Cargo Insurance Conditions and Clauses

International trade and logistics are fully dependent on the cargo insurance. It covers goods in transit by various modes of transport – sea, air or ground. Cargo insurance in India has a big role to play for safeguarding business interests involved in transporting goods to make sure that financial protection and peace of mind asset is maintained. This blog covers what every business engaged in shipping should know about cargo insurance in India: its types, benefits and underlying conditions and clauses. We will also take a look at how marine and cargo insurance and freight insurance works under different policies.

What is Cargo Insurance?

Cargo insurance is a kind of insurance, which covers loss or damage of goods in transit. It’s there to protect what value the goods have when it’s being transported by sea, by air, or on land. The insurance is provided up against agreed terms amongst the parties involved by the shipper, the consignee, or the logistics provider. However, in India, cargo insurance is guided by well defined legal regimes and guidelines, allowing business to guard against potential risks when the goods are in transit within India or through borders.

Insurance of cargo is mainly aimed to compensate for the damage the cargo has had during transportation. It can cover damages arising out of natural disasters, accidents, piracy, theft, and other unexpected events. Regardless of whether you are shipping domestically or internationally, having the right marine and cargo insurance policy will eliminate much of your financial exposure.

Popular Cargo Insurance Policies in India

Open Cover Policy: This is ideal for companies who need to move their products. It gives the continuous coverage for the multiple shipment during a period. Reaching the insured limit, the policy must be renewed.

Specific Voyage Policy: This is a single trip coverage for goods of one single journey or shipment. This is best for those companies that do not ship their merchandise as often.

Annual Policy: It encompasses multiple shipments through the year. Cargo insurance is a more comprehensive process and a more convenient way for business that constantly ships, it offers flexibility and this is why.

Freight Insurance: What it is, is a type of freight insurance that covers the cost of the goods being transported, but not the freight itself. As a matter of fact, most businesses combine freight insurance with cargo insurance so that they get covered for all known risks like freight charges in case the goods are lost or damaged.

Some Important Cargo Insurance Clauses

The conditions and clauses that determine the extent of coverage with respect to cargo insurance policies in India are standard rules and provisions. Understanding what isn’t covered, what exclusions exist, and how claims are made, these clauses are key. Here are some of the key clauses:

1. Institute Cargo Clauses (A, B or C)

The cargo insurance policy most widely used is the Institute Cargo Clauses (ICC). Terms and conditions of claim definition define under which claims could be made against the author. There are A, B and C clauses, each covering different amount of amount when the scenarios are identified.

Institute Cargo Clause (A): This is the most comprehensive coverage from a policy known as all risk. It guards against wide variety of risks starting from natural disasters, theft and accidents. For example, there are exclusions, such as damage resulting from the goods’ inherent vice or delay.

Institute Cargo Clause (B): It is a more restrictive form of marine and cargo insurance. It covers major perils such as fire, explosion and sinking but contains no specific perils such as theft or pilferage.

Institute Cargo Clause (C): On this level, the most basic level of coverage, for example fire or collision, is usually provided. Low value goods or where the risks of slight damage weigh less with usually being chosen.

2. Particular Average (PA) free

The FPA clause is a restrictive condition to cargo insurance that restrict the insurer liability. This clause then provides the insurer with liability only in case of run of the mill total loss or significant damage to the cargo resulting from one of a handful of listed major events such as fire or ship sinking. No loss or damage is covered, whether partial or whole, except for that which is the result of one of the above events.

3. With Average (WA)

This clause is wider than FPA and there concerns for loss of part of capacity. It covers losses due to perils of the sea, as per losses from storms or accidents during transportation. The WA clause is an increasingly popular clause in marine and cargo insurance, most often used when shipping goods that tend to suffer partial damage in transit.

4. General Average (GA)

This is an ancient principle of maritime law, known as the General Average clause. That is of course, when part of the cargo is sacrificed to save the vessel and remaining cargo in an emergency. In these cases all parties involved in this voyage — cargo owners themselves — will have to bear loss. Typically, cargo insurance provides protection of the cargo owner’s contribution to a general average loss so that he will not be liable for such loss.

5. All Risks Clause

The ‘All Risks’ clause does not cover all perils. Yet, it covers almost all risks associated with goods transportation — such as theft, accidental damage, even some natural events. For businesses shipping high value goods, or goods that need to be maintained with the highest security, it’s the preferred choice.

Cargo Insurance Key Exclusions

While cargo insurance provides broad coverage, certain exclusions apply, and it is essential for policyholders to be aware of them:

Inherent Vice: Most cargo insurance policies don’t cover damage to the goods, caused by the natural traits of the goods (for example perishables), until they have elasped a certain time.

Improper Packing: Excluded from coverage are goods not properly packed or secured for transit. If improperly packaged in some way, the insurer has the right to deny a claim.

War and Strikes: The tendency of many marine and cargo insurance policies to exclude war, strikes, civil unrest coverage unless as a category of special coverage is noted.

Delay: Generally excluded is any loss or damage resulting from delay in transit, even if resulting from a covered peril. Of course, business plans need to take this into consideration when scheduling logistics and arranging deliveries.

The Role of Freight Insurance

Freight insurance covers the cost of transportation of goods and ensures that businesses compensate the costs of shipping if the goods get lost or damaged by transportation. For companies that depend on international shipping, freight charges can be hefty and this type of insurance is particularly important.

When businesses combine freight insurance with cargo insurance, they can enjoy comprehensive coverage. The dual coverage is to ensure that not only are the goods themselves insured but the investment to shipping is also insured in the event of unforeseen incidence.

How to Choose the Right Cargo Insurance Policy

The choice of the right cargo insurance depends upon the type of goods transported, mode of transport and nature and risk involved in transporting such goods in particular route. Businesses should consider the following when choosing a policy:

Value of Goods: Coverage for high value goods needs to include more complete coverage, for example, an all risks may be required for maximum protection if the property is at risk of loss or damage.

Mode of Transport: The type of marine and cargo insurance policy need will depend on whether the goods are transported by sea, air, or land.

Frequency of Shipments: If shipping goods frequently, then an open cover or annual policy may be best — continuous coverage for a set period.

Destination and Routes: There are different risks for certain routes and regions and some regions and routes are more prone to certain risks, like piracy or severe weather conditions. The policy must be tailored to the particular risks of a destination.

Conclusion

Cargo insurance is of immense importance in Indian international and domestic trade as it protects the business from the risks involved in moving goods around the world. To make informed decisions business need to know what these conditions and clauses are; Institute Cargo Clauses, FPA, WA, General Average. Furthermore, combining our freight insurance with our cargo insurance gives you the all in one stop protection you need for both the loss of goods and financial liability in transportation cost.

Using the correct type of marine and cargo insurance policy, a company can reduce risks, safeguard its financial interests and stop or almost stop trade to come to a halt.