Commercial Insurance - Freight Marine Cargo Insurance
What is Marine Insurance
Ocean and Freight Marine Cargo Insurance is the oldest form of insurance, probably dating to the Middle Ages. The organization of Marine Cargo Insurance took great steps forward with the formation and development of an insurance market on Lombard Street in London, England and subsequently Lloyds of London. Today, Lloyds still plays a prominent role in Marine Cargo Insurance Policy construction. The first American insurer was the Insurance Company of North America (now CNA, one of the companies that writes insurance for David G. Sayles Insurance Services), formed in 1794. CNA has operated continuously since that time, and remains an important market for marine as well as other forms of property and casualty insurance.
Because of its long tradition, freight marine cargo insurance policies tend to be the most traditionally worded policies in the insurance industry, and have the longest tradition of case law legal decisions covering the various terms and clauses of the policies. While care should be taken with any insurance to clarify any definitions provided in the policies, this is especially true in marine coverages, where the defined terms may have long histories.
Marine Cargo Insurance Policy
Ocean and Freight Marine Cargo Insurance Policy is designed to cover various hazards related to the movement of goods. The first and obvious protection that can be provided is for the cargo itself. This protection can be provided to the seller/shipper or to the buyer where ownership of and responsibility for the cargo is assumed is crucial in determining what coverage is needed
In 1990 the International Shipping Agency agreed on an expanded set of terms, which allow transfer of ownership and responsibility at various points along the transit route, including at customs borders. We have set the various terms out in graphical format in at the bottom of this page in the 'International Shipping Terms' link.
Risks are unavoidable in the shipment of goods. Goods are loaded and shipped, travel on the ocean provides its own set of perils. These risks require that the shipper take reasonable steps to ensure the safety of goods while in transit, such as proper packaging and/or containerizing, and shipping on a vessel appropriate for the goods in question.
Goods are generally handled many times during shipment, and Marine Insurance is designed to provide coverage throughout this process. Goods are first loaded at the origin and loaded onto a land vehicle. They are then held in a port prior to loading onto a ship. They may be unloaded at an intermediate port, and held for shipment on a second vessel. Upon arrival in the destination country, they must be cleared through customs, then loaded onto land carriers for transfer to the buyer's premises. There may also be transfers between land transports on either the buyer's or the seller's end during which time the goods are under the control of warehouse depot operators or trucking/rail companies.
The marine cargo insurance policy may be scripted to meet a variety of situations and desired coverages. Generally, the marine cargo insurance policy covers perils of the sea, fire, assailing thieves, jettison, explosion, defects in the ship that cause damage, and other perils. Exclusions in the policy are important, and should be reviewed with a qualified risk manager, such as your insurance agent. These typically include damage due to dampness, breakage, delay or loss of market, acts of war, confiscation, strikes, riots or civil commotions.
Marine Insurance Risk: Cargo War Risk Policy
The Cargo War Risk Policy is designed to provide coverage in times or places of war or similar (excluded) upheaval, and is generally written at the same time as the Standard Marine Cargo Insurance Policy. There are several significant differences in coverage, however. The War Risk Policy may exclude coverage while the covered goods are within specific geographic areas (typically areas deemed to be extremely dangerous--this happened briefly under Lloyds of London policies and others in the Red Sea during the Gulf War crisis). The War Risk Policy may be cancelled on very short notice, typically 48 hours (versus the 30 days notice of the Standard Marine Cargo Policy). The policy also sharply curtails coverage prior to loading, when being shipped or after offloading in the country of final destination.
Hull Insurance Policy
The basic Marine Cargo Insurance Policy is used to cover either the shipowner or the shipper (buyer) of goods. When coverage is for goods it is termed a Cargo Insurance Policy; when the ship is covered, it is termed Hull Insurance. The shipowner is provided legal liability protection to others, for instance in the event of a collision.
The Hull Policy can be written for each voyage of a ship, or for a specified time period, typically one year. When written on a time period basis, an implied warranty of seaworthiness is applied to the vessel. This warranty does not adhere to the time basis coverage; it is deemed to present a potential hardship to the shipowner, since the ship may be at sea or at a port where suitable repairs might not be available, when coverage begins.
Yatch Policy
The Yacht Policy covers pleasure craft, such as yachts, motorboats or sailboats. It is written to cover both the property (boat and contents) and its liability for collisions or injuries.
There are two Yacht Hull Policies. The Limited Hull Policy will only cover the specified perils of fire, lightning and theft. The Full Marine Policy additionally covers explosions, perils of the sea, theft, collision and conversion.
Marine Insurance Example - Widget Inc. experiments with Global Cargo Shipping
Widget, Inc. is moving to international sales VIA Global Cargo Shipping. Going international sounds good; after all, the world is becoming one big economy. Let's just hope Widget Inc. remembers to expand its domestic insurance policy to encompass the new foreign exposure.
For instance, the products coverage in a standard Commercial General Liability Policies (CGL) must be extended to protect against the product injuring a person or damaging property outside the CGL's territorial coverage, normally the United States, its territories and possessions and Canada, along with transportation between these locations.
The CGL does provide limited worldwide insurance coverage for the occasional product that ships out of the country. For example, if someone buys your suntan lotion in the United States and gets a rash from it on a trip to Jamaica, the CGL will offer coverage--but not if a suit is first brought outside the CGL's territorial coverage. This is good protection for most firms — but not for Widget since it's planning to export. That's when an Export Insurance Policy comes in handy. If Widget, Inc. is sending employees out of the United States, endorsements to its insurance for Workers Compensation and CGL policies are in order, too. The Broad Form endorsement to the CGL provides for employees' acts while traveling on business outside the CGL policy's territory--among other valuable extensions of protection coverage. The Foreign Compensation endorsement to the Workers' Comp policy includes coverage for endemic diseases and repatriations. (A repatriation may call for expensive jet service to bring an injured employee back to the States.) If international operations are in your firm's future, contact our agency for some expert advice.
