Chapter 4 Study Guide and Checkpoints Flashcards
1
Q
In addition to transportation over the ocean, four other incidental methods of transportation covered under a marine cargo insurance policy?
A
Ocean Marine Cargo Insurance also includes:
- Air
- Land
- Rail
- on Vessels operating on inland waterways or Lakes
2
Q
Four parties who may have an insurable interest in cargo being shipped
A
- Sellers of goods
- The Buyers
- Carriers
- Financial Institutions
3
Q
Two documents to be reviewed to determine the insurable interest of the parties noted in the last question.
A
1) Terms of Sale/Contract
2) BIlls of Lading
4
Q
Two items the broker will normally focus on identifying under the TERMS of SALE
A
1) The INCOTERM under which goods are being shipped
2) The Method of payment for the goods
5
Q
The THREE QUESTIONS which address the issue of insurable interest under the INCOTERMS?
A
- The point in transit at which the seller has fulfilled its obligation.
- when the goods are delivered in accordance with the terms of sale, both the title and responsibilities for future losses are transferred to the buyer. - Which of the buyer or seller is RESPONSIBLE FOR CARRIAGE from one point to another?
- Which of the buyer or seller is responsible for INSURANCE?
6
Q
EX WORKS
A
Buyer pays for the invoice cost of goods and must arrange insurance from the works to final destination..
Seller sells at the invoice cost
7
Q
f.o.b. (free on board)
A
Buyer takes responsibility for goods once they are on board the vessel. Insurance is the responsibility of the buyer from this moment until final delivery.
Seller is responsible for carriage and loading costs and any damage until goods are loaded on board. insurance is the responsibility of the seller from works until on board.
8
Q
f.a.s. (Free Alongside)
A
Buyer takes responsibility for goods as soon as they are alongside the vessel or on the quay. insurance is the responsibility of the buyer from this moment until final delivery.
Seller is responsible for carriage and unloading costs goods are alongside the vessel or on the quay. insurance is the responsibility of the seller from works up to this point.
9
Q
c.i.f. (Cost, Insurance + Freight)
A
Buyer is NOT responsible for insurance as this is included in the contract price. however, increased VALUE COVER at the ultimate destination may be required to meet charges or increased market value.
Seller is responsible for providing insurance, but usually follows the buyers instructions.
10
Q
Who has ownership during transportation of the goods under EX WORKS?
A
Buyer
11
Q
Method of Payment - Financial Institutions
A
- Recognized at law having an insurable interest
- Loans that haven’t been repaid
- require to be a payee and require the insurance
12
Q
where is the method of payment for goods addressed?
A
In the TERMS OF SALE
13
Q
when would a SELLER have an insurable interest once goods have passed to the buyer?
A
When goods have been purchased on CREDIT
14
Q
Four methods of payment:
1) Cash in Advance
A
- Cash in Advance
- for buyers who aren’t well known
- custom or special goods
- usually F.O.B. terms since seller has no interest in the cargo. Paid already.
15
Q
Cash In advance - When does the sellers insurable interest cease?
A
From the moment payment has been made
16
Q
Method of payment -
2) OPEN ACCOUNT
A
- Opposite of cash in advance
- settled at intervals, monthly or quarterly.
- for reliable customers etc
- seller has insurable interest obv
17
Q
Method of payment
3) Draft
A
- presentation = Sight Draft
- OR TIME DRAFT 30, 60, 90 days from the presentation.
- Widely used in international Commerce. Seller has an insurable interest
18
Q
Method of payment
4) Letter of Credit
A
- MOST COMMON payment for exports.
- seller agrees to provide the buyer with the goods pending receipt of a LETTER OF CREDIT
- uses the banking system for the transaction
- Seller will continue to have an insurable interest in the shipment until the letter of credit has been honoured by the buyer’s bank
19
Q
even though the terms of sale may guarantee payments for goods shipped, sellers should be cautioned against neglecting to ensure the amount of their interest. Explain
A
Buyer will have little incentive to PAY if lost or damaged en route.
Potential for non-payment = seller should insure!
20
Q
Who issues the Bill of Lading?
A
Issued by the CARRIER RESPONSIBLE for transporting or forwarding the goods.
21
Q
The 3 Functions served by Bills of Lading
A
- As a contract of carriage between the SHIP-OWNER and the shipper
- RECEIPT for the goods
- As the DOCUMENT OF TITLE to the goods
22
Q
5 Items that are included in a Bill of Lading.
1st is THE ROUTE TO FOLLOW
2nd is THE PARTY RESPONSIBLE FOR FREIGHT CHARGES
A
- Description of persons to whom goods are to be delivered.
- Description of how goods are VALUED WHILE BEING TRANSPORTED by the carrier
- any OTHER CONDITIONS
- like ON DECK bill of lading or stowage bill of lading
23
Q
Who is entitled to receive goods under Straight Bill of Lading?
