marine cargo open policy handbook • published by the Insurance Council of New Zealand on behalf of its members

Marine Cargo
Open Policy Handbook
 This booklet is designed to assist
exporters and importers.
We hope you find it useful.

Contents

Page
1 What is a marine cargo open policy? 4
2 Terms of Sale: important definitions 4
3 Terms of sale: how they work 5
4 Advantages of a marine cargo open policy 6
5 Important marine cargo open policy terms 6
6 Period of insurance 7
7 What risks can be covered? 8
8 Policy extensions 8
9 Methods of declaring shipments to the insurer 9
10 Lower premiums through excess 9
11 Charging premiums under marine open policies 9
12 Advantages of insuring in New Zealand 10
Specimen proposal form 11

Detailed index next page

1
Index

Section Page
Advance loss of profits (machinery transit) 8 8
Advantages of a Marine Open Policy 4 6
Advantages of Insuring in New Zealand 12 10
Basis of Valuation 5.4 6
Bottom Limit (maximum sum insured) 5.1 6
Charterer’s Liability 8 8
Classification Clause 5.3 6
Deck cargo 7.2 8
Declarations - Imports 9.1 9
- Exports 9.2 9
- New Zealand Transits 9.3 9
Difference in clauses (CIF importer) 8 8
Duration of Insurance 6 7
Duty 8 8
Excess on Policies 10 9
Extensions Available on Marine Cargo Open Policies 8 8
Insurable Interest 6.1 7
Location Clause 5.2 6
Lower Premium Rates 10 9
Marine Cargo Open Policy specimen proposal form 11
Period of Insurance 6 8
Policy Terms 5 6
Premium Charging 11 9
Rejection/expenses 8 8
Returned goods 8 8
Risk, responsibility for goods 3 5
Seller’s Interest (FOB exporter) 8 8
Strikes Diversion 8 8
Terms of Sale: important definitions 2 4
Terms of Sale: how they work 3 5
Transit Clause 6 7
Warehouse to Warehouse Clause 6 7
What is a Marine Cargo Open Policy ? 1 4
What Risks can be covered ? 7 8

3
1 What ia a Marine Cargo open policy
A marine cargo open policy is the
agreement between a merchant and the
insurance company to insure all goods
in transit falling within that agreement
for an indefinite period, until the
agreement is cancelled by either party.
The policy specifies:
• the general description of the goods
• the countries or places to or from
which the goods will be insured
• the maximum value payable under
the policy
• how the goods will be valued
• the conditions of insurance.
2 Terms of sale: important definitions
2.1 EXW (Ex Works)
The buyer is responsible for all
costs and risks from the time the
goods leave the seller’s warehouse
until they arrive at their final
destination.
2.2 FAS (Free Alongside Ship)
The seller is responsible for
all charges until the goods are
alongside the ship. (The definition
of “alongside ship” varies from
port to port. It may mean customs
warehouse, ship’s storage shed and
so on.) The buyer is responsible for
all costs and risks from that point
until the goods arrive at their final
destination.
2.3 FOB (Free On Board)
The seller is responsible for all
costs and risks until the goods are
on board the vessel. The buyer is
responsible from then on.
4
The merchant agrees to declare details of
all shipments falling within the scope of
the policy, and the insurance company
agrees to insure such shipments,
according to the terms and conditions of
the policy.
2.4 CFR (Cost and Freight)
The seller is responsible for all
charges incurred to the place
of discharge, except for loss or
damage after they have been
delivered unto the custody of the
shipowner at the place of shipment
or point of FOB. It is the buyer’s
responsibility to insure the goods
once they are delivered to the place
of shipment or FOB until they reach
their final destination.
2.5 CIF (Cost, Insurance, Freight)
The seller’s responsibilities are the
same as for CFR sales, except that
the seller arranges insurance to
the final destination of the goods,
providing cover in terms that are
usual to the trade. The buyer pays
for and takes title to the policy
when the goods are paid for.
2.6 FIS (Free Into Store)
The seller is responsible for all
costs and risks until the goods are
delivered to the buyer’s warehouse.
The buyer does not need to arrange
insurance at all.
3 Terms of sale: how they work

In commerce, sales are made under
internationally recognised terms
of sale. These have been defined in
detail by the International Chamber of
Commerce in their booklet No. 460. This
sets out the rights and responsibilities
of the exporter and importer. Risk
responsibility for goods passes at
different stages of transit, according to
the terms of sale. This is a general terms.

