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marine cargo open policy handbook published by the Insurance Council of New Zealand on behalf of its members

Marine Cargo

Open Policy Handbook

This booklet is designed to assist exporters and importers. We hope you find it useful.

Contents
1 2 3 4 5 6 7 8 9 What is a marine cargo open policy? Terms of Sale: important definitions Terms of sale: how they work Advantages of a marine cargo open policy Important marine cargo open policy terms Period of insurance What risks can be covered? Policy extensions Methods of declaring shipments to the insurer Page 4 4 5 6 6 7 8 8 9 9 9 10 11

10 Lower premiums through excess 11 Charging premiums under marine open policies 12 Advantages of insuring in New Zealand Specimen proposal form

Detailed index next page

Index
Section Advance loss of profits (machinery transit) Advantages of a Marine Open Policy Advantages of Insuring in New Zealand Basis of Valuation Bottom Limit (maximum sum insured) Charterers Liability Classification Clause Deck cargo Declarations - Imports - Exports - New Zealand Transits 8 4 12 5.4 5.1 8 5.3 7.2 9.1 9.2 9.3 8 6 8 10 8 6.1 5.2 10 6 5 11 8 8 3 8 8 2 3 6 6 1 7 Page 8 6 10 6 6 8 6 8 9 9 9 8 7 8 9 8 7 6 9 11 8 6 9 8 8 5 8 8 4 5 7 7 4 8

Difference in clauses (CIF importer) Duration of Insurance Duty Excess on Policies Extensions Available on Marine Cargo Open Policies Insurable Interest Location Clause Lower Premium Rates Marine Cargo Open Policy specimen proposal form Period of Insurance Policy Terms Premium Charging Rejection/expenses Returned goods Risk, responsibility for goods Sellers Interest (FOB exporter) Strikes Diversion Terms of Sale: important definitions Terms of Sale: how they work Transit Clause Warehouse to Warehouse Clause What is a Marine Cargo Open Policy ? What Risks can be covered ?

What ia a Marine Cargo open policy


The merchant agrees to declare details of all shipments falling within the scope of the policy, and the insurance company agrees to insure such shipments, according to the terms and conditions of the policy.

A marine cargo open policy is the agreement between a merchant and the insurance company to insure all goods in transit falling within that agreement for an indefinite period, until the agreement is cancelled by either party. The policy specifies: the general description of the goods the countries or places to or from which the goods will be insured the maximum value payable under the policy how the goods will be valued the conditions of insurance.

Terms of sale: important definitions


2.4 CFR (Cost and Freight) The seller is responsible for all charges incurred to the place of discharge, except for loss or damage after they have been delivered unto the custody of the shipowner at the place of shipment or point of FOB. It is the buyers responsibility to insure the goods once they are delivered to the place of shipment or FOB until they reach their final destination. 2.5 CIF (Cost, Insurance, Freight) The sellers responsibilities are the same as for CFR sales, except that the seller arranges insurance to the final destination of the goods, providing cover in terms that are usual to the trade. The buyer pays for and takes title to the policy when the goods are paid for. 2.6 FIS (Free Into Store) The seller is responsible for all costs and risks until the goods are delivered to the buyers warehouse. The buyer does not need to arrange insurance at all.

2.1 EXW (Ex Works) The buyer is responsible for all costs and risks from the time the goods leave the sellers warehouse until they arrive at their final destination. 2.2 FAS (Free Alongside Ship) The seller is responsible for all charges until the goods are alongside the ship. (The definition of alongside ship varies from port to port. It may mean customs warehouse, ships storage shed and so on.) The buyer is responsible for all costs and risks from that point until the goods arrive at their final destination. 2.3 FOB (Free On Board) The seller is responsible for all costs and risks until the goods are on board the vessel. The buyer is responsible from then on.

Terms of sale: how they work


of the exporter and importer. Risk responsibility for goods passes at different stages of transit, according to the terms of sale. This is a general terms.

