Chapter 4 Flashcards
An ocean marine cargo insurance policy insures all forms of transportation incidental to the ocean voyage, including transportation by land, rail or air.
True
The terms of sale and bills of lading can be used to identify the parties having an insurable interest in a shipment.
True
INCOTERMS are standard industry terms used to identify the duties of buyers and sellers under the terms of sale.
True, INCO terms identify the point in transit at which the seller has fulfilled its obligation, which buyer or seller is responsible for carriage at one point to another, which of the buyer or seller is responsible for insurance
The letter of credit is the most
common payment method for
exports.
True
Even when title to goods passes to the buyer, the seller may continue to have an insurable interest in them.
True
The extent of the carrier’s insurable interest in the shipment will be indicated on the bill of lading issued to the shipper.
True
When determining the value of a shipment for insurance purposes, only the basic invoice cost and freight are considered.
False
Under a cargo insurance policy, it is possible for insureds to receive more than the actual amount of their loss.
True
INCOTERMS describe the responsibility of buyers and sellers for goods under the terms of sale. Identify three areas of responsibility addressed by the
INCOTERMS.
NCOTERMS
INCOTERMS identify:
(i) the point in transit at which the seller has fulfilled its obligations;
(ii) which of the buyer or seller is responsible for carriage from one point to another;
(iii) which of the buyer or seller is responsible for insurance.
The method of payment for goods will also be addressed in the terms of sale.
Identify the point in time at which the seller’s interest terminates when goods are purchased in the following ways:
(a) Cash in advance.
(b) Open account.
(c) Draft.
(d) Letter of credit.
(a) i) Cash in Advance
-seller’s interest ceases from the moment payment has been made
(b) ii) Open Account
-seller’s interest remains until goods paid for in full
(c) iii) Draft
-seller retains insurable interest in goods until payment is made
(d) iv) Letter of Credit
-seller retains insurable interest until the letter of credit has been honoured by the buyer’s bank
Identify four advantages of insuring shipments under an open policy.
(i) sums insured not stated
(ii) can be extended to insure goods of every description shipped anywhere in the world
(iii) coverage is automatic
(iv) can be issued with no expiry date
(v) premium rate stated on the policy
The amount of insurance purchased constitutes the agreed value of the shipment. The Valuation Clause inserted in the policy identifies the types of values which are considered by the insurer to form the agreed value of a shipment.
(a) Identify the values to be considered when arriving at an agreed value.
The following are values typically associated with cargo insurance losses and can usually be insured under an ocean marine policy:
(1) value of the cargo;
(2) shipping costs or freight;
(3) other expenses;
(4) duties and taxes;
(5) plus ten percent.
The amount of insurance purchased constitutes the agreed value of the shipment. The Valuation Clause inserted in the policy identifies the types of values which are considered by the insurer to form the agreed value of a shipment.
(b) State the purpose of the 10% addition in values permitted to be insured under the policy.
The 10% allowed to be added to known costs, (a) helps ensure normal increases in value of the cargo to the consignee arising out of the journey are covered; (b) helps to provide a means of insuring loss of profit margin when goods are damaged or fail to arrive at destination.
The amount of insurance purchased constitutes the agreed value of the shipment. The Valuation Clause inserted in the policy identifies the types of values which are considered by the insurer to form the agreed value of a shipment.
(c) Briefly state how insurers measure the extent of the damage caused to insured cargo.
Percentage of Insured Value Lost” Form Basis of Settlement
The extent of damage caused to insured cargo is measured in terms of the percentage of insured value lost.
Briefly discuss the provisions of each of the following clauses: Transit Clause
Coverage provided from the time the goods leave the shipper’s warehouse until they arrive at the point of destination indicated by the policy
-coverage includes losses occurring after the cargo has been unloaded and while in transit by rail, truck, lighters, steamers, aircraft or any other conveyance to final destination named in the policy
-if cargo not delivered to consignee within 60 days after unloading, coverage automatically ceases
-if goods are sold by insured and directed to a location not shown on the policy, coverage “shall not extend beyond the commencement of transit to such other destination”.
-goods are covered during any delays or deviations during the journey which are beyond the control of insured
Briefly discuss the provisions of each of the following clauses: Termination of Contract or Carriage Clause
Termination of Contract or Carriage Clause Cover terminates when:
-the contract of carriage is terminated at a port or place other than the destination named in the policy; or
-transit is otherwise terminated before delivery of the goods under the conditions provided in the transit clause.
