The decision of whether or not to insure your freight is not always a clear-cut, simple choice. There are many factors to consider, such as the total value of the goods shipped, the shipping origin and destination, the mode of transportation, etcetera. Once the determination is made, the next question is how to insure the shipment.
LEGAL LIABILITY
When transporting goods with a carrier, a shipper is granted a minimal amount of coverage in the event of loss or damage in transit. The coverage is called legal liability and it is the legal obligation of a carrier to provide remuneration in the event of loss or damage of goods they are transporting. Limitations vary by mode and are established by international/domestic treaties.
For domestic shipments the coverage is equal to $0.50/LB with a $100.00 minimum provided the cost of the goods is greater than $100.00. In the case of partial loss/damage, only the lost or damaged portion of the freight is subject to the claim settlement amount of $0.50/lb. For international shipments the legal liability set forth by the Warsaw convention is $20.00/kg or the actual value of goods if less than $20/kg. For international sea freight shipments the legal liability limit is $500 per customary shipping unit. (FCL: 1 container = 1 shipping unit, LCL: shipping units = piece count on the Ocean Bill of Lading)
When there is partial damage/loss, the legal liability settlement is based on the weight or number of units (sea) of the damaged/lost pieces(s), not the total shipment.
CARGO INSURANCE
An all-risk cargo insurance policy is the broadest form of shipping insurance and will cover any physical loss/damage from any external cause. The purpose of such a policy is to provide the insured party or individual with reimbursement should the cargo not arrive safely to its destination. Premiums are based on commodity, value, destination and mode of transport.
Priority Worldwide’s Standard policy provides simple, standardized pricing for virtually all scenarios. Coverage limitations can occur based on:
- Cargo values greater than policy limitations
- Certain commodities are not covered or have limited coverage
- Certain countries have no coverage or surcharges
Coverage can be secured when policy limitations occur:
- Costs may vary
- Deductibles may be incurred
- Limitations to coverage can occur
- Security or transit provisions may be put in place
CARGO INSURANCE OF GOODS ONLY
All risk cargo insurance that covers the replacement of goods only. Insurance coverage is equal to the commercial invoice value. Replacement is equal to the repair or replacement cost, not to exceed the insured value.
For most destinations and commodities, Priority sells insurance for $.60 / $100.00 insured value.
Sample Insurance Calculation
Insured Value: $100,000.00
Insurance Cost: $600.00
CARGO INSURANCE OF GOODS + SHIPPING CHARGES
All risk cargo insurance covers the replacement of goods, freight, insurance expense and freight related incidentals. This is the most comprehensive and the only type of insurance Priority recommends.
Insurance coverage is equal to the (commercial invoice value + cost of insurance + the cost of freight) * 110%.
Replacement is equal to the repair or replacement cost and covered incidentals, not to exceed the insured value. Recoverable freight charges may be prorated based on the portion of the shipment damaged in the case of partial loss/damage. If there is damage and the repair occurs at the final destination of the goods (consignee’s facility), no freight charges are refundable.
For most destinations and commodities, Priority sells insurance for
$.60 / $100.00 insured value.
Sample Insurance Calculation
Insured Value: $100,000.00
Insurance Cost: $600.00
Freight Cost: $1,400.00
= $102,000 x 110% = $112,200 total insured value
Total Insurance Cost: $673.20
GENERAL AVERAGE
General Average is unique law that applies to the global maritime industry that can directly impact a cargo owner, regardless of damage to your own consignment. The principal is meant to share the risk/loss that may occur when steps are taken to prevent the total loss of a vessel, crew and/or its cargo.
When general average occurs the vessel owner is no longer responsible for any cargo loss or damage. Every cargo owner on the vessel becomes responsible in a proportionate part for the loss of others cargo and the vessel itself.
There are many situations that can cause a general average claim, but most often include instances where cargo or ship material is thrown overboard to lighten a load. This may be due to severe weather, grounding, etc. Other instances can include fire, collision or other events that may jeopardize the vessel.
When a general average claim applies all cargo is seized and can generally only be retrieved when the cargo owner puts a security deposit or bond in place. The claim amounts can be substantial, and the resolution can take years.
The purchase of All Risk Cargo insurance includes coverage for general average claims, including the security bonds needed to retrieve seized cargo.
UNDER/OVER INSURANCE
It is important to insure goods for the proper value. If a shipment is underinsured then the claim will only be paid to the percentage that the shipment was insured.
If a shipment is over insured you are not able to get coverage beyond the repair/replacement costs. The result is an overpayment of premium.
Sample Insurance Calculation
Goods Value: $10,000
Insurance Value: $5,000
Damaged repair cost: $4,000
The insurance was purchased at 50% of the goods value;
therefore, 50% of the claim amount will be paid.
Claim Payment: $4,000 x 50% = $2,000 payment
WHAT TO DO WHEN THERE IS DAMAGE
Proper notation on shipping documents and notification to the appropriate parties is essential to ensure the ability to process a claim. Like all insurances, payment of the premium and freight charges is required in order for coverage to be confirmed and a claim to be filed and ultimately settled. As an example, if you don’t pay your auto insurance and get into an accident then you don’t have any coverage.
If damage is noted on the bill of lading at the time of delivery, then the claim must be submitted in full within 270 days of actual delivery. It is not necessary to refuse a shipment if proper damage is noted. Priority Worldwide should also be notified immediately.
If damage is not notated on the bill of lading at time of delivery (concealed damage), then Priority Worldwide must be notified within 24 hours of delivery. When concealed damage occurs the burden of proof is on the insured party prove that the damage was shipping related.
KEY POINTS
- Priority Worldwide facilitates the purchase of insurance for a client as a broker. Priority Worldwide IS NOT AN INSURANCE CARRIER NOR DO WE DICTATE COVERAGE/PAYMENTS.
- Cargo insurance provides coverage for goods in transit and incidentals related to the damage. (freight, inspection fees, etc.) It cannot be secured to cover a deductible on a policy, etc.
- Freight Charges and Insurance Premiums must be paid or there is no legal liability or insurance coverage!
- Payment for loss or damage is predicated on the cargo being packaged appropriately for transport.
- Damages must be reported within the prescribed timelines to be eligible for claim payment.
WHY IS IT IMPORTANT
- It Happens: Cargo is highly susceptible to damage, loss and/or theft. You need to be prepared.
- Cost: The cost of insurance is very low compared to the costs in the event of loss or damage.