Terms Risk transfers Insurance covered by

Ex Works (EXW) When goods have been placed Buyer from seller’s
at the disposal of the buyer warehouse

Free Carrier (FCA) When goods have been Buyer (Seller up to the
delivered into the custody of carrier)
the carrier

Free Alongside When goods have been Buyer (Seller up to the ship)
Ship (FAS) effectively delivered alongside
the ship at the named port of
shipment

Free On Board When goods pass the ship’s Buyer (Seller up to the ship)
(FOB) rail at port of shipment

Cost and Freight As for FOB, but the seller Buyer (seller up to the ship)
(CFR) prepays freight to destination

Cost, Insurance, When goods cross ship’s Seller (Insurance policy sold
Freight (CIF) rail at port of shipment to buyer with cost of goods)

Delivered at When goods put at disposal Seller (To frontier)

Frontier (DAF) of buyer at named place at Buyer (From frontier)
frontier

Carriage Paid to... When goods delivered into Buyer (Seller until delivered
(named point of custody by first carrier who into custody by first carrier)
destination) (CP) undertakes carriage from
place of departure

Delivered Duty When goods put at disposal Seller

Paid (DDP) of buyer at named place of
destination

Free Into Store When goods accepted duty Seller

(FIS) paid at the buyer’s warehouse
(not an internationally
recognised term of sale)

5
4 Advantages of a marine cargo open policy
4.1 It provides guaranteed cover at pre-
arranged rates arid conditions
4.2 Flexible policies are tailored to suit
the customer’s individual needs
4.3 Insurance protection starts from the
moment goods are at the risk of the
merchant
4.4 Losses are covered even if
they occur before details of the
shipments have been given to the
insurer
4.5 The policy remains in force
indefinitely until cancelled, usually
by either party giving thirty days
notice of cancellation (insurers
5 Important marine cargo open policy terms
5.1 Maximum Sum Insured Standard/Class. An additional premium
The policy shows a figure which is the
insurer’s maximum liability for a claim
in any one conveyance. The customer
should make sure that the value shown
is enough to cover the value of the
largest shipment and double this figure
to cover the possibility of two shipments
being sent in the same conveyance.
5.2 Location Clause
This clause limits the maximum amount
payable from one accident or series of
accidents occurring in one location; for
example, before shipment. It is usually
but not always the same amount as the
bottom limit.
5.3 Classification Clause
The type or age of a ship is important
when fixing the rate of premium.
However the names of ships carrying
goods are not usually known when
fixing premium rates for a marine cargo
open policy.
This clause provides that the pre-agreed
premium rate for the marine open
policy refers to goods in transit in ships
under a certain age and up to a certain
6
reserve the right to withdraw war
risks cover following seven days
notice)
4.6 The cost of insurance is usually
lower than if separate policies are
arranged
4.7 It avoids the need to arrange
separate policies for each shipment
4.8 Exporters are able to offer
insurance in the cost of goods when
negotiating sales
4.9 The method of premium payment
can be tailored to the customer’s
needs: annual adjustable; quarterly;
or monthly declaration.
may be payable for transits on other
ships.
5.4 Basis of Valuation
Commercial shipments are normally
insured on the basis of the invoice value
plus all transit and other known costs,
plus a percentage to cover hidden costs
and a proportion of the buyer’s expected
profit. This value could be shown as CIF
plus 10%.
The agreed basis is noted on the policy
so that if a declaration is accidentally
overlooked, a loss will remain
automatically covered for the value
agreed. This valuation is also used by
the merchant when declaring details of
shipments to the insurer.
When insuring imports, often two
valuations are often noted on the policy.
One applies to FOB orders (for instance,
FOB plus 30%) and the other to C & F
orders (for instance, C & F plus 10%).
The percentage added should be enough
to cover freight as well as other costs
for FOB orders. Having two valuations
makes it easy for the merchant to decide
which value is declared to the insurer.
6 Period of insurance
The Transit Clause, part of the Institute
Cargo Clauses, is explained here:
Duration
This insurance attaches from time the
goods leave the warehouse or place
of storage at the place named for the
commencement of the transit, continues
during the ordinary course of transit
and terminates at either:
• delivery to the Consignees’ or other
final warehouse or place of storage
at the named destination,
• delivery to any other warehouse or
place of storage, whether prior to or
at the destination named, which the
insured decides to use either:
- for storage other than in the
ordinary course of transit or,
- for allocation or distribution
• on the expiry of 60 days after
completion of discharge overside
of the goods insured from the
overseas vessel at the final port of
discharge, whichever occurs first.
In the case of specific Institute Cargo
and Commodity Clauses (for example
Frozen Food Clauses and Meat Clauses),
attachment and expiry dates may differ.
It is important that attachment and
expiry dates are assumed only after
consulting the relevant Institute and
Commodity Clause.
6.1 To recover a policy under a marine
cargo policy, a person must have
insurable interest at the time of loss,
though the interest may not have
existed when the insurance was
arranged.
7
6.2 From Section 3, you will see that
risk responsibility for goods can
change at various points during
shipment, according to the terms of
sale. Although the duration clause
shows cover as being warehouse to
warehouse, an importer only has
this cover if it is purchased on EXW
terms. Similarly, an exporter has
insurance cover from warehouse to
warehouse if the goods are sold on
a FIS or CIF basis.
6.3 If an order is supplied on FOB
terms, the policy cover for an
importer starts from the time that
risk responsibility passes to the
importer (in this case, when the
goods cross the ship’s rail).
6.4 If a New Zealand exporter sells
goods on CIF terms, the cover is
warehouse to warehouse. However,
if the exporter sells the goods on
CFR terms, the risk responsibility
is only held until they cross the
ship’s rail and, if the exporter has
insured the period of transit from
warehouse to ship’s rail, the cover
ceases then. (Section 7 explains how
this can be extended).
Marine Cargo Open Policy cover
can provide wide protection for a
New Zealand importer or exporter.
Certificates of insurance issued from the
master open policy are sub-sets of this
cover which comply with the required
insurance terms of a specific commercial
sales contract.
This shows just how flexible a marine
cargo open policy can be. Cover
automatically starts when it is needed
and protects a merchant for as long as is
necessary.
7 What risks can be covered?

