Unit Eleven

Unit ElevenInsurance

Learning objectivesTo describe perils, losses in cargo transitTo identify the scope of F.P.A, W.P.A. and All risksTo know how to ask the other party to cover insurance

General View1perils, losses in cargo transit Ocean shipments are exposed to a number of unique hazards. Damage or loss of cargo is, however, a real possibility from such causes as fire, stranding, collision, rolling off the ship in heavy storm, tornado, moisture, theft, etc. Insurance allows traders to proceed with confidence in the knowledge that each party to the transaction is properly protected.

General ViewThe purpose of insurance The purpose of insurance is to obtain indemnity in the event of any damage or loss, so marine insurance is a contract whereby the insurer (insurance company), on the basis of a premium paid, and undertakes to indemnify the insured against loss form certain risks or perils to which the cargo insured may be exposed.

General View 2. Three kinds of basic insurance coverageFree From Particular Average (F. P. A)With Particular Average (W. P. A)All Risks

General ViewFree From Particular Average (F. P. A) It is a limited form of cargo insurance in that no partial loss or damage is recoverable form the insurers unless that actual vessel or craft is stranded, sunk or burnt. Under the latter circumstances, the F. P. A cargo policy holder can recover any losses of the insured merchandise which was on the vessel at the time as would obtain under the more extensive W.P.A. policy. The F.P.A. policy provides coverage for total losses and general average emerging from actual marine perils.

General View 2) With Particular Average (W. P. A) With Particular Average covers wider than F .P. AAside from the risks covered under F .P. A.this insurance provides extensive cover against all loss or damage due to marine perils throughout the duration of the policy, including partial loss or damage which may be attributed to natural calamities like vile weatherlightningtsunami earthquake andor flood.

General View 3) All Risks Aside from the risks covered under F. P.A., and W. P. A conditionsthe insurer is responsible for all total or partial loss of, or damage to the goods insured either arising from sea perils or general external causes. The All Risks clause excludes coverage against loss, damage or expense caused by delay, inherent vice or nature of the goods insured, or special external risks of warstrikesriotsetc. All Risks covers only physical loss or damage from external causes.

Guidelines for WritingWhen writing letters related to insurance, the writer ought to bear the following points in mind:1).The methods of insurance (whether its a policy or an open policy)2).The risk or risks to be covered3).The consignment to be insured4).The voyage to be covered5).The premium rate 6).The mode of payment 7).The validity of the insurance

Guidelines for WritingPattern Model I: Importer Asks Exporter to Cover InsuranceParagraph 1: Mention the contract, goods etc. We refer you to Contract No With regard to our contractParagraph 2: Suggest the terms of payment and the reason. As we shall be glad if you As you know, we suggestParagraph 3: Wish the reader to accept and ship the goods early. We wish you can accommodate us in this respect. We hope to receive your favorable reply.

Guidelines for WritingPattern Model II: Sellers reply to the buyer Paragraph 1: State that you have received their letter. Your letter dated have been received. Paragraph 2: Give your reply of agreeing or refusing and your reasons. We agree to With regard towe regret being unable to accept Paragraph 3: State the goods will be sent soon, etc. We sincerely hope that we can We have insured the goods

Guidelines for Writing3ask the other party to cover insurance1. The Insurance Insured In insurance business the insured is one who pays the insurance company for the coverage of risks of the cargo. The insurer is the insurance company that agrees to make payment in case of loss or damage occurred to the insured. The insured and the insurer are bound by a contract known as the insurance policy. In export trade, who will effect insurance depends on the particular trade term adopted.

Guidelines for Writing Under CIF terms, it is the seller /exporter who arranged insurance with an insurance company. The seller is under obligation to present a marine insurance policy or an insurance certificate at the time of negotiation. Under the terms as FOB, CFR, etc., the buyer / importer effects insurance, but he may ask the seller to arrange insurance on behalf of the buyer.

Guidelines for WritingGenerally speaking, the stages of covering insurance are as follows:(1)The insured completes a proposal form.(2)The insurer assesses the risk and fixes a premium to be paid.(3)The insured pays the premium and the insurance becomes valid.(4)If a damage or loss is suffered, the insured files a claim for compensation. (5)The claim is investigated, and if reasonable, the compensation is paid.

Specimen Letter -1 (Importer Asks Exporter to Cover Insurance)April 5, 2008Dear Sirs, ReOur Order No. CM517Covering 100 MTons Canned Meat We wish to refer you to our Order No. CM517 for 100 MTons Canned Meat, from which you will see that this order was placed on CFR basis.As we now desire to have the consignment insured at your endwe shall be much pleased if you will kindly arrange to insure the same on our behalf against All Risks for 110of the invoice value.We shallof courserefund the premium to you upon receipt of your debit note or, if you likeyou may draw on us at sight for the same.We sincerely hope that our request will meet with your approval. Yours faithfully Mack Liu

Specimen Letter -2 (Asking for CFR Terms)May 16, 2008Dear Sirs,Re: InsuranceWe thank you for your letter of May 9quoting us for 3000 cases of Iron Nails on CIF terms. We regrethoweverthat we prefer to have your quotations and/or offers on CFR terms.For your referencewe have taken out an open policy with the Peoples Insurance Company of China. The Insurance Company is a state-operated enterprise enjoying a high prestige and has agent in all main ports and regions of the

world. Should any damage occur to the goods, their agent at your end will take up the matter without delay. All we have to do when a shipment is made is to advise them of the Particulars. Furthermore, we are on very good terms with themWe usually receive from our underwriters quite a handsome premium rebate at regular intervals.In the meantime, we should appreciate it if you could supply us with full details regarding the scope of cover handled by the Lloyd Insurance Company, London for our reference.We look forward to hearing further from you at an early date.

