P90 CARGO AND GOODS IN TRANSIT INSURANCES

Transcription

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 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 P90SP 1

2 The Chartered Insurance Institute 2009 P90SP 2

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 or from Customer Service. Study the syllabus carefully It is important to study the syllabus, which is available online at 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. P90SP 3

4 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: 1 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. 2 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. P90SP 4

5 Calculators If you bring a calculator into the examination room, it must be a silent, battery or solar powered, nonprogrammable 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. P90SP 5

6 The Chartered Insurance Institute 2009 P90SP 6

7 P90 THE CHARTERED INSURANCE INSTITUTE DIPLOMA EXAMINATION PAPER UNIT P90 CARGO AND GOODS IN TRANSIT INSURANCES Three hours are allowed for this paper. INSTRUCTIONS 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. P90SP 7

8 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 8

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) P90SP 9

10 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) P90SP 10

11 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) P90SP 11

12 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 P90SP 12

13 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 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 P90SP 13

14 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. P90SP 14

15 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 P90SP 15

16 13) Vessel salved value $20,000,000 Total salved value $28,500,000 x 100 = % Cargo salved value $8,500,000 Total salved value $28,500,000 x 100 = % Two per cent of the salved value of $28,500,000 = $570,000 Award: Vessel pays % of $570,000 = $399, Cargo pays % of $570,000 = $170, Total $570, ) 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. P90SP 16

17 15) ADVANTAGES Model Answers for Part II (each question is worth 30 marks) 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 P90SP 17

18 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 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 P90SP 18

19 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 P90SP 19

20 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 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: P90SP 20

21 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 P90SP 21

22 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. P90SP 22