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Printed 1st June 2014

A - Z of Insurance

Printed in England and issued by

GAFTA
THE GRAIN AND FEED TRADE ASSOCIATION
9 LINCOLNS INN FIELDS, LONDON WC2A 3BP
A - Z OF INSURANCE
Acknowledgements and thanks are due to the GAFTA Insurance Sub-Committee who produced the following guidance
notes for the benefit of GAFTA Members, to assist them when trading under the terms and conditions of the GAFTA
Form 72, Insurance Clauses.

The notes are not intended, nor should they be taken, as being a contractually binding interpretation of the specific
clauses contained in the GAFTA Form 72. Whilst every care has been taken in the preparation of these notes which are
believed to be accurate, neither the Association nor its officers nor the Insurance Sub-Committee can accept any
liability whatsoever resulting from any error, mis-statement or omission therein.

Abandonment:
Where there is a constructive total loss, the assured is entitled to abandon the subject matter to claim a Total Loss. A
notice of abandonment should be given by the assured to the insurer/underwriter. An insurer/underwriter is not
obliged to accept abandonment, but if he does he will pay the assured the full sum insured and will also be responsible
for the subject matter and will incur any liabilities attaching thereto.

Act of God:
A fortuitous accident occurring through forces of nature, and which could not have been prevented by reasonable
precautionary measures.

Actual Total Loss:


This relates to an insurance policy and can occur in any of four ways:
(1) The subject matter is completely destroyed or lost;
(2) The owner is irretrievably deprived of the subject matter;
(3) Goods change their character to such a degree that they can be said to be no longer the thing insured by the
policy (termed "Loss of specie");
(4) The subject matter of the insurance be it ship or goods on board the ship, is recorded as "missing" at Lloyd's.
Abbrev. ATL

Adventure:
The extent of the risk undertaken by the insurer/underwriter in connection with the subject matter and its carriage.

Additional Premium:
The extra amount payable to the insurer/underwriter to cover a different or an additional risk.
Abbrev. A/P or A.P.

All Risks Cover:


If the policy is on an all risk basis, it is generally sufficient for the assured to show that the loss was caused by a casualty
or something accidental. He does not have to prove the exact nature of the casualty or the accident that caused the loss.
See schedule

Assignee:
This is the person to whom the interest or beneficial rights under the policy or certificate have been legally transferred
by way of an assignment. An Assignor is the person who transfers the interest or beneficial rights. An Assignee
acquires no greater rights under the transferred policy or certificate than the Assignor. An assignment has to be in
writing and notified to any third party against whom the assignment is to be relied upon.

Assured:
Is the person who has an insurable interest in the subject matter at risk, which is the subject matter of the insurance
contract.

Average Adjuster:
The person appointed to adjust or assess marine claims in relation to a loss.
See also General Average.

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Barratry:
A wrongful act wilfully committed by the master or crew, without the collusion of the vessel owners, to the prejudice of
the shipowner or charterer. If the subject matter is damaged or lost as a result this would be covered.

Both to Blame Collision Clause:


This is a common clause in contracts of carriage. The assured shall not be prejudiced by reason of being party to a
contract of carriage containing a "Both to Blame Collision Clause".

Capture and Seizure:


Seizure is a term covering every act of forcible possession either by lawful authority or by an overpowering force.
Capture is a narrower term covering the act of seizing or taking by an enemy or belligerent. Note that in cargo
insurance, cover for capture and seizure does not extend to non-hostile seizure, for example where subject matter is
quarantined and/or rejected.

Change of Voyage:
Where the destination is voluntarily changed after commencement of the risk, or an omission or error in description of
the voyage occurs, the Change of Voyage clause confirms the assured is covered at an additional premium. Prompt
notice of any change should be notified to the insurer/underwriter.

Civil Commotion:
An insurrection of the people for general purposes though not amounting to rebellion. The element of turbulence or
tumult is essential.
See also Strikes, and Riots.

Classification:
Insurers/underwriters generally require the assured to agree a classification clause that sets out the
insurers'/underwriters' requirements in respect of the class and age of the carrying vessel. If these minimum
requirements are not complied with by the assured, he may be held covered on terms and conditions to be agreed.

Co-insurance:
Insurance risk taken by two or more insurers/underwriters together, thus sharing the risk between them, each for his
respective proportion.
Abbrev. Co-Ins.

