Chapter 4

Question 1

Who may have insurable interest in a policy insuring cargo?

Answer 1

i) Sellers
ii) Buyers
iii) Carriers
iv) Financial institution

Question 2

What documents are examined to help determine insurable interest.

Answer 2

i) Terms of sale/contract
ii) Bills of lading

Question 3

What types of facts contained in the “Terms of Sale” will assist in determining insurable interest?

Answer 3

i) Inctoterm used
ii) Method of payment used

Question 4

What information can be obtained by reviewing the Incoterms?

Answer 4

i) Point in journey that seller has fulfilled their obligations (when title changes from seller to buyer)
ii) Who is responsible for carriage from one point in the journey to another point in the journey
iii) Who is responsible for insurance from one point in the journey to another point in the journey

Question 5

What Incoterm is used in the following situation? Purchaser is responsible for insurance and freight once the shipment leaves the factory.

Answer 5

EX WORKS

Question 6

What Incoterm is used in the following situation? Seller is responsible for freight and insurance from the factory to alongside the vessel. At that point the buyer is responsible for insurance and freight.

Answer 6

FAS

Question 7

What Incoterm is used in the following situation? Seller is responsible for insurance and freight from the factory until shipment is loaded on board the ship. From that point, the buyer is responsible for insurance and freight.

Answer 7

FOB

Question 8

Identify the type of payment arrangements made in the following situation. Payment is required to be made before the seller will ship the good.

Answer 8

Cash in advance

Question 9

Identify the type of payment arrangements made in the following situation.

Answer 9

Payment is made using financial documents sent between the seller’s bank and the buyer’s bank.

Question 10

Identify the type of payment arrangements made in the following situation.

Answer 10

Open account

Question 11

Identify the type of payment arrangements made in the following situation.

Answer 11

Sight draft

Question 12

When payment is guaranteed upon delivery of goods, should seller still maintain insurance coverage on shipment and why or why not?

Answer 12

Sellers should maintain coverage on goods until payment has been received from buyer.
Buyers would likely not pay for goods damaged or lost en route.

Question 13

What is a Bill of Lading?

Answer 13

Bills of Lading are documents issued by carrier responsible for transportation or forwarding of goods.

Question 14

Identify purposes of Bills of Lading

Answer 14

i) Act as a contract of carriage between ship owner and shipper
ii) Act as a receipt for the goods
iii) Act as a document of title of the goods

Question 15

Who may receive shipment when a Straight Bill of Lading is used?

Answer 15

Only the named consignee may receive goods.

Question 16

Who may receive shipment when an Order Bill of Lading is used?

Answer 16

Others may take delivery on behalf of named consignee

Question 17

How are goods valued when a Released Bill of Lading is used?

Answer 17

No specific value is indicated, however carriers will be responsible for amounts required by law

Question 18

How are goods valued when a Valued Bill of Lading is used?

Answer 18

Goods will be valued by amount indicated on Value Bill of Lading

Question 19

What is the purpose of a Clean Bill of Lading?

Answer 19

This bill of lading indicates that property was received by carrier with no signs of damage.

Question 20

What is the purpose of a Count Bill of Lading?

Answer 20

This bill of lading indicates items or units being shipped.

Question 21

What are four causes of loss carriers being free from responsibility?

Answer 21

i) Perils, dangers and accidents of the sea or other navigable waters
ii) Acts of God
iii) Acts of war
iv) Acts of public enemies

Question 22

What are two types of Cargo Policies available and when would each be used?

Answer 22

i) Individual policy or certificate
When Used: Insureds who do not regularly ship goods would purchase this type of cargo insurance
ii) Open policy
When Used: Insureds who regularly ship goods would purchase this type of cargo insurance.

Question 23

Identify five characteristics of Open Policies.

Answer 23

i) Sums insured are not stated
ii) May insure any type of goods shipped anywhere in the world
iii) Coverage is automatic
iv) May be issued without expiry date
v) Premium rate is shown on policy

Question 24

What clause found in cargo policies help determine value of cargo being shipped?

Answer 24

Valuation Clause

Question 25

What are five areas addressed by the Valuation Clause?

Answer 25

i) Value of cargo ii) Shipping costs or freight iii) Other expenses iv) Duties and taxes v) Plus ten percent

Question 26

What are two reasons to use the “Plus 10%” allowance?

