Cargo Insurance: What the Policy Pays, and What It Refuses

Carrier Liability Is Not Insurance

When cargo is damaged at sea, the carrier is liable — but only up to a limit set by international convention, and only if the damage was caused by something the carrier is responsible for. That limit is expressed in Special Drawing Rights per kilogram, which for sea carriage under the Hague-Visby rules works out at roughly two SDR per kilo.

For a container of consumer electronics, that figure is a fraction of the cargo value. For a container of sand, it may be more than enough. The point is that the limit has nothing to do with what your goods are worth.

Air and road carriage have their own conventions with their own caps, and they are all similarly disconnected from commercial value. A forwarder's standard trading terms add further limits and defences on top.

Insurance exists to close the gap. It is not a duplicate of carrier liability; it is the part the carrier does not pay.

Clauses A, B and C

Marine cargo cover is written on standard clause sets, and most of the world uses the Institute Cargo Clauses. Three levels are sold, and the difference between them is what has to be proved.

Summary of the standard Institute Cargo Clauses. The full wording governs, and every policy should be read against the actual clause text — not a commitment on cover.

The practical consequence of B and C is that the burden of proof shifts. Under A, the insurer has to point to an exclusion. Under B and C, you have to show that the loss came from a listed peril. A carton crushed because another consignment shifted is a straightforward A claim and a difficult B claim if it does not fit a named peril.

Insured Value and the 110 Percent Convention

Cargo is conventionally insured for 110 percent of its CIF value: the goods, the freight and the insurance, plus a tenth to cover the margin you expected to make and the costs of a claim.

The extra ten percent matters more than it looks. If a shipment is lost, you lose the profit it would have earned and you still pay for the handling, the clearance preparation and the administrative time. A policy at invoice value only leaves those unrecovered.

Insure the full CIF value even when you bought FOB. The freight you paid separately is part of what the cargo is worth at the point of loss, and a policy written on the FOB invoice excludes it.

Declare the correct commodity too. A policy that names plastic housewares for a container of lithium batteries is a policy that will not respond, and the premium difference was never worth the argument.

The Exclusion List

Most declined claims are declined on an exclusion rather than on the peril. The recurring ones:

• Inadequate packing. If the cartons were not fit for the journey, the loss is the shipper's. This is the single most common defence.
• Inherent vice. Goods that deteriorate on their own — food, rubber, timber with moisture content — are not covered for that deterioration.
• Delay. Loss caused by late arrival is excluded, even when the delay was the carrier's.
• Ordinary leakage and loss in weight. A drum that seeps its normal amount is not damaged cargo.
• Insufficient or unsuitable marking. Cargo that cannot be identified is a packing failure.
• War and strikes. Excluded from the standard clauses and covered only by separate war and strikes clauses, bought separately.

Two of these are within your control and worth acting on. Packing and marking are decided at the factory, weeks before anyone thinks about a claim.

General Average

General average is the oldest idea in maritime law and the one that surprises buyers most. When a ship is saved from a common danger by deliberately sacrificing part of the cargo or spending extraordinary money — jettisoning containers, diverting to a port of refuge, salvaging the vessel — the loss is shared by everyone whose property was on board, in proportion to its value.

The mechanism is a general average bond. Your cargo can be held at destination until you provide a guarantee against your share, even though your own container is undamaged and the danger was nothing to do with you.

Cargo insurance is what responds to that demand. A policy written on the standard clauses covers general average contributions; an uninsured consignment meets the demand from the buyer's own funds, and the amount is not small.

Making a Claim That Survives

Three things decide whether a claim is paid: notice, evidence and survey.

Notice in time. Damage has to be notified to the insurer or the agent promptly, and the policy states the window. On containerised cargo the practical deadline is often before the container is emptied, which means the claim conversation starts at the warehouse door.

Evidence. The commercial invoice, packing list, bill of lading, delivery receipt, photographs of the damage as found, and a note of the condition of the container and seal at handover. Keep the damaged goods available for inspection; do not repair, dispose or return them before a surveyor has seen them.

Survey. Above a threshold the insurer appoints a surveyor, and the survey report is what the claim is decided on. A joint survey with the terminal or the carrier present is stronger than a unilateral one.

The claim that fails is usually the one notified three weeks later, after the cartons were thrown away and the container returned.

When and How to Buy

Cover should be in place before the cargo moves, not when the vessel sails. A policy bought on the day of departure may still apply under the warehouse-to-warehouse duration, but the argument about when the loss happened is one you do not want.

For a single shipment, a certificate issued against an open policy is the normal arrangement: the forwarder declares the shipment, the insurer issues a certificate, and the premium is charged on the insured value. For regular shipments, an open cover declares every shipment automatically and removes the risk of forgetting one.

Buy the clause level your product deserves. ICC (A) for manufactured goods, electronics, anything with a finished face or a retail carton. ICC (C) for bulk commodities where the exposure is a total loss. Anything temperature-sensitive, second-hand or shipped in a container that will be transhipped deserves a conversation rather than a checkbox.

Buying Through the Forwarder or Directly

Two routes to the same cover. A forwarder can declare your shipment against an open policy and issue a certificate, which takes an email and produces a document that names your cargo, your voyage and your insured value. Or you can place the cover with your own broker at home, usually as part of a marine open cover that already includes your other imports.

The forwarder route is faster and needs nothing from you but the invoice value. The broker route is better when you import regularly, because one policy covers every shipment without anyone remembering to declare it, and because your broker is on your side of the claim rather than the cargo's.

Whichever you use, get the certificate before the cargo moves and keep it with the shipping documents. A certificate that arrives after the loss is a document that will be dated and questioned.

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