Lecture Material on Marine Cargo Insurance by Samiran Lahiri

1
MARINE CARGO INSURANCE
by
S. Lahiri, AIII
Executive Director cum CEO
Preferred Partners Insurance
Brokers Pvt. Ltd., Noida - India
February - 2020

2
MARINE INSURANCE
Present day Marine Insurance coverages
 Marine Cargo insurance : Protects goods in various modes of transit
like air, sea, rail road etc under a contract of affreightment.
 Marine Hull Insurance: Protects ships, trawlers, yachts, barges, tugs
etc.
 Marine delayed start up: Protects profits due to delay in project
execution arising out of loss of project cargo during transit.
 Marine Liabilities: Covers various liabilities related to the maritime
trade like Freight forwarders liability, Stevedores liability, Charterers’
liability, Terminal operators liability.
Tutorial material of S.Lahiri, AIII

3
MARINE CARGO INSURANCE IN
DETAIL
NEED:
•Goods in transit are subject to numerous risks.
•Transactions through Letter of Credit would require cargo insurance as a pre-
requisite.
•Possibility of significant cash outflow in case of carrying vessel’s declaration of
General Average or requiring salvage operation.
PROTECTION:
•Through globally standardized Marine Cargo Insurance Clauses devised by
Institue of London Underwriters (ILU) now called Institute of Underwriters
Association of London (IUA).
•Generally warehouse to warehouse coverage and as prescribed by Incoterms
2020.
Largest Marine Insurance Loss : Explosion at Tianjin Port, China (August, 2015)
Estimated Loss amount : USD $6 Billion

4
Acts and Regulations for Marine Insurance
in India
Legislations
for Marine Insurance
in India
IRDAI
Regulations
Insurance Act
1938
Railways Act
1989
Carriage of Goods
by Road Act, 2007
(replacing Old Carriers
Act, 1865)
Multimodal
Transportation
of Goods Act,
1993
Major Port Trusts
Act, 1963
Customs Act,
1962
Central Excise
Act / Rules

5
MARINE CARGO UNDERWRITING
Meaning of Underwriting:
This denotes the process of analysing and assessment of risks followed by quoting premium and
terms commensurate with the risk. There cannot be a standard formula to evaluate all proposals.
The premium working considers:
 Various risk associated with the cargo and its movement.
 Claim history for the cargo in general and Insured in particular.
 Management expenses and reserves.
 Business procurement cost.

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MARINE CARGO UNDERWRITING
FACTORS
 Nature of cargo.
 Value of cargo.
 Route.
 Nature of packing.
 Past claims experience.
 Details of carrying vessel/s:
 Class
 Age
 Flag
 Tonnage.
 Coverage desired.

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CARGO SPECIFIC RISKS
[NOT EXHAUSTIVE]
Sr. No. Cargo Typical Risks
1 Machineries Rusting, oxidation, corrosion, scratches, breakage
due to careless handling, damage to parts etc.
2 Leather items Fungus, growth of mould, theft.
3 Chemicals Spillage, contamination, evaporation, Fire etc.
4 Food items Bursting of bags, water damage, contamination,
theft.
5 Dry Bulk Water damage, spontaneous combustion in case of
coal, moisture loss resulting into loss of weight,
shortage.

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CARGO SPECIFIC RISKS [NOT
EXHAUSTIVE] …CONTD
Sr. No. Cargo Typical Risks
6 Liquid bulk Contamination, pipeline loss, remnant in vessel hold,
“paper” loss (no actual loss).
7 Metals Rusting, oxidation, theft, non-delivery.
8 Tea Water damage, container sweating, pilferage, odour
loss.
9 Pharma products Theft, water damage, contamination.
10 Over dimensional
cargo[cargo that cannot fit
into a 40 ft. container or a
cargo requiring specialized
handling]
Loading unloading loss due to use of under- powered
vehicle, improper lifting gear etc.

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CARGOES REQUIRING CAUTIOUS
UNDERWRITING
 Over-dimensional cargo.
 Fragile items.
 High value machinery cargo with delicate design/circuit.
 Perishable/ temperature monitored cargo.
 High value low volume cargo.
 Cargoes falling under International Maritime Dangerous Goods
(IMDG) code.
 Specialised custom made equipments.

