full cover for

all of the goods listed above.

(3)

(Total 8)

13) A ship, valued at $20,000,000 carrying cargo worth $10,000,000 has suffered a fire

amongst some of the cargo, when it accepts an offer of salvage under the Lloyd‟s

Open Form (LOF). Some of the cargo worth $1,500,000 has been destroyed by the

fire.

Calculate the salvage award assuming an award of 2% and split this between the

ship and the cargo owners.

(7)

14) a) Describe the role of a classification society. (4)

b) Name three classification societies which are members of the International

Association of Classification Societies.

(3)

c) Explain why insurers incorporate a classification clause in cargo policies. (3)

(Total 10)

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PART II

Answer TWO of the following THREE questions

Each question is worth 30 marks

15) Your client, XYZ Engineering Products Ltd, produce spare parts for the machinery

industry. Its markets are principally in the UK and Europe with other shipments to

the rest of the world. XYZ Engineering Products Ltd do not use freight forwarders

preferring to contract direct with carriers.

The Finance Director is trying to convince the Board that he can save the annual

expenditure on marine insurance by reducing the number of carriers it employs to

deliver its goods and to insist that those remaining carriers accept full responsibility

for loss or damage to the goods, as well as their paying full compensation,

including compensation for any consequential loss.

The Managing Director of XYZ has asked you to produce a report for the board

setting out the limitations of a carrier‟s liability implicit in various international

contractual regimes. You should produce reasoned arguments as to why the

Finance Director‟s view may not be the best way forward.

(30)

16) Explain the nature and purpose of a haulage contractor‟s liability policy to a class

of insurance students and identify the potential legal liabilities of a haulage

contractor in the UK whilst carrying goods domestically as well as between the UK

and Europe.

(30)

17) Your client, a manufacturer of spare parts for the motor industry, has asked you to

research and then recommend the most efficient way of reporting its sendings in

any one year and also to advise which will cost the least. Your client has customers

in most areas of the world and uses road, sea and air transport facilities for the

carriage of its goods. Although the cost of insurance is not a major issue for your

client, it is generally prudent in its approach to business costs of all descriptions.

Prepare a report for the Managing Director. Cover is granted per the Institute Cargo

Clauses (A) 1/1/09 and Institute Cargo Clauses (Air) 1/1/09 plus war and strikes.

(30)

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NOTE ON MODEL ANSWERS

To achieve maximum marks the model answers must be read in conjunction with the

guidance shown previously in this Specimen Paper.

Model Answer for Part I (Compulsory questions)

1) They are the terms which set out the duties of the seller and buyer of goods where the

seller and the buyer are domiciled in different countries. This is the sole purpose of

Incoterms. They do not interfere with the original contract between seller and buyer for

the supply of goods.

2) a) There are three important features of a bill of lading:

It is a receipt of the goods on board a ship, given by the master of the vessel, on

behalf of the vessel‟s owners.

It is evidence of the contract of affreightment between the shipper of the goods

and the carrier by sea.

It incorporates the Hague-Visby Rules into the contract of carriage.

b) It represents a title in the goods. A claimant must have a title in the goods in order

to make a claim upon them.

c) A waybill is similar to a bill of lading in two respects. It is a receipt for the goods

and is evidence of the contract of affreightment. However, the waybill differs from

the bill of lading in that it does not represent a title in the goods.

3) The critical consideration for each underwriter is the extent of reconditioning carried out

on the machine. This can vary from a simple cleaning and repainting to the replacement

of vital new working parts, making the machine nearly new.

With the more traditional approach to underwriting this sort of risk some underwriters

use the Institute Cargo Clauses (C) 01/01/09 as their starting point and use it to build the

cover up to the wider covers available under the (B) and (A) clauses. Where there is clear

evidence that the working parts of the machine have been replaced by new components,

there is a greater likelihood of All Risks cover, as per the Institute Cargo Clauses (A)

1/1/09, being given than if it had simply been cleaned and painted.

