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Cargo insurance

Professor Trine-Lise WilhelmsenScandinavian Institute of

Maritime Law

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Overview o What is cargo insuranceo The legal sources o The insurance contracto Insurable value and the sum insuredo Scope of cover

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Overview o Duties of disclosure and due careo The period of insuranceo The liability of the insurer

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1. What is cargo insurance

o Covers cargo under transport from A to B (normally seller to buyer)

o Casualty (damage and loss) insuranceo Includes buyer’s profit o But not

o loss of income in generalo owner’s liability

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Cargo insurance

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InsuranceLossDamage

Contract of sale

Cargo insurance

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Contract of sale - transfer of risk

InsuranceLossDamage income

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2 The legal sources

o FAL (ICA) 1989

o The Norwegian Cargo Clauses

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2.1 FAL (ICA) 1989o Starting point: Mandatory, § 1-3.1o But exception for insurance of

international transport of cargo, § 1-3.2 (e)

o Applies to national transport of cargo o The approach in the CICG:

o Follows ICA o with certain exceptions for international

transport

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2.2 Norwegian Cargo Clauses (CICG)

o Conditions relating to insurance for the carriage of goods

o Many of the same characteristics as NMIP

o Buto Less extensive commentarieso A stronger connection to the ICA

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3. The insurance contract

o The parties to the insurance contracto Interests covered by the insuranceo Effecting the contract

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3.1 The parties to the contract

Insurer

Person effecting the insurance

The assured

Right to

Compensation

Insurance contract

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Insurance of third party interest

Insurer

Person effecting the insurance

The assured

Right to

Compensation

Insurance contract

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Insurance of third party interest, CICG § 9

Company

Seller Seller

Insurance contract

Right to compensation

Buyer

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3.2 Concluding the Contract

o Insurance certificate, ICA § 2-2 o Insurance document , CICG § 1 nr. 4

o Single shipment = Insurance certificateo Open cover/floating policies =

o certificate for the whole periodo + document for each shipment

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Questiono A safety regulation is inserted in the

insurance certificate agreed between the insurer and mother company A of carrier B for a one year transport policy, but not in the insurance document for a transport performed by carrier B.

o May the safety regulation be invoked against B?

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4 Insurable value and sum insured

o Insurable value, CICG §29o Starting point for seller and buyer: o Unless otherwise agreed, the insurable value

shall be deemed to be the market value of the goods at the place of loading at the inception of this insurance. If the goods are sold, the market price shall be calculated on the basis of the invoice value.

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4 Insurable value and sum insured

If compensation for the goods is payable to the buyer, the insurable value shall, if applicable, also include:

(a) charges incurred by him in connection with the shipment,(b) customs duty and other ordinary costs related to the

transit,(c) the insurance premium which he is to pay,(d) freight which he has paid or will have to pay,(e) his anticipated profit. Unless otherwise agreed, the

insurable value of such anticipated profit shall be 10 per cent of the insurable value of the goods as such.

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Insurable value, § 29

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Buyer and seller:Market value at place of loading

Buyer:+ charges+ customs + insurance premium+ freight+ profit

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4 Insurable value and sum insured

o Sum insuredo Under-insurance, CICG § 30 o Over-insurance, CICG § 31o Limit; CICG §§ 32-33:

o Sum insured for casualties, § 32o + losses according to §§ 39-43, i.e. salvage

measures etc. o + interest according to § 49

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Under insurance, CICG § 30

Insurablevalue:1000

Sum insured:

500

Potential loss

Compensation

500/1000 = 50 %Of each damage

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Over insurance, CICG § 31

Sum insured:

1000

Insurablevalue:

660

Basis for premium

Max. compensation

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5. Perils insured againsto Perils insured against

o Three levels of coverageo International approach o Transport accident – C clauses, § 5 o Extended transport accident – B

clauses, § 4 o All risks coverage, A clauses, § 3

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Questiono A container of furniture was

transported by MS Ship. During loading MS Ship heeled over and the container fell overboard and was damaged. The owner of the furniture had transport insurance on C clauses. Is the damage to the furniture covered.

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5. Perils insured againsto Risks excluded, § 18

o Inherent nature of goods and ordinary loss in weight and volume (1 and 2)

o Illegal activity (4)o Delay (5) o War and similar perils (3, 6, 7, 8-11)

o Other exclusions, § 17 and § 19.