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[COVERED MODES OF TRANSIT]
COVERAGE :
Goods in transit are covered under Marine cargo
Insurance policy. These transits could be :
•Road transit/rail transit
•Ocean transit
•Air transit
•Inland water transit
•Coastal water transit
•Lake water transit
•Ropeway transit
•Postal transit
Generally however Road/Rail/Ocean/Air transits are mostly covered .

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 Bill of Lading(B/L ): Carriage document issued by the vessel/shipping line/
MTO.
 Consignment note (C/N): Carriage document issued by the road carrier.
 Railway receipt (R/R) : Carriage document issued by the railways.
 Airway bill (AWB) : Carriage document issued by the Air carriers.
 Packing list : Details of cases/cartons with marks and numbers prepared by
shipper for the goods.
 Invoice : Details of cargo with price and INCO terms.

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INCOTERMS 2020
Types of INCO terms
Responsibility of Cargo
Insurance
EXW Ex Works Buyer/Seller (Generally Buyer)
FCA Free Carrier Buyer/Seller (Generally Buyer)
FAS Free Alongside Ship Buyer/Seller (Generally Buyer)
FOB Free on Board Buyer/Seller (Generally Buyer)
CFR Cost and Freight Buyer/Seller (Generally Buyer)
CIF Cost, Insurance and Freight Seller
CPT Carriage Paid To Buyer/Seller (Generally Seller)
CIP Carriage and Insurance Paid to Seller
DAP Delivered at Place Buyer/Seller (Generally Seller)
DPU Delivered Place Unloaded Buyer/Seller (Generally Seller)
DDP Delivered Duty Paid Buyer/Seller (Generally Seller)

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OBLIGATION OF SELLER/BUYER AND RISK
TRANSFER POINTS
Courtesy : International
Chamber of Commerce Tutorial material of S.Lahiri, AIII

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SPECIAL
•Agreed value policy [invoice + agreed incidentals].
•Freely assignable policy.
•Insurable interest determined at the time of loss.
•Generally warehouse to warehouse coverage.
•Covers transhipment, incidental storage.
•Uses subrogation principle heavily.
•Uses globally standardized coverage devised by INSTITUTE OF LONDON
UNDERWRITERS (ILU) set up in 1982, now renamed as the Institute of
Underwriters Association of London (IUA).

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TYPES OF INSURANCEARRANGEMENTS
 Open Policy : A policy to cover all cargo movement within India on an annual basis on
agreed terms in advance.
 Open Cover : An arrangement/guarantee to cover all export/import cargo movement on
an annual basis on agreed terms in advance. This is not a stamped document.
 Sales Turnover Policy (STOP) : A policy to cover the entire sales turnover as per the books
of account of a corporate entity comprising movements pertaining to :
a) Domestic Purchase of raw material, consumable & stores.
b) Imports/ Exports.
c) Inter-Factory, Inter-Warehouse or Inter-Depot transfer.
d) To & Fro job work movements.
e) Domestic sales.
Sum insured in this policy is the expected annual sales turnover s.t. year-end adjustment.

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MARINE CARGO INSURANCE CLAUSES
COVERAGE: Loss or damage to cargo due toICC (C ) ICC (B) ICC (A)
Fire or explosion ALL ICC (C ) PERILS + All Risks subject to
exclusions.
Vessel or craft being stranded,
grounded, sunk or capsized.
Earthquake, volcanic eruption
or lightning.
Overturning or derailment of land
conveyance.
entry of sea, lake, river water.
Collision with external object
other than water.
Package lost overboard or
dropped during
loading/unloading.
Discharge of cargo at a port of
distress.
Washing overboard.
General average sacrifice.
Jettison
EXCLUSION EXCLUSION EXCLUSION

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CLAUSES....CONTD.
EXCLUSIONS UNDER ICC
• Wilful misconduct of the assured.
• Ordinary leakage, loss in weight/volume, wear and tear.
• Insufficient packing.
• Inherent vice.
• Delay even if the delay is caused due to an insured peril.
• Insolvency, financial default of owners/charterers.
• Unseaworthiness if assured is privy.
• War, SRCC (can be included by payment of extra premium).
THE FUNDAMENTAL PRINCIPLE: WHILE ICC(C ) AND ICC (B) HAVE BOTH PERILS COVERED SECTION AND
EXCLUSION SECTION, ICC (A)- THE ALL RISK COVER HAS ONLY EXCLUSION SECTION. ANY PERIL THAT IS NOT
EXCLUDED IS INCLUDED. THAT IS THE TRUE SPIRIT OF AN “ALL RISK POLICY”.

