Ocean Cargo Insurance

Why purchase ocean cargo insurance?cargo ship


Under the Carrier of Goods by Sea Act, ocean carriers are responsible for the seaworthiness of the vessel, properly manning the vessel, and making the vessel safe for carriage of the cargo. However, The ocean carrier is not responsible for negligence of the master in navigating the vessel, fires, dangers, and accidents of the sea, acts of God, acts of war, seizures, strikes, riots, inherent defect, insufficiency of packing, quarantine restrictions and any other causes arising without the actual fault of the ocean carrier. Without ocean cargo insurance, even when a carrier can be proven legally responsible, responsibility is limited to $500 per "package" on ocean shipments and $20 per kilogram on air shipments.

Other reasons are that companies may be responsible for purchasing ocean cargo insurance. For example, a company selling goods to a buyer overseas based on CIF terms (Invoice Cost, Insurance plus Freight) that company must pay for international transport plus shipping insurance. Vice-versa, a company importing goods from overseas on these same terms, though not required to insure those goods can purchase additional coverage in the event that the selling company purchased a limited coverage.

A company importing goods from overseas based on FOB terms (Free On Board) means that the seller is responsible for the goods until they get loaded on board at the port of origin. If anything happens to the cargo during the overseas transit - the seller won't be responsible for it. Over 50 voyages a year encounter heavy weather where shipping containers are lost overboard. The importing company may have already paid for the goods, which may never arrive. It would be wise for the importer to purchase ocean cargo insurance to cover the risks of loss or damage.

 

What is cargo insurance?


Ocean cargo insurance provides protection against the loss of or damage to goods while they are in transit. It benefits international trade by giving buyers and sellers’ confidence to send goods into oversea markets and allows banks and other financial institutions the ability to finance this type of commerce. Ocean cargo insurance is different from other liability or property policies because the scope is international and the extensions of coverage available are specific to the industry and broader than other lines of insurance. Available coverages, credits and options may vary by state. However, coverage can be tailored to a company’s needs such as:

 
  • • A basic ocean cargo policy - covers perils of the sea such as fire, theft, jettison and barratry of the master and crew. All-risk coverage is also available. Policies can be endorsed to add domestic and/or foreign inland transit, domestic and foreign storage, exhibition and installations.

  • • Single voyage policy - offers coverage for a particular voyage from the time the cargo leaves the seller, while it is in transit and until it reaches the buyer. Often, the port of loading, transshipment and discharge are required to be disclosed in the proposal form.

  • • Open cover - is not an insurance policy but an agreement between the insured and the insurance company to insure all the shipments that fall within the terms and conditions agreed by both parties. These terms and conditions that are agreed in advance include details of voyages, maximum value of cargoes carried in any one shipment, nature of cargo and packaging and rates applicable. The insured would then have to declare his shipments to the insurer on an individual on a monthly basis. As long as the details of the shipment come within the terms and conditions of the open cover agreement, the shipment is automatically covered. The insurer is also obliged to accept all declarations made by the insured under the open policy if they come under the terms and conditions of the open cover.

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E-mail: acohn@alcrisk.com