A
The carrier is instructed to deliver the goods to the NAMED CONSIGNEE ONLY
24
Q
Who is entitled to receive goods under Order Bill of Lading?
A
The carrier is instructed to deliver the property to the order of the named consignee. Others may take delivery of the goods on the consignee’s behalf.
25
How are goods valued under:
Released Bill of Lading?
No specific value will have been declared by the shipper to the carrier.
- even so, a common limit under such agreements by law is $500 per package.
26
How the goods are valued under:
Valued Bill of Lading?
- Indicates the value of goods as declared by the shipper. Carrier will be liable for this amount if they are responsible for loss or damage to the goods.
27
Explain "Received for Shipment" Bill of Lading
- AKA DOCK RECEIPT
| - form issued by carrier or its representative as EVIDENCE that the goods were received by the carrier for shipment
28
On Deck Bill of Lading (Storage Condition 1)
- Reduces premium cost
- shipper may request that goods be situated ON DECK. confirms it's stowed on deck at the shippers RISK. Carrier is not liable for loss or damage unless due to gross negligence.
29
Optional Stowage Bill of Lading (Storage Condition 2)
The Optional Stowage bill of lading gives the carrier the right to stow cargo wherever it sees fit, especially with respect to the storage of containers on deck
30
Clean Bill of Lading
- The carrier declares there are no indications of problems with the condition of the cargo at the time of ACCEPTANCE for carriage.
- Important in losses involving perishables such as fruits and veg when it's possible that the insurer may allege such goods were in a state of deterioration at the time shipment was made
31
Count Bill of Lading
A COUNT BILL shows actual number of UNITS BEING SHIPPED.
- in the event all units do not reach their point of destination, this bill of lading is evidence that the carrier received all such units for shipment
32
On Board bill of Lading
An On Board Bill of Lading confirms the receipt of goods and the fact that they were LOADED on board the VESSEL
33
6 Causes of loss where the carrier's are NOT RESPONSIBLE. exempt from liability
1. Fire, unless caused by the actual fault or Privity (PRIVATE KNOWELDGE) of the carrier.
2. Perils, dangers, and accidents of the SEA or other navigable waters
3. Act of God
4. Act of War
5. Act of Public Enemies
6. Strikes, Riots, and civil commotions
34
The two types of cargo insurance that may be purchased by either shippers or consignees
1. Individual Policy or Certificate
- completed certificate which confirms that coverage is in place.
- used for single shipments or when goods are sent on an IRREGULAR BASIS
2. OPEN POLICY
35
FOUR Characteristics that are common to OPEN POLICIES that may be purchased by either shippers or consignees with large volumes of overseas shipments
1. Sums Insured are not stated
2. Can be extended to insure goods of every description shipped anywhere in the world
3. Can be issued with NO EXPIRY DATE
4. Premium RATE stated on the policy
36
Valuation Clause
Limits Amount of Insurance That can be purchased
37
Indicate the five "values" typically associated with cargo insured on an Open Policy
1. Value of the Cargo
- basic invoice cost of the goods
2. Shipping costs or Freight
- money payable either for the hire of a vessel or for the conveyance of cargo from one port to another
3. Other Expenses
- Additional costs associated with the shipment may include charges for export packing, inland freight, insurance premiums and miscellaneous fees.
4. Duties and Taxes
- levied at the point of entry, not payable if goods are lost prior to arrival obv. Paid on damaged goods though. If the goods cannot be used or sold, the payment of these charges is a loss to the buyer or seller.
5. Plus TEN PERCENT
- 10% allowed to be added to known costs
- helps to ensure that normal increases in the value of cargo to the consigning arising out of the journey are insured
- AND provide means of insuring loss of profit margin when goods are damaged or fail to arrive.
- can be increased.
38
Under an OPEN CARGO POLICY, the insurer does not know in advance the value of any given shipment that may be declared by the insured. So they use the
Valuation Clause
- establishes in advance how shipments are to be valued
- eliminates disagreement about the value if loss occurs
39
How many jurisdictions require claims to be settled
In accordance with ENGLISH LAW AND PRACTICE
| - 1906 Marine Insurance Act in England
40
explain the term Percentage of Insured Value Loss basis of loss settlement
A significant characteristic of cargo insurance coverages the custom of measuring the damage in terms of % of INSURED VALUE LOST
Example: Value at loss was $100,000. Insured for $80K. Adjuster declares 50% loss. Actual Loss is $50K but payout is only $40K
41
Can these settlements exceed the Actual value of the lost property?
YES if over insured. Not a concern because the insured usually has a limited ability to create a deliberate loss in the ocean.
