Understanding Marine Cargo Insurance

What is Marine Cargo Insurance?

Shipping goods around the world is not without certain risks. Goods can go missing, or the goods may be damaged during transportation. Even the best carriers and freight forwarders can lose or damage goods while in transit, which means that the business shipping or receiving the goods will need a marine cargo insurance policy in place and the ability to file a freight claim.

A marine cargo insurance policy will cover any losses arising from physical damage to the goods or the loss of goods while they are in transit by any method of shipment by sea, air, or land. A marine cargo insurance policy can also cover the cargo during transfer to a transit warehouse and while the cargo is stored in the warehouse. Therefore, the word'marine’ is a very misleading term, as it implies that the marine cargo insurance policy will only cover goods shipped by sea freight. This is not the case, as a marine cargo insurance policy can cover all methods of transportation.

The Incoterms 2020 rules define the rights and duties between the buyer and seller of transportation and delivery services. The Incoterms clarify who pays for what. They also set out who is liable in the event of any damage or loss of goods in transit. The business with liability can put a marine cargo insurance policy in place to protect the value of their goods against potential losses or damages that can happen while they are in transit during air, ocean, and land shipments.

Do you need Marine Cargo Insurance? | What is Marine Cargo Insurance? | Freight Forwarder Liability |

How to file a claim | Burden of Proof | Receipt and Settlement of the claim

Why Your Company Needs Marine Cargo Insurance

Your business should certainly consider marine cargo insurance if involved in shipping goods globally. These are the main reasons for having a marine cargo insurance policy in place:

Depending on the agreed-upon Incoterms 2020 within the contract, your business may have the obligation to have a marine cargo insurance policy in place for the goods while they are in transit.
Your business, as the owner of the goods, is exposed to the risk of mishandling the goods while they are in transit and high costs following a loss. These risks can be covered by having a marine cargo insurance policy in place.
The goods might get damaged, lost or misplaced. A marine cargo insurance policy will cover these and a wider range of risks to goods whilst in transit.
Marine cargo insurance is usually a contractual requirement, and a marine cargo insurance policy has to be in place.
The contracted freight forwarder or carrier will limit their liability for loss or damage to goods while in their care. Even if the loss or damage is their fault, the available compensation is often insufficient. Therefore, it is good business practice to have your own marine cargo insurance policy in place.
Some sales contracts covered by a letter of credit may require evidence of a marine cargo insurance policy being in place.
A marine cargo insurance policy
will cover the disposal of damaged branded goods following a marine cargo insurance claim.

In many cases, it is not mandatory to have a marine cargo insurance policy to cover goods in transit. However, the owner of the goods would need to set aside substantial funds as a contingency against loss or damage.

ICS Global Services - Insurance Liability

Freight Forwarder's Liability

Many businesses are surprised to discover that the freight forwarder will restrict their liability for damage or loss while in their control. Many freight forwarders follow stringent financial limits set by their trade associations. This is another reason that your business should have its own marine cargo insurance policy in place.

The freight forwarder is only liable if damage or loss occurs through demonstrable mistakes or negligence during transport. Another reason is that your business should have its own marine cargo insurance policy in place.
There are limits to the extent of freight forwarders’ liability and limits to the maximum amount of compensation they are required to pay. Therefore, your business should have its own marine cargo insurance policy in place to cover any shortfall.
Freight forwarders are legally entitled to limit the amount they are liable for, provided that their trading conditions have been agreed upon in advance. Once again, your business should have its own marine cargo insurance policy in place to cover any shortfall.
Freight forwarders' liability insurance does not insure the goods themselves; that is usually the responsibility of the buyer or seller and their marine cargo insurance policy.

Therefore, if the value of the consignment of goods is higher than the maximum amount the freight forwarder is liable for, it is wise to have your own marine cargo insurance policy in place.

How to file a marine cargo insurance policy claim

Complete Loss in Transit

The freight forwarder should immediately notify the owner of the goods of the complete loss of cargo, such as a sea container falling overboard or the theft of the container and the cargo within. The freight forwarder should consult with the owner of the goods in order to take the necessary steps to secure a marine cargo insurance policy claim against the party who has caused the loss.

Loss or Damage Identified Upon Receipt

The receiving business needs a robust process for inspecting all shipments on arrival at their warehouse. The receiving business should have a receiving policy agreed upon with all warehouses for checking cargo receipts, and this should be in accordance with the terms of the marine cargo insurance policy.

The receiving warehouse must check the consignment before signing the receipt (waybill or similar freight document).
The warehouse must inspect the packages carefully and note any slight damage on the package, which can mean serious damage inside.
The warehouse manager or responsible person should sign the delivery receipt or shipping documents after noting damages and have the driver sign it as well.

Notify all parties immediately!

The owner of the goods should notify the freight forwarder of the loss or damage on the day of the loss in writing (by email). The owner of the goods must always make a detailed claim statement (written notice of loss or damage, the provisional claim) in accordance with the terms of the marine cargo insurance policy. The claim must be put forward for settlement under the marine cargo insurance well before the expiration of the time limit for presenting a recovery claim to the freight forwarder. The written notice should state that ‘We hereby reserve the right to claim for loss and/or damage of our goods whilst in the care of your company’.

The email (written notice) should also be copied to the insurance company providing the marine cargo insurance policy by the owner of the goods.

We can guide and support your business through the end-to-end marine cargo insurance claims process.

Burden of Proof

Placing a reserve to claim against the freight forwarder will allow the owner of the goods time to gather the necessary documentation to support their freight claim under the marine cargo insurance policy. The owner of the goods will have the ‘burden of proof’ for the marine cargo insurance claim. Therefore, the owner of the goods needs to verify that:

The cargo was provided to the freight forwarder in full and in good condition.
The specific amount of damage and value of the loss.
The owner of the goods has proof of delivery (POD), photos of the damage, notification of the lost consignment, and the original invoice showing the value of the goods effected.

Anticipating what the insurance company and their underwriters may need during the investigation (photos of the damaged cargo, packing list, signed shipping documents, sales invoice, signed delivery receipt, etc.) will help to process the marine cargo insurance policy claim faster.

We can assist your business to gathering the necessary documentation to support your claim under the marine cargo insurance policy.

Receipt and Settlement of the Claim

Receipt of the claim

After submitting the marine cargo insurance claim, the owner of the goods will have to wait for the freight forwarder and insurance underwriters to investigate the claim. The freight forwarder will normally have 30 business days from the date of the claim submission to acknowledge receipt of the claim. After that, the freight forwarder and insurance brokers normally have 120 days to investigate. The clock is paused, however, when the freight forwarder sends the owner of the goods an inquiry about the incident. Therefore, someone within the owners' business needs to take ownership of the marine cargo insurance policy claim process and manage it until resolution.

The damage or loss will be settled in accordance with the conditions and terms of the marine cargo insurance policy.

We can manage the end-to-end marine cargo insurance policy claim process for your company.

Settlement of Claim

Every marine cargo insurance policy claim is different and dependent on complexity; the claim can take anywhere from 30 to 60 days to process. Submitting supporting documentation promptly can make a significant difference in the duration of a marine cargo insurance claim.

Most insurance companies normally pay the amount of loss or damage within 14 working days from the date of settlement of the marine cargo insurance policy claim, following valid proof of the loss or damage.