In those markets that use the Institute Cargo Clauses (A) 01/01/09 as their starting points

for cover, they would usually exclude the risks of rusting, oxidization or discolouration

and also electrical or mechanical breakdown or derangement.

4) a) The party who must make the claim is the buyer in the USA.

b) Under CIF terms the seller of goods is responsible for delivering them to the

overseas vessel at the port of embarkation and must pay the freight to the overseas

port. However, under these terms, the seller has delivered the goods when they pass

the ship‟s rail. At that point, title in the goods passes to the buyer, together with the

policy of insurance arranged by the seller under the CIF terms. We know the goods

had passed the ship‟s rail because they landed on the deck. If they had landed

instead on the quayside the position would be that title remained with the seller

because they would not then have passed the ship‟s rail. In such a case the seller

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would have to make the claim under the same policy.

c) CIF value $250,000 x 60% damaged is $150,000

Plus 10% 15,000

Claim $165,000

To this figure should be added the cost of the freight (or carriage) charge from the

premises of the seller to the UK port but the freight for the sea voyage is not

payable because the goods have not reached the overseas port. However, freight

would be added to the amount claimed if it was pre-paid.

5) a) Section 1 of the MIA defines:

i) A contract of marine insurance as one in which: “the insurer undertakes to

indemnify the assured, in manner and to the extent thereby agreed, against

marine losses, that is to say the losses incident to marine adventure.”

ii) Insurable interest is defined in Section 5 of the MIA as, “a person is interested

in a marine adventure where he stands in any legal or equitable relation to the

adventure or to any insurable property at risk therein, in consequence of

which he may benefit from the safety or due arrival of insurable property, or

may be prejudiced by its loss, or by damage thereto, or by the detention

thereof, or may incur liability in respect thereof.

b) At the time of loss.

6) The sacrifice or expenditure must be extraordinary.

The act must be intentional or voluntary.

There must be a peril that is real and not imagined.

The action must be for the common safety of the whole adventure, not merely for the

safety of one of the interests involved.

The action must be reasonable.

Marine Insurance Act 1906. S66.

7) The insurance given by these clauses covers loss or damage to the subject-matter insured

reasonably attributable to the following named perils:

Fire or explosion.

Vessel being stranded, grounded, sunk or capsized.

Overturning or derailment of land conveyance.

Collision or contact of vessel, craft or conveyance with any external object other than

water.

Discharge of cargo at a port of distress.

Earthquake, volcanic eruption or lightning.

The insurance also covers loss or damage to the subject-matter insured caused by:

General average sacrifice.

Jettison or washing overboard.

Entry of sea, lake or river water into the vessel, craft, hold, conveyance, container or

place of storage.

Total loss of any package lost overboard or dropped whilst loading on to, or unloading

from, the vessel or craft.

8) a) Very large crude carriers (VLCCs) 250,000 dwt

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Ultra large crude carriers (ULCCs) 300,000 dwt

b) Any four from:

the Middle East;

USA;

Russia;

Norway;

Venezuela; and

Libya.

9) Sales invoice;

Packing list;

Quantified statement of claim;

Repair invoice;

Original certificate of insurance, or declaration.

Sales invoice

This is an essential document because it is proof of the sum paid by the consignee for the

goods and, as such, it proves the quantum of the claim.

Packing list

This document usually accompanies the sales invoice. It confirms the weight, numbers

and volume of the goods, and how they are packed. It should also contain an exact

description of the cargo in each carton, together with any relevant shipping marks and

numbers.

Quantified Statement of Claim

The Quantified Statement of Claim is the Assured‟s formal claim in detail.

Original Certificate of insurance or declaration

The certificate of insurance is a document of title in the goods. It must be produced in its

original form. A copy certificate is not valid. The contents of the certificate must match

the description of the goods claimed, their quantity and sum insured.

Where only a declaration form is required, it must contain the same details as to goods,

quantity and sum insured.

