One of the frustrating things about insurance for insureds and their agents is wading through lengthy policies to understand coverage elements. Ocean marine cargo policies can be particularly dense – much like the goods in tightly packed containers and holds that the policies cover.
For this reason, cargo insurance buyers should look for policies that describe coverage in clear language and are organized to make different topics easy to find. Buyers also should seek cargo policies that offer flexibility. Below is a list of items to look for and why they offer great value to cargo owners:
Valuation clause. One of the most important elements in a cargo policy, the valuation clause establishes the insured value of the goods and documents the basis of the cargo value in the event of a claim. It should also be the basis on which values are reported to insurers for the purpose of determining premium.
Cargo owners and agents therefore should look for broad valuation clauses that address various trade transactions and/or the condition of the insured goods. Invoice cost is a standard method of valuing cargo, but that method might not fully reflect the shipper’s financial interest. For example, companies that ship goods for their own inventory most likely require valuation based on the insured’s invoice cost, whereas companies that operate on a “just-in-time” fulfillment basis, and import goods that have already been sold prior to transit, should look for a “selling price” valuation.
Contingent coverage. When sales contract terms place the responsibility for insurance on the other party, shippers may still retain a financial interest in the goods. Examples include goods sold based on a deposit, with balance payable on arrival. Conversely, some goods are purchased and paid for on terms that require the seller to provide marine insurance. Contingent coverage in a cargo policy can protect a shipper’s cash flow by insuring the insured's financial interest in goods the sales contract does not obligate them to insure.
Time in consolidation. A cargo policy covers goods "in due course of transit." Sometimes transit is interrupted at points used to consolidate or deconsolidate cargo from containers, prior to forwarding on to the final destination. A consolidation/containerization clause offers coverage for that interruption for a specified period of time, typically 30 to 45 days. A lot can happen to cargo between the port of origin and its ultimate delivery address, and the more flexibility your cargo policy has, the better.
Carrier insolvency. In this case, "carrier" refers to the entity transporting the cargo. If a shipping company becomes insolvent, shippers can incur significant extra expenses, such as additional freight costs due to diversion to alternate ports and reloading goods onto another vessel. A cargo policy that addresses these extra expenses related to carrier insolvency offers enhanced value to the policyholder.
Topical index. Cargo insurance uses a lot of different terms, as we discussed in a previous article about the language of marine cargo. Policies should make it easy to find these topics, ideally through a table of contents as well as an alphabetical index. For example, a policyholder might wonder, “Will the policy cover demurrage (the penalty or charge applied after free time expires)?” By looking up those terms in the index, the particular coverage language becomes a lot quicker and easier to find, rather than wading through dozens of pages.
There is a lot more to selecting cargo insurance, and we will discuss additional topics in upcoming articles.
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