A variety of risks can be covered but • insufficient packing, inadequate

the most common and widest are the storage in a container, inherent vice,
Institute Cargo Clauses (A) (formerly or goods deterioration caused by
known as the All Risks) which cover loss delay
or damage to goods. In addition, War • insolvency or financial default of
Risks (while on board a seagoing vessel the owners, managers and so on, of
or an aircraft) and physical risks of loss the vessel.
or damage as a result of Strikes, Riots
7.2 Deck cargo, other than goods in
and Civil Commotions may be insured.
containers on container ships, is
The War and Strikes risks are rated from
covered against certain named risks
an agreed scale to which all insurers are
as opposed to the wider conditions
bound.
of the Institute Cargo Clauses (A)
The risks insured are defined in sets of
As many types of Institute Clauses are
conditions called the Institute Clauses.
available, so a marine cargo open policy
These are issued by the Institute
can be tailored to suit your needs.
of London Underwriters. They are
understood globally and are used
widely.
7.1 Some types of loss are not insured.
The main exclusions are loss or
damage caused by:
• willful misconduct of the insured
(the merchant)
• ordinary leakage, loss in weight,
wear and tear of goods

8 Policy extensions

The following additional covers can be • Returned goods

considered: • Rejection/expenses
• Advance loss of profits (machinery • Charterers liability
transit)
• Duty
• Strikes diversion
This is not a complete list. Your
• Sellers interest (FOB exporter)
insurance advisor can provide you with
• Difference in clauses (CIF importer) more information.

8
9 Methods of declaring shipments to the insurer
9.1 Imports
The most popular method is for
the importer to note brief details of
shipments on a form supplied by the
insurer. The entry is usually made when
documents are received from the bank.
By using this method the importer
knows that details have been declared.
Sometimes it is arranged for the
supplier to declare shipments direct to
the insurer. However, there is a chance
that the supplier may forget or perhaps
declare the wrong value. It is the NZ
merchant’s responsibility to ensure that
every shipment has been declared.
In other cases it may be possible for
the insurer to use the merchant’s office
system documents as declarations.
10 Lower premiums through excess
When transiting goods inside New
Zealand, it is common for carriers
to be liable up to $1,500 per unit of
goods (Carriers’ Liability Act 1979). If
a merchant sends packages valued at
more than $1,500, it is possible to make
substantial premium savings if the
open policy covering the sending has
11 Charging premiums under marine open policies
When details of shipments are being
declared to the insurer on a regular
basis, the insurer usually charges
premiums monthly, based on the
received declarations.
In some cases the premiums may be
charged annually. This method usually
applies to the insurance of goods in
transit within New Zealand, where
the merchant estimates the value to be
9
9.2 Exports
The exporter usually produces a
Certificate of Insurance at the same time
other export documents are generated.
This negotiable document gives brief
details of the shipment, the conditions
of insurance and the value insured. It
also provides evidence of insurance for
banks.
9.3 New Zealand Transits (sales/
sendings)
An open policy can be tailored to cover
all or just some of a merchant’s sales or
sendings. This is why there are many
different methods of declaring the
details of goods in transit.
an excess equal to the carrier’s liability.
Savings can also be made on imports
premiums if a merchant agrees to a
small excess on the policy, so that minor
losses are not claimed against the open
policy.
insured for a twelve month period. A
deposit premium is charged, calculated
on this estimate and an additional/
return of premium adjustment made at
the end of twelve months, calculated
on the declaration of the actual value
of transits made by the merchant’s
accountant.
12 Advantages of insuring in new zealand

