Marine Insurance in International Trade-Part V

In this article, we shall study what is the Institute Cargo Clauses, and what it covers.

Institute Cargo Clauses:  Historically, London has been the center for marine insurance business, and many of the customs and practices, as well as guidelines relating to this trade have originated from here.

Of  such guidelines, one of the most important one  relates to the extent of risk coverage offered by various marine insurance policies, as laid down in the Institute Cargo Clauses, A, B, and C.   These guidelines have been accepted by several marine insurance organizations across the globe.   The risks covered under these clauses, and the exclusions thereof, are discussed below.

Institute Cargo Clauses-A:  This clause provides the maximum coverage against the risk of loss or damage to the insured cargo.   Because of its very wide scope and application, it is also called “all risks” coverage.

The coverage offered by this type of policy includes loss or damage by fire and explosions, that are not so rare on ships.   It covers the risk of the ship being sunk, grounded, stranded, etc.   Also covered here is the risk of collision between two vessels, the discharge of cargo at a port of distress etc.   That apart, it also covers loss or damage on account of jettisoning of the cargo.   As can be seen, the coverage offered under clause A is quite comprehensive.

Exclusions:  The following are the exlusions applicable to Clause A.

1)  Willful Misconduct:  Willful misconduct of the assured in relation to the insured cargo may nullify the policy, thereby releasing the insurer from his liability to the insured.   If the assured acts in a manner that has the effect of causing loss or damage to his own property, then he loses the protection of the insurance coverage for that cargo.

2)  Ordinary Losses:  Often, cargo, depending on its nature and constitution, undergoes changes in its quantity and or quality, thereby reducing its value.  Similarly, leakage is inherent in certain types of cargo like oil.   Further, certain cargo suffers wear and tear in the course of voyage, without any deliberate action towards this end.   Such losses are excluded from the scope of this clause.

3)  Improper Packing and Loading:  Many a time, shippers do not ensure proper packing and loading of the insured goods, resulting in loss or damage, in the course of the voyage.   Such losses care not covered under this clause.

4)  Inherent Weaknesses:   Certain types of cargo suffer certain inherent weaknesses, that may render them vulnerable to loss or damage.  Insurers would not be responsible for such losses.

5)  Delays:  The insurer is not responsible for loss or damage that can be attributable to delays, even though such delays may be a result of risks that are insured.   For example, a ship may stall on account of mechanical problems, resulting in the fresh fruit cargo on board going bad.

6)  Insolvency, etc., of Carrier:  Loss or damage to the insured cargo, on board a vessel, whose owner is insolvent, bankrupt, or otherwise in financial default, cannot make the insuere liable to settle the claim of the shipper in respect of such cargo.   Financial distress of the carrier affecting the well-being of the cargo, does not make the insurer liable to compensate.

7)  Deliberate Action:  Deliberate actions to cause loss or damage to the insured cargo relieves the insurer of his liability toward the insured.   Deliberate destruction or damage of the cargo is a criminal offence, and cannot be allowed to result in a pecuniary gain to the insured.

8)  War, Civil Disturbance, etc.:  Outbreak of war, or civil disturbances resulting in loss or damage to the insured cargo will not be underwritten by the insurer.   However, some insurers do allow coverage for cargo even under such circumstances, on payment of additional premium.   The current unrest in Thailand, is a case in point.

9)  Un-Seaworthy Vessels etc:  Where the deployment of vessels that are not seaworthy, etc., results in loss or damage to the insured, the insurer would not be liable under the policy to compensate for any loss or damage to the cargo.

                                                                                   To be concluded