Cargo insurance provides coverage against physical damage or loss of goods during shipping, whether by land, sea or air. Because of the many dangers inherent in shipping, most individuals and businesses choose to insure their goods while they are in transit. However, many different types of cargo insurance are available, and it is important that you know exactly what you want before taking the insurance, or you may not be covered for every eventuality.
Is Insurance Necessary?
Insurance is necessary because of various laws that limit the liability of carriers. For example, the Hague/COGSA Act limits the liability of shipowners to $500 per unit, and also relieves shipowners of all liability in the event of one of 17 events occurring. These include war, acts of God, strikes, riots, acts of the pilot or crew and attempts to save life at sea. For air carriers, the Warsaw Convention limits liability to $9.07 per pound for international shipments and just $0.50 per pound for domestic shipments. To recover his full loss, a shipper must insure his cargo.
All-risk offers broad coverage against loss or damage from external causes. Although it is called all-risk, most policies exclude many types of damage from coverage. These may include damages from improper packing, infestation, rejection by customs, abandonment of cargo and employee dishonesty, among others. It is very important with all-risk coverage that you examine your policy carefully to determine what types of loss are not covered. The advantage of all-risk coverage is that it is not necessary to first prove the carrier's liability to claim damages. The insurance will pay out regardless of who is at fault.
Free of Particular Average
Free of particular average cargo insurance covers loss from specific perils. In ocean shipping the exact losses covered may also depend on where on the ship the cargo is stored -- whether it is on deck or below deck. Perils covered usually include sinking, heavy weather, burning, collision, earthquake, derailment, fire, theft and nondelivery.
This type of coverage is used only in marine cargo insurance. General average insurance covers situations in which only partial loss of the ship's cargo occurs. For example, when a fire destroys part of the cargo, or when one container is lost overboard in a storm. General average insurance requires all the owners of cargo on the ship to contribute to the compensation of those whose cargo was lost. Particular average is a similar type of insurance, in which some, but not all, of the cargo owners must compensate the person or company who lost cargo.
Warehouse to Warehouse
Most cargo insurance offers warehouse-to-warehouse protection. This means that the insurance covers goods from when they leave the shipper to when they arrive at the buyer's warehouse. However, beware that the insurance may not take effect until the goods are placed on the ship, plane, train or truck and it may not cover goods after they have left the vehicle and entered the warehouse or customs shed. This type of coverage also may not cover any goods that are picked up and brought to the shipper by another party, such as a courier.