Guide to Marine Cargo Insurance-Part 6

Who arranges marine insurance? The seller , the buyer or both? This is determined by the mechanism of risk transfer. There is a "critical point",  during a voyage,  when the risk of loss or damage to the goods is transferred from the seller to the overseas buyer.

The Incoterms envisage differernt critical points for the purpose of risk transfer:

At seller’s preemies or named place: ExW or could be FCA

Carrier at agreed location: FCA

Placed alongside vessel: FAS

Delivered to first Carrier: CPT/CIP

On board the vessel: FOB/CFR/CIF

At agreed wharf, warehouse, port of destination: DAT

Named place of destination:  DAP/DDP

This blog contains a very detailed article on Incoterms 2010. However the following chart summarises the risk transfer point under each term along with a recommendation as to who should arrange the "main" insurance:

Incoterm 2010	Risk Transfer	Main Insurance covered by
CIP	When delivered to first carrier (it will be usually seller’s premises)	Seller
CPT	When delivered to first carrier (it will be usually seller’s premises)	Buyer
DAP	Named place or terminal	Seller
DAT	Discharging port of arrival	Seller
DDP	When goods are delivered duty paid at named place at destination (could be buyer’s premises)	Seller
ExW	When goods are placed at disposal of the buyer (usually at seller’s premises) ready for loading	Buyer
FCA	When goods delivered to the Carrier at named place (could be seller’s premises like in ExW or a terminal)	Buyer
CFR	When goods loaded on board the ship	Buyer
CIF	When goods loaded on board the ship	Seller
FAS	When goods are placed alongside the ship at the named port of loading. (could be a barge or a wharf)	Buyer
FOB	When goods loaded on board the ship	Buyer

Note: Only in CIF and CIP, insurance is mandatory as per Sale Term. For others the above chart only recommends who should arrange the main insurance.

Non-Institute Clause-9

Special Replacement Clause (Duty)

Notwithstanding the provision in the Institute Replacement Clause hereto, it is specially understood and agreed that the Insures shall also be liable to pay for loss, if any sustained, by payment of duty on part or parts for replacement or repair in case the full duty is not included in the amount insured but only in respect of such shipments where either the anticipated cost of duty was originally included in the sum insured or the Insured agreed to retroactively pay the premium calculated on the actual amount of duty to be paid in respect of the shipment.

Explanation: The Institute Replacement Clause provides for customs duty paid on parts replaced following an insured loss including duty provided "full duty" is included in the original policy. Insuring Cargoes contains a very detailed commentary on wha "full duty" could possibly mean. The percentage of duty on parts is generally more than the percentage of duty on the machinery as a whole. The above clause (but requires a bit of modification to make intentions clearer) is quite useful in project insurance.

Rest Clause:

Risk to cease on arrival at____ attaching again upon being re-consigned.

Reissue Clause:

It is agreed that in the event of loss of negotiable securities caused by a peril hereby insured against or from any occurrence entailing their destruction, Underwriters shall only be liable for expenses incurred in reissuing such negotiable securities, of forwarding to destination and insurance premiums and charges connected therewith.

Explanation: There are wider versions of this clause.

How to select a Vessel

Vessel Selection Criteria

The Terms of Sale (Incoterms for example) determine who (Seller or Buyer) will nominate a vessel. However, notwithstanding the Incoterm to be used, in the Contract of Sale, there should be an agreement that vessels selected fulfil certain norms listed below.

In the case of bulk cargoes, as a trader you will approach a ship broker to select a vessel. If you advise the broker along following lines, the latter will have a clear idea of type of vessel (and documentation) you have in mind.

The ship broker should provide the following information to you:

1. Name of vessel with IMO Number[1]

2. Flag [2]

3. Year of Build [3]

4. Class (to be as per IACS) [4]

5. P&I (to be member of IG of Clubs) [5]

6. Confirmation that vessel has“Owners’ & Charterers’ liability for cargo loss or damage” [6]

7. H&M Insurance details (Name of Insurers, Amount of Insurance) [7]

8. Vessel is a Singleton or one belonging to a fleet? [8]

9. ISM with DOC [9]

10 Name of Owners/Disponent Owners/Managers of vessel (if possible) [10]

11. Detention by Port State Control-details of [11]

12. Previous voyages (say last 6 voyages) made by the vessel with details [12]

Explanatory Notes:

[1]IMO number is important and you must insist on this information from your ship brokers who recommend vessels to you. The IMO number is unique to the vessel and remains with it for life. Often vessel names “sound” familiar but when you check in Lloyd’s database, you don’t find the vessel-IMO number is therefore a must. IMO number is also important as in some cases there are multiple ships carrying the same name, or the vessel name has changed but the various databases are not updated. It also enables your insurer to check vessel details from websites such as Sea Searcher or Equasis.