Principles of Cargo (Marine) Insurance



Principles of Cargo (Marine) Insurance

The cargo (marine) insurance works on the principles of insurable interest, utmost good faith, and indemnity.

Utmost Good Faith

The principle of utmost good faith is indispensable in any insurance contract. Under the open policy the insurer usually knows only of the shipments made by the exporter after the receipt of the insurance declaration form and/or the copy of the insurance certificates. Under such circumstances, a consignment may have reached the importer in:

• good condition, that is, without sustaining any loss or damage, before the insurer knows of such consignment. If the exporter knows that the consignment has safely reached the importer and deliberately does not declare such consignment in the insurance declaration form in order to avoid paying the insurance premium, such action is a breach of good faith. Consequently, the insurer may cancel the insurance policy issued to the exporter when the exporter's bad faith is known.
  
  
• bad condition, that is, sustaining loss or damage, before the insurer knows of such consignment. Whether or not the exporter knows that the consignment has not safely reached the importer and fails to declare such consignment in the insurance declaration form, the insurer is liable to pay for the loss or damage out of good faith.

Indemnity

Cargo insurance is a contract of indemnity, that is, to compensate for the loss or damage in terms of the value of the insured goods. The amount insured as agreed between the insurer and the assured forms the basis of indemnity.

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Institute Clauses

The Institute Clauses of the Institute of London Underwriters, often referred to as the London Clauses or English Clauses, form the basis of the cargo insurance contract in many countries.

In U.S.A. and some other areas, the Institute Clauses of the American Institute of Marine Underwriters, often referred to as the American Institute Clauses or American Clauses, are used. The American Clauses and the London Clauses can be different from one another.

The most common Institute Clauses include the Institute Cargo Clauses, Institute War Clauses, Institute Strike Clauses, and Institute Air Cargo Clauses.

Institute Cargo Clauses

The Institute Cargo Clauses specifically excludes the risks of war (in the F.C.&S. Clause---Free of Capture and Seizure Clause) and the risks of strikes, riots and civil commotions (in the F.S.R.&C.C. Clause---Free of Strikes, Riots and Civil Commotions Clause). The risks of delay in delivery and inherent vice are not included in the Clauses.

Institute War Clauses (Cargo)

The Institute War Clauses (Cargo) specifically exclude the loss, damage or expense arising from any hostile use of any weapon of war employing atomic or nuclear fission and/or fusion or other like reaction or radioactive force or matter. The Clauses cover:

• the risks excluded in the Institute Cargo Clauses by the F.C.&S. Clause;
  
  
• the loss of or damage to the interest insured caused by: hostilities, warlike operations, civil war, revolution, rebellion, insurrection or civil strife arising therefrom; mines, torpedoes, bombs or other engines of war;
  
  
• the general average and salvage charges incurred for the purpose of avoiding, or in connection with the avoidance of, loss by a peril insured against by these clauses.

Institute Strike Clauses (Cargo)

The Institute Strikes, Riots and Civil Commotions Clauses is commonly referred to as the Institute Strike Clauses.

The insurance covers the loss of or damage to the property insured caused by strikers, locked-out workmen, or persons taking part in labor disturbances, riots or civil commotions, and persons acting maliciously. However, it does not cover the loss or damage proximately caused by delay, inherent vice or nature of the property insured and the loss or damage caused by hostilities, warlike operations, civil war, revolution, rebel-lion, insurrection or civil strife arising therefrom.

Institute Air Cargo Clauses (All Risks)

The Institute Air Cargo Clauses (All Risks) are used specifically in air freight. The terms and conditions of cover closely follow the Institute Cargo Clauses (All Risks) revised to suit air shipments. The Clauses exclude sendings by Post (i.e., postal shipments not covered).