The Need for Cargo Insurance

Posted on June 14, 2019

Carriers do not guarantee the safe delivery of cargo. There is always the possibility that cargo will be damaged during the transportation process.  To make things worse, the carrier may not be responsible for the cargo loss or damage by the terms of the contract or as a matter of law. 

Ocean carriers in particular, are very well protected under the maritime law.  If your cargo is lost or damaged during sea transport – there is certainly no guarantee that the ocean carrier will be responsible. 

The bottom line is that cargo insurance is necessary to protect the cargo interest against inevitable losses that occur during the transportation of goods. 

A cargo insurance policy indemnifies the cargo interest in the event of loss or damage to cargo due to a peril insured against while at risk under the policy.  

The majority of cargo insurance policies are underwritten on an “all risk” basis. This means that the insured are covered for all risk of loss or damage except for those risks that are specifically excluded in the policy such as loss or damage due to willful destruction of the goods by the insured or the inherent vice of the goods.

Some policies are enumerated perils policies that insure cargo for only those risks expressly listed in the policy.  For example, a  policy might have a clause that reads as follows: 

“This insurance is against the perils of the seas, fire, assailing thieves, jettisons, barratry of the master and mariners and all other like perils, losses or misfortunes that have or shall come to the hurt, detriment or damage of the property insured hereunder or any part thereof except as otherwise provided for herein.”

That is old language but it is fully applicable today. Of the risks enumerated by far the most important are “perils of the seas” which refer to fortuitous losses arising through the extraordinary action of the elements at sea such as heavy weather and waves.  The policy also covers against   accidents in navigation or other marine causalities such as sinking, stranding, collision, striking of rocks and icebergs.

Other perils covered include:

1. Fire - both direct and consequential damage whether from smoke, steam or efforts to extinguish a fire.

2. Assailing thieves - forcible taking of a shipment rather than mysterious disappearance or pilferage.

3. Jettison - voluntary dumping overboard of cargo to relieve a vessel in distress.

4. Barratry - fraudulent, criminal or wrongful act of the ship's captain or crew that causes loss or damage to the ship or cargo.

There are other perils that might be covered.  The fact is that one should always make certain that his/her cargo policy provides adequate coverage terms.

Cargo insurance may be purchased on an open policy basis. This is a long term / continuous contract of insurance, which automatically covers all goods in transit at the risk of the insured as long as the policy remains in force, that is, from the date of attachment of the policy until canceled by the insured or the insurer. 

That is different from a “special” cargo policy which covers one single shipment of goods and must be negotiated and issued before each separate shipment is made. 

Historically, cargo insurance policies were only for ocean transport.   However, it is noteworthy that today policies are routinely underwritten to insure the cargo for risks that occur during ocean transport as well as inland transport, warehousing, and other periods of time during the transport process.  This is done by inclusion of a Marine Extension Clause or a Warehouse-to-Warehouse Clause or similar clauses that continue insurance coverage during the entire transport. 

One Last Note

Cargos that are shipped by sea are subject to risks that are unknown elsewhere. If your cargo is lost or damaged, you have suffered a particular average. Your policy will cover you for the loss assuming you have the proper policy that covers the risk.

However, sea transport may give rise to a general average. If the shipowner makes an intentional sacrifice of property or expenditure of money during the course of a voyage for purposes of avoiding a peril to the ship and its cargo – then all parties to the voyage must contribute to that loss. General average is typically a covered risk under cargo policies.  

For example, if a vessel catches fire and deviates to a port of refuge - all cargo interests (and the shipowner) will pay their pro-rata share of the port of refuge expenses (no matter how innocent the cargo interest is).  The loss is “general” and all parties to the voyage must contribute to that loss. That is just one example of a general average. That being said, make sure you have cargo insurance to avoid any type of damager and provide a smooth transit.   

Contributor: Celeste Yang 


About Allyn International

Allyn International is dedicated to providing high quality, customer centric services and solutions for the global marketplace. Allyn's core products include transportation management, logistics sourcing, freight forwarding, supply chain consulting, tax management and global trade compliance. Allyn clients range from small local businesses to Fortune 500 firms. Allyn conducts business in more than 20 languages and has extensive experience in both developed and emerging markets. Highly trained experts are positioned throughout North and South America, Europe and Asia. Allyn’s regional headquarters are strategically located in Fort Myers, Florida, U.S.A., Shanghai, P.R. China and Prague, Czech Republic. For more information, visit www.allynintl.com.