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1、Chapter Six,Cargo Transportation Insurance,SEIB OF GDUFS,2,Learning objectives,After learning this chapter you will be able to understand the fundamental principles of cargo insurance be aware of the risks and losses in ocean transportation outline the scope of the Ocean Marine Cargo Clauses of CIC
2、frame the coverage of London Institute Cargo Clauses understand the procedure for lodging claims describe methods of stipulating insurance clauses in Sales Contracts,SEIB OF GDUFS,3,Definitions,Definition of insurance “the practice of sharing among many persons, risks of life or property that would
3、otherwise be suffered by only a few.” Definition of marine cargo insurance “the insurant enters with an insurance company and/or an underwriter into a contract of insurance in which the insurance company of an insurance premium and the insurance company will, according to the terms indicated in the
4、insurance contract, indemnify the insurant of any loss that occurs within the scope of coverage”.,SEIB OF GDUFS,4,Parties involved in an insurance practice,the insurant / insured/assured The party that procures insurance Can be the exporter or importer depending on the Incoterms adopted in the trans
5、action the insurer The party undertaking to indemnify the insurant against losses or damages Can be the insurance company / underwriter In China, PICC is usually the insurer the claimant The insurant may not necessarily be the claimant Depending on: who has the insurable interest of the goods when t
6、he goods are damaged or lost,SEIB OF GDUFS,5,6.1 Fundamental principles,The Insurable Interest Principle The Utmost Good Faith Principle The Indemnity Principle The Proximate Principle The Subrogation Principle The Share Principle,SEIB OF GDUFS,6,6.1.1 The insurable interest principle,Definition: Th
7、e financial interest of a person in the subject matter insured Forms of insurable interest: Ownership of the goods Charge of insurance Freight A policy without insurable interest is invalid Proof of insurable interest is required at the time of making a claim, not at the time of effecting an insuran
8、ce,SEIB OF GDUFS,7,6.1.2 The Utmost Good Faith Principle (Bona Fide Principle),Both parties be faithful and honest in entering into the insurance contract Marine Insurance Act 1906: If the Utmost Good Faith Principle is not observed by either party, the other party may avoid the contract Avoidance o
9、f the contract There is no fraud and the Contract is valid: serve as evidence in a court of law Usually occurs when an insurer refuses to pay a claim, the insured has the right to challenge the insurers right to avoid the contract A void contract has no legal value cannot serve as evidence in a cour
10、t of law,SEIB OF GDUFS,8,6.1.3 The Indemnity Principle,Definition In the event of loss of or damage to the subject matter resulting from an insured peril, he or she is placed in the same position (not in a better or worse position than) that he or she enjoyed immediately before the loss occurred Mea
11、ns of effecting indemnity In theory: by replacing the ships or goods lost or damaged In practice: by paying an amount of money equal to the value of the goods lost or damaged Extent of indemnity: total indemnification be limited to the insurance amount: 110% of the insured value the actual loss suff
12、ered the insurable interest of the claimant,SEIB OF GDUFS,9,6.1.4 The Proximate Cause Principle,About the Proximate Cause Principle employed in the judgment of causation between accidents and losses refers to the major and/or effective (not necessary the first or the last, but the dominant) cause th
13、at has led to the accident. The insurer shall only be responsible for the loss resulted from the dominant cause.,SEIB OF GDUFS,10,6.1.4 The Proximate Cause Principle,How to decide the proximate cause In case of only one cause within insurance coverage: the insurer shall indemnify beyond insurance co
14、verage: the insurer shall not be responsible for the loss In case of two or more than two causes If all causes are within the insurance coverage, the insurer hold responsible for the loss.,SEIB OF GDUFS,11,6.1.4 The Proximate Cause Principle,How to decide the proximate cause If the former cause is w
15、ithin the scope of insurance coverage and the latter one is out of the scope of insurance coverage, provided there is a direct chain of causation between them, the former cause is regarded as the proximate cause and the insurer shall be held responsible for the loss or damage. If the former cause is
16、 within the exclusion of the coverage and there is a direct chain of causation between the former and latter cause, the proximate cause is considered out of the scope of insurance coverage and the insurer need not be held responsible for the loss or damage.,SEIB OF GDUFS,12,6.1.5 The Subrogation Pri
17、nciple,Definition When the loss of the property insured is caused by a third party, the insurer is automatically entitled to compensation from the third party after indemnification has been made to the insurant. The right of subrogation is exercised either in the name of the insurer or that of the i
