Cargo Insurance


Why should I get marine cargo insurance?

Cargo insurance is an important decision when you are shipping or transporting goods. Importers and exporters are exposed to financial impact if the shipment is lost or damaged during transportation. Keep in mind cargo may be affected by an accident or a natural disaster at any of the points from origin to destination.

As a seller of the goods who has not received payment or as a buyer who has already made an investment in the goods, you are at risk without adequate cargo coverage.

Ocean, air and inland carriers have limits of liability. Only if proven the carrier’s negligence caused the loss, carriers will pay up to the limits of the liability established on their tariff. The liability of ocean carriers transporting goods to or from the United States is limited under the Carriage of Goods by Sea Act (COGSA) at $500 per package or customary freight unit. For example, if you ship a vehicle valued at $40,000 without insurance, even if you are able to demonstrate the ocean carrier was at fault for physical damages, the maximum liability of the carrier is $500.

The process of obtaining a resolution after filing claim with a carrier can be lengthy. Keep in mind carriers are not liable for damages caused by natural disasters or for what is known in the shipping industry as “Acts of God”. Some cargo may be less prone to loss or damage than others however the risks of theft, a ship sinking or weather events still exist. In addition, there is the risk of General Average.

Having adequate cargo insurance protects business relationships with your vendors, buyers and the carriers you select.

What is the difference between a single shipment (one-time) policy and an open cargo policy?

A Special Cargo Policy, a Single Shipment or One-Time Policy, as the name implies, offers coverage for a single shipment.

An Open Cargo Policy (OCP) benefits businesses with frequent shipments. There is one policy that explains the coverage terms and conditions for all the shipments covered under the contract. It contains an agreement made between the insurance company and the assured about the method of reporting and premium payments. The policy is open until canceled by either party.

What is General Average?

When a vessel owner declares general average, the general average expenses are shared on a pro-rata basis by all parties involved in the sea venture. Even if your cargo did not suffer damages, as a cargo owner, you will be required to post a bond or cash deposit before your goods can be released.

With cargo insurance, the insurance company assumes the responsibility. The involvement of an experienced insurance company is beneficial because the transactions to expedite the release of cargo can be very tedious and complicated.

The following are essential elements of a General Average:

  • Due to imminent danger, there must be an extraordinary sacrifice to save the voyage in order to preserve the other interests involved in the common venture
  • The act has to be reasonable, intentional, voluntary and declared by the vessel owner
  • The sacrifice must be successful

An example of an act that can trigger a General Average would be an engine breakdown, vessel grounding and a host of other incidents.

Why can't I just rely on the carrier to reimburse me for loss or damage to my goods?

  • All carriers have limits of liability.
    • As per the Carriage of Goods by Sea Act, ocean carriers have a limit of liability of $500 per customary shipping unit. The container could be considered a customary shipping unit.
    • To determine the air carriers’ liability, you must understand the terms under the Warsaw Convention or the Montreal Protocol No. 4 (MP4). Under the Warsaw Convention, the limit of liability is approximately $9.07/lb. for the majority of international air shipments.
    • Inland carriers are generally limited to $0.50/lb., but this varies by commodity and carrier.
  • Carriers’ are only responsible for loss or damage due to their own negligence and only while cargo is under their care, custody and control. You must prove the carrier caused the loss. Even if the carrier is proven liable, the responsibility is limited.
  • If a General Average is declared, the carrier is not responsible for your contribution.
  • Carriers are not responsible for damages caused by a natural disaster (for example a storm or earthquake).


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