Repair invoice

Where goods are capable of repair the repair invoice proves the value of the claim.

10) a) Private contract terms;

Statute or international convention;

Common law.

b) A fixed premium per vehicle.

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An adjustable premium based on estimated haulage charges.

A fixed annually reviewable premium charged at 100% of the estimated figure.

c) To ensure the load is secured against movement in transit. He must do this before

moving his vehicle from the loading area.

11) Any three from:

Use location clauses in open covers/floating policies to control aggregation of any

insured‟s goods at ports of shipment.

Try to ascertain full shipment details from insured‟s records and operate recording

systems to capture accumulation data.

Use in house or proprietary modelling techniques.

Buy reinsurance to cover unknown exposures.

12) a) i) For new clothing Institute Cargo Clauses (A) 1/1/09

ii) For frozen meat Institute Frozen Meat Clauses (A) 1/1/86

iii) For oil in bulk Institute Bulk Oil Clauses 1/2/83

iv) For sawn timber Institute Timber Trade Federation Clauses 1/4/86.

v) Lightweight Electrical

Components overnight Institute Cargo Clauses (Air) 1/1/09

b) Institute Frozen Meat Extension Clauses (IMTA) 1/1/86.

Plus the appropriate War and Strikes clauses for each cargo

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13) Vessel salved value $20,000,000

Total salved value $28,500,000 x 100 = 70.175%

Cargo salved value $8,500,000

Total salved value $28,500,000 x 100 = 29.825%

Two per cent of the salved value of $28,500,000 = $570,000

Award:

Vessel pays 70.175% of $570,000 = $399,997.50

Cargo pays 29.825% of $570,000 = $170,002.50

Total $570,000.00

14) a) Set standards during design and construction of vessels.

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.

Act on behalf of governments in confirming that ships on a national register

comply with internationally agreed standards.

b) Any three from:

ABS American Bureau of Shipping

BV Bureau Veritas

CCS China Classification Society

DNV Det Norske Veritas

GL Germanischer Lloyd

KR Korean Register of Shipping

LR Lloyd‟s Register of Shipping

NK Nippon Kaiji Koyokai

RINA Registro Italiano

RS Russian Maritime Register

Associate member:

IRS Indian Register of Shipping

c) To ensure that goods are transported in vessels of good quality, i.e. in terms of age

and good maintenance.

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Model Answers for Part II (each question is worth 30 marks)

15) ADVANTAGES

The only advantage lies with the saving in expenditure on marine insurance premium.

DISADVANTAGES

It is only possible to vary a carrier‟s liability for loss or damage to goods that are in

domestic UK transit.

XYZ will have to fund the cost of any loss or damage in the first instance, without any

guarantee that its outlay will be recovered.

For those goods sent to customers in Europe, Russia and North Africa, using road

vehicles and-roll on/roll-off ferries, the liability of the carrier is dictated by the CMR

Convention, which sets liability at 8.33 Special Drawing Rights per kilo of weight lost or

damaged.

The carrier is only liable if the cause of loss or damage is his negligence. However the

carrier may avail himself of defences in certain circumstances described in the

convention as “circumstances he could not avoid, the consequences of which he was

unable to prevent.” If the carrier can prove his entitlement to this defence, he will not be

liable to pay anything.

The limit and defence under CMR can be set aside if XYZ is able to prove that the

carrier caused the loss or damage by his wilful misconduct or default equivalent to wilful

misconduct, allowing XYZ to recover in full. However, the English courts are reluctant

to give a decision in wilful misconduct and do not recognise default equivalent to it.

Courts in some countries in Europe take a different view but this would involve XYZ in

a forum shopping exercise to find a more favourable country in which to fight its case.

The carrier will undoubtedly resist this and there are certain strict rules which would

limit the ability of XYZ to bring its case in a more favourable country.