In commerce, sales are made under internationally recognised terms of sale. These have been defined in detail by the International Chamber of Commerce in their booklet No. 460. This sets out the rights and responsibilities Terms Ex Works (EXW) Free Carrier (FCA) Risk transfers

Insurance covered by Buyer from sellers warehouse Buyer (Seller up to the carrier) Buyer (Seller up to the ship)

When goods have been placed at the disposal of the buyer When goods have been delivered into the custody of the carrier When goods have been effectively delivered alongside the ship at the named port of shipment When goods pass the ships rail at port of shipment As for FOB, but the seller prepays freight to destination When goods cross ships rail at port of shipment When goods put at disposal of buyer at named place at frontier When goods delivered into custody by first carrier who undertakes carriage from place of departure When goods put at disposal of buyer at named place of destination When goods accepted duty paid at the buyers warehouse (not an internationally recognised term of sale)

Free Alongside Ship (FAS)

Free On Board (FOB) Cost and Freight (CFR) Cost, Insurance, Freight (CIF) Delivered at Frontier (DAF) Carriage Paid to... (named point of destination) (CP) Delivered Duty Paid (DDP) Free Into Store (FIS)

Buyer (Seller up to the ship) Buyer (seller up to the ship) Seller (Insurance policy sold to buyer with cost of goods) Seller (To frontier) Buyer (From frontier) Buyer (Seller until delivered into custody by first carrier)

Seller

Seller

Advantages of a marine cargo open policy


reserve the right to withdraw war risks cover following seven days notice) The cost of insurance is usually lower than if separate policies are arranged It avoids the need to arrange separate policies for each shipment Exporters are able to offer insurance in the cost of goods when negotiating sales The method of premium payment can be tailored to the customers needs: annual adjustable; quarterly; or monthly declaration.

4.1 It provides guaranteed cover at prearranged rates arid conditions 4.2 Flexible policies are tailored to suit the customers individual needs 4.3 Insurance protection starts from the moment goods are at the risk of the merchant 4.4 Losses are covered even if they occur before details of the shipments have been given to the insurer 4.5 The policy remains in force indefinitely until cancelled, usually by either party giving thirty days notice of cancellation (insurers

4.6 4.7 4.8 4.9

Important marine cargo open policy terms


Standard/Class. An additional premium may be payable for transits on other ships. 5.4 Basis of Valuation Commercial shipments are normally insured on the basis of the invoice value plus all transit and other known costs, plus a percentage to cover hidden costs and a proportion of the buyers expected profit. This value could be shown as CIF plus 10%. The agreed basis is noted on the policy so that if a declaration is accidentally overlooked, a loss will remain automatically covered for the value agreed. This valuation is also used by the merchant when declaring details of shipments to the insurer. When insuring imports, often two valuations are often noted on the policy. One applies to FOB orders (for instance, FOB plus 30%) and the other to C & F orders (for instance, C & F plus 10%). The percentage added should be enough to cover freight as well as other costs for FOB orders. Having two valuations makes it easy for the merchant to decide which value is declared to the insurer. 6

5.1 Maximum Sum Insured The policy shows a figure which is the insurers maximum liability for a claim in any one conveyance. The customer should make sure that the value shown is enough to cover the value of the largest shipment and double this figure to cover the possibility of two shipments being sent in the same conveyance. 5.2 Location Clause This clause limits the maximum amount payable from one accident or series of accidents occurring in one location; for example, before shipment. It is usually but not always the same amount as the bottom limit. 5.3 Classification Clause The type or age of a ship is important when fixing the rate of premium. However the names of ships carrying goods are not usually known when fixing premium rates for a marine cargo open policy. This clause provides that the pre-agreed premium rate for the marine open policy refers to goods in transit in ships under a certain age and up to a certain

Period of insurance
6.2 From Section 3, you will see that risk responsibility for goods can change at various points during shipment, according to the terms of sale. Although the duration clause shows cover as being warehouse to warehouse, an importer only has this cover if it is purchased on EXW terms. Similarly, an exporter has insurance cover from warehouse to warehouse if the goods are sold on a FIS or CIF basis. 6.3 If an order is supplied on FOB terms, the policy cover for an importer starts from the time that risk responsibility passes to the importer (in this case, when the goods cross the ships rail). 6.4 If a New Zealand exporter sells goods on CIF terms, the cover is warehouse to warehouse. However, if the exporter sells the goods on CFR terms, the risk responsibility is only held until they cross the ships rail and, if the exporter has insured the period of transit from warehouse to ships rail, the cover ceases then. (Section 7 explains how this can be extended). Marine Cargo Open Policy cover can provide wide protection for a New Zealand importer or exporter. Certificates of insurance issued from the master open policy are sub-sets of this cover which comply with the required insurance terms of a specific commercial sales contract. This shows just how flexible a marine cargo open policy can be. Cover automatically starts when it is needed and protects a merchant for as long as is necessary.