42
Two advantages of adjusting losses on percentage of insured value loss basis
1. Adjuster does not have to know about prices in other markets, or at other times.
2. Only the immediate market value needs to be known
Its FAST and simpler.
43
Collision of Ship with another ship. Coveraged for each Institute Cargo Clause?
A) YES
B) YES
C) YES
44
Coveraged for each Institute Cargo Clause?
| FIRE or Explosion
A) Yes
B) YES
C) Yes
45
Coveraged for each Institute Cargo Clause?
| Theft/Pilferage
A) YES
B) NO
C) NO
46
```
Coveraged for each Institute Cargo Clause?
WAR RISK (except piracy)
```
A) No
B) No
C) No
47
Four special sets of clauses which have been drawn up in consultation between underwriters and various trade associations
1. Transit Clause
2. Termination of Contract or Carriage Clause
3. Change of Voyage Clause
4. Claims
48
What is TRANSIT CLAUSE
The transit clause:
- developed because goods weren't being just transported over water. Inland etc too
- provides coverage from the time the goods leave the shippers warehouse until they arrived at the point of destination indicated by the policy
- includes transit by RAIL TRUCK, LIGHTERS, AIRCRAFT
49
When does coverage cease on TRANSIT CLAUSE
if the cargo has not been delivered to the consigny within 60 days after unloading, coverage automatically ceases
- she'll not extend beyond the commencement of transit to such other destination.
- goods also covered during any delays on the journey beyond the control of the insured
- example, captain docks during tropical storm, coverage continues to apply.
50
What is TERMINATION OF CONTRACT or CARRIER CLAUSE
- The contract of carriage is terminated at a port or place other than the destination named in the policy.
- Transit is otherwise terminated before delivery of goods under the conditions provided in the Transit Clause
- when the contract of carriage is terminated before goods reach their final destination, coverage under the policy is also terminated.
51
What is the FORWARDING CHARGES CLAUSE contained in each of the ICC's
This provides for reimbursement of any extra charges properly and reasonably incurred in unloading, storing, and forwarding the subject matter to the destination to which it is insured hereunder
- for reimbursement to apply the contract must have been terminated as the result of a "risk" not excluded under the policy
52
What is the CHANGE OF VOYAGE CLAUSE
- if the destination of the cargo is changed by the insured, the insurer agrees to continue coverage so long as prompt notice is provided to it.
- Additional premium may be required and coverage terms may be subject to change
53
An marine cargo insurance policy ensures all forms of transportation incidental to the ocean voyage, including transportation by land rail or air. TRUE or FALSE
TRUE
54
the terms of sale and bills of lading can be used to identify the parties having an insurable interest in the shipment. TRUE or FALSE
TRUE
55
INCOTERMS are standard industry terms used to identify the parties having an insurable interest in a shipment
TRUE
56
The LETTER OF CREDIT is the most common payment method for exports
TRUE
57
Can the seller continue to have an insurable interest after title to goods passes to the buyer?
YES
58
The extent of the carrier's insurable interest in the shipment will be indicated where?
On the Bill of Lading issued to the shipper
59
is it possible for the insured to receive more than the actual amount of their loss under a Cargo Insurance Policy?
YES it's possible. Not a big concern.
60
INCOTERMS describe the responsibility of buyers and sellers for goods under the "terms of sale". Three areas of responsibility addressed by the INCOTERMS
1. the point in transit at which the seller has fulfilled its obligations
2. which of the buyer or seller is responsible for carriage from one point to another
3. which of the buyer or seller is responsible for the insurance
61
The METHOD OF PAYMENT for goods will also be addressed in the "Terms of sale". identify the point in time at which the sellers interest terminates when goods are purchased in the following ways:
a) Cash in advance
Cash in Advance
- sellers interest ceases from the moment payment has been made
62
The METHOD OF PAYMENT for goods will also be addressed in the "Terms of sale". identify the point in time at which the sellers interest terminates when goods are purchased in the following ways:
b) Open account
Open Account
- sellers interest remains until goods paid for in full
63
The METHOD OF PAYMENT for goods will also be addressed in the "Terms of sale". identify the point in time at which the sellers interest terminates when goods are purchased in the following ways:
c) Draft
Draft
- seller retains insurable interest in goods until payment is made
64
The METHOD OF PAYMENT for goods will also be addressed in the "Terms of sale". identify the point in time at which the sellers interest terminates when goods are purchased in the following ways:
d) Letter of Credit
Letter of Credit
- seller retains insurable interest until the letter of credit has been honoured by the buyer's bank
65
Identify Four advantages of insuring shipments under an OPEN POLICY
1. Sums insured not stated
2. Can be extended to insure goods of every description shipped anywhere in the world
3. coverage is automatic
4. Can be issued with no expiry date
5. premium rate stated on the policy
66
identify the values to be considered when arriving at an AGREED VALUE
1. Value of cargo
2. shipping costs or Freight
3. Other expenses
4. duties and taxes
5. plus 10 percent
67
State the purpose of the 10% addition and 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 of the journey are covered and b ) helps provide a means of ensuring loss of profit margin when goods are damaged or failed to arrive at the destination
68
Briefly state how insurers measure the extent of the damage caused to insured cargo
The extent of damage caused to insured cargo is measured in terms of the percentage of insured value lost
69
identify two exclusions common to marine cargo insurance policies. discuss how their effects can be eliminated or minimized.