In bringing an action XYZ would have to stand the legal costs initially and, if it lost its

case, it would have to bear these costs together with those of the carrier, who will be

backed by its insurers.

CMR makes any derogation from its provisions null and void.

In respect of goods sent by sea, the risk is even greater because various parties are

involved in the carriage. The journey begins with a UK carrier, who will carry the goods

to the docks, where they may be stored in a warehouse awaiting a ship. Both the UK

carrier and the warehouse keeper trade under different conditions of business. Standard

liability for the carrier is £1,300 per tonne without the need to prove negligence on his

part but the liability of the warehouse keeper is limited to £100 per tonne and only if he

is negligent. Neither is liable for consequential loss other than to refund the carriage or

storage charges in the event of loss or damage.

.

When loaded on board the vessel the ship owner will be liable to XYZ under the terms of

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the Hague-Visby Rules. Liability under these rules is limited to 2 Special drawing Rights

(known as SDRs) per kilo of weight lost or damaged, or 666.67 SDRs per package,

whichever is the higher. An SDR is a financial instrument of the International Monetary

Fund used as a means of exchanging currencies between countries. However, the ship

owner has a number of defences to liability, including not being liable for the negligent

navigation of the ship by the officers and crew.

To make the situation more potentially expensive, in sending goods by sea XYZ incurs a

liability to the owners of the vessel carrying its goods for its proportion of any general

average costs incurred. An act of general average arises when the master elects to take an

extraordinary action to save his vessel if it is in peril of sinking. For example, if there is a

fire on board which is serious enough to threaten the vessel, and the master uses water to

extinguish it successfully, and saves the voyage, XYZ will be liable to contribute to the

cost of that expenditure in the proportion that the value of its goods bears to the whole

value of the ship, the freight and the total value of cargo on board. Furthermore, the ship

owner has a lien on the goods until either an agreed deposit is paid or a General Average

Guarantee, provided by an insurer, is given. As general average cover is a standard part

of marine insurance the GA Guarantee is only available if insurance is in force.

In the absence of marine insurance, an example of XYZ„s financial liability for a general

average act would be:

CIF value of XYZ‟s goods is £250,000.

Value of goods sacrificed is £1,200,000.

Total value of ship, goods and freight is £20,000,000.

£1,200,000 is 6% of £20 million, so XYZ‟s contribution would be 6% of £250,000 i.e.

£15,000, which they must pay before the ship owners will release the goods. They cannot

recover this outlay from any other party. If XYZ had marine insurance in force the

insurer would have issued a general average guarantee, which would have secured the

release of the goods with the minimum of delay.

XYZ would not have a contractual relationship with the insurers of the carriers and so

would have no rights against them if any of the insurers refused a claim because of some

failure by a carrier to comply with a policy term.

For some of the sales XYZ may be required to provide assignable insurance to the buyer

as part of the terms of sale. If an annual marine policy is not in place these sendings

would have to be insured as „one-off‟ sendings, for which the premium is usually higher

than it would be for an annual policy.

When the cost of the insurance premiums is considered against the financial risks

involved in not insuring the goods, as described above, the recommendation must be that

XYZ should maintain its marine cargo insurance programme.

16) A haulage contractor‟s liability policy provides the haulage contractor with an indemnity

against his legal liability for loss or damage to goods in its custody. In contrast to a

marine cargo insurance, it does not insure the goods.

It applies to loss or damage arising whilst the goods are in the haulage contractor‟s

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custody and control. It is particularly important to remember this when considering

claims for loss or damage arising during loading operations at the premises of the

consignors and unloading carried out at the premises of the consignees. The fact that

goods may be damaged or lost during loading or unloading does not, in itself, cause any

legal liability to attach to the haulage contractor, even if the goods are on his vehicle at

the material time. The first question is always, “who had control of the goods when they

were lost or damaged?” If the answer to that question is that it was the haulage

contractor, a prime facie case attaches for him to be legally liable, subject to any

conditions of carriage applying. In reality, however, the answer is usually that it was

either the consignor or consignees who had custody and control at the time. It is

important that you understand this distinction because a haulage contractor can be

vulnerable to a claim being passed off to him when, in fact, no fault lay with him and he

did not have legal possession of the goods.