Answer 26

i) To allow for natural increases in value of goods being shipped ii) To allow for profit margin of goods shipped

Question 27

What method of valuation of losses has been part of a cargo insurance for many years?

Answer 27

Percentage of insured value lost

Question 28

When will the full amount of insurance on a shipment date be paid to insureds using the Percentage of Insured Value Lost?

Answer 28

Full amount of insurance will be paid when there has been a total loss.

Question 29

The Transit Clause provides coverage for goods being shipped regardless of the type of transportation method. This broad coverage causes many people to say that the Transit Clause provides warehouse to warehouse coverage.

Answer 29

i) Coverage ceases when goods have been unloaded and not delivered within 60 days after being unloaded ii) Coverage ceases when goods are diverted to destination not indicated on policy iii) Goods are insured when diverted or delayed beyond control of client

Question 30

Discharging shipments at ports not covered may cause insureds to incur additional expenses. What endorsement is available to cover these additional expenses and identify three types of expenses insured by this clause?

Answer 30

Name of Clause: Forwarding Charges Clause

Question 31

Discharging shipments at ports not covered may cause insureds to incur additional expenses. Types of expenses insured.

Answer 31

i) Unloading expenses ii) Storing expenses iii) Forwarding to destination to which insurance applied

Question 32

Why may insureds purchase the Change of Voyage Clause?

Answer 32

This clause provides coverage when goods are diverted to destination not mentioned in policy, provided insurer receives prompt notice.

Question 33

What are three exclusions common to cargo policies?

Answer 33

i) Unseaworthiness and Unfitness Exclusion ii) Strikes Exclusion iii) War Exclusion

Question 34

Describe an express warranty and give an example of an express warranty?

Answer 34

Express warranties are written into policy documents. An example of express warranties would include an Alarm Warranty.

Question 35

Describe three implied warranties considered in cargo policies?

Answer 35

i) Name of Implied Warranty: Legality Description: Venture is legal ii) Name of Implied Warranty: No delay Description: Journey will begin within reasonable time iii) Name of Implied Warranty: No deviation Description: Journey will take most reasonable and customary route

Question 36

Explain two types of total losses found in cargo policies.

Answer 36

i) Actual total losses are losses where shipment is badly damaged that it has no value left. ii) Constructive total losses are losses where cost to salvage shipment is greater than value of shipment.

Question 37

Explain two types of partial losses found in cargo policies.

Answer 37

i) Particular average are losses where there has been partial loss of shipments, other than general average. ii) General average are losses incurred due to voluntary losses for safety of entire voyage.

Question 38

What are four considerations reviewed by underwriters when reviewing applications for cargo insurance?

Answer 38

i) Carriers to be used ii) Experience of ship owner iii) Route ship will use iv) Condition of harbours to be used

Question 39

What recommendations would you provide clients when discussing packing cargo?

Answer 39

i) Only use new well-made packaging ii) Use tape with patterns to detect tampering iii) Use corrugated cardboard to detect tampering iv) Do not display trademarks or logos

Question 40

What are three coverage options available to owners of aircraft when insuring their aircraft?

Answer 40

i) Hull Coverage “A” – All Risks ii) Hull Coverage “B” – Ground and Taxiing Risks iii) Hull Coverage “C” – Ground Risks Only

Question 41

What are three types of deductibles that may be used in Aircraft Hull Insurance?

Answer 41

i) In motion deductibles ii) Moored deductibles iii) Not in motion deductibles

Question 42

What is the use of the “Lay Up” endorsement?

Answer 42

This endorsement allows for partial refund of premiums when insured aircraft is not used for long periods of time.

Question 43

When must the “Lay Up” endorsement be purchased?

Answer 43

This endorsement must be purchased at inception of policy.

Question 44

When are insureds required to report their lay ups with insurers?

Answer 44

Reports of lay ups must be reported within 90 days of expiry of policy.

Question 45

Coverage is only provided when certain people are in control of the aircraft. Identify these four individuals.

Answer 45

i) Approved pilot ii) Pilot employed by Transport Canada who is testing aircraft iii) Pilot providing approved pilot with upgrading training iv) Person competent and qualified to start and operate aircraft when not in flight

Question 46

When reviewing applications for aircraft insurance, what report is important to underwriters?

Answer 46

Pilot Record and Report

Question 47

What are three facts contained in this report that are important to underwriters?

Answer 47

i) Class of license and endorsements ii) Total hours as pilot in command iii) Record of all accidents in the past five years