The Transit Clause, part of the Institute Cargo Clauses, is explained here: Duration This insurance attaches from time the goods leave the warehouse or place of storage at the place named for the commencement of the transit, continues during the ordinary course of transit and terminates at either: delivery to the Consignees or other final warehouse or place of storage at the named destination, delivery to any other warehouse or place of storage, whether prior to or at the destination named, which the insured decides to use either: - for storage other than in the ordinary course of transit or, - for allocation or distribution on the expiry of 60 days after completion of discharge overside of the goods insured from the overseas vessel at the final port of discharge, whichever occurs first. In the case of specific Institute Cargo and Commodity Clauses (for example Frozen Food Clauses and Meat Clauses), attachment and expiry dates may differ. It is important that attachment and expiry dates are assumed only after consulting the relevant Institute and Commodity Clause. 6.1 To recover a policy under a marine cargo policy, a person must have insurable interest at the time of loss, though the interest may not have existed when the insurance was arranged.

What risks can be covered?


insufficient packing, inadequate storage in a container, inherent vice, or goods deterioration caused by delay insolvency or financial default of the owners, managers and so on, of the vessel. 7.2 Deck cargo, other than goods in containers on container ships, is covered against certain named risks as opposed to the wider conditions of the Institute Cargo Clauses (A) As many types of Institute Clauses are available, so a marine cargo open policy can be tailored to suit your needs.

A variety of risks can be covered but the most common and widest are the Institute Cargo Clauses (A) (formerly known as the All Risks) which cover loss or damage to goods. In addition, War Risks (while on board a seagoing vessel or an aircraft) and physical risks of loss or damage as a result of Strikes, Riots and Civil Commotions may be insured. The War and Strikes risks are rated from an agreed scale to which all insurers are bound. The risks insured are defined in sets of conditions called the Institute Clauses. These are issued by the Institute of London Underwriters. They are understood globally and are used widely. 7.1 Some types of loss are not insured. The main exclusions are loss or damage caused by: willful misconduct of the insured (the merchant) ordinary leakage, loss in weight, wear and tear of goods

Policy extensions
Returned goods Rejection/expenses Charterers liability Duty

The following additional covers can be considered: Advance loss of profits (machinery transit) Strikes diversion Sellers interest (FOB exporter) Difference in clauses (CIF importer)

This is not a complete list. Your insurance advisor can provide you with more information.

Methods of declaring shipments to the insurer


9.2 Exports The exporter usually produces a Certificate of Insurance at the same time other export documents are generated. This negotiable document gives brief details of the shipment, the conditions of insurance and the value insured. It also provides evidence of insurance for banks. 9.3 New Zealand Transits (sales/ sendings) An open policy can be tailored to cover all or just some of a merchants sales or sendings. This is why there are many different methods of declaring the details of goods in transit.

9.1 Imports The most popular method is for the importer to note brief details of shipments on a form supplied by the insurer. The entry is usually made when documents are received from the bank. By using this method the importer knows that details have been declared. Sometimes it is arranged for the supplier to declare shipments direct to the insurer. However, there is a chance that the supplier may forget or perhaps declare the wrong value. It is the NZ merchants responsibility to ensure that every shipment has been declared. In other cases it may be possible for the insurer to use the merchants office system documents as declarations.

10 Lower premiums through excess


When transiting goods inside New Zealand, it is common for carriers to be liable up to $1,500 per unit of goods (Carriers Liability Act 1979). If a merchant sends packages valued at more than $1,500, it is possible to make substantial premium savings if the open policy covering the sending has an excess equal to the carriers liability. Savings can also be made on imports premiums if a merchant agrees to a small excess on the policy, so that minor losses are not claimed against the open policy.

11 Charging premiums under marine open policies


When details of shipments are being declared to the insurer on a regular basis, the insurer usually charges premiums monthly, based on the received declarations. In some cases the premiums may be charged annually. This method usually applies to the insurance of goods in transit within New Zealand, where the merchant estimates the value to be insured for a twelve month period. A deposit premium is charged, calculated on this estimate and an additional/ return of premium adjustment made at the end of twelve months, calculated on the declaration of the actual value of transits made by the merchants accountant.