Briefly discuss the provisions of each of the following clauses: Change of Voyage Clause
-if destination of the cargo is changed by the insured, the insurer agrees to continue coverage as long as prompt notice is given to insurer.
Briefly discuss the provisions of each of the following clauses: Claims - Lost or Not Lost Provision
-coverage applies even if the property has already been lost at the time the policy is negotiated, provided that (a) the insured did not know of the loss, and (b) had no reason to suspect there had been a loss.
Identify two exclusions common to marine cargo insurance policies. Discuss how their effects can be eliminated or minimized.
a) Unseaworthiness and Unfitness Exclusion
There is no coverage if the owners of insured cargo were aware of the unseaworthiness of the vessel. As most shippers will have no knowledge of the particular ship on which their cargo is to be carried, this exclusion is rarely applied.
b) Strikes Exclusion Clause
-Institute Strike Clause (Cargo) can be added to provide coverage for losses due to strikes
c) War Exclusion Clause
-Institute War Clauses (Cargo) can be added to insure cargo losses due to war.
Identify three implied warranties common to ocean marine cargo insurance and provide a brief explanation for each.
(i) the venture is legal
It is not considered proper nor in the public interest for insurers to protect a person against loss in some illegal enterprise.
(ii) no delay, the voyage will start within a reasonable time
The premium charged is based upon expected conditions at sea. Therefore, once coverage has been provided, there is an implied warranty that the voyage will start within a reasonable time.
(iii) no deviation from customary route
When issuing the policy the insurer assumes the goods will be transported by their most customary route. Any deviation from this route may affect the chance of loss.
There are two types of partial losses under ocean marine cargo insurance policies. Discuss what is meant by:
(a) Particular Average.
(b) General Average.
(a) Particular Average
-involves partial loss to a specific shipment, other than a General Average.
(b) General Average
-deals with marine losses voluntarily incurred for the safety of entire venture. The parties whose property was saved shall contribute to the losses of the parties whose property was sacrificed.
Identify four factors considered by underwriters when evaluating an application for cargo insurance and provide two examples of important information for each.
Factors considered by underwriters re: cargo insurance
1) carriers to be used . . . name, type of ship, general maintenance, age, registry, details re: connecting transit
2) experience of ship owner . . . loss experience
3) route over which the ship will operate, and weather conditions
4) condition of harbours and political situations in those areas
5) type of cargo and any inherent hazards in such cargo . . . susceptibility to breakage, leakage, sweating, spontaneous combusion, wetting, climatic conditions; theft and pilferage; special trade conditions.
6) perils to be insured including amount of insured’s participation and deductible
7) method of packaging cargo . . . type of packaging; use of gummed tape; shrink wrapping, strapping or binding; presence of labels
When hull coverage is provided by the policy, as many as three separate deductibles may apply. Discuss.
(i) In motion deductible: when aircraft is in flight; it is moving under its own power; a propeller or rotor on the aircraft is caused to be rotated by its engine power.
(ii) moored deductible: when the aircraft is operated on floats or as an amphibian aircraft. It also applies to loss or damage caused to wheel or ski-equipped aircraft due to the breaking through of ice or snow.
(iii) not in motion deductible: while aircraft is on the ground and not in motion.
What purpose is served by the Layup Endorsement?
-allows for refund of a portion of the premium when the aircraft is not used for an extended period of time
Outline the rules and other provisions applicable to the layup endorsement.
The following provisions apply to this endorsement:
- this endorsement must be purchased at inception date of the policy;
- reports of lay-ups must be provided to insurer within 90 days of expiry of the policy term;
- usual lay-up clause is for 30 consecutive days;
- refund is withheld until policy expires;
- no refund if a loss payment is in excess of premium charged.
What is the effect, if any, on the existing insurance policy when an unapproved pilot operates the aircraft?
No payment will be made for losses when an “unapproved pilot” operates the aircraft.
Air cargo insurance is similar to marine cargo insurance in many ways. Identify three such similarities.
Air cargo insurance similarities with marine cargo insurance:
(i) liability limited by law;
(ii) valuation;
(iii) coverages;
(iv) exclusions;
(v) rating.
