Why Insure?
Shipments in transit are vulnerable to various risks, including storms, fires, theft, mishandling, and accidents. To safeguard against potential financial losses, consider obtaining Shipper’s Interest Cargo Insurance. Cargo Insurance offers comprehensive protection beyond merely covering loss or damage. It protects against General Average, covers the costs to minimize a loss (sue and labor), and pays for damage inspections (survey). Carriers also have limited liability and provided legal defenses which absolve them of responsibility entirely. Cargo Insurance pays covered claims without the need to prove fault. Given these benefits, why not insure?
WHAT IS GENERAL AVERAGE?
General Average is a concept incorporated into most ocean bills of lading. It is used when a voluntary sacrifice is made to save the vessel, cargo, or crew from a common peril (e.g., jettison of cargo to extinguish a fire). If the sacrifice is successful, all parties contribute to the loss based on their cargo’s value. If the cargo isn’t insured, it won’t be released until the shipper posts a guarantee (cash, bank guarantee or bond). If the cargo IS insured, the insurance company will handle all arrangements on the shipper’s behalf
HOW ARE CARRIERS LIABLE?
Carriers do not pay claims unless they directly cause or contribute
to the loss.
Even when carriers are legally liable for loss or damage,
the amount they will pay is limited based on the mode of transport.
Ocean
The Carriage of Goods by Sea Act (COGSA) governs carrier liability for goods shipped via ocean to/from the United States.
Recovery is limited to $500 per customary freight unit, and only when the carrier is negligent. A “freight unit” can vary
from one container to one pallet
Light work loads
For air carriers, two liability conventions exist. The Warsaw Convention limits liability $9.07 per pound or $20 per
kilogram. The Montreal Convention (used in the United States), limits liability to 26 Special Drawing Rights (SDRs), or
about $34 per kilogram.
Light work loads
Many domestic air, intrastate road carriers and warehouse operators limit their liability to $0.50 per pound or $50
per shipment, based on their bill of lading or warehouse receipt. Interstate truckers are governed by the Carmack
Amendment, which dictates full value, but allows limitations of liability in bills of lading, tariffs or contracts. Some
carriers will also have inadequate or no liability insurance and may be unable to fund a loss our of pocket.
WHAT ABOUT CARGO THEFT?
In Q2 2024 alone, over $34 million worth of
commodities were stolen due to cargo theft.*
Warehouse/distribution centers and truck
stops are the top targeted locations for cargo
theft.*
Methods Used:
- Shipment misdirections
- Fictious pickups
- Facility break-ins
- Extortion
CARGO INSURANCE COVERAGE OPTIONS
We can offer comprehensive “All-Risk” coverage for cargo in
transit, including Free of Particular Average and With Average
alternatives.
“All-Risk”
Provides the broadest form of protection available. Goods are covered for loss or damage without the need to prove liability. An easy way to remember “All-Risk” coverage is “everything is covered, except what is excluded.” Typical exclusions include improper packing, inherent vice or rejection of goods by Customs
Free of Particular Average (FPA)
Offers less protection than “All-Risk” coverage, but is a good option for commodities like used goods, waste materials and scrap metal. A good way to remember FPA coverage is “the only covered losses are specifically named.” Perils covered under FPA include: sinking, collision, General Average, fire and washing overboard, to name a few.
With Average (WA)
Extends FPA to cover heavy weather. Many shippers choose to add theft, pilferage and non-delivery to WA and FPA.
DECLARED VALUE VS. CARGO INSURANCE
Declaring value to a carrier is not the same as Cargo Insurance.
To claim against a carrier, the shipper must prove that the cargo
was damaged in the carrier’s care, custody or control. The carrier then has multiple defenses to prove they weren’t liable, which
makes recovery difficult. Cargo Insurance provides protection without having to prove carrier liability.
This is particularly important
in instances where a loss is attributable to an “Act of God.” The following sample claims illustrate the difference between declaring
value and Cargo Insurance:
DESCRIPTION OF LOSS
Case 1: While a trucker was en route, the
truck was struck by lightning. The
lightning caused a fire and resulted in
a total loss to the cargo.
Case 2: Several days after an ocean vessel
left the port it ran into heavy weather.
A large wave hit the vessel and
containers were washed overboard.
DECLARED VALUE FOR CARRIAGE
Case 1: Even if a value is declared, there would
be no automatic right or recovery because
the trucker did not act negligently. The
loss was considered an “Act of God.”
Case 2: “Heavy Weather” is excluded under
COGSA. The ocean carrier would deny
liability and no payment would be
forthcoming.
CARGO INSURANCE
Case 1: This type of claim would be paid under
“All-Risk” Cargo Insurance coverage.
Case 2: This type of claim would be covered by
“All-Risk” Cargo Insurance as well as WA
coverage.