Confiscation, Expropriation, Nationalisation, Deprivation:


Losses from these causes usually arise as a result of a political act, and are not covered unless they constitute an act of
war as covered by the standard war clauses.
Abbrev. C.E.N.D.

Constructive Total Loss:


Occurs where the subject matter insured is so damaged that either:
(a) its actual total loss appears to be unavoidable, or
(b) in order to prevent it from becoming a total loss, expenditure greater than its value when preserved would
have to be incurred.
Abbrev. CTL

Cover Note:
A cover note is a document confirming the existence of an insurance. The cover note states the conditions of the policy,
and states the rates and securities obtained. A cover note is not an insurance policy.

Deductible:
See Excess/Deductible/Franchise.

Deviation:
Deviation is the temporary departure of the vessel from its intended geographical course.

Difference in Conditions:
The need for Difference in Conditions insurance most commonly arises in situations where a party buys goods on

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contractual terms that require the seller to arrange the cargo insurance.

If the buyer is not satisfied with the extent of the insurance cover provided by the seller then the buyer may decide to
arrange additional insurance to cover the difference between what the seller has provided and the level of cover that
the buyer would have effected had the contract of sale placed the onus on the buyer to arrange the cargo cover.

Excess/Deductible/Franchise:
These words all represent the amount up to which the assured has to absorb the effects of loss of, or damage to, the
subject matter insured.

The amount of the excess, deductible or franchise may be expressed as a monetary amount or as a percentage either of
the insured value or the quantity shipped.

The application of an excess, deductible or franchise to the amount claimed will produce different results.

An excess should always be expressed in such a way that it is additional to the insured value. Thus, whilst the amount
of the excess will be deducted from any claim, in the event of a total loss from insured causes, the assured receives the
full insured value.

A deductible or a franchise always form part of the insured value but whilst a deductible is always deducted from the
amount of any claim, in the case of a franchise, once the amount of the franchise is reached, an otherwise recoverable
claim will be paid in full.

Franchise:
See Excess/Deductible/Franchise.

Free of Capture and Seizure:


This is one of the clauses in insurance whereby insurers/underwriters are not liable for any loss or damage resulting
from wartime activities and hostilities. In general it is termed "Warranted Free of Capture and Seizure".
Abbrev. F.C&S

Free of Particular Average:


Cover provided under F.P.A is not as comprehensive as a With Average (W.A.) or All Risks policy.
See schedule.
Abbrev. F.P.A

General Average:
This is an internationally recognised rule of the sea, where the ship and cargo (and any freight at risk) are exposed to a
common danger and some part of the ship or cargo is intentionally sacrificed or extra expenditure incurred to avoid or
reduce that danger, then such loss ("sacrifice") or expense can be termed General Average, and might be recoverable in
General Average.

The rights and obligations of a cargo owner in respect of general average are usually determined by the "York-Antwerp
Rules". Normally, the cargo owner will be able to recover its "general average contribution or expenditure" from the
cargo insurer, provided that it does not arise from a peril which has been excluded from the policy.
See also York-Antwerp Rules
Abbrev. G.A.

General Average Bond/Deposit/Guarantee:


The bond, deposit, or guarantee which a cargo owner or his insurer/underwriter may be required to provide to the
shipowner or salvor to secure the cargo's General Average contribution. This is based on an estimate of the cargo
owners contribution (i.e. proportion) of General Average due from him, pending the adjustment being made. The
shipowner or salvor has a right to refuse the release of the subject matter to the consignee until this bond, deposit, or
guarantee has been made.

General Average Contribution:


The contribution which the cargo owner is obliged to make towards a General Average sacrifice or expenditure. This is

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determined by the ratio of the value of the subject matter to the total value of both the ship and subject matter as
saved. The determination of the amount of the contribution is carried out by a general average adjuster usually
appointed by the shipowner.

General Average Expenditure:


Expenditure reasonably incurred in a General Average context as a result of a casualty caused by a "peril of the sea"
such as the cost of the hire of tugs for freeing a stranded ship.
See also Peril of the Sea

General Average Sacrifice:


The voluntary "sacrifice" or disposal of the subject matter at risk in a General Average situation. The disposal must be
made reasonably in order to preserve the remainder of the subject matter. For instance, part of the cargo may have
been jettisoned in order to preserve the ship and/or the remainder of the cargo.
See also Jettison

Good Faith:
In Latin the expression is Bona Fides. Good Faith is one of the most essential characteristics in an insurance contract. If
utmost good faith (Latin: Uberrimae Fidei) is not observed the contract becomes automatically null and void. This in
effect means the assured has a duty to advise the insurer/underwriter of anything which is material (or important) to
the accurate assessment of the risk.

