+ by Nicholas G. Berketis PhD
+ What is? 2 Basically anything that is loaded onto any type or form of vehicle for the purpose of being transported from A to B, always provided that the thing doesn t happen to be a human being nowadays generally classified as passengers. This classification is, however, of quite recent date; just short of 150 years ago, cargo policies were issued on the transportation of slaves from West Africa to the West Indies! Within the term cargo, there is a further differentiation governed by how easy or difficult it is to steal the cargo. It would quite obviously be much more convenient to walk off with a million s worth of diamonds than it would be to steal coal worth the same amount. At least with the first, you don t have to worry about dirty hands. Therefore, on a more serious and scientific basis, the eggheads in marine insurance decided that any cargo with a value/ weight ratio exceeding that of silver would be called valuables or specie. Because of the extreme susceptibility of such valuables to changing ownership without the actual permission of the rightful owner, it is clear that, as a risk offered for insurance, they deserve special consideration and distinct treatment. It would, for example, be very inappropriate indeed to notify your local Mafia or other friendly neighbourhood thug organisation of exact circumstances and details relating to the transportation of valuables tight security being one of the most important loss prevention measures in forwarding them. To summarise, it must be carried by something for the purpose of transportation to be a cargo within the definition of marine insurance. If it moves on its own, it does not qualify. This may lead to the rather strange situation where a helicopter that would normally be regarded as an aviation risk would suddenly become cargo if it were loaded into an aircraft or onto a ship. On arrival, it would of course revert back to its original state, i.e. become a helicopter and thus an aviation risk again. This principle similarly includes such oddities as cars, trucks, planes, boats and trains on vessels, locomotives, cars and boats on trains and trucks, ships on ships and sometimes even aircraft on aircraft: just think of NASA s piggyback space shuttle transports.
+ General (1 / 2) 3 Type of goods: Again, think of bananas, dynamite, pig iron and wheat and then imagine what different sorts of damage a small fire would cause. Packing is easily the most important loss prevention aspect in cargo transportation. It definitely makes a difference whether you pack your eggs loosely in a basket and then stack the baskets 20 high or whether you wrap each egg individually and pack them in specially designed cardboard boxes, which, in turn, are professionally stowed in a sturdy container. Similarly, ocean-going packing ought to be waterresistant at least to a certain degree, as there will be plenty of moisture around. Size/weight/ value obviously play a role in how easy it is to steal the property and walk away with it. It would therefore be necessary to ask for much better security precautions in the case of a shipment of diamonds than would be called for with a consignment consisting of a huge crane. Especially heavy and large cargo, on the other hand, requires a lot of specialised handling equipment which may or may not be available at destination, thus possibly causing some problems and maybe even an accident. Trip route: As with trading or navigation limits for hull, different routes also present different problems for cargo, such as temperature, weather and handling equipment at ports on the way.
+ General (2 / 2) 4 Trip duration: The longer it is, the longer the cargo remains exposed to perils. If the cover is given warehouse to warehouse, as it most often is, there may be extensive trips on good or bad roads or railroads inland from the warehouse to the port and the other way around. Season: Just think of the seasonal occurrence of monsoons, hurricanes, typhoons, tornados, mistrals as well as the less exotic but equally fearsome winter storms on the North Atlantic. Socio-economic environment: Here we go again, the moral hazard described under the heading hull is equally applicable to cargo. Just imagine the temptation for the owner of an unwanted, suddenly unfashionable cargo (bathing costumes in early autumn) to sell it to his insurance company! To summarise, risk factors are too numerous and varied ever to be fully catalogued. It is an infinitely variable combination of all these risk factors (each in theory actually deserving its own fraction of the insurance premium) that make up the risk covered by a marine policy. Exact repetitions are rare if not entirely impossible. It is therefore essential for a marine underwriter to maintain detailed and informative statistics that differentiate say per commodity, per client, per shipping agent, per country of origin, to name just a few possibilities, allowing him to see adverse developments and react before it is too late.
+ Cargo Clauses Cover Explained 5 All policies of insurance on cargo will set out the risks (perils) that the Underwriters provide cover against. Sometimes the cover is very wide, encompassing most types of risk that a cargo might encounter during the course of its transit. Sometimes the cover is quite limited, with Underwriters agreeing to insure the cargo against only a short list of named perils. Whenever dealing with a claim or potential claim under a cargo policy, the first thing to establish are the terms and conditions under which the cargo is insured to check that the loss or damage is actually covered. For cargoes insured at Lloyd s, or in the London Insurance Market, it will usually be the case that the insurance will be subject to Institute Cargo Clauses (ICC). These are standard wordings agreed by the London Insurance Market and are widely used, or closely copied, around the world.
+ Cargo Conditions 6 (A): This is the all-risks clause of old. (Remember: it s all risks, not all losses!) This set of clauses grants protection against all losses and damage caused by external, fortuitous events, including piracy (used to be a war peril), happening during the ordinary course of transit. War and strike risks are always excluded in the basic form of cover, and must, if desired, be expressly included again with special clauses and against payment of an extra premium; but more about these political risks in a later chapter. The ordinary course of transit starts the moment the goods are first touched and moved within the warehouse at the place of origin with the intention of transporting them to destination, and continues until the goods reach the consignee s final warehouse. There are a number of exclusions listed which are, however, only a reconfirmation of the principle that only fortuitous losses are covered. The remainder of the clause regulates such things as the assured s duty in the case of a claim and the Law applicable to the policy. To do proper justice to these terms and conditions and the experience from which they evolved, English Law and Practice is the choice of most companies utilising the Institute clauses.
