There is so much to cargo insurance or, as some may say, marine insurance. Not only does each different boat and ship fall under a different category, but each and every boat and ship has an insurance history. And before we get into the very exciting part that you’re probably biting at the bit to read, the cargo clauses, here’s a little bit of marine insurance history to get you even more intrigued in our industry.

The first marine policy or “Polizza” as they called it, was introduced in Italy in a lovely little port city called Geona in the late 1300’s. The first risk carriers who issued policies were wealthy independent individuals who would insure the marine adventures around the world. Storms, piracy and sinking ships were some of the real dangers the ship owners had to face back in the good ol’ days.

During the year of 1666 there was a quaint coffee shop in London. The owner of this cafe’ went by the name of Mr Edward T Lloyd, and it was this coffee shop that traders would come to have discussions. Their meetings were mainly about marine matters, adventures and the risks of losing their ships and goods.

In 1871, this coffee house of associated wealthy traders was incorporated into Lloyds of London. It was here that underwriters would accept the marine risk of transporting goods and running of the ships for an agreed price paid up front.

The Marine Insurance Act was eventually passed by Lord Chalmers in 1906 of which still applies today.

Institute Clauses: The accepted standards for Cargo Insurance are the clauses known as “The Institute Clauses”.

Institute Cargo Clauses – A

“This Insurance covers all risk of loss of or damage to the subject-matter insured”

• Major losses such as when a ship sinks or runs aground
• Fire or explosion
• Impact or collision of the ship
• Natural disasters
• Losses caused by the elements
• Sweat, taint or contamination
• Theft or piracy

Institute Cargo Clauses – B

“Cargo Clauses (B) and (C) give a far more restricted range of cover.”

• Fire
• Stranded, grounded, sunk or capsized
• Overturning or derailment
• Collision or contact
• Discharge of Cargo at port of distress
• Earthquake, volcanic eruption or lightning
• General average sacrifice
• Jettison or washing overboard
• Entry of Sea, lake for river water into vessel, craft hold, conveyance liftvan or place of storage
• Total loss of any package lost overboard or dropped whilst loading

Institute Cargo Clauses (C)

“The main differences between Institute Cargo Clauses (C) and (B) are that the following perils are not covered by Institute of Cargo Clauses”:

• Earthquake, volcanic eruption or lightning
• Washing overboard
• Entry of Sea, lake for river water into vessel, craft hold, conveyance liftvan or place of storage
• Total of loss of any package lost overboard or dropped whilst loading onto or unloading from vessel of craft

Exclusion categories are:

• Losses that should not be covered for example Unseaworthiness of vessel.
• Losses which may reasonably be expected for example ordinary leakage, loss damage expense caused by delay, insolvency, or insufficiency of packing or preparation of the subject-matter insured.
• Catastrophic Losses – Loss damage or expense arising from the use of any weapon of war employing atomic or nuclear fission and / or fusion or other like reaction or radioactive force or matter.
• Losses covered elsewhere – This refers to exclusions relating to War and Strikes – Some types of losses are not covered under the Marine Cargo Clauses, for those types of losses separate cover can be bought under the Institute War and Strikes Clauses.

Institute Classification Clause

One of the most important underwriting considerations is the quality of the vessels used to carry the cargo. The “Classification Clause” is always attached to the standard marine policy thus enabling the underwriter to have some control of the vessel used.

Independent bodies known as the “Classification Societies” will examine vessels at regular intervals to report on the state of the vessel and its engines.

Age limits apply to certain vessels of 15 years (Bulk Cargo Vessels 11 years), or for vessels establishing a regular trading route on an advertised schedule, 25 years. A recommended additional premium will apply where vessels falls outside these parameters. This is known as the Overage Scale.

Published by Jonathan King