18、nsured. The amount recovered The amount recovered shall be limited to the amount of the claim paid under the insurance. If the insurer may recover more than the amount paid by him as a claim, he must pass the surplus proceeds to the insured.,SEIB OF GDUFS,13,6.1.6 The Share Principle,Definition Unde
19、r the circumstance of double insurance, all the insurers shall jointly bear the loss on the subject matter and share the loss according to their respective insurance proportion. Double insurance the insured has the risks covered by two different insurance companies upon the identical interest in the
20、 identical subject matter. Each insurer is normally only liable, in case of total loss, to pay the insured to the extent of the sum written against his own name (the amount of his subscription) in case of partial loss, some proportion of that sum.,SEIB OF GDUFS,14,6.2 Marine Risks and Losses,Perils
21、of the sea 海上风险,External/Extraneous risks 外来风险,Risks 风险,Natural calamities 自然灾害,Unexpected accidents/ fortuitous accidents 意外事故,General risks 一般外来风险,Special risks 特殊外来风险,SEIB OF GDUFS,15,6.2.1 Marine Risks,Two types of risks Perils of the sea Natural calamities Caused by force majeure events such as
22、 heavy weather , lightening, Tsunami, earthquake, volcanic eruption, thunderbolt , etc. Unexpected accidents/fortuitous accidents Caused by accidents such as fire, explosion, vessel being stranded , grounded, sunk or capsized, collision, missing, etc.,SEIB OF GDUFS,16,6.2.1 Marine Risks,External ris
23、ks/extraneous risks General risks Caused by common factors such as theft, fresh water rain, shortage, leakage, clash and breakage, odor, heating and sweating, hook damage, rust, breakage of packing, etc. Special risks Caused by military factors, political factors, government regulations such as war,
24、 striking, confiscation, etc.,SEIB OF GDUFS,17,6.2.2 Marine Losses,Total loss 全部损失,Partial loss 部分损失,Losses 损失,Actual total loss 实际全损,Constructive total loss 推定全损,General average 共同海损,Particular average 单独海损,SEIB OF GDUFS,18,6.2.2 Marine Losses,Two types of losses Total Loss : loss of the entire val
25、ue of the subject matter Actual total loss cargo has been totally lost or has been damaged to the extent that it has lost its original usage Constructive total loss cargo is not totally lost, but the actual total loss shall be unavoidable or the restoration fees together with other miscellaneous exp
26、enses will exceed the anticipated amount of profit.,SEIB OF GDUFS,19,6.2.2 Marine Losses,Partial Loss: a partial damage to or the total loss of part of the insured cargo. Particular average A partial loss of the subject matter insured caused directly by a peril insured against, No other cargo sacrif
27、iced to save the voyage The owner who suffered the damage refer to the insurance company provided his policy covers the specific loss. General average A partial loss or damage under the liability of the consignor; loss or damage from the inferior quality or shortage of the insured goods prior to the
28、 attachment of this insurance; loss or damage from normal loss, inherent vice or nature of the insured goods, loss of market and/or delay in transit and any expenses arising therefrom; Inherent vice: the inherent tendency of the cargo to deteriorate due to the essential instability of the components
29、 or interaction among components not resulted from external cause. Risks and liabilities excluded by the ocean marine cargo war risks clauses and strike, riot and civil commotion clauses of C.I.C.,SEIB OF GDUFS,33,6.3.4 Duration of Basic Insurance,This refers to the period throughout which the insur
30、ance company undertakes an insurance liability. usually follows Warehouse to Warehouse Clause (W/W Clause) From the time the goods insured leave the warehouse named in the Policy for the commencement of the transit Until the insured goods are delivered to the consignees final warehouse at the destin
31、ation named in the Policy Limited to 60 days after the completion of discharge of the insured goods from the seagoing vessel at the final port of discharge before they reach the above mentioned warehouse,SEIB OF GDUFS,34,6.3.4 Duration of Basic Insurance,War Risk W/W Clause not suitable for W.R. Fro
32、m the time the goods insured loaded on board the vessel named in the Policy for the commencement of the transit Until the insured goods are unloaded from the named vessel at the port of destination named in the Policy If not unloaded, limited to 15 days after the midnight of the day when the vessel
33、arrive at the port of destination,SEIB OF GDUFS,35,6.4 Coverage of marine cargo insurance of ICC,London Institute Cargo Clauses (ICC) Institute Cargo Clauses (A) ICC (A) Institute Cargo Clauses (B) ICC (B) Institute Cargo Clauses (C) ICC (C) Institute War Clauses Cargo Institute Strike Clauses Cargo