With few exceptions, the loading of the goods is usually carried out by employees of the

consignor or consignee. Some exceptions to this rule are car and caravan transporters and

carriers of goods in bulk, the latter especially in regard to the delivery risk. The loading

of cars and caravans is virtually always carried out by the driver of the carrying vehicle.

With bulk goods, although the loading operation may be in the charge of the consignors,

the delivery process involves the goods being discharged into a tank, silo or other

container, and there is sometimes confusion or misinterpretation as to the identity of the

receiving vessel, resulting in goods being mixed with other unsuitable goods, causing the

total loss of both sets of goods. If the driver was responsible for the actual discharging

operation, he will normally incur the legal liability for damage to both sets of goods. The

haulage contractor‟s liability insurance will cover the damage to the goods discharged

from the vehicle but the damage to the goods in the static tank or silo will usually be

taken by a public liability policy, or the third party liability section of the commercial

vehicle policy.

The nature of a haulage contractor‟s liability policy is that it provides three alternative

bases of indemnity, namely:

1) To pay for loss or damage to goods being carried;

2) To defend any claim where a valid defence is available;

3) To pay the value of any award made by a court for loss or damage to goods and to pay

such legal costs awarded by the court against the haulage contractor, including his

own legal costs incurred with the insurer‟s written consent.

In addition, the policy also provides cover against such thing as loss or damage to

drivers‟ personal effects, loss or damage to sheets, ropes, tarpaulins and the like, and

costs and expenses incurred in removal of debris and transhipping goods to another

vehicle following an accident.

Legal liability for loss of or damage to goods may attach to a haulage contractor by:

1) Common law;

2) Private conditions of carriage;

3) Statute or legal convention.

If a haulage contractor agrees to carry goods for reward in the UK, but does not introduce

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any contract conditions into the agreement, he will usually be treated as a bailee for

reward. Under this legal status, he is liable for the full value of the goods and any

foreseeable consequential loss if the goods are lost or damaged due to his neglect or the

neglect of his servants or agents.

In order to restrict his liability the haulage contractor must agree conditions of carriage

with his customer before concluding the agreement to carry the goods. The leading

conditions of carriage in the UK are those of the Road Haulage Association, 2009

edition. There are very few worthwhile defences to liability under these conditions but

they restrict the amount the haulage contractor must pay in the event of loss or damage to

not more than £1,300 per tonne on the weight of the goods lost or damaged plus the

refund of haulage charges pro rata to the proportion of damaged goods. These conditions

also exclude the haulage contractor from any liability for consequential or other financial

loss other than the aforementioned refund of carriage charges.

Where goods are carried between the UK and Europe by road vehicle, and the goods are

not unloaded from that vehicle, the CMR Convention applies. This convention is given

the force of law in the UK by the Carriage of Goods by Road Act 1965. It imposes upon

the carrier a financial liability of up to 8.33 Special Drawing Rights (known as SDRs)

per kilo on the weight of the goods lost or damaged. An SDR is a financial instrument of

the International Monetary Fund used as a means of exchanging currencies between

countries. However, unlike RHA Conditions of Carriage, the CMR Convention affords

the carrier a complete defence to liability if the cause of the loss or damage was due to

circumstances the carrier could not avoid, the consequences of which he was unable to

prevent

The limitation of liability, and any defences or time limits, under CMR, are set aside if

the cause of any loss or damage is due to the wilful misconduct or default equivalent to

wilful misconduct, of the haulage contractor.

17) This is an exercise that should involve both the assured and the insurer. The principal

role of the insurer in efficiency is to reduce the number of destinations for which a

separate rate applies and instead to group those destinations into regions of the world.