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SOME IMPORTANT SUB-CLAUSES
Duration Sub- clause:
•This sub-clause describes the time of attachment and termination of coverage.
•Coverage from named warehouse at origin to named warehouse at destination
on completion of unloading.
OR
On completion of unloading at a place elected by assured prior to or at
destination for storage allocation or distribution.
OR
On electing to use any vehicle/conveyance/ container other than in the ordinary
course of transit.
OR
Expiry of 60 days after complete discharge of cargo from vessel at final port of
discharge WHICHEVER OCCURS FIRST.

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(CONTD..)
Change of final destination: The cover expires once the insured moves the cargo
to a new destination after discharge/ storage at final port other than the insured
destination.
Variation in adventure : The cover remains valid s.t. duration sub-clause during
deviation, forced discharge, transhipment, re-shipment etc.
Change of Voyage: If after attachment of cover, the insured changes destination,
the same can be covered s.t. prior intimation and agreeing by the Insurer.
Forwarding clauses: Other than in case of G.A or salvage, unloading, storing and
forwarding charges to destination are covered, if insured transit terminates at a
port prior to destination due to insured peril.

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(CONTD..)
Loss Minimisation:
a) Assured to take all loss minimisation measures.
b) Protect recovery rights against carriers, bailees, third parties.
c) Charges for pursuance of these duties are reimbursed over and above the
claim.
Avoidance of delay:
IT IS A CONDITION THAT THE ASSURED SHALL ACT WITH REASONABLE
DESPATCH IN ALL CIRCUMSTANCES WITHIN HIS CONTROL.

21
GENERAL AVERAGE
General: Common to ships, cargo and freight.
Average: Loss in Marine Insurance parlance.
General Average: Any extraordinary sacrifice or expenditure voluntarily and
reasonably made/ incurred for the purpose of saving the common adventure.
The adventure must be saved or it becomes a total loss.
Example: Jettisoning of cargo, hiring of tugs, major fire on board etc.

22
SALVAGE CHARGES
 In Marine Insurance, this means rescuing charges.
 Paid to third party in case of operation of an insured peril.
 If incurred for an empty vessel, will be treated as “sue and labour” charge
for hull.
 If incurred for saving common adventure involving ship, cargo and freight
at risk, will be treated as G.A expense.
 Generally done under the agreement per Llyod's Open Form (LOF).

23
IMPORTANT PROVISIONS OF INSTITUTE
CARGO CLAUSES (AIR)
 Coverage on All Risk Basis. Unlike ICC-A/B/C ,General
average and both to blame collision clauses are not
featured in ICC- Air, being irrelevant.
 Major Exlcusions:The exclusions under Institute Cargo
Clauses (Air) are similar to the ones under ICC - A
except :
a) Exclusion for unfitness of aircraft or conveyance.
 Duration Sub-Clause :The cover would terminate on
the expiry of 30 days after unloading the subject -
matter insured from the aircraft at the final place of
discharge subject to other provisions of early
termination.

24
TRADE CLAUSES
Some important trade clauses are:
• Institute Coal Clauses
• Institute Frozen Food/Meat Clauses
• Institute Bulk Oil Clauses
• InstituteTimber Clauses
While the ICC-A/B/C clauses mentioned earlier cater to cargoes
of general nature, there are some commodity specific clauses
designed to cater to the special transit hazards related to these
commodites.

25
INLANDTRANSITCLAUSES IN INDIA
In India, for covering road/rail transit and also air transit (in ITC -A), ITC- A or B or C are
used.
ITC (C ) ITC (B) ITC (A) 2009 (Rail/Road/Air)
Fire ALL ITC (C ) PERILS + All Risks subject to exclusions.
Lightning Breakage of bridges.
Collision with or by the carrying
vehicle/railway wagon.
Derailment or accidents of like nature of
the carrying railway wagon/vehicle.
Earthquake orVolcanic Eruption.
Explosion
Overturning of the carrying vehicle/
railway wagon.
EXCLUSION EXCLUSION EXCLUSION

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INLAND TRANSIT CLAUSES IN INDIA
....CONTD.
General Exclusions :
 Wilful misconduct of assured.
 Ordinary leakage, loss in weight or volume.
 Ordinary wear and tear.
 Insufficiency of packing.
 Inherent vice.
 Delay even if the delay is caused by an insured peril.
 War
 SRCC (can be included by extra premium).
 Unfitness of container or land/rail/ air conveyance where loading carried out prior to attachment of
cover or by assured / its employees and they are privy to such unfitness.
 Deliberate damage / destruction in ITC - B and C.