Heating, Sweating, Spontaneous Combustion:


Where the cargo undergoes an increase in temperature, starts to sweat or catches fire without any external
intervention such as a source of ignition. If the cause of such an occurrence is due to the inherent nature of the cargo
itself, the loss will not be covered by the insurance unless the insurance specifically provides for it. If the insurance
covers H.S.S.C. then the defence of inherent vice is not available to the insurer/underwriter if the loss is proximately
caused by heating, sweating or spontaneous combustion of the cargo and the insurer/underwriter must pay. (Ref: Soya
GMBH v White [1983] 1 Lloyds p122)
Abbrev. H.S.S.C.
See also Inherent Vice, and Proximate Cause

Increased Value:
Where the insured value of subject matter is increased by means of separately arranged increased value insurances
then the agreed value of the subject matter is deemed to be the sum of the primary insurance and all such increased
value insurances.

In the event of a claim covered by the terms and conditions of the policy, the liability of the individual insurances to
respond shall be in the same proportion as the amount insured on the individual policies or certificates bears to the
total insured value.

Inherent Vice:
A characteristic inherent in subject matter which produces damage to the product without the involvement of an
outside agency but by its own action alone. The Marine Insurance Act, 1906, in Section 55, excludes losses proximately
caused by the inherent vice or nature of the insured subject matter, unless the policy specifically includes the peril.

Insurable Interest:
An assured has an insurable interest if he legitimately stands to lose or gain by the arrival of the insured subject matter
at its destination.

Insured Value:
This represents the economical value of the subject matter insured and is agreed between the assured and the
insurer/underwriter.

GAFTA contracts foresee that the insured value should be for not less than 2% over the invoice amount, including
freight and including the amount of any premium payable by Buyers.

International Association of Classification Societies:


An association of Classification Societies including the following (as at the date of this A-Z publication):

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ABS - American Bureau of Shipping
BV - Bureau Veritas
CSA - China Classification Society
GL - Germanischer Lloyds
KR - Korean Register of Shipping
LR - Lloyd's Register
NK - Nippon Kaiji Kyokai
NV - Norske Veritas
KM - Polish Register of Shipping
RI - Registro Italiano
RS - Maritime Register of Russia
Abbrev. I.A.C.S.

Jettison:
The voluntary act of throwing overboard cargo and/or ship's rigging or appurtenances in an attempt to remedy a
situation which endangers the adventure.

Lock Out:
The denial of access for an employee to the place of work, by an employer.

Marine Insurance Act 1906:


An English statute that governs marine insurance.

Minimising a loss:
It is a duty of every assured to take all reasonable steps to prevent and/or minimise an insured loss.

No Policy Defence Admitted Clause:


A clause that protects an innocent assured receiving by way of an endorsement the benefit of the insurance cover.
In the event that the original party placing the insurance was in breach of his obligations towards the
insurer/underwriter to act in good faith, or had failed to disclose a material fact affecting the risk undertaken, or
had misrepresented the material facts, or had breached a warranty then normally the insurer/underwriter would
be entitled to avoid cover under the policy. If a no policy defence admitted clause has been inserted, then the
insurer/underwriter agrees that in so far as the claim under the insurance is being brought by an innocent third
party who had no knowledge of the original breach, failure or misrepresentation in question, including a breach of
a statutory requirement such as the carrying vessel's ISM compliance, then the innocent assured shall still be able
to recover under the insurance.

Non-Separation Agreement:
An agreement whereby cargo interests agree with the shipowner to contribute to General Average in the same way as
if the original carrying vessel had carried the subject matter to its destination, notwithstanding that the subject matter
was in fact transhipped at an intermediate port.

Over Age Additional Premium:


An extra premium charged on the subject matter value when the carrying vessel exceeds the age limit laid down in the
Classification Clause.
See also Classification
Abbrev. O.A.P.