12.1 Reduced currency risk 12.3 Tailored Policies

New Zealand importers do not have to
pay additional overseas funds if they
insure the goods. However, if goods are
insured by the seller, this increases any
exchange rate risks.
12.2 Efficient Claims Service
Insurance companies usually have
branches throughout New Zealand
as well as a network of branches and
agents around the world. No matter
where a claim occurs, your insurer (or
insurance agent) is there to assist and
settle claims swiftly.
If you ever have to make a claim, you
deal with your insurer, not the agent
of an overseas insurer. Some overseas
insurers do not have agents in New
Zealand and you must apply directly to
the overseas insurer for settlement.
Your insurance policy can be tailored
to suit your individual needs. The
conditions of insurance policies
arranged overseas may not fully cover
your needs, leaving a shortfall in
protection.
12.4 Competitive Rates
If arranged off-shore, insurance rates
may contain additional hidden costs
loaded by the seller. Your insurer
will be pleased to provide you with
a competitive quotation for a marine
cargo open policy.

10
Specimen proposal form

Application for marine cargo open policy

1. Assured
Registered legal name/title of Assured

2. Address

m
3. Contact

r
fo
Telephone Fax:

al
4 Description of Goods

os
op
5 Packaging
full details of how goods are packed for shipment and protected against theft, condensation/
pr

water damage etc.

6. Transits
en

(individual countries of origin and destination must be shown)

Imports from
im

Exports to
ec

Pre FOB Risks: Goods exported on FOB/CFR terms remain at your risk
until loaded on to the overseas conveyance.
Sp

Do you wish to cover the goods from EXW until loaded on to the aircraft/vessel
Yes / No
New Zealand Sendings: Is cover is required on New Zealand to New Zealand
sales/sendings? Yes / No

7 Values
Value Est. value of Maximum Average at
shipped over shipments of risk any risk any
last next over next one loss, one loss,
12 months 12 months conveyance, conveyance,
location location
Imports: $ $ $ $
excluding CIF
purchases
Exports: $ $ $ $
excluding FOB
& CFR Sales
Pre FOB Risks: $ $ $ $
FOB & CFR
Exports
NZ sales/ $ $ $ $
sendings:

11
8. Means of Transport
indicate the approximate proportion by each method
Imports:
Sea % Air % Post %
Exports:
Sea % Air % Post %

m
NZ sales/sendings*

r
rail/road % Air % Post % Own vehicle %

fo
circle as applicable

al
Limited carriers risk/owners risk/declared terms/declared value terms

os
* Subject to the NZ Carriage of goods Act 1979.
op
9 Terms of Trade
circle as applicable
pr

Imports: Ex Works / F.O.B. / CFR / C.I.F.

en

Exports: Ex Works / F.O.B. / CFR / C.I.F. / F.I.S.

im

10 Basis of valuation
ec

NZ sales/sendings Invoice cost to customer

Imports CFR purchases Cost and freight plus %
Sp

Exports Cost, insurance, freight plus %

Free into store contracts shall be the value as shown on the certified invoice

11. Name of existing insurer

12
12. Details of Previous losses as at:
circle as applicable
Year Claims Paid Claims O/s Uninsured Losses
Imp/Exp/NZ 20 $ $ $
Imp/Exp/NZ 20 $ $ $

m
Imp/Exp/NZ 20 $ $ $
Imp/Exp/NZ 20 $ $ $

r
fo
Give details of any losses over $5,000

al
13. Excess: os
op
Do you wish to have a general policy excess in order to gain lower insurance rates:
pr

Yes $ No
en

Please note if any NZ sales/sendings are consigned at Limited Carrier’s Risk terms, any
general policy excess selected will apply in addition to the Carrier’s Legal Liability of
im

$1500.
ec

14. Any other information to assist assessment of risk:

Sp

15. Do you require any other insurance for:

Duty Yes/No
Sellers Interest Yes/No
Advanced Profits Yes/No

16. Proposal signed by

Date

13
Acknowledgements

Grateful acknowledgement is made by the Insurance Council of New Zealand Inc.

to:
F.A.I. (NZ) General Insurance Ltd
General & Cologne Re Management Ltd
International Marine Insurance Agency Ltd
Lumley General Insurance Ltd
MMI General Insurance (NZ) Ltd
Munichre New Zealand Service
New Zealand Insurance
QBE Insurance (International) Ltd
Zurich International (New Zealand) Ltd
and to the General Accident Insurance Company who originally produced this
material.

2006 Insurance Council Marine Committee Members

Peter Cooper Australis Underwriting Agency Ltd

Keith Auld Munich Reinsurance Company of Australasia Ltd
John McKelvie Vero Marine Insurance Limited
Andrew Scrivens AIG New Zealand
Christopher Barrett Sunderland Marine
Gray Ritchie IAG New Zealand Limited

Published by The Insurance Council of New Zealand Inc. 1998

Reprinted 2006

Insurance Council website:

www.icnz.org.nz