Most of the information in this section has been taken from "The International Freight Guide" with the kind permission of the British International Freight Association.

Why does a shipper need Insurance?
Insurance Terms and the Insured Person's Duties
Insurance in relation to trade terms
Insurance for the freight forwarder/carrier

Insurance terms and the insured Person's Duties

The duty of utmost good faith

All insurance contracts are contracts uberrimae fidei, i.e. of utmost good faith. The underwriter will rarely be in a position to check the accuracy of statements made by the insured person and it is an absolute rule that the insured person must declare all material facts if it would influence the judgement of a prudent underwriter in deciding the premium or whether to accept the risk at all. If in doubt, it is prudent to declare all known facts as failure to declare material facts could result in the underwriter declaring the policy void.

The duty to act as though uninsured

Buying an insurance policy does not entitle the insured person to sit back and take no further interest in the fate of the goods. He must continue to behave as though uninsured and at all times protect the interests of his insurer. This duty requires the insured person to:

1. Pack the goods in a secure and proper manner. An insurer only insures risks and not certain disaster, which is the natural outcome of insufficiency of packing.
2. Select employees and subcontractors with care. This is particularly important as regards drivers of road vehicles.
3. Maintain adequately any vehicles or equipment used in the business.
4. Give notice of loss or damage to carriers within the latter's time-limits. It is most important that the insurer's subrogation rights should not be nullified by a late notice. Where the sender relies on the consignee to inform him of damage, it should be made clear in the terms of sale that the consignee must do this immediately.
5. Make a claim on the policy without delay and forward to the insurer a copy of all correspondence which has passed between the exporter and the carrier together with other supporting documentation.

Insurable interest

In order to be able to rely on the policy, the insured person must be able to show that he or she has an insurable interest in the goods. The Marine Insurance Act 1906 states that there will be an insurable interest if the insured person stands to benefit by the "safety or due arrival of insurable property or may be prejudiced by its loss or by damage thereto or by the detention thereof or may incur liability in respect thereof". The material time for deciding whether an insurable interest exists is the time of the loss itself not the time when the policy is taken out. In order to recover ancillary costs, it is common to insure for the invoice value of goods, the amount of the freight and insurance plus 10% (CIF + 10%).

Definition of marine insurance

The marine insurance contract is defined in the Marine Insurance Act 1906 as a contract whereby "the insurer undertakes to indemnify the Assured in manner and to the extent thereby agreed against marine losses". However a "marine" policy can be extended to cover all risks of land journeys which are ancillary to a sea journey and this has given rise to the "warehouse to warehouse" type of policy which covers goods from the time they leave the exporter's warehouse until they are received at the importer's premises at final destination.

Excesses and franchises

Many policies now carry an excess. The insured person in effect self-insures up to the amount of the excess on each and every claim. As a quid pro quo the premium is set at a lower level than would otherwise be the case. The insured person may prefer to accept a franchise as an alternative to an excess (or "deductible", as an excess is referred to by North Americans). In the case of a franchise, no claim will be payable until it reaches the level of the franchise, but once it has done so it will be paid in full without deduction. Again, a reduced premium will be payable. The saving to the underwriter which allows a reduced premium to be charged is that small claims, which are relatively costly to administer, are eliminated. The insured should not suffer if the franchise is set at a reasonable level because the time taken with his paperwork for a small claim is not cost effective either.

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