12 Advantages of insuring in new zealand


12.1 Reduced currency risk New Zealand importers do not have to pay additional overseas funds if they insure the goods. However, if goods are insured by the seller, this increases any exchange rate risks. 12.2 Efficient Claims Service Insurance companies usually have branches throughout New Zealand as well as a network of branches and agents around the world. No matter where a claim occurs, your insurer (or insurance agent) is there to assist and settle claims swiftly. If you ever have to make a claim, you deal with your insurer, not the agent of an overseas insurer. Some overseas insurers do not have agents in New Zealand and you must apply directly to the overseas insurer for settlement. 12.3 Tailored Policies Your insurance policy can be tailored to suit your individual needs. The conditions of insurance policies arranged overseas may not fully cover your needs, leaving a shortfall in protection. 12.4 Competitive Rates If arranged off-shore, insurance rates may contain additional hidden costs loaded by the seller. Your insurer will be pleased to provide you with a competitive quotation for a marine cargo open policy.

10

Specimen proposal form


Application for marine cargo open policy 1. Assured
Registered legal name/title of Assured

2. Address 3. Contact
Telephone Fax:

4 5

Description of Goods Packaging

full details of how goods are packed for shipment and protected against theft, condensation/ water damage etc. (individual countries of origin and destination must be shown) Exports to

ec

Pre FOB Risks:

im

Imports from

Sp

Do you wish to cover the goods from EXW until loaded on to the aircraft/vessel Yes / No New Zealand Sendings: Is cover is required on New Zealand to New Zealand sales/sendings? Yes / No

7 Values
Value shipped over last next 12 months $ Est. value of shipments over next 12 months $ Maximum of risk any one loss, conveyance, location $ Average at risk any one loss, conveyance, location $

Imports: excluding CIF purchases Exports: excluding FOB & CFR Sales Pre FOB Risks: FOB & CFR Exports NZ sales/ sendings:

en

6. Transits

pr op

Goods exported on FOB/CFR terms remain at your risk until loaded on to the overseas conveyance.

os al
$ $

fo r
$ $ $ $ $

11

8. Means of Transport
indicate the approximate proportion by each method Imports: Sea Exports: NZ sales/sendings* rail/road circle as applicable % Air % Sea % % Air Air % % Post Post % % % Own vehicle %

Limited carriers risk/owners risk/declared terms/declared value terms * Subject to the NZ Carriage of goods Act 1979.

9 Terms of Trade

circle as applicable

Imports: Ex Works / F.O.B. / CFR / C.I.F.

10 Basis of valuation

im

en

Exports: Ex Works / F.O.B. / CFR / C.I.F. / F.I.S.

pr op

ec

NZ sales/sendings Imports CFR purchases

os al

Invoice cost to customer Cost and freight plus Cost, insurance, freight plus % %

Sp

Exports

Free into store contracts shall be the value as shown on the certified invoice

11. Name of existing insurer

12

fo r
Post

12. Details of Previous losses as at:


circle as applicable Year Imp/Exp/NZ Imp/Exp/NZ Imp/Exp/NZ Imp/Exp/NZ 20 20 20 20 Claims Paid $ $ $ $ Claims O/s $ $ $ $ Uninsured Losses $ $ $ $

Give details of any losses over $5,000

Do you wish to have a general policy excess in order to gain lower insurance rates: Yes $ No

Sp

14. Any other information to assist assessment of risk:

15. Do you require any other insurance for:


Duty Sellers Interest Advanced Profits Yes/No Yes/No Yes/No

16. Proposal signed by


Date

ec

im

Please note if any NZ sales/sendings are consigned at Limited Carriers Risk terms, any general policy excess selected will apply in addition to the Carriers Legal Liability of $1500.

en

pr op

13. Excess:

os al
13

fo r

Acknowledgements
Grateful acknowledgement is made by the Insurance Council of New Zealand Inc. to: F.A.I. (NZ) General Insurance Ltd General & Cologne Re Management Ltd International Marine Insurance Agency Ltd Lumley General Insurance Ltd MMI General Insurance (NZ) Ltd Munichre New Zealand Service New Zealand Insurance QBE Insurance (International) Ltd Zurich International (New Zealand) Ltd and to the General Accident Insurance Company who originally produced this material.

2006 Insurance Council Marine Committee Members


Peter Cooper Keith Auld John McKelvie Andrew Scrivens Christopher Barrett Gray Ritchie Australis Underwriting Agency Ltd Munich Reinsurance Company of Australasia Ltd Vero Marine Insurance Limited AIG New Zealand Sunderland Marine IAG New Zealand Limited

Published by The Insurance Council of New Zealand Inc. 1998 Reprinted 2006

Insurance Council website:

www.icnz.org.nz