Yours faithfully,Conan Smith

Specimen Letter-3 (Covering Insurance for the Buyer)Far East Foodstuffs Company Ltd.616 Taiyangdao Street, Harbin, China.Tel: (0451)59894763 Fax:(0451) 59894765 E-mail:[email protected] 25, 2008South Asia Trading Co. Ltd31- b Jalan Street, Kuala LumpurMalaysiaDear Sirs,Contract No. 368 for 300 cases Walnut MeatsWe wish to draw your attention to the fact that the subject contract is booked on CFR basis, whereas your L/C calls for CIF. This is obviously inconsistent.

We would have faxed you for amendmentbut on second thoughts we refrained from doing so. To avoid delay in shipmentthe simplest way would be for us to arrange the necessary cover here and to deduct the premiumwhich would amount to US$20from the 2commission payable to you. Any leftover will be remitted to you as soon as the proceeds have been collected from the letter of credit.We trust the above settlement will be satisfactory to you.

Yours faithfully, Zhao Hai

Specimen Letter-4 (Agreeing to cover insurance and arrange shipment) Hong Kong Pro-rich Fiber International Limited Nathan Road, Kowloon, Hong Kong Tel: 0852-93603296 Fax:00852-93603113 E-mail:[email protected] 2, 2007Shanghai Far East Trading Co., Ltd.651 Gubei Road, Shanghai 200336, ChinaDear Sirs,We take pleasure in acknowledging your letter of May 25th, requesting us to effect insurance on the 1000 M/Tons Chinese Rice for your account.

We are glad to confirm having covered the shipment with the Peoples Insurance Company of China against All Risks for US $ . The policy is being prepared accordingly and will be presented to you by the end of this month together with our debit note for the premium.For your information, this consignment will be shipped by s/s Hope due to sail on or about June 10th. We shall send you shipping advice in due course. Yours truly, Yale Stiffen

Specimen Letter 5- Insurance Company Asks to Cancel Breakage Risk22 October 2007Dear Sirs,Additional Risk of BreakageWe refer to your LC No. F441 covering Glazed Wall Tileswhich we have just receivedPlease note for this article we do not cover Breakage. You have tothereforedelete the word Breakage from the insurance clause in the credit.Furthermorewe wish to point out that for such articles as window glassporcelainsetceven if additional Risk of Breakage has been insuredthe cover is subject to a franchise of 5. In other wordsif the breakage is surveyed to be less than 5no claims for damage will be entertained. Please make an amendment immediately.

Yours faithfully Johnson Morgan

Specimen Letter-6 (Asking for Additional Insurance) January 23, 2008Dear Sirs,We have inadvertently written in our Order Confirmation No. OR166 W.P.A. & War Risk insurance to be effected by sellerswhereas we should have asked for broader coverage.Please hereafter take out cover on all our purchases of Leathers against T.P.N.D.ContaminationFresh andor Rain Water Damage in addition to W.P.A..We enclose an amended Order Confirmationwhich is to supersede the one previously sent.Thank you for your cooperation.

Yours faithfully Colin Brown

Specimen Letter-7 (Reply to a Request for Excessive Insurance)January 29, 2008Dear Sirs,Your Order No428 for 2000 Cases ToysWe have received your letter of January 23asking us to insure the captioned order for an amount of 30 above the invoice value. Although it is our usual practice to insure shipments for the invoice value plus 10we are prepared to comply with your request for getting cover for 130 of the invoice value. But the extra premium will be for your account. We trust the above will be acceptable to you.

Yours faithfullyWang Lin

Guidelines for Writing 2. The Insurance Claims Most insurance company policies require that immediate notice be given to the nearest branch or agency in the event of damage giving rise to a claim under a policy on goods. When notified of damage, the companys agents appoint a suitable surveyor to inspect the goods and to report on the nature and extent of the damage. A common practice is for a report or certificate of loss incorporating the surveyors findings to be issued to the consignees, the latter paying the fee. This certificate of loss is included with the claim papers and, if the loss is recoverable under the insurance cover, the fee is refunded to the claimants.

Guidelines for Writing In some circumstances, the claim papers are returned to the place where the insurance was effected and subsequently presented to the underwriters. However, especially where goods are sold on CIF terms and the policy is assigned to the consigneesarrangements are made for any claims to be paid at destination. In such cases, the consignees approach the agents named in the policy for payment of their claims. Of course, the claims procedure will vary by circumstances, but undoubtedly a quicker settlement should be secured in the event of loss or damage.

Guidelines for Writing The following documents must be presented by the insured to support his claim: original insurance policy or certificate, original or copy B/L, original invoice, packing list, survey report, masters protest, statement of claim and so on.

Specimen Letter 8- letter of insurance claimBrothers Association Trading Company Ltd.132 Mortimer Street London WIC 37D, UK Tel:456-342-4444 Fax:456-342-4445 E-mail:[email protected] 7, 2007The American Trading Co., Inc.6-8 manhattan, New YorkNY1244U.S.ADear Sirs,When the s. s. Good Luck arrived at Karachi on 5th July, it was noticed that one side of case No. 5 containing the radio receivers was split. We therefore had opened the case

,which invoiced as containing forty-eight receivers, twelve of them were badly damaged and absolutely without any value.We enclose the certificate of survey and the policy, for which your immediate and amicable settlement will oblige.Twelve replacement receivers will be required. Please arrange to supply these and charge to our account.We hope no difficulty will arise in connection with the insurance claim and thank you in advance for your cooperation.

Yours faithfully, David Blank

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Unit Eleven