What is Marine Cargo Insurance?
Marine cargo Insurance is the insurance of property as it moves from place to place. The word ‘marine’ conjures up the sea and foremost in the minds of the writers of the Marine Insurance Act 1906 (MIA) was indeed sea transits. While the Act in its opening sections refers to ‘marine losses’ and to the ‘marine adventure’ and to ‘maritime perils’, marine insurance departments insure property conveyed by aircraft and road and rail vehicles as well. Many transits, particularly international ones require two or more types of transport and the Act makes provision for them
So, marine cargo insurance is a class of property insurance that insures property while in transit against loss or damage arising from perils associated with the navigation of the sea or air and subsequent land and inland waterways. The Act does not specifically mention air travel nor pure land-based transits. Therefore to ensure the Act applies to all modes of transit it is usual to see a clause in the policy document confirming its authority in all circumstances.
‘Maritime perils’ means perils consequent on or incidental to the carriage of property by sea. It includes perils of the sea (sinking, stranding, collision etc), fire, war perils, pirates, thieves, capture, jettison and washing overboard and ‘…any other perils either of a like kind or which may be designated by the policy.’
The inclusion of this last sentence allows insurers to include at their discretion in their policies other risks, for example risks appropriate to other means of transport, like crashing, derailment and overturning. It should however be mentioned that the normal action of wind and wave is not considered a peril of the sea.
So what precisely is the ‘property’ that is the subject of marine cargo insurance? The Act refers to it as the subject-matter insured. In essence it can be anything that is in the process of being conveyed from one place to another. Most usually it is raw materials and components coming into the assured or finished products going out.
The genre for this type of property is ‘Goods and or Merchandise’ that indicates traded goods. Also items of the assured’s own equipment can be insured, for example machinery, office furniture, samples and engineers tools and exhibition materials. Indeed just about everything has moved and as a result can be insured as the subject matter insured under a marine cargo policy.
Who can insure marine cargo?
According to Marine Insurance Act 1906 (MIA) section 5 everyone who has an insurable interest can insure their interest under a marine policy. This begs the question ‘who has an insurable interest?’ The Act continues by saying that a person is ‘interested’ where he stands in any legal or equitable relation to the adventure in consequence of which he may benefit by the safe arrival of the property or be prejudiced by its loss.
Consider the position of a manufacturer selling his goods. He has an insurable interest in those goods even while they are travelling away from him until he has received payment for them. Up to the point of payment he stands in a position to gain by the success of the adventure or suffer if it fails. He therefore qualifies to insure his interest under a marine cargo policy.
Similarly, his buyer also has an insurable interest or more correctly an expectation of receiving one, and can thus effect a marine insurance. The Act says that an assured (note the term assured as opposed to insured) must be interested in the subject-matter insured at the time of loss though he need not be interested when the insurance is effected, MIA section 6).
Thus if property in transit becomes damaged it is necessary to discover by reference to the terms of sale or purchase which party held the insurable interest at the time of loss.
In addition to the buyer and seller other interested parties may also insure up to the extent of their insurable interest. For example shipping and forwarding agents or carriers and other bailees to whom the property was entrusted to their care and custody, charterers and other hirers of ships, will all have an interest in the adventure in so far as they could be sued for failure to deliver.
Interestingly the Act refers to insurers who by the fact of their policy have a vested interest in the success or failure of the adventure and therefore qualify to insure (or in their case re-insure) their insurable interest (MIA section 9).
If there is no insurable interest or reasonable expectation of receiving one then the marine insurance is deemed to be a gaming or wagering contract and accordingly held to be void (MIA section 4).
How and why does a marine policy transfer from one party to another?
The term used to describe this process is “assignment”.
When an exporter sells goods overseas he has the option of either selling the goods on terms that leave the insurance to be arranged by him or his buyer, or he can arrange an insurance that covers the entire voyage but the benefit of which passes from him to his buyer when the insurable interest passes from one to the other.
Under certain terms of sale, and Cost Insurance and Freight is a popular one, the seller contracts to obtain at his own expense a cargo insurance that the buyer, or any other person having an insurable interest in the goods, shall be entitled to claim directly from the insurer and to provide the buyer with an insurance policy or certificate for that purpose.
This is a notable difference to most other property insurances where ownership remains the same throughout the period of cover. Claims are paid to the person named in the policy. However, the marine policy has to allow for ownership to change as goods, the subject matter of the insurance are bought and sold.
For this reason a marine policy is assignable unless it contains terms to the contrary, (Marine Insurance Act 1906 (MIA) section 50).
The insurance certificate contains two additional pieces of information. Firstly it provides the name and address of the insurers claims representative in the country of destination and secondly the certificate will be signed, usually on the reverse by the policyholder thus opening up or assigning the certificate to the benefit of the buyer.
This means the buyer can proceed to receive settlement for loss or damage to the goods in transit as though he were the original assured. From an insurers point of view this process means that claims are paid to parties other than the named assured in other countries.
So as well as providing evidence of a sending having been placed under an Open policy, it also acts as a document of title enabling the holder of the original version to obtain settlement. It also gives the insurer the necessary detail to apply the policy rate and to charge the premium.