Bill of Lading
A document issued by the carrier responsible for transporting or forwarding the goods
Agreed Value
A fair value of the shipment agreed to in advanced by the insured and insurer
Freight
The money payable either for the hire of a vessel or for the conveyance of cargo from one port to another
Actual Total Loss
A loss in which the subject property is totally lost or is so badly damaged that it has no value left
Constructive Total Loss
Occurs when the cost of salvaging the cargo is too high relative to the value saved
Particular Average
Involves a partial loss to a specific shipment, other than a general average
General Average
Deals with payment for marine losses voluntarily incurred for the safety of the entire venture. The parties whose property was saved shall contribute to the losses of the parties whose property was sacrificed
F.O.B
Free on Board
F.A.S.
Free Alongside
FOQ
Free on Quay
F.O.R.
Free on Rail
F.O.T.
Free on Trailer
C. and F. (CFR)
Cost of Goods + Freight charges paid until port of discharge
C.I.F.
Cost, Insurance + Freight
Three Characteristics of Bills of Lading
As a contract of carriage between the ship-owner and the shipper
As a receipt for the goods
As the document of title to the goods
Straight Bill of Lading
carrier is instructed to deliver the goods to the named consignee only
Order Bill of Lading
Carrier is instructed to deliver the property to the order of the named consignee (others can take the goods on the consignee’s behalf)
*evidence of the rights of such party to recieve the goods
Released Bill of Lading
FIX No specific value will have been declared by the shipper to the carrier
Valued Bill of Lading
issued by the carrier indicates the value of the goods as declared by the shipper. The carrier will be liable for this amount in the event it is responsible for loss or damage to the goods
On deck bill of lading
cargo has been stowed on the deck and is at the shippers risk
Optional stowage bill of lading
gives carrier the right to stow cargo wherever it sees fit, especially with respect to the stowage of containers on deck
Received for shipment bill of lading
“dock receipt” issued by the carrier or its representative as evidence that the goods were received by the carrier for shipment
Clean bill of lading
carrier declares there are no indications of problems with the condition of the cargo at the time of acceptance for carriage
Count bill of lading
the actual number of units being shipper
On board bill of lading
confirms the receipt of goods and the fact that they were loaded on board the vessel
Express Warranties
an agreement whereby the insured stipulates that certain facts relating to the risk are or shall be true, or certain acts relating to the same subject have been or shall be done
They are specifically stated in the policy and may address a variety of topics
Implied Warranties
Do not appear in the policy wording but are tacitly understood by the parties to be present and are as binding on the parties are express warranties
Examples of implied warranties relating to ocean marine cargo insurance include:
Legality: venture must be legal
No Delay: voyage will start within a reasonable time
No Deviation: Will not deviate from the customary route
Two statutory exceptions for a breach of warranty
Where owing to a change of circumstances, the warranty is no longer applicable
Where compliance would be unlawful owing to the enactment of a subsequent law
“when the control of the journey is out of the hands of the shipper or owner of cargo, the underwriter may agree to waive the bech of any implied or express warranty
Three types of total losses
Actual total loss
Constructive total loss
Total loss of a part
When does a hull exposure exist
exists for clients who own, operate or charter any kind of marine hull
What does Protection and Indemnity insurance Insure
Provide excess coverages for such collision losses
Loss of life and injury to third parties
Pollution (practices differs from country to country)
Damage to fixed and floating objects (such as wharves)
Removal of wreck
What are the three hull categories that aircrafts are divided into for rating purposes
Privately owned aircraft, not used for hire or reward
Commercial aircraft (excluding instruction and rental)
Commercial aircraft (including instruction and rental)
Hull Coverage “A” All Risks
occurring while the aircraft is on the ground, either while it is in motion or not, or occurring while the aircraft is in flight
Hull Coverage “B” Ground and Taxiing Risks
occurring while the aircraft is on the ground or while it is in motion taxiing
Hull Coverage “C” Ground Risks Only
occurring while the aircraft is on the ground and not in motion
What information is requested by the Pilot’s Record and Report
class of license and endorsements
Total hours as pilot in command
Record of all accidents in the previous five year period
Cash in Advance
seller’s interest ceases from the moment payment has been made
Open Account
seller’s interest remains until goods paid for in full
Draft
seller retains insurable interest in goods until payment is made
Letter of Credit
seller retains insurable interest until the letter of credit has been honoured by the buyer’s bank
