Reading 1

CARGO INSURANCE

Why insure cargoes?

The handling and transportation of goods always involves the risk of loss or damage.
Owners of the goods protect themselves against these risks by insuring their goods in
transit. Who will be responsible for insuring the goods and for what part of their journey
will be written into the agreement made between seller and buyer.

What is an insurance contract?

In an insurance agreement one party, usually an insurance company, undertakes to

indemnify the other party (the assured) if loss or damage is suffered due to a specified event
(the risk). In return, the insurer pays an agreed amount of money (the premium). The terms
of the agreement define what risks have been insured against (the cover). These will be set
out in the insurance policy.

Insurance for goods carried by sea (marine cargo insurance) has been largely
standardized. For goods carried by air (air cargo insurance) or going by land this is not yet
the case. However, insurance contracts for transport by land and air follow marine
insurance practices.

Who insures the goods?

The basic principle of insurance is that of ‘insurable interest’. Only a party with
insurable interest in the cargo can be insured against its loss or damage. The terms of the
purchase contract normally determine at which point the risk transfers from seller to buyer
and who will be responsible for insuring the goods.

For FOB contracts the buyer is obliged to insure the goods once they pass the ship’s
rail at the port of origin. When the terms are CIF the seller has to provide minimum
insurance cover from the warehouse to the port of destination. If the buyer wants more than
minimum insurance cover, he must specify what additional clauses he wants included.
Sometimes the buyer may ask the seller to arrange the insurance on the buyer’s account
and according to the buyer’s instructions.

With whom are the goods insured?

Goods can be insured directly with an insurance company or with a broker acting on
behalf of the insurer. The document which defines the terms of the contract and the rights
of each party is called the insurance policy.

Reading comprehension tasks

1. Key words:

You will find the meanings for most of these words in the text. Write the meaning
beside each word:

- insurance policy: The document which defines the terms of the contract and the right
of each party.

- premium: (the insurer pays) an agreed amount of money

- assured party: Other party which an insurance company undertakes to indemnity

- indemnify: The insurer pays when loss or damage is suffered due to a specified event

- cover: The terms of the agreement define what risks have been insured against.

- marine insurance: : Insurance for goods carried by sea.

2. According to text, answer the following questions:

1. Why do buyers or sellers insure their cargoes?

To protect themselves against risks of loss and damage.
2. Between which two parties is an insurance contract made?
An insurance company & Importer (Exporter)
3. What agreement is usually made in an insurance contract?
Cover insurance
4. Does the buyer or the seller insure the cargo?
Yes.
5. Explain the following:
- ‘undertakes to indemnify’ means giving money back.
- ‘has been largely standardized’ means complying with rule.
- ‘follow marine insurance practices’ means applying marine insurance practices.
- ‘obliged to’ means compulsory.
- ‘a party with insurance contract’ usually means an insurance company undertakes.

6. What is the actual insurance contract?

- It is Marine cargo insurance.