34、 Malicious Damage Clauses,SEIB OF GDUFS,36,6.4 Coverage of marine cargo insurance of ICC,ICC (A/B/C) have independent and complete structure and can be covered separately Institute War/Strike Clause also have independent and complete structure, but can be covered separately only after agreement from
35、 the insurer. Malicious Damage Clauses is an additional coverage and can not be covered independently.,SEIB OF GDUFS,37,SEIB OF GDUFS,38,6.5 Other types of cargo insurance,Two types of overland insurance Overland Transportation Risk WPA Overland transportation All Risks A.R. Duration of insurance: W
36、/W clause Two types of air insurance Air transportation Risk WPA Air transportation All Risks A.R. Duration of insurance: W/W clause, but the insurance shall be limited to 30 days after completion of discharge of the insured goods from the aircraft at the final airport of discharge.,SEIB OF GDUFS,39
37、,6.5 Other types of cargo insurance,Two types of parcel post insurance Parcel post Risk WPA Parcel post All Risks A.R. Duration of insurance: W/W clause, but in the case of failure of delivery, where the duration of insurance terminates on the expiry of 15 days counting from the midnight of the day
38、when the notice of arrival of the parcel is issued by the post office at the destination. Note: additional risks under Ocean Marine Cargo Insurance can be applicable to Overland Transportation Insurance, Air Transportation Insurance and Parcel Post Insurance.,SEIB OF GDUFS,40,6.6 Procedures of cargo
39、 insurance,To calculate the insurance amount To determine the insurance coverage To obtain the insurance premium rate To apply for marine insurance and pay the insurance premium To obtain an insurance document To lodge an insurance claim at the time of loss or damage,SEIB OF GDUFS,41,6.6.1 To calcul
40、ate the insurance amount,Insurance amount: the amount of insurance indicated in the insurance policy and agreed upon by the insurant and the insurer The highest amount of indemnity by the insurer in the case of total loss The basis for the calculation of insurance premium Insurance amount = CIF (CIP
41、) (1+ markup rate) Markup covers the expected profit and incidental costs incurred. Markup rate is normally 10%,SEIB OF GDUFS,42,6.6.2 To determine the insurance coverage,The insurance coverage for CIF or CIP is minimum coverage. i.e. F.P.A. coverage as per C.I.C. Factors influencing the insurance c
42、overage for other Incoterms the nature of product the packing considerations the carriers of the transport the shipping route ports considerations, etc.,SEIB OF GDUFS,43,6.6.3 To obtain the insurance premium rate,Insurance premium rate can be obtained from the insurance company. Normally vary from 0
43、.5% to 2.5% or more The variation of premium depends on factors such as the carrying vessel the nature of the packing used the type of coverage needed the previous experience with the insurer the nature and volume of the goods insured the modes of transportation adopted,SEIB OF GDUFS,44,6.6.4 To app
44、ly for marine insurance and pay the insurance premium,For applying, one needs to fill in a proposal form or application form (Specimen 6.1) Details include the name of the insured, quantity, packing, shipping marks, insurance amount, place of shipment and destination, name of the carrying conveyance
45、, shipping date and coverage, etc. Upon applying, one needs to pay the premium to the insurer. Insurance premium refers to the fees charged to the insured by the insurer for the indemnity liability undertaken. Without paying the premium, the insurance contract wont become valid. Insurance Premium (I
46、) = insurance amount premium rate (R) = CIF(CIP) (1+ markup rate)premium rate (R),SEIB OF GDUFS,45,6.6.5 To obtain insurance documents,Features of insurance documents an evidence of the insurance contract a document defining the obligations of the insurer and the insured the basis for the lodging an
47、d settling of a claim Main insurance documents insurance policy insurance certificate open policy combined certificate,SEIB OF GDUFS,46,6.6.5 To obtain insurance documents,Insurance policy (Specimen 6.2-1,2) Formal legal document, contract made based on the proposal form Details indicated on the fac
48、e of the policy: the name, address and signature of the insurer and the insured a description of the risks covered and the insurance duration a description of the consignment details of the shipment such as means of transport, name of vessel, loading port and destination port the insurance amount an
49、d insurance premium Detailed terms concerning the scope of liability, rights and obligations specified at the back,SEIB OF GDUFS,47,6.6.5 To obtain insurance documents,Insurance certificate simplified Insurance Policy no detailed terms at the back of the same legal validity as an Insurance Policy,SEIB OF GDUFS,48,6.6.5 To obtain insurance documents,Open policy or open cover provide coverage for all goods shipped by the insured during a given period (eg. 6-12 months) while the policy is in effect. Include scope of goods to be insured, insurance coverage, highest sum insured, premium