Guide to Marine Cargo Insurance-Part 3

Features of an Open cover

The open cover is a promise to cover ‘future’ shipments about which no details would be available with either the assured or the insurer. Therefore all open covers will have the following provisos to safeguard the interest of the insurer:

1).Cancellation Clause:

We have discussed this earlier. Some cancellation clause provide for a cancelation at any time during the currency of the open cover. Others provide only for a cancellation at anniversary. Therefore the cancellation clause should be read carefully.

2). Bottom and Location Limits:

An open cover would have a Limit of Liability expressed as:

A Per Bottom Limit: This is the maximum anticipated value of cargo on a ship/air.

 A Location Limit: It used to be common for the Location Limit to be two times the Per Bottom  Limit.    

Increasingly a higher location limit is being resisted upon and has to be negotiated with insurers.

Note:

Some Open covers will also have sub-limits for shipments by road/rail/courier etc.

A broker would usually negotiate a 200% Accumulation Clause which provides for doubling the policy limits of liability if accumulation is beyond the assured’s control. Whether the accumulation clause would double the Per Bottom Limit or the Location Limit or both would depend on the wordings used.

Insuring Cargoes contains a detailed commentary on these limits including different ways of expressing them.

3). Conveyance

Open covers would typically include all conveyances by water/land/air.  If assured uses his own vehicles, then it would be prudent to have an own vehicle clause in the open cover.

Similarly if vessels are chartered, then chartered vessels should be included in the conveyance clause.

Vague terms like “approved” conveyance should be avoided.

4). Voyages:

The Open cover would typically cover voyages on a world-wide to world-wide  bais but some insurers may either exclude certain voyages or require prior information. Certain voyages are held covered at either an additional premium or  carry a restriction in cover. 

Typically voyages to certain parts of Africa, Afghanistan, South/Central America, erstwhile USSR and CIS come in this category.

Some open covers also mention that countries attracting US Sanctions are excluded.

5). Cargoes:

These are either listed or in the case of large open covers simply expressed as “all goods incidental to assured’s trade, principally (but not limited to)..”. 

Some open covers contain a list of excluded cargoes or cargoes which require prior agreement. For example bullion & specie, currency notes, dangerous goods, project cargoes etc.

Note: The open cover should clearly mention how 'on deck' cargo is to be dealt with. These could be insured on cover terms or restricted to ICC (C) etc.See postings on Non-Institute Clauses within this blog or Insuring Cargoes.

6). Bordereau:

The assured is required to report promptly each and every shipment without selecting against the Insurer. This reporting is usually in the form of a monthly bordereau which lists out the details of shipment made during the month. Copies of the Certificates (discussed in section which follows) utilised during the month should also be attached along with any cancelled Certificate(s).

Error or Omission provision: The Marine Insurance Act itself provides for this but most open covers would specifically provide for any late declaration of a voyage(s) even if such declaration was made after the loss.

Certificates off Open covers

For each individual sending, a Certificate of Insurance is issued.

The Certificate will give all the details of the voyage such as interest insured, sum insured, sailing date, Bill of Lading particulars including Marks & Numbers and the terms and conditions of insurance. It will have two boxes where the Survey Agent as well as the claims settling agent, at the port of destination, are mentioned.

The claims settling agent may be the insurer, a specialist claims adjusting firm or the overseas office of the insurer.

 A Certificate is issued in sets. Usually the set comprises of:

One Original

3 copies

Note: Since rights under a marine Certificate can be assigned by the seller to the buyer, usually only one Original of the Certificate is issued. However sometimes Letters of Credit call for a Duplicate Certificate. A Duplicate would stand in law in place of the Original. Hence insurers resist issuance of a Duplicate but if this is absolutely required, then a Certificate is stamped as under:

“This policy (or Certificate) is issued in original and duplicate, one of which being accomplished, the other to stand null and void.”  

Often a set of blank pre-signed Certificates are given to the assured who then completes the document. This avoids delays in documentation.

Most large insurers or brokers would have a web based Certificate generation system. All open covers are incorporated in the E-Cert systems and relevant terms would automatically appear in the Certificate. The assured would only have to complete mandatory fields concerning individual shipments.

It is important that the Documentary Credit (L/C), if any permits electronically signed web-based Certificates. Some L/C’s require a Policy as opposed to a Certificate. This problem can usually be overcome by the insurer calling their document “Certificate/Policy”. Most banks would accept such a document.

Read Insuring Cargoes for an interesting discussion on Certificate terms differing from open cover terms including a discussion whether a Location Limit is binding on the overseas consignee(s).

Documentary Credit (LC) terms and Marine Insurance:

Sometimes there are conditions in the LC which is contrary to open cover or Certificate terms. Insuring Cargoes gives some examples of how such problems can be dealt with.

To be continued