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Question o A package containing jewellery and

pearls were imported to Norway by Ms Glitter without payment of VAT. The package was insured by AS Transport insurance. The package was stolen.

o Can AS Transport insurance avoid liability?

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Questiono A package containing fresh food was

delayed because there was no room in the ferry the truck was supposed to have taken. The fruit was already destroyed when the delay took place. Is this loss covered under the transport insurance?

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Question o A ship was captured by pirates

outside Nigeria. The pirates stole the oil cargo on board. The shipment was insured. Is the theft covered by CICG?

o Does it matter whether insurance was effected on A, B or C clauses?

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6. Duty of disclosure and due care

o Introductiono Duty of disclosureo Safety regulationso Identification

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6.1 Introduction o Follows ICAo But:

o Stricter safety-regulation for international transport

o Suspension of insurance in case of delay

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6.2 Duty of disclosure

o What and whoo Wheno Sanctions

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6.2.1 What and who o CICG § 12/ICA § 4-1:

o Answering questions (Passive duty of disclosure)

o At the time of conclusion of contracto But: duty to make correctionso Addressed to person effecting the

insuranceo CICG § 13: Special rule for the

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6.2.2 When: time of the duty of disclosure

Factual circumstances Good faith

When contract is entered All the timeBut: Only for factual circumstances at Contract point

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6.2.3 Sanctions o Fraud, ICA § 4-2 and § 4-3:

o No liabilityo Termination

o More than a little to blame, ICA § 4-2 and § 4-3o Reduced liability o Cancellation, 14 days notice

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6.2.3 Sanctions o Less than a little to blame

o Full liabilityo But: Cancellation, 14 days notice, ICA §

4-3o Conditions to invoke, ICA § 4-4

o No knowledgeo Significanceo Notification

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Question o A effected insurance for transport of several

containers without informing the insurer that the carrying vessel did not have a valid ISM certificate. No questions were asked during the negotiations. The cargo was damaged during the transport due to heavy weather.

o Can the insurer invoke breach of the duty of disclosure?

o If so; what sanction may be used?

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6.3 Safety regulation o Concept; National transport: § 21.1.1:

o § 22 – unsuitable means of transporto § 23 – marking and packing of goods o § 24 – Goods carried in thermo

regulated means of transport

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6.3 Safety regulationo Concept; International transport: §

21.1.2: o As aboveo + “all regulations and injunctions

concerning measures for the prevention of loss issued by public authorities”

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6.3 Safety regulationo Sanction: § 21.2: No liability (# ICA)

providedo Causationo Fault: “Cannot be imputed” (# ICA) o Burden of proof: shifted

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6.4 Casualties caused by the assured

o ICA § 4-9o Intent

o No liabilityo Without fraud: part liability possible

o Gross negligence – reduction in liability

o Ordinary negligence – full liability

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6.5 Identificationo The problemo Between the assured and his helperso Between the assured and the policy

holder/former ownero Extended identification for breach

of safetyregulation

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6.5 Identifcation between the assured and his helpers

o CICG § 10, 1 (a): Management personnel employed by one of the assured parties responsible for the transport of the goods

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IDENTIFICATION BETWEEN THE ASSURED AND HIS HELPERS

Assured

Own/co-assured’s Managementresponsible for transport

Insurer

Identification

No liability

Breach of duty of disclosure/

due care

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6.5 The assured and the person effecting the insurance

o CICG § 10.1 (b)o Person effecting the insurance and

former owner of the goods o Either owner at the time of the omission

oro Goods were in his charge

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CICG § 10 (b)

Assured

Person effectingFormer owner

Insurer

Identification

No liability

Breach of duty of disclosure/

due care

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6.5 Extended identification

o CICG § 10 2 subparagrapho Breach of safety regulation by other

persons engaged to organize the transport

o Ex freight forwarders etc

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CICG § 10 (2)

Assured

Other persons engaged to

organize transport

Insurer

Identification

No liability

Breach safetyRegulation

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7. Period of insuranceo Period of insurance in this context:

When does the insurance attach for each separate consignment of goods?

o When does the period commence?o When does the period terminate?o Suspension of the insurance

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7.1. Commencement of the period of insurance

o CICG § 14.1: where the insurance is effected by the seller,

o The insurance period starts when the goods are moved for direct loading into the means of transport which shall convey them from the warehouse or place where the insured transit shall commence

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Questiono Goods were damaged when the fork lift

hit the goods to hard when it inserted itself into the pallet inside the workhause to move the goods for transport.

o Is the damage covered?o Does it matter whether insurance was on

A-, B-, or C clauses?

