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Chapter 8
Cargo Insurance
Key concepts
Introduction essential to understand role of
cargo insurance in conduct of international trade. Cargo insurance market and all its major factors.
Fundamental principles of insurance very
important to comprehend the four main principles.
Effecting cargo insurance the procedure
mechanism.
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Cargo Insurance
Marine insurance is governed by the MarineInsurance Act 1906, which came into force on 1
January 1907.
The basic principles of insurance as specified in
the Act are:
Insurable interest
Utmost good faith
Indemnity
subrogation
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Cargo Insurance
Marine Insurance is a contract whereby the
insurer undertakes to indemnify the assured in a
manner and to the extent thereby agreed, against
marine losses, that is to say, the losses incidentalto marine adventure.
Hence this includes cargo insurance involving the
maritime conveyance of merchandise from one
country to another.
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Insurable Interest
A person has an insurable interest in a marineadventure (any ship goods or othermovables exposed to maritime perils) wherehe or she stands in any legal or equitable
relationship to the adventure or insurableproperty at risk therein in consequence ofwhich he may:
a. Benefit by the safety or due arrival of the
insurable property, orb. Be prejudiced by its loss, or by damage
thereto, or by the detention thereof, or
c. Incur liability in respect thereof
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Insurable InterestDifference between Subject matter insured and
Insurable Interest
- Insurable interest is the financial interest of a
person in the subject matter insured
- The insurable interest of the cargo owner is notthe goods (the subject matter insured) but his
finical interest in such goods and he should
insure to the extent of that interest
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Insurable Interest
A policy effected without insurable interest is void. It has no legal value and is unenforceable at law
Therefore insurable interest or an expectation ofacquiring one should exist at the time the insurance iseffected
Proof of insurable interest is not required at the timeof effecting an insurance
But when making a claim the assured should showthat he had an insurable interest at the time of loss.
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Utmost Good Faith Contract of marine insurance is a contract based
upon utmost good faith (uberrimae fidei), and ifthe utmost good faith is not observed by eitherparty, the other party may avoid the contract.
Observing the principle of utmost good faith meansa full disclosure of all material circumstancesrelating to the risk before the contract is concluded
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Indemnity
In the event of loss or damage to the subjectmatter insured resulting from an insured peril, he
is placed in the same position that he enjoyed
immediately before the loss occurred.
After indemnity the assured may not be in a better,or worse, position than he was in before the loss.
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Subrogation
Is the corollary of indemnity in so far as its applicationprevents the assured defeating the principle ofindemnity by recovering his loss from more than oneparty. The rights of subrogation pass to the underwriter upon
payment of any type of claim When the claim is in respect of a total loss, the
underwriter is additionally entitled to proprietary rights inrespect of whatever may remain of the insured goods
and may dispose of these and retain the whole of theproceeds even when these may exceed the amount ofthe claim paid
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Subrogation
Underinsurance
Any recovery the underwriter effects in this respect
is limited to the amount of the claim paid under the
insurance
Where the insured goods have been undervalued,the underwriter may recover more than the amount
paid by him as a claim. In this event he must pass
the surplus proceeds to the assured.
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Cargo Insurance Rating
Premium rates are determined by:
1. The carrying vessel the age, classification,flag, ownership, and management of the ship
2. Nature of the packing used adequacy ofprotection to the cargo
3. Type of merchandise some are morevulnerable to damages than others
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Cargo Insurance Rating
4. Nature of transit and related warehouseaccommodation
5. Previous experience if the cargo involved has
been subject to significant damage or pilferage the
premiums are likely to be high6. Type of cover needed more extensive the cover
required, higher the premium rate
7. Volume of cargo involved larger the volume
favourable the premium
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Cargo Claims
The circumstances which give rise to a cargo claim
vary:
1. Missing goods
2. Damaged goods
3. Stained / mutilated / soiled goods4. Non-saleable / marketable goods arising through
frustration of the transit such as transit delays causingperishable goods to deteriorate beyond marketable /saleable product
5. Failure of the goods to arrive on a specified dateresulting in a compensation claim
6. Poor / inadequate packing
7. Inadequate/ poor stowage
8. Poor handling / stacking of cargo resulting in damage,
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Cargo Insurance Claims
Most insurance company policies require that
immediate notice be given to the nearest branch or
agency in the event of damage giving rise to claim
under a policy on goods.
When notified of damage, the companys agent
appoints a suitable surveyor to inspect the goods
and to report on the nature and extent of the
damage.
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Cargo Insurance Claims:
Documents to be produced when making a
claim
1. The export invoice issued to the customer
together with shipping specification and/or weight
notes
2. Original bill of lading, charter party, air waybill, orCMR or CIM consignment note
3. Original policy or certificate of insurance
4. Survey report or other documentary evidence
detailing the loss or damage occurred
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Practice questions
1. List down the 4 fundamental principles ofinsurance
2. List down at least 6 factors determining thepremium rates in cargo insurance
3. List down any 3 circumstances giving rise tocargo claim
4. List down at least 7 documents required whenmaking an insurance claim