1. Unseaworthiness and Unfitness Exclusion
2. Strikes Exclusion Clause
3. War Exclusion Clause
70
1. 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.
71
2. Strikes Exclusion Clause
Institute Strike Clause (Cargo) Can be added to provide coverage for losses due to strikes.
72
3. War Exclusion Clause
Institute War Clauses (Cargo) can be added to insure cargo losses due to war.
73
Identify 3 Implied Warranties common to ocean marine cargo insurance
1. The Venture is LEGAL
2. No delay, the voyage will start within a REASONABLE TIME
3. NO DEVIATION FROM CUSTOMARY ROUTE
74
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
75
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.
76
NO DEVIATION FROM CUSTOMARY ROUTE
When issuing the policy the insurer assumes goods will be transported by their most customary route. Any deviation from this route may affect the chance of loss..
77
Two types of PARTIAL LOSSES under ocean marine cargo insurance policies
1. Particular Average
| 2. General Average
78
What is meant by PARTICULAR AVERAGE
- involves partial loss to a specific shipment, other than a General Average
79
What is meant by 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.
80
identify four factors considered by underwriters when evaluating an application for Cargo Insurance
There are LOTS
1. Carriers to be used (name, type of ship, age, registry)
2. Experience of the Ship Owner (loss experience)
3. ROUTE over which the ship will operate (weather conditions)
4. Condition of HARBOURS and POLITICAL SITUATIONS
81
Identify MORE Factors considered by underwriters for Cargo Insurance
1. Type of Cargo (inherent hazards, susceptibility to breakages, leakage, theft and pilferage)
2. PERILS to be insured. (participation in the deductible)
3. Method of Packaging Cargo (type, strapping or binding, presence of labels)
82
When hull coverage is provided by the policy, what 3 Deductibles may apply?
1. IN MOTION DEDUCTIBLE
2. MOORED DEDUCTIBLE
3. NOT IN MOTION DEDUCTIBLE
83
When would we use 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.
84
When would we see 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.
85
When would we see NOT IN MOTION DEDUCTIBLE
While aircraft is on the ground and not in motion
86
What purpose is served by the LAY-UP Endorsement
The LAYUP endorsement allows for refund of a portion of the premium when the aircraft is not used for an extended period of time
87
Outline the 5 Rules/Provisions for the LAY-UP Endorsement
1. this endorsement must be purchased at inception date of the policy
2. reports of layups must be provided to insurer within 90 days of expiry of the policy term
3. usual layup clause is for 30 consecutive days
4. refund is withheld until policy expires
5. no refund if a loss payment is in excess of premium charged
88
What is the effect, if any, on the existing insurance policy when an unapproved pilot operates the aircraft?
UNAPPROVED PILOT
No payment will be made for losses when an "unapproved pilot" operates the aircraft.
89
Air Cargo insurance is similar to marine cargo insurance in many ways, name 5.
1. Liability limited by law
2. VALUATION
3. Coverages
4. Exclusions
5. Rating
90
Freight
The money payable either for the hire of a vessel or for the conveyance of cargo from one port to another
91
EX WORKS - explain
when goods are purchased on EX WORKS basis (factory/warehouse) the BUYER assumes all responsibility for the goods from that point, INCLUDING INSURANCE arrangements
92
F.O.B. Vancouver - explain
Seller will be required to bear all responsibility for them until they are loaded on board of the specific vessel named in terms of the sale.
Once loaded on board the title to the goods and all responsibility for them, including insurance, is transferred to the buyer.
If Payment for the goods is to be made on an other than cash in advance basis, Seller will continue to have an insurable interest in the goods being shipped. That interest should be protected with insurance.
93
C.I.F. Tokyo - Explain
When goods are purchased on a C.I.F. tokyo basis, louise lentils Inc will be responsible for the cost of goods, insurance and freight charges from the time the goods leave the premises until they arrive at their destination. However, the buyer may require "increased value" cover at the ultimate destination to meet charges or increased market value.
94
Under the conditions of a F.O.B. sale, the responsibility for the goods, including insurance, falls to who?
The buyer once those goods are on board the vessel.
However, as payments for the goods will not be made until presentation of the SIGHT DRAFT, SELLER will continue to have an insurable interest in them.