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Questiono Goods were lifted from the shelf in the

warehouse into a container. Due to a mistake the container was not immidiatly transported to the ship for carriage to the buyer. The delay lasted for 24 hours and resulted in temperature damage to the goods.

o Has the period of insurance started?

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Commencement of the period of insurance

o CICG § 14.2: Where the insurance is effected by buyer, or

o Where the insurance only covers buyer’s risk

o Period of insurance commences when, in accordance with sales contract:o The risk passes to buyero Insurance effected by seller terminates

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Commencement of the period of insurance

o CICG § 14.3: Insurance period extended where the insurance covers only buyer’s interesto Covers buyer’s loss because no

information in transport document on shortage or damage incurred after start of transport

o Provided buyer’s good faith

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7.2. Termination of the period of insurance

o CICG § 15: Five possible termination points in time given

o Decisive: Which point in time occurs first

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7.2. Termination of the period of insurance

o First alternative: goods safely unloaded from means of transportthat brought them to consignee’s warehouse at named place of destination

o Second alternative: goods deliveredto consignee or placed at his disposal

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7.2. Termination of the period of insurance

o Third alternative: Risk passed to buyer where carrier has sold the Goods in accordance with contract

o Fourth alternative: 30 days after completion of discharge at named place of destination

o Fifth alternative: 60 days after discharge from the carrying vessel

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Questiono Goods were discharged at the buyers

warehouse and was damaged when lifted by a forklift for transport to the storage facilities within the warehouse.

o Is the damage covered under insurance effected by the buyer?

o What if the insurance was effected by the seller for his interest only?

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7.3. Suspension of the insurance

o CICG § 16.1: Delay in one place for more than 15 days due to circumstances within the assured’s control

o CICG § 16.2: Delay in transit in one place for more than 3 months, unless exceptions nr. 1, 2, 3 or 4 apply

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7.3 Suspension and ICA § 4-6

o The company can reserve the right to disclaim or limit its liability if a specific circumstance with a material bearing on the risk is changed. Such a reservation can not be invoked if the insured party neither knew nor ought to have known that the circumstance had been changed, or if the insurance event is not due to the changed circumstance.

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8. Liability of the insurero Two main questions:o Under what circumstances does the

assured have a right to compensation?o Total loss, shortage, damage

o How is the compensation decided?o Total loss, shortage, damage

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8.1. Total losso The concept ”total loss”, CICG § 35.1

o The entire consignment is destrøyedo The assured deprived of the goods

without possibility of retrieving ito Transit to destination abandonedo Severe damage (90% of value lost)

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8.1. Total losso The settlement of a total loss, CICG

§ 35.2o Main rule: sum insured, but not more

than insurable valueo No deduction for previously incurred

damage, whether covered or not

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8.2. Shortageo The concept ”shortage”, cf. CICG §

36.1o Part of the insured consignment totally

lost, cf. CICG § 35.1o Compensation, cf. CICG § 36.2

o Right to proportion of sum insured corresponding to the goods lost

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8.3. Damageo The concept ”damage”: not defined in

CICGo The compensation:

o The insurer may always require repair, and cover the costs of repair, CICG §37.1

o But: If repair results in unreasonable loss or inconvenience

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8.3 Damageo If damage not repaired, the insured

entitled to cash settlement based on damage percentage, CICG § 37.2o But: If damage percentage for goods

intended for resale is above 50%, the insurer may demand sale, CICG § 37.3.1

o With perishable goods, right to sale even where damage percentage is below 50%, CICG § 37.3.4

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8.3 Damageo Special rules to apply for procedure

and limits to the right of sale o Request must come without undue delay

after survey report, CICG § 37.3.3o Perishable goods: not necessary to wait for

survey report, CICG § 37.3.4o Right to sale to take due account of the

interest of the assured, CICG § 37.3.5, cf. § 52

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Thank you for your attention

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