Chapter6

1. Chapter6 Cargo Insurance

2. Basic concepts of insurance • The definition of risk • Uncertainty, probability and chance • The components of risk • Hazard: physical, morale, moral • peril • Loss

3. The basic principles of insurance • 1. principle of insurable interest • A person has an "insurable interest" in something when loss or damage to it would cause that person to suffer a financial loss or certain other kinds of losses. • legal, financial interest, definite: present and expected • the principle which requires a person effecting insurance to have a legally recognized relationship to the subject matter of the insurance

4. 2. principle of utmost good of faith (uberrimae fidei) • the duty of good faith imposed on both parties to an insurance contract to disclose all material facts. • Representations • Oral or written form, important information • warranty • Express: promissory(future) & affirmative(past and present) • Implied: practice and customs • waiver and estoppel (mainly for the insurer)

5. 3.principle of indemnity • the placing of the insured in the same financial position after a loss as he was in immediately prior to the occurrence. • restrictions: • Actual loss, sum insured, insurable interest

6. 4.principle of proximate cause • the direct cause of a loss. • identification of proximate cause • Single cause; multiple cause

7. Scope of cargo insurance • Ocean marine cargo insurance • Overland transportation cargo insurance • Air transportation cargo insurance • Parcel post insurance • 1. Ocean marine cargo insurance • 1) risk • Perils of the sea海上风险/海难

8. a. Natural calamities:自然灾害Caused by the forces resulting from the changes of nature, e.g. vile weather, thunder, lightning, tsunami, earthquake, flood, etc. • b. Fortuitous accidents: 意外事故The accidents resulting from unexpected causes, the carrying conveyance being grounded, stranded, or in collision with floating ice or other objects, as well as fire or explosion.

9. Extraneous risks外来风险 • a.General extraneous risks（一般外来风险）: theft, shortage, leakage, dashed by fresh and rain water, sweating and heating, intermixture and contamination, taint of odor, hook damage, breakage of packing, rusting, etc. • b.Special extraneous risks （特殊外来风险）: on deck, war, strikes, failure of delivery, rejection, etc.

10. 2. Ocean losses and expenses • Total loss全部损失 • It is classified into 2 kinds: • Actual Total Loss:实际全损 • The insured subject matter is totally and irretrievably lost. • Constructive Total Loss:推定全损 • It is estimated that the actual total loss of cargo is inevitable or the cost of salvage or recovery could have exceed the value of the cargo.

11. Partial loss部分损失 • General Average:共同海损 • It refers to a certain special sacrifice and extra expense intentionally incurred for the general interests of the ship owner, the insurer, and the owners of the various cargoes abroad the ship. • Particular Average:单独海损 • It means that a particular cargo is damaged by any cause and the degree of the damage does not reach a total loss, i.e., only a partial loss, which shall be borne by the owner of this individual consignment.

12. Expenses Sue and labor charges:施救费用 • The reasonable expenses to save, protect, or reduce the loss by insured and the policy beneficiary. It shall be covered by the insurer. Salvage charges:救助费用 • The expenses of the third party to save the cargo and the ship successfully. • According to the relative laws, the insurer shall pay to the salver. But there is a principle, i.e., “no cure-no pay”.

13. Terms and coverage of ocean marine cargo insurance in China • Basic coverage and terms • Basic risks 三大基本险别： • There 3 conditions: • F.P.A. • Free from Particular Average (平安险) • W.A. or W.P.A • With Average, With Particular Average （水渍险） • All risks (一切险)

14. F.P.A. 8 circumstances: • Actual total loss or constructive total loss from natural calamity, i.e. vile weather, bore, earthquake, flood… The Insured must authorize the insurer if it is the constructive total loss. (2) Total loss or partial loss caused by fortuitous accidents, i.e.stranded, collision with floating ice or other objects, fire or explosion…… (3) Partial loss caused from natural calamity again before and after fortuitous accidents (4) Total or partial loss of one or several pieces of cargo dropping into the sea when shipment or transshipment.

15. (5) Reasonable expenses to save, protect, or reduce the loss by insured, but no more than the insured value. (6) Special expenses of unloading, storage and shipping in harborage after ship getting perils of the sea. (7) The sacrifice, sharing and the charges of general average. (8) If the term of “collision withships” is involved in transport contract, the owners of the cargoes should compensate the loss of the ship’s owner.

16. W.A. or W.P.A. (水渍险) • It covers partial loss due to vile weather, lightning, tsunami, earthquake and/or flood as well as the risks covered under F.P.A. condition as mentioned above. • All risks(一切险) • Aside from the risks covered under the F.P.A. and W.A. conditions as above, it also covers all risks of losses or damage to the insured goods whether partial or total, arising from external causes in the course of transit (extraneous risks) . W / W Clause“仓至仓”条款 Warehouse to warehouse clause: From the warehouse in departure to the final warehouse in destinationor 60 days after unloading.

17. W.P.A.(W.A.) = F.P.A. + Particular Average caused by natural calamity • All Risks = W.P.A. + General Additional Risks

18. Additional risks 附加险 • This kind of risk can’t be covered independently; they shall be underwritten depending on one kind of the basic risks. General additional risks一般附加险 1. Clash & breakage / 碰损破碎险 2. Taint of odor / 串味险 3. Fresh water &/or rain damage / 淡水雨林险 4. T.P.N.D. Theft, pilferage and non-delivery / 偷窃、提货不着险 5. Shortage / 短量险

19. 6. Leakage / 滲漏险 7. Intermixture & contamination / 混杂玷污险 8. Hook damage / 钩损险 9. Sweat and heating / 受潮受热险 10. Rust / 锈损险 11. Breakage of packing / 包装破碎险

20. Special additional risks特殊附加险 1. War risks / 战争险direct loss & general average of it; only on board of ship or lighter, but not for loss of atom bomb. 2. Strike risks / 罢工险direct loss & general average of it 3. Aflatoxin / 黄曲霉素险 4. Failure to deliver / 交货不到险noafter 6 months 5. On deck / 舱面险 6. Import duty / 进口关税险total duty for damaged goods. 7. Rejection / 拒收险rejected by importing government 8. F.R.E.C. Fire risk extension clause / 港澳存仓火险险扩展条款

21. Ocean insurance-frozen products • Ocean insurance-wood oil bulk • Ocean insurance-livestock & poultry insurance

22. Overland transportation insurance • Overland transportation • Overland transportation all risks • Frozen products • War risks

23. Air transportation insurance • Air transportation risks • Air transportation all risks • Air transportation war risks

24. Parcel post insurance • Parcel post risks • Parcel post all risks • Parcel post war risks

25. Institute Cargo clauses • Institute Cargo Clauses A:most extensive coverage, except: • General exclusions • Unseaworthiness and unfitness exclusions • War exclusions • Strikes exclusions • Institute Cargo Clauses B: • Institute Cargo Clauses C:

26. Determination of insurance amount • Rate of Insured Addition:CIF or CFR x 10% • Insured amount = CIF (or CIP) x (1+10%) If an importer covers the insurance under FOB term: • Insured amount = FOB (or FCA)x (1+ average transit rate + average insured rate) If CFR or CPT price is given: • CIF(CIP) = CFR (or CPT)/ 1 -【premium ratex (1+10%)】 • Premium = CIF (or CIP) x (1+10%) xPremium rate

27. Insurance document • Policy • Insurance certificate • Open policy • endorsement

28. Claim • Loss notice • Reasonable measures to salve • Right of subrogation