For example, the Middle East would cover countries such as Egypt, Saudi Arabia,

Jordan, Syria, the Lebanon, Israel, Dubai and the United Arab Emirates, whilst “Europe

excluding Russia” would encompass a large number of countries under the one heading.

This could only come about if the insurer was satisfied that there were no countries

within that general heading that warranted a different approach to underwriting.

The collection of data by the client on all its sendings to any one country, in any one

year, can involve its administration staff in a high level of work activity that could at

least be mitigated by the introduction of sendings to regions rather than to individual

countries. Furthermore, taken to its logical conclusion, this process could result in just

one single rate being applied to the whole of the sales turnover in any one year, making

the job of collecting the necessary data for declaration to insurers much easier. This may

be a solution for a company with a large turnover.

In looking at a variety of alternative methods of paying premiums we also see associated

ways of making the reporting of sendings as efficient as possible. Premium payment and

the reporting of sendings to the insurer is available in three main ways, namely:

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1) An annual minimum & deposit premium based on the premium the insurer expects to

earn during the forthcoming year. The premium is then adjusted, up or down, upon the

assured‟s declaration of actual sendings at the end of the period of insurance.

Additional premium is charged if the sendings exceed the estimated figure, or a return

given if the value of sendings is less than estimated, subject to the insurer retaining

any minimum premium specified in the policy.

2) A flat non-adjustable premium, based upon an estimate of the annual value of goods

to be sent in the forthcoming year, is charged. It is not adjustable, so no additional

premium will be payable provided the business model does not change nor the policy

limits increase during that period of insurance. On the other hand, there is no return of

premium if there is a shortfall in business activity. This method is suitable only if the

business flow is not subject to fluctuations in activity and accordingly it is probably

not suitable in times of a recession in the economy. The policy is reviewed at each

renewal in order to establish a new premium level for the next twelve months.

3) An open cover arrangement, by virtue of which sendings to the destinations shown in

the policy are declared at the end of each month and premium charged monthly.

Under this arrangement premium is paid only on those goods actually sent. No deposit

premium is charged. You are bound to declare each and every sending in each month,

whether it has arrived at its destination or not. This type of policy also differs from

other types because it does not have an annual renewal date. It is opened from an

agreed date and remains in force until either you or the insurer gives 30 days notice of

cancellation.

By a slight variation to the open cover arrangement, insurers are able to accept regular

monthly standing order premium payments, which represent the average premium

expected to be realised each month. Declarations are still made monthly, with that data

being retained by insurers and an adjustment made when the actual annual total is

reached at the end of the year. A return of premium is then made of overpayment and an

additional premium charged where there is an underpayment.

The open cover arrangement effectively acts in a similar way to premium instalments,

without there being a formal agreement. There is no interest charge for the open cover

policy.

The annual minimum & deposit premium, and the flat non-adjustable premium, can be

paid by monthly instalments but a charge for interest may be made by insurers.

In declaring sendings, the method of transporting the goods should also be declared

because this may have a bearing on the amount charged. Sendings by air are generally

regarded as being the least risky. Consequently, they attract substantial discounting of the

rate for sendings by sea or land.

It is difficult to predict which arrangement will cost the least because each has its virtues

and drawbacks. Looking at both premium spend and efficiency, the flat non-adjustable

premium basis is the most attractive in terms of efficiency but only provided the markets

in which you operate are at or near to equilibrium. Where markets are volatile, a sudden

downturn in orders could result in your paying more than would have had to under the

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other two bases. On the other hand, an unexpected upturn, which had not been factored

into the agreed flat premium, would result in your paying less premium relative to your

increased annual turnover.

Finally, the cover provided by the Institute Cargo Clauses (A) and (Air) is correct for the

risk involved. Although premium could be saved by reducing cover to what are known as

the major perils, i.e. Institute Cargo Clauses (C) this is likely to prove a false economy

because it would not cover significant perils, such as jettison, handling damage or theft.