Over-Insurance:
Intentional overinsurance is a material fact, which should be disclosed. If the declared value is not reasonable and
there has been no disclosure prior to the policy being taken out then the insurer/underwriter may void the policy.

Particular Average (Partial Loss):


A fortuitous partial loss of the subject matter insured, proximately caused by an insured peril, but which is not a
general average loss.
Abbrev. P.A.

Peril of the Sea:

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This embraces only fortuitous accidents which are peculiarly involved in a sea voyage and caused directly or indirectly
by the sea which could not be foreseen and guarded against by the shipowner as one of the normal or necessary
occurrences on that voyage.

Pilferage:
Theft that takes place in secret and involves the taking only of part rather than the whole of the subject matter.

Piracy:
Theft with violence or threats of violence committed against a ship and/or its cargo on the high seas or in port (but not
inland waterways), including theft by passengers who mutiny, and rioters who attack the ship from the shore.
However, pirates must be pursuing their own private ends rather than acting in pursuit of political gain.

Port of Refuge:
A port which the ship enters or re-enters in consequence of an incident in circumstances which is necessary for the
common safety of the subject matter involved in the adventure. In particular, the ship may enter such a port to undergo
repairs or to re-secure cargo.

Proximate Cause:
The most effective cause of a loss.

Radioactive Contamination Exclusion Clause:


Generally such cover is not available. See schedule.
Abbrev. RACE Clause

Rejection:
The risk that the goods may be rejected by official authorities on the basis of non-compliance with local standards in
the country of import, even though there may have been no loss or damage to the goods themselves. Arrangement of
such insurance is only available with the specific agreement of the insurers/underwriters. Insurers/underwriters do
not readily accept such insurances.

Riots:
For the purposes of insurance contracts, riot has a specific meaning. Five elements are necessary: -

1. A number of persons not less than 12.


2. A common purpose.
3. Execution or inception of a common purpose.
4. An intent on the part of that number of persons to help one another, by force if necessary against any person
who may oppose them in the execution of the common purpose.
5. Force or violence not merely used and about the common purpose, but displayed in such a manner as to alarm
at least one person of responsible firmness and courage.
See also Strikes, and Civil Commotions.

Risk:
The possibility of an occurrence which is capable of happening but is not an inevitable event.

Salvage Award:
An amount awarded to a salvor for services rendered in the salvage of the subject matter in peril at sea.

Schedule:
See Appendix.

Seaworthiness:
In a policy on cargo, there is an implied term* that at the commencement of the voyage the ship will be
seaworthy/cargo worthy. This means that the ship must be fit in all respects to encounter the ordinary perils at sea
contemplated by the adventure insured against. The obligation extends amongst others to the hull, machinery,
equipment, stores, bunkers, ship's officers, management and crew.

Seaworthiness Admitted Clause:

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A clause whereby the insurer/underwriter agrees with the assured to accept that the carrying vessel is seaworthy for
the purposes of making a recovery under the cargo insurance. This does not preclude the insurer/underwriter from
pursuing a claim against the carrier under the insurer's rights of "subrogation".
See also Subrogation

Seizure:
See Capture and Seizure.

*Implied Term a term which does not appear in writing in the policy but is nevertheless inferred by law as a term of the
policy. Terms will only be implied when it is essential in order to give effect to the contract as contemplated by the assured
and the insurer/underwriter. Two main examples in marine insurance of implied terms are that the ship must be
seaworthy at the beginning of a voyage and that the adventure must be legal.
Self-Insurance:
Relates to a risk or part of a risk which is not covered by insurers/underwriters, but for which the assured himself
remains liable.

Spontaneous Combustion:
The propensity of a subject matter to ignite as the result of its natural behaviour without the involvement of any
fortuitous external accident or casualty.
See also Heating, Sweating, and Spontaneous Combustion.

Strikes
A refusal by employees to work, or to work normally, either in the context of an industrial dispute with their employer,
or in support of some other alleged grievance.
See also Riots, and Civil Commotions.

Subrogation:
The right of an insurer/underwriter to take over the rights and remedies available to an assured, following payment of
a claim on the policy from another party who was responsible for the loss or damage. The insurer/underwriter must
account to the assured, for any recovery from such third party, in excess of the insured amount paid.