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SOME IMPORTANT ITC SUB CLAUSES
Duration sub-clause :
 This sub-clause describes the time of attachment and termination of coverage.
 Coverage commences from the time the subject matter first moves in the warehouse for the purpose of
immediate loading into/ onto the carrying vehicle till it is unloaded at the final named warehouse or place of
storage at the named destination.
OR
On unloading from the carrying vehicle prior to or at the destination for storage, allocation or distribution
elected by the assured.
OR
On electing to use any vehicle/conveyance/ container other than in the ordinary course of transit by the
assured.
OR
On expiry of 7 days :
a)In case of Rail : after arrival of railway wagon at the final destination railway station.
b)In case of Road : after arrival of the vehicle at the named destination town named in the policy.
c ) In case of Air : after unloading of the subject matter from the aircraft at the final airport of discharge.

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SOME IMPORTANT ITC SUB CLAUSES..
(contd.)
 Coverage during delay : Coverage remains in force subject to certain
conditions during delay beyond the control of the assured, any deviation,
forced delivery and during any variation of the transit arising out from the
exercise of a liberty granted to carriers under the contract of affrieghtment.
 ConstructiveTotal Loss : No claim for ConstructiveTotal Loss shall be
recoverable unless subject matter is reasonably abandoned either on account
of its actual total loss appearing to be unavoidable or because the cost of
recovery/ reconditioning and forwarding to the destination would exceed its
value on arrival.
 Meaning ofTerrorism damage : Damages caused by persons acting towards
the overthrowing or influencing, by force or violence, of any government
whether or not legally constituted or acting from a political, ideological or
religious motive.

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CLAIM DOCUMENTATION
Generally the following documents are required.
 Invoice.
 Packing List.
 Policy
 Bill of Lading/Airway Bill/ Consignment Note/ Railway Receipt.
 Bill of Entry.
 Short landing Certificate.
 Shortage/ Damage/ Non-Delivery certificate issued by the
Carrier.
 Survey report with photographs.
 Claim Bill.
 Claim form.
 Claim notice on carrier/ port with acknowledgement.

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INTERNATIONAL CONVENTIONS
• Most popular conventions are:
Hague-Visby Rules.
The Hamburg Rules.
The Rotterdam Rules.
• These specify the liability of the ocean carriers.
• In India, ocean transit is governed by Carriage of Goods by Sea Act, 1925 [COGSA]
for ships carrying goods from Indian ports to anywhere both in and out of India.

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LIABILITY LIMITS
As per COGSA, for non-value declared (NVD) B/Ls
Maximum liability SDR 666.67 per package or unit or SDR 2 per kg of Gross
weight whichever is higher. (Hauge - Visby Rules Liability)
Fully liable for intentional/ reckless act done with a knowledge that damage
would probably result.
In Hamburg Rules, the same revised to 835 SDR and 2.5 SDR respectively.
As per MMTG Act 1993 as ammended in 2000 of India, the liability for MTO is
higher of 667.67 SDR per package or 2 SDR per Kg of gross weight where the
stage of transit where loss occured is not known.
For known stages, relevant law applicable to that mode of transit is
applicable. For no sea or inland waterway moverment, it is 8.33 SDR per kg. For
delay it is the freight payable amount.

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ROTTERDAM RULES(2009)
(Proposed)
• Applicable for carriage by sea and also for other modes of transit in
addition to sea voyage [Multi-modal transit].
• Liability proposed is 875 SDRs per package or 3 SDR per kg
whichever is higher.
• For delay 2.5 times the freight payable on the delayed goods.
• Notice of loss to MTO operator/ ocean carrier: 7 days from date of
delivery and suit within 2 years from the date of delivery/2 years
ought to have been delivered.
• Yet to be enforced in absence of ratification by signatory member
states.

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WELCOME TO THE WORLD
OF
THANK YOU SAMIRAN LAHIRI
s.lahiri@ppib.in/
samiran.lahiri@gmail.com

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