+ Cargo Conditions 7 The term All Risks, although very wide, does have limitations. It does not mean that all loss or damage, however it occurs, is covered. All Risks covers things that happen unexpectedly or by accident or by chance (i.e. fortuitous damage). It does not cover things that are inevitable or almost certain to happen or things that it would be within the control of the Assured to prevent. What is covered is all risks of loss or damage. This means physical loss or damage and does not include purely financial or consequential loss. Thus, loss of market by goods not arriving in time for the Christmas sale would not be covered, even if it was a fortuitous, unexpected event that caused the goods to miss their market. Furthermore, it is loss or damage to the subject-matter insured that is covered, i.e. not loss or damage to anything else. Thus, if the Policy covers drums of oil and those drums become damaged and leak, causing damage to an adjacent cargo, the liability for the damage to the adjacent cargo is not covered as that is not the subject-matter insured.
+ Restricted or limited conditions 8 (Institute Cargo Clauses (B) and (C)) An Assured who wishes to insure against serious events only may, for a cheaper premium, opt for the restricted cover that is provided in the (B) and (C) clauses. These are named perils Policies, i.e. there is a specific list of named perils, as compared with the (A) clauses, which are all risks. Under the (A) clauses the insured only has to show that something occurred that was fortuitous, causing loss or damage to the goods. Under a named peril Policy of any sort it has to be shown positively what happened to the cargo and how it can be linked to one of the named perils.
+ Comparison between (B) and (C) Clauses 9 Institute Cargo Clauses B Institute Cargo Clauses C 1.1 loss of or damage to the subject-matter insured reasonably attributable to 1.1 loss of or damage to the subject-matter insured reasonably attributable to 1.1.1 fire or explosion 1.1.1 fire or explosion 1.1.2 vessel or craft being stranded grounded sunk or capsized 1.1.2 vessel or craft being stranded grounded sunk or capsized 1.1.3 overturning or derailment of land conveyance 1.1.3 overturning or derailment of land conveyance 1.1.4 collision or contact of vessel craft or conveyance with any external object other than water 1.1.4 collision or contact of vessel craft or conveyance with any external object other than water 1.1.5 discharge of cargo at a port of distress 1.1.5 discharge of cargo at a port of distress, 1.1.6 earthquake volcanic eruption or lightning 1.2 loss or damage to the subject-matter insured caused by 1.2 loss of or damage to the subject-matter insured caused by 1.2.1 general average sacrifice 1.2.1 general average sacrifice 1.2.2 jettison. 1.2.2 jettison or washing overboard 1.2.3 entry of sea lake or river water into vessel craft hold conveyance container liftvan or place of storage, 1.3 total loss of any package lost overboard or dropped whilst loading on to, or unloading from, vessel or craft.
+ Institute Cargo Clauses C" 10 One major aspect setting the all-risks clause apart from the other, narrower clauses is the question of burden of proof. If there is damage to cargo and the assured has bought all-risks cover, it is the insurer who has to prove that the cause of the loss was an excluded one if he wants to refuse payment. In a restricted, named perils cover, it is the insured who must prove that the damage was really caused by one of the covered perils. This may at times be very difficult indeed! ICC (C): This is the named perils type of cover just mentioned in connection with the onus of proof. Insured are the classic maritime perils such as fire, explosion, sinking, capsizing, grounding, collision, general average, jettison and discharge of cargo at port of distress. The rest of the clauses are completely identical to the (A) clauses, with two notable exceptions:
+ Differences between A and C Clauses 11 piracy covered in (A) where it is excluded from the exclusion, is not covered in (C); deliberate or malicious damage not mentioned under (A) is expressly excluded under (C), but may of course be included upon request, usually upon payment of an additional premium.
+ Differences between B and C Clauses 12 Institute Cargo Clauses B include the following, that is not included in the C version: Earthquake, volcanic eruption or lightning; Washing overboard; Entry of sea, lake or river water into vessel, craft, hold, conveyance, liftvan or place of storage; Total loss of package lost overboard or dropped during loading or unloading.
+ Example 1 13 The cargo is in a storage shed at an intermediate place on the insured transit. A fire in part of the shed causes the roof to collapse, damaging the cargo. The cargo itself is not touched by the fire. The damage to the cargo is thus not caused by fire but is reasonably attributable to the fire.
+ Example 2 14 An earthquake beneath the seabed causes a tidal wave that rolls for a hundred kilometres across the sea. The vessel on which the insured cargo is stowed is tossed violently on the wave, causing the stow to collapse, damaging the cargo. The damage is not caused by the earthquake but is reasonably attributable to it.
+ Example 3 15 The railway wagon carrying the insured cargo is derailed. There is no damage to the cargo from the derailment. The cargo has to be transferred to a lorry to continue its transit to the port. Some of the cargo is stolen while being transferred from the derailed train to the lorry. This is a loss by theft which is not one of the perils insured against under (B) or (C) clauses. However, it is reasonable to attribute the theft to the derailment of the train and the Assured should therefore recover as a loss reasonably attributable to derailment of land conveyance.
+ Rates 16 Rates in marine insurance are a difficult topic, for there is plenty of competition! Very few countries have tariffs or rating guidelines which everyone abides by, resulting in continuous rate cutting until, quite often, rates become entirely uneconomical. As an indication, we may at least say that rates in marine are usually expressed as a percentage of the sum insured. Percentages may range from 25 % for all-risk insurance on eggs including breakage, to 0.05 % for all-risk cover on crude oil in bulk. Both are extremes, with the usual lying somewhere in between. Technically speaking, we tend to believe that a proper risk rate for (C) conditions should not be below 0.2 % with all-risk rates correspondingly higher. Reality unfortunately often proves, however, that competition has considerably more clout than technique!
+ Sources 17 Lloyd s Agency Department, Cargo Claims and Recoveries Module 3