Sue and Labour Obligations & Charges/Expenses:


It is the duty of an assured to act at all times as a prudent uninsured, and to take whatever steps are reasonably and
properly necessary in order to avoid or minimise an insured loss. Even if such steps are not successful and the insured
loss is not avoided or minimised the assured is nonetheless entitled to recover his sue and labour costs and expenses in
addition to his loss, subject only to the sue and labour expenses being limited again to the value insured.

Sweating:
See Heating, Sweating, Spontaneous Combustion.

Theft:
The dishonest appropriation of the subject matter belonging to another, done with the intention of permanently
depriving the other of it.

Trade Loss:
Inevitable or natural losses arising in the normal course of events are not recoverable under the insurance policy,
unless provided otherwise.

Unseaworthiness:
See Seaworthiness.

Warehouse to Warehouse:
This clause describes the extent and nature of the cover provided. Cover attaches as the goods leave the warehouse or
place of storage at the place named in the insurance and continues in the ordinary course of transit until the goods are
delivered to the warehouse or place of storage at the destination named in the insurance. There must be no voluntary
delay to or voluntary interruption of the transit by the assured. After completion of discharge from the carrying vessel,
the maximum period for the goods to reach their final warehouse or place of storage named in the insurance is 60 days
without any delay or interruption by the assured. Cover ceases as soon as the goods reach the final warehouse or place

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of storage named in the insurance.

The clause specifically provides that delivery to any premises either for storage other than in the ordinary course of
transit or for allocation or distribution will terminate the insurance cover. It is of course open to the assured and
insurer/underwriter to agree to vary these provisions.

War Perils:
These are excluded under Sections 1, 2 and 3 of the GAFTA Form 72, but coverage can be provided separately under
Section 4 of GAFTA Form 72 War Clauses (Cargo). In this context, war perils are given a wide meaning and it is not
necessary for war to be formally declared. Cover is however generally only afforded whilst the subject matter remains
on the overseas carrying vessel.

Warranty:
A promise by the assured that something will be done or not done or that some fact(s) will be true. Such a promise
must be strictly complied with, irrespective of whether the promise is relevant to the loss, which then occurs. Failure to
comply with a warranty gives the insurer/underwriter the right to refuse to pay in respect of any loss which arises
after the time of the breach of the warranty, though not in respect of losses which arise before the breach of warranty.

With Average:
Cover provided under a W.A. policy is not as comprehensive as that covered by an All Risks policy.
See Schedule.
Abbrev. W.A.

York-Antwerp Rules:
A standard set of rules governing General Average. These do not automatically apply by law but are commonly
included by the parties in many contracts of carriage and insurance. The rules determine amongst other things
whether a general average sacrifice or expenditure is recoverable in general average and how the amount of such loss
and of each contribution is to be determined.

Printed in England and issued by

GAFTA
THE GRAIN AND FEED TRADE ASSOCIATION
9 LINCOLNS INN FIELDS, LONDON WC2A 3BP

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Appendix: - Schedule

GAFTA FORM 72 - Summary Chart - Risks Covered


GAFTA FORM 72
RISKS - Generally Covered Under:- Section Section Section
1 2 3
All W.A. F.P.A.
Risks
Actual Total Loss (subject to the loss being proximately caused by an insured peril) + + +
General Average & Salvage Charges + + +
Particular Average (Partial Loss)
Partial Loss proximately caused by an insured peril. If the vessel or craft be
stranded, sunk, or burnt + + +
in collision with another ship or vessel + + +

Partial loss reasonably attributable to fire, explosion + + +


contact (other than collision) of the vessel or craft with any substance (ice included) other than + + +
water
collision with another ship or vessel + + -
discharge of cargo at port of distress + + +
Partial loss proximately caused by heavy weather (peril of the sea) + +* -
(*only if the loss is exceeding the percentage specified in the policy)
Package(s) totally lost in loading, transhipment or discharge + + +
Partial loss proximately caused by theft, pilferage & non-delivery + - -
Partial loss proximately caused by contamination + - -
Partial loss proximately caused by delay or inherent vice or nature - - -
III.8. Partial loss proximately caused by other fortuities, not mentioned above + - -
III.9. Partial loss caused by heating sweating and spontaneous combustion - - -
(can be covered under GAFTA Form 72, Section 7)
Radioactive contamination - - -
Sue and Labour Charges Code: Covered = + Not Covered = - + + +