What exactly is Marine Cargo Insurance?
Marine cargo insurance protects property as it travels from one location to another. The word “marine” conjures up images of the sea, and sea transits were foremost in the minds of the authors of the Marine Insurance Act 1906 (MIA). While the Act’s first sections refer to “marine losses,” “marine adventure,” and “maritime perils,” marine insurance departments also insure property conveyed by aircraft, road, and rail vehicles. Many transits, particularly international ones, necessitate two or more modes of transportation, and the Act provides for them.
So, marine cargo insurance is a type of property insurance that protects property in transit against loss or damage caused by perils associated with sea or air navigation, as well as subsequent land and inland waterways. The Act makes no mention of air travel or pure land-based transit. To ensure that the Act applies to all modes of transportation, it is common to see a clause in the policy document confirming the Act’s authority in all circumstances.
‘Maritime perils’ refer to risks associated with the transportation of property by sea. It covers sea perils (sinking, stranding, collision, and so on), fire, war perils, pirates, thieves, capture, jettison, and washing overboard, as well as ‘any other perils of a like kind or which may be designated by the policy.’
The inclusion of this final sentence allows insurers to include other risks in their policies at their discretion, such as risks associated with other modes of transportation, such as crashing, derailment, and overturning. It should be noted, however, that normal wind and wave action is not considered a sea danger.
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So, what exactly is the ‘property’ covered by marine cargo insurance? It is referred to as the subject-matter insured in the Act. In essence, it can be anything that is being transported from one location to another. Typically, raw materials and components enter the assured or finished products leave.
This type of property is classified as ‘Goods and or Merchandise,’ which denotes traded goods. Items of the assured’s own equipment, such as machinery, office furniture, samples and engineers tools, and exhibition materials, can also be insured. Almost everything has moved and, as a result, can be insured as the subject matter of a marine cargo policy.
Who can provide marine cargo insurance?
According to Section 5 of the Marine Insurance Act of 1906 (MIA), anyone with an insurable interest can insure their interest under a marine policy. This begs the question, “Who has a legally enforceable interest?” The Act goes on to state that a person is ‘interested’ if he has a legal or equitable relationship to the adventure as a result of which he may benefit from the safe arrival of the property or be prejudiced by its loss.
Consider the situation of a manufacturer who is selling his products. Even if the goods are traveling away from him, he has an insurable interest in them until he receives payment for them. Up until the point of payment, he stands to benefit from the adventure’s success or suffer if it fails. As a result, he is eligible to have his interest insured under a marine cargo policy.
Likewise, his buyer has an insurable interest, or more accurately, an expectation of receiving one, and can thus obtain marine insurance. According to the Act, an assured (note the term assured as opposed to insured) must be interested in the subject-matter insured at the time of loss, but not when the insurance is effected (MIA section 6).
Thus, if property in transit is damaged, it is necessary to determine which party held the insurable interest at the time of loss by referring to the terms of sale or purchase.
Other interested parties may insure up to the extent of their insurable interest in addition to the buyer and seller. Shipping and forwarding agents or carriers, as well as other bailees to whom the property was entrusted, charterers and other ship hirers, will all have an interest in the adventure because they could be sued for failure to deliver.
Interestingly, the Act refers to insurers who, by virtue of their policy, have a vested interest in the adventure’s success or failure and thus 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, the marine insurance is considered a gaming or wagering contract and is thus declared void (MIA section 4).
What is the process by which a marine policy is transferred from one party to another?
This procedure is referred to as “assignment.”
When an exporter sells goods overseas, he has the option of selling the goods on terms that leave the insurance up to him or his buyer to arrange, or he can arrange 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, such as Cost Insurance and Freight, the seller agrees to obtain cargo insurance at his own expense, which the buyer or any other person with an insurable interest in the goods may claim directly from the insurer, and to provide the buyer with an insurance policy or certificate for that purpose.
This is notable in comparison to most other types of property insurance, where ownership remains constant throughout the term of coverage. Claims are paid to the policyholder’s name. The marine policy, on the other hand, must allow for ownership to change as goods, the subject matter of the insurance, are bought and sold.
As a result, unless expressly stated otherwise, a marine policy is assignable (Marine Insurance Act 1906 (MIA) section 50).
Two additional pieces of information are included on the insurance certificate. First, it provides the name and address of the insurer’s claims representative in the destination country, and second, the certificate will be signed, usually on the reverse, by the policyholder, thus opening up or assigning the certificate to the buyer’s benefit.
This means that the buyer can receive compensation for loss or damage to the goods in transit as if he were the original assured. This process, from the perspective of an insurer, means that claims are paid to parties other than the named assured in other countries.
As a result, in addition to providing evidence that a sending was placed under an Open policy, it also serves as a document of title, allowing the holder of the original version to obtain settlement. It also provides the insurer with the information needed to apply the policy rate and charge the premium.